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on Industrial Competition |
| By: | Dubus, Antoine; Legros, Patrick |
| Abstract: | Firms may share data to discover potential synergies between their data sets and algorithms, eventually leading to more efficient mergers and acquisitions (M&A) decisions. However, data sharing also modifies the competitive balance when firms do not merge, and a company may be reluctant to share data with potential rivals. Under general conditions, we show that firms benefit from (partially) sharing data. By doing so, they can merge conditionally based on high synergies. Compared to a laissez-faire situation, the presence of a regulator allowing or refusing the M&A may increase or decrease data sharing, with a concomitant increase or decrease in consumer surplus. Hence, regulation can lower the surplus of consumers it is willing to protect. We revisit the Google/Fitbit acquisition through the lens of this interplay between strategic data sharing and antitrust policy. |
| Keywords: | Artificial intelligence; Synergies; Mergers and acquisitions; Incomplete information; Antitrust |
| JEL: | G34 K21 L1 L21 L24 L5 L86 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21125 |
| By: | Cai, Xiaoming (Peking University HSBC Business School); Gautier, Pieter (Vrije Universiteit Amsterdam); Wolthoff, Ronald (University of Toronto) |
| Abstract: | Digital platforms allocate buyer attention across sellers that differ in quality and breadth of appeal. We study a monopoly platform that sets meeting rates between buyers and two seller types --- niche sellers whose high-quality good is valued by a fraction of buyers and mass-market sellers whose good is valued by all. Sellers compete by posting prices à la Burdett and Judd (1983), so buyer surplus requires competition, while platform revenue requires seller rents. This difference creates a systematic distortion: as search capacity grows, the platform keeps high-quality niche attention just past the point where extra exposure stops creating rents and starts eroding them – its saturation point – and diverts the rest to mass-market sellers. Applying the model to Amazon product search and Google passage-ranking data indicates that, for captive buyers, both platforms operate past the saturation point.. Allowing buyer participation to respond to the platform's recommendation strategy disciplines the platform and shrinks this loss. |
| Keywords: | attention allocation, recommendation systems, search frictions, two-sided markets, enshittification of internet |
| JEL: | D62 D83 L12 L40 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18745 |
| By: | Armstrong, Mark; Vickers, John |
| Abstract: | We study a market in which firms each might supply a number of variants, or "brands", of fundamentally the same product. Consumers differ in the sets of brands they consider, and firms compete using (multi-dimensional) mixed pricing strategies. We show when firms apply uniform pricing across their brands, and when they use segmented pricing so that one "discount" brand is priced below another "premium" brand. We study the case of symmetric brands in particular, and discuss the impact of a firm introducing a new brand, of imposing a requirement to set uniform prices across brands, and of mergers between firms. |
| Keywords: | Price dispersion |
| JEL: | C72 D43 D83 L13 M31 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20973 |
| By: | Nu Nu Win (Australian National University); Jonathan Hambur (Reserve Bank of Australia); David Hansell (Australian National University); Neil Crighton (Australian Competition and Consumer Commission) |
| Abstract: | Mergers and acquisitions (M&A) can have important implications for competition, prices and productivity. However, there is no comprehensive data on M&A activity in Australia, in part due to the absence of any formal requirement for merger parties to notify the regulator. The lack of data has limited scope for research on the impact of M&A activity. This paper takes an important first step in filling this gap by combining a number of administrative datasets and methodologies to build the first large-scale database of Australian M&A transactions, covering the past 20 years. We take three approaches: following clusters of employees moving between firms in a linked employer-employee database; firms moving between tax consolidated groups; and firms submitting takeovers and other notification forms to the Australian securities regulator. This yields a total of around 1, 500 mergers a year. Analysing this database we find that mid-sized, high profit but low productivity firms are most likely to be targets, as are firms with lots of patents, while large entities with trademarks are most likely to be acquirers. Moreover, we find evidence of serial acquisitions taking place, particularly in a number of high-profile industries. |
| Keywords: | competition; mergers |
| JEL: | L1 L4 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:rba:rbardp:rdp2026-04 |
| By: | Achim, Peter; Strausz, Roland |
| Abstract: | In modern information markets, buyers routinely combine signals from multiple sellers. We develop a model of "portfolio competition" to analyze this distinctive feature. We show that the combinability of information overturns standard oligopoly intuition. Unlike traditional markets, competitive pressure does not necessarily protect buyers: when signals are complements, sellers can leverage the buyer's desire for the joint portfolio to extract the full social surplus, regardless of the number of competitors. We characterize the precise conditions for rent extraction, which reduce to a simple geometric test for symmetric sellers. Furthermore, we find that the canonical logic of market entry fails. Entry is never socially excessive because efficient portfolio choices eliminate business-stealing effects. Paradoxically, entry can reduce competitive pressure: when entrants provide strong complementarities, they shift the buyer's threat point, allowing all sellers to extract higher rents. |
| Keywords: | Complementarity |
| JEL: | L13 D43 D83 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20867 |
| By: | Karle, Heiko; Preuss, Marcel; Reisinger, Markus |
| Abstract: | Platforms that provide product recommendations to consumers, such as marketplaces like Amazon or online travel agencies like Expedia, govern a substantial part of transactions in many markets. In addition to selling via platforms, most firms, however, also operate a direct channel. This paper investigates how the interaction between the platform channel and the firms’ direct channel affects platform design and firms' pricing incentives. We provide a rich game-theoretic model in which platforms give recommendations to consumers about products with high match value and facilitate consumer search, but charge sellers commission rates, whereas sellers compete in prices to balance demand across both channels. We show that the interaction between the channels gives rise to novel mechanisms that have counterintuitive effects. First, higher platform fees induce sellers to prioritize their direct channel—where consumers have lower expected match values and are thus more price-sensitive—leading to lower equilibrium prices. Second, improvements in recommendation quality can paradoxically reduce seller prices by intensifying the competitive pressure on the direct channel. Third, we show that for the platform, the quality of recommendations and the commission rate are strategic substitutes, that is, providing better recommendations should optimally be coupled with lower commission rates. This occurs because both instruments have potentially negative effects on seller prices. Finally, we evaluate recent policy interventions within our framework. We find that fee caps and measures that facilitate transactions on the direct channel can have unintended consequences and reduce consumer surplus by distorting the pricing incentives inherent in the dual-channel structure. |
| Keywords: | Platform pricing; Recommendation quality; Consumer search |
| JEL: | D83 L15 L86 M31 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21117 |
| By: | Johnen, Johannes; Shekhar, Shiva |
| Abstract: | This paper proposes a simple yet useful framework for evaluating vertical mergers in digital markets by distinguishing between product-specific and ecosystem-specific network effects. Vis-Ã -vis no network effects, product-specific network effects amplify foreclosure and steering incentives, as a rival’s growth directly undermines the platform’s product value. Conversely, ecosystem-specific effects dampen foreclosure incentives, since rivals contribute to the overall value of the platform ecosystem. We develop a formal model illustrating how this distinction shapes platform behavior and competitive outcomes. We apply this distinction to real-world examples to illustrate its potential usefulness. Our distinction implies that regulators may want to adopt a stricter standard with no presumption of efficiencies where product-specific effects dominate. In contrast, when ecosystem-specific effects prevail, merger evaluation should mirror traditional vertical merger analysis. Thus, offering a more nuanced approach to merger evaluation by presenting a practical screening tool to identify problematic vertical mergers in markets featuring network effects. |
| Keywords: | Network externalities; Platforms; Vertical integration; Foreclosure; Steering |
| JEL: | L22 L41 L51 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20899 |
| By: | Foros, Oystein; Friberg, Richard; Kind, Hans Jarle; Shaffer, Greg; Steen, Frode |
| Abstract: | Consumer journalism guides purchasing decisions when consumers lack complete information about attributes such as price, quality, and location. We focus on consumer journalism in the grocery market, where it is too time consuming for consumers to check all prices in different stores. This makes it attractive for media to attract readers by publishing grocery price comparisons. Norway’s largest newspaper has published grocery price comparisons over more than 20 years. However, the comparisons appear only sporadically (a few times each year) and include a relatively small number of items. Despite this, our empirical analysis of the Norwegian grocery market reveals that these price comparisons have a significant impact on market performance. They intensify competition, leading to price reductions when market players anticipate upcoming comparisons. Conversely, after a comparison is published, prices increase. Remarkably, sporadic consumer journalism, offering snapshots of prices for a few products, thus has a significant impact on grocery chains’ ompetitive pricing behavior. Chains heavily utilize a win in a price comparison in their own advertising, further reinforcing the competitive impact of consumer journalism. |
| Keywords: | Price dynamics |
| JEL: | L1 L6 D4 M31 M37 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20877 |
| By: | Xin Meng; Hikmet Günay; Mehdi Arzandeh |
| Abstract: | When a wireless carrier exits, its spectrum may remain idle until regulators complete a reassignment process. During this interval, regulators must decide whether to leave the spectrum unused or grant temporary access rights to an incumbent carrier. We study this trade-off in a two-period model in which temporary spectrum access lowers the incumbent’s marginal cost before entry is possible, while consumers who purchase in the first period become locked in through multi-period contracts. Under a wait-and-assign policy, the spectrum remains idle in the first period. Under a temporary-transfer policy, the incumbent receives access to the idle spectrum in the first period but gives up any cost advantage if entry occurs, as the entrant receives the spectrum and competes on equal-cost terms. Temporary access therefore affects entry incentives only through installed-base accumulation rather than through input foreclosure or a persistent cost advantage. We show that there exists a region of the parameter space in which entry occurs under wait-and-assign but is deterred under temporary transfer. In this region, temporary transfer can increase total welfare because the gains from lower production costs, immediate utilization, and avoided entry costs outweigh the surplus generated by postentry competition. Consumer surplus may also increase when the benefit of offering lower prices to a larger captive customer base exceeds the loss of competition in the residual market. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1316 |
| By: | Duso, Tomaso; Peitz, Martin |
| Abstract: | Trade conflicts, geopolitical tensions, digital disruption, and the climate crisis pose major challenges for the European Union (EU) and its member states. As called for in the Draghi Report, industrial policy measures can increase competitiveness, strengthen resilience, and facilitate the twin transformation. This article explores ways in which competition policy can be realigned to better accommodate industrial policy objectives. Using German competition law as a reference point, it presents options with which legislatures and competition authorities can respond to current challenges, reconcile conflicting objectives, and adapt the decision-making framework. It then considers elements of a competition-oriented industrial policy, understood as an evidence-based, targeted approach in which competition serves both as a guiding principle and as a control variable. |
| Keywords: | Industrial policy; Competition; Regulation; Competition policy; Competitiveness; Internal market |
| JEL: | L40 L50 L52 K21 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20807 |
| By: | Rhodes, Andrew; Zhou, Jidong; Zhou, Junjie |
| Abstract: | This paper develops a framework in which a multiproduct ecosystem competes with multiple single-product firms in both price and innovation. The ecosystem can use data from one product to improve the quality of its other products. We use the framework to study three regulatory policies aimed at leveling the playing field. Restricting the ecosystem's cross-product data usage, or forcing it to share data with single-product firms, benefits those firms and induces them to innovate more. However, these policies also dampen the ecosystem’s incentive to collect data and innovate, potentially raising prices. Consumers are better off only when single-product firms are sufficiently good at innovating. Facilitating data exchange between single-product firms via a data cooperative can backfire and harm them, because it induces the ecosystem to price more aggressively. For both the data-sharing and data-cooperative policies, there exist data-compensation schemes such that consumers are better off compared to no regulation. |
| JEL: | D43 L13 L51 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21209 |
| By: | Grigolon, Laura; Sovinsky, Michelle |
| Abstract: | Vertical restraints imposed on some downstream buyers can affect non-contracted firms by weakening upstream suppliers’ effective viability. We study these contracting externalities using Intel’s exclusionary agreements with PC manufacturers in the microprocessor market. Combining litigation-based measures of restraints with PC data, we estimate dynamic models of AMD adoption that allow for cross-buyer spillovers. We find that exclusivity imposed on a given buyer significantly reduces adoption by other, non-contracted buyers, generating sizable and persistent market-wide effects. The paper provides the first empirical quantification of the economic magnitude of contracting externalities and highlights the broader competitive risks posed by exclusionary contracting. |
| JEL: | L42 L63 K21 D22 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21046 |
| By: | Allain, Marie-Laure; Bourreau, Marc; Moraga-González, José-Luis |
| Abstract: | We study the agency and wholesale models of intermediation in a bilateral monopoly where a platform can charge sellers an entry fee. With full-profit-extracting entry fees, the agency model eliminates double marginalization and yields lower prices and higher platform profits than the wholesale model, while the seller earns zero profit under both models. With partial rent extraction, the agency model yields lower prices than the wholesale model when demand satisfies Marshall’s Second Law, or when the platform can extract a sufficiently large share of the seller’s profit, regardless of demand. To disentangle the mechanisms at play in this comparison, we also study the agency model with per-unit commissions. We show that shifting price-setting power from the platform to the seller lowers prices, while changing the commission instrument from per-unit to ad valorem usually further reduces prices. Finally, when the platform is uncertain about the seller’s dead-weight loss from paying the entry fee, entry may fail. We characterize when the platform optimally sets a zero entry fee, extend the price comparison, and provide conditions under which the agency model delivers both lower prices and higher entry than the wholesale model. We also show that per-unit commissions never dominate ad valorem commissions simultaneously in terms of price and entry, whereas the reverse can occur. |
| JEL: | D21 L42 L86 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21154 |
| By: | Hassan Benchekroun (McGill University); Simon Elgersma (Rijksuniversiteit Groningen); Gerard van der Meijden (Vrije Universiteit Amsterdam); Cees Withagen (Vrije Universiteit Amsterdam) |
| Abstract: | We study how market power, leadership, and commitment affect oil extraction and climate outcomes in a cartel-fringe model with renewables and a backstop technology. Comparing competitive, Nash-Cournot, open-loop, and feedback von Stackelberg equilibria, we show that market power and leadership can either increase or reduce climate damages, depending on commitment, cost and emission factor heterogeneity, and relative resource stocks. In a benchmark with a social cost of carbon of 250 USD/tC, market power without leadership lowers climate damages by 3.9 trillion USD relative to perfect competition. With leadership, these gains fall to 3.1 trillion USD when the leader can commit and to 2.6 trillion USD without commitment. Small changes in resource stocks, cost parameters, or climate policy can trigger regime shifts with discontinuous welfare and climate effects. Carbon taxes and backstop subsidies can remove sequencing distortions but may weaken the conservation effect of market power. When the cartel cannot commit, the second-best carbon tax lies well below the Pigouvian level yet often delivers near-first-best welfare. Finally, we show that market power and leadership may reduce cartel profits. |
| Keywords: | cartel-fringe, climate policy, renewables, dynamic game, von Stackelberg equilibrium |
| JEL: | C72 Q30 Q38 Q42 |
| Date: | 2026–06–11 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20260030 |
| By: | Ershov, Daniel; Lyons, Elizabeth |
| Abstract: | The use of autonomous pricing algorithms has grown across markets in recent years, and many firms outsource their pricing algorithms to third-party developers. While recent evidence highlights the potential for pricing algorithms to influence competition, the design of these algorithms and how the risks of these algorithms can be managed is less clear. We collect pricing algorithms from both programmers, via an RCT on Upwork.com, and from an LLM to characterize how programmers think about pricing algorithms, and the extent to which third-party programmer decisions can be adjusted using simple non-technical prompts. We show that, on average, programmer and LLM-written algorithms are less sophisticated than the Q-learning algorithms used in the theoretical literature. We also show that a prompt aimed to focus programmer attention on economic fundamentals can help human programmers to produce algorithms that better match competitive prices. Finally, we find the biggest threat of supra-competitive prices is generated via mis-specification of demand models. |
| Keywords: | Price competition; Management; Artificial intelligence |
| JEL: | L22 L24 O32 L41 D43 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20901 |
| By: | Elsas-Nicolle, Ambre; Genakos, Christos; Kretschmer, Tobias |
| Abstract: | Can entire markets strategically confuse consumers to raise market prices? Using a detailed dataset covering virtually all mobile phone tariffs and their handsets in the United Kingdom between January 2010 and September 2012, we study the evolution of quality-adjusted prices and find that they increased until December 2010, even though the industry was mature, technologically homogeneous, and competitive. Upon exploring the role of several salient factors, such as differentiation and product proliferation by firms that may have affected this evolution, we argue that the primary driver is the implementation of obfuscation strategies by firms. The observed price increase is significantly correlated with the rate at which operators implemented dominated tariffs (i.e., tariffs for which there is a cheaper alternative from the same operator), indicating that firms use obfuscation strategies to reduce product transparency, thereby elevating overall prices. Importantly, the presence of dominated tariffs raises not only the prices of these contracts but also those of efficient ones, distinguishing our findings from a behavioral price discrimination strategy that would only affect inattentive consumers. Our exploratory study is one of the first to offer suggestive evidence of obfuscation as an industry-wide supply-side phenomenon. |
| JEL: | L13 L96 L15 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20911 |
| By: | Agostinelli, Francesco; Ferraro, Domenico; Sorrenti, Giuseppe; Treuren, Leonard |
| Abstract: | We ask to what extent the quantification of labor market power depends on the modeling of the long-term worker-firm employment relationship. We develop an oligopsony model with dynamic wage contracts. Workers decide whether and where to work, choosing among firms providing different amenities and solving a dynamic discrete choice labor supply problem with firm-specific human capital. As a result, firms optimally choose wage-tenure contracts to attract and retain workers. We find that such contracts mitigate firms’ incentives to impose large instantaneous wage markdowns—compared to standard static wage-setting models—thereby reducing the share of socially inefficient worker-firm separations. As a consequence, we show that the empirical approaches based on “sufficient statistics†tend to overestimate the extent of labor market power: low levels of firmspecific labor supply elasticities do not necessarily indicate rent extraction, but instead reflect firms’ ability to retain workers by offering long-term value through human capital accumulation. |
| Keywords: | Monopsony; Oligopsony; Rents; Wage setting |
| JEL: | J2 J3 J41 J42 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20889 |
| By: | José Luis Moraga-González (Vrije Universiteit Amsterdam); Evgenia Motchenkova (Vrije Universiteit Amsterdam); Long Hoàng (Vrije Universiteit Amsterdam) |
| Abstract: | This paper analyzes a monopoly platform’s joint pricing and investment decisions in the canonical two-sided market model of Armstrong (2006). Participants are heterogeneous in outside options and derive both stand-alone benefits from joining the platform, and network benefits from interacting with the opposite side. The platform sets participation prices on both sides and chooses investments that enhance user experience. We characterize monopoly distortions in participation, pricing, and investment relative to a social planner. Taking investment as given, the monopoly outcome features under-participation on both sides, yet participation prices need not transparently reflect these participation distortions. We show that at least one participation price is excessively high relative to the social optimum. Equivalently, while one side’s participation price may be inefficiently low, participation prices that are too low on both sides are impossible. When investment enhances network benefits, marginal returns are proportional to interaction volume; since the planner induces greater participation and therefore more interactions, the monopoly underinvests on both sides. By contrast, when investment enhances stand-alone benefits, marginal returns scale with own-side participation, so investment distortions may be asymmetric across sides, although overinvestment on both sides is ruled out. An application to app platforms, with user-side device pricing and developer-side commissions on in-app purchases, yields sharp predictions for device price, commission and investment distortions, as well as for the effects of commission caps on buyer and seller surplus. |
| Keywords: | two-sided platforms, pricing and investment inefficiency, app-stores, commission caps |
| JEL: | D42 L12 L14 L40 O30 |
| Date: | 2026–04–02 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20260015 |
| By: | Blanchard, Pablo; Fleitas, Sebastian; González Valdenegro, Rodrigo |
| Abstract: | We study the equilibrium welfare effects of using state-owned enterprises (SOEs) to discipline market power. We estimate a dynamic equilibrium model of Uruguay’s individual capitalization pension system, where a high-quality SOE competes with private firms in the presence of worker inertia. We find that the presence of a SOE lowers equilibrium fees and increases investment returns. Replacing it with a private firm would more than double its fee and raise private firms’ fees by 8 percent. Reducing inertia mitigates but does not offset privatization. Comparing policy instruments, we show that direct price regulation yields higher welfare gains than competition through an SOE. |
| Keywords: | Regulation |
| JEL: | L51 N2 H4 L21 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21152 |
| By: | Ashfaq, Marium; Toxvaerd, Flavio; Wei, Yi |
| Abstract: | We study collusive agreements in an infinite-horizon model in which firms invest in inventories of intermediate goods and compete in quantities of final goods. Stocks of inventories act as capacity constraints at the time of production, but can be replenished for future use through investment. Input stocks simultaneously impact firms’ ability to deviate from collusive agreements and their ability to punish such deviations and therefore have ambiguous effects on the sustainability of collusion. We characterize subgame perfect equilibria in grim trigger strategies in which firms potentially hold asymmetric excess inventories on the collusive path. We show that the sustainability of collusive agreements is non-monotone in inventory stocks. While holding excess capacity is costly and unproductive, the practice can improve firms’ ability to sustain anticompetitive agreements. |
| Keywords: | Collusion |
| JEL: | L13 L41 D25 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21232 |
| By: | Bergquist, Lauren Falcao; Lashkari, Danial; Verhoogen, Eric |
| Abstract: | This chapter takes stock of what has been learned from the recent micro-development literature about wedges — mechanisms generating dispersion in marginal revenue products of factors across firms, which are commonly interpreted as indicators of misallocation. We present a general theoretical framework that allows us to consider several different types of wedges simultaneously. We argue that it is important to distinguish between between technological wedges, which are present even in the efficient allocation that would be chosen by the social planner, and distortionary wedges, which are present in market equilibrium but not the social planner's allocation. Not all wedges, as we have defined them, are distortionary. We also argue that interactions among wedges are pervasive. We review empirical findings about different types of wedges — taxes, regulations, political connections, corruption, market power, contracting frictions, upgrading investments, and search — focusing on studies that present direct evidence on particular wedges and how they generate dispersion in marginal returns to factors. Throughout, we pay special attention to how wedges vary with firm size and whether the evidence supports the "large firms are constrained" view of development. We conclude with thoughts about promising directions for the misallocation literature. |
| JEL: | O11 O12 O14 D21 H25 L11 L51 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21034 |
| By: | Feyler, Emilie; Heim, Sven; Szücs, Florian; Spiegel, Yossi |
| Abstract: | We study the effect of horizontal minority stake acquisitions on firms’ innovation incentives and patenting behavior. Using patent data from 34 countries between 2001 and 2019, we employ a staggered, matching-based difference-in-differences approach, complemented by an event study. We find that such acquisitions lead to a decline in both the number of patents granted and the number of citations received, indicating a reduction in innovation activity. These results suggest that horizontal minority acquisitions can serve as a mechanism to soften rivalry, not only in product markets, but also in innovation. |
| Keywords: | Innovation; Merger policy; Patents; Minority shareholdings |
| JEL: | D22 G14 L13 L40 O31 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20917 |
| By: | Carrillo, Paul; Donaldson, Dave; Pomeranz, Dina; Singhal, Monica |
| Abstract: | How costly is the misallocation of production that we might expect to result from distortions such as market power, incomplete contracts, taxes, regulations, or corruption? This paper develops new tools for the study of misallocation that place minimal assumptions on firms' underlying technologies and behavior. We show how features of the distribution of marginal products can be identified from exogenous variation in firms' input use, and how these features can be used both to test for misallocation and to quantify the welfare losses that it causes. We then consider an application in which thousands of firms experience demand shocks derived from a lottery-based assignment of public procurement contracts for construction services in Ecuador. Using administrative tax data about these firms, we reject the null of efficiency but estimate that the welfare losses resulting from misallocation are only 1.6% relative to the first-best. Standard parametric assumptions applied to the same setting would suggest losses that are at least an order of magnitude larger. |
| Keywords: | Misallocation |
| JEL: | D24 D61 H57 L10 O40 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21106 |
| By: | Nano Barahona; Juan-Pablo Montero; Pedro Skorin |
| Abstract: | Vehicle inspections—commonly known as smog and safety checks—are often delegated to private agents, much like other quality certification markets. When these agents compete, they face incentives to misreport quality—especially when consumers do not internalize the external costs of misreporting. Theory and evidence from Chile’s concentrated vehicle-inspection markets suggest that these incentives are significant: misreporting emerges as soon as competition is introduced. We find that delegating each market to a single agent proves effective in reducing approval rates, without compromising service quality or the ex-ante competition for the market, while delivering substantial and permanent reductions in vehicle emissions. |
| JEL: | C72 D43 L51 Q58 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35422 |
| By: | Moraga-González, José-Luis; Motchenkova, Evgenia |
| Abstract: | We investigate the impact of mergers on R&D incentives within a framework of R&D competition where effort can influence both the probability of innovation and the payoff conditional on success. Our framework nests the results of two classes of existing models and reveals assumptions that are restrictive. In models where R&D effort increases the probability of innovation but does not directly affect the payoff upon success, we show that the assumption of zero payoff upon innovation failure is restrictive. In models where R&D effort influences the payoff conditional on success, but not the probability of success itself, the assumption of deterministic innovation success (i.e., a success probability of one) is similarly restrictive. Across both modeling approaches, we offer a novel insight: the shape of investment costs, and by implication the pre-merger level of innovation, can be pivotal in determining whether a merger strengthens or weakens firms’ incentives to invest in R&D. In an extensions section, we further examine the role of R&D input and output synergies, firm asymmetries, as well as the implications for consumer surplus. |
| Keywords: | Product innovation; Cost-reducing investment |
| JEL: | K21 L13 L40 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20986 |
| By: | Faia, Ester; Lochner, Benjamin; Schoefer, Benjamin |
| Abstract: | This paper presents the first direct test of two interlinked predictions at the core of the monopsony theory of the labor market: (i) that firms exploit wage-setting power by marking down wages below the marginal revenue product of labor, and (ii) that exogenous wage constraints, if binding, eliminate markdowns. Our research design revisits the 2015 introduction of a high minimum wage in Germany. Drawing on a monopsony model, we derive an empirically tractable difference-in-differences specification that provides a quantitative benchmark for the firm-level markdown response. Our main result is that empirical markdowns respond only 0–25% as much as the monopsony model would have predicted. Hence, at least for the labor market segment we study, (i) markdowns largely reflect other distortions than monopsony, (ii) markdowns are mismeasured, (iii) minimum wages induce widespread labor shortages, or (iv) the standard monopsony model does not provide a full, realistic account of the labor market. |
| JEL: | E0 J0 L0 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21058 |
| By: | Su, Ruibing; Yang, Chenyu; Sweeting, Andrew |
| Abstract: | We estimate a dynamic model of the U.S. space launch industry. The model allows past launches to improve rocket reliability and lower launch costs. It also allows the government to make forward-looking procurement choices. We use the model to analyze policy-relevant issues in the recent history of the industry: the 2006 United Launch Alliance "merger-to-monopoly" and the effects of efficiencies in the form of learning synergies; innovations, such as SpaceX's Falcon 9 and ULA's recent introduction of Vulcan Centaur; the costs and benefits of forward-looking procurements; and, the trade-offs between the advantages of centralized control and possible inefficiencies. |
| JEL: | C73 D21 D43 L13 L41 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21140 |
| By: | De Jonghe, Olivier; Mulier, Klaas; Schepens, Glenn; Stimpfle, Leonard |
| Abstract: | We show that an unexpected tightening of the EU Emissions Trading System led high-emission-intensity firms to cut emissions relative to low-intensity peers within the same industry, without reducing output, thereby improving emission efficiency. Effects are stronger for power producers than for manufacturing firms. Examining mergers and acquisitions (M&As), we find that high-intensity manufacturing firms acquire more green targets after the tightening than low-intensity firms, with no change in the overall number of acquisitions, indicating a shift in focus rather than activity. Finally, we show that these green M&As contributed to the observed emission reductions over the study period. JEL Classification: D22, G34, G38, Q53, Q54 |
| Keywords: | climate regulation, emission trading, firm behavior, M&A |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263253 |
| By: | Genakos, Christos; Kampouris, Themistoklis |
| Abstract: | This paper examines the “right†geographic definition of relevant markets by analyzing how excise tax pass-through varies with local competition in the retail gasoline market of a large metropolitan city. Using a natural experiment from three unanticipated and exogenous fuel tax hikes and detailed station-level price data, we show that average pass-through is invariant to the number of nearby competitors across various geographic definitions. This contrasts with theoretical predictions and prior island-based evidence, suggesting that the entire metropolitan area functions as a single market. Our findings challenge standard isodistance- or isochrone-based market delineations used in academic research and competition policy. |
| JEL: | H22 L1 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21091 |
| By: | Martin, Simon; Verboven, Frank |
| Abstract: | Price caps are commonly used to protect consumers from excessive price increases, yet their consequences remain understudied. This paper analyzes the Belgian retail gasoline market, using daily price data from 2016–2019 for around 3, 000 gasoline stations. We examine whether price caps are effective at constraining prices, or instead serve as focal points that encourage coordinated price-setting behavior. We first document several key facts: pervasive price rigidity and the wide presence of prices at the caps or at integer discounts below the caps. We subsequently develop a framework to show that the price caps constrain only a limited fraction of stations, and induce a large fraction to coordinate on higher prices at or below the caps. Removing price caps would substantially reduce prices and profit margins by an amount comparable in magnitude to that associated with the collapse of an explicit cartel. |
| JEL: | D22 D83 L13 L41 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21297 |
| By: | Janssen, Maarten; Williams, Cole; Jungbauer, Thomas; Preuss, Marcel |
| Abstract: | This paper investigates the optimal information policy of an online platform (or multi-product firm) when ranking products in response to a consumer search query. The informativeness of rankings ranges from full information to full obfuscation, and consumers learn their match values with the products by engaging in costly sequential search. Invoking continuous match value distributions allows us to establish a novel result about consumer search. While consumers buy products with high match values and continue searching when they encounter low match values, they abort search without buying a product for intermediate ones. For a large class of distributions, the optimal strategy of a platform maximizing the probability of the consumer buying a product is to provide either full or no information at all. As a result, platform and consumer welfare are either fully aligned or at odds with each other. |
| Keywords: | Learning |
| JEL: | C72 D11 D21 D83 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20868 |
| By: | Borusyak, Kirill; Chen, Jiafeng; Hull, Peter; Lei, Lihua |
| Abstract: | We study identification of differentiated product demand from market-level data when product characteristics can be endogenous. Past work suggests nonparametric identification may be impossible: that is, in addition to standard price instruments, exogenous characteristic-based instruments are essentially necessary to identify sufficiently flexible demand models with standard index restrictions. We show, however, that price counterfactuals are nonparametrically identified using recentered instruments — which combine exogenous price instruments with possibly endogenous product characteristics — under a weaker index restriction and a new condition we term faithfulness. We argue that faithfulness, like the usual completeness condition for nonparametric instrumental variable identification, is best viewed as a technical requirement on the strength of identifying variation rather than a substantive economic or statistical restriction. We show the two conditions are closely related, though generally distinct. We conclude with several practical implications for the parametric estimation of demand counterfactuals. |
| Keywords: | Demand |
| JEL: | C14 C36 L13 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21202 |
| By: | Pallavi Pal |
| Abstract: | When a parent company acquires a horizontal competitor on the same side of a multi-sided market, it must decide whether to fully integrate the acquired platform or keep it as a separate brand. We study this in the context of Uber's acquisition of Postmates, using novel consumer receipt data that tracks food delivery spending. Employing an Age-Period-Cohort (APC) decomposition, we isolate the merger's effect on consumer spending while controlling for lifecycle and cohort effects. We find that Postmates users sharply reduced their spending on the platform after the merger, but spending shifted not only to UberEats, but also to competitors like DoorDash and Grubhub. Consumers who used multiple platforms and had low pre-merger activity on Postmates were more 'sticky', showing little change. Comparing our APC results with a standard Difference-in-Differences (DiD) design, we find the DiD underestimates the merger's total impact by missing market-wide effects. Our findings suggest that in multi-sided markets, keeping acquired platforms separate can be beneficial; dissolving them may push demand to competitors, and some sticky multihoming users may not shift spending at all. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.14836 |
| By: | Rrukaj, Ritvana; Steen, Frode |
| Abstract: | Estimating non-linear autoregressive distributed lag models, we establish that short-run cost pass-through in the Swedish retail gasoline market depends on station heterogeneity. Our findings reveal a slower correction of the disequilibrium error in volume-adjusted prices compared to average pump prices. We also show that high volume stations possess longer price asymmetry. Our findings thus support that oil companies are more focused on pricing on days and at stations with higher sales, suggesting that earlier studies of pass-through using average prices underestimate the price asymmetry. Further, gasoline stations less exposed to local competition impose more prolonged price asymmetry. This is also true for full-service stations as compared to automated self-service stations. We show that the asymmetry, despite indicating only roughly three percent rise in consumer prices, accounts for nearly 40% of firms’ gross margins, carrying significant implications for market regulation and business strategies. |
| Keywords: | Gasoline markets; asymmetric short- and long-run cost pass-through; Station heterogeneity; Volume-adjusted prices; market power |
| JEL: | C12 C13 F14 L11 L71 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20876 |
| By: | Alice Lixuan Xu; Clemens Stiewe |
| Abstract: | This paper estimates the effect of cross-border transmission constraints on suspected market power abuse in the German wholesale electricity market. Using a 2SRI instrumental variables approach, we study suspected strategic behavior by German gas- and coal-fired power plants in 2022-2024. Cross-border transmission constraints are measured using the maximum and minimum bounds of zonal net position, while suspected market power abuse is measured as the upward or downward deviation of observed dispatch from a modeled competitive benchmark. We find that transmission constraints significantly elevate the likelihood of suspected market power abuse. When headroom for further imports is already scarce, reducing import headroom by one Gigawatt (GW) increases the odds of suspected capacity withholding by 15%. Similarly, reducing export headroom by one GW when it is scarce increases the odds of suspected capacity push-in, a strategy to depress prices, by 16%. These results provide empirical support for interconnection expansion as an instrument to mitigate market power. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.00977 |
| By: | Haese, Jérémie; Kretschmer, Tobias; Peukert, Christian |
| Abstract: | How early-stage platforms can overcome the chicken-and-egg problem is a central strategic challenge. We develop a dynamic model of two-sided platform adoption in which user utility depends on same-side and cross-side network effects, and adoption is shaped by advertising that increases sensitivity to perceived utility. We highlight the distinct role of advertising as a salience amplifier rather than a direct utility shifter. We derive closed-form conditions under which a platform takes off or collapses, showing that even when one side cannot sustain growth alone, targeted advertising on the other side can trigger self-reinforcing adoption. We show how advertising reduces the required strength of indirect network effects for critical mass and provides strategic guidance on where to allocate early marketing resources. To illustrate these mechanisms, we run agent-based simulations to illustrate the dynamics of three platform archetypes: marketplaces, service platforms, and ad-funded social networks. The simulations confirm that modest early advertising can reliably push the system past its critical threshold and that the optimal side to target depends on market size, the direction and strength of network effects, and competitive conditions within each side. We extend our model to incorporate competition between two platforms in which advertising can have spillovers (category versus brand advertising) and find that early differences in advertising levels across the platforms can tip the market towards one platform. We conclude with a discussion of managerial implications, giving actionable guidance for platform entrepreneurs to overcome the chicken-and-egg problem. |
| Keywords: | Two-sided markets; Advertising |
| JEL: | M37 O33 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21012 |
| By: | Gokan, Toshitaka; Thisse, Jacques-François; Zhu, Xiwei |
| Abstract: | We develop a parsimonious model that incorporates shopping and shipping costs, a distaste cost, consumer taste heterogeneity, and the pricing strategies of online and offline retailers. We compare offline, mixed and online duopolies and show that the retailing industry equilibrium depends on the degree of taste heterogeneity, but also on the value of shopping and shipping costs. Consumers' most-preferred retail format depends on their location relative to the retailers. In the aggregate, consumers are better-off under online retailing. However, firms are worse-off because they get trapped in a prisoner's dilemma. |
| JEL: | L13 L81 R10 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20913 |
| By: | Friberg, Richard; Halseth, Emil M. S.; Steen, Frode; Ulsaker, Simen |
| Abstract: | This paper examines how consumer price knowledge affects shopping behavior and the prices consumers pay in grocery markets. We combine survey-based price recall data from over 2000 Norwegian households — yielding over 70 000 price recalls across two grocery chains and 24 products—with 18 months of of linked individual-level transaction histories. Better-informed consumers—those who recall prices more accurately—pay lower prices by timing purchases to coincide with sales. A 10 percentage point increase in price knowledge (approximately the interquartile range) is associated with a 1.3 percentage point reduction in prices paid. Our results provide direct support for the central mechanism in Varian’s (1980) model of sales: that informed consumers pay lower prices by exploiting temporary discounts. We also find that consumers who are more active in seeking information about prices have higher price knowledge. Taken together our results suggest that policies or tools that help consumers learn about prices may be effective in enhancing competition. Our findings also speak to a marketing literature that seeks to measure and explain consumer price knowledge. By linking survey data to actual shopping behavior, we contribute to this literature by demonstrating that shopping behavior and attitudes are stronger predictors of price knowledge than demographic characteristics. |
| Keywords: | Search costs |
| JEL: | D83 L10 L66 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20875 |
| By: | Gehrig, Thomas; Stenbacka, Rune |
| Abstract: | We characterize investments in supply chain resilience in a geopolitical duopoly. The domestic firm balances the option to benefit from potential competitive advantages against riskiness and geopolitical instability associated with foreign sourcing. We show that the domestic firm has insufficient incentives to invest in supply chain resilience, thereby justifying a subsidy policy. We characterize conditions for underinvestment. We also characterize a number of factors which are central for optimal subsidy policy. |
| JEL: | L13 D43 F12 F61 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20819 |
| By: | Adam, Klaus; Renkin, Tobias; Züllig, Gabriel |
| Abstract: | We use data on firm-level prices and output to estimate the dynamics of markups, marginal cost and prices over the life-cycle of Danish manufacturing firms. Markups increase by 8 percentage points over the first 20 years of firms’ lives. This reflects a substantial decrease of marginal cost that is only partially passed on into prices. The increase in markups coincides with increased product turnover — both introductions and discontinuations — among young firms. We show that despite the strong age profile in markups, and an increasing average firm age due to declining entry, the direct effect of firm aging on recent markup trends is small. Our findings have implications for a number of other macroeconomic theories and trends. |
| JEL: | D22 E23 L11 L16 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20805 |