|
on Industrial Competition |
| By: | Johannes Johnen; Shiva Shekhar |
| Abstract: | This paper proposes a simple yet useful framework for evaluating vertical mergers in digital markets by distinguishing between product-specific and ecosystem-specific network effects. Vis-a-vis no network effects, product-specific network effects amplify foreclosure and steering incentives, as a rival’s growth directly undermines the platform’s product value. Conversely, ecosystem-specific effects dampen foreclosure incentives, since rivals contribute to the overall value of the platform ecosystem. We develop a formal model illustrating how this distinction shapes platform behavior and competitive outcomes. We apply this distinction to real-world examples to illustrate its potential usefulness. Our distinction implies that regulators may want to adopt a stricter standard with no presumption of efficiencies where product-specific effects dominate. In contrast, when ecosystem-specific effects prevail, merger evaluation should mirror traditional vertical merger analysis. Thus, offering a more nuanced approach to merger evaluation by presenting a practical screening tool to identify problematic vertical mergers in markets featuring network effects. |
| Keywords: | network externalities, platforms, vertical integration |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12040 |
| By: | Vanessa I. Alviarez; Michele Fioretti; Ken Kikkawa; Monica Morlacco |
| Abstract: | This paper derives a closed-form expression linking aggregate markups on imported inputs to concentration in a model of firm-to-firm trade with two-sided market power. Our theory extends standard oligopoly insights in two dimensions. First, it reveals that markups increase with exporter concentration and decrease with importer concentration, reflecting the balance of oligopoly and oligopsony forces. Second, it adapts conventional market definitions to reflect rigid trading relationships, yielding new concentration measures that capture competition in firm-to-firm trade. Analysis of Colombian transaction-level import data shows these differences are key to understanding markup dynamics in international trade. |
| JEL: | F1 F12 F14 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34114 |
| By: | Lundin, Erik (Research Institute of Industrial Economics (IFN)) |
| Abstract: | I examine the pricing behavior of municipal and private firms in the unregulated Swedish district heating market, characterized by geographically bounded local monopoly networks. Conditional on exogenous cost factors, private firms charge on average seven percent higher prices compared to their municipal counterparts. Nearly all firms employ two-part pricing. Consistent with standard monopoly theory, the entire price difference can be explained by the fixed price component. Further, foreign-owned private firms charge an additional price premium relative to domestically owned private firms. A descriptive analysis of financial statements confirms that private firms achieve higher profit margins, despite municipal firms being legally required to operate in a business-like manner. These findings demonstrate that, in this market, private firms exercise more market power than public firms, and that the subsequent upward pressure on prices dominates any downward effects from the potential cost efficiencies associated with privatization. |
| Keywords: | Privatization; Two-part pricing; District heating; Natural monopoly; Market power; Network industries |
| JEL: | L12 L43 L97 P18 Q48 |
| Date: | 2025–08–15 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:iuiwop:1532 |
| By: | Kun Zhang |
| Abstract: | When introducing a novel product, a seller sets a price and decides how much information to provide to a buyer, who may incur a search cost to discover an outside option. The buyer knows the outside option distribution; the seller knows only its mean and bounds. Seeking "robustness, " the seller evaluates strategies based on guaranteed profits, balancing search deterrence against surplus extraction. Providing information can deter search and boost demand but requires offering the buyer a higher payoff via a lower price. Results help explain the variations in information provision among new products and suggest that lower search costs can raise prices and lead to noisier information, potentially harming consumers. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.04134 |
| By: | Bryan, Calvin; Donovan, Pierce; Kacker, Kanishka; Pham, Linh |
| Abstract: | Fabra and Imelda (2023) study how the method of payment for renewable energy can reduce the ability of energy producers to exert market power in electricity markets. Their theoretical model provides predictions for dominant and fringe firm behavior under incentives using fixed prices or market exposure. Across several reported specifications, they measure the price depressing effects under both economic instruments. The authors find that in the case of the Spanish electricity market, fixed prices for renewables mitigate market power more than exposure to market pricing. We successfully computationally reproduce 100% of the main claims of the paper. We then explore the robustness of these findings to a placebo event test and modeling choices concerning seasonality and sample selection. These robustness checks typically replicate the main findings of the original paper in sign, but consistently reduce the magnitude and statistical significance of measured results. |
| Keywords: | market power, forward contracts, arbitrage, renewables |
| JEL: | L13 L94 L98 Q42 Q48 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:i4rdps:258 |
| By: | Gamal Atallah; Aggey Simons (Department of Economics, University of Ottawa, Canada) |
| Abstract: | We analyze innovation incentives under price cap regulation by examining scenarios with endogenous price caps, both with and without regulatory commitment. In a setting without informational imperfections, our analysis reveals two principal conclusions. First, there is no trade-off between static and dynamic efficiency. Strengthening firm incentives by allowing it to charge higher prices, and thus realize greater profits, leads to less innovation because it reduces output. The optimal strategy to boost innovation and maximize welfare is to set a low price (and thus, a low profit) target, as innovation incentives are proportional to output. Second, the benefits of regulatory commitment for innovation and welfare are not unambiguously clear: commitment neither consistently outperforms nor underperforms non-commitment. Under demand uncertainty, when the firm is risk-averse, the static-dynamic efficiency trade-off reappears, and the firm may prefer non-commitment due to risk-shielding. Under asymmetric information about firm demand type, the trade-off between static and dynamic efficiency becomes inherent (due to information rents and contract distortions), and commitment becomes unambiguously crucial for fostering innovation by preventing the ratchet effect. |
| Keywords: | Price cap regulation; Regulation, Innovation, R&D, Dynamic efficiency; Commitment. |
| JEL: | D42 L12 L43 L51 O31 O38 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ott:wpaper:2504e |
| By: | Santiago Alvarez-Blaser; Alberto Cavallo; Alexander MacKay; Paolo Mengano |
| Abstract: | We use a novel dataset of production costs, wholesale prices, and retail prices from a large global manufacturer to study markups and pricing behavior along the supply chain. We document several facts about markups covering the period July 2018 through June 2023, and we propose a model of supply chain pricing behavior that rationalizes key pat-terns in our data. We find substantial dispersion in markups across products at each supply chain level. Manufacturer and retail markups are negatively correlated in the cross section and over time. Despite time-series variation in firm-level markups, total markups—reflecting the relationship between retail prices and production costs—are stable over time, even when prices increased along with inflation in the United States in 2022. We apply our model to quantify factors that determine relative bargaining power between the manufacturer and retailers, leveraging variation across countries, products, and time. Finally, we consider the dynamics of cost pass-through and the mediating role of manufacturer-retailer bargaining in price dynamics, with implications for current policy debates, including trade policy and tariffs. |
| JEL: | D22 D40 E3 L11 L81 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34110 |
| By: | Georges V. Houngbonon; Marc Ivaldi; Emil Palikot; Davide Strusani |
| Abstract: | Nearly half the world remains offline, and capital scarcity stalls new network buildouts. Sharing existing mobile towers could accelerate connectivity. We assemble data on 107 tower-sharing deals in 28 low-income countries (2008-20) and estimate staggered difference-in-differences effects. Two years after a transaction covering over 1, 000 towers, the PPP-adjusted mobile-price index falls USD 1.60 (s.e. 1.10) from a baseline of USD 3.16, while data prices drop USD 1.00 (0.29), baseline USD 3.41 per GB. The number of mobile connections increases. Rural internet access increases by 4.7 pp and female-headed households by 3.6 pp. Tower-sharing agreements increase product market competition as measured by Herfindahl-Hirschman Index. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.19693 |
| By: | Jakub Karnowski; Przemys{\l}aw Szufel |
| Abstract: | Oligarchic control exerts significant distortions on economic efficiency. Ukraine exemplifies this phenomenon, where oligarchs dominate key sectors and achieve economies of scale through vertical integration of coal mines, steel mills, and power plants while controlling critical infrastructure (e.g. access to transportation networks) to stifle competition. Their Soviet-era production chain monopolization strategies, coupled with political patronage networks (including both local and national governments), reinforce systemic inefficiencies and barriers to market entry. Although existing studies highlight the developmental benefits of de-oligarchization, this work advances the literature through computational modeling. We develop an agent-based model of a partially oligarch-controlled economy, where firms with heterogeneous production functions interact within a value-added network. Through numerical simulations, we quantify how different de-oligarchization policies affect aggregate GDP growth. The results indicate that the optimal de-oligarchization strategies are determined by the position of the oligarch in the production chain. Depending on the oligarch's position, dismantling oligarchic structures should either focus on removing oligarchs' access to raw materials or on breaking oligarchs' influence on other transactions in the production chain. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.02949 |
| By: | Dube, Arindrajit; Manning, Alan; Naidu, Suresh |
| Abstract: | We show that administrative hourly wage data exhibits considerable bunching at round numbers. We run two experiments, randomizing wages around 10 cents and $1.00, to experimentally measure left-digit bias for identical tasks on Amazon Mechanical Turk, and fail to find any evidence of discontinuity in the labor supply function at round number, despite estimating a considerable degree of monopsony. We replicate these results in administrative worker-firm hourly wage data from Oregon. We can rule out inattention estimates found in the behavioral product market literature. We provide evidence that firms “misoptimize" wage-setting. More monopsony requires less employer misoptimization to explain bunching |
| JEL: | J42 J22 |
| Date: | 2025–08–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128487 |
| By: | Leonardo Manr\'iquez-M\'endez |
| Abstract: | The United States, a leading global producer and consumer of beef, continues to face substantial challenges in achieving price harmonization across its regional markets. This paper evaluates the validity of the Law of One Price (LOP) in the U.S. beef industry and investigates causal relationships among regional price dynamics. Through a series of econometric tests, we establish that regional price series are integrated of order one, displaying non-stationarity in levels and stationarity in first differences. The analysis reveals partial LOP compliance in the Northeast and West, while full convergence remains elusive at the national level. Although no region demonstrates persistent price leadership, Southern prices appear particularly sensitive to exogenous shocks. These findings reflect asymmetrical integration across U.S. beef markets and suggest the presence of structural frictions that hinder complete market unification. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.21950 |
| By: | Jonathan Hambur (Reserve Bank of Australia); Owen Freestone (Competition Taskforce Division, Australian Treasury) |
| Abstract: | There is substantial evidence that the degree of competition in the Australian economy has declined over the decade or so leading up to the COVID-19 pandemic. This has the potential to weigh on productivity, and in turn incomes, and so the welfare of the Australian people. In this paper we calibrate the general equilibrium model from Edmond, Midrigan and Xu (2023) to Australian microdata to answer the following question: If the degree of competition in the Australian economy had not declined from mid-2000s levels, how much higher would aggregate productivity and GDP be due to resources being better allocated across firms throughout the economy? The answer, according to this model, is 1–3 per cent. The model also suggests even larger economic costs once we account for other channels through which rising mark-ups affect the economy, though these are less precisely estimated. |
| Keywords: | competition; productivity |
| JEL: | D24 D61 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:rba:rbardp:rdp2025-05 |