nep-com New Economics Papers
on Industrial Competition
Issue of 2024‒03‒18
29 papers chosen by
Russell Pittman, United States Department of Justice

  1. Real Estate Commissions and Homebuying By Borys Grochulski; Zhu Wang
  2. The Strategic Value of Data Sharing in Interdependent Markets By Hemant Bhargava; Antoine Dubus; David Ronayne; Shiva Shekhar
  3. How Do Digital Advertising Auctions Impact Product Prices? By Dirk Bergemann; Alessandro Bonatti; Nicholas Wu
  4. A Unified Approach to Second and Third Degree Price Discrimination By Dirk Bergemann; Tibor Heumann; Michael C. Wang
  5. On Three-Layer Data Markets By Alireza Fallah; Michael I. Jordan; Ali Makhdoumi; Azarakhsh Malekian
  6. Inequality and Market Concentration: New Evidence from Australia By Lachlan Hotchin; Andrew Leigh
  7. Environmental policies with green network effect and price discrimination By Burani, Nadia; Mantovani, Andrea
  8. Measuring the Deviations from Perfect Competition: International Evidence (second version) By Razzak, Weshah
  9. Demographics, labor market power and the spatial equilibrium By Furbach, Nina
  10. How do incumbents react to the exit of a potential competitor? Evidence from the airline sector By Rafael Rocha Oliveira; Claudio Lucinda
  11. Spending and Pricing to Deter Arbitrage By Salant, Stephen
  12. Intermodal competition in the Brazilian interstate travel market By Frederico A. Turolla; Moises D. Vassallo; Alessandro V. M. Oliveira
  13. Subsidizing business entry in competitive credit markets By Vincenzo Cuciniello; Claudio Michelacci; Luigi Paciello
  14. Information-Based Pricing in Specialized Lending By Kristian Blickle; Zhiguo He; Jing Huang; Cecilia Parlatore
  15. Monopsony Power, Offshoring, and a European Minimum Wage By Hartmut Egger; Udo Kreickemeier; Jens Wrona
  16. Difference-in-Differences in the Marketplace By Robert Minton; Casey B. Mulligan
  17. The True Nature behind the Implementation of the Extraterritorial Application of Antitrust Laws in Cartelization Control Policy By Selima Ben Maouia Ben Slama
  18. Relationship-Specific Investments and Firms' Boundaries: Evidence from Textual Analysis of Patents By Bena, Jan; Erel, Isil; Wang, Daisy; Weisbach, Michael S.
  19. Patents, Freedom to Operate, and Follow-on Innovation: Evidence from Post-Grant Opposition By Fabian Gaessler; Dietmar Harhoff; Stefan Sorg; Georg von Graevenitz
  20. Entry, exit, and market structure in a changing climate By Michele Cascarano; Filippo Natoli; Andrea Petrella
  21. Quasi-Experimental Demand Estimation of Memberships and of Their Usage By Matteo Filippi; Mastrobuoni Giovanni; Mollisi Vincenzo
  22. Understanding the Demand-Side of an Illegal Market: Prohibition of Menthol Cigarettes By Donald S. Kenkel; Alan D. Mathios; Grace N. Phillips; Revathy Suryanarayana; Hua Wang; Sen Zeng
  23. The Limits of Price Discrimination Under Privacy Constraints By Alireza Fallah; Michael I. Jordan; Ali Makhdoumi; Azarakhsh Malekian
  24. Semiconductor Competition Between China and Taiwan By Moustafa Hamil
  25. Data, Privacy Laws and Firm Production: Evidence from the GDPR By Mert Demirer; Diego J. Jiménez Hernández; Dean Li; Sida Peng
  26. A Distributional Robust Analysis of Buyback and Cap-and-Trade Policies By Fakhrabadi, Mahnaz; Sandal, Leif K.
  27. Insourcing Vs Outsourcing in Vertical Structure By Dongsoo Shin; Roland Strausz
  28. Steering Labor Mobility through Innovation By Ma, Song; Wang, Wenyu; Wu, Yufeng
  29. Firms and inequality when unemployment is high By Bassier, Ihsaan

  1. By: Borys Grochulski; Zhu Wang
    Abstract: We construct a model of home search and buying in the U.S. housing market and evaluate the commission paid to homebuyers' agents. In the model, as in reality, homebuyers enjoy free house showings without having to pay their agents out of pocket. Buyers' agents receive a commission equal to 3% of the house price only after a home is purchased. We show this compensation structure deviates from cost basis and may lead to elevated home prices, overused agent services, and prolonged home searches. Based on the model, we discuss policy interventions that may improve housing search efficiency and social welfare.
    Keywords: Search and matching; Housing market; Real estate commission
    JEL: D4 L1 L8 R3
    Date: 2024–02–28
  2. By: Hemant Bhargava (University of California, Davis); Antoine Dubus (ETH Zurich); David Ronayne (ESMT Berlin); Shiva Shekhar (Tilburg School of Economics and Management)
    Abstract: Large, generalist, technology firms—so-called “big-tech” firms—powerful in their primary market, routinely enter secondary markets consisting of specialist firms. Naturally, one might expect a specialist firm to be fiercely protective of its data as a way to maintain its market position in the secondary market. Counter to this intuition, we demonstrate that a specialist firm willingly shares its market data with an intruding tech generalist. We do so by developing a model of crossmarket competition in which data collected via consumer usage in each market is a factor of product quality in both markets. We show that a specialist firm shares its data to strategically create co-dependence between the two firms, thereby softening competition and transforming the generalist firm from a traditional competitor into a co-opetitor. For the generalist intruder, data from the specialist firm substitute for its own investments in product quality in the secondary market. As such, the act of sharing data makes the intruder a stakeholder in the valuable data collected by the specialist, and consequently in the specialist’s continued success. Moreover, while the firms benefit from data sharing, consumers can be worse off from the weaker price competition and lower investments in innovation. Our results have managerial and policy implications, notably on account of backlash against data collection and the market power of big tech firms.
    Keywords: data-driven quality improvements; externalities; co-opetition; data sharing;
    Date: 2024–02–17
  3. By: Dirk Bergemann (Yale University); Alessandro Bonatti (MIT); Nicholas Wu (Yale University)
    Abstract: We ask how the advertising mechanisms of digital platforms impact product prices. We present a model that integrates three fundamental features of digital advertising markets: (i) advertisers can reach customers on and off-platform, (ii) additional data enhances the value of matching advertisers and consumers, and (iii) bidding follows auction-like mechanisms. We compare data-augmented auctions, which leverage the platformÕs data advantage to improve match quality, with managed campaign mechanisms, where advertisersÕ budgets are transformed into personalized matches and prices through auto-bidding algorithms. In data-augmented second-price auctions, advertisers increase off- platform product prices to boost their competitiveness on-platform. This leads to socially efficient allocations on-platform, but inefficient allocations off-platform due to high product prices. The platform-optimal mechanism is a sophisticated managed campaign that conditions on-platform prices for sponsored products on off-platform prices set by all advertisers. Relative to auctions, the optimal managed campaign raises off-platform product prices and further reduces consumer surplus.
    Date: 2023–07
  4. By: Dirk Bergemann (Yale University); Tibor Heumann (Pontificia Universidad Catolica de Chile); Michael C. Wang (Yale University)
    Abstract: We analyze the welfare impact of a monopolist able to segment a multiproduct market and offer differentiated price menus within each segment. We characterize a family of extremal distributions such that all achievable welfare outcomes can be reached by selecting segments from within these distributions. This family of distributions arises as the solution to the consumer maximizing distribution of values for multigood markets. With these results, we analyze the effect of segmentation on consumer surplus and prices in both interior and extremal markets, including conditions under which there exists a segmentation benefiting all consumers. Finally, we present an efficient algorithm for computing segmentations.
    Date: 2024–01–01
  5. By: Alireza Fallah; Michael I. Jordan; Ali Makhdoumi; Azarakhsh Malekian
    Abstract: We study a three-layer data market comprising users (data owners), platforms, and a data buyer. Each user benefits from platform services in exchange for data, incurring privacy loss when their data, albeit noisily, is shared with the buyer. The user chooses platforms to share data with, while platforms decide on data noise levels and pricing before selling to the buyer. The buyer selects platforms to purchase data from. We model these interactions via a multi-stage game, focusing on the subgame Nash equilibrium. We find that when the buyer places a high value on user data (and platforms can command high prices), all platforms offer services to the user who joins and shares data with every platform. Conversely, when the buyer's valuation of user data is low, only large platforms with low service costs can afford to serve users. In this scenario, users exclusively join and share data with these low-cost platforms. Interestingly, increased competition benefits the buyer, not the user: as the number of platforms increases, the user utility does not improve while the buyer utility improves. However, increasing the competition improves the overall utilitarian welfare. Building on our analysis, we then study regulations to improve the user utility. We discover that banning data sharing maximizes user utility only when all platforms are low-cost. In mixed markets of high- and low-cost platforms, users prefer a minimum noise mandate over a sharing ban. Imposing this mandate on high-cost platforms and banning data sharing for low-cost ones further enhances user utility.
    Date: 2024–02
  6. By: Lachlan Hotchin; Andrew Leigh
    Abstract: Are excessively concentrated markets inequitable as well as inefficient? We explore this issue by analyzing the degree of market concentration in the industries where Australia’s wealthiest made their fortunes. Compared with the economy at large, we find that top wealth holders have tended to make their fortunes in industries with a higher-than-average degree of market concentration. Top wealth shares have grown substantially, and from 1990 to 2020, there appears to have been an increase in the propensity of top wealth holders to make their fortunes in highly concentrated industries.
    Keywords: income distribution, competition, market power
    JEL: D31 L12 L41
    Date: 2024–02
  7. By: Burani, Nadia; Mantovani, Andrea
    Abstract: We consider a duopolistic market in which a green firm competes with a brown rival, and both firms offer vertically differentiated products. Consumers are heterogeneous in both their willingness to pay for intrinsic quality and environmental concern. The latter is positively related to the green firm's market share, giving rise to a green network e¤ect. We characterize how price and quality schedules are set and how consumers sort between the two firms at the market equilibrium. When considering pollution both from consumption and production, we compute total welfare and evaluate the impact of an emission tax and a subsidy for the consumption of the green good. Our analysis demonstrates that efficiency can be achieved through an emission tax, which restores the optimal differential between firms' intrinsic qualities, combined with a discriminatory subsidy, which restores the optimal sorting of consumers.
    Keywords: bidimensional product differentiation; environmental concern; green network effect; pollution emissions; price discrimination; subsidy
    JEL: D21 L13 H21 Q58 Q51
    Date: 2024–02–26
  8. By: Razzak, Weshah
    Abstract: We use aggregated macroeconomic data for 43 countries plus the EU19 and EU27 from 1970 to 2022 to test the microeconomic condition for Perfect Competition, whereby the price level is equal to the marginal cost in the long run. We postulate two forms of Perfect Competition in the macro data: a weaker-form and a stronger-form. The former exists if the price level and the marginal cost share a common long-run trend; i.e., cointegrated. The latter exists if the market price and the marginal cost are equal in the long run. There is more evidence for a weak-form competition than for strong-form competition. Macroeconomic interpretations of the deviations depend on whether the ratio of the price to marginal costs is equal to, greater, or lower than 1. The ratios vary significantly across countries and over time. A ratio of price to marginal cost >1 implies non-competitiveness. We interpret a ratio
    Keywords: Perfect Competition, price level, marginal cost, time series, cointgration, nonparametric
    JEL: C12 C13 C22 D01 D41
    Date: 2024–01–06
  9. By: Furbach, Nina
    Abstract: This paper studies how demographics affect aggregate labor market power, the urban wage premium and the spatial concentration of population. I develop a quantitative spatial model in which labor market competitiveness depends on the demographic composition of the local workforce. Using highly disaggregated administrative data from Germany, I find that firms have more labor market power over older workers: The labor supply elasticity decreases from more than 2 to 1 from age 20 to 64. Calibrating the model with the reduced-form elasticity estimates, I find that differences in labor supply elasticities across age groups can explain 4% of the urban wage premium and 2% of the spatial concentration of population. Demographics and skill together account for 10% of the urban wage premium and 2% of agglomeration. JEL Classification: J11, J31, J42, R23
    Keywords: demographics, Germany, monopsonistic competition, spatial equilibrium, urban wage premium
    Date: 2024–02
  10. By: Rafael Rocha Oliveira; Claudio Lucinda
    Abstract: Little attention has been given in the literature to the effects of the exit of a potential competitor. The extant papers usually analyze the incumbent response only in markets directly affected. They do not explore the effects of reduced competition in markets threatened by entry. Aiming to fill this gap this work evaluates the extent of a threat potential competitors are in terms of price and quantity supplied. We used the bankruptcy of Avianca, the fourth-largest airline in the Brazilian airline sector as a case study. We find evidence the main incumbents respond with a price increase. When analyzing the quantity supplied, we find no evidence of an incumbent response regarding the number of flights or the number of seats.
    Keywords: Threat; Potential competition; Exit; Bankruptcy; Airline companies; Tariffs airlines
    JEL: L13 L93 L43
    Date: 2024–02–16
  11. By: Salant, Stephen (Resources for the Future)
    Abstract: When a firm sells the same good in two markets at different prices but virtually no one in the high-price market purchases in the low-price market, the absence of arbitrage is typically attributed to exogenous “blockades, ” never to deliberate “arbitrage deterrence.” Such deterrence may involve not only limit-pricing but also spending to raise the consumers’ cost of arbitrage. I present examples of arbitrage deterrence from three industries: pharmaceuticals, chemicals, and automobiles. Motivated by these three examples, I generalize the standard model of third-degree price discrimination to encompass both blockaded and deterred arbitrage. I also develop a model where the lower of the two prices is negotiated as is done by foreign governments in the case of prescription drugs. In both models, if the government raises the firm’s marginal cost of deterring arbitrage, the higher price will fall and the lower one will rise but the firm will continue to deter arbitrage. In the bargaining model, if the absence of arbitrage is mistakenly attributed to exogenous factors when in fact it is the result of deliberate deterrence, econometric estimates of the firm’s bargaining power will be biased upwards.
    Date: 2024–02–28
  12. By: Frederico A. Turolla; Moises D. Vassallo; Alessandro V. M. Oliveira
    Abstract: This paper presents a test of intermodal interaction between coaches and airlines in Brazil in order to check for the efficacy of recent liberalization measures designed to promote competition in both industries. Interstate travel service in the country is heavily provided by coaches, and the system is fully operated by the private sector under public delegation through permits and authorizations. Agency-based regulation was introduced in 2002 along with a price cap regime aimed at enhancing the flexibility to change fares in response to demand and cost conditions. By making use of a reaction function-based model of coach operators' pricing decisions in the interstate travel market, we then estimate the sensitivity of the changes in coach fares to the changes in airline fares in a simultaneous-equation framework. Intermodal interaction among coach operators and airlines is found to be highly significant and probably due to the competition for a small but increasing set of premium, quality-sensitive, coach passengers.
    Date: 2024–02
  13. By: Vincenzo Cuciniello (Bank of Italy); Claudio Michelacci (EIEF); Luigi Paciello (EIEF)
    Abstract: Business creation subsidies are a means for reducing firm debt and bankruptcy risk. Do they work? To answer the question, we consider a general equilibrium model where firms are financially constrained at entry and borrow in a competitive market by issuing long-term debt. A subsidy stimulates entry and market competition, which increases the bankruptcy rate of incumbent firms. If the subsidy is paid out ex ante to finance start-up expenditures, the subsidy reduces the debt and the bankruptcy rate of start-ups; if paid out ex post as a refund for start-up expenditures, the subsidy crowds out the equity rather than the debt of start-ups and their bankruptcy rate also increases. The model is calibrated to match North-South differences across Italian provinces. The optimal subsidy in the South is paid out entirely ex ante and yields an increase in welfare equivalent to almost one percent of consumption. When the same subsidy is paid out ex post as a proportion of 60 per cent, it results in a welfare loss of a similar amount. We discuss the implications for the ‘I Stay in the South’ policy recently introduced in Italy.
    Keywords: Firm dynamics, overborrowing, ratchet effect
    JEL: E44 E62 G32 G33
    Date: 2023–10
  14. By: Kristian Blickle; Zhiguo He; Jing Huang; Cecilia Parlatore
    Abstract: We study specialized lending in a credit market competition model with private information. Two banks, equipped with similar data processing systems, possess “general” signals regarding the borrower's quality. However, the specialized bank gains an additional advantage through further interactions with the borrower, allowing it to access “specialized” signals. In equilibrium, both lenders use general signals to screen loan applications, and the specialized lender prices the loan based on its specialized signal conditional on making a loan. This private-information-based pricing helps deliver the empirical regularity that loans made by specialized lenders have lower rates (i.e., lower winning bids) and better ex-post performance (i.e., lower non-performing loans). We show the robustness of our equilibrium characterization under a generalized information structure, endogenize the specialized lending through information acquisition, and discuss its various economic implications.
    JEL: D43 D44 D82 G21 G23 L10
    Date: 2024–02
  15. By: Hartmut Egger; Udo Kreickemeier; Jens Wrona
    Abstract: This paper sets up a two-country model of offshoring with monopolistically competitive product and monopsonistically competitive labour markets. In our model, an incentive for offshoring exists even between symmetric countries, because shifting part of the production abroad reduces local labour demand and allows firms to more strongly execute their monopsonistic labour market power. However, offshoring between symmetric countries has negative welfare effects and therefore calls for policy intervention. In this context, we put forward the role of a common minimum wage and show that the introduction of a moderate minimum wage increases offshoring and reduces welfare. In contrast, a sizable minimum wage reduces offshoring and increases welfare. Beyond that, we also show that a sufficiently high common minimum wage cannot only eliminate offshoring but also inefficiencies in the resource allocation due to monopsonistic labour market distortions in closed economies.
    Keywords: offshoring, minimum wage, welfare effects
    JEL: F12 F16 F23 J42
    Date: 2024
  16. By: Robert Minton; Casey B. Mulligan
    Abstract: Price theory says that the most important effects of policy and technological change are often found beyond their first point of contact. This appears opposed to econometric methods that rule out spillovers of one person's treatment on another's outcomes. This paper uses the industry model from price theory to represent the statistical concepts of treatments and controls. When treated and control observations are in the same market, the controls are indirectly affected by the treatment. Moreover, even the effect of the treatment on the treated reveals only part of the consequence for the treated of treating the entire market, which is often the parameter of interest. Marshall's Laws of Derived Demand provide a guide for empirical work: precise price-theoretic interpretations of the direct and spillover effects of a treatment, the quantitative relationships between them, and how they correspond to the scale and substitution effects emphasized in price theory.
    Keywords: Difference-in-differences; Price theory; Spillovers; Laws of derived demand
    Date: 2024–02–05
  17. By: Selima Ben Maouia Ben Slama (University of Legal, Political and Social Sciences of Tunis, Tunisia)
    Abstract: The US Supreme Court was instrumental in developing a consistent body of case law on export cartels, which has greatly influenced the antitrust landscape of today. Several states have approved the extraterritorial application of US antitrust laws, although it has run across a lot of opposition. The unstable state of emerging nations is a serious problem since many of them lack the ability to structure their economies and safeguard their citizens. A wave of competition laws have been adopted as a result of the passage of competition laws, luring in international money and investors and fostering economic integration. Extraterritorialism may raise expenses rather than considerably lower them, though. Additionally, it undermines nations' confidence in their own judicial system. Another big issue with antitrust laws is obtaining the necessary evidence. In nations with a common law background, like the US, the discovery process is essential for conclusively proving evidence. To promote international cooperation and uphold a respectful view of other nations' sovereignty, the US has developed a number of conventions and accords. However, because nations are envious of their knowledge, these accords frequently have little teeth. Each nation must secure and safeguard information security in order to maintain the reputation of its businesses.
    Keywords: antitrust law, extraterritoriality, cartelization control, developing countries
    Date: 2023–08
  18. By: Bena, Jan (U of British Columbia); Erel, Isil (Ohio State U and ECGI); Wang, Daisy (Ohio State U); Weisbach, Michael S. (Ohio State U and ECGI)
    Abstract: The hold-up problem can impair firms' abilities to make relationship-specific investments through contracts. Ownership changes can mitigate this problem. To evaluate changes in the specificity of human capital investments, we perform textual analyses of patents filed by lead inventors from both acquirer and target firms before and after acquisitions. Inventors whose human capital is highly complementary with the patent portfolios of their acquisition partners are more likely to stay with the combined firm post-deal and subsequently make their investments more specific to the partner's assets. As ownership of another firm results in increasingly specific investments to that firm's assets, contracting issues related to relationship-specific investments is likely a motive for acquisitions.
    JEL: G34 L14 L22
    Date: 2023–12
  19. By: Fabian Gaessler (University Pompeu Fabra , Barcelona School of Management, Barcelona School of Economics, MPI-IC); Dietmar Harhoff (MPI-IC, LMU Munich, CEPR); Stefan Sorg (MPI-IC); Georg von Graevenitz (Queen Mary University of London)
    Abstract: We study the blocking effect of patents on follow-on innovation by others. We posit that follow-on innovation requires freedom to operate (FTO), which firms typically obtain through a license from the patentee holding the original innovation. Where licensing fails, follow-on innovation is blocked unless firms gain FTO through patent invalidation. Using large-scale data from post-grant oppositions at the European Patent Office, we find that patent invalidation increases follow-on innovation, measured in citations, by 16% on average. This effect exhibits a U-shape in the value of the original innovation. For patents on low-value original innovations, invalidation predominantly increases low-value followon innovation outside the patentee’s product market. Here, transaction costs likely exceed the joint surplus of licensing, causing licensing failure. In contrast, for patents on high-value original innovations, invalidation mainly increases high-value follow-on innovation in the patentee’s product market. We attribute this latter result to rent dissipation, which renders patentees unwilling to license out valuable technologies to (potential) competitors.
    Keywords: follow-on innovation; freedom to operate; licensing; patents; opposition;
    JEL: O31 O32 O33 O34
    Date: 2024–02–13
  20. By: Michele Cascarano (Bank of Italy); Filippo Natoli (Bank of Italy); Andrea Petrella (Bank of Italy)
    Abstract: Climate change has long-term effects on the size and composition of a country's business sector. Using administrative data on the universe of Italian firms, we find that an increase in the number of very hot days per year persistently reduces the growth rate of active firms in the market in the medium run. This is due to a drop in firm entry and an increase in firm exit, with relocation playing a minor role. A firm-level investigation reveals a dichotomy between firms that persistently suffer as a result of higher temperatures and those that improve their profitability by adapting to a hotter climate: a combination of size and age best identifies the two groups, where older, smaller-sized firms lie at one extreme and younger, larger firms at the other. According to an average climate scenario, the projected evolution of local temperatures will impact firm demography further, also exacerbating the divergent effects across warmer and colder areas over the current decade.
    Keywords: climate change, temperatures, firm dynamics
    JEL: D22 R12 Q54
    Date: 2023–07
  21. By: Matteo Filippi (Department of Economics, University of Zurich, Switzerland;); Mastrobuoni Giovanni (Department of Economics, Social Studies, Applied Mathematics and Statistics and Collegio Carlo Alberto, University of Torino, Torino, Italy, CEPR, IZA;); Mollisi Vincenzo (Department of Economics, Social Studies, Applied Mathematics and Statistics, University of Torino, Torino, Italy;)
    Abstract: Memberships are everywhere, and a growing number of superstar and small companies are turning their businesses into a membership-based model. However, the econometric challenges posed by endogenous pricing has caused research to lag behind, resulting in poor knowledge of membership pricing effect on consumers' purchase and usage. We fill this gap by focusing on an Italian museum membership card, an industry where memberships are rapidly gaining momentum. In particular, our Regression Discontinuity (RD) framework leverages several age-based price discontinuities to provide the first quasi-experimental estimates of membership cards' price elasticity. Depending on the specific age group, we find (absolute) price elasticities in the range 0.5-2.6, which are larger than the elasticities commonly found for single-ticket visits. Furthermore, we find that higher pricing is associated to a more intense and expensive use of the card; a closer look at the underlying mechanism suggests that a price-induced selection may be more important among the older cohorts, where the larger time availability arguably translates into more systematic price search efforts. Finally, we combine our previously-mentioned RD estimates to provide the first policy recommendation on membership cards' pricing.
    Keywords: membership, subscription, demand, elasticity, museum
    Date: 2024–02
  22. By: Donald S. Kenkel; Alan D. Mathios; Grace N. Phillips; Revathy Suryanarayana; Hua Wang; Sen Zeng
    Abstract: The Food and Drug Administration has proposed to prohibit menthol cigarettes, which are smoked by almost 19 million people in the U.S. Illegal markets for menthol cigarettes could not only blunt the prohibition’s intended consequence to reduce smoking but could also lead to unintended consequences. We use data from a discrete choice experiment to estimate a mixed logit model which predicts that the prohibition of menthol cigarettes would substantially increase the fraction of menthol smokers who attempt to quit. However, our model also predicts a substantial potential consumer demand for illegal menthol cigarettes. Depending on the impact of illegality on product prices, our model predicts the potential demand-side of an illegal market for menthol cigarettes could be 59-92 percent the size of the status quo market if menthol e-cigarettes are legal, and 69-100 percent the size of the status quo market if menthol e-cigarettes are also illegal. Our mixed logit model estimated in willingness to pay space implies that the mean WTP to avoid an illegal retail market is equivalent to a tax of $8.44 per pack. In our partial cost-benefit analysis, the opportunity costs of prohibition exceed the value of the reduction in mortality risks from secondhand smoke by $15.4 billion annually.
    JEL: D12 I12
    Date: 2024–02
  23. By: Alireza Fallah; Michael I. Jordan; Ali Makhdoumi; Azarakhsh Malekian
    Abstract: We consider a producer's problem of selling a product to a continuum of privacy-conscious consumers, where the producer can implement third-degree price discrimination, offering different prices to different market segments. In the absence of privacy constraints, Bergemann, Brooks, and Morris [2015] characterize the set of all possible consumer-producer utilities, showing that it is a triangle. We consider a privacy mechanism that provides a degree of protection by probabilistically masking each market segment, and we establish that the resultant set of all consumer-producer utilities forms a convex polygon, characterized explicitly as a linear mapping of a certain high-dimensional convex polytope into $\mathbb{R}^2$. This characterization enables us to investigate the impact of the privacy mechanism on both producer and consumer utilities. In particular, we establish that the privacy constraint always hurts the producer by reducing both the maximum and minimum utility achievable. From the consumer's perspective, although the privacy mechanism ensures an increase in the minimum utility compared to the non-private scenario, interestingly, it may reduce the maximum utility. Finally, we demonstrate that increasing the privacy level does not necessarily intensify these effects. For instance, the maximum utility for the producer or the minimum utility for the consumer may exhibit nonmonotonic behavior in response to an increase of the privacy level.
    Date: 2024–02
  24. By: Moustafa Hamil (University of Kasdi Merbah Ouargla, Algeria)
    Abstract: This paper explores the competition between China and Taiwan in the semiconductor industry. It discusses the current state of the industry in both countries, their competitive advantages, and the strategies employed to gain an edge. The research also examines the global implications of this competition, the key factors shaping the rivalry, and possible avenues for cooperation to enhance the semiconductor industry's competitiveness and efficiency. The relationship between China and Taiwan is experiencing intense competition over the electronics sector, including semiconductors and electronic chips. Taiwan plays a significant role in the high-tech and electronics industry, which makes it a target of China's economic and technological hegemony strategies. China seeks to achieve superiority in these industries and gain control over the global supply chain, which gives it great strategic power. Its policy is to try to increase its influence on Taiwan, both by diplomatic pressure and by constant military threats. China seeks to achieve "national unity" and restore Taiwan under its control. This geopolitical escalation is increasing simultaneously with the rivalry between China and the USA. The United States stands by Taiwan through its political and military support, which further aggravates the tension between the two states. This competitiveness manifests itself in multiple areas, including technology, security and economics. In short, the conflict between China and Taiwan over semiconductors and electronic chips reflects the rising geopolitical tensions in the region, with the overlap of economic, political and technological factors, the ongoing rivalry between China and the United States further complicates the scene.
    Keywords: China, Taiwan, semiconductor, competition, challenges
    Date: 2023–08
  25. By: Mert Demirer; Diego J. Jiménez Hernández; Dean Li; Sida Peng
    Abstract: By regulating how firms collect, store, and use data, privacy laws may change the role of data in production and alter firm demand for information technology inputs. We study how firms respond to privacy laws in the context of the EU’s General Data Protection Regulation (GDPR) by using seven years of data from a large global cloud-computing provider. Our difference-in-difference estimates indicate that, in response to the GDPR, EU firms decreased data storage by 26% and data processing by 15% relative to comparable US firms, becoming less “data-intensive.” To estimate the costs of the GDPR for firms, we propose and estimate a production function where data and computation serve as inputs to the production of “information." We find that data and computation are strong complements in production and that firm responses are consistent with the GDPR, representing a 20% increase in the cost of data on average. Variation in the firm-level effects of the GDPR and industry-level exposure to data, however, drives significant heterogeneity in our estimates of the impact of the GDPR on production costs.
    JEL: D22 L11 L51 L86
    Date: 2024–02
  26. By: Fakhrabadi, Mahnaz (Dept. of Business and Management Science, Norwegian School of Economics); Sandal, Leif K. (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: This study delves into a dynamic Stackelberg game comprised of a manufacturer and a retailer, operating in an environment with fluctuating demand and price-dependent consumer behavior. The multi-period optimization challenges the manufacturer to strategically set wholesale and buyback prices, while the retailer determines the retail price and order quantities within a single contract. In this dynamic framework, the players operate under the constraints of a cap-and-trade policy, with limited knowledge of demand distributions, characterized only by mean and standard deviation parameters. To address this inherent uncertainty, we employ a distributionally robust approach. Additionally, we explore the enduring effects of historical decisions on present-day demand, reflecting a memory-like market behavior. Through numerical examples, we illuminate the influence of buyback contracts and cap-and-trade policies on decision-making processes within this setting.
    Keywords: Cap-and-Trade Policy; Multi-Period Stackelberg Game; Distributional-Robust Demand; Single Contract; Buyback Contract; Sustainability
    JEL: C61 C62 C63 C72 C73 D81 Q52
    Date: 2024–02–20
  27. By: Dongsoo Shin (Santa Clara University); Roland Strausz (HU Berlin)
    Abstract: We study an agency model with vertical hierarchy---the principal, the prime-agent and the sub-agent. The principal faces a project that needs both agents' services. Due to costly communication, the principal receives a report only from the prime-agent, who receives a report from the sub-agent. The principal can directly incentivize each agent by setting individual transfers (insourcing), or sets only one overall transfer to an independent organization in which the prime-agent hires the sub-agent (outsourcing). We show that insourcing is always optimal when the principal can perfectly process the prime-agent's report. When the principal's information process is limited, however, outsourcing can be the prevailing mode of operation. In addition, insourcing under limited information process is prone to collusion between the agents, whereas no possibility of collusion arises with outsourcing.
    Keywords: information process; sourcing policy; vertical structure;
    JEL: D86 L23 L25
    Date: 2024–02–14
  28. By: Ma, Song (Yale U); Wang, Wenyu (Indiana U); Wu, Yufeng (Ohio State U)
    Abstract: This paper argues that firms proactively use innovation decisions to influence the mobility and human capital accumulation of their workers. We develop a dynamic model in which workers conduct R&D projects, accumulating both general and firm-specific human capital. Firms choose the scope of innovation, influencing the type of human capital workers accumulate during the process. Pursuing more general innovation leads to increased knowledge redeployability for the firm at the cost of more difficult employee retention. We estimate the model using granular innovation production and mobility data of three million inventors. Our model closely matches the observed mobility and innovation specificity over inventors' life cycles. Empirical estimates of the model parameters imply that 24% of observed innovation specificity among U.S. firms is driven by their labor market considerations, which enhances the firm value but lowers the inventors' surplus.
    JEL: J24 J63 O31
    Date: 2023–12
  29. By: Bassier, Ihsaan
    Abstract: How important are firms for wage inequality in developing countries where structural unemployment is high? Research focused on contexts close to full employment has suggested a substantial role of firms in labor market inequality. Using matched employer-employee data from South Africa, I find that firms explain a larger share of wage variation than in richer countries. I consider drivers of this, documenting first a higher productivity dispersion as found for other developing countries. Secondly, I estimate the separations elasticity by instrumenting wages of matched workers with firm wages, and I find a low separations elasticity. This generates a high degree of monopsony, and the correspondingly high estimated rent-sharing elasticity helps explain the important role of firm wage policies in inequality. Monopsony may be driven by higher unemployment, and regional heterogeneity provides suggestive evidence for this. Such firm-level competitive dynamics may exacerbate inequality in developing countries more generally.
    Keywords: inequality; firm wage premia; unemployment; monopsony
    JEL: D31 J31 J42 J63 J64
    Date: 2022–10–07

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