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on Industrial Competition |
| By: | Volker Nocke; Nicolas Schutz |
| Abstract: | We derive closed-form expressions for the welfare distortions arising from oligopolis tic market power. Our analysis covers competition among multiproduct firms facing constant elasticity of substitution (CES) or multinomial logit demand. The derived formulas rely solely on observed (oligopolistic) firm-level market shares and, under CES demand, the elasticity of substitution. Under CES demand, we fully character ize resource misallocation and extend the analysis to general oligopolistic equilibrium, decomposing welfare losses into within- and between-industry components. Taylor ap proximations connect these losses to standard concentration indices: within-industry misallocation is proportional to the difference between the cubic Hannah–Kay index and the squared Herfindahl index, while between-industry misallocation is proportional to the variance of the Herfindahl index across industries. |
| Keywords: | Market power, oligopoly pricing, misallocation, industry concentration, Herfindahl index, Hannah-Kay indices, sufficient statistics |
| JEL: | L13 D43 D61 E23 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_669v2 |
| By: | Comisión Nacional de los Mercados y la Competencia (CNMC) (Comisión Nacional de los Mercados y la Competencia (CNMC)) |
| Abstract: | Cloud services are essential for boosting productivity, efficiency, and competition. There is high and growing concentration in the sector, as well as barriers to entry and to switching providers, and asymmetries in information and in bargaining power. These challenges affect both the private sector and public administrations. To address them, the following recommendations are proposed. First, to maintain strengthened supervision of cloud services, with the application of competition policy as the first line of defence. Second, to consider a complementary application of the DMA to cloud services. Third, to foster a pro competitive environment in the digital economy. Fourth, to adopt a pro competitive framework for public procurement of cloud services. |
| Keywords: | regulation, competition, cloud services, digital markets |
| JEL: | K21 K23 L40 L86 L88 |
| Date: | 2026–07–21 |
| URL: | https://d.repec.org/n?u=RePEc:awo:epaper:e/cnmc/001/23_eng |
| By: | Kurt R. Brekke; Odd Rune Straume; Lars Sørgard |
| Abstract: | Book markets are characterised by common distribution through competing bookstores and vertical integration between publishers and bookstore chains, and in many countries publishers are allowed to set fixed book prices (FBP) in the bookstores. Under vertical separation, FBP can reduce retail prices when publishers have sufficiently strong bargaining power, as the elimination of double marginalisation outweighs the loss of intra-brand competition. We show that vertical integration fundamentally changes this trade-off. It eliminates double marginalisation inside the chain, thereby substantially reducing the scope for FBP to lower retail prices. But since FBP eliminates retail price differences on the same title, the allocative distortions are reduced when imposing FBP and consumer welfare and total welfare are no longer aligned. We find that, in the presence of vertical integration, the introduction of FBP is less likely to benefit consumers and more likely to benefit publishers than in an industry with vertical separation. |
| Keywords: | fixed book prices, vertical integration, double common agency |
| JEL: | D43 K21 L42 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13042 |
| By: | Jun Yeong Lee |
| Abstract: | Evidence that pricing algorithms collude comes from markets in which every seller runs the same algorithm. We ask what happens when they do not. Four language models from four providers, each at its cheapest tier, price in a four-firm logit Bertrand market without communication, in every homogeneous, two-by-two and fully mixed composi- tion (11 cells, 20 runs, 200 periods). Collusion is a property of the model: Claude and Gemini markets reach 72 to 79 percent of the monopoly rent, DeepSeek markets 24 percent, and GPT markets none, though GPT prices drift above the monopoly level rather than toward competition. Mixing does not reduce collusion by itself. Markets containing Gemini, which opens at the highest price and settles highest, are more col- lusive than the homogeneous markets they are built from; markets containing Claude, which opens lower and follows its rivals down, are less so; and only the fully mixed market is significantly less collusive than the average homogeneous one. Stability de- pends on the least stable participant: two GPT firms suffice to keep any market from converging. Inside mixed markets the rent is shared in a transitive order, DeepSeek over Claude over Gemini over GPT, that inverts the anchor ranking. The model that raises the price collects the least of the rent, as the price-leadership model predicts. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.11256 |
| By: | Javier Donna (University of Miami-Rimini Center for Economic Analysis); E. Mina Guler (University of Miami) |
| Abstract: | A federal court blocked JetBlue’s acquisition of Spirit Airlines in January 2024 to protect consumers who relied on Spirit’s low fares. Spirit failed anyway and ceased operations in May 2026. We ask whether the prohibition protected consumers. Using DB1B data for 2022–2025, we estimate the effect of Spirit’s exit across the 1, 427 routes it served. The 5th and 10th percentile fares rise by 8.6 and 5.8 log points; mean and median fares are unaffected. Where a carrier entered, the bottom is unaffected and mean fares fall. Theharm comes from exit without replacement, which entry policy does not reach. |
| Keywords: | Ultra-low-cost carriers; Entry and exit; Merger enforcement; Failing firm defense; Fare distribution; Antitrust |
| JEL: | L93 L41 L13 L51 K21 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:409 |
| By: | Galit Ashkenazi-Golan; Edward Plumb; Clemens Possnig; Yufei Zhang |
| Abstract: | We study the strategic design of learning algorithms in a canonical continuous-time pricing game. We introduce a meta-game in which firms select learning rates for a gradient dynamic, evaluating payoffs as the discounted sum of profits accrued along the entire learning path. We uncover a fundamental dichotomy driven by stage-game incentives: if the stage game exhibits strategic substitutability, firms unambiguously prefer the fastest possible algorithms to rapidly exploit a gradually adjusting opponent. Under strategic complementarity, however, an excessively fast algorithm accelerates the rival's competitive response, destroying transitional profit margins. Even though the competitive price is a strictly dominant action in the underlying stage game, we prove that firms optimally design sluggish algorithms, extracting surplus during a prolonged convergence to the competitive equilibrium. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.11675 |
| By: | Jo\~ao Thereze (Fuqua School of Business, Duke University); Udayan Vaidya (Fuqua School of Business, Duke University) |
| Abstract: | We take a revealed-preference approach to study the welfare effects of price discrimination. An analyst observes price and quantity data before and after a monopolist segments the market. The analyst knows neither the aggregate demand curve nor the information available to the monopolist. We characterize the set of observable price-quantity pairs that are rationalizable by some market segmentation. We then obtain sharp bounds on the change in consumer surplus arising from some segmentation. Finally, we provide conditions under which the data identifies an unambiguous increase (decrease) in consumer surplus. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.10172 |
| By: | Gaetano Alfredo Minerva |
| Abstract: | I propose a mechanism for the coexistence of vertical integration and outsourcing within an industry. In a monopolistically competitive model with incomplete contracts, final-good producers under either organizational form combine labor and differentiated inputs to produce fixed capital. Since its unit cost depends on the industry price index, distinct zero-profit conditions can hold, sustaining a mixed free-entry equilibrium. The forms differ in fixed-capital cost per unit of contribution to the price index; this ranking determines comparative statics and whether local stability is possible. I derive a sufficient condition ensuring stability whenever the mixed equilibrium exists. In numerical parameterizations using empirically standard elasticities of substitution, the condition holds throughout the admissible range of vertical-linkage intensity. Within the stable region, larger markets raise the integrated share without changing output prices or supplier bargaining terms. Relative firm size depends on governance costs and upstream bargaining share, so the model imposes no uniform ranking. |
| JEL: | C62 D23 D43 F12 L23 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bol:bodewp:wp1233 |
| By: | Carballido Cerqueiro, María; Carro, Jesús M.; Siotis, Georgios |
| Abstract: | This paper aims to better understand competitive rivalry in the US airline industry over the last 25 years. First, it contributes to a better understanding of the procompetitive "Southwest effect" over the period 2000-2025. We show that this effect can clearly be identified during the first part of our sample period, but disappears circa 2016, when Southwest culminated a process of strategic re-orientation and appears to have started behaving like legacy carriers. Second, we find that Southwest presence on a route flattened the relationship between air fares and Multimarket Contact (MMC) until the mid-2010s; since then, the two groups of routes have converged. Third, we document that the effect of MMC on fares has diminished over time. We conjecture that this may be due to increased concentration and symmetry among major players. Fourth, our results indicate that a linear specificationto identify the relationship between MMC and fares may be adequate until2007. This is no longer the case afterwards: the data point to a non-monotonic U/V-like shape, first on routes with Southwest and, from 2016, on all routes. Fifth, the pandemic seems to have led to a temporary breakdown in tacit collusion, but only on routes where Southwest was not present; once the COVID-19 crisis ended, the long-run evolution of the MMC-fare relationship resumed. |
| Keywords: | Southwest effect; Multimarket contact; Airline industry; Demand shock; Pandemic |
| Date: | 2026–10–07 |
| URL: | https://d.repec.org/n?u=RePEc:cte:werepe:50949 |
| By: | Comisión Nacional de los Mercados y la Competencia (CNMC) (Comisión Nacional de los Mercados y la Competencia (CNMC)) |
| Abstract: | This report assesses the recommendations of the Study on the Retail Distribution Market for Medicines in Spain (E/CNMC/003/15) and the Study on the Wholesale Distribution Market for Medicines (E/CNMC/002/17). The adoption of these recommendations would bring important benefits in terms of better access to pharmaceutical services and medicines, more competitive prices and greater quality and innovation in the sector, all for the benefit of patients, the sustainability of the Spanish National Health System (SNHS) and the well-being of citizens. The degree of follow-up to the CNMC's recommendations in the wholesale sector would be high, if the regulatory reforms that are underway are approved. It is estimated that its introduction could save around 1, 800 million euros per year in pharmaceutical spending in a scenario of moderate increase in competition. In the retail sector, the degree of adherence to the recommendations is low. Based on the experience of Navarre, it is estimated that reducing restrictions on the opening of pharmacies could create, after 10 years, around 20, 000 new pharmacies and 45, 000 new jobs, most of them skilled. |
| Keywords: | regulation, competition, medicines, national health system |
| JEL: | H4 H51 I11 I18 K2 K32 |
| Date: | 2026–04–07 |
| URL: | https://d.repec.org/n?u=RePEc:awo:epaper:ei/02/2025_eng |
| By: | Dihan Zou |
| Abstract: | We study monopoly regulation when capacity is contractible but subsequent output is not. A firm privately observes its production cost before installing costly capacity and then choosing output, while the regulator cannot use transfers. We provide sufficient conditions under which a single capacity floor implements an optimal mechanism with full participation. The floor raises output by changing investment while leaving utilization to the firm after installation costs are sunk. Under additional conditions, the allocation has three regions: laissez-faire, full utilization of the floor, and underutilization. High-cost types knowingly install capacity they will not fully use, yet produce more than under laissez-faire. This physical waste is a necessary evil of optimal regulation that expands service. We also show that underutilization can persist in optimal regulation with capacity-contingent subsidies or a common entry fee. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.07189 |
| By: | Joshua S. Gans |
| Abstract: | An advertiser in a second-price auction sees what it paid, not the rival bids that supposedly set the price. Akbarpour and Li (2020) show that an auctioneer can therefore charge a winner up to its bid undetected. The Federal Trade Commission alleges that Amazon’s advertising auctions, described as second-price, used soft reserves that did this. We ask whether repeated bidding exposes such charges and what adjustment does to welfare. If each charge equal to the bid is flagged, the soft reserve is exposed quickly, however much the advertiser trusted the description. If reports show only win rates and expected charges, it is indistinguishable from a second-price auction at any fixed bid: an advertiser that trusts the description and bids its value never learns, and one that doubts it but bids for current profit needs a number of auctions at least inversely proportional to its doubt before it considers a soft reserve more likely than not. The second-price description and aggregate reporting are complements. Among informed, symmetric advertisers, the soft reserve raises no more revenue than a second-price auction, and when only some advertisers adjust, placements are misallocated. Disclosure returns surplus to advertisers; removing the surcharge also restores efficiency. |
| JEL: | D44 D83 L86 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35841 |