This study examines the relationship between mergers and firm-level financial measures using a sample of 4,482 acquisition targets in the European Union from 2007 to 2021. Findings suggest that horizontal mergers lack statistically significant results, whereas vertical mergers entail changes in markups (-0.7%), market share (+2.5%), Return on Fixed Assets (ROFA) (+2.3%), and capital intensity (-7.2%). The result for vertical mergers increases over time, and is larger when the number of pre-existing subsidiaries is greater. Our results suggest the elimination of double profit margins as a potential explanation.
We develop a Hotelling duopoly model of competition on a gatekeeper platform in which firms choose between uniform pricing and personalized pricing. Implementing personalized pricing requires access to a platform-provided pricing technology and entails a per-transaction fee set by the platform. The platform also designs rankings and recommendations that affect the distribution of consumers between loyal and marginal types.We show that the platform may strategically reshape the demand environment to make personalized pricing more attractive to firms and thereby raise the fee it can charge. By reallocating mass from loyal to marginal and more disloyal consumers, the platform intensifies competition under uniform pricing and relaxes firms’ adoption constraint. Excessive centralization, however, erodes the rents that sustain fee extraction, so the platform chooses an interior degree of demand centralization. Relative to a no-manipulation benchmark, this reallocates surplus toward the gatekeeper and away from firms and consumers. When the platform also appropriates a share of seller profits, its incentives may reverse: it may favor loyalty-enhancing designs that soften downstream competition. The analysis highlights how platform monetization and recommendation design jointly determine downstream competition and its welfare consequences.
Unconditional full-refund policies are widely perceived as consumer-friendly. This paper shows that they can reduce consumer surplus compared to stricter return policies. We develop a model in which a monopolist sells products of uncertain reliability and chooses both the refund amount and the length of the return period. Consumers learn about product reliability during use, and the seller can salvage value from returned defective items. Under an unconditional full-refund policy, the seller can strategically shorten the return period to deter consumers from exploiting the generous return window (i.e., wardrobing). This effect is especially pronounced when consumers derive high utility from the product, as a longer free trial is too costly for the seller to offer. The shorter return period limits the seller’s ability to recover value from genuinely defective products, raising the seller’s effective production cost, which is ultimately transferred to consumers.
I study the cost pass-through on retail prices in two oligopolistic retail markets defined by specific physical boundaries. Using this setup, I find significant evidence that markets ultimately operate as a single one regarding their level of long-run pass-through and speed of price adjustment, possibly indicating substitution effects. Moreover, pass-through in both markets is not a function of the number of market players, which is in contrast with previous theoretical and empirical studies. Finally, I show that although vertical integration has a positive relationship with the speed of price adjustment, it does not affect long-run pass-through.
Pollution prevention is the EPA's highest-priority approach to managing toxic chemicals, yet its effects on firm efficiency remain largely unexplored. We address this using a by-production stochastic frontier framework that models desirable output and emissions as linked but distinct production processes, allowing us to separately identify technical and environmental efficiency. The model is estimated across three broad U.S. manufacturing industries (NAICS 31, 32, and 33), using a panel of Compustat, TRI, and EPA P2 data over 1991-2016. Under maintained timing assumptions, we find that a 10% increase in cumulative source reduction improves technical efficiency by 0.09%-0.17% across industries, corresponding to $5.5-$11.2 million in additional real sales at the respective industry means. Source reduction also reduces environmental inefficiency in NAICS 32 and NAICS 33, implying reductions of 4,435-5,802 pounds of toxic releases at the industry means; the effect is not significant in NAICS 31. A disaggregated analysis reveals that different source-reduction activities operate through distinct channels, with material substitution as the most consistent driver of gains in both technical and environmental efficiency.
Are state-imposed behavioral remedies effective substitutes for federal antitrust enforcement? We evaluate state regulation of hospital mergers under Certificates of Public Advantage (COPAs). Using hospital data from 1996-2022, we compare COPAregulated mergers to unregulated mergers with similar anticompetitive potential. In highly concentrated markets, COPA mergers result in 11.1 p.p. lower price growth but 0.5 p.p. greater increases in 30-day mortality rates. We find a negative correlation between price and mortality effects for COPA mergers, consistent with theoretical predictions that binding price caps exacerbate quality deterioration. Our findings suggest that COPA contracts are poor substitutes for traditional antitrust enforcement.
A minimum advertised price (MAP) policy is a popular vertical restraint. We study retail pricing under MAP using price data of Seagate hard disk drives on US online retailers. The data suggest that MAP is not a form of minimum resale price maintenance (RPM). First, we find that retail prices are often lower than MAP. Second, retail prices of products subject to MAP have greater dispersions between retailers. Lastly, some retail prices can increase after a MAP decrease. These observations are consistent with the predictions of a search model that interprets MAP as a form of information restraint.
This paper proposes a framework for designing an emissions trading system (ETS) for the highly concentrated and regulated Chinese electricity forward markets. We present an economic model where a few generation firms maximize profits by choosing output levels under a price set below equilibrium and engage in trading carbon permits under either tradable performance standards (TPS) or cap-and-trade (C&T) systems. The regulated price causes underproduction across all firms. Compared to a scenario with no ETS, both ETS depress permit buyers' production, and C&T typically decreases sellers' production unless initial allocations are excessively high. However, TPS encourages permit sellers' production if a seller cannot drastically shift the permit market equilibrium. From a Guangdong dataset, we uncover model parameters, such as firm-specific cost functions, and use them to evaluate policy scenarios. We find TPS achieves higher welfare with lower emissions than C&T under the regulated price. If the price is jointly selected with the ETS to maximize welfare, both achieve almost identical welfare and emission levels, but TPS has more consumer surplus than C&T. Moreover, TPS under the regulated price approximates this maximized welfare, counteracting the underproduction by reallocating generation to low-emission-intensity firms, whereas C&T requires substantially higher power and permit prices.
We study how corporate debt influences the competitive outcomes of horizontal and conglomerate mergers. In contrast to standard models where debt does not affect pricing, our framework shows that mergers can spread fixed debt obligations across a broader product portfolio, creating an "insurance effect" against adverse demand shocks. This effect interacts with the traditional recapture effect from reduced competition. Using numerical simulations and a case study of a major casino merger, we find that debt can either dampen or amplify post-merger price increases, depending on the merger's structure and the market environment.
A firm may decide to make total-surplus-reducing purchase recommendations in response to consumer heterogeneity in an experience good setting with endogenous prices. First, we show under which conditions the firm chooses to make such biased recommendations in a monopoly setting. Second, we propose a duopoly model with differentiated products in which single-product firms compete in uniform prices and recommendation policies. We establish when and why both firms bias their recommendations. This bias can disappear when the market becomes less competitive, one firm exits, or both firms merge.
Pass-through rates are relevant in a variety of contexts, such as estimating antitrust damages. It is often asserted that focal pricing, the practice of charging only special prices, e.g. ending in 9s, reduces the degree of pass-through in an industry. This claim has had serious consequences; for example, it has contributed to the dismissal of high-profile antitrust cases. However, it is not grounded in economic theory or evidence. I prove that, in a simple but general framework, expected pass-through is unchanged by the presence of focal pricing constraints. Therefore, the fact that an industry is characterised by focal pricing constraints does not entail that it will also be characterised by a low pass-through rate.
The right to data portability allows consumers to obtain and reuse their personal data across service providers. However, its effect on market competition is not clear-cut, as it impacts the firms' incentives to collect data. Employing a two-period game-theoretic model in which consumer data collected by one firm in the first period can be transferred to the other firm in the second period, this paper analyzes the implications of data portability on competition and welfare. We find that by eliminating the data "lock-in" effect, data portability mitigates competition during data collection, although intensifying it afterward. Perhaps counterintuitively, the firms collect more data when data is portable. Moreover, they earn higher profits, whereas consumers may well be worse off. We identify the degree of market competition as a critical determinant of the welfare implications of data portability. Specifically, low (high) levels of competition are associated with improved (worsened) overall social welfare.
This paper examines the effects of ex ante market structure on spectrum auctions and their impact on mobile market outcomes. We review the relevant theory and provide a simple analytic framework suggesting that larger incumbents acquire more spectrum in auctions to disadvantage smaller competitors. Using novel data on European 4G spectrum auctions, we present suggestive evidence of this effect for low-band ( < 1GHz) auctions. Exploiting idiosyncratic differences in auction timing across countries, we show that HHIs, and potentially prices, increase following low-band auctions, particularly in markets where incumbent operators had relatively high pre-auction market shares. These changes are not accompanied by improvements in coverage or increased investment. Operator-level regressions show that these effects are driven by incumbent operator behaviour.
The use of pricing algorithms raises concerns about algorithmic collusion. This paper considers a sequential pricing model where marginal cost fluctuates over time. I find that Q-learning gorithms autonomously collude even under cost uncertainty. Collusion is sustained by strategies that involve reward-punishment schemes. It suggests that cost uncertainty is not an obstacle autonomous algorithmic collusion.
Considerable interest has emerged over the past decade in the relationship between macroeconomic outcomes and industry-level market power. The Special Issue on Market Power and the Economy contains seven original contributions offering theoretical and empirical perspectives on these subtle relationships. A brief introduction offers an overview and discussion of avenues for future research by industrial organization economists.
This paper estimates the causal impact on vehicle prices of an automobile manufacturers' cartel that operated in Spain from 2006 to 2013. To do so, we construct a novel dataset containing manufacturers' recommended retail prices for Spain and several unaffected European Union countries over the period 2000-2011. Exploiting variation in the timing of cartel entry across brands, we apply a difference-in-differences approach controlling for sales volume, scrappage schemes, and fixed effects. Our estimates show that the cartel increased prices in Spain by approximately 9.3% on average during the infringement period. Robustness checks confirm the consistency of the findings: the parallel trends assumption holds, results remain stable with alternative control groups, and placebo tests yield no significant effects. These findings contribute to the limited empirical literature on causal estimation of cartel overcharges and provide policyrelevant insights on the transmission of upstream collusion to final consumer prices.
This paper examines how the rapid expansion of wind and solar generation in Spain has reshaped wholesale electricity prices, ancillary service (AS) market costs, and market structure. Using an empirical strategy that exploits exogenous variation in renewable potential, we estimate how market outcomes would have differed under lower renewable capacity (and subsequently, renewable output). We find that rising wind and solar output substantially reduced wholesale prices. However, these reductions are partially offset by increases in AS market procurement and the associated operating costs driven by congestion and other operational challenges of variable generation. We show that while renewable growth reduces concentration in the wholesale market, AS markets remain highly concentrated, with limited scope for competition in key market segments. Our results highlight both the substantial net consumer benefits of renewable expansion on final prices (wholesale plus AS markets), while demonstrating the need for AS market reforms to reduce market concentration and cost-effectively manage increasing levels of renewable generation.
This paper investigates the optimal information policy of an online platform (or multi-product firm) when ranking products in response to a consumer search query. The informativeness of rankings ranges from full information to full obfuscation, and consumers learn their match values with the products by engaging in costly sequential search. Invoking continuous match value distributions allows us to establish a novel result about consumer search. While consumers buy products with high match values and continue searching when they encounter low match values, they abort search without buying a product for intermediate ones. For a large class of distributions, the optimal strategy of a platform maximizing the probability of the consumer buying a product is to provide either full information or the smallest amount of information subject to the constraint that the consumer starts searching. As a result, platform and consumer welfare are either fully aligned or at odds with each other.
