+ Focus on the carbonated beverage industry

Lecture 

1. Vertical mergers join firms producing complementary products. These are typically firms operating at different levels of the production chain (e.g. producers and retailers).  
2. Efficiency effect of eliminating double marginalization
   
3. Anticompetitive effects: 
   • Foreclosure
     • OSS model (Figure and description from Normann, 2011, p. 507 and 511-12)
       

       OSS

     • Four steps of the OSS foreclosure game: 

       1. Firms U1 and D1 decide whether to integrate. 

       2. U1 (or U1+D1) simultaneously set upstream prices. 

       3. D1 and D2 simultaneously set downstream prices. 

       4. Consumers make purchasing decisions.

     • Focus on step 2 in the classroom experiment (slides based on Normann, 2011)

   • Edgeworth-Salinger effect in multiproduct firms (see p. 2044-46 in Luco and Marshall, 2020)

You can also refer to the textbook of Pepall et al. (2014), pp. 427-436, 441–446.

Seminar

• Homework for all:   Carefully read the introduction of Normann (2011) and Luco and Marshall (2020). You should be able to answer questions about the main story of one of the papers (from your memory).
• Projects:
  • Task 1:  Summarize the main results of Normann (2011) with the focus on potential anticompetitive effects of foreclosure.
  • Task 2:  Replicate the empirical analysis (especially Tables 4, 5 and 6) of Luco and Marshall (2020) (see the attached data and code in Stata. It is forbidden to share the data, especially to upload it to ChatGPT). Using RStudio (or equivalent), Markdown, or a presentation, go through the code and explain step-by-step how you created the main results (not necessary to discuss all tables and figures) of the paper.