Codes and Guidelines
Is the Price Right? The Role of Economic Trade-Offs in Explaining Reactions to Price Surges
Julio Elías, Nicola Lacetera & Mario Macis
Management Science, forthcoming
Abstract:
Public authorities often introduce price controls following price surges, potentially causing inefficiencies and exacerbating shortages. A survey experiment with 7,612 Canadian and U.S. respondents shows that unregulated price surges raise moral objections and widespread disapproval. However, acceptance increases and demand for regulation declines when participants are prompted to consider economic trade-offs between controlled and unregulated prices, whereby incentives from higher prices lead to additional supply and enhance access to goods. Moreover, highlighting these trade-offs reduces polarization in moral judgments between supporters and opponents of unregulated pricing. Textual analysis of responses to open-ended questions provides further insights into our findings, and an incentivized donation task demonstrates consistency between stated preferences and real-stakes behavior. Although economic trade-offs do influence public support for price control policies, the evidence indicates that even when the potential gains in economic efficiency from unregulated prices are explicit, a significant divide persists between the utilitarian views that standard economic thinking implies and the nonutilitarian values held by the general population.
How Populism Persists: Internal Migration and Economic Shocks
Thomas Flaherty
Texas A&M University Working Paper, June 2025
Abstract:
Why does populism sometimes persist across time and space? I argue that economic shocks generate lasting political pressures favoring populists only where residents face high barriers to emigration. In contrast, depressed regions with greater mobility recover economically and politically. I introduce original measures of internal migration using address changes in IRS tax returns and regional variation in housing relocation costs. Exploiting the 1994 Peso Crisis as an exogenous trade shock to U.S. local economies, I show that trade exposure lastingly increased populist vote shares from 1996 to 2016 -- but only where emigration was constrained. Limited emigration due to housing affordability was especially linked to enduring populism, while areas with more mobile populations experienced faster employment and wage recovery and a shorter-lived backlash. Placebo tests rule out compositional effects of emigration. These findings identify migration barriers as a key intensifier of globalization's electoral effects and help explain the often durable geographic roots of populist movements.
Economics or Populism? The Battle for the Future of Antitrust
Erik Hovenkamp
University of Chicago Law Review, forthcoming
Abstract:
Mainstream antitrust policy is grounded in economics and views the protection of competition as antitrust’s singular goal. But the populist “antimonopoly movement” believes antitrust should focus less on economic issues and more on the political influence of large firms. While the courts have long embraced the economic approach to antitrust, antimonopolists have recently gained some support in politics. This battle of ideas is therefore poised to determine the future of antitrust. Antitrust law currently suffers from a number of problems, but the antimonopoly movement does not offer serious solutions. On the contrary, by deemphasizing tangible economic harms in favor of abstract political concerns, it would cause immense economic damage -- higher prices, reduced innovation and growth, and fewer jobs. Antitrust populism is grounded in the moralistic belief that large companies are inherently detrimental to society, overlooking the fact that most big firms are big precisely because they have provided significant economic value to the public. Rather than punishing bigness for its own sake, antitrust should focus on proscribing anticompetitive behavior and ensuring all firms can compete on a level playing field. As for the populist movement’s political objectives, they are too vague and too remote to provide any guidance on real-world competition issues. And they rest on an empirically unsupported link between firm size and political influence. Bodies of law that directly regulate political activity (e.g. campaign finance law) are far better suited to address these concerns. Reducing market concentration is also unlikely to curb firms’ political influence, because firms have a constitutional right to collectivize their advocacy and lobbying, which they frequently do through trade organizations.
Fair Lending in Car Financing: Unintended Racial Consequences of CFPB Supervision of Dealer Markups
Cheng He, Cem Ozturk & Pradeep Chintagunta
Journal of Marketing Research, forthcoming
Abstract:
Over 80% of car buyers in the U.S. obtain a loan through a dealership. Dealers often mark up lender-provided interest rates (buy rates), but consumers cannot distinguish these markups from total rates. In September 2014, the Consumer Financial Protection Bureau made an unprecedented public disclosure regarding its supervision of auto lenders, revealing racial disparities in dealer markups disadvantaging minority borrowers. The Bureau strongly recommended–but did not mandate–that lenders providing loans through dealers eliminate dealer discretion in markups by adopting flat dealer compensation per transaction. We examine the effectiveness of this intervention, referred to as the “supervisory highlights,” in reducing consumer financing and car payments and the racial gap. Using detailed, individual transaction-level data and a regression-discontinuity-in-time design, we find that dealer markups declined by 5.55 basis points (29.32%) after the intervention, saving $66.60 for a typical loan. However, the intervention also increased buy rates, resulting in no significant changes to consumers’ total interest rates and total payments. Dealers experienced a slight increase in financing profits but no significant change in vehicle profits. Importantly, the racial gap in dealer markups and total interest rates widened; dealer markups decreased for both minorities and non-minorities, but they decreased more for non-minorities. Our findings can inform policymakers, lenders, consumers, and dealers about the intended and unintended consequences of such government oversight and provide insights into their underlying mechanisms.
The impact of renter protection policies on rental housing discrimination
Marina Mileo Gorzig & Deborah Rho
Contemporary Economic Policy, forthcoming
Abstract:
We examine the impact of a policy that reduces information about rental housing applicants on racial discrimination. We submitted fictitious email inquiries to publicly advertised rentals using names manipulated on perceived race and ethnicity before and after a policy that restricted the use of background checks, eviction history, income minimums, and credit history in rental housing applications in Minneapolis. After the policy was implemented, discrimination against African American and Somali American men increased. Triple difference analysis shows that discrimination increased in Minneapolis relative to St. Paul after the policy.
Digital Media Mergers: Theory and Application to Facebook-Instagram
Justin Katz & Hunt Allcott
NBER Working Paper, July 2025
Abstract:
We present a new model of competition between digital media platforms with targeted advertising. The model adds new insights around how user heterogeneity and overlap, along with user and advertiser substitution patterns, determine equilibrium ad load. We apply the model to evaluate the proposed separation of Facebook and Instagram. We estimate structural parameters using evidence on diminishing returns to advertising from a new randomized experiment and information on user overlap, diversion ratios, and price elasticity from earlier experiments. In counterfactual simulations, a Facebook-Instagram separation increases ad loads, transferring surplus from platforms and users to advertisers, with limited total surplus effects.
Dynamic Pricing Regulation and Welfare in Insurance Markets
Naoki Aizawa & Ami Ko
Journal of Political Economy, August 2025, Pages 2371-2413
Abstract:
While the traditional role of insurers is to provide protection against individuals’ idiosyncratic risks, insurers themselves face substantial uncertainties due to aggregate shocks. To prevent insurers from passing these aggregate risks onto consumers, governments have increasingly adopted dynamic pricing regulations, which limit insurers’ ability to change premiums over time. We evaluate dynamic pricing regulation using an equilibrium model of the US long-term care insurance market, featuring insurers’ lack of commitment and endogenous market structures. We find that stricter dynamic pricing regulation has a limited impact on improving consumer welfare, while it reduces insurer profits and increases market concentration.
Zoning Reforms and Housing Affordability: Evidence from the Minneapolis 2040 Plan
Helena Gu & David Munro
Middlebury College Working Paper, July 2025
Abstract:
In December 2018, Minneapolis became the first U.S. city to eliminate single-family zoning through the Minneapolis 2040 Plan, a landmark reform with a central focus on improving housing affordability. This paper estimates the effect of the Minneapolis 2040 Plan on home values and rental prices. Using a synthetic control approach we find that the reform lowered housing cost growth in the five years following implementation: home prices were 16% to 34% lower, while rents were 17.5% to 34% lower relative to a counterfactual Minneapolis constructed from similar metro areas. Placebo tests document these housing cost trajectories were the lowest of 83 donor cities (p=0.012). The results remain consistent and robust to a series of subset analyses and controls. We explore the possible mechanism of these impacts and find that the reform did not trigger a construction boom or an immediate increase in the housing supply. Instead, the observed price reductions appear to stem from a softening of housing demand, likely driven by altered expectations about the housing market.
Competition Enforcement and Accounting for Intangible Capital
John Kepler, Charles McClure & Christopher Stewart
University of Chicago Working Paper, June 2025
Abstract:
Antitrust laws mandate review of mergers and acquisitions (M&A) when the book value of acquired assets exceeds a specified threshold. However, these policies overlook the fact that accounting standards do not allow firms to recognize most intangible capital as assets. We show this omission leads to thousands of acquisitions of intangible capital-intensive firms being nonreportable to antitrust authorities. Acquirers in nonreportable deals achieve higher equity values and price markups, especially when consolidating overlapping product markets. We also show nonreportable deals in pharmaceutical markets are about three times more likely to consolidate overlapping drug projects and acquirers are 40% more likely to terminate these overlapping projects. Our results suggest the growth of intangible assets may exacerbate market power through nonreportable consolidation of the sectors most concerning for consumers.
The Effect of Airbnb on Housing Prices: Evidence from the 2017 Solar Eclipse
Denvil Duncan & Justin Ross
Indiana University Working Paper, July 2025
Abstract:
This study uses the 2017 solar eclipse as a natural experiment to estimate the causal impact of Airbnb on housing prices. The eclipse created a temporary demand shock for short-term rentals, inducing a persistent increase in Airbnb supply. Our IV/2SLS estimates show that a 1% increase in Airbnb listings increases housing prices by 0.037-0.043%. We show that this effect is driven by an increase in homeowners' willingness-to-accept (WTA) as they monetize excess housing capacity. This WTA effect, distinct from demand-driven displacement, suggests that even partial bans on investor listings may have limited impact on affordability.
Algorithmic Coercion with Faster Pricing
Zach Brown & Alexander MacKay
NBER Working Paper, July 2025
Abstract:
We examine a model in which one firm uses a pricing algorithm that enables faster pricing and multi-period commitment. We characterize a coercive equilibrium in which the algorithmic firm maximizes its profits subject to the incentive compatibility constraint of its rival. By adopting an algorithm that enables faster pricing and (imperfect) commitment, a firm can unilaterally induce substantially higher equilibrium prices even when its rival maximizes short-run profits and cannot collude. The algorithmic firm can earn profits that exceed its share of collusive profits, and coercive equilibrium outcomes can be worse for consumers than collusive outcomes. In extensions, we incorporate simple learning by the rival, and we explore the implications for platform design.
Algorithmic Collusion of Pricing and Advertising on E-commerce Platforms
Hangcheng Zhao & Ron Berman
University of Pennsylvania Working Paper, November 2024
Abstract:
Online sellers have been adopting AI learning algorithms to automatically make product pricing and advertising decisions on e-commerce platforms. When sellers compete using such algorithms, one concern is that of tacit collusion-the algorithms learn to coordinate on higher than competitive prices which increase sellers' profits, but hurt consumers. This concern, however, was raised primarily when sellers use algorithms to decide on prices. We empirically investigate whether these concerns are valid when sellers make pricing and advertising decisions together, i.e., two-dimensional decisions. Our empirical strategy is to analyze competition with multi-agent reinforcement learning, which we calibrate to a large-scale dataset collected from Amazon.com products. Our first contribution is to find conditions under which learning algorithms can facilitate win-win-win outcomes that are beneficial for consumers, sellers, and even the platform, when consumers have high search costs. In these cases the algorithms learn to coordinate on prices that are lower than competitive prices. The intuition is that the algorithms learn to coordinate on lower advertising bids, which lower advertising costs, leading to lower prices for consumers and enlarging the demand on the platform. Our second contribution is an analysis of a large-scale, high-frequency keyword-product dataset for more than 2 million products on Amazon.com. Our estimates of consumer search costs show a wide range of costs for different product keywords. We generate an algorithm usage index based on the correlation patterns in prices and find a negative interaction between the estimated consumer search costs and the algorithm usage index, providing empirical evidence of beneficial collusion. We predict that in more than 50% of the product markets, consumers benefit from tacit collusion facilitated by algorithms. We also provide a proof that our results do not depend on the specific reinforcement learning algorithm that we analyzed. They would generalize to any learning algorithm that uses price and advertising bid exploration. Finally, we analyze the platform's strategic response through adjusting the ad auction reserve price or the sales commission rate. We find that reserve price adjustments will not increase profits for the platform, but commission adjustments will, while maintaining the beneficial outcomes for both sellers and consumers. Our analyses help alleviate some worries about the potentially harmful effects of competing learning algorithms, and can help sellers, platforms and policymakers to decide on whether to adopt or regulate such algorithms.