nep-mic New Economics Papers
on Microeconomics
Issue of 2007‒11‒17
nine papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Sequential Location under one-sided Demand Uncertainty By Aurélie Bonein; Stéphane Turolla
  2. Strategic Debt: Evidence from Bertrand and Cournot Competition By Jong, A. de; Nguyen, T.T.; Dijk, M.A. van
  3. Cost Hetrogeneity and Strategic Divisionalization By Kazumichi, Iwasa; Toru , Kikuchi
  4. Endogenous Mechanisms and Nash Equilibrium in Competitive Contracting By Frank H. Page, Jr.; Paulo K. Monteiro
  5. Dynamic games in the wholesale electricity market By DAKHLAOUI Ahlem;
  7. Consumer Networks and Firm Reputation: A First Experimental Investigation By Gabriele K. Lünser; Jean-Robert Tyran
  8. On the Formation of Buyer-Seller Relationships when Product Quality is Perfectly Observable By Yann Bramoullé; John A. List; Michael K. Price
  9. Platform Competition in Pay-TV Market By Kasuga, Norihro; Manabu, Shishikura; Masanori, Kondo

  1. By: Aurélie Bonein; Stéphane Turolla
    Abstract: By entering new market, firms face uncertainty about their potential demand. We depart from the usual Hotelling duopoly model with sequential entry. Firms can locate outside the city and market conditions are common knowledge. Then we introduce one-sided demand uncertainty. It results that demand uncertainty can be seen as a diferentiation force when the first entrant faces demand uncertainty and as an agglomeration force when it is the second entrant. Finally, firm 2's imperfect information implies higher welfare losses.
    Date: 2007–11
  2. By: Jong, A. de; Nguyen, T.T.; Dijk, M.A. van (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
    Abstract: We investigate how competitive behavior affects the capital structure of a firm. Theory predicts that the impact of different types of output market uncertainty (in particular, unanticipated shocks in demand and costs) on a firm?s leverage depends on the type of competition in an industry. We test these predictions in a sample of U.S. manufacturing firms by classifying firms into Cournot competition (strategic substitutes), and Bertrand competition (strategic complements). We show that demand uncertainty is positively related to leverage for firms in both the Cournot and the Bertrand sample. Cost uncertainty has a significantly positive impact on the leverage of Cournot firms, but plays a negligible role for Bertrand firms. Our results support the strategic use of debt and highlight the role of firms? competitive behavior in the product market in their capital structure decisions.
    Keywords: Strategic debt;Cournot competition;Bertrand competition;demand and cost uncertainty;leverage;
    Date: 2007–09–11
  3. By: Kazumichi, Iwasa; Toru , Kikuchi
    Abstract: In this note, we consider a simple duopoly environment in which two parent firms compete in a market. We assume that there are cost differentials between these two parent firms. The parent firms' choices of divisionalization are modeled as a two-stage game. It will be shown that the number of divisions of a parent firm with a cost advantage (i.e., lower marginal costs) is relatively large. The results imply that the cost advantage of one parent firm will be magnified through divisionalization decisions.
    JEL: L11
    Date: 2007
  4. By: Frank H. Page, Jr. (Indiana University Bloomington); Paulo K. Monteiro (EPGE/FGV)
    Abstract: We model strategic competition in a market with asymmetric information as a noncooperative game in which each firm competes for the business of a buyer of unknown type by offering the buyer a catalog of products and prices. The timing in our model is Stackelberg: in the first stage, given the distribution of buyer types known to all firms and the deducible, type-dependent best responses of the agent, firms simultaneously and noncooperatively choose their catalog offers. In the second stage the buyer, knowing his type, chooses a single firm and product-price pair from that firm's catalog. By backward induction, this Stackelberg game with asymmetric information reduces to a game over catalogs with payoff indeterminacies. In particular, due to ties within catalogs and/or across catalogs, corresponding to any catalog profile offered by firms there may be multiple possible expected firm payoffs, all consistent with the rational optimizing behavior of the agent for each of his types. The resolution of these indeterminacies depends on the tie-breaking mechanism which emerges in the market. Because each tie-breaking mechanism induces a particular game over catalogs, a reasonable candidate would be a tie-breaking mechanism which supports a Nash equilibrium in the corresponding catalog game. We call such a mechanism an endogenous Nash mechanism. The fundamental question we address in this paper is, does there exist an endogenous Nash mechanism - and therefore, does there exist a Nash equilibrium for the catalog game? We show under fairly mild conditions on primitives that catalog games naturally possess tie-breaking mechanisms which support Nash equilibria.
    Keywords: common agency with adverse selection, endogenous contracting mechanisms, discontinuous games, catalog games, existence of Nash equilibrium, competitive contracting
    JEL: C6 C7 D4
    Date: 2007–11
  5. By: DAKHLAOUI Ahlem;
    Date: 2007–11
  6. By: Celeste Amorim Varum (Universidade de Aveiro); Leonildo Monteiro (Universidade de Aveiro)
    Abstract: Product innovation is a subtle process, frequently leading to shifts in the competitiveness of firms. Developing products in an environment undergoing technological change is given to frequent failure, even in well-established and sophisticated organizations. In order to tackle competitiveness and to deal with innovation uncertainty, firms develop diverse innovation processes. Two modes of innovation are suggested in recent literature: 1) Science, Technology and Innovation (STI) mode, which is based on the production and use of codified scientific and technical knowledge; and 2) Doing, Using and Interacting (DUI) mode, which relies on informal processes of learning and experience-based know-how. In this paper we analyse product innovation at firm level. We perform an exploratory analysis in four leading equipment and machinery producers from the Aveiro region, in Portugal. Doing so, we explore the main features of the capital goods’ industry with implications for innovation, and analyse the dominant uncertainties associated to the innovation process. and modes of innovation. Key findings include the complete absence of DUI mode in the cases studied, and even a low learning characteristic in one company. The paper concludes by considering the implications for firms’ competitiveness and for innovation policy.
    Keywords: modes of innovation, uncertainties, R&D, capital goods, SME
    JEL: O32 L6
    Date: 2007–11
  7. By: Gabriele K. Lünser (University College London); Jean-Robert Tyran (Department of Economics, University of Copenhagen)
    Abstract: Arguing that consumers are the carriers of firms’ reputations, we examine the role of consumer networks for trust in markets that suffer from moral hazard. When consumers are embedded in a network, they can exchange information with their neighbours about their private experiences with different sellers. We find that such information exchange fosters firms' incentives for reputation building and, thus, enhances trust and efficiency in markets. This efficiency-enhancing effect is already achieved with a rather low level of network density.
    Keywords: trust; consumer networks; moral hazard; information conditions; reputation
    JEL: C72 C92 D40 L14
    Date: 2007–11
  8. By: Yann Bramoullé; John A. List; Michael K. Price
    Abstract: This study explores the formation of buyer-seller relationships in markets with observable quality. We develop a model that explains why relationships form in equilibrium within such markets. A key feature of our model is that as individuals gain experience in the marketplace, they resolve uncertainty over unobserved bargainer types. Relationships thus form as a means to reduce such transactions costs and uncertainty. We explore the usefulness of our theory by using a battery of simulations and experimental treatments. Overall, we find that our theoretical predictions are largely confirmed. Interestingly, the quantitative impact of relationships on overall market efficiency depends critically on the extend to which market structure affects the matching of buyers and sellers that could profitably transact. In certain important cases, a greater number of buyer-seller relationships can reduce market efficiency.
    Keywords: Field experiments, pricing, market structure
    JEL: C93 D4
    Date: 2007
  9. By: Kasuga, Norihro; Manabu, Shishikura; Masanori, Kondo
    Abstract: In this paper, we undertake an empirical analysis of the current Japanese pay-TV market, where cable TV carriers and CS digital satellite carriers are the main players. After examining the factors for subscribing to pay-TV and the competitive situation in the market, we have the following findings; (1) Cable TV carriers promote high value-added service provision, such as bundling internet access, and these activities result in competitive superiority over CS carriers. (2) Cable TV carriers receiving bigger investment from local governments tend to gain higher rates of subscription, although they provide smaller numbers of channels with a low charge. (3) The number of terrestrial broadcasting channels which are transmitted via pay-TV carriers can have a large impact on competitive advantage when getting subscribers in the pay-TV market.
    Keywords: Platform Competition; Cable Television; Communication Satellite; Pay-TV; subscriber penetration; high-value added service
    JEL: L82 R22 L51
    Date: 2007–11–10

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