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Working Paper
Screening and adverse selection in frictional markets
Lester, Benjamin; Venkateswaran, Venky; Shourideh, Ali; Zetlin-Jones, Ariel (2016-03-10)
We incorporate a search-theoretic model of imperfect competition into an otherwise standard model of asymmetric information with unrestricted contracts. We develop a methodology that allows for a sharp analytical characterization of the unique equilibrium and then use this characterization to explore the interaction between adverse selection, screening, and imperfect competition. On the positive side, we show how the structure of equilibrium contracts?and, hence, the relationship between an agent?s type, the quantity he trades, and the corresponding price?is jointly determined by the severity ...
Working Papers , Paper 16-10

Report
Pricing Inequality
Mongey, Simon; Waugh, Michael E. (2025-01-31)
This paper studies household inequality and product market power in dynamic, general equilibrium. In our model, households’ price elasticities of demand endogenously vary with wealth. Heterogeneous firms set their price as oligopolistic competitors given the endogenous distribution of demand. A firm’s market power varies with the distribution of demand as households with different elasticities sort into high- and low-price varieties. Under standard preferences, larger firms’ products are more appealing, sell at higher prices, to more households, and a relatively richer customer base, ...
Staff Report , Paper 664

Working Paper
Are Supply Networks Efficiently Resilient?
Capponi, Agostino; Du, Chuan; Stiglitz, Joseph E. (2024-05-28)
We show that supply networks are inefficiently, and insufficiently, resilient. Upstream firms can expand their production capacity to hedge againstsupply and demand shocks. But the social benefits of such investments arenot internalized due to market power and market incompleteness. Upstreamfirms under-invest in capacity and resilience, passing-on the costs to downstreamfirms, and drive trade excessively towards the spot markets. There isa wedge between the market solution and a constrained optimal benchmark,which persists even without rare and large shocks. Policies designed to incentivize ...
Finance and Economics Discussion Series , Paper 2024-031

Working Paper
Market Integration and Bank Risk-Taking
Dam, Kaniska; Sengupta, Rajdeep (2020-12-30)
Using a workhorse model of bank competition and risk-taking, we show that increased competition from market integration affects bank risk-taking in ways beyond a simple increase in the number of competitor banks. Research has shown that increased competition in the form of an increase in the number of competitor banks can reduce risk-taking—the bank-competitor effect. Market integration not only increases the number of banks, but also the number of potential customers (depositors and borrowers) available to each bank. Increases in the potential customer base induces banks to behave more ...
Research Working Paper , Paper RWP 20-21

Working Paper
Screening and Adverse Selection in Frictional Markets
Lester, Benjamin; Venkateswaran, Venky; Shourideh, Ali; Zetlin-Jones, Ariel (2017-10-10)
We incorporate a search-theoretic model of imperfect competition into a standard model of asymmetric information with unrestricted contracts. We characterize the unique equilibrium, and use our characterization to explore the interaction between adverse selection, screening, and imperfect competition. We show that the relationship between an agent?s type, the quantity he trades, and the price he pays is jointly determined by the severity of adverse selection and the concentration of market power. Therefore, quantifying the effects of adverse selection requires controlling for market ...
Working Papers , Paper 17-35

Working Paper
Beyond "Horizontal" and "Vertical": The Welfare Effects of Complex Integration
Loudermilk, Margaret; Sheu, Gloria; Taragin, Charles (2023-01-18)
We study the welfare impacts of mergers in markets where some firms are already vertically integrated. Our model features logit Bertrand competition downstream and Nash Bargaining upstream. We numerically simulate four merger types: vertical mergers between an unintegrated retailer and an unintegrated wholesaler, downstream "horizontal" mergers between an unintegrated retailer and an integrated retailer/wholesaler, upstream "horizontal" mergers between an unintegrated wholesaler and an integrated retailer/wholesaler, and integrated mergers between two integrated retailer/wholesaler pairs. We ...
Finance and Economics Discussion Series , Paper 2023-005

Working Paper
Very Simple Markov-Perfect Industry Dynamics
Abbring, Jaap H.; Campbell, Jeffrey R.; Tilly, Jan; Yang, Nan (2013-11-30)
This paper develops an econometric model of industry dynamics for concentrated markets that can be estimated very quickly from market-level panel data on the number of producers and consumers using a nested fixed-point algorithm. We show that the model has an essentially unique symmetric Markov-perfect equilibrium that can be calculated from the fixed points of a finite sequence of low-dimensional contraction mappings. Our nested fixed point procedure extends Rust's (1987) to account for the observable implications of mixed strategies on survival. We illustrate the model's empirical ...
Working Paper Series , Paper WP-2013-20

Working Paper
Customer Capital, Markup Cyclicality, and Amplification
Hong, Sungki (2017-04-30)
This paper studies the importance of firm-level price markup dynamics for business cycle fluctuations. Using state-of-the-art IO techniques to measure the behavior of markups over the business cycle at the firm level, I find that markups are countercyclical with an average elasticity of -1.1 with respect to real GDP. Importantly, I find substantial heterogeneity in markup cyclicality across firms, with small firms having significantly more counter-cyclical markups than large firms. Then, I develop a general equilibrium model by embedding customer capital (due to deep habits as in Ravn, ...
Working Papers , Paper 2017-33

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