nep-mic New Economics Papers
on Microeconomics
Issue of 2006‒12‒16
eleven papers chosen by
Joao Carlos Correia Leitao
Universidade da Beira Interior

  1. Interconnection and competition among asymmetric networks in the internet backbone market By Jahn,Eric; Pruefer,Jens
  2. Non-Stationary Demand in a Durable Goods Monopoly. By José María Usategui
  3. Endogenous timing with free entry By Antonio TESORIERE
  4. Inefficiency of competitive equilibrium with hidden action and financial markets By Luca, PANACCIONE
  5. The adverse selection problem in imperfectly competitive credit markets By Mälkönen , Ville; Vesala , Timo
  6. Imperfect competition, technical progress and capital accumulation By Biancamaria D'Onofrio; Bertrand Wigniolle
  7. Intermediation and investment incentives By Paul, BELLEFLAMME; Martin PEITZ
  8. Price Dispersion By Ed Hopkins
  9. Mark-up and Capital Structure of the Firm facing Uncertainty By Jean-Bernard Chatelain
  10. Optimal Bundle Pricing for Homogeneous Items By Grigoriev Alexander; Loon Joyce van; Uetz Marc; Vredeveld Tjark
  11. The Jukebox Mode of Innovation - a Model of Commercial Open Source Development By Joachim Henkel

  1. By: Jahn,Eric; Pruefer,Jens (Tilburg University, Center for Economic Research)
    Abstract: We examine the interrelation between interconnection and competition in the internet backbone market. Networks asymmetric in size choose among different interconnection regimes and compete for end-users. We show that a direct interconnection regime, Peering, softens competition compared to indirect interconnection since asymmetries become less influential when networks peer. If interconnection fees are paid, the smaller network pays the larger one. Sufficiently symmetric networks enter a Peering agreement while others use an intermediary network for exchanging traffic. This is in line with considerations of a non-US policy maker. In contrast, US policy makers prefer Peerings among relatively asymmetric networks.
    Keywords: Internet Backbone;Endogenous Network Interconnection;Asymmetric Networks; Two-Way Access Pricing
    JEL: L10 L96 D43
    Date: 2006
  2. By: José María Usategui (Universidad del Pais Vasco)
    Abstract: In a context where demand for the services of a durable good changes over time, and this change may be uncertain, the paper shows that social welfare may be higher when the monopolist seller can commit to any future price level she wishes than when she cannot. Moreover, the equilibrium under a monopolist with commitment power may Pareto-dominate the equilibrium under a monopolist without commitment ability. These results affect the desired regulation of a durable goods monopolist in this context.
    Keywords: Durable good, commitment, demand variations, regulation
    JEL: D42 L12 L41
    Date: 2006–12–02
  3. By: Antonio TESORIERE (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics)
    Abstract: A free entry model with linear costs is considered where firms first choose their entry time and then compete in the market according to the resulting timing decisions. Multiple equilibria arise allowing for infinitely many industry output configuations encompassing one limit-output dominant firm and the Cournot equilibrium with free entry as extreme cases. Sequential entry is never observed. Both Stackelberg and Cournot-like outcomes are sustainable as equilibria however. When the number of incumbents is given, entry is always prevented, and industry output is sometimes larger than the entry preventing level
    Keywords: Free entry, Market leadership, Entry prevention
    JEL: L11 L13
    Date: 2006–11–15
    Abstract: In this paper, we study a pure exchange economy with idiosyncratic uncertainty, hidden action and multiple consumption goods. We consider two different market structures : contingent markets on the one hand, and financial and spot markets on the other hand. We propose a competitive equilibrium concept for each market structure. We show that the equilibrium with contingent markets is efficient in an appropriate sense, while the equilibrium with financial and spot markets is inefficient, provided that assumptions on preferences more general than those usually considered in the literature hold.
    Keywords: Hidden action, enforcement, constrained efficiency
    JEL: D61 D82
    Date: 2006–09–15
  5. By: Mälkönen , Ville (VATT (Government Institute for Economic Research)); Vesala , Timo (Bank of Finland Research)
    Abstract: We study the adverse selection problem in imperfectly competitive credit markets and illustrate the circumstances where a separating equilibrium emerges, even without collateral. The borrowers are heterogeneous in their preferences concerning the banks. Separation obtains in market segments where the ‘high risk’ borrowers receive credit from their preferred bank. The ‘low risk’ borrowers choose the ex-ante less-preferred bank that offers loan contracts with lower interest rates. The availability of credit will be maximized under an intermediate level of competition, a prediction that is supported by recent empirical evidence.
    Keywords: asymmetric information; credit rationing; bank differentiation
    JEL: D43 D82 G21 L13
    Date: 2006–12–14
  6. By: Biancamaria D'Onofrio (Dipartimento di Matematica - [Università degli studi di Roma I - La Sapienza]); Bertrand Wigniolle (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: This paper explores the consequences of imperfect competition on capital accumulation. The framework is an OLG growth model with altruistic agents. Two types of long run equilibria exist : egoistic or altruistic. We assume both competitive and non-competitive firms exist, the latter being endowed with more productive technology. They behave strategically on the labor market : they take into account the impact of their demand for labor on the equilibrium wage and on their profit. The effect of technical progress for a non-competitive firm depends on the initial productivity of the firm and on the type of steady state (egoistic or altruistic). An increase in the productivity of the most productive firm has a negative impact on capital accumulation in an egoistic steady state, and a positive one in an altruistic steady state. An increase in the productivity of the competitive sector can have various effects on capital accumulation. If the productivity levels of the non-competitive firms are close enough, capital accumulation increases in an egoistic steady state and decreases in an altruistic one. But, the impact of increasing productivity in the competitive sector can be reversed if the productivity of the less productive non-competitive firm is low enough.
    Keywords: Imperfect competition, capital accumulation, technical progress.
    Date: 2006–12–05
  7. By: Paul, BELLEFLAMME (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics); Martin PEITZ (University of Mannheim)
    Abstract: We analyze whether and how the fact that products are not sold on free, public, platforms but on competing for-profit platforms affects sellers’ investment incentives. Investments in cost reduction, quality, or marketing measures are here to joint and coordinated efforts by sellers. We show that, in general, for-profit intermediation is not neutral to such investment incentives. As for-profit intermediaries reduce the rents that are availale in the market, one might suspect that sellers have weaker investment incentives with competing for-profit platforms. However, this is not necessarily the case. The reason is that investment incentives affect the size of the network effects and thus competition between intermediaries. In particular, we show that whether for-profit intermediation raises or lowers investment incentives depends on which side of the market singlehomes
    Keywords: Two-Sided Maarkets, Network Effects, Intermediation, Investment Incentives
    JEL: L10 D40
    Date: 2006–09–15
  8. By: Ed Hopkins
    Abstract: A brief survey of the economics of price dispersion, written for the New Palgrave Dictionary of Economics, 2nd Edition.
    JEL: C72 D43 D82 D83
  9. By: Jean-Bernard Chatelain (PSE - Paris-Jourdan Sciences Economiques - [CNRS : UMR8545] - [Ecole des Hautes Etudes en Sciences Sociales][Ecole Nationale des Ponts et Chaussées][Ecole Normale Supérieure de Paris], EconomiX - [CNRS : UMR7166] - [Université de Paris X - Nanterre])
    Abstract: This note shows that, with pre-set price and capital decisions of firms facing uncertainty and financial market imperfections, price, mark up and the expected degree of capacity utilization (resp. capital) decreases (resp. increases) with the firm internal net worth.
    Keywords: Capital, Pricing, capital market imperfections
    Date: 2006–12–09
  10. By: Grigoriev Alexander; Loon Joyce van; Uetz Marc; Vredeveld Tjark (METEOR)
    Abstract: We consider a revenue maximization problem where we are selling a set of m items, each of which available in a certain quantity (possibly unlimited) to a set of n bidders. Bidders are single minded, that is, each bidder requests exactly one subset, or bundle of items. Each bidder has a valuation for the requested bundle that we assume to be known to the seller. The task is to find an envy-free pricing such as to maximize the revenue of the seller. We derive several complexity results and algorithms for several variants of this pricing problem. In fact, the settings that we consider address problems where the different items are `homogeneous'' in some sense. First, we introduce the notion of affne price functions that can be used to model situations much more general than the usual combinatorial pricing model that is mostly addressed in the literature. We derive fixed-parameter polynomial time algorithms as well as inapproximability results. Second, we consider the special case of combinatorial pricing, and introduce a monotonicity constraint that can also be seen as `global'' envy-freeness condition. We show that the problem remains strongly NP-hard, and we derive a PTAS - thus breaking the inapproximability barrier known for the general case. As a special case, we finally address the notorious highway pricing problem under the global envy-freeness condition.
    Keywords: operations research and management science;
    Date: 2006
  11. By: Joachim Henkel
    Abstract: In this paper, I describe and analyze the phenomenon of informal development collaboration between firms in the field of embedded Linux, a type of open source software. To explain the observed phenomenon of voluntary revealing, I develop a duopoly model of quality competition. The central assumptions are that firms require two complementary technologies as inputs, and differ with respect to the relative importance they attach to these technologies. The main results are, first, that a regime with compulsory revealing can lead not only to higher profits, but also to higher product qualities than a proprietary regime. Second, when the decision to reveal is endogenized equilibria arise with voluntary revealing by both players.
    Keywords: Innovation; development collaboration; open source software; embedded Linyx
    JEL: L11 L15 L86
    Date: 2006

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