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PRICES AND ENDOGENOUS MARKET STRUCTURE IN OFFICE SUPPLY SUPERSTORES

Authors


  • *The research of Charles C. Moul was supported in part by a grant from the Weidenbaum Center on the Economy, Government and Public Policy at Washington University. We thank the Editor and two referees for helpful comments and suggestions. We also thank Andrew Cohen and Dan Hosken for helpful comments and Dan Dube (of the FRB), Scott Abrahams, Matt Arnold, Gray Beck, Michael Dickerson, Nima Golchin, Andrew Langan, Sarah Rosenthal, Aman Singh, Lizhi Tan, and Jeff Weiss (of Washington University) for excellent research assistance. The views expressed here are those of the authors and do not necessarily reflect the views of the Board of Governors of the Federal Reserve System or its staff.

Abstract

We consider the relationship between prices and market structure for office supply superstores in the U.S. which was central to the Federal Trade Commission's opposition to the merger of Staples and Office Depot. Due to potential biases in a standard regression, we employ a two-stage approach in which a model of endogenous market structure provides correction terms for a second stage price regression. Using a cross-section of data on market structures and Staples' prices, we find that excluding the correction term substantially distorts the importance of competitors as the two-stage model yields stronger negative relationships between prices and market structure variables.

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