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on Industrial Competition |
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Issue of 2025–06–16
twenty-one papers chosen by Russell Pittman, United States Department of Justice |
| By: | Patrice Bougette (Université Côte d'Azur; GREDEG CNRS); Oliver Budzinski (Technische Universität Ilmenau); Frédéric Marty (Université Côte d'Azur, France; GREDEG CNRS) |
| Abstract: | Digital platforms, ecosystems, and R&D-intensive sectors pose distinctive challenges for merger control. In these fast-evolving markets, shaped by technological change and shifting competitive dynamics, traditional ex-ante reviews often fall short in anticipating long-term outcomes. This paper proposes a multi-step merger control model that includes a mechanism for remedy revision, allowing authorities to adjust behavioral commitments during their implementation. By embedding structured flexibility into merger decisions, our approach enables remedies to evolve in response to market reconfigurations, strategic conduct, or regulatory insights. The framework aims to ensure that remedies remain proportionate, effective, and legally predictable. By bridging ex-ante assessment and ex-post adaptation, it offers a policy instrument better suited to the uncertainties of dynamic competition. |
| Keywords: | Merger control, merger remedies, dynamic competition, competition policy uncertainties, innovation, digital markets, mergers & acquisitions, merger waves |
| JEL: | K21 L12 L13 L41 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:gre:wpaper:2025-22 |
| By: | Dandan Xia; Bruno Cassiman; David Wehrheim |
| Abstract: | This study leverages advanced text-analysis techniques to investigate how increased product market rivalry, induced by Chinese import competition, affects innovation among incumbent U.S. firms in the electronic and electrical appliance industry. We measure the similarity between the product descriptions of U.S. firms and those of Chinese importers, thus capturing firm-level competitive pressure. Employing a continuous difference-in-differences framework, we compare innovation outcomes of U.S. firms more directly competing with Chinese importers to those facing lower competitive pressure, over a five-year period before and after initial Chinese market entry. We find that incumbent U.S. firms significantly increase their quality-weighted patent production, create more newproduct patents, and strategically diversify into new technological and business segments when confronted with heightened competition. Our findings highlight the role of import-driven rivalry in stimulating strategic innovation and illustrate how text-based similarity measures can effectively quantify firm-level competition, providing novel methodological tools for strategy scholars. |
| Date: | 2025–05–23 |
| URL: | https://d.repec.org/n?u=RePEc:ete:msiper:765722 |
| By: | Zonta, Enrico |
| JEL: | J1 |
| Date: | 2025–05–23 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128079 |
| By: | Ryo Masuyama (Graduate School of Economics and Junior Research Fellow, Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN) |
| Abstract: | Targeted pricing is an aggressive strategy to steal demand from rivals. Therefore, it is believed that firms should employ it. However, targeted pricing has rarely been observed. There is a gap between our perceptions in the literature on targeted pricing and reality. This study demonstrates the negative aspects of targeted pricing by considering supply chain competition. When a rival supply chain is vertically separated, targeted pricing lowers the rival’s input price and intensifies competition. Conversely, when the rival firm is vertically integrated, this effect does not occur. Therefore, a firm should confirm its rival's vertical structure when deciding whether to employ targeted pricing. |
| Keywords: | Targeted pricing; Uniform pricing; Vertical structure; Supply chain management; Hotelling model |
| JEL: | D43 L10 L13 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2025-13 |
| By: | Alejandro Herrera-Caicedo; Jessica Jeffers; Elena Prager |
| Abstract: | This paper studies whether common leadership, defined as two firms sharing executives or board directors, contributes to collusion. Using an explicit measure of labor market collusion from unsealed court evidence, we find that the probability of collusion between two firms increases by 12 percentage points after the onset of common leadership, compared to a baseline rate of 1.2 percent in the absence of common leaders. These results are not driven by closeness of product or labor market competition. Our findings are consistent with the increasing attention toward common leadership under Clayton Act Section 8. |
| JEL: | K21 L4 L41 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33866 |
| By: | Francesc Dilmé; Daniel F. Garrett |
| Abstract: | A seller with commitment power sets prices over time. Risk‐averse buyers arrive to the market and decide when to purchase. We show that it is optimal for the seller to choose a constant high price punctuated by occasional episodes of sequential discounts that occur at random times. This optimal price path has the property that the price a buyer ends up paying is independent of his arrival and purchase times, and only depends on his valuation. Our theory accommodates empirical findings on the timing of discounts. |
| Keywords: | dynamic pricing, sales, random mechanisms |
| JEL: | D82 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_688 |
| By: | Priyaranjan Jha; Jyotsana Kala; David Neumark; Antonio Rodriguez-Lopez |
| Abstract: | We assess how minimum wage effects on restaurant employment in the U.S. vary with labor market size and monopsony power. Using city-level data, we construct monopsony proxies based on labor flows and concentration. Minimum wages bind less in larger cities, consistent with the urban wage premium, and omitting this relationship overstates how labor market power reduces adverse employment effects of minimum wages. Nonetheless, accounting for city size, lower job market fluidity is linked to weaker negative employment effects, consistent with search models. By contrast, traditional concentration measures do not consistently predict variation in the effects of minimum wages. |
| JEL: | J38 J42 R23 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33862 |
| By: | Mark Glick (University of Utah); Gabriel A. Lozada (University of Utah); Darren Bush (University of Houston Law Center) |
| Abstract: | Antitrust has adopted a normative economic theory based on maximizing economic surplus. The theory originates with Marshall but was introduced into antitrust as the Consumer Welfare Standard by Judge Robert Bork, and survives today in virtually every industrial organization textbook. This persistence is unwarranted. Welfare economists abandoned it several decades ago because the theory is inconsistent, and we review those inconsistencies. Moreover, welfare economists and moral philosophers have shown that the theory is biased in favor of wealthy individuals and corporations—the very powers the antitrust law is supposed to regulate. Finally, behavioral economists and psychologists have shown that the model of human behavior behind the economic surplus theory is simplistic and often in conflict with actual human behavior. We argue that antitrust should be brought into alignment with modern welfare economics. We also discuss how the New Brandeis Movement's proposal to replace the consumer welfare standard with the protecting competition standard could be developed to accomplish this goal. |
| Keywords: | Antitrust; consumer surplus; equivalent variation; compensating variation; cost-benefit analysis; Kaldor criterion and Hicks criterion; altruism; income inequality; rationality assumption; well-being; antitrust standards. |
| JEL: | K21 L40 D60 D61 D63 D90 |
| Date: | 2024–12–09 |
| URL: | https://d.repec.org/n?u=RePEc:thk:wpaper:inetwp231 |
| By: | Anton A. Cheremukhin; Paulina Restrepo-Echavarria |
| Abstract: | We develop a tractable model of monopsony power based on information frictions in job search. Workers and firms choose probabilistic search strategies, with information costs limiting how precisely they can target matches. Firms post wages strategically, anticipating application behavior and exploiting a first-mover advantage. The model nests both directed and random search as limiting cases and yields a closed-form wage equation that shows the effects on wage-setting power of search frictions, labor market tightness and sorting. Wage markdowns in equilibrium arise not only from limited labor supply elasticity but also from sorting patterns and demand-side frictions. In highly assortative environments, the absence of wage competition allows firms to capture nearly the full surplus, even when labor supply is elastic. Numerical results replicate markdowns of 30-40% and suggest that constrained-efficient wages would be approximately 20% higher. Our framework unifies the analysis of monopsony, sorting and wage posting, and provides a computationally efficient method for evaluating directed search equilibria. |
| Keywords: | Monopsony power; labor market sorting; information frictions; directed search |
| JEL: | C78 J42 D83 |
| Date: | 2025–05–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:99989 |
| By: | Juarez, Leticia |
| Abstract: | I derive a model-based equation relating pass-through to buyer size and estimate it on the micro transaction level data for Colombia. I find that after an exchange rate shock, sellers connected to larger buyers face more moderate changes in their prices in the seller currency (i.e., lower exchange rate pass-through) than those connected to small buyers. Pass-through ranges from 1% for firms connected with the largest buyers and up to 17% for firms connected with the smallest buyers. I use the estimates from the empirical analysis to calibrate the model and propose a counterfactual where buyer market power is eliminated. Under this scenario, sellers' revenues increase; however, the price in seller currency is more responsive to exchange rate shocks. I study the impact of buyer market power on international price responses to exchange rate changes. In markets with high buyer concentration, larger foreign buyers secure marked-down prices that adjust flexibly to exchange rate shocks. Using a novel dataset of Colombian export transactions, I estimate an open economy oligopsony model with endogenous markdowns, revealing that sellers connected to larger buyers experience milder price changes (1% impact) compared to those connected with smaller buyers (15% impact). These findings highlight a trade-off: while larger buyers reduce seller revenues, they also reduce sellers' exposure to exchange rate volatility, emphasizing the strategic importance of buyer relationships in international markets. |
| Keywords: | Market power;Oligopsony;market structure;Markdown;Exchange-rate pass-through |
| JEL: | D43 E31 F31 F32 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14128 |
| By: | Hedyeh Beyhaghi; Linda Cai; Yiding Feng; Yingkai Li; S. Matthew Weinberg |
| Abstract: | We quantify the value of the monopoly's bargaining power in terms of competition complexity--that is, the number of additional bidders the monopoly must attract in simple auctions to match the expected revenue of the optimal mechanisms (c.f., Bulow and Klemperer, 1996, Eden et al., 2017)--within the setting of multi-item auctions. We show that for simple auctions that sell items separately, the competition complexity is $\Theta(\frac{n}{\alpha})$ in an environment with $n$ original bidders under the slightly stronger assumption of $\alpha$-strong regularity, in contrast to the standard regularity assumption in the literature, which requires $\Omega(n \cdot \ln \frac{m}{n})$ additional bidders (Feldman et al., 2018). This significantly reduces the value of learning the distribution to design the optimal mechanisms, especially in large markets with many items for sale. For simple auctions that sell items as a grand bundle, we establish a constant competition complexity bound in a single-bidder environment when the number of items is small or when the value distribution has a monotone hazard rate. Some of our competition complexity results also hold when we compete against the first best benchmark (i.e., optimal social welfare). |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.09291 |
| By: | Girum Abebe; Stefano Caria; Pascaline Dupas; Marcel Fafchamps; Tigabu Getahun |
| Abstract: | We experimentally test two seminal hypotheses on the impact of competition on firms' management upgrading. In a first experiment, we protect firms from labor market competition by reducing the risk that a freshly trained manager would be poached by a rival firm. We find that this protection does not increase firms’ investment in management training. In a second suite of experiments, we boost perceived product market competition by informing firms either that rival firms have received management training or that foreign firms are gaining easier access to the domestic market. Again, we find no evidence that this increases firms’ average willingness to invest in management training. To explain why firms do not feel threatened by competition, we present evidence suggesting that, in contrast to commonly held assumptions, firm managers in our setting hold a mental model of competition that posits positive—instead of negative—spillovers, arising primarily from differentiation. |
| JEL: | D22 L21 O17 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33886 |
| By: | Alice Lixuan Xu; Jorge S\'anchez Canales; Chiara Fusar Bassini; Lynn H. Kaack; Lion Hirth |
| Abstract: | In wholesale electricity markets, prices fluctuate widely from hour to hour and electricity generators price-hedge their output using longer-term contracts, such as monthly base futures. Consequently, the incentives they face to drive up the power prices by reducing supply has a high hourly specificity, and because of hedging, they regularly also face an incentive to depress prices by inflating supply. In this study, we explain the dynamics between hedging and market power abuse in wholesale electricity markets and use this framework to identify market power abuse in real markets. We estimate the hourly economic incentives to deviate from competitive behavior and examine the empirical association between such incentives and observed generation patterns. Exploiting hourly variation also controls for potential estimation bias that do not correlate with economic incentives at the hourly level, such as unobserved cost factors. Using data of individual generation units in Germany in a six-year period 2019-2024, we find that in hours where it is more profitable to inflate prices, companies indeed tend to withhold capacity. We find that the probability of a generation unit being withheld increases by about 1 % per euro increase in the net profit from withholding one megawatt of capacity. The opposite is also true for hours in which companies benefit financially from lower prices, where we find units being more likely to be pushed into the market by 0.3 % per euro increase in the net profit from capacity push-in. We interpret the result as empirical evidence of systematic market power abuse. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.03808 |
| By: | Maximilian Andres (University of Bremen); Lisa Bruttel (University of Potsdam, CEPA) |
| Abstract: | While an influential body of economic literature shows that allowing for communication between firms increases collusion in oligopolies, so far we have only anecdotal evidence on the precise communication content that helps firms to coordinate their behavior. In this paper, we conduct a primary-data meta-study on oligopoly experiments and use a machine learning approach to identify systematic patterns in the communication content across studies. Starting with the communication topics mentioned most often in the literature (agreements, joint benefit, threat of punishment, promise/trust), we use a semi-supervised approach to detect all relevant topics. In a second step, we study the effect of these topics on the rate of collusion among the firms. We find that agreements on specific behavior are decisive for the strong positive effect of communication on collusion, while other communication topics have no effect. |
| Keywords: | collusion, communication, machine learning, meta-study, experiment |
| JEL: | C92 D43 L41 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:pot:cepadp:88 |
| By: | Cui, Jun |
| Abstract: | This study examines how competition in the banking sector affects the financial capabilities of non-financial enterprises in China, with a particular focus on the moderating role of shadow banking's financial innovation. Using panel data from 7, 250 firm-year observations of Chinese private banks collected from CNRDS, Wind, and CSMAR databases from 2017 to 2022, we apply a fixed-effects model to investigate this relationship. Our findings indicate that increased banking competition significantly enhances non-financial enterprises' financial capabilities, particularly in terms of financing flexibility and capital allocation efficiency. Moreover, shadow banking's financial innovation positively moderates this relationship, strengthening the positive effect of banking competition on firms' financial capabilities. The results are robust across various alternative specifications and endogeneity tests. This study contributes to the literature on financial market competition, corporate finance, and the evolving role of shadow banking in China's financial ecosystem, providing important implications for policymakers and corporate financial management. |
| Date: | 2025–05–19 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:7jtwc_v1 |
| By: | Cristian Chica; Yinglong Guo; Gilad Lerman |
| Abstract: | There is growing experimental evidence that $Q$-learning agents may learn to charge supracompetitive prices. We provide the first theoretical explanation for this behavior in infinite repeated games. Firms update their pricing policies based solely on observed profits, without computing equilibrium strategies. We show that when the game admits both a one-stage Nash equilibrium price and a collusive-enabling price, and when the $Q$-function satisfies certain inequalities at the end of experimentation, firms learn to consistently charge supracompetitive prices. We introduce a new class of one-memory subgame perfect equilibria (SPEs) and provide conditions under which learned behavior is supported by naive collusion, grim trigger policies, or increasing strategies. Naive collusion does not constitute an SPE unless the collusive-enabling price is a one-stage Nash equilibrium, whereas grim trigger policies can. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.22909 |
| By: | Pedro M. Gardete; Tania Z. Silva |
| Abstract: | This paper develops a continuous-time model of selling in which a firm optimally offers price promotions in a market with static but heterogeneous consumer preferences. While consumer preferences are fixed, price promotions induce dynamic sorting behavior, causing price sensitivity to evolve over time. This dynamic response can create challenges for empirical analyses. We use the promotion-cycles model to examine these challenges for both experimental and observational settings. For experimental approaches, we show that failing to align interventions with the market’s equilibrium timing of promotions can lead to elasticity estimates that diverge from those naturally observed in the market. For observational methods, we demonstrate that – in the absence of price endogeneity – using lagged prices as instruments may introduce a spurious instrumentation bias that may be mistakenly attributed to endogeneity. We provide empirical guidance and show that, in most cases, such biases can be anticipated by directly examining how sales evolve during promotional cycles. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:unl:unlfep:wp673 |
| By: | Ioannis Branikas; Briana Chang; Harrison Hong; Nan Li |
| Abstract: | Most S&P 500 corporations disclose that their profits depend on non-wage competition for worker talent via workplace amenities like work-life balance. We quantify this dependence using a labor market matching model with endogenous amenities. When productive (unproductive) firms provide the amenities demanded by workers at a lower cost, firm quality becomes more (less) dispersed relative to worker quality, which results in higher (lower) firm profits due to competition. This cost advantage is identified with data on wages, worker satisfaction, and firm scale. Calibrating our model to Glassdoor surveys, a 1% increase in workers’ non-pecuniary preferences raises firm profits by 0.6%. |
| JEL: | G0 G3 G39 J3 J31 J33 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33870 |
| By: | Irene Di Marzio; Sauro Mocetti; Enrico Rubolino; Enrico Rubolino |
| Abstract: | This paper presents evidence of market externalities of tax evasion: firms' tax non-compliance distorts the outcomes of their competitors. Using novel administrative data on the universe of Italian firms, we compute a tax evasion proxy as the fraction of individual firms that manipulate their revenue to meet eligibility criteria for preferential tax regimes. Our empirical approach uses policy-induced changes in tax notches' size to predict the fraction of non-compliant firms in each market. We find that non-compliant firms lead to significant revenue and productivity losses for their competitors, who then pass on some of this burden to their workers. This unfair competition harms aggregate productivity, partly due to a worsening of allocative efficiency. Our findings show that cracking down on tax evasion not only increases tax revenue and promotes tax fairness, but can also enhance market efficiency by leveling the playing field. |
| Keywords: | tax evasion, market competition, preferential tax regimes |
| JEL: | H26 H25 D22 D43 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11896 |
| By: | Xu, Yongsheng; YOSHIHARA, Naoki |
| Abstract: | The Hicksian optimism, a neoclassical economic creed, says that the consistent implementation of ‘Pareto-efficient policies’ sequentially would eventually improve the welfare of every individual from the initial position in the long run. In this paper, we formulate the Hicksian optimism as an axiom and then examine whether the market mechanism with the consistent application of technological progress policies can fulfill the Hicksian optimism. We show in a simple Overlapping Generations model that the market mechanism with technological progress unavoidably leaves some individuals behind. This negative result holds for a broad class of intertemporal resource allocation mechanisms. |
| Keywords: | dynamic market competition with technological progress, Hicksian Optimism |
| JEL: | D30 D51 D60 O33 P10 P20 P40 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:hit:hituec:769 |
| By: | Leonardo Bursztyn; Matthew Gentzkow; Rafael Jiménez-Durán; Aaron Leonard; Filip Milojević; Christopher Roth |
| Abstract: | Market definition is essential for antitrust analysis, but challenging in settings with network effects, where substitution patterns depend on changes in network size. To address this challenge, we conduct an incentivized experiment to measure substitution patterns for TikTok, a popular social media platform. Our experiment, conducted during a time of high uncertainty about a potential U.S. TikTok ban, compares changes in the valuation of other social apps under individual and collective TikTok deactivations. Consistent with a simple framework, the valuations of alternative social apps increase more in response to a collective TikTok ban than to an individual TikTok deactivation. Our framework and estimates highlight that individual and collective treatments can even lead to qualitatively different conclusions about which alternative goods are substitutes. |
| JEL: | D85 L0 L40 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33901 |