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on Industrial Organization |
| By: | Luke Garrod; Ruochen Li; Antonio Russo; Chris M. Wilson |
| 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 L13 D83 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11635 |
| By: | Pierre Bernhard (MACBES Team, INRIA Center of Université Côte d'Azur, Sophia Antipolis, France); Romain Biard (Université Marie et Louis Pasteur, CNRS, LmB, F-25000 Besançon, France); Marc Deschamps (Université Marie et Louis Pasteur, CRESE, UR3190, F-25000 Besançon, France) |
| Abstract: | There exist situations where firms (identical or not) are in a state of renewed interaction and where, at each period, in addition to exits, new firms (identical or not) may arrive. In such cases, no one is able to know ex ante exactly how many firms there will be in each period. One of the questions an incumbent firm might therefore ask itself, in this context, is what expected payoff it can expect. Our paper aims to provide an answer to this question, in finite and infinite horizons, using a discrete-time dynamic game with random arrival(s) and exit(s) of different types of firm(s). We first propose a general model, which we then particularize by considering the types as composed of identical players. Within this framework, we address the case of a dynamic Cournot oligopoly with sticky prices, and provide numerical illustrations to underline the interest of this approach and demonstrate its operational character. |
| Keywords: | Oligopoly, Random entries and exits, Types, Dynamic equilibirum, Cournot, sticky prices. |
| JEL: | C73 D43 L13 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:crb:wpaper:2025-01 |
| By: | Sukjin Han; Kyungho Lee |
| Abstract: | Copyright policies play a pivotal role in protecting the intellectual property of creators and companies in creative industries. The advent of cost-reducing technologies, such as generative AI, in these industries calls for renewed attention to the role of these policies. This paper studies product positioning and competition in a market of creatively differentiated products and the competitive and welfare effects of copyright protection. A common feature of products with creative elements is that their key attributes (e.g., images and text) are unstructured and thus high-dimensional. We focus on a stylized design product, fonts, and use data from the world's largest online marketplace for fonts. We use neural network embeddings to quantify unstructured attributes and measure the visual similarity. We show that this measure closely aligns with actual human perception. Based on this measure, we empirically find that competitions occur locally in the visual characteristics space. We then develop a structural model for supply and demand that integrate the embeddings. Through counterfactual analyses, we find that local copyright protection can enhance consumer welfare when products are relocated, and the interplay between copyright and cost-reducing technologies is essential in determining an optimal policy for social welfare. We believe that the embedding analysis and empirical models introduced in this paper can be applicable to a range of industries where unstructured data captures essential features of products and markets. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.16120 |
| By: | Seiya Hirano |
| Abstract: | In the adoption decisions of network goods, coordination problems lead to multiple equilibria. While consumers coordination significantly impacts the firm's pricing strategies, the precise relationship between coordination behavior and optimal pricing has received little attention. This paper analyzes optimal pricing strategies for network goods under different forms of consumer coordination in a two-period model with strategic consumers. We introduce two novel coordination criteria: risk dominance and threshold coordination. Risk dominance coordination accounts for the risk premium of no-adoption and threshold coordination accounts for consumer heterogeneity in the adoption of the good. We show that under the risk dominance criterion, the firm sets a lower price in period 1 when the risk of the coordination failure is high, but sets a higher price in period 1 when the risk is low. Under threshold coordination, the firm sets a lower price in period 1 when consumers hold pessimistic beliefs about the network size and sets a higher price in period 1 when beliefs are optimistic. Our findings highlight the critical implications of consumer coordination for firms' pricing strategies. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1267r |
| By: | Simon Martin; Hans-Theo Normann; Paul Püplichhuisen; 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. |
| Keywords: | algorithmic collusion, Cournot duopoly, asymmetric firms |
| JEL: | C73 D43 L13 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11629 |