Competition in a spatially-differentiated product market with negotiated prices

Howard Smith, Walter Beckert and Yuya Takahashi

No 921, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: In many markets the buyer pays an individually-negotiated price. Theo­retically, relative to uniform-pricing, this has an ambiguous impact on market power and the effects of merger. To analyze competition in the UK brick industry—where individually-negotiated pricing is used, and the market is highly concentrated—we develop a model of negotiated pricing and discrete-choice demand which permits alternative specifications for how the buyer's runner-up product affects price negotiations. We derive a likelihood for observed choices and prices and estimate the model using transaction-level data. We use the model to re­ject the hypothesis of price-taking buyers, calculate the distribution of markups, and measure the effect on markups of multi-product ownership and buyer loca­tion. A counterfactual policy of uniform pricing increases average markups by about one-third, harms most buyers, and magnifies the price-increasing effect of merger. Average markups increase because uniform pricing is intrinsically less competitive and because it imposes buyer price-taking.

Keywords: individualized pricing; bargaining; price discrimination; spatial dif¬ferentiation; merger analysis; construction supplies (search for similar items in EconPapers)
Date: 2020-10-16
New Economics Papers: this item is included in nep-com, nep-eur and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://ora.ox.ac.uk/objects/uuid:d70ae55e-7469-492e-bc1a-3d82f4da61c3 (text/html)

Related works:
Working Paper: Competition in a spatially-differentiated product market with negotiated prices (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:921

Access Statistics for this paper

More papers in Economics Series Working Papers from University of Oxford, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Anne Pouliquen ( this e-mail address is bad, please contact ).