Transcript 24-asker-beer

G604 IO II
Eric Rasmusen, [email protected]
11 April 2006
11 April, Tuesday. Exclusive Dealing
John Asker, "Diagnosing Foreclosure Due to Exclusive Dealing,"
October 14, 2004, Leonard N. Stern School of Business, NYU.
Do this with overheads, not a comptuter projector
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Readings
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11 April, Tuesday. Exclusive Dealing
John Asker, "Diagnosing Foreclosure Due to Exclusive Dealing," October 14, 2004,
Leonard N. Stern School of Business, NYU.
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Do Exclusive-Dealing Contracts
Hurt the Excluded Firms?
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Brewers sell beer to distributors, who
resell to retailers (e.g., grocery store
chains)
If brewer X requires a distributor to sell
only X’s beer, does brewer Y end up
with a higher-cost distributor?
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Suppose brewer X requires
distributor G to sell only X’s beer,
and brewer Y end up with a
higher-cost distributor, H

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Efficient: The exclusivity reduces G’s costs
(Telser, Klein idea)
Inefficient: The exclusivity prevents
brewer Y from using the lowest-cost
distributor.
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The Test: in words

If brewer b1 is excluded from dsitributor
d1, does he use an undesirable distributor,
d4, while everything else stays the same?
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The test:
No Foreclosure
B1 went to d4, but there’s other shifting going on too
3: ME, d1 is now made exclusive, FORECLOSURE
b1
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B1 had to go to d4, the undesirable distributor
The Chicago Beer Market

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All Anheuser distributors just distribute
Anheuser
Half of Miller distributors just distribute
Miller
So Asker compares the Miller-exclusive
and the non-Miller-exclusive markets
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Distributors
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Territories (a brewer must by law
give exclusive territories)
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Identification Problems: How might
Miller-exclusive markets be special?
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1. Strong dislike for beer there
2. Miller exclusive distributors are the ones
good at promotion
Foreclosure
Me: Is there any reason why Miller might
only want low-cost distributors to be
exclusives?
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THE DATA

Scanner data for grocery sales, n=138,213
(address wrong in the paper)
http://www.gsb.uchicago.edu/kilts/research/db/dominicks/

Household income and age by zip code, from
the Census (Age not used, it seems)
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Distributor areas from the Illinois govt.
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Which deals are exclusive: vague sources
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A BLP Model
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Each consumer type buys one unit of beer
per week (everybody buys the same
quantity, or zero)
Instruments for Price: prices lagged and
led by 4 weeks
That’s to avoid the effect of a week’s
price being high because there is a lot of
advertising (unobservable) that week
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Two-Step Procedure (p. 17)
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
What if cost unobservables are correlated with
demand unobservables? Example: People like Green
Beer on St. Patrick’s Day, but it is costly to color the beer
green.
Then we’d think the mark-up was higher on St. Patrick’s
day (more market power), but we’d be wrong.
So, instrument for price using our first-step
cost estimate

Using a two-step procedure we need to adjust the standard
errors for the extra stage error
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Data

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138,213 observations on price and sales
73 brands, 12 brewers, 71 stores, 42 distributions (Table 1)

Consumer prices from .19 to 2.97, mean .60
Retailer prices from .15 to 1.11, mean .50.

Markups from -.34 to 2.49, mean 10 cents.
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Market size– number of customers– is usually based on population.
Here, it is number of shoppers for *any* product, or a forecast of
that number.
Product characteristics: alcohol (4.4%), calories, serving size (keg
vs. bottle). Light beer. Ice beer (see Table 5)
Whether there was a “promotion” or not
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BLP and Logit (elasticity about 3.4)
logit
Logit,IV
BLP,IV
BLP, IV
Y-variable: Market share. Note the use of small font for standard errors. Model B
isn’t rejected by C or D, using a chi-squared test for whether the het.coeffs are15zero.
Promotional Foreclosure (simple
logit)
Excluded brewers
Get MORE sales!
So there is no
Foreclosure.
What is happening?
Excluded:
Excluded AB:
ID problem:
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Promotional Foreclosure (simple logit)
All Exclusive Markets: a product sold by a distributor who only sells in markets where
Both Miller and AB use exclusive contracts.
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Cost-based foreclosure (simple
logit)
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A link to the course website
http://www.rasmusen.org/g604/0.g604.htm
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