|
on Industrial Competition |
| By: | Sergei Kichko (Department of Economics and Management, University of Trento and CESifo); Marco A. Marini (Department of Social and Economic Sciences, Sapienza University of Rome); Riccardo D. Saulle (Department of Economics and Management, University of Padova); Jacques-Francois Thisse (CORE-UCLouvain and CEPR) |
| Abstract: | This paper extends the CES model of monopolistic competition to the case where varieties are both horizontally and vertically differentiated. A distinctive feature of our model is the presence of a network externality, which operates through the number of varieties available at each quality level. Depending on the quality gap, there are corner equilibria in which consumers purchase only high-quality or low-quality varieties, or an interior equilibrium in which consumers are split between the two qualities. Unlike the CES model of monopolistic competition, the equilibrium is never efficient and the market may even select the outcome with the lowest surplus. |
| Keywords: | Monopolistic competition, vertical differentiation, horizontal differentiation |
| JEL: | D42 D43 L1 L12 L13 L41 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:fem:femwpa:2026.11 |
| By: | Estrin, Saul; Meyer, Klaus; Kretschmer, Tobias |
| Abstract: | Competition policy establishes the institutional framework for competitive dynamics in market economies. Recently, the relevance and impact of traditional competition policy has been challenged by the rise of the digital economy, where we see a small number of large platform firms, frequent takeovers and mergers, and the potential for using customer data to join and dominate previously separate markets. We provide a framework to explain the basis for contemporary competition policy, and explore implications for company strategy within and beyond the digital sector. Some of the most radical thinking about how competition policy might address the challenge of the digital economy originates from Europe, itself a major market for technology firms. We illustrate this thinking with exemplars from the practice of the EU Commission. Although existing competition policy can provide a basis for addressing monopolistic abuses in digital markets, practices are shifting to address novel sources of market power, including the governance architecture of digital platform firms and their ecosystems, the transferability of personal data, and the interoperability of systems and standards. We consider implications for policymakers. Corporate strategists must also understand how the evolving competition policy framework is impacting competitive dynamics of both platform operator and platform complementing entrepreneurs. |
| Keywords: | European competition policy; mergers and aquisitions; abuse of monopoly power; platforms; digital sector; personal data |
| JEL: | J50 J1 |
| Date: | 2025–11–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127060 |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | Network connectivity is an important function in network industries. Based on the framework of a Hotelling model, we consider the impact of connectivity between network goods on incentives to innovate product R&D activities and profits. To explore the problems, we focus on the following three perspectives: market coverage (i.e., full and partial coverage), consumer expectations (i.e., rational and active expectations), and asymmetric firms (i.e., a high- and low-quality firm). Our findings are as follows. In the full market coverage case, the impact of connectivity on product R&D activities and profits depends on the type of consumer expectations and the difference in the quality of the firms. However, in the partial market coverage case, as connectivity improves, product R&D activities and profits increase, irrespective of the type of consumer expectations and the difference in the quality of the firms. |
| Keywords: | Network externality, Connectivity, Compatibility, Horizontal interoperability, R&D competition, Market coverage, Consumers' expectations, Firms' heterogeneity, Quality |
| JEL: | L13 L15 L31 L32 D43 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:309 |
| By: | Arabo K Ewinyu; Olwethu Shedi; Namhla Landani; Imraan Valodia (University of Witswatersrand); Anda David (AFD - Agence française de développement) |
| Keywords: | Inequality, Market concentration, Firm structure, South Africa |
| Date: | 2025–09 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05525871 |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | We conduct welfare analysis of an improvement in compatibility in a network goods market, where firms compete on price and research and development (R&D) activity. Using a Hotelling model, we explore the impact of compatibility on a firm's R&D activity and on producer surplus, consumer surplus, and social welfare. Focusing on the difference in the formation of consumer expectations for network sizes, i.e., rational and active expectations, we demonstrate the following. First, under rational (active) expectations, an improvement in compatibility reduces (does not affect) a firm's R&D activity, but increases (decreases) consumer surplus. However, except for perfect compatibility, although the level of R&D activity is greater under rational expectations than under active expectations, consumer surplus is smaller under rational expectations than under active expectations. Second, regardless of the difference in the formation of consumer expectations, an improvement in compatibility increases producer surplus and social welfare. In addition, producer surplus and social welfare are greater under rational expectations than under active expectations. Finally, we consider the implications of social optimality for perfect compatibility. |
| Keywords: | Network externality, compatibility, strategic R&D competition, Hotelling linear market, fulfilled expectation equilibrium, rational expectation, active expectation |
| JEL: | L13 L15 L31 L32 D43 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:310 |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Wendner, Ronald (Department of Economics, University of Graz) |
| Abstract: | This paper develops a dynamic model of optimal mixed taxation in a small open economy with two goods markets; one characterized by perfect competition and the other by market power on the production side. The purpose is to examine how the existence of market power affects the optimal structure of income, commodity, and production taxes. We show that a distortion created by monopoly power can either be targeted through a production subsidy or a reduction in the commodity tax. In turn, this means that the policy rules for marginal labor income taxation and marginal capital income taxation take the same forms as under perfect competition. We also show that the results on marginal income taxation carry over to the case of oligopolistic competition if (i) the firms are identical or (ii) their market shares are observable. |
| Keywords: | Income taxation; commodity taxation; redistribution; market power |
| JEL: | D42 H21 H25 |
| Date: | 2026–04–02 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:umnees:1045 |
| By: | Akos Horvath; Benjamin S. Kay |
| Abstract: | Building on queuing theory, we develop and empirically validate a novel theoretical model of residential mortgage supply. Our model gives insight into how the stochastic arrival and sequential servicing of loan applications affect mortgage origination. The model provides closedform predictions for lenders’ optimal response to changes in the level and price elasticity of mortgage demand. Using confidential HMDA data, we estimate that a one standard deviation increase in mortgage demand raises mortgage rate spreads by 3 to 8 basis points, loan quantities by 20 to 32 percent, and application processing times by 3 to 5 days. We also provide empirical evidence for the model prediction that a higher elasticity of mortgage demand moderates price increases due to demand shocks, which can limit lenders’ exploitation of their market power. |
| Keywords: | Mortgages; Market structure and competition; Prices; Production capacity |
| JEL: | C23 C26 D24 D40 G21 L11 |
| Date: | 2026–03–23 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:102999 |
| By: | Pierre Dubois; Ariel Pakes |
| Abstract: | Direct-to-consumer advertising (DTCA) of prescription drugs may expand treatment access but also risks promoting overuse and business stealing without generating welfare gains. Among developed nations, only the United States and New Zealand permit DTCA, whereas detailing - promotion aimed at prescribers - is widely practiced. This paper analyzes the impact of DTCA on profits by modeling a counterfactual environment in which DTCA is banned. This is implemented through a dynamic equilibrium framework that adapts the Experience-Based Equilibrium (Fershtman and Pakes, 2012) for empirical analysis. EBE incorporates constraints on the cognitive abilities of decision-makers and mitigates researchers’ computational concerns. Using data from four therapeutic markets, we first validate the EBE’s ability to replicate observed advertising patterns, then simulate counterfactual DTCA bans. Both the data and our empirical work indicate that DTCA and detailing are strong complements, and our results illuminate the need to account for this when evaluating the ban. The ban leads firms to reduce detailing and has a negative effect on profits in all markets, but the magnitude of the effect varies from under 5% in the market for Ulcer to 27.5% for Asthma medications. |
| JEL: | I0 I1 L2 M37 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35025 |
| By: | Luke Heeney; Christopher R. Knittel; Jasdeep Mandia |
| Abstract: | In many modern industries, firms compete in differentiated-product markets while relying on complex global value chains for intermediate inputs. In such settings, trade policies such as tariffs on vehicles and parts operate not only through consumer substitution and firm pricing, but also through firms’ cost structures and sourcing decisions. We develop a structural model of the U.S. automobile market that integrates random-coefficients demand, multiproduct firm pricing, and a flexible supply-side framework in which shocks to the cost of imported parts transmit imperfectly into manufacturers’ marginal costs. The model is disciplined by novel model-level data on imported-parts exposure and exploits exchange-rate variation to identify cost pass-through. Our counterfactual analysis quantifies the effects of alternative tariff policies on prices, profits, and welfare. First, tariffs on imported vehicles alone reallocate demand toward domestically assembled products and increase U.S. producer surplus, generating a gain of approximately $1 billion for U.S.-headquartered firms, while reducing consumer surplus by about $14 billion. Second, extending tariffs to imported intermediate inputs fundamentally alters these effects: consumer surplus losses roughly double, and producer surplus for U.S.-headquartered firms declines by about $2.6 billion. These aggregate effects mask substantial heterogeneity: firms with greater exposure to imported parts experience losses, whereas those relying more on domestic inputs are better able to increase profits. Overall, the results show that tariff incidence depends critically on firms’ exposure to global value chains and cannot be inferred from final assembly locations alone. |
| JEL: | F13 L13 L62 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35023 |
| By: | Rui Sun; Yi Zhang |
| Abstract: | A seller investigates a buyer before setting prices, balancing the cost of acquiring information against the gain from tailoring the contract to the buyer's private type. The optimal signal is coarse: no matter how rich the type space, the seller never needs more than three outcomes per buyer. The bound equals the number of independent post-signal decisions plus one, a quantity we call the effective policy dimension. Screening involves two decisions, whether to allocate and what to charge, giving the ternary bound. Limited liability is the source: without it, the price is pinned by the envelope, only the allocation decision remains, and signals are binary as in monitoring. The Myerson exclusion rule is an artifact of not investigating. With investigation, every marginal buyer trades with positive probability, governed by a universal function that connects information design to rational inattention. The bound holds for any strictly convex information cost. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.04405 |
| By: | Denis Claude (LEDi - Laboratoire d'Economie de Dijon [Dijon] - UBE - Université Bourgogne Europe); Mabel Tidball (CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier) |
| Abstract: | This paper revisits Heinrich F. von Stackelberg's original description of leader-follower games under incomplete information, exploring how learning dynamics shape strategic interaction. The leader iteratively updates its conjecture about the follower's reaction function before choosing an activity level that maximizes its payoff. The follower, in turn, responds optimally to each activity level, revealing information that the leader uses to refine its conjecture. Assuming linear conjectures, a smooth updating process à la Jean-Marie and Tidball [2006], and quadratic payoff functions, we establish conditions under which the learning process converges asymptotically to a self-confirming steadystate. We characterize the resulting activity levels and payoffs in two canonical environments: a sequential partnership game and a sequential duopoly game with quantity competition. We then compare the learning outcomes to both the (complete information) Stackelberg and the cartel solution. In the process, we find conditions under which the lack of information and the resulting strategic ambiguity lead to higher joint payoffs, and under which usual intuitions about the first-mover advantage need qualifications. |
| Keywords: | Leader-follower game, incomplete information, conjectures |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05571970 |
| By: | Davis, Kyle (University of Oklahoma); Ransom, Tyler (University of Oklahoma); Black, Christopher (University of Oklahoma); Larson, Daniel (University of Oklahoma) |
| Abstract: | This study examines the extent to which market size disparity across franchises—measured as the coefficient of variation of MSA populations—moderates the effectiveness of competitive balance interventions (CBIs) in Major League Baseball (MLB), the National Football League (NFL), the National Basketball Association (NBA), and the National Hockey League (NHL) from 1967 to 2023. Using two-way fixed effects models with multiple balance measures, we find that CBI effectiveness depends on the distribution of market sizes across league members. Jointly adopting a salary cap and floor improves competitive balance at low levels of market size disparity but is ineffective at high levels. Revenue sharing shows limited effects. Luxury taxes are associated with worsened competitive balance in high-disparity leagues. Our findings demonstrate that market size disparity not only affects competitive balance directly but also determines which interventions succeed. These results have direct relevance to recent discourse on competitive balance in MLB. |
| Keywords: | competitive balance, salary floor, salary cap, market size disparity, Major League Baseball |
| JEL: | L83 L51 C23 D63 L11 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18491 |