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Working Paper
Very Simple Markov-Perfect Industry Dynamics: Empirics
Tilly, Jan; Abbring, Jaap H.; Campbell, Jeffrey R.; Yang, Nan (2018-07-24)
This paper develops an econometric model of firm entry, competition, and exit in oligopolistic markets. The model has an essentially unique symmetric Markov-perfect equilibrium, which can be computed very quickly. We show that its primitives are identified from market-level data on the number of active firms and demand shifters, and we implement a nested fixed point procedure for its estimation. Estimates from County Business Patterns data on U.S. local cinema markets point to tough local competition. Sunk costs make the industry's transition following a permanent demand shock last 10 to 15 ...
Working Paper Series , Paper WP-2018-17

Working Paper
Financial Structure and Mergers
Taragin, Charles; Wallace, Benjamin; Watkins, Eddie (2025-09-19)
We study how corporate debt influences the competitive outcomes of horizontal and conglomerate mergers. In contrast to standard models where debt does not affect pricing, our framework shows that mergers can spread fixed debt obligations across a broader product portfolio, creating an "insurance effect" against adverse demand shocks. This effect interacts with the traditional recapture effect from reduced competition. Using numerical simulations and a case study of a major casino merger, we find that debt can either dampen or amplify post-merger price increases, depending on the merger's ...
Finance and Economics Discussion Series , Paper 2025-080

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
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

Working Paper
New Estimates of the Lerner Index of Market Power for U.S. Banks
Wheelock, David C.; Wilson, Paul W. (2020-02-19)
The Lerner index is widely used to assess firms' market power. However, estimation and interpretation present several challenges, especially for banks, which tend to produce multiple outputs and operate with considerable inefficiency. We estimate Lerner indices for U.S. banks for 2001-18 using nonparametric estimators of the underlying cost and profit functions, controlling for inefficiency, and incorporating banks' off-balance-sheet activities. We find that mis-specification of cost or profit functional forms can seriously bias Lerner index estimates, as can failure to account for ...
Working Papers , Paper 2019-012

Working Paper
Is Sales Tax Included in the Price? Consumer Inattention and Price Competition
Shy, Oz (2024-06-18)
Sales tax is generally not included in the advertised price quoted to consumers in the United States. In contrast, value added taxes (VAT) are embedded into the price in most other countries. This article investigates how the two different pricing structures and consumers' decision-making process affect the intensity of price competition. The two pricing structures yield identical market outcomes with fast-computing consumers who are willing and able to recompute the exact sales tax each time there is a price change. With slow-computing consumers, prices and profits are higher when sellers ...
FRB Atlanta Working Paper , Paper 2024-5

Report
Brand Reallocation and Market Concentration
Pearce, Jeremy; Wu, Liangjie (2024-08-01)
We study the interaction of customer capital and productivity through brand reallocation across firms. We develop a firm dynamics model with brands as transferable customer capital, heterogeneous firm productivity, and variable markups. We study the matching process between transferable brand capital and core productivity, which can be inefficient with significant welfare implications. We link USPTO trademark data with Nielsen sales data to study the prevalence of brand reallocation and the response of sales and prices to reallocation. Quantitatively, brand reallocation reduces welfare. ...
Staff Reports , Paper 1116

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
Oligopsonies over the Business Cycle
Pinheiro, Roberto; Monte, Daniel (2020-02-27)
With a duopsony model, we show how the degree of labor market slack relates to earnings inequality and firm size distribution across local labor markets and the business cycle. In booms, due to the high aggregate productivity, there is fierce competition with resulting high wages and full employment. During recessions, there is labor market slack and firms enjoy local market power. In periods in which the economy is moving in or out of a recession, there is an “accommodation” phase, with firms shrinking their labor forces and paying lower wages instead of competing for poached workers. We ...
Working Papers , Paper 20-06

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