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on Industrial Organization |
| By: | Cremer, Helmuth; Borsenberger, Claire; Joram, Denis; Lozachmeur, Jean-Marie; Malavolti, Estelle |
| Abstract: | The concept of Corporate Social Responsibility (CSR) has evolved since Milton Friedman’s 1970 assertion that a business’s sole responsibility is profit. Today, global frameworks like the UN Global Compact and EU regulations emphasize corporate accountability, particularly regarding social and environmental impacts. Corporate Social Responsibility (CSR) has become central in discussions of firm behavior, governance, and public goods provision. CSR however varies across firms. Some adopt basic strategic CSR (b-CSR), considering social and environmental issues only to the extent that they affect consumer demand and profitability. Others practice environmentally committed CSR (e-CSR), internalizing the full social cost of emissions. A few pursue fully committed CSR (w-CSR), aiming to maximize overall social welfare. The paper analyzes CSR’s effects on firm behavior through economic modeling. It first examines a single firm producing CO2 emissions, where reducing emissions increases costs but appeals to environmentally conscious consumers. Three firm types—b-CSR, e-CSR, and w-CSR—are considered. The study then extends to a competitive market with two firms engaged in Cournot competition. It examines scenarios where firms have different CSR commitments, analyzing how competition, emissions, and profits are affected. Finally, the paper compares these outcomes to an ideal scenario where firms are regulated to maximize social welfare. |
| Keywords: | Motivation and sustainability of CSR under competition; mission oriented; firms, consumers’ environmental awareness and profit maximization; differentiated duopoly; duopoly. |
| JEL: | H23 L13 L31 G50 |
| Date: | 2025–05–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130533 |
| By: | Ohnishi, Kazuhiro |
| Abstract: | An existing study examines an international mixed duopoly involving a state-owned public firm and a foreign private firm, focusing on their timing choices for quantities and showing that the state-owned public firm should act as the leader. This result differs from that for an endogenous-timing mixed duopoly model where a state-owned public firm coexists with a domestic private firm. We investigate the endogenous order of moves in a mixed duopoly model where a state-owned public firm competes with a private firm that is partially foreign-owned. Specifically, we explore the desirable role of the state-owned public firm, either as a leader or a follower, and present the equilibrium outcome of the model. Our findings reveal that the equilibrium differs depending on whether the foreign ownership ratio of the private firm is low or high. |
| Keywords: | Endogenous timing; Mixed oligopoly; Partial foreign ownership; Stackelberg |
| JEL: | C72 D21 F23 L13 L32 |
| Date: | 2025–05–02 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124662 |
| By: | Gurkirat Wadhwa; Veeraruna Kavitha |
| Abstract: | Considering a supply chain with partial vertical integration, we attempt to seek answers to several questions related to the cooperation competition based friction, abundant in such networks. Such an SC can represent a supplier with an inhouse production unit that attempts to control an outhouse production unit via the said friction. The two production units can have different sets of loyal customer bases and the aim of the manufacturer supplier duo would be to get the best out of the two customer bases. Our analysis shows that under certain market conditions, an optimal strategy might be to allow both units to earn positive profits particularly when they hold similar market power and when customer loyalty is high. In cases of weaker customer loyalty, however, the optimal approach may involve pressurizing the outhouse unit to operate at minimal profits. Even more intriguing is the scenario where the outhouse unit has a greater market power and customer loyalty remains strong here, it may be optimal for the inhouse unit to operate at a loss just enough to dismantle the downstream monopoly. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.09591 |
| By: | Fuhito Kojima; Bobak Pakzad-Hurson |
| Abstract: | We study a variation of the price competition model a la Bertrand, in which firms must offer menus of contracts that obey monotonicity constraints, e.g., wages that rise with worker productivity to comport with equal pay legislation. While such constraints limit firms' ability to undercut their competitors, we show that Bertrand's classic result still holds: competition drives firm profits to zero and leads to efficient allocations without rationing. Our findings suggest that Bertrand's logic extends to a broader variety of markets, including labor and product markets that are subject to real-world constraints on pricing across workers and products. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.16842 |
| By: | Nikhil Kumar |
| Abstract: | This paper examines the market for AI models in which firms compete to provide accurate model predictions and consumers exhibit heterogeneous preferences for model accuracy. We develop a consumer-firm duopoly model to analyze how competition affects firms' incentives to improve model accuracy. Each firm aims to minimize its model's error, but this choice can often be suboptimal. Counterintuitively, we find that in a competitive market, firms that improve overall accuracy do not necessarily improve their profits. Rather, each firm's optimal decision is to invest further on the error dimension where it has a competitive advantage. By decomposing model errors into false positive and false negative rates, firms can reduce errors in each dimension through investments. Firms are strictly better off investing on their superior dimension and strictly worse off with investments on their inferior dimension. Profitable investments adversely affect consumers but increase overall welfare. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.13375 |
| By: | Reid B. Taylor; Erich Muehlegger |
| Abstract: | We estimate the effect of competition on incumbent firm pricing by using high frequency price data and the precise geographic location for all gas stations in California. Using an event study design, we find that the entry of a new station is associated with a 2.5 cent decrease in prices at incumbent stores, which equates to a 7% reduction in estimated retail markups. The effects are immediate, persistent, and show no sign of deterrence or limit pricing behavior. In contrast, nearby exit results in precisely estimated null effects on prices with no evidence of predatory pricing in the lead up to the station departure. The results are consistent across all fuel blends and dissipate with station distance. Finally, we explore the asymmetric effects, showing that the difference cannot be attributed to difference in branding, proximity to highway, or data quality idiosyncrasies, although we find suggestive evidence that exit tends to happen in more competitive markets and amongst less heavily trafficked stations. |
| JEL: | L1 Q41 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33569 |
| By: | Jesús Fernández-Villaverde; Yang Yu; Francesco Zanetti |
| Abstract: | Defensive hiring of researchers by incumbent firms with monopsony power reduces creative destruction. This mechanism helps explain the simultaneous rise in R&D spending and decline in TFP growth in the US economy over recent decades. We develop a simple model highlighting the critical role of the inelastic supply of research labor in enabling this effect. Empirical evidence confirms that the research labor supply in the US is indeed inelastic and supports other model predictions: incumbent R&D spending is negatively correlated with creative destruction and sectoral TFP growth while extending incumbents' lifespan. All these effects are amplified when ideas are harder to find. An extended version of the model quantifies these mechanisms' implications for productivity, innovation, and policy. |
| JEL: | E22 L11 O31 O33 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33588 |
| By: | Ambati, Murari; Munipalle, Pravith |
| Abstract: | The pharmaceutical industry is important in global healthcare, and drives innovation in drug development ensuring access to life-saving treatments. However, the industries economic structure and competitive dynamics give rise to anticompetitive practices that distort market efficiency, limit consumer choice, and inflate drug prices. This paper shows a comprehensive review of the anticompetitive behaviors employed by pharmaceutical firms, including patent evergreening, pay-for-delay agreements, price collusion, and product hopping. The paper analyzes prominent strategies in the pharmaceutical industries that are anticompetitive through the lens of industrial organization theory, game theory, and market microstructure models. Additionally, we examine the role of financial markets in monitoring and mitigating these inefficiencies, with a particular focus on short-selling. We assess how short sellers act as market watchdogs, and identify overvalued pharmaceutical stocks that may be engaging in rent-seeking behavior. Furthermore, the paper explores the regulatory landscape, and highlight antitrust interventions along with legal challenges. Furthermore, the paper explores recent policy proposals aimed at curbing market manipulation. The paper concludes by discussing potential reforms and market-based solutions to foster competition, enhance price transparency, and improve drug accessibility. Our findings contribute to the broader discourse on financial market oversight, economic efficiency, and the intersection of healthcare economics and capital markets. |
| Date: | 2025–03–03 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:8rd7w_v1 |
| By: | Perez Reyna, David Alejandro (Universidad de los Andes); Rodríguez Barraquer, Tomás (Universidad de los Andes); Tovar Mora, Jorge Andrés (Universidad de los Andes) |
| Abstract: | In this paper, we analyze the competition in the Colombian banking sector using banklevel monthly balance sheet information. We estimate the changes in measures of market power due to the exogenous introduction of a liquidity regulation. Our results suggest that introducing a net stable funding ratio increased the Lerner index in the short term, thus signaling a higher exercise of market power. We rationalize these changes in a simple theoretical model that allows us to analyze the tightening of liquidity requirements for banks and find that a higher Lerner index implies more market power in the loan market than in the deposit market. |
| Keywords: | Competition; Banking sector; Liquidity regulation |
| JEL: | E44 G21 L13 |
| Date: | 2025–05–08 |
| URL: | https://d.repec.org/n?u=RePEc:col:000089:021371 |