nep-mic New Economics Papers
on Microeconomics
Issue of 2007‒02‒10
nine papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Competitive in successive markets : entry and mergers By Jean J. GABSWEWICZ, Skerkilajda ZANAJ; Skerdilajda, ZANAJ
  2. Communicating Quality: A Unified Model of Disclosure and Signaling By Andrew F. Daughety; Jennifer F. Reinganum
  3. Market Definition and Market Power in Payment Card Networks: Some Comments and Considerations By Lawrence White
  4. Dominant Firms, Imitation, and Incentives to Innovate By Luis Cabral; Ben Polak
  5. The importance of attractive prices in pricing dynamics By Aalto-Setälä , Ville; Schindler, Robert
  6. The Kinked Demand Curve and Price Rigidity : Evidence from Scanner Data By M. DOSSCHE; F. HEYLEN; D. VAN DEN POEL
  7. Pricing-to-Market in a Ricardian Model of International Trade By Andrew Atkeson; Ariel Burstein
  8. A Cartel Analysis of the German Labor Institutions and Its Implications for Labor Market Reforms By Justus Haucap; Uwe Pauly; Christian Wey
  9. Market-based regulation and the informational content of prices By Philip Bond; Itay Goldstein; Edward S. Prescott

  1. By: Jean J. GABSWEWICZ, Skerkilajda ZANAJ (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics); Skerdilajda, ZANAJ
    Abstract: This paper analyses successive markets where the intra-market linkage depends on the technology used to produce the final output. We investigate entry of new firms, when entry obtains by expanding the economy as well as collusive agreements between firms. We highlight the differentiated effects of entry corresponding to a constant or decreasing returns, free entry in both markets does not entail the usual tendency for the input price to adjust to its marginal cost while it does under constant returns. Then, we analyse collusive agreements by stressing the role of upstream linkage on the profitability of horizontal mergers ˆ la Salant, Switzer and Reynolds
    Keywords: Oligopoly, entry, horizontal collusion, foreclosure
    JEL: D43 L1 L22 L42
    Date: 2006–10–17
  2. By: Andrew F. Daughety (Department of Economics and Law School, Vanderbilt University); Jennifer F. Reinganum (Department of Economics and Law School, Vanderbilt University)
    Abstract: Firms communicate product quality attributes to consumers through a variety of channels, such as pricing, advertising, releases of research reports and test results, or warranties and returns policies. The conceptualization of the economics of such communication is that it takes on one of two alternative forms when quality is exogenous: 1) disclosure of quality through a credible direct claim; 2) signaling of quality via producer actions that influence buyers¹ beliefs about quality. In general, these two literatures have ignored one-another. In this paper we argue that disclosure and signaling are two sides of a coin and that firms should be viewed as choosing which means of communication they will employ. Moreover, we show that integration of these two alternatives leads to a number of new implications about disclosure, signaling, firm preferences over type, and the social efficiency of the channel of communication employed.
    Keywords: Disclosure, signaling, quality, efficiency
    JEL: D82 L15 K13
    Date: 2007–01
  3. By: Lawrence White
    Date: 2006
  4. By: Luis Cabral; Ben Polak
    Date: 2007
  5. By: Aalto-Setälä , Ville (Bank of Finland, National Consumer Research Center); Schindler, Robert (Rutgers University, Camden)
    Abstract: Nominal rigidities have an important role in macro models used for the analysis of monetary policy. Re-cently, attractive prices (also known as price points) have often been referred to as one important potential explanation of nominal rigidities. An increased interest on attractive prices as an explanation for price ri-gidities rests on online pricing, in the context of which it has been shown that prices are rigid also on the internet, where physical costs are not important. Our empirical analyses using micro data on consumer prices in Finland indicate that a specific form of attractive prices – 9-ending prices – have a considerable effect on pricing dynamics. The results of the study show that changes to prices with 9 endings are more often decreases than are changes to prices with other endings. Price changes to 9-ending prices are also of smaller size than are changes to other endings.
    Keywords: rigidity; price endings; attractive prices; 9-prices
    JEL: D01 E42
    Date: 2006–11–30
    Abstract: This paper uses scanner data from a large euro area retailer. We extend Deaton and Muellbauer’s Almost Ideal Demand System to estimate the price elasticity and curvature of demand for a wide range of products. Our results support the introduction of a kinked (concave) demand curve in general equilibrium macro models. We find that the price elasticity of demand is on average higher for price increases than for price decreases. However, the degree of curvature in demand is much lower than is currently imposed. Moreover, for a significant fraction of products we observe a convex demand curve.
    Keywords: price setting, real rigidity, kinked demand curve, behavioral AIDS
    JEL: C33 D12 E3
    Date: 2006–12
  7. By: Andrew Atkeson; Ariel Burstein
    Abstract: We study the implications for international relative prices of a simple Ricardian model of international trade with imperfect competition and variable markups, providing a tractable account of firm-level and aggregate prices. We show that both trade costs and imperfect competition with variable markups are needed to account for pricing-to-market at the firm and aggregate levels. We also show that international trade costs are essential, but pricing-to-market is not, to account for a high volatility of tradeable consumer prices relative to the overall CPI-based real-exchange rate.
    JEL: E31 F1 F12 F41
    Date: 2007–01
  8. By: Justus Haucap; Uwe Pauly; Christian Wey
    Abstract: In this paper we apply standard cartel theory to identify the major institutional stabilizers of Germany's area tariff system of collective bargaining between a single industry union and the industry's employers association. Our cartel analysis allows us to demonstrate that recent labor policy reforms that intend to make labor markets more "flexible" further serve to stabilize the labor cartel while other pro-competitive proposals have failed. We argue that the pro-competitive recommendations failed exactly because of their destabilizing effects on insiders' incentives to stay in the labor cartel. We propose regulatory measures for injecting competition into Germany's labor markets that focus on the creation of new options for firms and workers outside the existing area tariff system; in particular, by liberalizing existing barriers for the establishment of a fully tariff-enabled union. Such an endeavor must go hand in hand with the institutionalization of a competition policy framework for labor market disputes as any destabilizing policy inevitably provokes counter measures of the incumbent labor cartel so as to protect their dominance vis-à-vis outsider competition.
    Keywords: Union, Collective Bargaining, Cartel Stability, Labor Market Reforms
    JEL: J52 K31 L12
    Date: 2006
  9. By: Philip Bond; Itay Goldstein; Edward S. Prescott
    Abstract: Various laws and policy proposals call for regulators to make use of the information reflected in market prices. We focus on a leading example of such a proposal, namely that bank supervision should make use of the market prices of traded bank securities. We study the theoretical underpinnings of this proposal in light of a key problem: if the regulator uses market prices, prices adjust to reflect this use and potentially become less revealing. We show that the feasibility of this proposal depends critically on the information gap between the market and the regulator. Thus, there is a strong complementarity between market information and the regulator's information, which suggests that regulators should not abandon other sources of information when learning from market prices. We demonstrate that the type of security being traded matters for the observed equilibrium outcome and discuss other policy measures that can increase the ability of regulators to make use of market information.
    Keywords: Markets ; Prices ; Banks and banking
    Date: 2006

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