|
on Microeconomics |
|
Issue of 2007‒04‒14
ten papers chosen by Joao Carlos Correia Leitao University of the Beira Interior |
| By: | Cerquera Dussán, Daniel |
| Abstract: | This paper analyzes the impact of network externalities on R&D competition between an incumbent and a potential entrant. The analysis shows that the incumbent always invests more than the entrant in the development of higher quality network goods. However, the incumbent exhibits a too low level of investments, while the entrant invests too much in R&D in comparison with the social optimum. In the model entry occurs too often in equilibrium. These inefficiencies are solely due to the presence of network externalities. By choosing compatible network goods, firms do not necessarily reduce the R&D competition intensity. |
| Keywords: | Network externalities, Innovation, Imperfect Competition |
| JEL: | D21 D85 L13 O31 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:5486&r=mic |
| By: | Thomas Giebe (Institute of Economic Theory I, Humboldt University at Berlin Spandauer Str. 1, 10099 Berlin, Germany. thomas.giebe@wiwi.hu-berlin.de); Elmar Wolfstetter (Institute of Economic Theory I, Humboldt University at Berlin Spandauer Str. 1, 10099 Berlin, Germany. elmar.wolfstetter@rz.hu–berlin.de) |
| Abstract: | This paper revisits the licensing of a non–drastic process innovation by an outside innovator to a Cournot oligopoly. We propose a new mechanism that combines a restrictive license auction with royalty licensing. This mechanism is more profitable than standard license auctions, auctioning royalty contracts, fixed–fee licensing, pure royalty licensing, and two-part tariffs. The key features are that royalty contracts are auctioned and that losers of the auction are granted the option to sign a royalty contract. Remarkably, combining royalties for winners and losers makes the integer constraint concerning the number of licenses irrelevant. |
| Keywords: | patents, licensing, auctions, royalty, innovation, R&D, mechanism design |
| JEL: | D21 D43 D44 D45 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:199&r=mic |
| By: | Cerquera Dussán, Daniel |
| Abstract: | This paper studies the incentives to undertake uncertain R&D initiatives in a dynamic duopoly network industry. It is shown that network externalities positively affect the incentives to invest in R&D. In the model, competition resembles a preemption race and, therefore, market performance implies an overinvestment in R&D in comparison with the social optimum. Moreover, network externalities have an important impact in the dynamic evolution of the industry. Although in the long-run a single firm dominates the market (i.e. wins the race), short-run competition is very fierce and concentrated on neck-and-neck technological configurations. This short-run competition is fiercer and longer, the higher the level of network externalities. Policy measures that increase technological diffusion (i.e. mandatory licensing), increase the level of competition and/or prolong the short-run competition have an important positive impact on consumer welfare and on firms’ R&D incentives. |
| Keywords: | Network externalities, Innovation, Imperfect Competition, Dynamic Games |
| JEL: | C73 D85 L13 O31 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:5487&r=mic |
| By: | Simon P. Anderson (Department of Economics, University of Virginia, PO Box 400182, Charlottesville VA 22904-4128, USA); André de Palma (Member of the Institut Universitaire de France, ThEMA, Université de Cergy- Pontoise, 33 Bd. du Port, 95011, Cergy Cedex, France.) |
| Abstract: | Advertising messages compete for scarce attention. “Junk” mail, “spam” e-mail, and telemarketing calls need both parties to exert effort to generate transactions. Message recipients supply attention depending on average message benefit, while senders are motivated by profits. Costlier message transmission may improve message quality so more messages are examined. Too many messages may be sent, or the wrong ones. A Do-Not-Call policy beats a ban, but too many individuals opt out. A monopoly gatekeeper performs better than personal access pricing if nuisance costs to receivers are moderate. |
| Keywords: | information overload, congestion, advertising, common property resource, two-sided markets, junk mail, email, telemarketing, Do Not Call List, message pricing policy. |
| JEL: | D11 D60 L13 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2007-10&r=mic |
| By: | Lapan, Harvey E.; Hennessy, David A. |
| Abstract: | The welfare dominance of ad valorem taxes over unit taxes in a single-market Cournot oligopoly is well-known. This article extends the analysis to multi-market oligopoly. Provided all ad valorem taxes are positive, unit costs are constant, firms are active in all considered markets, and a representative consumer has convex preferences, it is shown that ad valorem taxes dominate in multi-product equilibrium. We discuss the role of unit cost covariances across multi-product firms in determining the extent of cost efficiencies arising under ad valorem taxation. The issue of merger under oligopoly is also considered. Conditions are identified under which a merger increases the sum of consumer and producer surpluses while also increasing the revenue yield from a set of unit taxes. If not all firms are active in all considered markets, then it is also shown that additional conditions are required to ensure the dominance of ad valorem taxes. In multi-input Cournot oligopsony, however, unit taxation welfare dominates. This is because ad valorem taxes on inputs reduce demand elasticities, amplifying market power distortions. |
| Keywords: | ad valorem tax; imperfect competition; oligopoly merger; quantity-setting game; specific tax; tax efficiency; tax revenue |
| JEL: | D4 H2 |
| Date: | 2007–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12780&r=mic |
| By: | Cortade, Thomas |
| Abstract: | This paper looks at a new body of literature that deals with two-sided markets and focuses on the Internet Service Provider (ISP) segment. ISPs seem to act as a platform enabling transactions between web sites and end consumers. We propose a strategic guide for ISPs that covers features of two-sided markets such as strong externalities and discuss how these market characteristics can affect competition policy. |
| Keywords: | Platform; externalities; price allocation; competition policy. |
| JEL: | L51 L96 L86 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2602&r=mic |
| By: | Carsten Eckel; J. Peter Neary |
| Abstract: | We present a new model of multi-product firms (MPFs) and flexible manufacturing and explore its implications in partial and general equilibrium. International trade integration affects the scale and scope of MPFs through a competition effect and a demand effect. We demonstrate how MPFs adjust in the presence of single-product firms and in heterogeneous industries. Our results are in line with recent empirical evidence and suggest that MPFs in conjunction with flexible manufacturing play an important role in the impact of international trade on product diversity. |
| Keywords: | Multi-Product Firms, Flexible Manufacturing, General Oligopolistic Equilibrium (GOLE), International Trade, Product Diversity |
| JEL: | F12 L13 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:292&r=mic |
| By: | Odd Rune Straume (Universidade do Minho - NIPE); Kurt R. Brekke (Department of Economics and Helth Economics Bergen, Norwegian School of Economics and Business Administration); Luigi Siciliani (Department of Economics and Centre for Health Economics, University of York, Heslington) |
| Abstract: | This paper studies the impact of hospital competition on waiting times. We use a Salop-type model, with hospitals that differ in (geographical) location and, potentially, waiting time, and two types of patients; high benefit patients who choose between neighbouring hospitals (competitive segment), and low-benefit patients who decide whether or not to demand treatment from the closest hospital (monopoly segment). Compared with a benchmark case of regulated monopolies, we find that hospital competition leads to longer waiting times in equilibrium if the competitive segment is sufficiently large. Given a policy regime of hospital competition, the effect of incresed competition depends on the parameter of measurement: Lower travelling costs increase waiting times, higher hospital density redices waiting times, while the effect of a larger competitive segment is ambiguous. We also show that, if the competitive segment is large, hospital competition is socially preferrable to regulated monopolies only if the (regulated) treatment price is sufficiently higher. |
| Keywords: | Hospitals, Competition, Waiting times |
| JEL: | H42 I11 I18 L13 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:9/2007&r=mic |
| By: | Verdier, Marianne |
| Abstract: | Some retail payment systems can be modelled as two-sided markets, where a payment system facilitates money exchanges between consumers on one side and merchants on the other. The system sets rules and standards, to ensure usage and acceptance of its payment instruments by consumers and merchants respectively. Some retail payment systems exhibit indirect network externalities, which is one of the main criteria used to define two-sided markets. As more consumers use the payment platform, more merchants are encouraged to join it. Conversely, the value of holding payment instruments increases with the number of merchants accepting them. The theory of two-sided markets contributes to a better understanding of these retail payment systems, by showing that an asymmetric allocation of costs is needed to maximise the volume of transactions. It also starts to offer results that could explain competition between payment platforms. However, this theory entails some limits to a thorough understanding of retail payment systems. Firstly, we show that some retail payment systems, such as credit transfer or direct debit systems, do not necessarily fulfil all the theoretical criteria used to define twosided markets. Moreover, this theory does not take into account specific features of the payment industry, such as risk management or fraud prevention. This leads us to propose new research directions. |
| Keywords: | payment systems; two-sided markets; platform competition; payment cards. |
| JEL: | O30 L13 D43 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:2606&r=mic |
| By: | Poudou, J.C.; Roland, M.; Thomas, L. |
| Abstract: | This paper takes into account adverse selection in the implementation of universal service obligations (USOs) for a network industry with no bypass. USOs are characterized by a coverage constraint imposed on the network’s owner. We develop fully the model for a welfare maximizing coverage constraint and explain how to adapt it for a full coverage (ubiquity) constraint. We use a market without USO as a benchmark case. We show that, because of information rents, a sufficiently high shadow cost of public funds can lead to a lower coverage with the USO than without it when firms turn out to be relatively inefficient. If the regulator is able to determine the industry structure by issuing licences to operate, the optimal number of firms reflects a trade-off between allocative efficiency and the industry capacity to finance internally the USO. The shadow cost of public funds then plays a dual role as it determines the terms of this efficiency funding trade-off in addition to the terms of the traditionnal efficiency rent trade-off. |
| Keywords: | universal service obligations, coverage constraints, asymmetric information, regulation |
| JEL: | D82 K23 L43 L51 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:mop:lasrwp:2007.22&r=mic |