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on Industrial Competition |
| By: | Christoph Graf; Frank A. Wolak |
| Abstract: | Producers in locational pricing markets have the ability to exercise market power by impacting the extent to which transport capacity constraints bind. We extend the single-location residual demand curve concept to a residual demand hypersurface that quantifies the impact of a supplier’s output change at one location on prices at all locations. This concept improves our ability to explain the offers suppliers submit in the Italian locational pricing electricity market and demonstrates why the locations of a firm’s generation capacity determines the size and direction of locational price changes associated with the divestment of a fixed amount of generation capacity. |
| JEL: | L10 L13 Q48 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34272 |
| By: | Johannes Johnen; Robin Ng |
| Abstract: | Ratings play a crucial role in online marketplaces, shaping consumer decisions and firm strategies. We investigate how firms strategically use pricing to influence ratings, and how this undermines ratings as signals of product quality. We develop a two-period model of price competition between an established firm and a potentially high- or low-quality entrant, capturing the challenge high-quality newcomers face in building reputation. Consumers rate based on value-for-money, but cannot distinguish whether positive ratings result from genuine quality or discounted prices. Low-quality entrants take advantage of this and may offer low prices to harvest good ratings in the future, or mimic high prices to signal high quality. We show that ratings harvesting inflates positive ratings, reduces their informativeness, and exacerbates the cold-start problem, discouraging high-quality entry. Our results mirror empirical patterns and generate implications for how rating design affects market outcomes: reducing effort-costs to rate induces more but less-informative ratings, and discourages entry. Policy implications include discouraging excessive discounts for new sellers, incorporating price-paid into rating displays, and balancing rating effort-costs to preserve informativeness. While the effects of individual entrants’ harvesting may appear temporary, harvesting hinders high-quality entrants from building reputation, discouraging entry and causing lasting distortions. |
| Keywords: | Rating and reviews, digital economy, reputation, cold-start problem, biased ratings |
| JEL: | D21 D83 L10 |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_509v3 |
| By: | Frédéric Marty; Thierry Warin |
| Abstract: | The rapid advancement of generative artificial intelligence (AI) is increasingly shaped by control over two critical inputs: high-quality data and the compute infrastructure required to train and update large-scale model weights. This paper argues that these inputs – rather than algorithmic talent or novel architectures alone – have become the decisive strategic assets in generative AI, creating steep structural barriers to entry. We examine who controls these resources and how this control is territorially distributed across countries. Building on literature in industrial organization, competition policy, and international political economy, we highlight a gap in existing research: insufficient attention to the territorial concentration of “model-weight-setting” capacity, i.e. the ability to train cutting-edge foundation models. We find that the capacity to set foundation model weights is overwhelmingly concentrated in a few firms and regions, reinforcing market concentration and limiting the AI development sovereignty of most countries. While innovations in model architectures and efficiency (illustrated by the DeepSeek case) can reduce compute requirements at the margin, they do not eliminate the scale advantages conferred by privileged access to massive proprietary datasets and nation-scale computing clusters. The paper concludes with implications for competition and regulation, arguing that the territorial control of data and compute resources is a fundamental structural challenge for both market competition and global equity in AI. Les progrès rapides de l’intelligence artificielle générative (IA) sont de plus en plus conditionnés par le contrôle de deux intrants essentiels : des données de haute qualité et l’infrastructure de calcul nécessaire pour entraîner et actualiser les poids de modèles à grande échelle. Cet article soutient que ces intrants – plutôt que le seul talent algorithmique ou la nouveauté des architectures – sont devenus les actifs stratégiques décisifs de l’IA générative, créant ainsi d’importantes barrières structurelles à l’entrée. Nous examinons qui contrôle ces ressources et comment ce contrôle se répartit territorialement entre les pays. En nous appuyant sur la littérature en organisation industrielle, en politique de concurrence et en économie politique internationale, nous mettons en évidence une lacune dans les recherches existantes : l’attention insuffisante portée à la concentration territoriale de la « capacité de réglage des poids des modèles », c’est-à-dire la faculté d’entraîner des modèles de fondation de pointe. Nos résultats montrent que cette capacité est largement concentrée dans quelques entreprises et régions, ce qui renforce la concentration des marchés et limite la souveraineté de la plupart des pays en matière de développement de l’IA. Bien que les innovations en matière d’architectures de modèles et d’efficacité (comme l’illustre le cas DeepSeek) puissent réduire les besoins en calcul à la marge, elles n’éliminent pas les avantages d’échelle conférés par l’accès privilégié à d’immenses ensembles de données propriétaires et à des grappes de calcul de dimension nationale. L’article conclut en soulignant les implications pour la concurrence et la régulation, en avançant que le contrôle territorial des données et des ressources de calcul constitue un défi structurel fondamental pour la concurrence sur les marchés et pour l’équité mondiale en matière d’IA. |
| Keywords: | Generative Artificial Intelligence, Data Sovereignty, Compute Infrastructure, Competition Policy, Territorial Concentration, Intelligence artificielle générative, Souveraineté des données, Infrastructure de calcul, Politique de concurrence, Concentration territoriale |
| Date: | 2025–09–19 |
| URL: | https://d.repec.org/n?u=RePEc:cir:cirwor:2025s-27 |
| By: | Marita Freimane |
| Abstract: | In response to growing platform market power, governments seek ways to strengthen the bargaining position of content providers and other suppliers of platforms. Due to information asymmetries between platforms and regulators, top-down interventions— such as mandated transaction prices— are difficult to implement. This paper examines the effects of a bottom-up, bargaining-based regulatory alternative: Australia’s News Media and Digital Platforms Mandatory Bargaining Code. The Code mandates that platforms negotiate payments for content with domestic publishers, backed by final-offer arbitration. Using a difference-in-differences design and granular data from Google News, I show that the Code significantly altered the composition of news content. In particular, the share of content from large foreign publishers increased, while that of major domestic publishers declined—consistent with changes in the relative cost of displaying different types of content. |
| Keywords: | platform regulation, news aggregators, bargaining power, news media |
| Date: | 2025–09–15 |
| URL: | https://d.repec.org/n?u=RePEc:ete:msiper:772000 |
| By: | Tommaso Gasparini |
| Abstract: | Uncertainty shocks, by propagating through the banking sector, play a crucial role in driving business cycle fluctuations. To examine how the recent decline in U.S. banking competition has affected the transmission of these shocks, I develop a dynamic stochastic general equilibrium model featuring heterogeneous banks, imperfect banking competition and financial frictions. The model shows that reduced competition in the banking sector leads to higher borrowing rates and increased risk-taking by borrowers. As a result, uncertainty shocks generate more pronounced increases in defaults and sharper contractions in investment and output in less competitive banking environments. Quantitatively, the model implies that the recent decline in U.S. banking competition results in a 0.1 percentage points larger drop in GDP one year after an uncertainty shock. This finding is supported by panel local projection evidence indicating that lower banking competition amplifies the negative impact of uncertainty on GDP. |
| Keywords: | Financial Frictions, Financial Intermediaries, Heterogeneous Agents, Market Power, Uncertainty |
| JEL: | E32 E44 G21 L13 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:997 |
| By: | Mark L. Egan; Ali Hortaçsu; Nathan A. Kaplan; Adi Sunderam; Vincent Yao |
| Abstract: | We examine the implications of sleepy deposits and their impact on competition, bank value, and financial stability in the US banking sector. We first document the shopping behavior of depositors using novel data on account openings and closures. Depositors infrequently shop for deposits, with 5–15% of depositors opening a new account each year. Shopping behavior is idiosyncratic: deposit accounts are more likely to be closed due to the depositor either moving or dying than because the depositor switched to a new account offering higher rates or better services. Building on these facts, we develop an empirical model of the supply and demand for "sleepy deposits." In the model, banks face dynamic "invest-versus-harvest" incentives in competing for depositors who shop infrequently. We estimate the model and find that depositor sleepiness accounts for 58% of the average bank’s deposit franchise value. Sleepiness softens competition, particularly raising markups and franchise value for banks in low-concentration areas, as well as for banks with either low-quality deposit services or high marginal costs. Sleepiness also creates stability in the banking sector. For two main money center banks in the US, the probability of default after the Federal Reserve's 2022-2023 hiking cycle would have increased to more than 20% in a counterfactual without sleepy depositors. |
| JEL: | G0 G21 L0 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34267 |
| By: | María Paula Álvarez Arboleda (Universidad de los Andes) |
| Abstract: | This paper investigates the role of consumer preferences in shaping the performance of manufacturing firms in Colombia. I use data from Colombian manufacturing firms between 2000 and 2012 to decompose the contribution of consumer preferences into those attributable to preferences for certain goods (horizontal differentiation) and for particular providers of those goods (vertical differentiation). Employing a model that integrates consumer demand, following a nested CES structure, with firm production, I use key demand parameters to decompose the variance of firm sales into technical efficiency, input costs, and vertical and horizontal differentiation. I find that vertical differentiation plays a dominant role in explaining sales variance (85.9%), while horizontal differentiation and technical efficiency contribute to a lesser extent (26.2% and 29.2%, respectively). These findings underscore the importance of consumer preferences in determining firm outcomes, showing that demand-driven factors, frequently subsumed in productivity measures, outweigh traditional supply-side drivers that explain firms’ performance. |
| Keywords: | size of manufacturing firms; quality; differentiation; productivity; preferences |
| JEL: | L25 L60 O47 D22 D24 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:col:000089:021544 |
| By: | Wenbin Sun; Rahul Govind (UNSW - University of New South Wales [Sydney]); Mahabubur Rahman (ESC [Rennes] - ESC Rennes School of Business) |
| Abstract: | This study explores the under-researched area of vertical coopetition in business-to-business markets. Drawing on the resource-based view of the firm and signaling theory, we develop a conceptual model linking vertical coopetition to a supplier firm's systematic risk (SR) and idiosyncratic risk (IR) profile and incorporating coopetitionspecific attributes as the boundary conditions. Using a dataset of over 20, 000 observations from more than 4000 firms spanning 29 years, employing a novel measure of vertical coopetition and a robust analytical method, we document that vertical coopetition with customers reduces a firm's SR. Additionally, we uncover an inverted Ushaped relationship between vertical coopetition and IR, suggesting that moderate levels of coopetition heighten firm-specific risks due to competitive tensions, while higher levels mitigate risk through improved resource coordination. We also identify that the length of the coopetitive relationship amplifies the risk-reducing effects on SR. In contrast, competition intensity within the relationship increases SR but has a non-monotonic effect on IR. The support for the results is further validated with several additional measures of the key variables, ensuring the robustness of our results. These insights contribute to the theoretical understanding of vertical coopetition and offer practical implications for B2B managers in strategic risk management, emphasizing the importance of balancing cooperation and competition to achieve long-term stability and competitive advantage. |
| Keywords: | Vertical coopetition, Firm performance, Relationship length |
| Date: | 2025–07–24 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05224431 |
| By: | Susanna Azevedo (Department of Sociology, University of Vienna, Vienna, Austria); Theresa Hager (Socio-Ecological Transformation Lab, Johannes Kepler University Linz, Austria; Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria); Laura Porak (Socio-Ecological Transformation Lab, Johannes Kepler University Linz, Austria; Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria) |
| Abstract: | Competition structures contemporary societies as an omnipresent organizing principle yet is often understood as a neutral technical mechanism. This paper develops a theoretical framework on competition as a social institution structured by explicit and implicit rules that systematically reproduce power relations under the guise of fair selection. While explicit rules govern formal processes and are accessible to all participants, implicit rules remain concealed yet fundamentally determine competitive practices and outcomes. These rule types are distinguished by the 'border of what can be said (and done)'. Through three empirical competitive formats examining housing markets, EU policymaking, and global development, we demonstrate how this distinction illuminates the mechanisms through which competition legitimizes social inequalities. Our framework bridges theoretical approaches while accounting for competition's variability and ambiguity. By rendering implicit rules visible and contestable, this analysis challenges neoliberal instrumentalization and reveals competition's deep entanglement with power relations in modern capitalist societies. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:ico:wpaper:167 |
| By: | Ren\'e A\"id; Philippe Bergault; Mathieu Rosenbaum |
| Abstract: | Recent regulation on intraday electricity markets has led to the development of shared order books with the intention to foster competition and increase market liquidity. In this paper, we address the question of the efficiency of such regulations by analysing the situation of two exchanges sharing a single limit order book, i.e. a quote by a market maker can be hit by a trade arriving on the other exchange. We develop a Principal-Agent model where each exchange acts as the Principal of her own market maker acting as her Agent. Exchanges and market makers have all CARA utility functions with potentially different risk-aversion parameters. In terms of mathematical result, we show existence and uniqueness of the resulting Nash equilibrium between exchanges, give the optimal incentive contracts and provide numerical solution to the PDE satisfied by the certainty equivalent of the exchanges. From an economic standpoint, our model demonstrates that incentive provision constitutes a public good. More precisely, it highlights the presence of a competitiveness spillover effect: when one exchange optimally incentivizes its market maker, the competing exchange also reaps indirect benefits. This interdependence gives rise to a free-rider problem. Given that providing incentives entails a cost, the strategic interaction between exchanges may lead to an equilibrium in which neither platform offers incentives -- ultimately resulting in diminished overall competition. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.10094 |
| By: | Jens Friedmann; Britta Glennon; Exequiel Hernandez |
| Abstract: | We examine how firms respond to talent scarcity caused by restrictive immigration policies. We argue that when firms cannot build capabilities internally through hiring, they alter their boundaries by engaging in corporate acquisitions to make up for the foregone talent and capabilities. Using data on 3, 861 U.S. firms and their use of the H-1B visa program (2001-2020), we leverage two exogenous shocks—the 2004 H-1B cap reduction and the 2007-2008 visa lottery—and find causal evidence that firms make more acquisitions as their exposure to immigration restrictions rises. This effect is stronger for deals with purposes related to the skills of the foregone talent, for small acquisitions, for domestic targets, and for targets in places with higher concentrations of skilled workers. |
| JEL: | F22 G34 J24 J61 L2 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34248 |