|
on Industrial Competition |
| By: | Francisco Arizala; Diana Ricciulli-Marín; Johanna Schauer |
| Abstract: | This paper studies market power in Mexican industries over the period 2008-23 using establishment-level data from the Mexican Economic Census. We document a substantial increase in the average price markup over marginal costs, from 12 percent in 2008 to 27 percent in 2023. The sources of this increase vary across sectors and time: services, particularly wholesale and retail trade, account for most of the increase in markups until 2018, while manufacturing, led by transportation equipment and export-oriented industries, plays a larger role in more recent years. Rising markups in services are associated with greater local labor market concentration, suggestive of increasing monopsony power. In manufacturing, markup growth is linked to higher capital expenditure, consistent with firms sustaining larger markups to recover higher fixed costs. Moreover, rising markups in manufacturing are positively associated with total factor productivity, whereas in services they are uncorrelated with productivity. Overall, these findings suggest that while market power has increased over time, its underlying drivers have shifted from monopsonistic power in labor markets to higher fixed costs, with more favorable efficiency implications in recent years. |
| Keywords: | Market power; markups; concentration; productivity; capital |
| Date: | 2026–08–28 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/181 |
| By: | Vivek Bhattacharya; Gastón Illanes; Avner A. Kreps; José D. Salas; David Stillerman |
| Abstract: | Prospective merger simulations are a commonly used tool in industrial organization and antitrust, but evidence about their accuracy and predictive ability is limited. We study 101 mergers in consumer packaged goods and compare the realizations of price changes with predictions from merger simulations. In our sample of consummated mergers, predicted price changes from merger simulations are typically larger than realized ones. Despite the overprediction, we find that full merger simulations are more effective than both structural presumptions and approximations of the merger effect at identifying mergers with large price changes. |
| JEL: | D43 K21 L13 L41 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35473 |
| By: | M. Cecilia Bustamante; Bruno Pellegrino |
| Abstract: | We present a new dynamic model of corporate investment in imperfectly competitive product markets that extends the neoclassical (Q) theory of capital to accommodate heterogeneous, multi-product firms and a rich hedonic demand system. Our model endogenizes firms' markups and generalizes Tobin's Q to a matrix (or network) of product market spillovers, which captures how each firm's investment affects that of its rivals. We provide equilibrium existence and uniqueness results along with global analytical solutions for the firms' investment policies. We then take our model to the data for the universe of US public companies and obtain four novel insights: 1) product market competition is a key driver of aggregate investment and capital allocation; 2) shocks to firms' cost of capital generate highly heterogeneous investment and markup responses across firms, and thus impact industry concentration; 3) monopoly rents account for a large, rising share of firms' value; 4) mergers consummated since 1995 have led to a modest decline in the aggregate capital formation of merging firms, yet firm-level markup increases have been highly heterogeneous. |
| JEL: | C7 D2 E2 G3 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35707 |
| By: | Alvaro Contreras (Boston University); Peter Eccles (Financial Conduct Authority); Paolo Siciliani (Bank of England) |
| Abstract: | Cloud outsourcing may alter competition in banking by allowing smaller competitors to access scalable digital infrastructure. This paper studies the effects of banks’ outsourcing agreements with Cloud Service Providers (CSPs) in the UK banking sector using proprietary bank-provider contract data. We find that CSP spending is associated with lower operating costs and higher deposits, with reduced-form effects concentrated among large institutions. We also find that increases in capital requirements are associated with higher CSP spending, consistent with large institutions using CSP adoption to reduce dependence on legacy IT systems, improve operational efficiency, and strengthen long-term franchise value. We then estimate a structural model of competition in the UK deposit market to quantify depositor-demand effects from CSPs. We find that the demand-side benefits of CSP adoption are substantially larger for small and medium banks and building societies. We use the model to conduct two counterfactual analyses. First, we simulate a scenario in which cloud outsourcing was restricted prior to its widespread adoption. The counterfactual implies higher market concentration, lower market shares for smaller institutions, and lower depositor welfare. Second, we analyse a reduction in capital requirements. While lower capital requirements directly increase welfare through funding-cost effects, they also reduce incentives to invest in CSP adoption, offsetting roughly 32% of the direct welfare gain. Our findings suggest that cloud outsourcing has partly reduced technological barriers to competition in banking markets. |
| Keywords: | Cloud outsourcing;bank competition;process innovation;financial regulation |
| JEL: | G21 G28 O31 D22 |
| Date: | 2026–08–14 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023540 |
| By: | Chirantan Chatterjee; Ying Fan; Debi Prasad Mohapatra |
| Abstract: | This paper studies how spillovers across complementary markets shape product variety and firm entry. We examine the Indian cell phone and wireless service markets during the 4G rollout and estimate a structural model of demand, pricing, carrier network expansion, and phone product choice. The estimation results support the economic forces through which complementarity generates spillovers. Counterfactual simulations show that banning budget Chinese phones slows 4G deployment by roughly five quarters and lowers consumer welfare without raising domestic firms' profits. Similarly, an unrestricted subsidy outperforms a domestic-only subsidy in expanding network coverage, increasing consumer welfare, and raising domestic firms' profits. |
| JEL: | F13 L13 L63 L96 O25 O33 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35522 |
| By: | Thomas Désiré; Jordan Pandolfo |
| Abstract: | Fixed costs account for an increasing share of operating expenses in the U.S. banking system. From 1995 to 2026, estimated fixed costs rose from 37 percent to 62 percent as a share of total noninterest expense. Over the same period, estimated marginal and average operating costs declined, loan spreads and net interest margins fell, and estimated loan markups increased by 21 percentage points. These trends are pervasive across banks but are most pronounced among large banks. We develop a model of bank industry dynamics with endogenous fixed costs to rationalize these long-run trends and examine pro-competitive effects. While competition increases credit supply, it decreases lending efficiency and increases bank risk-taking. |
| Keywords: | banks; fixed costs; market power; competition; Industry dynamics |
| JEL: | G21 L11 L13 D24 |
| Date: | 2026–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedkrw:103727 |
| By: | Vincent Abraham; Florian Ederer; Catarina Marvao |
| Abstract: | We provide the first empirical evidence that common ownership can facilitate explicit collusion. Our unique setting, the population of legal cartels in Sweden, lets us observe cartel formation, duration, and dissolution without the sample-selection bias that plagues studies of detected cartels. Combining hand-collected ownership data with the universe of registered cartels, we compute firm-pair profit weights (κ) that measure how much one firm internalizes a rival's profits. Higher profit weights are associated with a greater likelihood of cartel participation, predict future cartel involvement, and are linked to longer cartel duration. Firms also reduce their profit weights immediately after a cartel dissolves. However, this relationship is concentrated among pairs in which the firm that internalizes the rival firm's profits colludes while the rival does not. Common ownership therefore complements a firm’s own participation in explicit collusion but substitutes for cartel participation by the rival whose profits it internalizes. |
| JEL: | D43 G32 L21 L41 L43 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35565 |
| By: | Gan, Tan; Wu, Nicholas |
| Abstract: | An informed seller designs a dynamic mechanism to sell an experience good. The seller has private information about product match, which affects the buyer’s private consumption experience. The belief gap between both parties coupled with the buyer’s learning yields mechanisms providing the skeptical buyer with limited access to the product and an option to upgrade if the buyer is swayed by a good experience. Depending on the seller’s screening technology, this takes the form of free/discounted trials or dynamic tiered pricing, which are prevalent in digital markets. Unlike static environments, having consumer data can reduce sellers’ revenue in equilibrium. |
| Keywords: | dynamic mechanism design;informed principal;signaling;trial mechanisms |
| JEL: | D82 D83 |
| Date: | 2026–08–13 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130260 |
| By: | Shaofu Du (USTC - University of Science and Technology of China [Hefei]); Yuzhu Guo (USTC - University of Science and Technology of China [Hefei]); Junsong Bian (Rennes SB - Rennes School of Business); Xiaolong Guo (USTC - University of Science and Technology of China [Hefei]) |
| Abstract: | Selling in live-stream channels can stimulate market demand by providing lower prices than manufacturers' online channels. Cooperating with streamers can bring extra markets for manufacturers. However, manufacturers should pay slotting fees to streamers before cooperating, and they may face market overlap and competition. One way to alleviate competition is to control the quantity of products for streamers. We develop an analytical model consisting of an online store channel operated by the manufacturer and a live-stream channel that may run out of stock operated by the streamer. Firstly, the results show that the manufacturer should base the quantity decision on the market overlap between the manufacturer and the streamer. When the market overlap is sufficiently low, the manufacturer should supply the streamer with an adequate quantity of product to enlarge the streamer's market. When the market overlap is sufficiently high, the manufacturer should supply the streamer with a limited quantity of products to promote consumer transfer. Secondly, the results show that as the slotting fee increases, the manufacturer requires a lower market overlap if cooperating with the streamer. Finally, we extend our basic model to the Nash Bargaining scenario. Negotiation will decrease consumer surplus, but increase social welfare compared to the basic model. |
| Keywords: | Quantity decision, Rational expectations equilibrium, Market overlap, Supply chain management, Live-stream channel |
| Date: | 2026–11 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05725580 |
| By: | Bianca Sanesi; Federico Vaccari |
| Abstract: | We study how competition among biased news sources affects information and welfare when sources can misrepresent facts at a cost. Monopolistic and competitive market structures admit many equilibria. We develop a common belief-based selection criterion that applies to both and makes welfare comparisons possible. Under the refined outcomes, adding an oppositely biased source improves the receiver's welfare when that source faces sufficiently high misreporting costs. Competition disciplines the incumbent while introducing a few distortions of its own. Better information need not increase total welfare, and distorted advice from a monopolist can raise total welfare. Competition may improve decision-making without being socially beneficial. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.24129 |
| By: | Jean-Marie Baland (Development Finance and Public Policies, University of Namur); Giorgio Ferroni (Development Finance and Public Policies, University of Namur) |
| Abstract: | Dewatripont and Tirole (2024) show that firms’ moral conduct in the market is independent of competitive pressure. We argue that such a result hinges on consumers’ ability to identify each producer’s moral conduct—an assumption that is, in general, unlikely to hold. Specifically, the number of firms and demand elasticity matter if consumers have only a general perception of morality in the market. In such a setting, morality becomes a public good: firms bear the full cost of their moral behaviour while capturing only a fraction of the benefits from increased consumer willingness to pay. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nam:defipp:2606 |
| By: | Seiya Hirano |
| Abstract: | Two-sided markets exhibiting network effects often face coordination problems, which may lead to an inefficient outcome where a lower-quality platform wins the market. Some users make collective decisions as a group, potentially affecting the choices of others. This paper analyzes the impact of group users on two-sided platform competition. We develop a model with two platforms: one with a quality advantage (the higher-quality platform) and the other with a network advantage due to its focality (the lowerquality platform), meaning that users expect others to join it when multiple equilibria exist. There are two types of users: individual users and group users. An individual user makes decisions independently, whereas group users make collective choices that can affect others’ decisions. Our main findings are as follows: First, the group affects individual users’ choices if its size is sufficiently large, meaning it is pivotal. However, even if the group is pivotal, it may join the lower-quality platform unless it is large enough. The group joins the higher-quality platform only when it is both pivotal and sufficiently large. Second, we examine how the group size affects surplus distribution. Increasing group size improves market efficiency but exacerbates the disparity in the surplus between the group users and individual users. Our results highlight the dual role of group users in platform competition: while they can enhance efficiency by steering the market toward the higher-quality platform, they may also contribute to imbalances in surplus distribution. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1320 |
| By: | Maysam Rabbani; Ram Sewak Dubey |
| Abstract: | Hybrid platforms disadvantage third-party sellers through the platform fee and self-preferencing, and regulators have worried that constraining either instrument may intensify the other. We model a platform that chooses both instruments and find the opposite: single-instrument regulation is effective because the instruments are strategic complements, and regulating either instrument curbs the other. We also find that the two instruments achieve what monopolization achieves, higher prices and reduced consumer welfare, while passing every conventional antitrust test. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.02800 |
| By: | Lavoie, Nathalie |
| Keywords: | International Relations/Trade |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ags:aaea26:404665 |
| By: | Enrique Martínez García; Ron Mau |
| Abstract: | Higher tariffs do not automatically show up one-for-one in consumer prices. Price effects depend on how firms respond. Foreign exporters may cut pre-tariff prices to preserve access to the U.S. market, while domestic importers or retailers may absorb part of the increase with lower margins. |
| Date: | 2026–08–18 |
| URL: | https://d.repec.org/n?u=RePEc:fip:d00001:103683 |
| By: | Lee, Gong |
| Abstract: | Amid the robust expansion of online retail, the retail sector has shown a conspicuous divergence: hypermarket sales have decreased due to competition from online channels, whereas smaller formats like SSMs and convenience stores have expanded by capturing distinct, proximity-based demand. This asymmetrical outcome underscores the need to reform the Distribution Industry Development Act, shifting away from current hypermarket restrictions toward a framework that bolsters the competitiveness of brick-and-mortar retailers and addresses the regulatory imbalances between online and offline channels. |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:kdifoc:343139 |
| By: | Tirza J. Angerhofer; Allan Collard-Wexler; Matthew C. Weinberg |
| Abstract: | Employers facing limited labor market competition may suppress wages below socially optimal levels. Unions can counteract wage suppression through collective bargaining, though they may also push wages above the socially optimal level and lead to job rationing. We estimate a structural model of labor supply, labor demand, and Nash-in-Nash bargaining over wages between local teacher unions and school districts in Pennsylvania’s K-12 public school system from 2013 to 2019. We compare negotiated equilibrium wages and employment to oligopsony wage posting and social planner scenarios. On average, oligopsony reduces wages 7 percent below the social optimum, while collective bargaining raises wages 8 percent above it. Averages mask substantial district-level heterogeneity driven by bargaining power variation. Twenty-eight percent of school districts have salaries lower when public schools are unionized than when they are not due to cross-district externalities, where high salaries at one school cause hiring reductions that increase labor supply elsewhere. |
| JEL: | J31 J42 J45 J51 L13 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35476 |
| By: | Ali Zeytoon-Nejad |
| Abstract: | Artificial Intelligence (AI) is rapidly transforming economic systems by altering production processes, labor markets, and the structure of firms and industries. AI is not merely a technological innovation. It is fundamentally a major economic phenomenon and a new wave of innovation with important implications for productivity, employment, market structure, public policy, long-run economic growth, and collective welfare. This essay examines the economics of AI by analyzing the multiple channels through which AI influences economic activity and societal well-being. It argues that AI should be understood simultaneously as a form of capital, a form of synthetic labor, a general-purpose technology, as well as an economic infrastructure. The analysis shows that AI functions as a multi-channel engine of productivity growth through automation, augmentation, optimization, prediction, and innovation. It is argued that AI has the potential to increase output, reduce costs, stimulate entrepreneurship, and accelerate economic growth, while also reshaping labor markets through labor substitution, labor complementarity, and creative destruction. The essay further examines AI's effects on competition, market concentration, and entrepreneurship. Finally, it explores the welfare implications of AI for consumers, producers, workers, governments, and society as a whole, and concludes by outlining policy considerations aimed at maximizing the benefits of AI while mitigating its potential adverse consequences. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.01263 |
| By: | Brice C. Green; Leonid Kogan; Dimitris Papanikolaou; Lawrence D.W. Schmidt |
| Abstract: | Using U.S. administrative data, we find that technology-driven creative destruction in the product market passes through to worker earnings. The passthrough to incumbent worker earnings is both asymmetric and concentrated: profit drops from rival innovations lead to proportionally greater earnings declines and changes in the likelihood of job destruction than profit gains from their own firm’s innovations, while top workers are significantly more exposed than the average worker. We develop an endogenous-growth model with monopsonistic labor markets and worker heterogeneity that replicates this asymmetry and the distribution of earnings risk. In the model, creative destruction exposes high-income workers to concentrated downside risk while increasing upward mobility for lower-income workers, shaping the welfare consequences of innovation policy. |
| JEL: | E0 O3 O4 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35542 |
| By: | Mary Amiti; Sebastian Heise; David E. Weinstein |
| Abstract: | Tariffs raise the prices of goods made at home, not just the imports they tax—an effect that standard pass-through estimates largely miss. Studying the 2025 U.S. tariffs, we find that about 26 percent of the tariff increase passes through to consumer prices. These estimates are measured relative to less-exposed goods and hold aggregate conditions fixed. The direct effect accounts for 64 percent of this increase, as tariffs raise the consumer prices of foreign varieties of a good. The remaining 36 percent arises indirectly—tariffs raise the cost of imported inputs used by U.S. producers, and domestic producers raise their markups because they face less competition from higher-priced imports. The direct effect passes through quickly, since tariffs raise import prices almost immediately, but the indirect effect takes nine to twelve months to work its way through supply chains. As a result, tariffs have a larger and more drawn-out impact on consumer prices than the direct effect alone would suggest. |
| Keywords: | tariffs; pass-through; inflation; consumer prices; import prices |
| JEL: | E31 F13 F14 |
| Date: | 2026–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:103701 |