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on Industrial Organization |
| By: | Dihan Zou |
| Abstract: | We study monopoly regulation when capacity is contractible but subsequent output is not. A firm privately observes its production cost before installing costly capacity and then choosing output, while the regulator cannot use transfers. We provide sufficient conditions under which a single capacity floor implements an optimal mechanism with full participation. The floor raises output by changing investment while leaving utilization to the firm after installation costs are sunk. Under additional conditions, the allocation has three regions: laissez-faire, full utilization of the floor, and underutilization. High-cost types knowingly install capacity they will not fully use, yet produce more than under laissez-faire. This physical waste is a necessary evil of optimal regulation that expands service. We also show that underutilization can persist in optimal regulation with capacity-contingent subsidies or a common entry fee. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.07189 |
| By: | Jo\~ao Thereze (Fuqua School of Business, Duke University); Udayan Vaidya (Fuqua School of Business, Duke University) |
| Abstract: | We take a revealed-preference approach to study the welfare effects of price discrimination. An analyst observes price and quantity data before and after a monopolist segments the market. The analyst knows neither the aggregate demand curve nor the information available to the monopolist. We characterize the set of observable price-quantity pairs that are rationalizable by some market segmentation. We then obtain sharp bounds on the change in consumer surplus arising from some segmentation. Finally, we provide conditions under which the data identifies an unambiguous increase (decrease) in consumer surplus. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.10172 |
| By: | Gaetano Alfredo Minerva |
| Abstract: | I propose a mechanism for the coexistence of vertical integration and outsourcing within an industry. In a monopolistically competitive model with incomplete contracts, final-good producers under either organizational form combine labor and differentiated inputs to produce fixed capital. Since its unit cost depends on the industry price index, distinct zero-profit conditions can hold, sustaining a mixed free-entry equilibrium. The forms differ in fixed-capital cost per unit of contribution to the price index; this ranking determines comparative statics and whether local stability is possible. I derive a sufficient condition ensuring stability whenever the mixed equilibrium exists. In numerical parameterizations using empirically standard elasticities of substitution, the condition holds throughout the admissible range of vertical-linkage intensity. Within the stable region, larger markets raise the integrated share without changing output prices or supplier bargaining terms. Relative firm size depends on governance costs and upstream bargaining share, so the model imposes no uniform ranking. |
| JEL: | C62 D23 D43 F12 L23 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bol:bodewp:wp1233 |
| By: | Carballido Cerqueiro, María; Carro, Jesús M.; Siotis, Georgios |
| Abstract: | This paper aims to better understand competitive rivalry in the US airline industry over the last 25 years. First, it contributes to a better understanding of the procompetitive "Southwest effect" over the period 2000-2025. We show that this effect can clearly be identified during the first part of our sample period, but disappears circa 2016, when Southwest culminated a process of strategic re-orientation and appears to have started behaving like legacy carriers. Second, we find that Southwest presence on a route flattened the relationship between air fares and Multimarket Contact (MMC) until the mid-2010s; since then, the two groups of routes have converged. Third, we document that the effect of MMC on fares has diminished over time. We conjecture that this may be due to increased concentration and symmetry among major players. Fourth, our results indicate that a linear specificationto identify the relationship between MMC and fares may be adequate until2007. This is no longer the case afterwards: the data point to a non-monotonic U/V-like shape, first on routes with Southwest and, from 2016, on all routes. Fifth, the pandemic seems to have led to a temporary breakdown in tacit collusion, but only on routes where Southwest was not present; once the COVID-19 crisis ended, the long-run evolution of the MMC-fare relationship resumed. |
| Keywords: | Southwest effect; Multimarket contact; Airline industry; Demand shock; Pandemic |
| Date: | 2026–10–07 |
| URL: | https://d.repec.org/n?u=RePEc:cte:werepe:50949 |
| By: | Jun Yeong Lee |
| Abstract: | Evidence that pricing algorithms collude comes from markets in which every seller runs the same algorithm. We ask what happens when they do not. Four language models from four providers, each at its cheapest tier, price in a four-firm logit Bertrand market without communication, in every homogeneous, two-by-two and fully mixed composi- tion (11 cells, 20 runs, 200 periods). Collusion is a property of the model: Claude and Gemini markets reach 72 to 79 percent of the monopoly rent, DeepSeek markets 24 percent, and GPT markets none, though GPT prices drift above the monopoly level rather than toward competition. Mixing does not reduce collusion by itself. Markets containing Gemini, which opens at the highest price and settles highest, are more col- lusive than the homogeneous markets they are built from; markets containing Claude, which opens lower and follows its rivals down, are less so; and only the fully mixed market is significantly less collusive than the average homogeneous one. Stability de- pends on the least stable participant: two GPT firms suffice to keep any market from converging. Inside mixed markets the rent is shared in a transitive order, DeepSeek over Claude over Gemini over GPT, that inverts the anchor ranking. The model that raises the price collects the least of the rent, as the price-leadership model predicts. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.11256 |
| By: | Javier Donna (University of Miami-Rimini Center for Economic Analysis); E. Mina Guler (University of Miami) |
| Abstract: | A federal court blocked JetBlue’s acquisition of Spirit Airlines in January 2024 to protect consumers who relied on Spirit’s low fares. Spirit failed anyway and ceased operations in May 2026. We ask whether the prohibition protected consumers. Using DB1B data for 2022–2025, we estimate the effect of Spirit’s exit across the 1, 427 routes it served. The 5th and 10th percentile fares rise by 8.6 and 5.8 log points; mean and median fares are unaffected. Where a carrier entered, the bottom is unaffected and mean fares fall. Theharm comes from exit without replacement, which entry policy does not reach. |
| Keywords: | Ultra-low-cost carriers; Entry and exit; Merger enforcement; Failing firm defense; Fare distribution; Antitrust |
| JEL: | L93 L41 L13 L51 K21 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:409 |
| By: | Kurt R. Brekke; Odd Rune Straume; Lars Sørgard |
| Abstract: | Book markets are characterised by common distribution through competing bookstores and vertical integration between publishers and bookstore chains, and in many countries publishers are allowed to set fixed book prices (FBP) in the bookstores. Under vertical separation, FBP can reduce retail prices when publishers have sufficiently strong bargaining power, as the elimination of double marginalisation outweighs the loss of intra-brand competition. We show that vertical integration fundamentally changes this trade-off. It eliminates double marginalisation inside the chain, thereby substantially reducing the scope for FBP to lower retail prices. But since FBP eliminates retail price differences on the same title, the allocative distortions are reduced when imposing FBP and consumer welfare and total welfare are no longer aligned. We find that, in the presence of vertical integration, the introduction of FBP is less likely to benefit consumers and more likely to benefit publishers than in an industry with vertical separation. |
| Keywords: | fixed book prices, vertical integration, double common agency |
| JEL: | D43 K21 L42 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13042 |
| By: | Alden Cheng; Riley League |
| Abstract: | We study strategic responses by firms to threshold-based regulations. We document extensive bunching in response to additional staffing requirements for California nursing homes with at least 100 beds. To estimate the regulation’s effect on staffing, we develop a novel treatment effects estimator for threshold-based regulations under precise manipulation, by decomposing firms into response types based on counterfactual and realized staffing and size, separating causal effects from selection. We estimate that higher staffing above the threshold is nearly entirely due to selection, with low-staffing facilities manipulating their size to avoid the regulation. These size distortions limit access, particularly for disadvantaged patients. |
| JEL: | I11 I18 L51 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35849 |
| By: | Filip Premik (Department of Economics, Monash University, Melbourne, Australia; Group for Research in Applied Economics (GRAPE), Warszawa, Poland); Dan Yu (Department of Resource Economics and Environmental Sociology, University of Alberta, Edmonton, Canada) |
| Abstract: | We study how heterogeneity in capital inputs affects firm performance. Drawing on detailed data on municipal bus fleets in Poland, we exploit plausibly exogenous variation generated by public procurement and nationally coordinated sales behavior of bus manufacturers to identify the causal effects of variety in fleet composition across brands and other technical dimensions. More heterogeneous fleets exhibit lower vehicle utilization and, for a fixed level of output, require more units of capital and generate higher costs. Our results emphasize that the productive capacity of capital depends on its internal structure, not only on its aggregate quantity or value. |
| Keywords: | Heterogeneous capital; capital utilization; productivity; fleet composition; organization of production |
| JEL: | D24 L23 L62 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:fme:wpaper:121 |