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on Industrial Organization |
| By: | Susan Athey; Fiona Scott Morton |
| Abstract: | We study how market power in artificial intelligence (AI) shapes wages and welfare in open-economy general equilibrium by treating AI as a priced, imported factor. Across three models, we separate technical efficiency from the impact of upstream price setting. In a two-traded-goods benchmark, the incidence of AI price changes depends on how sectoral skill intensity changes with AI prices; non-monotone intensity can generate “double harm” for unskilled workers (lower real wage after a large decrease in the price of AI, and real wage decreases further when the AI price rises as a result of market power). With one non-traded sector, we observe that the classic “Dutch disease” effect here would arise when one sector gets more productive and draws labor away from other sectors, creating scarcity and raising prices; but this is not what we expect from the introduction of labor-substituting AI. In contrast, our last model considers two non-traded sectors and CES/free entry, and the opportunity for discrete adoption of technology that replaces unskilled labor from the AI-using sector. When AI reduces unit costs and increases variety, it will not pull U from non-tradables, instead it will displace workers from the AI-using sector and lower wage due to diminishing returns in alternative sectors. Strategic upstream pricing of AI then harms welfare through unit-cost (usage fees) and variety (access fees) channels, with income leakage abroad. We derive an adoption frontier tying feasible usage prices to displaced workers’ outside options and show a monopolist typically prices on this boundary; capping one instrument shifts rents to the other. Broad gains for the adopting country relies on pressure (or regulation) on both usage and access fees and as well as policy that supports productive absorption of displaced labor. The framework clarifies when AI can lower real wages and aggregate welfare despite efficiency gains. |
| JEL: | L10 L12 L4 L40 L5 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34444 |
| By: | Rafael Guntin (UNIVERSITY OF ROCHESTER); Federico Kochen (BANCO DE ESPAÑA AND CEMFI) |
| Abstract: | What are the origins of top firms? What features characterize their life cycle trajectories on the way to the top? Using longitudinal firm-level data, we document novel facts about the first twenty years of the firms that reach the top 1 percent of the size distribution. Compared to the firms in the bottom 99 percent, top firms are eight times larger at entry and grow six times more during their first two decades. In terms of inputs, they start with high capital investments, yet their capital-output ratio and labor share decline as they age. As a result, their profit share is much more backloaded towards the second decade of their life cycle. We show that a firm dynamics model with ex-ante heterogeneity, non-homothetic input costs, and forward-looking financing can explain these empirical patterns. Our quantitative results showcase the importance of accounting for top and bottom firm dynamics for the aggregate implications of financial frictions, recent macroeconomic trends, and corporate taxation. |
| Keywords: | top 1 percent, firm size distribution, firm dynamics, financial frictions |
| JEL: | E44 O47 G30 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2541 |
| By: | Hans-Theo Normann; Nina Ruli\'e; Olaf Stypa; Tobias Werner |
| Abstract: | We analyze the delegation of pricing by participants, representing firms, to a collusive, self-learning algorithm in a repeated Bertrand experiment. In the baseline treatment, participants set prices themselves. In the other treatments, participants can either delegate pricing to the algorithm at the beginning of each supergame or receive algorithmic recommendations that they can override. Participants delegate more when they can override the algorithm's decisions. In both algorithmic treatments, prices are lower than in the baseline. Our results indicate that while self-learning pricing algorithms can be collusive, they can foster competition rather than collusion with humans-in-the-loop. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.27636 |
| By: | Chongwoo Choe; Antoine Dubus; Noriaki Matsushima; Shiva Shekhar |
| Abstract: | Marketplace platforms are central players in online retail and are in an advantageous position to leverage data generated by third-party sellers. This paper analyzes how a platform's encroachment decision - whether to enter its marketplace as a direct competitor - is shaped by regulations that restrict its use of seller data. We show that the platform's encroachment decision follows a non-monotonic pattern: it enters against sellers with either relatively low or sufficiently high brand value, but remains a pure intermediary for intermediate brand values. The data ban regulation alters this strategy by making the platform more likely to exclude low brand-value sellers and more likely to accommodate high brand-value sellers. The implication is that, while such regulation can enhance competition in markets with high-value sellers, it can inadvertently harm sellers and reduce consumer surplus in emerging markets, where sellers typically lack brand recognition and depend on platform visibility. These results underscore the need for more nuanced regulatory approaches - promoting data sharing in emerging markets and targeted bans in mature, established markets - to better balance welfare and competition. |
| Keywords: | marketplace platforms, data regulations, digital markets act, innovation |
| JEL: | L21 L51 L42 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12233 |
| By: | Luise Eisfeld (University of Lausanne) |
| Abstract: | New entry is thought to be the primary competitive margin in software markets. I study how acquisitions of venture capital-funded startups affect entry incentives. I assemble a product-level dataset of enterprise software and use text-as-data methods to define markets. I build and estimate a dynamic entry model where acquisitions affect returns to entry via (1) changes in market structure and (2) an entry-for-buyout incentive. In counterfactual simulations, banning all startup acquisitions reduces entry by about 16% in the average market, whereas blocking high-priced deals conducted by incumbents slightly raises entry. These results indicate which acquisitions might merit prioritized scrutiny. |
| Keywords: | Mergers and Acquisitions, Antitrust, Entry, Startups, Enterprise Software, Innovation |
| JEL: | G34 L22 L26 L49 L86 M13 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp2593 |
| By: | Lucas W. Davis; Paige E. Weber |
| Abstract: | Hundreds of power plants have closed in the United States since 2010, including 130+ gigawatts of coal and 50+ gigawatts of natural gas. In this paper, we highlight the potential for regulation to distort this type of exit decision. Using generator-level data from 2010–2023, we show that regulated units have been 45% less likely to exit than unregulated units. For unregulated units, exit decisions are made based on wholesale electricity prices, ongoing capital costs, and other traditional economic factors. In contrast, owners of regulated units are largely insulated from these factors and, in some cases, have a strong incentive to continue operating capital-intensive equipment. Previous work documents how this regulatory distortion affects investment decisions. Our paper emphasizes that these same incentives affect exit decisions as well. |
| JEL: | D24 L94 Q41 Q48 Q54 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34454 |
| By: | Tatyana Deryugina; Alminas Zaldokas; Anastassia Fedyk; Yuriy Gorodnichenko; James Hodson; Ilona Sologoub |
| Abstract: | We develop a novel, scalable method for assessing the quality of public procurement systems using standard administrative data. Our approach compares the distribution of procurement opportunities to the distribution of contract awards across firms. We first derive a simple theoretical benchmark that relates the expected distribution of contract value winning firms, measured as a Herfindahl-Hirschman index (HHI), to the distribution of auction values, measured as a respective HHI, and the number of winning firms. Significant deviations of winning firms' HHI from this benchmark indicate potential governance failures such as corruption or unchecked collusion. Our method requires no subjective input, is transparent and reproducible, and allows for meaningful comparisons across countries, industry sectors, and over time. We use procurement data from Ukraine and EU member states in 2018-2021 to assess the performance of five large sectors. Results indicate that Ukraine's procurement performance in four of the five sectors is comparable to many other European countries. However, Ukraine's construction sector consistently displays the largest excess concentration among all countries considered, consistent with anecdotal evidence of corruption in this sector. Overall, with minimal data requirements, our method offers a practical tool for cross-sector and cross-country assessment of procurement systems. |
| Keywords: | procurement, corruption, Ukraine, collusion |
| JEL: | D73 L10 H11 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12250 |
| By: | Baksy, Aniket (University of Melbourne); Chandler, Daniel (LSE); Lambert, Peter John (LSE & University of Warwick) |
| Abstract: | Using a novel proprietary survey of UK manufacturing sites, we study the impact on employment of arguably the two most important industrial automation technologies of the past fifty years: computer numerical control (CNC) machine tools and industrial robots. First, we document the growing prevalence of both technologies across a wide range of industries between 2005 and 2023. Second, we use a local-projection difference-in-difference design to show that plants that adopt these technologies for the first time increase their employment by 6% to 9% compared to non-adopting plants in the same industry. Third, we find that for both technologies, automation is associated with an increase in employment among industry-competitor sites, and a positive overall impact on industry-level employment. |
| Keywords: | Automation, Manufacturing, Employment, Technology Adoption, Robots JEL Classification: J23, L60, O33, D24, J63 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:cge:wacage:778 |
| By: | Justus Haucap; Mehmet Karacuka; Hakan Inke |
| Abstract: | Utilizing Connor’s International Cartel Database and employing difference-in-differences methodology, we find that market concentration, the number of buyers and cartel duration have significant impacts on cartel overcharges. We also find that the European Commission's 2006 guidelines on the method of setting fines for cartel infringements seems to have decreased cartel overcharges in the EU. In addition, the EU’s cartel damages directive of 2014 (2014/104/EU) appear to have increased private damage payments. Overall, we find support that these two changes in EU competition policy have a reversing impact on the otherwise increasing trend of cartel overcharges, as making the infringement more costly at least in the EU. |
| Keywords: | cartel fines, cartel damages, EU guidelines, competition law, antitrust |
| JEL: | L41 K21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12259 |
| By: | Doron Sayag; Avichai Snir; Daniel Levy |
| Abstract: | In 1991 and 2008, Israel abolished the equivalents of 1-cent and 5-cent coins, respectively, effectively eliminating low-denomination coins and introducing rounding in cash transactions. When totals were rounded up, shoppers incurred a small rounding tax. Using detailed data on price endings and basket sizes across supermarkets, drugstores, small groceries, and convenience stores, we estimate that the magnitude of the rounding tax borne by Israeli consumers averaged only between 0.001 percent and 0.002 percent of revenues in the fast-moving consumer goods markets. These findings have implications for the ongoing debate regarding the desirability and viability of abolishing the 1-cent and 5-cent coins in the US. |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.05599 |
| By: | Davide Luparello |
| Abstract: | Contract workers constitute half of employment in India’s automotive industry but earn substantially less than permanent workers. Using data from the Annual Survey of Industries (2002-2019), I develop an estimator of labor supply and demand schedules to explain this wage premium. The model features nested CES production with distinct worker types, discrete choice supply functions with worker type-specific wage sensitivity and differentiated market conduct—Nash-Bertrand competition for contract workers versus plant-level union bargaining for permanent workers. I find that the wage premium stems entirely from permanent workers’ higher productivity rather than differential monopsony power or unionization advantages. |
| Keywords: | Markdowns, Markups, Productivity, India |
| JEL: | L11 L13 L62 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp25258 |