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on Industrial Competition |
| By: | Deng, Shanglyu; Jia, Dun; Leccese, Mario; Sweeting, Andrew |
| Abstract: | Industries with significant scale economies or learning-by-doing may come to be dominated by a single firm. Economists have studied how likely this is to happen, and whether it is efficient, using models where buyers are price or quantity takers, even though these industries are often also characterized by buyer-seller negotiations. We extend the dynamic “learning-by-doing and forgetting†model of Besanko, Doraszelski, Kryukov, and Satterthwaite (2010) to allow for Nash-in-Nash bargaining over prices. Price-taking and the social planner solution are captured as special cases. We show that sellers' dynamic incentives, market concentration and welfare can change sharply, and non-monotonically, as one moves away from the price-taking assumption. We study the implications of buyer bargaining power for the existence of multiple equilibria, the design of subsidy policies and the welfare effects of policies designed to increase competition. |
| JEL: | C73 D21 D43 L13 L41 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19241 |
| By: | Delina E. Agnosteva (Pennsylvania State University); Constantinos Syropoulos (School of Economics, Drexel University and Center for Global Policy Analysis (CGPA)); Yoto V. Yotov (School of Economics, Drexel University and Center for Global Policy Analysis (CGPA)) |
| Abstract: | We characterize collusive pricing in an international cartel spanning two host countries and pooling incentive constraints across markets, under general demand restricted only by a mild curvature condition that admits constant elasticity. Under domestic monopoly, fragmentation can weaken collusion and raise host welfare, whereas richer profit opportunities abroad strengthen collusion and may lower it; hosts prefer moderate barriers to either free trade or complete separation. Under domestic competition both results reverse. Whether fragmentation disciplines cartels thus depends on market structure in their home countries. Since collusion requires no trade between members, prices rather than trade flows carry the identifying information. |
| Keywords: | Fragmentation; Oligopoly; Multimarket interactions; Cartel discipline; Collusive pricing; Trade costs; Domestic market structure |
| JEL: | D43 F10 F12 F13 F15 L12 L13 L41 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:drx:wpaper:202617 |
| By: | Sydnee Caldwell; Arindrajit Dube; Suresh Naidu |
| Abstract: | The literature on imperfect competition in labor markets has expanded rapidly in recent years. This article provides a guide to the field, focusing on the firm-specific ("residual") labor supply elasticity as the definition of a firm's labor market power. We present a general framework showing how this elasticity nests the three widely studied sources of monopsony power: search frictions, preference heterogeneity, and employer concentration. We summarize the empirical estimates of the elasticity of labor supply, highlighting sources of possible heterogeneity. We emphasize that it is difficult to infer elasticities from markdowns (and vice versa) due to the diversity of firm wage-setting practices, illustrating this point using the interaction between monopsony and efficiency wages. We discuss how policy issues in antitrust, labor market regulation, immigration, and macroeconomics interact with monopsony and conclude by listing several areas for future research. |
| JEL: | J3 J30 J42 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35608 |
| By: | Jaumandreu, Jordi |
| Abstract: | At the firm-level, productivity is constantly evolving because of the introduction of new technology and innovations. Some of these productivity gains diffuse uniformly across firms, others only spread out in the industry with time. The unequal evolution of productivity impacts the structure of the industry, the more the greater the degree of competition. We analyze the relationship between the distribution of firms’ productivity advantages and the distribution of market shares, and show that this relationship is more intense the more competition. We briefly comment on two applications: we show that, because productivity gains, market concentration and inflation can be negatively related, and we give an alternative interpretation to the case for a recent rise of US markups attributed to increased market power. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19384 |
| By: | Felix Montag |
| Abstract: | Current enforcement practice does not consider how mergers alter the merging parties' incentives to petition for trade protection. I document mergers between domestic producers across jurisdictions that are followed by tariff petitions. I develop a model to characterize the trade-policy channel of mergers. Theoretically, a domestic merger raises the profitability of tariffs when offshoring is unavailable; once offshoring is possible, the effect becomes ambiguous. I apply this framework to a merger between domestic producers in the U.S. appliance industry. Empirically, I find that when import competition is weak, the merging parties prefer to lower their own costs through offshoring; when import competition is strong, the merger makes it more profitable for them to raise their foreign rivals' costs through tariffs. The resulting consumer harm is comparable in magnitude to the direct market-power effect. A hypothetical cross-border merger reduces the profitability of tariffs in this market. |
| Keywords: | competition, lobbying, tariffs, protectionism, mergers |
| JEL: | F13 L13 L41 D72 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12880 |
| By: | Zhang Xu; Mingsheng Zhang; Wei Zhao |
| Abstract: | In this note, we show that equilibrium profit is zero in Bertrand competition with a finite number of firms and consumers whose willingness to pay are bounded, under any market segmentation profile. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.07918 |
| By: | Ivan Conjeaud; Gaspard Abel; Argyris Kalogeratos |
| Abstract: | This paper investigates the effect of asynchrony in agents' updates in the emergence of algorithmic collusion. We present a continuous-time model for algorithmic collusion in which two firms use $Q$-learning algorithms to set prices asynchronously in a Bertrand duopoly. The firms update their prices at times dictated by a Poisson clock. By controlling the extent of agents' asynchrony, we run extensive numerical experiments with three specifications of the algorithm to investigate the emergence of algorithmic collusion. The strength of collusion is measured by a standard collusion index, as well as by automatically detecting the reward-punishment schemes. This is done by recording a large number of algorithms' reactions to unilateral price cuts and comparing them with the reactions of untrained algorithms. Our findings indicate that asynchrony hampers collusion, especially when the algorithms are stateless. When they condition on their competitor's previous prices, the sensitivity of algorithmic collusion to asynchrony varies depending on the type of information they have access to. The implications of these results for the regulation of algorithmic pricing are discussed. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.01406 |
| By: | Martin Obradovits; Markus Walzl |
| Abstract: | Consumers increasingly care about the environmental and social responsibility of the production processes used by firms, yet these processes often remain unobservable, even after consumption. We develop a simple model in which firms select either a green or a brown production technology before competing and signaling through prices. Firms observe each other's production choices, while consumers observe only prices. We show that, in the payoff-dominant equilibrium, prices signal when at least one firm produces green, avoiding Bertrand competition. Counterintuitively, raising consumers' environmental concerns or eliminating the information asymmetry may discourage green production and reduce welfare. |
| Keywords: | sustainable production, endogenous technology choice, price signaling, asymmetric information, price competition, label credence goods |
| JEL: | D82 D83 L13 L15 Q58 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:jku:econwp:2026-05 |
| By: | Grega Smrkolj (Newcastle University); Florian Wagener (University of Amsterdam) |
| Abstract: | We study a continuous-time duopoly model of process innovation with R&D spillovers, comparing noncooperative R&D with cooperative research regimes. We extend the standard constant-spillover framework by allowing knowledge transmission to decay with technological distance and to favor followers over leaders in asymmetric specifications. In a global Markov-perfect model, firms may invest before production is viable, enter or exit production as costs evolve, and converge to no-market, monopoly, or duopoly outcomes. State-dependent spillovers change R&D incentives, catch-up dynamics, long-run market structure, and the welfare effects of research cooperation. In the computed equilibria, more follower-favoring spillovers weaken the leader's private incentive to invest but accelerate catch-up, shorten monopoly phases, and make eventual duopoly more likely. When spillovers are weak, cooperation mainly softens dynamic rivalry; when information sharing is substantial, cooperation expands market formation, lowers long-run costs, and can raise both consumer and total surplus, especially under the research-joint-venture regime. The value of R&D cooperation depends on the direction and persistence of knowledge flows, not only on their average intensity. |
| JEL: | C73 D43 O31 |
| Date: | 2026–06–29 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20260041 |
| By: | Ullrich, Hannes; Hannane, Jonas; Peukert, Christian; Aguiar, Luis; Duso, Tomaso |
| Abstract: | Tracking online user behavior is essential for targeted advertising and is at the heart of the business model of major online platforms. We analyze tracker-specific web browsing data to show how the prediction quality of consumer profiles varies with data size and scope. We find decreasing returns to the number of observed users and tracked websites. However, prediction quality increases considerably when web browsing data can be combined with demographic data. We show that Google, Facebook, and Amazon, which can combine such data at scale via their digital ecosystems, may thus attenuate the impact of regulatory interventions such as the GDPR. In this light, even with decreasing returns to data small firms can be prevented from catching up with these large incumbents. We document that proposed data-sharing provisions may level the playing field concerning the prediction quality of consumer profiles. |
| Keywords: | Prediction quality; Web tracking; Cookies; Data Protection; Competition policy; Internet regulation; Gdpr |
| JEL: | C53 D22 D43 K21 L13 L4 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19266 |
| By: | Ihsaan Bassier; Alan Manning |
| Abstract: | It is now widely recognized that employers hold some wage-setting power over workers, and several recent reviews cover the resulting surge of research on monopsony. We take a high-level view, introducing the idea of the employment probability function (EPF) which describes how workers are assigned to firms as a way to link disparate parts of the current literature. The paper discusses different approaches to specifying the EPF and how they lead to different approaches for estimating employer power. The paper has some new results - the adding-up condition for pass-through parameters, how failures of log-concavity can lead to segmentation and how models of idiosyncratic preferences and frictions can be combined in a single framework. It also points out gaps in the existing literature e.g. on the sign of the super-elasticity, the role of employer choice, and truly dynamic models. |
| Keywords: | employer power, monopsony, firm labour supply elasticity, pass-through, labour market competition |
| Date: | 2026–07–30 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2202 |
| By: | Duso, Tomaso; Bernhardt, Lea; Piechucka, Joanna |
| Abstract: | We discuss the main Theories of Harm in EU merger control and their evolution since the 1990s. We present stylised facts and trends using data extracted from EU merger decisions by natural language processing tools. EU merger policy has adapted over time, both in terms of legislation and theories of harm, as well as in terms of the investigative tools and evidence used. The introduction of the new Merger Regulation in 2004, which led to a change in the substantive test, also brought about significant changes in the use of Theories of Harm. Unilateral theories are now used more frequently and have developed further, in particular in relation to the assessment of closeness of competition. Non-horizontal conglomerate and vertical Theories of Harm focusing on foreclosure issues are now much more common and are a standard tool in most in-depth investigations. More novel Theories of Harm related to innovation and digital markets have been developed and implemented since the 2010’s. While market shares remain a central tool for merger assessment, the use of internal documents has increased, accompanied by the use of quantitative tools. With respect to Commission interventions, structural remedies are used more frequently, although behavioural remedies are also increasingly deployed, especially in Phase II. |
| Keywords: | Innovation; Merger control; Foreclosure; Coordinated effects; Unilateral effects; Merger remedies; Theory of Harm; Ecosystem |
| JEL: | K21 L4 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19237 |
| By: | Vives, Xavier; Ye, Zhiqiang |
| Abstract: | We provide a spatial framework to study competition between banks and fintechs in the lending market and examine the impact on investment and welfare. Based on the key differences between banks and fintechs, we derive results consistent with the empirical evidence available. We find that fintechs with inferior monitoring efficiency can successfully enter because of their superior flexibility in pricing and that higher bank concentration leads to higher fintech loan volume. If fintechs and banks have similar funding costs, fintech borrowers pay lower loan rates and have higher default rates than bank borrowers with similar characteristics; however, the result will flip if fintechs have much higher funding costs than banks. The advantage of fintechs in offering convenience can also induce them to charge higher loan rates than banks. Fintech entry will improve welfare if fintechs have high monitoring efficiency and interfintech competition intensity is intermediate. Fintech entry may induce banks’ exit and reduce investment; however, it will increase investment if inter-fintech competition is intense enough. |
| JEL: | G21 G23 I31 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19245 |
| By: | Choi, Jaedo; Levchenko, Andrei; Ruzic, Dimitrije; Shim, Younghun |
| Abstract: | We quantify the contribution of the largest firms to South Korea's economic performance over the period 1972-2011. Using firm-level historical data, we document a novel fact: firm concentration rose substantially during the growth miracle period. To understand whether rising concentration contributed positively or negatively to South Korean real income, we build a quantitative dynamic heterogeneous firm small open economy model. Our framework accommodates a variety of potential causes and consequences of changing firm concentration: productivity, distortions, selection into exporting, scale economies, and oligopolistic and oligopsonistic market power in domestic goods and labor markets. The model is implemented directly on the firm-level data and inverted to recover the drivers of concentration. We find that most of the differential performance of the top firms is attributable to higher productivity growth rather than increasingly favorable distortions. Exceptional performance of the top 3 firms within each sector relative to the average firms contributed 20.8% to the 2011 real GDP and 6.6% to the net present value of welfare over the period 1972-2011. Thus, the largest Korean firms were superstars rather than supervillains. |
| Keywords: | market power |
| JEL: | F12 F16 L11 N15 O40 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19207 |
| By: | Brinkmann, Johannes (Department of Economics and CAGE, University of Warwick); Datta, Nikhil (Department of Economics and CAGE, University of Warwick and CEP, London School of Economics) |
| Abstract: | Large supply shocks often raise concerns that retailers exploit rising costs to increase markups. We study the oil-price shock following Russia's invasion of Ukraine using wholesale fuel prices, near-universe daily retail prices across Great Britain, and more than 200 million precisely geolocated searches from a major fuel-price comparison platform. Despite fuel prices rising by 37% over the preceding 21 months with essentially no change in search, the abrupt post invasion increase triggered a more than twentyfold surge in daily search while retail margins contracted sharply. An event-study design shows that this shock-induced search increase causally reduced retail prices and margins, with 95th- versus 5th-percentile exposure implying an 8% margin reduction at the peak. The implied loss to retailer margins peaked at £5.2 million per week, around £650 per station. We rationalise these findings with a model in which large, rapid price increases raise consumer attention and price sensitivity, intensifying competition and compressing margins. More broadly, supply shocks can therefore change not only firms' costs but also the demand conditions governing how those costs are passed through. Consistent with the model's additional predictions, pass-through is approximately complete and symmetric before the invasion, but lower and temporarily exhibits a pronounced rockets-and-feathers pattern afterwards |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:cge:wacage:821 |
| By: | Nuño-Ledesma, José G. |
| Abstract: | England recently banned volume-based promotions of foods high in fat, sugar, or salt. When these promotions are used to induce market segmentation, removing them can lead to counterintuitive outcomes and frustrate policy goals. To illustrate how, I use a standard nonlinear pricing model where a single-product seller serves two types of buyers. Without regulation, the seller distorts consumption down for low-preference consumers. After regulation; if the seller serves low-types, the strategic under-provision of quantity is not necessary, reducing consumption for high-type buyers but increasing consumption for low-types. When the seller does not serve low-types consumption by high-types remains steady. |
| Keywords: | Food Consumption/Nutrition/Food Safety |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea26:404571 |
| By: | Lee, Woongki (Yonsei University) |
| Abstract: | We analyze strategic interaction among investors by distinguishing between price taking and price setting. The analysis shows that as price setting becomes more prevalent, equilibrium prices fall. Because this lower price benefits price takers as well as price setters, price taking can be understood as free riding on price setting. The gains from the lower price are distributed more heavily toward price takers. This asymmetry creates relative-comparison concerns, which can distort incentives and discourage price setting even when it would increase aggregate utility. We examine this problem through a pricing game and derive implications for strategic behavior and equilibrium outcomes. |
| Date: | 2026–08–07 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:64nxu_v1 |
| By: | SatoshiImahie (Toulouse School of Economics, FRANCE and Junior Research Fellow, Research Institute for Economics and Business Administration, Kobe University, JAPAN) |
| Abstract: | Why do uninformed consumers pay more? A long-standing answer is market unfamiliarity. Yet how much it contributes to information frictions, and whether it fades with experience, have not been directly measured. I answer these questions using millions of fuel purchases by Japanese drivers. Identification exploits two kinds of variation in familiarity, from travel and relocation. Comparing the same driver across markets, I find that unfamiliarity accounts for 62% of the price gap between informed and uninformed consumers, while persistent individual differences explain the rest. This unfamiliarity-driven gap (the experience premium) declines with repeated purchases, consistent with learning in consumer search. |
| Keywords: | Consumer search; Information friction; State dependence; Learning; Gasoline |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2026-22 |
| By: | David W. Berger; Kyle F. Herkenhoff; Jaehun Jeong; Simon Mongey |
| Abstract: | How do firms set wages? How should governments set income taxes? If labor supply is inelastic to wages, firms can pay workers less than their marginal products, and governments can increase taxes without eroding the base. However, the structure of labor supply elasticities in the economy is complex. Recent empirics document variation across workers, firms, and margins (which firm to work at versus how many hours to work). To account for this rich structure of labor supply elasticities we extend the neoclassical model to include a discrete choice over which firm to work at, production complementarities and strategic interaction between heterogeneous, granular firms. In terms of wage setting, we find that novel effects of worker heterogeneity account for 78 percent of the variable component of labor supply elasticities and markdowns, and 89 percent of markdown differences between large and small firms. In terms of policy, higher progressivity makes labor supply less elastic, eroding the tax base by widening markdowns and worsening sorting. These channels (i) produce large declines in earnings following increases in marginal tax rates, consistent with empirical studies, and (ii) reduce optimal tax progressivity by one-third and associated welfare gains by two-thirds. |
| JEL: | E0 E2 J0 J2 L0 L10 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35640 |
| By: | Seim, Katja; Vitorino, Maria Ana |
| Abstract: | This paper empirically investigates the add-on or “drip" pricing behavior of firms. We present a model in which consumers purchase a base product and, with some probability, an add-on product from the same firm, but are not necessarily attentive to their possible need for the add-on product. We show that a loss leader pricing strategy emerges whereby firms price the base product below, and the add-on above, standalone pricing levels. We test the implications of the model in the Portuguese market for driving instruction where students frequently pay for repeat driving tests and additional lessons upon failing their initial test. Relying on a detailed, nationwide data set on student characteristics and preferences, school attributes including fees and costs, and market demographics for a cross-section of local markets with differing numbers of school competitors, we find evidence in support of the model predictions. Most notably, prices for the base course of instruction, but not the add-on repeat courses, decline in the number of competitors a firm faces. We complement these results with survey evidence on possible sources of consumer naivete that the observational data do not speak to. The survey suggests that at least one quarter of students are inattentive to repeat fees when making their school choice, driven both by an underestimation of fail propensities and an unawareness of the price of a repeat test. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19258 |