Common Ownership and Competition in the Ready-to-Eat Cereal Industry

Matthew Backus, Christopher Conlon and Michael Sinkinson

No 28350, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Models of firm conduct are the cornerstone of both theoretical and empirical work in industrial organization. A recent contribution (Berry and Haile, 2014) has suggested the use of exclusion restrictions to test alternative conduct models. We propose a pairwise testing procedure based on this idea and show that the power of the test to discriminate between models is tied to the formulation of those restrictions as moments and how they reflect the nonlinearity of equilibrium markups. We apply this test to the ready-to-eat cereal market using detailed scanner and consumer data to evaluate the “common ownership” hypothesis, which has received significant attention. Although we show that the potential magnitude of common ownership effects would be large, our test finds that standard own-firm profit maximization is more consistent with the data.

JEL-codes: C52 L13 L21 L41 (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-com
Note: CF IO LE
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Citations: View citations in EconPapers (19)

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