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on Industrial Organization |
| By: | Roger D. Blair (University of Florida); Javier D. Donna (University of Miami) |
| Abstract: | We analyze vertical mergers when the upstream and downstream markets each have a dominant firm and a competitive fringe. Adding a fringe at each stage of the successive monopoly model of Spengler (1950) generates the anticompetitive mechanisms of the post-Chicago literature. The merger eliminates double marginalization but creates incentives for input foreclosure, customer foreclosure, and fringe exit. Our main result links customer foreclosure to input foreclosure. When the merged firm sources internally, independent suppliers with high operating costs can exit. Their exit reduces the supply available to downstream rivals and, relative to retaining that capacity, raises the input price rivals pay and the merged firm’s foreclosure wedge. In an equilibrium construction, consumer prices remain below the pre-merger level. With atomless participation, consumer harm is ruled out under stated conditions; with indivisible downstream participation, it can arise. We derive implications for merger review under Section 7 of the Clayton Act. |
| Keywords: | Vertical mergers, double marginalization, input foreclosure, dominant firm and competitive fringe, raising rivals’ costs, non-predatory exit, antitrust policy |
| JEL: | L42 L13 L41 K21 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:410 |
| By: | Emanuel Namaiwa Barke (Université Marie et Louis Pasteur, CRESE UR3190, F-25000 Besançon, France) |
| Abstract: | This paper studies mutual outsourcing between competing firms in a differentiated network duopoly and examines how positive network externalities interact with the timing of quantity competition. Firms first choose the outsourcing prices charged to their rivals and then compete either simultaneously à la Cournot or sequentially à la Stackelberg. We show that stronger network effects increase equilibrium output and profits under both competitive regimes, but have non-monotonic effects on outsourcing prices. Under Cournot competition, the equilibrium outsourcing price increases with network intensity when network effects are weak and decreases once they become sufficiently strong. Under Stackelberg competition, outsourcing incentives become asymmetric: the leader’s outsourcing price is non-increasing in network intensity, while the follower’s price may exhibit a threshold effect. The comparison across market structures further reveals that network effects can reverse both outsourcing-price and profit rankings. In particular, the Stackelberg leader always earns more than under Cournot competition, whereas sufficiently strong network effects allow the follower first to outperform the Cournot benchmark and eventually to earn more than the leader. The analysis highlights a strategic trade-off specific to network industries: firms balance the incentive to raise a rival’s input cost against the need to preserve the common installed base that supports market demand. |
| Keywords: | Mutual outsourcing; positive network externalities; Cournot competition; Stackelberg competition; outsourcing prices; strategic input pricing |
| JEL: | D43 L13 L14 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:crb:wpaper:2026-10 |
| By: | Ohnishi, Kazuhiro |
| Abstract: | This paper analyzes a three-stage Bertrand duopoly with partial cooperation and managerial delegation. In the first stage, each owner decides whether to hire a manager. In the second stage, owners who hire managers select their managers’ incentive parameters. In the third stage, managers—or owners if no delegation occurs—simultaneously and independently set the firms’ prices. The equilibrium is derived using backward induction under a subgame perfect equilibrium. As a result, the paper shows that managerial delegation does not increase payoffs for either firm. This finding contrasts sharply with the Cournot case, where delegation is profitable, and highlights that the strategic value of delegation depends critically on the mode of competition. |
| Keywords: | Bertrand model; Managerial delegation; Partially cooperating firm; Subgame perfection |
| JEL: | C72 D21 D43 L13 |
| Date: | 2026–06–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:129402 |
| By: | Patrick Arnold; Marc Moller; Makoto Watanabe |
| Abstract: | This paper considers the effects of common ownership on advance purchase markets featuring intertemporal price discrimination (e.g. airline tickets). Common ownership increases advance prices, while spot prices can decrease. We show that common ownership is anticompetitive but the increase in average transacted prices is smaller than under uniform pricing, although consumers shift towards more informed, more expensive purchases. Common ownership is less detrimental for consumers than under uniform pricing and can even benefit consumers when consumers are sufficiently uninformed about their preferences in advance. |
| Keywords: | common ownership, intertemporal price discrimination, advance selling, consumer learning |
| JEL: | D43 D82 L13 L41 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13095 |
| By: | Marie-Laure Cabon-Dhersin (University of Rouen Normandie); Joanna Poyago-Theotoky (University of Salento, Department of Economics and The Australian National University, Research School of Economics); Natacha Raffin (ENS Paris-Saclay, CEPS) |
| Abstract: | We explore the interplay of competition and environmental policies to address the question of whether green antitrust has beneficial effects in terms of both environmental and consumer welfare performance. We focus on two environmental policy tools, an emission tax and an emission standard, and explore three particular configurations: competitive ‘green R&D, collaborative ‘green’ R&D in the form of a joint lab, and the benchmark case of no ‘green’ R&D. Firms compete in the product market by selling a homogeneous product, either by setting prices (Bertrand competition) or quantities (Cournot competition) while facing convex costs. We show that ‘green antitrust’ can unambiguously improve the effectiveness of environmental policy without undermining the interests of either consumers or producers, establishing a ‘win-win-win’ outcome. |
| Keywords: | ‘Green’ R&D, emission tax, environmental standard, ‘green’ antitrust, R&D cooperation, joint lab, convex costs |
| JEL: | L13 L4 Q55 Q58 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:fem:femwpa:2026.22 |
| By: | Jens-Uwe Franck; Martin Peitz |
| Abstract: | Recommendation systems create value by reducing search and information costs, but they also give platforms control over visibility and effective access to users. Recommendation power can weaken competitive constraints by distorting competition among offers or by protecting the platform’s gateway position against rival gateways and direct routes to users. It can also be used to extract surplus from end users or business users. We present specific theories of harm for these uses of recommendation power and illustrate them with competition cases. We then discuss how these theories of harm can be assessed empirically, accounting for how market participants respond to recommendation design. |
| Keywords: | recommender system, recommendation bias, platform design, foreclosure, exploitation, self preferencing, steering. |
| JEL: | L12 L13 L41 L42 L86 D83 K21 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_786 |
| By: | Mark L. Egan; Dominic Russel; Claire Shi; Vincent Yao |
| Abstract: | How competitive will the market for generative AI be as it matures? Using novel transaction level credit and debit card data covering 174 million consumers and 114 billion transactions, we study the adoption of paid services and the demand-side foundations of competition in this market. As of April 2026, approximately 2.9% of U.S. consumers pay for at least one major generative AI service, with adoption highest among younger and higher-income consumers. Nearly all of these paid users subscribe to basic plans that cost $30 or less per month. Three patterns suggest limited differentiation and low switching costs. First, although multihoming is common, it has declined as providers’ capabilities have expanded. Second, annual customer retention rates range from 20% to 45% across major AI providers, lower than those for many other subscription products. Third, switching rises around major model releases. Motivated by these findings, we develop and estimate a structural model of AI service demand and supply that reveals strong competitive pressure. Consumers are highly price sensitive, have much weaker preferences for particular providers than for AI overall, and view AI services as increasingly close substitutes. Our results suggest that, absent a substantial increase in AI model quality differentiation, growing substitutability among services will constrain providers’ pricing power and allow consumers to capture a large share of the surplus generated by these services. |
| JEL: | D12 L13 O33 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35953 |
| By: | Emanuel Namaiwa Barke (Université Marie et Louis Pasteur, CRESE UR3190, F-25000 Besançon, France) |
| Abstract: | This paper studies the R&D investment-decision game in a Cournot duopoly with ex ante asymmetric production costs. Firms first decide whether to participate in process R&D and, conditional on participation, subsequently choose their costreducing R&D efforts. Despite cost heterogeneity, investing is a strictly dominant strategy for both firms, so bilateral R&D is the unique participation equilibrium. Cost asymmetry nevertheless changes the nature of this outcome. When firms are sufficiently similar, bilateral R&D may constitute a prisoner’s dilemma; as the initial cost gap widens, the dilemma breaks down asymmetrically, with the initially efficient firm preferring bilateral investment while the inefficient firm continues to prefer mutual non-investment. Cost asymmetry also reallocates R&D effort toward the initially efficient firm. The welfare analysis reveals a further wedge between private and social incentives: although bilateral R&D maximizes aggregate R&D and consumer surplus, social surplus may be higher when innovation is concentrated in the initially efficient firm. Extending the model to technological spillovers leaves bilateral participation as the unique equilibrium but changes the private desirability of joint R&D. |
| Keywords: | Process R&D; R&D investment-decision game; Cost asymmetry; Cournot duopoly; Prisoner’s dilemma; Technological spillovers. |
| JEL: | C72 L13 O31 O32 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:crb:wpaper:2026-14 |
| By: | Sophia Praetorius |
| Abstract: | How flexible are multinational production networks when assembly technologies are specialized and costly to reconfigure? Using data on the global automotive industry from 2000-2023, I document that production is organized around discrete process technologies (platforms) that constrain where each product can be assembled. Exploiting the 2011 Tohoku earthquake as a quasi-natural experiment, I show that platform compatibility limits firms’ ability to reallocate production after local shocks. Firms overcome this constraint by licensing technologies to each other. I develop and estimate a structural model of multinational production with discrete technology choice and inter-firm licensing. Models abstracting from production technologies overstate the reallocation induced by tariffs and understate the price incidence borne by the tariffing country’s consumers. The model also allows to study policies restricting access to technologies: these can trigger more reallocation than a broad tariff war, with costs concentrated on the firms and locations bound by the affected technologies. |
| Keywords: | multinational production, intern. trade, technology licensing, FDI, trade policy |
| JEL: | F12 F23 L14 L21 L24 L62 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13089 |
| By: | Martin Peitz |
| Abstract: | South Africa has addressed digital platforms not through digital-specific regulation but through the Online Intermediation Platforms Market Inquiry and subsequent non binding guidance by the Competition Commission. It thus offers a test case for how far a general market-inquiry instrument can perform the functions of such regulation. The article distinguishes between competition problems that the Commission has addressed and those it has not; for the latter, the absence of intervention may reflect the scope of the inquiry rather than a limit of the instrument. For the former, including price parity, self-preferencing and the use of business-user data, the South African framework reaches much the same conduct as the EU Digital Markets Act (DMA) and furthermore takes account of the participation of small firms and firms owned by historically disadvantaged persons. The differences from the DMA lie in what triggers intervention and in how obligations are specified, how long they apply and how they are enforced. The German and UK digital-specific regimes answer these questions differently from the DMA. How far South Africa’s market-inquiry instrument performs the functions of digital-specific regulation therefore also depends on which regime serves as the reference point. |
| Keywords: | digital platforms; market inquiry; ex ante regulation; South Africa; Chapter 4A Competition Act; Online Intermediation Platforms Market Inquiry; Digital Markets Act; section 19a GWB; DMCC Act; contestability. |
| JEL: | K21 K23 L40 L51 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_787 |