Consumer Information and the Limits to Competition

By Mark Armstrong and Jidong Zhou

American Economic Review, February 2022

This paper studies competition between firms when consumers observe a private signal of their preferences over products. Within the class of signal structures that induce pure-strategy pricing equilibria, we derive signal structures that are optimal for f...

Who Set Your Wage?

By David Card

American Economic Review, April 2022

I discuss the recent literature that has led to new interest in the idea of monopsonistic wage setting. Building on advances in search theory and in models of differentiated products, researchers have used a number of different strategies to identify the ...

Dynamic Price Competition, Learning-by-Doing, and Strategic Buyers

By Andrew Sweeting, Dun Jia, Shen Hui, and Xinlu Yao

American Economic Review, April 2022

We examine how strategic buyer behavior affects equilibrium outcomes in a model of dynamic price competition where sellers benefit from learning-by-doing by allowing each buyer to expect to capture a share of future buyer surplus. Many equilibria that exi...

Optimal Nonlinear Pricing by a Dominant Firm under Competition

By Yong Chao, Guofu Tan, and Adam Chi Leung Wong

American Economic Journal: Microeconomics, May 2022

We consider a nonlinear pricing problem faced by a dominant firm competing with a minor firm. The dominant firm offers a general tariff first, and then the minor firm responds with a per-unit price, followed by a buyer choosing her purchases. By developin...

Identifying Algorithmic Pricing Technology Adoption in Retail Gasoline Markets

By Stephanie Assad, Robert Clark, Daniel Ershov, and Lei Xu

AEA Papers and Proceedings, May 2022

While recent theoretical literature shows that algorithmic pricing (AP) may increase retail prices by facilitating collusive behavior, there has been no empirical evidence relating the adoption of AP technology to higher prices and/or collusion. One key r...

Concentration Thresholds for Horizontal Mergers

By Volker Nocke and Michael D. Whinston

American Economic Review, June 2022

Concentration-based thresholds for horizontal mergers, such as those in the US Horizontal Merger Guidelines, play a central role in merger analysis but their basis remains unclear. We show that there is both a theoretical and an empirical basis for focusi...

Dynamics of Markups, Concentration, and Product Span

By Elhanan Helpman and Benjamin Niswonger

American Economic Journal: Macroeconomics, July 2022

We develop a model with a finite number of multiproduct firms together with a continuum of single-product firms and study the dynamics that arise from product innovation. Consistent with the available evidence, the model predicts rising markups and concen...

The Decline of the Labor Share: New Empirical Evidence

By Drago Bergholt, Francesco Furlanetto, and Nicolò Maffei-Faccioli

American Economic Journal: Macroeconomics, July 2022

We use time series techniques to estimate the importance of four main explanations for the decline of the US labor income share: rising firm markups, falling bargaining power of workers, higher investment-specific technology growth, and more automated pro...

Measurement Error in the Consumer Price Index: Where Do We Stand?

By David E. Lebow and Jeremy B. Rudd

Journal of Economic Literature, March 2003

We survey the evidence on CPI bias and provide our best estimate of its magnitude. We also identify a "weighting" bias that has not been quantified previously. We estimate that the CPI currently overstates the rate of change in the cost of living by about...

Cournot Fire Sales

By Thomas M. Eisenbach and Gregory Phelan

American Economic Journal: Macroeconomics, July 2022

In standard Walrasian macro-finance models, pecuniary externalities due to fire sales lead to excessive borrowing and insufficient liquidity holdings. We investigate whether imperfect competition (Cournot) improves welfare through internalizing the extern...

Acquisition, Aggregation, and Sharing of Information in Sequential-Move Aggregative Games

By Eray Cumbul

American Economic Journal: Microeconomics, August 2022

We study quadratic payoff common-value sequential-move aggregative games with signaling. Applications include Stackelberg quantity-setting, public good contribution, common resource, gas emission, and manufacturer-retailer games. Whereas efficient aggrega...

Attention Oligopoly

By Andrea Prat and Tommaso Valletti

American Economic Journal: Microeconomics, August 2022

We model digital platforms as attention brokers that have proprietary information about their users' product preferences and sell targeted ad space to retail product industries. Retail producers—incumbents or entrants—compete for access to this attent...

Dynamic Oligopoly and Price Stickiness

By Olivier Wang and Iván Werning

American Economic Review, August 2022

How does market concentration affect the potency of monetary policy? To address this question we embed a dynamic oligopolistic game into a general-equilibrium macroeconomic model. We provide a sufficient-statistic formula for the response to monetary shoc...

Compatibility Choices, Switching Costs, and Data Portability

By Doh-Shin Jeon, Domenico Menicucci, and Nikrooz Nasr

American Economic Journal: Microeconomics, February 2023

We study mix-and-match compatibility choices of firms selling complementary products in a dynamic setting. Contrary to what happens in a static setting where symmetric firms choose compatibility (Matutes and Regibeau 1988), when switching costs are high a...

Competition in Pricing Algorithms

By Zach Y. Brown and Alexander MacKay

American Economic Journal: Microeconomics, May 2023

We document new facts about pricing technology using high-frequency data, and we examine the implications for competition. Some online retailers employ technology that allows for more frequent price changes and automated responses to price changes by riva...

Targeted Product Design

By Heski Bar-Isaac, Guillermo Caruana, and Vicente Cuñat

American Economic Journal: Microeconomics, May 2023

We propose an intuitive representation of product design in which firms locate inside a circle and consumers in its outer circumference. Designs trade off horizontal and vertical transport costs. Our setting encompasses all linear demand rotations. Firms ...

Ad Clutter, Time Use, and Media Diversity

By Simon P. Anderson and Martin Peitz

American Economic Journal: Microeconomics, May 2023

We introduce advertising congestion along with a time use model of consumer choice among media. Both consumers and advertisers multihome. Higher equilibrium advertising levels ensue on less popular media platforms because platforms treat consumer attentio...

Consumer Control and Privacy Policies

By S. Nageeb Ali, Greg Lewis, and Shoshana Vasserman

AEA Papers and Proceedings, May 2023

Firms use consumer data to price discriminate. In response, policymakers have pushed for consumers to have control over their data so that they choose what to share and with whom. We model consumer control and its effect on markets through the lens of vol...

The Great Start-up Sellout and the Rise of Oligopoly

By Florian Ederer and Bruno Pellegrino

AEA Papers and Proceedings, May 2023

We document a secular shift from initial public offerings to acquisitions of venture capital-backed start-ups and show that this trend is accompanied by an increase in the opportunity cost of going public over the last quarter-century. Dominant companies ...

Rising Markups, Rising Prices?

By Christopher Conlon, Nathan H. Miller, Tsolmon Otgon, and Yi Yao

AEA Papers and Proceedings, May 2023

The rise in markups and market power documented by De Loecker, Eeckhout, and Unger (2020) has recently generated much discussion in economics. We measure the correlation between the change in firm level markups and the change in industry level prices as m...