How Efficient Is Dynamic Competition? The Case of Price as Investment

By David Besanko, Ulrich Doraszelski, and Yaroslav Kryukov

American Economic Review, September 2019

We study industries where the price that a firm sets serves as an investment into lower cost or higher demand. We assess the welfare implications of the ensuing competition for the market using analytical and numerical approaches to compare the equilibria...

Monopoly Power and Endogenous Product Variety: Distortions and Remedies

By Florin O. Bilbiie, Fabio Ghironi, and Marc J. Melitz

American Economic Journal: Macroeconomics, October 2019

The inefficiencies related to endogenous product creation and variety under monopolistic competition are two-fold: one static—the misalignment between consumers and producers regarding the value of a new variety; and one dynamic—time variation in mark...

Does Strategic Ability Affect Efficiency? Evidence from Electricity Markets

By Ali Hortaçsu, Fernando Luco, Steven L. Puller, and Dongni Zhu

American Economic Review, December 2019

Oligopoly models of price competition predict that strategic firms exercise market power and generate inefficiencies. However, heterogeneity in firms' strategic ability also generates inefficiencies. We study the Texas electricity market where firms exhib...

Discriminating against Captive Customers

By Mark Armstrong and John Vickers

American Economic Review: Insights, December 2019

We analyze a market where some consumers only consider buying from a specific seller while other consumers choose the best deal from several sellers. When sellers are able to discriminate against their captive customers, we show that discrimination harms ...

Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices

By Matthew Grennan and Robert J. Town

American Economic Review, January 2020

We study the impact of regulating product entry and quality information requirements on an oligopoly equilibrium and consumer welfare. Product testing can reduce consumer uncertainty, but also increase entry costs and delay entry. Using variation between ...

Within-Industry Specialization and Global Market Power

By Ahmad Lashkaripour

American Economic Journal: Microeconomics, February 2020

Export price levels exhibit tremendous cross-national and spatial variation, even within narrowly defined industries. Standard theories attribute this variation to within-industry quality specialization. This paper argues that a significant portion of the...

Fighting Bundles: The Effects of Competition on Second-Degree Price Discrimination

By Andre Boik and Hidenori Takahashi

American Economic Journal: Microeconomics, February 2020

We study how changes in market structure affect how firms engage in second-degree price discrimination. Specifically, we study how a large incumbent cable firm changes its menu of price-quality offerings and mixed bundles in response to entry. Competition...

Endogenous Monitoring in a Partnership Game

By Anna Sanktjohanser

American Economic Review, March 2020

I consider a repeated game in which, due to imperfect monitoring, no collusion can be sustained. I add a self-interested monitor who commits to obtain private signals of firms' actions and sends a public message. The monitor makes an offer specifying the ...

Competition, Product Proliferation, and Welfare: A Study of the US Smartphone Market

By Ying Fan and Chenyu Yang

American Economic Journal: Microeconomics, May 2020

This paper studies (1) whether, from a welfare point of view, oligopolistic competition leads to too few or too many products in a market, and (2) how a change in competition affects the number and the composition of product offerings. We address these tw...

The Competitive Impact of Vertical Integration by Multiproduct Firms

By Fernando Luco and Guillermo Marshall

American Economic Review, July 2020

We study the impact of vertical integration on pricing incentives in multiproduct industries. To do so, we exploit recent variation in vertical structure in the US carbonated-beverage industry. While the elimination of double marginalization with vertical...

Pricing Network Effects: Competition

By Itay P. Fainmesser and Andrea Galeotti

American Economic Journal: Microeconomics, August 2020

We study the practice of influencer marketing in oligopoly markets and its effect on market efficiency. In our model, each consumer is influenced by choices of a subset of other consumers. Firms gather information on consumers' influence and price discrim...

Artificial Intelligence, Algorithmic Pricing, and Collusion

By Emilio Calvano, Giacomo Calzolari, Vincenzo Denicolò, and Sergio Pastorello

American Economic Review, October 2020

Increasingly, algorithms are supplanting human decision-makers in pricing goods and services. To analyze the possible consequences, we study experimentally the behavior of algorithms powered by Artificial Intelligence (Q-learning) in a workhorse oligopoly...

The Value of Incumbency When Platforms Face Heterogeneous Customers

By Gary Biglaiser and Jacques Crémer

American Economic Journal: Microeconomics, November 2020

We study competition for the market in a dynamic model with network externalities, focusing on the efficiency of market outcomes. We propose a representation of the strategic advantages of incumbency and embed it in a dynamic framework with heterogeneous ...

The Parable of the Auctioneer: Complexity in Paul R. Milgrom's Discovering Prices

By Scott Duke Kominers and Alexander Teytelboym

Journal of Economic Literature, December 2020

Designing marketplaces in complex settings requires both novel economic theory and real-world engineering, often drawing upon ideas from fields such as computer science and operations research. In Discovering Prices: Auction Design in Markets with Com...

A Generalized Model of Advertised Sales

By Sandro Shelegia and Chris M. Wilson

American Economic Journal: Microeconomics, February 2021

To better understand temporary price reductions or "sales," this paper presents a generalized "clearinghouse" framework of advertised sales and explores some applications. By viewing the firms as competing in utility and amending the conventional tiebreak...

Growing Oligopolies, Prices, Output, and Productivity

By Sharat Ganapati

American Economic Journal: Microeconomics, August 2021

American industries have grown more concentrated over the last 40 years. In the absence of productivity innovation, this should lead to price hikes and output reductions, decreasing consumer welfare. With US census data from 1972 to 2012, I use price data...

Vertical Agreements and User Access

By Germain Gaudin and Alexander White

American Economic Journal: Microeconomics, August 2021

Platforms acting as sales channels for producers often charge users for access via a subscription fee or a markup on hardware. We compare two common forms of vertical pricing agreement that platforms use with sellers: per unit and proportional fees. In pa...

Entry-Proofness and Discriminatory Pricing under Adverse Selection

By Andrea Attar, Thomas Mariotti, and François Salanié

American Economic Review, August 2021

This paper studies competitive allocations under adverse selection. We first provide a general necessary and sufficient condition for entry on an inactive market to be unprofitable. We then use this result to characterize, for an active market, a unique b...

Notes

Journal of Economic Perspectives, Winter 2005

Market Power and Income Taxation

By Louis Kaplow

American Economic Journal: Economic Policy, November 2021

This article analyzes concerns about market power and inequality in a model with multiple sectors, heterogeneous abilities, endogenous labor supply, and nonlinear income taxation. Proportional markups with no profit dissipation have no effect on the econo...