‘Endogenous antitrust enforcement and strategic cartel pricing: Experimental evidence’

The next presentation in our Autumn seminar series takes place on Friday 6th November, with the return of Carsten Crede (CCP and ECO) who will be presenting ‘Endogenous antitrust enforcement and strategic cartel pricing: Experimental evidence‘, a joint project with Liang Lu (CCP and ECO). An abstract for his presentation can be found below.


We experimentally examine the effects of endogenous antitrust enforcement, i.e. an enforcement that increases in the cartel overcharge, on cartel prices and stability. With a novel experimental design, we capture the non-profitability-related strategic effects of cartel pricing as a reaction to the endogenous punishment. By allowing self-selection of the cartel into expected low punishment, endogenous enforcement is effective when both fine and detection probability are sufficiently high. However, it may render deterrence less effective if fines are not sufficiently high, suggesting that the substitutability with respect to deterrence between fines and detection probabilities is limited. Nevertheless, both enforcement elements have welfare implications due to strategic effects: whereas high fines directly reduce cartel formation and undermine stability, high detection probabilities decrease the longevity of existing cartels and with it their economic harm.

The seminar will take place from 13:00-14:00 in the Thomas Paine Study Centre, Room 2.03. To find out about the other seminars in this series, visit the seminar pages on our website.

‘A Comparison of Wholesale and Agency Structures in Differentiated Markets’

The CCP Seminar Series continues on Friday 13th March with the marvellously talented Liang Lu (CCP & ECO) presenting her research entitled ‘A Comparison of Wholesale and Agency Structures in Differentiated Markets‘. Liang joined the UEA School of Economics in October 2012 to undertake a PhD on the topic of ‘High-street and Luxury Collaborations’. Her research interests include Industrial Organization and Consumer Behaviour. An abstract for Liang’s presentation can be found below.


We compare the wholesale and agency structures characterizing a supply and distribution chain in a bilateral duopoly model with differentiation. Overall mark-up is lower and demand is higher under the agency structure of supplier pricing and retailer revenue sharing. We examine firms’ preferences: suppliers gain from the wholesale structure whereas retailers are better off under the agency structure as long as the level of supplier differentiation is not too low. That is, while high levels of differentiation at one layer of the market generally benefit firms at that layer and harm firms at the other under the wholesale structure, it is not necessarily so under the agency structure.

The seminar takes place from 13:00-14:00 in the Thomas Paine Study Centre, Room 1.03.

‘Product differentiation and non-linear pricing: strategies for growth in the UK pharmaceutical market’

The CCP seminar series continues on Friday 5th December, with pharma maestro Farasat Bokhari (CCP and ECO) presenting his research on ‘Product differentiation and non-linear pricing: strategies for growth in the UK pharmaceutical market‘. Farasat is an Associate Professor in the School of Economics and specialises in health economics, with a background in applied microeconomics and industrial organisation. An abstract for his paper can be found below.


This paper develops a stylized model to specify conditions for menu pricing and product differentiation as profitable strategies in a monopoly or duopoly market structure. We then empirically compare the effect of these strategies within the growth of firm literature. To this end, we use a quarterly panel dataset on the UK pharmaceutical market for the period Q2 2003 – Q1 2013 to estimate the impact of new product forms and package varieties on business unit. Using a dynamic lag-adjustment model as econometric framework, findings from this study suggest that a new product form leads to 18% growth in the long run, while a new package variety leads to 7% growth. Furthermore, in terms of growth, small and midsize firms benefit from these introductions far more than the larger firms.

The seminar takes place from 13:00-14:00 in the Thomas Paine Study Centre, Room 1.03.

‘Collusion under Private Monitoring with Asymmetric Capacity Constraints’

On Friday 21st March 2014, the Centre welcomes the return of an old friend in the form of former CCP Research Associate and Post Doctoral Fellow Luke Garrod (Loughborough University). Luke will be presenting his paper entitled ‘Collusion under Private Monitoring with Asymmetric Capacity Constraints‘ which he has written with fellow CCP alumna Matthew Olczak (Aston University). An abstract for their article can be found below.


We explore the effects of asymmetries in capacity constraints on collusion where demand is uncertain and where firms must monitor the agreement through their privately observed sales and prices. We show that deviations will be detected perfectly when demand fluctuations are sufficiently small. Otherwise, monitoring is imperfect and punishment phases must occur on the equilibrium path. Collusion is hindered in both cases when the largest firm has more capacity and when the smallest firm has less. We demonstrate that a merger with a collusive symmetric outcome can have a lower average best equilibrium price than a more asymmetric noncollusive outcome.

The seminar will take place from 13:00-14:00 in the Thomas Paine Study Centre, Room 1.1.

‘The hazard function of sales: An analysis of UK supermarket food prices’

The CCP’s Spring seminar series is now well underway and, on Friday 24th January, we welcome Hao Lan (CCP), a Research Associate at the Centre, who will be presenting his research on ‘The hazard function of sales: An analysis of UK supermarket food prices‘, which he has undertaken with Tim Lloyd and Wyn Morgan, his former colleagues at the University of Nottingham. An abstract for his seminar can be found below.


In this paper we examine the empirical pattern of sales behaviour among the UK’s seven largest retail chains using a scanner dataset of weekly food prices on over 500 products over a 2.5 year period. Motivating the analysis is the question ‘are products more likely to go on sale the longer they remain unpromoted?’. Theory is not unanimous and recent empirical studies also offer conflicting evidence. To address the question we estimate the hazard rate of a sale – probability that a product goes on sale in the tth week since the last sale – over the market as a whole and then separately across different national retailers. We pay particular attention to the effects of sales in like-for-like products in rival retailers on the hazard of a sale. We also find that accounting for multiple sales has a pivotal role in determining the slope of the hazard function, which actually reverses sign when proper account is taken of this seemingly innocuous technicality. Correcting for this we find that food products are more likely to be discounted the longer they remain without a sale. This result helps square the circle between price setting and modern theories of sales behaviour. Furthermore, we find that the positive time-dependent pattern varies across product format and brand status. With sales in rivals, branded products in a representative retailer are more likely to be discounted if it has been on sale previously in the rival retailers, however the hazard of a sale in private labels is unrelated to its rival sales. In the individual retailer level, the hazard results show that while most supermarkets exhibit some form of a ‘hi-lo’ pricing there is one retail chain does not (showing no time-dependence) preferring an every day low price strategy (EDLP).

The seminar will take place from 13:00-14:00 in the Thomas Paine Study Centre, Room o.1.

‘Strategic Bypass Deterrence’

We’re into our second week of the CCP’s new Spring seminar series and on Friday 17th January we are delighted to welcome Francis Bloch, a Professor of Economics at Université Paris I. He will be presenting his joint-research with Axel Gautier (HEC University of Liege) on ‘Strategic Bypass Deterrence‘. An abstract for his seminar can be found below.


In liberalized network industries, entrants can either compete for service using the existing infrastructure (access) or deploy their own infrastructure capacity (bypass). In this paper, we demonstrate that, under the threat of bypass, the access price set by an unregulated and vertically integrated incumbent is compatible with productive efficiency. This means that the entrant bypasses the existing infrastructure only if it can produce the network input more efficiently. We show that the incumbent lowers the access price compared to the ex-post efficient level to strategically deter inefficient bypass by the entrant. Accordingly, from a productive efficiency point of view, there is no need to regulate access prices when the entrant has the option to bypass. Despite that, we show that restricting the possibilities of access might be profitable for consumers and welfare because competition is fiercer under bypass.

The seminar will takes place from 13:00-14:00 in the Thomas Paine Study Centre, Room 0.1.

‘Independent regulators versus the Rogowski-Kayser effect on consumer prices’

The CCP’s Autumn seminar series continues on Friday 25th November with the return of Chris Hanretty (CCP and PSI) who will be presenting his research on ‘Independent regulators versus the Rogowski-Kayser effect on consumer prices‘. An abstract for his seminar can be found below.


Work by Ronald Rogowski and Mark Kayser has suggested that consumer prices will be higher in systems of proportional representation, compared to systems with more majoritarian electoral systems, and that this is due to the differing marginal contributions of citizen-consumers’ votes and producers’ votes and campaign contributions in such systems, which in turn affect the chosen level of regulation in a Stigler-Peltzman model of regulation. However, the increasing delegation of regulatory competence to independent sectoral authorities suggests that this Kayser-Rogowski effect should be undermined by independent regulators as politicians are simply cut out of the picture.

I test this hypothesis using information on the ratio of residential to industrial prices for electricity in 33 IEA member countries for all years following market liberalization. I find that (a) the main Kayser-Rogowski effect is born out; that (b) there is no countervailing effect of independent regulators per se when using the full-sample; but that (c) there is a countervailing effect of independent regulators in a sample restricted to Western Europe for which we have information about the de facto independence of regulators.

Further reading: Ronald Rogowski and Mark Andreas Kayser, ‘Majoritarian Electoral Systems and Consumer Power: Price-Level Evidence from the OECD Countries‘ (2002) 46(3) American Journal of Political Science 526-539.

CCP Seminar: Estimation of search frictions in the British electricity market

The Centre is delighted to welcome Monica Giulietti (Warwick Business School) as this week’s guest speaker at the CCP seminar series. Monica will be presenting her paper entitled ‘Estimation of search frictions in the British electricity market‘, which she has conducted alongside Michael Waterson (Warwick) and Matthijs Wildenbeest (Indiana). A short abstract of the paper can be found below.


This paper studies consumer search and pricing behaviour  in the British  domestic electricity market  following its opening to competition in 1999.  We develop a sequential search model in which an incumbent and  an entrant group compete  for consumers  who find it costly to obtain information on prices other  than  from their  current supplier.  We use a large data set on prices and input  costs to structurally estimate  the model.  Our estimates indicate that consumer search costs must  be relatively  high in order to rationalize  observed  pricing patterns. We confront our estimates with observed  switching  behaviour  and find they  match  well.

CCP Seminar: An Experimental Analysis of Pricing-to-Market and Money Illusion

The CCP seminar series continues on Friday 25th January with Enrique Fatas (CCP and ECO) presenting his research on ‘An Experimental Analysis of Pricing-to-Market and Money Illusion‘ in collaboration with Guillermo Mateu (LESSAC, Burgundy School of Business) and Antonio J Morales (University of Malaga). An abstract for his seminar can be found below.


We experimentally analyse pricing behaviour in segmented international markets. Experimental firms first decide in which foreign market to trade and then compete on prices. Markets are equivalent in real terms and only differ in the currency the price competition is run under. We find that prices increase with the nominal exchange rate (e.g., pricing-to-market). We develop a coarse pricing grids model in which boundedly rational agents adjust their prices to different nominal exchange rates. The equilibrium predictions of the model capture well both average treatment effects and the distribution of prices observed in the laboratory.

Policy Brief: Nonlinear Pricing and Tariff Differentiation


Nonlinear pricing is frequently observed in real world oligopolistic markets (i.e. markets with few suppliers) often in the form of quantity discounts which are not totally explicable in terms of costs.

However, the theory of oligopolistic nonlinear pricing (or second degree price discrimination more generally) remains incomplete and largely untested.

In particular, the literature has paid little attention to potential asymmetries between firms’ pricing strategies.


  • The authors use liberalisation of the British retail electricity industry to examine how theoretical predictions compare to the outcomes in this particular case of oligopolistic tariff competition.
  • The main focus of the study is on potential asymmetries between firms’ pricing strategies.
  • The authors draw on a database of tariff structures at the individual firm level within each of 14 regions at 14 six-monthly intervals over the period 1999-2005.


  • Consistent with the theory, the authors find that each oligopolist offered a single two-part electricity tariff.
  • However, contrary to the predictions of current theory, suppliers varied considerably and systematically in their chosen tariffs.
  • It is shown that, throughout the time period and across all geographical regions, relative to the incumbent, entrants typically selected tariffs with a higher fixed fee and a lower marginal price.
  • Similarly, there were also systematic variations amongst the entrants’ tariffs and, rather than diminishing, these asymmetries increased over the time period. These tariff asymmetries cannot be attributed to asymmetric costs or the existence of brand loyalty or market frictions.
  • The evidence suggests that firms may have differentiated their tariff structures with the effect of segmenting the market according to consumers’ usage patterns, with some firms offering tariffs that are more attractive to lower volume consumers and other firms offering tariffs targeted on consumers with high usage.
  • It is observed that by the end of the period, collectively, the seven firms provided a range of different two-part tariffs which qualitatively resembled a monopolist’s optimal menu of two-part tariffs.


Stephen Davies is a Professor of Economics in the School of Economics at UEA, Catherine Waddams Price is a Professor of Regulation in Norwich Business School at UEA, Chris Wilson is a Lecturer in the School of Business and Economics at Loughborough University.

The original Policy Briefing is available for download here, the Working Paper on which this Briefing is based is available here.