nep-mic New Economics Papers
on Microeconomics
Issue of 2005‒03‒20
ten papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Contracts, Fairness and Incentives By Ernst Fehr; Alexander Klein; Klaus M Schmidt
  2. The Canonical Type Space for Interdependent Preferences By Faruk Gul; Wolfgang Pesendorfer
  3. Revealing Preferences for Fairness in Ultimatum Bargaining By James Andreoni; Marco Castillo; Ragan Petrie
  5. Subcontracting and Vertical Integration in the Spanish Cotton Industry By Joan R. Roses
  6. A Residential Energy Demand System for Spain By Xavier Labandeira; José M. Labeaga; Miguel Rodríguez
  7. Microsimulating the Effects of Household Energy Price Changes in Spain By Xavier Labandeira; José M. Labeaga; Miguel Rodríguez
  8. Increasing Returns, Input-Output Linkages, and Technological Leapfrogging By Gallo, Fredrik
  9. Cournot Competition, Market Size Effects, and Agglomeration By Gallo, Fredrik
  10. Firms’ Price Markups and Returns to Scale in Imperfect Markets: Bulgaria and Hungary By Rumen Dobrinsky; Gábor Kõrösi; Nikolay Markov; László Halpern

  1. By: Ernst Fehr; Alexander Klein; Klaus M Schmidt
    Date: 2005–03–16
  2. By: Faruk Gul; Wolfgang Pesendorfer
    Date: 2005–03–16
  3. By: James Andreoni; Marco Castillo; Ragan Petrie
    Date: 2005–03–16
  4. By: Chrysovalantou Milliou; Emmanuel Petrakis
    Abstract: Contrary to the seminal paper of Horn and Wolinsky (1988), we demonstrate that upstream firms, which sell their products to competing downstream firms, do not always have incentives to merge horizontally. In particular, we show that when bargaining takes place over two-part tariffs, and not over wholesale prices, upstream firms prefer to act as independent suppliers rather than as a monopolist supplier. Moreover, we show that horizontal mergers can be procompetitive, even in the absence of efficiency gains.
    Date: 2005–03
  5. By: Joan R. Roses
    Abstract: This paper examines changes in the organization of the Spanish cotton industry from 1720 to 1860 in its core region of Catalonia. As the Spanish cotton industry adopted the most modern technology and experienced the transition to the factory system, cotton spinning and weaving mills became increasingly vertically integrated. Asset specificity more than other factors explained this tendency towards vertical integration. The probability for a firm of being vertically integrated was higher among firms located in districts with high concentration ratios and rose with size and the use of modern machinery. Simultaneously, subcontracting predominated in other phases of production and distribution where transaction costs appears to be less important.
    Date: 2005–03
  6. By: Xavier Labandeira; José M. Labeaga; Miguel Rodríguez
    Abstract: Sharp price fluctuations and increasing environmental and distributional concerns, among other issues, have led to a renewed academic interest in energy demand. In this paper we estimate, for the first time in Spain, an energy demand system with household microdata. In doing so, we tackle several econometric and data problems that are generally recognized to bias parameter estimates. This is obviously relevant, as obtaining correct price and income responses is essential if they may be used for assessing the economic consequences of hypothetical or real changes. With this objective, we combine data sources for a long time period and choose a demand system with flexible income and price responses. We also estimate the model in different sub-samples to capture varying responses to energy price changes by households living in rural, intermediate and urban areas. This constitutes a first attempt in the literature and it proved to be a very successful choice.
  7. By: Xavier Labandeira; José M. Labeaga; Miguel Rodríguez
  8. By: Gallo, Fredrik (Department of Economics, Lund University)
    Abstract: Firms agglomerate in one region due to increasing returns, input-output linkages and transportation costs. In the de-industrialised region factor prices are lower and a new technology may be profitable to adopt in that region instead, inducing a change in the technological leadership. This paper shows that the risk of locking in to an old technology is monotonically increasing in the benefits of agglomeration. Greater incompatibility between technologies also increases the risk of rejecting potentially superior manufacturing processes.
    Keywords: agglomeration; lock-in; new economic geography; technological leapfrogging
    JEL: F12 F43 O33
    Date: 2005–03–11
  9. By: Gallo, Fredrik (Department of Economics, Lund University)
    Abstract: We analyse a two-stage location-quantity game with many firms and two regions. We show that the firms will never agglomerate in the same location if transportation is costly between the regions. We also analyse the effects of differences in market size and economic integration on the allocation of industrial activity. For high levels of trade costs firms locate in different regions. Lowering the trade costs beyond a critical level triggers an agglomeration of industry in the larger region. This process of agglomeration is gradual in nature and trade costs have to be successively lowered for a full-scale agglomeration to take place.
    Keywords: agglomeration; cross-hauling; market size effects; spatial Cournot competition
    JEL: D43 F12 L13 R30
    Date: 2005–03–11
  10. By: Rumen Dobrinsky; Gábor Kõrösi; Nikolay Markov; László Halpern
    Abstract: Under perfect competition and constant returns to scale, firms producing homogeneous products set their prices at their marginal costs which also equal their average costs. However, the departure from these standard assumptions has important implications with respects to the derived theoretical results and the validity of the related empirical analysis. In particular, monopolistic firms will charge a markup over their marginal costs. We show that firms’ markups tend to be directly associated with the employed production technology, more specifically with their returns to scale. Accordingly, we analyze the implications for the markup ratios from the incidence of non-constant returns to scale. We present quantitative results illustrating the effect of the returns to scale index on the firms’ price markups, as well as the relationship between the two indicators, on the basis of firm-level data for Bulgarian and Hungarian manufacturing firms.
    Keywords: markup pricing, market imperfections, return to scale, Bulgaria, Hungary
    JEL: C23 D21 D24
    Date: 2004–07–01

This nep-mic issue is ©2005 by Joao Carlos Correia Leitao. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.