nep-mic New Economics Papers
on Microeconomics
Issue of 2007‒05‒19
thirty-one papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. The Choice of Prices vs. Quantities under Uncertainty By Markus Reisinger; Ludwig Ressner
  2. Stochastic market sharing, partial communication and collusion By Gerlach, Heiko
  3. Equilibrium Market and Pricing Structures in Virtual Platform Duopoly By Behringer, Stefan
  4. Customer Poaching and Advertising By Rosa Branca Esteves
  5. Spatial asymmetric duopoly with an application to Brussels’ airports By Fay Dunkerley; André de Palma; Stef Proost
  6. Market Structure and Internalization of Congestion in Air Transportation By Kurt Van Dender
  7. The Principle of Moderate Differentiation By Sallstrom Matthews, S.E.
  8. Degree of Competition and Export-Production Relative Prices when the Exchange Rate Changes: Evidence from a Panel of Czech Exporting Companies By Jiri Podpiera; Marie Rakova
  9. Reference Pricing Versus Co-Payment in the Pharmaceutical Industry: Firm's Pricing Strategies By Marisa Miraldo
  10. Avoiding Market Dominance: Product Compatibility in Markets with Network Effects By Jiawei Chen; Ulrich Doraszelski; Joseph E. Harrington, Jr.
  11. Pricing Damaged Goods By McAfee, R. Preston
  12. Spacial Predation in the UK Newspaper Industry By Behringer, Stefan
  13. Multimarket Contact in Pharmaceutical Markets By Javier Coronado; Sergi Jiménez-Martín; Pedro L. Marín
  14. Incentives for Partial Acquisitions and Real Market Concentration By Patricia Charléty; Marie-Cécile Fagart; Saïd Souam
  15. Financing Multi-stage projects under moral hazard and limited commitment By Josepa Miquel-Florensa
  16. Optimal Group Incentives with Social Preferences and Self-Selection By Sabrina Teyssier
  17. Optimal Incentives in Dynamic Multiple Project Contracts By Josepa Miquel-Florensa
  18. Cooperative production and efficiency By Carmen Bevia; Luis C. Corchon
  19. Competition and quality in the notary profession By Joëlle Noailly; Richard Nahuis
  20. Micro Foundations of Price-Setting Behaviour: Evidence from Canadian Firms By Daniel de Munnik; Kuan Xu
  21. Employment Protection, Product Market Regulation and Firm Selection By Winfried Koeniger; Julien Prat
  22. Communication Networks in the N-Player Electronic Mail Game By Kris de Jaegher
  23. Trade Credit Defaults and Liquidity Provision by Firms By Reint Gropp; Frederic Boissay
  24. An Institutional Frame to Compare Alternative Market Designs in EU Electricity Balancing By Glachant, J.M.; Saguan, M.
  25. Workplace Organization and Innovation By Zoghi, Cindy; Mohr, Robert D.; Meyer, Peter B.
  26. The Road to Extinction: Commons with Capital Markets By Jayasri Dutta and Colin Rowat
  27. Hospital Financing and the Development and Adoption of New Technologies By Marisa Miraldo
  28. Do sunk exporting costs differ among markets? Evidence from Spanish manufacturing firms. By José Vicente Blanes Cristóbal; Marion Dovis; Juliette Milgram Baleix; Ana I. Moro Egido
  29. Vertical Integration and Firm Boundaries : The Evidence By Lafontaine, Francine; Slade, Margaret
  30. Employment, innovation, and productivity: Evidence from italian microdata By Bronwyn H. Hall; Francesca Lotti; Jacques Mairesse
  31. The Effects of Mergers and Acquisitions on the Firm Size Distribution By Elena Cefis; Orietta Marsili; Hans Schenk

  1. By: Markus Reisinger (Department of Economics, University of Munich, Kaulbachstr. 45, 80539 Munich, Germany,, phone: 00 49 89 2180 5645, fax: 00 49 89 2180 5650); Ludwig Ressner (Department of Economics, University of Munich, Kaulbachstr. 45, 80539 Munich, Bavarian Graduate Program in Economics, Germany,, phone: 00 49 89 2180 5644, fax: 00 49 89 2180 5650)
    Abstract: This paper analyzes a duopoly model with stochastic demand in which firms first choose their strategy variable and compete afterwards. Contrary to the existing literature, we show that firms do not always choose a quantity which is the variable that induces a smaller degree of competition. The reason is that demand uncertainty and the degree of substitutability have countervailing effects on variable choice. Higher uncertainty favors prices, while closer substitutability favors quantities. Moreover, for intermediate values firms choose different strategy variables in equilibrium.
    Keywords: competition, strategy variables, demand uncertainty
    JEL: D43 L13
    Date: 2007–05
  2. By: Gerlach, Heiko (IESE Business School)
    Abstract: This paper analyzes the role of communication between firms in an infinitely repeated Bertrand game in which firms receive an imperfect private signal of a common value i.i.d. demand shock. It is shown that firms can use stochastic, inter-temporal market sharing as a perfect substitute for communication in low-demand states. Therefore, partial communication in high-demand states is sufficient to achieve the most collusive, full communication outcome. And partial communication in low-demand states does not improve on the equilibrium without communication. Communication in high-demand states allows firms to coordinate their pricing, choose the most efficient uninformed price and avoid price wars. I demonstrate that under some conditions consumers are better off with communication among colluding firms.
    Keywords: Stochastic market sharing; communication; collusion; competition policy;
    JEL: D82 L13 L41
    Date: 2007–01–21
  3. By: Behringer, Stefan
    Abstract: We investigate the equilibrium market sturcture in virtual platform duopoly (auctions or other market forms) that are prevalent in internet settings. We take full account of the complexity of network effects in such markets and determine optimal pricing strategies. We invstigate the welfare implications of such strategies, look at the impact of non-exclusive services and at what happens in large markets.
    Keywords: Two-sided Markets; Duopoly Pricing;
    JEL: D44 L14
    Date: 2005–12–21
  4. By: Rosa Branca Esteves (Universidade do Minho - NIPE)
    Abstract: This article is a first loock at the dynamic effects of customer poaching in homogeneous product markets, where firms need to invest in advertising to generate awareness. When a firm can recognize customers with different past purchasing histories, it may send them targeted advertisements with different prices. It is shown that only the firm that advertises the highest price in the first period will engage in price discrimination, and that poaching clearly benefits the discriminating firm. This gives rise to "the race for discrimination effect", through which price discrimination may act to soften price competition rather than to intensify it. As a result of that, all firms might become better off, even when only one of them can engage in price discrimination. This article offers a first attempt to evaluate the effects of price discrimination on the efficiency properties of advertising. In markets with low or no advertising costs, allowing frims to price discriminate leads them to provide too little advertising, which is not good for consumers and overall welfare. Only in markets with high advertising costs, may firms overadvertise. Regarding the welfare effects, price dsscrimination is generally bad for welfare and consumer surplus, though good for firms.
    Date: 2007
  5. By: Fay Dunkerley (CES – KU Leuven, Belgium); André de Palma (THEMA, Univ de Cergy Pontoise, France & ENPC); Stef Proost (CES – KU Leuven, Belgium, CORE, Belgium)
    Abstract: We study the problem of a city with access to two firms or subcentres (restaurants, airports) selling a differentiated product and/or offering a differentiated workplace. The first subcentre is easily congested (near city centre, access by road), the second less prone to congestion but further away. Both need to attract customers and employees and need to make profits to cover their fixed costs. This is an asymmetric duopoly game that can be solved for a Nash equilibrium in prices and wages. This solution involves excessive congestion for the nearby subcentre. Three stylised policies are studied to address this congestion. The first policy is to widen the congested road to the nearby subcentre. The second policy option is to add congestion pricing (or parking pricing etc.) for the congested subcentre. The third policy is to provide a direct subsidy to the remote subcentre so that it can reduce its price. We illustrate the theory using a numerical model applied to the two Brussels airports.
    Keywords: duopoly, imperfect competition, congestion, general equilibrium, airport competition
    JEL: L13 D43 R41 R13
    Date: 2007
  6. By: Kurt Van Dender (Department of Economics, University of California-Irvine)
    Abstract: We use a simple analytical framework to derive pricing rules for oligpolistic airlines at airports that are served by competitive airlines as well. The pricing rules show how the degree of internalization of marginal congestion costs depends on market structure. The analysis illustrates the importance of selecting an accurate representation of market structure, when making recommendations about the desirability of congestion pricing mechanisms.
    Keywords: Airports; Airline; Congestion; Congestion tolls; Oligopoly
    JEL: L13 L93 R41
    Date: 2007–04
  7. By: Sallstrom Matthews, S.E.
    Abstract: What would happen if firms could collusively choose cost of transport (inconvenience) in Hotelling's spatial model? This paper endogenises inconvenience in a three stage game, where firms choose locations, the inconvenience, and finally compete in price, on the assumption of a common reservation price. The equilibrium of the game reveals a novel mechanism which induces firms to differentiate their products in moderation by locating halfway to the center and choosing inconvenience such that the market remains covered in equilibrium. Furthermore, using Launhardt's model with differential freight rate, it is shown that the collusive inconvenience is a Nash equilibrium.
    Keywords: spatial differentiation, location, market structure, cost of transport, inconvenience, freight rate, business strategies.
    JEL: L11 L13 D43 D21
    Date: 2007–05
  8. By: Jiri Podpiera; Marie Rakova
    Abstract: In this paper we show the relevance of the degree of competition for inferences about changes in export-production relative prices when the nominal exchange rate changes. We devise a model for tradable goods that combines the market competition and the pricing-tomarket literature and we empirically document the contrast between perfectly and imperfectly competitive markets for the export-production relative price responses to exchange rate changes. When the macroeconomic view is taken, a change in the degree of competition in exports (a change in the average mark-up on exported products) alternates the reaction in relative prices and quantity exported and thus requires careful policy-related consideration.
    Keywords: Degree of competition, exchange rate, pricing-to-market.
    JEL: C33 D4 F31 F41
    Date: 2006–12
  9. By: Marisa Miraldo (Centre for Health Economics, University of York)
    Abstract: Within a horizontally differentiation model and allowing for heterogeneous qualities, we analyze the effects of reference pricing reimbursement on firms’ pricing strategies. With this analysis we find inherent incentives for firms’ pricing behaviour, and consequently we shed some light on time consistency of such policy. The analysis encompasses different reference price rules. Results show that if drugs have equal quality, reference pricing may lead to higher prices. With quality differentiation both the minimum and linear policies unambiguously lead to higher prices.
    Date: 2007–04
  10. By: Jiawei Chen; Ulrich Doraszelski; Joseph E. Harrington, Jr.
    Abstract: As is well-recognized, market dominance is a typical outcome in markets with network effects. A firm with a larger installed base offers a more attractive product which induces more consumers to buy its product which produces a yet bigger installed base advantage. Such a setting is investigated here but where firms have the option of making their products compatible. When firms have similar installed bases, they make their products compatible in order to expand the market. Nevertheless, random forces could result in one firm having a bigger installed base in which case the larger firm may make its product incompatible. We find that strategic pricing tends to prevent the installed base differential from expanding to the point that incompatibility occurs. This dynamic is able to neutralize increasing returns and avoid the emergence of market dominance.
    Date: 2007–02
  11. By: McAfee, R. Preston
    Abstract: Companies with market power occasionally engage in intentional quality reduction of a portion of their output as a means of offering two qualities of goods for the purpose of price discrimination, even absent a cost saving. This paper provides an exact characterization in terms of marginal revenues of when such a strategy is profitable, which, remarkably, does not depend on the distribution of customer valuations, but only on the value of the damaged product relative to the undamaged product. In particular, when the damaged product provides a constant proportion of the value of the full product, selling a damaged good is unprofitable. One quality reduction produces higher profits than another if the former has higher marginal revenue than the latter.
    JEL: D43 L15
    Date: 2007
  12. By: Behringer, Stefan
    Abstract: This paper investigates the alleged predatory behaviour in the UK quality newspaper industry in the 1990s using a horizontal differentiation model and industry data.
    Keywords: Two-Sided Markets; Predation; Newspapers
    JEL: D43 L41 L12
    Date: 2007–02–12
  13. By: Javier Coronado; Sergi Jiménez-Martín; Pedro L. Marín
    Abstract: The purpose of this paper is to analyze the effect of multimarket contact on the behavior of pharmaceutical firms controlling for different levels of regulatory constraints using IMS MIDAS database. Theoretically, firms that meet in several markets are expected to be capable of sustaining implicitly more profitable outcomes, even if perfect monitoring is not possible. Firms may find it profitable to redistribute their market power among markets where they are operating. We present evidence for nine OECD countries with different degrees of regulation and show that regulation affects the importance of economic forces on firms' price setting behavior. Furthermore, our results confirms the presence of the predictions of the multimarket theory for more market friendly countries (U.S. and Canada) and less regulated ones (U.K., Germany, Netherlands), in contrast, for highly regulated countries (Japan, France, Italy and Spain) the results are less clear with some countries being consistent with the theory while others contradicting it.
    Keywords: Pharmaceutical prices, Multimarket Contact, Regulation
    JEL: L11 L13 L65 I18
    Date: 2007–02
  14. By: Patricia Charléty (CEPN - Centre d'économie de l'Université de Paris Nord - [CNRS : UMR7115] - [Université Paris-Nord - Paris XIII]); Marie-Cécile Fagart (CEPN - Centre d'économie de l'Université de Paris Nord - [CNRS : UMR7115] - [Université Paris-Nord - Paris XIII]); Saïd Souam (CEPN - Centre d'économie de l'Université de Paris Nord - [CNRS : UMR7115] - [Université Paris-Nord - Paris XIII])
    Abstract: We analyze the incentives of a controlling shareholder of a firm to acquire, directly or indirectly through his firm, shares in a competitor. We charaterize the conditions under which these partial acquisitions as well as the equilibrium toehold and its nature: controlling or silent. We find that while this shareholder gains, the acquisition is detrimental to minority shareholders of his firm, or of the target, or even of both. We show that the incentives are enhanced if the dominant shareholder initially holds silent stakes in rivals while controlling interests may discourage them. Moreover, we find that partial acquisitions always lead to a decrease in the joint profit of the two firms involved, and an increase in competitor's profits as the market becomes less competitive.
    Keywords: horizontal partial acquisitions ; real market concentration ; dominant shareholder ; minority shareholders ; silent interests.
    Date: 2007–05–05
  15. By: Josepa Miquel-Florensa (Department of Economics, York University)
    Abstract: We present the optimal contract for financing a project that has N stages to be completed sequentially when the principal can not commit to abandone the project before it is completed and the project to be completed is valued by the agent. In a dynamic moral hazard setting, we find that the optimal contract provides decreasing transfers for successive unsuccessful attempts in a given stage, and smaller transfers when the subsequent stages are reached. We find that the optimal sequence of transfers is greater the bigger is the exogenous probability of returning to a preceding stage and the greater the principal’s cost of stage verification is. When intermediate stages are valued by the agent, we find that smaller transfers are optimal.
    Keywords: Dynamic contracts, Moral Hazard, Foreign Aid, multi-stage projects
    JEL: D82 D86 F35 O12
    Date: 2007–05
  16. By: Sabrina Teyssier (GATE - Groupe d'analyse et de théorie économique - [CNRS : UMR5824] - [Université Lumière - Lyon II] - [Ecole Normale Supérieure Lettres et Sciences Humaines])
    Abstract: In this paper, we analyze group incentives when a proportion of agents feel in- equity aversion as defined by Fehr and Schmidt (1999). We define a separating equilibrium that explains the co-existence of multiple payment schemes in firms. We show that a tournament provides strong incentives to agents who only care about their own payo¤ but that it is not efficient when agents are inequity averse. In fact, inequity averse agents are attracted by a revenue-sharing scheme in which the joint production is equally distributed, under the constraint that selfish agents have no incentive to join the revenue sharing organization. If the market is perfectly flexi- ble, this separating equilibrium induces a high effort level for both types of agents. Pareto gains are achieved by offering organizational choice to agents and the optimal contract is thus to propose both payment schemes to agents and to allow them to self-select into the different payment schemes.
    Keywords: Incentives ; performance pay ; revenue sharing ; self-selection ; social preferences ; tournament
    Date: 2007–05–07
  17. By: Josepa Miquel-Florensa (Department of Economics, York University)
    Abstract: We design a multiple project-funding contract that provides optimal incentives to recipients, in a setting where externalities exist among the multiple projects and where donors and recipients may differ in their valuation of the projects. To do so, we study optimal incentive payments in a dynamic principal-agent framework with focus on two-project contracts. The principal cannot observe the agent’s investment, but only completed projects. We consider principals that cannot commit to contract termination before completion of the projects; we assume that the contract does not end until both projects are accomplished. We derive the optimal contract for each possible combination of principal-agentproject characteristics to find that projects should be undertaken simultaneously when value externalities among them are large, i.e. when completing both projects gives the recipient significantly more utility than the sum of the projects’ independent values. The principal’s utility maximizing strategy, when technical externalities among projects are important, is a sequential contract that starts with the project that generates the externality. We find that differences in project valuation between agents and recipients may, in some cases, lead to inefficient contracts, when in other situations the ability of the principal to choose the timing of the project competition may be a safety clause for him.
    Keywords: Dynamic Contracts, Multitask, Foreign Aid
    JEL: D82 O12 O19 F35
    Date: 2007–05
  18. By: Carmen Bevia; Luis C. Corchon
    Abstract: We characterize the sharing rule for which a contribution mechanism achieves efficiency in a cooperative production setting when agents are heterogeneous. The sharing rule bears no resemblance to those considered by the previous literature. We also show for a large class of sharing rules that if Nash equilibrium yields efficient allocations, the production function displays constant returns to scale, a case in which cooperation in production is useless.
    Date: 2007–04
  19. By: Joëlle Noailly; Richard Nahuis
    Abstract: The 1999 Dutch Notary Act has initiated an ambitious deregulation process in the market for notary services in the Netherlands. We evaluate the impact of this liberalisation policy on (i) the level of competition in the profession and (ii) the quality of services. We compare the level of competition before and after the liberalisation using two different indicators, namely a relativeprofit indicator and a variation of the Bresnahan-Reiss indicator. Using the relative profit indicator, we find that the level of competition has increased after 1999. We find, however, no significant difference between the level of competition in 1996 and in 2002. This is particularly clear when we measure competition taking the local market as the relevant market for notary services. The results on the national market are more mixed and there is some evidence that competition in 2002 is higher than in 1996. Using the Bresnahan-Reiss indicator, we find that entry does affect conduct in the notary market, but again that the level of competition in the local market for notary services in 2003 does not significantly differ from the 1995 level. We also examine whether competition affects the quality of notary services. We use both subjective and objective measures for quality of notary services. We find that subjective quality - the perceived level of service by clients - is, if anything, negatively affected by competition. Using objective quality, i.e. quality that is not observable to clients, we find that in 2003 competition leads to a deterioration of quality, as the quality of monopoly notaries outperforms the quality of oligopoly notaries. This was not the case in 1995. Confronting our empirical findings with qualitative insights, we present options for policy.
    Keywords: Notary; Competition; Quality; Legal Service
    JEL: L11 L15 L69
    Date: 2005–09
  20. By: Daniel de Munnik; Kuan Xu
    Abstract: How do firms adjust prices in the marketplace? Do they tend to adjust prices infrequently in response to changes in market conditions? If so, why? These remain key questions in macroeconomics, particularly for central banks that work to keep inflation low and stable. The authors use the Bank of Canada's 2002-03 price-setting survey data to investigate Canadian firms' price-setting behaviour; they also analyze the micro foundations for the firms' pricing behaviour using count data and probit models. The authors find that, all else being equal, firms tend to adjust prices more frequently if they are state-dependent price-setters, operate in the trade sector, or have large variable costs or more direct competitors. There are various sticky-price theories; in the Bank's price-setting survey, the senior management of firms were read a simple statement in non-technical language that paraphrased each sticky-price theory, and were then asked whether the statement applied to their firm. The most frequently recognized sticky-price theories are customer relations, cost-based pricing, and coordination failure. The authors' analysis indicates that if firms recognize coordination failure on price increases, sticky information, menu costs, factor stability, or customer relations as being important, they tend to adjust prices less frequently. The authors also find that the patterns discernible within firms' recognition of stickyprice theories are strongly associated with firms' micro foundations.
    Keywords: Inflation and prices; Transmission of monetary policy
    JEL: D40 E30 L11
    Date: 2007
  21. By: Winfried Koeniger; Julien Prat
    Abstract: Why are firm and job turnover rates so similar across OECD countries? We argue that this may be due to the joint regulation of product and labor markets. For our analysis, we build a stochastic equilibrium model with search frictions and heterogeneous multiple-worker firms. This allows us to distinguish firm entry and exit from hiring and firing in a model with equilibrium unemployment. We show that firing costs, sunk entry costs and bureaucratic flow costs have countervailing effects on firm and job turnover as different types of firms select to operate in the market.
    Keywords: Firing Cost, Product Market Regulation, Firm Selection, Firm Turnover, Job Turnover, Unemployment
    JEL: E24 J63 J64 J65
    Date: 2007–01
  22. By: Kris de Jaegher
    Abstract: This paper shows that Rubinstein’s results on the two-player electronic mail game do not extend to the N-player electronic mail game.
    Keywords: Communication Networks, N-Player Electronic Mail Game
    JEL: D85 C72
    Date: 2007–03
  23. By: Reint Gropp; Frederic Boissay
    Abstract: Using a unique data set on trade credit defaults among French firms, we investigate whether and how trade credit is used to relax financial constraints. We show that firms that face idiosyncratic liquidity shocks are more likely to default on trade credit, especially when the shocks are unexpected, firms have little liquidity, are likely to be credit constrained or are close to their debt capacity. We estimate that credit constrained firms pass more than one fourth of the liquidity shocks they face on to their suppliers down the trade credit chain. The evidence is consistent with the idea that firms provide liquidity insurance to each other and that this mechanism is able to alleviate the consequences of credit constraints. In addition, we show that the chain of defaults stops when it reaches firms that are large, liquid, and have access to financial markets. This suggests that liquidity is allocated from large firms with access to outside finance to small, credit constrained firms through trade credit chains.
    JEL: G30 D92 G20
    Date: 2007–05
  24. By: Glachant, J.M.; Saguan, M.
    Abstract: The so-called “electricity wholesale market” is, in fact, a sequence of several markets. The chain is closed with a provision for “balancing,” in which energy from all wholesale markets is balanced under the authority of the Transmission Grid Manager (TSO in Europe, ISO in the United States). In selecting the market design, engineers in the European Union have traditionally preferred the technical role of balancing mechanisms as “security mechanisms.” They favour using penalties to restrict the use of balancing energy by market actors. While our paper in no way disputes the importance of grid security, nor the competency of engineers to elaborate the technical rules, we wish to attract attention to the real economic consequences of alternative balancing designs. We propose a numerical simulation in the framework of a two-stage equilibrium model. This simulation allows us to compare the economic properties of designs currently existing within the European Union and to measure their fallout. It reveals that balancing designs, which are typically presented as simple variants on technical security, are in actuality alternative institutional frameworks having at least four potential economic consequences: a distortion of the forward price; an asymmetric shift in the participants’ profits; an increase in the System Operator’s revenues; and inefficiencies.
    Keywords: Electricity Forward Market, Balancing Mechanism, Risk Aversion, Penalty, Institutional Frame, Market Design.
    JEL: D8 D23 L51 L94
    Date: 2007–05
  25. By: Zoghi, Cindy (U.S. Bureau of Labor Statistics); Mohr, Robert D. (University of New Hampshire); Meyer, Peter B. (U.S. Bureau of Labor Statistics)
    Abstract: This study uses data on Canadian establishments to test whether particular organizational structures are correlated with the likelihood of adopting process and product innovations, controlling for the endogeneity of the predictors. We find that establishments with decentralized decision-making, information-sharing programs, or incentive pay plans are significantly more likely to innovate than other establishments. Larger establishments and those with a high vacancy rate are also more likely to innovate. These findings are consistent with a model in which workers hold information about production inefficiencies or consumer demands that can lead to productive innovations and that workplace organization attributes facilitate the communication and implementation of those ideas.
    Keywords: Innovation, Decision-Making, Information-Sharing
    JEL: D23 D81 O32
  26. By: Jayasri Dutta and Colin Rowat
    Abstract: We study extinction in a commons problem in which agents have access to capital markets. When the commons grows more quickly than the interest rate, multiple equilibria are found for intermediate commons endowments. In one of these, welfare decreases as the resource becomes more abundant, a `re- source curse'. As marginal extraction costs become constant, market access instantly depletes the commons. Without markets - the classic environment - equilibria are unique; extinction dates and welfare increase with the endow- ment. When the endowment is either very abundant or very scarce, market access improves welfare. As marginal costs of extraction from the commons become constant, market access can reduce welfare if the subjective discount rate exceeds the interest rate.
    Keywords: commons, capital markets, perfect foresight, extinction, resource curse, storage
    JEL: C73 D91 O17 Q21
    Date: 2007–01
  27. By: Marisa Miraldo (Centre for Health Economics, University of York)
    Abstract: We study the influence of different reimbursement systems, namely Prospective Payment System, Cost Based Reimbursement System and Mixed Reimbursement System on the development and adoption of different technologies with an endogenous supply of these technologies. We focus our analysis on technology development and adoption under two models: private R&D and R&D within the hospital. One of the major findings is that the optimal reimbursement system is a pure Prospective Payment System or a Mixed Reimbursement System depending on the market structure.
    Keywords: Prospective Payment System; Cost Based Reimbursement; R&D
    JEL: I11 O33
    Date: 2007–04
  28. By: José Vicente Blanes Cristóbal (Universidad Pablo Olavide Sevilla (Spain)); Marion Dovis (Centre d'Economie et de Finances Internationales (France)); Juliette Milgram Baleix (Department of Economic Theory and Economic History, University of Granada.); Ana I. Moro Egido (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: In this paper, we test the hypothesis of sunk exporting costs differing among markets. We use a sample of Spanish firms from Encuesta sobre Estrategias Empresariales (ESEE) for period 1991-2002. Our results confirm the importance of those sunk costs and demonstrate that they differ depending on the market they export to. Although most of the firms exports to developed markets, the costs to enter (and "to re-enter") are greater in those markets.
    Keywords: Sunk costs, heterogeneity of firms, Regionalism.
    JEL: F12
    Date: 2007–05–09
  29. By: Lafontaine, Francine (Stephen M. Ross School of Business, University of Michigan); Slade, Margaret (Department of Economics,University of Warwick)
    Abstract: Understanding what determines firm boundaries and the choice between interacting in a firm or a market is not only the fundamental concern of the theory of the firm, but it is also one of the most important issues in economics. Data on value added, for example, reveal that in the US, transactions that occur in firms are roughly equal in value to those that occur in markets. The economics profession, however, has devoted much more attention to the workings of markets than to the study of firms, and even less attention to the interface between the two. Nevertheless, since Coase’s (1937) seminal paper on the subject, a rich set of theories has been developed that deal with firm boundaries in vertical or input/output structures. Furthermore, in the last 25 years, empirical evidence that can shed light on those theories has been accumulating.
    Keywords: Vertical integration ; firm boundaries ; vertical mergers ; firms versus markets
    JEL: L22 L24
    Date: 2007
  30. By: Bronwyn H. Hall (University of California, Berkeley); Francesca Lotti (Bank of Italy, Research Department); Jacques Mairesse (INSEE-CREST)
    Abstract: Italian manufacturing firms have been losing ground with respect to many of their European competitors. This paper presents some empirical evidence on the effects of innovation on employment growth and therefore on firms’ productivity with the goal of understanding the roots of such poor performance. We use firm level data from the last three surveys on Italian manufacturing firms conducted by Mediocredito-Capitalia, which cover the period 1995-2003. Using a modified version of the model proposed by Harrison, Jaumandreu, Mairesse and Peters (2005), which separates employment growth rates into those associated with old and new products, we provide robust evidence that there is no employment displacement effect stemming from process innovation. The sources of employment growth during the period are split equally between the net contribution of product innovation and the net contribution from sales growth of old products. However, the contribution of product innovation is somewhat lower than that for the four comparison European countries considered by Harrison et al.
    Keywords: Innovation, employment, productivity, Italy.
    JEL: L60 O31 O33
    Date: 2007–04
  31. By: Elena Cefis; Orietta Marsili; Hans Schenk
    Abstract: This paper provides new empirical evidence on the effects of mergers and acquisitions on the shape of the firm size distribution (FSD), by using data of the population of manufacturing firms in the Netherlands. Our analysis shows that M&As do not affect the size distribution when we consider the entire population of firms. When we focus on the firms involved in a M&A event, we observed a shift of the FSD towards larger sizes. FSD becomes more concentrated around the mean size, less skewed to the right hand side, and thinner at the tails as a whole. The shift toward higher sizes due to M&A is not uniform but affects firms of different sizes in different ways. While the number of firms in the lower tail decreased, the number of firms in the central size classes increased substantially and outweighed the increase in the number (and mean size) of firms in the upper tail of the distribution (consequently the overall market concentration measured by the Herfindhal index declines). M&As leads to a departure from log-normality of the FSD, suggesting that external growth does not follow a Gibrat’s law. Our counterfactual analysis highlights that only internal growth does not affect the shape of the size distribution of firms. On the contrary, it suggests that the change in the size distribution is almost entirely due to the external growth of the firms.
    Keywords: Firms Size Distribution, Mergers and Acquisitions, Firm Entry and Exit, Industry Concentration
    JEL: L11 L25 D21 C14
    Date: 2006–12

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