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on Industrial Organization |
| By: | Kichko, Sergey; Marini, Marco; Saulle, Ricardo; Thisse, Jacques-François |
| 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: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21305 |
| By: | Dirk Bergemann (Department of Economics, Yale University); Tibor Heumann (Instituto de Econom’a, Pontificia Universidad Cat—lica de Chile); Michael C. Wang (Department of Economics, Yale University) |
| Abstract: | We analyze consumer surplus when a monopolist can adjust both prices and product qualities across segments, engaging in second- and third-degree price discrimination simultaneously. We characterize the consumer-optimal segmentation and show that it has a striking structure: consumers with the same value receive the same quality in every segment, though prices differ. Under mild conditions, any segmentation harms consumers if and only if demand is sufficiently more elastic than supply. Hence, potential benefits for consumers depend critically on demand and supply elasticities. These findings have implications for regulatory policy regarding price discrimination and market segmentation. |
| Date: | 2026–06–24 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2498r1 |
| By: | Choi, Jay Pil; Jeon, Doh-Shin; Menicucci, Domenico |
| Abstract: | This paper examines how competition affects the timing of AI deployment under safety risk. We show that competition can generate two distortions relative to joint–profit maximization: a race to the bottom and insufficient entry. A race to the bottom arises when first-mover advantages induce premature deployment and is more likely as technological correlation (homogenization) increases. Conversely, firms may delay entry to free-ride on rivals’ experimentation, leading to insufficient entry. Even when private incentives under joint–profit maximization are aligned with social incentives, competition can still induce socially inefficient early deployment. We discuss policy implications for improving deployment timing. |
| Keywords: | Competition |
| JEL: | D4 L1 L5 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21454 |
| By: | Bontems, Philippe |
| Abstract: | This paper studies symmetric oligopoly when marginal cost is not constant. In this environment, the Lerner index is not a sufficient measure of profitability: firms’ relevant margin is the contribution margin, defined relative to variable cost. The paper introduces a contribution margin index and relates it to the Lerner index through a profitability factor. This factor captures the wedge between local markups and average profitability. It also governs comparative statics for cost pass-through, market expansion, entry, profits, and concentration. The framework nests the constant marginal cost benchmark and shows how cost curvature changes the interpretation of standard oligopoly statistics. |
| Keywords: | Pass-through; Cost Structure; Contribution Margin; Oligopoly |
| JEL: | D21 H22 H32 L13 L51 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131904 |
| By: | Alviarez, Vanessa; Fioretti, Michele; Kikkawa, Ken; Morlacco, Monica |
| Abstract: | We develop and estimate a structural model of bargaining in firm-to-firm trade to study the determinants of tariff pass-through. The model features oligopoly and oligopsony power and yields analytical expressions for bilateral markups and pass-through based on two sufficient statistics: the supplier's share in the buyer's purchases and the buyer's share in the supplier's output. Using U.S. import data, we find substantial importer bargaining power and steep export supply curves. These primitives imply that cost changes, rather than markup adjustments, dominate pass-through, accounting for the bulk of incomplete pass-through of the 2018 U.S. tariffs and its heterogeneity across buyer-supplier links. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21530 |
| By: | ALEKSENKO, STEPAN; Miklos-Thal, Jeanine |
| Abstract: | We analyze the effects of information sharing in oligopoly when firms outsource pricing to a common third-party pricing algorithm developer. In a model where algorithms tailor prices to high-frequency demand shocks, we compare regimes that allow or prohibit conditioning on rival-specific shocks. Information sharing makes algorithmic prices more sensitive to seller-specific demand shocks---own and rival---and more correlated across sellers. These effects are stronger under common third-party algorithm design than under independent design because the third party's objective generates greater strategic complementarity in pricing than independent profit maximization. Information sharing harms expected consumer surplus more under common third-party design than under independent design, and its welfare effects are reversed across the two cases: information sharing lowers expected welfare under common third-party design while raising it under independent design. Our findings provide theoretical support for recent antitrust scrutiny of common third-party pricing algorithms that incorporate competitor data. |
| Keywords: | Algorithmic pricing; Information sharing; Antitrust; Oligopoly; Third-party sharing |
| JEL: | L13 L41 L42 D43 L86 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21452 |
| By: | Gaston Llanes; Martin Peitz |
| Abstract: | We study a platform that interacts with a major content provider, a long tail of independent providers, and consumers who allocate attention across competing content. By designing independent-provider compensation, the platform endoge nously shapes its outside option and disciplines the major. This strategic use of long-tail compensation distorts entry relative to the first best. Allowing the platform to steer consumer attention improves entry incentives conditional on compensation, but affects bargaining incentives, and may thus increase or de crease welfare. We then consider regulation, showing that conservative minimum compensation floors robustly improve welfare, while non-discrimination policies have ambiguous welfare effects. |
| Keywords: | streaming platform, Nash bargaining, royalty negotiation, free entry, consumer steering |
| JEL: | L14 L82 L86 D43 D44 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_766 |
| By: | Zhang, Dayin; Han, Lu; Barwick, Panle; Kroah, Jon |
| Abstract: | Despite intense competition among mortgage lenders, borrowers continue to face elevated rate spreads and substantial price dispersion. We argue that realtor–loan officer referral networks are a key source of lender market power: by steering homebuyers toward a limited set of loan officers, these networks restrict effective borrower choice even in otherwise competitive markets. Using a novel dataset linking 81, 306 realtors to 102, 860 loan officers in 41 states, we document that such networks are both pervasive and highly concentrated: 85% of realtors direct over 40% of their clients to fewer than four loan officers. Strikingly, the lender concentration among realtors persists and even increases in markets with more lenders, suggesting that referrals constrain choices regardless of market structure. IV estimates indicate that borrowers working with referred loan officers pay 18.6 basis points higher interest rates, equivalent to $2, 609 in upfront costs for the average loan of $306k. The referral premium is nearly three times as high for Hispanic borrowers as for White borrowers, and is systematically higher for Black borrowers and financially constrained households. On average, referral lending raises rate spreads by 36.5% and explains half of the (residual) standard deviation of rate spreads after controlling for lender, market, and time fixed effects. We identify two mechanisms: referrals reduce borrowers' search intensity for lenders, and referred loan officers exercise pricing power relative to other officers within the same lending institution. Efficiency arguments (faster processing) and mediation of denial risks don't fully justify the referral premium. Our findings reveal referral networks as a hidden source of market power, imposing substantial financial costs and raising equity concerns for borrowers. |
| JEL: | D40 G21 L14 L85 R31 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21406 |
| By: | Bisceglia, Michele; Israel, Mark; Piccolo, Salvatore; Ramezzana, Paolo |
| Abstract: | When a manufacturer distributes its products through both a direct sales channel and an independent retailer, a fundamental tension arises between the efficiencies of direct distribution and the need to incentivize the retailer. To induce the retailer to undertake noncontractible actions that enhance demand, such as pre- and post-sale assistance, the manufacturer must grant it a high gross margin. This, however, creates incentives for the manufacturer to undercut the retailer ex post through its direct channel. We show that a retail price parity (RPP) policy, which requires identical retail prices across the direct and independent channels, can increase industry profits. By allowing the manufacturer to commit not to undercut the retailer, RPP strengthens the retailer's incentives to undertake valuable noncontractible actions and enables supply contracts that increase joint profits. Because higher effort improves service quality, RPP may also increase consumer welfare even when it leads to higher monetary retail prices. These findings offer guidance for managers designing dual distribution strategies and inform policy discussions on the competitive effects of price-parity clauses. |
| JEL: | L22 L42 L81 M31 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21240 |
| By: | Pietola, Matias; Tarantino, Emanuele; Zenger, Hans |
| Abstract: | We study how mergers affect innovation and buyer surplus when suppliers invest before competing for a contract awarded to the best supplier. The merger’s effect on innovation decomposes into a Schumpeterian effect (larger profit base) and an Arrowian effect (lost rivalry). Without synergies, these cancel exactly: the merger is innovation neutral and harms the buyer by the merger premium. Private and social investment incentives are aligned, so merger specific synergies always increase total welfare. However, the buyer benefits only indirectly, through competitive pressure the stronger merged entity exerts on outsiders, and only if the innovation gain exceeds the merger premium. In the presence of external spillovers the merger can be more detrimental to welfare. A joint venture that coordinates investment while preserving competition avoids the premium and, in our numerical analysis, benefits the buyer more than the merger across all specifications. |
| JEL: | D44 L41 O31 G34 L13 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21529 |
| By: | Broso, Matteo; Valletti, Tommaso |
| Abstract: | We study the impact of mergers on quid-pro-quo lobbying and elections in a political agency model. Two incumbent firms can lobby an incumbent politician to block a pro-competitive reform. The politician’s type determines whether they are susceptible to the firms’ influence or not. A representative voter tries to infer the politician’s type monitoring the policy-making process. We show that lobbying increases when firms merge because rents from political protection are not dissipated by price competition. While greater market concentration may increase prices and political influence, it also improves voters’ ability to screen bad politicians by observing distorted policy outcomes. This generates a novel trade-off: mergers can harm consumers through market and political power, yet improve selection of politicians. We characterize when standard consumer welfare–based merger control is too lenient or too strict once these political economy effects are taken into account. |
| Keywords: | Mergers; Lobbying; Consumer welfare standard; Antitrust policy; market power; Political economy of competition policy |
| JEL: | D72 D43 L41 L13 K21 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21420 |
| By: | Tin Cheuk Leung (Wake Forest University); Shi Qi (William & Mary); Koleman Strumpf (Wake Forest University) |
| Abstract: | This paper studies self-preferencing in subscription video streaming. We assemble a new dataset linking Netflix's U.S. catalog, Top 10 rankings, Wikipedia page views, and device-level streaming records. Conditional on external popularity and other observables, Netflix Originals are significantly more likely to appear in the Top 10 than comparable non-original titles, especially among series. Using a matched staggered difference-indifferences design around first Top 10 entry, we show that Top 10 placement causally increases subsequent viewership. The effect is weaker among devices with extensive prior Netflix viewing, consistent with personalized recommendations substituting for generic rankings. These findings provide evidence of platform gatekeeping in digital media |
| Keywords: | Self-Preferencing; Netflix; Digital Platforms; Platform Bias |
| JEL: | D22 K21 L40 L82 M21 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:ris:wfuewp:023017 |
| By: | Kaitila, Ville |
| Abstract: | Abstract We use goods export data at the SITC 3-digit level to analyse countries’ world market-share developments in 2002–2024. We divide the data into technological categories and use an existing econometric method with annual weighted-OLS to divide the market-share changes into estimated structural composition effects (export destinations and exported products) and performance effects. Typically, emerging economies have grown stronger through performance, but older industrialised countries have partly compensated their performance-induced market-share losses with a better product composition of exports. Finland and Italy are exceptions as countries that have also had a weak export product composition. We further analyse the performance changes of European countries’ exports using an econometric panel data analysis with data for GDP variables, nominal unit labour costs and effective exchange rates, investment, and statistics on the activities of multinational corporations. We find that investment and FDI activity are positively associated with performance. |
| Keywords: | Goods exports, Market shares, Export performance, Competitiveness, Investments, European Union |
| JEL: | F10 F14 F15 F43 |
| Date: | 2026–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:rif:wpaper:143 |
| By: | Shintaro Minamoto (Graduate School of Economics, The University of Osaka) |
| Abstract: | Original equipment manufacturing (OEM) agreements between competing firms play a significant role in improving production efficiency through scale economies. At the same time, however, they can also reduce market competition. This study empirically examines the effects of OEM agreements on competition and welfare in the Japanese automobile industry. I develop and estimate structural models incorporating OEM agreements, market competition, and scale economies. The results indicate that efficiency improvements lead to significant welfare gains, even when these agreements reduce competition. These findings provide empirical insights into the trade-off involved in such agreements and contribute to competition policy regarding modern supply chains. |
| Keywords: | OEM, horizontal subcontracting, scale economies, vertical relationships |
| JEL: | L13 L22 L62 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:osk:wpaper:2607 |
| By: | Borsenberger, Claire; Cremer, Helmuth; Joram, Denis; Lozachmeur, Jean-Marie; Malavolti, Estelle |
| Abstract: | We study environmental policy in imperfectly competitive markets where firms differ in their objectives. Alongside standard profit-maximizing firms, we consider welfare-oriented firms that partially or fully internalize environmental externalities but are subject to financial viability constraints. We develop a Cournot model in which production generates emissions and firms may differ in the extent to which they account for environmental damages. We characterize market equilibria and examine the effects of environmental taxes and output subsidies on emissions, output, profits, and welfare. Our analysis shows that standard Pigouvian prescriptions are modified by the presence of market power and by the break-even constraints faced by welfare-oriented firms. While emissions taxes reduce environmental damages, they may also exacerbate underproduction and threaten the viability of socially responsible firms. Conversely, output subsidies may improve welfare despite increasing emissions. The welfare ranking of policy instruments depends critically on the interaction between environmental externalities, imperfect competition, and firms' financial constraints. These findings suggest that environmental policy design should account not only for emissions reduction, but also for the market structure and sustainability of firms with socially oriented objectives. |
| Keywords: | Environmental policy; Pigouvian taxation |
| JEL: | H23 L13 D62 Q58 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21500 |
| By: | González, Xulia; Lach, Saul; Miles, Daniel; Pazó Martínez, María Consuelo |
| Abstract: | This paper examines how managerial type shapes firms’ investment decisions, focusing on the distinction between owner (family)-managed firms and professionally-managed firms. We estimate a flexible investment policy function which depends on productivity, capital, labor and on other firm-level state variables, and is allowed to vary systematically with managerial type. Since firm-level productivity is not directly observed, we estimate it in a first step, addressing both the endogeneity of input choices and the lack of information on physical quantities. Our analysis draws on a rich panel of Spanish manufacturing firms from 1993 to 2016 that identifies whether firm owners, or their relatives, hold managerial positions. We find that, after controlling for state variables, family-managed firms invest more on average than professionally-managed firms. Managerial type also matters for how investment responds to changes in its determinants. In particular, family-managed firms exhibit stronger investment responses to changes in productivity and capital and display more procyclical investment behavior. |
| Keywords: | Family firms; Productivity |
| JEL: | L11 L60 D22 D24 D25 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:21383 |