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on Industrial Competition |
| By: | Charles Hodgson; Shilong Sun |
| Abstract: | How do vertically integrated firms' pricing and product provision decisions change with upstream and downstream competition? We answer this question in the context of the Chinese film industry. Theaters allocate significantly fewer showings to non-integrated films. This foreclosure effect is particularly pronounced in two scenarios: when an integrated theater faces limited spatial competition, and when an integrated film is similar to competing films. To measure welfare effects, we estimate a model of consumer preferences and theater showings choice using a novel method that combines standard demand data with film ratings data. Our results show that integrated theaters internalize a substantial portion of their upstream profits, driving foreclosure behavior that distorts showings. Counterfactual simulations show that vertical integration increases consumer welfare by 2.4% in the median market, but reduces consumer welfare in 7% of markets. The welfare effects of foreclosure vary with upstream competition between films and downstream competition between theaters, and we show that targeted antitrust policy that removes of integration based on measures of market competition can substantially increase welfare. |
| JEL: | L0 L13 L40 L42 L82 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34390 |
| By: | Marc Ivaldi (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Nicolas Petit (EUI - European University Institute - Institut Universitaire Européen); Selçukhan Unekbas (EUI - European University Institute - Institut Universitaire Européen) |
| Abstract: | The killer acquisitions theory states that established firms buy new businesses to pre-empt future competition, particularly in the pharmaceutical and digital industries. The theory fuels demand to make merger policy more restrictive. But is the theory of killer acquisitions supported by empirical facts? Focusing on past investigations by the European Commission in information technology industries, this article studies whether acquisitions by large technology companies reduce competition by eliminating future rivalry. Despite the small sample size, the findings suggest that none of the reviewed transaction was followed by the disappearance of the target's products, a weakening of competing firms, and/or a post-merger lowering or absence of entry and innovation. |
| Keywords: | killer acquisitions, case study, dynamic competition, innovation, mergers and acquisitions, nascent competitors |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05308625 |
| By: | Duso, Tomaso; Harrington, Joseph E.; Kreuzberg, Carl; Sapi, Geza |
| Abstract: | Competition authorities increasingly rely on economic screening tools to identify markets where firms deviate from competitive norms. Traditional screening methods assume that collusion occurs through secret agreements. However, recent research highlights that firms can use public announcements to coordinate decisions, reducing competition while avoiding detection. We propose a novel approach to screening for collusion in public corporate statements. Using natural language processing, we analyze more than 300, 000 earnings call transcripts issued worldwide between 2004 and 2022. By identifying expressions commonly associated with collusion, our method provides competition authorities with a tool to detect potentially anticompetitive behavior in public communications. Our approach can extend beyond earnings calls to other sources, such as news articles, trade press, and industry reports. Our method informed the European Commission's 2024 unannounced inspections in the car tire sector, prompted by concerns over price coordination through public communication. |
| Keywords: | Communication, Collusion, NLP, Screening, Text Analysis |
| JEL: | C23 D22 L1 L4 L64 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:dicedp:329636 |
| By: | Lukyanov, Georgy; Shamruk, Konstantin; Logina, Ekaterina |
| Abstract: | We study a dynamic reputation model with a fixed posted price where only pur-chases are public. A long-lived seller chooses costly quality; each buyer observes the purchase history and a private signal. Under a Markov selection, beliefs split into two cascades—where actions are unresponsive and investment is zero—and an interior region where the seller invests. The policy is inverse-U in reputation and produces two patterns: Early Resolution (rapid absorption at the optimistic cascade) and Dou-ble Hump (two investment episodes). Higher signal precision at fixed prices enlarges cascades and can reduce investment. We compare welfare and analyze two design levers: flexible pricing, which can keep actions informative and remove cascades for patient sellers, and public outcome disclosure, which makes purchases more informa-tive and expands investment. |
| Keywords: | Reputation; Social learning; Informational cascades; Product quality; Dynamic games. |
| JEL: | D82 D83 C73 L15 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131019 |
| By: | Ginger Zhe Jin; Hsienming Lien; Xuezhen Tao |
| Abstract: | This paper investigates how hospital competition and insurance reimbursement policy shape the diffusion of medical innovations. Using patient-level data from Taiwan's drug-eluting stent (DES) market in the Taipei metropolitan area, we estimate a structural model of hospital behavior, incorporating patient demand and hospitals' endogenous portfolio and pricing decisions. Our analysis reveals a fundamental trade-off: intense competition lowers prices but weakens hospitals' incentives to adopt new technologies, with total welfare peaking at an intermediate level of concentration. We then evaluate policy solutions. Selective contracting—where the government insurer negotiates exclusive wholesale discounts—can achieve a ``quadruple-win'' for consumers, hospitals, participating manufacturers, and the payer. In contrast, increasing the insurer's DES-specific reimbursement encourages hospitals to expand DES technology adoption and lower patient payment per DES, but creates a substantial fiscal burden for the insurer. Alternatively, a patient coupon program targeting low-income patients improves equity but has limited market-wide impact, as hospitals barely modify their price or portfolio decisions in response. These findings highlight that effective technology diffusion policies must account for downstream hospitals' strategic responses and their market competition. |
| JEL: | D4 I18 L13 O33 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34374 |
| By: | Vijay Adithya C ((Corresponding author), Madras School of Economics, Gandhi Mandapam Road, Behind Government Data Centre, Kotturpuram, Chennai, 600025, India.); Poornapushkala Narayanan (Madras School of Economics, Chennai, Tamil Nadu, India, 600025) |
| Abstract: | This paper studies a Cournot market with infinitely many firms facing constant but heterogeneous marginal costs, without assuming perfect competition. We determine a necessary and sufficient condition for the existence of equilibrium - the marginal costs converge to a limit r with summable deviations. We deduce from this condition that perfect competition is not automatic in such markets, but competitive behavior emerges asymptotically under certain conditions on the costs. We also consider a family of finite markets growing to the infinite limit market. We show that the equilibria of finite markets converge to that of the limit market if and only if the average marginal costs of the finite markets converge to r. |
| Keywords: | Cournot-Nash Equilibrium, Limit Market, Equilibrium Convergence |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:mad:wpaper:2025-290 |
| By: | Michael R. Baye (Indiana University); Dan Kovenock (Economic Science Institute, Chapman University); Casper G. de Vries (Erasmus University) |
| Abstract: | We show that MRPM can increase manufacturer profits and total output even in the ab- sence of traditional justifications based on point-of-sale services, retailer effort, or free-riding. The key insight is that MRPM mitigates channel conflict by altering how retailers balance extracting surplus from loyal customers and competing for price-sensitive shoppers. When a manufacturer optimally chooses a wholesale price and MRPM policy, this can intensify com- petition and create systematic distributional effects: prices fall for loyal consumers but rise for shoppers, and the profits of smaller, shopper-dependent retailers decline. We characterize the conditions under which MRPM raises output, benefits a majority of consumers, and reallocates surplus among the manufacturer, retailers, and different consumer segments. The model helps explain why the political economy of MRPM varies across jurisdictions: even when it increases output, it creates predictable winners and losers, and there is no guarantee that the median consumer or retailer -- or the median voter -- benefits when minimum resale prices are imposed. These results suggest that the welfare and distributional effects of MRPM are inherently context-dependent and that its legal evaluation is best approached through a rule-of-reason framework that accounts for demand structure, retailer asymmetries, and the composition of consumer types. |
| Keywords: | Resale Price Maintenance, Vertical Restraints, Price Competition |
| JEL: | D4 D8 M3 L13 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:chu:wpaper:25-10 |
| By: | Ichihashi, Shota; Smolin, Alex |
| Abstract: | In markets where algorithmic data processing is increasingly prevalent, recom-mendation algorithms can substantially affect trade and welfare. We consider a setting in which an algorithm recommends a product based on its value to the buyer and its price. We characterize an algorithm that maximizes the buyer’s expected payoff and show that it strategically biases recommendations to induce lower prices. Revealing the buyer’s value to the seller leaves overall payoffs un-changed while leading to more dispersed prices and a more equitable distribution of surplus across buyer types. These results extend to all Pareto-optimal algorithms and to multiseller markets, with implications for AI assistants and e-commerce ranking systems. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130999 |
| By: | Ambre Nicolle; Christos Genakos; Tobias Kretschmer (Cambridge Judge Business School, University of Cambridge) |
| Abstract: | Can entire markets strategically confuse consumers to raise market prices? Using a detailed dataset covering virtually all mobile phone tariffs and their handsets in the United Kingdom between January 2010 and September 2012, we study the evolution of quality-adjusted prices and find that they increased until December 2010, even though the industry was mature, technologically homogeneous, and competitive. Upon exploring the role of several salient factors, such as differentiation and product proliferation by firms that may have affected this evolution, we argue that the primary driver is the implementation of obfuscation strategies by firms. The observed price increase is significantly correlated with the rate at which operators implemented dominated tariffs (ie tariffs for which there is a cheaper alternative from the same operator), indicating that firms use obfuscation strategies to reduce product transparency, thereby elevating overall prices. Importantly, the presence of dominated tariffs raises not only the prices of these contracts but also those of efficient ones, distinguishing our findings from a behavioral price discrimination strategy that would only affect inattentive consumers. Our exploratory study is one of the first to offer suggestive evidence of obfuscation as an industry-wide supply-side phenomenon. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:jbs:wpaper:202503 |
| By: | Bergemann, Dirk; Bonatti, Alessandro; Smolin, Alex |
| Abstract: | We develop an economic framework to analyze the optimal pricing and product design of Large Language Models (LLM). Our framework captures several key features of LLMs: variable operational costs of processing input and output tokens; the ability to customize models through fine-tuning; and high-dimensional user heterogeneity in terms of task requirements and error sensitivity. In our model, a monopolistic seller offers multiple versions of LLMs through a menu of products. The optimal pricing structure depends on whether token allocation across tasks is contractible and whether users face scale constraints. Users with similar aggregate value-scale characteristics choose similar levels of fine-tuning and token consumption. The optimal mechanism can be implemented through menus of two-part tariffs, with higher markups for more intensive users. Our results rationalize observed industry practices such as tiered pricing based on model customization and usage levels. |
| Keywords: | Large Language Models; Optimal Pricing; Menu Pricing; Fine-Tuning |
| JEL: | D47 D82 D83 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130997 |
| By: | Mangave, Darshan |
| Abstract: | This paper observes at Adam Smith’s idea of the “invisible hand” and ask how it works in today’s world of algorithms and digital platforms. In the Wealth of Nations, Smith explained that when people act in their self-interest then markets balance themselves and society benefits. But now, in this century many economic choices are not made only by people. They are guided by algorithms. For examples, this can be seen in Amazon’s product rankings, Uber’s surge pricing, Google’s search results, Netflix’s recommendations, and AI trading in stock markets. These algorithmic systems connect buyers and sellers quickly, but they also create new problems like reduced competition, unfair pricing, manipulation of consumer choices, and market instability. The paper argues that the invisible hand has not disappeared, but it now takes the form of an “algorithmic hand.” For this hand to truly serve society, there must be careful attention to ethics and policy. |
| Keywords: | Adam Smith, Invisible Hand, Wealth of Nations, Algorithms, Digital Economy, Market Competition, Consumer Behaviour, Algorithmic Pricing, Platform Capitalism, Economic Policy. |
| JEL: | B12 D47 K23 L17 L86 O33 |
| Date: | 2025–09–14 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126154 |
| By: | Memmen, Marvin; Ipsen, Leonhard; Schulz-Gebhard, Jan |
| Abstract: | The relationship between firm markups and inflation remains a topic of contention. Empirical findings suggest that many firms were able to maintain or increase their markups and profits amidst the recent wide-ranging cost shocks. This phenomenon, often referred to as sellers' inflation, raises two questions: i) why do firms change their price-setting strategies from previously competing for market shares via lower prices to raising prices in proportion or even excess of a price shock, and ii) why can they do so without impeding their market share and profitability? We argue that current supply-side explanations exhibit several theoretical and empirical shortcomings and instead propose a demand-based alternative based on the textbook argument of distorted price signals. We argue that higher price dispersion during periods of price shocks reflect informational costs for consumers and reduce consumers' price elasticity of demand by deranging the system of relative prices they oversee. Based on an agent-based model, we demonstrate that the combination of boundedly rational consumers and informational costs due to price dispersion enables firms to increase their markups and profits in response to wide-ranging cost-push shocks. As consumers increasingly struggle to monitor price changes, they become less able to adequately punish (or reward) firms for raising (or maintaining) prices. This straightforward mechanism offers a promising explanation for the emergence of sellers' inflation. |
| Keywords: | Inflation, Markups, Agent-based modeling, Consumer behavior, Price dispersion |
| JEL: | E31 E71 D83 C63 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bamber:330171 |
| By: | Smolin, Alex; Yamashita, Takuro |
| Abstract: | We study information design in games where players choose from a continuum of ac-tions and have continuously differentiable payoffs. We show that an information structure is optimal when the equilibrium it induces can also be implemented in a principal-agent contracting problem. Building on this result, we characterize optimal information struc-tures in symmetric linear-quadratic games. With common values, targeted disclosure is robustly optimal across all priors. With interdependent and normally distributed values, linear disclosure is uniquely optimal. We illustrate our findings with applications in venture capital, Bayesian polarization, and price competition. |
| Keywords: | Bayesian persuasion; information design; dual certification; first-order approach; linear-quadratic games; targeted disclosure; Gaussian coupling, linea; disclosure. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130998 |
| By: | Agathe Pernoud; Frank Yang |
| Abstract: | A monopolist sells multiple goods to an uninformed buyer. The buyer chooses to learn any one-dimensional linear signal of their values for the goods, anticipating the seller's mechanism. The seller designs an optimal mechanism, anticipating the buyer's learning choice. In a generalized Gaussian environment, we show that every equilibrium has vertical learning where the buyer's posterior means are comonotonic, and every equilibrium is outcome-equivalent to nested bundling where the seller offers a menu of nested bundles. In equilibrium, the buyer learns more about a higher-tier good, resulting in a higher posterior variance on the log scale. |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2509.16396 |
| By: | Fasheng Xu; Xiaoyu Wang; Wei Chen; Karen Xie |
| Abstract: | The strategic choice of model "openness" has become a defining issue for the foundation model (FM) ecosystem. While this choice is intensely debated, its underlying economic drivers remain underexplored. We construct a two-period game-theoretic model to analyze how openness shapes competition in an AI value chain, featuring an incumbent developer, a downstream deployer, and an entrant developer. Openness exerts a dual effect: it amplifies knowledge spillovers to the entrant, but it also enhances the incumbent's advantage through a "data flywheel effect, " whereby greater user engagement today further lowers the deployer's future fine-tuning cost. Our analysis reveals that the incumbent's optimal first-period openness is surprisingly non-monotonic in the strength of the data flywheel effect. When the data flywheel effect is either weak or very strong, the incumbent prefers a higher level of openness; however, for an intermediate range, it strategically restricts openness to impair the entrant's learning. This dynamic gives rise to an "openness trap, " a critical policy paradox where transparency mandates can backfire by removing firms' strategic flexibility, reducing investment, and lowering welfare. We extend the model to show that other common interventions can be similarly ineffective. Vertical integration, for instance, only benefits the ecosystem when the data flywheel effect is strong enough to overcome the loss of a potentially more efficient competitor. Likewise, government subsidies intended to spur adoption can be captured entirely by the incumbent through strategic price and openness adjustments, leaving the rest of the value chain worse off. By modeling the developer's strategic response to competitive and regulatory pressures, we provide a robust framework for analyzing competition and designing effective policy in the complex and rapidly evolving FM ecosystem. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.15200 |
| By: | Aaron B. Flaaen; Ali Hortaçsu; Felix Tintelnot; Nicolás Urdaneta; Daniel Xu |
| Abstract: | This paper examines the effects of tariffs along the supply chain using product-level data from a large U.S. wine importer in the context of the 2019-2021 U.S. tariffs on European wines. By combining confidential transaction prices with foreign suppliers and U.S. distributors as well as retail prices, we trace price impacts along the supply chain, from foreign producers to U.S. consumers. Although pass-through at the border was incomplete, our estimates indicate that U.S. consumers paid more than the government received in tariff revenue, because domestic markups amplified downstream price effects. The dollar margins per bottle for the importer contracted, but expanded for distributors/retailers. Price effects emerge gradually along the chain, taking roughly one year to materialize at the retail level. Additionally, we find evidence of tariff engineering by the wine industry to avoid duties, leading to composition-driven biases in unit values in standard trade statistics. |
| JEL: | F13 F14 L66 L81 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34392 |
| By: | Tojal Ramos Dos Santos, Carolina |
| Abstract: | This paper investigates the impact of direct-to-consumer advertising (DTCA) on womens prescription contraceptive choices using television advertisement data and health insurance claims. I leverage quasi-random variation in exposure to local television advertising to identify the causal effect on womens decisions. The findings indicate that a 10% increase in DTCA for short-term contraceptive methods, such as pills, increases demand for the advertised product by 2.7% and generates positive spillovers to branded and generic products in the same category. At the same time, DTCA for short-term methods reduces demand for long-acting reversible contraceptives (LARCs), such as intrauterine devices (IUDs) and implants. After the Affordable Care Act reduced out-of-pocket costs for prescription contraceptives for insured women, advertising shifted from short-term to long-term methods. The television advertising for permanent methods increased demand for LARCs and decreased demand for short-term products. These results provide new causal evidence on how television advertising influences consumer decisions in a market where patients have wide discretion and products vary by type, cost, and effectiveness. |
| Keywords: | Advertising;Contraceptives;HEALTH BEHAVIOR;Insurance |
| JEL: | I12 M37 D12 J13 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:14307 |