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on Industrial Organization |
| By: | Zikun Liu (Yale University); Jiwoong Shin (Yale University); Jidong Zhou (Yale University) |
| Abstract: | The growing availability of big data enables firms to predict consumer search outcomes and outside options more accurately than consumers themselves. This paper examines how a firm can utilize such superior information to offer personalized buy-now discounts intended to deter consumer search. However, discounts can also serve as signals of attractive outside options, potentially encouraging rather than discouraging consumer search. We show that, despite the firmÕs ability to tailor discounts across a continuum of consumer valuations, the firm-optimal equilibrium features a simple two-tier discount scheme, comprising a uniform positive discount when the consumer outside option is intermediate and no discount when the outside option is low or high. Furthermore, compared to a scenario where the firm lacks superior information, we find that the firm earns lower profits, consumers search more while their welfare remains unchanged, and total welfare declines. |
| Date: | 2025–04–22 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2440 |
| By: | Canoy, Marcel; Kamphorst, Jurjen J.A.; Tichem, Jan |
| Abstract: | True pricing has progressed from an abstract notion to a real life phenomenon as a way to make consumers aware of the genuine costs to society of products. Our paper analyzes the impact of true prices on competition. Our model uses a straightforward differentiated Bertrand set-up where consumers can choose to pay the true price or the normal price. There are consumers who strongly prefer not to cause externalities. These consumers will opt to pay the true price. Other consumers receive less disutility of causing externalities. They will pay the normal price. Our findings are that setting the true price can be an equilibrium strategy for one or both firms. True prices can be welfare enhancing, but it comes at a cost. True prices harm consumers that do not value external effects as it raises the normal price. A comparison of true prices with taxation of the external effect shows that both can be socially optimal. Taxation is better because it covers both types of consumers, and worse because it overcorrects in the presence of market power. The paper demonstrates the value of analyzing competitive effects of environmental initiatives. |
| Keywords: | True Price, Sustainability, Industrial Organization |
| JEL: | D62 D64 Q56 |
| Date: | 2025–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124417 |
| By: | Axel Gautier; Leonardo Madio; Shiva Shekhar |
| Abstract: | We consider a market in which a platform hosts third-party monopolistic complementors. Users are segmented into single-use and multi-use consumers, and services exhibit network externalities. In the agency model, the presence of multi-use consumers leads complementors to set inefficiently high prices, reducing demand and the platform’s profits. Platform entry can resolve these pricing inefficiencies by targeting multi-use consumers with a bundled offering, but it then fragments the market, diminishing network benefits for consumers. We find that the platform opts to enter only when it has committed to a low commission fee, and network benefits are modest. Integration with a complementor reduces prices for consumers and enhances network benefits, thereby improving consumer welfare, but the pricing inefficiency is only partially mitigated. |
| Keywords: | platform, network externalities, platform strategy, hybrid business model |
| JEL: | L22 L86 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11711 |
| By: | Takeshi Fukasawa |
| Abstract: | This study empirically investigates firms' incentives on the choice of product durability, and its social optimality, by developing a dynamic structural model of durable goods with forward-looking consumers and oligopolistic multi-product firms. Based on the observations of the light bulb market, it specifies a model where firms produce multiple products with different durability levels and set product prices based on dynamic incentives. It proposes and applies novel estimation algorithms that alleviate the computational burden and data requirement for estimating demand and marginal cost parameters of dynamic demand models. Using light bulb market data in Japan, structural parameters are estimated. This study obtains the following results. First, large firms have incentives to collude to eliminate high durability incandescent lamps, though it is profitable to sell them for each firm. In contrast, when they can collude on prices, they don't have incentives to eliminate high durability bulbs. Second, eliminating high durability incandescent lamps leads to larger producer and total surplus, though it leads to lower consumer surplus. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.23792 |
| By: | Gadi Barlevy; Inês Xavier |
| Abstract: | We develop a model of Ponzi schemes with asymmetric information to study Ponzi frauds. A long-lived agent offers to save on behalf of short-lived agents at a higher rate than they can earn themselves. The long-lived agent may genuinely have a superior savings technology, but may be an imposter trying to steal from short-lived agents. The model identifies when a Ponzi fraud can occur and what interventions can prevent it. A key feature of Ponzi frauds is that the long-lived agent builds trust over time and improves their reputation by keeping the scheme going. |
| Keywords: | Ponzi scheme; Asymmetric information; Reputation; Fraud |
| JEL: | C73 D82 G51 K42 L14 |
| Date: | 2025–03–25 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-20 |
| By: | Kalina Manova; Andreas Moxnes; Oscar Perelló; Kalina B. Manova |
| Abstract: | This paper examines intermediation in production networks to unpack the firm attributes and matching costs that govern firm-to-firm networks and the gains from trade. Exploiting rich customs data for Chile, we show that exporters of all sizes use intermediaries, mix trade modes across buyers, and set lower prices on intermediated flows. We rationalize these facts in a model of network formation with suppliers of heterogeneous productivity and matchability, buyers of heterogeneous productivity, and intermediaries that reduce matching costs for a brokerage fee. Empirical evidence on trade activity across firms and countries corroborates the model, and informs how geographic distance, logistics and customs efficiency, formal institutions, and cultural-linguistic similarity shape network costs. Model estimation reveals that sellers’ attributes are negatively correlated, such that intermediaries enable highly productive sellers with low matchability to reach smaller buyers. This amplifies the welfare gains from intermediation due to wider and deeper network connectivity. |
| Keywords: | production networks, intermediation, productivity, matching costs |
| JEL: | F10 F12 F14 F23 L11 L14 L81 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11717 |
| By: | Fang, Yuhan; Kawaguchi, Kohei |
| Abstract: | In response to growing privacy concerns, many browsers have implemented restrictions on third-party cookies and cross-site tracking in online advertising. Advertisers are concerned that such retargeting prohibition policies could lead to a reduction in ads' click probability, thereby affecting the bid values. This paper investigates the economic consequences of prohibiting retargeting in online advertising by analyzing data from a demand-side platform (DSP). Our analysis shows that the DSP's bid values for non-retargeted impressions on Google Chrome are more than 60\% lower than those for retargeted impressions. Yet this difference understates the true disparity in bid values, as retargeting status is observable only for internal auction winners. By modeling the internal auction process and estimating advertisers' valuations, we identify even larger differences between retargeted and non-retargeted impressions: 76.04% for Android and 71.40% for Windows. Our counterfactual simulations indicate that a complete ban on retargeting would substantially reduce expected bid values—by 30.06% for Android and 49.84% for Windows users. These results underscore the significant economic tradeoff between enhancing privacy protection and maintaining advertising market efficiency. |
| Date: | 2025–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:j34t8_v3 |
| By: | Aaheli Ahmed; Sugata Marjit; Debashis Chakraborty |
| Abstract: | A major section of the existing literature on strategic trade policy, following a partial equilibrium framework, observed that imposition of tariff by the domestic country leads to a rise in their wage level. Analysis on the impact of strategic trade policy intervention (tariff) on wages and welfare in a two-country general oligopolistic equilibrium (GOLE) model framework in the current paper leads to a number of interesting results. First, imposition of tariff does not affect the wages in domestic country. In addition, the welfare of the tariff-imposing country unambiguously comes down. Second, a comparison of the revenue generated from tariff and the subsidy required to compensate the affected workers reveals that when only trade in final goods is allowed, such compensation is possible beyond a specific level of tariff rate, which is directly related to foreign tariff rate. In effect, a high value of foreign tariff implies a lower ability of the domestic government to subsidize the workers. Third, however, when trade in both final and intermediate goods take place, the opposite results emerge, where tariff revenue can compensate the workers up to a certain level of tariff rate. The underlying logic is that imposition of tariff may lead to a fall in the overall demand for workers in the domestic country. The results are of crucial policy relevance, especially given the increasing participation of developing countries in Global Value Chains (GVCs) and re-emergence of tariff protectionism in several countries. |
| Keywords: | Cournot Competition, tariff, wage, compensation, general oligopolistic equilibrium (GOLE), welfare |
| JEL: | D43 J33 L13 I31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11707 |
| By: | Emily E. Cook; Emily Cook |
| Abstract: | State governments provide grants to students to subsidize college attendance. In response, colleges can adjust their tuition, aid policies, and admission standards, affecting equilibrium enrollment and pass-through of aid to students. To quantify demand- and supply-side responses, I develop a model that incorporates the geographic nature of the market and strategic competition between individual colleges. Simulations demonstrate that college responses are meaningful: when students receive $1, 000 to attend in-state public colleges, these colleges absorb over 40% of the subsidy on average and raise admissions standards, reducing the enrollment effect of the policy. Close competitors see enrollment declines of 2-3%. |
| Keywords: | college choice, college admission, college enrollment, financial aid, mixed oligopoly, non-profit firms, demand estimation |
| JEL: | I23 I28 L13 L31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11733 |
| By: | Anna Gumpert; Kalina Manova; Cristina Rujan; Monika Schnitzer; Kalina B. Manova |
| Abstract: | This paper provides an integrated analysis of multinational companies’ global production and innovation. We establish novel stylized facts using rich data on the network of production affiliates and patent activity of German multinationals. We rationalize these facts with a heterogeneous-firm model, in which companies jointly determine the location and scale of production, basic innovation and applied innovation, under asymmetric complementarities across these three activities. Empirical evidence consistent with the model indicates that bigger MNCs innovate more intensively in terms of patent frequency and quality, and offshore innovation to more countries, including both countries with and without production affiliates. Moreover, MNCs’ innovation portfolio follows countries’ comparative advantage across technology classes, with applied innovation more likely to be co-located with production than basic innovation. |
| Keywords: | multinational firms, FDI, offshoring, innovation, patents |
| JEL: | F20 F23 F63 L23 L24 O31 O32 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11713 |
| By: | Markus Dertwinkel-Kalt; Christian Wey |
| Abstract: | To support the green transition in the automotive sector, the EU has introduced CO2 emission performance standards, also known as the excess emissions premium (EEP) regulation, which will tighten until 2035. Manufacturers exceeding their average fleet emission targets must pay a penalty. The regulation also allows pooling of fleets, enabling manufacturers to combine fleets. We analyze how this affects market outcomes. The EEP creates a positive externality of electric on conventional cars. Pooling eases compliance but may weaken competition among existing market players, while simultaneously encouraging the entry of electric-only manufacturers into the EU. |
| Keywords: | green regulation, automotive industry, excess emissions premium |
| JEL: | D04 L11 L50 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11762 |
| By: | Julia Cagé; Moritz Hengel; Nicolas Hervé; Camille Urvoy |
| Abstract: | How does the media bias the news? And in particular, how much does it cost owners to ensure that journalists comply with their stance? We compile a unique dataset of journalists and guests appearing on French television and radio shows between 2002 and 2020 to quantify the role played by journalist selection and compliance in political coverage. First, we leverage the movements of thousands of journalists between media outlets, and estimate a model in which the share of coverage for each political group is determined both by journalist and outlet components. We find that outlet-level decisions account for three-fourths of the differences in political coverage; in contrast, journalists’ personal editorial preferences play only a minor role. Second, we examine how journalists respond to a major takeover-induced editorial change. Using a difference-in-differences strategy, we show that while many journalists left in response to the shock, those who stayed largely adapted to the new editorial direction. Notably, exploiting unique data on journalist salaries, we show that this compliance came at nearly no cost for the new owner, reflecting journalists’ low bargaining power in an industry in crisis. |
| Keywords: | media bias, slant, journalists, media ownership, media concentration, pluralism, media capture, news organizations, wage compensation, monopsony power |
| JEL: | L15 L82 J40 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11741 |