Research

Technologies that are equally green can yield very different gains in social welfare. I examine whether market-driven innovation in green industries follows the socially optimal technological path when firms face competing options with distinct cost structures, and explore policies that can correct potential inefficiencies in path choices. I estimate a dynamic structural model of Chinese electric vehicle (EV) battery suppliers choosing how much to innovate along two competing paths: Lithium-Ion–Ferro–Phosphate (LFP) and Nickel–Cobalt–Manganese (NCM). The analysis shows that a social planner would undertake about four times as much innovation as the market in LFP, which involves higher innovation sunk costs but delivers lower marginal costs in production. By contrast, the market innovates about twice as much as the social plan- ner in NCM, which has the opposite cost structure. I attribute this divergence primarily to vertical separation between battery suppliers and EV makers, competition between EVs, and limited demand for EVs in early years, rather than to innovation spillovers or environmental benefits that firms fail to internalize. Finally, I demonstrate how R&D subsidies could help correct the path choice inefficiency and shift innovation toward the socially preferred path.

Traditional measures of market concentration used when screening for anticom- petitive mergers, or applying structural presumptions, such as the market-level HHI, depend on the concentration of sales among non-merging rivals, as well as the shares of the merging parties. While the size of cost efficiencies needed to offset the market power effects of a merger, assuming static Nash equilibrium play both before and after a merger, depends only on the shares, characteristics and margins of the merging firms (Nocke and Whinston, 2022), we illustrate how, conditional on the shares and margins of the merging firms, rival market structure is often highly correlated with how rivals’ prices and outputs would change in response to changes in the prices or outputs of the parties, which in turn affects the profitability of mergers and the magnitude of any post-merger price and quantity changes when other efficiencies, or no efficiencies, are realized. We show that a simply calculated rival HHI measure is correlated with these changes for both price- and quantity-competition, for a variety of demand systems. We also illustrate how rival market structure can affect the incentives of a merged firm to engage in strategic behavior that may obscure the size of its realized efficiencies.

This paper examines the joint welfare effects of monopoly and monopsony power in the U.S. economy, where firms often exert market power in both product and factor markets. We develop a general equilibrium framework that captures the network of firm interactions through supply chains, product competition, and labor markets. Using data on publicly traded firms, we estimate that combined market power reduced total surplus by 5.7% in 2015. Importantly, monopoly and monopsony effects are sub-additive. Furthermore, we find that accounting for monopsony in factor markets not only exacerbates the welfare damages of hypothetical mergers but also renders Cournot competition welfare-superior to Bertrand, highlighting the nuanced interplay of dual market power.