nep-mic New Economics Papers
on Microeconomics
Issue of 2007‒03‒03
eight papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. On MQS regulation, innovation and market coverage By E. Bacchiega; L. Lambertini; A. Mantovani
  2. Reliability and Competitive Electricity Markets By Joskow, Paul L; Tirole, Jean
  3. College Admissions under Early Decision By Mumcu, Ayse; Saglam, Ismail
  4. Price setting in the euro area: some stylised facts from individual producer price data By Philip Vermeulen; Daniel Dias; Maarten Dossche; Erwan Gautier; Ignacio Hernando; Roberto Sabbatini; Harald Stahl
  5. Iterated Strict Dominance in General Games By Yi-Chun Chen; Ngo Van Long; Xiao Luo
  6. Are Eco-Labels Valuable? Evidence from the Apparel Industry By Nimon, W.; Beghin, John C.
  7. Evaluating the Effectiveness of Public Support to Private R&D: Evidence from Argentina By Chiara Binelli; Alessandro Maffioli
  8. Tying-in Two-Sided Markets and the Honour All Cards Rule By Rochet, Jean Charles; Tirole, Jean

  1. By: E. Bacchiega; L. Lambertini; A. Mantovani
    Date: 2006–11
  2. By: Joskow, Paul L; Tirole, Jean
    Abstract: This paper seeks to bridge the gap between economists focused on designing competitive market mechanisms and engineers focused on the physical attributes and engineering requirements they perceive as being needed for operating a reliable electric power system. The paper starts by deriving the (second-best) optimal prices and investment program when there are price-insensitive retail consumers, but when their load serving entities can choose any level of rationing they prefer contingent on real time prices. It then examines the assumptions required for a competitive wholesale and retail market to achieve this optimal price and investment program. The paper analyses the implications of relaxing several of these assumptions. First, it analyzes the interrelationships between regulator-imposed price caps and capacity obligations. It goes on to explore the implications of potential network collapses, the concomitant need for operating reserve requirements and whether market prices will provide incentives for investments consistent with these reserve requirements.
    Keywords: electricity; incentives; regulation
    JEL: L1 L5 L9
    Date: 2007–02
  3. By: Mumcu, Ayse; Saglam, Ismail
    Abstract: In this paper, we model college admissions under early decision in a many-to-one matching framework with two periods. We show that there exists no stable matching system, involving an early decision matching rule and a regular decision matching rule, which is nonmanipulable via early decision quotas by colleges or via early decision preferences by colleges or students. We then analyze the Nash equilibria of the game, in which the preferences of colleges and students in each period are common knowledge and every college determines a quota for the early decision period given its total capacity for the two periods. Under college-optimal and student-optimal matching systems, we show that a pure strategy equilibrium may not exist. However, when colleges or students have common preferences over the other set of agents, 'terminating early decision program' becomes a weakly dominant strategy for each college if every student, choosing to act early, always applies early to his or her top choice college.
    Keywords: Many-to-one matching; college admissions; early decision
    JEL: C71 C78
    Date: 2007–01–25
  4. By: Philip Vermeulen (European Central Bank); Daniel Dias (Banco de Portugal); Maarten Dossche (National Bank of Belgium); Erwan Gautier (Banque de France); Ignacio Hernando (Banco de España); Roberto Sabbatini (Banca d’Italia); Harald Stahl (Deutsche Bundesbank)
    Abstract: This paper documents producer price setting in 6 countries of the euro area: Germany, France, Italy, Spain, Belgium and Portugal. It collects evidence from available studies on each of those countries and also provides new evidence. These studies use monthly producer price data. The following five stylised facts emerge consistently across countries. First, producer prices change infrequently: each month around 21% of prices change. Second, there is substantial cross-sector heterogeneity in the frequency of price changes: prices change very often in the energy sector, less often in food and intermediate goods and least often in non-durable non- food and durable goods. Third, countries have a similar ranking of industries in terms of frequency of price changes. Fourth, there is no evidence of downward nominal rigidity: price changes are for about 45% decreases and 55% increases. Fifth, price changes are sizeable compared to the inflation rate. The paper also examines the factors driving producer price changes. It finds that costs structure, competition, seasonality, inflation and attractive pricing all play a role in driving producer price changes. In addition producer prices tend to be more flexible than consumer prices.
    Keywords: price-setting, producer prices
    JEL: E31 D40 C25
    Date: 2007–02
  5. By: Yi-Chun Chen; Ngo Van Long; Xiao Luo
    Abstract: We offer a definition of iterated elimination of strictly dominated strategies (IESDS) for games with (in)finite players, (non)compact strategy sets, and (dis)continuous payoff functions. IESDS is always a well-defined order independent procedure that can be used to solve Nash equilibrium in dominance-solvable games. We characterize IESDS by means of a "stability" criterion, and offer a sufficient and necessary epistemic condition for IESDS. We show by an example that IESDS may generate spurious Nash equilibria in the class of Reny's better-reply secure games. We provide sufficient/necessary conditions under which IESDS preserves the set of Nash equilibria. <P>Nous donnons une définition de l’élimination itérative des stratégies qui sont strictement donimées (EISSD) pour les jeux avec un nombre fini (ou infini) de joueurs , des ensembles de stratégies compactes (ou non-compactes), et des fonctions de gains continues (ou non-continues). Le processus EISSD est bien défini et indépendant de l’ordre d’élimination. Nous donnons une caractérisation du processus EISSD en utilisant un critère de stabilité et offrons une condition épistémologique. Nous démontrons que le processus EISSD peut produire des équilibres faux dans la classe des jeux de meilleures réponses sécuritaires de Reny. Nous donnons des conditions nécessaires et suffisantes pour que le processus EISSD conserve l’ensemble des équilibre de Nash.
    Keywords: game theory, strict dominance, iterated elimination, Nash equilibrium, Reny's better-reply secure games., théorie des jeux, dominance stricte, élimination itérative, équilibre de Nash, jeux de meilleures réponses sécuritaires de Reny
    JEL: C70 C72
    Date: 2007–02–01
  6. By: Nimon, W.; Beghin, John C.
    Abstract: Using U.S. apparel catalog data, we estimate hedonic price functions to identify market valuation of environmental attributes of apparel goods. We identify a significant and robust premium for the organic fibers embodied in the apparel goods. We also find a discount for the "no-dye" label. We do not, however, find any evidence of a premium for environment-friendly dyes. We further investigate the pricing behavior of apparel suppliers for potential heterogenous pricing of the organic-fiber attribute and find no evidence of different premia across firms.
    Keywords: Eco-labels, organic-cotton apparel, dyes, hedonic price
    Date: 2007–02–23
  7. By: Chiara Binelli (University College London); Alessandro Maffioli (Inter-American Development Bank)
    Abstract: The paper investigates the relationship between government interventions to promote investments in innovation and firms-financed R&D. Merging a unique panel data set on Argentinean firms in the 1990s with a data base on different types of public support received through FONTAR program, we estimate a fixed effects model and find evidence of a significant positive impact of FONTAR on private R&D. The result is robust to the use of an IV estimator that controls for the potential bias induced by changes in the structure of the program.
    Keywords: Innovation; policy evaluation; panel data
    JEL: O32 O38 C23
    Date: 2006–11
  8. By: Rochet, Jean Charles; Tirole, Jean
    Abstract: Payment card associations offer both debit and credit cards and, until recently, engaged in a tie-in on the merchant side through the so-called honour-all-cards (HAC) rule. The HAC rule came under attack on the grounds that the credit and debit card markets are separate markets and that the associations lever their market power in the 'credit card market' to exclude on-line debit cards and thereby monopolize the 'debit card market'. This article analyzes the impact of the HAC rule, using a simple model with two types of transactions (debit and credit) and two platforms. In the benchmark model, in the absence of HAC rule, the interchange fee (IF, the transfer from the merchant’s bank to the cardholder’s bank) on debit is socially too low, and that on credit is either optimal or too high (depending on downstream members’ market power). In either case, the HAC rule not only benefits the multi-card platform but also raises social welfare, due to a rebalancing effect: The HAC rule allows the multi-card platform to better perform the balancing act by raising the IF on debit and lowering it on credit, ultimately raising volume. The paper then investigates a number of extensions of the benchmark model, including varying degrees of substitutability between debit and credit; merchant heterogeneity; and platform differentiation. While the HAC rule may no longer raise social welfare under all values of the parameters, the basic and socially beneficial rebalancing effect unveiled in the benchmark model is robust.
    Keywords: payment cards; price rebalancing.; tie-ins; two-sided markets
    JEL: L5 L82 L86 L96
    Date: 2007–02

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