Tag: Prices

The forbidden regression of price on HHI

Posted on by Rhys Williams

I recently came across a neat paper by around 25 economists (former chief economists at the US’ FTC and DoJ Antitrust Division) which provided a rebuke of attempts by econometricians to study the relationship between price and the Herfindhal-Hirschman Index (a measure of concentration).

As a general rule, when two firms merge horizontally (i.e. at the same level within the same market), there are two mechanisms which would tend to push prices up and a counteracting force which would put downward pressure on prices. The first two mechanisms (which tend to increase price) are called unilateral and co-ordinated effects. Unilateral effects come from the fact that the merged entity has more market power than before, and it can use this market power (to some degree) to push up prices.* [...]

Everyday Economics – Why are consumer prices generally higher in urban areas than in rural areas?

Posted on by Rhys Williams

In condensed urban areas there are many (potential) consumers and many firms operating to produce and sell to these consumers. The retail industry could be seen as operating between perfect competition and monopolistic competition, most retail establishments (including corner shops and the larger chains who sell branded goods; not including own brands) sell homogeneous goods and don’t usually have monopolies (however shop locations can be seen as effective local monopolies, as areas may be restricted as to the number of shops they can have). Therefore we would expect strong competition in this market and hence the driving down of prices for consumers. [...]