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

  1. Pricing, Investments and Mergers with Intertemporal Capacity Constraints By Christou, Charalambos; Kotseva, Rossitsa; Vettas, Nikolaos
  2. Price discrimination By Armstrong, Mark
  3. Multilateral Subsidy Games By Dermot Leahy; J. Peter Neary
  4. Investment Behaviour in a Two Period Contest Model By Martin Grossmann; Helmut Dietl
  5. Footloose Monopolies: Regulating a "National Champion" By Calzolari, Giacomo; Scarpa, Carlo
  6. Price Points and Price Rigidity By Daniel Levy; Dongwon Lee Author-Workplace-Name: Korea University; Haipeng Allan Chen Author-Workplace-Name: University of Miami, USA; Robert J. Kauffman Author-Workplace-Name: Arizona State University and University of Minnesota, USA; Mark Bergen Author-Workplace-Name: University of Minnesota, USA
  7. Designing a Two-Sided Platform: When To Increase Search Costs? By HAGIU, Andrei; JULLIEN, Bruno
  8. Competition Policy Implications of Electronic Business-to-Business Marketplaces: Issues for Marketers By Andrew Pressey; John K. Ashton
  9. How to measure the spillover effect? By Toro González, Daniel
  10. Revenue Sharing and Competitive Balance in an Infinite Period Contest Model By Martin Grossmann; Helmut Dietl; Markus Lang
  11. An Empirical Study of Price Dispersion in Homogenous Goods Markets By Thierry Warin; Daniel B. Leiter
  12. Innovation and the Export-productivity Link By Cassiman, Bruno; Golovko, Elena
  13. Internationalizing R&D Co-opetition: Dress for the Dance with the Devil By Schmiele, Anja; Sofka, Wolfgang
  14. The Knowledge Economics of Cooperatives By Helmut Dietl; Martin Grossmann

  1. By: Christou, Charalambos; Kotseva, Rossitsa; Vettas, Nikolaos
    Abstract: We set up a duopoly model with dynamic capacity constraints under demand uncertainty. We endogenize the investment decisions of the firms, examine their intertemporal pricing behavior, their incentives to merge, as well as the welfare implications of a merger. Whereas under known and constant demand the high capacity firm lets its low capacity rival sell out, under demand uncertainty we obtain a rich set of sales patterns. Each unit of available capacity has an option value (or opportunity cost), which depends on both firms' capacities, the current demand and the remaining horizon. This option value may be higher when the firms act non-cooperatively compared to the case when they merge to form a monopoly. Trade surplus may be higher when a merger takes place, as capacity is more efficiently managed over time. The prospect of a merger also leads to higher investment levels, as each firm wishes to appropriate a higher share of the total surplus. For some levels of the capacity instalment cost, a merger that turns the duopoly into a monopoly is welfare improving.
    Keywords: capacity constraints; dynamic oligopoly; inventories; mergers; price competition
    JEL: D43 L13 L22
    Date: 2007–08
  2. By: Armstrong, Mark
    Abstract: This paper surveys recent economic research on price discrimination, both in monopoly and oligopoly markets. Topics include static and dynamic forms of price discrimination, and both final and input markets are considered. Potential antitrust aspects of price discrimination are highlighted throughout the paper. The paper argues that the informational requirements to make accurate policy are very great, and with most forms of price discrimination a laissez-faire policy may be the best available in practical terms. However, careful case-by-case analysis of situations involving selective price cuts and margin squeeze seems worthwhile.
    Keywords: Price discrimination; bundling; entry deterrence; competition policy
    JEL: L1 L13
    Date: 2006–10
  3. By: Dermot Leahy; J. Peter Neary
    Abstract: This paper examines the rationale for multilateral agreements to limit investment subsidies. The welfare ranking of symmetric multilateral subsidy games is shown to depend on whether or not investment levels are "friendly", raising rival profits in total, and/or strategic complements, raising rival profits at the margin. In both Cournot and Bertrand competition, when spillovers are low and competition is intense (because goods are close substitutes), national-welfare-maximizing governments will over-subsidize investment, and banning subsidies would improve welfare. When spillovers are high, national governments under-subsidize from a global welfare perspective, but the subsidy game is welfare superior to non-intervention.
    Keywords: Industrial Policy, Investment Subsidies, Subsidy Wars, Strategic Trade Policy, R&D Spillovers, Oligopoly
    JEL: L13 F12
    Date: 2007
  4. By: Martin Grossmann (Institute for Strategy and Business Economics, University of Zurich); Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: This paper presents a two-period model of talent investments where two clubs compete with respect to a contest prize. We show that two qualitatively different types of equilibria are possible using a closed-loop approach with strictly convex costs: The large market club invests in both periods more than the small market club or the small market club invests in both periods more than the large market club. In case of an open-loop approach with strictly convex costs, however, the large market club always invests more. The open-loop and closed-loop equilibria coincide if costs are linear.
    Keywords: contest, open-loop and closed-loop equilibrium, sports leagues
    JEL: L83 D92 L13
    Date: 2007–09
  5. By: Calzolari, Giacomo; Scarpa, Carlo
    Abstract: We analyze the design of optimal regulation of a domestic monopolist that also competes in an unregulated foreign market. We show how foreign activities by the regulated firm affect domestic regulation, consumers’ surplus and firm’s profits. Although expansion in unregulated foreign markets amplifies the regulatory distortions that are caused by the regulator’s limited information, we also show that allowing the firm to compete abroad does not necessarily harm domestic consumers and we analyze if and when the firm’s decision to expand abroad does in fact coincide with consumers’ interests in the regulated market.
    Keywords: Foreign Competition; Multinational Enterprises; National Champions; Regulation
    JEL: F23 L51
    Date: 2007–08
  6. By: Daniel Levy (Bar-Ilan University, Israel and Emory University, USA and Rimini Centre for Economic Analysis, Rimini, Italy); Dongwon Lee Author-Workplace-Name: Korea University; Haipeng Allan Chen Author-Workplace-Name: University of Miami, USA; Robert J. Kauffman Author-Workplace-Name: Arizona State University and University of Minnesota, USA; Mark Bergen Author-Workplace-Name: University of Minnesota, USA
    Abstract: We offer new evidence on the link between price points and price rigidity using two datasets. One is a large weekly transaction price dataset, covering 29 product categories over an eight-year period from a large U.S. supermarket chain. The other is from the Internet, and includes daily prices over a two-year period for 474 consumer electronic goods covering ten product categories, from 293 different Internet retailers. Across the two datasets, we find that (i) 9 is the most frequently used price-ending for the penny, dime, dollar and the ten-dollar digits, (ii) the most common price changes are in multiples of dimes, dollars, and ten-dollars, (iii) 9-ending prices are at least 24% (and as much as 73%) less likely to change in comparison to prices ending with other digits, and (iv) the average size of the price change is higher if the price ends with 9 in comparison to non-9-ending prices. This link between price points and price rigidity is robust across a wide range of prices, products, product categories, and retail formats. We offer a behavioral explanation for the findings.
    Date: 2007–07
  7. By: HAGIU, Andrei; JULLIEN, Bruno
    JEL: L1 L2 L8
    Date: 2007–08–23
  8. By: Andrew Pressey (Norwich Business School and Centre for Competition Policy, University of East Anglia); John K. Ashton (Centre for Competition Policy, University of East Anglia)
    Abstract: Electronic marketplaces (e-marketplaces) allow networks of buyers and sellers to conduct business online and to exchange information more efficiently using Internet technology. Despite the benefits that e-marketplaces potentially afford firms, concerns have been raised that these markets may damage competition. This study considers the antitrust or competition legislation related to e-marketplaces and examines the possible competition concerns they raise. Potentially anticompetitive features of e-marketplaces are examined and guidance for firm conduct when creating or participating in an e-marketplace is offered.
    Keywords: Electronic marketplaces, antitrust, policy
    JEL: M31 K21 L42
    Date: 2007–06
  9. By: Toro González, Daniel
    Abstract: Limited information of the Research and Development (R&D) investment at firm level generates difficulties to measure the impact of this kind of investment in other firms, called spillover effect. I develop a simple theoretical model oriented to capture the spillover effect and we show that when a firm increases the investment in R&D, the spillover effect is also increased.
    Keywords: Spillovers; research and developement; R&D; externalities
    JEL: D62 O32
    Date: 2007–09–01
  10. By: Martin Grossmann (Institute for Strategy and Business Economics, University of Zurich); Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: This paper presents a dynamic model of talent investments where two clubs compete in each period with respect to a contest prize. We show that aggregate talent stocks of both clubs converge to an identical level such that competitive balance is assured in the steady state as long as league prizes are identical for clubs. In the transition the dynamics are mainly influenced by the elasticity of marginal costs. Finally, we generalize the static results of Szymanski and Kesenne (2004): It is possible to have a persistent inequality in team qualities and revenue sharing decreases competitive balance if clubs have different market potentials.
    Keywords: Contest, Sports Economics, Competitive Balance, Revenue Sharing
    JEL: L83 D92
    Date: 2007–09
  11. By: Thierry Warin; Daniel B. Leiter
    Abstract: This paper presents the results of an empirical study of price dispersion in homogeneous goods markets. Modern economic theory suggests that inevitable asymmetries of information in markets lead to an equilibrium in which price dispersion is present even when goods are perfectly homogenous. In this paper we present an empirical analysis in which we employ both cross-sectional and time-series data gathered directly from, one of the most popular and comprehensive online shopping/price-comparison sites on the Internet. In particular our analysis focuses on (i) the effect that the number of firms offering a good has on price dispersion, (ii) the informational value to the consumer of using the Pricegrabber website, and (iii) the persistency of price dispersion over time.
    Keywords: E-commerce, Internet marketing, Price dispersion, Signaling, Search Cost, Gatekeepers, Regression and other statistical techniques JEL Classification: L81, L86, L11
    Date: 2007–10
  12. By: Cassiman, Bruno; Golovko, Elena
    Abstract: We explore the relationship between innovation activity, productivity, and exports using a panel of Spanish manufacturing firms for 1990-1998. Our results - based on non-parametric tests - suggest that firm innovation status is important in explaining the positive export-productivity association documented in prior research. For the sample of small innovating firms, we find no significant differences in productivity levels between exporters and non-exporters. Especially product innovation seems to explain the positive association between exports and productivity for this group of firms. For small non-innovating firms with low and medium productivity levels exporting firms continue to exhibit higher productivity than non-exporting firms.
    Keywords: exports; innovation; process innovation; product innovation; productivity
    JEL: D21 O31 O32
    Date: 2007–08
  13. By: Schmiele, Anja; Sofka, Wolfgang
    Abstract: Competitors can be valuable sources and partners for innovation activities. Against the background of international expansion of firms and increased international competition, the R&D collaborations with international competitors (international co-opetition) is becoming an increasingly interesting way to gain access to well guarded knowledge from abroad. However, to be able to benefit from these paradox alliances, a certain level of international co-opetition readiness is required. On the one hand, this readiness is important to protect the companies’ intellectual property that should not be leaked to competitors. On the other hand, the firm has to be able to absorb and utilize the knowledge and capabilities of the collaborating competitor. Hence, we envision co-opetition as a balancing act between appropriability practices and absorptive capacities in a cross-border context. We test these dual hypotheses for a broad sample of roughly 1,000 innovative firms in the German manufacturing sector. We find that co-opetition with international competitors requires a shift in appropriability practices from informal methods (secrecy, lead time) towards formal ones (like patents and copyrights). Besides, we discover that the readiness for international co-opetition can be achieved by developing international collaboration experience through collaborations with international customers or suppliers.
    Keywords: Co-opetition, R&D collaboration, internationalization, innovation management
    JEL: D83 F23 O31 O32
    Date: 2007
  14. By: Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Martin Grossmann (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: We model a value chain, which consists of two stages of value creation. Within this model we show how the relative importance of general and idiosyncratic knowledge interacts with the hold up problem to determine the comparative advantages of markets, hierarchies, and cooperatives. In our model a market form is (weakly) dominated by a cooperative organization. We show that cooperatives (hierarchies) are an efficient response to the hold up problem if idiosyncratic (general) knowledge is important. A trade off arises if both general and idiosyncratic knowledge is important for value creation. This trade off determines the choice between cooperatives (idiosyncratic knowledge is relatively more important) and hierarchies (general knowledge is relatively more important).
    Keywords: Cooperatives, Information, Knowledge
    JEL: D82 D83 L22
    Date: 2007–09

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