nep-mic New Economics Papers
on Microeconomics
Issue of 2006‒07‒21
ten papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Innovation and market dynamics in the EPO market By Sorisio, Enrico; Strøm, Steinar
  2. Quality-improving alliances in differentiated oligopoly By Frédéric Deroian; Frédéric Gannon
  3. Auctions with Endogenous Supply and the Walrasian Outcome By Damian S. Damianov
  4. Bounded Rationality and Repeated Network Formation By Nicolas Querou; Sylvain Beal
  5. Pool of Patents and Follow-up Innovations By Langinier, Corinne
  6. A Complete Characterization of Pure Strategy Equilibrium in Uniform Price IPO Auctions By Ping Zhang
  7. Innovation and the Determinants of Firm Survival By Hielke Buddelmeyer, Paul H. Jensen and Elizabeth Webster; Paul H. Jensen; Elizabeth Webster
  8. On The Economic Value of Repeated Interactions Under Adverse Selection By Lorenzo Rocco; Ottorino Chillem
  9. It's not how you play the game, it's winning that matters: an experimental investigation of asymmetric contests By Miguel A. Fonseca
  10. Pricing strategies by European traditional and low cost airlines. Or, when is it the best time to book on line? By Claudio A. Piga; Enrico Bachis

  1. By: Sorisio, Enrico (Neuroscienze PharmaNess scarl); Strøm, Steinar (Dept. of Economics, University of Oslo)
    Abstract: We have estimated the demand of erythropoietin (EPO) on market data from the Nordic countries. Assuming that prices are set in a Nash-Bertrand game we determine the degree of competition in this Nordic market. We also report the impact of product innovation on welfare, e.g on consumer and producer surplus. The product innovation is the entry of Aranesp in the Nordic market. We find a positive effect related to the introduction of Aranesp in the EPO market. The high increase in consumer surplus however seems not to be accompanied by a great increase in producer surplus, whose growth is slight. Some time after the introduction of the innovation, the surplus growth does not seem to increase, it remains more or less the same (or decreases a bit). An important conclusion in our paper is that although there are few firms competing in the Nordic market for EPO, the estimated long run market power is low.
    Keywords: Discrete choice; demand for pharmaceuticals; monopolistic competition; EPO
    JEL: C35 D43 I18 L11
    Date: 2006–06–09
  2. By: Frédéric Deroian (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - [Université de la Méditerranée - Aix-Marseille II][Université de droit, d'économie et des sciences - Aix-Marseille III] - [Ecole des Hautes Etudes en Sciences Sociales]); Frédéric Gannon (EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre])
    Abstract: Abstract: We study rival firms' incentives in quality-improving Research and Development (R&D) networks. The analysis stresses the role of free riding associated to collaboration and three major consequences emerge: R&D efforts decrease with the number of partners, networks of alliances are over-connected as compared to the social optimum and the profitmaximizing number of alliances is possibly non monotonic (decreasing then increasing) with respect to inverse measure of product differentiation.
    Keywords: and horizontally Differentiated Oligopoly, Product Innovation, R&D, Alliance
    Date: 2006–07–10
  3. By: Damian S. Damianov (Keele University, Centre for Economic Research and School of Economic and Management Studies)
    Abstract: In this paper we study a special class of mechanisms for price formation on mo-nopolistic markets: multiunit auctions with endogenous supply. We formally define these trade mechanisms as dynamic market games and characterize their subgame perfect equilibria. Conditions on the pricing rule are provided, which guarantee that the strategic equilibria of these market forms are competitive. The discriminatory auction is found to have Walrasian equilibria only, whereas the uniform price auction has additional non-Walrasian equilibria. The presented models provide a strategic foundation of the competitive equilibrium paradigm. We discuss some parallels of our results to Pigou's (1920) discussion on monopoly pricing.
    Keywords: Monopoly, Endogenous supply auctions, Competitive equilibrium, Subgame perfect equilibrium, Strategic market games.
    JEL: D44 D41 D42
    Date: 2006–06
  4. By: Nicolas Querou (Queen's University Belfast); Sylvain Beal (CREUSET, University of Saint-Etienne)
    Abstract: We define a finite-horizon repeated network formation game with consent, and study the differences induced by different levels of individual rationality. We prove that perfectly rational players will remain unconnected at the equilibrium, while nonempty equilibrium networks may form when, following Neyman (1985), players are assumed to behave as finite automata. We define two types of equilibria, namely the Repeated Nash Network (RNN), in which the same network forms at each period, and the Repeated Nash Equilibrium (RNE), in which different networks may form. We state a sufficient condition under which a given network may be implemented as a RNN. Then, we provide structural properties of RNE. For instance, players may form totally different networks at each period, or the networks within a given RNE may exhibit a total order relationship. Finally we investigate the question of efficiency for both Bentham and Pareto criteria.
    Keywords: Repeated Network Formation Game, Two-sided Link Formation Costs, Bounded Rationality, Automata
    JEL: C72
    Date: 2006–05
  5. By: Langinier, Corinne
    Abstract: Basic innovations are often fundamental to the development of applications that may be developed by other innovators. In this setting, we investigate whether patent pools can rectify the lack of incentives for developers to invest in applications. Following Green and Scotchmer (1995), we also wonder whether broad basic patents are necessary to provide enough incentives for basic innovators. We show that patent pools are more likely to be formed with patents of very different breadth, or patents of similarly wide breadth. Further, even though patent pools rectify the problem of developers’ incentives, they may reduce the incentive for doing basic research.
    Keywords: Patent pool, innovation, breadth
    JEL: L2
    Date: 2006–07–19
  6. By: Ping Zhang (University of Nottingham)
    Abstract: Collusive equilibria in share auctions despite being the focus of previous theoretical research, have received little empirical or experimental support. We develop a theoretical model of uniform price initial public offering (IPO) auctions and show that there exists a continuum of pure strategy equilibria where investors with a higher expected valuation bid more aggressively and as a result the market price increases with the market value. The collusive equilibria lie in fact on the boundary of this set, which is obtained under stricter conditions when demand is discrete than in the continuous format. Our results have important implications for the design of IPO auctions.
    Keywords: IPO, uniform price auction, divisible goods, share auctions, tacit collusion
    JEL: D44 G12 D82
    Date: 2006–04
  7. By: Hielke Buddelmeyer, Paul H. Jensen and Elizabeth Webster (Melbourne Institute of Applied Economic and Social Research and Centre for Microeconometrics, The University of Melbourne and IZA Bonn); Paul H. Jensen (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne and Intellectual Property Research Institute of Australia, The University of Melbourne); Elizabeth Webster (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne and Intellectual Property Research Institute of Australia, The University of Melbourne)
    Abstract: While many firms compete through the development of new technologies and products, it is well known that new-to-the-world innovation is inherently risky and therefore may increase the probability of firm death. However, many existing studies consistently find a negative association between innovative activity and firm death. We argue that this may occur because authors fail to distinguish between innovation investments and innovation capital. Using an unbalanced panel of over 290,000 Australian companies, we estimate a piecewise-constant exponential hazard rate model to examine the relationship between innovation and survival and find that current innovation investments increase the probability of death while innovation capital lowers it.
    Date: 2006–07
  8. By: Lorenzo Rocco (Università di Padova); Ottorino Chillem (Università di Padova)
    Abstract: The paper studies, in a repeated interaction setting, how the presence of cooperative agents in a heterogeneous community organized in groups affects efficiency and group stability. The paper expands on existing literature by assuming that each type can profitably mimic other types. It is shown that such enlargement of profitable options prevents group stabilization in the single group case. Stabilization can be obtained with many groups, but its driver is not the efficiency gain due to the presence of cooperative individuals. Rather, stabilization is the result of free riding opportunities.
    Keywords: Adverse Selection, Group Stability, Altruism
    JEL: D64 D71 D82
    Date: 2006–05
  9. By: Miguel A. Fonseca
    Abstract: This paper reports an experimental test of asymmetric Tullock contests. Both the simultaneous-move and sequential-move frameworks are considered. The introduction of asymmetries in the contest function generates experimental behavior qualitatively consistent with the theoretical predictions. However, especially in the simultaneous-move framework, average bidding levels are in excess of the risk-neutral predictions. We conjecture that the reason behind this behavior lies in subjects attaching positive utility to victory in the contest.
    Date: 2006–02–03
  10. By: Claudio A. Piga (Dept of Economics, Loughborough University); Enrico Bachis (Business School, Nottingham University)
    Abstract: It is often assumed that the airlines’ fares increase monotonically over time, peaking a few days before the departure. Using fares for about 650 thousand flights operated by both Low-Cost and Full Service Carriers, we show several instances in which the monotonic property does not hold. We also show that the volatility of fares increase in the last four weeks before departure, which is the period when the airlines can formulate a better prediction for a flight’s load factor. Finally, especially within the last two weeks, Full Service Carriers may offer lower fares than those posted by Low Cost Carriers.
    Keywords: on-line pricing; price discrimination; dispersion; yield management.
    JEL: L11 L13 L93
    Date: 2006–07

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