SSE students win first and second prizes in the Swedish Competition Authority's annual thesis competition
Two recent MSc graduates and one current PhD student from the Department of Economics at SSE have been recognized in the annual thesis competition organized by the Swedish Competition Authority. This year’s winning contributions address timely economic questions, offering insights into firm markups in Sweden and competition dynamics in the German gasoline market.
First prize in the economics category
Authors: Agnes Erlandsson and Erik Leiditz Thorsson, MSc graduates from the Stockholm School of Economics
Thesis: Markups in Sweden: Decomposing the Trends
Using data from over 149,000 Swedish firms across all sectors between 1999 and 2021, authors Agnes Erlandsson and Erik Leiditz Thorsson estimate the changes in markups—how much firms charge above marginal costs. Their findings show a clear downward trend, with average markups falling by nearly 30% over the period.
While many global studies point to rising market power among dominant firms, the Swedish case stands out. The reduction in markups occurs across all sectors, but the sharpest variations come from the top 10% of firms in the markup distribution. Smaller firms and those with lower markups have remained relatively stable.
By decomposing the trend, the thesis identifies two key forces: a general decline in markups across firms and a positive reallocation effect, meaning that economic activity is shifting to firms that charge higher markups.
At the sector level, the thesis highlights volatility. The decline in average markups does not result from changes in market power in specific sectors but rather reflects broader trends across the economy.
The thesis highlights Sweden’s unique economic environment, suggesting that competitive forces and sector dynamics are keeping prices more constrained compared to global trends. Understanding these factors can help policymakers balance competition and innovation.
The Swedish Competition Authority jury's motivation
New research on so-called markups, or price markups over time, and what this can reveal about the development of competition has had a significant impact. In this thesis, the authors address a highly relevant and interesting question, shedding light on it from a Swedish perspective through an ambitious and well-executed empirical study. The authors find, in line with a previous study, that the Swedish development differs from the trend of increasing markups observed in studies using international and American data. The thesis demonstrates an excellent ability to relate to previous research and employs an advanced methodological approach.
(Translated using AI.)
Read the thesis
Second prize in the economics category
Authors: Marcus Hagman, PhD student at the Stockholm School of Economics
Thesis: Collusion and Price Transmission - Evidence from the German Retail Gasoline Market
The rockets and feathers effect—where gas prices rise quickly when oil prices go up but fall slowly when costs drop—has long raised suspicions of collusion among gas stations. The thesis by Marcus Hagman, challenges this idea, showing no evidence that colluding stations slow their response to falling oil prices.
Using detailed data from the German gasoline market (2014–2016), Hagman develops a novel method to identify collusion by examining how closely neighboring gas stations set prices. He finds that certain pairs of brands, including Aral, Shell, and Total, display collusive pricing patterns, meaning they charge higher prices when located near each other. However, when tested for price transmission dynamics, these stations responded to cost changes—both increases and decreases—at the same speed as non-collusive stations.
This result contradicts the widely held oligopolistic coordination hypothesis, which claims that colluding firms limit price reductions to maintain profits. Instead, Hagman’s findings suggest that other factors, such as competition and consumer behavior, drive the patterns seen in gas price adjustments.
The research highlights Germany’s unique policy environment. Since 2013, German gas stations must report real-time prices to a government database, improving transparency for consumers and businesses alike. Hagman’s thesis suggests this transparency may limit the extent of collusive behavior, although further research is needed to confirm whether these results hold in less transparent markets.
The Swedish Competition Authority jury's motivation
It is well established that firms tend to adjust prices upwards quickly in response to increased costs, while adjustments to lower costs are slower. It is less clear how competition influences this relationship. The thesis empirically studies this question in the German gasoline market. The distance between gas stations affects competition between them, but the competitors’ chain affiliation also proves to play a role in pricing, with the same chain having the least effect. There are also significant differences between chains, which the author interprets as varying degrees of tacit collusion. The study shows that the degree of competition, measured in this way, has a minor effect on the asymmetry of price adjustments. The thesis is very well executed.
(Translated using AI.)
