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on Industrial Competition |
| By: | Mark Armstrong; John Vickers |
| Abstract: | We explore patterns of price competition in an oligopoly where consumers vary in the set of firms they consider for their purchase and buy from the lowest-priced firm they consider. We study a pattern of consideration, termed "symmetric interactions", that generalises models used in existing work (duopoly, symmetric firms, and firms with independent reach). Within this class, equilibrium profits are proportional to a firm's reach, firms with a larger reach set higher average prices, and a reduction in the number of firms (either by exit or by merger) harms consumers. However, increased competition (either by entry of by increased consumer awareness) does not always benefit consumers. We go on to study patterns of consideration with asymmetric interactions. In situations with disjoint reach and with nested reach we find equilibria in which price competition is "duopolistic": only two firms compete within each price range. We characterize the contrasting equilibrium patterns of price competition for all patterns of consideration in the three-firm case. |
| Keywords: | Price competition, consideration sets, price dispersion, entry and merger |
| JEL: | C72 D43 D83 L13 |
| Date: | 2021–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:936&r= |
| By: | Fumagalli, Chiara; Motta, Massimo; Tarantino, Emanuele |
| Abstract: | We analyse the optimal policy of an antitrust authority towards the acquisitions of potential competitors in a model with financial constraints and asymmetric information. With respect to traditional mergers, these acquisitions trigger a new trade-off. On the one hand, the acquirer may decide to shelve the project of the potential entrant. On the other hand, the acquisition may allow for the development of a project that would otherwise never reach the market. We first show that a merger policy does not need to be lenient towards acquisitions of potential competitors to take advantage of their pro-competitive effects on project development. This purpose is achieved by a strict merger policy that pushes the incumbent towards the acquisition of potential competitors lacking the financial resources to develop their project independently. An equivalent rule would consist in blocking takeovers whose acquisition price is above a certain threshold. However, we also show that, if the anticipation of a takeover relaxes the target firm's financial constraints, a more lenient merger policy, which allows for the acquisition of firms that have already committed to enter the market, may be optimal. We identify the cumulative conditions necessary for this to be the case. They include the presence of pronounced financial imperfections. Hence, the more developed financial markets, the more likely that a stringent merger policy will be optimal. |
| Keywords: | Conglomerate mergers; Digital Markets; Merger Policy; Potential competition |
| JEL: | K21 L13 L41 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15113&r= |
| By: | Belleflamme, Paul; Peitz, Martin; Toulemonde, Eric |
| Abstract: | We introduce asymmetries across platforms in the linear model of competing two-sided platforms with singlehoming on both sides and fully characterize the price equilibrium. We identify market environments in which one platform has a larger market share on both sides while obtaining a lower profit than the other platform. This platform enjoys a competitive advantage on one or both sides. Our finding raises further doubts on using market shares as a measure of market power in platform markets. |
| Keywords: | Antitrust; market power; Market Share; network effects; oligopoly; Two-sided platforms |
| JEL: | D43 L13 L86 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15204&r= |
| By: | Template-Type: ReDIF-Paper 1.0; Takahiro Ishii (Graduate School of Economics, Osaka University) |
| Abstract: | The present study examines the effects of free technology sharing by a monopolistic final-good firm with other final-good firms. To this end, we consider two cases-first, where there exists one final-good firm in the final-good market and second, where there exist two final-good firms in the final-good market. Considering the free entry into the differentiated intermediate-goods market , the results of this study show that, when another firm enters the final-good market and transforms it into a two-firm oligopoly, cost efficiency improves because of an increase in the number of intermediate-goods firms. Furthermore, there is a possibility that the incumbent firm fs profits increases not only for a two-firm oligopoly, but also for an oligopoly with three or more firms. Thus, sharing technology for free could improve the profits of incumbent firms. |
| Keywords: | Monopolistic competition; Endogenous variety of intermediate goods; T echnology sharing; Intermediate goods; Technology transfer |
| JEL: | D43 L13 L16 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:2105&r= |
| By: | Ganguly, Madhuparna |
| Abstract: | We analyze the relationship between innovation attributes and competition intensity in a framework of endogenous knowledge spillover due to scientist mobility, and identify the effects of stronger patents on innovation at different levels of product market competition. We �nd non-monotone relations of patenting propensity, innovation incentives and investment in R&D, and monotone relation of scientist mobility, with potential product market competition intensity. The study further shows that stronger patent laws reduce (increase) innovation profitability (R&D expenditure) when the market for the new product is moderately competitive, and have no effect otherwise. The results suggest important implications for patent policy reforms. |
| Keywords: | Competition intensity; Innovation; Patent strength; Scientist mobility |
| JEL: | D43 J60 L11 L13 O34 |
| Date: | 2021–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107831&r= |
| By: | Gomes, Renato; Mantovani, Andrea |
| Abstract: | Online marketplaces, such as Amazon, or online travel agencies, such as Booking.com, greatly expand consumer information about market offers, but also raise firms' marginal costs by charging high commissions. To prevent show-rooming, platforms adopted price parity clauses, which restrict sellers' ability to offer lower prices in alternative sales channels. Whether to uphold, reform, or ban price parity has been at the center of the policy debate, but so far little consensus has emerged. In this paper, we investigate a natural alternative to lifting price parity; namely, we study how to optimally cap platforms' commissions. The optimal cap reflects the Pigouvian precept according to which the platform should not charge fees greater than the externality that its presence generates on other market participants. Employing techniques from extreme-value theory, we are able to express the optimal cap in terms of observable quantities. In an application to online travel agencies, we find that current average fees are welfare increasing only if platforms at least double consumers' consideration sets (relative to alternative ways of gathering information online). This suggests that, in some markets, regulation capping commissions should bind if optimally set. |
| Keywords: | commission caps; Extreme value theory; platforms; price parity; regulation |
| JEL: | D83 L10 L41 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15048&r= |
| By: | Maican, Florin; Orth, Matilda |
| Abstract: | This paper studies the determinants of economies of scope and quantifies their impact on the extensive and intensive product margins in retail. We use a framework based on a multi-product technology to model stores' incentives to expand product variety. Using novel Swedish data on product categories and stores, we find that high-productivity stores offer more product categories and sell more of all product categories. Stores with high demand shocks specialize in fewer product categories and sell more top-selling product categories. Policy simulations show that investments in technology increase the extensive and intensive product margins, especially benefitting stores in urban markets because of their productivity advantage. Learning from demand to increase productivity and variety is crucial in rural markets. Reducing the role of uncertainty in both productivity and demand shocks endorses product variety and raises sales and market share. |
| Keywords: | Competition; Economies of scope; product variety; productivity; retail; technology |
| JEL: | L11 L13 L25 L81 M21 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15084&r= |
| By: | Chen, Jiaqi; Lee, Sang-Ho |
| Abstract: | This study compares Cournot and Bertrand firms with research and development (R&D) competition under government policies between output and R&D subsidies. We demonstrate that firms invest more (less) in R&D and the government grants more (less) subsidies under Cournot than Bertrand competition with output (R&D) subsidy policies. We also reveal that both competition modes yield the same welfare with output subsidy while Bertrand yields higher welfare than Cournot with R&D subsidy irrespective of product substitutability. Finally, we show that firms’ profits and social welfare are always higher under output subsidies in Cournot competition, while they can be higher under R&D subsidies in Bertrand competition if the product substitutability is high and the firm’s R&D investment is efficient. |
| Keywords: | Cournot; Bertrand; R&D investment; Output Subsidy; R&D subsidy |
| JEL: | H21 L13 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:107949&r= |
| By: | Chen, Chen; Dasgupta, Sudipto; Huynh, Thanh; Xia, Ying |
| Abstract: | We show that increasing competition changes the location of economic activity and, in turn, affects supply chain relationships. Using establishment-level data, we find that when upstream product markets become more competitive, suppliers are more likely to relocate their establishments closer to customers. Following the supplier's relocation, its sales to the customer increase, its relationship with the customer is less likely to be terminated, and its innovation is more aligned with the customer's innovation. However, the improved relationship, by causing the supplier to engage more in innovation dedicated to the customer, adversely affects creative innovation, which is known to drive growth. |
| Keywords: | establishment relocation; knowledge spillover; Product Market Competition; Supply Chain |
| JEL: | G30 L1 O3 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15056&r= |
| By: | Letina, Igor; Schmutzler, Armin; Seibel, Regina |
| Abstract: | This paper provides a theory of strategic innovation project choice by incumbents and start-ups. We show that prohibiting killer acquisitions strictly reduces the variety of innovation projects. By contrast, we find that prohibiting other acquisitions only has a weakly negative innovation effect, and we provide conditions under which the effect is zero. Furthermore, for both killer and other acquisitions, we identify market conditions under which the innovation effect is small, so that prohibiting acquisitions to enhance competition would be justified. |
| Keywords: | Innovation; killer acquisitions; Merger Policy; Potential competition; start-ups |
| JEL: | G34 L41 O31 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15167&r= |
| By: | Anderson, Simon P; Peitz, Martin |
| Abstract: | We introduce advertising congestion along with a time-use model of consumer choice among media. Both consumers and advertisers multi-home. Higher equilibrium advertising levels ensue on less popular media platforms because platforms treat consumer attention as a common property resource: smaller platforms internalize less the congestion from advertising and so advertise more. Platform entry raises the ad nuisance "price" to consumers and diminishes the quality of the consumption experience on all platforms. With symmetric platforms, entry still leads to higher consumer benefits. However, entry of less attractive platforms can increase ad nuisance levels so much that consumers are worse off. |
| Keywords: | advertising clutter; information congestion; limited attention; Media economics; two-sided markets |
| JEL: | D43 L13 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15130&r= |
| By: | Matsuyama, Kiminori; Ushchev, Philip |
| Abstract: | In existing models of endogenous innovation cycles, market size alters the amplitude of fluctuations without changing the nature of fluctuations. This is due to the ubiquitous assumption of CES homothetic demand system, implying that monopolistically competitive firms sell their products at an exogenous markup rate in spite of the empirical evidence for the procompetitive effect of entry and market size. We extend a model of endogenous innovation cycles to allow for the procompetitive effect, using a more general homothetic demand system, which contains both CES and translog as special cases. We show that a larger market size and/or a smaller innovation cost, which causes the markup rate to decline through the procompetitive effect, has destabilizing effects on the dynamics of innovation. |
| Keywords: | Dynamic monopolistic competition; Endogenous innovation cycles; H.S.A.; market size; Periodic cycle; Piecewise-linear dynamical system; Procompetitive Effect; Robust chaotic attractor; the Judd model |
| JEL: | D43 E32 L13 O31 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15010&r= |
| By: | Kunz, Johannes; Propper, Carol; Staub, Kevin; Winkelmann, Rainer |
| Abstract: | We examine variation in hospital quality across ownership, market concentration and membership of a hospital system. We use a measure of quality derived from the penalties imposed on hospitals under the flagship Hospital Readmissions Reduction Program. We employ a novel estimation approach that extracts latent hospital quality from panel data on penalties and addresses the problem of never- or always-penalized hospitals in short panels. Our quality measure correlates strongly across penalized conditions and with other non-incentivized quality metrics. We document a robust and sizable for-profit quality gap, which is largely crowded out by competition, particularly amongst high-quality and system-organized hospitals. |
| Keywords: | A ordable Care Act; Competition; Hospital quality |
| JEL: | H51 I1 I11 I18 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15045&r= |
| By: | Banal-Estanol, Albert; Duso, Tomaso; Seldeslachts, Jo; Szücs, Florian |
| Abstract: | We investigate the dimensions through which R&D spillovers are propagated across fi rms via cooperation through Research Joint Ventures (RJVs). We build on the framework developed by Bloom et al. (2013) which considers the opposing effects of technology spillovers and product market rivalry, and extend it to account for RJVs. Our main fi ndings are that the adverse effects of product market rivalry are mitigated if fi rms cooperate in RJVs and that R&D spending is reduced among technologically close RJV participants. |
| Keywords: | Market value; patents; R&D; Research Joint Ventures; Spillovers |
| JEL: | K21 L24 L44 O32 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15155&r= |
| By: | Ciliberto, Federico; Jäkel, Ina Charlotte |
| Abstract: | In many countries, exports are highly concentrated among a few "superstar" firms. We estimate the export decisions of superstar firms as the result of a complete information, simultaneous, discrete choice, static entry game. We employ a dataset on the universe of Danish trade transactions by firm, product and destination. We also obtain detailed information on applied, preferential tariff protection from the MAcMap-HS6 database. We find evidence of strong negative competitive effects of entry: in the absence of strategic competitive effects, firms would be 53.2 percentage points more likely to export to a given market. Next, we run two counterfactual exercises. We show that failing to account for the strategic interaction among superstar exporters leads to: (i) overstating the probability that firms would start exporting to a market following tariff elimination by a factor of two; and, (ii) overstating the probability that firms would stop exporting to a market if tariffs were imposed by a factor of more than five. |
| Keywords: | export participation; multiple equilibria; Strategic interaction; trade policy |
| JEL: | F12 F14 L13 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15236&r= |
| By: | Genakos, Christos D.; Grey, Felix; Ritz, Robert |
| Abstract: | Economic policy and shifts in input market prices often have significant effects on the marginal costs of firms and can prompt strategic responses that make their impact hard to predict. We introduce "generalized linear competition" (GLC), a new model that nests many existing theories of imperfect competition. We show how firm-level cost pass-through is a sufficient statistic to calculate the impact of a cost shift on an individual firm's profits. GLC sidesteps estimation of a demand system and requires no assumptions about the mode of competition, rivals' technologies and strategies, or "equilibrium" . In an empirical application to the US airline market, we demonstrate GLC's usefulness for ex ante policy evaluation and identify the winners and losers of climate-change policy. We also show how GLC's structure, under additional assumptions, can be used for welfare analysis and to endogenize the extent of regulation. |
| Keywords: | Airlines; Carbon Pricing; Imperfect Competition; Pass-Through; political economy; regulation |
| JEL: | D43 H23 L51 L93 |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15127&r= |
| By: | Mary Amiti; Sebastian Heise |
| Abstract: | A rapidly growing literature has shown that market concentration among domestic firms has increased in the United States over the last three decades. Using confidential census data for the manufacturing sector, we show that typical measures of concentration, once adjusted for sales by foreign exporters, actually stayed constant between 1992 and 2012. We reconcile these findings by linking part of the increase in domestic concentration to import competition. Although concentration among U.S.-based firms rose, the growth of foreign firms, mostly at the bottom of the sales distribution, counteracted this increase. We find that higher import competition caused a decline in the market shares of the top twenty U.S. firms. |
| Keywords: | market concentration; markups; import competition; international trade |
| JEL: | F14 F60 L11 |
| Date: | 2021–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:91745&r= |
| By: | Bergemann, Dirk; Heumann, Tibor; Morris, Stephen |
| Abstract: | We consider demand function competition with a finite number of agents and private information. We show that any degree of market power can arise in the unique equilibrium under an information structure that is arbitrarily close to complete information. Regardless of the number of agents and the correlation of payo¤ shocks, market power may be arbitrarily close to zero (the competitive outcome) or arbitrarily large (so there is no trade). By contrast, price volatility is always lower than the variance of the aggregate shock across all information structures. Alternative trading mechanisms lead to very distinct bounds as a comparison with Cournot competition establishes. |
| Keywords: | Cournot Competition; Demand function competition; incomplete information; market power; price impact; Price volatility; Supply function competition |
| JEL: | C72 D43 D44 D83 G12 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15104&r= |
| By: | Andreas (Centre for Competition Policy and School of Law, University of East Anglia) |
| Abstract: | This paper fills an important gap in the antitrust compliance literature by exploring the perspective of the price fixer in breaches of competition law. It provides a critical analysis of statements made by price fixers, their competition lawyers and in-house counsel involved in cartel cases. The study draws on a combination of publicly available statements and anonymised accounts collected over 15 years of engaging with each of these three groups. It concludes that those responsible for cartels are motivated by varying factors and do not necessarily understand or accept that cartel behaviour is wrongful. Also, disciplining those individuals is complicated by the incentives created through leniency and settlement programmes. These findings highlight the importance of continued investment in compliance and the broader need for education in competition law to make it less likely that infringements will occur in the first place. |
| Keywords: | Competition Law, Antitrust, Compliance, Cartels. |
| Date: | 2021–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:uea:ueaccp:2021_06&r= |
| By: | Martinez Miera, David; Repullo, Rafael |
| Abstract: | This paper shows the relevance of market power to assess the effects of safe interest rates on financial intermediaries' risk-taking decisions. We consider an economy where (i) intermediaries have market power in granting loans, (ii) intermediaries monitor borrowers which lowers their probability of default, and (iii) monitoring is costly and unobservable which creates a moral hazard problem with uninsured depositors. We show that lower safe rates lead to lower intermediation margins and higher risk-taking when intermediaries have low market power, but the result reverses for high market power. We examine the robustness of this result to introducing non-monitored market finance, heterogeneity in monitoring costs, and entry and exit of intermediaries. We also consider the effect of replacing uninsured by insured deposits, market power in raising deposits, and funding with both deposits and capital. |
| Keywords: | Bank monitoring; bank risk-taking; Imperfect Competition; intermediation margins; monetary policy |
| JEL: | E52 G21 L13 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15063&r= |
| By: | de Haas, Ralph; Lu, Liping; Ongena, Steven |
| Abstract: | We interview 379 European bank CEOs to identify their banks' main competitors. We then provide evidence on the drivers of bilateral bank competition, construct a novel competition measure at the locality level, and assess how well it explains variation in firms' credit constraints. We find that banks identify another bank as a main competitor in small-business lending when their branch networks overlap, when both are foreign owned or relationship oriented, or when the potential competitor has fewer hierarchical layers. Intense bilateral bank competition increases local credit constraints, especially for small firms, as competition may impede the formation of lending relationships. |
| Keywords: | Bilateral bank competition; credit constraints; multimarket contact |
| JEL: | D22 D40 F36 G21 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15015&r= |
| By: | Matsuyama, Kiminori; Ushchev, Philip |
| Abstract: | The Dixit-Stiglitz model of monopolistic competition with symmetric CES demand system with gross substitutes is widely used as a building block across many applied general equilibrium fields. Two of its remarkable features are the invariance of the markup rate and the optimality of the free-entry equilibrium. Of course, neither of these two features is robust. Departure from CES makes entry either procompetitive or anticompetitive (i.e., the markup rate either goes down or goes up as more firms enter). Departure from CES also makes entry either excessive or insufficient. But how is the condition for procompetitive vs. anticompetitive entry related to that for excessive vs. insufficient entry? To investigate this question, we extend the Dixit-Stiglitz monopolistic competition model to three classes of homothetic demand systems, which are mutually exclusive except that each of them contains CES as a knife-edge case. In all three classes, we show, among others, that entry is excessive (insufficient) when it is globally procompetitive (anticompetitive) and that, in the presence of the choke price, entry is procompetitive and excessive at least for a sufficiently large market size. |
| Keywords: | Excessive vs. Insufficient entry; homothetic demand systems with gross substitutes; monopolistic competition; Procompetitive vs. Anticompetitive entry |
| JEL: | D43 D61 D62 L13 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14991&r= |
| By: | Imas, Alex; Madarász, Kristóf |
| Abstract: | We propose a simple mechanism of mimetic dominance whereby a person's valuation for consuming an object or possessing an attribute is increasing in others' unmet desire for it. Such mimetic preferences help explain a host of market anomalies and generate novel predictions in a variety of domains. In bilateral exchange, people exhibit a social endowment effect, and there is an increased demand for goods that become relatively more scarce. A classic monopolist earns excess profit by randomly excluding some people from being able to purchase the product. We test the predictions of the model empirically across several exchange environments. When auctioning a private good, we find that randomly excluding people from the opportunity to bid substantially increases average bids amongst those who retain this option. Furthermore, exclusion leads to greater expected revenue than increasing competition through inclusion. This effect is absent when bidders know that those who are excluded have lower desires for the good. We demonstrate that mimetic preferences matter even for basic exchange: a person's demand for a good increases substantially when others are explicitly excluded from the opportunity to buy the same kind of good. Mimetic preferences have implications for both price and non-price based methods of exclusion: the model predicts Veblen effects, rationalizes attitudes against redistribution and trade, and provides a novel motive for social stratification and discrimination. |
| Keywords: | Competition; Exclusion; inequality; Mimetic Preferences; Objects of Desire; Trade |
| JEL: | D4 D9 P16 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15016&r= |
| By: | Rodemeier, Matthias |
| Abstract: | Can firms exploit behavioral biases to increase profits? Does consumer sophistication about these biases limit the scope of exploitation? To answer these questions, I run a series of natural field experiments with over 600,000 consumers and estimate novel sufficient statistics of consumer sophistication. The empirical application is a ubiquitous and widely regulated form of price discrimination: rebates that need to be actively claimed by consumers. These promotions are suspected of boosting sales even though many consumers eventually fail to claim the rebate-a phenomenon marketers refer to as "slippage." I show theoretically that consumers' subjective redemption probabilities can be inferred from how demand responds to rebates as opposed to simple price reductions. I identify these elasticities in three natural field experiments with a major online retailer, in which I randomize prices, redemption requirements, and reminders. Results reveal that claimable rebates in fact increase sales substantially even though 47% of consumers do not redeem the rebate. However, consumers exhibit a remarkable degree of sophistication: the demand response to a rebate is only 76% of the demand response to an equivalent price reduction. Structural estimates imply that consumers almost perfectly anticipate their inattention but vastly underestimate the hassle of redemption by 20 EUR per consumer. Exploiting this misperception increases the profitability of rebates by up to 260%. |
| Keywords: | consumer sophistication,price discrimination,field experiments,behavioral public economics |
| JEL: | D18 D61 D83 D49 D90 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cawmdp:124&r= |
| By: | Rahul Deb; Anne-Katrin Roesler |
| Abstract: | A monopolist seller of multiple goods screens a buyer whose type is initially unknown to both but drawn from a commonly known distribution. The buyer privately learns about his type via a signal. We derive the seller's optimal mechanism in two different information environments. We begin by deriving the buyer-optimal outcome. Here, an information designer first selects a signal, and then the seller chooses an optimal mechanism in response; the designer's objective is to maximize consumer surplus. Then, we derive the optimal informationally robust mechanism. In this case, the seller first chooses the mechanism, and then nature picks the signal that minimizes the seller's profits. We derive the relation between both problems and show that the optimal mechanism in both cases takes the form of pure bundling. |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2105.12304&r= |
| By: | Bergemann, Dirk; Strack, Philipp |
| Abstract: | A single seller faces a sequence of buyers with unit demand. The buyers are forward-looking and long-lived but vanish (and are replaced) at a constant rate. The arrival time and the valuation is private information of each buyer and unobservable to the seller. Any incentive compatible mechanism has to induce truth-telling about the arrival time and the evolution of the valuation. We derive the optimal stationary mechanism in closed form and characterize its qualitative structure. As the arrival time is private information, the buyer can choose the time at which he reports his arrival. The truth-telling constraint regarding the arrival time can be represented as an optimal stopping problem. The stopping time determines the time at which the buyer decides to participate in the mechanism. The resulting value function of each buyer cannot be too convex and must be continuously differentiable everywhere, reflecting the option value of delaying participation. The optimal mechanism thus induces progressive participation by each buyer: he participates either immediately or at a future random time. |
| Keywords: | Dynamic Mechanism Design; Interim Incentive Constraints; Interim Participation Constraints; Observable Arrival; Option value; Progressive Participation; Repeated Sales; Stopping Problem; Unobservable Arrival |
| JEL: | D44 D82 D83 |
| Date: | 2020–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:15111&r= |
| By: | Mayank Aggarwal; Anindya Chakrabarti; Chirantan Chatterjee; Matthew J. Higgins |
| Abstract: | Do upstream research shocks directly and contemporaneously impact related but disconnected downstream product markets? We explore this question using a natural experiment involving the New Delhi Metallo-Beta-Lactamase 1 superbug pathogenic outbreak in India. Using a difference-in-differences strategy, we find that this upstream research shock caused multinational firms selling antibiotics in India to reduce their market exposure. Surprisingly, this void was filled by domestic Indian firms. These results are bolstered by a concurrent decline in multinational prescriptions of focal products by Indian physicians relative to prescriptions for domestic firm products. We present a stylized model building on a Cournot differentiated duopoly model to explain these heterogeneous responses. Results are robust to alternate control groups, including synthetic controls, as well as placebo testing. Implications for health policy and innovation policy are discussed. |
| JEL: | I18 L1 L65 |
| Date: | 2021–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:28840&r= |