Economic theory does not provide sharp predictions on the welfare effects of banning wholesale price discrimination: if downstream costs differences exist then discrimination shifts production inefficiently, towards high cost retailers, so a ban increases welfare; if differences in price elasticity of demand across retailers exist, discrimination may increase welfare if more market is covered, so a ban reduces welfare. Using retail prices and quantities of coffee brands sold by German retailers, I estimate a model of demand and supply and separate cost and demand differences. Simulating a ban on wholesale price discrimination has positive welfare effects in this market, and less if downstream cost differences shrink, or with less competition.

The typical situation faced by antitrust authorities is to analyze a proposed manufacturer merger using scanner data at retail-level. Starting with a benchmark model of manufacturers' and retailers' sequential Bertrand-Nash pricing behavior, I perform counterfactual experiments to explore the relationship between downstream retailer pricing models and the resulting estimates of upstream mergers, in the absence of wholesale prices. Looking at scanner data for the ground coffee category sold at several retail chains in Germany I find that not considering retail pricing explicitly when analyzing the potential consequences of an upstream merger, implies simulated changes in welfare that are significantly different given the underlying model of retail pricing behavior. These findings are relevant for competition policy, and authorities should consider incorporating the role of retailers in upstream merger analyzes, especially in the presence of an increasingly consolidated retail food industry.

This note outlines conditions under which we can identify a vertical supply model of multiple retailers’ and manufacturers’ oligopoly-pricing behavior. This is an important question particularly when the researcher believes, contrary to the traditional assumption followed in the empirical literature, that retailers may not be neutral pass-through intermediaries. We show that a data-set of an industry’s product prices, quantities, and input prices over time is sufficient to identify the vertical model of retailers’ and manufacturers’ oligopoly-pricing behavior given nonlinear demand, for homogeneous-products industries, and given multi-product firms, for differentiated-products industries.