nep-mic New Economics Papers
on Microeconomics
Issue of 2007‒01‒13
twenty-six papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Competition vs. Regulation in Mobile Telecommunications By Stennek, Johan; Tangerås, Thomas
  2. Does a Platform Monopolist Want Competition? By Andras Niedermayer
  3. Price and Capacity Competition By Daron Acemoglu; Kostas Bimpikis; Asuman Ozdaglar
  4. Competitiveness and Conjectural Variation in Duopoly Markets By Jim Jin; Osiris J. Parcero
  5. The Response of Prices, Sales, and Output to Temporary Changes in Demand By Adam Copeland; George Hall
  6. Advertising and price signaling of quality in a duopoly with endogenous locations By Bontems, P.; Meunier, V.
  7. A Consumer Surplus Defense in Merger Control By Fridolfsson, Sven-Olof
  8. Advertising and competitive access pricing to internet services or pay-TV By Jean, JASKOLD-GABSZEWICZ; Didier, LAUSSEL; Nathalie, SONNAC
  9. An Estimable Dynamic Model of Entry, Exit and Growth in Oligopoly Retail Markets By Victor Aguirregabiria; Pedro Mira; Hernan Roman
  10. Optimal marketing decision in a duopoly: a stochastic approach By Andrea Di Liddo; Luigi De Cesare
  11. A Dynamic Analysis of Cooperative Research in the Semiconductor Industry By Minjae Song
  12. Pricing Patents through Citations By Fernando Leiva B.
  13. Two-part tariffs versus linear pricing between manufacturers and retailers : empirical tests on differentiated products markets By Bonnet, C.; Dubois, P.; Simioni, M.
  14. An R&D Investment Game under Uncertainty in Real Option Analysis By Giovanni Villani
  15. Competitive equilibrium with asymmetric information : the arbitrage characterization. By Lionel de Boisdeffre
  16. Paying to Make a Difference: Executive Compensation and Product Dynamics By Antonio Falato
  17. Production Targets By Guillermo Caruana; Liran Einav
  18. Design Imitation in the Fashion Industry By Andrea Di Liddo; Steffen Jørgensen
  19. The Democratization of U.S. Research and Development after 1980 By Robert M. Hunt; Leonard I. Nakamura
  20. Property, liability and market power: The antitrust side of copyright. By Nicita, Antonio; Ramello, Giovanni B.
  21. Computing General Equilibrium Models with Occupational Choice and Financial Frictions By António Antunes; Tiago Cavalcanti; Anne Villamil
  22. Price Setting during Low and High Inflation: Evidence from Mexico By Etienne Gagnon
  23. Academic journals as two-sided platforms : empirical evidence from data on french libraries By Dubois, P.; Hernandez Perez, A.; Ivaldi, M.
  24. Asset Pricing Implications of Pareto Optimality with Private Information By Narayana R. Kocherlakota; Luigi Pistaferri
  25. Market Structure and the Direction of Technological Change By Matthew Mitchell; Andy Skrzypacz
  26. A Theory of Entry and Exit with Embodied Rate of Technical Change By Roberto M Samaniego

  1. By: Stennek, Johan (Research Institute of Industrial Economics); Tangerås, Thomas (Research Institute of Industrial Economics)
    Abstract: This paper questions whether competition can replace sector-specific regulation of mobile telecommunications. We show that the monopolistic outcome prevails independently of market concentration when access prices are determined in bilateral negotiations. A light-handed regulatory policy can induce effective competition. Call prices are close to the marginal cost if the networks are sufficiently close substitutes. Neither demand nor cost information is required. A unique and symmetric call price equilibrium exists under symmetric access prices, provided that call demand is sufficiently inelastic. Existence encompasses the case of many networks and high network substitutability.
    Keywords: Network Competition; Two-way Access; Access Price Competition; Entry; Regulation; Network Substitutability
    JEL: L51 L96
    Date: 2006–12–20
  2. By: Andras Niedermayer
    Abstract: We consider a software vendor first selling a monopoly platform and then an application running on this platform. He may face competition by an entrant in the applications market. The platform monopolist can benefit from competition for three reasons. First, his profits from the platform increase. Second, competition serves as a credible commitment to lower prices for applications. Third, higher expected product diversity may lead to higher demand for his application. Results carry over to non-software platforms and, partially, to upstream and downstream firms. The model also explains why Microsoft Office is priced significantly higher than Microsoft's operating system.
    Keywords: Platforms; entry; complementary goods; price commitment; product diversity; Microsoft; vertical integration; two-sided markets
    JEL: D41 D43 L13 L86
    Date: 2006–12
  3. By: Daron Acemoglu; Kostas Bimpikis; Asuman Ozdaglar
    Abstract: We study the efficiency of oligopoly equilibria in a model where firms compete over capacities and prices. The motivating example is a communication network where service providers invest in capacities and then compete in prices. Our model economy corresponds to a two-stage game. First, firms (service providers) independently choose their capacity levels. Second, after the capacity levels are observed, they set prices. Given the capacities and prices, users (consumers) allocate their demands across the firms. We first establish the existence of pure strategy subgame perfect equilibria (oligopoly equilibria) and characterize the set of equilibria. These equilibria feature pure strategies along the equilibrium path, but off-the-equilibrium path they are supported by mixed strategies. We then investigate the efficiency properties of these equilibria, where "efficiency" is defined as the ratio of surplus in equilibrium relative to the first best. We show that efficiency in the worst oligopoly equilibria of this game can be arbitrarily low. However, if the best oligopoly equilibrium is selected (among multiple equilibria), the worst-case efficiency loss has a tight bound, approximately equal to 5/6 with 2 firms. This bound monotonically decreases towards zero when the number of firms increases. We also suggest a simple way of implementing the best oligopoly equilibrium. With two firms, this involves the lower-cost firm acting as a Stackelberg leader and choosing its capacity first. We show that in this Stackelberg game form, there exists a unique equilibrium corresponding to the best oligopoly equilibrium. We also show that an alternative game form where capacities and prices are chosen simultaneously always fails to have a pure strategy equilibrium. These results suggest that the timing of capacity and price choices in oligopolistic environments is important both for the existence of equilibrium and for the extent of efficiency losses in equilibrium.
    JEL: C72 L13
    Date: 2006–12
  4. By: Jim Jin; Osiris J. Parcero
    Abstract: Duopoly competition can take different forms: Bertrand, Cournot, Bertrand-Stackelberg, Cournot-Stackelberg and joint profit maximization. In comparing these market structures this paper make three contributions. First, we find a clear price (output) ranking among these five markets when goods are substitutes (complements). Second, these rankings can be explained by different levels of conjectural variation associated with each market structure. Third, in a more general non-linear duopoly model we find that CV in prices tends to hurt consumers, while CV in quantities is often good for social welfare. In this last case the policy recommendation for regulators seems to be to encourage the establishment of firms’ reputation in quantity responses, but to discourage it in price responses.
    Keywords: Optimal Bertrand, Cournot, Stackelberg, monopoly, ranking, conjectural variation.
    JEL: L11 L13 D43
    Date: 2006–12
  5. By: Adam Copeland; George Hall (Department of Economics Brandeis University)
    Abstract: We determine empirically how the Big Three automakers accommodate shocks to demand. They have the capability to change prices, alter labor inputs through temporary layoffs and overtime, or adjust inventories. These adjustments are interrelated, non-convex, and dynamic in nature. Combining weekly plant-level data on production schedules and output with monthly data on sales and transaction prices, we estimate a dynamic profit-maximization model of the firm. Using impulse response functions, we demonstrate that when an automaker is hit with a demand shock sales respond immediately, prices respond gradually, and production responds only after a delay. The size of the immediate sales response is linear in the size of the shock, but the delayed production response is non-convex in the size of the shock. For sufficiently large shocks the cumulative production response over the product cycle is an order of magnitude larger than the cumulative price response. We examine two recent demand shocks: the Ford Explorer/Firestone tire recall of 2000, and the September 11, 2001 terrorist attacks.
    Keywords: automobile pricing, inventories, revenue management, indirect inference
    JEL: D21 D42 E22
    Date: 2006–12–03
  6. By: Bontems, P.; Meunier, V.
    Abstract: We analyze a two-sender quality-signaling game in a duopoly model where goods are horizontally and vertically differentiated. While locations are chosen under quality undertainty, firms choose prices and advertising expenditures being privately informed about their thpes. We show that pure price separation is impossible, and that dissipative advertising is necessary to ensure existence of separating equilibria. Equilibrium refinements discard all pooling equilibria and select a unique separating equilibrium. When vertical differentiation is not too high, horizontal differentiation is at a maximum, the high-quality firm advertises, and both firms adopt prices that are distorted upwards (compared to the symmetric-informati on benchmark). When vertical differentiation is high, firms choose identical locations and espost, only the high-quality firm obtains positive profits and signals its type through advertising only. Incomplete information and the subsequant signaling activity are chowh to increase the set of parameters values for which maximum horizontal differentiation occurs. ...French Abstract : Les auteurs étudient dans cet article, un modèle de concurrence au sein d'un duopole dans un contexte de différenciation horizontale. Les produits vendus par les firmes peuvent aussi potentiellement différer selon leur qualité. Les firmes choisissent tout d'abord leurs localisations de manière séquentielle puis simultanément leurs prix. A l'étape de localisation, la qualité du suiveur est connaissance commune tandis que la qualité du leader est incertaine mais révélée de manière privée avant l'étape de compétition par les prix. Ils montrent que la perspective de devoir signaler une qualité haute par le prix induit le leader à accroître au maximum la différenciation horizontale du produit. Ce résultat contraste fortement avec l'équilibre en information complète, qui peut impliquer une différenciation minimale ou intermédiaire selon les paramètres du modèle. Ainsi, le principe de différentiation maximale est restauré en présence d'information incomplète.
    JEL: D43 L15
    Date: 2006
  7. By: Fridolfsson, Sven-Olof (Research Institute of Industrial Economics)
    Abstract: A government wanting to promote an efficient allocation of resources as measured by the total surplus, should strategically delegate to its competition authority a welfare standard with a bias in favour of consumers. A consumer bias means that some welfare increasing mergers will be blocked. This is optimal, if the relevant alternative to the merger is another change in market structure that will even further increase the total surplus. Furthermore, a consumer bias is shown to enhance welfare even though it blocks some welfare increasing mergers when the relevant alternative is the status quo.
    Keywords: Merger Control; Competition Policy; Consumer Surplus
    JEL: L11 L13 L41
    Date: 2007–01–03
    Abstract: We study access pricing by platforms providing internet services or pay-TV to users while they allow advertisers to have access to these users against payment via ads or banners. Users are assumed to be ad-haters. It is shown that equilibrium access prices in the usersÕ market are increasing in the dimension of the advertising market : the larger the number of advertisers, the higher the access prices for both platforms.
    Date: 2006–09–29
  9. By: Victor Aguirregabiria; Pedro Mira; Hernan Roman
    Abstract: This paper presents an estimable dynamic structural model of an oligopoly retail industry. The model can be estimated using panel data of local retail markets with information on new entries, exits and the size and growth of incumbent firms. In our model, retail firms are vertically and horizontally differentiated, compete in prices, make investments to improve the quality of their businesses, and decide to exit or to continue in the market. The model extends in two important ways the entry-exit model estimated in Aguirregabiria and Mira (2007). First, it includes firm size and growth as endogenous variables. And second, the empirical model has two sources of permanent unobserved heterogeneity: local-market heterogeneity and firm heterogeneity. This allows the researcher to control for potentially important sources of bias when using firm panel data with many local markets and several time periods.
    Keywords: Industry dynamics; Oligopoly retail markets; Structural estimation
    JEL: L11 L13 C51
    Date: 2007–01–02
  10. By: Andrea Di Liddo; Luigi De Cesare
    Abstract: Let us consider two new perfect substitute durable products which are produced and sold in a market by two competing firms. Looking at a potential buyer, we build a stochastic rule by which she purchases the good from one of the two firms (so that she becomes an adopter). The model is considered discrete in time and space. The probability of transition from the non adopter state to the adopter one depends on an imitation mechanism (word-ofmouth) as well as on the pricing and advertising policies of the producers/sellers. It is assumed that only actual information about the market determine the evolution in the subsequent time step so that a Markov process arises. Both firms maximize their expected discounted profits by choosing optimal marketing strategies. Suitable equilibria are characterized and, because of the lack of convexity in the model, the simulated annealing algorithm is proposed to compute them.
    Date: 2006–05
  11. By: Minjae Song (School of Economics Georgia Institute of Technology)
    Abstract: The paper has two objectives. The first is to construct a dynamic model of research joint ventures (RJVs) in which firms competing in the product market cooperate in investing to improve generic manufacturing technology. The second objective is to analyze cooperative research led by SEMATECH in the semiconductor industry using the dynamic model. The estimation consists of two stages. In the first stage, consumer demand is estimated using product level data, and state variables are constructed to reflect a technological advance and an evolution of firms' competitiveness in the product market. In the second stage, research expenditure level and firms' value functions are computed for every combination of the state variables as solutions to the dynamic model. I also compute firms' research expenditures for competitive research by making firms unilaterally invest in research. The results show that in RJVs firms' research expenditures go down to one fifth of what they would spend in competitive research. Lower research expenditure results in higher net profits in RJVs, although variable profits are similar in all regimes. RJVs are also more likely to generate higher consumer surplus than competitive research. This is because, while consumers benefit from more frequent introductions of higher quality products in competitive research, they occasionally pay higher prices than they do in RJVs for the same quality products. The net effect is that consumers are hurt more by higher price in competitive research than by less frequent introductions of new products in RJVs. Firms also make different research decisions for the same changes in the product market conditions, depending on whether they cooperate or compete in research
    Keywords: Research Joint Venture, Dynamic Model of Oligopoly Market, Product Innovation
    JEL: C73 D92 L63
    Date: 2006–12–03
  12. By: Fernando Leiva B. (Economics University of Iowa)
    Abstract: This paper provides formal treatment to the idea of patenting as a form of market stealing between R&D firms. It extends the creative destruction literature by allowing innovations to build off each other forming a network of ideas. Patent citations keep track of this network. The theory maps the distribution of productivities in the development of new ideas onto the distribution of patent values through patent citations. If productivities are drawn from a Pareto-Levy distribution then the distribution of patent values also falls within this class. The theory is then applied to data on US patent citations. Model-based valuations support the assumption of Pareto-distributed productivities. As an added feature, model-based valuations outperform citation counts (the traditional measure) as a proxy for patent values
    Keywords: Patents, Innovation, R&D, Networks
    JEL: O31 O33 D85
    Date: 2006–12–03
  13. By: Bonnet, C.; Dubois, P.; Simioni, M.
    Abstract: We present a methodology allowing to introduce manufacturers and retailers vertical contracting in their pricing strategies on a differentiated product market. We consider in particular two types of non linear pricing relationships, one where resale price maintenance is used with two part tariffs contracts and one where no resale price maintenance is allowed in two part tariffs contracts. Our contribution allows to recover price-cost margins from estimates of demand parameters both under linear pricing models and two part tariffs. The methodology allows then to test between different hypothesis on the contracting and pricing relationships between manufacturers and retailers in the supermarket industry using exogenous variables supposed to shift the marginal costs of production and distritution. We apply empirically this method to study the market for retailing bottled water in France. Our empirical evidence shows that manufacturers and retailers use non linear pricing contracts and in particular two part tariffs contracts with resale price maintenance. At last, thanks to the estimation of our structural model, we present some simulations of counterfactual policy experiments like the change of ownership of some products between manufacturers. ...French Abstract : Dans cet article, les auteurs présentent une méthodologie permettant de modéliser des contrats dans les stratégies de fixation des prix des distributeurs et des producteurs sur un marché oû les produits sont différenciés. Notamment, ils considèrent deux types de contrats à tarifs binômes pour modéliser les relations verticales : avec ou sans prix de revente imposés par les producteurs. Ce papier permet de déterminer les marges prix coût à partir de paramètres estimés de la demande à la fois pour des modèles de double marginalisation et pour des modèles à tarifs binômes. Différentes hypothèses sur les relations entre producteurs et distributeurs sont alors testées en utilisant des variables exogènes supposées faire varier les coûts marginaux de production et de distribution. Les auteurs appliquent empiriquement cette méthode au marché de l'eau plate nature embouteillée en France. Les résultats empiriques montrent que les producteurs et les distributeurs utilisent des contrats à tarifs binômes avec prix de revente imposés. De plus, grâce aux estimations du modèle structurel, les auteurs simulent des changements de propriété des produits entre producteurs et distributeurs.
    JEL: L13 L81 C12 C33
    Date: 2006
  14. By: Giovanni Villani
    Abstract: One of the problems of using the financial options methodolgy to analyse investment decisions is that strategic considerations become extremely important. So, the theory of real option games combines two successful theories, namely real options and game theory. The value of flexibility can be valued as a real option while the competition can be analyzed with game theory. In our model we develop an interaction between two firms that invest in R&D. The firm that invests first, defined as the Leader, acquires a first mover advantage that we assume as a higher share of market. But the R&D investments present positive externalities and so, the option exercise by the Leader generates an “Information Revelation” that benefits the Follower.
    Keywords: Real Options; Exchange Options; Option games; Information Revelation.
    JEL: C70 G14 G31 L13
    Date: 2006–11
  15. By: Lionel de Boisdeffre (INSEE (CREST) et CERMSEM)
    Abstract: In a general equilibrium model of incomplete nominal-asset markets and adverse selection, Cornet-De Boisdeffre [3] introduced refined concepts of " no-arbitrage " prices and equilibria, which extended to the asymmetric information setting the classical concepts of symmetric information. In subsequent papers [4, 5], we generalized standard existence results of the symmetric information literature, as demonstrated by Cass [2], for nominal assets, or Geanakoplos-Polemarchakis [8], for numeraire assets, and showed that a no-arbitrage condition characterized the existence of equilibrium, in both asset structures, whether agents had symmetric or asymmetric information. We now introduce the model with arbitrary types of assets and a weaker concept of " pseudo-equilibrium " consistent with asymmetric information, to which we extend a classical theorem of symmetric information models with real assets. Namely, we show that the existence of a pseudo-equilibrium is still guaranteed by a no-arbitrage condition, under the same standard conditions with symmetric or asymmetric information.
    Keywords: General equilibrium, asymmetric information, arbitrage, inference, existence of a pseudo-equilibrium.
    JEL: D52
    Date: 2005–12
  16. By: Antonio Falato (Finance HEC Montréal)
    Abstract: This paper develops an agency model of executive compensation in dynamic industry equilibrium. Firms differ in the quality of their products, and managers can make a difference as higher effort brings about product improvement. I show that there is an inverse relationship between the magnitude of the performance-based component of optimal compensation contracts and the degree of product differentiation, as managerial effort is less likely to make a difference for firms with more differentiated products. Empirically, I find strong evidence of this inverse relation in the compensation of US executives. In particular, I find that pay-performance sensitivity depends negatively on industry- and firm-level measures of product differentiation, even after controlling for industry fixed effects and standard measures of product market competition. Moreover, industry leaders have weaker pay-performance sensitivity than laggards, even after controlling for firm size. My findings suggest that industry is an important determinant of executive compensation
    Keywords: Incentives, Optimal Contracts, Executive Compensation, Industry Dynamics
    JEL: G31 G34
    Date: 2006–12–03
  17. By: Guillermo Caruana; Liran Einav (Economics Stanford University)
    Abstract: We present a dynamic quantity setting game, where players may continuously adjust their quantity targets, but incur convex adjustment costs when they do so. These costs allow players to use quantity targets as a partial commitment device. We show that the equilibrium path of such a game is hump-shaped and that the final equilibrium outcome is more competitive than its static analog. We then test the theory using monthly production targets of the Big Three U.S. auto manufacturers during 1965-1995 and show that the hump-shaped dynamic pattern is present in the data. Initially, production targets steadily increase until they peak about 2-3 months before production. Then, they gradually decline to eventual production levels. This qualitative pattern is fairly robust across a range of similar exercises. We conclude that strategic considerations play a role in the planning phase in the auto industry, and that static models may therefore under-estimate the industry's competitiveness.
    Keywords: Differential games, adjustment costs, Cournot, quantity competition, dynamic oligopoly games
    JEL: C72 C73 L62
    Date: 2006–12–03
  18. By: Andrea Di Liddo; Steffen Jørgensen
    Abstract: The paper deals with the imitation of fashion products, an issue that attracts considerable interest in practice. Copying of fashion originals is a major concern of designers and, in particular, their financial backers. Fashion firms are having a hard time fighting imitations, but legal sanctions are not easily implemented in this industry. We study an alternative strategy that has been used by designers. Instead of fighting the imitators in the courtroom, designers fight them in the market. The designer markets her products in separate markets, typically a ”high class” market in which the products are sold in exclusive stores at high prices. Customers in this market seek exclusivity and their utility diminishes when seeing an increasing number of copies around. Their perception of the brand tend to dilute which poses a serious threat to a fashion company. The second market is a ”middle class” market in which there are many more buyers, and the fashion firm competes directly with the imitators in this market. This market can be used to practise price discrimination, to sell off left-over inventories, and to get a spin-off from the design. The paper models the decision problems of the fashion firm and the imitators as a two-period game in which firms make pricing decisions and decisions on when to introduce their products in the markets. In addition, the fashion firm decides how much efforts to spend to increase its brand image in the two markets.
    Date: 2006–05
  19. By: Robert M. Hunt (Research Department Federal Reserve Bank of Philadelphia); Leonard I. Nakamura
    Abstract: Using Compustat data, we document that prior to 1980, large R&D per-forming firms had higher R&D intensity (R&D/Sales) than small firms in the same industries. Over the course of the next two decades, in these same in-dustries, small firms came to rival and even surpass large firms in terms of R&D intensity. During this period, corporate R&D intensity nearly doubled and most of the aggregate increase is due to the substantial increase in R&D intensity among small firms. Little of the change in composition is explained by changes in the industrial distribution of R&D. Why did small firms increase their R&D after 1980 and not before? We argue that, after 1980, small firms were able to compete on better terms in industries already dominated by large firms. We show that the patterns we observe in the data are consistent with a straightforward dynamic model of R&D with falling barriers to entry. But what barriers fell? We argue the shift in R&D intensity by small firms was largely due to the electronics revolution. Prior to the 1980s, a large corporate sales and clerical force was an essential factor for the rapid and widespread distribution of new products. This technology clearly favored large, established firms. But the electronics revolution obviated the need for these factors, making entry easier.
    Keywords: R&D, barriers to entry, innovation
    JEL: O3
    Date: 2006–12–03
  20. By: Nicita, Antonio; Ramello, Giovanni B.
    Abstract: This paper investigates the interplay between copyright law and antitrust law in two distinct respects. We first argue that the origin of copyright seems to be rooted not only in the need to foster the production and the spread of knowledge but also in the necessity of limiting market power on the side of distributors. We then show the potential impact on market competition of the evolution of copyright as a property rule. While property rules reduce transaction costs in the standard case of bilateral monopoly over the exchange of information goods, they might increase transaction costs. When coupled with market power, a property rule enables the right holder to control uses and prices so as to implement entry deterrence strategies against potential competitors. Conversely, we argue that reversing property rules in favor of competitors or switching to liability rules for copyright may restore competitive outcomes. This conclusion brings new insights on the application of the essential facility doctrine to copyrighted works.
    Date: 2006–12
  21. By: António Antunes (Banco de Portugal, Departamento de Estudos Economicos, and Faculdade de Economia, Universidade Nova de Lisboa); Tiago Cavalcanti (Departamento de Economia, Universidade Federal de Pernambuco, INOVA, Faculdade de Economia, Universi-dade Nova de Lisboa.); Anne Villamil (Department of Economics, University of Illinois at Urbana- Champaign)
    Abstract: This paper establishes the existence of a stationary equilibrium and a procedure to compute solutions to a class of dynamic general equilibrium models with two important features. First, occupational choice is determined endogenously as a function of heterogeneous agent type, which is defined by an agent's managerial ability and capital bequest. Heterogeneous ability is exogenous and independent across generations. In contrast, bequests link generations and the distribution of bequests evolves endogenously. Second, there is a financial market for capital loans with a deadweight intermediation cost and a repayment incentive constraint. The incentive constraint induces a non-convexity. The paper proves that the competitive equilibrium can be characterized by the bequest distribution and factor prices, and uses the monotone mixing condition to ensure that the stationary bequest distribution that arises from the agent's optimal behavior across generations exists and is unique. The paper next constructs a direct, non-parametric approach to compute the stationary solution. The method reduces the domain of the policy function, thus reducing the computational complexity of the problem.
    Keywords: Existence; Computation; Dynamic general equilibrium; Non-convexity
    JEL: C62 C63 E60 G38
  22. By: Etienne Gagnon (Economics Northwestern University)
    Abstract: This paper provides new insight into the relationship between inflation and consumer price setting by examining a large data set of Mexican consumer prices covering episodes of both low and high inflation, as well as the transition between the two. The overall portrait is one in which the economy shares several characteristics of time dependent models when the annual inflation rate is low (below 10-15%), while displaying strong state dependence when inflation is high (above 10-15%). At low inflation levels, the aggregate frequency of price changes responds little to movements in inflation because movements in the frequency of price decreases partly offset movements in the frequency of price increases. When the annual inflation rate is above 10-15 percent, however, there are no longer enough price decreases to counterbalance price increases, making the frequency of price changes much more responsive to inflation. In this case, a 1-percent increase in the annual inflation rate is associated with a 0.40-0.45-percentage-points increase in the monthly frequency of price changes for consumer goods.
    Keywords: Price setting, consumer prices, frequency of price changes, time-dependent pricing, state-dependent pricing.
    JEL: E31 D40 C23
    Date: 2006–12–03
  23. By: Dubois, P.; Hernandez Perez, A.; Ivaldi, M.
    Abstract: This paper analyzes the demand and cost structure of the french market of academic journals, taking into account its intermediary role between researchers, who are both producers and consumers of knowledge. This two sidedness feature will echoes similar problems already observed in electronic markets-payment card systems, video games console, etc-such as the chicken and egg problem, where readers won't buy a journal if they do not expect its articles to be academically relevant and researchers, that live under the mantra "publish or perish", will not submit to a journal with either limited public reach or weak reputation. After the merging of several databases, we estimate the aggregated nested logit demand system combined simultaneously with a cost function. We identify the structural parameters of this market and find that price elasticities of demand are quite large and margins relatively low, indicating that this industry experiences competitive constraints. ...French Abstract : Cet article analyse la structure de la demande et des coûts du marché français des revues scientifiques. Nous estimons un "nested logit" pour le modèle de demande et identifions les paramètres structurels de ce marché. Nous trouvons que les élasticités prix de la demande sont assez grandes et les marges relativement faibles ce qui indique que cette industrie est relativement concurrentielle.
    Date: 2006
  24. By: Narayana R. Kocherlakota; Luigi Pistaferri
    Date: 2006–12–30
  25. By: Matthew Mitchell (Department of Economics University of Iowa); Andy Skrzypacz
    Abstract: We study a model where innovation comes in two varieties: improvements on existing products, and new products that expand the scope of a technology. We make this distinction in order to highlight how market structure can determine not only the quantity of innovation but also its direction. We study two market structures. The first is the canonical one from the endogenous growth literature, where innovations can be developed by anyone, and developers market their own innovations. We then consider a more concentrated industry, where all innovation and pricing for a given technology is monopolized. We study the implications of the different market structures for both types of innovation, focusing on differences they induce in the direction of technological change. We apply our model model to the case of a hardware/software technology and analyze which market structure offers greater profits to a monopolist who can monopolize either hardware or software. We compare social welfare across the market structures, and discuss whether one type of innovation should be subsidized over another
    Keywords: Market Strucuture, Innovation
    JEL: L16
    Date: 2006–12–03
  26. By: Roberto M Samaniego (Department of Economics George Washington University)
    Abstract: The paper presents a vintage capital model that is consistent with the the relationship between the rate of embodied technical change and the rate of entry and exit across industries. In the model, the costs imposed by the regulation of entry may bias the sectoral composition of an economy towards industries in which the rate of technical change is low -- an effect termed technological skew. This prediction matches the empirical relationship between institutional entry costs and several indicators of sectoral composition across industrialized economies
    Keywords: Entry, exit, embodied technical change, regulation of entry, sectoral composition, technological skew, information technology, services.
    JEL: H25 L63 O33 O38
    Date: 2006–12–03

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