This dissertation consists of three essays in empirical industrial organization. In the first essay, I develop a method of estimating the bargaining power allocation between upstream manufacturers and downstream retailers using limited data. Retailers and manufacturers engage in pairwise Nash bargaining sessions to set wholesale prices, and then retailers set retail prices to maximize their profits. By solving the model using backward induction, I compute marginal costs as functions of bargaining power parameters and choose the parameter that produces marginal costs that best fit the variation of input costs to identify the bargaining power allocation. Using retail market-level data in the yogurt industry, I find that retailers have higher bargaining power and charge higher markups than manufacturers. Additionally, higher retailer bargaining power allows them to negotiate lower wholesale prices, which leads to lower retail prices. Consumers and retailers benefit from higher retailer bargaining power, while manufacturers suffer losses.
In the second essay, I simulate vertical mergers using the results in the first essay. Vertical mergers promote efficiency by eliminating double marginalization and lowering upstream rival wholesale prices, but harm welfare by increasing downstream rival costs and introducing upward pricing pressure on retail prices. To compare the relative magnitude of various effects and evaluate their overall impact on the market equilibrium profit and welfare, I simulate vertical mergers between firms of various sizes and compute the change in prices, markups, firm profits, and consumer welfare. The overall consumer welfare increases after a merger, but consumers purchasing nonvertically integrated brands are worse off.
In the third essay, I study how consumers learn the healthfulness of ready-to-eat cereals from the introduction of front-of-package nutrition labels and how they make purchase decisions accordingly. I first examine consumers’ purchasing decisions in a static setting and then allow consumers to gradually learn from the FOP labels. In each shopping trip, consumers update their information on the healthfulness of cereals based on FOP labels, and they consider the perceived information when they make purchasing decisions. I find that consumers learn slowly after the introduction of FOP labels, and they prefer cereals with high healthfulness.
| Identifer | oai:union.ndltd.org:bu.edu/oai:open.bu.edu:2144/45276 |
| Date | 27 October 2022 |
| Creators | Gao, Chen |
| Contributors | Rysman, Marc S. |
| Source Sets | Boston University |
| Language | en_US |
| Detected Language | English |
| Type | Thesis/Dissertation |
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