Conduct in the Soft Drink Market: A Mechanism Design Approach

Taisuke Otsu and Martin Pesendorfer

No 19567, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper introduces a novel method for assessing conduct and welfare in demand/supply product markets, departing from conventional supply-side assumption and embracing a mechanism design approach. Our proposed measures are robust to assumptions about the details of the market game being played and the strategic choice variable. To evaluate the effectiveness of our method, we examine the soft drink market, benchmarking it against (i) markup estimates from accounting data and (ii) the pass-through estimates from the difference-in-difference literature. We show that our cost estimates are inline with the benchmarks. Finally, we show that the resulting welfare estimates are significantly lower than those obtained using the traditional Bertrand or Cournot models.

JEL-codes: D12 D90 D91 (search for similar items in EconPapers)
Date: 2024-10
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