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on Industrial Organization |
| By: | Sergei Kichko (Department of Economics and Management, University of Trento and CESifo); Marco A. Marini (Department of Social and Economic Sciences, Sapienza University of Rome); Riccardo D. Saulle (Department of Economics and Management, University of Padova); Jacques-Francois Thisse (CORE-UCLouvain and CEPR) |
| Abstract: | This paper extends the CES model of monopolistic competition to the case where varieties are both horizontally and vertically differentiated. A distinctive feature of our model is the presence of a network externality, which operates through the number of varieties available at each quality level. Depending on the quality gap, there are corner equilibria in which consumers purchase only high-quality or low-quality varieties, or an interior equilibrium in which consumers are split between the two qualities. Unlike the CES model of monopolistic competition, the equilibrium is never efficient and the market may even select the outcome with the lowest surplus. |
| Keywords: | Monopolistic competition, vertical differentiation, horizontal differentiation |
| JEL: | D42 D43 L1 L12 L13 L41 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:fem:femwpa:2026.11 |
| By: | Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University) |
| Abstract: | Network connectivity is an important function in network industries. Based on the framework of a Hotelling model, we consider the impact of connectivity between network goods on incentives to innovate product R&D activities and profits. To explore the problems, we focus on the following three perspectives: market coverage (i.e., full and partial coverage), consumer expectations (i.e., rational and active expectations), and asymmetric firms (i.e., a high- and low-quality firm). Our findings are as follows. In the full market coverage case, the impact of connectivity on product R&D activities and profits depends on the type of consumer expectations and the difference in the quality of the firms. However, in the partial market coverage case, as connectivity improves, product R&D activities and profits increase, irrespective of the type of consumer expectations and the difference in the quality of the firms. |
| Keywords: | Network externality, Connectivity, Compatibility, Horizontal interoperability, R&D competition, Market coverage, Consumers' expectations, Firms' heterogeneity, Quality |
| JEL: | L13 L15 L31 L32 D43 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:309 |
| By: | Denis Claude (LEDi - Laboratoire d'Economie de Dijon [Dijon] - UBE - Université Bourgogne Europe); Mabel Tidball (CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier) |
| Abstract: | This paper revisits Heinrich F. von Stackelberg's original description of leader-follower games under incomplete information, exploring how learning dynamics shape strategic interaction. The leader iteratively updates its conjecture about the follower's reaction function before choosing an activity level that maximizes its payoff. The follower, in turn, responds optimally to each activity level, revealing information that the leader uses to refine its conjecture. Assuming linear conjectures, a smooth updating process à la Jean-Marie and Tidball [2006], and quadratic payoff functions, we establish conditions under which the learning process converges asymptotically to a self-confirming steadystate. We characterize the resulting activity levels and payoffs in two canonical environments: a sequential partnership game and a sequential duopoly game with quantity competition. We then compare the learning outcomes to both the (complete information) Stackelberg and the cartel solution. In the process, we find conditions under which the lack of information and the resulting strategic ambiguity lead to higher joint payoffs, and under which usual intuitions about the first-mover advantage need qualifications. |
| Keywords: | Leader-follower game, incomplete information, conjectures |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05571970 |
| By: | Luke Heeney; Christopher R. Knittel; Jasdeep Mandia |
| Abstract: | In many modern industries, firms compete in differentiated-product markets while relying on complex global value chains for intermediate inputs. In such settings, trade policies such as tariffs on vehicles and parts operate not only through consumer substitution and firm pricing, but also through firms’ cost structures and sourcing decisions. We develop a structural model of the U.S. automobile market that integrates random-coefficients demand, multiproduct firm pricing, and a flexible supply-side framework in which shocks to the cost of imported parts transmit imperfectly into manufacturers’ marginal costs. The model is disciplined by novel model-level data on imported-parts exposure and exploits exchange-rate variation to identify cost pass-through. Our counterfactual analysis quantifies the effects of alternative tariff policies on prices, profits, and welfare. First, tariffs on imported vehicles alone reallocate demand toward domestically assembled products and increase U.S. producer surplus, generating a gain of approximately $1 billion for U.S.-headquartered firms, while reducing consumer surplus by about $14 billion. Second, extending tariffs to imported intermediate inputs fundamentally alters these effects: consumer surplus losses roughly double, and producer surplus for U.S.-headquartered firms declines by about $2.6 billion. These aggregate effects mask substantial heterogeneity: firms with greater exposure to imported parts experience losses, whereas those relying more on domestic inputs are better able to increase profits. Overall, the results show that tariff incidence depends critically on firms’ exposure to global value chains and cannot be inferred from final assembly locations alone. |
| JEL: | F13 L13 L62 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35023 |
| By: | Davis, Kyle (University of Oklahoma); Ransom, Tyler (University of Oklahoma); Black, Christopher (University of Oklahoma); Larson, Daniel (University of Oklahoma) |
| Abstract: | This study examines the extent to which market size disparity across franchises—measured as the coefficient of variation of MSA populations—moderates the effectiveness of competitive balance interventions (CBIs) in Major League Baseball (MLB), the National Football League (NFL), the National Basketball Association (NBA), and the National Hockey League (NHL) from 1967 to 2023. Using two-way fixed effects models with multiple balance measures, we find that CBI effectiveness depends on the distribution of market sizes across league members. Jointly adopting a salary cap and floor improves competitive balance at low levels of market size disparity but is ineffective at high levels. Revenue sharing shows limited effects. Luxury taxes are associated with worsened competitive balance in high-disparity leagues. Our findings demonstrate that market size disparity not only affects competitive balance directly but also determines which interventions succeed. These results have direct relevance to recent discourse on competitive balance in MLB. |
| Keywords: | competitive balance, salary floor, salary cap, market size disparity, Major League Baseball |
| JEL: | L83 L51 C23 D63 L11 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18491 |