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on Industrial Competition |
| By: | Jack Fisher |
| Abstract: | Many workers provide services for customers via digital platforms that may exert monopsony power. Typical expositions of this phenomenon are inapplicable because platforms post prices to both sides of a two-sided market, and platform-specific labor supply is hard to measure when workers multi-app. This paper develops a model of a typical gig labor market that deals with these issues. Platforms exploit monopsony power to markup their commission rate and reduce equilibrium wages. A worker union sets the first-best commission rate when the customer market is competitive. I estimate the model using public data, including causal estimates from the literature on Uber’s US ridesharing marketplace. The results imply the platform exploits labor market power to depress drivers’ earnings but faces competition for passengers. An optimally set commission cap raises wages by 14 percent, but minimum wages on utilized hours harm workers. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11444 |
| By: | Yifan Dai; Andrew Koh |
| Abstract: | We develop a simple framework to analyze how targeted advertising interacts with market power. A designer chooses an advertising plan which allows it to flexibly manipulate the demand curve at some cost. A monopolist prices against this manipulated demand curve. We fully characterize the form and value of producer-optimal and consumer-optimal advertising plans under both ex-ante and ex-post measures of welfare. Flexibility is double-edged: producer-optimal plans substantially reduce consumer surplus vis-a-vis uniform advertising, but consumer-optimal plans can substantially improve consumer surplus. We discuss implications for the regulation of targeted advertising. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.24191 |
| By: | Nigar Hashimzade; Limor Hatsor; Artyom Jelnov |
| Abstract: | Recent antitrust regulations in several countries have granted exemptions for collusion aimed at achieving environmental goals. Firms can apply for exemptions if collusion helps to develop or to implement costly clean technology, particularly in sectors like renewable energy, where capital costs are high and economies of scale are significant. However, if the cost of the green transition is unknown to the competition regulator, firms might exploit the exemption by fixing prices higher than necessary. The regulator faces the decision of whether to permit collusion and whether to commission an investigation of potential price fixing, which incurs costs. We fully characterise the equilibria in this scenario that depend on the regulator's belief about the high cost of green transition. If the belief is high enough, collusion will be allowed. We also identify conditions under which a regulator's commitment to always investigate price fixing is preferable to making discretionary decisions. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.06095 |
| By: | Ariel Burstein; Javier Cravino; Marco Rojas |
| Abstract: | We leverage a comprehensive dataset of electronic invoices from Chilean firms to document new facts on price dispersion across buyers of manufactured intermediate goods. Over half of firm-to-firm manufacturing sales are accounted for by products that are purchased by more than one buyer in the same month. Price dispersion across buyers is pervasive, with a price range across buyers of 46 percentage points for the average product. Price gaps are highly persistent over time and strongly correlated across different products purchased by the same buyer. While price disparities comove with observable characteristics of buyer-seller pairs—such as size of the buyer and the transaction—these factors account for a small portion of the overall variation in price gaps. We use a workhorse model of production networks to quantify the productivity gains from eliminating observed dispersion in prices across buyers of the same product, under the assumption that this dispersion is driven by buyer-product specific markups. The increase in aggregate productivity (normalized by the sales share of treated multi-buyer firms) ranges from 2 to 7 percent, depending on the calibration of elasticities of substitution. The gains from eliminating markup dispersion across buyers are as large as those of eliminating markup dispersion across products. |
| JEL: | D22 D24 D4 E02 O4 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33128 |
| By: | O'Connell, Martin; Smith, Kate |
| Abstract: | We study how market power impacts the efficiency and redistributive properties of sin taxation, with an empirical application to sugar-sweetened beverage taxation. We estimate an equilibrium model of the UK drinks market, which we embed in a tax design framework to solve for optimal sugar-sweetened beverage tax policy. Positive price-cost margins for drinks create inefficiencies that lower the optimal rate compared with a perfectly competitive setting. Since profits mainly accrue to the rich, this is partially mitigated under social preferences for equity. Overall, ignoring market power when setting tax policy leads to welfare gains 40% below those at the optimum. |
| Keywords: | externality; corrective tax; market power; profits; redistribution |
| JEL: | D12 D43 D61 D62 H21 H23 L13 |
| Date: | 2024–10–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:122263 |
| By: | Anton Korinek; Jai Vipra |
| Abstract: | This paper examines the evolving structure and competition dynamics of the rapidly growing market for foundation models, with a focus on large language models (LLMs). We describe the technological characteristics that shape the AI industry and have given rise to fierce competition among the leading players. The paper analyzes the cost structure of foundation models, emphasizing the importance of key inputs such as computational resources, data, and talent, and identifies significant economies of scale and scope that may create a tendency towards greater market concentration in the future. We explore two concerns for competition, the risk of market tipping and the implications of vertical integration, and we evaluate policy remedies that aim to maintain a competitive landscape. Looking ahead to increasingly transformative AI systems, we discuss how market concentration could translate into unprecedented accumulation of power, highlighting the broader societal stakes of competition policy. |
| JEL: | D43 K21 L4 L86 O33 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33139 |
| By: | Zhiguo He; Jing Huang; Cecilia Parlatore |
| Abstract: | We develop a credit market competition model that distinguishes between the information span (breadth) and signal precision (quality), capturing the emerging trend in fintech/non-bank lending where traditionally subjective (“soft”) information becomes more objective and concrete (“hard”). In a model with multidimensional fundamentals, two banks equipped with similar data processing systems possess hard signals about the borrower's hard fundamentals, and the specialized bank, who further interacts with the borrower, can also assess the borrower's soft fundamentals. Increasing the span of the hard information hardens soft information, enabling the data processing systems of both lenders to evaluate some of the borrower's soft fundamentals. We show that hardening soft information levels the playing field for the non-specialized bank by reducing its winner's curse. In contrast, increasing the precision or correlation of hard signals often strengthens the informational advantage of the specialized bank. |
| JEL: | G21 L13 L52 O33 O36 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33141 |
| By: | Magdalena Schindl; Felix Reichel |
| Abstract: | According zu Kadir et al. (2023) online marketplaces are used to buy and sell products and services, as well as to exchange money and data between users or the platform. Due to the large product selection, low costs and the ease of shopping without physical restrictions as well as the technical possibilities, online marketplaces have grown rapidly Kadir et al. (2023). Online marketplaces are also used in the consumer-to-consumer (C2C) sector and thus offer a broad user group a marketplace, for example for used products. This article focuses on Willhaben.at (2024), a leading C2C marketplace in Austria, as stated by Obersteiner, Schmied, and Pamperl (2023). The empirical analysis in this course essay centers around the offer ads of Woom Bikes, a standardised product which is sold on Willhaben. Through web scraping, a dataset of approximately 826 observations was created, focusing on mid-to-high price segment bicycles, which are characterized by price stability and uniformity as we claim. This analysis aims to create analyse ad listing prices through predictive models using willhaben product listing attributes and using the spatial distribution of one of the product attributes. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.07808 |
| By: | Francis Annan |
| Abstract: | We study the direct and indirect effects of randomized entry. In partnership with the two largest service providers in Ghana, we implement a three-step design that randomizes the entry of new financial mobile money vendors, who also sell non-financial goods/services, across local markets. This mixed financial and non-financial services setting is widespread and naturally emerges as the market entry approach for several real-world financial markets. Randomized entry increases firm conduct and service quality and decreases price-cost markups, indicating positive consumer surplus. We find evidence of within-market revenue reallocation and expansion for mobile money and a large services multiplier: revenues for non-financial goods/services increased (+20%), with aggregate service industry revenues increasing. These improvements emphasize the “real effects” of financial markets on the local economy, and come from adoption externalities and aggregate increase in household expenses. Entry increases local economic activity, and it does so not only by changing markets for digital financial services, but also by transforming the non-financial services sector. These effects are key ingredients for advancing basic and applied knowledge on firm entry in industry equilibrium. |
| JEL: | D18 D62 G20 G50 L22 L26 O12 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33134 |
| By: | Aleksa Smiljanic (National Bank of Serbia) |
| Abstract: | The paper looks into the impact of the concentration of residents and non-residents’ FX supply and demand on the total amount of FX supply and demand of these banking clients. Our intention was to identify any trends and correlations with other market indicators in the observed ten-year period. For the purpose of studying the concentration of FX supply and demand, we used the Herfindahl-Hirschman index which has been proven to be a statistically significant regressor when explaining movements in net FX demand by residents and non-residents. The results showed the presence of a multi-year positive trend of decrease in the concentration of FX supply, i.e. diversification of FX sources, driven by dynamic growth in the number of residents supplying FX. On the other hand, there are multiple indicators suggesting that our FX market is still characterised by relatively low liquidity. However, during the period of structural appreciation pressures, namely in 2017, there was a noticeable gradual increase in the FX supply capacity to “absorb” FX demand on days when demand was more concentrated, which reflects the increase in the number of residents supplying FX and the diversification of FX sources. |
| Keywords: | concentration of FX supply and demand, Herfindahl-Hirschman index, diversification of FX sources |
| JEL: | C20 F31 |
| Date: | 2023–09 |
| URL: | https://d.repec.org/n?u=RePEc:nsb:bilten:18 |
| By: | Dietmar Harhoff; David Heller; Paul P. Momtaz |
| Abstract: | We show that firm and industry, rather than inventor and invention factors, explain more than half of the variation in inventor returns in administrative employer-inventor-patent-linked data from Germany. Between-firm variation in inventive rents is strongly associated with inventor mobility. Inventors are more likely to make a move just before a patent is filed than shortly thereafter and benefit from their move through a mobility-related marginal inventor return. Employers that pay inventor returns in excess of the expected return gain a favorable position in the market for inventive labor with subsequent increases in patent quality and quantity. Consistent with theoretical arguments, effect sizes also depend on employer-inventor technological complementarity, degree of competition, and invention quality. |
| Keywords: | inventor returns, labor mobility, patents, inventive productivity |
| JEL: | O31 J24 J62 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11449 |
| By: | Peiran Xiao |
| Abstract: | I study the optimal allocation of positional goods with externalities and one-sided transfers. Because consumers care about their relative positions in consumption, allocating an item to one buyer has externalities on others. Using a mechanism design approach, I characterize the externalities by a feasibility condition. I find the revenue-maximizing mechanism excludes some low types and fully separates the rest if and only if the buyer's type distribution satisfies Myerson's regularity. The seller can guarantee at least half the maximal revenue by offering one level of positional goods, and the approximation can be arbitrarily close if the distribution is sufficiently concave. Moreover, if the distribution has an increasing (decreasing) failure rate, total pooling (full separation) without exclusion maximizes the consumer surplus, and the consumer surplus is decreasing (increasing) in the number of positional good levels. Applications include education, priority services, luxury goods, and organizational design. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.06285 |
| By: | Tacsir, Ezequiel; Pereira, Mariano; Favata, Federico; Leone, Julian |
| Abstract: | Using a multilevel analysis and the new Harmonized Latin American Innovation Surveys Database (or LAIS database) augmented with indicators from the U.S. Census Bureau's Survey of Business Owners (SBO) and the World Banks World Integrated Trade Solution (WITS), this paper presents estimates of the effects of import competition and distance to the technological frontier on firm innovation in Latin American countries. Although innovation is recognized as a multilevel phenomenon, with investment decisions not solely affected by the firm characteristics but also by the context in which each firm is embedded, the empirical literature adopting a multilevel design is still nascent and scarce. Using a two-level random slope model allows us to overcome some of the pitfalls of traditional regression models when dealing with the hierarchical structure of data while allowing us to capture the influence of contextual factors. The results suggest that the fostering effect of foreign competition depends on the firms distance to the technological frontier. The estimates suggest that the lower the foreign competition and the greater the productivity gap, the lower the probability of firms engaging in innovation. In contrast, when a firm operates in a sector that is relatively closer to the technological frontier, firms invest in innovative activities to remain at the top. These results offer a clear and useful guide for designing policies in Latin America regarding innovation among firms. While it is important to promote and stimulate innovation efforts by firms, these factors should not be overlooked as considerations: sectoral characteristics associated with the economies, sectoral openness to foreign competition, and firms distance to the technological frontier. |
| Keywords: | innovation;Latin America;multilevel modeling;LAIS database;Productivity;Competition |
| JEL: | O31 O32 C21 C25 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13833 |