Michele Fioretti

Assistant Professor
​Department of Economics
Sciences Po

email michele.fioretti@sciencespo.fr
cv pdf

Working Papers / List papers by topic

Concentration and Markups in International Trade
with Vanessa Alviarez, Ken Kikkawa and Monica Morlacco
pdf soon / abstract

Abstract: We study the relationship between industry concentration and aggregate markups in a model of firm-to-firm trade with two-sided market power. Theoretically, we show that the aggregate markup in an import market is a linear function of two concentration measures: it increases in the average Herfindhal index (HHI) of the exporters and it decreases in the average (modified) HHI of the importers in that market. We measure these concentration measures for Colombian imports during 2010-2020, show that they are correlated to aggregate import prices in ways predicted by the model, and discuss the implied evolution of aggregate markups. Compared to standard models where supplier concentration is the only relevant statistic, accounting for two-sided concentration and market power yields a richer picture around the evolution of aggregate markups in international trade.
Presentations: ASSA 2023

Capturing Subsidies or Storing Carbon: Evidence from the North Sea
with Alessandro Iaria, Aljoscha Janssen, Clément Mazet-Sonilhac and Robert K. Perrons
pdf soon

Innovation Begets Innovation and Concentration: The Case of Upstream Oil & Gas in the North Sea
with Alessandro Iaria, Aljoscha Janssen, Clément Mazet-Sonilhac and Robert K. Perrons
arXiv / ssrn / abstract

Abstract: We investigate the effect of technology adoption on competition by leveraging a unique dataset on production, costs, and asset characteristics for North Sea upstream oil & gas companies. Relying on heterogeneity in the geological suitability of fields and a landmark decision of the Norwegian Supreme Court that increased the returns of capital investment in Norway relative to the UK, we show that technology adoption increases market concentration. Firms with prior technology-specific know-how specialize more in fields suitable for the same technology but also invest more in high-risk-high-return fields (e.g., ultra-deep recovery), diversifying their technology portfolio and ultimately gaining larger shares of the North Sea market. Our analyses illustrate how technology adoption can lead to market concentration both directly through specialization and indirectly via experimentation.

Return to Scale in Decentralized Markets: Evidence from Mastodon
with Mathias Dachert and Alessandro Iaria
pdf soon

Saving for a Dry Day: Coal, Dams and the Energy Transition
with Jorge Tamayo
pdf (new version out soon) / abstract

Abstract: Renewable generation creates a tradeoff between current and future energy production as generators produce energy by releasing previously stored resources. Studying the Colombian market, we find that diversified firms strategically substitute fossil fuels for hydropower before droughts. This substitution mitigates the surge in market prices due to the lower hydropower capacity available during dry periods. Diversification can increase prices, instead, if it results from mergers steepening a firm's residual demand. Thus, integrating production technologies within firms can smooth the clean-energy transition by offsetting higher prices during scarcity periods if the unaffected technologies help store renewables more than exercise market power.

The Shared Cost of Pursuing Shareholder Value
with Victor Saint-Jean and Simon Smith
arXiv / abstract

Abstract: Using quasi-experimental variations from the timing of firms' Annual General Meetings (AGMs), we propose a portable framework to infer shareholders' preferences and influences on firms' prosocial decisions and apply it to covid-related donations, recent private sanctions on Russia, and firms' prosocial stances over 2011-21. Image gains from AGMs' media exposure drive shareholders synonymous with a firm, like closely-connected individuals, to support costly prosocial changes, while others, like financial corporations, oppose them. Influence supporting these changes lowers earnings by 3\%: pursuing the values of (some) shareholders has distributional costs, which the monitoring of large shareholders motivated by heterogeneous preferences could prevent.

Two-Sided Market Power in Firm-to-Firm Trade
with Vanessa Alviarez, Ken Kikkawa and Monica Morlacco
R&R at American Economic Review
pdf / NBER wp / abstract

Abstract: We develop a quantitative theory of prices in firm-to-firm trade with bilateral negotiations and two-sided market power. Markups reflect oligopoly and oligopsony forces, with relative bargaining power as weight. Cost pass-through elasticities into import prices can be incomplete or complete, depending on the exporter's and importer's bargaining power and market shares. In U.S. import data, we find that U.S. importers have substantial market power and disproportionate leverage in price negotiations. The estimated model produces accurate predictions of the impact of Trump tariffs on pair-level prices. At the aggregate level, ignoring two-sided market power could exaggerate tariff pass-through by about 60%.

Published & Forthcoming Papers
Performance Pay in Insurance Markets: Evidence from Medicare
with Hongming Wang
Review of Economics and Statistics, 2023, 105.5: 1128–1144
Policy Research Award at INFER 2020 / Media: VoxEU
pdf / gated / abstract

Abstract: Public procurement bodies increasingly resort to pay-for-performance contracts to promote efficient spending. We show that firm responses to pay-for-performance can widen the inequality in accessing social services. Focusing on the quality bonus payment initiative in Medicare Advantage, we find that higher quality-rated insurers responded to bonus payments by selecting healthier enrollees with premium differences across counties. Selection is profitable because the quality rating fails to adjust for differences in enrollee health. Selection inflated the bonus payments and shifted the supply of high-rated insurance to the healthiest counties, reducing access to lower-priced, higher-rated insurance in the riskiest counties.

Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare
Journal of Political Economy, 2022, 130.11: 2771-3024
Prix Malinvaud 2023 / Best Paper Award at EEA-ESEM 2018 / Media: carenews.com
pdf / gated / abstract

Abstract: Many firms claim that "social impact" influences their strategies. This paper develops a structural model that quantifies social impact as the sum of surpluses to a firm and its stakeholders. With data from a for-profit firm whose prosocial expenditures are measurable and salient to consumers, the analysis shows that the firm spends prosocially beyond profit maximization, thereby increasing welfare substantially. Incentivizing a standard profit-maximizing firm to behave similarly would require subsidies amounting to 58% of its prosocial expenditures because consumers’ willingness to pay is relatively inelastic to prosocial expenses. Therefore, social impact resembles a self-imposed welfare-enhancing tax with limited pass-through.

Dynamic Regret Avoidance
with Giorgio Coricelli and Sasha Vostroknutov
AEJ: Microeconomics, 2022, 14.2: 70-93
ssrn / gated / abstract

Abstract: In a stock market experiment we examine how regret avoidance influences the decision to sell an asset while its price changes over time. Participants know beforehand whether they will observe the future prices after they sell the asset or not. Without future prices participants are affected only by regret about previously observed high prices (past regret), but, when future prices are available, they also avoid regret about expected after-sale high prices (future regret). Moreover, as the relative sizes of past and future regret change, participants dynamically switch between them. This demonstrates how multiple reference points dynamically influence sales.

Suboptimal Dishonesty: Rationality in the Absence of Strategic Behavior in Honesty Experiments
with Sean Marden
The Journal of Neuroscience, 2015, 35.5: 1817-1818
pdf / gated

Social Impact: Profit Maximization, Firms' Objectives, and Welfare / List papers by status

The Shared Cost of Pursuing Shareholder Value
with Victor Saint-Jean and Simon Smith
arXiv / abstract

Abstract: Using quasi-experimental variations from the timing of firms' Annual General Meetings (AGMs), we propose a portable framework to infer shareholders' preferences and influences on firms' prosocial decisions and apply it to covid-related donations, recent private sanctions on Russia, and firms' prosocial stances over 2011-21. Image gains from AGMs' media exposure drive shareholders synonymous with a firm, like closely-connected individuals, to support costly prosocial changes, while others, like financial corporations, oppose them. Influence supporting these changes lowers earnings by 3\%: pursuing the values of (some) shareholders has distributional costs, which the monitoring of large shareholders motivated by heterogeneous preferences could prevent.

Performance Pay in Insurance Markets: Evidence from Medicare
with Hongming Wang
Review of Economics and Statistics, 2023, 105.5: 1128–1144
Policy Research Award at INFER 2020 / Media: VoxEU
pdf / gated / abstract

Abstract: Public procurement bodies increasingly resort to pay-for-performance contracts to promote efficient spending. We show that firm responses to pay-for-performance can widen the inequality in accessing social services. Focusing on the quality bonus payment initiative in Medicare Advantage, we find that higher quality-rated insurers responded to bonus payments by selecting healthier enrollees with premium differences across counties. Selection is profitable because the quality rating fails to adjust for differences in enrollee health. Selection inflated the bonus payments and shifted the supply of high-rated insurance to the healthiest counties, reducing access to lower-priced, higher-rated insurance in the riskiest counties.

Caring or Pretending to Care? Social Impact, Firms' Objectives, and Welfare
Journal of Political Economy, 2022, 130.11: 2771-3024
Prix Malinvaud 2023 / Best Paper Award at EEA-ESEM 2018 / Media: carenews.com
pdf / gated / abstract

Abstract: Many firms claim that "social impact" influences their strategies. This paper develops a structural model that quantifies social impact as the sum of surpluses to a firm and its stakeholders. With data from a for-profit firm whose prosocial expenditures are measurable and salient to consumers, the analysis shows that the firm spends prosocially beyond profit maximization, thereby increasing welfare substantially. Incentivizing a standard profit-maximizing firm to behave similarly would require subsidies amounting to 58% of its prosocial expenditures because consumers’ willingness to pay is relatively inelastic to prosocial expenses. Therefore, social impact resembles a self-imposed welfare-enhancing tax with limited pass-through.

Production Technologies: Innovation Adoption, Production Technologies, and Environmental Implications
Capturing Subsidies or Storing Carbon: Evidence from the North Sea
with Alessandro Iaria, Aljoscha Janssen, Clément Mazet-Sonilhac and Robert K. Perrons
pdf soon

Innovation Begets Innovation and Concentration: The Case of Upstream Oil & Gas in the North Sea
with Alessandro Iaria, Aljoscha Janssen, Clément Mazet-Sonilhac and Robert K. Perrons
arXiv / ssrn / abstract

Abstract: We investigate the effect of technology adoption on competition by leveraging a unique dataset on production, costs, and asset characteristics for North Sea upstream oil & gas companies. Relying on heterogeneity in the geological suitability of fields and a landmark decision of the Norwegian Supreme Court that increased the returns of capital investment in Norway relative to the UK, we show that technology adoption increases market concentration. Firms with prior technology-specific know-how specialize more in fields suitable for the same technology but also invest more in high-risk-high-return fields (e.g., ultra-deep recovery), diversifying their technology portfolio and ultimately gaining larger shares of the North Sea market. Our analyses illustrate how technology adoption can lead to market concentration both directly through specialization and indirectly via experimentation.

Return to Scale in Decentralized Markets: Evidence from Mastodon
with Mathias Dachert and Alessandro Iaria
pdf soon

Saving for a Dry Day: Coal, Dams and the Energy Transition
with Jorge Tamayo
pdf (new version out soon) / abstract

Abstract: Renewable generation creates a tradeoff between current and future energy production as generators produce energy by releasing previously stored resources. Studying the Colombian market, we find that diversified firms strategically substitute fossil fuels for hydropower before droughts. This substitution mitigates the surge in market prices due to the lower hydropower capacity available during dry periods. Diversification can increase prices, instead, if it results from mergers steepening a firm's residual demand. Thus, integrating production technologies within firms can smooth the clean-energy transition by offsetting higher prices during scarcity periods if the unaffected technologies help store renewables more than exercise market power.

Trade & IO: Pricing Along the Global Value Chain
Concentration and Markups in International Trade
with Vanessa Alviarez, Ken Kikkawa and Monica Morlacco
pdf soon / abstract

Abstract: We study the relationship between industry concentration and aggregate markups in a model of firm-to-firm trade with two-sided market power. Theoretically, we show that the aggregate markup in an import market is a linear function of two concentration measures: it increases in the average Herfindhal index (HHI) of the exporters and it decreases in the average (modified) HHI of the importers in that market. We measure these concentration measures for Colombian imports during 2010-2020, show that they are correlated to aggregate import prices in ways predicted by the model, and discuss the implied evolution of aggregate markups. Compared to standard models where supplier concentration is the only relevant statistic, accounting for two-sided concentration and market power yields a richer picture around the evolution of aggregate markups in international trade.
Presentations: ASSA 2023

Two-Sided Market Power in Firm-to-Firm Trade
with Vanessa Alviarez, Ken Kikkawa and Monica Morlacco
R&R at American Economic Review
pdf / NBER wp / abstract

Abstract: We develop a quantitative theory of prices in firm-to-firm trade with bilateral negotiations and two-sided market power. Markups reflect oligopoly and oligopsony forces, with relative bargaining power as weight. Cost pass-through elasticities into import prices can be incomplete or complete, depending on the exporter's and importer's bargaining power and market shares. In U.S. import data, we find that U.S. importers have substantial market power and disproportionate leverage in price negotiations. The estimated model produces accurate predictions of the impact of Trump tariffs on pair-level prices. At the aggregate level, ignoring two-sided market power could exaggerate tariff pass-through by about 60%.

Behavioral Economics: Behavioral Agents and Dynamic Decision Making
Dynamic Regret Avoidance
with Giorgio Coricelli and Sasha Vostroknutov
AEJ: Microeconomics, 2022, 14.2: 70-93
ssrn / gated / abstract

Abstract: In a stock market experiment we examine how regret avoidance influences the decision to sell an asset while its price changes over time. Participants know beforehand whether they will observe the future prices after they sell the asset or not. Without future prices participants are affected only by regret about previously observed high prices (past regret), but, when future prices are available, they also avoid regret about expected after-sale high prices (future regret). Moreover, as the relative sizes of past and future regret change, participants dynamically switch between them. This demonstrates how multiple reference points dynamically influence sales.

Suboptimal Dishonesty: Rationality in the Absence of Strategic Behavior in Honesty Experiments
with Sean Marden
The Journal of Neuroscience, 2015, 35.5: 1817-1818
pdf / gated

Teaching
Applied Data Analysis for Public Policy / Sciences Po, MPA / Fall 2023 / material
The Economics of Industry / London School of Economics, MSc Economics / Spring 2024
Managerial Economics / Sciences Po, Master in International Business and Sustainability / syllabus
Public Economics / Sciences Po, graduate
Sustainable Businesses and Moral Markets / Sciences Po, graduate, Common Academic Curriculum / Fall 2023 / syllabus