nep-mic New Economics Papers
on Microeconomics
Issue of 2006‒03‒05
seventeen papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  2. Skewed Pricing in Two-Sided Markets: An IO approach By Wilko Bolt; Alexander F Tieman
  3. Profitability of Horizontal Mergers in Trigger Strategy Game By Berardino Cesi
  5. Competition for a Prize By Rob van der Noll
  6. Scale Economies with Regard to Price Adjustment Costs and the Speed of Price Adjustment in Australian Manufacturing By Michael Olive
  7. Pricing Growth-Indexed Bonds By Marcos Chamon; Paolo Mauro
  8. ‘Unfair’ Discrimination in Two-sided Peering? Evidence from LINX By Alessio D’Ignazio; Emanuele Giovannetti
  9. Consumers’ quality perception as a basis for fish market segmentation in Belgium By W. VERBEKE; I. VERMEIR; Z. PIENIAK; K. BRUNSØ
  10. Outcomes and Strategy Choices in Tullock Contests By Flavio Menezes; John Quiggin
  11. Firm resources: a double-edged sword? Resources as enablers and inhibitors of competitive responsiveness By Debruyne, M.; Frambach, R.; Moenaert, R.
  12. Regulatory Capture in Banking By Daniel C. Hardy
  13. Dynamic Firm Regulation with Endogenous Profit-Sharing By Michele Moretto; Paola Valbonesi
  14. The Welfare Effects of Discrimination in Insurance By Rob van der Noll
  15. Social Welfare and Cost Recovery in Two-Sided Markets By Wilko Bolt; Alexander F. Tieman
  16. Bargaining Multiple Issues with Leximin Preferences By Amparo M. Mármol Conde; Clara Ponsatí Obiols
  17. Bank Efficiency and Competition in Low-Income Countries: The Case of Uganda By David Hauner; Shanaka J. Peiris

  1. By: Roberto Hernan; Praveen Kujal
    Abstract: Incentives to vertically integrate are studied in an industry where downstream firms are vertically differentiated. Vertical integration by one of the firms increases production costs for the rival. Increased production costs impact quality investment both by the integrated firm and the unintegrated rival. A firm, integrating first, always produces the high quality good and earns higher profits. Quality investment by both firms decreases under any (vertical integration) scenario and competition among downstream firms is softened. A fully integrated industry, with increased product differentiation, is observed in equilibrium. Due to increase in firm profits, social welfare under this structure is greater than under no integration.
    Date: 2006–02
  2. By: Wilko Bolt (De Nederlandsche Bank); Alexander F Tieman (International Monetary Fund)
    Date: 2005–09–03
  3. By: Berardino Cesi
    Abstract: It is shown that, in a dynamic competition, an exogenous horizontal merger is profitable even if a small share of active firms merge. However, each firm has incentive to remain outside the merger because it would benefit more (Insiders’dilemma). We show that in an infinite repeated game in which the firms use trigger strategies an exogenous bilateral merger can be profitable and the Insiders’dilemma is mitigated.
    Keywords: Horizontal mergers; Insiders’ dilemma; trigger strategy
    JEL: C73 L13 D43 G34 L41
    Date: 2006–01
  4. By: María Fernanda Viecens
    Abstract: In this paper we construct a simple model of platform price competition with two main novel features. First, platforms endogenously decide the quality of their `access service' and second, each group exhibits preferences not only about the number of agents in the opposite group, but also about their type or quality. Additionally, sellers also care about the type of agents in their own group. Our interest is to examine the set of conditions under which, in spite of the network externalities, more than one plaftorm coexist in equilibrium. We show that when quality is endogenously determined by the choices of agents these platforms could be asymmetric.
    Date: 2006–02
  5. By: Rob van der Noll (CPB Netherlands Bureau for Economic Policy Analysis, and Erasmus Universiteit Rotterdam)
    Abstract: I present a model in which individuals compete for a prize by choosing to apply or not. Abilities are private information and in attempt to select the best candidate, the committee compares applicants with an imperfect technology. The choice of application cost, size of the prize and use of information technology are being characterized. In equilibrium, the number of applicants is stochastic and may overload the committee. I show that in spite of overload, the optimal cost (size of the prize) is decreasing (increasing) in market size. Furthermore I show when having a perfect information technology is not optimal.
    Keywords: asymmetric information; beauty contest design; award competition; information overload
    JEL: D82
    Date: 2005–01–20
  6. By: Michael Olive (Department of Economics, Macquarie University)
    Abstract: The standard quadratic price adjustment cost function makes no allowance for firm size or for scale economies. Incorporating quadratic price adjustment costs into the profit function, a firm's speed of price adjustment is both shown to be a positive/negative function of its size when firms have scale economies/diseconomies with regard to these costs and to be a negative function of market power. The intuitive explanation is that large firms that can defray this type of cost have less reason to slow price adjustment, while firms with market power are better able to offset price adjustment costs by slowing their speed of price adjustment. These results are used to derive an industry error correction model of pricing where the speed of price adjustment is a weighted average of the firm effects. Estimation of the model is carried out on data obtained from nine two-digit Australian manufacturing industries during the period 1994:3 to 2002:2. The empirical results suggest that the speed of price adjustment is positively related to the size of firms within an industry and negatively related to industry concentration. Given that these variables do not change rapidly over time, they are likely to have a steadying influence on the speed of price adjustment at an aggregate level in the face of changes to monetary and fiscal policy.
    Keywords: Speed of price adjustment, adjustment costs, Australian manufacturing
    JEL: D21 L11 L13 L16 L60
    Date: 2005–05
  7. By: Marcos Chamon; Paolo Mauro
    Keywords: Emerging markets , Bonds , Pricing policy ,
    Date: 2005–12–02
  8. By: Alessio D’Ignazio; Emanuele Giovannetti
    Abstract: Does asymmetry between Internet Providers affect the “fairness” of their interconnection contracts? While recent game theoretic literature provides contrasting answers to this question, there is a lack of empirical research. We introduce a novel dataset on micro-interconnection policies and provide an econometric analysis of the determinants of peering decisions amongst the Internet Service Providers interconnecting at the London Internet Exchange Point (LINX). Our key result shows that two different metrics, introduced to capture asymmetry, exert opposite effects. Asymmetry in “market size” enhances the quality of the link, while asymmetry in “network centrality” induces quality degradation, hence “unfairer” interconnection conditions.
    Keywords: Internet Peering, Two-sided Markets, Network Industries, Antitrust
    JEL: L14 L86 L96 C81 L40
    Date: 2006–02
    Abstract: This paper focuses on consumers’ quality perception of fish in Belgium and its impact on interest in information, beliefs and behaviour. Cross-sectional data were collected from a sample of 429 consumers in March 2003. Two dimensions shape fish quality perception: consumer involvement with fish quality and consumers’ self-estimated ability to assess fish quality, which allow segmenting the market in four fish consumer segments. The segments are typified as Uninvolved, Insecure, Self-confident and Connoisseurs, and have distinctive socio-demographic, attitudinal and behavioural profiles. The Uninvolved are mainly young males, have the lowest fish consumption level, weakest belief in health benefits from eating fish, and lowest interest in both search and credence information cues. Insecure fish consumers are mainly females, with a tendency of lower education and urban residence, who feel not able to evaluate fish quality, although they find quality very important. They display a strong interest in a fish quality label. The most relevant facts about Self-confident consumers, who display an average socio-demographic profile, are their high fish consumption level, and their low interest in a fish quality label. Connoisseurs are mainly females in the age category 55+, who are strongly involved with food in general and well aware of the association between food and health. They have the highest fish consumption and show a strong interest in both search and credence cues, as well as in a fish quality label. The segments do not differ with respect to risk perception about fish.
    Keywords: Fish, Consumer, Quality, Perception, Information, Segmentation
    Date: 2005–12
  10. By: Flavio Menezes (Australian National University); John Quiggin (Department of Economics, University of Queensland)
    Abstract: We explore the relationship between the choice of the strategy space and outcomes in Tullock contests. In particular, in a framework where one of the contest's participants moves first, we show that there is an equilibrium where this individual wins the contest with probability one. We also show that not only the nature of the outcome changes (e.g., who wins the contest) with the choice of the strategy space but also that a contest organiser might have preferences over this space. We argue that ultimately the analyst does not have complete freedom to choose the strategy space. Instead, he or she should consider the strategies that are permitted by the organisers of a formal contest, whose interests might lie in maximising returns. That is, the analyst's choice of the strategy space is not neutral.
    Keywords: Strategy space, Tullock contests
    JEL: C7
    Date: 2005–06
  11. By: Debruyne, M.; Frambach, R.; Moenaert, R.
    Abstract: We show that resources possess a dual, and opposing, role in influencing competitive responsiveness. On the hand, resources enhance decision-makers’ belief that they are able to respond effectively to competitive attacks, but the presence of resources also makes them less motivated to respond. We demonstrate the key role competitor orientation plays in this process and formulate managerial implications from that.
    Keywords: new product introductions, competitive reaction, managerial assessment
    Date: 2006–02–22
  12. By: Daniel C. Hardy
    Keywords: Banking , Bank regulations , Capital , Competition ,
    Date: 2006–02–08
  13. By: Michele Moretto; Paola Valbonesi
    Abstract: To avoid the extremely high profit levels found in recent experiences with price cap regulation, some regulators have applied a profit-sharing (PS) rule that revises prices to the benefit of consumers. This paper investigates the conditions under which a regulator can implement such a PS scheme, having contract closure as outside option if the firm's profits are excessive. We determine both the level of profits that triggers the PS and the consequent price adjustment endogenously. We then explore the PS dynamic efficiency in the repeated regulator-firm relationship.
  14. By: Rob van der Noll (CPB Netherlands Bureau for Economic Policy, and Erasmus Universiteit Rotterdam)
    Abstract: We study an insurance model characterized by a continuum of risk types, private information and a competitive supply side. We use the model to investigate the welfare effects of discrimination (also known as risk selection). We postulate that a test is available that determines whether an applicant's risk exceeds a treshold. Excluding the highest risks softens adverse selection, but constitutes a welfare loss for the high risks. In contrast to a lemons market intuition, we find that aggregate surplus decreases when risk aversion is high. When risk aversion is low however, discrimination increases aggregate surplus.
    Keywords: insurance; adverse selection; risk selection; discrimination
    JEL: D82 K29
    Date: 2006–01–20
  15. By: Wilko Bolt; Alexander F. Tieman
    Keywords: Markets , Price structures , Tariffs , Economic models ,
    Date: 2005–10–17
  16. By: Amparo M. Mármol Conde (Universidad de Sevilla); Clara Ponsatí Obiols (Institut d'Anàlisi Econòmica. CSIC)
    Abstract: Global bargaining problems over a finite number of different issues, are formalized as cartesian products of classical bargaining problems. For maximin and leximin bargainers we characterize global bargaining solutions that are efficient and satisfy the requirement that bargaining separately or globally leads to equivalent outcomes. Global solutions in this class are constructed from the family of monotone path solutions for classical bargaining problems.
    Keywords: Global bargaining, maximin preferences, leximin preferences
    JEL: C7 C78
    Date: 2006
  17. By: David Hauner; Shanaka J. Peiris
    Date: 2006–01–09

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