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on Industrial Organization |
| By: | Joel Kariel; Anthony Savagar |
| Abstract: | We present empirical evidence on the relationship between demand shocks and price changes, conditional on returns to scale. We find that in industries with decreasing returns to scale, demand increases (which raise costs) correspond to price increases. Whereas, in industries with increasing returns to scale, demand increases (which lower costs) correspond to stable prices. We interpret the results with a theory of imperfect competition and returns to scale. For prices to remain stable following a cost decrease, markups necessarily rise. For prices to increase as cost increases, it is not necessary for markups to change but does not preclude their role. From a macroeconomic perspective, our results imply that inflation dynamics and the effectiveness of monetary policy depend on market structures. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.05898 |
| By: | Dirk Bergemann; Rahul Deb |
| Abstract: | We study the robust sequential screening problem of a monopolist seller of multiple cloud computing services facing a buyer who has private information about his demand distribution for these services. At the time of contracting, the buyer knows the distribution of his demand of various services and the seller simply knows the mean of the buyer's total demand. We show that a simple "committed spend mechanism" is robustly optimal: it provides the seller with the highest profit guarantee against all demand distributions that have the known total mean demand. This mechanism requires the buyer to commit to a minimum total usage and a corresponding base payment; the buyer can choose the individual quantities of each service and is free to consume additional units (over the committed total usage) at a fixed marginal price. This result provides theoretical support for prevalent cloud computing pricing practices while highlighting the robustness of simple pricing schemes in environments with complex uncertainty. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.07168 |
| By: | Raj Pabari; Udaya Ghai; Dominique Perrault-Joncas; Kari Torkkola; Orit Ronen; Dhruv Madeka; Dean Foster; Omer Gottesman |
| Abstract: | We introduce and analyze a variation of the Bertrand game in which the revenue is shared between two players. This game models situations in which one economic agent can provide goods/services to consumers either directly or through an independent seller/contractor in return for a share of the revenue. We analyze the equilibria of this game, and show how they can predict different business outcomes as a function of the players' costs and the transferred revenue shares. Importantly, we identify game parameters for which independent sellers can simultaneously increase the original player's payoff while increasing consumer surplus. We then extend the shared-revenue Bertrand game by considering the shared revenue proportion as an action and giving the independent seller an outside option to sell elsewhere. This work constitutes a first step towards a general theory for how partnership and sharing of resources between economic agents can lead to more efficient markets and improve the outcomes of both agents as well as consumers. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.07952 |
| By: | Zhe Zhang; Young Kwark; Srinivasan Raghunathan |
| Abstract: | The use of sponsored product listings in prominent positions of consumer search results has made e-commerce platforms, which traditionally serve as marketplaces for third-party sellers to reach consumers, a major medium for those sellers to advertise their products. On the other hand, regulators have expressed anti-trust concerns about an e-commerce platform's integration of marketplace and advertising functions; they argue that such integration benefits the platform and sellers at the expense of consumers and society and have proposed separating the advertising function from those platforms. We show, contrary to regulators' concerns, that separating the advertising function from the e-commerce platform benefits the sellers, hurts the consumers, and does not necessarily benefit the social welfare. A key driver of our findings is that an independent advertising firm, which relies solely on advertising revenue, has same or lesser economic incentive to improve targeting precision than an e-commerce platform that also serves as the advertising medium, even if both have the same ability to target consumers. This is because an improvement in targeting precision enhances the marketplace commission by softening the price competition between sellers, but hurts the advertising revenue by softening the competition for prominent ad positions. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.08548 |
| By: | Lee, Kuo Chuen; Li, Yang; Xu, Weibiao; Zhao, Willy |
| Abstract: | Proponents of blockchains believe that this technology will revolutionize e-commerce. To evaluate this belief, we invite several groups of students to transact on a decentralized peer-to-peer marketplace built on the platform provided by Origin Protocol Inc., and then we conduct a survey about their experience of usage. Based on our survey results, we find that 33% of respondents play tricks on others, which implies that this undesirable result may hinder the widespread adoption of blockchain technologies. We also attempt to propose a conceptual mechanism to mitigate fraudulent behaviors. In the event of disputation, a trusted authority is entitled to the right to downgrade the fraudulent side’s credit record, which is stored by a permissioned blockchain accessed only by the authority. Such a punishment can effectively decrease agents' incentives to sell counterfeits and leave fake ratings. In sum, we must distinguish what we proposed blockchains will do and what blockchains can do before enabling this technology in e-commerce. |
| Keywords: | Arbitration, Blockchains, E-commerce, Fraud, Privacy, Trust |
| JEL: | C7 C9 G02 L1 L4 O33 |
| Date: | 2025–01–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123654 |
| By: | Gaétan de Rassenfosse; Adam B. Jaffe |
| Abstract: | Ensuring broad access to the patent system is crucial for fostering innovation and promoting economic growth. To support this goal, the U.S. Patent and Trademark Office offers reduced fees for small and micro entities. This paper investigates whether fee rates affect the filing of applications by small and micro entities. Exploiting recent fee reforms, the study evaluates the relationship between fee changes and the number of new entrants, controlling for potential confounding factors such as legislative changes. The findings suggest that fee reductions alone are insufficient to significantly increase participation in the patent system among small and micro entities. |
| JEL: | O30 O31 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33492 |
| By: | Helena Perrone |
| Abstract: | This paper analyzes the Nvidia-Arm vertical merger through the lens of the recent literature in Industrial Organization. It explores potential competitive concerns surrounding market foreclosure, technological access, and exclusionary behavior, considering the dynamic semiconductor industry’s intricacies. Although limited public information is available due to the parties halting the merger during phase two, I propose four theories of competitive effects addressing issues such as vertical foreclosure in dynamic markets, stifling of innovation due to hold-up concerns, and the ecosystem effects of the merger. This discussion sheds light on the potential impact of this merger in the semiconductor industry on competition in innovative high tech markets such as CPUs, datacenters, gaming consoles, and assisted driving. |
| Keywords: | vertical merger, foreclosure, holdup, ecosystems, semiconductor industry |
| JEL: | L4 K2 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_647 |
| By: | Steve Lawford |
| Abstract: | I investigate how incumbents in the U.S. airline industry respond to threatened and actual route entry by Southwest Airlines. I use a two-way fixed effects and event study approach, and the latest available data from 1999-2022, to identify a firm's price and quantity response. I find evidence that incumbents cut fares preemptively (post-entry) by 6-8% (16-18%) although the significance, pattern, and timing of the preemptive cuts are quite different to Goolsbee and Syverson's (2008) earlier results. Incumbents increase capacity preemptively by 10-40%, up to six quarters before the entry threat is established, and by 27-46% post-entry. My results suggest a clear shift in firms' strategic response from price to quantity. I also investigate the impact of an incumbent's network structure on its preemptive and post-entry behaviour. While the results on price are unclear, a firm's post-entry capacity reaction depends strongly on its global network structure as well as the local importance (centrality) of the route. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.20418 |
| By: | Michael R. Richards; Maggie Shi; Christopher M. Whaley |
| Abstract: | Information technology (IT) can enhance firms’ long-run performance but is also a risky investment, with high fixed costs and uncertain returns. Whether market events influence this tradeoff has received limited attention. We leverage the healthcare context to empirically examine hospitals’ IT investments following economic downturns and public insurance expansions––i.e., large industry shocks in opposite directions. We find novel and symmetrical responses. Recessions restrain investments while expansion policy indirectly stimulates them. Importantly, the IT margin is more elastic than other spending responses to market fluctuations. Supplementary analyses suggest that hospitals’ finances and perceptions of uncertainty drive these capital investment adjustments. |
| JEL: | H42 I1 I11 I13 I18 L21 L23 L24 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33487 |
| By: | Hanming Fang; Ming Li; Long Wang; Zoe Yang |
| Abstract: | Using China's expansion of the high-speed rail system (HSR) as a quasi-natural experiment, we analyze the comprehensive vehicle registration data from 2010 to 2023 to estimate the causal impact of HSR connectivity on the adoption of electric vehicles (EVs). Implementing several identification strategies, including staggered difference-in-differences (DID), Callaway and Sant'Anna (CS) DID, and two instrumental-variable approaches, we consistently find that, by alleviating range anxiety, the expansion of HSR can account for up to one third of the increase in EV market share and EV sales in China during our sample period, with effects particularly pronounced in cities served by faster HSR lines. The results remain robust when controlling for local industrial policies, charging infrastructure growth, supply-side factors, and economic development. We also find that HSR connectivity amplifies the effectiveness of charging infrastructure and consumer purchase subsidies in promoting EV adoption. |
| JEL: | L52 L53 O18 Q55 R41 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33489 |