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on Industrial Organization |
| By: | Mert Demirer; Michael Rubens |
| Abstract: | In this paper, we provide a theoretical characterization of the welfare effects of buyer and seller power in vertical relations and introduce an empirical approach for quantifying the contributions of each channel to deadweight loss. Our model accommodates both monopsony distortions from buyer power and double-marginalization distortions from seller power. Rather than imposing a specific form of vertical conduct, we allow it to arise endogenously based on model primitives. We show that the relative elasticity of upstream supply and downstream demand is the key determinant of whether buyer or seller power creates distortions. Applying our framework to coal procurement by power plants in Texas, we find that 83% of the distortion comes from the monopoly power of coal mines, with the remainder attributed to the monopsony power of power plants. |
| JEL: | J42 L10 L41 L42 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33371 |
| By: | Arghya GHOSH; MUKUNOKI Hiroshi |
| Abstract: | Given the rising trend of cross-ownership and mergers and acquisitions, this study builds an oligopoly model with general demand to analyze how partial cross-ownership (PCO) affects market competition and merger control policies in international trade. In our model, ad valorem tariffs are imposed on imports. If the extent of PCO is sufficiently large, international PCO becomes more anti-competitive than domestic PCO, resulting in a higher price. This contrasts with previous results indicating that an international merger is always less anti-competitive than a domestic merger. Additionally, international PCO can result in a higher price than both domestic and international mergers, even without merger synergy effects. Moreover, when competition authorities employ a consumer surplus standard as the merger control policy, pre-merger PCO facilitates approval of the subsequent merger. Trade liberalization encourages the approval of domestic mergers but blocks international mergers from being approved. By way of policy implications, these results suggest that competition authorities should regulate international PCO more heavily. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:25003 |
| By: | Simon Martin; Hans-Theo Normann; Paul P\"uplichhuisen; Tobias Werner |
| Abstract: | We study the propensity of independent algorithms to collude in repeated Cournot duopoly games. Specifically, we investigate the predictive power of different oligopoly and bargaining solutions regarding the effect of asymmetry between firms. We find that both consumers and firms can benefit from asymmetry. Algorithms produce more competitive outcomes when firms are symmetric, but less when they are very asymmetric. Although the static Nash equilibrium underestimates the effect on total quantity and overestimates the effect on profits, it delivers surprisingly accurate predictions in terms of total welfare. The best description of our results is provided by the equal relative gains solution. In particular, we find algorithms to agree on profits that are on or close to the Pareto frontier for all degrees of asymmetry. Our results suggest that the common belief that symmetric industries are more prone to collusion may no longer hold when algorithms increasingly drive managerial decisions. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.07178 |
| By: | Garrod, Luke; Li, Ruochen; Russo, Antonio; Wilson, Chris M |
| Abstract: | There is limited theoretical understanding of cost pass-through within markets where prices are dispersed. Under a general demand function, we analyse the effects of cost changes in a seminal model of price dispersion, where some consumers are captive to particular sellers while others are not (Varian, 1980). To study pass-through in this mixed-strategy context, we employ a novel approach that links well to the pass-through literature in pure-strategy settings. Following an industry-wide cost increase, we show how the magnitudes of price rises faced by different consumer types, as well as the wider effects on price dispersion, depend upon whether demand is log-concave or log-convex. Furthermore, we examine whether the burden of the cost increase is expected to fall more heavily on captive or non-captive consumers. Finally, we show how our results vary with the level of competition and analyse the relationship between pass-through and demand shocks under price dispersion. |
| Keywords: | Cost pass-through, price dispersion, demand curvature, competition, demand shocks |
| JEL: | D43 D83 L13 |
| Date: | 2024–12–13 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123285 |
| By: | Ginger Zhe Jin; Mario Leccese; Liad Wagman |
| Abstract: | This chapter examines the multifaceted interactions between top digital platforms and technology ventures across capital, labor, innovation, and product markets. Exploring how venture investments, talent flows, strategic alliances, and competitive behaviors can shape the innovation ecosystem, the chapter highlights both the complementary and competitive dynamics between large incumbents and smaller entrants, and the benefits and potential inefficiencies that may arise from them, as demonstrated by the empirical and theoretical literatures. Throughout, the chapter identifies key areas for research that can support a rigorous evaluation of policy proposals concerning evolving market structures in the digital economy. |
| JEL: | D4 L1 O3 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33370 |
| By: | Connor Douglas; Foster Provost; Arun Sundararajan |
| Abstract: | Algorithmic agents are used in a variety of competitive decision settings, notably in making pricing decisions in contexts that range from online retail to residential home rentals. Business managers, algorithm designers, legal scholars, and regulators alike are all starting to consider the ramifications of "algorithmic collusion." We study the emergent behavior of multi-armed bandit machine learning algorithms used in situations where agents are competing, but they have no information about the strategic interaction they are engaged in. Using a general-form repeated Prisoner's Dilemma game, agents engage in online learning with no prior model of game structure and no knowledge of competitors' states or actions (e.g., no observation of competing prices). We show that these context-free bandits, with no knowledge of opponents' choices or outcomes, still will consistently learn collusive behavior - what we call "naive collusion." We primarily study this system through an analytical model and examine perturbations to the model through simulations. Our findings have several notable implications for regulators. First, calls to limit algorithms from conditioning on competitors' prices are insufficient to prevent algorithmic collusion. This is a direct result of collusion arising even in the naive setting. Second, symmetry in algorithms can increase collusion potential. This highlights a new, simple mechanism for "hub-and-spoke" algorithmic collusion. A central distributor need not imbue its algorithm with supra-competitive tendencies for apparent collusion to arise; it can simply arise by using certain (common) machine learning algorithms. Finally, we highlight that collusive outcomes depend starkly on the specific algorithm being used, and we highlight market and algorithmic conditions under which it will be unknown a priori whether collusion occurs. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.16574 |
| By: | Stacciarini, João Henrique Santana (Federal University of Goiás) |
| Abstract: | Researchers from various fields of scientific knowledge have dedicated efforts to investigate the multiple characteristics of the pharmaceutical sector. Aiming to contribute to this debate and provide material for discussion, this research focused on collecting, interpreting, and making available data and information related to the Pharmaceutical Sector on a global scale. It was found that the sector's annual revenue has almost quadrupled over the last two decades, reaching $1.48 trillion in 2022. The twenty largest companies have a combined market value of $3.5 trillion, assets worth $1.86 trillion, and generated revenue of $820 billion, resulting in profits of $181.6 billion. Of an oligopolistic nature, most of the leading companies are concentrated in the USA and Europe, although a group of industries in "pharmerging countries", especially in Asia, has been gaining strength. Pharmaceutical consumption, although still highly concentrated in developed countries, has also been expanding in emerging countries. This trend is driven by nations such as Brazil, Russia, India, China, and South Africa (BRICS), as well as Mexico, Indonesia, South Korea, and Turkey (MIST). Together, these nine countries already account for 48% of the world's population and contribute 31% to the global Gross Domestic Product (GDP). |
| Date: | 2025–01–13 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:hbs8j |