nep-ind New Economics Papers
on Industrial Organization
Issue of 2023‒11‒27
five papers chosen by
Kwang Soo Cheong, Johns Hopkins University

  1. On the Alignment of Consumer Surplus and Total Surplus Under Competitive Price Discrimination By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  2. Restructuring platform merger review By Cho, Sung Ick
  3. The Buyer Power Effect of Retail Mergers: An Empirical Model of Bargaining with Equilibrium of Fear By Céline Bonnet; Zohra Bouamra-Mechemache; Hugo Molina
  4. Market Concentration Implications of Foundation Models By Jai Vipra; Anton Korinek
  5. Trust in times of AI By Francesco Bogliacino; Paolo Buonanno; Francesco Fallucchi; Marcello Puca

  1. By: Dirk Bergemann (Yale University); Benjamin Brooks (University of Chicago); Stephen Morris (Massachusetts Institute of Technology)
    Abstract: A number of producers of heterogeneous goods with heterogeneous costs compete in prices. When producers know their own production costs and consumers know their values, consumer surplus and total surplus are aligned: the information structure and equilibrium that maximize consumer surplus also maximize total surplus. We report when alignment extends to the case where either consumers are uncertain about their own values or producers are uncertain about their own costs, and we also give examples showing when it does not. Less information for either producers or consumers may intensify competition in a way that benefits consumers but results in inefficient production.
    Date: 2023–11–12
  2. By: Cho, Sung Ick
    Abstract: Platform mergers differ significantly from traditional mergers. In platform mergers, foreclosure issues, which are crucial in traditional vertical mergers, carry less significance but may still arise indirectly. Platforms, moreover, can favor their own businesses potentially disadvantaging competitors, and leverage their market power to new businesses. Lastly, entry barriers could increase as a result of platforms' multi-service provisions. Nevertheless, platforms can enhance consumer welfare, especially through product (service) bundling. Thus, we need to overhaul the merger review system to incorporate the aforementioned characteristics of platform mergers.
    Date: 2023
  3. By: Céline Bonnet (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Zohra Bouamra-Mechemache (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Hugo Molina (AgroParisTech)
    Abstract: We develop a bilateral oligopoly framework with manufacturer-retailer bargaining to analyze the impact of retail mergers on market outcomes. We show that the surplus division between manufacturers and retailers depends on three bargaining forces and can be interpreted in terms of "equilibrium of fear". We estimate our framework in the French soft drink industry and find that retailers have a higher bargaining power than manufacturers. Using counterfactual simulations, we highlight that retail mergers increase retailers' fear of disagreement which weakens their bargaining power vis-à-vis soft drink manufacturers and leads to higher wholesale and retail prices.
    Keywords: Bilateral oligopoly, Bargaining, Retail mergers, Soft drink industry
    Date: 2023
  4. By: Jai Vipra; Anton Korinek
    Abstract: We analyze the structure of the market for foundation models, i.e., large AI models such as those that power ChatGPT and that are adaptable to downstream uses, and we examine the implications for competition policy and regulation. We observe that the most capable models will have a tendency towards natural monopoly and may have potentially vast markets. This calls for a two-pronged regulatory response: (i) Antitrust authorities need to ensure the contestability of the market by tackling strategic behavior, in particular by ensuring that monopolies do not propagate vertically to downstream uses, and (ii) given the diminished potential for market discipline, there is a role for regulators to ensure that the most capable models meet sufficient quality standards (including safety, privacy, non-discrimination, reliability and interoperability standards) to maximally contribute to social welfare. Regulators should also ensure a level regulatory playing field between AI and non-AI applications in all sectors of the economy. For models that are behind the frontier, we expect competition to be quite intense, implying a more limited role for competition policy, although a role for regulation remains.
    Date: 2023–11
  5. By: Francesco Bogliacino (Università di Bergamo); Paolo Buonanno (Università di Bergamo); Francesco Fallucchi (Università di Bergamo); Marcello Puca (Università di Bergamo, CSEF and Webster University Geneva)
    Abstract: In an online, pre-registered experiment, we explore the impact of AI mediated communication within the context of a Trust Game with unverifiable actions. We compare a baseline treatment, where no communication is allowed, to treatments where participants can use free-form communication or have the additional option of using ChatGPT-generated promises, which were assessed in a companion experiment. We confirm previous observations that communication bolsters trust and trustworthiness. In the AI treatment, trustworthiness sees the most significant increase, yet trust levels decline for those who opt not to write a message. AI-generated promises become more frequent but garner less trust. Consequently, the overall trust and efficiency levels in the AI treatment align with that of human communication. Contrary to our assumptions, less trustworthy individuals do not show a higher propensity to delegate messages to ChatGPT.
    Keywords: Artificial Intelligence, Trust Game, ChatGPT, Experiment.
    JEL: C93 D83 D84 D91
    Date: 2023–10–24

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