nep-mic New Economics Papers
on Microeconomics
Issue of 2007‒06‒18
nine papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Monopoly pricing of social goods By Sääskilahti, Pekka
  2. Reciprocity, Inequity Aversion, and Oligopolistic Competition By Pinto, Luis Santos
  3. Intellectual Property Rights and Crop-Improving R&D under Adaptive Destruction By Oleg Yerokhin; GianCarlo Moschini
  4. Service Bundling and the Role of Access Charge in the Broadband Internet Service Market By SHIM, Sunghee; OH, Jungsuk
  5. Consumer Search and Information Intermediaries By Moez Bennouri; C. Robert Clark; Jacques Robert
  6. When and why does it pay to be green? By Stefan Ambec; Paul Lanoie
  7. DRMs, Innovation and Creation By BOMSEL, Olivier; GEFFROY, Anne-Gaëlle
  8. The Foundations of the Economics of Innovation By Antonelli Cristiano
  9. Infrastructure-Based Versus Service-Based : Competition In Telecommunications By KITTL, Jörg; LUNDBORG, Martin; RUHLE, Ernst-Olav

  1. By: Sääskilahti, Pekka
    Abstract: We analyse the roles of social network topology and size on the monopoly pricing of network goods in a market, where consumers interact with each other and are characterised by their social relations. The size effect is the well-known network externalities phenomenon, while the topological effect has not been previously studied in this context. The topological effect works against, and dominates, the size effect in monopoly pricing by reducing the monopoly's capacity to extract consumer surplus. Under asymmetric information about consumer types, the monopoly prefers symmetric network topologies, but the social optimum is an asymmetric network.
    Keywords: social relations; networks; coordination; monopoly
    JEL: L14 D42 D82
    Date: 2007
  2. By: Pinto, Luis Santos
    Abstract: This paper studies how reciprocity and inequity aversion influence the behavior of firms in imperfectly competitive markets. The paper shows that if reciprocal firms compete à la Cournot, then they are able to sustain “collusive” outcomes under a positive reciprocity equilibrium. By contrast, Stackelberg warfare outcomes may emerge under a negative reciprocity equilibrium. The results for inequity aversion are similar. Cournot competition between inequity averse firms can be harmful to consumers if it leads to equilibria where firms feel compassion toward each other. However, in equilibria where inequity averse firms are envious of each other consumers are better off than if firms were selfish. The paper also shows that only under very restrictive conditions does reciprocity or inequity aversion have an impact on Bertrand competition. Finally, the paper shows that non-selfish preferences have a greater impact on equilibrium outcomes in markets with a small number of firms.
    Date: 2007
  3. By: Oleg Yerokhin; GianCarlo Moschini (Center for Agricultural and Rural Development (CARD))
    Abstract: This paper studies how the strength of intellectual property rights (IPRs) affects investments in biological innovations when the value of an innovation is stochastically reduced to zero because of the evolution of pest resistance. We frame the problem as a research and development (R&D) investment game in a duopoly model of sequential innovation. We characterize the incentives to invest in R&D under two competing IPR regimes, which differ in their treatment of the follow-on innovations that become necessary because of pest adaptation. Depending on the magnitude of the R&D cost, ex ante firms might prefer an intellectual property regime with or without a "research exemption" provision. The study of the welfare function that also accounts for benefit spillovers to consumers—which is possible analytically under some parametric conditions, and numerically otherwise—shows that the ranking of the two IPR regimes depends critically on the extent of the R&D cost.
    Keywords: biological resistance, intellectual property rights, Markov perfect equilibrium, patents, research exemption, R&D, sequential innovation. JEL Classification: L00, O31, O34, Q28
    Date: 2007–06
  4. By: SHIM, Sunghee; OH, Jungsuk
    Abstract: Using the classical Hotelling model, this paper analyzes the incentive for a CATV service provider to bundle broadband internet services when entering the broadband internet services market. In addition, the effect of such service bundling by an entrant on the market incumbent with ownership over existing bottleneck facilities is analyzed. Furthermore, an access charge that maximizes social welfare is explored and determined. Two cases are considered: in the first case, the market is fully covered; and in the second case, the market is not fully covered. With full market coverage, an entrant has an incentive for service bundling if there is sufficient service differentiation. The entrant's bundling strategy reduces the incumbent's profit. In this case, the total social welfare is independent of the level of the access charge and only has an effect of redistributing the net surplus between consumers and the incumbent. With partial market coverage, the entrant has an incentive for service bundling at a low access charge. The incumbent's profit increases if the access charge is higher than the cost of access provisioning. In this case, the total social welfare is dependent on the level of access charge and the welfare maximizing access charge is less than the unit cost of providing access.
    Keywords: cable TV; broadband internet service; bundling; access charge; convergence.
    JEL: D45 L86 K21 L82 D42 K23 L96 L43
    Date: 2006–09
  5. By: Moez Bennouri (Service de l’enseignement de la finance, HEC Montréal); C. Robert Clark (IEA, HEC Montréal); Jacques Robert (TI, HEC Montréal)
    Abstract: In this paper we model the market for a homogeneous good and examine the role of information in determining market outcomes. Unlike in Baye and Morgan (2001) where consumers can only learn about the prices charged by different firms by subscribing to an information intermediary’s service, we allow consumers to shop for price quotes. We are interested in determing the impact on market outcomes of allowing for this additional means of information acquisition. Relative to the case where consumers have no interest in searching for prices, consumers become no better off as the cost of search falls. The intermediary, in an effort to compensate for the loss of revenue that it might have earned from consumers, increases the fees that it charges to firms for the right to advertise their product through it. As a result, fewer firms advertise in equilibrium, and so, those that do post higher prices, and, in expectation, consumers pay more for the product. The price increase appropriates all of the gains in consumer surplus generated by the decrease in the cost of search.
    Keywords: Search, advertising, information intermediary, price dispersion
    Date: 2007–01
  6. By: Stefan Ambec; Paul Lanoie (IEA, HEC Montréal)
    Keywords: Environmental policy; innovation; Porter hypothesis; environmental regulation; pollution; capital market; green products.
    JEL: D21 D23 G22
    Date: 2007–05
  7. By: BOMSEL, Olivier; GEFFROY, Anne-Gaëlle
    Abstract: DRMs are intellectual property institutions. They transpose the empirical principle of copyright, which implicitly recognizes that specific ownership rules should be attached to non scientific creation, into the digital era. The legal protection of DRMs, a private means of enforcing content excludability, participates in the "privatization" of copyright protection. This, in turn, means that a proprietary software — governed by intellectual property rights, reinforced by public law — becomes the key to the vertical relations shaped by exclusive copyright. DRMs consequently represent a major stake in the competition to capture network effects in the content distribution vertical chain
    Keywords: copyright; distribution; DRMs; network effects
    JEL: D43 D62 L96 K21
    Date: 2006–06
  8. By: Antonelli Cristiano (University of Turin)
    Date: 2007–02
  9. By: KITTL, Jörg; LUNDBORG, Martin; RUHLE, Ernst-Olav
    Abstract: Unbundling of the local loop (ULL) has seen quite different "success stories" in the various countries across Europe. Although the obligation for the provision of ULL was implemented in the regulatory framework early and mostly parallel to other means of liberalisation, national implementation has been rather heterogeneous. One question of decisive importance for national regulatory authorities (NRAs) was whether to foster service-based competition in the first phase of liberalisation or to focus on infrastructurebased competition. The different NRAs chose to head down different roads. This paper analyses whether the strategy of NRAs has had any mid-term effect on the economic welfare created in the communications markets. It indicates that infrastructure-based competition has a positive effect on innovation. Moreover, infrastructure-based competition appears to be more important for business customers than for residential clients. On the other hand, service-based competition lowers call prices and appears to be more important to residential markets. The results of this study point out the importance of a balanced approach to both types of policies.
    Keywords: competition; telecommunication; ladder of infrastructure; ladder of investement; regulatory policies.
    JEL: L51 L41 D43 L96 L43
    Date: 2006–12

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