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on Industrial Organization |
| By: | Luca Dedola; Chiara Osbat; Timo Reinelt |
| Abstract: | We study the pass-through of corporate taxes into consumer prices, leveraging 1, 058 municipal tax rate changes affecting 4, 754 German firms. A 1 p.p. increase in a producer’s tax rate raises retail prices by 0.3% on average, consistent with imperfectly competitive producers. Product-level pass-through varies substantially, as it increases in destination-specific product and retailer-category market shares. We find little evidence linking heterogeneous passthrough to differences in retailer efficiency as reflected in relative consumer prices. Instead, our findings align with standard non-CES preferences where pass through increasing with market shares implies weaker strategic complementarities in price setting than when this relationship is reversed. |
| Keywords: | Pass-through; Markup adjustment; Market Power; Vertical interactions; Double marginalization |
| JEL: | E31 F45 H25 L11 |
| Date: | 2025–11–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:102055 |
| By: | Salvatore Ciucci (Dipartimento di Economia, Università degli Studi della Campania “Luigi Vanvitelli”) |
| Abstract: | There are many evidences which prove that cartels’ price leads to an economic inefficiency, due to the reduced consumers welfare. Antitrust authorities have set up different ways to defeat and prevent collusive agreements, but as widely showed by the literature, deterring collusion may have adverse effects, like higher price in surviving cartels, reduced turnover of firms’ employees, and disincentive for competing firms to cooperate, in the sense that if firms exchange information about the evolution of demand or costs, then they may adopt better choices; moreover, deterring collusion may have even a pro-collusion effect. The paper suggests an additional anti-cartel tool which does not have side effects, and supporting no cost, it can get worse collusion stability. Analysing a supergame of collusion, in a Bertrand duopoly framework in which is run a two-stage lottery, we show that deviation strategy becomes more attractive, even if lottery jackpot tends to zero. |
| Keywords: | Competition policy, Antitrust, Cartel, Collusion, Lottery |
| JEL: | L40 L41 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:fem:femwpa:2025.21 |
| By: | Claudio Pirrone; Stefano Fricano; Gioacchino Fazio |
| Abstract: | The rapid ascent of Foundation Models (FMs), enabled by the Transformer architecture, drives the current AI ecosystem. Characterized by large-scale training and downstream adaptability, FMs (as GPT family) have achieved massive public adoption, fueling a turbulent market shaped by platform economics and intense investment. Assessing the vulnerability of this fast-evolving industry is critical yet challenging due to data limitations. This paper proposes a synthetic AI Vulnerability Index (AIVI) focusing on the upstream value chain for FM production, prioritizing publicly available data. We model FM output as a function of five inputs: Compute, Data, Talent, Capital, and Energy, hypothesizing that supply vulnerability in any input threatens the industry. Key vulnerabilities include compute concentration, data scarcity and legal risks, talent bottlenecks, capital intensity and strategic dependencies, as well as escalating energy demands. Acknowledging imperfect input substitutability, we propose a weighted geometrical average of aggregate subindexes, normalized using theoretical or empirical benchmarks. Despite limitations and room for improvement, this preliminary index aims to quantify systemic risks in AI's core production engine, and implicitly shed a light on the risks for downstream value chain. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.23421 |
| By: | Stefano Comino (University of Udine, Italy); Alessandro Fedele (Free University of Bozen-Bolzano, Italy); Fabio Manenti (University of Padova, Italy) |
| Abstract: | This paper investigates the interplay between interoperability and the incentives to invest in cybersecurity in digital markets. We develop a two-sided symmetric duopoly model in which cyberattacks create a congestion-like externality, and interoperability amplifies hackers’ incentives to target connected platforms. We show that interoperability affects cybersecurity investment through multiple channels, potentially producing a non-linear relationship: low interoperability promotes risk-mitigation efforts, whereas high interoperability may discourage investment due to a public good effect. We then compare private and social incentives for interoperability, identifying potential sources of misalignment. Finally, we extend the baseline model to account for additional factors shaping the desirability of interoperability, including platforms’ business models, users’ awareness of cyber risk, market expansion effects, and asymmetries in user bases. |
| Keywords: | Cybersecurity, Interoperability, Congestion, Hackers, Two-sided Platforms, Investment. |
| JEL: | L13 L15 L51 L86 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:bzn:wpaper:bemps116 |
| By: | Rubik Khachatryan; Georgy Lukyanov |
| Abstract: | We analyze a two-period, two-market chain-store game in which an incumbent's conduct in one market is only sometimes seen in the other. This partial observability generates reputational spillovers across markets. We characterize equilibrium behavior by prior reputation: at high priors the strategic incumbent fights a lone early entrant (and mixes when both arrive together); at low priors it mixes against a single entrant and accommodates coordinated entry. Greater observability increases early fighting yet, because any accommodation is more widely noticed, raises the incidence of later entry. The results are robust to noisy signals and endogenous information acquisition, and extend naturally to many markets. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.21759 |
| By: | Klajdi Hoxha |
| Abstract: | E-commerce platforms are rolling out ambitious targeted advertising initiatives that rely on merchants sharing customer data with each other via the platform. Yet current platform designs fail to address participating merchants' concerns about customer poaching. This paper proposes a model of designing targeted advertising platforms that incentivizes merchants to voluntarily share customer data despite poaching concerns. I characterize the optimal mechanism that maximizes a weighted sum of platform's revenues, customer engagement and merchants' surplus. In sufficiently large platforms, the optimal mechanism can be implemented through the design of three markets: $i)$ selling market, where merchants can sell all their data at a posted price $p$, $ii)$ exchange market, where merchants share all their data in exchange for high click-through rate (CTR) ads, and $iii)$ buying market, where high-value merchants buy high CTR ads at the full price. The model is broad in scope with applications in other market design settings like the greenhouse gas credit markets and reallocating public resources, and points toward new directions in combinatorial market exchange designs. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.27112 |
| By: | Fabian Raoul Pieroth; Ole Petersen; Martin Bichler |
| Abstract: | Predatory pricing -- where a firm strategically lowers prices to undermine competitors -- is a contentious topic in dynamic oligopoly theory, with scholars debating practical relevance and the existence of predatory equilibria. Although finite-horizon dynamic models have long been proposed to capture the strategic intertemporal incentives of oligopolists, the existence and form of equilibrium strategies in settings that allow for firm exit (drop-outs following loss-making periods) have remained an open question. We focus on the seminal dynamic oligopoly model by Selten (1965) that introduces the subgame perfect equilibrium and analyzes smooth market sharing. Equilibrium can be derived analytically in models that do not allow for dropouts, but not in models that can lead to predatory pricing. In this paper, we leverage recent advances in deep reinforcement learning to compute and verify equilibria in finite-horizon dynamic oligopoly games. Our experiments reveal two key findings: first, state-of-the-art deep reinforcement learning algorithms reliably converge to equilibrium in both perfect- and imperfect-information oligopoly models; second, when firms face asymmetric cost structures, the resulting equilibria exhibit predatory pricing behavior. These results demonstrate that predatory pricing can emerge as a rational equilibrium strategy across a broad variety of model settings. By providing equilibrium analysis of finite-horizon dynamic oligopoly models with drop-outs, our study answers a decade-old question and offers new insights for competition authorities and regulators. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2510.27008 |
| By: | Holmberg, P.; Ruddell, K.; Willems, B. |
| Abstract: | We characterize Nash equilibria in multi-product markets in which producers commit to vectors of supply functions contingent on all prices. The framework accommodates (dis)economies of scope in production, and goods may be substitutes or complements in demand. We show that equilibrium allocations of underlying goods and payoffs are invariant under bundling. With quadratic costs and linear demand, this invariance reduces the multi-product problem to an equivalent set of single-product markets that can be analyzed independently. We introduce Lerner and pass-through matrices to capture markups and welfare losses; their eigenvalues summarize fundamental market properties, remain invariant under bundling, and lend themselves to comparative statics analysis. |
| Keywords: | Supply Function Equilibrium, Multi-Product Pricing, Divisible-Good Auction, Bundling, Pass-Through, Welfare |
| JEL: | C62 C72 D43 D44 L94 |
| Date: | 2025–09–24 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2565 |
| By: | Amir Ashour Novirdoust (EWI); Pia Hoffmann-Willers (EWI); Julian Keutz (EWI) |
| Abstract: | This paper develops an analytical model of sequential electricity markets in which renewable and conventional producers compete in two stages. Building on previous work, we introduce risk-averse renewable producers and distinguish between competitive and oligopolistic renewable producers. The model captures strategic bidding behavior under uncertainty in renewable production and limited flexibility of conventional producers in the second stage. Our results show that risk aversion amplifies strategic withholding in oligopolistic settings, thereby increasing the forward premium. This effect intensifies when conventional producers are less flexible. While risk aversion has no impact on welfare under perfect competition or when conventional producers are fully flexible, its interaction with market power and supply-side inflexibility generates welfare losses. In a heterogeneous market structure of renewable producers, competitive producers benefit from higher prices caused by the withholding of oligopolistic producers, particularly when those producers are risk-averse. |
| Keywords: | Sequential Markets; Strategic Bidding; Risk Aversion; Market Power; Renewable Energy |
| JEL: | D43 D81 L13 L94 Q21 |
| Date: | 2025–11–05 |
| URL: | https://d.repec.org/n?u=RePEc:ris:ewikln:021748 |
| By: | James Heintz (Department of Economics, University of Massachusetts, Amherst); William Milberg (Department of Economics, New School for Social Research) |
| Abstract: | The question of how value is distributed within global value chains (GVCs) is one of the central questions in contemporary research on trade and development and an analysis of power is central to understanding this issue. This paper extends existing research on distribution within global value chains by focusing on the issue of power in both product markets and supplier markets. We present a formal model in which lead firms capture a larger share of value-added, either through higher mark-ups – monopoly power – or lower unit costs goods purchased from suppliers – monopsony power. Maintaining or expanding this market power involves costly investments in intangible assets, with the nature of that investment depending on the characteristics of the GVC. This framework provides new insights into the distributive dynamics of value chains, including reputation effects tied to corporate social responsibility. In this way, the paper presents an innovative way of theorizing international trade, inspired by the unequal exchange tradition, that can be extended in future research. |
| Keywords: | Global value chains, market power, distribution, intangible assets, corporate social responsibility |
| JEL: | F12 L13 L14 J80 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:new:wpaper:2516 |
| By: | Florian Allroggen; R. John Hansman; Christopher R. Knittel; Jing Li; Xibo Wan; Juju Wang |
| Abstract: | Air transportation supports economic growth and global connectivity but imposes localized environmental costs, particularly through aircraft noise. We estimate the causal effect of aviation noise on housing prices using quasi-experimental variation from the Federal Aviation Administration's rollout of performance-based navigation (PBN) procedures and runway reconfigurations at three major U.S. airports. Combining high-resolution flight trajectory data with geocoded housing transactions, we apply a difference-in-differences hedonic framework to identify changes in exposure unanticipated by residents. A one-decibel increase in annual day-night average sound level reduces house prices by 0.6 to 1.0 percent. Among alternative noise metrics, average exposure explains property value impacts most strongly. Willingness to pay for quieter conditions varies systematically with income and race, indicating that aircraft noise externalities have meaningful distributional consequences. Our results highlight the need to incorporate localized environmental costs into aviation and urban land-use policy. |
| JEL: | L51 L62 L85 Q53 |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34431 |