Daniel Chaves

Research

The Inner Workings of a Hub-and-Spoke Cartel in the Automotive Fuel Industry Forthcoming   - AEJ:Micro

(with Marco Duarte)

We analyze a hub-and-spoke cartel in the Brazilian automotive fuel industry. Using the court documents and detailed data on the supply chain we uncover the mechanisms used by a cartel of gas stations to solve the obstacles of price coordination. The evidence shows that a subset of distributors (hub) helped the stations (spokes) to overcome coordination problems in three ways: (i) allowing for transfers between geographically dispersed stations (ii) punishing defectors by offering wholesale price discounts to the defector's close competitors; and (iii) reducing the frequency of price changes and asymmetries between stations by diverging sales to the product with stable costs. We argue that the hub benefited from the cartel by being the exclusive supplier during the scheme. We use the synthetic control approach to test whether the cartel was successful in generating higher mark-ups. We find  that not only retailers, but wholesalers benefited from the cartel.

Taxation and Product Variety: Evidence from the Brazilian Automobile Industry (Revision requested - Rand)

This paper empirically assesses the impact of a discontinuous tax schedule on prices, markups and product assortment in the Brazilian automobile industry. To this end, I estimate a structural, equilibrium model of demand and supply for over a hundred different models and engine sizes of automobiles. With the model estimates of price elasticities and marginal costs I quantify how market power impacts the progressivity of the discontinuous tax schedule. I also examine how firms would reposition their products to avoid the tax and quantify the impact of this repositioning on equilibrium outcomes.

Hub-and-Spoke Collusion with Horizontally Differentiated Spokes

(with Marco Duarte)

A hub-and-spoke cartel, where firms (spokes) limit competition with the help of an upstream supplier (hub), is a type of collusive arrangement observed in a variety of industries. In most cases, spokes compensate the hub's help by excluding its rivals. Under those circumstances, how do hub and spokes divide the rents from collusion? We study a hub-and-spoke cartel with an exclusion condition between gas stations and distributors in the gasoline market of Brazil's Federal District. Using a structural model of demand, we estimate the gas stations' incentive to collude for different splits of rents. We show that, although more rents to distributors increased the stations' incentive to deviate from supplier, it also decreased their incentive to deviate on prices. In a counterfactual scenario where retailers extract all the rents from collusion, the cartel would need to decrease markups by 24% not to trigger price deviations. Another counterfactual points out that banning exclusive dealing contracts between stations and distributors would have destabilized the retail price coordination.

Market Power and the Distributional Effects of Product Standards: Evidence from Automobile Industry

(Draft coming soon)

The imposition of product safety standards is a common practice amongst regulators (e.g US Consumer Product Safety Commission). In an industry with differentiated products it affects firms to the extent that it increases costs and reduces firms’ ability to differentiate their products, which increases competition. This paper studies the pricing effects of a regulation that made safety equipment – Airbags and ABS – mandatory in Brazilian automobiles. By measuring the pricing effects of the regulation, we assess which consumers are better off as a result of the regulation and to what extent they are better off. 

Work in Progress

The Dynamics of Demand Stimulus in a Durable Goods Industry: Long-run effects of tax breaks in the Brazilian Automobile Industry - with Leonardo Rezende

Measuring the Returns to Campaign Donations: Evidence from Brazilian Gas Stations - with Marco Duarte