nep-mic New Economics Papers
on Microeconomics
Issue of 2005‒04‒24
seven papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Tacit Collusion and Capacity Withholding in Repeated Uniform Price Auctions By Emmanuel Dechenaux; Dan Kovenock
  2. Intertemporal Substitution and Hyperbolic Discounting By Petra M. Geraats
  3. The Law of Demand Versus Diminishing Marginal Utility By Bruce Beattie; Jeffrey LaFrance
  4. Identification of Supply Models of Retailer and Manufacturer Oligopoly Pricing By Sofia Villas-Boas; Rebecca Hellerstein
  5. Internet Retailing as a Marketing Strategy By Maarten C.W. Janssen; Rob van der Noll
  6. Platform Competition with Endogenous Multihoming By Roberto Roson
  7. The impact of coordination and information on transport procurement By Xavier Brusset

  1. By: Emmanuel Dechenaux; Dan Kovenock
    Abstract: This paper contributes to the study of tacit collusion by analyzing infinitely repeated multiunit uniform price auctions in a symmetric oligopoly with capacity constrained firms. Under both the Market Clearing and Maximum Accepted Price rules of determining the uniform price, we show that when each firm sets a price-quantity pair specifying the firm's minimum acceptable price and the maximum quantity the firm is willing to sell at this price, there exists a range of discount factors for which the monopoly outcome with equal sharing is sustainable in the uniform price auction, but not in the corresponding discriminatory auction. Moreover, capacity withholding may be necessary to sustain this out-come. We extend these results to the case where firms may set bids that are arbitrary step functions of price-quantity pairs with any finite number of price steps. Surprisingly, under the Maximum Accepted Price rule, firms need employ no more than two price steps to minimize the value of the discount factor
    Keywords: Auction, Capacity, Collusion, Electricity Market, Supply Function
    JEL: D43 D44 L13 L41 L94
    Date: 2005–03–01
  2. By: Petra M. Geraats
    Abstract: Evidence from behavioural experiments suggests that intertemporal preferences reflect a hyperbolic discount function. This paper shows that in contrast to exponential discounting, the elasticity of intertemporal substitution for hyperbolic consumers depends on the persistence of the change in the intertemporal relative price. In particular, lasting changes in the real interest rate are likely to generate a smaller degree of intertemporal substitution in consumption than temporary changes. This result holds for both sophisticated and naive hyperbolic consumers. It provides a novel testable implication of hyperbolic discounting and a new perspective on intertemporal substitution.
    Keywords: Intertemporal substitution, consumption, quasi-hyberbolic discounting
    JEL: D91 E21
    Date: 2005–04
  3. By: Bruce Beattie (University of Arizona, Tucson); Jeffrey LaFrance (University of California, Berkeley)
    Abstract: Diminishing marginal utility is neither necessary nor sufficient for downward sloping demand, and it is not necessary for convex indifference curves. We illustrate these facts with two simple counter examples, using valid and easy to understand utility functions. The examples are accompanied with intuition, geometry, and basic mathematics of the utility functions, marginal utilities, marginal utility slopes, indifference curves, indifference curve slopes and curvatures, and ordinary demands and slopes.
    Keywords: convex indifference curves, diminishing marginal utility, downward sloping demand,
    Date: 2003–09–01
  4. By: Sofia Villas-Boas (University of California, Berkeley); Rebecca Hellerstein (Federal Reserve Bank of New York)
    Abstract: This note outlines conditions under which we can identify a vertical supply model of multiple retailers' and manufacturers' oligopoly-pricing behavior. This is an important question particularly when the researcher believes, contrary to the traditional assumption followed in the empirical literature, that retailers may not be neutral pass-through intermediaries. We show that a data-set of an industry's product prices, quantities, and input prices over time is sufficient to identify the vertical model of retailers' and manufacturers' oligopoly-pricing behavior given nonlinear demand, for homogeneous-products industries, and given multi-product firms, for differentiated-products industries.
    Keywords: Identification, Vertical relationships, Oligopoly models of multiple manufacturers and retailers,
    Date: 2004–10–01
  5. By: Maarten C.W. Janssen (Faculty of Economics, Erasmus Universiteit Rotterdam); Rob van der Noll (Faculty of Economics, Erasmus Universiteit Rotterdam, and CPB Netherlands Bureau for Economic Policy Analysis, The Hague)
    Abstract: We analyze the incentives for incumbent bricks-and-mortar firms and new entrants to start an online retail channel in a differentiated goods market. To this end we set up a two-stage model where firms first decide whether or not to build the infrastructure necessary to start an online retail channel and then compete in prices using the channels they have opened up. Consumers trade-off the convenience of online shopping and the ease to compare prices, with online uncertainties. Without a threat of entry by a third pure online player we find that for most parameter constellations firms' dominant strategy is not to open an online retail channel as this cannibalizes too much on their conventional sales. As the cannibalization effect is not present for a pure Internet player, we show that these firms will start online retail channels under a much wider range of parameter constellations. The threat of entry may force incumbent bricks-and-mortar firms to deter entry by starting up an Internet retail channel themselves. We also show that a low cost of building up an online retail channel or online shopping conveniences may not be to the benefit of online shopping as the strategic interaction between firms may be such that no online retail channel is built when the circumstances seem to be more favourable.
    Keywords: E-Commerce; Internet; multichannel competition; online uncertainty; online shopping convenience
    JEL: D43 M30
    Date: 2005–04–11
  6. By: Roberto Roson (Università Ca’ Foscari di Venezia)
    Abstract: A model of two-sided market (for credit cards) is introduced and discussed. In this model, agents can join none, one, or more than one platform (multihoming), depending on access prices and the choices made by agents on the opposite market side. Although emerging multihoming patterns are, clearly, one aspect of equilibrium in a two-sided market, this issue has not yet been thoroughly addressed in the literature. This paper provides a general theoretical framework, in which homing partitions are conceived as one aspect of market equilibrium, rather than being set ex-ante, through ad-hoc assumptions. The emergence of a specific equilibrium partition is a consequence of: (1) the structure of costs and benefits, (2) the degree and type of heterogeneity among agents, (3) the intensity of platform competition.
    Keywords: Two-sided markets, Network externalities, Standards, Platforms, Multihoming
    JEL: D85 L10 L15 L89
    Date: 2005–01
  7. By: Xavier Brusset (Universite Catholique de Louvain)
    Abstract: Transport cost is second in importance after production cost in industry. It is the purpose of the present paper to study the impact of information sharing and contractual instruments between a supply chain and its transport suppliers. After reviewing the literature, we propose a model to measure the benefits in terms of transport cost and standard deviation of transport cost. We evaluate three scenarios over one period reiterated for a shipper carrier two-echelon model with a mix of long- term and short-term procurement strategies: perfect information, asymmetric information and private information at one level of the supply chain. We evaluate the transfer in rent between carrier and shipper according to the information known and give some insights on optimal contract parameters.
    Keywords: Supply chain management, coordination, contracts, information sharing, game theory, mechanisms
    JEL: D1 D2 D3 D4
    Date: 2005–04–21

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