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on Microeconomics |
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Issue of 2007‒06‒02
twelve papers chosen by Joao Carlos Correia Leitao University of the Beira Interior |
| By: | Fabian Herweg |
| Abstract: | In this paper, I compare two-part tariff competition to linear pricing in a vertically differentiated duopoly. Consumers have identical tastes for quality but differ in their preferences for quantity. The main finding is that quality differentiation occurs in equilibrium if and only if two-part tariffs are permitted. Furthermore, two-part tariff competition encourages entry, which in turn increases welfare. Nevertheless, two-part tariff competition decreases consumers' surplus compared to linear pricing. |
| Keywords: | Duopoly, Two-part tariff, Vertical differentiation |
| JEL: | D43 L11 L13 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse2_2007&r=mic |
| By: | Calzolari, Giacomo; Scarpa, Carlo |
| Abstract: | We study the regulation of a utility firm which is active in a competitive unregulated sector as well. If the firm jointly operates its activities in the two markets, it enjoys economies of scope, whose size is the firm’s private information and is unknown to the regulator and the rival firms. We jointly characterize the unregulated market outcome (with price and quantity competition) and also optimal regulation. Accounting for the several effects of regulation on the unregulated market, we show the existence of an informational externality, in that regulation provides useful information to the rival firms. Although joint operation of multi-utility’s activities generates scope economies, it also brings about private information to the multi-utility, so that regulation is less efficient and also the unregulated market may be negatively affected. Nevertheless, we show that letting the multi-utility integrate productions is (socially) desirable, unless joint production is instead characterized by dis-economies of scope. |
| Keywords: | asymmetric information; competition; informational externality; multi-utility firms; regulation; scope economies |
| JEL: | L43 L51 L52 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6238&r=mic |
| By: | María Fernanda Viecens |
| Abstract: | We study software platforms for which the total amount that users spend depends on the twosided pricing strategy of the platform firm, and on the pricing strategy of application developers. When setting prices, developers may be constrained by one of two margins: the demand margin and the competition margin. By analyzing how these margins affect pricing strategies we find some conditions which explain features of the market of operating systems and its differences with the one corresponding to the video consoles. The problem that arises when the platform does not set prices (as an open platform) is considered. We show that policy makers should promote open source in operating systems platforms but not necessarily in video consoles. We also analyze the incentives for a platform to integrate with applications as a function of the extent of substitutability among them and provide a possible explanation for the observed fact of vertical disintegration in these industries. |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we074823&r=mic |
| By: | David Gill; John Thanassoulis |
| Abstract: | In this paper we study how bargainers impact on markets in which firms set a list price to sell to those consumers who take prices as given. The list price acts as an outside option for the bargainers, so the higher the list price, the more the firms can extract from bargainers. We find that an increase in the proportion of consumers seeking to bargain can lower consumer surplus overall, even though new bargainers receive a lower price. The reason is that the list price for those who don`t bargain and the bargained prices for those who were already bargaining rise: sellers have a greater incentive to make the bargainers` outside option less attractive, at a cost to profits from non-bargainers. Competition Authority exhortations to bargain can therefore be misplaced. We also consider the implications for optimal seller bargaining. |
| Keywords: | Bargaining, Price Takers, List Price, Consumer Surpus |
| JEL: | L13 D43 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:329&r=mic |
| By: | Sergio A. Lago Alves; Mirta N. S. Bugarin |
| Abstract: | This paper aims to contribute to the research agenda on the sources of price rigidity. Based on broadly accepted assumptions on the behavior of economic agents, we show that firms’ competition can lead to the adoption of sticky prices as a sub-game perfect equilibrium strategy to optimally deal with consumers’ risk aversion, even if firms have no adjustment costs. To this end, we build a model economy based on consumption centers with several complete markets and relax some traditional assumptions used in standard monetary policy models by assuming that households have imperfect information about the inefficient time-varying cost shocks faced by the .rms. Furthermore, we assume that the timing of events is such that, at every period, consumers have access to the actual prices prevailing in the market only after choosing a particular consumption center. Since such choices under uncertainty may decrease the expected utilities of risk-averse consumers, competitive firms adopt some degree of price stickiness in order to minimize the price uncertainty and "attract more customers". |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:121&r=mic |
| By: | Isayenko Oleksiy; Maryanchyk Ivan |
| Abstract: | The object under consideration is the Ukrainian cement industry, which has undergone a serious change in many dimensions, including ownership structure and market structure. We analyze the dynamics of the output market structure and test the hypothesis of a possible collusive behavior introduced by a change in the ownership structure, especially by the big international cement players entering the market. Empirical results point towards intensified competition and reject the hypothesis of the collusion. Unconstrained capacities and dynamic property redistribution make tacit collusion very unstable and demand further optimization of production process. Patterns of interregional trade, exporting behavior and mergers' dynamics pose questions about the validity of the profit-maximizing behavior assumption. |
| Keywords: | Ukraine, cement, collusion |
| JEL: | D21 D24 D43 L10 L13 L61 |
| Date: | 2006–11–25 |
| URL: | http://d.repec.org/n?u=RePEc:eer:wpalle:06-06e&r=mic |
| By: | Luca Colombo (DISCE, Università Cattolica); Herbert Dawid (Bielefeld University); Kordian Kabus (Bielefeld University) |
| Abstract: | In this paper we examine the trade off between different effects of the availability of venture capital on the speed of technological progress in an industry. We consider an evolutionary industry simulation model based on Nelson and Winter (1982) where R&D efforts of an incumbent firm generate technological know-how embodied in key R&D employees, who might use this know-how to found a spinoff of the incumbent. Venture capital is needed to finance a spinoff, and therefore the expected profits from founding a spinoff depend on how easily venture capital can be acquired. Accordingly, thick venture capital markets might have two opposing effects. First, incentives of firms to invest in R&D might be reduced and, second, if spinoff formation results in technological spillovers between the parent firm and the spinoffs, the generation of spinoff firms might positively influence the future efficiency of the incumbent's innovation efforts. We study how this tradeoff influences the effect of venture capital on the innovation expenditures, speed of technological change and the evolution of industry concentration in several scenarios with different industry characteristics. |
| Keywords: | Venture Capital, Technological Progress, R&D Effort, Spinoff, Industry Evolution |
| JEL: | O30 J30 L20 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie3:ief0074&r=mic |
| By: | Massimiliano Mazzanti (University of Ferrara); Susanna Mancinelli (University of Ferrara) |
| Abstract: | The paper addresses the relevancy of networking activities and R&D as main drivers of productivity performance and ouput innovation, for small and medium enterprises (SME) playing in a local economic system. Given the intangible nature of many techno organisational innovation and networking strategies, original recent survey data for manufacturing and services are exploited. The aim is to provide new evidence on the complementarity relationships concerning different networking activities and R&D in a local SME oriented system in Northern Italy. We first introduce a methodological framework to empirically test complementarity among R&D and networking, in a discrete setting. Secondly, we consequently present empirical evidence on productivity drivers and on complementarity between R&D and networking strategies, with respect to firm productivity and process/product output innovation. R&D is a main driver of innovation and productivity, even without networking. This may signify, in association with the evidence on complementarity, that firm expenditures on R&D are a primary driver for performance. The complementarity with networking is a consequential step. Networking by itself cannot thus play a role in stimulating productivity and innovation. It can be a complementary factor in situations where cooperation and networking are needed to achieve economies of scale and/or to merge and integrate diverse skills, technologies and competencies. This is compatible with a framework where networking is the public good part of an impure public good wherein R&D plays the part of the private-led driving force towards structural break from the business as usual scenario. Managers and policy makers should be aware that in order to exploit asset complementarity, possibly transformed into competitive advantages, both R&D and networking are to be sustained and favoured. our evidence suggests that R&D may be a single main driver of performance. Since R&D expenditures are associated with firm size, a policy sustain is to be directed towards firm enlargement. After a certain threshold firms have the force to increase expenditures. The size effect is nevertheless non monotonous. Then, but not least important, for the majority of firms still remaining under a critical size threshold, policy incentives should be directed to R&D in connection with networking, through which a virtuous circle may arise. It is worth noting that it is not networking as such the main engine. Networking elements are crucially linked to innovation dynamics; it is nevertheless innovation that explains and drives networking, and not the often claimed mere existence of local spillovers or of a civic associative culture in the territory. Such public good factors exist but are likely to evolve with and be sustained by firm innovative dynamics. |
| Keywords: | Firm Competitiveness, Innovation, R&D, Networking, Complementarity, Local Economic System |
| JEL: | D21 L25 O3 O14 Z13 |
| Date: | 2007–04 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2007.50&r=mic |
| By: | Edward J. Balistreri; James R. Markusen |
| Abstract: | We illuminate the relationship between optimal firm pricing and optimal trade policy by exploring a generalized model that accommodates product differentiation at both the national and sub-national (firm) levels. We assume monopolistic competition in the differentiated products at the sub-national level. When the national and sub-national substitution elasticities are similar we find little opportunity for small countries to improve their terms of trade through trade distortions, because firms play an important preemptive role in optimally pricing unique varieties. We contrast this with standard applications of perfect-competition Armington models, which exhibit high optimal tariffs--even for relatively small countries. |
| JEL: | F1 F13 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13130&r=mic |
| By: | Márcio I. Nakane; Leonardo S. Alencar; Fabio Kanczuk |
| Abstract: | We use bank-level data to model the demand for bank services in Brazil following the discrete choice literature. A multinomial logit specification is used to study the demand for time deposits, for an aggregate of demand and passbook savings deposits, and for loans. Market for each of these products is defined at the municipality level. In the supply side, we find the absolute price-cost margins consistent with Bertrand competition and with cartel. Our results suggest that even Bertrand competition overestimates the degree of market power in the Brazilian banking industry. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:107&r=mic |
| By: | José M. Campa (IESE Business School); Ignacio Hernando (Banco de España) |
| Abstract: | This paper looks at the reaction by industry insiders, industry analysts and competing firms, to the announcement of M&As that took place in the European Union financial industry in the period 1998-2006. Analysts covering firms involved in an M&A transaction do not significantly alter their recommendation. This is consistent with the hypothesis that the transaction on average is "fairly priced" and that stock market prices reflect all relevant information on the assets. We also find that the correlation between excess returns for merging and competing firms is positive and, in some cases, significantly higher for domestic mergers than for international deals. This is consistent with the idea that domestic deals are more likely to have a negative impact on industry competition. |
| Keywords: | mergers and acquisitions, analysts recommendations, rival firms |
| JEL: | G20 G34 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0713&r=mic |
| By: | Lenno Uuskyla |
| Abstract: | This paper shows that fewer firms enter after a contractionary liquidity shock and that firm entry reacts quicker to liquidity than the economic activity indicator. The results are obtained by using Estonian data for the period 1995M1–2006M7. Various structural VAR and VECM models are exploited to identify the liquidity shock. |
| Keywords: | monetary transmission, firm entry, VAR, VECM, Estonia |
| JEL: | E52 C32 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2007-06&r=mic |