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on Industrial Competition |
| By: | Mr. Flavien Moreau; Semih Üslü |
| Abstract: | We develop a search-based theory of mergers and acquisitions with heterogeneous firms and endogenous search complementarities. We use this model to understand how merger incentives and the firm size distribution interact. In equilibrium, search costs and entry rates determine search intensities and shape the distribution of market power. We derive the law of motion of the firm size distribution, provide closed-form solutions, and solve for endogenous search efforts. Finally, we derive the aggregate welfare function and show how our framework can be used to simulate the impact of various antitrust policies. In particular, antitrust policy can have large effects on welfare due to the existence of multiple equilibria. |
| Keywords: | Search; Bargaining; Mergers & acquisitions; Market power |
| Date: | 2025–11–14 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/239 |
| By: | Du, G. |
| Abstract: | We propose a unified microeconomic theory that takes the behavioral rules of firms in real markets as the endogenous mechanism through which market structures are generated, replacing the standard practice of imposing perfect competition, monopoly, and other market forms as exogenous assumptions. Under a set of minimal axioms (consumer utility maximization, firm profit maximization, firm entry/exit mechanisms, and market clearing) and by introducing realistic cost and demand structures (firm-level cost heterogeneity, fixed costs, and demand elasticity, among others), pricing behavior and market structures long treated as exogenous (such as perfect competition and monopoly) are derived endogenously as equilibrium outcomes of firms' profit-maximizing behavior. Within a single framework, the theory nests traditional cost and marginal analysis, game-theoretic approaches to imperfect competition, and the Walrasian general equilibrium model; different regions of the parameter space naturally yield equilibrium outcomes corresponding to perfect competition, monopoly, monopolistic competition, and competitive-fringe structures. Our analysis shows that perfect competition is only a highly symmetric and intrinsically unstable equilibrium point: even small cost differences suffice to push the system toward more common monopoly or oligopoly configurations, while positive feedback mechanisms render these structures stable, helping to explain why market power is not easily competed away. Under empirically observable premises, the theory coherently derives the principal market forms and, in doing so, clarifies the domains of applicability of various classic models. It can also be used to predict which market structures industries will evolve toward under given conditions, providing a unified and operational theoretical foundation for empirical research, industrial policy, and firms' business and competitive strategy decision-making. |
| Keywords: | Unified Market Structure Theory; Endogenous Structural Evolution; Imperfect Competition; Unified General Equilibrium Framework; Network Externalities and Feedback Mechanisms; Pareto Optimality under Heterogeneity |
| JEL: | D40 D41 D42 D43 D50 D85 L11 L12 L13 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126828 |
| By: | Haucap, Justus; Karacuka, Mehmet; Inke, Hakan |
| Abstract: | Utilizing Connor's International Cartel Database and employing difference-in-differences methodology, we find that market concentration, the number of buyers and cartel duration have significant impacts on cartel overcharges. We also find that the European Commission's 2006 guidelines on the method of setting fines for cartel infringements seems to have decreased cartel overcharges in the EU. In addition, the EU's cartel damages directive of 2014 (2014/104/EU) appear to have increased private damage payments. Overall, we find support that these two changes in EU competition policy have a reversing impact on the otherwise increasing trend of cartel overcharges, as making the infringement more costly at least in the EU. |
| Keywords: | Cartel fines, cartel damages, EU guidelines, competition law, antitrust |
| JEL: | L41 K21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:dicedp:331876 |
| By: | Afonso Rodrigues |
| Abstract: | Popular demand estimation approaches impose unrealistic choice constraints and misstate market boundaries, biasing price elasticity estimates and affecting our understanding of market power and pass-throughs. I introduce a novel, scalable method that conditions the outcome of consumers' choice on the structure of their consideration set: a function of all the combinations of goods - shopping baskets - considered each purchase instance by consumers. I show that if consideration sets bind consumers' consumption bundles, joint purchases induce substitutes and complements, possibly making market concentration welfare-increasing. To allow for demand estimation across product categories while addressing dimensionality concerns, I develop a Slutsky matrix proxy from joint-purchase frequencies. I test the model's predictions and jointly determine price elasticities for 20 000 goods across 500 product categories for a Portuguese grocery store sample from 2020-23. The results match observed price volatility, profit margin surveys, as well as reports on shifting consumer tastes during the sample period. Mark-ups are found to have remained volatile around a stable mean, with peaks and troughs corresponding to COVID-related events. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.11846 |
| By: | May, Daniel E.; McCorriston, Steve |
| Abstract: | The issue of market power in agricultural and food markets is typically addressed in the context of domestic markets. In this paper, we consider the impact of market power in the outcome of trade agreements involving a number of countries. The issue of market power is set in the context of growth of preferential trade agreements has been one of the main features of trade policy over the last 20 years. To address these issues, we present a network model of trade where intermediaries in each country can have both seller and buyer power. Buyer power is of particular relevance to this framework since we know from standard trade theory that trade reform can bring pro-competitive effects from trade. However, the exercise of buyer power can potentially offset the potential gains from trade liberalisation. We show in this paper that the impact of buyer power on expanding trade agreements will depend on the nature of trade between countries, whether countries differ in market size, and the existence of already established trade agreements. We highlight the insights from the network trade model with an empirical example of a trade agreement between the UK and the US. |
| Keywords: | Agribusiness, Agricultural Finance, International Relations/Trade |
| URL: | https://d.repec.org/n?u=RePEc:ags:aes025:356758 |
| By: | Jaimovich, Esteban (University of Turin (ESOMAS Department) and Collegio Carlo Alberto); Madzharova, Boryana (Central Bank of Ireland, Friedrich-Alexander-Universität Erlangen-Nürnberg, and CESIfo); Merella, Vincenzo (University of Cagliari and Prague University of Economics and Busines) |
| Abstract: | The paper investigates firms’ rollout strategies for quality-differentiated products across geographically dispersed markets. Using a theoretical framework that integrates nonhomothetic preferences, we show that premium goods are more likely to enter wealthier markets first, allowing firms to capture higher markups. We find that the main factors influencing the selection of follow-up markets differ by product quality: for premium goods, income levels are the primary determinant of expansion paths, whereas geographic proximity is the main driver for lower-quality products. Using micro-level data from the refrigeration industry, we confirm a significant positive association between market-entry order and income for higherquality products. Furthermore, we observe that follow-up markets tend to be geographically more dispersed for premium goods, reflecting a shift away from proximity-based expansion strategies. |
| Keywords: | market entry, gravity; nonhomothetic preferences, quality differentiated products. |
| JEL: | F1 F14 F23 L68 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:wpaper:18/rt/25 |
| By: | Zhao, Tian (Department of Finance, College of Economics and Management, Hebei Agricultural University); Jamasb, Tooraj (Department of Economics, Copenhagen Business School) |
| Abstract: | Timely investment in capacity and fair pricing are critical for the development of infrastructure sectors and regulation plays a central role in their investment decisions and consumer welfare. Considering the natural monopoly characteristics of many infrastructure sectors and uncertainty in demand for new capacity, this paper develops a real options model to determine the optimal timing and capacity for anticipatory investments in infrastructure. We design a novel ex-ante regulatory framework to explore how perfect competition can serve as benchmark for regulating anticipatory investment in infrastructure under uncertainty. We compare optimal timing and capacity for anticipatory investment in infrastructure between the realistic monopoly model and an ideal competitive model. We show that our proposed price-cap regulatory model based on competitive benchmark would not only ensure timely investment in infrastructure but also spurs consumer participation by offering fairer access pricing and more capacity provision. This paper can serve as a reference for anticipatory investment in infrastructure development. |
| Keywords: | Investment decision-makings; Real options; Infrastructure; Market power; Perfect competition; Price-cap regulation |
| JEL: | C60 D40 L10 L50 Q40 |
| Date: | 2025–07–11 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:cbsnow:2025_005 |
| By: | Antelo, Manel; Bru, Lluís |
| Abstract: | This paper examines the commercialization of an external, quality-enhancing (product) innovation within a vertically related market, comparing outright sale and licensing. Licensing may involve a royalty of per-unit or ad valorem type and potential adopters are two downstream firms that source a core input from a single upstream supplier. The analysis reveals that the patentholder’s incentive to license the innovation, particularly through per-unit royalties, outweighs that of an outright sale. This form of technology transfer, however, is shown to potentially reduce consumer and social welfare compared to the pre-innovation state, thus providing a rationale for public policy interventions aimed at restricting royalty-based technology transfer. |
| Keywords: | Vertical industry, quality-enhancing product innovation, sale versus licensing, two-part tariff contracts, per-unit royalty, ad-valorem royalty, welfare |
| JEL: | L13 O32 |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126850 |
| By: | Mohamed Chaouch; Thanasis Stengos |
| Abstract: | This paper investigates how market competition influences poverty dynamics using a functional econometric framework that captures both contemporaneous and lagged effects. Using annual data for 48 countries from 1991-2017, we estimate function-on-function regressions linking poverty headcount ratios to market concentration and other macroeconomic indicators. The results show that, based on the entire sample, stronger competition initially increased poverty during structural adjustment phases, but its adverse impact weakened after 2010 as economies adapted and efficiency gains emerged. The estimated bivariate surfaces reveal that the effect of competition on poverty often persists over multiple years (around 5 years), highlighting the importance of intertemporal transmission. Then, functional clustering based on market capitalization (MCAP) uncovers strong heterogeneity: pro-poor 5-years lagged effect of competition in low- and medium-MCAP economies, while it remains insignificant to weakly negative in high-MCAP countries. Overall, the findings underscore the value of functional data methods in uncovering evolving and lag-dependent poverty-competition linkages that static panel models fail to capture. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.13875 |
| By: | Maxime Charreire; Marion Girard; Marie-Noëlle Lefebvre |
| Abstract: | This paper analyzes the effects of competition between major construction and development firms and other developers on housing production in France, offering both theoretical and empirical contributions. Theoretically, a static monocentric city model shows that major firms, due to lower marginal costs, prioritize high-demand central areas, whereas other developers focus their production activities in peripheral zones. Empirically, an analysis of building permit data (2013–2022) reveals that major firms concentrate their projects in metropolitan areas and in the core of urban regions, with larger-scale developments. This study sheds light on the role of market competition structure in shaping urbanization and the geographic distribution of housing production in France. |
| Keywords: | Competition; Monocentric city model; Real Estate Developers; Urbanization |
| JEL: | R3 |
| Date: | 2025–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:arz:wpaper:eres2025_163 |
| By: | Takushi Kurozumi; Yu Sugioka; Willem Van Zandweghe |
| Abstract: | Research in labor economics has documented evidence of labor market monopsony. Nevertheless, macroeconomic studies routinely consider households' wage-setting under monopolistic competition. We introduce firms' wage-setting under monopsonistic competition in an otherwise standard sticky-price model. This substantially alters the implications for wage dynamics, welfare, and policy. Compared to its counterpart model with monopolistic wage-setting, our model indicates that the wage Phillips curve includes the wage markdown as its main driver and has a steeper slope generated by strategic substitutability in wage-setting, and that the second-order approximation to households' utility functions is of the same form but with a smaller welfare weight on wage growth variability. Consequently, a welfare-maximizing policy features stabilizing inflation rather than wage growth. |
| Keywords: | labor market monopsony; wage markdown; strategic substitutability; staggered wage-setting; timeless-perspective policy; inflation stabilization |
| JEL: | E24 E52 J42 |
| Date: | 2025–11–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:102125 |
| By: | Wändi Bruine de Bruin; Keshav Dogra; Sebastian Heise; Edward S. Knotek; Brent Meyer; Robert W. Rich; Raphael Schoenle; Giorgio Topa; Wilbert Van der Klaauw |
| Abstract: | There has been a lot of interest in firms’ pricing decisions in the past few years—both during the inflation surge of 2021-23 and in the more recent rounds of tariff increases. In this post, we let firms speak for themselves about what factors they consider when adjusting prices in response to various shocks. The analysis is based on an ongoing research project, joint with the Atlanta and Cleveland Federal Reserve Banks, on how businesses set prices and the extent of passthrough of cost increases. In particular, we leverage the qualitative portion of the study based on open-ended interviews with senior decision-makers on how they approach pricing decisions in their firms. Rather than a uniform approach, a very nuanced picture emerges of businesses trying to balance competing objectives while keeping an eye on demand conditions for their products as well as on their direct competitors’ behavior in the market. |
| Keywords: | Price setting; cost pass-through; interview |
| JEL: | D22 |
| Date: | 2025–11–24 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednls:102159 |
| By: | Sen, Anupama (Smith School of Enterprise and the Environment, University of Oxford); Jamasb, Tooraj (Department of Economics, Copenhagen Business School); Toba, Natsuko (Energy Policy Research Group, University of Cambridge) |
| Abstract: | As the clean energy transition progresses, critical minerals and metals will be essential components in the deployment of clean energy technologies, with estimates of their demand set to soar. However, proven reserves, as well as processing facilities, are geographically concentrated in a small number of countries. This paper addresses the following research question: how will the emerging market structure for critical minerals develop: will producers and consumers compete, cooperate, or cartelise? We contribute to the literature by exploring frameworks to describe some possible outcomes of market evolution based on characteristics of the current critical mineral market, preconditions for competition, cooperation or cartelisation, and case studies. We draw on insights from collusive oligopolies in the international market for oil and gas. |
| Keywords: | Critical minerals; Energy transition; Supply chains; Decarbonisation; Industrial organisation; Cartels; Markets |
| JEL: | L13 O24 Q21 Q34 Q35 Q37 Q42 Q48 |
| Date: | 2025–07–11 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:cbsnow:2025_006 |
| By: | Bhattacharya, Sulagna |
| Abstract: | Geopolitical risk has emerged as a persistent feature of the global business environment, yet its impacts on domestic mergers and acquisitions (M&A) remain underexplored, particularly in emerging economies with distinctive institutional contexts. This study examines how geopolitical risk influences M&A deal failure in India and whether acquirers’ corporate social responsibility (CSR) moderates this relationship under the country’s mandatory CSR regime. Using a sample of 377 domestic M&A deals announced between 2015–16 and 2019–20, the analysis reveals a counterintuitive pattern: higher geopolitical risk is associated with a lower likelihood of deal failure, suggesting that firms pursue domestic consolidation as a defensive hedge against external volatility. While acquirers’ CSR performance independently reduces the probability of deal failure, its interaction with high geopolitical risk increases the likelihood of failure. It indicates that strong CSR commitments may constrain financial flexibility during uncertain times, thereby heightening deal vulnerability. These results remain robust across alternative model specifications, sub-samples, and disaggregated geopolitical risk measures. By integrating geopolitical risk with a legally enforced CSR spending regime, this study provides one of the first empirical demonstrations of how macro-political turbulence and regulatory social responsibility jointly shape corporate M&A outcomes in emerging markets. These findings re-conceptualize CSR as a potential financial constraint under regulation and advance the understanding of firm behavior at the intersection of risk, responsibility, and regulation. |
| Date: | 2025–11–16 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:hztnj_v1 |
| By: | Sukanya Kudva; Anil Aswani |
| Abstract: | We study the problem of auction design in the presence of bidder collusion. Specifically, we consider a multi-unit auction of identical items with single-minded bidders, where a subset of bidders may collude by coordinating bids and transferring payments and items among themselves. While the classical Vickrey-Clarke-Groves (VCG) mechanism achieves efficient and truthful outcomes, it is highly vulnerable to collusion. In contrast, fully collusion-proof mechanisms are limited to posted-price formats, which fail to guarantee even approximate efficiency. This paper aims to bridge this gap by designing auctions that achieve good welfare and revenue guarantees even when some bidders collude. We first characterize the strategic behavior of colluding bidders under VCG and prove that such bidders optimally bid shade: they never overbid or take additional items, but instead reduce the auction price. This characterization enables a Bulow-Klemperer type result: adding colluding bidders can only improve welfare and revenue relative to running VCG on the non-colluding group alone. We then propose a Hybrid VCG (H-VCG) mechanism that combines VCG applied to non-colluding bidders with a posted-price mechanism for colluding bidders, assuming access to a black-box collusion detection algorithm. We show that H-VCG is ex-post dominant-strategy incentive compatible (DSIC) and derive probabilistic guarantees on expected welfare and revenue under both known and unknown valuation distributions. Numerical experiments across several distributions demonstrate that H-VCG consistently outperforms VCG restricted to non-colluding bidders and approaches the performance of the ideal VCG mechanism assuming universal truthfulness. Our results provide a principled framework for incorporating collusion detection into mechanism design, offering a step toward collusion-resistant auctions. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.12456 |
| By: | Bukur, Tamás |
| Abstract: | In the European Union, a heated debate has emerged about whether the current practice of network neutrality regulation might endanger the development of very high-capacity networks and thus threaten the competitiveness of the European telecommunications sector. Operators insist that large content providers, who are effectively free riding on operator infrastructure, should be required to contribute a "fair share" of the costs of delivering their content; they believe new policies should facilitate this. Yet in most policy discussions, "fairness" appears as a purely rhetorical concept, seldom accompanied by concrete methods of quantification. Many policy recommendations suggest that cost shares should be bargained by operators and content providers, and regulators should step in if negotiations are not successful. Although this paper does not take a position on either side of the debate, by employing a cooperative game-theoretic framework it seeks to clarify what "fair share" could mean in rigorous economic terms. My theoretical model builds on the externality created by content providers originating large volumes of internet traffic, who do not pay for and have no incentive to limit the resulting infrastructure costs. Central to our cooperative framework is the hypothetical "grand coalition, " in which all players (operators, content providers, and consumers) cooperate to maximize a joint surplus, thereby fully internalizing this externality. Hypothetical coalitions, including only part of the players, might also partially reduce it. Each coalition's value is defined in its ability to mitigate the externality, and each player's contribution to that mitigation provides a basis for allocating costs. I rely on the Shapley value to examine how operators, content providers, and consumers should share trafficgenerated costs under this widely used conception of fairness. My results suggest that, according to the Shapley value, operators and content providers should split costs equally, leaving no direct burden on consumers. In the case of multiple competing operators, their half of the cost should be further split between them equally. The model aims for ease of practical implementation; hence, the suggested share measures depend only on observable cost parameters. With such a cost-sharing regulation in place, and taken into account by players in their optimization, the market equilibrium shifts closer to the social optimum, infrastructure deployment rises, and at high infrastructure cost levels, both consumer surplus and total welfare improve. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:itse25:331254 |
| By: | Anna Shchiptsova; Michael Obersteiner |
| Abstract: | The addition of phosphorus, in the form of mineral fertilizer, becomes necessary in most agricultural soils in order to achieve consistent high yield levels of intensive farming and maintain soil fertility. Recent consolidation of phosphate fertilizer industry has transformed fragmented trade into a single integrated global network, where a small group of large-scale companies dominates the international market for phosphate commodity fertilizers. To assess the impact of new trade structure on future region-level phosphorus supply, we simulate behavior of markets for ammonium phosphates in the FAO scenarios of global intensive farming evolution. Details of market microstructure are represented here by a many-to-many matching market. Current spatial distribution of global demand in ammonium phosphates is projected to strengthen by 2030. Bootstrap simulations produce similar network structures for both scenarios showing reduction in the density of the distributed market. In response to the non-uniform demand growth across regions, market concentration is expected to increase for small-scale markets, and to remain predominantly stable for large-scale markets; on the supply side, simulated equilibria point out large-scale multi-market suppliers concentrating on fewer markets than before. A high rate of import substitution by local suppliers in some markets indicate the need of additional region-level capital investment. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.13123 |