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on Industrial Organization |
| By: | Shengyu Cao; Ming Hu |
| Abstract: | We study how delegating pricing to large language models (LLMs) can facilitate collusion in a duopoly when both sellers rely on the same pre-trained model. The LLM is characterized by (i) a propensity parameter capturing its internal bias toward high-price recommendations and (ii) an output-fidelity parameter measuring how tightly outputs track that bias; the propensity evolves through retraining. We show that configuring LLMs for robustness and reproducibility can induce collusion via a phase transition: there exists a critical output-fidelity threshold that pins down long-run behavior. Below it, competitive pricing is the unique long-run outcome. Above it, the system is bistable, with competitive and collusive pricing both locally stable and the realized outcome determined by the model's initial preference. The collusive regime resembles tacit collusion: prices are elevated on average, yet occasional low-price recommendations provide plausible deniability. With perfect fidelity, full collusion emerges from any interior initial condition. For finite training batches of size $b$, infrequent retraining (driven by computational costs) further amplifies collusion: conditional on starting in the collusive basin, the probability of collusion approaches one as $b$ grows, since larger batches dampen stochastic fluctuations that might otherwise tip the system toward competition. The indeterminacy region shrinks at rate $O(1/\sqrt{b})$. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.01279 |
| By: | Joshua S. Gans |
| Abstract: | This paper shows that income effects create an endogenous barrier to arbitrage, allowing price discrimination to survive costless resale. A monopolist sells an indivisible good to consumers with heterogeneous incomes who can freely resell. When the good is strictly normal, a consumer's reservation price to resell increases as the purchase price decreases—lower prices leave buyers wealthier and raise their valuation of the good. The monopolist exploits this by subsidising low-income consumers to raise their reservation prices to a target that high-income consumers must also pay. The optimal schedule increases dollar-for-dollar with income in the subsidised segment, weakly dominates uniform pricing, and achieves the first-best allocation when the entire market is served. We show the mechanism extends beyond income effects: low substitutability with market alternatives generates large reservation-price responses even when income sensitivity is modest. Sustaining discrimination requires market power at the individual level—consumer-specific quantity limits—not merely aggregate output restrictions. Extensions examine multiple monopolists and endogenous privacy choices. |
| JEL: | D11 D42 L12 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34669 |
| By: | Haibo Wang; Takeshi Tsuyuguchi |
| Abstract: | Major bank mergers and acquisitions (M&A) transform the financial market structure, but their valuation and spillover effects remain open to question. This study examines the market reaction to two M&A events: the 2005 creation of Mitsubishi UFJ Financial Group following the Financial Big Bang in Japan, and the 2018 merger involving Resona Holdings after the global financial crisis. The multi-method analysis in this research combines several distinct methods to explore these M&A events. An event study using the market model, the capital asset pricing model (CAPM), and the Fama-French three-factor model is implemented to estimate cumulative abnormal returns (CAR) for valuation purposes. Vector autoregression (VAR) models are used to test for Granger causality and map dynamic effects using impulse response functions (IRFs) to investigate spillovers. Propensity score matching (PSM) helps provide a causal estimate of the average treatment effect on the treated (ATT). The analysis detected a significant positive market reaction to the mergers. The findings also suggest the presence of prolonged positive spillovers to other banks, which may indicate a synergistic effect among Japanese banks. Combining these methods provides a unique perspective on M&A events in the Japanese banking sector, offering valuable insights for investors, managers, and regulators concerned with market efficiency and systemic stability |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.06550 |
| By: | Bouvard, Matthieu; Jullien, Bruno; Martimort, David |
| Abstract: | We study how the organizational structure of producers affects competition between systems. We model systems as differentiated bundles of complementary components, where components within each system are produced either by a single firms (integration) or by two distinct firms (disintegration). When information about buyers' preferences is symmetric, disintegration typically increases prices and reduces total welfare as the less efficient system gains market share relative to integration. In addition, when buyers' preferences are private information, disintegration magnifies the quality distortions suppliers introduce to screen buyers and further reduces the market share of the more efficient system. Overall, the analysis suggests that technological standards that facilitate the combination of components from different suppliers can have adverse effects. |
| Keywords: | Composite goods; suppliers organization; competition; double; marginalization. |
| JEL: | D82 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131250 |
| By: | Diego Sancho-Bosch (Department of Economic Analysis, Universidad Complutense de Madrid (Spain)); Elena Huergo (ICAE – Department of Economic Analysis, Universidad Complutense de Madrid (Spain)) |
| Abstract: | This paper examines how the level of public R&D subsidies and firm size jointly influence firms’ net R&D investment. Using data on Spanish manufacturing firms from 2008 to 2018, we estimate parametric and non-parametric dose–response functions after applying entropy weighting to balance covariate distributions across treatment levels. The results reveal an inverted U-shaped relationship between subsidy intensity and net R&D expenditure for small, medium-sized, and large firms, but not for very large firms, which display a negative linear pattern. We also find substantial heterogeneity in subsidy effects within both the SME and large-firm categories, and show that the public funding share of R&D expenditure at which the positive impact of subsidies peaks declines markedly with firm size. These findings suggest that support schemes should implement progressively lower maximum subsidy rates, rather than relying on only two distinct caps for SMEs and larger firms. Overall, the results underscore firm size as a critical determinant of innovation policy effectiveness and provide practical guidance for optimizing subsidy design. |
| Keywords: | R&D support, policy evaluation, dose-response, entropy balancing. |
| JEL: | L24 L25 O32 R11 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ucm:doicae:2509 |