Research
Research
Markups, Markdowns, and Bargaining in a Vertical Supply Chain (Latest WP version)
with , Claire Chambolle, Etienne Guigue, and Hugo Molina
Abstract: This article bridges monopoly, monopsony, and countervailing power theories to analyze the welfare effects of seller and buyer power in a vertical supply chain. We develop a bilateral monopoly setting with bargaining over a linear price, where the upstream firm sources input from an increasing supply curve, exerting monopsony power mirroring the downstream firm monopoly power. In equilibrium, the short-side rule applies, meaning that the quantity traded is determined by the firm that is willing to trade the smaller amount. We show that welfare is maximized when each firm’s bargaining power exactly countervails the other’s market power. Otherwise, double marginalization occurs: double markupization arises when the upstream firm holds excessive bargaining power, and double markdownization in the opposite case. Our analysis yields novel insights for policy intervention and empirical research.
Markups and Markdowns in the French Dairy Market (Latest WP version)
with Etienne Guigue
Abstract: Separately measuring firm buyer and seller power is important for policy-making, but challenging. In this paper, we suggest a new methodology to do so and apply it to French dairy processors. These firms exert buyer power when purchasing raw milk, and seller power when marketing dairy products. The analysis is based on plant-level data on dairy firms, with observations on prices and quantities of raw-milk input by origin and output by product from 2003 to 2018. We rely on a production function approach to estimate total margins. The existence of a commodity, (i) substitutable as an input or as an output, and (ii) exchanged on global markets where firms are price-takers, allows us to separately estimate firm-origin markdowns and firm-product markups. We show this methodology can also be useful in other contexts, with more limited data. Markdown estimates imply that dairy firms on average purchase raw milk at a price 16% below its marginal contribution to their profits, while markup estimates indicate that firms sell dairy products at a price exceeding their marginal costs by 41%. Our results show substantial variations in buyer and seller power exploitation across firms, products, and time. We analyze how shocks to local farmer costs and international commodity prices pass through the supply chain. Processors partially absorb such shocks by adjusting markups and markdowns, thus smoothing variations in farmer revenues. It further implies that 65% of subsidies are currently diverted from farmers due to processor buyer power. A price floor on raw milk could be an alternative welfare-improving policy.
Markups and Markdowns from Farm to Fork, with Claire Chambolle, Etienne Guigue and Hugo Molina.
Production Quotas Reforms and the Cream-Skimming of the French Milk Market, with Etienne Guigue
Purchasing alliances and Product Variety (CREST WP version)
with Marie-Laure Allain and Claire Chambolle. International Journal of Industrial Organization(2020).
Abstract: We analyze the impact of purchasing alliances on product variety and profit-sharing in a setting, in which capacity-constrained retailers operate in separated markets and select their assortment in a set of differentiated products offered by heterogeneous suppliers (multinationals vs. local SMEs). Retailers may either have independent listing strategies or build a buying group, thereby committing to a joint listing strategy. This alliance may cover the whole product line (full buying group) or only the products of large suppliers (partial buying group). We show that a buying group may enhance the retailers' buyer power and reduce the overall product variety to the detriment of consumers. Our most striking result is that partial buying groups do not protect the small suppliers from being excluded or from bearing profit losses; they may even be more profitable for retailers than full buying groups.
Prix planchers dans les filières agroalimentaires : une measure d'efficacité ?
with Etienne Guigue. Notes de l'Institut des Politiques Publiques, Note IPP n°112 Décembre 2024.
Les centrales d’achat : quels enjeux de concurrence ?
with Marie-Laure Allain and Claire Chambolle and Hugo Molina. Notes de l'Institut des Politiques Publiques, Note IPP n°79 Février 2022.