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on Microeconomics |
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Issue of 2007‒10‒20
fourteen papers chosen by Joao Carlos Correia Leitao University of the Beira Interior |
| By: | Doh-Shin Jeon (Department of Economics and Business, Universitat Pompeu Fabra); Sjaak Hurkens (Institute for Economic Analysis); |
| Abstract: | We study a retail benchmarking approach to determine access prices for interconnected networks. Instead of considering fixed access charges as in the existing literature, we study access pricing rules that determine the access price that network i pays to network j as a linear function of the marginal costs and the retail prices set by both networks. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under competition in linear prices, derived by Jeon (2005), but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under the class of rules. Therefore, the regulator can choose one among the rules to pursue additional objectives such as consumer surplus, network coverage or investment: in particular, we show that the regulator can achieve static and dynamic efficiency at the same time. |
| Keywords: | Networks, Access Pricing, Interconnection, Competition Policy, Telecommunications, Investment, Two-part Tariff |
| JEL: | D4 K21 L41 L51 L96 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0711&r=mic |
| By: | Nicholas Economides (Stern School of Business, New York University); Joacim Tåg (Swedish School of Economics and Business Administration, FDPE, and HECER); |
| Abstract: | We discuss the benefits of net neutrality regulation in the context of a two-sided market model in which platforms sell Internet access services to consumers and may set fees to content and applications providers “on the other side” of the Internet. When access is monopolized, we find that generally net neutrality regulation (that imposes zero fees “on the other side” of the market) increases total industry surplus compared to the fully private optimum at which the monopoly platform imposes positive fees on content and applications providers. Similarly, we find that imposing net neutrality in duopoly increases total surplus compared to duopoly competition between platforms that charge positive fees on content providers. We also discuss the incentives of duopolists to collude in setting the fees “on the other side” of the Internet while competing for Internet access customers. Additionally, we discuss how price and non-price discrimination strategies may be used once net neutrality is abolished. Finally, we discuss how the results generalize to other two-sided markets. |
| Keywords: | net neutrality, two-sided markets, Internet, monopoly, duopoly, regulation, discrimination |
| JEL: | L1 D4 L12 L13 C63 D42 D43 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0714&r=mic |
| By: | Yongmin Chen (Department of Economics, University of Colorado at Boulder); Scott J. Savage (Department of Economics, University of Colorado at Boulder); |
| Abstract: | An important issue in economics is how market structure affects prices. While the standard view is that competition lowers prices, Chen and Riordan (2006) argued that with product differentiation it is not exceptional for prices to be higher under duopoly than monopoly. This paper empirically investigates one implication from Chen and Riordan, namely, that prices are lower under duopoly when consumer preferences for the two products are similar, and they are more likely to be higher under duopoly if consumer preferences for the two products are more diverse. Focusing on the price for cable modem Internet access, with or without competition from a digital subscriber line provider, and using education dispersion as a proxy for consumer preference diversity, we find empirical support for this implication. In markets where education dispersion is low, competition reduces prices. As education dispersion increases, the negative effect of competition on prices diminishes; and when the dispersion is high enough, competition increases prices. |
| Keywords: | competition, Internet, preference diversity, prices |
| JEL: | L1 L13 L96 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0713&r=mic |
| By: | Sergio Currarini (Department of Economics, University Of Venice Cà Foscari and School for Advanced Studies in Venice); Francesco Feri (University of Innsbruck) |
| Abstract: | We study the problem of information sharing in oligopoly, when sharing decisions are taken before the realization of private signals. Using the general model developed by Raith (1996), we show that if firms are allowed to make bilateral exclusive sharing agreements, then some degree of information sharing is consistent with equilibrium, and is a constant feature of equilibrium when the number of firms is not too small. Our result is to be contrasted with the traditional conclusion that no information is shared in common values situations with strategic substitutes - such as Cournot competition with demand shocks - when firms can only make industry-wide sharing contracts (e.g., a trade association). |
| Keywords: | Networks, Information sharing, oligopoly, networks, Bayesian equilibrium |
| JEL: | D43 D82 D85 L13 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:21_07&r=mic |
| By: | David Encaoua (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I]); Abraham Hollander (Université de Montréal - [Université de Montréal]) |
| Abstract: | The paper examines under what conditions vertically differentiated duopolists engage in first-degree price discrimination. Each firm decides on a pricing regime at a first stage and sets prices at a second stage. The paper shows that when unit cost is an increasing and convex function of quality, the discriminatory regime is the unique subgame-perfect equilibrium of such two-stage game. In contrast to the case of horizontal differentiation, the discriminatory equilibrium is not necessarily Pareto-dominated by a bilateral commitment to uniform pricing. Also, the quality choices of perfectly discriminating duopolists are welfare maximizing. The paper explains why a threat of entry may elicit price discrimination by an incumbent monopolist. |
| Keywords: | competition in pricing regimes, duopoly, quality choice |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00177604_v1&r=mic |
| By: | Mo Xiao (Eller College of Management, University of Arizona); Peter F. Orazem (Department of Economics, Iowa State University); |
| Abstract: | Past empirical literature provides strong evidence that competition increases when new firms enter a market. However, rarely have economists been able to examine how competition changes with the threat of entry. This paper uses the evolution of the zip code level market structure of facilities-based broadband providers from 1999 to 2004 to investigate how a firm adjusts its entry strategy when facing the threat of additional entrants. We identify the potential entrant into a local market as threatened when a neighboring market houses more than firms providing broadband services. We first document that such a market is more likely to accommodate more than firms in the long run. Taking account of endogeneity of entry into neighboring markets, we find that the first 1 to 3 entrants significantly delay their entrance into an open local market facing entry threat. We do not find evidence of delayed entry for firms following the 3rd entrant. The evidence suggests that the mere threat of entry may curb market power associated with oligopolistic market structure. |
| Keywords: | Entry, Entry Threat, Broadband Providers |
| JEL: | L13 L8 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0709&r=mic |
| By: | James B. Bushnell; Erin T. Mansur; Celeste Saravia |
| Abstract: | This paper examines vertical arrangements in electricity markets. Vertically integrated wholesalers, or those with long-term contracts, have less incentive to raise wholesale prices when retail prices are determined beforehand. For three restructured markets, we simulate prices that define bounds on static oligopoly equilibria. Our findings suggest that vertical arrangements dramatically affect estimated market outcomes. Had regulators impeded vertical arrangements (as in California), our simulations imply vastly higher prices than observed and production inefficiencies costing over 45 percent of those production costs with vertical arrangements. We conclude that horizontal market structure accurately predicts market performance only when accounting for vertical structure. |
| JEL: | L11 L13 L94 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13507&r=mic |
| By: | Azacis, Helmuts (Cardiff Business School); Collie, David R. (Cardiff Business School) |
| Abstract: | The result of Colombo and Labrecciosa (2006) that optimal punishments are inferior to Nash-reversion trigger strategies with decreasing marginal costs is due to the output when a firm deviates from the punishment path being allowed to become negative. |
| Keywords: | Optimal punishments; trigger strategies; collusion; cartels |
| JEL: | C73 D43 L13 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2007/27&r=mic |
| By: | Costa, Luís F.; Dixon, Huw (Cardiff Business School) |
| Abstract: | We develop a dynamic general equilibrium model of imperfect competition where a sunk cost of creating a new product regulates the type of entry that dominates in the economy: new products or more competition in existing industries. Considering the process of product innovation is irreversible, introduces hysteresis in the business cycle. Expansionary shocks may lead the economy to a new 'prosperity plateau,' but contractionary shocks only affect the market power of mature industries. |
| Keywords: | Entry; Hysteresis; Mark-up |
| JEL: | E62 L13 L16 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2007/28&r=mic |
| By: | Silva, Maria José; Leitão, João |
| Abstract: | This paper aims to identify the nature of the relationships that are established amongst agents who co-operate in terms of innovation practices. It analyses whether the entrepreneurial innovation capability of firms is stimulated through the relationships developed with external partners. The data of 2nd Community Innovation Survey of EUROSTAT is used in a logistic model. In the estimation process of the Logit function, the entrepreneurial innovation capability is considered as the answer variable. The scientific agents who cooperate in terms of innovation activities impact, positively, on the propensity to engage in innovative advances revealed by the firms, at the level of product innovation. The paper presents policy implications, which may be used in the design of public policies for fostering open innovation networks between scientific agents and firms. |
| Keywords: | Innovation; Networks; Entrepreneurial Innovation Capability. |
| JEL: | O32 I28 O31 I23 |
| Date: | 2007–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:5215&r=mic |
| By: | Erin T. Mansur |
| Abstract: | In a market subject to environmental regulation, a firm's strategic behavior affects the production and emissions decisions of all firms. If firms are regulated by a Pigouvian tax, changing emissions will not affect the marginal cost of polluting. However, under a tradable permits system, the polluters' decisions affect the permit price. This paper shows that this feedback effect may increase a strategic firm's output. Relative to a tax, tradable permits improve welfare in a market with imperfect competition. As an application, I model strategic and competitive behavior of wholesalers in the Pennsylvania, New Jersey, and Maryland electricity market. Simulations suggest that exercising market power decreased local pollution by approximately nine percent, and therefore, substantially reduced the price of the region's pollution permits. Furthermore, I find that had regulators opted to use a tax instead of permits, the deadweight loss from imperfect competition would have been approximately seven percent greater. |
| JEL: | L13 L94 Q53 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13510&r=mic |
| By: | Prufer, J. (Tilburg University, Center for Economic Research) |
| Abstract: | Should mergers among nonprofit organizations be regulated differently than mergers among for-profit firms? The relevant empirical literature is highly controversial, the theoretical literature is scarce. I analyze the question by modeling duopoly competition with quality-differentiated goods. I compare welfare effects of mergers between firms with the effects of mergers between nonprofits dominated by consumers, workers, suppliers, and pure donors respectively. I find that mergers both among firms and among most types of nonprofits do not increase welfare. Mergers among consumerdominated nonprofits, however, can improve welfare. These results imply for competition law and regulation that ?nonprofit? might be too crude a label for organizations with varying goals. Consequently, mergers among certain nonprofit organizations should not necessarily be treated in the same way as mergers among for-profit firms ? a notion that is absent in current merger guidelines both in the US and the EU. |
| Keywords: | Nonprofits; Mergers; Antitrust; Governance; Owner Objectives; Notfor- profit Sector; Organizational Choice |
| JEL: | L44 L31 L22 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200782&r=mic |
| By: | Martin Srholec (Centre for Technology, Innovation and Culture, University of Oslo) |
| Abstract: | The aim of this paper is to demonstrate how research on geography of innovation can benefit from multilevel modeling. Using explanatory factors operating at different levels of the analysis, we assess the hypothesis that regional innovation systems influence the firm’s likelihood to innovate. We estimate a logit multilevel model of innovation on micro data from the third Community Innovation Survey in the Czech Republic. The results indicate that the quality of the regional innovation system directly determines firm’s likelihood to innovate and mediates the effect of some firm-level factors. Also structural problems in the region influence innovation in firms. |
| Keywords: | innovation, multilevel modeling, regional innovation system, Czech Republic. |
| JEL: | O32 R15 D21 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:tik:inowpp:20071010&r=mic |
| By: | Erin T. Mansur |
| Abstract: | Electricity restructuring has created the opportunity for producers to exercise market power. Oligopolists increase price by distorting output decisions, causing cross-firm production inefficiencies. This study estimates the environmental implications of production inefficiencies attributed to market power in the Pennsylvania, New Jersey, and Maryland electricity market. Air pollution fell substantially during 1999, the year in which both electricity restructuring and new environmental regulation took effect. I find that strategic firms reduced their emissions by approximately 20% relative to other firms and their own historic emissions. Next, I compare observed behavior with estimates of production, and therefore emissions, in a competitive market. According to a model of competitive behavior, changing costs explain approximately two-thirds of the observed pollution reductions. The remaining third can be attributed to firms exercising market power. |
| JEL: | H23 L13 L33 L94 Q53 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13511&r=mic |