Tomorrow’s antitrust rulings on conditional pricing: How the latest economic research may show the way (with John Asker)
In economic theory, competitive effects of conditional pricing practices are ambiguous. Thus, analyzing these competitive effects become an empirical question. We survey, the small, but growing, body of empirical research on conditional pricing, and consider the guidance it gives to the resolution of inconsistencies in current judicial thinking.
[Fall 2014 of Monopoly Matters]
Efficiency gains from consolidation: Evidence from the dairy industry (Work in progress)
This paper examines the efficiency effects of horizontal consolidation in the dairy industry.
Efficiency is measured in terms of both returns to scale and economies of scale. In dairy farming, doubling farm size leads to 12-14% productivity gain and 4-5% cost decline. This suggests that efficiency gains from increasing the size of the capital investment are higher than the gains from input cost savings via capital-labor substitution. Finally, consolidation leads to a nonlinear efficiency gain where the gains for farms with 1000 or more cows approximate to zero.
[Download the current working paper]
The impact of regulation on vertical integration and efficiency: Evidence from the dairy industry (Job Market Paper)
I study how pricing and antitrust regulations affect vertical integration and efficiency in the U.S. dairy industry. Market inefficiencies between producers (dairy farms) and wholesalers (plants) impede profitable investments that could be realized through vertical integration. But full vertical integration is discouraged by complex regulations on dairy pricing. Instead, dairy farms use a limited antitrust exemption to partially vertically integrate by forming manufacturing-cooperatives. While manufacturing-cooperatives address the underinvestment problem, they introduce a distortion: Smaller, less efficient farms are less likely to exit. This tends to reduce average farm size---and due to scale economies in dairy production, this tends to reduce the efficiency of the whole industry. Current rates of cooperative prevalence reduce overall efficiency by 3 to 6% for the average-size farm. This analysis bridges traditionally separate streams of literature on organizational economics and market structure. [Download full text]
The Structural Transformation as a Pathway out of Poverty: Analytics, Empirics and Politics (with Peter Timmer)
A powerful historical pathway of structural transformation is experienced by all successful developing countries, and this Working Paper presents the results of new empirical analysis of the process. Making sure the poor are connected to both the structural transformation and to the policy initiatives designed to ameliorate the distributional consequences of rapid transformation has turned out to be a major challenge for policy makers over the past half century. There are successes and failures, and the historical record illuminates what works and what does not. Trying to stop the structural transformation does not work, at least for the poor, and in fact can lead to prolonged immiseration. Investing in the capacity of the poor to cope with change and to participate in its benefits through better education and health does seem to work. Such investments typically require significant public sector resources and policy support, and thus depend on political processes that are themselves conditioned by the pressures generated by the structural transformation itself. [Download full text]
In economic theory, competitive effects of conditional pricing practices are ambiguous. Thus, analyzing these competitive effects become an empirical question. We survey, the small, but growing, body of empirical research on conditional pricing, and consider the guidance it gives to the resolution of inconsistencies in current judicial thinking.
[Fall 2014 of Monopoly Matters]
Efficiency gains from consolidation: Evidence from the dairy industry (Work in progress)
This paper examines the efficiency effects of horizontal consolidation in the dairy industry.
Efficiency is measured in terms of both returns to scale and economies of scale. In dairy farming, doubling farm size leads to 12-14% productivity gain and 4-5% cost decline. This suggests that efficiency gains from increasing the size of the capital investment are higher than the gains from input cost savings via capital-labor substitution. Finally, consolidation leads to a nonlinear efficiency gain where the gains for farms with 1000 or more cows approximate to zero.
[Download the current working paper]
The impact of regulation on vertical integration and efficiency: Evidence from the dairy industry (Job Market Paper)
I study how pricing and antitrust regulations affect vertical integration and efficiency in the U.S. dairy industry. Market inefficiencies between producers (dairy farms) and wholesalers (plants) impede profitable investments that could be realized through vertical integration. But full vertical integration is discouraged by complex regulations on dairy pricing. Instead, dairy farms use a limited antitrust exemption to partially vertically integrate by forming manufacturing-cooperatives. While manufacturing-cooperatives address the underinvestment problem, they introduce a distortion: Smaller, less efficient farms are less likely to exit. This tends to reduce average farm size---and due to scale economies in dairy production, this tends to reduce the efficiency of the whole industry. Current rates of cooperative prevalence reduce overall efficiency by 3 to 6% for the average-size farm. This analysis bridges traditionally separate streams of literature on organizational economics and market structure. [Download full text]
The Structural Transformation as a Pathway out of Poverty: Analytics, Empirics and Politics (with Peter Timmer)
A powerful historical pathway of structural transformation is experienced by all successful developing countries, and this Working Paper presents the results of new empirical analysis of the process. Making sure the poor are connected to both the structural transformation and to the policy initiatives designed to ameliorate the distributional consequences of rapid transformation has turned out to be a major challenge for policy makers over the past half century. There are successes and failures, and the historical record illuminates what works and what does not. Trying to stop the structural transformation does not work, at least for the poor, and in fact can lead to prolonged immiseration. Investing in the capacity of the poor to cope with change and to participate in its benefits through better education and health does seem to work. Such investments typically require significant public sector resources and policy support, and thus depend on political processes that are themselves conditioned by the pressures generated by the structural transformation itself. [Download full text]
