nep-com New Economics Papers
on Industrial Competition
Issue of 2023‒09‒25
twenty-six papers chosen by
Russell Pittman, United States Department of Justice

  1. Monopolistic Duopoly By Emanuele Bacchiega; Elias Carroni; Alessandro Fedele
  2. Third-Degree Price Discrimination in Two-Sided Markets By de Cornière, Alexandre; Mantovani, Andrea; Shekhar, Shiva
  3. Cost-Price Relationships in a Concentrated Economy By Falk Bräuning; José Fillat; Gustavo Joaquim
  4. Comments on the 2023 Draft Merger Guidelines: A Labor Market Perspective By Berger, David; Hasenzagl, Thomas; Herkenhoff, Kyle; Mongey, Simon; Posner, Eric A.
  5. Identification and Estimation of Demand Models with Endogenous Product Entry and Exit By Victor Aguirregabiria; Alessandro Iaria; Senay Sokullu
  6. Horizontal and Vertical Differentiation: Approaching Endogenous Measurement in Intra-industry Trade By Dutta, Sourish
  7. European firm concentration and aggregate productivity By Bighelli, Tommaso; Mertens, Matthias; Di Mauro, Filippo; Melitz, Marc
  8. Procurement in welfare programs: Evidence and implications from WIC infant formula contracts By Yonghong An; David Davis; Yizao Liu; Ruli Xiao
  9. Not as good as it used to be: Do streaming platforms penalize quality? By Gambato, Jacopo; Sandrini, Luca
  10. Full surplus extraction from colluding bidders By Larionov, Daniil
  11. Making their own weather? Estimating employer labour-market power and its wage effects By Pedro S. Martins; Antonio P. Melo
  12. Oligopolistic Competition, Price Rigidity, and Monetary Policy By Kozo Ueda; Kota Watanabe
  13. "Guinea Pig Trials" Utilizing GPT: A Novel Smart Agent-Based Modeling Approach for Studying Firm Competition and Collusion By Xu Han; Zengqing Wu; Chuan Xiao
  14. IS INDEX CONCENTRATION AN INEVITABLE CONSEQUENCE OF MARKET-CAPITALIZATION WEIGHTING? By Goldberg, Lisa R; Madhavan, Ananth; Selwitz, Harrison; Shkolnik, Alexander
  15. Market Concentration in Fintech By Dean Corbae; Pablo D'Erasmo; Kuan Liu
  16. The X Factor: Open Access, New Journals, and Incumbent Competitors By W Benedikt Schmal
  17. Capital Structure Dynamics and Financial Performance in Indian Banks (An Analysis of Mergers and Acquisitions) By Kurada T S S Satyanarayana; Addada Narasimha Rao; Kumpatla jaya surya
  18. Bidding and Investment in Wholesale Electricity Markets: Discriminatory versus Uniform-Price Auctions By Willems, Bert; Yueting, Yu
  19. Duopoly insurers' incentives for data quality under a mandatory cyber data sharing regime By Carlos Barreto; Olof Reinert; Tobias Wiesinger; Ulrik Franke
  20. Antitrust Enforcement Increases Economic Activity By Tania Babina; Simcha Barkai; Jessica Jeffers; Ezra Karger; Ekaterina Volkova
  21. Adam Smith's Perfectly Competitive Market is Not Pareto Efficient: A Dynamic Perspective By Ahmed, Muhammad Ashfaq; Nawaz, Nasreen
  22. Bidding for Talent: A Test of Conduct in a High-Wage Labor Market By Roussille, Nina; Scuderi, Benjamin
  23. Unionised dockworkers and port ownership structure in an international oligopoly By Meccheri, Nicola
  24. Efficiency vs. equity concerns in regulatory sandboxes By Crampes, Claude; Estache, Antonio
  25. Managing Congestion in Two-Sided Platforms: The Case of Online Rentals By Caterina Calsamiglia; Laura Doval; Alejandro Robinson-Cort\'es; Matthew Shum
  26. Noncooperative Oligopoly in Markets with a Continuum of Traders and a Strongly Connected Set of Commodities: A Limit Theorem By Ludovic A. Julien; Francesca Busetto; Giulio Codognato; Sayantan Ghosal; Damiano Turchet

  1. By: Emanuele Bacchiega (Department of Computer Science and Engineering, University of Bologna, Italy); Elias Carroni (Department of Economics, University of Bologna, Italy); Alessandro Fedele (Faculty of Economics and Management, Free University of Bozen-Bolzano, Italy)
    Abstract: We delve into the Hotelling price competition game without assuming full market coverage, and derive three equilibrium configurations. Two of them are well-known: Hotelling duopoly, where firms set the prices with the aim of stealing customers from the rival, and the market is fully covered; Local Monopolies, where firms avoid strategic interaction and business stealing, and the market is partially covered. In the third, firms interact strategically to keep the market covered, while at the same time avoiding business stealing; we define it as Monopolistic Duopoly (MD) because it combines the features of the other two scenarios. Despite the existence of few contributions on MD, this equilibrium configuration has been substantially ignored. By spelling out the economics of MD and emphasizing its intriguing properties, we establish that MD has, instead, relevant implications for the Hotelling literature.
    Keywords: Hotelling Price Competition Game; Market Coverage; Monopolistic Duopoly.
    JEL: L13 C72 D21
    Date: 2023–09
  2. By: de Cornière, Alexandre; Mantovani, Andrea; Shekhar, Shiva
    Abstract: We investigate the welfare effects of third-degree price discrimination by a two-sided platform that enables interaction between buyers and sellers. Sellers are heterogenous with respect to their per-interaction benefit, and, under price discrimination, the platform can condition its fee on sellers’ type. In a model with linear demand on each side, we show that price discrimination: (i) increases participation on both sides; (ii) enhances total welfare; (iii) may result in a strict Pareto improvement, with both seller types being better-off than under uniform pricing. These results, which are in stark contrast to the traditional analysis of price discrimination, are driven by the existence of cross-group network effects. By improving the firm’s ability to monetize seller participation, price discrimination induces the platform to attract more buyers, which then increases seller participation. The Pareto improvement result means that even those sellers who pay a higher price under discrimination can be better-off, due to the increased buyer participation.
    JEL: D42 D62 L11 L12
    Date: 2023–08
  3. By: Falk Bräuning; José Fillat; Gustavo Joaquim
    Abstract: We use local projections with granular instrumental variables to estimate the aggregate pass-through of costs into prices and how it is affected by industry concentration. On average, we find, prices increase above trend growth for three quarters after an exogenous cost shock, and the price increase is accompanied by a decline in output. The estimated pass-through of the shock into prices one quarter ahead is 0.7. The price response to shocks becomes about 27 percent larger when there is an increase in concentration similar to the one observed over the last 20 years. This differential effect depending on concentration is primarily driven by a larger pass-through of positive shocks that increase costs. Consistent with a market power channel, margins decrease less in more concentrated industries after cost increases. Within industries, margins of industry leaders are not squeezed in response to positive cost shocks, unlike those of followers, while negative shocks increase margins for all firms. Our findings shed light on the post-COVID inflationary pressures and the linkages between inflation dynamics and rising market concentration.
    Keywords: cost-price pass-through; industry concentration; inflation; supply shock identification
    JEL: E30 E31 L11 L16
    Date: 2023–04–01
  4. By: Berger, David (Duke University); Hasenzagl, Thomas (University of Minnesota); Herkenhoff, Kyle (University of Minnesota); Mongey, Simon (Federal Reserve Bank of Minneapolis); Posner, Eric A. (University of Chicago)
    Abstract: The DOJ and FTC clarify the role of labor market power ("monopsony") in the 2023 draft merger guidelines. The draft states in Guideline 11 that the structural presumption threshold applies to labor market concentration, while also suggesting that a stricter threshold may be warranted in labor markets. The post-merger Herfindahl-Hirschman Index (HHI) that defines a highly concentrated market is 1800, which is lower, and so stricter, than the 2010 guidelines. We provide five comments on the draft guidelines based on our recent work Berger, Hasenzagl, Herkenhoff, Mongey, and Posner (2023). (1) Explicitly addressing monopsony in the draft guidelines is grounded in economic theory and empirical research. (2) Workers benefit from the lower threshold for highly concentrated markets. (3) The narrow nature of labor markets and high degree of monopsony power in the U.S. may warrant an even lower threshold. For example, merger simulations indicate that workers would benefit if the agencies lowered the HHI threshold further—to 1500 or 1000. (4) Worker welfare is central to the 2023 draft guidelines but the language is not always clear about this. The guidelines should make clear that degradations of "worker welfare" or "total compensation" indicate anticompetitive effects. (5) Dominant firms that can slow wage growth – but not freeze or cut wages – are subject to Guideline 7.
    Keywords: mergers, monopsony, labor market power, concentration
    JEL: J42 G34 K21 L4
    Date: 2023–08
  5. By: Victor Aguirregabiria; Alessandro Iaria; Senay Sokullu
    Abstract: This paper deals with the endogeneity of firms' entry and exit decisions in demand estimation. Product entry decisions lack a single crossing property in terms of demand unobservables, which causes the inconsistency of conventional methods dealing with selection. We present a novel and straightforward two-step approach to estimate demand while addressing endogenous product entry. In the first step, our method estimates a finite mixture model of product entry accommodating latent market types. In the second step, it estimates demand controlling for the propensity scores of all latent market types. We apply this approach to data from the airline industry.
    Keywords: Demand for differentiated product; Endogenous product availability; Selection bias; Market entry and exit; Multiple equilibria; Identification; Estimation; Demand for airlines
    JEL: C14 C34 C35 C57 D22 L13 L93
    Date: 2023–08–27
  6. By: Dutta, Sourish
    Abstract: Studying intra-industry trade involves theoretical explanations and empirical methods to measure the phenomenon. Indicators have been developed to measure the intensity of intra-industry trade, leading to theoretical models explaining its determinants. It is essential to distinguish between horizontal and vertical differentiation in empirical analyses. The determinants and consequences of intra-industry trade depend on whether the traded products differ in quality. A method for distinguishing between vertical and horizontal differentiation involves comparing exports' unit value to imports for each industry's intra-industry trade. This approach has limitations, leading to the need for an alternative method.
    Keywords: Intra-industry trade, Vertical intra-industry trade, Horizontal intra-industry trade, Value Added
    JEL: F10 F11 F12 F14
    Date: 2023
  7. By: Bighelli, Tommaso (Halle Institute for Economic Research (IWH)); Mertens, Matthias (Halle Institute for Economic Research (IWH)); Di Mauro, Filippo (Halle Institute for Economic Research (IWH)); Melitz, Marc (Harvard University)
    Abstract: This paper derives a European Herfindahl–Hirschman concentration index from 15 micro-aggregated country datasets. In the last decade, European concentration rose due to a reallocation of economic activity toward large and concentrated industries. Over the same period, productivity gains from an increasing allocative efficiency of the European market accounted for 50% of European productivity growth while markups stayed constant. Using country-industry variation, we show that changes in concentration are positively associated with changes in productivity and allocative efficiency. This holds across most sectors and countries and supports the notion that rising concentration in Europe reflects a more efficient market environment rather than weak competition and rising market power.
    JEL: D24 F15 L11 L25 O47
    Date: 2022–12
  8. By: Yonghong An; David Davis; Yizao Liu; Ruli Xiao
    Abstract: This paper examines the impact of government procurement in social welfare programs on consumers, manufacturers, and the government. We analyze the U.S. infant formula market, where over half of the total sales are purchased by the Women, Infants, and Children (WIC) program. The WIC program utilizes first-price auctions to solicit rebates from the three main formula manufacturers, with the winner exclusively serving all WIC consumers in the winning state. The manufacturers compete aggressively in providing rebates which account for around 85% of the wholesale price. To rationalize and disentangle the factors contributing to this phenomenon, we model manufacturers' retail pricing competition by incorporating two unique features: price inelastic WIC consumers and government regulation on WIC brand prices. Our findings confirm three sizable benefits from winning the auction: a notable spill-over effect on non-WIC demand, a significant marginal cost reduction, and a higher retail price for the WIC brand due to the price inelasticity of WIC consumers. Our counterfactual analysis shows that procurement auctions affect manufacturers asymmetrically, with the smallest manufacturer harmed the most. More importantly, by switching from the current mechanism to a predetermined rebate procurement, the government can still contain the cost successfully, consumers' surplus is greatly improved, and the smallest manufacturer benefits from the switch, promoting market competition.
    Date: 2023–08
  9. By: Gambato, Jacopo; Sandrini, Luca
    Abstract: We study the incentives of a streaming platform to bias consumption when products are vertically differentiated. The platform offers mixed bundles of content to monetize consumers' interest in variety and pays royalties to sellers based on the effective consumption of the content they produce. When products are not vertically differentiated, the platform has no incentive to bias consumption in equilibrium: the platform being active represents a Pareto-improvement compared to the case in which she is not. With vertical differentiation, royalties can differ; the platform always biases recommendations in favor of the cheapest content, which hurts consumers and the high-quality seller. Biased recommendation always diminishes the incentives of a seller to increase the quality of her content for a given demand. If a significant share of the users is ex-ante unaware of the existence of the sellers the platform can bias recommendations more freely, but joining the platform encourages investment in quality. The bias, however, can lead to inefficient allocation of R&D efforts. From a policy perspective, we propose this as a novel rationale for regulating algorithmic recommendations in streaming platforms.
    Keywords: platform economics, media economics, recommendation bias, innovation
    JEL: D4 L1 L5
    Date: 2023
  10. By: Larionov, Daniil
    Abstract: I consider a repeated auction setting with colluding buyers and a seller who adjusts reserve prices over time without long-term commitment. To model the seller's concern for collusion, I introduce a new equilibrium concept: collusive public perfect equilibrium. For every strategy of the seller I define the corresponding "buyer-game" in which the seller is replaced by Nature who chooses the reserve prices for the buyers in accordance with the seller's strategy. A public perfect equilibrium is collusive if the buyers cannot achieve a higher symmetric public perfect equilibrium payoff in the corresponding buyer-game. In a setting with symmetric buyers with private binary iid valuations and publicly revealed bids, I find collusive public perfect equilibria that allow the seller to extract the entire surplus from the buyers in the limit as the buyers' discount factor goes to 1. I therefore show that a non-committed seller can effectively fight collusion even when she faces patient buyers, can only set reserve prices, and has to satisfy stringent public disclosure requirements.
    Date: 2023
  11. By: Pedro S. Martins; Antonio P. Melo
    Abstract: The subdued wage growth observed in many countries has spurred interest in monopsony views of regional labour markets. This study measures the extent and robustness of employer power and its wage implications exploiting comprehensive matched employer-employee data. We find average (employment-weighted) Herfindhal indices of 800 to 1, 100, stable over the 1986-2019 period covered, and that typically less than 9% of workers are exposed to concentration levels thought to raise market power concerns. When controlling for both worker and firm heterogeneity and instrumenting for concentration, we find that wages are negatively affected by employer concentration, with elasticities of around -1.4%. We also find that several methodological choices can change significantly both the measurement of concentration and its wage effects.
    Keywords: Oligopsony, Wages, Regional labour markets, Worker mobility, Portugal
    JEL: J42 J31 J63
    Date: 2023
  12. By: Kozo Ueda (Waseda University); Kota Watanabe (Canon Institute for Global Studies and University of Tokyo)
    Abstract: This study investigates how strategic and heterogeneous price setting influences the real effect of monetary policy. Japanese data show that firms with larger market shares exhibit more frequent and larger price changes than those with smaller market shares. We then construct an oligopolistic competition model with sticky prices and asymmetry in terms of competitiveness and price stickiness, which shows that a positive cross superelasticity of demand generates dynamic strategic complementarity, resulting in decreased price adjustments and an amplified real effect of monetary policy. Whether a highly competitive firm sets its price more sluggishly and strategically than a less competitive firm depends on the shape of the demand system, and the empirical results derived from the Japanese data support Hotelling’s model rather than the constant elasticity of substitution preferences model. Dynamic strategic complementarity and asymmetry in price stickiness can substantially enhance the real effect of monetary policy.
    Keywords: strategic complementarity; price stickiness; real rigidity; competition
    JEL: D43 E31 E52 L11
    Date: 2023–07
  13. By: Xu Han; Zengqing Wu; Chuan Xiao
    Abstract: Firm competition and collusion involve complex dynamics, particularly when considering communication among firms. Such issues can be modeled as problems of complex systems, traditionally approached through experiments involving human subjects or agent-based modeling methods. We propose an innovative framework called Smart Agent-Based Modeling (SABM), wherein smart agents, supported by GPT-4 technologies, represent firms, and interact with one another. We conducted a controlled experiment to study firm price competition and collusion behaviors under various conditions. SABM is more cost-effective and flexible compared to conducting experiments with human subjects. Smart agents possess an extensive knowledge base for decision-making and exhibit human-like strategic abilities, surpassing traditional ABM agents. Furthermore, smart agents can simulate human conversation and be personalized, making them ideal for studying complex situations involving communication. Our results demonstrate that, in the absence of communication, smart agents consistently reach tacit collusion, leading to prices converging at levels higher than the Bertrand equilibrium price but lower than monopoly or cartel prices. When communication is allowed, smart agents achieve a higher-level collusion with prices close to cartel prices. Collusion forms more quickly with communication, while price convergence is smoother without it. These results indicate that communication enhances trust between firms, encouraging frequent small price deviations to explore opportunities for a higher-level win-win situation and reducing the likelihood of triggering a price war. We also assigned different personas to firms to analyze behavioral differences and tested variant models under diverse market structures. The findings showcase the effectiveness and robustness of SABM and provide intriguing insights into competition and collusion.
    Date: 2023–08
  14. By: Goldberg, Lisa R; Madhavan, Ananth; Selwitz, Harrison; Shkolnik, Alexander
    Keywords: Index, concentration, breadth, power law, turnover, reflecting Brownian motion, Banking, Finance and Investment
    Date: 2023–01–01
  15. By: Dean Corbae; Pablo D'Erasmo; Kuan Liu
    Abstract: This paper discusses concentration in consumer credit markets with a focus on fintech lenders and residential mortgages. We present evidence that shows that concentration among fintech lenders is significantly higher than that for bank lenders and other nonbank lenders. The data also show that the overall concentration in mortgage lending has declined between 2011 and 2019, driven mostly by a reduction in concentration among bank lenders. We present a simple model to show that changes in lender financial technology (interpreted as improvements in quality of loan services) explain more than 50 percent of the increase in fintech market shares and 43 percent of the increase in fintech concentration. This change in concentration in the fintech industry may have important implications for regulatory policy and financial stability.
    Keywords: fintech; concentration; mortgage lending
    JEL: G2 L1 L5
    Date: 2023–06–08
  16. By: W Benedikt Schmal
    Abstract: The academic publishing market is considerable in its size, its highly oligopolistic structure, and the profits it extracts from researchers and their institutions. In this paper, I evaluate whether a citation advantage exists for open-access publications and whether new market entrants suffer from less recognition. To do so, I exploit a quasi-causal setting created by Elsevier. In 2019, the publisher launched its ‘X journals:’ Relying on the editorial process of their ‘parent journals, ’ X journals were the fully open-access derivatives of established outlets. In parallel, Elsevier continued to offer authors an open-access option for their publications within the established outlets. Exploiting this threefold variation, I cannot detect any impact of open access on citations within the incumbent journals. However, a large and adverse effect exists for the novel journals. This ‘X factor’ represents a nonnegligible entry barrier for potential competitors in the publishing market. One potential way to mitigate this can be strict open-access requirements for publications supported by grants. My findings highlight the challenges on the way to more open access and stronger competition in the academic publishing market.
    Keywords: Open Access, Elsevier, Citations, Mirror Journals, Grants, Transformative Agreements, Economics of Publishing, Market Entry
    Date: 2023–08–22
  17. By: Kurada T S S Satyanarayana; Addada Narasimha Rao; Kumpatla jaya surya
    Abstract: This research investigates the multifaceted relationship underlying capital structure dynamics along with financial performance as a result of mergers and acquisitions, or M&As, in Indian banks. In the face of increasing competition, banks have deliberately embraced M&A as a strategy of improving commercial prospects and maintaining financial stability. The primary goal of this study is to examine the changes in the capital framework and financial results of banks before and after M&A transactions. The investigation, which employs a paired t-test as a method of statistical analysis, is based on a review of annual reports from selected banks over a two-year period before and after M&A transactions. The paired t-test approach allows for a thorough statistical analysis of interconnected datasets, revealing the subtle influence of M&A attempts on both bank financial performance as well as capital structure dynamics. The study's findings have the potential to add to the current body of knowledge on organisational planning, managing finances, and capital structure optimisation. The research has practical significance for financial companies, legislators, and scholars interested in understanding the profound effects of M&A inside the arena of financial institutions that operate within fiercely competitive landscapes because it provides comprehensive insights regarding the complex consequences of banking merger and acquisition (M&A) deals on capital structure as well as financial performance. Finally, the goal of this research is to provide the banking sector with educated decision-making capabilities and strategic guidance to businesses facing heightened competition while coping with the complexities of capital structure.
    Date: 2023–08
  18. By: Willems, Bert; Yueting, Yu
    Abstract: We compare uniform and discriminatory-price auctions in wholesale electricity markets, studying both long-run investment incentives and short-run bidding behaviors. We develop a monopolistic competition model with a continuum of generation technologies ranging from base load to peak load, free entry and uncertain elastic demand. Our findings reveal that discriminatory-price auctions are inefficient because consumers’ willingness to pay exceeds the marginal costs and investment incentives are distorted. Despite having an equal total installed capacity, the generation mix under discriminatory-price auctions skews towards a shortage of base-load technologies. Consequently, this results in a lower long-run consumer surplus.
    JEL: D44 D47 L94
    Date: 2023–08
  19. By: Carlos Barreto; Olof Reinert; Tobias Wiesinger; Ulrik Franke
    Abstract: We study the impact of data sharing policies on cyber insurance markets. These policies have been proposed to address the scarcity of data about cyber threats, which is essential to manage cyber risks. We propose a Cournot duopoly competition model in which two insurers choose the number of policies they offer (i.e., their production level) and also the resources they invest to ensure the quality of data regarding the cost of claims (i.e., the data quality of their production cost). We find that enacting mandatory data sharing sometimes creates situations in which at most one of the two insurers invests in data quality, whereas both insurers would invest when information sharing is not mandatory. This raises concerns about the merits of making data sharing mandatory.
    Date: 2023–05
  20. By: Tania Babina; Simcha Barkai; Jessica Jeffers; Ezra Karger; Ekaterina Volkova
    Abstract: We hand-collect and standardize information describing all 3, 055 antitrust lawsuits brought by the Department of Justice (DOJ) between 1971 and 2018. Using restricted establishment-level microdata from the U.S. Census, we compare the economic outcomes of a non-tradable industry in states targeted by DOJ antitrust lawsuits to outcomes of the same industry in other states that were not targeted. We document that DOJ antitrust enforcement actions permanently increase employment by 5.4% and business formation by 4.1%. Using an event-study design, we find (1) a sharp increase in payroll that exceeds the increase in employment, meaning that DOJ antitrust enforcement increases average wages, (2) an economically smaller increase in sales that is statistically insignificant, and (3) a precise increase in the labor share. While we cannot separately measure the quantity and price of output, the increase in production inputs (employment), together with a proportionally smaller increase in sales, strongly suggests that these DOJ antitrust enforcement actions increase the quantity of output and simultaneously decrease the price of output. Our results show that government antitrust enforcement leads to persistently higher levels of economic activity in targeted industries.
    JEL: E24 J21 K21 L4 L40
    Date: 2023–08
  21. By: Ahmed, Muhammad Ashfaq; Nawaz, Nasreen
    Abstract: The invisible hand of a perfectly competitive market refers to the self-regulating behavior of the market where if each consumer and producer is allowed to freely make their own choices, the market settles at an efficient outcome which is beneficial to all the individual members of the society and hence to the society as a whole. Two well-known facets of the invisible hand are generally mentioned in the economics literature - the first one is a static picture of a perfectly competitive market, i.e., a competitive market is efficient in an equilibrium; and the second one is that if the competitive market is disturbed from its equilibrium position, in the absence of a market failure and frictions, the market automatically settles at a new efficient equilibrium. Existing literature does not consider the most important dynamic facet of the perfectly competitive market from perspective of Pareto efficiency, i.e., how efficient is a perfectly competitive market on the dynamic adjustment path after an economic shock in the absence of all kinds of frictions and price rigidities, and if all the ideal conditions are maintained. This research models the dynamic facet of the market and concludes that Adam Smith's perfectly competitive market is not Pareto efficient and coordinated actions of economic agents can result in a level of economic efficiency on the dynamic adjustment path which is not achievable by a free market mechanism.
    Keywords: Dynamic efficiency, Adjustment Path, Equilibrium, Coordination
    JEL: D40 D41 D50 E32
    Date: 2023–05–04
  22. By: Roussille, Nina (MIT); Scuderi, Benjamin (UC Berkeley)
    Abstract: We develop a procedure for adjudicating between models of firm wage-setting conduct. Using data on workers' choice sets and decisions over real jobs from a U.S. job search platform, we first estimate workers' rankings over firms' non-wage amenities. We document three key findings: 1) On average, workers are willing to accept 12.3% lower salaries for a 1-S.D. improvement in amenities. 2) Between-worker preference dispersion is equally large, indicating that preferences are not well-described by a single ranking. 3) High-paying firms have better amenities. Following the modern IO literature, we use these estimates to formulate a test of conduct based on exclusion restrictions. Oligopsonistic models incorporating strategic interactions between firms and tailoring of wage offers to workers' outside options are rejected in favor of simpler monopsonistic models featuring near-uniform markdowns. Misspecification has meaningful consequences: while our preferred model predicts average markdowns of 19.5%, others predict average markdowns as large as 26.6%.
    Keywords: wage-setting conduct, markdowns, monopsony
    JEL: J31 J42 L21
    Date: 2023–07
  23. By: Meccheri, Nicola
    Abstract: In an international duopoly with two markets and two ports, this paper investigates the role of dockworkers unionisation in affecting welfare outcomes under public and private ports, as well as in determining the endogenous choice by governments of port ownership structure. While private ports maximise profits, public ports maximise domestic welfare and face a budget constraint, which is binding when unions are suf- ficiently wage-oriented and shipping costs are not too high. Consumer surplus, total wage bill and domestic welfare are generally higher under public ownership, especially when unions are wage-oriented. The opposite holds true for firm profits, whilst privati- sation always increases port profits. Moreover, relative to endogenous port ownership structures, state-owned ports appear as the most likely equilibrium result although all possible configurations may arise in equilibrium, including an asymmetric structure with a state-owned port and a private port.
    Keywords: unionised dockworkers, port ownership structure, international duopoly, welfare outcomes
    JEL: F16 J51 L33 R48
    Date: 2023
  24. By: Crampes, Claude; Estache, Antonio
    Abstract: The paper makes the case for a more systematic ex-ante assessment of the distribution of gains and losses from efficiency enhancing innovations that regulatory sandboxes are expected to test. It shows how a prior formal modelling of tests can inform the regulators on the possible need to control better upfront in the design of the sandbox for some otherwise underestimated but predictable distributional effects. Failing to do so is likely to lead to underestimate efficiency-equity trade-offs and other distributional issues, across stakeholders or within groups of stakeholders. Simple Industrial Organization models will often suffice to identify the potential issues at an early stage and allow better sandboxes designs and hence more reliable policy relevant results.
    Keywords: Regulatory sandboxes; innovation; governance; anti-trust; regulation; efficiency; equity; quality standards
    JEL: K20 K21 K23 L12 L13 L15 L51 O31 O33
    Date: 2023–09–07
  25. By: Caterina Calsamiglia; Laura Doval; Alejandro Robinson-Cort\'es; Matthew Shum
    Abstract: Thick two-sided matching platforms, such as the room-rental market, face the challenge of showing relevant objects to users to reduce search costs. Many platforms use ranking algorithms to determine the order in which alternatives are shown to users. Ranking algorithms may depend on simple criteria, such as how long a listing has been on the platform, or incorporate more sophisticated aspects, such as personalized inferences about users' preferences. Using rich data on a room rental platform, we show how ranking algorithms can be a source of unnecessary congestion, especially when the ranking is invariant across users. Invariant rankings induce users to view, click, and request the same rooms in the platform we study, greatly limiting the number of matches it creates. We estimate preferences and simulate counterfactuals under different ranking algorithms varying the degree of user personalization and variation across users. In our case, increased personalization raises both user match utility and congestion, which leads to a trade-off. We find that the current outcome is inefficient as it lies below the possibility frontier, and propose alternatives that improve upon it.
    Date: 2023–08
  26. By: Ludovic A. Julien; Francesca Busetto; Giulio Codognato; Sayantan Ghosal; Damiano Turchet
    Abstract: We consider a mixed version of the Shapley window model, where large traders are represented as atoms and small traders are represented by an atomless part. Our main theorem shows that any sequence of Cournot-Nash allocations of the strategic market games associated with the partial replications of the exchange economy has a limit point for each trader and that the assignment determined by these limit points is a Walrasian allocation of the original economy. Instead of relying on restrictive assumptions on the characteristics of atoms, as in Busetto et al. (2017), our limit theorem relies on the characteristics of agents in the atomless part and their endogenously price-taking behavior.
    Keywords: Cournot-Nash equilibrium, Walras equilibrium, Asymptotic equivalence
    JEL: D42 D51
    Date: 2023

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