Separating Cost Recovery from Conduct

Taisuke Otsu and Martin Pesendorfer

No 22082, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Abstract This paper introduces a novel method to recover marginal costs from incentive-compatibility first-order conditions without maintaining a particular model of conduct or game form. The approach allows private information about costs and retains equilibrium discipline. We examine the MillerCoors joint venture and find that post-merger price increases can largely be rationalized by firm-specific cost heterogeneity and unilateral pricing incentives rather than large coordinated effects. We also construct bounds on welfare outcomes attainable across incentive-compatible market mechanisms and use them to evaluate merger remedies.

Keywords: Market conduct; Merger analysis (search for similar items in EconPapers)
JEL-codes: C57 D12 D82 (search for similar items in EconPapers)
Date: 2026-10
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