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on Industrial Competition |
| By: | Eric Darmon; Thomas LE TEXIER; Zhiwen LI; Thierry Pénard |
| Abstract: | Antitrust authorities are concerned with the dominant market position of Tech Giants such as Google, Meta, or Amazon. These digital conglomerates are characterized by platform-based business models and multimarket contact (MMC). In traditional one-sided markets, theory and empirical evidence show that MMC tends to relax competition. In this paper, we revisit this result in the context of platform competition with competitive bottleneck and cross-market externalities, and provide new insights into the impact of MMC on platform competition. In this context, when platforms charge the two groups of users (bilateral pricing), we find that MMC always decreases the profitability of platforms regardless of the nature and magnitude of cross-market externalities. Then we consider the case in which platforms can only charge one group of users (unilateral pricing). When platforms charge the side on which they are not directly competing for users (i.e. the side that is not the competitive bottleneck), MMC may relax competition only if cross-group externalities and cross-market externalities are both sufficiently small. From a competition policy perspective, our paper provides insights into how antitrust authorities should review conglomerate mergers in digital markets and assesses the effects of the diversification strategies of digital platforms in the context of cross-market externalities and competitive bottleneck. |
| Keywords: | two-sided markets, platform competition, digital markets, multimarket contact, cross-market externalities, competitive bottleneck, competition policy |
| JEL: | D43 L13 L41 L86 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:drm:wpaper:2025-22 |
| By: | Volker Nocke; Andrew Rhodes |
| Abstract: | This paper studies optimal merger remedies when an antitrust authority has a consumer surplus standard. Remedies are modeled as asset divestitures which make the firm receiving the assets more efficient, at the expense of the merged firm. If a merger affects only a single market, asset divestitures on their own are not sufficient for the merger to be implemented--synergies are also required. As the market becomes less competitive, it is less likely that any merger is implemented; conditional on implementing one, it is more likely that divestitures are used to create a new competitor. If instead a merger affects several different markets, and the authority cares about consumer surplus aggregated over all markets, then it is optimal to divest as many assets as feasible in some markets and no assets in all remaining markets. The optimal merger proposal is more likely to entail divestitures in more competitive markets. |
| Keywords: | Horizontal mergers, divestitures, Cournot, merger control |
| JEL: | L13 L40 D43 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_680 |
| By: | Maggie E.C. Jones; Trevon D. Logan; David Rosé; Lisa D. Cook |
| Abstract: | This paper studies consumer discrimination while taking into consideration the role of competition between firms, providing one of the first large-scale comprehensive analyses of consumer discrimination and market forces. We formally model consumer discrimination, where some majority-group members dislike consuming alongside minorities. In equilibrium, the non-discriminatory-to-discriminatory firm ratio is proportional to the minority-to-majority consumer ratio. Empirically, we examine how local changes in the composition of consumers altered business incentives to discriminate during the decades leading up to the passage of the Civil Rights Act of 1964. Using a nationwide data source of non-discriminatory businesses in three different industries and a research design that leverages two sources of exogenous variation in the ratio of Black-to-White consumers, we find that increases in non-discrimination were concentrated in the least competitive markets, where the threat of defection by White consumers to competing firms was lowest. We assemble new data on over 25, 000 prices charged at establishments by discriminatory status and show that non-discriminatory firms charged higher prices than discriminatory firms in the same local market. Consistent with our theoretical model, this finding arises because the effects of greater competition among the more numerous discriminatory firms outweighed the discrimination markup. The results imply that monopoly power blunted the influence of consumer preferences and that Black consumers were harmed through higher prices in the non-discriminatory market. |
| JEL: | L11 L83 N32 N82 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33547 |
| By: | Dongjin Hwang; Ilwoo Hwang |
| Abstract: | We study a model of competitive information design in an oligopoly search market with heterogeneous consumer search costs. A unique class of equilibria -- upper-censorship equilibria -- emerges under intense competition. In equilibrium, firms balance competitive pressure with local monopoly power granted by search frictions. Notably, firms disclose only partial information even as the number of firms approaches infinity. The maximal informativeness of equilibrium decreases under first-order shifts in the search cost distribution, but varies non-monotonically under mean-preserving spreads. The model converges to the full-disclosure benchmark as search frictions vanish, and to the no-disclosure benchmark as search costs become homogeneous. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.04659 |
| By: | Roxana Mihet (Swiss Finance Institute - HEC Lausanne); Kumar Rishabh (University of Lausanne - Faculty of Business and Economics (HEC Lausanne); University of Basel, Faculty of Business and Economics); Orlando Gomes (Lisbon Polytechnic Institute - Lisbon Accounting and Business School) |
| Abstract: | Artificial intelligence (AI) is transforming productivity and market structure, yet the roots of firm dominance in the modern economy remain unclear. Is market power driven by AI capabilities, access to data, or the interaction between them? We develop a dynamic model in which firms learn from data using AI, but face informational entropy: without sufficient AI, raw data has diminishing or even negative returns. The model predicts two key dynamics: (1) improvements in AI disproportionately benefit data-rich firms, reinforcing concentration; and (2) access to processed data substitutes for compute, allowing low-AI firms to compete and reducing concentration. We test these predictions using novel data from 2000–2023 and two exogenous shocks—the 2006 launch of Amazon Web Services (AWS) and the 2017 introduction of transformer-based architectures. The results confirm both mechanisms: compute access enhances the advantage of data-intensive firms, while access to processed data closes the performance gap between AI leaders and laggards. Our findings suggest that regulating data usability—not just AI models—is essential to preserving competition in the modern economy. |
| JEL: | L13 L41 O33 D83 E22 L86 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2537 |
| By: | Oberfichtner, Michael (Institute for Employment Research (IAB), Nuremberg); Popp, Martin (Institute for Employment Research (IAB), Nuremberg) |
| Abstract: | Using register data, we document that the average German labor market, defined by hires in combinations of 3-digit occupations, requirement levels, and commuting zones, is highly concentrated (HHI=0.257). By EU antitrust thresholds, 56 percent of these labor markets feature moderate or high concentration, covering 9 percent of workers. Concentration remained relatively stable between 2012 and 2023. The labor market delineation strongly affects the measured level of concentration but not its evolution, whereas the choice of the firm size variable has little influence. Concentration differs starkly across occupations and regions, and workers in complex jobs experience the highest levels of concentration. |
| Keywords: | labor market concentration, monopsony power, occupations |
| JEL: | J42 L10 J60 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17745 |
| By: | Dodini, Samuel (Federal Reserve Bank of Dallas); Willén, Alexander (Norwegian School of Economics) |
| Abstract: | This paper examines the relationship between labor market power and employer discrimination, providing new causal evidence on when and where discriminatory outcomes arise. We leverage mass layoffs and firm closures as a source of exogenous job search and combine this with an exact matching approach. We compare native–immigrant worker pairs who held the same job at the same firm, in the same occupation, industry, location, and wage prior to displacement. By tracking post-displacement outcomes across labor markets with differing levels of employer concentration, we identify the causal effect of labor market power on discriminatory behavior. We provide four main findings. First, wage and employment discrimination against immigrants is substantial. Second, discrimination is amplified in concentrated labor markets and largely absent in highly competitive ones. Third, product market power has no independent effect, consistent with the idea that wage-setting power is necessary for discriminatory outcomes. Fourth, gaps fade with sustained employer–immigrant interactions, consistent with belief-based discrimination and employer learning. |
| Keywords: | discrimination, immigration, market power |
| JEL: | J7 J61 J42 J63 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17830 |
| By: | Jun Nakabayashi; Juan M. Ortner; Sylvain Chassang; Kei Kawai |
| Abstract: | Auctioneers suspecting bidder collusion often lack the formal evidence needed for legal recourse. A practical alternative is to design auctions that hinder collusion. Since Abreu et al. (1986), economic theory has emphasized imperfect monitoring as a constraint on collusion, but evidence remains scarce on whether: (i) information frictions meaningfully limit real-world collusion; and (ii) auctioneers can effectively exploit these frictions. Indeed, transparency concerns often prevent the introduction of explicit randomness in auction design. We make progress on this issue by studying the impact of subjective scoring in auctions run by Japan’s Ministry of Land, Infrastructure, and Transportation. The adoption of scoring auctions significantly reduced winning bids in ways inconsistent with competition. Model-based inference suggests that the cartel’s dynamic obedience constraints were binding and were tightened by imperfect monitoring. Subjective scoring can successfully leverage imperfect monitoring frictions to reduce the scope of collusion. |
| JEL: | C57 C72 D44 L41 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33668 |
| By: | Pablo D. Azar; Adrian Casillas; Maryam Farboodi |
| Abstract: | In our previous Liberty Street Economics post, we introduced the decentralized finance (DeFi) intermediation chain and explained how various players have emerged as key intermediaries in the Ethereum ecosystem. In this post, we summarize the empirical results in our new Staff Report that explains how the need for transaction privacy across the DeFi intermediation chain gives rise to intermediaries’ market power. |
| Keywords: | financial intermediation; market power; decentralized finance |
| JEL: | G23 D82 L14 L22 G14 D43 |
| Date: | 2025–04–21 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:99874 |
| By: | Sebastian Doerr (Bank for International Settlements; Centre for Economic Policy Research (CEPR)); Andreas Fuster (École Polytechnique Fédérale de Lausanne (EPFL); Swiss Finance Institute; Centre for Economic Policy Research (CEPR)) |
| Abstract: | Policy makers place high hopes in manufactured homes—the largest source of unsubsidized affordable housing in the US—to alleviate housing supply shortages. This paper shows that high market concentration in the multi-billion-dollar manufactured home loan market allows lenders to charge significantly higher interest rates than for site-built homes. Loan-level data indicate that borrowers in counties with higher lender concentration face significantly higher rates. Evidence from bunching at the regulatory HOEPA rate threshold, an instrumental variable analysis, and a difference-in-differences analysis around HOEPA’s introduction suggests a causal link. We further show that integrated lenders, which play an outsized role in the manufactured home loan market, charge particularly high rates, and we provide evidence suggesting that these lenders exploit their market power over borrowers. |
| Keywords: | mortgage market, competition, household finance, manufactured homes, HOEPA |
| JEL: | G21 G23 L13 R31 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2528 |
| By: | Leonardo Bursztyn; Rafael Jiménez-Durán; Aaron Leonard; Filip Milojević; Christopher Roth |
| Abstract: | Firms can increase the demand for their products and consolidate their market power not only by increasing user utility but also by decreasing non-user utility. In this paper, we examine this mechanism by considering the case of smartphones. In particular, Apple has faced criticism for allegedly degrading the Android user experience by making messages to Android devices appear as green bubbles on iPhones—a salient signal often perceived as reflecting a lower socioeconomic status. Using samples of US college students, we show that green bubbles are widely stigmatized and that a majority of both iPhone and Android users would prefer green bubbles to no longer exist. We then conduct an incentivized deactivation experiment, revealing that iPhone users have a significant willingness to pay to prevent their messages from appearing as green bubbles on other iPhones. Next, we examine the market implications of non-user utility and find that respondents are substantially more likely to choose an Android over an iPhone when green bubbles are removed. We conclude by presenting case studies that illustrate how companies use product features to reduce non-user utility in various markets. |
| JEL: | D83 D91 J15 P16 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33642 |
| By: | van der List, Catherine (University of Essex) |
| Abstract: | To study the distribution of economic activity across space and place-based policies, I develop a model of the location choice of new establishments incorporating monopsonistic labor markets, taxes, and spillovers. Estimates using German administrative data indicate that establishments prefer lower taxes and lower worker outside options which enable establishments to pay lower wages. The degree to which various types of productivity spillovers matter in the location decision varies between industries. I also quantify the effects of a counterfactual place-based policy and find that the response of a commuting zone to the place-based policy depends on the degree of labor market power in that commuting zone. More monopsonistic labor markets receive more benefit from the place-based policy. |
| JEL: | J42 J23 H71 R12 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17742 |
| By: | Isabella Maassen; Filip Mellgren; Jonas Overhage |
| Abstract: | Monopsonistic labor markets create misallocation of labor while generating profits. These in turn incentivize firms to innovate, which drives aggregate growth. This paper explores the trade-off between static efficiency and growth by developing a tractable endogenous growth model with heterogeneous firms and upward sloping labor supply curves. We show that monopsony can rationalize the prevalence of unproductive yet innovating firms that would otherwise be crowded out by more productive competitors. Our model calibrated to U.S. data confirms previous findings that imperfectly competitive labor markets distort static efficiency. However, we find that monopsony also leads to higher growth. On balance, we estimate that a 1% narrowing of the markdown increases the present value of output by about 1.08%. |
| Keywords: | monopsony power, creative destruction, productivity, innovation, economic growth. |
| JEL: | O31 O47 J42 E24 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11820 |
| By: | Vitezslav Titl |
| Abstract: | Approximately 42% of European public procurement contracts are awarded to a sole bidder. As this market represents about one-seventh of GDP in developed countries, any inefficiency is a first-order concern. This paper examines a Czech reform that prohibited awarding such single-bid contracts. Using a difference-in-differences approach, I find the reform reduced prices by 6.1% relative to estimated costs, with no evidence of quality reduction. Furthermore, I provide suggestive evidence that procuring authorities try to actively get more bidders and that the prices of procurement contracts supplied by politically connected and anonymously owned firms were not reduced after the reform. |
| Keywords: | single-bidding, public procurement, political connections, corruption |
| JEL: | D44 D72 H57 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11697 |