nep-mic New Economics Papers
on Microeconomics
Issue of 2006‒05‒27
ten papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Sequential Entry in a Vertically Differentiated Duopoly By Luca Lambertini; Piero Tedeschi
  2. On the Social Desirability of Patents for Sequential Innovations in a Vertically Differentiated Market By Luca Lambertini; Piero Tedeschi
  3. Would you like to enter first with a low-quality good? By Luca Lambertini; Piero Tedeschi
  4. Degree of innovativeness and market structure: A model By Daniela Grieco
  5. Transactions costs, innovation and learning By Nooteboom,Bart
  6. The Impact of E-Procurement on the Number of Suppliers : Where to Move to? By Daniel Nepelski
  7. The Stability of Electricity Prices: Estimation and Inference of the Lyapunov Exponent By Mikael Bask; Tung Liu; Anna Widerberg
  8. Networks Performance and Contractual Design: Empirical Evidence from Franchising By Magali Chaudey; Muriel Fadairo
  9. Recycling With Endogeneous Consumer Participation By Soham Baksi; Ngo Van Long
  10. Beyond Penrose : a cognitive theory of the firm By Nooteboom,Bart

  1. By: Luca Lambertini; Piero Tedeschi
    Abstract: We analyse a model of vertical differentiation focusing on the trade-off between entering early and exploiting monopoly power with a low quality, versus waiting and enjoying a dominant market position with a superior product. We show that, in a relevant parameter region, there exists a unique equilibrium where the leader enters with a lower quality than the follower. This happens when the time span spent by the leader as a monopolist matters the most, i.e., in correspondence of sufficiently low discount rate values, low costs of quality improvement and high consumers' willingness to pay for quality.
    Keywords: vertical differentiation, product innovation, monopoly rent
    JEL: L13 O31
    Date: 2006–05
  2. By: Luca Lambertini; Piero Tedeschi
    Abstract: We consider a market for vertically differentiated goods where firms enter over time, after having developed innovations characterised by different quality levels. We show that patent height and length interact to determine the ultimate emergence of duopoly. In general, imposing quality improvements on later entrants entails the persistence of monopoly, while a duopoly equilibrium emerges when the second innovator is allowed to produce a sufficiently inferior quality and the patent protection granted to the first innovator is not too long-lasting.
    Keywords: innovation, patent height, product quality
    JEL: L12 L13 O31
  3. By: Luca Lambertini; Piero Tedeschi
    Abstract: Using a two-period duopoly model with vertical differentiation, we show that there exists a unique subgame perfect equilibrium where the first entrant supplies a lower quality and gains higher profits than the second entrant. We also prove that this entry sequence is socially efficient.
    Keywords: entry, vertical differentiation
    JEL: C73 D43 L13
    Date: 2006–05
  4. By: Daniela Grieco (CESPRI, Bocconi University, Milano,Italy.)
    Abstract: A limited number of business firms engage in disruptive innovative activity. When firms decide among alternative innovative patterns, inertial forces may bias their choices in favour of incremental innovations. This paper proposes a model that compares firms’ value when firms can invest in strategies implying different degrees of innovativeness. The model shows that incremental strategies emerge as a dominant strategy for oligopolists when imitation of incremental innovation is sufficiently slow and firms are not too asymmetric in their access to knowledge. If these conditions are not respected, the model exhibits an additional symmetric Nash equilibrium where firms select radical innovations.
    Keywords: Radical innovation, Incremental Innovation, Imperfect competition, Patent race.
    JEL: D21 D81 L20 O33
    Date: 2006–04
  5. By: Nooteboom,Bart (Tilburg University, Center for Economic Research)
    Keywords: transaction costs;innovation;learning;inter-organizational relations;networks
    JEL: L14 L22 L24 O31 O32 Z13
    Date: 2006
  6. By: Daniel Nepelski
    Abstract: This paper examines how electronic procurement influences the organization of economic transactions. It seeks evidence for ICT-induced changes in how companies organize their activities and whether ICT lead to more competitive and transparent markets. Testing the relationship between the effect of electronic procurement on procurement cost and sourcing strategy, I provide new evidence that electronic procurement leads to more market transactions. This leads to the conclusion that electronic procurement increases market transparency, lowers search and supplier switching costs and improves the management of supply chain and contradicts the predictions that ICT will lead to a dominance of network-like organizational form and an increasing reliance on hybrid forms of organizing economic transactions. Two implications emerge from these results. The first one is relevant for companies engaging in ICT projects. ICT combined with changes in business strategy leads to a reduction of market transaction costs and, as a result, opens up new possibilities in terms of how business activities can be organized and/or how to structure competition in upstream markets. This effect of new technologies is of clear benefit to companies successfully implementing and using new technologies. The second implication is of great importance for companies whose customers implement ICT to intensify competition among suppliers. Changing environment forces them to adapt to new market conditions and look for new ways of maintaining profitability.
    Keywords: information technology and firm boundaries, markets vs. hierarchies, sourcing strategy, electronic procurement
    JEL: L22
    Date: 2006
  7. By: Mikael Bask (Monetary Policy and Research Department, Bank of Finland,); Tung Liu (Department of Economics, Ball State University); Anna Widerberg (Department of Economics,)
    Abstract: The aim of this paper is to illustrate how the stability of a stochastic dynamic system is measured using the Lyapunov exponents. Specifically, we use a feedforward neural network to estimate these exponents as well as asymptotic results for this estimator to test for unstable (chaotic) dynamics. The data set used is spot electricity prices from the Nordic power exchange market, Nord Pool, and the dynamic system that generates these prices appears to be chaotic in one case.
    Keywords: Feedforward Neural Network; Nord Pool; Lyapunov Exponents; Spot Electricity Prices; Stochastic Dynamic System
    JEL: C12 C14 C22
    Date: 2006–04
  8. By: Magali Chaudey (CREUSET (EA 3724) - Centre de Recherche Economique de l'Université de Saint Etienne - [Université Jean Monnet - Saint-Etienne]); Muriel Fadairo (CREUSET (EA 3724) - Centre de Recherche Economique de l'Université de Saint Etienne - [Université Jean Monnet - Saint-Etienne])
    Abstract: This article deals with the links between networks performance and the design of vertical contracts. It provides evidence broadly consistent with the hypothesis that within franchising systems, constraining contracts for the retailers favor a better performance at the network level
    Keywords: vertical relationships; contractual constraints; contracts econometrics
    Date: 2006–05–22
  9. By: Soham Baksi; Ngo Van Long
    Abstract: We show that the cost of sorting and the network effects jointly determine the rate of participation of consumers in the process of recycling. The dominant producer of virgin material takes into account the recycling activities when it makes its pricing decision. The network effects can create multiplicity of steady-state equilibria. The government can improve welfare by influencing equilibrium selection. <P>On montre que le coût de triage et les effets de réseau déterminent le taux de participation des consommateurs au processus de recyclage. La firme dominante tient compte des activités de recyclage en choisissant le prix du produit primaire. Les effets de réseau peuvent créer la multiplicité d’équilibres stationnaires. Le gouvernement peut améliorer le bien-être social par son influence sur le choix d’équilibres.
    Keywords: dominant firm, multiple equilibria, network effect, recycling, effet de réseau, firme dominante, multiplicité d’équilibres, recyclage
    JEL: D4 L1 Q2
    Date: 2006–05–01
  10. By: Nooteboom,Bart (Tilburg University, Center for Economic Research)
    Abstract: This paper uses a cognitive theory of firms and organizations, with a focus on learning and innovation. Here, cognition is a wide notion, including value judgments and corresponding feelings and emotions. This paper focuses on the relation between that cognitive theory and Penrose's theory of the growth of the firm. As in Penrose's work, the focus is on learning, rather than on efficient utilization of resources or appropriation of returns from them. Also as in Penrose, the underlying view of cognition is a constructivist one, according to which people with different experience view the world differently. So far, the paper is consistent with Penrose. However, it also adopts and further develops some of the criticism of her views, concerning the role of other human resources than managers in organizational learning, problems of conflicts of interest and governance within the firm, dynamic capabilities for developing new capabilities, and, above all, the alternative of collaboration between firms, for learning and innovation, in the combination of capabilities between rather than within the firm. In particular, it argues that, in contrast with Penrose, there are limits to firm size.
    Keywords: theory of the firm;Penrose;knowledge;learning;innovation;dynamic capabilities;firm size;growth of the firm
    JEL: D21 L22 M13 M14 O31
    Date: 2006

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