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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.

We develop, estimate, and test a tractable general equilibrium model of oligopsony with differentiated jobs and concentrated labor markets. We estimate key model parameters by matching new evidence on the relationship between firms’ local labor market share and their employment and wage responses to state corporate tax changes. The model quantitatively replicates quasi-experimental evidence on imperfect productivity-wage pass-through and strategic wage setting of dominant employers. Relative to the efficient allocation, welfare losses from labor market power are 7.6 percent, while output is 20.9 percent lower. Lastly, declining local concentration added 4 percentage points to labor’s share of income between 1977 and 2013.

This paper considers cost-reducing R&D investment with spillovers in a Cournot oligopoly with overlapping ownership. We show that overlapping ownership leads to internalization of rivals’ profits by firms and find that, for demand not too convex, increases in overlapping ownership increase (decrease) R&D and output for high (low) enough spillovers while they increase R&D but decrease output for intermediate levels of spillovers. There is scope for overlapping ownership to improve welfare and consumer surplus, provided that spillovers are sufficiently large. The results obtained are robust when R&D has commitment value and in a Bertrand oligopoly model with product differentiation.

Transboundary pollution poses a major threat to environment and human health. An effective approach to addressing this problem is the adoption of long-term abatement technology; however, many developing regions are lacking in related technologies that can be acquired by licensing from developed regions. This study focuses on a differential game model of transboundary pollution between two asymmetric regions, one of which possesses advanced abatement technology that can reduce the abatement cost and licenses this technology to the other region by royalty or fixed-fee licensing. We characterize the equilibrium decisions in the regions and find that fixed-fee licensing is superior to royalty licensing from the viewpoint of both regions. The reason is that under fixed-fee licensing, the regions can gain improved incremental revenues and incur reduced environmental damage. Subsequently, we analyze the steady-state equilibrium behaviors and the effects of parameters on the licensing performance. The analysis indicates that the myopic view of the regions leads to short-term revenue maximization, resulting in an increase in total pollution stock. Moreover, a high level of abatement technology or emission tax prompts the licensee region to choose fixed-fee approach, which is beneficial both economically and environmentally for two regions.

We study the procompetitive gains from international trade in a quantitative model with endogenously variable markups. We find that trade can significantly reduce markup distortions if two conditions are satisfied: (i) there is extensive misallocation, and (ii) opening to trade exposes hitherto dominant producers to greater competitive pressure. We measure the extent to which these two conditions are satisfied in Taiwanese producer-level data. Versions of our model consistent with the Taiwanese data predict that opening up to trade strongly increases competition and reduces markup distortions by up to one-half thus significantly reducing productivity losses due to misallocation.

We provide a framework for empirical analysis of negotiated-price markets. Using mortgage market data and a search and negotiation model, we characterize the welfare impact of search frictions and quantify the role of search costs and brand loyalty for market power. Search frictions reduce consumer surplus by $12/month/consumer, 28 percent of which can be associated with discrimination, 22 percent with inefficient matching, and 50 percent with search costs. Banks with large consumer bases have margins 70 percent higher than those with small consumer bases. The main source of this incumbency advantage is brand loyalty; however, price discrimination based on search frictions accounts for almost a third.

Oligopoly models of price competition predict that strategic firms exercise market power and generate inefficiencies. However, heterogeneity in firms’ strategic ability also generates inefficiencies. We study the Texas electricity market where firms exhibit significant heterogeneity in how they deviate from Nash equilibrium bidding. These deviations, in turn, increase the cost of production. To explain this heterogeneity, we embed a cognitive hierarchy model into a structural model of bidding and estimate firms’ strategic sophistication. We find that firm size and manager education affect sophistication. Using the model, we show that mergers which increase sophistication can increase efficiency despite increasing market concentration.

Cover -- Half Title -- Series Page -- Title Page -- Copyright Page -- Dedication -- Table of Contents -- LIST OF FIGURES -- LIST OF TABLES -- PREFACE -- ABOUT THE AUTHOR -- ACKNOWLEDGMENTS -- INTRODUCTION TO GLOBAL STUDY -- PART I: Global oligopolies, concentration, and consolidation processes -- 1: Global concentration, oligopolies, profit appropriations and perspectives -- 2: Sector global concentration trends and performance outcomes -- 3: Global winners, oligopolistic moves and outcomes in spirits sector 1939-2019 -- PART II: Global strategy orientations and performance -- 4: Global geographical coverage choices and outcomes -- 5: Global configuration analysis: the case of retail fashion -- 6 Global configurations of Fortune Top 500s and outcomes -- PART III: Global strategy choices and outcome -- 7: Global cooperation: cross-border mergers and acquisitions and strategic alliances -- 8: Global focus and niche strategies: lessons from German and British winners -- PART IV: Emerging market champions' (EMCs') global strategies -- 9: Global emerging market champions -- 10: Chinese, Indian, Russian, and Brazilian global champions -- 11: Global incumbents vs emerging market multinationals: the case of domestic appliances -- PART V: Sustaining global success -- 12: Corporate collapse, retrenchment, and turnarounds in the context of global rivalry: lessons from Kodak, Nortel, GKN, and Compass -- 13: Sustaining global strategies: lessons from GKN 1759-2019 -- PART VI: Global concentration, oligopolies, and global capitalism -- 14: The political economy of global oligopolies -- 15: Summary of implications for business -- APPENDIX A -- APPENDIX B -- INDEX.

We study behavior-based pricing (BBP) in a vertically differentiated model. Vertical differentiation is innately asymmetric because all customers prefer the higher-quality product when prices are equal. This asymmetry causes BBP to have different properties than symmetric horizontally differentiated models. We highlight two dimensions that affect the analysis: the role of quality-adjusted cost differences between the firms and the role of consumer discounting relative to firm discounting. In the second period, consistent with the prior literature, we find that there are conditions based on market shares and quality-adjusted costs under which either the low-quality firm or the high-quality firm—but not both—will reward its current customers with lower prices than it charges to new customers. We then consider whether these conditions can arise in a two-period equilibrium. We find that if consumers sufficiently discount the future periods, then firms at enough of a competitive disadvantage will reward their customers: i.e., the low-quality firm will reward its current customers if the quality-adjusted cost differential between the two firms is small, while the high-quality firm will reward its current customers if this cost differential is large. Conversely, we find that if consumers do not discount the future very much, then the firm at a competitive disadvantage (i.e., a low-quality firm competing against a low-cost high-quality firm, or a high-quality firm that has very high costs) can earn greater profits with BBP than without BBP, although there are cases where both firms may benefit from BBP. This paper was accepted by J. Miguel Villas-Boas, marketing .