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on Industrial Competition |
| By: | Marek Dietl; Łukasz Skrok; Bartłomiej Wiśnicki |
| Abstract: | We employ a duopoly model with horizontal differentiation of a product to analyse impact of imperfect patent rights in the form of a patent thicket on market entry and outcomes in a market when a single unit of a good is to be provided, reflecting a competition of two potential suppliers within a tender procedure of a complex product. We show that even under price competition, a treat of litigation coming from the overlap in the patent protection leads to pricing decisions above marginal costs level. Such a situation, on the one hand, is socially costly due to costs linked to fixed costs of market entry of both competitors, but on the other hand, it is not necessarily the most beneficial from the point of view of a buyer. The paper resolves Bertrand paradox in a novel way. |
| Keywords: | patent thickets, horizontal differentiation, Bertrand paradox |
| JEL: | D23 K11 L13 O34 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:sgh:kaewps:2025112 |
| By: | Sergei Kichko; Marco A. Marini; Riccardo D. Saulle; Jacques-François Thisse |
| Abstract: | This paper extends the CES model of monopolistic competition to the case where varieties are both horizontally and vertically differentiated. A distinctive feature of our model is the presence of a network externality, which operates through the number of varieties available at each quality level. Depending on the quality gap, there are corner equilibria in which consumers purchase only high-quality or low-quality varieties, or an interior equilibrium in which consumers are split between the two qualities. Unlike the CES model of monopolistic competition, the equilibrium is never efficient and the market may even select the outcome with the lowest surplus. |
| Keywords: | monopolistic competition, vertical differentiation, horizontal differentiation |
| JEL: | D42 D43 L1 L12 L13 L41 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12554 |
| By: | Martin Peitz |
| Abstract: | Innovation and the diffusion of new technologies are central to consumer welfare in dynamic markets. On the one hand, mergers may harm innovation by removing independent innovation paths, restricting access to key inputs for innovation, or weakening incentives to adopt and diffuse new technologies. On the other hand, mergers may generate innovation efficiencies when they combine complementary tangible and intangible assets. This article discusses how the revised EU Merger Guidelines should evaluate these opposing forces and proposes a structured approach to assessing innovation harms and efficiencies while ensuring that merger control remains focused on effective competition and consumer welfare. |
| Keywords: | EU merger control, innovation theories of harm, innovation efficiencies, start-up acquisitions, EU Merger Guidelines |
| JEL: | K21 L40 L41 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_741 |
| By: | Dirk Bergemann (Yale University); Alessandro Bonatti (MIT Sloan); Alex Smolin (Toulouse School of Economics) |
| Abstract: | We develop a framework for the optimal pricing and product design of LLMs in which a provider sells menus of token budgets to users who differ in their valuations across a continuum of tasks. Under a homogeneous production technology, we show that users' high-dimensional type profiles are summarized by a scalar index, reducing the seller's problem to one-dimensional screening. The optimal mechanism takes the form of committed-spend contracts: buyers pay for a budget that they allocate across token classes priced at marginal cost. We extend the analysis to environments with multiple differentiated models and to competition between a proprietary leader and an open-source fringe, showing that competitive pressure reshapes both the intensive and extensive margins of compute provision. Each element of our theory (token-budget menus, maximum- and minimum-spend plans, multi-model versioning, and linear API pricing) has a direct counterpart in the observed pricing practices of providers such as Anthropic, OpenAI, and GitHub. |
| Date: | 2026–03–07 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2502 |
| By: | Doyle, Chris |
| Abstract: | Low Earth orbit (LEO) satellite systems are becoming an increasingly important component of global communications infrastructure, providing broadband access, enterprise connectivity, and direct-to-device services in competition with terrestrial networks. At the same time, orbital space is a congestible shared resource: satellite deployments increase conjunction risk and debris, imposing external costs on other operators. This paper analyses how these features interact by modelling LEO satellite broadband as a capacity-constrained oligopoly operating under an orbital congestion externality. We develop a two-stage model in which satellite operators first choose constellation size and research and development (R&D) investment, and subsequently compete in quantities subject to binding capacity constraints. Orbital congestion damages depend on aggregate satellite deployment, while operators are privately exposed to only a fraction of the resulting congestion risk. Three results emerge. First, oligopolistic competition and incomplete congestion internalisation generate distinct distortions: output and innovation are inefficiently low due to market power, while satellite deployment is excessive when firms do not face the full marginal social cost of congestion. Second, R&D interacts non-trivially with congestion risk through its effect on throughput per satellite, creating substitution between “more satellites” and “smarter satellites.” Third, regulatory instruments such as Pigouvian satellite charges or tradable conjunction-risk permits can correct deployment incentives but do not eliminate distortions arising from imperfect competition. These results highlight that congestion pricing and competition policy operate as complementary instruments in the governance of emerging satellite broadband markets, with implications for spectrum policy, launch regulation, and the management of shared orbital resources. |
| Keywords: | satellite broadband; orbital congestion; congestion externalities; oligopoly; innovation (R&D); tradable permits |
| JEL: | L13 |
| Date: | 2026–03–24 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:137755 |
| By: | Maria Cecilia Bustamante; Bruno Pellegrino |
| Abstract: | We present a new dynamic model of corporate investment in imperfectly-competitive product markets, extending the neoclassical (Q) theory of capital to a multi-firm, multi-product, fully-structural model. Our model embeds a state-of-the-art hedonic demand system, endogenizes firms' markups and generalizes Tobin's Q to a matrix (or network) of product market spillovers, which captures how each firm's investment affects that of its rivals. We provide existence and uniqueness results along with exact, global analytical solutions for the Markov Perfect Equilibrium investment policies. We then take our model to the data for the universe of U.S. public companies and obtain five novel insights: 1) product market competition is a key force driving aggregate investment and capital allocation; 2) the persistence of firm's capital stocks increased over the past 25 years (i.e. capital became “stickier”); 3) monopoly rents account for a large, rising share of firms' value; 4) positive shocks to firms' cost of capital increase markups and concentration; 5) mergers consummated since 1995 have led to a modest decline in aggregate capital formation; at the firm-level the resulting increases in markups are highly heterogeneous. |
| Keywords: | networks, investment, product market |
| JEL: | C7 D2 E2 G3 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12548 |
| By: | Sihan Qian; Amit Mehra; Dengpan Liu |
| Abstract: | The rise of foundation models has driven the emergence of AI supply chains, where upstream foundation model providers offer fine-tuning and inference services to downstream firms developing domain-specific applications. Downstream firms pay providers to use their computing infrastructure to fine-tune models with proprietary data, creating a co-creation dynamic that enhances model quality. Amid concerns that foundation model providers and downstream firms may capture excessive consumer surplus, along with increasing regulatory measures, this study employs a game-theoretic model involving a provider and two competing downstream firms to analyze how policy interventions affect consumer surplus in the AI supply chain. Our analysis shows that policies promoting price competition in downstream markets (i.e., pro-price-competitive policies) boost consumer surplus only when compute or data preprocessing costs are high, while compute subsidies are effective only when these costs are low, suggesting these policies complement each other. In contrast, policies promoting quality competition in downstream markets (i.e., pro-quality-competitive policies) always improve consumer surplus. We also find that under pro-price-competitive policies or compute subsidies, both the provider and downstream firms can achieve higher profits along with greater consumer surplus, creating a win-win-win outcome. However, pro-quality-competitive policies increase the provider's profits while reducing those of downstream firms. Finally, as compute costs decline, pro-price-competitive policies may lose their effectiveness, whereas compute subsidies may shift from ineffective to effective. These findings offer insights for policymakers seeking to foster AI supply chains that are economically efficient and socially beneficial. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.12630 |
| By: | Ohnishi, Kazuhiro |
| Abstract: | This paper considers a multi-stage game model with two partially cooperating firms whose objective functions include maximizing not only their own profits but also a portion of their rivals’ profits. In the first stage, each firm independently and simultaneously decides whether to incorporate consumer surplus into its objective function. In the second stage, any firm that chooses to do so selects its level of consumer orientation. In the third stage, after observing the rival’s choices in the first and second stages, each firm independently and simultaneously chooses its output level. The paper characterizes the equilibrium of this model. |
| Keywords: | Consumer surplus; Corporate social responsibility; Cournot duopoly model; Partially cooperating firms |
| JEL: | D21 L13 L20 |
| Date: | 2026–01–18 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127764 |
| By: | Julia Müller; Thorsten Upmann |
| Abstract: | This paper develops a dynamic model in which the productivity of joint research governs strategic investment timing in innovation races. Departing from the standard assumption that discovery rates scale proportionally with the number of active firms, we allow research to exhibit decreasing or increasing returns, thereby endogenizing the aggressiveness of innovation competition. We show that returns to joint research determine whether innovation races exhibit preemption or coordination. When research efforts are substitutes, follower entry is unattractive, generating a first-mover advantage and a preemption equilibrium. When complementarities are sufficiently strong, the gains from early investment vanish and firms invest simultaneously. The model thus identifies a regime shift in innovation races: competition accelerates investment under decreasing returns but promotes coordinated entry under increasing returns. These findings highlight the research technology as a central determinant of market dynamics and provide a unified perspective on heterogeneous patterns of innovation. |
| Keywords: | innovation races, R&D competition, strategic investment timing, preemption and coordination, research complementarities |
| JEL: | O31 D81 C73 L13 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12552 |
| By: | Andrew Rhodes (Toulouse School of Economics); Jidong Zhou (Yale University); Junjie Zhou (Tsinghua University) |
| 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. |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2426r1 |
| By: | Nicolas Eschenbaum; Nicolas Greber |
| Abstract: | This paper studies how platform design shapes strategic behavior in decentralized electricity trading. We develop a finite-horizon dynamic game in which photovoltaic- and battery-equipped players ("prosumers") trade on a platform that maps aggregate imports and exports into internal buy and sell prices. We establish existence of a perfect conditional epsilon-equilibrium and characterize a Cournot-like market-power mechanism in an observable-types benchmark of the game: because the producer price is decreasing in aggregate exports, strategic prosumers withhold supply and underutilize storage relative to the price-taking benchmark. To quantify these effects, we use a multi-agent computational framework that exploits the differentiable structure of the platform's clearing rule to compare planner, price-taking, and strategic outcomes under alternative pricing mechanisms. In our baseline calibration, strategic play raises grid settlement cost by about 6 percent relative to price-taking. The magnitude of the distortion depends strongly on platform design: some designs can largely eliminate strategic incentives, while increased competition in storage ownership sharply reduces withholding, with most of the distortion disappearing once storage is split across more than three owners. We also find that information disclosure can improve competitive coordination but also increase the market power effects. Despite these distortions, the platform remains highly valuable overall, reducing a passive consumer's annual electricity bill by roughly 40 percent relative to exclusive grid settlement, with strategic behavior clawing back only about 8 percent of that saving. The results show that pricing rules, information disclosure, and ownership structure determine how much of the gains from decentralized electricity trading are realized. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.19988 |
| By: | Daniel Albalate (Departament d’Econometria, Estadística i Economia Aplicada, Universitat de Barcelona, Spain; Institut de Recerca en Economia Aplicada (IREA-UB), Spain.); Albert Gragera (Departament d’Economia Aplicada, Universitat Autònoma de Barcelona, Spain.); Pere Suau-Sanchez (Faculty of Economics and Business, Universitat Oberta de Catalunya, Spain; Faculty of Engineering and Applied Sciences, Cranfield University, UK.) |
| Abstract: | This paper examines the liberalisation of high-speed rail (HSR) as a driver of intermodal competition in long-distance passenger transport. While previous research has primarily focused on the effects of HSR infrastructure deployment on aviation, less is known about how opening HSR markets to new entrants reshapes this competition. Drawing on the Spanish HSR liberalisation in 2021, we are the first to evaluate the causal effects of a large-scale liberalisation on competing air transport supply. Using a regression discontinuity design, we find significant long-term reductions in airline seat supply (10- 16%), but limited impact on frequencies. We then uncover two mechanisms underlying these results. First, airlines’ primary response was to down-gauge aircraft. Second, a market share emerged from the need of legacy carriers to preserve frequencies to feed their hub. Our results underscore the broad and significant implications of liberalisation for intermodal substitution. |
| Keywords: | Airlines; High-speed Rail; Liberalisation; Intermodal Competition; Transportation. JEL classification: L43; L51; L92; L93; R41; R42. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:ira:wpaper:202514 |
| By: | Simon Cordes; Max Müller |
| Abstract: | Labor supply depends on wages and amenities, and standard models implicitly assume that firms hold accurate beliefs about workers’ amenity valuations. In a survey with firms and workers in Germany, we measure workers’ valuations of amenities and firms’ beliefs about workers’ valuations. We find that firms systematically underestimate workers’ valuations of all amenities. These misperceptions are driven by interpersonal projection: managers project their own preferences—they value amenities less—onto workers. Through the lens of a simple model of imperfect competition, we show that firm misperceptions result in (i) labor shortages and (ii) excess labor costs for biased firms, and increase the market power of unbiased firms. Empirical tests confirm these predictions: a simple calibration suggests that non-providing firms could reduce their labor costs by 5% by providing amenities. |
| Keywords: | Amenities, Behavioral Firms, Labor Shortages, Work from Home, Beliefs |
| JEL: | J32 J42 J81 D2 D83 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_739 |
| By: | Cristina Gualdani; Elena Pastorino; Áureo de Paula; Sergio Salgado |
| Abstract: | We examine the empirical content of a large class of dynamic matching models of the labor market with ex-ante heterogeneous firms and workers, symmetric uncertainty and learning about workers’ productivity, and firms’ monopsony power. We allow workers’ human capital, acquired before and after entry into the labor market, to be general across firms to varying degrees. Such a framework nests and extends known models of worker turnover across firms, occupational choice, wage growth, wage differentials across occupations, firms, and industries, and wage dispersion across workers and over the life cycle. We establish intuitive conditions under which the model primitives are semiparametrically identified solely from data on workers’ wages and jobs, despite the dynamics of these models giving rise to complex patterns of selection based on endogenously time-varying observable and unobservable characteristics of workers and firms. By relying on this identification argument, we develop a constructive estimator of the model primitives, which builds on common methods for mixture and extremal quantile regression models and displays standard properties. Through the lens of this framework, we investigate how well typical empirical wage measures of matching assortativeness and firms’ wage-setting power detect the degrees of sorting and monopsony power in the labor market, respectively. We show that usual measures of sorting severely understate its importance because they ignore the option value of worker human capital and the information about worker productivity acquired through employment, in terms of higher future wages and improved future sorting, which is priced into current wages thus depressing them. We also demonstrate how the markdown of wages relative to output largely overstates firms’ labor market power by ignoring that this option value, which captures future returns from acquired human capital and information, generally lowers wages. We find evidence of both of these features in U.S. data by documenting a strong degree of labor market sorting once appropriately measured and, correspondingly, a lower degree of firm monopsony power than typically documented. |
| JEL: | E20 H0 J31 J42 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34973 |
| By: | Joel P. Flynn (Yale University); George Nikolakoudis (Yale University); Karthik A. Sastry (Princeton University) |
| Abstract: | Modern theories of the business cycle do not allow for the simultaneous rational choice of both prices and quantities, instead assuming that an Òinvisible handÓ determines one of these variables to clear markets. In this paper, we develop a macroeconomic framework in which both prices and quantities are chosen directly by firms, and exchange is both voluntary and efficient. Because of uncertainty about demand and productivity, individual product markets can be in excess supply or rationed. The absence of market-clearing changes pricing and production in qualitatively important ways: markups are no longer determined solely by the elasticity of demand, and higher uncertainty reduces production and increases markups. |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2501 |
| By: | Masataka Eguchi; Takayuki Tsuruga; Mai Yamada |
| Abstract: | In the photo film market of the 2000s, Kodak's failure to sufficiently reduce production in response to market shrinkage has become a canonical example of how firms fail to adjust to market shrinkage. This seemingly optimistic response contrasts sharply with Fujifilm's response, which ultimately led it to exit the market successfully. To account for these contrasting cases, we incorporate the sparsity-based model of \citet{gabaix2014sparsity} into a textbook Cournot model in which firms are inattentive to changes in market size. We show that such inattention leads firms to respond optimistically to market shrinkage relative to the full-attention benchmark. We also show that a firm may respond pessimistically when its competitor is substantially inattentive. These results help explain Kodak's slow response and Fujifilm's relatively rapid adjustment to market shrinkage. Finally, we develop a model with endogenous attention choice, in which heterogeneity in forecast horizons and/or production cost structures generates heterogeneity in attention, a key driver of our results. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1307 |
| By: | Yue Cao (The Chinese University of Hong Kong, Shenzhen); Judith A. Chevalier (Yale University and NBER); Jessie Handbury (University of Pennsylvania and NBER); Hayden Parsley (University of Texas at Austin); Kevin R. Williams (Yale University and NBER) |
| Abstract: | Economists often use variation in consumersÕ distance from services as a source of demand variation. This approach typically treats consumer-supplier distance as exogenous, despite suppliers strategically choosing locations. We develop a novel class of instruments to address this endogeneity. These instruments exploit the spatial distribution of consumer demographics and can be constructed from standard cross-sectional data, making them useful in a variety of spatial applications. Our preferred instruments use the income composition of concentric discs centered on the Central Business District. Applying these instruments to smartphone geolocation data for millions of devices across 18 metropolitan areas, we estimate consumer preferences for general merchandise chains across income groups. We show that accounting for distance endogeneity significantly alters willingness-to-travel estimates, distorting welfare conclusions. Contrary to a prevailing Òretail apocalypseÓ narrative, consumer surplus per trip remained stable from 2010 to 2019. Ignoring endogeneity falsely suggests substantial welfare declines for lower-income households. |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2508 |
| By: | Aleksei Adadurov; Sergey Barseghyan; Anton Chtepine; Antero Eloranta; Andrei Sebyakin; Arsenii Valitov |
| Abstract: | We study optimal auction design for Maximum Extractable Value (MEV) auction markets on Ethereum. Using a dataset of 2.2 million transactions across three major orderflow providers, we establish three empirical regularities: extracted values follow a log-normal distribution with extreme right-tail concentration, competition intensity varies substantially across MEV types, and the standard Revenue Equivalence Theorem breaks down due to affiliation among searchers' valuations. We model this affiliation through a Gaussian common factor, deriving equilibrium bidding strategies and expected revenues for five auction formats, first-price sealed-bid, second-price sealed-bid, English, Dutch, and all-pay, across a fine grid of bidder counts $n$ and affiliation parameters $\rho$. Our simulations confirm the Milgrom-Weber linkage principle: English and second-price sealed-bid auctions strictly dominate Dutch and first-price sealed-bid formats for any $\rho > 0$, with a linkage gap of 14-28\% at moderate affiliation ($\rho=0.5$) and up to 30\% for small bidder counts. Applied to observed bribe totals, this gap corresponds to \$10-18 million in foregone revenue over the sample period. We also document a novel non-monotonicity: at large $n$ and high $\rho$, revenue peaks in the interior of the affiliation parameter space and declines thereafter, as near-perfect correlation collapses the order-statistic spread that drives competitive payments. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.16333 |
| By: | Germà Bel (IREA-UB & Universitat de Barcelona, Spain.); Joël Bühler (IREA-UB & Universitat de Barcelona, Spain.) |
| Abstract: | Governments around the globe are considering taking back direct control as an option to reform privatized public services, particularly on the local level. Using a difference-in-differences framework, we find that remunicipalization of urban water leads to price reductions of about 3-6 cents per cubic meter in larger municipalities, but the effect does not extend to smaller municipalities. Given our finding of unchanged water usage, these reductions in large municipalities translate directly to consumers’ bills. As remunicipalization typically happens when a contract with a private firm expires, we investigate whether the threat of competition or remunicipalization arising from expiring contracts itself also leads to price reductions. After contract expiry without remunicipalization, water prices decline by 2-3 cents per cubic meter. Thus, while remunicipalization reduces prices particularly in larger municipalities, threats at contract expiry have a smaller, but more uniform price effect. |
| Keywords: | Remunicipalization; Urban Water; Prices; Privatization; Public Services. JEL classification: H13; H41; H70; L95. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ira:wpaper:202603 |
| By: | Leonard Gregor; Justus Haucap |
| Abstract: | This paper evaluates the effect of the Russian invasion of Ukraine in February 2022 on refinery margins, i.e. the difference between wholesale prices for road fuels (gasoline and diesel) and oil prices in Europe and Germany in particular. Following the Russian invasion of Ukraine, wholesale road fuel prices net of taxes rose by more than 50 cents per liter, whereas crude oil prices increased by only about 30 cents per liter. Using a difference-in-differences framework, we compare refinery margins in Germany with those on the Amsterdam–Rotterdam–Antwerp (ARA) spot market, which serves as a European benchmark price. The results indicate that refinery margins in Germany increased by approximately 5–6 cents per liter relative to the ARA region after the invasion. We attribute this differential primarily to Germany’s strong dependence on Russian Ural crude oil imports and to the presence of regional market power among German refineries. We further document substantial heterogeneity in treatment effects across both time and regions. In addition, the invasion was associated with a significant decline in fuel demand, with gasoline consumption falling by about 13% and diesel consumption by approximately 9%. |
| Keywords: | event study, Ukraine crisis, fuel prices, wholesale markets |
| JEL: | C33 G14 H56 L13 L71 Q41 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12553 |
| By: | Leonardo Baggiani; Martin Herdegen; Leandro Sanchez-Betancourt |
| Abstract: | We find an approximate Nash equilibrium in a game between decentralized exchanges (DEXs) that compete for order flow by setting dynamic trading fees. We characterize the equilibrium via a coupled system of partial differential equations and derive tractable approximate closed-form expressions for the equilibrium fees. Our analysis shows that the two-regime structure found in monopoly models persists under competition: pools alternate between raising fees to deter arbitrage and lowering fees to attract noise trading and increase volatility. Under competition, however, the switching boundary shifts from the oracle price to a weighted average of the oracle and competitors' exchange rates. Our numerical experiments show that, holding total liquidity fixed, an increase in the number of competing DEXs reduces execution slippage for strategic liquidity takers and lowers fee revenue per DEX. Finally, the effect on noise traders' slippage depends on market activity: they are worse off in low-activity markets but better off in high-activity ones. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.09669 |
| By: | Elsa Bou Gebrael (American University of Beirut, Maroun Semaan Faculty of Engineering and Architecture, Industrial Engineering and Management Department Beirut, Lebanon); Majd Olleik (American University of Beirut, Maroun Semaan Faculty of Engineering and Architecture, Industrial Engineering and Management Department Beirut, Lebanon); Sebastian Zwickl-Bernhard (Vienna University of Technology, Institute of Energy Systems and Electrical Drives, Energy Economics Group) |
| Abstract: | In many low-income countries, neighborhood diesel generators are widely used to compensate for unreliable or unavailable national electricity grids. These diesel-based microgrids are typically characterized by market power, significant pollution, and weak regulatory oversight. In parallel, households increasingly deploy off-grid solar photovoltaic (PV) systems to gain control over electricity supply. However, these systems suffer from curtailed excess generation during peak solar hours and unreliable access at other times. While prior studies have optimized microgrids in developing contexts from a techno-economic perspective, they largely neglect the market power exerted by monopolistic private generators. This paper addresses this gap by developing a bi-level game-theoretic model that enables household-generated electricity to be fed into the microgrid while explicitly accounting for the market power of a neighborhood diesel generator company (DGC). The regulator sets price and feed-in-tariff caps to maximize household economic surplus (HES), while the DGC acts as a profit-maximizing agent controlling access and supply. The model is applied to a Lebanese case study using high-resolution empirical data collected via logging devices. Results show that: (i) price and feed-in-tariff caps substantially increase HES and consistently induce significant household PV feed-in to the microgrid; (ii) higher DGC budgets or greater PV-owner penetration lead to pronounced gains in HES; and (iii) the renewable energy share reaches 60% under base conditions and approaches 100% at sufficiently high budgets or PV-owner penetration levels, compared to 0% under the status quo. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.16893 |
| By: | Stephan Eitel; Stefanie Y. Schmitt |
| Abstract: | When consumers prefer to buy goods with high environmental quality and firms differ in their environmental qualities, firms have incentives to fight over environ mental salience and thereby influence consumers’ attention to the environmental dimension of the goods. A green firm prefers environmental quality to be salient, while a brown firm prefers environmental quality to remain shrouded. We model the firms’ fight over salience as an advertising contest. We show that the firm with the competitive advantage invests more into the salience contest. Whether such a contest increases social welfare depends on the level of environmental differentiation and the marginal damage of emissions. In addition, we show that the contest is an (imperfect) substitute for emission taxes and subsidies and that minimum standards may increase emissions and decrease welfare. |
| Keywords: | contest, emissions, environmental quality, environmental policies, salience. |
| JEL: | D91 L13 L15 Q52 Q58 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:bav:wpaper:247_eitel_schmitt.rdf |
| By: | Giulia Rossello; Domenico Buccella; Nicola Meccheri; Marcella Scrimitore |
| Abstract: | This paper investigates three different port air emissions abatement measures– i) emission taxes, ii) subsidies on abatement technology investments and iii) emission standard–in a reciprocal trade model, where two firms (one firm located in each country) compete choosing the quantity to export and the quantity of domestic market. To export, firms need two ports, one located in each country, and each country’s government chooses a policy to regulate pollution produced by its port. We aim at investigating how shipping costs and the port ownership shape the incentives towards exports and abatement of both the port and government in each country. The analysis points out the relative effectiveness of alternative policies in achieving environmental sustainability and society’s welfare objectives. Specifically, the environmental damage is minimized under emission standard regardless of any degree of port privatization. However, emission standards turn out to never dominate the other policies in the perspective of consumer surplus and overall domestic welfare. Depending on the degree of port privatization, either environmental taxes or abatement subsidies result as the domesticwelfare-maximizing policy, but only environmental taxes emerge as endogenous choice by governments. |
| Keywords: | international oligopoly, port privatization, emission tax, abatement subsidy, environmental standard, welfare |
| JEL: | D43 F18 H23 L33 R48 |
| Date: | 2026–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:pie:dsedps:2026/329 |
| By: | Michalis Deligiannis; Marco Scarsini; Xavier Venel |
| Abstract: | We study a finite-horizon dynamic wholesale-price contract between a manufacturer and a retailer, both of whom observe only sales, rather than the true demand. When the retailer stocks out, unmet demand is unobserved, so both parties update a common posterior over the demand distribution from sales data. Each period, the manufacturer sets the wholesale price, the retailer chooses an order quantity, and the public belief state is updated. We characterize Markov perfect equilibria as functions of this public belief. Our main results are as follows: for Weibull demand, we extend the well-known scaling approach to this strategic learning setting, prove the existence of an equilibrium, and reduce computation to a standardized one-parameter recursion; for exponential demand, we show that the equilibrium is unique and computable via a simple backward recursion. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.13599 |