Concentration, Retail Markups, and Countervailing Power: Evidence from Retail Lotteries

Giroldo, Renato and Hollenbeck, Brett (2021): Concentration, Retail Markups, and Countervailing Power: Evidence from Retail Lotteries.

Abstract

In this note, we investigate the causal link between market concentration and markups in a retail setting. We study the Washington retail cannabis industry, which features exogenous variation in market concentration that resulted from retail licenses being awarded via lotteries. We observe markups directly. We find a negative causal relationship between markups and concentration, where more concentrated markets have significantly lower markups and wholesale prices. The results provide direct evidence of countervailing buyer power by retailers. These results highlight the value of using industry specific data and rich models of competition to advance the debate on concentration and markups.

• Item Type: MPRA Paper
• Language: English
• Keywords: markups, market concentration, retail, countervailing buyer power, cannabis policy
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E20 - General; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure; L - Industrial Organization > L4 - Antitrust Issues and Policies > L41 - Monopolization ; Horizontal Anticompetitive Practices; L - Industrial Organization > L8 - Industry Studies: Services > L81 - Retail and Wholesale Trade ; e-Commerce; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M31 - Marketing; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R32 - Other Spatial Production and Pricing Analysis

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