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on Industrial Organization |
| By: | Janßen, Rebecca; Reif, Simon; Schubert, Sabrina |
| Abstract: | Digital therapeutics are increasingly used to complement traditional health care. In a pioneering move, Germany became the first country to introduce a structured regulatory framework - known as the DiGA scheme - that enables developers of digital therapeutics to be reimbursed in the statutory health insurance system. Our study evaluates the impact of this novel regulation on the development and market entry of patient-centered digital health applications. Using a panel dataset of app availability by language and month from the Apple App Store, covering the period from January 2018 to September 2021, we compare trends in health app availability in German to those in other languages. Applying event study designs and a set of synthetic control methods, we find that the DiGA regulation likely stimulated the development of German-language digital therapeutics in the app market. While the number of apps increased, our results suggest that neither the diversity of health conditions targeted nor the number of high-quality apps expanded significantly. To the contrary, the increase was almost exclusively driven by apps that sell patient data for advertisement. This suggests that the initial enthusiasm surrounding the new reimbursement pathway did not translate into a broad increase in high quality apps with strong data privacy protections. Further research is needed to assess the longer-term effects on innovation and quality, especially as other countries begin to adopt regulatory frameworks inspired by the German model. |
| Keywords: | Digital Health, DiGA, Reimbursement, Digital Therapeutics |
| JEL: | I11 I18 L52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:321863 |
| By: | F. Nguyen |
| Abstract: | The "free trial" followed by automatic renewal is a dominant business model in the digital economy. Standard models explain trials as a mechanism for consumers to learn their valuation for a product. We propose a complementary theory based on the rational inattention framework. Consumers know their valuation but face a cognitive cost to remember to cancel an unwanted subscription. We model this using a Shannon entropy-based cost of information processing, where a consumer's baseline attention level decays with the length of the trial period. This creates a novel trade-off for a monopolist firm: a longer trial increases "inattentive revenue" from consumers who fail to cancel, but it also lowers ex-ante consumer utility, making the initial offer less attractive. We show that this trade-off leads to an interior optimal trial length, even for products where value-learning is instantaneous. Our model, under standard assumptions about demand elasticity and the distribution of consumer valuations, generates sharp, testable predictions about the relationship between contract terms. We find that the optimal renewal price and trial length are complements: firms offering longer trials will also set higher post-trial prices. We analyze the impact of policies aimed at curbing consumer exploitation, such as "click-to-cancel" regulations. We show that such policies, by making attention effectively cheaper, lead firms to reduce trial lengths. The effect on price depends directly on the elasticity of demand from loyal subscribers. We also extend the model to include paid trials, showing that introductory prices and trial lengths act as strategic substitutes. Our framework provides a micro-founded explanation for common features of subscription contracts and offers a new lens through which to evaluate consumer protection policies in digital markets. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.06422 |
| By: | Gambato, Jacopo; Sandrini, Luca |
| Abstract: | We examine the strategic considerations and effects of product placement services in digital content aggregators, focusing in particular on Spotify's "Discovery Mode". Discovery Mode introduces bias in users' consumption bundle that content providers pay through discounted royalties, and triggers users to actively adjust to it in response. The platform's ability to manipulate consumption bundles (and adjust users' participation fee consistently) leads to promotion of the cheapest content available and degradation of users' effective consumption bundles. In equilibrium, Discovery Mode can either benefit or harm the provider of the cheapest content to stream, with the harm arising whenever Discovery Mode threatens to revert preexisting bias against said provider. Importantly, Discovery Mode always forces users to costly adjust their consumption more, unequivocally generating loss of efficiency in the market. We further highlight an indirect increase in the risk of market concentration stemming from the platform's ability to bias consumption. |
| Keywords: | platform economics, Discovery Mode, content aggregator, recommendation bias, streaming platforms |
| JEL: | D4 L1 L5 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:323931 |
| By: | Winston Wei Dou; Itay Goldstein; Yan Ji |
| Abstract: | The integration of algorithmic trading with reinforcement learning, termed AI-powered trading, is transforming financial markets. Alongside the benefits, it raises concerns for collusion. This study first develops a model to explore the possibility of collusion among informed speculators in a theoretical environment. We then conduct simulation experiments, replacing the speculators in the model with informed AI speculators who trade based on reinforcement-learning algorithms. We show that they autonomously sustain collusive supra-competitive profits without agreement, communication, or intent. Such collusion undermines competition and market efficiency. We demonstrate that two separate mechanisms are underlying this collusion and characterize when each one arises. |
| JEL: | D43 G10 G14 L13 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34054 |
| By: | Tomaso Duso; Joseph E., Jr. Harrington; Carl Kreuzberg; Geza Sapi |
| Abstract: | Competition authorities increasingly rely on economic screening tools to identify markets where firms deviate from competitive norms. Traditional screening methods assume that collusion occurs through secret agreements. However, recent research highlights that firms can use public announcements to coordinate decisions, reducing competition while avoiding detection. We propose a novel approach to screening for collusion in public corporate statements. Using natural language processing, we analyze more than 300, 000 earnings call transcripts issued worldwide between 2004 and 2022. By identifying expressions commonly associated with collusion, our method provides competition authorities with a tool to detect potentially anticompetitive behavior in public communications. Our approach can extend beyond earnings calls to other sources, such as news articles, trade press, and industry reports. Our method informed the European Commission’s 2024 unannounced inspections in the car tire sector, prompted by concerns over price coordination through public communication. |
| Keywords: | communication, collusion, NLP, screening, text analysis |
| JEL: | C23 D22 L1 L4 L64 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12029 |
| By: | Alviarez Vanessa; Fioretti Michele; Kikkawa Ken; Morlacco Monica |
| Abstract: | This paper derives a closed-form expression linking aggregate markups on imported inputs to concentration in a model of firm-to-firm trade with two-sided market power. Our theory extends standard oligopoly insights in two dimensions. First, it reveals that markups increase with exporter concentration and decrease with importer concentration, reflecting the balance of oligopoly and oligopsony forces. Second, it adapts conventional market definitions to reflect rigid trading relationships, yielding new concentration measures that capture competition in firm-to-firm trade. Analysis of Colombian transaction-level import data shows these differences are key to understanding markup dynamics in international trade. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.00345 |
| By: | Khan, Abhimanyu; Peeters, Ronald |
| Abstract: | We characterize stable market structures under price-competition in differentiated markets when multiple cartels may form. Market structures without cartelisation are never stable and always involve multiple small cartels, and, but for one knife-edge case, only involves multiple small cartels. Combined with the result that the unique stable market structure under quantity-competition is also characterised by multiple small cartels, this underscores the importance of considering the possibility of multiple cartels in competition policy. Comparing stable market structures under price and quantity competition, we find that prices and profits are higher under price-competition whenever the market is sufficiently differentiated or sufficiently concentrated. |
| Keywords: | multiple cartels; stable cartels; price competition; differentiated markets |
| JEL: | C70 D43 L13 |
| Date: | 2025–07–03 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125199 |
| By: | Justin Katz; Hunt Allcott |
| Abstract: | We present a new model of competition between digital media platforms with targeted advertising. The model adds new insights around how user heterogeneity and overlap, along with user and advertiser substitution patterns, determine equilibrium ad load. We apply the model to evaluate the proposed separation of Facebook and Instagram. We estimate structural parameters using evidence on diminishing returns to advertising from a new randomized experiment and information on user overlap, diversion ratios, and price elasticity from earlier experiments. In counterfactual simulations, a Facebook-Instagram separation increases ad loads, transferring surplus from platforms and users to advertisers, with limited total surplus effects. |
| JEL: | D12 L1 L4 L86 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34028 |
| By: | Zach Y. Brown; Alexander MacKay |
| Abstract: | We examine a model in which one firm uses a pricing algorithm that enables faster pricing and multi-period commitment. We characterize a coercive equilibrium in which the algorithmic firm maximizes its profits subject to the incentive compatibility constraint of its rival. By adopting an algorithm that enables faster pricing and (imperfect) commitment, a firm can unilaterally induce substantially higher equilibrium prices even when its rival maximizes short-run profits and cannot collude. The algorithmic firm can earn profits that exceed its share of collusive profits, and coercive equilibrium outcomes can be worse for consumers than collusive outcomes. In extensions, we incorporate simple learning by the rival, and we explore the implications for platform design. |
| JEL: | D43 L13 L40 L81 L86 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34070 |
| By: | Christoph Carnehl; Anton Sobolev; Konrad Stahl; André Stenzel; Konrad O. Stahl |
| Abstract: | We study information design in a vertically differentiated market. Two firms offer products of ex-ante unknown qualities. A third party designs a system to publicly disclose information. More precise information guides consumers toward their preferred product but increases expected product differentiation, allowing firms to raise prices. Full disclosure of the product ranking alone suffices to maximize industry profits. Consumer surplus is maximized, however, whenever no information about the product ranking is disclosed, as the benefit of competitive pricing always dominates the loss from suboptimal choices. The provision of public information on product quality becomes questionable. |
| Keywords: | information design, vertical product differentiation, quality rankings, competition |
| JEL: | D43 D82 L13 L15 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12038 |
| By: | Rémi Avignon; Claire Chambolle; Etienne Guigue; Hugo Molina |
| Abstract: | This article bridges monopoly, monopsony, and countervailing power theories to analyze their welfare implications in a vertical supply chain. We develop a bilateral monopoly model with bargaining that accommodates upstream monopsony and downstream monopoly power. In equilibrium, the ‘‘short-side rule'' applies: the quantity exchanged is determined by the firm willing to trade less. Welfare is maximized when each firm's bargaining power exactly countervails the other's market power. Otherwise, double marginalization arises in the form of double markdownization under excessive downstream bargaining power, or double markupization under excessive upstream bargaining power. We offer novel insights for price regulation and competition policy. |
| Keywords: | markups, markdowns, bargaining, countervailing buyer power, monopsony power, bilateral monopoly |
| JEL: | C78 D42 J42 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12026 |
| By: | Yukihiro Nishimura (Osaka University and CESifo) |
| Abstract: | Online markets like app stores are typically characterized by a monopoly who set prices on both sides — the prices of the network good (such as iPhone) and the commission fee to participating firms. There is an ongoing concerns on the welfare consequences of imperfect competition, where the antitrust authorities in the EU are keen about the monopolistic commission fee. With online apps as a representative example, this study investigates the welfare effects of price ceiling policies. The following results are shown. If the network-size externality on apps’ price is stronger than the app variety’s network externality, then, first, the price ceiling on the network good increases both the producer surplus of the app developers and the consumer surplus of the end-users. Second, in contrast, the price ceiling on the commission fee for the developers reduces the consumer surplus. The reverse proposition holds when the order of the strength of two network externalities is reversed. By the level of the unconstrained equilibrium commission fee, a regulator can identify which policy would make both consumers and developers better off. |
| Keywords: | Digital economy; Platform; Antitrust pricing; Network externality |
| JEL: | F23 L13 D85 K21 L86 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2505 |
| By: | Markus Dertwinkel-Kalt; Christian Wey |
| Abstract: | We analyze the equilibrium effects of different subsidies on target goods under both perfectly competitive and monopolistic market structures. We concentrate our analysis on three particularly common forms of subsidies: (i) a per-unit subsidy, (ii) an ad valorem subsidy, and (iii) an "inversely related" subsidy, which increases as the price of the target good decreases. To evaluate the price effects of the subsidies, we rely on two criteria, an "equal-relief" criterion - which relies on a pass-through analysis - and a cost‑effectiveness criterion. Overall, the ad valorem subsidy always yields the strongest price-increasing effect, whereas an inversely related subsidy leads to the lowest price increase. Consequently, the ad valorem subsidy induces the largest output expansion under perfect competition, whereas the inversely related subsidy dominates the other subsidies in a monopoly under both criteria. Those findings are consistent with several empirical facts, such as observed price differences for green target goods across European countries. |
| Keywords: | subsidies, target coods, equal-relief, pass through, cost effectiveness |
| JEL: | D04 D40 H20 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12010 |