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on Industrial Organization |
| By: | Sergei Kichko; Marco A. Marini; Riccardo D. Saulle; Jacques-François Thisse |
| 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 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12554 |
| By: | Martin Peitz |
| Abstract: | Innovation and the diffusion of new technologies are central to consumer welfare in dynamic markets. On the one hand, mergers may harm innovation by removing independent innovation paths, restricting access to key inputs for innovation, or weakening incentives to adopt and diffuse new technologies. On the other hand, mergers may generate innovation efficiencies when they combine complementary tangible and intangible assets. This article discusses how the revised EU Merger Guidelines should evaluate these opposing forces and proposes a structured approach to assessing innovation harms and efficiencies while ensuring that merger control remains focused on effective competition and consumer welfare. |
| Keywords: | EU merger control, innovation theories of harm, innovation efficiencies, start-up acquisitions, EU Merger Guidelines |
| JEL: | K21 L40 L41 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_741 |
| By: | Andrew Rhodes (Toulouse School of Economics); Jidong Zhou (Yale University); Junjie Zhou (Tsinghua University) |
| Abstract: | This paper develops a framework in which a multiproduct ecosystem competes with multiple single-product firms in both price and innovation. The ecosystem can use data from one product to improve the quality of its other products. We use the framework to study three regulatory policies aimed at leveling the playing field. Restricting the ecosystem's cross-product data usage, or forcing it to share data with single-product firms, benefits those firms and induces them to innovate more. However, these policies also dampen the ecosystem's incentive to collect data and innovate, potentially raising prices. Consumers are better off only when single-product firms are sufficiently good at innovating. Facilitating data exchange between single-product firms via a data cooperative can backfire and harm them, because it induces the ecosystem to price more aggressively. For both the data-sharing and data-cooperative policies, there exist data-compensation schemes such that consumers are better off compared to no regulation. |
| Date: | 2026–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2426r1 |
| By: | Julia Müller; Thorsten Upmann |
| Abstract: | This paper develops a dynamic model in which the productivity of joint research governs strategic investment timing in innovation races. Departing from the standard assumption that discovery rates scale proportionally with the number of active firms, we allow research to exhibit decreasing or increasing returns, thereby endogenizing the aggressiveness of innovation competition. We show that returns to joint research determine whether innovation races exhibit preemption or coordination. When research efforts are substitutes, follower entry is unattractive, generating a first-mover advantage and a preemption equilibrium. When complementarities are sufficiently strong, the gains from early investment vanish and firms invest simultaneously. The model thus identifies a regime shift in innovation races: competition accelerates investment under decreasing returns but promotes coordinated entry under increasing returns. These findings highlight the research technology as a central determinant of market dynamics and provide a unified perspective on heterogeneous patterns of innovation. |
| Keywords: | innovation races, R&D competition, strategic investment timing, preemption and coordination, research complementarities |
| JEL: | O31 D81 C73 L13 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12552 |
| By: | Ohnishi, Kazuhiro |
| Abstract: | This paper considers a multi-stage game model with two partially cooperating firms whose objective functions include maximizing not only their own profits but also a portion of their rivals’ profits. In the first stage, each firm independently and simultaneously decides whether to incorporate consumer surplus into its objective function. In the second stage, any firm that chooses to do so selects its level of consumer orientation. In the third stage, after observing the rival’s choices in the first and second stages, each firm independently and simultaneously chooses its output level. The paper characterizes the equilibrium of this model. |
| Keywords: | Consumer surplus; Corporate social responsibility; Cournot duopoly model; Partially cooperating firms |
| JEL: | D21 L13 L20 |
| Date: | 2026–01–18 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127764 |
| By: | Maria Cecilia Bustamante; Bruno Pellegrino |
| Abstract: | We present a new dynamic model of corporate investment in imperfectly-competitive product markets, extending the neoclassical (Q) theory of capital to a multi-firm, multi-product, fully-structural model. Our model embeds a state-of-the-art hedonic demand system, endogenizes firms' markups and generalizes Tobin's Q to a matrix (or network) of product market spillovers, which captures how each firm's investment affects that of its rivals. We provide existence and uniqueness results along with exact, global analytical solutions for the Markov Perfect Equilibrium investment policies. We then take our model to the data for the universe of U.S. public companies and obtain five novel insights: 1) product market competition is a key force driving aggregate investment and capital allocation; 2) the persistence of firm's capital stocks increased over the past 25 years (i.e. capital became “stickier”); 3) monopoly rents account for a large, rising share of firms' value; 4) positive shocks to firms' cost of capital increase markups and concentration; 5) mergers consummated since 1995 have led to a modest decline in aggregate capital formation; at the firm-level the resulting increases in markups are highly heterogeneous. |
| Keywords: | networks, investment, product market |
| JEL: | C7 D2 E2 G3 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12548 |
| By: | Jan Baran; Patryk Czechowski; Jakub Mućk |
| Abstract: | In this paper we examine the role of the electromobility transformation for exports of the automotive sector. To do so, we propose a novel mapping of granular codes of automotive products into three categories: (i) combustion-specific, (ii) neutral, and (iii) electric-specific. We estimate a standard gravity model of the trade flows of automotive products, comparing the three categories with each other. We demonstrate that key drivers of export of the electric-specific products are similar to the combustion-specific ones. However, exports related to electric vehicles are more technologically intensive and supported by either a domestic R&D potential or international knowledge spillovers through FDI. In particular, export-oriented production of electric-specific intermediates proves to be to a large extent R&D intensive. Our results also suggest that the ongoing structural change in the automotive industry leads rather to intra-industry reorganization than to more fundamental restructuring of existing Global Value Chains. |
| Keywords: | automotive industry, international trade, gravity model of trade, structural change, electric vehicles, electromobility, Global Value Chains |
| JEL: | F14 L16 L62 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:sgh:kaewps:2026122 |
| By: | Nicolas Eschenbaum; Nicolas Greber |
| Abstract: | This paper studies how platform design shapes strategic behavior in decentralized electricity trading. We develop a finite-horizon dynamic game in which photovoltaic- and battery-equipped players ("prosumers") trade on a platform that maps aggregate imports and exports into internal buy and sell prices. We establish existence of a perfect conditional epsilon-equilibrium and characterize a Cournot-like market-power mechanism in an observable-types benchmark of the game: because the producer price is decreasing in aggregate exports, strategic prosumers withhold supply and underutilize storage relative to the price-taking benchmark. To quantify these effects, we use a multi-agent computational framework that exploits the differentiable structure of the platform's clearing rule to compare planner, price-taking, and strategic outcomes under alternative pricing mechanisms. In our baseline calibration, strategic play raises grid settlement cost by about 6 percent relative to price-taking. The magnitude of the distortion depends strongly on platform design: some designs can largely eliminate strategic incentives, while increased competition in storage ownership sharply reduces withholding, with most of the distortion disappearing once storage is split across more than three owners. We also find that information disclosure can improve competitive coordination but also increase the market power effects. Despite these distortions, the platform remains highly valuable overall, reducing a passive consumer's annual electricity bill by roughly 40 percent relative to exclusive grid settlement, with strategic behavior clawing back only about 8 percent of that saving. The results show that pricing rules, information disclosure, and ownership structure determine how much of the gains from decentralized electricity trading are realized. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.19988 |
| By: | Crampes, Claude; Estache, Antonio |
| Abstract: | The paper shows that the entry of data centers in the electricity market leads to price and consumption effects observed in the real world that were quite predictable from a simple conceptual modelling exercise. The size of the associated welfare losses is sensitive to specific electricity market characteristics, explaining why they are often not comparable across regions or countries. In general, the historical users are likely to be worse off in the short run. They will recover their losses in the longer run, but only if the entrant finances its own capacity needs and if the data centers do not have excessive bargaining power. The differences in possible outcomes according to context suggests that one-size-fits-all policies to manage the shock across countries or regions will fail to mitigate undesirable effects in some contexts. |
| Keywords: | Data centers; Electricity; Pricing; Regulation; Incidence |
| JEL: | D63 L1 L5 L94 O33 Q41 Q48 |
| Date: | 2026–03–16 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131588 |
| By: | Panle Jia Barwick; Hongyuan Xia; Tianli Xia |
| Abstract: | This paper examines China’s transition from pharmaceutical “free rider” to global innovator over the last decade. In 2010, China accounted for less than 8% of global clinical trials; by 2020, it had surpassed the US in annual registered clinical trial volume. To study this transformation, we compile a comprehensive, synchronized database spanning the pharmaceutical drug development supply chain, covering scientific publications, clinical trials, drug development milestones for China, the U.S., and Europe, alongside drug sales and government policies over the same period. We provide strong evidence that China’s rise was primarily driven by the National Reimbursement Drug List (NRDL) reform, which dramatically expanded the effective market size for innovative drugs. We document a sharp rise in both the quantity (86% increase) and novelty of drug trials post reform, with growth concentrated in reform-exposed disease categories, first- or best-in-class drugs, and among domestic firms. A decomposition exercise reveals that the NRDL reform accounts for 43% of the growth in oncology trial activity, nearly doubling the combined contribution of upstream knowledge accumulation and talent flows (24%), while other government policies play a minor role. Finally, dynamic gains from induced innovation exceed the reform’s static gains in consumer access to innovative drugs by threefold, underscoring the importance of accounting for the reform’s long-run effects on innovation incentives in addition to near-term improvements in drug affordability. |
| JEL: | I18 L65 O31 O38 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34977 |