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    Competition in a spatially-differentiated product market with negotiated prices

    Beckert, Walter and Smith, H. and Takahashi, Y. (2020) Competition in a spatially-differentiated product market with negotiated prices. Discussion Paper. Centre for Economic Policy Research (CEPR). (Unpublished)

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    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.

    Metadata

    Item Type: Monograph (Discussion Paper)
    Additional Information: CEPR Discussion Paper DP15379
    Keyword(s) / Subject(s): Bargaining, construction supplies, individualized pricing, Merger Analysis, price discrimination, Spatial differentiation
    School: School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Walter Beckert
    Date Deposited: 28 Oct 2020 11:31
    Last Modified: 28 Oct 2020 11:31
    URI: https://eprints.bbk.ac.uk/id/eprint/41033

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