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on Industrial Organization |
| By: | Marc Deschamps (Université Marie et Louis Pasteur); Dongshuang Hou (Department of Applied Mathematics, Northwestern Polytechnical University); Aymeric Lardon (Université Jean Monnet Saint-Étienne, CNRS, Université Lyon 2, GATE Lyon Saint-Étienne); Christian Trudeau (Department of Economics, University of Windsor) |
| Abstract: | We consider a homogeneous Cournot oligopoly where the inverse demand function is obtained by the utility maximization of a representative consumer, and firms may operate at different marginal costs. Assuming that some firms make a cartel while others remain independent, we introduce three new classes of TU-games, referred to as welfare TU-games, each corresponding to consumer surplus, total profit, and total welfare, respectively. Our results show that the games associated with consumer surplus and total welfare are monotonically decreasing and concave, highlighting a snowball effect of cartel formation on these two welfare measures. In contrast, the game associated with total profit is never superadditive, but it is monotonically increasing and concave when the number of firms is sufficiently small. Furthermore, we apply allocation methods, including the Shapley value and the serial method, to determine ex ante fair fines that firms must pay for participating in the cartel, allowing to differentiate fines both on the order of arrival in the cartel and on the technologies of the firms. For instance, in certain scenarios, some inefficient firms may receive lower fines for joining the cartel due to cost synergies. |
| Keywords: | Cournot competition; Cartel; Welfare; Shapley value; Antitrust. |
| JEL: | C71 D43 K21 L40 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:wis:wpaper:2601 |
| By: | Nigar Hashimzade; Haoran Sun |
| Abstract: | Industrial policy has returned to the centre of economic governance, particularly in the high-tech sectors where positive network externalities in demand make market dominance self-reinforcing. This paper studies the welfare effects of an industrial policy targeting a sector with network externalities in a two-country model with strategic trade and R&D investment. We show how the welfare consequences of this policy are determined by the interaction between the strength of the externality, the type of R&D, and the degree of product differentiation between the home and the imported goods. When externalities are weak or the goods are close substitutes, the business-stealing effect produces a race to the bottom that dissipates more surplus than it creates. Under sufficiently strong externalities and weak substitutability or complementarity of the goods, industrial policy competition can make both countries simultaneously better off compared to the laissez-faire outcome because of the mutual business-enhancement effect. The case is stronger for the product innovation than for the process innovation, as the former directly affects the demand and triggers a stronger network effect than the latter which operates indirectly through the supply. Thus, network externalities create an opportunity for win-win industrial policies, but its realisation depends on the market structure and the nature of innovation. |
| Keywords: | industrial policy, network externalities, R&D subsidies, strategic trade, Cournot competition |
| JEL: | F13 H25 L13 O38 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12592 |
| By: | Panagiotis Kyriazis |
| Abstract: | Economic institutions often influence market outcomes not by directly controlling sellers' menus, but by shaping the market composition sellers face. We study this problem in the canonical monopoly screening model. An upstream actor chooses the distribution of buyer valuations, after which a monopolist offers the optimal quality-price menu. We characterize the optimal market composition and the efficient frontier of consumer surplus and profit. If the upstream actor places at least as much weight on profits as on consumer surplus, the optimal market collapses to the top type. If the weight on consumer surplus is larger than the weight on profits, the optimal market exhibits no exclusion, no interior bunching, and a positive mass at the highest valuation. Under a mild curvature condition, the optimum is unique. As the weight on consumer surplus rises, the optimal market becomes more heterogeneous and less concentrated at the top: the interior expands while the top segment shrinks. Consumer surplus rises, profit falls, and total surplus declines. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.09340 |
| By: | Xiao Dong; Paul Koh; Devesh Raval; Dominic Smith; Brett Wendling |
| Abstract: | Antitrust authorities frequently rely on structural divestitures to address competitive concerns raised by mergers. Using census-level establishment data and proprietary transaction records from the U.S. grocery sector, we provide systematic evidence on the long-run effects of such remedies. Divested stores experience an average 31 percent decline in employment over five years, driven by elevated exit rates and persistent contraction among surviving establishments. Sales similarly decline. Transaction-level evidence indicates that divested assets are systematically weaker and are often transferred to lower-capability buyers. These findings suggest that structural remedies may be less effective when the implementation of divestitures allows merging parties substantial discretion over the assets and buyers involved. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.15045 |
| By: | Panagiotis Kyriazis; Edmund Lou |
| Abstract: | We investigate the relationship between product offerings, information dissemination, and consumer decision-making in a monopolistic screening environment in which consumers lack information about their valuation of quality-differentiated products. An intermediary, who is driven by the objective of maximizing consumer surplus but is also biased towards high-quality products, provides recommendations after the monopolist announces the menu of product choices. We characterize the monopolist's profit-maximizing finite-item menu. Our results show that as intermediaries place greater emphasis on consumer surplus over product quality, sellers are prompted to strategically expand their product range. Intriguingly, this augmented product variety decreases economic efficiency compared to scenarios where direct seller-to-consumer information provision is the norm. The role of information intermediaries proves pivotal in shaping consumer welfare, market profitability, and overarching economic efficiency. Our insights underscore the complexities introduced by these intermediaries that policymakers and market designers must consider when designing policies centered on consumer learning and market information transparency. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.09343 |
| By: | Stephen W. Salant; Diego S. Cardoso; Julien Xavier Daubanes |
| Abstract: | To reduce Russia's ability to fund its war in Ukraine, Western governments imposed a price ceiling on Russian seaborne oil exports. Policy-makers sought a ceiling level to lower Russia's oil profits without raising excessively the world price buyers pay for oil. Previous analyses have explored this problem using simulations and, with a single exception, have treated the non-Russian supply response as exogenous. We pose the problem theoretically as a constrained minimization problem of the policy maker and solve it, treating Russia as either a monopolist or an oligopolist facing heterogeneous rivals with endogenous supply. |
| Keywords: | price cap, oil price, strategic supply |
| JEL: | L13 Q41 D78 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12608 |
| By: | de Cornière, Alexandre; Jerath, Kinshuk; Taylor, Greg |
| Abstract: | This paper analyzes seller-side tying on digital platforms, where access to a core intermediation service is conditioned on sellers using an ancillary service (e.g., fulfillment or payments). We model a monopoly platform matching consumers and competing sellers across many product categories, with consumers valuing the ancillary service heterogeneously. When adoption is voluntary, sellers under adopt because asymmetric adoption creates vertical differentiation that softens price competition, raising prices and reducing platform participation. Tying restores high adoption, intensifies competition, and increases consumer surplus. A ban on tying or structural separation lowers adoption and can harm consumers. |
| Date: | 2026–04–09 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:131671 |
| By: | Pragya Kakani; Eric Yde; Genevieve Kanter; Richard G. Frank; Amelia M. Bond |
| Abstract: | We provide evidence of strategic transfer pricing by vertically integrated health care firms in response to insurer profit regulations. Insurers increased prices at vertically integrated pharmacies by 9.5% following the introduction of caps on insurer profits in Medicare Part D. We detect larger price increases by insurers that were at greatest risk of exceeding the allowable profit level. More than one-fifth of these higher prices were borne by the federal government. Our analysis illustrates that vertically integrated firms can evade profit regulation by “tunneling” profits to unregulated subsidiaries, undermining regulatory intent and increasing health care spending. |
| JEL: | I11 I13 I18 L14 L22 L41 L51 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35043 |
| By: | Vera Lubbersen |
| Abstract: | Payment card markets are globally dominated by a few large card networks, which give significant rebates to issuing banks. Policy makers are concerned about rising merchant fees and the overreliance on these networks’ payment services. A common assumption is that profitable entry is blockaded by the entry costs to set up the payment system and network, resulting in a monopolistic or duopolistic market structure. The question analyzed in this paper is under which conditions a card network sets rebates at a higher level such that competitors cannot profitably enter the market. Deterrence becomes more profitable for a large card network when transaction benefits increase - especially if issuing banks pass rebates through to cardholders. At the same time, entry becomes more blockaded if issuing banks face costs to switch their card issuance to a different card network - indicating that large card networks may use rebates to increase switching costs. These lock-in effects explain why domestic card networks are pushed aside and new card networks struggle to gain ground and may have important implications for payment regulation. |
| Keywords: | Payment cards; Rebates; Entry deterrence; Interchange fee; Card networks |
| JEL: | L12 L13 L14 L20 L21 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:856 |
| By: | John Fernald; Amit Gandhi; Dimitrije Ruzic; James Traina |
| Abstract: | We review the "production approach" to estimating markups, the ratio of price to marginal cost. The approach is uniquely scalable: it requires no model of consumer demand or market structure and applies broadly across firms, industries, and time. Our organizing insight is that the production-based markup is a residual. Like the Solow residual, it is clean in theory but potentially contaminated by misspecification and mismeasurement. This framing helps explain why small differences in implementation can produce starkly different results from the same data. In some cases, markups have risen sharply. In others, they have not. Despite the disagreements in the literature, the importance of understanding and measuring market power cannot be overstated. We provide conceptual rationales for this disagreement, offer practical guidance on data and estimation, and call for greater transparency about how much of the variation attributed to markups may instead reflect technology. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2604.13224 |