A Theory of Patent Portfolios

By Jay Pil Choi and Heiko Gerlach

American Economic Journal: Microeconomics, February 2017

This paper develops a theory of patent portfolios in which firms accumulate an enormous amount of related patents, which makes it impractical to develop new products that avoid inadvertent infringement. We show that patent peace arises if product market c...

Price Cutting and Business Stealing in Imperfect Cartels

By B. Douglas Bernheim and Erik Madsen

American Economic Review, February 2017

Although economists have made substantial progress toward formulating theories of collusion in industrial cartels that account for a variety of fact patterns, important puzzles remain. Standard models of repeated interaction formalize the observation that...

Contracts as a Barrier to Entry in Markets with Nonpivotal Buyers

By Özlem Bedre-Defolie and Gary Biglaiser

American Economic Review, July 2017

Considering markets with nonpivotal buyers, we analyze the anticompetitive effects of breakup fees used by an incumbent facing a more efficient entrant in the future. Buyers differ in their intrinsic switching costs. Breakup fees are profitably used to fo...

The Double Diamond Paradox

By Daniel Garcia, Jun Honda, and Maarten Janssen

American Economic Journal: Microeconomics, August 2017

We study vertical relations in markets with consumer and retailer search. We obtain three important new results. First, we provide a novel explanation for price dispersion that does not depend on some form of heterogeneity among consumers. Price dispersio...

If Many Seek, Ye Shall Find: Search Externalities and New Goods

By Maciej H. Kotowski and Richard J. Zeckhauser

American Economic Journal: Microeconomics, November 2017

Consumer search serves productive roles in an economy with multiple goods. In equilibrium, search promotes the sorting of consumers among producers, thereby enabling the market for new goods, and potentially increasing welfare and profits above the benchm...

Welfare Consequences of Information Aggregation and Optimal Market Size

By Kei Kawakami

American Economic Journal: Microeconomics, November 2017

We analyze the welfare implications of information aggregation in a trading model where traders have both idiosyncratic endowment risk and asymmetric information about security payoffs. The optimal market size balances two forces: (i) the risk-sharing rol...

Decentralized Exchange

By Semyon Malamud and Marzena Rostek

American Economic Review, November 2017

Most assets are traded in multiple interconnected trading venues. This paper develops an equilibrium model of decentralized markets that accommodates general market structures with coexisting exchanges. Decentralized markets can allocate risk among trad...

Industry Dynamics of Offshoring: The Case of Hard Disk Drives

By Mitsuru Igami

American Economic Journal: Microeconomics, February 2018

This paper uncovers a novel pattern of offshoring dynamics in a high-tech industry, and proposes a structural model to explain it. Specifically, the hard disk drive industry (1976-1998) witnessed massive waves of entry, exit, and the relocation of manufac...

Partial Vertical Integration, Ownership Structure, and Foreclosure

By Nadav Levy, Yossi Spiegel, and David Gilo

American Economic Journal: Microeconomics, February 2018

We study the incentive to acquire a partial stake in a vertically related firm and then foreclose rivals. We show that whether such partial acquisitions are profitable depends crucially on the initial ownership structure of the target firm and on corporat...

International Trade with Indirect Additivity

By Paolo Bertoletti, Federico Etro, and Ina Simonovska

American Economic Journal: Microeconomics, May 2018

We develop a general equilibrium model of trade that features "indirectly additive" preferences and heterogeneous firms. Monopolistic competition generates markups that are increasing in firm productivity and in destination country per capita income, but ...

Dynamic Certification and Reputation for Quality

By Iván Marinovic, Andrzej Skrzypacz, and Felipe Varas

American Economic Journal: Microeconomics, May 2018

We study firm's incentives to build and maintain reputation for quality, when quality is persistent and can be certified at a cost. We characterize all reputation-dependent MPEs. They vary in frequency of certification and payoffs. Low payoffs arise in eq...

Revisiting the Relationship between Competition and Price Discrimination

By Ambarish Chandra and Mara Lederman

American Economic Journal: Microeconomics, May 2018

We revisit the relationship between competition and price discrimination. Theoretically, we show that if consumers differ in terms of both their underlying willingness-to-pay and their brand loyalty, competition may increase price differences between some...

Cartels Uncovered

By Ari Hyytinen, Frode Steen, and Otto Toivanen

American Economic Journal: Microeconomics, November 2018

How many cartels are there, and how long do they live? The answers to these questions are important in assessing the need for competition policy. We present a Hidden Markov Model that takes into account that often it is not known whether a cartel exists o...

Zone Pricing in Retail Oligopoly

By Brian Adams and Kevin R. Williams

American Economic Journal: Microeconomics, February 2019

We quantify the welfare effects of zone pricing, or setting common prices across distinct markets, in retail oligopoly. Although monopolists can only increase profits by price discriminating, this need not be true when firms face competition. With novel...

Market Share Contracts, Exclusive Dealing, and the Integer Problem

By Zhijun Chen and Greg Shaffer

American Economic Journal: Microeconomics, February 2019

This paper compares exclusive dealing and market share contracts in a model of naked exclusion. We discuss how the contracts work and identify a fundamental trade-off that arises: market share contracts are better at maximizing a seller's benefit from f...

Lerner Symmetry: A Modern Treatment

By Arnaud Costinot and Iván Werning

American Economic Review: Insights, June 2019

Which policies are protectionist and which ones are not? The Lerner Symmetry Theorem establishes that import tariffs and export taxes are equally protectionist. In this paper we provide a modern treatment of this classical result, highlighting the importa...

Dominance and Competitive Bundling

By Sjaak Hurkens, Doh-Shin Jeon, and Domenico Menicucci

American Economic Journal: Microeconomics, August 2019

We study how bundling affects competition between two asymmetric multi-product firms. One firm dominates the other in that it produces better products more efficiently. For low (high) levels of dominance, bundling intensifies (relaxes) price competition a...

Are Price-Cost Markups Rising in the United States? A Discussion of the Evidence

[Symposium: Markups]

By Susanto Basu

Journal of Economic Perspectives, Summer 2019

A number of recent papers have argued that US firms exert increasing market power, as measured by their markups of price over marginal cost. I review three of the main approaches to estimating economy-wide markups and show that all are based on the hypo...

Macroeconomics and Market Power: Context, Implications, and Open Questions

[Symposium: Markups]

By Chad Syverson

Journal of Economic Perspectives, Summer 2019

This article assesses several aspects of recent macroeconomic market power research. These include the ways market power is defined and measured; the use of accounting data to estimate markups; the quantitative implications of theoretical connections amon...

Do Increasing Markups Matter? Lessons from Empirical Industrial Organization

[Symposium: Markups]

By Steven Berry, Martin Gaynor, and Fiona Scott Morton

Journal of Economic Perspectives, Summer 2019

This article considers the recent literature on firm markups in light of both new and classic work in the field of industrial organization. We detail the shortcomings of papers that rely on discredited approaches from the "structure-conduct-performance"...