The Program

Keynote lectures

April 5, 2022. 10:00-11:30. Time zone: Brussels, GMT+2.

Yves Zenou (Monash University). "Perceived Competition in Networks" (with Olivier Bochet, Mathieu Faure, and Yan Long).

Abstract. We consider an aggregative game in which agents have an imperfect knowledge about the set of agents they are in competition with. We model this lack of knowledge through a directed graph that we call the perception network. In this framework, a natural equilibrium concept emerges, the Perception-Consistent Equilibrium (PCE). At a PCE, each agent chooses an action level that maximizes her subjective perceived utility while the action levels of all individuals must be consistent. We prove the existence of PCEs in a large class of aggregative games. We also show that, at any PCE, the efforts are always ordered accordingly to some centrality measure in the perception network. For a specific subclass of aggregative games, we decompose the network into communities and completely characterize the PCEs by identifying which sets of agents are active, as well as their effort level. We prove that, at the unique stable PCE, the agents' action levels are proportional to their eigenvector centrality in the perception network. We illustrate our results with two well-known models: Tullock contest and Cournot competition.

April 5, 2022. 17:00-18:30. Time zone: Brussels, GMT+2.

Kiminori Matsuyama (Northwestern University). "Selection and Sorting of Heterogeneous Firms through Competitive Pressures" (with Philip Ushchev).

Abstract. To understand theoretically how competitive pressures affect selection and sorting of firms with different productivity, we study the Melitz (2003) model under the H.S.A. (Homothetic with a Single Aggregator) class of demand systems. H.S.A. is tractable due to its homotheticity and to its single aggregator that serves as a sufficient statistic for competitive pressures, which acts as a magnifier of firm heterogeneity. It is also flexible enough to allow for the choke price, the 2nd law of demand -- “a higher price leads to a higher price elasticity” --, and the 3rd law of demand --“a higher price leads to a smaller rate of change in the price elasticity.” We show, among others: i) More productive firms have higher profits and revenues; they have higher markup rates under the 2nd law and lower pass-through rates under the 3rd law. Employments are not monotone in firm productivity; they are hump-shaped under the 2nd and 3rd laws. The 2nd law also implies the procompetitive effect and strategic complementarity in pricing. ii) A lower entry cost leads to more competitive pressures, which reduces the markup rates of all firms under the 2nd law and raises the pass-through rates of all firms under the 3rd law. The profits of all firms decline (at faster rates among less productive firms under the 2nd law), which leads to a tougher selection. The revenues of all firms also decline (at faster rates among less productive firms under the 3rd law). A lower overhead cost has similar effects when the employment is decreasing in firm productivity, which occurs under the 2nd and the 3rd laws for a sufficiently high overhead cost. iii) Larger market size also leads to more competitive pressures, reducing the markup rates of all firms under the 2nd law and raises the pass-through rates of all firms under the 3rd law. The profits among more productive firms increase, while those among less productive decline under the 2nd law, which leads to a tougher selection. The revenues among more productive firms also increase, while those among less productive decline under the 3rd law at least when the overhead cost is not too large. iv) The impacts on the masses of entrants and of active firms depend, often crucially, on whether the elasticity of the distribution of the marginal cost is increasing or decreasing with Pareto- distributed productivity being the knife-edge case. v) Both a lower entry cost and larger market size may cause an increase in the average markup rate under the 2nd law and a decline in the average pass-through under the 3rd law due to the composition effect, since they also lead to a tougher selection, forcing less productive firms with lower markup rates and higher pass-through rates to shrink and to exit. This suggests that a rise of the markup may occur due to increased competitive pressures, causing a shift from the less productive/smaller to the more productive/larger. vi) In a multi-market setting, competitive pressures are stronger in larger markets. And more productive firms sort themselves into larger markets under the 2nd law. Due to this composition effect, the average markup (pass-through) rates can be higher (lower under the 3rd Law) in larger (thus more competitive) markets. This result suggests a caution when interpreting the evidence that compares the average markup and pass-through rates across markets with different sizes.

April 6, 2022. 17:00-18:30. Time zone: Brussels, GMT+2.

Gabriel Ahlfeldt (London School of Economics). "Prime locations" (with Thilo Albers and Kristian Behrens).

Abstract. We harness big data to detect prime locations—large clusters of knowledge-based tradable services—in 125 global cities and track changes in the within-city geography of prime service jobs over a century. Prime services are less spatially concentrated and prime locations are farther away from historic cores in historically smaller cities that did not develop early public transit networks. We rationalize these novel stylized facts empirically and theoretically. External returns to scale give rise to multiple equilibria in the city-internal distribution of prime services. The resilience of historic prime locations in historically large cities originates at least partially from endogenous durable transport networks.