nep-ind New Economics Papers
on Industrial Organization
Issue of 2021‒12‒13
six papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Algorithmic Collusion: Insights from Deep Learning By Matthias Hettich
  2. What is holding back artificial intelligence adoption in Europe? By Mia Hoffmann; Laura Nurski
  3. Retail Pricing Format and Rigidity of Regular Prices By Ray, Sourav; Snir, Avichai; Levy, Daniel
  4. Profit-Sharing vs Price-Fixing Collusion with Heterogeneous Firms By Hattori, Keisuke
  5. Assessing EU Merger Control through Compensating Efficiencies By Pauline Affeldt; Tomaso Duso; Klaus Gugler; Joanna Piechucka
  6. Broadband Internet and Social Capital By Andrea Geraci; Mattia Nardotto; Tommaso Reggiani; Fabio Sabatini

  1. By: Matthias Hettich
    Abstract: Increasingly, firms use algorithms powered by artificial intelligence to set prices. Previous research simulated interactions among Q-learning algorithms in an oligopoly model of price competition. The algorithms learn collusive strategies but require a long time that corresponds to several years to do so. We show that pricing algorithms using deep learning (DQN) can collude significantly faster. The availability of these more powerful pricing algorithms enables simulations in larger markets. Collusion disappears in wide oligopolies with up to 10 firms. However, incorporating knowledge of the learning behavior by reformulating the state representation increases the ability to collude effectively.
    Keywords: Algorithmic Pricing, Collusion, Artificial Intelligence, Reinforcement Learning, DQN
    JEL: D21 D43 D83 L12 L13
    Date: 2021–11
    URL: http://d.repec.org/n?u=RePEc:cqe:wpaper:9421&r=
  2. By: Mia Hoffmann; Laura Nurski
    Abstract: Artificial intelligence (AI) is considered a key driver of future economic development, expected to increase labour productivity and economic growth worldwide. To realise these gains, AI technologies need to be adopted by companies and integrated into their operations. However, it is unclear what the current level of AI adoption by European firms actually is. Estimates vary widely because of uneven data collection and lack of a standard definition and taxonomy...
    Date: 2021–11
    URL: http://d.repec.org/n?u=RePEc:bre:polcon:46075&r=
  3. By: Ray, Sourav; Snir, Avichai; Levy, Daniel
    Abstract: We study different notions of sale and regular prices, and their variability with store pricing-formats. We use data from three large stores with different pricing-formats (EDLP/Hi-Lo/Hybrid) that are located within 1-km radius. Importantly, the data contain both the actual transaction prices and the actual regular prices as displayed on the store shelves. We combine these data with two “generated” regular price series and study their rigidity. Regular-price rigidity varies with store-formats because different format stores define regular-prices differently. Correspondingly, the meaning of price-cuts varies across store-formats. To interpret the findings, we consider the store pricing format distribution across the US.
    Keywords: Price Rigidity, Sticky Prices, Regular Prices, Sale Prices, Filtered Prices, Reference Prices, Transaction Prices, Price Cuts, Pricing Format, Every Day Low Price (EDLP), Hi-Lo, Hybrid
    JEL: E31 E52 L1 L11 L16 L22 L81 M10 M21 M30 M31
    Date: 2021–11–24
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:110818&r=
  4. By: Hattori, Keisuke
    Abstract: This paper compares the profitability and sustainability between profit-sharing collusion with side payments and price-fixing collusion without side payments in a two-firm repeated Bertrand game when firms differ in both cost and discount factor. Although profit-sharing collusion yields larger joint profits, bargaining over collusive agreements makes heterogeneous firms prefer different types of collusion: a low-cost (high cost) firm is more likely to adhere to profit-sharing (price-fixing) collusion. If both firms have the same discount factor, profit-sharing collusion is more sustainable. However, price-fixing collusion can be the only sustainable collusion if the efficient firm is more patient than the inefficient firm. Furthermore, we extend profit-sharing collusion by incorporating side payments with different enforcement procedures (i.e., different timing of side payments) and different purposes: to reach agreement and to make the agreement sustainable. Our results provide a theoretical rationale for why firms fail or succeed at reaching and sustaining some forms of collusion.
    Keywords: Collusion; Asymmetric costs; Asymmetric discount factors; Side payments; Repeated game
    JEL: C73 C78 L13 L41
    Date: 2021–11–23
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:110800&r=
  5. By: Pauline Affeldt; Tomaso Duso; Klaus Gugler; Joanna Piechucka
    Abstract: Worldwide, the overwhelming majority of large horizontal mergers are cleared by antitrust authorities unconditionally. The presumption seems to be that efficiencies from these mergers are sizeable. We calculate the compensating efficiencies that would prevent a merger from harming consumers for 1,014 mergers affecting 12,325 antitrust markets scrutinized by the European Commission between 1990 and 2018. Compensating efficiencies seem too large to be achievable for many mergers. Barriers to entry and the number of firms active in the market are the most important factors determining their size. We highlight concerns about the Commission’s merger enforcement being too lax.
    Keywords: compensating efficiencies, efficiency gains, merger control, concentration, screens, HHI, mergers, unilateral effects, market definition, entry barriers
    JEL: L19 L24 L00 K21
    Date: 2021
    URL: http://d.repec.org/n?u=RePEc:ces:ceswps:_9403&r=
  6. By: Andrea Geraci; Mattia Nardotto; Tommaso Reggiani; Fabio Sabatini
    Abstract: We study the impact of broadband penetration on social capital in the UK. Our empirical strategy exploits a technological feature of the telecommunication infrastructure that generated substantial variation in the quality of Internet access across households. The speed of a domestic connection rapidly decays with the distance of a user's line from the network's node serving the area. Merging information on the topology of the network with geocoded longitudinal data about individual social capital from 1997 to 2017, we show that access to fast Internet caused a significant decline in civic and political engagement. Overall, our results suggest that broadband penetration crowded out several dimensions of social capital.
    Keywords: ICT; broadband infrastructure; networks; Internet; social capital; civic capital
    JEL: D91 L82 Z13
    Date: 2021–11
    URL: http://d.repec.org/n?u=RePEc:sap:wpaper:wp210&r=

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