Minimum Markup Laws and Multiproduct Pricing

Daniel Herrera-Araujo and Jorge Florez-Acosta

Borradores de Economia from Banco de la Republica de Colombia

Abstract: This paper studies how minimum markup laws affect pricing in multiproduct retail markets. Exploiting the temporary suspension of Wisconsin’s Unfair Sales Act, we show that removing price floors lowers milk prices but raises cereal prices, consistent with retailers reallocating markups across products. We estimate a structural model of multiproduct demand and supply, developing a tractable correction for bias from non-exhaustive choice sets that is necessary to recover unbiased shopping costs and complementarities. Counterfactuals reveal that cross-subsidization plays a central role in retail competition: a 5% minimum markup reduces consumer surplus by 3.2%, while shutting it down entirely lowers welfare by 44%. *** ABSTRACT: This paper studies how minimum markup laws affect pricing in multiproduct retail markets. Exploiting the temporary suspension of Wisconsin’s Unfair Sales Act, we show that removing price floors lowers milk prices but raises cereal prices, consistent with retailers reallocating markups across products. We estimate a structural model of multiproduct demand and supply, developing a tractable correction for bias from non-exhaustive choice sets that is necessary to recover unbiased shopping costs and complementarities. Counterfactuals reveal that cross-subsidization plays a central role in retail competition: a 5% minimum markup reduces consumer surplus by 3.2%, while shutting it down entirely lowers welfare by 44%.

Keywords: Leyes de márgenes mínimos; Precios mínimos; Fijación de precios en empresas multiproducto; Productos complementarios; Bienestar del consumidor; Competencia entre supermercados; Minimum markup laws; Price floors; Multiproduct pricing; Demand complementarities; Consumer Welfare; Retail competition (search for similar items in EconPapers)
JEL-codes: D12 K21 L13 L40 L51 L81 (search for similar items in EconPapers)
Pages: 60
Date: 2026-06
New Economics Papers: this item is included in nep-com, nep-ind and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1357

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