
on Microeconomics 
Issue of 2005‒12‒20
twenty papers chosen by Joao Carlos Correia Leitao Universidade da Beira Interior 
By:  Jorge, Silvia Ferreira; Pires, Cesaltina Pacheco 
Abstract:  This paper discusses a model where consumers simultaneously differ according to one unobservable (preference for quality) and one observable characteristic (location). In these circumstances nonlinear prices arise in equilibrium. The main question addressed in this work is whether firms should be allowed to practise different nonlinear prices at each location (delivered nonlinear pricing) or should be forced to set an unique nonlinear contract (mill nonlinear pricing). Assuming that firms can costless relocate, we show that the free entry longrun number of firms may be either smaller, equal, or higher under delivered nonlinear pricing. In addition, we show that delivered nonlinear pricing yields in the longrun higher welfare and, consequently, our results support the view that discriminatory nonlinear pricing should not be prohibited. 
Keywords:  Delivered nonlinear pricing, Mill nonlinear pricing, Asymmetric information, Pricing regulation 
JEL:  D43 L13 D82 
Date:  2004 
URL:  http://d.repec.org/n?u=RePEc:unl:unlfep:wp459&r=mic 
By:  Bergès Sennou, F.; Chambolle, C. 
Abstract:  In this paper, we analyze how the upstream Bertrand competition is distorted when we take into account repetition of the interactions within a vertical relationship. We argue that, in a twoperiod setting, a downstream monopsonist may prevent an efficient producer to prey on a less efficient upstream competitor. The reason is the retailer has an incentive to maintain the inefficient producer on the upstream market in order to preserve its second period buying power towards the efficient supplier. We thus point out that there exists an equilibrium where the efficient supplier grants tariff concessions to the monopsonist retailer to become its exlusive supplier and benefits of a monopoly power in the second period. However, there exists another type of equilibrium where te retailer maintain both suppliers in the first period. In this latter case, for high value of future (high), producters make the retailer pay the high price for enjoying manufacturer's competition in the second period : producers realize a first period monopoly profit whereas competing à la Bertrand. ...French Abstract : Dans cet article, les auteurs analysent comment la concurrence amont à la Bertrand est faussée lorsque l'on prend en compte l'aspect répété des intéractions dans les relations verticales. Ils prouvent que, dans un jeu à deux périodes, un monopsoniste en aval préfère parfois empêcher que le producteur le plus efficace ne s'attaque au producteur moins efficace. La raison est que le détaillant trouve un intérêt à maintenir le producteur inefficace sur le marché amont afin de préserver la concurrence en seconde période. Ils montrent donc qu'il existe un équilibre oû le producteur efficace accorde des concessions tarifaires au détaillant pour devenir son fournisseur exclusif, bénéficiant alors d'un pouvoir de monopole en seconde période. Cependant, il existe aussi un autre type d'équilibre oû le détaillant maintient les deux producteurs en première période. Dans un tel cas, pour des valeurs élevées du taux d'escompte, les producteurs font payer le prix fort au distributeur pour son opportunisme à vouloir faire jouer la concurrence en amont en seconde période. Les producteurs réalisent alors un profit de monopole en première période alors qu'ils se concurrencent à la Bertand. 
Keywords:  BUYING POWER; PREDATORY PRICING; BERTRAND COMPETITION ; COMMERCE DE DETAIL; DISTRIBUTION; CONCENTRATION VERTICALE; CONCURRENCE ECONOMIQUE; MONOPOLE; TAUX D'ESCOMPTE ; BERTRAND 
JEL:  L14 L12 D2 
Date:  2005 
URL:  http://d.repec.org/n?u=RePEc:rea:inrawp:200508&r=mic 
By:  Ron Holzman; Bezalel Peleg; Peter Sudholter 
Abstract:  Let A be a finite set of m alternatives, let N be a finite set of n players and let R<sup>N</sup> be a profile of linear preference orderings on A of the players. Let u<sup>N</sup> be a profile of utility functions for R<sup>N</sup>. We define the NTU game V<sub>u<sup>N</sup></sub> that corresponds to simple majority voting, and investigate its AumannDavisMaschler and MasColell bargaining sets. The first bargaining set is nonempty for m <FONT FACE="Symbol">£</FONT> 3 and it may be empty for m <FONT FACE="Symbol">³</FONT> 4. However, in a simple probabilistic model, for fixed m, the probability that the AumannDavisMaschler bargaining set is nonempty tends to one if n tends to infinity. The MasColell bargaining set is nonempty for m <FONT FACE="Symbol">£</FONT> 5 and it may be empty for m <FONT FACE="Symbol">³</FONT> 6. Furthermore, it may be empty even if we insist that n be odd, provided that m is sufficiently large. Nevertheless, we show that the MasColell bargaining set of any simple majority voting game derived from the kth replication of R<sup>N</sup> is nonempty, provided that k <FONT FACE="Symbol">³</FONT> n + 2. 
Keywords:  NTU game; voting game; majority rule; bargaining set 
JEL:  C71 D71 
Date:  2005–11 
URL:  http://d.repec.org/n?u=RePEc:huj:dispap:dp410&r=mic 
By:  Bonnet, C.; Dubois, P.; Simioni, M. 
Abstract:  We present a methodology allowing to introduce manufacturers and retailers vertical conracting in their pricing strategies on a differentiated product market. We consider in particular two types of non linear pricing relationships, one where resale price maintenance is used with two part tariffs contracts and one where no resale price maintenance is allowed in two part tariffs contracts. Our contribution allows to recover pricecost margins from estimates of demand parameters both under linear pricing models and two part tariffs. The methodology allows then to test between different hypothesis on the contracting and pricing relationships between manufacturers and retailers in the supermarket industry using exogenous variables supposed to shift the marginal costs of production and distritution. We apply empirically this method to study the market for retailing bottle water in France. Our empirical evidence shows that manufacturers and retailers use non linear pricing contracts and in particular two part tariffs contracts with resale price maintenance. At last, thanks to the estimation of our structural model, we present some simulations of counterfactual policy experiments like the change of pricing policies from two part tariffs to linear pricing between manufacturers and retailers, or the change of ownership of some products between manufacturers. ...French Abstract : Dans cet article, les auteurs présentent une méthodologie permettant de modéliser des contrats dans les stratégies de fixation des prix des distributeurs et des producteurs sur un marché oû les produits sont différenciés. Notamment, ils considèrent deux types de contrats à tarifs binômes pour modéliser les relations verticales : avec ou sans prix de revente imposés par les producteurs. Ce papier permet de déterminer les marges prixcoût à partir de paramètres estimés de la demande à la fois pour des modèles de double marginalisation et pour des modèles à tarifs binômes. Différentes hypothèses sur les relations entre producteurs et distributeurs sont alors testées en utilisant des variables exogènes supposées faire varier les coûts marginaux de production et de distribution. Les auteurs appliquent empiriquement cette méthode au marché de l'eau plate nature embouteillée en France. Les résultats empiriques montrent que les producteurs et les distributeurs utilisent des contrats à tarifs binômes avec prix de revente imposés. De plus, grâce aux estimations du modèle structurel, les auteurs simulent des changements de propriété des produits entre producteurs et distributeurs ainsi que des changements de la politique de fixation des prix dans les relations verticales. 
Keywords:  VERTICAL CONTRACTS; TWO PART TARIFFS; MANUFACTURERS; RETAILERS; DOUBLE MARGINALIZATION; COLLUSION; COMPETITION; WATER; DIFFERENTIATED PRODUCTS; NON NESTED TESTS ; CONTRAT; PRODUCTEUR; DISTRIBUTION; COUT MARGINAL; CONCURRENCE ECONOMIQUE; DIFFERENCIATION DES PRODUITS; PRIX; EAU MINERALE; MODELE 
JEL:  L13 L81 C12 C3 
Date:  2005 
URL:  http://d.repec.org/n?u=RePEc:rea:inrawp:200509&r=mic 
By:  Liad Blumrosen; Michal Feldman 
Abstract:  While traditional mechanism design typically assumes isomorphism between the agents' type and action spaces, in many situations the agents face strict restrictions on their action space due to, e.g., technical, behavioral or regulatory reasons. We devise a general framework for the study of mechanism design in singleparameter environments with restricted action spaces. Our contribution is threefold. First, we characterize sufficient conditions under which the informationtheoretically optimal socialchoice rule can be implemented in dominant strategies, and prove that any multilinear socialchoice rule is dominantstrategy implementable with no additional cost. Second, we identify necessary conditions for the optimality of actionbounded mechanisms, and fully characterize the optimal mechanisms and strategies in games with two players and two alternatives. Finally, we prove that for any multilinear socialchoice rule, the optimal mechanism with k actions incurs an expected loss of O(1/k^2) compared to the optimal mechanisms with unrestricted action spaces. Our results apply to various economic and computational settings, and we demonstrate their applicability to signaling games, publicgood models and routing in networks. 
Date:  2005–12 
URL:  http://d.repec.org/n?u=RePEc:huj:dispap:dp412&r=mic 
By:  Holger Strulik (Department of Economics, University of Copenhagen) 
Abstract:  This paper augments an R&Dbased growth model of the third generation with human capital accumulation and impure altruism, calibrates it with U.S. data, and investigates whether the market provides too little or too much R&D. For benchmark parameters the market share of employment in R&D is close to the socially optimal allocation. Sensitivity analysis shows that the order of magnitude of possible deviation between market allocation and optimal R&D is also smaller than suggested by previous studies. Furthermore, the model allows for two additional channels through which population growth may affect the resource allocation so that its overall economic impact is no longer predetermined as being positive. Numerical calibrations show that economic growth at the U.S. average rate during the last century can be consistent with a small and probably negative partial correlation between population growth and economic growth. 
Keywords:  human capital; population growth; endogenous economic growth; R&Dspillovers 
JEL:  J24 O31 O40 
Date:  2005–12 
URL:  http://d.repec.org/n?u=RePEc:kud:kuiedp:0526&r=mic 
By:  Bontems, P.; Fulton, M. 
Abstract:  In this paper, we show formally that cooperatives can possess an informationaland hence costadvantage compared to For Profit Firms (FPFs). Hence the standard practice of modeling the cooperative and the FPF as having identical cost structures appears to be theoretically unsound. The cooperative costand hence production efficiencyadvantage is directly linked to the goal alignment between the cooperative and its members, and is influenced by the extent of income redistribution betwen members and the degree of rent seeking that takes place in the organization. When there is no aversion to income inequality, the members produce at their first best levels. However, as aversion to inequality rises, the production profile of the members converges to the production profile generated when the members face an FPF. Regarding rent seeking if the more (less) efficient members are able to get their profits valued more, total output is increased (devreased). As a consequence, consumers may benefit from the lobbying that occurs inside a cooperative where the powerful members are the most efficient agents. ...French Abstract : Les auteurs montrent formellement dans cet article que les coopératives peuvent résoudre des problèmes d'agences internes à moindre coût que les firmes possédées par des investisseurs extérieurs. L'hypothèse standard consistant à retenir les mêmes structures de coûts pour les deux types d'organisation apparaît alors comme étant infondée d'un point de vue théorique. L'avantage de la forme coopérative en terme d'efficience réside dans le plus grand degré de congruence entre le manager et les membres. Cet avantage est également influencé par l'étendue de la redistribution entre membres opérée au sein de la coopérative et la distribution des pouvoirs au sein de la structure. La production de premier rand est obtenue lorsqu'il y a absence d'aversion pour l'inégalité au sein de la coopérative. Si le degré d'aversion pour l'inégalité augmente alors le profil de production converge vers celui optimal au sein d'une firme possédée par des investisseurs extérieurs. En ce qui concerne l'effet de la distribution du pouvoir politique, si les membres les plus (moins) efficaces sont à même d'obtenur une plus grande valorisation collective de leur revenu, alors la production globale est accrue (diminuée). Ainsi, les consommateurs peuvent bénéficier du lobbying interne à la coopérative lorsque les membres les plus puissants et donc les plus susceptibles d'influencer les décisions sont aussi les plus efficients du point de vue de la production. 
Keywords:  ADVERSE SELECTION; COOPERATIVES; FORPROFIT FIRMS ; THEORIE DE LA FIRME; ORGANISATION; ORGANISATION DE L'ENTREPRISE; COOPERATIVE 
JEL:  D82 L31 Q1 
Date:  2005 
URL:  http://d.repec.org/n?u=RePEc:rea:inrawp:200507&r=mic 
By:  Erkki Koskela; Rune Stenbacka 
Abstract:  We investigate the implications of product market imperfections on profit sharing, wage negotiation and equilibrium unemployment. The optimal profit share, which the firms use as a wagemoderating commitment device, is below the bargaining power of the trade union. Intensified product market competition decreases profit sharing, but increases the negotiated base wage, because the wageincreasing effect of reduced profit sharing dominates the wagereducing effect associated with a higher wage elasticity of labor demand. Finally, we show that intensified product market competition does not necessarily reduce equilibrium unemployment, because it induces both higher wage markups and lower optimal profit shares. 
Keywords:  product market competition, profit sharing, wage bargaining, equilibrium unemployment 
JEL:  J33 J51 L11 
Date:  2005 
URL:  http://d.repec.org/n?u=RePEc:ces:ceswps:_1603&r=mic 
By:  Azacis, Helmuts (Cardiff Business School); Burguet, Roberto 
Abstract:  The existence of exante strong incumbents may constitute a barrier to entry in auctions for goods such as licenses. Introducing inefficiencies that favor entrants is a way to induce entry and thus create competition. Designs such as the AngloDutch auction have been proposed with this goal in mind. We first show that indeed the Anglo Dutch auction fosters entry and increases the revenues of the seller. However, we argue that a more eective way could be to stage the allocation of the good so that each stage reveals information about the participants. We show that a sequence of English auctions, with high reserve prices in early rounds, is a procedure with this property that is more efficient than any onestage entry auction. Moreover, it also dominates the AngloDutch auction in terms of seller's revenues. 
Date:  2005–12 
URL:  http://d.repec.org/n?u=RePEc:cdf:wpaper:2005/11&r=mic 
By:  Carmona, Guilherme 
Abstract:  We consider an asymptotic version of MasColells theorem on the existence of pure strategy Nash equilibria in large games. Our result states that, if players payoff functions are selected from an equicontinuous family, then all sufficiently large games have an " pure, " equilibrium for all " > 0. We also show that our result is equivalent to MasColells existence theorem, implying that it can properly be considered as its asymptotic version. 
Date:  2004 
URL:  http://d.repec.org/n?u=RePEc:unl:unlfep:wp465&r=mic 
By:  Hoernig, Steffen 
Abstract:  The European Union will be introducing a Europewide patent, the socalled Community Patent. Its aim is to foster innovative activity, but strategic effects between firms competing in R&D have not been considered in the official discourse. We show that, even if these are taken into account, the Community Patent will increase innovative activity and welfare. On the other hand, if the decision of participating in R&D is considered, then this increased R&D will be concentrated into fewer firms. Furthermore, we show that existing asymmetries between countries and firms are bound to increase. 
Keywords:  Community patent, R&D race, Participation in R&D 
JEL:  L52 O34 
Date:  2005 
URL:  http://d.repec.org/n?u=RePEc:unl:unlfep:wp467&r=mic 
By:  Faias, Marta 
Abstract:  This paper studies a class of general equilibrium economies in which asset markets arise as choice of /nancial intermediaries. The economy is modeled as a two stage game as in Bisin[8]. In the /rst stage intermediaries set up the /nancial structure according to the expectation that they have for the sec ond stage outcome. In the second stage, consumers behave as price takers in the commodity market and in the previously created assets market. We consider that intermediaries form their expectations using continuous random selections from the second stage equilibrium correspondence (di.erently from Bisin [8] where an endogenous beliefs expectation was used). We establish the existence of equilibria in mixed strategies and moreover, we obtain an approximate equilibria in pure strategies by modeling explicitly the incomplete information that each intermediary has about others intermediaries /xed cost functions. 
Keywords:  Endogenous asset creation, asset design game, strategic intermediaries, continuous random selections, puri/cation of equilibria 
JEL:  G20 D51 
Date:  2004 
URL:  http://d.repec.org/n?u=RePEc:unl:unlfep:wp454&r=mic 
By:  Carmona, Guilherme 
Abstract:  We show that a strategy is a Nash equilibrium in a game with a continuum of players if and only if there exists a sequence of finite games such that its restriction is an "nequilibria, with "n converging to zero. In our characterization, the sequence of finite games approaches the continuum game in the sense that the set of players and the distribution of characteristics and actions in the finite games converge to those of the continuum game. These results render approximate equilibria of large finite economies as an alternative way of obtaining strategic insignificance. Also, they suggest defining a refinement of Nash equilibria for games with a continuum of agents as limit points of equilibria of finite games. This allows us to discard those Nash equilibria that are artifacts of the continuum model, making limit equilibrium a natural equilibrium concept for games with a continuum of players. 
Keywords:  Nash equilibrium, limit equilibrium, noncooperative games, continuum of players 
Date:  2004 
URL:  http://d.repec.org/n?u=RePEc:unl:unlfep:wp442&r=mic 
By:  Machiel van Dijk; Bert Minne; Machiel Mulder; Joost Poort; Henry van der Wiel 
Abstract:  As broadband telecommunication is seen as a source of productivity gains, the European Union and other regions are encouraging the deployment of a secure broadband infrastructure. In the Netherlands, there is some concern whether the supply of broadband capacity will meet the strongly increasing demand. <P> This report analyses the broadband market and asks whether a specific role of government is necessary. <P> The main conclusions are that presently, given current broadband policy, no considerable market failures exist. Firms have adequate incentives to invest in broadband, partly induced by specific regulation of access to the local copper loop. Hence, there is no need for changes in current broadband policy. Market failures in terms of knowledge spillovers are taken care of by other policies. As the broadband markets are very dynamic, unforeseen developments may emerge such as the appearance of new dominant techniques and market players. <P> The best strategy for the government, in particular the competition authority, is to continuously monitor these markets, making timely intervention easier when needed. 
Keywords:  telecommunication; telecom; network; network industries; broadband; regulation; market failure 
JEL:  D61 D62 L51 O38 
Date:  2005–12 
URL:  http://d.repec.org/n?u=RePEc:cpb:docmnt:102&r=mic 
By:  Steven Brakman; Harry Garretsen; Charles van Marrewijk 
Abstract:  By combining two large data sets (on international trade flows and on mergers and acquisitions  M&As), we are able to test two implications of Neary’s (2003, 2004a) recent theoretical work. Analyzing M&As in a General Oligopolistic Equilibrium (GOLE) model incorporating strategic interaction between firms in a general equilibrium setting, we argue that: (i) M&As follow revealed comparative advantage as measured by the Balassa index, and (ii) M&As come in waves. We find convincing support for both hypotheses, thus showing for the first time that there is an empirical connection between export performance and mergers and acquisitions. 
Keywords:  comparative advantage, cross border mergers and acquisitions, merger waves, general oligopolistic equilibrium model 
JEL:  F10 F12 L13 
Date:  2005 
URL:  http://d.repec.org/n?u=RePEc:ces:ceswps:_1602&r=mic 
By:  Nicolae Garleanu; Lasse Heje Pedersen; Allen M. Poteshman 
Abstract:  We model the demandpressure effect on prices when options cannot be perfectly hedged. The model shows that demand pressure in one option contract increases its price by an amount proportional to the variance of the unhedgeable part of the option. Similarly, the demand pressure increases the price of any other option by an amount proportional to the covariance of their unhedgeable parts. Empirically, we identify aggregate positions of dealers and end users using a unique dataset, and show that demandpressure effects help explain wellknown optionpricing puzzles. First, end users are net long index options, especially outofmoney puts, which helps explain their apparent expensiveness and the smirk. Second, demand patterns help explain the prices of singlestock options. 
JEL:  G0 G12 G13 G14 
Date:  2005–12 
URL:  http://d.repec.org/n?u=RePEc:nbr:nberwo:11843&r=mic 
By:  Bontemps, C.; Orozco, V.; Réquillart, V. 
Abstract:  We study the price response of national brands to the development of private labels. We use monthly data from a consumer survey reporting their purchases for 218 food products. We show that when private labels have a significant effect on national brands prices (144 cases over 218), that is positive (89%). We also show that the increase in the prices of national brand products is explained by a strategy of product differentiation. Finally, price reaction of national brands differs with the type of private labels they are facing. This paper confirms, on a larger number of products, previous empirical results. ...French Abstract : Les auteurs étudient la réponse en prix des producteurs de marques nationales au développement des marques de distributeurs. Ils utilisent des données mensuelles d'achats issues d'un panel de consommateurs, concernant 218 produits alimentaires. Ils montrent que le développement des marques de distributeurs a un effet significatif sur les prix des marques nationales (144 cas sur 218), qui est positif (89%). Ils montrent aussi que l'augmentation des prix des marques nationales est, en partie, expliquée par une stratégie de différenciation des producteurs de marques nationales. Enfin, la réaction en prix des marques nationales est différente suivant le type des marques de distributeurs. Ce papier confirme, sur un plus grand nombre de produits, nos précédents résultats empiriques. 
Keywords:  PRIVATE LABELS; PRICING; EMPIRICAL MODELS; FOOD PRODUCTS ; MARQUE DE DISTRIBUTEUR; DIFFERENCIATION DES PRODUITS; PRIX; CONSOMMATION DES MENAGES 
JEL:  L81 Q13 D4 
Date:  2005 
URL:  http://d.repec.org/n?u=RePEc:rea:inrawp:200506&r=mic 
By:  Hoernig, Steffen 
Abstract:  We analyze how sharing rules affect Nash equilibria in Bertrand games, where the sharing of profits at ties is a decisive assumption. Necessary conditions for either positive or zero equilibrium profits are derived. Zero profit equilibria are shown to exist under weak conditions if the sharing rule is signpreserving. For Bertrand markets we define the class of expectation sharing rules, where profits at ties are derived from some distribution of quantities. In this class the winnertakeall sharing rule is the only one that is always signpreserving, while for each pair of demand and cost functions there may be many others. 
Keywords:  Bertrand games, Sharing rule, Tiebreaking rule, Signpreserving sharing rules, Expectation sharing rules 
JEL:  C72 D43 L13 
Date:  2005 
URL:  http://d.repec.org/n?u=RePEc:unl:unlfep:wp468&r=mic 
By:  Edward J. Lopez (San Jose State University) 
Abstract:  The purpose of this paper is to evaluate two new antimerger instruments, innovation markets and unilateral effects, on the basis of economic theory and evidence. I first discuss how the economics of antitrust has developed over the years, with the intention of characterizing the intellectual inheritance of 1990s’ antitrust regulators. Within this context, I then discuss each antimerger instrument, how it has been applied in specific cases, and how it accords with underlying economic science. On the basis of these arguments, antitrust regulators should pause and reconsider the theoretical and empirical bases of applying unilateral effects and innovation markets to merger investigations. 
Keywords:  antitrust, mergers, innovation markets, unilateral effects 
JEL:  K 
Date:  2005–12–12 
URL:  http://d.repec.org/n?u=RePEc:wpa:wuwple:0512003&r=mic 
By:  Jeffrey R. Campbell 
Abstract:  This paper develops a simple and robust implication of free entry followed by competition without substantial strategic interactions: Increasing the number of consumers leaves the distributions of producers' prices and other choices unchanged. In many models featuring nontrivial strategic considerations, producers' prices fall as their numbers increase. Hence, examining the relationship between market size and producers' actions provides a nonparametric tool for empirically discriminating between these distinct approaches to competition. To illustrate its application, I examine observations of restaurants' seating capacities, exit decisions, and prices from 224 U.S. cities. Given factor prices and demographic variables, increasing a city's size increases restaurants' capacities, decreases their exit rate, and decreases their prices. These results suggest that strategic considerations lie at the heart of restaurant pricing and turnover. 
JEL:  L11 L81 
Date:  2005–12 
URL:  http://d.repec.org/n?u=RePEc:nbr:nberwo:11847&r=mic 