nep-mic New Economics Papers
on Microeconomics
Issue of 2007‒04‒21
seventeen papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Inventories and Endogenous Stackelberg Hierarchy in Two-Period Cournot Oligopoly By MITRAILLE, Sébastien; MOREAUX, Michel
  2. Retail Price Regulation and Innovation: Reference Pricing in the Pharmaceutical Industry By BARDEY, David; BOMMIER, Antoine; JULLIEN, Bruno
  4. DOWNSTREAM MERGERS AND UPSTREAM INVESTMENT By Ramón Faulí-Oller; Joel Sandonís; Juana Santamaria-Garcia
  5. Exclusionary Pricing and Rebates When Scale Matters By Karlinger, Liliane; Motta, Massimo
  6. The pricing dynamics of utilities with underdeveloped networks By Kessides, Ioannis N.; Chisari, Omar O.
  7. Robust Monopoly Pricing By Dirk Bergemann; Karl Schlag
  8. Tying and Freebies in Two-Sided Markets By AMELIO, Andrea; JULLIEN, Bruno
  9. Tying in Two-Sided Markets and the Honor All Cards Rule By ROCHET, Jean-Charles; TIROLE, Jean
  10. Can minimum prices assure the quality of professional services? By Georg Meran; Reimund Schwarze
  11. European Competition Policy in International Markets By BERTRAND, Olivier; IVALDI, Marc
  12. "Bargaining and Fixed Price Offers: How Online Intermediaries are Changing New Car Transactions" By Michael A. Arnold; Thierry Pénard
  13. Price Rigidity and Flexibility: New Empirical Evidence By Levy, Daniel
  14. Sequencing strategies in large, competitive, ascending price automobile auctions: An experimental examination By Grether, David M.; Plott, Charles R.
  15. Testing the Effectiveness of Regulation and Competition on Cable Television Rates By John S. Ying; Mary T. Kelly
  16. Oligopolistic Competition in the Japanese Wholesale Electricity Market: A Linear Complementarity Approach By TANAKA Makoto
  17. The Important Thing Is not (Always) Winning but Taking Part: Funding Public Goods with Contests By Marco Faravelli

  1. By: MITRAILLE, Sébastien; MOREAUX, Michel
    JEL: L13 D43
    Date: 2007–01
  2. By: BARDEY, David; BOMMIER, Antoine; JULLIEN, Bruno
    JEL: I18 L11 L15 L51
    Date: 2006–12
  3. By: Ramón Faulí-Oller (Universidad de Alicante); Joel Sandonís (Universidad de Alicante)
    Abstract: An independent research laboratory owns a patented process innovation that can be licensed by means of an auction to two Cournot duopolists producing differentiated goods. For large innovations and close enough substitute goods the patentee auctions o¤ only one license, preventing the full diffusion of the innovation. For this range of parameters, however, if the laboratory merged with one of the firms in the industry, full technology diffusion would be implemented as the merged entity would always license the innovation to the rival firm. This explains that, in this context, a vertical merger is both profitable and welfare improving.
    Keywords: Patent licensing, two-part tariff contracts, vertical mergers
    JEL: L13 L23
    Date: 2007–04
  4. By: Ramón Faulí-Oller (Universidad de Alicante); Joel Sandonís (Universidad de Alicante); Juana Santamaria-Garcia (Universidad de Alicante)
    Abstract: In this paper, we show that downstream mergers increase the incentives of an up-stream firm to invest in cost-reducing R&D. The upstream firm revenues increase with industry profits, which in turn increase with concentration downstream and this explains the positive link between concentration and investment. This effect is so important that it outweights the negative effect on prices due to lower competition. Therefore, in our context, horizontal mergers are pro-competitive.
    Keywords: downstream mergers, upstream innovation, competition
    Date: 2007–04
  5. By: Karlinger, Liliane; Motta, Massimo
    Abstract: We consider an incumbent firm and a more efficient entrant, both offering a network good to several asymmetric buyers. The incumbent disposes of an installed base, while the entrant has a network of size zero at the outset, and needs to attract a critical mass of buyers to operate. We analyze different price schemes (uniform pricing, implicit price discrimination - or rebates, explicit price discrimination) and show that the schemes which - for given market structure - induce a higher level of welfare are also those under which the incumbent is more likely to exclude the rival.
    Keywords: abuse of dominance; exclusionary practices; network industry; price discrimination; rebates
    JEL: L11 L14 L42
    Date: 2007–04
  6. By: Kessides, Ioannis N.; Chisari, Omar O.
    Abstract: This paper uses an analytically tractable intertemporal framework for analyzing the dynamic pricing of a utility with an underdeveloped network (a typical case in most developing countries) facing a competitive fringe, short-run network adjustment costs, theft of service, and the threat of a retaliatory regulatory review that is increasing with the price it charges. This simple dynamic optimization model yields a number of powerful policy insights and conclusions. Under a variety of plausible assumptions (in the context of developing countries) the utility will find its long-run profits enhanced if it exercises restraint in the early stages of network development by holding price below the limit defined by the unit costs of the fringe. The utility ' s optimal price gradually converges toward the limit price as its network expands. Moreover, when the utility is threatened with retaliatory regulatory intervention, it will generally have incentives to restrain its pricing behavior. These findings have important implications for the design of post-privatization regulatory governance in developing countries.
    Keywords: Ec onomic Theory & Research,Markets and Market Access,Urban Water Supply and Sanitation,Infrastructure Regulation,Access to Markets
    Date: 2007–04–01
  7. By: Dirk Bergemann; Karl Schlag
    Date: 2007–04–13
  8. By: AMELIO, Andrea; JULLIEN, Bruno
    Date: 2007–03
  9. By: ROCHET, Jean-Charles; TIROLE, Jean
    Date: 2006–02
  10. By: Georg Meran; Reimund Schwarze
    Abstract: This papers studies the effects on service quality and consumer surplus of a minimum price which is fixed by a bureaucratic non-monopolistic professional association. It shows that the price set by a Niskanen-type professional assocation will maximize consumer surplus only if consumers demand the highest possible average quality. If consumers demand services of lesser quality, the association’s price will be too high if measured by consumer surplus. Moreover we show that a de-regulated market will always reproduce the favourable result of a uniformly high price in the case of top quality demand while delivering superior results in the case of a mixed demand for high and low quality services.
    Keywords: Liberal professions, price regulation, quality, professional association, self-regulation, EU competition policy, intrinsic motivation
    JEL: L15 J44 K21
    Date: 2007–01
  11. By: BERTRAND, Olivier; IVALDI, Marc
    Date: 2006–11
  12. By: Michael A. Arnold (Department of Economics,University of Delaware); Thierry Pénard (Department of Economics,University of Rennes)
    Abstract: The Internet has introduced a variety of online buying services that expand the reach of sellers and reduce search costs for buyers. In markets in which traditional outlets establish prices through bargaining, these online intermediaries have also altered the price setting process. Perhaps the most well known example is which provides referral services in the automobile market. By using Autobytel, a buyer can obtain a non-negotiable price offer as an alternative to bargaining with a car dealership. To understand the effect of online referral systems on the price setting process, we construct a theoretical model of oligopolistic price competition in which one dealership has an exclusive contract with a referral intermediary. We derive market conditions under which the fixed price offered through the referral system will or will not be lower than offline (bargained) prices. Our model provides theoretical insights relevant to results in the empirical literature addressing the role that Autobytel and other infomediaries play in online markets.
    Keywords: online markets, E-commerce, intermediary, autobytel, pricing
    JEL: D4 D83 L19 L89
  13. By: Levy, Daniel
    Abstract: The marketplace, along with its price system, is the single most important institution in a western-style free enterprise economy. The ability of prices to adjust to changes in supply and demand conditions enables the market to function efficiently and lies behind the magical invisible hand mechanism. To the behaviour of prices and in particular to the ability of prices to adjust to changes in market conditions, therefore, have fundamental implications for many key issues in many areas of both microeconomics as well as macroeconomics. It is, therefore, critical to study and understand whether there are barriers to price adjustments, what are the nature of these barriers, how the barriers lead to price rigidity, what are possible implications of these rigidities, etc. This introductory essay briefly summarizes the fourteen empirical studies of price rigidity that are included in this special issue.
    Keywords: Price Rigidity; Price Flexibility; Cost of Price Adjustment; Menu Cost; Managerial and Customer Cost of Price Adjustment; Pricing; Price System; Price Setting; New Keynesian Economics; Store-Level Data; Micro-Level Data
    JEL: E31 E50 M30 D21 D40 M20 E58 L11 E12 E52 L16
    Date: 2007–04–17
  14. By: Grether, David M.; Plott, Charles R.
  15. By: John S. Ying (Department of Economics,University of Delaware); Mary T. Kelly (Department of Economics, Villanova University)
    Abstract: Regulation of the cable television industry was marked by remarkable periods of deregulation, re-regulation, and re-deregulation during the 1980s and 1990s. Using FCC firm-level survey data spanning 1993 to 2001, we model and econometrically estimate the effect of regulation and competition on cable rates. Our calculations indicate that while regulation lowered rates for small system operators, it raised them for medium and large systems. Meanwhile, competition consistently decreased rates from 5.6 to 8.8 percent, with even larger declines during periods of regulation. Our results suggest that competition is more effective than regulation in containing cable prices.
    Keywords: cable rates, regulation, competition
    JEL: L51 L96
  16. By: TANAKA Makoto
    Abstract: Using a linear complementarity approach, we simulate the Japanese wholesale electricity market as a transmission-constrained Cournot market. Following Hobbs (2001), our model adopts the Cournot assumption in the energy market and the Bertrand assumption in the transmission market. The Bertrand assumption means that generators consider transmission charges as being exogenous, which can be interpreted as a kind of bounded rationality. We then present a simulation analysis of the Japanese wholesale electricity market, considering eight areas linked by interconnection transmission lines. Specifically, this paper examines the potential effects of both investment in interconnection transmission lines and the divestiture of dominant players' power plants.
    Date: 2007–04
  17. By: Marco Faravelli
    Abstract: This paper considers a public good game with heterogeneous endowments and incomplete information affected by extreme free-riding. We overcome this problem through the implementation of a contest in which several prizes may be awarded. We identify a monotone equilibrium, in which the contribution is strictly increasing in the endowment. We prove that it is optimal for the social planner to set the last prize equal to zero, but otherwise total expected contribution is invariant to the prize structure. Finally, we show that private provision via a contest Pareto-dominates public provision and is higher than the total contribution raised through a lottery.

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