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on Industrial Organization |
| By: | Dirk Bergemann (Yale University); Tibor Heumann (Pontificia Universidad Catolica de Chile); Michael C. Wang (Yale University) |
| Abstract: | We analyze how market segmentation affects consumer welfare when a monopolist can engage in both second-degree price discrimination (through product differentiation) and third-degree price discrimination (through market segmentation). We characterize the consumer-optimal market segmentation and show that it has several striking properties: (1) the market segmentation displays monotonicityÑhigher-value customers always receive higher quality product than lower-value regardless of their segment and across any segment; and (2) when aggregate demand elasticity exceeds a threshold determined by marginal costs, no segmentation maximizes consumer surplus. Our results demonstrate that strategic market segmentation can benefit consumers even when it enables price discrimination, but these benefits depend critically on demand elasticities and cost structures. The findings have implications for regulatory policy regarding price discrimination and market segmentation practices. |
| Date: | 2024–12–22 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2420 |
| By: | Cao, Yiran; Lin, ping; Zhang, Tianle |
| Abstract: | Incumbent firms may acquire start-ups to eliminate potential competition without intending to develop new technology (killer acquisitions). We develop a model to examine the incentives and welfare implications of killer acquisitions under different market structures: vertical separation and integration. Our model focuses on the competition between an upstream incumbent firm and a start-up with the potential to develop superior technology, where the incumbent has the option to acquire the start-up and decide whether to continue the development of the superior technology. We find that killer acquisitions are more likely when the cost of developing the superior technology is moderate under both vertical separation and integration. However, these acquisitions lead to a welfare loss only when the development cost is relatively low. Comparing vertical integration to separation, the probability of killer acquisition is higher (lower) when the incumbent firm has a greater (smaller) chance of successfully developing the superior technology. |
| Keywords: | innovation incentive, killer acquisitions, vertical integration. |
| JEL: | D8 L1 |
| Date: | 2024–12–26 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123344 |
| By: | Mahyar Habibi |
| Abstract: | This paper explores the economic underpinnings of open sourcing advanced large language models (LLMs) by for-profit companies. Empirical analysis reveals that: (1) LLMs are compatible with R&D portfolios of numerous technologically differentiated firms; (2) open-sourcing likelihood decreases with an LLM's performance edge over rivals, but increases for models from large tech companies; and (3) open-sourcing an advanced LLM led to an increase in research-related activities. Motivated by these findings, a theoretical framework is developed to examine factors influencing a profit-maximizing firm's open-sourcing decision. The analysis frames this decision as a trade-off between accelerating technology growth and securing immediate financial returns. A key prediction from the theoretical analysis is an inverted-U-shaped relationship between the owner's size, measured by its share of LLM-compatible applications, and its propensity to open source the LLM. This finding suggests that moderate market concentration may be beneficial to the open source ecosystems of multi-purpose software technologies. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.11581 |
| By: | Klaus Adam; Tobias Renkin; Gabriel Züllig |
| Abstract: | We estimate the dynamics of relative markups, marginal costs and prices over the firm life cycle using detailed firm data from Denmark. Relative marginal costs fall strongly over the first 15 years of firm life, but relative prices fall only weakly because of a strong rise in relative markups. Relative price trends thus underestimate trends in relative productivity. This distorts recent estimates of the optimal inflation target downward by 0.2-1.2% per year. We show that relative markups increase following the introduction of new products and the discontinuation of old products, suggesting that product turnover is important driver of markup dynamics at the firm level. Only about one third of the decrease in relative marginal cost over the firm age is explained by movements in relative productivity, with the remainder being due to non-homotheticities and increasing returns in the production function. |
| Keywords: | relative markups, marginal costs, prices over the firm life, optimal inflation |
| JEL: | E52 L11 L13 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_626 |
| By: | Crampes, Claude; Renault, Jérôme |
| Abstract: | Electricity is consumed continuously night and day and is not storable at large scale. Consequently, in an electricity industry organized and managed efficiently, demand should be tightly responsive to time-varying prices. We explore the consequences of the limited ability of electricity consumers to use price signals in their decisions to withdraw energy from the grid and the advantages of an assistance service that can correct this bias. Depending on the statistical distribution of price misperception types, we determine the allocation of assistance that allows to decrease total consumption and the outcome of different market structures. Because of the impossibility of distinguishing between consumers who underestimate and those who overestimate electricity prices, we show that it may be suboptimal to organize a market for assistance. We also show that it is less efficient to rely on a private integrated monopoly than on two separate private monopolies, one for assistance, the other for energy. |
| JEL: | C72 D24 D47 L23 L94 |
| Date: | 2025–01–30 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130188 |
| By: | Adesina, Toheeb |
| Abstract: | This research investigates how artificial intelligence (AI) agents function in the advertising sector. It focuses on the transformation, applications, benefits, and concerns of Artificial Intelligence (AI) in the new era of marketing. The research used secondary data from industry reports, academic studies and case studies, on how AI agent enhances ad targeting, campaign optimization, personalization, and predictive analysis. The main conclusions show that AI agents significantly increase productivity and customer engagement, but there are still issues with algorithmic biases and data privacy. The study highlights the need for a well-rounded strategy for implementing AI, supporting both innovation and moral considerations. To improve the advertising ecosystem, these insights are meant to help marketers and legislators use AI responsibly. |
| Keywords: | Advertising, Marketing, Artificial intelligence, Machine learning, AI-powered advertising, Programmatic advertising, Personalization, Predictive analytics, Consumer engagement, Chatbots, Innovation |
| JEL: | M3 M31 M37 |
| Date: | 2025–01–02 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123413 |
| By: | Panle Jia Barwick; Hyuk-Soo Kwon; Shanjun Li; Nahim B. Zahur |
| Abstract: | Electric vehicle (EV) battery costs have declined by more than 90% over the past decade. This study investigates the role of learning-by-doing (LBD) in driving this reduction and its interaction with two major government policies – consumer EV subsidies and local content requirements. Leveraging rich data on EV models and battery suppliers, we develop and estimate a structural model of the global EV industry that incorporates heterogeneous consumer choices and strategic pricing behaviors of EV producers and battery suppliers. The model allows us to recover battery costs for each EV model and quantify the extent of LBD in battery production. The learning rate is estimated to be 7.5% during our sample period after controlling for industry technological progress, economies of scale, input costs, and EV assembly experience. LBD magnifies the effectiveness of consumer EV subsidies and drives cross-country spillovers from these subsidies. Upstream battery suppliers capture only a minor share of LBD’s economic benefits, and consumer EV subsidies correct for the under-provision of learning and improve social welfare. China’s local content requirement helps domestic suppliers gain a competitive advantage at the cost of consumers and foreign suppliers but would have harmed domestic welfare if delayed by five years. |
| JEL: | F13 L0 L52 L62 Q48 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33378 |
| By: | David P. Myatt (London Business School); David Ronayne (ESMT Berlin) |
| Abstract: | We study markets in which potential buyers engage in costly search to find a good deal. Our novel solution concept for prices builds upon the idea that any movement in a firm's price is followed by an opportunity for its competitors to respond with special offers. This mechanism selects the highest prices such that no firm wishes to undercut a competitor. We identify a distinctive closed-form pattern of disperse prices that uniquely satisfy our pricing solution, and pair that price profile with optimal fixed-sample search. In a stable equilibrium with active search, the intensity of search and consumer surplus are lower and industry profit is higher with more competitors. In a concentrated oligopoly, complete search in equilibrium can eliminate industry profit. |
| Date: | 2025–01–28 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:524 |
| By: | Sandambi, Nerhum |
| Abstract: | The study briefly analyses the smartphone market in the years 2020-2021. The main objective of the study is to analyse the relevant smartphone market in Portugal in particular and in general in Europe, with the aim of understanding how the market itself works and how market shares are distributed. According to the results of the analysis, it was found that the smartphone market is on the rise and its main players are the traditional players in this market, where brands such as Samsung and apple play a leading role, especially in terms of market share, i.e. the market share of these two brands is significantly higher. On the other hand, analysing the results shows that there is an impact above all on brands that have recently positioned themselves in the market, such as Xiaomi, oppo and Huawey, which have consolidated their presence in the relevant smartphone market. As for sales, brands such as apple and Samsung lead the market in sales, according to the results of the analysis, in 2020 apple and Samsung sold more than 199, 847.3 and 253, 025 respectively, these sales grew significantly in 2021 to 272, 327.5 and 239, 239.1 respectively, the results of the analysis also show the share of the market itself, where brands such as Samsung and apple lead the market with a share of 19 and 16.7 per cent of the global smartphone market. As for the relevant market itself, it comprises the regions of Asia, America and Europe. |
| Date: | 2025–01–20 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:rksv7 |
| By: | Wong, Sara; Petreski, Marjan |
| Abstract: | This paper investigates the effects of competition laws and regulations on manufacturing firms productivity in Latin American countries (LACs), addressing a gap in existing research. Leveraging firm-level panel data from the World Bank Enterprise Surveys across 14 LAC economies and competition law indicators from the Comparative Competition Law initiative, the study employs total factor productivity (TFP) measures to analyze the effects of competition laws on manufacturing productivity through key mediators: firm size, distance to the frontier, and broader institutional arrangements. Utilizing various empirical methodologies that address potential biases, the findings reveal a nuanced relationship between competition law stringency, enforcement practices, and productivity outcomes across different industries and countries. Results reveal heterogeneous effects of competition law and enforcement on productivity, with certain aspects showing a positive relationship with productivity, particularly when controlling for firm size, while stronger enforcement measures weaken the positive association between competition law and productivity, potentially due to increased compliance costs and legal uncertainty. The study suggests a need for policymakers to strike a balance between regulatory stringency and enforcement in competition to avoid stifling innovation and hindering productivity growth, particularly in industries nearing technological frontiers. Accounting for industry-specific factors are essential for fostering fair competition and market efficiency without unduly burdening businesses. |
| Keywords: | Competition law and regulations;Firm productivity;Enforcement |
| JEL: | K21 L11 O54 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:idb:brikps:13963 |