|
on Industrial Competition |
|
Issue of 2025–05–19
twenty-one papers chosen by Russell Pittman, United States Department of Justice |
| By: | Ambati, Murari; Munipalle, Pravith |
| Abstract: | The pharmaceutical industry is important in global healthcare, and drives innovation in drug development ensuring access to life-saving treatments. However, the industries economic structure and competitive dynamics give rise to anticompetitive practices that distort market efficiency, limit consumer choice, and inflate drug prices. This paper shows a comprehensive review of the anticompetitive behaviors employed by pharmaceutical firms, including patent evergreening, pay-for-delay agreements, price collusion, and product hopping. The paper analyzes prominent strategies in the pharmaceutical industries that are anticompetitive through the lens of industrial organization theory, game theory, and market microstructure models. Additionally, we examine the role of financial markets in monitoring and mitigating these inefficiencies, with a particular focus on short-selling. We assess how short sellers act as market watchdogs, and identify overvalued pharmaceutical stocks that may be engaging in rent-seeking behavior. Furthermore, the paper explores the regulatory landscape, and highlight antitrust interventions along with legal challenges. Furthermore, the paper explores recent policy proposals aimed at curbing market manipulation. The paper concludes by discussing potential reforms and market-based solutions to foster competition, enhance price transparency, and improve drug accessibility. Our findings contribute to the broader discourse on financial market oversight, economic efficiency, and the intersection of healthcare economics and capital markets. |
| Date: | 2025–03–03 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:8rd7w_v1 |
| By: | Reid B. Taylor; Erich Muehlegger |
| Abstract: | We estimate the effect of competition on incumbent firm pricing by using high frequency price data and the precise geographic location for all gas stations in California. Using an event study design, we find that the entry of a new station is associated with a 2.5 cent decrease in prices at incumbent stores, which equates to a 7% reduction in estimated retail markups. The effects are immediate, persistent, and show no sign of deterrence or limit pricing behavior. In contrast, nearby exit results in precisely estimated null effects on prices with no evidence of predatory pricing in the lead up to the station departure. The results are consistent across all fuel blends and dissipate with station distance. Finally, we explore the asymmetric effects, showing that the difference cannot be attributed to difference in branding, proximity to highway, or data quality idiosyncrasies, although we find suggestive evidence that exit tends to happen in more competitive markets and amongst less heavily trafficked stations. |
| JEL: | L1 Q41 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33569 |
| By: | Perez Reyna, David Alejandro (Universidad de los Andes); Rodríguez Barraquer, Tomás (Universidad de los Andes); Tovar Mora, Jorge Andrés (Universidad de los Andes) |
| Abstract: | In this paper, we analyze the competition in the Colombian banking sector using banklevel monthly balance sheet information. We estimate the changes in measures of market power due to the exogenous introduction of a liquidity regulation. Our results suggest that introducing a net stable funding ratio increased the Lerner index in the short term, thus signaling a higher exercise of market power. We rationalize these changes in a simple theoretical model that allows us to analyze the tightening of liquidity requirements for banks and find that a higher Lerner index implies more market power in the loan market than in the deposit market. |
| Keywords: | Competition; Banking sector; Liquidity regulation |
| JEL: | E44 G21 L13 |
| Date: | 2025–05–08 |
| URL: | https://d.repec.org/n?u=RePEc:col:000089:021371 |
| By: | Fuhito Kojima; Bobak Pakzad-Hurson |
| Abstract: | We study a variation of the price competition model a la Bertrand, in which firms must offer menus of contracts that obey monotonicity constraints, e.g., wages that rise with worker productivity to comport with equal pay legislation. While such constraints limit firms' ability to undercut their competitors, we show that Bertrand's classic result still holds: competition drives firm profits to zero and leads to efficient allocations without rationing. Our findings suggest that Bertrand's logic extends to a broader variety of markets, including labor and product markets that are subject to real-world constraints on pricing across workers and products. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.16842 |
| By: | Isabel Gödl-Hanisch; Jordan Pandolfo |
| Abstract: | We provide empirical evidence on banks’ market power in financial services and its implications for monetary policy transmission through deposit rates. Banks with market power in financial services charge higher fees for their service and also offer lower deposit rates with less pass-through from monetary policy. We argue that this is the result of product tying: consumers must open a deposit account to access a bank’s financial services. We develop and calibrate a quantitative model of the U.S. banking industry where banks generate non-interest income from services in addition to a standard loan-deposit model. Counterfactuals emphasize the importance of non-interest income for credit supply, financial stability, and deposit pricing. |
| Keywords: | monetary policy, banks, pass-through, market power, product tying. |
| JEL: | D43 E44 E52 G21 G51 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11847 |
| By: | Gurkirat Wadhwa; Veeraruna Kavitha |
| Abstract: | Considering a supply chain with partial vertical integration, we attempt to seek answers to several questions related to the cooperation competition based friction, abundant in such networks. Such an SC can represent a supplier with an inhouse production unit that attempts to control an outhouse production unit via the said friction. The two production units can have different sets of loyal customer bases and the aim of the manufacturer supplier duo would be to get the best out of the two customer bases. Our analysis shows that under certain market conditions, an optimal strategy might be to allow both units to earn positive profits particularly when they hold similar market power and when customer loyalty is high. In cases of weaker customer loyalty, however, the optimal approach may involve pressurizing the outhouse unit to operate at minimal profits. Even more intriguing is the scenario where the outhouse unit has a greater market power and customer loyalty remains strong here, it may be optimal for the inhouse unit to operate at a loss just enough to dismantle the downstream monopoly. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.09591 |
| By: | Ophir Friedler; Hu Fu; Anna Karlin; Ariana Tang |
| Abstract: | Platforms design the form of presentation by which sellers are shown to the buyers. This design not only shapes the buyers' experience but also leads to different market equilibria or dynamics. One component in this design is through the platform's mediation of the search frictions experienced by the buyers for different sellers. We take a model of monopolistic competition and show that, on one hand, when all sellers have the same inspection costs, the market sees no stable price since the sellers always have incentives to undercut each other, and, on the other hand, the platform may stabilize the price by giving prominence to one seller chosen by a carefully designed mechanism. This calls to mind Amazon's Buy Box. We study natural mechanisms for choosing the prominent seller, characterize the range of equilibrium prices implementable by them, and find that in certain scenarios the buyers' surplus improves as the search friction increases. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.14793 |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | Network connectivity, compatibility, and horizontal interoperability are important functions in network industries. Based on the framework of a Hotelling model, we consider the impact of connectivity between network goods on incentives to innovate and profits. We focus on the role of market coverage (i.e., full and partial coverage) and consumer expectations (i.e., rational and active expectations). We demonstrate that in the case of full market coverage, as the degree of connectivity increases, research and development (R&D) activities decrease, but profits increase. Then, relaxing the assumption of market coverage, we demonstrate that in the case of partial market coverage, as the degree of connectivity increases, R&D activities and profits increase. Furthermore, regarding the full market coverage case, we examine the case that the formation of consumer expectations is active and demonstrate that an improvement in connectivity does not affect R&D activities, but increases profits. |
| Keywords: | Network externality, Connectivity, Compatibility, Horizontal interoperability, R&D competition, Market coverage, Consumer expectations |
| JEL: | L13 L15 L31 L32 D43 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:293 |
| By: | Nikhil Kumar |
| Abstract: | This paper examines the market for AI models in which firms compete to provide accurate model predictions and consumers exhibit heterogeneous preferences for model accuracy. We develop a consumer-firm duopoly model to analyze how competition affects firms' incentives to improve model accuracy. Each firm aims to minimize its model's error, but this choice can often be suboptimal. Counterintuitively, we find that in a competitive market, firms that improve overall accuracy do not necessarily improve their profits. Rather, each firm's optimal decision is to invest further on the error dimension where it has a competitive advantage. By decomposing model errors into false positive and false negative rates, firms can reduce errors in each dimension through investments. Firms are strictly better off investing on their superior dimension and strictly worse off with investments on their inferior dimension. Profitable investments adversely affect consumers but increase overall welfare. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.13375 |
| By: | Leonardo Madio; Matthew Mitchell; Martin Quinn; Carlo Reggiani |
| Abstract: | We study the competitive impact of content moderation by a dominant online platform. We exploit an exogenous shock that led the largest adult content platform to remove all non-verified content, eliminating 80% of its video library. Using a difference-in-differences approach and leveraging on daily website-country level traffic data, we find that this policy resulted in a 41% drop in traffic within one month, suggesting strong user preferences for the removed content. However, much of the displaced traffic was absorbed by competing platforms, including both mainstream rivals and less regulated fringe websites. Over six months, fringe sites experienced a 55% increase in visits, far outpacing the 10% growth of mainstream competitors. Search engines played a critical role in this reallocation: fringe platforms saw a surge in traffic from search referrals and aggregators, as users actively sought alternative content sources. We document an intensification of competition in search: the leading platform became more aggressive towards copyright-infringing rivals, strategically using DMCA filings to remove competing content from search results. Our findings highlight how asymmetric exposure to content moderation shocks can reshape market competition, drive consumers toward less regulated spaces, and alter substitution patterns across platforms. |
| Keywords: | content moderation, platforms, adult websites, search. |
| JEL: | D83 K42 L82 O39 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11842 |
| By: | Dante B. Canlas (School of Economics, University of the Philippines Diliman); Karl Robert L. Jandoc (School of Economics, University of the Philippines Diliman) |
| Abstract: | This paper examines the implications of renewing Meralco’s electricity distribution franchise, which was recently extended for another 25 years. Several unresolved competition and regulatory issues challenge the alignment of this extension with the Electric Power Industry Reform Act (EPIRA) of 2001. Key concerns include Meralco’s dominant market position, cross-ownership with generation companies, potential franchise creep, and its influence in the retail market. The paper advocates for structural reforms such as competitive franchise auctions, stricter cross-ownership limitations, and the possible division of Meralco’s service areas to promote market efficiency and consumer welfare. It also proposes granting the Energy Regulatory Commission (ERC) the authority to oversee franchise bidding and to enforce more rigorous monitoring of market behavior. The findings emphasize that automatic renewal without reforms risks entrenching monopolistic practices and foregoing opportunities for improving transparency, competition, and efficiency in the electricity distribution sector. |
| Keywords: | Electricity Distribution; Franchise Regulation; Competition Policy |
| JEL: | L94 L51 L41 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:phs:dpaper:202502 |
| By: | Ohnishi, Kazuhiro |
| Abstract: | An existing study examines an international mixed duopoly involving a state-owned public firm and a foreign private firm, focusing on their timing choices for quantities and showing that the state-owned public firm should act as the leader. This result differs from that for an endogenous-timing mixed duopoly model where a state-owned public firm coexists with a domestic private firm. We investigate the endogenous order of moves in a mixed duopoly model where a state-owned public firm competes with a private firm that is partially foreign-owned. Specifically, we explore the desirable role of the state-owned public firm, either as a leader or a follower, and present the equilibrium outcome of the model. Our findings reveal that the equilibrium differs depending on whether the foreign ownership ratio of the private firm is low or high. |
| Keywords: | Endogenous timing; Mixed oligopoly; Partial foreign ownership; Stackelberg |
| JEL: | C72 D21 F23 L13 L32 |
| Date: | 2025–05–02 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124662 |
| By: | Cremer, Helmuth; Borsenberger, Claire; Joram, Denis; Lozachmeur, Jean-Marie; Malavolti, Estelle |
| Abstract: | The concept of Corporate Social Responsibility (CSR) has evolved since Milton Friedman’s 1970 assertion that a business’s sole responsibility is profit. Today, global frameworks like the UN Global Compact and EU regulations emphasize corporate accountability, particularly regarding social and environmental impacts. Corporate Social Responsibility (CSR) has become central in discussions of firm behavior, governance, and public goods provision. CSR however varies across firms. Some adopt basic strategic CSR (b-CSR), considering social and environmental issues only to the extent that they affect consumer demand and profitability. Others practice environmentally committed CSR (e-CSR), internalizing the full social cost of emissions. A few pursue fully committed CSR (w-CSR), aiming to maximize overall social welfare. The paper analyzes CSR’s effects on firm behavior through economic modeling. It first examines a single firm producing CO2 emissions, where reducing emissions increases costs but appeals to environmentally conscious consumers. Three firm types—b-CSR, e-CSR, and w-CSR—are considered. The study then extends to a competitive market with two firms engaged in Cournot competition. It examines scenarios where firms have different CSR commitments, analyzing how competition, emissions, and profits are affected. Finally, the paper compares these outcomes to an ideal scenario where firms are regulated to maximize social welfare. |
| Keywords: | Motivation and sustainability of CSR under competition; mission oriented; firms, consumers’ environmental awareness and profit maximization; differentiated duopoly; duopoly. |
| JEL: | H23 L13 L31 G50 |
| Date: | 2025–05–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130533 |
| By: | Felipe Brugués; Ayumu Ken Kikkawa; Yuan Mei; Pablo Robles |
| Abstract: | This paper assesses the impact of the North American Free Trade Agreement on Mexican manufacturing plants’ output prices and markups. We distinguish between Mexican goods that are exported and those sold domestically, and decompose their prices separately into markups and marginal costs. We then analyze how these components were affected by the reductions in Mexican output tariffs, intermediate input tariffs, and U.S. tariffs on Mexican exports. We find that domestically sold products saw a decline in prices as Mexican plants faced more competition and gained access to cheaper inputs. Prices of exported goods fell only slightly as plants increased their markups in response to a favorable competitive environment due to declines in U.S. tariffs. |
| JEL: | F12 F14 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33516 |
| By: | Xiaoyan Xu; Weishi Lim; Xing Zhang; Jeff Cai |
| Abstract: | In many service markets, expert providers possess an information advantage over consumers regarding the necessary services, creating opportunities for fraudulent practices. These may involve overtreatment through unnecessary services or undertreatment with ineffective solutions that fail to address consumers' problems. When issues are resolved, consumers exit the market; when unresolved, they must decide whether to revisit the initial provider or seek a new one. Little is known about how repeated interactions and the consumer search process influence expert fraud and consumer welfare in such markets. We develop a dynamic game-theoretic model to examine the role of consumer search behavior and repeated interactions between consumers and service providers. We find that overtreatment and undertreatment can arise simultaneously in equilibrium. Interestingly, undertreatment-being less costly for the consumer-can initially act as a "hook" to induce acceptance of a minor treatment recommendation. When this minor treatment fails to resolve the issue, it can generate additional demand for a more expensive and serious treatment. This would arise when the cost of revisiting the initial provider is lower than that of searching for a new one. The extent of undertreatment exhibits a non-monotonic relationship with consumers' ex ante belief about the nature of their problems and the market's ethical level. Our results can shed light on how market ethical levels, provider capabilities and capacities, and consumer privacy protection policies interact with undertreatment and affect consumer welfare. Specifically, consumer welfare can decrease as the market becomes more ethical. Enhancing providers' diagnostic capabilities and capacities can exacerbate undertreatment. Providing access to consumers' diagnosis histories can help mitigate the undertreatment issue and improve consumer welfare. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.21175 |
| By: | Stephen Martin |
| Abstract: | The paper analyzes a two-stage Main Street model. In the second stage, taking locations as given, each of two firms sets price to maximize own profit, subject to the constraint that it is not profitable for the other firm to undercut its price at its location. We find constrained price best-response equations and pure-strategy equilibrium prices for all pairs of locations. In the first stage, firms noncooperatively pick locations to maximize second-stage payoffs. We find location best-response equations and equilibrium locations. Equilibrium locations are efficient in the sense of minimizing transportation cost. |
| Keywords: | Main Street, Hotelling, price undercutting |
| JEL: | C72 D21 D43 L13 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:pur:prukra:1354 |
| By: | Andrey Fradkin |
| Abstract: | This paper documents three stylized facts about the demand for Large Language Models (LLMs) using data from OpenRouter, a prominent LLM marketplace. First, new models experience rapid initial adoption that stabilizes within weeks. Second, model releases differ substantially in whether they primarily attract new users or substitute demand from competing models. Third, multihoming, using multiple models simultaneously, is common among apps. These findings suggest significant horizontal and vertical differentiation in the LLM market, implying opportunities for providers to maintain demand and pricing power despite rapid technological advances. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.15440 |
| By: | Ibrahim Abada; Andreas Ehrenmann |
| Keywords: | Incomplete markets, market distortion, bi-level programming, stochastic equilibrium models, optimal regulation, power markets |
| JEL: | D81 C72 C73 Q41 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:enp:wpaper:eprg2507 |
| By: | Elena Prager; Nicholas Tilipman |
| Abstract: | Recent policy proposals seek to regulate out-of-network hospital prices. We study how such regulation affects equilibrium prices, network formation, and hospital exit. We estimate a structural model of insurer-hospital bargaining that allows for out-of-network transactions between non-contracting parties. These transactions generate a notion of exit by rendering hospitals unprofitable under some regulations. Estimation relies on a novel measure of out-of-network prices. We find that reducing out-of-network prices would also lower negotiated prices, but potentially at the cost of narrower hospital networks. Aggressive regulation could induce substantial hospital exit, but only under the restrictive assumption that negotiators cannot anticipate the exits. |
| JEL: | C78 I11 L13 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33727 |
| By: | Rey, Patrick; Loertscher, Simon; Marx, Leslie |
| Abstract: | We develop the procurement analogue to an all-pay auction for an independent private values model with identical distributions. In this all-receive procurement auction (ARPA), suppliers simultaneously submit bids. Suppliers with bids below (above) the reserve are paid their bids (are paid and produce nothing). The supplier with the largest bid below the reserve produces the good. With appropriately chosen reserves, which decrease in the number of suppliers, the ARPA is efficient and, given increasing virtual costs, implements the optimal procurement. Appropriately adjusted, ARPAs implement the optimal procurement in general. ARPAs can render supply chains resilient to nonanticipated liquidity shocks. |
| Keywords: | Resilience; Liquidity shocks; All-pay auctions; Multiple-receive procurement auctions |
| JEL: | D44 D82 L41 |
| Date: | 2025–04–29 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130525 |
| By: | Pardy, Martina |
| Abstract: | his article examines the extent to which the presence of multinational enterprises (MNEs) influences the concentration of innovation among patenting firms within US states from 1976 to 2010. Merging patent and regional socioeconomic data, this study explores the effects within 50 US states over more than three decades using Ordinary-Least-Square and Instrumental Variable estimations. It shows that MNEs significantly contribute to the concentration of patenting activity, an effect predominantly driven by domestic-owned MNEs. The impact differs across space: states with a higher share of MNEs experience a sharper increase in patenting concentration. Crucially, it is the non-MNE firms that feel the squeeze the most, with those in the middle of the patenting hierarchy producing fewer patents when domestic MNEs ramp up their activity. This suggests that economic globalisation, while enhancing innovation opportunities for some, reinforces competitive pressures and barriers for others. These findings offer a new perspective on the forces shaping regional innovation dynamics, highlighting the role of MNEs in both amplifying innovation gains and exacerbating disparities in knowledge production. |
| Keywords: | globalisation; multinational enterprises; innovation; concentration; regional development |
| JEL: | J1 |
| Date: | 2025–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127983 |