Ruling Competition
Forgone Innovation: Regulation as Pruning of the Adjacent Possible
Marta Podemska-Mikluch
European Economic Review, forthcoming
Abstract:
Standard regulatory analysis tallies static costs and benefits within a fixed opportunity set. We show why that view can miss dynamic losses that arise when rules change, which combinations innovators can plausibly explore. Using the Theory of the Adjacent Possible (TAP), we model regulation as acting on three levers: (1) subtraction from the usable stock of building blocks, (2) frictions that lower the share of cross-boundary trials actually attempted, and (3) changes in the success odds of those trials. Because combinations beget combinations, even small exclusions can generate large, compounding losses as missing first steps fail to open complementary and competing niches. We develop the argument through a focused case on the EU’s USB-C mandate — showing how a regional standard propagates globally via unified SKUs, certification fixed costs, and ecosystem coordination — and illustrate generality with two conceptual vignettes in U.S. health care where payment rules define which organizational and technological recombinations are fundable, billable, and low-risk to attempt (insured cataract surgery vs. cash-pay refractive surgery; fee-for-service primary care vs. direct-primary-care subscriptions). The takeaway is analytical, not prescriptive: alongside static effects, analysts should account for forgone recombination. Analyses that ignore dynamic effects underestimate policy costs and risk crowding out experimentation, polycentric problem-solving, and market-led harm-reduction.
Trends in Competition in the United States: What Does the Evidence Show?
Carl Shapiro & Ali Yurukoglu
Journal of Political Economy Microeconomics, forthcoming
Abstract:
Has the US economy become less competitive in recent decades? One might think so, based on a body of research that has rapidly become influential for antitrust policy. We explain that the empirical evidence relating to concentration, markups, and mergers does not show a widespread decline in competition. Nor does it provide a basis for dramatic changes in antitrust policy. To the contrary, the evidence indicates that many of the trends are likely to reflect competition in action. We identify opportunities for future research in the cross-industry evidence-at-scale paradigm, the industry-specific study paradigm, and their intersection.
The Life-cycle of Concentrated Industries
Martin Beraja & Francisco Buera
NBER Working Paper, January 2026
Abstract:
Are competition policies designed for static industries suitable for innovative industries where dynamic competition for the market is key? If not, how should policies differ? We develop a model of the life-cycle of an oligopolistic industry: a version of Jovanovic and MacDonald (1994) with a finite number of firms. The equilibrium features a period of intense entry, followed by a shakeout and eventual industry concentration as some firms scale through innovation while most exit. We analyze the second-best problem of a government subsidizing small firms to promote competition. Innovation and dynamic competition do not necessarily justify intervention, as the equilibrium can still be second best. In general, the optimal policy depends on the nature of competition. Firms primarily compete for the market when innovation leads to large differences in scale. The government can wait to intervene in this case; committing to do whatever it takes to promote competition if and when the industry concentrates excessively. Subsidies early in the life-cycle are unnecessary. These results contrast with calls for aggressive ex-ante regulation in highly innovative industries, suggesting a wait-and-see approach may be preferable. We apply these insights to digital and AI industries in the U.S. using data on venture-backed firms.
When protection becomes exploitation: The impact of firing costs on naïve employees
Florian Englmaier et al.
Journal of Public Economics, February 2026
Abstract:
This paper identifies a new channel through which employment protection laws can harm workers: they enable employers to exploit naïve present-biased employees. The theoretical mechanism through which firing costs enable exploitation is built upon a widespread career structure. Employers frequently offer career trajectories with an unattractive entry phase (e.g., with low pay or high effort), an even less attractive mid-career stage, and high rewards promised in a final career phase. Naïve employees accept such contracts, expecting to complete the high-reward track. They, however, eventually drop out or sort into alternative paths mid-career when costs loom large and rewards remain distant. As a result, employers avoid paying the promised rewards while capturing surplus from early-career phases. Firing costs give employers more leeway to exploit workers with such contracts: they reduce the employees’ expected risk of dismissal and make long-term rewards appear more credible. Employers can then exploit employees even more — for example, by lowering early-career wages — knowing that employees will still accept such steeper contracts despite not following through. Our model aligns with career patterns in fields such as healthcare, academia, or accounting. It also yields testable predictions on wage structures, attrition, and how firing costs and labor market conditions shape contract design.
The Effect of Rezoning on Local Housing Supply and Demand: Evidence from New York City
Hsi-Ling Liao
Regional Science and Urban Economics, February 2026
Abstract:
As cities face housing affordability challenges, some local governments adopt land-use reforms to increase the residential development capacity in the city. This type of “upzoning” policy aims to increase housing supply and lower local housing costs, but it can also create positive amenity effects that attract high-income households to the neighborhood. This paper studies how the large-scale neighborhood upzoning in New York City between 2004 and 2013 affected local housing supply, prices, and residential mobility patterns using a difference-in-differences method. I compare upzoned areas and the adjacent areas outside the upzoned boundaries over time after compiling a parcel-level dataset that merges zoning amendment maps with microdata tracking individual address histories. I find that relaxing zoning regulations leads to increases in housing supply. There is also a modest increase in the probability of incumbent residents moving to a different neighborhood or leaving the metropolitan area, but they are not more likely to be displaced to lower-income areas. Finally, there is evidence that after the upzoning, in-migrants come from slightly higher-income neighborhoods. These results suggest that in this context, upzoning can both increase housing supply and change the composition of local residents in the neighborhood in the long term.
Business Concentration around the World: 1900-2020
Yueran Ma, Mengdi Zhang & Kaspar Zimmermann
NBER Working Paper, January 2026
Abstract:
We collect new data to document the long-run evolution of the firm size distribution in ten market-based economies in Asia, Europe, North America, and Oceania, where we can obtain comprehensive coverage of the population of firms. Around the world, we observe prevalent increases in the concentration of sales, net income, and equity capital over the past century. These trends hold in the aggregate and at the industry level. Meanwhile, employment concentration has been stable over the long run in most cases. The evidence shows that the rising dominance of large firms is a pervasive phenomenon, not limited to the recent decades or the United States, and that large firms often achieve greater scale without proportionally more workers.
Unintended Consequences of Employee Disclosure Mandates
Michael Dambra, Omri Even-Tov & Yiling Shen
University at Buffalo Working Paper, January 2026
Abstract:
In 2021, California enacted Assembly Bill 701 (AB 701), the first U.S. regulation mandating warehouse employers to disclose productivity quotas to its employees. The law was designed to enhance workplace transparency and improve employee well-being by requiring employers to provide workers with detailed information about performance expectations and disciplinary consequences. We examine the real effects of this employee-level disclosure mandate on firm investment and employment outcomes. Using county-industry data from 2015-2024, we estimate difference-in-differences regressions comparing warehouse establishments in California to those in other U.S. counties. We find that warehouse facilities, employment, and total wage growth in California decline by approximately 8-9% relative to unaffected regions following AB 701's implementation. We find similar investment shifts when we employ related industries within California not covered by AB 701 as an alternative control group. Welfare analyses suggest that AB 701 resulted in additional negative effects in terms of shareholder returns and average employee pay. Our findings show that AB 701 produced unintended consequences by reducing instate investment and labor demand. We contribute to the literature on mandatory disclosure by highlighting how targeted transparency requirements, even when pro-social in intent, can shift firms' capital and labor allocation decisions across geographic boundaries.
Competition and Certification: Theory and Evidence from the Audit Market
Heng (Griffin) Geng, Cheng Zhang & Frank Zhou
Review of Corporate Finance Studies, February 2026, Pages 269-303
Abstract:
We study how financial certifier competition influences loan contracting in the context of financial auditing. Exploiting the unexpected demise of Arthur Andersen that exogenously decreased auditor competition, we find a greater decrease in loan spread for borrowers in markets in which certifier competition declined more. Additional analyses suggest the result stems from enhanced audit quality and reduced credit risk. The effect of certifier competition is stronger for borrowers with weaker external monitoring and those generating significant revenue for their auditors. Our evidence highlights negative consequences of financial certifier competition.
Competitive disclosure of information to a rationally inattentive agent
Vasudha Jain & Mark Whitmeyer
Journal of Economic Behavior & Organization, February 2026
Abstract:
We study competitive disclosure of information on idiosyncratic product quality by two firms to a rationally inattentive consumer. Unless attention costs are low, there is an equilibrium in which the firms provide the consumer with as much information as she would process if she controlled information provision. This is not true if there is only one firm. Our main welfare result reveals a surprising implication: when attention costs are moderate, the probability that consumers select the higher-quality product can be strictly greater under costly attention than under costless attention. This finding has important implications for policy debates about information disclosure requirements and consumer protection in markets with cognitively constrained agents.
Behavior-Based Price Discrimination and Data Protection in the Age of Algorithms
Haggai Porat
Journal of Legal Studies, January 2026, Pages 129-170
Abstract:
The literature on price discrimination typically focuses on immutable features, such as higher interest rates offered to black borrowers or higher prices offered to women at car dealerships. This paper studies behavior-based pricing (BBP), which is a practice of setting prices according to consumers’ past behavior, such as prior purchases. This is becoming the predominant form of price discrimination with the rise of artificial intelligence. Unlike race-based and sex-based discrimination, with BBP consumers can strategically adjust their behavior to impact the prices they will be offered in the future, and sellers can adjust prices to increase the informational value gleaned from consumers’ behavior. This paper further identifies two key legal insights: Mandating BBP disclosure may reduce overall welfare despite decreasing informational asymmetry; and data protection laws, such as the right to erase data and the right to opt out of data collection, could increase welfare despite increasing informational asymmetry.