nep-mic New Economics Papers
on Microeconomics
Issue of 2006‒07‒09
sixteen papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. License auctions when winning bids are financed through debt By Haan, M.A.; Toolsema, L.A.
  2. Differentiated duopoly with "Elimination by Aspects" By Reynald-Alexandre Laurent
  3. Competition and Innovation - Microeconometric Evidence using Finnish Data By Juha Kilponen; Torsten Santavirta
  4. Market Structure and Communicable Diseases By Stéphane Mechoulan
  5. Back to Basics: A New Look at Gate-revenue Sharing and Competitive Balance By Robert Sandy; Peter Sloane; John Treble
  6. Price Leadership in the Dutch Mortgage Market By Leo de Haan; Elmer Sterken
  7. Satisficing or Optimizing? - An Experimental Study By Werner Güth; Gerlinde Fellner; Ev Martin
  8. Efficiency vs. agency motivations for bank takeovers: some empirical evidence By Alessio De Vincenzo; Claudio Doria; Carmelo Salleo
  9. Bidding behavior in the bisection auction – an experimental investigation By Grigorieva Elena; Strobel Martin
  10. Innovativity: A Comparison Across Seven European Countries By Pierre Mohnen; Jacques Mairesse; Marcel Dagenais
  11. Rottenberg and the Economics of Sport after 50 years: An Evaluation By Peter Sloane
  12. Compétitivité structurelle By Marcus Dejardin
  13. Regulatory Competition and Federalism in Switzerland: Diffusion by Horizontal and Vertical Interaction By Lars P. Feld
  14. A General Equilibrium Analysis of Emission Allowances By Alexandrine Jamin; Antoine Mandel
  15. Global Overview of Innovative Activities from the Patent Indicators Perspective By Mosahid Khan; Hélène Dernis
  16. Innovation and productivity in European industries By Mario Pianta; Andrea Vaona

  1. By: Haan, M.A.; Toolsema, L.A. (Groningen University)
    Abstract: We study an auction where two licenses to operate on a new market are sold, and winning bidders finance their bids on the debt market. Higher bids imply higher debts, which affects product market competition. We compare our results to those of a beauty contest and a standard auction. For the case that debt induces firms to compete more aggressively, we find that consumer prices are lower, and expected firm profits are strictly positive although firms are a priori identical. When debt induces firms to compete less aggressively, we find that firms make zero profits, and consumer prices are higher.
    Date: 2006
  2. By: Reynald-Alexandre Laurent
    Abstract: "Elimination by aspects" (EBA) is a discrete model of probabilistic choice worked out by Tversky in 1972 which supposes that decision makers follow a particular heuristic during a process of sequential choice. Options are described by their attributes and, at each decision stage, the individuals eliminate all the options not having an expected given attribute, and so until only one option remains. In this paper, probabilities resulting from the EBA model are used to construct demands of a differentiated duopoly with imperfect rationality. These demands are consistent with partial heterogeneity of tastes and may be linked with a spatial framework in which consumers have convex perception of distance. In this model, a Nash price equilibrium in pure strategies exists if the cost of the highest attributes level firm is not too low. In this case, the "differentiation by attributes" form retained here is both horizontal and vertical, which is not very frequent in the literature. When the equilibrium does not exists, the interaction of best response functions of the firms induces an Edgeworth cycle instead of an exit of the lowest attributes level firm. This result underlines the role of cost difference in the existence of such a cycle.
    Date: 2006
  3. By: Juha Kilponen; Torsten Santavirta
    Abstract: The relationship between product market competition (PMC) and innovative activity has attracted the attention of many economists lately. In this study we elaborate the theory of Aghion et al. (1997, 2001) of an inverted-U relationship between competition and innovations. We provide a theoretical prediction of a complementary relationship between the incentive effects of PMC and R&D subsidies. We empirically test our complementarity prediction and that of an inverted-U relationship using Finnish firm level data. Our results suggest that the inverted-U relationship is fairly robust to all our innovation measures. We also find that the inverted-U relationship tends to be steeper when also direct R&D subsidies are considered. This result suggests that there exists complementarity between competition and R&D subsidies.
    Keywords: Product market competition, Innovation, R&D subsidies
    JEL: O31 O10 O30 L10
    Date: 2004–11–15
  4. By: Stéphane Mechoulan
    Abstract: Communicable diseases pose a formidable challenge for public policy. Using numerical simulations, we show under which scenarios a monopolist’s price and prevalence paths converge to a nonzero steady-state. In contrast, a planner typically eradicates the disease. If eradication is impossible, the planner subsidizes treatments as long as the prevalence can be controlled. Drug resistance exacerbates the welfare difference between monopoly and first best outcomes. Nevertheless, because the negative externalities from resistance compete with the positive externalities of treatment, a mixed competition/monopoly regime may perform better than competition alone. This result has important implications for the design of many drug patents.
    Keywords: communicable disease, resistance, epidemiology, patent
    JEL: I18 L12
    Date: 2005–06–27
  5. By: Robert Sandy (Indiana University Purdue University Indianapolis (IUPUI)); Peter Sloane (University of Swansea); John Treble (University of Swansea)
    Abstract: Most models with profit maximizing teams conclude that competitive balance is unchanged or reduced in response to gate sharing. We critique these models and then develop three alternatives: adding unshared post-season revenue; modelling the largest market team as a dominant firm with a rising marginal cost of talent; and a new general model that incorporates both a consumer demand for athletic talent and close competition. All three approaches can cause gate sharing to increase competitive balance.
    Keywords: Sport, Monopsony, Monopoly Power
    JEL: J0 L0 L83
    Date: 2006–06
  6. By: Leo de Haan; Elmer Sterken
    Abstract: We study competitive price setting behavior in the Dutch mortgage market, using daily observations on advertised 5- and 10-year mortgage interest rates for a sample of the four largest Dutch banks. We (1) estimate a VECM model, (2) a discrete choice model and (3) a structural conjectural variation model. The results indicate that one of the banks is a price leader, but that waiting for the leader to set the first step does not exclude competitive pricing by the followers.
    Keywords: Mortgage market; Competition; Price leadership; VECM; Probit; Conjectural variation.
    JEL: G21 L13
    Date: 2006–06
  7. By: Werner Güth; Gerlinde Fellner; Ev Martin
    Abstract: This experimental study investigates whether individuals prefer bounded rationality over rational choice theory when facing simple investment tasks. First, participants state some personal parameters that serve as an input to render a theoretical approach, namely satisficing or optimality, applicable. Then, they are guided through the decision making process where either ‘satisficing’ or ‘optimality’ is suggested and has to be implemented. The behavioral appeal of the two approaches is measured by the adjustments of personal parameters until accepting the investment decision suggested by theory. Additionally, a questionnaire is administered to elicit subjective contentment with the two approaches.
    Keywords: Theory absorption; Satisficing behavior; Portfolio selection
    JEL: C91 D81 G11
    Date: 2006–07
  8. By: Alessio De Vincenzo (Bank of Italy); Claudio Doria (Bank of Italy); Carmelo Salleo (Bank of Italy)
    Abstract: Bank takeovers result on average in little improvements in performance. This may be due to conflicting driving forces behind them; however these have seldom been studied. We study directly the motivations for bank acquisitions by analyzing the prices paid for them, under the assumption that bankers are willing to pay for what they want. We find that there is no evidence that bankers are ready to pay for possible economies of scale and scope; on the other hand buyers expect to transfer their superior managerial skills to targets. Market power seems to hold little value while entry (or diversification) commands a premium. Agency issues at the buyer are also an important motivation for takeovers: other things being equal acquirers with more free capital are willing to pay more.
    Keywords: banking, M&As, pricing, corporate governance, market power
    JEL: G21 G34 L21
    Date: 2006–05
  9. By: Grigorieva Elena; Strobel Martin (METEOR)
    Abstract: We present a laboratory experiment in which we investigate bidding behavior with independent private values in the recently proposed bisection auction, and compare it with two classical auction formats - the Vickrey auction and the English auction. We test whether subjects behave strategically equivalent, following the dominant truth-telling strategy, as predicted by theory. Furthermore, we provide some insights concerning the learning process, the efficiency of allocation, and the revenue to the auctioneer. Data show that the bisection auction performs better than the Vickrey auction and only in some terms worse than the English auction.
    Keywords: Economics ;
    Date: 2006
  10. By: Pierre Mohnen; Jacques Mairesse; Marcel Dagenais
    Abstract: This paper proposes a framework to account for innovation similar to the usual accounting framework in production analysis and a measure of “innovativity” comparable to that of total factor productivity. This innovation accounting framework is illustrated using micro-aggregated firm data from the first Community Innovation Surveys (CIS1) for seven European countries: Belgium, Denmark, Ireland, Germany, the Netherlands, Norway and Italy for the year 1992. Based on the estimation of a generalized Tobit model and measuring innovation as the share of total sales due to improved or new products, it compares the propensity to innovate, and the innovation intensity conditional and unconditional on being innovative, across the seven countries and low- and high-tech manufacturing sectors. Even with relatively few explanatory variables our innovation framework already accounts for sizeable differences in country innovation intensity. It also shows that differences in innovativity across countries can be nonetheless very large. <P>Nous proposons, dans cette étude, un cadre d’analyse, ou « comptabilité de l’innovation », semblable à celui très généralement utilisé pour la « comptabilité de la croissance », ainsi qu’une mesure de la « productivité des facteurs d’innovation » ou « innovativité » comparable à celle de la productivité totale des facteurs. Nous appliquons ce cadre d’analyse à la comparaison de l’innovation pour sept pays européens – l’Allemagne, la Belgique, le Danemark, l’Irlande, l’Italie, la Norvège et les Pays-Bas –, à partir des données d’entreprises « micro agrégées » de la première enquête communautaire sur l’innovation (CIS1) portant sur l’année 1992. Sur la base d’un modèle Tobit généralisé et en mesurant l’innovation par la part du chiffre d’affaires des entreprises en produits innovants (nouveaux ou améliorés sur les trois années 1990-1992), nous estimons la propension à innover et l’intensité de l’innovation (conditionnellement ou non au fait d’innover) pour les industries manufacturières de haute et basse technologie des sept pays. Bien que disposant de variables explicatives peu nombreuses, nous rendons compte ainsi de différences déjà très significatives d’intensité d’innovation entre pays. Les différences d’innovativité entre pays restent néanmoins très fortes.
    Keywords: Europe, innovation, innovativity, R-D, selectivity, Europe, innovation, innovativité, R-D, sélectivité
    JEL: C35 L60
    Date: 2006–06–01
  11. By: Peter Sloane (University of Wales Swansea; IZA)
    Abstract: Simon Rottenberg’s seminal 1956 article in the Journal of Political Economy, 1956, is generally accepted as the starting point for the development of the economics of sport. While he recognised that certain features of professional sports leagues were unusual he saw little reason to treat this industry any differently from a conventional industry. He discusses the importance of uncertainty of outcome, the monopsonistic nature of the labour market, the nature of the product and demand (attendances). He considers alternatives to the reserve clause, such as equal revenue sharing, maximum salary limits, equal market franchise distribution and roster limits. Each of these is rejected in favour of a free market solution which, on the basis of the invariance principle, he suggests will perform just as well as the reserve clause in allocating talent to where it is most productive. The ensuing literature has focused on all these issues, many of which have created considerable debate amongst sports economists. In particular the assumption of profit maximisation has been challenged and a divergence of views, reflected in the so-called North American and European models of sports leagues has emerged. Over the last 50 years sports leagues have expanded, TV markets have opened up and legal challenges to existing practices have multiplied. This paper seeks to evaluate Rottenberg’s contribution to a rapidly expanding field and to judge its relevance today.
    Keywords: Sport, Monopsony, Monopoly Power
    JEL: J0 L0 L83
    Date: 2006–06
  12. By: Marcus Dejardin (FUNDP - Facultés Universitaires Notre-Dame de la Paix - [Faculté des Sciences économiques, sociales et de gestion])
    Abstract: L'article est à paraître dans la revue Reflets et perspectives de la vie économique. Il introduit le numéro consacré au thème de la compétitivité structurelle (RPVE, Tome XLV, n°1, 2006). La notion de compétitivité structurelle y est d'abord distinguée de manière schématique de la notion de compétitivité en prix. Vient ensuite un aperçu des contributions. L'article se conclut en se faisant très brièvement l'écho de l'actualité sociopolitique belge en matière de compétitivité.
    Keywords: compétitivité, compétitivité structurelle, compétitivité en prix
    Date: 2006–07–07
  13. By: Lars P. Feld
    Abstract: The impact of regulatory competition on policy outcomes and particularly on policy innova-tion is widely debated among scientists from different fields as well as among policymakers. In this paper, Swiss cantonal regulation is studied in order to gain further insights into the policy impact of regulatory competition and harmonization. Starting from a theoretical per-spective that particularly emphasizes the beneficial impact of inter-jurisdictional competition on policy innovations, and a discussion of the existing empirical evidence on regulatory com-petition, the development of the common market, regulatory competition and harmonization in Switzerland across time is analyzed. In an econometric analysis of the extent of regulation at the Swiss cantonal level, some indicative empirical evidence on the main determinants of Swiss cantonal regulation is derived.
    Keywords: Regulatory Competition; Political Innovation; Corporatist Protectionism
    JEL: H11 H71 D72 J23 K31
    Date: 2006–06
  14. By: Alexandrine Jamin (CES - Centre d'Economie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]); Antoine Mandel (CES - Centre d'Economie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: Each Party of the Kyoto Protocol on Climate Change must achieve quantified green-house gases emission reduction. one of the major policy instrument to be used to comply with these commitments is the opening of an emission allowances market. This paper analyzes, in the general equilibrium framework, the effects of the opening of such a market on the economic equilibrium.
    Keywords: General Equilibrium Theory ; emission allowances ; general pricing rules ; sensitivity.
    Date: 2006–07–05
  15. By: Mosahid Khan; Hélène Dernis
    Abstract: This paper provides an overview of innovative activities across a wide range of OECD member and non-member countries, based on international comparable patent indicators. Patent data are frequently used to measure innovative activities, because patent-based indicators reflect the inventive performance of countries, regions, firms, as well as other aspects of the dynamics of the innovation process. <P>Aperçu des activités innovantes au travers d'indicateurs basés sur les brevets <BR>Ce document propose un aperçu des activités en matière d’innovation dans un grand nombre de pays de l’OCDE et quelques non membres, au travers d’indicateurs basés sur les brevets. Les données sur les brevets sont souvent utilisées pour mesurer les activités d’innovation. Elles reflètent en effet la performance de pays, régions, entreprises en matière d’innovation, et d’autres aspects de la dynamique du processus d’innovation.
    Date: 2006–05–02
  16. By: Mario Pianta (Corresponding author, Università di Urbino); Andrea Vaona (Dipartimento di Scienze economiche (Università di Verona))
    Abstract: The labour productivity impact of innovation is investigated in this paper combining neo-Schumpeterian insights on the variety of innovation, with the importance of industrial structures and firm size; two models are proposed for explaining productivity and export success in European manufacturing industries and firm size classes. The empirical estimates are based on data from the European innovation survey (CIS 2), covering Austria, France, Italy, the Netherlands and the UK, broken down by 22 sectors and for large, medium and small firms. The econometric results, obtained adopting cross-sectional estimation methodologies able to account for unobserved industrial characteristics, show that productivity in Europe relies on product and process innovation, with the support of the efficiency gains provided by a grouped business structures. Conversely, in Italy the introduction of new machinery linked to innovation appears as the key mechanism supporting domestic productivity. When export success is considered, all countries have to rely on an innovation-based model of competitiveness.
    Keywords: Innovation, productivity, export performance, industries
    Date: 2006–06

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