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on Microeconomics |
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Issue of 2007‒03‒24
fifteen papers chosen by Joao Carlos Correia Leitao University of the Beira Interior |
| By: | Bruno Versaevel (GATE CNRS); Désiré Vencatachellum (HEC Montréal) |
| Abstract: | There is evidence that competing firms delegate R&D to the same independent profit-maximizing laboratory. We draw on this stylized fact to construct a model where two firms in the same industry offer transfer payments in exchange of user-specific R&D services from a common laboratory. Inter-firm and within-laboratory externalities affect the intensity of competition among delegating firms on the intermediate market for technology. Whether competition is relatively soft or tight is reflected by each firm's transfer payment offers to the laboratory. This in turn determines the laboratory's capacity to earn profits, R&D outcomes, delegating firms' profits, and social welfare. We compare the delegated R&D game to two other ones where firms (i) cooperatively conduct in-house R&D, and (ii) non-cooperatively choose in-house R&D. The delegated R&D game Pareto dominates the other two games, and the laboratory earns positive profits, only if within-laboratory R&D services are suffciently complementary but inter-firm spillovers are suffciently low. We find no room for policy intervention, because the privately profitable decision to delegate R&D, when the laboratory participates, always benefits consumers. |
| Keywords: | common agency, externalities, research and development |
| JEL: | C72 L13 O31 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:0610&r=mic |
| By: | Jolian McHardy (Department of Economics, The University of Sheffield); Michael Reynolds; Stephen Trotter |
| Abstract: | In this paper we explore alternative pricing and regulatory strategies within a simple transport network with Cournot duopoly and differentiated demands. We show that whilst firms always prefer to offer integrated ticketing, a social planner will not. With integrated ticketing, the firms always prefer complete collusion but there is not a uniform ranking of some of the less collusive regimes. Society generally prefers the less collusive regimes to complete collusion but prefers some collusion to independent pricing. |
| Keywords: | Integrated ticketing, duopoly, collusion. |
| JEL: | D43 L13 R48 |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2005006&r=mic |
| By: | Armstrong, Mark; Wright, Julian |
| Abstract: | We discuss policy towards mobile call termination, illustrated by the 2002 Competition Commission enquiry into the UK mobile market. We present a model of the mobile market which includes both fixed-to-mobile and mobile-to-mobile call termination. In broad terms, the former service is likely to involve monopoly pricing if left unchecked, while the latter service---if the termination charge is jointly chosen by networks---may provide the mobile sector with the means by which to relax competition. Competition is often relaxed by choosing a low mobile-to-mobile termination charge. If feasible, then, unregulated networks often wish to set different termination charges depending on whether traffic originates on the fixed or mobile network. By contrast, social optimality often requires that uniform termination charges be imposed. |
| Keywords: | Telecommunications; Regulation; Oligopoly; Call termination |
| JEL: | L96 L51 L41 |
| Date: | 2007–03–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2344&r=mic |
| By: | Robert Gagné (HEC Montréal, CRT and CIRANO); Simon van Norden (HEC Montréal, CIRANO and CIREQ); Bruno Versaevel (EM Lyon, GATE CNRS) |
| Abstract: | We analyse the effects of a price floor on price wars (or deep price cuts) in the retail market for gasoline. Bertrand supergame oligopoly models predict that price wars should last longer in the presence of price floors. In 1996, the introduction of a price floor in the Quebec retail market for gasoline serves as a natural experiment with which to test this prediction. We use a Markov Switching Model with two latent states to simultaneously identify the periods of price-collusion/price-war and estimate the parameters characterizing each state. Results support the prediction that price floors reduce the intensity of price wars but increase their expected duration. |
| Keywords: | gasoline prices, Markov switching model, oligopoly supergame, price regulation |
| JEL: | C32 L13 L81 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:0611&r=mic |
| By: | Dieter Schmidtchen (Universität des Saarlandes); Christoph Bier (Uni-Saarland - Center for the Study of Law and Economics) |
| Abstract: | The purpose of the paper is (1) to analyze the potential and the incentives for a vertically integrated input monopolist to engage in price-discrimination when there is downstream entry, and (2) to examine the question, whether a cost-based regulation of access charges for electricity grids enhances competition in the downstream-market. The paper shows that the incumbent will never block entry if the entrant is more efficient than the incumbent. The reason is that the input-monopolist can make more profit through input sales than it could generate by producing the downstream product itself. If the entrant does not have a cost advantage either the incumbent or the entrant gets a monopoly position. Providing for a level playing field by means of a cost-based regulation of access charges always creates competition in the downstream-market. The paper also derives the welfare effects of both the liberalization of the downstream-market and the cost-based regulation. |
| Keywords: | discrimination, regulation, vertical integration, electricity, access charges, sabotage, |
| JEL: | L L L |
| URL: | http://d.repec.org/n?u=RePEc:bep:dewple:2005-1-1123&r=mic |
| By: | Ricardo Flores-Fillol |
| Abstract: | This paper characterizes the equilibria in airline networks and their welfare implications in an unregulated environment. Competing airlines may adopt either fully-connected (FC) or hub-and-spoke (HS) network structures; and passengers exhibiting low brand loyalty to their preferred carrier choose an outside option to travel so that markets are partially served by airlines. In this context, carriers adopt hubbing strategies when costs are sufficiently low, and asymmetric equilibria where one carrier chooses a FC strategy and the other chooses a HS strategy may arise. Quite interestingly, flight frequency can become excessive under HS network configurations. |
| Keywords: | fully-connected networks; hub-and-spoke networks; brand loyalty; fully-served markets; partially-served markets |
| JEL: | L13 L2 L93 |
| Date: | 2007–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:683.07&r=mic |
| By: | Asplund, Marcus |
| Abstract: | This paper aims at testing the maintained assumption that firms' objective is to maximize the expected net present value (ENPV) of profits. The idea is to examine pricing behaviour of a monopolist facing a dynamic demand where current sales influence future demand. Empirically, I estimate an Euler equation implied by maximization of ENPV of profits on data from the Swedish Tobacco Monopoly's sales of moist snuff (an addictive tobacco product) during the period 1917-1959. It is found that the monopolist's prices are well below those that would maximize ENPV of profits. |
| Keywords: | firm behaviour; profit maximization |
| JEL: | L12 L21 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6177&r=mic |
| By: | Bruno Versaevel (EM Lyon, GATE CNRS); Vianney Dequiedt (INRA GAEL) |
| Abstract: | Patent pools are cooperative agreements between several patent owners to bundle the sale of their respective licenses. In this paper we analyze their consequences on the speed of the innovation process. We adopt an ex ante perspective and study the impact of possible pool formation on the incentives to innovate. Because participation in the creation of a pool acts as a bonus reward on R&D activity, we show that a firm’s investment pattern is upward sloping over time before pool formation. The smaller the set of initial contributors, the higher this effect. A pool formation mechanism based on a proposal by the industry and acceptance/refusal by the competition authority may induce overinvestment in early innovations. It also leads a forward looking regulator to delay the clearance date of the pool. This may result in a pool size that is suboptimal from an ex ante viewpoint. |
| Keywords: | competition policy, licensing, R&D races, research and development |
| JEL: | L51 O32 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:0703&r=mic |
| By: | Xi Zou; David Levinson (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota) |
| Abstract: | A multi-agent model of travelers competing to utilize a roadway in time and space is presented in this paper to illustrate the effect of congestion and pricing on traveler behaviors and network equilibrium. To realize the spillover effect among travelers, N-player games are constructed in which the strategy set include (N+1) strategies. We solve the discrete N-player game (for N less than 8) and find Nash equilibria if they exist. This model is compared to the bottleneck model. The results of numerical simulation show that the two models yield identical results in terms of lowest total costs and marginal costs when a social optimum exists. |
| Keywords: | Agent-based Model, Game Theory, Congestion, Queueing, Traffic Flow, Congestion Pricing, Road Pricing, Value Pricing |
| JEL: | R41 R42 R48 D10 D81 D83 C72 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:nex:wpaper:multiagentcongestionmodel&r=mic |
| By: | Roland Kirstein (University of Saarland); Annette Kirstein (Universität Karlsruhe) |
| Abstract: | The need for intra-firm incentive schemes allows remodeling the Cournot duopoly in wages (rather than in output levels). In both versions of the Cournot model, a cartel agreement is unstable. The new formulation, however, allows us to demonstrate that a collective wage agreement on minimum wages can stabilize the cartel solution. Beyond its relevance for strategic management, this result has a policy implication: competition authorities should observe collective wage agreements for their potential collusive effect on product markets. Moreover, the model may provide a new explanation why firms in reality pay lower than efficient variable wages and higher fixed wages than predicted by contract theory. |
| Keywords: | Principal-agent theory, piece rate, fixed wage, collective wage agreements, Nash bargaining solution., |
| JEL: | C72 C78 D43 J33 J50 K31 L41 |
| URL: | http://d.repec.org/n?u=RePEc:bep:dewple:2005-1-1129&r=mic |
| By: | Bruno Versaevel (EM Lyon, GATE CNRS); Désiré Vencatachellum (HEC Montréal) |
| Abstract: | We use the French portion of the 2002 Community Innovation Survey to test how spillovers a®ect the likelihood that ¯rms cooperate in R&D. Unlike most existing empirical studies, our results clearly support well-established theoretical predictions of the industrial organization literature. We find that a firm which benefits from higher spillovers from her rivals is more likely to cooperate horizontally in R&D. Moreover, the impact of incoming spillovers on the likelihood of horizontal R&D cooperation is positive and statistically significant only when they are above a threshold. Both the value, and the precision of the estimates, increase with the information flow which firms report receiving from their competitors. |
| Keywords: | cooperation, research and development, spillovers |
| JEL: | C72 L13 L81 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:0612&r=mic |
| By: | Corinne Autant-Bernard (CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne - [CNRS : FRE2938] - [Université Jean Monnet - Saint-Etienne]); Pascal Billand (CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne - [CNRS : FRE2938] - [Université Jean Monnet - Saint-Etienne]); Christophe Bravard (CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne - [CNRS : FRE2938] - [Université Jean Monnet - Saint-Etienne]); Nadine Massard (CREUSET - Centre de Recherche Economique de l'Université de Saint-Etienne - [CNRS : FRE2938] - [Université Jean Monnet - Saint-Etienne]) |
| Abstract: | Based on the research projects submitted to the 6th Framework Program of the European Union, this paper studies cooperative networks in micro and nanotechnologies. Our objective is twofold. First, using the statistical tools of the social network analysis, we characterise the structure of the R&D collaborations established between firms. Second, we investigate the determinants of this structure, by analysing the individual choices of cooperation. A binary choice model is used to put forward the existence of network effects alongside other microeconomic determinants of cooperation. Our findings suggest that network effects are present, so that probability of collaboration is influenced by each individual's position within the network. It seems that social distance matters more than geographical distance. We also provide some evidence that similar firms (in terms of research potential) are more likely to collaborate together |
| Keywords: | Network formation; R&D collaboration; Knowledge externalities; nanotechnologies |
| Date: | 2007–03–19 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:ujm-00137238_v1&r=mic |
| By: | Ezra Einy; Ori Haimanko; Diego Moreno; Benyamin Shitovitz |
| Abstract: | We show that even in very simple oligopolies with differential information a (Bayesian) Cournot equilibrium in pure strategies may not exist, or be unique. However, we find sufficient conditions for existence, and for uniqueness, of Cournot equilibrium in a certain class of industries. More general results arise when negative prices are allowed. |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we070603&r=mic |
| By: | Mohamed Haikel Khalfallah (GATE CNRS) |
| Abstract: | In this paper, we study the problem of long-term capacity adequacy in electricity markets. Two investment incentive mechanisms, Capacity obligations and Reliability contracts, are analyzed and compared to the benchmark design, the energy-only market. We use the dynamic programming method and real option theory to develop two dynamic models that enable one to assess the optimal market design for ensuring sufficient generation capacity to meet future demand at efficient cost (the deterministic model) and to analyze the optimal timing of investments when uncertainties in future load and fuel prices are considered (the stochastic model). The effects of different factors on investment strategies, such as the pricing of CO2 and differences between construction delays and cost structures of the new technologies, are also analyzed. The numerical results show that: (1) the reliability contract scheme would be the more cost-efficient mechanism, ensuring the long term system adequacy and encouraging earlier and adequate new investments in the system, compared to the capacity obligation method which would result in over-investment and price manipulations; (2) short lead time technology would be preferred with the capacity obligation design, while cost competitive technology would be chosen with the reliability contract scheme; (3) the pricing of CO2 and the taking into account of uncertainties would affect investment strategies but would have no impact on the effectiveness of the reliability contracts scheme. |
| Keywords: | generation capacity adequacy, electricity market, real options, dynamic programming |
| JEL: | C61 L51 O14 O21 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:0614&r=mic |
| By: | Eklund, Johan (Jönköping International Business School (JIBS) and CESIS); Wiberg, Daniel (Jönköping International Business School (JIBS) and CESIS) |
| Abstract: | Economic theory tells us that abnormal firm and industry profits will not persist for any significant length of time. Any firm or industry making profits in excess of the normal rate of return will attract entrants and this competitive process will erode profits. However, a substantial amount of research has found evidence of persistent profits above the norm. Barriers to entry and exit, is an often put forward explanation to this anomaly. In the absence of, or with low barriers to entry and exit, this reasoning provides little help in explaining why these above-norm profits arise and persist. In this paper we explore the links between the systematic search for knowledge and the persistence of profits. By investing in research and development firms may succeed in creating products or services that are preferred by the market and/or find a more cost efficient method of production. Corporations that systematically invest in research and development may, by doing this, offset the erosion of profits and thereby have persistently high profits which diverge from the competitive return.We argue that even in the absence of significant barriers to entry and exit profits may persist. This can be accredited to a systematic search for knowledge through research and development. |
| Keywords: | Persistence of Profits; Profit Dynamics; R&D; Innovation Activity; Knowledge |
| JEL: | C10 C32 O10 O32 |
| Date: | 2007–03–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0085&r=mic |