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on Industrial Competition |
| By: | Anton Korinek (University of Virginia and Centre for the Governance of AI); Jai Vipra (University of Virginia and Centre for the Governance of AI) |
| Abstract: | This paper examines the evolving structure and competition dynamics of the rapidly growing market for foundation models, focusing on large language models (LLMs). We describe the technological characteristics that shape the industry and have given rise to fierce competition among the leading players. The paper analyzes the cost structure of foundation models, emphasizing the importance of key inputs such as computational resources, data, and talent, and identifies significant economies of scale and scope that may create a tendency towards greater market concentration in the future. We explore two concerns for competition, the risk of market tipping and the implications of vertical integration, and use our analysis to inform policy remedies to maintain a competitive landscape. |
| Keywords: | Artificial Intelligence, economic concentration, vertical integration, AI regulation. |
| JEL: | D43 O33 L86 L40 L41 K21 |
| Date: | 2024–10–02 |
| URL: | https://d.repec.org/n?u=RePEc:thk:wpaper:inetwp228 |
| By: | Alex Chernoff (Bank of Canada); Allen Head (Queen's University); Beverly Lapham |
| Abstract: | We study the determination of market power at the firm and industry levels when heterogeneous firms compete for sales to ex ante homogeneous buyers in a market with both directed and random search and free entry of firms that differ in productivity. Search and the distribution of productivity across active firms generate distributions of equilibrium prices and markups that we relate to variation in the elasticity of demand at the firm level. With directed search at the outset, a shock that raises the matching rate for buyers improves conditions for them and tends to lower markups. Random matching follows sequentially, and the same shock can lower the productivity threshold for operation, pushing up prices and markups for all firms. The net effect on market power can be ambiguous depending on the forces driving matching rates. The distributions of prices and markups respond in equilibrium to changes in common and firm-specific costs, consumption utility, and fixed costs of both entry and operation. We characterize the differential pass-through of these changes to prices and markups at both the firm and market levels. |
| Keywords: | Market power, Drected Search, Random matching, Productivity heterogeneity, Markups, Pass-through |
| JEL: | D21 D43 E31 L11 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:qed:wpaper:1525 |
| By: | Alex Chernoff (Bank of Canada); Allen Head (Queen's University); Beverly Lapham |
| Abstract: | We develop and estimate a search model in which identical consumers trade with price-setting firms that differ in productivity. In the model, equilibrium distributions of both prices and markups are non-degenerate and continuous with a firm's price decreasing in its productivity. Variation in the markup across firms is more complicated and depends on both the search process and the distribution of productivity. The model parameters governing each of these are estimated using firm-level data on retail industries in Canada. We use the estimated model to characterize the qualitative and quantitative differences in prices and markups across firms. These differences stem from firm-level variation in demand elasticities driven by productivity heterogeneity and imperfect information about prices. Additionally, we derive analytical expressionsto determine how individual firm prices and markups respond to cost and demand changes. This allows us to analyze empirically heterogeneity in firm-level price and markup pass-through. Our findings reveal substantial heterogeneity in pass-through across firms, highlighting the distributional impact of shocks across consumers purchasing in different regions of the price distribution. Finally, our analysis underscores the importance of accounting for individual firm price and markup adjustments to fully understand pass-through to average prices. |
| Keywords: | Markups, Productivity, Firm Heterogeneity, Search, Pass-through |
| JEL: | J11 D43 E31 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:qed:wpaper:1523 |
| By: | Hey, Florian; Zombek, Max |
| Abstract: | The automotive industry is undergoing a fundamental transformation driven by digitization, enabling original equipment manufacturers (OEMs) to exert increasing control over vehicle functions, data, and - consequently - aftersales markets. Despite high relevance for consumers, regulatory scrutiny remains limited. This paper examines whether these developments constitute digital gatekeeping in a functional sense, and whether they justify increased regulatory attention. We show that OEMs' digital strategiesreinforce their dominance in secondary markets, particularly repair and maintenance. We assess the current European regulatory framework, focusing on the European Motor Vehicle Block Exemption Regulation (MVBER), and argue that it has not kept pace with the realities of software-defined vehicles. The planned MVBER review provides an opportunity to reassess legacy privileges and adapt competition rules to the digital age. We discuss potential reforms, including improved data access, stronger interoperability standards, and a broader definition of aftermarket components. We also examine supplementary measures such as a Right to Repair regime and self-regulation. Our analysis concludes that OEMs increasingly act as digital gatekeepers and that existing frameworks inadequately address the resulting risks. Regulatory recalibration is needed to safeguard innovation, consumer welfare, and long-term market openness. |
| Keywords: | aftermarket, antitrust, car data, competition policy, connected car, data governance, digital ecosystems, Digital Markets Act (DMA), extended vehicle, gatekeeping, interoperability, Motor Vehicle Block Exemption Regulation (MVBER), non-discriminatory terms, Original Equipment Manufacturer (OEM), rent seeking, Right to Repair, software defined vehicle |
| JEL: | D72 K21 L40 L42 L50 L51 L62 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:formwp:318332 |
| By: | Luttmann, Alexander; Gaggero, Alberto A |
| Abstract: | When faced with capacity constraints, firms may moderate demand by increasing prices when demand is known to be high ex-ante (i.e., systematic peak-load pricing). In this article, we examine the extent and duration of systematic peak-load pricing in the days surrounding public holidays in the U.S. airline industry. Applying two-stage least squares techniques to a unique panel of over 18 million fares, we estimate travel premiums ranging from 4.3% to 83.1% in the days surrounding national holidays and from 2.7% to 34.7% in the days surrounding federal holidays. We also find that the duration of the peak-travel period is longer for national holidays and shorter for federal holidays. Examining heterogeneity in holiday peak-load pricing, we find some evidence that travel premiums during national holidays are larger on longer-distance routes, on routes to or from slot-controlled airports, on routes to leisure destinations, and on ultra-low-cost carriers. |
| Keywords: | advance-purchase discounts, airline pricing, price discrimination, systematic peak-load pricing |
| JEL: | D40 L11 L13 L93 R49 |
| Date: | 2024–12–24 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124818 |
| By: | Enache, Andreea; Rhodes, Andrew |
| Abstract: | We consider a setting in which a platform matches buyers and sellers, who then wish to transact with each other multiple times. The platform charges fees for hosting transactions, but also offers convenience benefits. We consider two scenarios. In one scenario, all transactions must occur on the platform; in the other scenario, buyers and sellers can disintermediate the platform after the first transaction, and do subsequent transactions offline. We find that the platform reacts to disintermediation by using a “front-loaded” pricing scheme, whereby it charges more for earlier transactions. We also show that sometimes the platform is better off when disintermediation is possible—because it can use disintermediation to screen users’ private information about their convenience benefits. Buyers are not necessarily better off when they can disintermediate, due to the way in which the platform adjusts its fees. |
| Keywords: | Platforms; disintermediation; convenience benefits; repeat transactions |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130557 |
| By: | Hutschenreiter, Dennis; Liu, Qianshuo |
| Abstract: | Institutional common ownership of firm pairs in the same industry increases the likelihood of a preexisting social connection among their CEOs. We establish this relationship using a quasi-natural experiment that exploits institutional mergers combined with firms' hiring events and detailed information on CEO biographies. In addition, for peer firms, gaining a CEO connection from a hiring firm's CEO appointment correlates with higher returns on assets, stock market returns, and decreasing product similarity between companies. We find evidence consistent with common owners allocating CEO connections to shape managerial decision-making and increase portfolio firms' performance. |
| Keywords: | CEO appointments, CEO connections, common ownership, firm performance, product similarity |
| JEL: | G23 G32 G34 L21 L22 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwhdps:319068 |
| By: | Wilson, William W.; Bullock, David; Dubovoy, Isaac |
| Keywords: | Agricultural and Food Policy, Agricultural Finance, International Relations/Trade |
| Date: | 2025–05–30 |
| URL: | https://d.repec.org/n?u=RePEc:ags:nddaae:358648 |
| By: | Wilson, William W.; Bullock, David; Dubovoy, Isaac |
| Keywords: | Agricultural and Food Policy, Crop Production/Industries, International Relations/Trade |
| Date: | 2025–05–30 |
| URL: | https://d.repec.org/n?u=RePEc:ags:nddaae:358647 |