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on Industrial Organization |
| By: | Tsuritani, Ryosuke |
| Abstract: | Since unlisted firms’ shares are not publicly traded, common ownership only affects listed firms and has no direct impact on unlisted ones. We investigate the welfare implications of this asymmetry between listed and unlisted upstream suppliers of perfectly complementary inputs. This study considers a vertically related market with S perfectly complementary inputs, in which L sole listed upstream suppliers and S-L sole unlisted upstream suppliers sell each input through linear wholesale prices to the two listed downstream manufacturers that compete à la Cournot. We find that the input price of each listed supplier is higher than that of each unlisted supplier only when the number of listed suppliers is small. The key factor contributing to this result is the price sensitivity of listed suppliers. We also find that an optimal rate of common ownership may exist for consumers and society, depending on the proportion of listed suppliers in the supply chain. |
| Keywords: | Common ownership; Vertical market; Perfectly complementary inputs; Listed suppliers; Unlisted suppliers |
| JEL: | L13 L21 L42 |
| Date: | 2025–06–13 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125003 |
| By: | Harold D. Chiang; Jack Collison; Lorenzo Magnolfi; Christopher Sullivan |
| Abstract: | This paper develops a flexible approach to predict the price effects of horizontal mergers using ML/AI methods. While standard merger simulation techniques rely on restrictive assumptions about firm conduct, we propose a data-driven framework that relaxes these constraints when rich market data are available. We develop and identify a flexible nonparametric model of supply that nests a broad range of conduct models and cost functions. To overcome the curse of dimensionality, we adapt the Variational Method of Moments (VMM) (Bennett and Kallus, 2023) to estimate the model, allowing for various forms of strategic interaction. Monte Carlo simulations show that our method significantly outperforms an array of misspecified models and rivals the performance of the true model, both in predictive performance and counterfactual merger simulations. As a way to interpret the economics of the estimated function, we simulate pass-through and reveal that the model learns markup and cost functions that imply approximately correct pass-through behavior. Applied to the American Airlines-US Airways merger, our method produces more accurate post-merger price predictions than traditional approaches. The results demonstrate the potential for machine learning techniques to enhance merger analysis while maintaining economic structure. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.05225 |
| By: | Robert M. Hunt; Konstantinos Serfes; Yin Zhang |
| Abstract: | In a two-sided model of the payment card market, we introduce a specific form of elastic demand (constant elasticity), merchant market power, ad valorem fees, and cash as an alternative. We derive the “credit card tax, ” consisting of an endogenously determined interchange fee and any rewards paid. We characterize how this tax influences prices, profits, and welfare. We also examine how these relationships vary under different assumptions about the elasticity of demand, merchant market power, and differentiation between cash and credit. Under the assumptions of our model, by endogenizing the credit card tax, we show that capping interchange fees benefits all consumers by lowering these taxes, even if rewards decrease. |
| Keywords: | credit cards; two sided networks; merchant competition; interchange fees; regulation |
| JEL: | L13 L40 G28 E42 |
| Date: | 2025–06–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:100061 |
| By: | Sebastian Di Tella; Cedomir Malgieri; Christopher Tonetti |
| Abstract: | We study optimal policy when heterogeneous markups reflect compensation for uninsurable persistent idiosyncratic risk. The optimal labor tax keep rate equals (1) the aggregate markup times (2) workers' consumption share divided by their Pareto weight. Markups correctly capture the private cost of risk that reduces labor demand, but they are socially inefficient. This requires a subsidy equal to the aggregate markup, as in the traditional market-power perspective. However, even with lump-sum transfers, risk markups lead entrepreneurs to dynamically overaccumulate wealth to self-insure, so impoverished workers oversupply labor. In the long run this effect dominates and it's optimal to tax labor. |
| JEL: | D52 E21 E23 G11 H21 L26 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33778 |
| By: | Tommaso Pardi (IDHES - Institutions et Dynamiques Historiques de l'Économie et de la Société - UP1 - Université Paris 1 Panthéon-Sorbonne - UP8 - Université Paris 8 Vincennes-Saint-Denis - UPN - Université Paris Nanterre - UEVE - Université d'Évry-Val-d'Essonne - CNRS - Centre National de la Recherche Scientifique - ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay, MSH Paris-Saclay - Maison des Sciences de l'Homme - Paris Saclay - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique - ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay, ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay); Marc Alochet (X - École polytechnique - IP Paris - Institut Polytechnique de Paris); Bernard Jullien (UB - Université de Bordeaux); Alexandra Kuyo (ENS Paris Saclay - Ecole Normale Supérieure Paris-Saclay) |
| Abstract: | A letter addressed ahead of the Strategic Dialogue on the Future of the European Automotive Industry by a consortium of French and Italian equipment manufacturers and their professional associations has demanded the introduction of local content requirements and incentives to fulfil this regulatory void and preserve the resilience of the European automotive supply chain against unfair Chinese competition.The Industrial Action Plan for the European automotive sector announced on the 5 th of March highlights the need to strengthen the "trade defence" toolbox and "to investigate unfair practices further up the supply chain, including in the batteries and parts segment when necessary" 5 . However, there are no references to local content requirements or incentives, at least for the auto parts' sector.Against this background, the present reports focuses on two questions:-Why is it necessary to implement now a comprehensive local content policy (LCP) for the automotive sector? -What type of policy mix should Europe implement to introduce rapidly and efficiently local content requirements for automotive production? Kratz, Piper, and Bouchaud, 'China and the Future of Global Supply Chains'. |
| Keywords: | China, automotive industry, European Union, protectionism, local content, competition |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05076860 |
| By: | Lisa Heidelmeier; Marco Sahm |
| Abstract: | We investigate the impact of an environmental award in a Bertrand duopoly with green consumers considering a three-stage game. First, the regulator designs the environmental contest. Second, firms choose their green investments, and the winner of the contest is awarded. Third, firms compete in prices, and consumption takes place. We illustrate that the award not only incentivizes green investments and may thus reduce environmental externalities. As consumers perceive the product of the awarded firm to be of superior quality, it also gives rise to vertical product differentiation. This induces market power, and thus anti-competitive effects: Rents shift from consumers to producers, and consumer surplus may decrease, particularly if marginal investment costs in green technologies are high compared to the strength of environmental damage. |
| Keywords: | Bertrand competition, contests, environmental award, green consumer, product differentiation |
| JEL: | D43 H23 L13 L51 Q52 Q58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11879 |
| By: | Sara Biancini; David Ettinger |
| Abstract: | We consider a framework in which both a principal and an agent care about a social mission, such as addressing social or environmental concerns. The agent requires financing and must satisfy a budget constraint. Under incomplete information, in addition to the usual quantity distortions for inefficient agents, the principal also distorts the mission upward for efficient agents and downward for inefficient ones. In our context, the existence of hidden types may improve total welfare compared to complete information, as screening incentivizes the principal to propose a contract with a higher mission to reduce the rent of more efficient types. Our results apply to social enterprises and triple bottom line environments, contributing to the theoretical understanding of the impact of non-financial incentives on optimal contracting. |
| Keywords: | impact investment, mission motivation, incentives, social enterprises, corporate social responsibility |
| JEL: | D21 L21 L31 D82 M14 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11923 |
| By: | Giuseppe Berlingieri; Maarten De Ridder; Danial Lashkari; Davide Rigo |
| Abstract: | In theories of creative destruction, product innovation is a key driver of aggregate growth. In this paper, we confront the predictions of these theories about product dynamics with empirical patterns in product-level data on the near-universe of French manufacturing firms. We find that the process of product innovation frequently exhibits bursts-episodes in which firms rapidly add multiple products to their portfolio. Such bursts lead to substantial shifts in revenue and explain the majority of the variance in firm-level growth. We introduce a model of firm product innovation compatible with such a process that also nests the canonical models of creative destruction. We show that innovation bursts alter the equilibrium composition of age, size, and innovation efficiency of firms, and further explain the concentration of production among superstar firms. Our model thus enables the joint study of the determinants of industry concentration and growth in a setting consistent with the empirical patterns of product dynamics. |
| Keywords: | productivity, endogenous growth, firms, innovation |
| Date: | 2025–04–29 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2095 |
| By: | Hjertstrand, Per (Research Institute of Industrial Economics (IFN)); Tangerås, Thomas (Mälardalen University and) |
| Abstract: | This paper develops a simple nonparametric test for perfect competition in markets for homogeneous goods. The method only requires data on prices and some aggregate of output. We then generalize the method to account for variable capacity and intertemporal production decisions. We apply the method to a sample of Swedish data from the Nordic wholesale electricity market. The main results show that the data are approximately rationalizable by perfect competition in bidding zones with low ownership concentration of generation assets, but not in bidding zones characterized by high ownership concentration. |
| Keywords: | Competition; Nonparametric methods; Nord Pool power exchange; Wholesale electricity markets |
| JEL: | D22 D43 D44 |
| Date: | 2025–06–10 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:iuiwop:1527 |