Market design with endogenous preferences

This paper explores the interdependence between market structure and an important class of cognitive biases. Starting with a familiar bilateral monopoly framework, we characterize the endogenous emergence of preference distortions during bargaining which cause negotiators to perceive their private valuations differently than they would outside the adversarial negotiation context. Using this model, we then demonstrate how a number of external interventions in the structure and/or organization of market interactions (occurring before trade, after trade, or during negotiations themselves) can profoundly alter the nature of these dispositions. Our results demonstrate that many such interventions frequently (though not always) share qualitatively similar characteristics to market interventions that are often proposed for overcoming more conventional forms of market failure. Nevertheless, our analysis underscores the importance of understanding the precise link between cognitive failures and market structure prior to the implementation of any particular proposed reform.     

Water quality trading with asymmetric information,uncertainty and transaction costs: A stochastic agent-based simulation

We examine the efficiency of emissions trading in bilateral and clearinghouse markets with heterogeneous, boundedly rational agents making decisions under imperfect and asymmetric information, and transaction costs. Results are derived using a stochastic agent-based simulation model of agents’ decision-making and interactions. Trading rules, market structures, and agent information structures are selected to represent emerging water quality trading programs. The analysis is designed to provide a strong test of the efficiency of trading occurring through the two market structures. The Differential Evolution algorithm is used to search for market trade strategies that perform well under multiple states of the world. Our findings suggest that trading under both bilateral and clearinghouse markets yields cost savings relatively to no trading. The clearinghouse is found to be more efficient than bilateral negotiations in coordinating point–nonpoint trading under uncertainty and transaction costs. However, the market under both structures is unlikely to achieve or even approximate least-cost pollution control allocations. Expectations of gains from water quality trading should, therefore, be tempered.     

平台经济反垄断研究的热点演进与理论框架 ——基于文献计量方法的分析

平台经济是连接多个用户群体进行信息与资源交换的新型商业模式，近年来其垄断形势愈演愈烈，对现有监管模式和反垄断研究理论提出了新的挑战。文章利用Citespace V科学计量工具，对2003—2022年中国知网数据库中CSSCI来源期刊的平台经济反垄断研究进行知识图谱可视化研究，在探究该领域的研究热点演化路径的基础上，构建了平台经济反垄断的理论框架。研究发现，平台经济反垄断研究主题经历了从传统双边产业反垄断与反垄断法构建，到双边市场特征与相关市场界定问题，到算法、大数据引发的垄断治理困境，再到超级平台形成、“二选一”独占交易协议四个阶段的演变。总的来看，平台经济反垄断理论框架由垄断形成机理、垄断演进趋势和反垄断规制体系三个部分组成。平台经济的规模效应、网络效应和锁定效应三种特征诱致垄断发生，垄断竞争理论、双边市场理论和产业组织理论是这一问题的重要研究视角；在技术与规模驱动下，平台经济呈现“厂商垄断——平台垄断——场域垄断”的主体变迁和“价格垄断——算法垄断——数据垄断”的形式升级；对此，应当构建价格监管、算法规制与数据治理相结合的综合规制体系。     

Positioning and negotiations: The case of pharmaceutical pricing

We study a positioning game prior to negotiations where each party invests into influential activities in order to raise voter support for their preferred bargaining outcome. The case chosen for our analysis is a bilateral monopoly where a purchaser meets a pharmaceutical firm and where the two negotiate on the price of a new and innovative medicine. We identify factors that influence on the negotiated price such as treatment effects of the new and the existing drug, production costs of the new drug, the price of the existing drug, the marginal cost of public funds and patient group size. Furthermore, it is shown that the negotiated price, depending on the characteristics of a political cost function with regard to the influential activities, is influenced by the order of moves taken by the parties. Regardless of the strategic interrelationships between the two parties, likely positioning games to be played are those where one of the two negotiating parties acts as a leader while the rival acts as a follower.     

Consumer surplus and the reform of network industries: a primer

Starting from an industry where production is provided by a public monopolist, we observe the effects of a sequence of reforms within the network industry on consumer surplus. Using a simple comparative statics framework, we find the indifference conditions for the consumer surplus under the following regimes: a public monopoly, an unregulated private monopoly, a regulated private monopoly, a vertically disintegrated monopoly, a duopoly and a liberalized market. The results are determined by the relative size of the x-inefficiencies of the public monopolist, allocative inefficiencies of the private monopoly, the cost of unbundling and the costs related to establishing a competitive market.     

Information, bilateral negotiations, and worker recruitment

This paper studies experimentally how firms choose between using a centralized market and bilateral negotiations to recruit new personnel. In the market firms interact with several workers but do not have information about workers’ behavior in the past. In the bilateral negotiations firms negotiate bilaterally with prospective workers and learn about workers’ performance in previous jobs. We show that the interaction between social preferences, the incompleteness of contracts and the existence of information about a worker’s past performance provides an explanation for firms forgoing market opportunities and bilaterally negotiating with a worker. We observe that approximately 30% of all job contracts were bilaterally negotiated when these contracts are incomplete as opposed to only 10% when contracts were complete. The surplus from trade is higher when incomplete contracts can be bilaterally negotiated, which can be attributed to the presence of information.     

劳动力市场行政垄断行业分割与劳动收入比重——基于中国省级面板数据的分析

通过对我国劳动收入比重变动的原因研究发现:劳动力市场行政垄断行业分割与劳动收入比重之间互为因果。我国劳动力市场行政垄断行业分割会使行政垄断行业就业人数占总就业人数比例下降,行政垄断行业和竞争行业间收入差距扩大,导致劳动收入比重下降,进而会使资本实际价格下降,增强行政垄断企业的市场力量,加剧劳动力市场行政垄断行业分割程度。因此,减弱劳动力市场行政垄断行业分割是稳定劳动收入比重的关键。     

双边市场视角下的平台企业行为研究

具有双边市场特征的平台企业行为具有独特的经济特征,这些经济特征与传统单边市场中的企业行为有着根本的区别。传统的基于单边市场特征的产业规制理论,无法解释平台企业的经济行为,也就无法解决具有双边市场特征的平台产业中的垄断与竞争问题。对平台企业进行有效的政府规制亟须建立一套新的、基于双边市场特征的产业规制理论。     

Pecking order and core‐periphery in international trade

This paper analyzes the impact of market size and trade costs on bilateral trade flows. A multi‐country trade model with firm‐level heterogeneity in productivities and countries’ market potential provides a simple micro foundation for the link between these variables. In the model, market size and trade costs jointly determine a country‐specific pecking order of exporters serving their destination countries. In a counterfactual setting where bilateral trade costs are homogeneous across country pairs, market size predicts a common ranking of exporters among destination countries. This leads to a unique core‐periphery structure of the world trade network. With heterogeneous trade costs, we illustrate the impact of market size and trade costs on bilateral trade flows and its margins in a simple gravity‐like setting. Using an instrumental variables approach, we find that both market size and trade costs (measured through the network position of countries) have a significant impact on bilateral exports: countries in the core bilaterally trade more with other countries in the core than with peripheral countries, conditional on typical observables.     

Cooperative choice of corporate social responsibility in a bilateral monopoly model

This article presents an examination of a linear bilateral monopoly model with endogenous and cooperative choice of corporate social responsibility (CSR) level. This article also describes an investigation of the effects of cooperative choice of CSR on the market and welfare. New findings are explicit derivation of the necessary and sufficient condition for solving a double marginalization problem in the bilateral monopoly model with CSR. In addition, this report is the first demonstrating that cooperative CSR with Nash bargaining improves consumer surplus, social welfare and each firm’s profit to a level higher than that achieved through noncooperative CSR. Furthermore, cooperative CSR with Nash bargaining is shown to be capable of completely solving the double marginalization problem generated by a bilateral monopoly, although the manufacturer and the retailer are not vertically integrated.     

Bilateral monopoly on a market for an intermediate good

In this paper we analyze a procedure through which price and quantity could be determined on a bilateral monopoly market for an intermediate good. The proposed solution concept is of a non-cooperative Nash equilibrium type. A dynamic process in which the bilateral monopolists repeatedly announce prices and quantities is studied. It is shown that, under particular assumptions, this process must converge to the proposed equilibrium solution. Finally, our solution concept leads to the competitive equilibrium if both sides of the market are ‘fractionated’ into a large number of ‘small’ buyers and ‘small’ sellers.     

Vertical product differentiation and entry deterrence

I study how a potential entrant influences quality in a model of vertical product differentiation with quality-dependent production costs. With identical costs, the incumbent will always deter entry if possible, i.e., if fixed costs are high. Quality will be set at a level lower than or equal to the optimal quality under either duopoly or monopoly. Results are completely different when the entrant has substantially lower costs. They are explained by the relative location of the entrant's quality best response to the incumbent's optimal quality choice in monopoly. This sheds new light on the influence of industrial policy on market conduct.     

中国大陆型经济:障碍及其解决

大陆型经济是中国经济未来的发展方向。中国已具备建立大陆型经济的条件和基础,主要障碍在于收入差距过大和市场分割。这些障碍本质上是制度问题,根源在于行政公权下的各种垄断,进而导致较高的交易成本。解决之道在于规范和减少垄断和特权,降低交易成本,建立公平、统一的大市场,为大陆型经济扫平道路。     

Zero-intelligence versus human agents: An experimental analysis of the efficiency of Double Auctions and Over-the-Counter markets of varying sizes

We study two well-known electronic markets: an over-the-counter (OTC) market, in which each trader looks for the best counterpart through bilateral negotiations, and a double auction (DA) market, in which traders post their quotes publicly. We focus on the DA–OTC efficiency gap and show how it varies with different market sizes (10, 20, 40, and 80 traders). We compare experimental results from a sample of 6400 undergraduate students in Economics and Management with zero-intelligence agent-based simulations. Simulation results show that the traded quantity increases with market size under both DA and OTC. Experimental results confirm the same tendency under DA, while the share of periods in which the traded quantity is lower than the efficient one increases with market size under OTC, ultimately leading to a DA–OTC efficiency gap increasing with the market size. We rationalize these results by putting forward a simple model of OTC market as a repeated bargaining procedure under incomplete information on buyers' valuations and sellers' costs. We show that efficiency decreases slightly with size due to two counteracting effects: acceptance rates in earlier interactions decrease with size, and earlier offers increase, but not always enough to compensate for the decrease in acceptance rates.     

A note on ‘Corporate Social Responsibility and Marketing Channel Coordination’

Goering (2012) works on a bilateral monopoly with perfect marketing channel coordination to analyze the effects of corporate social responsibility. He starts the analysis of a bilateral monopoly with socially concerned firms where either the manufacturer or the retailer is additionally to its profit interested in a share of consumer surplus. In this short note, we extend this analysis and study the case where both firms are socially concerned. As a result, we enlarge the analysis started by Goering (2012) and get further interesting insights into a bilateral monopoly with corporate social responsibility. First, we are able to summarize ‘Proposition 1’ and ‘Proposition 4’ into a common one and figure out the circumstances when the wholesale price fixed by the manufacturer is below marginal costs. Second, we explain analytically the findings from ‘Proposition 3’ and ‘Proposition 6’. We point out the model's key assumption – the perfectly coordinated marketing channel – as the driver of the results and the reason for the equilibrium results' independence from retailer's social concern.     

Competition and monopoly of Chinese rural groundwater market：structure and determinants

China is facing severe problem of water scarcity.Agricultural sector,the main consumer of water resource,has remarkably changed its institutions on water resource deployment,due to heavy environmental pressure.As a new and spontaneous institution,groundwater market has developed rapidly in northern China,and has impacts on waterusing behaviors and benefits of farmers.Using household survey data from Hebei and Henan in 2007,this paper attempts to pin down the development and operating of groundwater market in rural China.We focus on the monopoly and competition in the market.Empirical analysis reveals that Chinese farmers are trying to make rational decision when they compete with others in groundwater market.In general,monopoly is not fierce in Chinese rural groundwater market,with great variations among different villages and even different tubewells within one village.Tubewell costs,regulation and the density of tubewells are the main determinants that affect monopoly level of groundwater market.To make water market benefit more and more farmers of low income,corresponding policies are needed to modify its development in the future.     

Modelling upstream and downstream market power in bilateral oligopoly

This article develops a general model that estimates market power exertion in a bilateral market relationship for processors and retailers where each may also have market power in their primary input market and output markets, respectively. Monte Carlo experiments are used to generate industry data for market structures such as perfect competition, monopoly, monopsony, bilateral imperfect competition with an integrated processor/retailer, bilateral imperfect competition with separate processor and retailer, and bilateral imperfect competition with four adjacent upstream and downstream markets. Then, new empirical industrial organization models are estimated using the data with models that match the market structure under which the data were generated (true) and with models that reflect alternative market structures (alternative). The general model is derived using the production function approach without imposing the fixed proportion assumption. Monte Carlo simulation results indicate that the general model is preferred to alternative models that presume competitive behaviour by processors in primary input procurement and by retailers in the output market. Results indicate that less flexible models lead to biased market power estimates in the presence of market power in the corresponding input and output markets.     

The Possibility of Inefficient Liberalization Through Tariffication*

A typical step in trade liberalization under the GATT is tariffication—the conversion of quantitative import restrictions to their ad valorem tariff equivalents. This paper shows that, if there is market power in the protected industry, tariffication may cause a global efficiency loss. In particular, in a small country, if the protected industry is a monopoly that is freely able to export but cannot profitably do so, then tariffication unambiguously imposes global efficiency costs. In a large country, the global efficiency effects are uncertain a priori. In both cases, however, tariffication unambiguously benefits the monopoly and lowers foreign welfare.     

Using Market Structure to Regulate a Vertically Integrated Monopolist

A natural monopolist whose cost is private information produces a good which is combined with another good that can be produced by the monopolist or by other firms. The agency that regulates the monopolist can impose any of several different market structures in the industry: integrated monopoly, vertical separation with free entry downstream, or liberalization downstream (both integrated and independent production). When several firms produce downstream, a Cournot quantity-setting game with free entry determines the market price. We derive the optimal contracts to offer the monopolist under all three market structures and examine the influence of downstream cost differences on access prices.We then study the optimal regulatory policy where the regulator can condition the downstream market structure on the monopolist's cost report to the regulator. The optimal regulatory policy awards a monopoly to a low-cost upstream firm, but requires free entry downstream if the monopolist reports high upstream costs. Thus, the choice of market structure is an additional tool to limit rent extraction by the monopolist. Simulation analysis reveals the possibility of significant welfare gains from this additional regulatory tool.