Research
Publications
Imperfect Competition with Costly Disposal (IJIO, 2022)
Abstract: This paper studies the effect of disposal costs on consumer surplus and firms' profits. First, we analyze a monopolist producing inventories either early on at a low cost and with little information about demand, or later with more information yet at a higher cost. Unsold products are discarded. The firm forgoes an early production cost advantage if and only if the disposal cost and demand uncertainty are both simultaneously high. Expected disposal decreases in its cost, yet the firm lowers its production to mitigate costs, resulting in lower expected profit and consumer surplus. Similar results hold for firms competing in sales volumes with unobserved inventories. Ex-ante symmetric firms may choose different production timings. The disposal cost substitutes information about demand, thereby affecting a firm's information advantage. Accordingly, a firm's expected profit may increase with the disposal cost. Firms may adjust their production timing, resulting in a discontinuous change in the expected profit and consumer surplus.
Rebating Antitrust Fines to Encourage Private Damage Negotiations (ALER, 2022, Awarded by Concurrences and the George Washington University with the Antitrust Writing Award 2021 for the best academic article in the category of private enforcement)
with Winand Emons
Abstract: To encourage private negotiations for damages in antitrust cases some jurisdictions subtract a fraction of the redress from the fine. We analyze the effectiveness of this policy. Such a rebate does not encourage settlement negotiations that would otherwise not occur. If, however, the parties settle without the rebate, the introduction of the reduction increases the settlement amount, yet at the price of reduced deterrence for those wrongdoers who are actually fined. Under a leniency program the rebate does not affect the leniency applicant: she doesn’t pay a fine that can be reduced. The overall effect of a fine reduction on deterrence is, therefore, negative.
Working Papers
Cartel Stability in Times of Low Interest Rates
Abstract: On the one hand, a low interest rate increases discounted future profits and, thus, a cartel’s stability. On the other, a low cost of capital implies low production costs, allowing a defector to serve a large market share, resulting in a profitable deviation, thereby destabilizing a cartel. Considering these opposing effects, we show that in competitive markets, stability is U-shaped with the interest rate: collusion is most stable when interest rates are very low or very high. Empirical evidence from 615 firms convicted by the European Commission between 1999 and 2016 supports our theoretical findings.
The Economics of Advice (Revise & Resubmit at RIO)
with Winand Emons
Abstract: A consumer wants to buy one of three different products. An expert observes which of the three products is the best match for the consumer. Under linear prices a monopolistic expert may truthfully reveal, may partially reveal, and may not reveal at all her information. The outcome is thus inefficient; moreover, the consumer gets some of the surplus. With a two-part tariff the expert truthfully reveals her information. The outcome is efficient and the expert appropriates the entire surplus. Truthful revelation is also the outcome if experts are competitive; here all the surplus goes to consumers.
Random Pricing: Bertrand Competition with Uncontested Consumers (Revise & Resubmit at RIO)
Abstract: Two firms offer a homogeneous product and compete in prices. Consumers are homogeneous yet differ in their access to the firms. Three groups exist, consumers, who have access to both firms, i.e., compare prices, and consumers who can only access one of the two firms and are thus uncontested. The group sizes may differ; one firm’s consumer base may be zero. No pure strategy equilibrium exists. In the mixed equilibrium, firms randomize on the same continuum of prices; in expectation, the firm with the larger consumer base plays a higher price and has a higher expected demand. We study the firms’ incentive to invest in demand, effects of price discrimination, and collusion. Moreover, we extend the model to more than two firms and discuss mergers.
Work in Progress
The Welfare Consequences of Banning Commissions in Expert Markets
with Nadia Ceschi and Noëmi Jacober
Abstract: Recently, different countries, e.g., Finland, Denmark, and the UK, have banned commissions paid by insurance companies to brokers. The commission or kickbacks give brokers a financial incentive to recommend products that may not be in the consumer's best interest. However, without the commission, brokers have to finance their business by demanding a recommendation fee. The broker's incentives are aligned with the consumer's incentive, yet, consumers may not be better off due to price effects. Moreover, we show that welfare may decrease if commissions are banned.
Abstract: The internet motivated a rise of platforms in this millennium. Digital market places collect information about buyers and sellers. Thus, there is a large menu of price instruments: A platform can charge an access fee for its users or charge transactions. Moreover, it may charge a share of the transaction price/revenue. For example, Amazon charges sellers an access or a transaction fee; eBay uses a two-part tariff consisting of an access fee combined with a revenue share. Booking.com charges a revenue share for the listed sellers; Airbnb charges buyers a revenue fee. The literature offers some explanation when buyers or sellers are charged. Yet, there is no answer to which price instruments are optimal or how this choice affects competition and consumers.