nep-mic New Economics Papers
on Microeconomics
Issue of 2006‒09‒16
twelve papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Exclusive vs Overlapping Viewers in Media Markets By Ambrus, Attila; Reisinger, Markus
  2. Selling to consumers with endogenous types By Boone,Jan; Shapiro,Joel
  3. Going where the Ad leads you: On High Advertised Prices and Search where to buy By Maarten C.W. Janssen; Marielle C. Non
  4. Investment in oligopoly under uncertainty : the accordion effect By Bouis,Romain; Huisman,Kuno J.M.; Kort,Peter M.
  5. Synergies are a reason to prefer first-price auctions! By Leufkens Kasper; Peeters Ronald
  6. Collusion when the Number of Firms is Large By Luca Colombo; Michele Grillo
  7. Correlated Equilibrium and the Pricing of Public Goods. By Joseph M. Ostroy; Joon Song
  8. Collusion and Durability By Dan Sasaki; Roland Strausz
  9. Currents and Sub-currents in the River of Innovations - Explaining Innovativeness using New-Product Announcements By Dolfsma, W.; Panne, G. van der
  10. Nash Equilibrium as an Expression of Self-Referential Reasoning By Perea Andrés
  11. Organisational Forms in Professional Cycling - Efficiency Issues of the UCI Pro Tour By Rebeggiani, Luca; Tondani, David
  12. Social Welfare Functions that Satisfy Pareto, Anonymity, and Neutrality: Countable Many Alternatives By Donald E. Campbell; Jerry S. Kelly

  1. By: Ambrus, Attila; Reisinger, Markus
    Abstract: This paper investigates competition for advertisers in media markets when viewers can subscribe to multiple channels. A central feature of the model is that channels are monopolists in selling advertising opportunities toward their exclusive viewers, but they can only obtain a competitive price for advertising opportunities to multi-homing viewers. Strategic incentives of firms in this setting are different than those in former models of media markets. If viewers can only watch one channel, then firms compete for marginal consumers by reducing the amount of advertising on their channels. In our model, channels have an incentive to increase levels of advertising, in order to reduce the overlap in viewership. We take an account of the differences between the predictions of the two types of models and find that our model is more consistent with recent developments in broadcasting markets. We also show that if channels can charge subscription fees on viewers, then symmetric firms can end up in an asymmetric equilibrium in which one collects all or most of its revenues from advertisers, while the other channel collects most of its revenues via viewer fees.
    Keywords: Media; Multihoming; Platform Competition; Two-Sided Markets
    JEL: D43 L13
    Date: 2006–09
  2. By: Boone,Jan; Shapiro,Joel (Tilburg University, Center for Economic Research)
    Abstract: For many goods (such as experience goods or addictive goods), consumers' preferences may change over time. In this paper, we examine a monopolist's optimal pricing schedule when current consumption can affect a consumer's valuation in the future and valuations are unobservable. We assume that consumers are anonymous, i.e. the monopolist can't observe a consumer's past consumption history. For myopic consumers, the optimal consumption schedule is distorted upwards, involving substantial discounts for low valuation types. This pushes low types into higher valuations, from which rents can be extracted. For forward looking consumers, there may be a further upward distortion of consumption due to a reversal of the adverse selection effect; low valuation consumers now have a strong interest in consumption in order to increase their valuations. Firms will find it profitable to educate consumers and encourage forward looking behavior
    Keywords: endogenous types;experience goods;addictive goods;price discrimation
    JEL: D42 D82 L12
    Date: 2006
  3. By: Maarten C.W. Janssen (Faculty of Economics, Erasmus Universiteit Rotterdam); Marielle C. Non (Faculty of Economics, Erasmus Universiteit Rotterdam)
    Abstract: The search literature assumes that consumers know which firms sell products they are looking for, but are unaware of the particular variety and the prices at which each firm sells. In this paper, we consider the situation where consumers are uncertain whether a firm carries the product at all by proposing a model where in the first stage firms decide on whether or not to carry the product. Firms may advertise, informing consumers not only of the price they charge, but also of the basic fact that they sell the product. In this way, advertising lowers the expected search cost. We show that this role of advertising can lead to a situation where advertised prices are higher than non—advertised prices in equilibrium.
    Keywords: consumer search; informative advertising
    JEL: D83 L11 L13 M37
    Date: 2006–08–25
  4. By: Bouis,Romain; Huisman,Kuno J.M.; Kort,Peter M. (Tilburg University, Center for Economic Research)
    Abstract: In the strategic investment under uncertainty literature the trade off between the value of waiting known from single decision maker models and the incentive to preempt competitors is mainly studied in duopoly models. This paper aims at studying competitive investments in new markets where more than two (potential) competitors are present. In case of three firms an accordion effect in terms of investment thresholds is detected in the sense that an exogenous demand shock results in a change of the wedge between the investment thresholds of the first and second investors that is qualitatively different from the change of the wedge between the second and third investment threshold. This result extends to the n firm case. We show that a direct implication of the accordion effect is that there are two types of equilibria in the three firm case. In the first type all firms invest sequentially and in the second type the first two investors invest simultaneously and the third investor invests at a later moment. If we consider sequential equilibria and compare entry times of the first investors for different potential market sizes, it turns out that in the two firm case the first investor invests earlier than in the monopoly case, in the three firm case the investment timing lies in between the one and the two firm case, the four firm case lies in between the two and the three firm case, and so on and so forth. Hence, a policy maker interested in an early start up should hope for an even number of competitors, although for n large the investment times of the first investors are almost equal.
    Keywords: investment;real options;oligopoly
    JEL: C73 D92 L13
    Date: 2006
  5. By: Leufkens Kasper; Peeters Ronald (METEOR)
    Abstract: In this paper we show that in a private value setting first-price auctions can be preferred to second-price auctions. We consider a sequential auction of two objects with positive synergies and compare both auction formats. Although the second-price auction performs better in terms of efficiency and revenue, the first-price auction performs much better on a so far neglected dimension. Namely, the probability that the winner of the first object goes bankrupt is almost always higher when using the second-price rule. Our findings therefore support the common use of first-price auctions, most notably for procurement.
    Keywords: industrial organization ;
    Date: 2006
  6. By: Luca Colombo; Michele Grillo
    Abstract: In antitrust analysis it is generally agreed that a small number of firms operating in the industry is an essential precondition for collusive behavior to be sustainable. However, the Italian Competition Authority (AGCM) challenged this view in the recent case RCA (2000), when an information exchange among forty-four firms in the car insurance market was assessed as having an anticompetitive object. The AGCM’s basic argument was that an information exchange facilitates collusion because it changes the market environment in such a way as to relax the incentive compatibility constraint for collusion, thus circumventing the decrease in the critical discount factor when the number of firms in the industry increases. In this paper we model collusive behavior in a “dispersed” oligopoly. We prove that, when the technology exhibits decreasing returns to scale, collusion can always be sustained, regardless of the number of firms, provided the marginal cost function is sufficiently steep. Moreover, we show how an information exchange can sustain collusive behavior when the number of firms is “large” independently of the assumptions on technology.
    Keywords: Collusion, Industry structure, Facilitating practices
    JEL: L41 L13 L11 K21
    Date: 2006–03
  7. By: Joseph M. Ostroy; Joon Song
    Abstract: Lindahl equilibrium is an application of price-taking behavior to achieve efficiency in the allocation of public goods. Such an equilibrium requires individuals to be strategically naive, i.e., Lindahl equilibrium is not incentive compatible. Correlated equilibrium is defined precisely to take account of strategic behavior and incentive compatibility. Using the duality theory of linear programming, we show that these two seemingly disparate notions can be combined to give a public goods, Lindahl pricing characterization of efficient correlated equilibria. We also show that monopoly theory can be used to characterize inefficient correlated equilibria.
    Date: 2006–09–07
  8. By: Dan Sasaki (University of Tokyo, Institute of Social Science); Roland Strausz (Free University of Berlin, Department of Economics)
    Abstract: We make the observation that cartels which produce goods with lower durability are easier to sustain implicitly. This observation generates the following results: 1) implicit cartels have an incentive to produce goods with an inefficiently low level of durability; 2) a monopoly or explicit cartel is welfare superior to an implicit cartel; 3) welfare is non--monotonic in the number of firms; 4) a regulator may demand inefficiently high levels of durability to prevent collusion.
  9. By: Dolfsma, W.; Panne, G. van der (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: In their seminal paper, Acs and Audretsch (1988) analyze innovation patterns across industries and identify several determinants of innovativeness, both positive and negative. Their work is seminal if only because of the unique data they use to measure innovativeness: new-product announcements. They show that industry concentration, degree of unionization would hamper innovation; industries characterized by increased shares of skilled labor and large firms provide favorable conditions for innovation. By analyzing a new and more consciously compiled database, we re-examine their original claims. Our results largely support the findings of Acs & Audretsch, but diverge from them in one important way. We suggest that the large firms do not contribute more to a industry?s innovativeness than small firms ? a vindication of the Schumpeter Mark I perspective. In addition, we analyze micro-level data of individual firms. Firms within different sub-groups respond differently to their competitive environment. We show that less dedicated innovators prove more susceptible to environmental factors than more committed innovators. In addition, an unfavorable competitive environment decreases the likelihood that less successful innovators will announce new products.
    Keywords: Innovation;New-Product Announcements;Innovation Sub-Currents;Schumpeter Mark I;
    Date: 2006–09–06
  10. By: Perea Andrés (METEOR)
    Abstract: Within a formal epistemic model for simultaneous-move games, we present the following conditions: (1) belief in the opponents'' rationality (BOR), stating that a player should believe that every opponent chooses an optimal strategy, (2) self-referential beliefs (SRB), stating that a player believes that his opponents hold correct beliefs about his own beliefs, (3) projective beliefs (PB), stating that i believes that j''s belief about k''s choice is the same as i''s belief about k''s choice, and (4) conditionally independent beliefs (CIB), stating that a player believes that opponents'' types choose their strategies independently. We show that, if a player satisfies BOR, SRB and CIB, and believes that every opponent satisfies BOR, SRB, PB and CIB, then he will choose a Nash equilibrium strategy (that is, a strategy that is optimal in some Nash equilibrium). We thus provide a set of sufficient conditions for Nash equilibrium strategy choice. We also show that none of these seven conditions can be dropped.
    Keywords: mathematical economics;
    Date: 2006
  11. By: Rebeggiani, Luca; Tondani, David
    Abstract: This paper gives a first economic approach to pro cycling and analyses the changes induced by the newly introduced UCI Pro Tour on the racing teams\u2019 behaviour. We develop an oligopolistic model starting from the well known Bertrand and Cournot frameworks to analyse if the actual setting of the UCI Pro Tour leads to a partially unmeant behaviour of the racing teams. In particular, we show that the blamed regional concentration of their race participation depends on a lack of incentives stemming from the licence assignation procedure. Our theoretical results are supported by empirical data concerning the performance of the racing teams in 2005. As a recommendation for future improvements, we derive from the model the need for a relegation system for racing teams.
    Keywords: Sports economics, professional cycling, oligopolistic competition
    JEL: L83 D43
    Date: 2006–08
  12. By: Donald E. Campbell (Department of Economics, College of William and Mary); Jerry S. Kelly (Department of Economics, Syracuse University)
    Abstract: For a finite number of alternatives, in the presence of Pareto, non-dictatorship, full domain, and transitivity, an extremely weak independence condition is incompatible with each of anonymity and neutrality (Campbell and Kelly [2006]). This paper explores how those results are affected when there are countably many alternatives.
    Keywords: Pareto, anonymity, neutrality
    JEL: D70 D71
    Date: 2006–09–11

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