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on Regulation |
| By: | Matthias Hettich |
| Abstract: | Increasingly, firms use algorithms powered by artificial intelligence to set prices. Previous research simulated interactions among Q-learning algorithms in an oligopoly model of price competition. The algorithms learn collusive strategies but require a long time that corresponds to several years to do so. We show that pricing algorithms using deep learning (DQN) can collude significantly faster. The availability of these more powerful pricing algorithms enables simulations in larger markets. Collusion disappears in wide oligopolies with up to 10 firms. However, incorporating knowledge of the learning behavior by reformulating the state representation increases the ability to collude effectively. |
| Keywords: | Algorithmic Pricing, Collusion, Artificial Intelligence, Reinforcement Learning, DQN |
| JEL: | D21 D43 D83 L12 L13 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:cqe:wpaper:9421&r= |
| By: | Narang, Unnati (Stanford University) |
| Abstract: | In this study, we causally examine complementarity in usage across a set of related soft- ware products from a multi-product firm. Digital contexts are characterized by little price variation, bundled pricing plans, and infrequent purchase or subscription renewal decisions. In these settings, computing typical cross-price elasticity measures for complementarities is often infeasible. We employ a novel experimental approach to causally identify complementarities, leveraging rich usage data and advertising experiments that affect usage of one product at a time. Though this approach, we directly measure complementarities based on usage rather than purchase. We test our approach using data from a software company with a suite of related products, and find evidence for varying degrees of complementarity between products in the suite. We also explore variation in these effects across user populations, finding that they vary across both product and consumer segments. We show that accounting for complementarity significantly affects the measurement of ad effective- ness. We also document the impact of our estimates on ad targeting decisions by the firm. Ours is one of the first studies to causally examine complementarity and substitutability between products in this context of subscription products, and our identification strategy has application in a variety of contexts. |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3975&r= |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti (MIT); Andreas Haupt (Institute for Data, Systems, and Society, MIT); Alex Smolin (Dept. of Economics, Yale University) |
| Abstract: | We consider a multiproduct monopoly pricing model. We provide sufficient conditions under which the optimal mechanism can be implemented via upgrade pricing—a menu of product bundles that are nested in the strong set order. Our approach exploits duality methods to identify conditions on the distribution of consumer types under which (a) each product is purchased by the same set of buyers as under separate monopoly pricing (though the transfers can be different), and (b) these sets are nested. We exhibit two distinct sets of sufficient conditions. The ï¬ rst set of conditions weakens the monotonicity requirement of types and virtual values but maintains a regularity assumption, i.e., that the product-by-product revenue curves are single-peaked. The second set of conditions establishes the optimality of upgrade pricing for type spaces with monotone marginal rates of substitution (MRS)—the relative preference ratios for any two products are monotone across types. The monotone MRS condition allows us to relax the earlier regularity assumption. Under both sets of conditions, we fully characterize the product bundles and prices that form the optimal upgrade pricing menu. Finally, we show that, if the consumer’s types are monotone, the seller can equivalently post a vector of single-item prices: upgrade pricing and separate pricing are equivalent. |
| Keywords: | Revenue Maximization, Mechanism design, Strong duality, Upgrade pricing |
| JEL: | D42 D82 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2290r&r= |
| By: | Andrea Geraci; Mattia Nardotto; Tommaso Reggiani; Fabio Sabatini |
| Abstract: | We study the impact of broadband penetration on social capital in the UK. Our empirical strategy exploits a technological feature of the telecommunication infrastructure that generated substantial variation in the quality of Internet access across households. The speed of a domestic connection rapidly decays with the distance of a user's line from the network's node serving the area. Merging information on the topology of the network with geocoded longitudinal data about individual social capital from 1997 to 2017, we show that access to fast Internet caused a significant decline in civic and political engagement. Overall, our results suggest that broadband penetration crowded out several dimensions of social capital. |
| Keywords: | ICT; broadband infrastructure; networks; Internet; social capital; civic capital |
| JEL: | D91 L82 Z13 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:sap:wpaper:wp210&r= |
| By: | Botham, Craig |
| Abstract: | The literature on craft guilds assigns them many roles, variously promoting skill acquisition and innovation, reducing transaction costs and asymmetries of information, providing solidarity for members, and wasteful rent seeking. Debate on the latter has typically centred on whether rent seeking was the primary goal of guilds, or whether it was essentially a necessary evil to allow guilds to fulfil their true institutional purpose by incentivizing collective action. It is rarely suggested that guild lobbying may have been a defensive measure against predatory elites, which served to increase economic efficiency and reduce extractive behaviour in the economy as a whole. An implicit assumption seems to be that guild rent seeking disturbs a pre-existing competitive equilibrium in markets and introduces inequality in previously equitable political rights. This essay approaches the topic by synthesising the literature on the rent seeking role of European guilds with that of the role of guilds in urban politics and the literature on firm theory and market structure. It argues that such a synthesis offers insights on imbalances of political and market power that call for a reinterpretation of ‘rent seeking’ behaviour by guilds. Guilds typically faced monopolies and monopsonies backed by an inequality of political power, which their own ‘rent seeking’ sought to overcome. Guilds therefore may have reduced aggregate rent seeking and improved efficiency. A renewed focus on urban politics and market functioning could help paint a more accurate picture of the true nature of guild rent seeking. |
| JEL: | R14 J01 N0 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:112746&r= |
| By: | Pauline Affeldt; Tomaso Duso; Klaus Gugler; Joanna Piechucka |
| Abstract: | Worldwide, the overwhelming majority of large horizontal mergers are cleared by antitrust authorities unconditionally. The presumption seems to be that efficiencies from these mergers are sizeable. We calculate the compensating efficiencies that would prevent a merger from harming consumers for 1,014 mergers affecting 12,325 antitrust markets scrutinized by the European Commission between 1990 and 2018. Compensating efficiencies seem too large to be achievable for many mergers. Barriers to entry and the number of firms active in the market are the most important factors determining their size. We highlight concerns about the Commission’s merger enforcement being too lax. |
| Keywords: | compensating efficiencies, efficiency gains, merger control, concentration, screens, HHI, mergers, unilateral effects, market definition, entry barriers |
| JEL: | L19 L24 L00 K21 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9403&r= |
| By: | Harding, Matthew (University of California, Irvine); Kettler, Kyle (University of California, Irvine); Lamarche, Carlos (University of Kentucky); Ma, Lala (University of Kentucky) |
| Abstract: | This paper provides a cautionary tale about claiming environmental costs and benefits when justifying the use of public funds. Using the example of a dynamic pricing policy, we show that the resulting impact on short-term operating costs and emissions is at best ambiguous. Moreover, it is hard to quantify even in ideal scenarios where data is plentiful and the behavioral response can be estimated precisely using a randomized control trial of customers of an electric utility. While dynamic pricing has been touted as a means to control generation costs and pollution, price-induced reallocation of electricity consumption within a day may actually increase net emissions depending on the source-generation mix of a region. |
| Keywords: | dynamic pricing, randomized experiment, load shifting, air pollution |
| JEL: | D12 L11 L94 Q53 Q58 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14846&r= |
| By: | Ximeng Fang; Lorenz Goette; Bettina Rockenbach; Matthias Sutter; Verena Tiefenbeck; Samuel Schoeb; Thorsten Staake |
| Abstract: | Behavioral policy often aims at overcoming barriers like imperfect information and limited attention that contribute to suboptimal consumer decisions. When multiple barriers are present, a single intervention that does not overcome all barriers simultaneously may fail to unfold its full potential. We conduct a three-month randomized field experiment on energy conservation in a resource-intensive everyday activity, using two different interventions. Home energy reports fail to reduce energy use despite achieving significant knowledge gains; real-time feedback induces considerable conservation effects. Strikingly, combining both interventions boosts these effects by over 50%. This showcases how barrier multiplicity can generate complementarities in behavioral interventions. |
| Keywords: | behavioral interventions, energy conservation, inattention, real-time feedback, home energy reports, policy interactions, randomized controlled trials |
| JEL: | D12 D83 Q41 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2020_149v1&r= |
| By: | Bindseil, Ulrich; Panetta, Fabio; Terol, Ignacio |
| Abstract: | Even before their deployment in major economies, one of the concerns that has been voiced about central bank digital currency (CBDC) is that it might be too successful and lead to bank disintermediation, which could intensify further in the case of a banking crisis. Some also argue that CBDC might crowd out private payment solutions beyond what would be desirable from the perspective of the comparative advantages of private and public sector money. This paper discusses success factors for CBDC and how to avoid the risk of crowding out. After examining ways to prevent excessive use as a store of value, the study emphasises the importance of the functional scope of CBDC for the payment functions of money. The paper also recalls the risks that use could be too low if functional scope, convenience or reachability are unattractive for users. Finding an adequate functional scope – neither too broad to crowd out private sector solutions, nor too narrow to be of limited use – is challenging in an industry with network effects, like payments. The role of the incentives offered to private sector service providers involved in distributing, using and processing CBDC (banks, wallet providers, merchants, payment processors, acquirers, etc.) is discussed, including fees and compensation. JEL Classification: E3, E5, G1 |
| Keywords: | central bank digital currency, cross-border payments, financial stability, means of payment, payment solution, store of value |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2021286&r= |
| By: | Mr. Matthieu Bellon |
| Abstract: | We examine the role of market characteristics and timing in explaining observed heterogeneity in VAT pass-through. We first extend existing theory to characterize the roles of imperfect competition and product differentiation, then investigate these relationships empirically using a panel of 14 Eurozone countries between 1999 and 2013. We find important roles for product market regulation and product quality, and little impact of advance announcement of reforms. Our findings have important implications for policy-makers considering VAT rate adjustments, by illuminating which of the consumers or the producers would experience the brunt of a reform across different settings. |
| Keywords: | Value added tax; Price effect; Pass through; Competition; Product Differentiation; pass-through heterogeneity; VAT pass-through; pass-through effect; baseline pass-through; elasticity coefficient; imperfect competition; pass-through adjustment; Value-added tax; Consumption; Commodity markets; Consumer prices; Europe |
| Date: | 2021–03–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/061&r= |
| By: | Hattori, Keisuke |
| Abstract: | This paper compares the profitability and sustainability between profit-sharing collusion with side payments and price-fixing collusion without side payments in a two-firm repeated Bertrand game when firms differ in both cost and discount factor. Although profit-sharing collusion yields larger joint profits, bargaining over collusive agreements makes heterogeneous firms prefer different types of collusion: a low-cost (high cost) firm is more likely to adhere to profit-sharing (price-fixing) collusion. If both firms have the same discount factor, profit-sharing collusion is more sustainable. However, price-fixing collusion can be the only sustainable collusion if the efficient firm is more patient than the inefficient firm. Furthermore, we extend profit-sharing collusion by incorporating side payments with different enforcement procedures (i.e., different timing of side payments) and different purposes: to reach agreement and to make the agreement sustainable. Our results provide a theoretical rationale for why firms fail or succeed at reaching and sustaining some forms of collusion. |
| Keywords: | Collusion; Asymmetric costs; Asymmetric discount factors; Side payments; Repeated game |
| JEL: | C73 C78 L13 L41 |
| Date: | 2021–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:110800&r= |
| By: | Kotaro Ishi; Mr. Takuji Komatsuzaki; Mr. Ippei Shibata; Suchanan Tambunlertchai; Jasmin Sin |
| Abstract: | This paper revisits the competitive environment of the banking system in Latin America and the Caribbean (LAC) and investigates the early impact of fintech development in the region thus far. Against the backdrop of high net interest margins (NIMs) and limited financial depth in the region, panel regressions broadly confirm results of existing literature on the association of NIMs with the changes in the financial sector structure, including market concentration, administrative costs, and foreign banks, although differences between domestic and foreign banks narrowed after the 2008-09 Global Financial Crisis. Difference-in-difference regressions and case studies on Brazil and Mexico suggest that fintech is associated with a reduction in NIMs and defensive responses by incumbent banks that benefit consumers. The case studies also shed light on regulatory approaches and prudential considerations in fostering financial innovation and banking sector competition. |
| Keywords: | banking sector competition; panel regression; net interest margins; market share; r p rotec tio n; Fintech; Commercial banks; Foreign banks; Competition; Real interest rates; Caribbean; Global |
| Date: | 2021–04–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/114&r= |
| By: | Ms. Emilia M Jurzyk; Mr. Cian Ruane |
| Abstract: | We document that publicly listed Chinese state-owned enterprises (SOEs) are less productive and profitable than publicly listed firms in which the state has no ownership stake. In particular, Chinese listed SOEs are more capital intensive and have a lower average product of capital than non-SOEs. These productivity differences increased between 2002 and 2009, and remain sizeable in 2019. Using a heterogeneous firm model of resource misallocation, we find that there are large potential productivity gains from reforms which could equalize the marginal products of listed SOEs and listed non-SOEs. |
| Keywords: | State-Owned Enterprises;Misallocation;WP;private firm;firm distortion;productivity difference;representative firm;firm Fe;productivity gap;technical efficiency; Productivity; Capital productivity; Public enterprises; Total factor productivity; Labor productivity |
| Date: | 2021–03–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2021/075&r= |
| By: | Richard H. Clarida |
| Date: | 2021–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:93418&r= |
| By: | Alexandre Chirat |
| Abstract: | Baumol’s impact on the development of managerial theories of the firm is investigated here through material found in Galbraith’s archives. In 1957 Galbraith published a paper claiming that the impact of macroeconomic policies varies with market structures (competitive versus oligopolistic). That publication prompted Baumol (1958b) to send Galbraith a manuscript dealing extensively with a crucial question of managerial theories of the firm, namely, the trade-off between sales and profits. I argue that Baumol’s critiques and Galbraith’s answers largely explain the way Baumol (1958a, 1959) framed his alternative model of the behavior of corporations. He reasoned in terms of maximization of sales with a profit constraint as their main objective. In return, Business Behavior, Value and Growth fostered the development of Marris’ (1964) and Galbraith’s (1967) theories of the corporation. While Tullock (1978) provides a narrative in which the sales maximization hypothesis has two main branches – Baumol for the one and Galbraith-Marris for the other – the paper demonstrates that these branches are intimately connected. |
| Keywords: | Baumol – Galbraith – Theory of the firm – Managerialism – Marginalisme |
| JEL: | B21 B22 D43 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2021-35&r= |
| By: | Michela Chessa; Nobuyuki Hanaki; Aymeric Lardon; Takashi Yamada |
| Abstract: | In this paper we experimentally compare three implementations of Winter demand commitment bargaining mechanism: a one-period implementation, a two-period implementation with low and with high delay costs. Despite the different theoretical predictions, our results show that the three different implementations result in similar outcomes in all our domains of investigation, namely: coalition formation, alignment with the Shapley value prediction and axioms satisfaction. Our results suggest that a lighter bargaining implementation with only one period is often sufficient in providing allocations that sustain the Shapley value as appropriate cooperative solution concept, while saving unnecessary costs in terms of time and resources. |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1152&r= |