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Most assets are traded in multiple interconnected trading venues. This paper develops an equilibrium model of decentralized markets that accommodates general market structures with coexisting exchanges. Decentralized markets can allocate risk among traders with different risk preferences more efficiently, thus realizing gains from trade that cannot be reproduced in centralized markets. Market decentralization always increases price impact. Yet, markets in which assets are traded in multiple exchanges, whether they are disjoint or intermediated, can give higher welfare than the centralized market with the same traders and assets. In decentralized markets, demand substitutability across assets is endogenous and heterogeneous among traders.

We propose a simple model of the international monetary system. We study the world supply and demand for reserve assets denominated in different currencies under a variety of scenarios: a hegemon versus a multipolar world; abundant versus scarce reserve assets; and a gold exchange standard versus a floating rate system. We rationalize the Triffin dilemma, which posits the fundamental instability of the system, as well as the common prediction regarding the natural and beneficial emergence of a multipolar world, the Nurkse warning that a multipolar world is more unstable than a hegemon world, and the Keynesian argument that a scarcity of reserve assets under a gold standard or at the zero lower bound is recessionary. Our analysis is both positive and normative.

This article considers investment decisions within an uncertain dynamic and duopolistic framework. Each investment decision involves to determine the timing and the capacity level The simultaneous analysis of timing and capacity decisions extends work on entry deterrence/accommodation to consider a timing/delay element. We find that, when applying an entry deterrence policy, the first investor, or incumbent, overinvests in capacity for two reasons. First, it delays the investment of the second investor, or entrant. Second, the entrant will invest in less capacity. We also find that greater uncertainty makes entry deterrence more likely.

We develop and structurally estimate a model of heterogeneous multiproduct firms that can be used to decompose the firm-size distribution into the contributions of costs, “appeal” (quality or taste), markups, and product scope. Using Nielsen barcode data on prices and sales, we find that variation in firm appeal and product scope explains at least four fifths of the variation in firm sales. We show that the imperfect substitutability of products within firms, and the fact that larger firms supply more products than smaller firms, implies that standard productivity measures are highly dependent on implicit demand system assumptions and probably dramatically understate the relative productivity of the largest firms. Although most firms are well approximated by the monopolistic competition benchmark of constant markups, we find that the largest firms that account for most of aggregate sales depart substantially from this benchmark, and exhibit both variable markups and substantial cannibalization effects.

We provide a road map to the burgeoning literature on two-sided markets and present new results. We identify two-sided markets with markets in which the structure, and not only the level of prices charged by platforms, matters. The failure of the Coase theorem is necessary but not sufficient for two-sidedness. We build a model integrating usage and membership externalities that unifies two hitherto disparate strands of the literature emphasizing either form of externality, and obtain new results on the mix of membership and usage charges when price setting or bargaining determine payments between end-users.

We analyze trading speed and fragmentation in asset markets. In our model, trading venues make technological investments and compete for investors who choose where and how much to trade. Faster venues charge higher fees and attract speed-sensitive investors. Competition among venues increases investor participation, trading volume, and allocative efficiency, but entry and fragmentation can be excessive, and speeds are generically inefficient. Regulations that protect transaction prices (e.g., Securities and Exchange Commission trade-through rule) lead to greater fragmentation. Our model sheds light on the experience of European and U.S. markets since the implementation of Markets in Financial Instruments Directive and Regulation National Markets System.

We develop a framework to characterize strategic behavior in sequential markets under imperfect competition and restricted entry in arbitrage. Our theory predicts that these two elements can generate a systematic price premium. We test the model predictions using microdata from the Iberian electricity market. We show that the observed price differences and firm behavior are consistent with the model. Finally, we quantify the welfare effects of arbitrage using a structural model. In the presence of market power, we show that full arbitrage is not necessarily welfare-enhancing, reducing consumer costs but increasing deadweight loss.

This article considers the problem of testing many moment inequalities where the number of moment inequalities, denoted by p, is possibly much larger than the sample size n. There is a variety of economic applications where solving this problem allows to carry out inference on causal and structural parameters; a notable example is the market structure model of Ciliberto and Tamer (2009) where p = 2m+1 with m being the number of firms that could possibly enter the market. We consider the test statistic given by the maximum of p Studentized (or t-type) inequality-specific statistics, and analyse various ways to compute critical values for the test statistic. Specifically, we consider critical values based upon (1) the union bound combined with a moderate deviation inequality for self-normalized sums, (2) the multiplier and empirical bootstraps, and (3) two-step and three-step variants of (1) and (2) by incorporating the selection of uninformative inequalities that are far from being binding and a novel selection of weakly informative inequalities that are potentially binding but do not provide first-order information. We prove validity of these methods, showing that under mild conditions, they lead to tests with the error in size decreasing polynomially in n while allowing for p being much larger than n; indeed p can be of order exp(nc ) for some c > 0. Importantly, all these results hold without any restriction on the correlation structure between p Studentized statistics, and also hold uniformly with respect to suitably large classes of underlying distributions. Moreover, in the online supplement, we show validity of a test based on the block multiplier bootstrap in the case of dependent data under some general mixing conditions.

This paper examines how prices, markups, and marginal costs respond to trade liberalization. We develop a framework to estimate markups from production data with multi-product firms. This approach does not require assumptions on the market structure or demand curves faced by firms, nor assumptions on how firms allocate their inputs across products. We exploit quantity and price information to disentangle markups from quantity-based productivity, and then compute marginal costs by dividing observed prices by the estimated markups. We use India's trade liberalization episode to examine how firms adjust these performance measures. Not surprisingly, we find that trade liberalization lowers factory-gate prices and that output tariff declines have the expected pro-competitive effects. However, the price declines are small relative to the declines in marginal costs, which fall predominantly because of the input tariff liberalization. The reason for this incomplete cost pass-through to prices is that firms offset their reductions in marginal costs by raising markups. Our results demonstrate substantial heterogeneity and variability in markups across firms and time and suggest that producers benefited relative to consumers, at least immediately after the reforms.

This paper examines the incentives of firms to invest in socially responsible product innovations. Our analysis connects the existence of socially responsible innovations to the presence of intrinsic and extrinsic social responsibility preferences. In addition to deriving economic value from the product, consumers have heterogeneous intrinsic needs to consume products that are socially responsible. They also have extrinsic social comparison preferences that are based on their meetings with others in social interactions. The frequency of these meetings are endogenous to the consumption choices of consumers. A consumer enjoys a social comparison benefit if her consumption decision is more socially responsible than the consumer that she meets in a social interaction and a social comparison cost if it is less socially responsible. The analysis reveals a nonmonotonic effect of social comparison effects on innovation incentives. When the economic value of a product is relatively small, the incentive to innovate decreases as social comparison effects increase. By contrast, when the economic value of a product is sufficiently large, increases in social comparison effects increase the incentive to innovate. Social comparison benefits and costs have different effects on competition between firms. In particular, social comparison benefits soften price competition, whereas social comparison costs tend to exacerbate price competition. We also identify market conditions where a monopoly invests more or less compared to a firm facing competition.