Countervailing power? Collusion in markets with decentralized trade

We consider the collective incentives of buyers and sellers to form cartels in markets with decentralized trade and pairwise bargaining. Cartels are coalitions of buyers or sellers that limit market participation and compensate inactive members for their abstention. In stable market outcomes, cartels set Nash equilibrium quantities and cartel memberships are immune to deviations. The set of stable market outcomes is non-empty and its full characterization is provided. Stable market outcomes are of two types: (i) at least one cartel restrains trade and market participation is balanced; (ii) only one cartel is active and it reduces trade slightly below the opponent’s.     

Optimality and consistency in a differential game with non-renewable resources

Imperfect competition amongst buyers for a non-renewable resource is modeled as a Stackelberg differential game. The buyers may act as a cartel or behave non-cooperatively in setting tariffs, which the sellers take as given. The buyer's optimal policy is not consistent when extraction costs depend on the stock level. Both optimal and consistent, unit and ad valorem tariff's are analyzed. When a buyers' cartel uses a consistent tariff, the sellers may prefer to behave as perfect competitors or a monopolist, depending on the functional form of demand and cost. Non-cooperative buyers who are constrained to act consistently are unable to extract any rent from competitive sellers.     

Buyer–seller networks with demand shocks and intermediation

We present a model in which buyers and sellers use links to trade with each other. Each seller produces a good which can be one of two types. Buyers are ex ante identical but receive specification or valuation shocks after the links are formed. We show that efficient networks are stable and that severing a link in an efficient network results in a higher price for the buyer but a lower price for the seller. We also examine network intermediation when sellers (buyers) form links sequentially. When sellers form links sequentially, the first seller becomes an intermediary and shares links with other sellers; this makes all sellers better off. However, when buyers form links sequentially, buyers may or may not share links. If links are shared multiple intermediaries result.     

Identifying contracts,combinations and conspiracies in restraint of trade

Antitrust guidelines rely on structural screens to review horizontal merger proposals for possible anti-competitive effects. This paper extends this screening approach to forecast where industry cartels will form, and where cartel agreements are more likely to raise price. I test the screen's reliability for a unique data set of legal, privately enforced industry cartels that formed under the Webb-Pomerene Export Trade Act. Consistent with screening assumptions, I find that cartels formed more frequently in industries with significant potential market power, high barriers to entry, and conditions facilitating the enforcement of agreements. However, these characteristics generally perform less well at distinguishing when cartels are likely to raise price without generating offsetting cost-savings, suggesting that screening is reliable only as a preliminary check for possible anti-competitive behavior.     

Divergence in Reservation Prices and Its Impact on Housing Market Liquidity: A Theoretical Analysis

In this paper, we build a two-period English auction model to study the relative movements between buyers’ and sellers’ reservation prices in the housing market. We show that changes in sellers’ reservation prices are jointly determined by changes in buyers’ reservation prices, probability of buyers offering a high or low price, and the arrival rate of buyers. When the divergence between the buyers’ and sellers’ reservation prices widens, the probability of sale increases in the upward market and decreases in the downward market, contributing to the increases or decreases in market liquidity.     

Horizontally Differentiated Market Makers

I analyze a model of competition between two market makers who are located at the opposite ends of the Hotelling line, both of which are also occupied by a search market. Buyers and sellers are uniformly distributed between the two market places, yet can only trade at one of them. In equilibrium, market makers net a positive profit and trade with buyers and sellers close to them, while buyers and sellers further away participate in search markets. Interestingly, a duopolistic market maker nets a larger profit than a monopoly because search markets make the quantities market makers trade strategic complements.     

Adverse Selection with Competitive Inspection

We develop a model with heterogeneous buyers and sellers in which the sellers have private information about their goods' qualities. We show that efficient trading cannot occur without middlemen. Middlemen can provide two services: one is inspection, and the other is the sorting of buyers and sellers through the rationing of sellers and the provision of two different price schedules. The latter service permits the possibility of achieving the first best. When the first best is not attainable, there is a second best characterized by two intervals, one consisting of low-quality noninspected goods, and the other of high-quality inspected goods. We determine whether first and second best outcomes can be implemented in a market equilibrium with both zero and infinite buyer-seller search costs. First and second best outcomes are attainable under a larger set of parameter values when search costs are infinite; also, typically too much inspection occurs in a market equilibrium. Welfare may be either raised or lowered by the introduction of middlemen.     

Information precision and asymptotic efficiency of industrial markets

I present a strategic model of a bilateral oligopoly with asymmetric information to examine (i) the validity of the conjecture of price-taking behavior in such markets as the number of agents becomes large and (ii) the effect of the rate that individual information precision decreases with increased number of agents on convergence to price-taking and efficiency. I show that with downstream competition, increasing the number of sellers may make all participants price-takers in the limit, but increasing the number of buyers may not. When the total precision of information in the market is high, price-taking and full social efficiency is achieved in the limit with large numbers of buyers and sellers. However, if the total precision of information in the market is poor, price-taking conjecture may fail and large inefficiencies, including full inefficiency, can occur in the limiting outcome. The rate of decrease of individual information precision with increased number of agents determines the rate of convergence to efficiency, and the convergence is slower than that predicted by single-unit auction models in the literature. I also demonstrate that when the number of sellers or both the number of buyers and the sellers go to infinity, price-taking and information aggregation tend to go together. When the number of buyers goes to infinity, however, information can get aggregated when the agents do not become price-takers in the limit. Albeit, in the latter case, the aggregated information is masked by the noise in the sellers’ signals and the cost variability.     

Intermediated surge pricing

Although Uber and Lyft are known for their flexible “surge pricing,” they are surprisingly rigid in another way: each firm takes a constant percentage of passenger fare whether or not there is a surge. In this paper, I investigate the possible reasons for, and the impact of, this rigidity. I study a market in which a profit‐maximizing intermediary facilitates trade between buyers and sellers. The intermediary sets prices for buyers and sellers, and keeps the difference as her fee. Optimal prices increase when demand increases, that is, shifts right. If a demand increase is due to an increase in the number of ex ante symmetric buyers, then the intermediary's optimal percent fee decreases. If, instead, a demand increase is due to a reduction in the elasticity of demand, then the intermediary's optimal percent fee increases. In either case, if the intermediary keeps a constant percent fee regardless of shifts in demand, as is the case with Uber and Lyft, then surge pricing (i.e., the ratio of price during high demand to price during low demand) is amplified on one side of the market and diminished on the other side.     

Core and competitive equilibria: An approach from discrete convex analysis

We extend the assignment market (Shapley and Shubik, 1972; Kaneko, 1976, 1982) by utilizing discrete convex analysis. We consider the market in which buyers and sellers trade indivisible commodities for money. Each buyer demands at most one unit of commodity. Each seller produces multiple units of several types of commodities. We make the quasi-linearity assumption on the sellers, but not on the buyers. We assume that the cost function of each seller is M^♮-convex, which is a concept in discrete convex analysis. We prove that the core and the competitive equilibria exist and coincide in our market model.     

List price and sales prices of residential properties during booms and busts

This paper investigates the relationship between the list and sale price of residential properties over the housing cycle. In down or normal markets the list price generally exceeds the sales price; however, when the housing market is strong, homes sell for more than their list price. This observation is not consistent with the assumptions made in the standard model of home sellers’ search behavior. We consider alternative models. In one, sellers set list prices based on their expectations of future changes in sales prices and the arrival rate of buyers; however, demand shocks occur. This model partially explains our data from the Belfast, U.K. housing market, but it fails to predict the list to sales price ratio during a sustained housing boom. We next describe a model where sellers’ endogenously select their search mechanism depending on the strength of the housing market. We find support for the conjecture that sellers switch to an auction-like model during housing booms. There also is evidence that during a downturn in the market, sellers’ list prices are sticky.     

The Role of Coordination Bias in Platform Competition

This paper considers platform competition in a two‐sided market that includes buyers and sellers. One of the platforms benefits from a favorable coordination bias in the market, in that for this platform it is less costly than for the other platform to convince customers that the two sides will coordinate on joining it. We find that the degree of the coordination bias affects the platform's decision regarding the business model (i.e., whether to subsidize buyers or sellers), the access fees, and the size of the platform. A slight increase in the coordination bias may induce the advantaged platform to switch from subsidizing sellers to subsidizing buyers, or induce the disadvantaged platform to switch from subsidizing buyers to subsidizing sellers. Moreover, in such a case the advantaged platform switches from oversupplying to undersupplying sellers, and the disadvantaged platform switches from undersupplying to oversupplying sellers.     

Intermediaries,Credibility and Incentives to Collude

A seller contracts and potentially colludes with a certification intermediary. We investigate the intermediary’s incentives to collude, her pricing strategy, and the extent to which buyers rely on the intermediary’s announcements. The probability of collusion is an endogenous variable, determined by the intermediary’s pricing strategy. The extent to which the market relies on the intermediary’s reports, the certification price and the intermediary’s profit decrease as the intermediary becomes less patient. By making certification mandatory, the intermediary loses her ability to screen out low‐quality sellers, which increases the probability of collusion.     

On axiomatizations of the Shapley value for assignment games

We consider the problem of axiomatizing the Shapley value on the class of assignment games. It turns out that several axiomatizations of the Shapley value on the class of all TU-games do not characterize this solution on the class of assignment games. However, when considering an assignment game as a (communication) graph game where the game is simply the assignment game and the graph is a corresponding bipartite graph where buyers (sellers) are connected with sellers (buyers) only, we show that Myerson’s component efficiency and fairness axioms do characterize the Shapley value on the class of assignment games. Moreover, these two axioms have a natural interpretation for assignment games. Component efficiency yields submarket efficiency stating that the sum of the payoffs of all players in a submarket equals the worth of that submarket, where a submarket is a set of buyers and sellers such that all buyers in this set have zero valuation for the goods offered by the sellers outside the set, and all buyers outside the set have zero valuations for the goods offered by sellers inside the set. Fairness of the graph game solution boils down to valuation fairness stating that only changing the valuation of one particular buyer for the good offered by a particular seller changes the payoffs of this buyer and seller by the same amount.     

Determining market power exertion between buyers and sellers

Empirical techniques commonly used in industrial organization to measure market power exertion typically assume imperfectly competitive behaviour by firms on only one side of the market. Firms on the other side are assumed to be perfectly competitive. In this paper we extend traditional NEIO methods by developing a method to estimate market power exertion when firms on both sides have potential market power. Using Monte Carlo simulations, we find that the model correctly estimates market power exercised by firms on either or both sides of a market and also correctly estimates firms' technology parameters. When applied to the US leaf tobacco market, findings indicate that cigarette manufacturers exert some monopsony power in purchasing leaf tobacco while producers, organized as a cartel, exhibit no countervailing monopoly market power. Copyright © 2000 John Wiley & Sons, Ltd.     

Equilibrium price and advertisement distributions

We consider an economy where many sellers sell identical goods to many buyers. Each seller has a unit supply and each buyer has a unit demand. The only possible information flow about prices is through costly advertising. We show that in equilibrium the sellers use mixed strategies in pricing which leads to price and advertisement distributions. With convex advertising costs each seller sends only one advertisement in the market. We also delineate a class of advertising costs which ensures that sellers may send multiple advertisements in equilibrium. Higher prices are advertised more than lower prices.     

中国房地产交易真的是卖方市场吗？——基于双边随机边界模型的实证研究

科学测算房地产交易市场买卖双方议价能力对市场价格形成的影响作用，是当前政府制定“因地施策”宏观调控机制的重要前提。采用双边随机边界模型，考察房地产交易环节中买卖双方议价能力的差异,结果表明：（1）买卖双方讨价还价因素对商品房销售价格的最终形成存在显著影响；（2）从全国平均水平看，对于整体市场以及住宅、写字楼和商铺等细分市场，卖房者议价能力在双方讨价还价过程中占主导地位，但买方议价能力的影响作用也不容忽视；（3）从一线、新一线、二线和三线城市角度看，除了一线城市商铺市场以及三线城市总体城市、住宅市场和写字楼市场外，其他均处于卖方市场阶段。     

Market Uncertainty and Socially Embedded Reputation

Both economists and sociologists generally recognize the importance of reputation in coordinating economic transactions. In a perfectly competitive and anonymous market characterized by faceless buyers and sellers, the issue of reputation would be irrelevant and unnecessary. In reality, however, markets are often filled with varying degrees of information asymmetry, which can threaten the very existence of the market system itself. In critical reaction to the standard neoclassical model, some economists, on the one hand, argue that when there is an information problem, reputation serves as a valuable source of market signal of quality. Sociologists of economic life similarly contend that reputation, along with trust, is critical in lowering transaction costs and thereby facilitating various economic activities among individual actors. The purpose of this article is to apply this broad theoretical observation to a specific empirical phenomenon. It does so by highlighting the role of social networks that connect actors on both demand and supply sides of the market. Specifically, this study examines how interpersonal networks in the market for legal services affect the duration of ties between buyers and sellers. Quantitative analysis based on a random sample of Chicago lawyers, a project funded by the American Bar Foundation, reveals that ceteris paribus the lawyer-client relations are significantly driven by social network factors.     

Can the Timing of Negotiations Impact the Consequences of Mergers?

This paper uses a theoretical model to examine whether variation in the timing of negotiations between buyers and sellers can alter the effects of mergers between sellers. The model shows that mergers between horizontally overlapping firms lead to price increases regardless of how negotiations take place. In contrast, mergers between firms in different markets can only lead to higher compensation for the combined firm when negotiations occur sequentially. However, any price effects from out‐of‐market mergers stem from a mechanical redistribution of existing market power and not from a loss in competition. Published 2014. This article is a U.S. Government work and is in the public domain in the USA.     

Effects of One-Way Spillovers on Market Shares, Industry Price, Welfare, and R & D Cooperation

With one-way spillovers, the standard symmetric two-period R&D model leads to an asymmetric equilibrium only, with endogeneous innovator and imitator roles. We show how R&D decisions and measures of firm heterogeneity—market shares, R&D shares, and profits—depend on spillovers and on R&D costs. While a joint lab always improves on consumer welfare, it yields higher profits, cost reductions, and social welfare only under extra assumptions, beyond those required with multidirectional spillovers. Finally, the novel issue of optimal R&D cartels is addressed. We show an optimal R&D cartel may seek to minimize R&D spillovers between its members.