Essays in Industrial Organization and Policy

Abstract

I study three questions in industrial organization on tariff policy, pass-through, and mergers. In the first chapter, I investigate the distributional consequences of tariffs, with a focus on the heterogeneity of pass-through and variety-loss. Using product level data from Pennsylvania during the United States’ 25% tariffs on single malt Scotch from 2019 to 2021, I find that an overall 10% price increase masks heterogeneity of a 15% price increase for low-quality products and 2% for high-quality products. On the variety side, a 21% overall decrease in product availability is driven by a 30% decrease for higher-quality products but no significant change for lower-quality products. Examining the demand curvature for products shows that the heterogeneity in price-increases can be explained by markup adjustments due to consumer substitution patterns. Welfare estimates from a discrete choice demand model that allows for flexible substitution patterns and heterogeneous consumers suggest that, compared to a baseline scenario of uniform tariff-effects, tariffs have a more regressive effect once accounting for the heterogeneous effects. This study contributes to the understanding of the distributional impact of tariffs, highlighting the importance of considering the heterogeneity in both the tariff impacts and in consumers. In the second chapter, I investigate how multi-product firms may pass-through cost increases differently than single-product firms due to internalizing consumer substitution within their product portfolios. Using the 2019-2021 trade dispute between the United States and the European Union, which led to 25% tariffs on single malt Scotch whiskies but not on blended Scotch or Irish whiskies, I analyze whether firms pass-through more of the tariff when they have cross-segment product portfolios. The analysis reveals that firms with portfolios including substitutable, non-tariffed products tend to increase pass-through rates, highlighting the differential impact of tariffs on firms of different product scope. The results imply that policies such as taxes or tariffs must consider the industry structure, as well as the substitute products that may not be subject to the policy. This study contributes to the understanding on pass-through in differentiated product markets by highlighting the role of multi-product portfolios and differential impact on firms. In the third chapter, co-authored with Honey Batra, we investigate the price effects of acquisitions in the U.S. alcoholic spirits market. We analyze five years of acquisition activities among major publicly traded liquor firms, with a particular focus on acquisitions of small craft distilleries. Our findings indicate that, contrary to expectations for such acquisitions, most mergers do not result in significant price changes. While mergers are often justified on the grounds of achieving cost efficiencies that offset the increase in market concentration, our results provide correlational evidence that such efficiencies are either not realized or not passed on to consumers. The findings contribute to the broader literature on market consolidation and its implications for consumer prices and market power.