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Author: Vartan Shadarevian
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
To make sense of mixed empirical evidence on the pricing rigidity of cartels, this paper studies how colluding firms price their goods in a model where firms have private marginal costs and sell to consumers with search costs. In this model, firms repeatedly interact in selling a homogeneous good, and consumers pay a search cost to observe the full menu of prices in a market. While firms can agree on a collusive strategy that increases prices, they cannot coordinate perfectly on their responses to stochastic, idiosyncratic marginal cost shocks. The model highlights an important stability-efficiency trade-off that leads to differential pricing behavior which depends on firms' discount factors. Specifically, when firms are sufficiently impatient, stability is most important, and the optimal cartel equilibrium involves rigid pricing. In contrast, when firms are sufficiently patient, efficiency is more important, and at high search costs the optimal cartel may increase its price variance above monopoly levels to induce search and sort consumers to the lower cost firm. Applications to cartel screening are discussed.
Author: Vartan Shadarevian
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
To make sense of mixed empirical evidence on the pricing rigidity of cartels, this paper studies how colluding firms price their goods in a model where firms have private marginal costs and sell to consumers with search costs. In this model, firms repeatedly interact in selling a homogeneous good, and consumers pay a search cost to observe the full menu of prices in a market. While firms can agree on a collusive strategy that increases prices, they cannot coordinate perfectly on their responses to stochastic, idiosyncratic marginal cost shocks. The model highlights an important stability-efficiency trade-off that leads to differential pricing behavior which depends on firms' discount factors. Specifically, when firms are sufficiently impatient, stability is most important, and the optimal cartel equilibrium involves rigid pricing. In contrast, when firms are sufficiently patient, efficiency is more important, and at high search costs the optimal cartel may increase its price variance above monopoly levels to induce search and sort consumers to the lower cost firm. Applications to cartel screening are discussed.
Author: Martin Obradovits
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
In many (online) markets, consumers can readily observe prices, but need to examine individual products at positive cost in order to assess how well they match their needs. We propose a tractable model of price-directed sequential search in a market where firms compete in prices. Each product meets consumers' basic needs, however they are only fully satisfied with a certain probability. In our setup, four types of pricing equilibria emerge, some of which entail inefficiencies as not all consumers are (always) served. We then lend our model to analyze collusion. We find that for any number of firms, there exists a parameter region in which the payoff-dominant symmetric collusive equilibrium gives rise to a higher expected total social welfare than the repeated one-shot Nash equilibrium. In other regions, welfare is identical under collusion and merely consumer rents are transferred, or both welfare and consumer rents are reduced. An all-inclusive cartel maximizing industry profit increases welfare for an even larger set of parameters, but may also be detrimental to it.
Author: Mike P. Vo
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We use both economic theory and experiments with Artificial Intelligence (AI) pricing agents to study the roles of consumer search friction on collusion and implications on market prices and consumer welfare. By developing an oligopoly model in which consumers sequentially search for the best product with advertised prices, we find that collusion is easier to sustain with lower search costs. On the other hand, increasing search costs can reduce the collusive price. However, the price reduction is insufficient to increase the consumer surplus if the collusion sustains. Our experiments show that simple reinforcement learning algorithms (Q-learning) manage to adopt a trigger-price strategy to keep prices above the competitive level in a frictional market.
Author: Matthew Stephen Lewis
Publisher:
ISBN:
Category :
Languages : en
Pages : 244
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Book Description
Author: Simon P. Anderson
Publisher:
ISBN:
Category : Advertising
Languages : en
Pages : 55
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Book Description
Economists could not properly capture the impact of internet on markets without a proper theory of consumer search. As a result, this theory has been rediscovered and developed further since the early 2000s. It can address such critical questions as the impact of reduced search cost on prices, variety, and product choice as well as advertising practices (such as search advertising). This theoretical development has also fed into a rich empirical literature exploiting the wealth of data that is now available regarding both consumers' and firms' online activity. The goal of this chapter is to present the basic concepts underpinning the theory of imperfectly competitive markets with consumer search. We stress that appropriate theoretical frameworks should involve sufficient heterogeneity among agents on both sides of the market. We also explain why the analysis of ordered search constitutes an essential ingredient for modeling recent search environments.
Author: Chaim Fershtman
Publisher:
ISBN:
Category : Competition
Languages : en
Pages : 56
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Book Description
Most of the theoretical work on collusion and price wars assumes identical firms and an unchanging environment, assumptions which are at odds with what we know about most industries. Further that literature focuses on the impact of collusion on prices. Whether an industry can support collusion also effects investment incentives and hence the variety, cost, and quality of the products marketed. We provide a collusive framework with heterogeneity among firms, investment, entry, and exit. It is a symmetric information model in which it is hard to sustain collusion when either one of the firms does not keep up with the advances of its competitors, or a low quality' entrant enters. In either case there will be an active firm that is quite likely to exit after it deviates, but if one of the competitors is near an exit state the other incumbent(s) has an incentive to price predatorily (that is to deviate themselves). We use numerical analysis to compare an institutional structure that allows for collusion to one which does not (perhaps because of an active antitrust authority). Price paths clearly differ in the two environments; in particular only the collusive industry generates price wars. The collusive industry offers both more and higher quality products to consumers, albeit often at a higher price. The positive effect of collusion on the variety and quality of products marketed more than compensates consumers for the negative effect of collusive prices, so that consumer surplus is larger in the collusive environment.
Author: Joseph E. Harrington, Jr.
Publisher: MIT Press
ISBN: 0262036932
Category : Business & Economics
Languages : en
Pages : 145
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Book Description
A review of the theoretical research on unlawful collusion, focusing on the impact and optimal design of competition law and enforcement. Collusion occurs when firms in a market coordinate their behavior for the purpose of producing a supracompetitive outcome. The literature on the theory of collusion is deep and broad but most of that work does not take account of the possible illegality of collusion. Recently, there has been a growing body of research that explicitly focuses on collusion that runs afoul of competition law and thereby makes firms potentially liable for penalties. This book, by an expert on the subject, reviews the theoretical research on unlawful collusion, with a focus on two issues: the impact of competition law and enforcement on whether, how long, and how much firms collude; and the optimal design of competition law and enforcement. The book begins by discussing general issues that arise when models of collusion take into account competition law and enforcement. It goes on to consider game-theoretic models that encompass the probability of detection and penalties incurred when convicted, and examines how these policy instruments affect the frequency of cartels, cartel duration, cartel participation, and collusive prices. The book then considers the design of competition law and enforcement, examining such topics as the formula for penalties and leniency programs. The book concludes with suggested future lines of inquiry into illegal collusion.
Author: Ariel Ezrachi
Publisher: Harvard University Press
ISBN: 0674545478
Category : Business & Economics
Languages : en
Pages : 365
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Book Description
“A fascinating book about how platform internet companies (Amazon, Facebook, and so on) are changing the norms of economic competition.” —Fast Company Shoppers with a bargain-hunting impulse and internet access can find a universe of products at their fingertips. But is there a dark side to internet commerce? This thought-provoking exposé invites us to explore how sophisticated algorithms and data-crunching are changing the nature of market competition, and not always for the better. Introducing into the policy lexicon terms such as algorithmic collusion, behavioral discrimination, and super-platforms, Ariel Ezrachi and Maurice E. Stucke explore the resulting impact on competition, our democratic ideals, our wallets, and our well-being. “We owe the authors our deep gratitude for anticipating and explaining the consequences of living in a world in which black boxes collude and leave no trails behind. They make it clear that in a world of big data and algorithmic pricing, consumers are outgunned and antitrust laws are outdated, especially in the United States.” —Science “A convincing argument that there can be a darker side to the growth of digital commerce. The replacement of the invisible hand of competition by the digitized hand of internet commerce can give rise to anticompetitive behavior that the competition authorities are ill equipped to deal with.” —Burton G. Malkiel, Wall Street Journal “A convincing case for the need to rethink competition law to cope with algorithmic capitalism’s potential for malfeasance.” —John Naughton, The Observer
Author: Luís M. B. Cabral
Publisher:
ISBN:
Category : Consumer behavior
Languages : en
Pages : 22
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Book Description
We examine the relation between consumer search and equilibrium prices when collusion in endogenously determined. We develop a theoretical model and show that average price is a U-shaped function of the measure of searchers: prices are highest when there are no searchers (local monopoly power) or when there are many searchers (and sellers opt to collude). We test this prediction with diesel retail prices in Dortmund, Germany. We estimate a U-shaped relation with statistical precision and a Euro .025/liter price variation due to the variation in the measure of searchers.
Author: Robert Bork
Publisher:
ISBN: 9781736089712
Category :
Languages : en
Pages : 536
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Book Description
The most important book on antitrust ever written. It shows how antitrust suits adversely affect the consumer by encouraging a costly form of protection for inefficient and uncompetitive small businesses.
