nep-mic New Economics Papers
on Microeconomics
Issue of 2007‒05‒26
thirteen papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Competitive Pricing By Antonio Villar
  2. Mergers in Asymmetric Stackelberg Markets By Marc Escrihuela Villar; Ramon Fauli Oller
  3. Piracy of Digital Products: A Contest Theoretical Approach By Hoffmann, Magnus; Schmidt, Frederik
  4. Duopoly Dynamics with a Barrier to Entry By Jaap H. Abbring; Jeffrey R. Campbell
  5. The Doubtful Profitability of Foggy Pricing By Miravete, Eugenio J
  6. R&D cooperation versus R&D subcontracting: empirical evidence from French survey data. By Estelle Dhont-Peltrault; Etienne Pfister
  7. Does it pay to anticipate competitor reactions? By Lazzarini, Sérgio G. & Artes, R & Caetano, Marco Antonio L. & Moura, Marcelo L. & Goldberg, Marcelo B. & Silva, César E.
  9. Majority Rule Dynamics with Endogenous Status Quo By Tasos Kalandrakis
  10. Do Larger Firms Have More Interfirm Relationships? By SAITO (UMENO) Yukiko; WATANABE Tsutomu; IWAMURA Mitsuru
  11. Buyer-Supplier and Supplier-Supplier Alliances: Do They Reinforce or Undermine One Another? By Lazzarini, Sergio G. & Mesquita, Luiz F. & Claro, Danny P.
  12. School Choice: Income, Peer effect and the formation of Inequalities. By Saïd Hanchane; Tarek Mostafa
  13. Financial Constraint and R&D Investment: Evidence from CIS By Mohnen, Pierre; Tiwari, Amaresh; Palm, Franz; Schim van der Loeff, Sybrand

  1. By: Antonio Villar (Department of Economics, Universidad Pablo de Olavide)
    Abstract: Competitive pricing is a pricing rule that combines two principles that are present in competitive markets. The profit principle (an action will be chosen only if it yields maximal payoffs), and the scarcity principle (markets make expensive those commodities that restrict production possibilities). It is shown that, under standard assumptions, these principles imply profit maximization at given prices. But also that they can be applied to economies with non-convex production sets (e.g. firms with S-shaped production functions). The chief properties of this pricing rule, as well as the existence and efficiency of the associated equilibria, are analyzed
    Keywords: non-convex production sets, competitive pricing rule, competitive pricing equilibrium.
    JEL: D50
    Date: 2007–05
  2. By: Marc Escrihuela Villar; Ramon Fauli Oller (School of Economics, Universidad de Guanajuato)
    Abstract: It is well known that the profitability of horizontal mergers with quantity competition is scarce. However, in an asymmetric Stackelberg market we obtain that some mergers are profitable. Our main result is that mergers among followers become profitable when the followers are inefficient enough. In this case, leaders reduce their output when followers merge and this reduction renders the merger profitable. This merger increases price and welfare is reduced.
    Keywords: Mergers, Asymmetries, Stackelberg
    JEL: L13 L40 L41
  3. By: Hoffmann, Magnus; Schmidt, Frederik
    Abstract: In the following, we examine a market of a digital consumption good with monopolistic supply. In this market, it is the ability of the consumer to bypass (”crack”) the copy-protection of the monopolist which induces a lower price of the digital good, compared to an uncontested monopoly (textbook case). We analyze the complex relationship between the cracking efforts of the consumer, the copy-protection efforts and the pricing decision of the monopolist, and the welfare of the economy. We find, for example, that the monopolist will deter piracy if the (exogenous) relative effectiveness of the consumer’s bypassing activity is low compared to the copy-protection technology. In this case welfare is lower than the welfare in the textbook case. On the contrary, welfare rises above the textbook case level if the relative effectiveness of cracking is sufficiently high.
    Keywords: Digital Products; Contests; Security of Property Rights; Endogenous Monopoly Price
    JEL: D42 C72 D23
    Date: 2007
  4. By: Jaap H. Abbring (Vrije Universiteit Amsterdam); Jeffrey R. Campbell (Federal Reserve Bank of Chicago, and NBER)
    Abstract: This paper considers the effects of raising the cost of entry for a potential competitor on infinite-horizon Markov-perfect duopoly dynamics with ongoing demand uncertainty. All entrants serving the model industry incur sunk costs, and exit avoids future fixed costs. We focus on the unique equilibrium with last-in first-out expectations: A firm never exits leaving behind an active younger rival. We prove that raising a second producer's sunk entry cost in an industry that supports at most two firms reduces the probability of having a duopoly but increases the probability that some firm will serve the industry. Numerical experiments indicate that a barrier to entry's quantitative relevance depends on demand shocks' serial correlation. If they are not very persistent, the direct entry-deterring effect of a barrier to a second firm's entry greatly reduces the average number of active firms. The indirect entry-encouraging effect does little to offset this. With highly persistent demand shocks, the direct effect is small and the barrier to entry has no substantial effect on the number of competitors. This confirms Carlton's (2004) assertion that the effects of a barrier depend crucially on industry dynamics that two-stage "short run/long run" models capture poorly.
    Keywords: LIFO; FIFO; Sunk costs; Markov-perfect equilibrium; Competition policy
    JEL: L13 L41
    Date: 2007–04–27
  5. By: Miravete, Eugenio J
    Abstract: A particular tariff option is said to be foggy when another option or a combination of other tariff options offered by the same firm is always less expensive regardless of the usage profile of any customer. Alternatively, tariff fogginess may refer to the whole set of tariff options and it is related to the low likelihood that a particular tariff option ends up being the least expensive one among those of a menu of tariff plans for an arbitrary distribution of usage patterns. This paper takes advantage of the exogenous entry of a second carrier in the early U.S. cellular telephone industry. It shows that competition induces firms to introduce mostly non-foggy options, thus abandoning deceptive pricing strategies (fog lifting) aimed to profit from mistaken choices of consumers rather than softening competition through the use of foggy tactics (co-opetition). Results indicate that tariff fogginess is less severe with the entry of a second firm in the industry according to either definition of foggy pricing. Thus competition alone, and in particular the tactics of entrants, appears to correct deceptive pricing strategies, although such correction does not necessarily occur immediately after the entry of a competitor but rather in the long run. Results are robust to the existence of individual uncertainty regarding future telephone usage when consumers sign up for a particular tariff plan.
    Keywords: Co-opetition; Fog-Lifting; Foggy Strategies; Nonlinear Pricing; Phasing-out
    JEL: D43 L96 M21
    Date: 2007–05
  6. By: Estelle Dhont-Peltrault; Etienne Pfister
    Abstract: This paper uses a survey of French firms active in R&D to identify the determinants of R&D outsourcing and of the ensuing trade-off between R&D subcontracting and R&D cooperation. Internal R&D expenditures increase both the probability of outsourcing and the number of R&D partners. Investment in fundamental R&D, group belonging, and the sector’s high R&D intensity positively influences the probability of R&D outsourcing but have less impact on the number of partners. R&D subcontracting is more likely than R&D cooperation when the relationship deals with generic, standardized R&D processes, as reflected in the influence of several qualitative proxies.
    Keywords: R&D cooperation, R&D subcontracting, organizational choices.
    Date: 2007
  7. By: Lazzarini, Sérgio G. & Artes, R & Caetano, Marco Antonio L. & Moura, Marcelo L. & Goldberg, Marcelo B. & Silva, César E.
    Date: 2007–10
  8. By: Ewald, Christian-Oliver; Xiao, Yajun
    Abstract: We consider a continuous time market model, in which agents influence asset prices. The agents are assumed to be rational and maximizing expected utility from terminal wealth. They share the same utility function but are allowed to possess different levels of information. Technically our model represents a stochastic differential game with anticipative strategy sets. We derive necessary and sufficient criteria for the existence of Nash-equilibria and characterize them for various levels of information asymmetry. Furthermore we study in how far the asymmetry in the level of information influences Nash-equilibria and general welfare. We show that under certain conditions in a competitive environment an increased level of information may in fact lower the level of general welfare. This effect can not be observed in representative agent based models, where information always increases welfare. Finally we extend our model in a way, that we add prior stages, in which agents are allowed to buy and sell information from each other, before engaging in trading with the market assets. We determine equilibrium prices for particular pieces of information in this setup.
    Keywords: information; financial markets; stochastic differential games
    JEL: G14 G11 C73
    Date: 2007
  9. By: Tasos Kalandrakis (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 14627-0158)
    Abstract: We analyze a stochastic bargaining game in which a new dollar is divided among committee members in each of an infinity of periods. In each period, a committee member is recognized and offers a proposal for the division of the dollar. The proposal is implemented if it is approved by a majority. If the proposal is rejected, then last period’s allocation is implemented. We show existence of equilibrium in Markovian strategies. It is such that irrespective of the initial status quo, the discount factor, or the probabilities of recognition, the proposer extracts the entire dollar in all periods but the initial two. We also derive a fully strategic version of McKelvey’s (1976), (1979) dictatorial agenda setting, so that a player with exclusive access to the formulation of proposals can extract the entire dollar in all periods except the first. The equilibrium collapses when within period payoffs are sufficiently concave. Winning coalitions may comprise players with high instead of low recognition probabilities, ceteris paribus.
    JEL: C73 C78 D72
    Date: 2007–05
  10. By: SAITO (UMENO) Yukiko; WATANABE Tsutomu; IWAMURA Mitsuru
    Abstract: In this study, we investigate interfirm networks by employing a unique dataset containing information on more than 800,000 Japanese firms, about half of all corporate firms currently operating in Japan. First, we find that the number of relationships, measured by the indegree, has a fat-tail distribution, implying that there exist "hub" firms with a large number of relationships. Moreover, the indegree distribution for those hub firms also exhibits a fat tail, suggesting the existence of "super-hub" firms. Second, we find that larger firms tend to have more counterparts, but that the relationship between firms' size and the number of their counterparts is not necessarily proportional; firms that already have a large number of counterparts tend to grow without proportionately expanding it.
    Date: 2007–05
  11. By: Lazzarini, Sergio G. & Mesquita, Luiz F. & Claro, Danny P.
    Date: 2007–10
  12. By: Saïd Hanchane (LEST - Laboratoire d'économie et de sociologie du travail - [CNRS : UMR6123] - [Université de Provence - Aix-Marseille I][Université de la Méditerranée - Aix-Marseille II]); Tarek Mostafa (LEST - Laboratoire d'économie et de sociologie du travail - [CNRS : UMR6123] - [Université de Provence - Aix-Marseille I][Université de la Méditerranée - Aix-Marseille II])
    Abstract: In this paper, we analyze the equilibrium on the market for schooling where both public and private schools coexist and where individuals are differentiated by income and ability. We introduce a non linear in means model of peer effect by shedding the light on the fact that school quality is not solely dependent on mean ability but also on the dispersion of abilities. We study the distribution of students across sectors while examining the conditions for the existence of a majority voting equilibrium in the context of non single peaked preferences. Finally, we examine the presence of a hierarchy of school qualities. In the paper we shed the light on equity problems related to the access to educational quality while analyzing the functioning of the educational system.
    Keywords: Education market; Majority voting equilibrium; Peer group effect; Pricing discrimination; Educational opportunity
    Date: 2007–05–14
  13. By: Mohnen, Pierre (UNU-MERIT and University of Maastricht); Tiwari, Amaresh (University of Maastricht); Palm, Franz (University of Maastricht); Schim van der Loeff, Sybrand (University of Maastricht)
    Abstract: Using direct information on financial constraints from questionnaires, rather than the commonly used balance sheet information, this paper presents evidence that, controlling for traditional factors as size, market share, cooperative arrangement, and expected profitability, financial constraints affect a firm's decision of how much to invest in R&D activities. Apart from these constraints, other hampering factors as market uncertainty and institutional bottlenecks, regulations and organizational rigidities also affect R&D investment. A semiparametric estimator of sample selection is employed to control for potential endogeneity of the regressors. The paper also shows that old firms and firms that belong to a group are less financially constrained when it comes to undertaking R&D activities. For the estimation a semiparametric binary choice model is used.
    Keywords: Research and Development, Investment, Financial Risk
    JEL: O32 G11 G32
    Date: 2007

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