nep-mic New Economics Papers
on Microeconomics
Issue of 2005‒02‒06
ten papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. On Stability in Competition: Tying and Horizontal Product Differentiation By Alain Egli
  2. Willigness to Pay for Long-Term Care Coverage: the Role of Private Information and Self-Insurance By Costa-Font,J.; Rovira-Forns, J.
  3. Measuring Conduct and Cost Parameters in the Spanish Air Transport Market By Fageda, X.
  4. Unequal Opportunities and Human Capital Formation By Daniel Mejía; Marc St-Pierre
  5. Is Neoclassical Economics still Entrepreneurless? By Bianchi, Milo; Henrekson, Magnus
  6. Quality Differentiation, Vertical Disintegration and The Labour Market Effects of Intra-Industry Trade By Giuseppe Celi
  7. The Impact of Consumer Loss Aversion on Pricing By Paul Heidhues; Botond Köszegi
  8. : On the Notion of the First Best in Standard Hidden Action Problems By Christian Ewerhart; Christoph Nitzsche
  9. Ordinally Bayesian Incentive Compatible Stable Matchings By Dipjyoti Majumdar
  10. Arrovian Social Choice Theory on Economic Domains By Michel Le Breton; John A. Weymark

  1. By: Alain Egli
    Abstract: We combine Hotelling’s model of product differentiation with tie-in sales. Tie-in sales condition the sale of one good upon the purchase of another good. In equilibrium firms choose zero product differentiation. Due to the tying structure no firm can gain the whole market by a small price reduction. Then we address the following questions: Can a firm with monopoly power in one market leverage this power into another market where it faces competition. What is the effect from tying on the profits of the monopolist’s rival. In our model this effect is ambiguous
    Keywords: Horizontal product differentiation; tie-in sales; leverage theory of tying; foreclosure
    JEL: D43 L11 L12 L13
    Date: 2005–01
  2. By: Costa-Font,J.; Rovira-Forns, J. (Universitat de Barcelona)
    Abstract: Both public and private insurance for long-term care is undeveloped in some European countries such as in Spain and empirical evidence is still limited. This paper aims at exmining the determinants of the demand for Long Term Care (LTC) coverage in Spain using contingent valuation techniques. Our findings indicate that only one-fifth of the population is willing to pay to assure coverage decisions are significantly affected by private information asymmetry and housing tenure in giving rise to self-insurance reduces the probability of insurance being hypothetically purchased
    JEL: D63 D78 I11 H43
    Date: 2004
  3. By: Fageda, X. (Universitat de Barcelona)
    Abstract: This paper estimates a model airline competition for the Spanish air transport market. I test the explanatory power of alternative oligopoly models with capacity constraints. In addition, I analyse the degree of density economies. Results show that Spanish airlines conduct follows a price-leadership scheme so that it is less competitive than the Cournot solution. I also fin the evidence that thin routes can be cosidered as natural monopolies
    JEL: D43 L13 L93 C30
    Date: 2004
  4. By: Daniel Mejía; Marc St-Pierre
    Abstract: This paper develops a tractable, heterogeneous agents general equilibrium model where individuals have different endowments of the factors that complement the schooling process. The paper explores the relationship between inequality of opportunities, inequality of outcomes, and efficiency in human capital formation. Using numerical solutions we study how the endogenous variables of the model respond to two different interventions in the distribution of opportunities: a mean-preserving spread and a change in the support. The results suggest that a higher degree of inequality of opportunities is associated with lower average level of human capital, a lower fraction of individuals investing in human capital, higher inequality in the distribution of human capital, and higher wage inequality. In other words, the model does not predict a trade-off between efficiency and equality of opportunity in human capital formation.
    Keywords: human capital, inequality, equity-efficiency trade-off
    JEL: D33 J24 J31 O15
    Date: 2005
  5. By: Bianchi, Milo (Dept. of Economics, Stockholm School of Economics); Henrekson, Magnus (Dept. of Economics, Stockholm School of Economics)
    Abstract: We review and evaluate some recent contributions on the modeling of entrepreneurship within a neoclassical framework, analyzing how and to what extent the fundamental ingredients suggested in the social science literature were captured. We show how these approaches are important in stressing the main elements of a complex picture without being able to completely describe it. However, each modeling attempt focuses only on one specific feature of entrepreneurship. The entrepreneurial function broadly perceived eludes analytical tractability. As a consequence, the models can be useful in analyzing the effect of entrepreneurial behavior at an aggregate level, but not at explaining individual choices. From these observations we highlight how a simplistic interpretation of the existing mainstream approaches incorporating entrepreneurship runs the risk of leading to distortionary policy interventions.
    Keywords: Entrepreneurial Choice; Entrepreneurship; Innovation; Neoclassical Modeling; Uncertainty
    JEL: B41 D81 J23 L23 M13 O31
    Date: 2005–01–31
  6. By: Giuseppe Celi (Università di Bari)
    Abstract: The work offers a new treatment of the labour market effects of international trade building on recent developments in the literature on intra-industry trade (IIT) stressing the importance of vertical IIT. The central idea is that heterogeneity of traded goods plays a crucial role both in terms of quality differentiation and vertical fragmentation of production. The basic concepts are presented in the introductory chapter. The second chapter presents an econometric study which shows that the role of factor intensity in IIT requires that different forms of IIT are properly distinguished. In the third chapter the evaluation of the impact of trade on labour markets is studied in a model in which IIT is explained on Heckscher-Ohlin principles. Applying the model to trade between Italy and less advanced countries and inferring the factor content of intra-industry trade from the inter-sectoral relationship between factor intensity and average unit values of exports, I find that the labour market effects of intra-industry trade add significantly to the estimated factor market impact of trade. Finally, fourth chapter is a study of Outward Processing Trade flows between the EU and Central Eastern European countries: results suggest that the labour market effects of intra-industry trade flows deriving from the vertical disintegration of production are significant.
    Keywords: -
  7. By: Paul Heidhues; Botond Köszegi
    Abstract: We develop a model in which a profit-maximizing monopolist with uncertain cost of production sells to loss-averse, yet rational, consumers. We first introduce (portable) techniques for analyzing the demand of such consumers, and then investigate the monopolist's pricing strategy. Compared to lower possible purchase prices, paying a higher price in the firm's pricing distribution is assessed by consumers as a loss, decreasing demand for the firm's product. We provide conditions under which a firm with continuously distributed marginal cost responds by (locally) eliminating this "comparison effect" and choosing a discrete price distribution; that is, prices are "sticky". Price stickiness is more likely to obtain when the cost distribution has high density, the price responsiveness of demand is low, or consumers are likely to purchase. Whether or not prices are sticky, the monopolist wants to at least mitigate the comparison effect, leading to countercyclical markups. On the other hand, if consumers expect to buy the product, they experience a loss if they end up not consuming it, increasing their willingness to pay for it. Thus, despite the tendency toward price stability, there are also circumstances in which a firm with unchanging cost offers random "sales" to increase customers' expectation to consume, attracting more demand at higher prices. <br> <br> <i>ZUSAMMENFASSUNG - (Strategisches Preissetzungsverhalten mit verlustaversen Konsumenten) <br> Wir analysieren das optimale Verhalten eines profitmaximierenden Monopolisten mit stochastischen Produktionskosten, der an rationale, verlustaverse Konsumenten verkauft. Hierzu entwickelt der Beitrag übertragbare Techniken, die es erlauben, die Nachfrage von verlustaversen Konsumenten herzuleiten, und bestimmt die optimale Preissetzungsstrategie des Monopolisten. Ein Konsument empfindet einen Verlust, wenn er den von ihm gezahlten Kaufpreis mit erwarteten niedrigeren Preisen des Monopolisten vergleicht. Dieser Verlust reduziert die Zahlungsbereitschaft des Konsumenten und senkt somit seine Nachfrage. Der Beitrag zeigt auf, unter welchen Bedingungen eine Firma mit kontinuierlich verteilten Grenzkosten diesen "Vergleichseffekt" (lokal) eliminiert, indem sie eine diskrete Preisverteilung wählt --- also, eine Preisverteilung mit Preisstarrheit. Diese Preisstarrheit tritt umso eher auf, je höher die Dichte der Kostenverteilung, je niedriger die Nachfrageelastizität oder je größer die Kaufwahrscheinlichkeit des Konsumenten ist. Unabhängig davon, ob die optimale Preisverteilung Preisstarrheit aufweist oder nicht, schwächt der Monopolist diesen Vergleichseffekt ab in dem er antizyklische Preisaufschläge verlangt. Auf der anderen Seite führt die Kauferwartung des Konsumenten dazu, dass er einen Verlust realisiert, wenn er das Gut nicht konsumieren kann. Eine höhere Kauferwartung führt somit zu einer höheren Zahlungsbereitschaft des Konsumenten. Daher kann es trotz der Tendenz zur Preisstarrheit auch Umstände geben, unter denen eine Unternehmung mit fixen Grenzkosten zufällige "Sonderangebote" macht, welche die Kauferwartung des Konsumenten erhöhen und somit mehr Nachfrage bei höheren Preisen generieren.</i>
    Keywords: Gravity Reference-dependent utility, price stickiness, monopoly pricing, kinked demand curve, countercyclical markups, sales, promotions, (seemingly) predatory pricing.
    JEL: D11 D42 L12 L16 L66 L67
    Date: 2004–12
  8. By: Christian Ewerhart; Christoph Nitzsche
    Abstract: It is well known that ex-ante randomization can improve upon second best contracts in principal-agent problems. In this note, we show that even the ¯rst{best can be dominated by a random contract. Our example is cast in a standard textbook set-up with two e®ort levels and two states of nature.
    Keywords: Hidden action, ¯rst{best, ex-ante randomization
    JEL: D82
  9. By: Dipjyoti Majumdar (Department of Economics, Concordia University)
    Abstract: We study incentive issues related to two-sided one-to-one stable matching problem after weakening the notion of strategy-proofness to Ordinal Bayesian Incentive Compatibility (OBIC). Under OBIC, truthtelling is required to maximize the expected utility of every agent, expected utility being computed with respect to the agent’s prior beliefs and under the assumption that everybody else is also telling the truth. We show that when preferences are unrestricted there exists no matching procedure that is both stable and OBIC. Next preferences are restricted to the case where remaining single is the worst alternative for every agent. We show that in this case, if agents have uniform priors then the stable matchings generated by “deferred acceptance algorithms” are OBIC. However, for generic priors there are no matching procedures that are both stable and OBIC even with restricted preferences.
    Keywords: stable matching, incentives, strategy-proofness
    JEL: C72 D72
    Date: 2003–08
  10. By: Michel Le Breton (GREMAQ and IDEI, Universite de Toulouse 1); John A. Weymark (Department of Economics, Vanderbilt University)
    Abstract: This article surveys the literature that investigates the consistency of Arrow's social choice axioms when his unrestricted domain assumptions are replaced by domain conditions that incorporate the restrictions on agendas and preferences encountered in economic environments. Both social welfare functions and social choice correspondences are considered.
    Keywords: Social choice, Arrow's Theorem, restricted domains
    JEL: D71
    Date: 2002–04

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