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on Industrial Organization |
| By: | Gautam Gowrisankaran; Christopher D. Bruegge; Alex Gross |
| Abstract: | Analyses of impacts of potential mergers in differentiated product markets often rely on non-transparent identification and strong conduct assumptions. We propose a simpler alternative: using quasi-exogenous variation in market structure to estimate equilibrium pricing policy functions. When price can appropriately capture consumer welfare, this methodology may require fewer assumptions than a structural equilibrium approach, including allowing variation in conduct. We apply this methodology to the JetBlue–Spirit merger, estimating policy functions using entry events. Our counterfactual price simulations account for changes in JetBlue’s capacity and Sprit’s elimination. The merger would cause $2.6 billion in annual harm under our preferred specification. |
| JEL: | L13 L41 L93 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35787 |
| By: | Joshua S. Gans |
| Abstract: | Why might firms make different claims in advertising both with respect to themselves and to rivals? I study how claims direct consumers to different customer experiences, and how prices change the available evidence. Attributing successes to the advertiser requires a low price when its product is superior; attributing failures to the rival supports a higher price. Focussing on a single strategic advertiser, the model shows that the claim that attracts the most customers to a superior product never maximises profit. The optimal campaign raises advertiser profit but lowers consumer surplus relative to fully informed choice, and reduces total welfare whenever product reliabilities differ. When both firms choose claims and prices, competition can sustain a mix of positive and negative claims with price dispersion, restoring claims that a lone advertiser would reject. A rival's pricing response alone can make failure attribution optimal by weakening incentives to undercut. Allowing the rival to advertise can lower both prices and shift customers towards it if the incumbent retains its previous claim; allowing the incumbent to change its claim can eliminate this additional effect. Advertising, therefore, changes not only persuasion but also pricing incentives, making its market consequences different from its effects at fixed prices. |
| JEL: | D83 D91 L13 M31 M37 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35770 |
| By: | Takanori ADACHI; Naoshi DOI |
| Abstract: | We study cost pass-through under nonlinear pricing when a monopolistic seller offers a single good in two fixed package sizes to heterogeneous consumers. Building on the Edgeworth–Salinger paradox of taxation, we show that Edgeworth-type price responses can arise across package sizes of the same underlying product. A common increase in per-unit marginal cost may induce the seller to lower the per-unit price of the small package while raising that of the large package. Under multinomial logit demand, pass-through to the large package is analytically greater than pass-through to the small package. Numerical analysis shows that this ordering is remarkably robust to random-coefficient demand heterogeneity. Negative pass-through for the small package is quantitatively important and becomes substantially more likely as the difference between package sizes increases. Consumer sorting also matters: a more positive correlation between price sensitivity and preferences for larger packages increases the likelihood of negative pass-through for the small package and widens the pass-through gap across package sizes. Thus, nonlinear pricing can transform a common supply-side cost shock into sharply different price responses across quantities purchased, with potentially important implications for the distributional incidence of cost shocks. |
| Keywords: | Pass-through; Quantity discounts; The Edgeworth-Salinger paradox. |
| JEL: | D42 D43 H22 L11 L13 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:kue:epaper:e-26-002 |
| By: | Irene Di Marzio (Bank of Italy); Sara Pinoli (Bank of Italy) |
| Abstract: | Mergers and acquisitions (M&As) play a key role in the restructuring of the business sector, with potential implications for economic growth, allocative efficiency, market power and the public interest. This paper uses data from the Chambers of Commerce and Moody's Orbis, documents M&A deals in Italy and other major European Union countries to describe the firms involved and examine the effects of M&As on firm performance. The main findings show that, over the past decade, approximately 6, 000 operations per year have been recorded in Italy, with the trend increasing over the last five years. M&As have primarily involved firms that are more technologically advanced, both in manufacturing and services, and have contributed to the consolidation of the production system. Within five years of the deal, employment in the consolidated firm is about 4 per cent lower than it would have been without the deal. This evidence is partly due to divestitures of business units, consistent with processes of productive reorganization. The impact of M&A transactions varies depending on the competitive environment: in less internationally exposed sectors, an increase in market power is also observed, whereas no significant effects are found in tradeable sectors. |
| Keywords: | mergers and acquisitions, firm performance, market power, competition |
| JEL: | G34 L25 L40 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:opques:qef_1045_26 |
| By: | Jacob T. Hess (Banco de España); Xufeng Wang (KU Leuven) |
| Abstract: | We study how revenue productivity (TFPR) and markups evolve after mergers across the economy. In financial-statement data, targets cease to exist as reporting entities after a deal, so tracking the merged firm requires constructing the combined acquirer-target unit before the merger. We formalize the biases that arise without this correction and implement it across 3, 759 horizontal mergers in Spain between 1997 and 2022. Revenue productivity rises by approximately 4% within eight years and markups by approximately 5% to 6%. The breakdown by industry reveals that revenue productivity gains are broad-based, while markup increases are concentrated. Most industries show modest markup effects of 3% or less, with the largest increases occurring in two industries accounting for a small share of deals, led by human health activities. We find that without the boundary correction, both estimated effects reverse sign. The results suggest that mergers tend to raise the revenue productivity of the combined firm across the board, consistent with operational improvements, while large markup increases are a feature of specific industries rather than a general consequence of consolidation. |
| Keywords: | mergers and acquisitions, revenue productivity (TFPR), markups, consolidation |
| JEL: | C23 D24 G34 L41 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2631e |
| By: | Dorfs, Wiebke; Hampel, Maximilian; Bryson, Joanna J. (Hertie School) |
| Abstract: | Technological progress plays a crucial role in international relations. In particular, innovation has long been theorized as instrumental to power transitions. It is therefore unsurprising that the return of China as a global superpower and its technological advances has triggered considerable discussion. One narrative that has emerged is that of a binary "AI Cold War" competition between China and the US, similar to the 1947-1991 competition between nuclear superpowers. Another though is that the digital and information revolutions should facilitate technology and therefore power diffusion. Here we examine the claim of a binary competition, examining the state and trajectory of global AI competition for the years 2018, 2019, 2021, 2022, 2023, 2024 and 2025. We use AI patents defended globally in the WIPO database and the market capitalization of the companies holding them as proxies for innovation and market power. We find that the binary narrative underestimates the strength of other actors globally, notably but not exclusively the European Union and Japan. These are comparable to China, and on the innovation metric with the US. In terms of market power, the US is a significant outlier, with an order of magnitude more capital concentration. Our research therefore indicates that any binary AI cold war narrative is not data-led. |
| Date: | 2026–09–05 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:nk7ja_v1 |
| By: | Yu (Jasmine); Hao |
| Abstract: | This paper studies how Chile's three largest pharmacy chains moved from the price war to collusion, using court-record daily prices and a structural model. After a court-ordered advertisement ban ended the comparison campaign, the estimated gain from loss-leader pricing fell sharply, weakening the incentive to continue the price war. The chains then used an upstream supplier as intermediary to verify a collusive price-leadership procedure. Once verified, they applied it to restore margins on former loss leaders. They then raised prices further to extract rents. These increases spread more slowly than margin restoration. The Adaptive Confidence specification allows a subjective belief about follower participation to update. It more closely matches the cumulative spread of rent extraction than the Unit Confidence specification. Unit Confidence imposes the rational-belief benchmark by fixing the leader's weight at one. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.14487 |
| By: | Yi Chen; Fei Li; Marcel Preuss |
| Abstract: | We study revenue-maximizing attention allocation on an ad-funded social media platform governed by recommendation algorithms. Attention is costly and can be monetized through advertising or allocated to increase creators' exposure, creating a trade-off between monetization and production incentives. In a two-sided model with heterogeneous viewers and creators under private information, the optimal recommendation mix includes content that is ex post suboptimal for some viewers to leverage network externalities. These distortions are targeted: low-ability creators are excluded, while high-ability creators are subsidized through exposure or monetary payments. Two-sided complementarities reshape content variety and quality, with implications for personalization regulation and advertising markets. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.15573 |
| By: | Shota Ichihashi; Doh-Shin Jeon; Byung-Cheol Kim |
| Abstract: | Many digital platforms earn revenue by selling content access and displaying ads. We study monopoly screening by a platform allocating heterogeneous content and ads to heterogeneous consumers. Advertising generates revenue and affects information rents through nuisance, which alters the platform's incentives to allocate content. The optimal mechanism balances a trade-off between advertising and rent extraction: Expanding content access increases advertising revenue but reduces sales revenue by raising information rents. The mechanism features novel distortions in content access and ad exposure, rationalizes contracts across ad-supported platforms, and explains why greater ad profitability may weaken incentives to invest in content quality. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.12870 |