Daniel Herrera-Araujo (Mines Paris – PSL)
We examine the effects of minimum markup laws (MMLs) on downstream pricing, competition, and consumer welfare. Currently, half of the U.S. states have laws imposing minimum markups on merchandise due to concerns over exclusionary practices. Using scanner data on U.S. supermarket sales, we provide new evidence that challenges the exclusionary perspective. Our analysis includes two key components: a causal study of a temporary suspension of a state law in 2007, and a structural analysis of the equilibrium effects of implementing a minimum markup provision. The primary challenge in estimating demand for multiple products lies in the high-dimensional choice set. To address this, we propose a novel solution and show through Monte Carlo simulations its effectiveness in correcting bias. Our estimates indicate that MMLs result in higher average prices.