Economics

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    Replication Code for "Should We Expect Merger Synergies To Be Passed Through to Consumers?"
    (2024-07-01) Sweeting, Andrew; Lecesse, Mario; Tao, Xuezhen
    When reviewing horizontal mergers, antitrust agencies balance anticompetitive incentives, resulting from market power, with procompetitive incentives, created by efficiencies, assuming complete information and static, simultaneous move Nash equilibrium play. These models miss how a merged firm may prefer not to pass through efficiencies when rivals would respond by lowering their prices. We use an asymmetric information model, where rivals do not observe the size of the realized cost efficiency, to investigate how this incentive could affect post-merger prices. We highlight how the strength of this incentive will depend on the market structure of non-merging rivals and discuss alternative settings where similar issues arise.
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    Replication code for Dynamic Oligopoly Pricing with Asymmetric Information: Implications for Horizontal Mergers
    (2024-07-01) Sweeting, Andrew; Yao, Xinlu; Tao, Xuezhen
    We model repeated pricing by differentiated product firms when each firm has private information about its serially-correlated marginal cost. In a fully separating equilibrium of the dynamic game, signaling incentives can lead equilibrium prices to be signif icantly above those in a static, complete information game, even when the possible variation in the privately-observed state variables is very limited. We calibrate our model using data from the beer industry, and show that, without any change in conduct, our model can explain increases in price levels and changes in price dynamics and cost pass-through after the 2008 MillerCoors joint venture. The software in this repository allows all of the simulated numbers to be recalculated. It provides information on where the IRI dataset used in the empirical work can be found. Code to process the data is included.
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    Matching Issues: An auction with externalities and unraveling matching markets
    (2005-06-22) Ranger, Martin; Cramton, Peter; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation examines two problems that may arise in matching problems. The first two chapters deal with auctions for multiple units where bidders exhibit externalities. The third chapter links risk aversion and information to unraveling in labor markets. Auctions can lead to efficient allocations in a wide class of assignment problems. In the presence of externalities, however, efficiency may no longer be guaranteed. This dissertation shows that a modification of Ausubel & Milgrom (2002)'s generalized ascending price auction can be used to allocate multiple items to bidders in this case. Despite the presence of externalities, the resulting auction possesses an efficient Nash equilibrium in pure strategies leading to a core allocation. Furthermore, under certain restrictions on bidder valuations, truthful revelation of valuations is found to a dominant strategy. The auction is augmented to include explicitly the auctioneer's preferences over final outcomes. Externalities affecting non-participants can thus be accounted for straightforwardly. In Cournot game where capacity constraints are determined in an auction prior to the market interaction, the valuations for capacity in the auction will exhibit externalities. Using the generalized ascending price auction allows the bidding firms to reach a joint profit maximizing capacity allocation below the Cournot equilibrium level. Since this comes at the expense of consumer surplus the auctioneer may have an incentive to specify its own valuation taking into account total surplus maximization. Then, the final capacity allocation is bounded by the profit maximizing and the Cournot equilibrium level. Unraveling labor markets, that is periodic labor markets where appointments are made earlier and earlier often leading to a break-down of the market, have been linked to risk-averse workers attempting to reduce the variability of the outcome. In many cases, early contracts are used to fix a wage when the relative supply and demand of workers in the market and hence the division of surplus is uncertain. This chapter represents a different approach. Both workers and firms have preferences over matchings and uncertainty is introduced through the quality of workers. Risk averse workers or risk-loving firms are found to be necessary for early contracting. Further research strategies are suggested.