The Impact of Maximum Markup Regulation on Prices

Abstract

Markup regulation is a common, yet understudied type of regulation. We analyze the repeal of maximum wholesale and retail markup regulation in an oligopolistic and vertically nonintegrated market. By comparing the prices of products affected by regulation before and after the policy change and using unregulated products as a control group, we find that abolishing regulation led to a significant decrease in both retail and wholesale prices. Our analysis provides indirect but consistent evidence that markup ceilings provided a focal point for collusion among wholesalers.

Competition and Pass-Through: Evidence from Isolated Markets

“…Early applications of this methodology are found inAshenfelter and Card (1985),Card (1992), andCard and Krueger (1994, 2000); more recent applications in industrial economics include, for example,Ashenfelter et al (2013) andGenakos, Koutroumpis and Pagliero (2018).…”

Price Effects of the Austrian Fuel Price Fixing Act: A Synthetic Control Study

“…However, forcing retailers to follow a pricing strategy with infrequent price changes may also facilitate tacit collusion and thereby increase the price level. Thus, another strand of literature is devoted to the evaluation of fuel price regulations on the tendency to collude (see, e.g., Andreoli-Versbach and Franck, 2015;Genakos et al, 2018).…”

Identification Properties for Estimating the Impact of Regulation on Markups and Productivity

“…An interesting result from Genakos, Koutroumpis and Pagliero (2018) shows that certain markup regulations (such as markup ceilings) tend to create collusion for wholesalers, and hence an abolishment in regulation will lead to a decrease in retail and wholesale pricesonce again the emphasis is on better competition regulation. Backus (2019) is a particularly interesting paper as it considers an example of an industry where measured productivity responds directly to competition, possibly through specialization or managerial input effects, as opposed to selection or reallocation channels.…”