Daniel Chaves

Research

The Inner Workings of a Hub-and-Spoke Cartel in the Automotive Fuel Industry American Economic Journal: Microeconomics, 2025, 17(1)

(with Marco Duarte)

We study the inner workings of a hub-and-spoke cartel in the Brazilian automotive-fuel industry. Based on court documents and detailed price and sales data, we discuss how gas station owners (spokes) operating inside the federal capital received help from fuel distributors (hub) to reduce dispersion of and increase gasoline's retail price. We provide evidence that distributor cartel members benefited  by raising wholesale prices while keeping competitors from supplying retail cartel members. We also provide theoretical foundations  and empirical evidence for a new mechanism through which  hubs help spokes: smoothing cost fluctuations.

Market Power, Taxation and Product Variety in the Brazilian Automobile Industry (Revised and Resubmitted - Rand Journal of Economics)

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.

Misallocation in Differentiated Product Markets: Evidence from Collusion under Uniform Pricing (Revision requested - Journal of Political Economy)

(with Rob Clark, Marco Duarte and JF Houde)

We develop a method to quantify misallocation from collusion, accounting for demand-side frictions using a novel model of spatial differentiation. By estimating a non-cooperative equilibrium model, we recover marginal costs and decompose inefficiencies due to collusion versus other frictions. We apply this to Quebec City’s retail gasoline market, which transitioned to uniform-price collusion. We show that colluding on a common focal price causes substantial misallocation, accounting for 80% of allocative efficiency gains from marginal-cost pricing. Measures ignoring demand-side frictions overstate collusion’s effect by a factor of eight. Finally, uniform-price collusion introduces dynamic inefficiencies by maintaining excess capacity and reducing investment.

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