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on Regulation |
| By: | Christian Bontemps (ENAC-LAB - Laboratoire de recherche ENAC - ENAC - Ecole Nationale de l'Aviation Civile, TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Cristina Gualdani (QMUL - Queen Mary University of London); Kevin Remmy (Universität Mannheim) |
| Abstract: | We develop a two-stage game in which competing airlines first choose the networks of markets to serve in the first stage before competing in price in the second stage. Spillovers in entry decisions across markets are allowed, which accrue on the demand, marginal cost, and fixed cost sides. We show that the second-stage parameters are point identified, and we design a tractable procedure to set identify the first-stage parameters and to conduct inference. Further, we estimate the model using data from the domestic US airline market and find significant spillovers in entry. In a counterfactual exercise, we evaluate the 2013 merger between American Airlines and US Airways. Our results highlight that spillovers in entry and post-merger network readjustments play an important role in shaping post-merger outcomes. |
| Keywords: | Endogenous market structure, Networks, Airlines, Oligopoly, Product repositioning, Mergers, Remedies |
| Date: | 2023–06–14 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04709707 |
| By: | Sarit Markovich (Kellogg School of Management, Northwestern University, Evanston, IL, USA); Yaron Yehezkel (Coller School of Management, Tel-Aviv University, Ramat-Aviv, Israel) |
| Abstract: | We consider platform competition when platforms can either 1) commercialize users’ data and in return offer their services for free (data-based business model); 2) protect users’ privacy and charge users for participation (subscription-based model); or 3) offer both options (the hybrid model). We find that competition does not always motivate the incumbent platform to protect users’ privacy. When network effects are strong, competition can motivate the incumbent to shift from the subscription-based model to the hybrid model; thereby, increasing data commercialization. Yet, the opposite case occurs when network effects are weak. Moreover, allowing the incumbent to adopt the hybrid model is welfare enhancing when network effects are strong, and welfare reducing (or neutral) otherwise. |
| Keywords: | platforms with network effects; business models; data commercialization |
| JEL: | L1 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:net:wpaper:2402 |
| By: | Bird, Davina; Garrod, Luke; Wilson, Chris M |
| Abstract: | Mandatory refund policies have received a lot of attention from both policymakers and academics. Despite this, little is known about how sellers strategically respond to the policy and the resulting effects on competition. To address this, we analyze mandatory refund policies in a framework that flexibly accommodates the full competition spectrum. We show that the policy can benefit consumers in uncompetitive markets under certain conditions, despite reducing social welfare and profits. Nevertheless, we also demonstrate how the policy can be detrimental to consumers, even in very uncompetitive markets. Intuitively, while the policy always protects consumers from some bad outcomes post-purchase, sellers respond by increasing their prices and so consumers have less chance of obtaining a good deal pre-purchase. |
| Keywords: | Refunds; Product Returns; Cooling-Off Periods; Returns Policy; Cancellation Rights |
| JEL: | D18 D21 M37 |
| Date: | 2024–09–13 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122125 |
| By: | Angela Stefania Bergantino (UNIBA - Università degli studi di Bari Aldo Moro = University of Bari Aldo Moro); Christian Bontemps (ENAC-LAB - Laboratoire de recherche ENAC - ENAC - Ecole Nationale de l'Aviation Civile, TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Mario Intini (UNIBA - Università degli studi di Bari Aldo Moro = University of Bari Aldo Moro); Ada Spiru (UNIBA - Università degli studi di Bari Aldo Moro = University of Bari Aldo Moro) |
| Abstract: | The purpose of this study is to assess the impact of Lufthansa's bid to acquire the Italian airline ITA Airways. On the basis of different scenarios, we aim to estimate the impact on the supply of air products and on consumers. To simulate the impact of such a merger on the European market, we rely on standard structural models of demand and supply used in the empirical IO literature. Since Berry (1994), many papers have used them to estimate demand in various sectors, including the airline sector, mostly at the US level. In particular, Berry et al. (2006) use a random coefficients model to study the role of hubs, while Berry and Jia (2010) compare the years 1999 and 2006. We want to compare the variation in consumer surplus and equilibrium fares under different scenarios. In particular, we need to model different possibilities for the range of products offered by the new merged entity. We also want to compare these scenarios with others in which ITA Airways could have merged with another airline, such as Air France. In our paper, in our attempt to simulate the impact of the merger on consumer surplus and fares, we face an additional challenge due to the possibility of repositioning the products offered by the competitors of ITA Airlines and LuftHansa. A particular feature of the European market is the presence of many low-cost carriers. These airlines are more likely to react to a reduction in the number of competitors and we need to model their strategies too. |
| Date: | 2024–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04709659 |
| By: | Corey Lang; Kevin Nakolan; David Rapson; Reid Taylor |
| Abstract: | Inattention can lead to suboptimal investment in energy efficiency. We study whether electricity bill shocks draw attention to the benefits of home energy efficiency investments. Our novel identification strategy builds on the fact that prolonged extreme weather events (which raise electricity costs for many customers) fall within a single billing cycle for some customers but are split across cycles for others. We find that households exposed to average sized bill shocks are 22 percent more likely to invest in energy efficiency than households with normal bills. This result suggests that inattention is indeed a factor in residential energy decisions and utilities may be able to leverage bill shocks to promote efficiency investments. |
| JEL: | Q40 Q50 D12 |
| Date: | 2024–09–20 |
| URL: | https://d.repec.org/n?u=RePEc:fip:feddwp:98834 |
| By: | Jinglei Huang (Tsinghua University, School of Social Science, Mingzhai Building, Haidian District, Beijing, China); Guofu Tan (University of Southern California, 3620 South Vermont Avenue KAP Hall, 300, Los Angeles, CA 90089-0253, United States); Tat-How Teh (Nanyang Technological University, Division of Economics, 48 Nanyang Ave, 639818 Singapore); Junjie Zhou (Tsinghua University, School of Economics and Management, 30 Shuangqing Road, Haidian District, Beijing, China) |
| Abstract: | Network interoperability between platforms often comes in various possible configurations, including industry-wide, coalition-based, and pairwise interoperability arrangements. We present an approach to incorporate generalized configurations of network interoperability into the analysis of price competition among any number of symmetric platforms. Specifically, the network benefit received by consumers on each platform increases with the effective network size of the platform, which is determined by an interoperability matrix reflecting the connections between platforms. Four key factors—the strength of interoperability, the shape of the network externality function, the interoperability configuration, and the number of platforms—jointly determine the equilibrium prices. Our findings show, among other things, that increased interoperability strength tends to reduce prices and benefit consumers when: (i) the network externality function exhibits strong increasing returns to scale, or (ii) the interoperability configuration includes multiple coalitions. |
| Keywords: | platforms, interoperability, interconnectivity, compatibility, data sharing, learning curve, coalitions |
| JEL: | D43 L15 L20 L50 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:net:wpaper:2403 |
| By: | Ryan Y. Lin; Siddhartha Ojha; Kevin Cai; Maxwell F. Chen |
| Abstract: | Machine-learning technologies are seeing increased deployment in real-world market scenarios. In this work, we explore the strategic behaviors of large language models (LLMs) when deployed as autonomous agents in multi-commodity markets, specifically within Cournot competition frameworks. We examine whether LLMs can independently engage in anti-competitive practices such as collusion or, more specifically, market division. Our findings demonstrate that LLMs can effectively monopolize specific commodities by dynamically adjusting their pricing and resource allocation strategies, thereby maximizing profitability without direct human input or explicit collusion commands. These results pose unique challenges and opportunities for businesses looking to integrate AI into strategic roles and for regulatory bodies tasked with maintaining fair and competitive markets. The study provides a foundation for further exploration into the ramifications of deferring high-stakes decisions to LLM-based agents. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.00031 |
| By: | Tsuritani, Ryosuke |
| Abstract: | In a vertical market, the price of the final good is high if a seller has strong bargaining power. Thus, a policy that strengthens the bargaining power of sub-suppliers may be desirable from a fairness perspective while undesirable from an efficiency perspective. We consider a vertical market with one sub-supplier, focal supplier, and manufacturer. The focal supplier purchases inputs from the sub-supplier and sells its products to the manufacturer. Suppliers' selling prices are determined through Nash bargaining. We find that although suppliers' vertical separation induces triple-markup inefficiency in vertical relations, if the focal supplier has weak bargaining power over the manufacturer or strong bargaining power over the sub-supplier, the suppliers have the incentive to remain separated. This is because suppliers' vertical separation may be a price-increasing commitment and transfer the bargaining surplus from the manufacturer to the suppliers. Therefore, a policy that strengthens the bargaining power of sub-suppliers may also be justified from an efficiency perspective because it may encourage vertical integration. |
| Keywords: | Vertical market; Vertical integration; Three-tier supply chain; Bargaining; Subcontracting Act |
| JEL: | D42 L23 L40 |
| Date: | 2024–09–15 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122071 |
| By: | Vincent Meisner; Pascal Pillath |
| Abstract: | We design the profit-maximizing mechanism to sell an excludable and non-rival good with network effects. Buyers have heterogeneous private values that depend on how many others also consume the good. In optimum, an endogenous number of the highest types shares consumption, and we provide an algorithm that implements this allocation in dominant strategies. We apply our insights to digital content creation, and we are able to rationalize features seen in monetization schemes in this industry such as voluntary contributions, community subsidies, and exclusivity bids. |
| Keywords: | Mechanism design, non-rival goods, club goods, network effects, digital content, creator economy |
| JEL: | D82 |
| Date: | 2024–09–20 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0049 |
| By: | Roberto Pinheiro |
| Abstract: | In this paper, we present a model of repeated first-price private value auctions in which the bidders have access to a cheap talk communication mechanism. In this framework, messages allow bidders to transmit their preference rankings over the goods to be auctioned, similar to Pesendorfer (2000). We show that collusion through this static mechanism not only dominates the static bid rotation mechanism presented by McAfee and McMillan (1992), but it is also not strictly dominated by the dynamic bid rotation mechanism presented by Aoyagi (2003). However, we show that asymptotic efficiency of collusion through increasing the number of ordered goods, presented by Pesendorfer (2000), demands patience rates to asymptotically approach one, making collusion increasingly more difficult to sustain. Finally, we study mechanisms through which the auctioneer may try to break bidders' collusion. |
| Keywords: | collusion; auctions; cheap talk communication; repeated games |
| JEL: | D44 C72 L41 |
| Date: | 2024–10–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:98920 |
| By: | Mathias Dewatripont (ULB - Université libre de Bruxelles); Jean Tirole (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | Scholars and civil society have argued that competition erodes supplier morality. This paper establishes a robust irrelevance result, whereby intense market competition does not crowd out consequentialist ethics; it thereby issues a strong warning against the wholesale moral condemnation of markets and procompetitive institutions. Intense competition, while not altering the behavior of profitable suppliers, may, however, reduce the standards of highly ethical suppliers or not-for-profits, raising the potential need to protect the latter in the marketplace. |
| Keywords: | Competition, Consequentialism, Replacement logic, Non-profits, Corporate social responsability, Race to the ethical bottom |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04695298 |
| By: | Yair Antler ad Ran Spiegler |
| Abstract: | We develop a market model in which products generate state-dependent potential hidden charges. Firms differ in their ability to realize this potential. Unlike firms, consumers do not observe the state. They try to infer hidden charges from market prices, using idiosyncratic subjective models. We show that an interior competitive equilibrium is uniquely given by what is formally a Bellman equation. We leverage this representation to characterize equilibrium headline prices, add-on charges and welfare. Market responses to shocks display patterns that are impossible under rational expectations. For example, equilibrium prices can be fully revealing and yet vary with consumers' private information. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.14885 |
| By: | Choi, Dahyun; Lee, Kyuwon |
| Abstract: | Although there are public concerns about the declining capacity of regulatory agencies and its impact on regulatory outcomes, such decline could also lead regulated firms to disengage themselves from politics. We examine whether and how firms reduce their campaign contributions in response to decreases in state-level regulatory capacity. To do so, we collect original datasets on the workforce size of U.S. state environmental agencies and leverage variations in workforce shocks that arise from the gap between actual and appropriated workforce sizes. Our analysis reveals that state environmental agencies' workforce shocks decrease firms' donations to state legislators, particularly to those in the majority party and the Democratic party, but do not affect firms' contributions to their ideological allies. We also find that existing state-level restrictions on corporate donations do not moderate firms' political responsiveness. Overall, this article provides a nuanced picture of how diminishing regulatory capacity could shape corporate political activities. |
| Date: | 2024–09–23 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:ymqds |
| By: | Luca Congiu (DEF, University of Rome "Tor Vergata"); Enrico Botta (OECD, Green Growth and Global Relations Division); Mariangela Zoli (CEIS & DEF, University of Rome "Tor Vergata") |
| Abstract: | The circular economy transition requires consumers to make further efforts in their waste disposal behaviors, by increasing waste sorting, repairing and reusing products, and reducing the amount of waste produced. The literature has identified several barriers to consumers’ adoption of these practices. In this paper, we posit that such barriers can be ultimately linked to well-known decisional biases and proceed to offer a review. In doing so, we categorize biases into “cognitive”, referring to deviations from normatively correct behavior, and “motivational”, encompassing behavior driven by desirability concerns. We also survey the existing behavioral policies addressing the identified biases, focusing on “nudges”, that is, interventions leveraging biases to improve welfare. In our review, we call attention to the importance of recognizing the relevant bias behind specific behaviors to identify the best interventions to implement. By offering a conceptual link between biases and circular economy practices, we also lay the groundwork for future experimental investigation. |
| Keywords: | cognitive bias, motivational bias, nudge, circular economy, second-hand, review |
| JEL: | D01 D04 D91 M31 |
| Date: | 2024–10–03 |
| URL: | https://d.repec.org/n?u=RePEc:rtv:ceisrp:583 |
| By: | Alma Cohen; Rajeev H. Dehejia |
| Abstract: | We examine how politicization and polarization influence judicial review within U.S. Federal appellate courts. Analyzing over 400, 000 cases from 1985 to 2020, we find that judges' political alignment or misalignment with trial judges increasingly affect their decisions, particularly in the last two decades. This trend is significant in precedential cases: panels of Democratic judges are 6.9 percentage points more likely to reverse Republican trial judges compared to Democratic ones, whereas Republican panels are 3.6 percentage points less likely to reverse fellow Republican judges. This effect persists across ideological and non-ideological cases and even among judges appointed before 2000. |
| JEL: | H0 K0 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32920 |