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Increasingly, algorithms are supplanting human decision-makers in pricing goods and services. To analyze the possible consequences, we study experimentally the behavior of algorithms powered by Artificial Intelligence (Q-learning) in a workhorse oligopoly model of repeated price competition. We find that the algorithms consistently learn to charge supracompetitive prices, without communicating with one another. The high prices are sustained by collusive strategies with a finite phase of punishment followed by a gradual return to cooperation. This finding is robust to asymmetries in cost or demand, changes in the number of players, and various forms of uncertainty.

This article summarizes and draws connections among diverse streams of theoretical and empirical research on the economics of privacy. We focus on the economic value and consequences of protecting and disclosing personal information, and on consumers' understanding and decisions regarding the trade-offs associated with the pnvacy and the sharing of personal data. We highlight how the economic analysis of pnvacy evolved over time, as advancements in information technology raised increasingly nuanced and complex issues. We find and highlight three themes that connect diverse insights from the literature. First, characterizing a single unifying economic theory of privacy is hard, because pnvacy issues of economic relevance arise in widely diverse contexts. Second, there are theoretical and empirical situations where the protection of privacy can both enhance and detract from individual and societal welfare. Third, in digital economies, consumers' ability to make informed decisions about their privacy is severely hindered because consumers are often in a position of imperfect or asymmetric information regarding when their data is collected, for what purposes, and with what consequences. We conclude the article by highlighting some of the ongoing issues in the pnvacy debate of interest to economists.

Empirical work has drawn attention to the high degree of productivity differences within industries and their role in resource allocation. This paper examines the allocational efficiency of suchmarkets. Productivity differences introduce two new margins of potential inefficiency: selection of the right distribution of firms and allocation of the right quantities across firms. We show that these considerations affect welfare and policy analysis, and market power across firms leads to distortions in resource allocation. Demand-side elasticities determine how resources are misallocated and when increased competition from market expansion provides welfare gains.

We study production in advance in a setting where firms first source inventories that remain unobservable to rivals, and then simultaneously set prices. In the unique equilibrium, each firm occasionally holds a sale relative to its reference price, resulting in firms sometimes being left with unsold inventory. In the limit as inventory costs become fully recoverable, the equilibrium converges to an equilibrium of the game where firms only choose prices and produce to order—the associated Bertrand game (examples of which include fully asymmetric clearinghouse models). Thus, away from that limit, our work generalizes Bertrand-type equilibria to production in advance, and challenges the commonly held view associating production in advance with Cournot outcomes. The analysis involves, as an intermediate step, mapping the price-inventory game into an asymmetric all-pay contest with outside options and non-monotonic winning and losing functions. We apply our framework to public policy towards information sharing, mergers, cartels, and taxation.

This paper provides a comprehensive assessment of the margins along which firms responded to a large and persistent minimum wage increase in Hungary. We show that employment elasticities are negative but small even four years after the reform; that around 75 percent of the minimum wage increase was paid by consumers and 25 percent by firm owners; that firms responded to the minimum wage by substituting labor with capital; and that disemployment effects were greater in industries where passing the wage costs to consumers is more difficult. We estimate a model with monopolistic competition to explain these findings.

Competitive implications of cross-holdings have been extensively analyzed in the literature. Incentives for engaging cross-holdings and welfare effects were however rarely studied. Although a similar logic as with the merger paradox holds for Cournot oligopolies with homogeneous products and symmetric technologies, we show that there are profit incentives for firms to engage cross-holdings with asymmetric technologies. Furthermore, we show that social welfare could be enhanced with cross-holdings even though the market becomes more concentrated. We also discuss the robustness of both the submodularity of the Cournot model with respect to the presence of cross-holdings and our results with respect to product differentiation.

This paper quantifies employer market power in US manufacturing and how it has changed over time. Using administrative data, we estimate plant-level markdowns—the ratio between a plant’s marginal revenue product of labor and its wage. We find most manufacturing plants operate in a monopsonistic environment, with an average markdown of 1.53, implying a worker earning only 65 cents on the marginal dollar generated. To investigate long-term trends for the entire sector, we propose a novel, theoretically grounded measure for the aggregate markdown. We find that it decreased between the late 1970s and the early 2000s, but has been sharply increasing since.

This article considers the recent literature on firm markups in light of both new and classic work in the field of industrial organization. We detail the shortcomings of papers that rely on discredited approaches from the \"structure-conduct-performance\" literature. In contrast, papers based on production function estimation have made useful progress in measuring broad trends in markups. However, industries are so heterogeneous that careful industry-specific studies are also required, and sorely needed. Examples of such studies illustrate differing explanations for rising markups, including endogenous increases in fixed costs associated with lower marginal costs. In some industries there is evidence of price increases driven by mergers. To fully understand markups, we must eventually recover the key economic primitives of demand, marginal cost, and fixed and sunk costs. We end by discussing the various aspects of antitrust enforcement that may be of increasing importance regardless of the cause of increased markups.

This article assesses several aspects of recent macroeconomic market power research. These include the ways market power is defined and measured; the use of accounting data to estimate markups; the quantitative implications of theoretical connections among markups, prices, costs, scale elasticities, and profits; and conflicting evidence on whether greater market power has led to lower investment rates and a lower labor share of income. Throughout this discussion, I characterize the congruencies and incongruencies between macro evidence and micro views of market power and, when they do not perfectly overlap, explain the open questions that need to be answered to make the connection complete.

The recent fall of labor's share of GDP in numerous countries is well-documented, but its causes are poorly understood. We sketch a “superstar firm” model where industries are increasingly characterized by “winner take most” competition, leading a small number of highly profitable (and low labor share) firms to command growing market share. Building on Autor et al. (2017), we evaluate and confirm two core claims of the superstar firm hypothesis: the concentration of sales among firms within industries has risen across much of the private sector; and industries with larger increases in concentration exhibit a larger decline in labor's share.