nep-mic New Economics Papers
on Microeconomics
Issue of 2005‒10‒08
five papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Price Discrimination, Copyright Law, and Technological Innovation: Evidence from the Introduction of DVDs By Julie Holland Mortimer
  2. The gain-loss asymmetry and single-self preferences By Antoni Bosch; Joaquim Silvestre
  3. Complementarities and Collusion in an FCC Spectrum Auction By Patrick Bajari; Jeremy T. Fox
  4. Invention under uncertainty and the threat of ex post entry By David A. Miller
  5. Influence of Brand Name in Variety Seeking Behavior of Consumers: An Empirical Analysis By Rajagopal

  1. By: Julie Holland Mortimer
    Abstract: This paper examines the welfare effects of intellectual property protection, accounting for firms' optimal responses to legal environments and technological innovation. I examine firms' use of indirect price discrimination in response to U.S. copyright law, which effectively prevents direct price discrimination. Using data covering VHS and DVD movie distribution, I explain studios' optimal pricing strategies under U.S. copyright law, and determine optimal pricing strategies under E.U. copyright law, which allows for direct price discrimination. I analyze these optimal pricing strategies for both the existing VHS technology and the new digital DVD technology. I find that studios' use of indirect price discrimination under US copyright law benefits consumers and harms retailers. Optimal pricing under E.U. copyright law also tends to benefit studios and consumers. I also reanalyze these issues assuming continued DVD adoption.
    JEL: L0 O3
    Date: 2005–10
  2. By: Antoni Bosch; Joaquim Silvestre
    Abstract: Kahneman and Tversky asserted a fundamental asymmetry between gains and losses, namely a “reflection effect” which occurs when an individual prefers a sure gain of $ pz to an uncertain gain of $ z with probability p, while preferring an uncertain loss of $z with probability p to a certain loss of $ pz. We focus on this class of choices (actuarially fair), and explore the extent to which the reflection effect, understood as occurring at a range of wealth levels, is compatible with single-self preferences. We decompose the reflection effect into two components, a “probability switch” effect, which is compatible with single-self preferences, and a “translation effect,” which is not. To argue the first point, we analyze two classes of single-self, nonexpected utility preferences, which we label “homothetic” and “weakly homothetic.” In both cases, we characterize the switch effect as well as the dependence of risk attitudes on wealth. We also discuss two types of utility functions of a form reminiscent of expected utility but with distorted probabilities. Type I always distorts the probability of the worst outcome downwards, yielding attraction to small risks for all probabilities. Type II distorts low probabilities upwards, and high probabilities downwards, implying risk aversion when the probability of the worst outcome is low. By combining homothetic or weak homothetic preferences with Type I or Type II distortion functions, we present four explicit examples: All four display a switch effect and, hence, a form of reflection effect consistent a single self preferences.
    Keywords: Reflection, gains, losses, experiments, risk attitude
    JEL: D11 D81
    Date: 2005–09
  3. By: Patrick Bajari; Jeremy T. Fox
    Abstract: We empirically study bidding in the C Block of the US mobile phone spectrum auctions. Spectrum auctions are conducted using a simultaneous ascending auction design that allows bidders to assemble packages of licenses with geographic complementarities. While this auction design allows the market to find complementarities, the auction might also result in an inefficient equilibrium. In addition, these auctions have equilibria where implicit collusion is sustained through threats of bidding wars. We estimate a structural model in order to test for the presence of complementarities and implicit collusion. The estimation strategy is valid under a wide variety of alternative assumptions about equilibrium in these auctions and is robust to potentially important forms of unobserved heterogeneity. We make suggestions about the design of future spectrum auctions.
    JEL: L0 L5 C1
    Date: 2005–10
  4. By: David A. Miller (UCSD)
    Abstract: This paper proposes a theoretical framework for studying the invention of new products when demand is uncertain. In this framework, under general conditions, the threat of ex post entry by a competitor can deter invention ex ante. Asymmetric market power in the ex post market exacerbates the problem. The implications of these general results are examined in a series of examples that represent important markets in the computer industry. The first is a model that shows how an operating system monopolist, by its mere presence, can deter the invention of complements, to its own detriment as well as that of society. The implications of policies such as patent protection, price regulation, and mandatory divestiture are considered. Three additional examples consider the ability of a monopolist in one market to commit to bundling an unrelated product, a pair of horizontally differentiated firms that can add a new feature to their products, and a platform leader that can be challenged in its base market by the supplier of a complementary product.
    Keywords: Invention, innovation, demand uncertainty, ex post entry, bundling, Intel, Microsoft, Netscape
    JEL: L12 L13 O31
    Date: 2005–10–06
  5. By: Rajagopal (Monterrey Institute of Technology & Higher Education ITESM , Mexico City)
    Abstract: The variety-seeking behavior and the brand choice among the consumers have been discussed extensively in the previous research contributions from the stochastic point of view. This study argues that although consumers are seeking novelty and unexpectedness in a brand that they have not bought before, their purchase will be selective, in reference to the empirical investigation. The study has been conducted in Mexican retail business environment with a focus to explore the tendency of decision making of consumers towards buying unfamiliar brands in considering the importance of brand name. The discussions in the paper have been woven around the issues of perceived risk, perceived brand difference, association of brand name and customer values as major influencing factors in making buying decisions towards unfamiliar brands. The study reveals that the perceptions on brand name in reference to brand risk and brand differences have been the prime factors in making buying decision for new brands among the consumers. Consumers also ascertain the brand name associated with the unfamiliar brands as they feel high risk averse and entangle in decision making with perceived brand differences.
    Keywords: Cognitive behavior, personality traits, brand loyalty, brand perceptions, decision making, customer value
    JEL: D11 D12 D81 M20 M31
    Date: 2005–10–04

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