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on Industrial Competition |
| By: | Gideon Bornstein; Alessandra Peter |
| Abstract: | This paper studies the effect of nonlinear pricing on markups and misallocation. We develop a general equilibrium model of firms that are allowed to set a quantity-dependent pricing schedule—contrary to the typical assumption in macroeconomic models. Without the restriction to linear pricing, markup heterogeneity is no longer a sign of misallocation. Larger firms charge higher markups, yet the allocation of resources across firms is efficient. Further, we point to a new source of misallocation. In general equilibrium, high-taste consumers are allocated too much of each good, low-taste consumers too little. When labor supply is elastic, firms’ market power depresses aggregate labor, but this effect is independent of the level of the aggregate markup in the economy. Using micro data from the retail sector, we show that nonlinear pricing is prevalent and quantify the model. We find that the welfare losses from misallocation across consumers under nonlinear pricing are substantially larger than those from misallocation across firms under linear pricing. |
| JEL: | D4 E2 L1 O4 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33144 |
| By: | Antelo, Manel; Bru, Lluís |
| Abstract: | We consider a non-producer patentholder with a cost-reducing innovation that can be used in a homogeneous duopolistic industry. To profit from the innovation, the patentholder can decide to sell it, or license it, and if the latter, the number of licences to grant as well as the corresponding contractual terms. We show that the size (value or quality) of innovation is crucial for that decision. The patentholder prefers to sell a small-sized innovation, in which case the buyer further licenses it to the competitor by means of a pure ad-valorem royalty contract. However, if the innovation is moderate or large, the patentholder retains ownership and licenses it to both firms through 2PT contracts involving per-unit royalties. Sale is shown to be welfare superior to licensing for both consumers and firms. |
| Keywords: | Cost-reducing innovation, sale, licensing, per-unit royalty, ad-valorem royalty, welfare |
| JEL: | L13 L24 |
| Date: | 2024–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122731 |
| By: | Häfner, Samuel (University of St. Gallen); Haeusle, Niklas (University of Leipzig); Koeniger, Winfried (University of St. Gallen); Braun, Alexander (University of St. Gallen) |
| Abstract: | We develop a model in which large risk-neutral firms and individual risk-averse consumers compete to employ heterogeneous workers by posting compensation menus. Production takes time, and we analyze how screening motives interact with the desire to smooth consumption. There is a unique symmetric separating equilibrium that is also efficient. In equilibrium, the extent to which the compensation scheme delays payment until the production quality becomes known depends on whether, and to which extent, the consumers are financially constrained. We discuss how our model relates to the design of compensation schemes in current online peer-to-peer markets. |
| Keywords: | adverse selection, self selection, peer-to-peer markets, labor markets, capital market imperfections |
| JEL: | D15 D82 D86 E24 J33 M52 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17449 |
| By: | Mertens, Matthias (MIT); Schoefer, Benjamin (University of California, Berkeley) |
| Abstract: | We document and dissect a new stylized fact about firm growth: the shift from labor to intermediate inputs. This shift occurs in input quantities, cost and output shares, and output elasticities. We establish this fact using German firm-level data and replicate it in administrative firm data from 11 additional countries. We also document these patterns in micro-aggregated industry data for 20 European countries (and, with respect to industry cost shares, for the US). We rationalize this novel regularity within a parsimonious model featuring (i) an elasticity of substitution between intermediates and labor that exceeds unity, and (ii) an increasing shadow price of labor relative to intermediates, due to monopsony power over labor or labor adjustment costs. The shift from labor to intermediates accounts for one half to one third of the decline in the labor share in growing firms (the remainder is due to wage markdowns and markups) and rationalizes most of the labor share decline ingrowing industries. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17461 |
| By: | Sayag, Doron; Snir, Avichai; Levy, Daniel |
| Abstract: | We study Israel’s “price rounding regulation” of January 1, 2014, which outlawed non-0-ending prices, forcing retailers to round 9-ending prices, which in many stores comprised 60%+ of all prices. The regulation’s goals were to eliminate (1) the rounding tax—the extra amount consumers paid because of price rounding (which was necessitated by the abolition of low denomination coins), and (2) the inattention tax—the extra amount consumers paid the retailers because of their inattention to the prices’ rightmost digits. Using 4 different datasets, we assess the government’s success in achieving these goals, focusing on fast-moving consumer goods, a category of products strongly affected by the price rounding regulation. We focus on the response of the retailers to the price rounding regulation and find that although the government succeeded in eliminating the rounding tax, the bottom line is that shoppers end up paying more, not less, because of the regulation, underscoring, once again, Friedman’s (1975) warning that policies should be judged by their results, not by their intentions. |
| Keywords: | Price Rounding Regulation; Rounding Tax; Inattention Penalty; Round Prices; 9-Ending Prices; Just-Below Prices; Inflation |
| JEL: | E31 K00 K20 L11 L40 L51 M30 |
| Date: | 2024–11–19 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122733 |
| By: | S. Nageeb Ali; Andreas Kleiner; Kun Zhang |
| Abstract: | This paper studies games of voluntary disclosure in which a sender discloses evidence to a receiver who then offers an allocation and transfers. We characterize the set of equilibrium payoffs in this setting. Our main result establishes that any payoff profile that can be achieved through information design can also be supported by an equilibrium of the disclosure game. Hence, our analysis suggests an equivalence between disclosure and design in these settings. We apply our results to monopoly pricing, bargaining over policies, and insurance markets. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.03608 |
| By: | Juan Carlos Gon\c{c}alves-Dosantos; Ricardo Mart\'inez; Joaqu\'in S\'anchez-Soriano |
| Abstract: | In this paper, we extend the museum pass problem to incorporate the market structure. To be more precise, we consider that museums are organized into several pass programs or consortia. Within this framework, we propose four allocation mechanisms based on the market structure and the principles of proportionality and egalitarianism. All these mechanisms satisfy different reasonable properties related to fairness and stability which serve to axiomatically characterize them. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.23923 |
| By: | Kapoor, Amita; Singh, Narotam; Chaudhary, Vaibhav; Singh, Nimisha; Soni, Neha |
| Abstract: | This paper explores the transformative impact of Generative AI (GenAI) on the business landscape, examining its role in reshaping traditional business models, intensifying market competition, and fostering innovation. By applying the principles of Neo-Schumpeterian economics, the research analyses how GenAI is driving a new wave of "creative destruction, " leading to the emergence of novel business paradigms and value propositions. This research incorporates a novel AI-augmented SPAR-4-SLR framework as a key component, offering a systematic and innovative approach to analysing the rapidly evolving GenAI domain. By leveraging co-occurrence network analysis and LLM-based evaluation, this methodology identifies interdisciplinary trends and highlights diverse applications of GenAI. Beyond this, the study extends its scope to explore insights from internet-scraped data, Twitter analytics, and company reports, providing a comprehensive understanding of how GenAI is transforming businesses. This multi-faceted approach underscores GenAI's profound impact across industries such as technology, healthcare, and education, revealing its role in enhancing operational efficiency, driving product and service innovation, and creating new revenue streams. However, the deployment of GenAI also presents significant challenges, including ethical concerns, regulatory demands, and the risk of job displacement. By addressing the multifarious nature of GenAI, this paper provides valuable insights for business leaders, policymakers, and researchers, guiding them towards a balanced and responsible integration of this transformative technology. Ultimately, GenAI is not merely a technological advancement but a driver of profound change, heralding a future where creativity, efficiency, and growth are redefined. |
| Date: | 2024–11–20 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:khptm |
| By: | Fumihiko Isada (Kansai University) |
| Abstract: | The aim of this study is to empirically identify how the structure of inter-organisational collaboration is changing in today's increasingly digitalised insurance industry.Traditionally, inter-organisational relationships in the insurance industry have been vertically integrated, mainly with major insurance companies. With the advent of digitalisation, the areas covered by insurance, such as disease prevention, are expanding through the linkage of various big data. It can be inferred that the structure of cooperation between related organisations and their core organisations is changing accordingly.As a research method, this study analysed information on actual inter-organisational relations using the method of social network analysis. The linkage network structure of the organisations that are expanding inter-organisational cooperation was then analysed.The results of the analysis show that the organisations that are expanding inter-organisational cooperation have an open and mediated network structure.It was shown that inter-organisational relations in the insurance industry may be shifting from a vertically integrated structure to a platform type, similar to the IT industry. |
| Keywords: | Inter-organisational collaboration, InsurTech, Social network analysis |
| JEL: | M15 O33 I13 |
| URL: | https://d.repec.org/n?u=RePEc:sek:iefpro:14716480 |
| By: | Borovickova, Katarina (Federal Reserve Bank of Richmond); Shimer, Robert (University of Chicago) |
| Abstract: | We develop a random search model with two-sided heterogeneity and match-specific productivity shocks to explain why high-productivity workers tend to work at high-productivity firms despite low-productivity workers gaining about as much from such matches. Our model has two key predictions: i) the average log wage that a worker receives is increasing in the worker's and employer's productivity, with low-productivity workers gaining proportionally more at high-productivity firms and ii) there is assortative matching between a worker's productivity and that of her employer. Selective job acceptance drives these patterns. All workers are equally likely to meet all firms, but workers have higher surplus from meeting firms of similar productivity. The high surplus meetings result in matches more frequently, generating assortative matching. Only the subset of meetings that result in matches are observed in administrative wage data, shaping wages. We show that our findings are quantitatively consistent with recent empirical results. Moreover, we prove this selection is not detected using standard empirical approaches, highlighting the importance of theory-guided empirical work. Our results imply that encouraging high-wage firms to hire low-wage workers may be less effective at reducing wage inequality than wage patterns suggest. |
| JEL: | J31 J64 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17454 |