nep-mic New Economics Papers
on Microeconomics
Issue of 2006‒12‒04
thirteen papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area By Fabiani, Silvia; Druant, Martine; Hernando, Ignacio; Kwapil, Claudia; Landau, Bettina; Loupias, Claire; Martins, Fernando; Matha, Thomas; Sabbatini, Roberto; Stahl, Harald; Stokman, Ad
  2. Wpływ optymalizacji kopalń odkrywkowych na rozwiązanie modelu bilateralnego monopolu: kopalnia & elektrownia w długim okresie By Jurdziak, Leszek
  3. Odkrywkowa kopalnia węgla brunatnego i elektrownia jako bilateralny monopol w ujęciu klasycznym By Jurdziak, Leszek
  4. Static inefficiency of compulsory licensing: Quantity vs. price competition. By Cugno, Franco; Ottoz, Elisabetta
  5. On R&D Investment By Khazabi, Massoud
  6. Innovation creation and diffusion in a social network: an agent based approach By Lamieri, Marco; Ietri, Daniele
  7. Industrial Specific Resource Allocation, Incentive Differentiation and Industrial Development Order: the Function Evolvement of Jiangsu Laver Association in Anti-Trade Barrier Litigation By Zheng, Jianghuai; Jiang, Jing
  8. Entry and Vertical Disintegration By Alain de Fontenay; Christiaan Hogendorn
  9. WATER REUSE IN BRAZILIAN MANUFACTURING FIRMS By José Gustavo Féres; Alban Thomas; Arnaud Reynaud
  10. A Joint Test of Price Discrimination, Menu Cost and Currency Invoicing By Gervais, Jean-Philippe; Larue, Bruno
  11. Comparative Advante and Efficient Advertising in the Attention Economy By Huberman, Bernardo; Wu, Fang
  12. Electricity prices and cross-border trade: volume and strategy effects By Parisio, Lucia; Bosco, Bruno
  13. Pareto improving interventions in a general equilibrium model with private provision of public goods By Villanacci, Antonio; Zenginobuz, Unal

  1. By: Fabiani, Silvia; Druant, Martine; Hernando, Ignacio; Kwapil, Claudia; Landau, Bettina; Loupias, Claire; Martins, Fernando; Matha, Thomas; Sabbatini, Roberto; Stahl, Harald; Stokman, Ad
    Abstract: This study investigates the pricing behavior of firms in the euro area on the basis of surveys conducted by nine Eurosystem national central banks, covering more than 11,000 firms. The results, consistent across countries, show that firms operate in monopolistically competitive markets, where prices are mostly set following markup rules and where price discrimination is common. Around one-third of firms follow mainly timedependent pricing rules, while two-thirds allow for elements of state dependence. The majority of the firms take into account both past and expected economic developments in their pricing decisions. Price reviews happen with a low frequency, of about one to three times per year in most countries, but prices are actually changed even less. Hence, price stickiness arises at both stages of the price-setting process and is mainly driven by customer relationships — explicit and implicit contracts — and coordination failure. Firms adjust prices asymmetrically in response to shocks: while cost shocks have a greater impact when prices have to be raised than when they have to be reduced, a fall in demand is more likely to induce a price change than an increase in demand
    JEL: G00 G0
    Date: 2006–07–03
  2. By: Jurdziak, Leszek
    Abstract: THE INFLUENCE OF LIGNITE OPENCAST MINE OPTIMISATION ON SOLUTION OF BILATERAL MONOPOLY MODEL OF LIGNITE MINE & POWER PLANT IN LONG RUN The classical and modified solution of bilateral monopoly for the system of opencast mine and power plant has been presented both using graphical and analytical methods. Determined through pit optimization and parameterization the influence of lignite base price on lignite supply in long run and on volatility of nested pits’ parameters (e.g. overburden to coal ratio) and quality of lignite contained in them (calorific value, sulphur and ash content) has been used to find optimal solution for bilateral monopoly: mine & power plant. It was shown that in contrary to the classical solution the modified one is determined not only in area of quantity of intermediate product (lignite) but also in its price. The hypothetical solution for the pit placed on the “Szczerców” deposit has been shown and discussed.
    Keywords: bilateral monopoly; open pit optimisation; lignite price; price negotiation; lignite supply; lignite quality;
    JEL: L13 L72 D43 L14
    Date: 2006–10–23
  3. By: Jurdziak, Leszek
    Abstract: Opencast lignite mine and power plant as a bilateral monopoly in classical solution Based on example of opencast lignite mine and power plant operating on liberalized energy market the classical solution maximizing joint profits of bilateral monopoly has been presented. The graphic solution of finding the optimal quantity of coal production and contract curve has been presented based on demand, marginal revenue and cost curves. The advantage of vertical integration has been shown as well as alternative possibility of finding optimal solution using formula price contracts with agreed profit division. The need of further adaptation of presented classical bilateral model and its solution has been stressed in order to take into account restrictions imposed by the fact that one side of bilateral monopoly is an opencast mine exploiting unique lignite deposit. Usage of mining optimization programs has been proposed to determine supply of coal and cost curves.
    Keywords: bilateral monopoly; open pit optimisation; lignite price; contract curve; price negotiation
    JEL: L11 L72 D43 L14
    Date: 2006–10–20
  4. By: Cugno, Franco; Ottoz, Elisabetta
    Abstract: A common argument against compulsory licensing of intellectual property maintains that it facilitates the entry of inefficient producers, which may reduce social welfare independently of any effects on R&D incentives. We study the issue in a model where the innovative firm, under the threat of compulsory licensing, react strategically by choosing between quantity and price competition. We show that the risk of a reduction in static welfare due to the entry of highly inefficient firms is avoided if licensing entails a royalty per unit of output and zero fixed fee. The rationale behind this result lies in the fact that compulsory licensing threat works as a disciplining device to improve static social welfare, even when the applicant is a high cost inefficient firm.
    Keywords: compulsory licensing, essential facilities, entry, welfare
    JEL: L49 O34
    Date: 2006–11
  5. By: Khazabi, Massoud
    Abstract: The paper presents a theoretical model of R&D investment and extensively studies the capitalization policy of development-related costs. It is shown that a firm’s R&D investment policy and capitalizing related costs are influenced by a set of variables such as stock market effects and corporate income tax rates. These results are sharper when spill-over effects are introduced. Interest rates, tax rates, production’s marginal cost, stock market indices and speed of development benefits’ revelation would alter the firm’s disclosure and innovation policies conspicuously.
    Keywords: R&D; Development; Innovation; Capitalization; Expensing; Corporate Income Tax; Disclosure
    JEL: L12 L13 L51
    Date: 2006–08
  6. By: Lamieri, Marco; Ietri, Daniele
    Abstract: Market is not only the result of the behaviour of agents, as we can find other forms of contact and communication. Many of them are determined by proximity conditions in some kind of space: in this paper we pay a particular attention to relational space, that is the space determined by the relationships between individuals. The paper starts from a brief account on theoretical and empirical literature on social networks. Social networks represent people and their relationships as networks, in which individuals are nodes and the relationships between them are ties. In particular, graph theory is used in literature in order to demonstrate some properties of social networks summarised in the concept of Small Worlds. The concept may be used to explain how some phenomena involving relations among agents have effects on multiple different geographical scales, involving both the local and the global scale. The empirical section of the paper is introduced by a brief summary of simulation techniques in social science and economics as a way to investigate complexity. The model investigates the dynamics of a population of firms (potential innovators) and consumers interacting in a space defined as a social network. Consumers are represented in the model in order to create a competitive environment pushing enterprises into innovative process (we refer to Schumpeter’s definition): from interaction between consumers and firms innovation emerges as a relational good.
    Keywords: Innovation; small world; computational economics; network; complexity
    JEL: L20 L10 C63 O33 D24
    Date: 2004–04–27
  7. By: Zheng, Jianghuai; Jiang, Jing
    Abstract: For sake of actualizing anti-trade barrier and changing the situation of price war after China’s taking part in WTO, Jiangsu laver association was founded. By using the Bayesian Cournot model, this paper analyzes the basis of trade association’s foundation is the ability of improving product quality and technique which is distributed heterogeneously in the firm of the industry. The paper defines this kind of ability as industrial specific resources which are formed during the process of industrial competition and development. Actually they are potential rents and laver firms can acquire them selectively by laver association’s enforcement of transaction rules in laver exchange office. It changes the industrial competition from reducing quality and price to upgrading quality and price and forms the basis of association’s existence. Whether the function is strong or not depends on association’s understanding of industrial specific resources and incentive benefits which is given to the member firms. It is not that association comes into being by the appearance of industrial specific resources and dies because of disappearance of industrial specific resources, but that association uses industrial specific resource into firms and it can reach a kind of separated equilibrium during the competition of improving quality and raising price. Association improves the quality of transaction governance continually and keeps the separated equilibrium maintained steadily. It makes the whole industry in good development order.
    Keywords: trade association; industrial specific resources; selective incentive
    JEL: Q13 L31 P23
    Date: 2006–08
  8. By: Alain de Fontenay (CITI, Columbia University); Christiaan Hogendorn (Economics Department, Wesleyan University)
    Abstract: We formalize and extend George Stigler’s famous article “The division of labor is limited by the extent of the market.” We emphasize economies of scale in intermediate goods production as a determinant of firm boundaries and vertical control. We show that there are potential coordination failures which may prevent efficient vertical disintegration, and we discuss how these might be either overcome or used to the advantage of incumbent firms.
    Keywords: entry, vertical integration, specialization
    JEL: D23 L22 L23
    Date: 2005–12
  9. By: José Gustavo Féres; Alban Thomas; Arnaud Reynaud
    Date: 2006
  10. By: Gervais, Jean-Philippe; Larue, Bruno
    Abstract: This paper investigates price discriminating behaviour and currency invoicing decisions of Canadian pork exporters in the presence of menu costs. It is shown that when export prices are negotiated in the exporter’s currency, menu costs cause threshold effects in the sense that there are bounds within (outside of) which price adjustments are not (are) observed. Conversely, the pass-through is not interrupted by menu costs when export prices are denominated in the importer’s currency. The empirical model focuses on pork meat exports from two Canadian provinces to the U.S. and Japan. Hansen’s (2000) threshold estimation procedure is used to jointly test for currency invoicing and incomplete pass-through in the presence of menu costs. Inference is conducted using the bootstrap with pre-pivoting methods to deal with nuisance parameters. The existence of menu cost is supported by the data in three of the four cases. It also appears that Quebec pork exporters price discriminate and invoice in Japanese yen their exports to Japan. Manitoba exporters also seem to follow the same invoicing strategy, but their ability to increase their profit margin in response to large enough own-currency devaluations is questionable. Our currency invoicing results for sales to the U.S. are consistent with subsets of Canadian firms using either the Canadian or U.S. currency.
    JEL: F14 Q17 C22
    Date: 2006–06–02
  11. By: Huberman, Bernardo; Wu, Fang
    Abstract: We analyze the problem that enterprises face when having to decide on the most effective way to advertise several items belonging to their inventories within the company’s webpages. We show that the ability to arbitrarily partition a website among items leads to a comparative advantage among webpages which can be exploited so as to maximize the total utility of the enterprise. This result, which also applies to the case of several competitive providers, is then extended to dynamical scenarios where both the advertising allocation and the exposure levels vary with time.
    Keywords: attention economy; comparative advantage; advertising
    JEL: M3 M37
    Date: 2006–11–03
  12. By: Parisio, Lucia; Bosco, Bruno
    Abstract: In this paper we derive equilibrium bid functions in isolated domestic electricity markets and then analyse their modifications when cross-border trade among them is managed using the implicit auction method. We show that cross-border trade can induce price convergence across countries and thereby reallocate gains and losses as a result of two concomitant effects: a “volume” effect due to the mere increase/decrease of demand and supply in each market and a “bid effect” due to the modifications of bid functions brought about by interconnection. The latter effect can either contrast or reinforce the former. We derive conditions affecting the net result.
    Keywords: Electricity markets; implicit auctions; cross-border trade
    JEL: L94 L11 D44
    Date: 2006–10–16
  13. By: Villanacci, Antonio; Zenginobuz, Unal
    Abstract: Most of the literature on government intervention in models of voluntary public goods supply focuses on interventions that increase the total level of a public good, which is considered to be typically underprovided. However, an intervention that is successful in increasing the public good level need not benefit everyone. In this paper we take a direct approach to welfare properties of voluntary provision equilibria in a full blown general equilibrium model with public goods and study interventions that have the goal of Pareto improving on the voluntary provision outcome. Towards this end, we study a model with many private goods and nonlinear production technology for the public good, and hence allow for relative price effects to serve as a powerful channel of intervention. In this setup we show that Pareto improving interventions generally do exist. In particular, direct government provision financed by “small”, or “local”, lump-sum taxes can be used generically to Pareto improve upon the voluntary provision outcome.
    Keywords: general equilibrium; private provision of public goods; Pareto improving interventions
    JEL: D51 H41
    Date: 2004–12–15

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