Departmental Bulletin Paper Vertical Integration and Common Agency : An Empirical Analysis of the U.S. Carbonated Soft Drink Industry

Adachi, Takanori

(E17-3) 2017-07 , 名古屋大学大学院経済学研究科附属国際経済政策研究センター
By using the unique feature of the U.S. carbonated soft drink industry, I find that PepsiCo's 2010 vertical merger lowered its retail prices by 4.4%. More importantly, these price effects are stronger in the markets with Coca-Cola's common agency than in the markets with PepsiCo's common agency: I find a price reduction of 2.5% for the markets where neither Coca-Cola's nor PepsiCo's bottler is a common agent for Dr Pepper. PepsiCo's prices are additionally lowered by 2.3-2.5% if Coca-Cola’s bottler is a common agent for Dr Pepper, or by 1.1-1.3% if PepsiCo's bottler is a common agent. It is also shown that the price effects of PepsiCo's vertical merger on Dr Pepper's products are weaker in the markets with PepsiCo's common agency, whereas the price effects on Coca-Cola's products are stronger in these markets, suggesting that the welfare effects of PepsiCo's vertical integration differ across the mode of common agency in an important way.

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