nep-mic New Economics Papers
on Microeconomics
Issue of 2005‒10‒29
29 papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. An interview with Thomas C. Schelling: Interpretation of game theory and the checkerboard model By N. Emrah Aydinonat
  2. Eliciting Demand Information through Cheap Talk: An Argument in Favor of Price Regulations By Lars Frisell; Johan N.M. Lagerlof
  3. The Effects of Consumer Protection on Sales Signs, Consumer Search and Competition By Chris M. Wilson
  4. Externalities and the Allocation of Decision Rights in the Theory of the Firm By Helmut Bester
  5. Household Time Allocation and Modes of Behavior: A Theory of Sorts By Daniela Del Boca; Christopher J. Flinn
  6. Refunds and Collusion By Oz Shy; Staffan Ringbom
  7. Asymmetric Price Adjustment in the Small: An Implication of Rational Inattention By Daniel Levy; Haipeng (Allen) Chang; Sourav Ray; Mark Bergen
  8. Imitators and Optimizers in Cournot Oligopoly By Burkhard C. Schipper
  9. Contracting with Imperfect Commitment and Noisy Communication By Helmut Bester; Roland Strausz
  10. Honest Certification and the Threat of Capture By Roland Strausz
  11. Innovation, Appropriation and Entrepreneurial Strategy. By Stewart, Geoff
  12. Survivor: The Role of Innovation in Firm's Survival By Elena Cefis; Orietta Marsili
  13. Market making oligopoly By Simon Loertscher
  14. Consumers' Behavior and the Bertrand Paradox: An ACE approach By Xavier Vilà
  15. Entry and Exit With Information Externalities By stefano comino
  16. Fixed-Prize Tournaments versus First-Price Auctions in Innovation Contests By Anja Schöttner
  17. Integrating competition policy and innovation policy: the case of R&D cooperation By Georg von Graevenitz
  18. An overview of Stackelberg pricing in networks By Hoesel,Stan,van
  19. Bargaining under Incomplete Information, Fairness, and the Hold-Up Problem By Ferdinand von Siemens
  20. Reserve prices in auctions as reference points By Stephanie Rosenkranz; Patrick W. Schmit
  21. Asset Pricing Implications of Pareto Optimality with Private Information By Narayana R Kocherlakota; Luigi Pistaferri
  22. Weak Monotonicity and Bayes-Nash Incentive Compatibility By Müller,Rudolf; Perea,Andrés; Wolf,Sascha
  23. Price Formation in a Sequential Selling Mechanism By Radosveta Ivanova-Stenzel; Sabine Kroger
  24. Credit Rationing and Firms in Oligopoly By Tong, Jian
  25. Can Coasean Bargaining Justify Pigouvian Taxation? By Stephanie Rosenkranz; Patrick W. Schmitz
  26. Measuring Strategic Uncertainty in Coordination Games By Frank Heinemann; Rosemarie Nagel; Peter Ockenfels
  27. Speculation in Standard Auctions with Resale By Rod Garratt; Thomas Tröger
  28. Moral Hazard and the Internal Organization of Joint Research By Simona Fabrizi; Steffen Lippert
  29. Spillovers Reconsidered: Analysing Economic Welfare under complementarities in R&D By Georg von Graevenitz

  1. By: N. Emrah Aydinonat (Ankara University)
    Abstract: This note is mainly based on a short interview with Thomas C. Schelling (TCS), who shared the Nobel Prize with Robert J. Aumann in 2005. The interview took place on 06.03.2001 at University of Maryland, College Park, USA. It consists of two parts. The first part is about his interpretation of game theory, particularly about the use of game- theoretic models in explaining the origin and maintenance of conventions, and norms. The second part is on the origin of Schelling’s influential checkerboard model of residential segregation, particularly about his approach to modeling social phenomena exemplified by this model. The note ends with some concluding remarks. Citation: Aydinonat, N. Emrah, (2005) 'An interview with Thomas C. Schelling: Interpretation of game theory and the checkerboard model,' Economics Bulletin, Vol. 2 no. 2 pp. 1-7.
    Keywords: Thomas Schelling, game theory, checkerboard model
    JEL: B
    Date: 2005–10–22
  2. By: Lars Frisell (Sveriges Riksbank); Johan N.M. Lagerlof (Royal Holloway, University of London)
    Abstract: A firm must decide whether to launch a new product. A launch implies considerable fixed costs, so the firm would like to assess downstream demand before it decides. We study under which conditions a potential buyer would be willing to reveal his willingness to pay under different pricing regimes. We show that the firm's welfare -- as well as consumers' -- may be higher with a commitment to linear pricing than when pricing is unrestricted. That is, if informational asymmetries are significant, price regulations such as the Robinson-Patman Act may be endorsed by all parties.
    Keywords: Price regulations, price discrimination, incomplete information, cheap talk, Robinson-Patman Act
    JEL: D82 L11 L42
    Date: 2005–10–27
  3. By: Chris M. Wilson (University of East Anglia)
    Abstract: Within a one-shot, duopoly game, we show that firms cannot use false in- store price comparisons to deter rational consumers from further beneficial price search in an effort to create market power. However, by introducing a consumer protection authority that monitors price comparisons, we formalise Nelson’s (1974) conjecture by showing that ‘middle-order’ monitoring can actually facilitate the deception of fully rational consumers, to deter them from otherwise optimal search. Despite this effect, we show that no increase in monitoring can ever harm consumers due to a second, larger effect that improves consumer information and increases the intensity of price competition.
    Keywords: Comparative Price Advertising, Deception, Obfuscation, Cheap Talk
    JEL: L10 D43 D83
    Date: 2005–10–24
  4. By: Helmut Bester (Free University Berlin, Department of Economics, Boltzmannstr. 20, D-14195 Berlin, Germany)
    Abstract: This paper views authority as the right to undertake decisions that have external effects on other members of the organization. Because of contractual incompleteness, monetary incentives are insufficient to internalize these effects in the decision maker's objective. The optimal assignment of decision rights minimizes the resulting inefficiencies. We illustrate this in a principal–agent model where the principal retains the authority to select 'large' projects but delegates the decision right to the agent to implement 'small' projects. Extensions of the model discuss the role of effort incentives, asymmetric information and multistage decisions.
    Keywords: Authority, Control Rights, Decision Rights, Delegation, Externalities, Incomplete Contracts, Theory of the Firm
    JEL: D23 D82 L22
    Date: 2004–04
  5. By: Daniela Del Boca; Christopher J. Flinn
    Abstract: We develop a simple model of household time allocation decisions under strong functional form assumptions regarding preferences and household production technology. We argue that the specification is general when allowing for unrestrictive forms of population heterogeneity in the parameters characterizing these functions. Moreover, we argue that the model is not capable of distinguishing among elements of a class of behavioral rules, including Nash bargaining and Nash equilibrium, without restricting population heterogeneity in arbitrary ways. However, preferences over mates for any given set of male and female characteristics will be a function of the behavioral rules used in married households. Using data from the PSID on market hours and time spent in household production, we estimate the marginal distribution of male and female characteristics and our two alternative behavioral assumptions, and perform some formal and informal comparisons of the Nash bargaining and Nash equilibrium rules’ ability to predict the marital sorts observed in the data. Given the simplicity of the model of household behavior and marriage market equilibrium, it is perhaps not surprising that neither model provides good predictions. Overall, the evidence is slightly more supportive of the hypothesis that households behave noncooperatively.
    Keywords: Bilateral Matching, Household Time Allocation, Nash Bargaining
    JEL: D13 J12 J22
    Date: 2005–10
  6. By: Oz Shy (WZB - Social Science Research Center Berlin); Staffan Ringbom (Department of Economics, Swedish School of Economics)
    Abstract: We characterize the conditions under which industry-wide agreements on refund policies weaken price competition. We identify the conditions under which joint industry proffit increases with the amount of refunds promised to those consumers who cancel a reservation or return a product. We compare it to similar industry configurations when firms set up shipping and handling charges instead of refunds. Finally, we investigate refund policies under moral hazard.
    Keywords: Refunds, Partial refunds, Collusion on refunds, Shipping & handling charges, Moral hazard
    JEL: L1 L41 M2
    Date: 2005–05
  7. By: Daniel Levy; Haipeng (Allen) Chang; Sourav Ray; Mark Bergen
    Abstract: We study the implications of rational inattention for individual price dynamics. Analyzing scanner data that cover 29 product categories over a eight-year period from a large Mid-western supermarket chain, we uncover a surprising regularity in the data--small price increases occur more frequently than small price decreases. We find that this asymmetry holds for price changes of up to about 15­30 cents (in absolute terms) and 3­10 percent (in relative terms). The asymmetry disappears for larger price changes. We document this finding for the entire data set, as well as for individual product categories considered. Moreover, we find that the asymmetry holds even when we exclude from the data the observations pertaining to inflationary periods. Given the inability of the existing theories to explain the particular form of asymmetry we document, we offer a new theory of asymmetric price adjustment, which can explain our findings. The theory, which is an extension of the literature on "rational inattention," argues that observing, processing, and reacting to price change information is not a costless activity. An important implication of rational inattention is that consumers may rationally choose to ignore--and thus not to respond to--small price changes, creating a "range of inattention" along the demand curve. This range of consumer inattention, we argue, gives the retailers incentive for asymmetric price adjustment "in the small." These incentives, however, disappear for large price changes, because large price changes are noticed by consumers and therefore trigger their response. Thus, no asymmetry is observed "in the large."
    Keywords: Asymmetric Price Adjustment, Rational Inattention, Cost and Benefit of Information Acquiring and Processing, Price Rigidity
    JEL: E31 D11 D21 D80 L11 M31
    Date: 2004–07
  8. By: Burkhard C. Schipper (Department of Economics, University of Bonn.
    Abstract: We analyze a symmetric n-firm Cournot oligopoly with a heterogeneous population of optimizers and imitators. Imitators mimic the output decision of the most successful firms of the previous round a l`a Vega-Redondo (1997). Optimizers play a myopic best response to the opponents’ previous output. Firms are allowed to make mistakes and deviate from the decision rules with a small probability. Applying stochastic stability analysis, we find that the long run distribution converges to a recurrent set of states in which imitators are better off than are optimizers. This finding appears to be robust even when optimizers are more sophisticated. It suggests that imitators drive optimizers out of the market contradicting a fundamental conjecture by Friedman (1953).
    Keywords: profit maximization hypothesis, bounded rationality, learning, Stackelberg
    JEL: C72 D21 D43 L13
    Date: 2005–03
  9. By: Helmut Bester (Free University Berlin, Department of Economics, Boltzmannstr. 20, D-14195 Berlin); Roland Strausz (Free University Berlin, Department of Economics, Boltzmannstr. 20, D-14195 Berlin)
    Abstract: This paper provides an analytical framework for studying principal-agent problems with adverse selection and limited commitment. By allowing the principal to use noisy communication we solve two fundamental problems of contracting with imperfect commitment: First, we identify the relevant incentive constraints by showing that only ‘local’ constraints are binding if the agent’s preferences satisfy a single–crossing property. Second, we show that one can restrict the dimensionality of the message spaces of the communication device to the number of the agent’s types. As we illustrate in an example, these findings allow us to derive the optimal contract by a similar procedure as in contracting problems with full commitment.
    Keywords: contract theory, communication, imperfect commitment, adverse selection
    JEL: D82 C72
    Date: 2003–12
  10. By: Roland Strausz (Free University Berlin, Department of Economics, Boltzmannstr. 20, D-14195 Berlin, Germany)
    Abstract: This paper derives conditions under which reputation enables certifiers to resist capture. These conditions alone have strong implications for the industrial organization of certification markets: 1) Honest certification requires high prices that may even exceed the static monopoly price. 2) Honest certification exhibits economies of scale and constitutes a natural monopoly. 3) Price competition tends to a monopolization. The results derive from a general principle of reputation models that favors concentration. This principle implies benefits from specialization and explains specialized certifiers as efficient market institutions that sell reputation as a service to other firms.
    Keywords: certification, collusion, bribery, reputation, natural monopoly
    JEL: L15 D82 L11
    Date: 2004–08
  11. By: Stewart, Geoff
    Abstract: Innovation, Appropriation and Entrepreneurial Strategy Geoff Stewart Economics Division School of Social Sciences University of Southampton Abstract We analyse the strategy of an entrepreneur seeking to earn a return on a new discovery when faced by an incumbent firm and pool of potential entrants. The entrepreneur may choose to purchase the incumbent without revealing the discovery, enter the market as a competitor, or approach the incumbent with a view to some form of cooperation. Among our findings is that it is the magnitude of the discovery and its susceptibility to appropriation, rather than entry costs, that are the main determinants of whether entry will occur. Also, whilst major discoveries will always be implemented, others might be withheld. JEL classification: D23; D43; L13; O31.
    Keywords: Entrepreneur; Property rights; Appropriability; Oligopoly.
    Date: 2004–02–19
  12. By: Elena Cefis; Orietta Marsili
    Abstract: This paper explores the relationship between innovation and the survival of manufacturing firms in the Netherlands. The determinants of the survival probability of a firm, traditionally identified in the size and age of a firm, are extended to include the ability of a firm to introduce an innovation in the market. The empirical analysis combines economic and demographic data from the Business Register of the population of firms active in the Netherlands with data on innovation derived from the second Community Innovation Survey. The survival probability of a firm is estimated by using a non-parametric approach: Transition Probability Matrices were calculating over different time periods. We observe that, in general, innovation has a positive and significant effect on firms' survival that increases as time lengthens. Furthermore, our results confirm that small and young firms are those most exposed to the risk of exit, but at the same time those that benefit most of innovation to survive in the market, especially in the longer term.
    Keywords: Firms Survival, Innovation, Firms Exit, Transition Probability Matrices
    JEL: L11 O30 D21 C14 L25
    Date: 2003–11
  13. By: Simon Loertscher
    Abstract: This paper analyzes price competition between market makers who set costly capacity constraints before they intermediate between producers and consumers. The key finding is that the unique perfect equilibrium outcome is Cournot if capacity is costly and rationing efficient. This result is interesting for two main reasons: It generalizes Kreps and Scheinkman (1983) to an arbitrary number of market makers, and it contrasts with Stahl (1988) and the broader literature on market making, such as Gehrig (1993), Fingleton (1997) and Rust and Hall (2003), where due to the absence of capacity constraints on the input market the Bertrand paradox typically prevails.
    Keywords: Market making; capacity constraints; price competition
    JEL: C72 D41 D43 L13
    Date: 2005–03
  14. By: Xavier Vilà
    Abstract: We analyze the classical Bertrand model when consumers exhibit some strategic behavior in deciding from which seller they will buy. We use two related but different tools. Both consider a probabilistic learning (or evolutionary) mechanism, and in the two of them consumers' behavior in uences the competition between the sellers. The results obtained show that, in general, developing some sort of loyalty is a good strategy for the buyers as it works in their best interest. First, we consider a learning procedure described by a deterministic dynamic system and, using strong simplifying assumptions, we can produce a description of the process behavior. Second, we use nite automata to represent the strategies played by the agents and an adaptive process based on genetic algorithms to simulate the stochastic process of learning. By doing so we can relax some of the strong assumptions used in the rst approach and still obtain the same basic results. It is suggested that the limitations of the rst approach (analytical) provide a good motivation for the second approach (Agent-Based). Indeed, although both approaches address the same problem, the use of Agent-Based computational techniques allows us to relax hypothesis and overcome the limitations of the analytical approach.
    Keywords: Agent-Based Computational Economics, Evolutionary Game Theory, Imperfect Competition
    JEL: C6 C7 D4
    Date: 2005–10–25
  15. By: stefano comino (Dipartimento di Economia, Università di Trento)
    Abstract: In the paper we analyze how the possibility of revealing information to a competitor alters the entry/investment behavior of a first entrant. We show that once it has entered the market, the firm might refrain from making further profitable investments in order to hide information from the competitor. Moreover, we show that before entering the market, the first entrant anticipates that there is a strategic advantage in choosing an initially small scale of entry: in this way it 'commits' itself to revealing the true state of the market with its subsequent decisions and this fact is beneficial since it induces the competitor to postpone entry into market.
    Keywords: Entry, Information Externalities, Wait and See, First Entrant, Strategic Behavior
    JEL: D82 D83 L11
    Date: 2005–10–21
  16. By: Anja Schöttner
    Abstract: This paper analyzes a procurement setting with two identical firms and stochastic innovations. In contrast to the previous literature, I show that a procurer who cannot charge entry fees may prefer a fixed-prize tournament to a first-price auction since holding an auction may leave higher rents to firms when the innovation technology is subject to large random factors.
    Keywords: innovation contest, auction, tournament, quality
    JEL: D44 H57 L15
    Date: 2005–08
  17. By: Georg von Graevenitz (Ludwig-Maximilians-Universität München, University of Munich, Kaulbachstr. 45, D-80539 Munich, Germany)
    Abstract: I develop a model of R&D cooperation with uncertain research outcomes. In this model asymmetric outcomes of R&D competition emerge naturally. Therefore ex-ante and ex-post R&D cooperation can be studied as alternatives for firms. Using this model I compare welfare losses under ex-ante and ex-post R&D cooperation as the degree of product market competition varies. It emerges that the relative size of these welfare losses is monotonically related to the degree of product market competition and the degree of technological opportunity. The implications of these results for the interaction of competition policy and innovation policy are discussed.
    Keywords: Competition Policy, Innovation Policy, R&D Cooperation, Licensing, Research Joint Venture, Oligopolistic R&D
    JEL: L13 L49 O31
    Date: 2005–02
  18. By: Hoesel,Stan,van (METEOR)
    Abstract: The Stackelberg pricing problem has two levels of decision making: tariff setting by an operator, and then selection of the cheapest alternative by customers. In the network version, an operator determines tariffs on a subset of the arcs that he owns. Customers, who wish to connect two vertices with a path of a certain capacity, select the cheapest path. The revenue for the operator is determined by the tariff and the amount of usage of his arcs. The most natural model for the problem is a (bi-linear) bilevel program, where the upper level problem is the pricing problem of the operator, and the lower level problem is a shortest path problem for each of the customers. This manuscript contains a compilation of theoretical and algorithmic results on the Stackelberg pricing problem. The description of the theory and algorithms is generally informal and intuitive. We redefine the underlying network of the problem, to obtain a compact representation. Then, we describe a basic branch-and-bound enumeration procedure. Both concepts are used for complexity issues and the development of algorithms: establishing NP-hardness, approximability, and polynomially solvable cases, and an efficient exact branch-and-bound algorithm.
    Keywords: mathematical applications;
    Date: 2005
  19. By: Ferdinand von Siemens (University of Munich,
    Abstract: In the hold-up problem incomplete contracts cause the proceeds of relation-specific investments to be allocated by ex-post bargaining. The present paper investigates the efficiency of incomplete contracts if individuals have heterogeneous preferences implying heterogeneous bargaining behavior and - equally important - preferences are private information. As the sunk investment costs can thus potentially signal preferences, they can influence beliefs and consequently bargaining outcomes. The necessities of signalling are shown to generate very strong investment incentives. These incentives are based on the desire not to reveal information that is unfavorable in the ensuing bargaining. After finding all perfect Bayesian equilibria in pure strategies, the paper derives the necessary and sufficient conditions under which it is optimal to invest and trade efficiently.
    Keywords: Incomplete Contracts, Hold-Up, Fairness, Bargaining under Incomplete Information, Signalling
    JEL: C70 D23 D63 D82 J33 K12 L22
    Date: 2005–02
  20. By: Stephanie Rosenkranz; Patrick W. Schmit
    Abstract: We consider second-price and first-price auctions in the symmetric independent private values framework. We modify the standard model by the assumption that the bidders have reference-based utility, where the reserve price (minimum bid) plays the role of the reference point. In contrast to the usual result, the seller's optimal reserve price is increasing in the number of bidders. Even if an individual bidder perceives only a very small utility loss when he has to pay more than the reserve price, the impact on the optimal reserve price can be strong when there are many bidders..
    Keywords: Auction theory, reference-dependent utility, reserve prices
    JEL: D44 D81 D82
    Date: 2005–04
  21. By: Narayana R Kocherlakota; Luigi Pistaferri
    Date: 2005–10–26
  22. By: Müller,Rudolf; Perea,Andrés; Wolf,Sascha (METEOR)
    Abstract: An allocation rule is called Bayes-Nash incentive compatible, if there exists a payment rule, such that truthful reports of agents’ types form a Bayes-Nash equilibrium in the directrevelation mechanism consisting of the allocation rule and the payment rule. This paperprovides characterizations of Bayes-Nash incentive compatible allocation rules in socialchoice settings where agents have one-dimensional or multi-dimensional types, quasi-linearutility functions and interdependent valuations. The characterizations are derived byconstructing complete directed graphs on agents’ type spaces with cost of manipulationas lengths of edges. Weak monotonicity of the allocation rule corresponds to the conditionthat all 2-cycles in these graphs have non-negative length.For one-dimensional types and agents’ valuation functions satisfying non-decreasingexpected differences, we show that weak monotonicity of the allocation rule is a necessaryand sufficient condition for the rule to be Bayes-Nash incentive compatibile. In the casewhere types are multi-dimensional and the valuation for each outcome is a linear functionin the agent’s type, we show that weak monotonicity of the allocation rule together withan integrability condition is a necessary and sufficient condition for Bayes-Nash incentivecompatibility.
    Keywords: mathematical economics;
    Date: 2005
  23. By: Radosveta Ivanova-Stenzel; Sabine Kroger
    Abstract: This paper analyzes the trade of an indivisible good within a two-stage mechanism, where a seller first negotiates with one potential buyer about the price of the good. If the negotiation fails to produce a sale, a second-price sealed-bid auction with an additional buyer is conducted. The theoretical model predicts that with risk neutral agents all sales take place in the auction rendering the negotiation prior to the auction obsolete. An experimental test of the model provides evidence that average prices and profits are quite precisely predicted by the theoretical benchmark. However, a significant large amount of sales occurs already during the negotiation stage. We show that risk preferences can theoretically account for the existence of sales during the negotiation stage, improve the fit for buyers' behavior, but is not sufficient to explain sellers' decisions. We discuss other behavioral explanations that could account for the observed deviations.
    Keywords: Auction, negotiation, combined mechanisms, sequential mechanism, risk preferences, experiment
    JEL: C72 C91 D44 D82
    Date: 2005
  24. By: Tong, Jian
    Abstract: This paper develops a theory of the firm, and equilibrium credit rationing mechanisms in oligopoly with R&D-product market competition. Credit rationing arises from a hold-up problem between wealth-constrained entrepreneurs and external investors. Underinvestment occurs if entrepreneurial wealth constraint is binding, even though the equilibrium corporate governance structure addresses the hold-up problem optimally. In a symmetric equilibrium outcome all firms face equitable credit-size rationing. In contrast the asymmetric equilibrium outcome sees some firms (the 'preys') denied external credits entirely while the others (the 'predators') receiving more favorable finances, which turns out to increase market concentration and overall R&D investments. Key words: credit rationing, oligopoly, hold-up, corporate governance, theory of the firm, market structure, predation
    Date: 2005–06–01
  25. By: Stephanie Rosenkranz; Patrick W. Schmitz
    Abstract: The fact that according to the celebrated Coase theorem rational parties always try to exploit all gains from trade is usually taken as an argument against the necessity of government intervention through Pigouvian taxation in order to correct externalities. However, we show that the hold-up problem, which occurs if nonverifiable investments have external effects and parties cannot be prevented from always trying to exploit all gains from trade, may in fact be solved by taxation. Thus, in our framework Coasean bargaining is not a substitute for Pigouvian taxation, instead it is the very reason for government intervention.
    Keywords: Hold-up problem, Bargaining, Contracts, Taxation, Externalities
    JEL: D62 H21 H23 L14
    Date: 2004–04
  26. By: Frank Heinemann (Ludwig-Maximilians-Universität München); Rosemarie Nagel (Universitat Pompeu Fabra, Barcelona, Spain); Peter Ockenfels (Goethe-Universität Frankfurt am Main, Germany)
    Abstract: This paper explores predictability of behavior in coordination games with multiple equilibria. In a laboratory experiment we measure subjects' certainty equivalents for three coordination games and one lottery. Attitudes towards strategic uncertainty in coordination games are related to risk aversion, experience seeking, gender and age. From the distribution of certainty equivalents among participating students we estimate probabilities for successful coordination in a wide range of coordination games. For many games success of coordination is predictable with a reasonable error rate. The best response of a risk neutral player is close to the global-game solution. Comparing choices in coordination games with revealed risk aversion, we estimate subjective probabilities for successful coordination. In games with a low coordination requirement, most subjects underestimate the probability of success. In games with a high coordination requirement, most subjects overestimate this probability. Data indicate that subjects have probabilistic beliefs about success or failure of coordination rather than beliefs about individual behavior of other players.
    JEL: C72 C91 D81 D84
    Date: 2004–05
  27. By: Rod Garratt (Department of Economics, University of California Santa Barbara, CA 93106, USA); Thomas Tröger (Department of Economics, University of Bonn, Adenauerallee 24-42, D-53113 Bonn, Germany)
    Abstract: In standard auctions with symmetric, independent private value bidders resale creates a role for a speculator—a bidder who is commonly known to have no use value for the good on sale. For second-price and English auctions the efficient value-bidding equilibrium coexists with a continuum of inefficient equilibria in which the speculator wins the auction and makes positive profits. First-price and Dutch auctions have an essentially unique equilibrium, and whether or not the speculator wins the auction and distorts the final allocation depends on the number of bidders, the value distribution, and the discount factor. Speculators do not make profits in first-price or Dutch auctions.
    Keywords: standard auctions, speculation, resale, efficiency
    JEL: D44
    Date: 2005–05
  28. By: Simona Fabrizi (Universidad del Pais Vasco); Steffen Lippert (Universität Mannheim and Université Toulouse 1)
    Abstract: We address the question of how the internal organization of partnerships can be affected by moral hazard behavior of their division(s)/agent(s). We explore cases where two entregreneurs, each employing one agent subject ot moral hazard, decide how to conduct a research project together. The project's success probability is affected by agent(s)' effort(s). A joint entity can take two configurations: either both, or only one agent is kept. If two agents are kept, all degrees of substitutability between agents' efforts are considered. We show that the privately optimal internal organization of the joint entity is also socially optimal, except when agents' efforts just start to duplicate each other. In this range, due to moral hazard, too few parterships keeping both agents occur as compared to what would be socially optimal. A restriction on the number of agents to be kept in a partnership would induce too few of them leading to socially worse outcomes.
    Keywords: internal organization of partnerships, moral hazard, efforts' interactions, cost functions
    JEL: D21 D23 L23
    Date: 2004–07
  29. By: Georg von Graevenitz (Ludwig-Maximilians-Universität München, University of Munich, Kaulbachstr. 45, D-80539 Munich, Germany)
    Abstract: We analyse economic welfare in R&D intensive industries under varying assumptions on the spillover process. The focus lies on spillover processes with complementary R&D investments such as those modelling absorptive capacity. There spillovers give rise to both negative and positive externalities. We show that the rationale for public policy intervention is strengthened where spillovers also have positive effects. This conclusion is based on the supermodularity of the spillover process and the investment game. We characterise a large class of spillover processes with similar implications for public policy. We show that results of much empirical work on absorptive capacity extend to this class of models.
    Keywords: spillovers, complementarity, absorptive capacity, supermodularity, oligopolistic R&D
    JEL: L13 O31
    Date: 2004–11

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