Working Paper: CEPR ID: DP6949
Authors: Jan Boone; Wieland Müller
Abstract: We consider a vertically related industry and analyze how the total harm due to a price increase upstream is distributed over downstream firms and final consumers. For this purpose, we develop a general model without making specific assumptions regarding demand, costs, or the mode of competition. We consider both the case of homogeneous and differentiated goods markets. Furthermore, we discuss data requirements and suggest explicit formulas and regression specifications that can be used to estimate the relevant terms in the harm distribution in practice, even if elevated upstream prices are rather constant over time. The latter can be achieved by considering perturbations of the demand curve. This in turn can be used to construct a supply curve for the case of imperfect competition that includes perfect competition and monopoly as special cases. Finally, we illustrate how basic intuition from the tax incidence literature carries over to the distribution of harm.
Keywords: Abuse of a dominant position; Apportionment of harm; Cartel; Pass on defense; Supply curve; Tax incidence
JEL Codes: D43; L13; L42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| upstream wholesale price (w) (D41) | total output (q) (E23) |
| total output (q) (E23) | consumer harm share (CHS) (D16) |
| downstream industry price-cost margin (PCM) (L11) | consumer harm share (CHS) (D16) |
| Herfindahl-Hirschman Index (HHI) (L19) | consumer harm share (CHS) (D16) |
| price elasticity of demand (D12) | consumer harm share (CHS) (D16) |
| output elasticity with respect to input price (E23) | consumer harm share (CHS) (D16) |