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on Industrial Competition |
| By: | Christiaan Behrens (VU University Amsterdam); Mark Lijesen (VU University Amsterdam) |
| Abstract: | This article analyses the capacity-then-price game for a duopoly market. We add to the literature by explicitly taking product differentiation into account. We study the impact of capacity costs, demand uncertainty, and vertical and horizontal product differentiation on equilibrium capacities, efficiency, and price dispersion. We identify a minimum degree of vertical product differentiation, relative to horizontal product differentiation, for which the subgame perfect Nash equilibrium in pure strategies is guaranteed to exist. We find that if firms' quality differences exactly offset cost differences, asymmetric outcomes in the capacity stage arise, with the low-cost, low-quality firm providing more capacity than its competitor. We show that the highest level of efficiency is reached at the degree of vertical product differentiation where it would be optimal for welfare if firms had equal capacities. Furthermore, our model provides an explanation for ambiguous results in empirical research on price dispersion. |
| Keywords: | Price competition, Capacity choice, Demand uncertainty, Product differentiation, Price dispersion |
| JEL: | D43 L11 L13 |
| Date: | 2012–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012113&r=com |
| By: | Yukihiko Funaki (Waseda University); Harold Houba (VU University Amsterdam); Evgenia Motchenkova (VU University Amsterdam) |
| Abstract: | We consider price-fee competition in bilateral oligopolies with perfectly-divisible goods, non-expandable infrastructures, concentrated agents on both sides, and constant marginal costs. We define and characterize stable market outcomes. Buyers exclusively trade with the supplier with whom they achieve maximal bilateral joint welfare. Prices equal marginal costs. Threats to switch suppliers set maximal fees. These also arise from a negotiation model that extends price competition. Competition in both prices and fees necessarily emerges. It improves welfare compared to price competition, but consumer surpluses do not increase. The minimal infrastructure achieving maximal aggregate welfare differs from the one that protects buyers most. |
| Keywords: | Assignment Games, Infrastructure, Negotiations, Non-linear pricing, Market Power, Countervailing power |
| JEL: | C78 L10 L14 D43 R10 |
| Date: | 2012–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012139&r=com |
| By: | Jose L. Moraga-Gonzalez (VU University Amsterdam); Vaiva Petrikaite (University of Groningen) |
| Abstract: | This paper studies the incentives to merge in a Bertrand competition model where firms sell differentiated products and consumers search for satisfactory deals. In the pre-merger symmetric equilibrium, the probability that a firm is the next one to be visited by a consumer is equal across firms not yet visited. However, in the short-run after a merger, because insiders raise their prices more than what the outsiders do, consumers start searching for good deals at the non-merging stores. Only when they do not find any product satisfactory enough, they continue searching at the merging stores. When search costs are sufficiently large, consumer traffic from the non-merging firms to the merged ones is so small that mergers become unprofitable. This new merger paradox,which is more likely the higher the number of non-merging firms, can be overcome in the mediumto long-run if the merging firms choose to stock their shelves with all the products of the constituent firms, which generates sizable search economies. Such demand-side economies can confer the merging firms a prominent position in the marketplace, in which case their price may even be lower than the price of the outsiders. In that case, consumers visit first the merged entity and the firms outside the merger lose out. Search cost economies may render a merger beneficial for consumers and so overall welfare may increase. |
| Keywords: | mergers, insiders, outsiders, short-run, long-run, consumer search, demand-side economies, economies of search, order of search, sequential search, prominence |
| JEL: | D40 D83 L13 |
| Date: | 2012–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012017&r=com |
| By: | Paolo Bertoletti (Department of Economics and Management, University of Pavia); Federico Etro (Department of Economics, University of Venice Ca' Foscari) |
| Abstract: | We study monopolistic competition under indirect additivity of preferences. This is dual to the Dixit-Stiglitz model, where direct additivity is assumed, with the CES case as the only common ground. Other examples include (perceived) demand functions that are exponential or linear. Our equilibrium results are generally in contrast with those received by the literature. An increase of the number of consumers never affects prices and firms’ size, but increases proportionally the number of firms, creating pure gains from variety. An increase in individual income increases prices (and more than proportionally the number of varieties) and reduces firms’ size if and only if the price elasticity of demand is increasing. We also study the endogenous market structure with Bertrand competition (in which a pro-competitive effect of market size arises) and the case for inefficient entry. |
| Keywords: | Monopolistic competition, Indirect additivity, Dixit-Stiglitz model, Endogenous entry |
| JEL: | D11 D43 L11 F12 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0043&r=com |
| By: | Torbenko, Alexander |
| Abstract: | The paper considers the line city model of spatial competition with the exogenous Stackelberg competition. With low transport costs, firms' equilibrium locations are in the center of the market. The leader profit is twice as big as the follower's profit, the price is minimum and the quantity is maximum in the center of the market. With high transport costs, firms are differentiated and the market splits into two submarkets. Both the leader and the follower sell the largest share of their goods near their location. The price is minimum in the leader's location. Then transport costs are rising, while the price is increasing and the quantity of goods is decreasing. |
| Keywords: | пространственная конкуренция; олигополия Штакельберга; модель линейного города Хотеллинга |
| JEL: | C31 D43 L13 |
| Date: | 2013–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:46921&r=com |
| By: | Jose Luis Moraga-Gonzalez (University of Groningen); Matthijs R. Wildenbeest (Erasmus University Rotterdam) |
| Abstract: | In a recent paper Hong and Shum [2006. Using price distributions to estimate search costs. Rand Journal of Economics 37, 257–275] present a structural method to estimate search cost distributions. We extend their approach to the case of oligopoly and present a new maximum likelihood method to estimate search costs. We apply our method to a data set of online prices for different computer memory chips. The estimates suggest that the consumer population can be roughly split into two groups which either have quite high or quite low search costs. Search frictions confer a significant amount of market power to the firms: Despite more than 20 firms operating in each of the markets, we estimate price-cost margins to be around 25%. The paper also illustrates how the structural method can be employed to simulate the effects of the introduction of a sales tax. <P> This discussion paper has resulted in a publication in the <A HREF="http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V64-4P59XD2-1&_user=499884&_coverDate=07%2F31%2F2008&_rdoc=4&_fmt=high&_orig=browse&_srch=doc-info(%23toc%235804%232008%23999479994%23691064%23FLA%23display%23Volume)&_cdi=5804&_sort=d&_docanchor=&_ct=8&_acct=C000024499&_version=1&_urlVersion=0&_userid=499884&md5=72c5b07d36fc7bd6459fb38121d60294"><I>European Economic Review</I></A>, 2008, 52(5), 820-48. |
| Keywords: | consumer search; oligopoly; price dispersion; structural estimation; maximum likelihood |
| JEL: | C14 D43 D83 L13 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:0000019&r=com |
| By: | Jeroen Hinloopen (University of Amsterdam); Grega Smrkolj (University of Amsterdam); Florian Wagener (University of Amsterdam) |
| Abstract: | We examine the trade-off between the benefits of allowing firms to cooperate in R&D and the corresponding increased potential for product market collusion. For that we utilize a dynamic model of R&D whereby we consider all possible initial marginal cost levels (technologies), including those that exceed the choke price. This global analysis yields four possibilities: initial marginal costs are above the choke price and this technology is, or is not, developed further, and initial marginal costs are below the choke price and the technology is, or is not, (eventually) taken off the market. We show that an extension of the cooperative agreement towards collusion in the product market is not necessarily welfare reducing: if firms collude, they (i) develop further a wider range of initial technologies, (ii) invest more in R&D such that process innovations are pursued more quickly, and (iii) abandon the technology for a smaller set of initial marginal costs. We also dis cuss the implications of our analysis for antitrust policy. |
| Keywords: | Antitrust policy, Bifurcations, Collusion, R&D cooperatives, Spillovers |
| JEL: | D43 D92 L13 L41 O31 O38 |
| Date: | 2013–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2013045&r=com |
| By: | Andrei Barbos (Department of Economics, University of South Florida) |
| Abstract: | This paper studies information acquisition under competitive pressure and proposes a model to examine the relationship between product market competition and the level of innovative ac- tivity in an industry. Our paper offers theoretical support for recent empirical results that point to an inverted-U shape relationship between competition and innovation. The model presents an optimal timing decision problem where a firm endowed with an idea trades the benefits of waiting for additional information on whether this idea can be converted into a successful project against the cost of delaying innovation: a given firm's profit following innovation is decreasing in the number of firms that invested at earlier dates. By recognizing that a firm can intensify its innovative activity on two dimensions, a risk dimension and a quantitative dimension, we show that firms solve this trade-off precisely so as to generate the inverted-U shape relationship. |
| Keywords: | Innovation, Information Acquisition, Timing Games, Preemption |
| JEL: | D40 L10 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:usf:wpaper:0713&r=com |
| By: | Che, XiaoGang (University of Alberta, Department of Economics); Lee, Peter (University of Sydney); Yang, Yibai (University of Nottingham Ningbo China) |
| Abstract: | This paper investigates the effect of resale allowance on entry strategies in a second price auction with two bidders whose entries are sequential and costly. We first characterize the perfect Bayesian equilibrium in cutoff strategies. We then show that there exists a unique threshold such that if the reseller's bargaining power is greater (less) than the threshold, resale allowance causes the leading bidder (the following bidder) to have a higher (lower) incentive on entry; i.e., the cutoff of entry becomes lower (higher). We also discuss asymmetric bidders and the original seller's expected revenue. |
| Keywords: | second price auctions; costly participation; sequential entry; resale |
| JEL: | D44 |
| Date: | 2013–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2013_006&r=com |
| By: | Vincent van den Berg (VU University Amsterdam) |
| Abstract: | Consider a government tendering the right to operate, for example, an airport, telecommunication network, or utility. There is an 'incumbent bidder' who owns a complement or substitute facility, and one entering 'new bidder'. With a 'standard auction' on the payment to the government, the incumbent is willing to bid higher than its expected profit from the facility as winning implies that it is a monopolist instead of a duopolist. The incumbent is therefore more likely to win. However, it tends to have a lower expected surplus unless the new bidder can never win, which occurs with 'private values' when the facilities are strong complements or substitutes and always with 'common values'. The 'standard auction' leads to an unregulated outcome which hurts consumers as tendered facilities tend to have limited competition. The government could improve the outcome by endogenously regulating using a 'price auction' on the price to be a sked to consumers. Now, it depends who is advantaged: with complements, the incumbent bids below its marginal cost and is more likely to win; with substitutes, it bids above and is less likely to win. The same effects occur in auctions on service quality or number of users. In many settings, the advantaged bidder always wins, and this can greatly affect the competition for the field. |
| Keywords: | tendering, overbidding, advantaged bidders, network markets |
| JEL: | D43 D44 L51 R42 |
| Date: | 2013–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2013033&r=com |
| By: | Vincent van den Berg (VU University Amsterdam) |
| Abstract: | Consider a government that auctions a franchise for, e.g., an airport, telecommunication network, or utility. Consider an 'incumbent bidder' that owns a complement or substitute. With an auction on the transfer (i.e. payment) to the government, the incumbent is advantaged.If the government regulates the market with an auction on the price asked to consumers, it depends who is advantaged. With complements, the incumbent is advantaged: it can set a lower price on the new franchise, as this increases the profit of the other. With substitutes, the incumbent is disadvantaged. In many settings, the advantage bidder always wins. |
| Keywords: | Franchising, auctions, advantaged bidders, incumbent, private supply, regulatory auctions |
| JEL: | D43 L13 L51 R41 R42 |
| Date: | 2012–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012117&r=com |
| By: | Vincent A.C. van den Berg (VU University Amsterdam) |
| Abstract: | This paper investigates regulation by auctions of private supply of congestible infrastructures in two networks settings: 1) two serial facilities, where the consumer has to use both in order to consume; and 2) two parallel facilities that are imperfect substitutes. There are four market structures: a monopoly and 3 duopolies that differ in how firms interact. The effects of an auction depend on what the bidders compete. With a transfer auction, the bidders compete on how much money they transfer to the government. This auction leads to the same outcome as the game without an auction (for a given market structure), since this gives the maximum profit to transfer. An auction on the capacity of a facility leads to an even lower welfare than no auction, because firms set very high capacities and usage fees. Conversely, an auction on the generalised price or number of users leads to the first-best outcome. Moreover, these two auctions are robust: they attain the first-best regardless of whether the facilities are auctioned off to a single firm or to two, and for all market and network structures. On the contrary, the performances (relative to the first-best) of the transfer and capacity auctions strongly depend on these considerations. |
| Keywords: | private supply, congestible facilities, auctions, serial facilities, parallel facilities, imperfect substitutes |
| JEL: | D43 L13 L51 R41 R42 |
| Date: | 2012–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012087&r=com |
| By: | Erik T. Verhoef (VU University Amsterdam) |
| Abstract: | The famous Mohring-Harwitz theorem states that, under certain technical conditions, the degree of self-financing of congested infrastructure is equal to the elasticity of the capacity cost function in the optimum, so that under neutral scale economies exact self-financing applies. Although the theorem has been proven to remain valid for various extensions of the basic set-up for which it was originally derived, it breaks down when the infrastructure is used by operators with market power when competing in Cournot fashion, the case in point often being oligopolistic airlines at a congested airport. This paper proposes a regulatory scheme, not involving lump-sum payments or budget constraints in the optimal pricing problem, that restores self-financing for congested infrastructure for this market form. What is more, under the proposed scheme, exact self-financing applies independent of the elasticity of the capacity cost function. The result remains true both for the case where operators treat the tolls parametrically, and for 'manipulable' tolls, designed to account for the fact that operators with market power can be expected to be aware of, and exploit, the fact that toll are not truly parametric, but instead depend on their own behaviour. |
| Keywords: | Congestion pricing, capacity choice, self-financing infrastructure, market power, airport congestion |
| JEL: | R41 R48 D62 |
| Date: | 2012–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012064&r=com |
| By: | Maarten Janssen (University of Vienna); Vladimir Karamychev (Erasmus University Rotterdam) |
| Abstract: | We analyze the effects of mergers in first-price sealed-bid auctions on bidders' equilibrium bidding functions and on revenue. We also study the incentives of bidders to merge given the private information they have. We develop two models, depending on how after-merger valuations are created. In the first, single-aspect model, the valuation of the merged firm is the maximum of the valuations of the two firms engaged in the merger. In the multi-aspect model, a bidder's valuation is the sum of two components and a merged firm chooses the maximum of each component of the two merging firms. In the first model, a merger creates incentives for bidders to shade their bids leading to lower revenue. In the second model, the non-merging firms do not shade their bids and revenue is actually higher. In both models, we show that all bidders have an incentive to merge. |
| Keywords: | Mergers, first-price sealed-bid auctions |
| JEL: | D44 D82 |
| Date: | 2013–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2013012&r=com |
| By: | Ajay Bhaskarabhatla (Erasmus University Rotterdam); Enrico Pennings (Erasmus University Rotterdam) |
| Abstract: | We formulate a simple model of optimal defensive disclosure by a monopolist facing uncertain antitrust enforcement and test its implications using unique data on defensive disclosures and patents by IBM during 1955-1989. Our results indicate that stronger antitrust enforcement leads to more defensive disclosure, that quality inventions are disclosed defensively, and that defensive disclosure served as an alternative but less successful mechanism to patenting at IBM in appropriating returns from R&D. |
| Keywords: | Antitrust, Defensive Disclosure, Patent, IBM |
| JEL: | K21 L40 M10 O32 O34 |
| Date: | 2012–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012010&r=com |
| By: | Tim Reuter (Department of Economics, University of Konstanz, Germany) |
| Abstract: | Third parties such as trade associations often assist cartels by collecting and evaluating market behaviour at the firm level. Under incomplete information neutral market oversight helps to distinguish defecting from complying behaviour, increasing the effectiveness of punishments for defectors and increasing cartel persistence. We investigate how cartels sort themselves into different organizational forms and whether cartel enforcement can be improved by setting fines contingent on the organizational form. A fine reduction for firms operating without the help of a third party causes some cartels to switch to a less persistent organizational form. Two drawbacks of this fine differentiation are that some new cartels will arise and that some of the existing cartels will become more persistent as the need to punish defectors decreases. Our paper is the first in the marginal deterrence literature to identify this second effect. |
| Keywords: | cartel organization, antitrust enforcement, trade association, marginal deterrence |
| JEL: | K21 K42 L41 |
| Date: | 2013–05–06 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1309&r=com |
| By: | Pim Heijnen (University of Groningen); Marco A. Haan (University of Groningen); Adriaan R. Soetevent (University of Amsterdam) |
| Abstract: | We develop a method to screen for local cartels. We first test whether there is statistical evidence of clustering of outlets that score high on some characteristic that is consistent with collusive behavior. If so, we determine in a second step the most suspicious regions where further antitrust investigation would be warranted. We apply our method to build a variance screen for the Dutch gasoline market. |
| Keywords: | collusion, variance screen, spatial statistics, K-function |
| JEL: | C11 D40 L12 L41 |
| Date: | 2012–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012058&r=com |
| By: | Alexander Rasch (University of Cologne); Christian Waibel (ETH Zurich, Switzerland) |
| Abstract: | This paper investigates the impact of four key economic variables on an expert firm’s incentive to defraud its customers in a credence goods market: the level of competition, the expert firm’s financial situation, its competence, and its reputational concerns. We use and complement the dataset of a nationwide field study conducted by the German Automobile Association that regularly checks the reliability of garages in Germany. We find that more intense competition and high competence lower firms’ incentive to overcharge. A low concern for reputation and a critical financial situation increase the incentive to overcharge. |
| Keywords: | Asymmetric information; Auto repair market; Credence goods; Expert; Fraud; Overcharging. |
| JEL: | D82 L15 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:13-179&r=com |
| By: | Waters, James |
| Abstract: | We present an information good pricing model with persistently heterogeneous consumers and a rising marginal propensity for them to pirate. Three offsetting pricing mechanisms occur: skimming, compressing price changes, and delaying product launch. We identify a novel trade off in piracy's effect on welfare. We find that piracy quickens sales times and raises welfare in fixed capacity markets, and does the opposite in growing markets. In our model, consumers benefit from piracy except at very high rates in rapidly expanding markets, legal sellers always dislike it, and pirate providers like high but not very high rates. Purchase delay, transient heterogeneity, inelastic demand, and network externalities reduce piracy's effect, but demand uncertainty doesn't. |
| Keywords: | Information goods; software; piracy; skimming; intertemporal price discrimination; prices; pricing; welfare |
| JEL: | D60 L11 L86 |
| Date: | 2013–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:46918&r=com |
| By: | Sabien Dobbelaere (VU University Amsterdam, IZA Bonn); Kozo Kiyota (Yokohama National University, RIETI); Jacques Mairesse (CREST (ParisTech-ENSAE), UNU-MERIT (Maastricht University), NBER) |
| Abstract: | Allowing for three labor market settings (perfect competition or right-to-manage bargaining, efficient bargaining and monopsony), this paper relies on an extension of Hall's econometric framework for estimating simultaneously price-cost margins and scale economies. Using an unbalanced panel of 17,653 firms over the period 1986-2001 in France, 8,725 firms over the period 1994-2006 in Japan and 7,828 firms over the period 1993-2008 in the Netherlands, we first apply two procedures to classify 30 comparable manufacturing industries in 6 distinct regimes that differ in terms of the type of competition prevailing in product and labor markets. For each of the three predominant regimes in each country, we then investigate industry differences in the estimated product and labor market imperfections and scale economies. We find important regime differences across the three countries and also observe differences in the levels of product and labor market imperfection s and scale economies within regimes. |
| Keywords: | Rent sharing, monopsony, price-cost mark-ups, production function, panel data |
| JEL: | C23 D21 J50 L13 |
| Date: | 2013–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2013037&r=com |
| By: | Wilko Bolt; David Humphrey |
| Abstract: | Banks supply payment services that underpin the smooth operation of the economy. To ensure an efficient payment system, it is important to maintain competition among payment service providers, but data available to gauge the degree of competition are quite limited. We propose and implement a frontier- based method to assess relative competition in bank-provided payment services. Billion dollar banks account for around 90 percent of assets in the U.S., and those with around $4 to $7 billion in assets turn out to be both the most and the least competitive in payment services, not the very largest banks. |
| Keywords: | Payment systems ; Competition ; Banks and banking |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:13-17&r=com |
| By: | Stefan Arping (University of Amsterdam) |
| Abstract: | In imperfectly competitive credit markets, banks can face a tradeoff between exploiting their market power and enforcing hard budget constraints. As market power rises, banks eventually find it too costly to discipline underperforming borrowers by stopping their projects. Lending relationships become "too cozy", interest rates rise, and loan performance deteriorates. |
| Keywords: | Banking Competition, Soft Budget Constraint Problem, Moral Hazard |
| JEL: | G2 G3 |
| Date: | 2012–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012146&r=com |
| By: | Adriaan Hendrik van der Weijde (VU University Amsterdam); Erik T. Verhoef (VU University Amsterdam); Vincent van den Berg (VU University Amsterdam) |
| Abstract: | We analyse the behaviour of market participants in a multi-modal commuter network where roads are not priced, but public transport has a usage fee, which is set while taking the effects on the roads into account. In particular, we analyse the difference between markets with a monopolistic public transport operator, which operates all public transport links, and markets in which separate operators own each public transport link. To do so, we consider a simple transport network consisting of two serial segments and two parallel congestible modes of transport. We obtain a reduced form of the public transport operator's optimal fare setting problem and show that, even if the total travel demand is inelastic, serial Bertrand-Nash competition on the public transport links leads to different fares than a serial monopoly; a result not observed in a static model. This results from the fact that trip timing decisions, and therefore the generalized prices of all commuters, are influenced by all fares in the network. We then use numerical simulations to show that, contrary to the results obtained in classic studies on vertical competition, monopolistic fares are not always higher than duopolistic fares; the opposite can also occur. We also explore how different parameters influence the price differential, and how this affects welfare. |
| Keywords: | Public transport, congestion, market structure, market design |
| JEL: | L10 L92 R41 R48 |
| Date: | 2012–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012116&r=com |
| By: | Adriaan Hendrik van der Weijde (VU University Amsterdam); Erik T. Verhoef (VU University Amsterdam); Vincent A. C. van den Berg (VU University Amsterdam) |
| Abstract: | We formulate a horizontal differentiation model with price-sensitive demand and asymmetric transport costs, in the context of transport scheduling. Two competitors choose fares and departure times in a fixed time interval. Consumers are distributed uniformly along the interval; their location indicates their desired departure time. In a standard Hotelling model, locations are chosen before prices. In our context, the opposite order is also conceivable, but we show that it does not result in a Nash equilibrium; the same is true for a game in both variables are chosen simultaneously. We also discuss Stackelberg game structures and second-best regulation. We conclude that the addition of price-sensitive demand results in equilibria in the traditional Hotelling model with price setting; there, services are scheduled closer together than optimal. We also show that it is possible to include asymmetric schedule delay functions. Our results show that departure times can be strategic instruments. Optimal regulatory strategies depend on the value of schedule delay, and on whether the regulator can commit. |
| Keywords: | horizontal differentiation, scheduling, transport |
| JEL: | L11 L51 L91 R40 |
| Date: | 2012–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012119&r=com |
| By: | Hugo E. Silva (VU University Amsterdam); Erik T. Verhoef (VU University Amsterdam); Vincent A.C. van den Berg (VU University Amsterdam) |
| Abstract: | This paper analyzes airlines' strategic interactions and airport efficient pricing, with a deterministic bottleneck model of congestion, in Cournot-Nash competition and in sequential competition where a Stackelberg leader interacts with perfectly competitive airlines. We show that the internalization of self-imposed congestion by non-atomistic carriers is consistent with earlier literature based on static models of congestion, but the congestion tolls are not. The tolls derived for fully atomistic airlines achieve the social optimum, when charged to all carriers, in the simultanous setting as well as in the sequential setting. We also find that alternative efficient pricing schemes exist for the sequential competition between a dominant airline and a competitive follower. The analysis suggests that airport congestion pricing has a more signicant role than what previous studies have suggested. Moreover, the financial deficit under optimal pricing may be less severe than what earlier studies suggest, as congestion toll revenues may cover optimal capacity investments. Political feasibility would be enhanced as ecient congestion charges do not depend on market shares and therefore may not be perceived as inequitable. |
| Keywords: | Airport pricing, Congestion, Bottleneck model |
| JEL: | H23 L50 L93 R48 |
| Date: | 2012–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012056&r=com |
| By: | Jiri Strelicky; Kresimir Zigic |
| Abstract: | We study price discrimination in a monopolistic software market. The monopolist charges different prices for the upgrade version and for the full version. Consumers are heterogeneous in taste for infinitely durable software and there is no resale. We show that price discrimination leads to a higher software quality but raises both absolute price and price per quality. This price discrimination does not increase sales and it decreases the total number of consumers compared to no discrimination. Finally, such discrimination decreases consumers' surplus but increases the developer's profit and social welfare that attains the social optimum in the limit. |
| Keywords: | monopoly; durable goods; software; upgrades; price discrimination; |
| JEL: | C61 L12 L15 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp478&r=com |
| By: | Maria Dementyeva (VU University Amsterdam); Paul R. Koster (VU University Amsterdam); Erik T. Verhoef (VU University Amsterdam) |
| Abstract: | Accident externalities are among the most important external costs of road transport. We study the regulation of these when insurance companies have market power. Using analytical models, we compare a public-welfare maximizing monopoly with a private profit-maximizing monopoly, and markets where two or more firms compete. A central mechanism in the analysis is the accident externality that individual drivers impose on one another via their presence on the road. Insurance companies will internalize some of these externalities, depending on their degree of market power. We derive optimal insurance premiums, and "manipulable" taxes that take into account the response of the firm to the tax rule applied by the government. Furthermore, we study the taxation of road users under different assumptions on the market structure. We illustrate our analytical results with numerical examples, in order to better understand the determinants of the relative performance of different market structures. |
| Keywords: | accident externalities, traffic regulation, safety, second-best, market power |
| JEL: | D43 D62 R41 R48 |
| Date: | 2013–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2013019&r=com |