USING RETAIL DATA FOR UPSTREAM MERGER ANALYSIS Sofia Berto Villas-Boas ∗ September, 12 2007 Abstract The typical situation faced by antitrust authorities is to analyze a proposed manufacturer merger using scanner data at retail-level. I start with a benchmark model of manufacturers’ and retailers’ sequen- tial pricing behavior. Then I perform counterfactual experiments to explore the relationship between downstream retailer pricing models and the resulting estimates of upstream mergers, in the absence of wholesale prices. Looking at scanner data for the ground coffee cate- gory sold at several retail chains in Germany I find that not consider- ing retail pricing explicitly when analyzing the potential consequences of an upstream merger, results in simulated changes in welfare that are significantly different given the underlying model of retail pricing behavior. These findings are relevant for competition policy, and au- thorities should consider incorporating the role of retailers in upstream merger analyzes, especially in the presence of increasingly consolidated retail food markets. JEL Classifications: C13, L13, L41. Keywords: Merger Analysis, Vertical relationships, multiple manufacturers and retailers. I. INTRODUCTION One of the current discussions by antitrust authorities is to consider includ- ing vertical relationships between manufacturers and retailers when analyzing proposed mergers between manufacturers. This topic is referred as one of the I thank the editor Greg Sidak and an anonymous referee for very helpful suggestions. An AES and a Giannini Foundation Minigrant are gratefully acknowledged. I thank Cyndi Berck, Peter Berck, Claire Chambolle, George Judge, Chuck Romeo, and Miguel Villas- Boas for comments. I thank Daniel Klapper for granting me access to the data. Address: Department of Agricultural and Resource Economics, University of California at Berkeley, 226 Giannini Hall, Berkeley, CA 94720-3310; e-mail: sberto@are.berkeley.edu.