nep-mic New Economics Papers
on Microeconomics
Issue of 2007‒09‒02
23 papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Real and Virtual Competition By Oksana Loginova
  2. Strategic R&D with Knowledge Spillovers and Endogenous Time to Complete By Lukach, R.; Kort, P.M.; Plasmans, J.E.J.
  3. How (Not) to Measure Competition By Boone, J.; Ours, J.C. van; Wiel, H.P. van der
  4. How Social Reputation Networks Interact with Competition in Anonymous Online Trading: An Experimental Study By Gary E Bolton; Claudia Loebbecke; Axel Ockenfels
  5. Too much R&D? - Vertical differentiation in a model of monopolistic competition By Jan Kranich
  6. Inventories and Endogenous Stackelberg Hierarchy in Two-period Cournot Oligopoly By MITRAILLE Sébastien; MOREAUX Michel;
  7. Self-Reinforcing Market Dominance By Daniel Halbheer; Ernst Fehr; Lorenz Goette; Armin Schmutzler
  8. Intellectual Property Disclosure as “Threat” By Scott Baker; Pak Yee Lee; Claudio Mezzetti
  9. Games of capacities : a (close) look to Nash Equilibria By Antonio Romero Medina; Mateo Triossi
  10. Innovation markets in the policy appraisal of climate change mitigation By GRIMAUD André; LAFFORGUE Gilles; MAGNE Bertrand
  11. Coasian Dynamics in Repeated English Auctions By Flavio M. Menezes & Matthew J. Ryan
  12. On the Optimal Taxation of an Exhaustible Resource Under Monopolistic Extraction By Daubanes, J.
  13. Overcoming the Natural Resource Constraint Through Dedicated R&D Effort with Heterogenous Labor Supply By AMIGUES Jean-Pierre; MOREAUX Michel; RICCI Francesco
  14. Necessary and Sufficient Conditions for Solving Cooperative Differential Games By Engwerda, J.C.
  15. Price Variation in Markets with Homogeneous Goods: The Case of Medigap By Nicole Maestas; Mathis Schroeder; Dana P. Goldman
  16. Beliefs in Network Games By Kets, W.
  17. Far Above Rubies: The Association Between Bride Price and Extramarital Sexual Relations in Uganda By David Bishai; Shoshana Grossbard
  18. A Dynamic Auction for Differentiated Items under Price Rigidities By Talman, A.J.J.; Yang, Z.F.
  19. Delegation with multiple instruments in a rent-seeking contest By Schoonbeek, Lambert
  20. Water Markets, Demand and Cost Recovery for Piped Water Supply Services: Evidence from Southwest Sri Lanka By NAUGES Céline; VAN DEN BERG Caroline;
  21. Complement Materiel to "Resource augmenting R&D with heterogenous labor supply" By AMIGUES Jean-Pierre; MOREAUX Michel; RICCI Francesco
  22. Evaluatie uitvoeringsprogramma innovatie landbouw Noord-Nederland 2001-2005 By Dijkema, J.; Dijk, J. van; Strijker, D.
  23. Lemons are Green: The Informative Role of a Pigovian Tax By MAHENC Philippe; ;

  1. By: Oksana Loginova (Department of Economics, University of Missouri-Columbia)
    Abstract: Although the Internet reduces market frictions by making it easier for consumers to obtain information about prices and product offerings, goods sold by electronic firms are not perfect substitutes for otherwise identical goods sold by conventional stores. Online purchases, due to non-zero shipping time, are associated with waiting costs, and they do not allow consumers to inspect the product prior to purchase. Visiting a conventional store, on the other hand, involves positive travelling costs. A model extending the circular city paradigm with two types of firms, conventional and electronic, is studied. Under the benchmark setting with only conventional firms in the market, each consumer visits the nearest store and purchases the product there. When electronic firms enter the market, an intriguing type of market segmentation may arise. First, each consumer travels to the nearest conventional store to "try on" the product. Second, conventional retailers increase their prices and sell the good only to consumers who discover that they have high valuations; consumers with low valuations return "home" and order the good online. In spite of the increased competition from Internet retailers, welfare decreases.
    Keywords: Electronic Commerce, Oligopoly Pricing, Market Segmentation, Spatial Competition.
    JEL: D43 D81 L11
    Date: 2007–07–31
  2. By: Lukach, R.; Kort, P.M.; Plasmans, J.E.J. (Tilburg University, Center for Economic Research)
    Abstract: It is shown that asymmetry in R&D efficiency between firms is an important factor determining feasibility of the preemption and attrition scenarios in competitive R&D with time to build. Scenarios of attrition and preemption games are most likely to occur when competitors have similar R&D efficiencies. In case of largely asymmetric firms the games of attrition and preemption are very unlikely, thus the R&D duration choices of firms are determined by the actual trade-off between the benefits of earlier innovation and the costs of faster R&D project completion.
    Keywords: R&D Investment;Competition;Preemption;Attrition.
    JEL: C72 D21 O31
    Date: 2007
  3. By: Boone, J.; Ours, J.C. van; Wiel, H.P. van der (Tilburg University, Center for Economic Research)
    Abstract: We introduce a new measure of competition: the elasticity of a firm?s profits with respect to its cost level. A higher value of this profit elasticity (PE) signals more intense competi- tion. Using firm-level data we compare PE with the most popular competition measures such as the price cost margin (PCM). We show that PE and PCM are highly correlated on average. However, PCM tends to misrepresent the development of competition over time in markets with few firms and high concentration, i.e. in markets with high policy relevance. So, just when it is needed the most PCM fails whereas PE does not. From this we conclude that PE is a more reliable measure of competition.
    Keywords: competition;profit elasticity;measures of competition;concentration;price cost margin;profits
    JEL: D43 L13
    Date: 2007
  4. By: Gary E Bolton; Claudia Loebbecke; Axel Ockenfels
    Abstract: Many Internet markets rely on ‘feedback systems’, essentially social networks of reputation, to facilitate trust and trustworthiness in anonymous transactions. Market competition creates incentives that arguably may enhance or curb the effectiveness of these systems. We investigate how different forms of market competition and social reputation networks interact in a series of laboratory online markets, where sellers face a moral hazard. We find that competition in strangers networks (where market encounters are one-shot) most frequently enhances trust and trustworthiness, and always increases total gains-from-trade. One reason is that information about reputation trumps pricing in the sense that traders usually do not conduct business with someone having a bad reputation not even for a substantial price discount. We also find that a reliable reputation network can largely reduce the advantage of partners networks (where a buyer and a seller can maintain repeated exchange with each other) in promoting trust and trustworthiness if the market is sufficiently competitive. We conclude that, overall, competitive online markets have more effective social reputation networks.
    Date: 2007–08–01
  5. By: Jan Kranich (Leuphana Universität Lüneburg)
    Abstract: This paper discusses a model of vertical an horizontal product differentiation within the Dixit-Stiglitz framework of monopolistic competition. Firns coompete not only in prices and horizontal attributes of their products, but also in the quality that can be controlled by R&D activities. Based upon te results of a general equilibrium model, intra-sectoral trade and the welfare implications of public intervention in terms of research promotion are considered. The analysis involves a numerical application to ten basic European industries.
    Keywords: R&D, Monopolisitc Competition, Product Differentiation
    JEL: D43 F12 L13 L16
    Date: 2007–08
  6. By: MITRAILLE Sébastien; MOREAUX Michel (LERNA, TSE);
    Date: 2007–08
  7. By: Daniel Halbheer (Socioeconomic Institute, University of Zurich); Ernst Fehr (Institute for Empirical Research in Economics, University of Zurich); Lorenz Goette (Center for Behavioral Economics and Decision Making, Federal Reserve Bank of Boston); Armin Schmutzler (Socioeconomic Institute, University of Zurich)
    Abstract: Are initial competitive advantages self-reinforcing, so that markets exhibit an endogenous tendency to be dominated by only a few firms? Although this question is of great economic importance, no systematic empirical study has yet addressed it. Therefore, we examine experimentally whether firms with an initial cost advantage are more likely to invest in cost reductions than firms with higher initial costs. Wefind that the initial competitive advantages are indeed self-reinforcing, but subjects in the role of firms overinvest relative to the Nash equilibrium. However, the pattern of overinvestment even strengthens the tendency towards self-reinforcing cost advantages relative to the theoretical prediction. Further, as predicted by the Nash equilibrium, aggregate investment is not affected by the initial efficiency distribution. Finally, investment spillovers reduce investment, and investment is higher than the joint-profit maximizing benchmark for the case without spillovers and lower for the case with spillovers.
    Keywords: Cost-reducing Investment, Asymmetric Oligopoly, Increasing Dominance, Experimental Study
    JEL: C90 D43 L13 O31
    Date: 2007–08
  8. By: Scott Baker; Pak Yee Lee; Claudio Mezzetti
    Abstract: This paper models the disclosure of knowledge as a "threat", useful in ensuring firms keep their commitments. We show that firms holding knowledge are better able to enforce agreements than firms that don’t. In markets requiring innovation to make a product, disclosure is a more powerful threat than entry by the punishing firm alone. Occasionally, the punishing firm won’t be able to innovate, making it impossible for it to enter the cheating firm’s market and punish. The punishing firm, however, can through disclosure credibly ensure that one, if not many, firms enter the cheating firm’s market. In the model, firms contract explicitly to exchange knowledge and tacitly to coordinate the introduction of innovations to the marketplace. We find conditions under which firms can self-enforce both agreements. The enforcement conditions are weaker when (1) firms possess knowledge and (2) knowledge is easily transferable to other firms. The disclosure threat has implication for antitrust law generally, which are considered.
    Date: 2007–08
  9. By: Antonio Romero Medina; Mateo Triossi
    Abstract: The paper studies two games of capacity manipulation in hospital-intern markets. The focus is on the stability of Nash equilibrium outcomes. We provide minimal necessary and sufficient conditions guaranteeing the existence of pure strategy Nash Equilibria and the stability of outcomes.
    Date: 2007–07
  10. By: GRIMAUD André (LERNA, TSE); LAFFORGUE Gilles (LERNA, TSE); MAGNE Bertrand
    Date: 2007–08
  11. By: Flavio M. Menezes & Matthew J. Ryan (School of Economics, The University of Queensland)
    Abstract: We extend the Coase conjecture to the case of a seller with a single object, who faces n potential buyers and holds a sequence of English auctions until the object is sold. In an independent-private-values environment in which buyers and sellers share the same discount factor, we show that the (perfect Bayesian) equilibrium path of reserve prices obeys a Coasian logic. Moreover, the equilibrium reserve path lies below that for the model of repeated sealed-bid, second-price auctions studied by McAfee and Vincent (1997). Nevertheless, the open (English) and sealed-bid formats are shown to be revenue equivalent.
  12. By: Daubanes, J. (Tilburg University, Center for Economic Research)
    Abstract: In a simple model of resource depletion (isoelastic demand and constant unit extraction cost), we fully characterize the set of linear effiency-inducing tax/subsidy schemes. We show that this set is infinite and all the larger as the cost of extraction is low. Depending on the magnitude of the latter, we show that there may exist optimal linear strict taxes, thus allowing the regulator to induce efficiency without subsidizing the mine industry at any date. We illustrate and argue that the exhaustibility constraint the monopolist extractor faces can be exploited by the regulator to relax the standard trade-off between inducing efficiency and raising revenues from the monopoly.
    Keywords: Exhaustible resources; Imperfect competition; Optimal taxation
    JEL: Q30 L12 H21
    Date: 2007
  13. By: AMIGUES Jean-Pierre (LERNA, University of Toulouse); MOREAUX Michel (LERNA, University of Toulouse); RICCI Francesco (LERNA, University of Toulouse)
    Date: 2006–08
  14. By: Engwerda, J.C. (Tilburg University, Center for Economic Research)
    Abstract: In this note we present as well necessary as sufficient conditions for existence of a Pareto optimum for general non-convex differential games. The obtained results are used to analyze the non-convex regular indefinite linear quadratic differential game. For the scalar case an algorithm is devised to find all Pareto efficient solutions.
    Keywords: Dynamic Optimization;Pareto Efficiency;Cooperative Differential Games;LQ theory.
    JEL: C61 C71 C73
    Date: 2007
  15. By: Nicole Maestas; Mathis Schroeder; Dana P. Goldman
    Abstract: About one-third of elderly Americans age 65 and older supplements their Medicare health insurance in a private insurance market known as the ÒMedigapÓ market. Prices for Medigap policies vary widely, despite the fact that regulations enacted in 1992 standardized all Medigap policies, thereby creating a market with homogenous insurance products. Economic theory suggests that consumer search costs can lead to a non-degenerate price distribution within a market for otherwise homogenous goods. Using a structural model of equilibrium search costs first posed by Carlson and McAfee (1983), the authors find that nearly all consumers face search costs high enough to prevent them from searching until they find the lowest priced Medigap policy. They estimate average search costs to be $249, substantially higher than has been found in other markets, but plausible given the complex nature of the Medigap market and its elderly consumer population. The implied aggregate welfare loss is approximately $798 million or $484 per policyholder.
    Keywords: health insurance, medigap, elderly
    JEL: G22 I11
    Date: 2006–07
  16. By: Kets, W. (Tilburg University, Center for Economic Research)
    Abstract: Networks can have an important effect on economic outcomes. Given the complexity of many of these networks, agents will generally not know their structure. We study the sensitivity of game-theoretical predictions to the specification of players? (common) prior on the network in a setting where players play a fixed game with their neighbors and only have local information on the network structure. We show that two priors are close in a strategic sense if and only if (1) the priors assign similar probabilities to all events that involve a player and his neighbors, and (2) with high probability, a player believes, given his type, that his neighbors? conditional beliefs are similar, and that his neighbors believe, given their type, that. . . the conditional beliefs of their neighbors are similar, for any number of iterations. Also, we show that the common but unrealistic assumptions that the size of the network is common knowledge or that the types of players are independent are far from innocuous: if these assumptions are violated, small probability events can have a large effect on outcomes through players? conditional beliefs.
    Keywords: Network games;incomplete information;higher order beliefs;continuity;random networks;population uncertainty.
    JEL: C72 D82 L14 Z13
    Date: 2007
  17. By: David Bishai (Johns Hopkins University); Shoshana Grossbard (San Diego State University and IZA)
    Abstract: The custom of bride price involves the payment of goods or cash from the groom’s family to the bride’s family at the time of marriage. We present a theory that views bride price as a payment in hedonic markets for marital fidelity. Data from a household survey in Uganda are used to test the theoretical prediction that payment of bride price will be associated with fewer non-marital sexual relationships for women. The data show a robust association between bride price payment and lower rates of non-marital sexual relationships for women but not for men.
    Keywords: marriage, extra-marital relations, bride price, Uganda
    JEL: D13 I12 J13 O15
    Date: 2007–08
  18. By: Talman, A.J.J.; Yang, Z.F. (Tilburg University, Center for Economic Research)
    Abstract: A number of heterogeneous items are to be sold to several bidders. Each bidder demands at most one item. The price of each item is not completely flexible and is restricted to some admissible interval. In such a market economy with price rigidities, a Walrasian equilibrium usually fails to exist. To facilitate the allocation of items to the bidders, we propose an ascending auction with rationing that yields a constrained Walrasian equilibrium outcome. The auctioneer starts with the lower bound price vector that specifies the lowest admissible price for each item, and each bidder responds with a set of items demanded at those prices. The auctioneer adjusts prices upwards for a minimal set of over-demanded items and chooses randomly a winning bidder for any item if the item is demanded by several bidders and its price has reached its highest admissible price. We prove that the auction finds a constrained Walrasian equilibrium outcome in a finite number of steps.
    Keywords: Ascending auction;multi-item auction;constrained equilibrium;price rigidities;rationing.
    JEL: D44
    Date: 2007
  19. By: Schoonbeek, Lambert (Groningen University)
    Abstract: Abstract : We consider delegation in a rent-seeking contest with two players, where delegates have more instruments at their disposal than the main players. We endogenize both the decision to hire a delegate and the contingent fee offered to the delegates. We characterize the situations when either no, one or two players hire a delegate in equilibrium. We show that the decision to hire a delegate depends in a non-monotone way on the size of the contested prize.
    Date: 2006
  20. By: NAUGES Céline (LERNA, University of Toulouse); VAN DEN BERG Caroline;
    Date: 2006–08
  21. By: AMIGUES Jean-Pierre (LERNA, TSE); MOREAUX Michel (LERNA, TSE); RICCI Francesco (LERNA, TSE)
    Date: 2007–08
  22. By: Dijkema, J.; Dijk, J. van; Strijker, D. (Groningen University)
    Date: 2006
  23. By: MAHENC Philippe (LERNA, University of Toulouse); ;
    Date: 2006–08

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