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on Microeconomics |
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Issue of 2007‒12‒19
twelve papers chosen by Joao Carlos Correia Leitao University of the Beira Interior |
| By: | Felix Höffler; Sebastian Kranz |
| Abstract: | We study an industry in which an upstream monopolist supplies an essential input at a regulated price to several downstream firms. Legal unbundling means that a downstream firm owns the upstream firm but this upstream firm is legally independent and maximizes its own upstream profits. We allow for non-tariff discrimination by the upstream firm and show that under quite general conditions legal unbundling yields (weakly) higher quantities in the downstream market than vertical separation and integration. Therefore, typically consumer surplus will be largest under legal unbundling. Outcomes under legal unbundling are still advantageous when we allow for discriminatory capacity investments, investments into marginal cost reduction and investments into network reliability. If access prices are unregulated, however, legal unbundling may be quite undesirable. |
| Keywords: | Network industries, regulation, vertical relations, investments, ownership, sabotage |
| JEL: | D2 D4 L1 L42 L43 L51 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse15_2007&r=mic |
| By: | Simon Loertscher; Andras Niedermayer |
| Abstract: | Mechanisms where sellers set the price and are charged a linear commission fee are widely used by real world intermediaries, e.g. by real estate brokers. Empirically these commission fees exhibit very little variance, both across heterogeneous regional markets and over time. So far, there is no theoretical explanation why such seller price setting mechanisms are used and why the linear fees vary so little. In this paper, we first show that in a Bayesian setup seller price setting with linear fees is revenue equivalent to the intermediary optimal direct mechanism derived by Myerson and Satterthwaite (1983) if and only if the seller’s cost is drawn from a generalized power distribution. Whenever such a mechanism is optimal, the fee structure is independent of the distribution from which the buyer’s valuation is drawn. Second, we derive the intermediary optimal direct mechanism when there are many buyers and possibly many sellers and we show that with one seller any standard auction with linear fees and reserve price setting by the seller (which are used e.g. by eBay) implements this mechanism if the seller’s cost is drawn from a power distribution and if buyers’ valuations are identically distributed. Third, we show that when the number of buyers approaches infinity while there is still one seller, seller price setting and price setting by the intermediary are equivalent, intermediary optimal mechanisms. |
| Keywords: | Brokers; linear commission fees; optimal indirect mechanisms |
| JEL: | C72 C78 L13 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp0706&r=mic |
| By: | Felix Höffler; Sebastian Kranz |
| Abstract: | We study an industry with a monopolistic bottleneck (e.g. a transmission network) supplying an essential input to several downstream firms. Under legal unbundling the bottleneck must be operated by a legally independent upstream firm, which may be partly or fully owned by an incumbent active in downstream markets. Access prices are regulated but the upstream firm can perform non-tariff discrimination. Under perfect legal unbundling the upstream firm maximizes only own profits; with imperfections it considers to some extend also the profits of its downstream mother. We find that reducing imperfections in legal unbundling (keeping ownership fixed) generally increases total output. Increasing the incumbent's ownership share increases total output if imperfections are sufficiently small, otherwise the effects are ambiguous. Surprisingly, higher ownership shares of the downstream incumbent may sometimes lead to lower degrees of imperfections. Our analysis suggests that consumers may benefit most from legal unbundling with strong regulation and parts of ownership given to a minority outside shareholder. |
| Keywords: | Network industries, regulation, vertical relations, ownership, corruption, sabotage |
| JEL: | D2 D4 L1 L42 L43 L51 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse16_2007&r=mic |
| By: | Ghosh, Arghya (School of Economics, Australian School of Business at the University of New South Wales); Kato, Takao (Department of Economics, Colgate University); Morita, Hodaka (School of Economics, Australian School of Business at the University of New South Wales) |
| Abstract: | Does competitive pressure foster innovation? In addressing this important question, prior studies ignored a distinction between discrete innovation aiming at entirely new technology and continuous improvement consisting of numerous incremental improvements and modifications made upon the existing technology. This paper shows that distinguishing between these two types of innovation will lead to a much richer understanding of the interplay between firm incentives to innovate and competitive pressure. In particular, our model predicts that, in contrast to previous theoretical findings, an increase in competitive pressure measured by product substitutability may decrease firms' incentives to conduct continuous improvement, and that an increase in the size of discrete innovation may decrease firms' incentives to conduct continuous improvement. A unique feature of this paper is its exploration of the model's real-world relevance and usefulness through field research. Motivated by recent declines in levels of continuous improvement in Japanese manufacturing, we conducted extensive field research at two Japanese manufacturing firms. After presenting our findings, we demonstrate that our model guides us to focus on several key changes taking place at these two firms; discover their interconnectedness; and finally ascertain powerful underlying forces behind each firm’s decision to weaken its investment in traditional continuous improvement activities. |
| Keywords: | Competitive Pressure, Continuous Improvement, Discrete Innovation, Field Research, Location Model, Product Substitutability, Small Group Activities, Technical Progress |
| JEL: | L10 L60 M50 O30 |
| Date: | 2006–12–08 |
| URL: | http://d.repec.org/n?u=RePEc:cgt:wpaper:104-27&r=mic |
| By: | Fabrizi, Simona; Lippert, Steffen; Norback, Pehr-Johan; Persson, Lars |
| Abstract: | This paper constructs a model where entrepreneurial innovations are sold into oligopolistic industries and where adverse selection problems between entrepreneurs, venture capitalists and incumbents are present. We first show that aggressive development of a basic innovation by better informed venture-backed firms is used as a signaling device to enhance the sale price of the innovation. We then show that incumbents can undertake early, preemptive, acquisitions to prevent such signaling driven overinvestment, despite the risk of buying a non-productive innovation. Therefore, to exist in equilibrium, venture capitalists must be sufficiently more efficient in selecting innovation projects, otherwise preemptive acquisitions will take place. |
| Keywords: | venture-backed firm; innovation; signaling; overinvestment; interim development; M&A |
| JEL: | D21 L2 C7 D82 M13 G24 O3 |
| Date: | 2007–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:6265&r=mic |
| By: | Boris Lokshin; Pierre Mohnen |
| Abstract: | This paper examines the impact of the Dutch R&D fiscal incentive program, known as WBSO, on R&D capital formation. Taking a factor-demand approach we measure the elasticity of firm R&D capital accumulation to its user cost. An econometric model is estimated using a rich unbalanced panel covering the period 1996-2004 with firm-specific R&D user costs varying with tax incentives. Using the estimated user cost elasticity, we examine the impact of the R&D incentive program. We find evidence that the program of R&D incentives in the Netherlands has been effective in reducing the user cost of R&D and in stimulating firms’ investment in R&D. <P>Cette étude analyse l’effet du programme d’incitations fiscales à la recherche aux Pays-Bas, connu sous le nom de WBSO, sur la formation du capital de recherche. À partir d’une approche de demande de facteurs de production, nous mesurons l’élasticité du stock de capital de recherche au coût d’usage de la recherche. L’estimation économétrique se base sur un panel d’entreprises non-cylindré, couvrant la période 1996-2004, avec des coûts d’usage de la recherche variables. Nous trouvons que les incitations fiscales à la recherche ont effectivement baissé le coût d’usage de la recherche et ainsi stimulé les investissements en recherche et développement aux Pays-Bas. |
| Keywords: | R&D tax credits; panel data; crowding out; user-cost elasticity., crédit d’impôt à la recherche, données panel, coût d’usage à la recherche, crowding-out. |
| JEL: | O32 O38 H25 H50 C23 |
| Date: | 2007–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2007s-29&r=mic |
| By: | Jose Apesteguia (Universitat Pompeu Fabra); Steffen Huck (University College London, Department of Economics); Jörg Oechssler (University of Heidelberg, Department of Economics); Simon Weidenholzer (University of Vienna, Department of Economics) |
| Abstract: | A well-known result by Vega-Redondo implies that in symmetric Cournot oligopoly, imitation leads to the Walrasian outcome where price equals marginal cost. In this paper we show that this result is not robust to the slightest asymmetry in fixed costs. Instead of obtaining the Walrasian outcome as unique prediction, every outcome where agents choose identical actions will be played some fraction of the time in the long run. We then conduct experiments to check this fragility. We obtain that, contrary to the theoretical prediction, the Walrasian outcome is still a good predictor of behavior. |
| Keywords: | Evolutionary game theory; Stochastic stability; Imita- tion; Cournot markets; Information; Experiments; Simulations |
| JEL: | C72 C91 C92 D43 L13 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0461&r=mic |
| By: | Hakenes, Hendrik; Peitz, Martin |
| Abstract: | In a market environment with random detection of product quality, a firm can employ umbrella branding as a strategy to convince consumers of the high quality of its products. Alternatively, a firm can rely on external certification of the quality of one or both of its products. We characterize equilibria in which umbrella branding fully or partially substitutes for external certification. We also show that the potential to signal quality is improved if consumers condition their beliefs on the source of information, namely whether information comes from external certification or from random detection. |
| Keywords: | certification; signalling; umbrella branding |
| JEL: | D82 L14 L15 M37 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6601&r=mic |
| By: | Isabel Maria Medalho Pereira |
| Abstract: | I analyze, in the context of business and science research collaboration, how the characteristics of partnership agreements are the result of an optimal contract between partners. The final outcome depends on the structure governing the partnership, and on the informational problems towards the efforts involved. The positive effect that the effort of each party has on the success of the other party, makes collaboration a preferred solution. Divergence in research goals may, however, create conflicts between partners. This paper shows how two different structures of partnership governance (a centralized, and a decentralized ones) may optimally use the type of project to motivate the supply of non-contractible efforts. Decentralized structure, however, always choose a project closer to its own preferences. Incentives may also come from monetary transfers, either from partners sharing each other benefits, or from public funds. I derive conditions under which public interventio |
| Keywords: | collaboration, basic research, applied research, project, firms, universities, partnership governance |
| JEL: | L21 L24 L31 L33 O31 O32 |
| Date: | 2007–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:721.07&r=mic |
| By: | Andras Niedermayer |
| Abstract: | We consider a firm A initially owning a software platform (e.g. operating system) and an application for this platform. The specific knowledge of another firm B is needed to make the platform successful by creating a further application. When B’s application is completed, A has incentives to expropriate the rents. Netscape claimed e.g. that this was the case with its browser running on MS Windows. We will argue that open sourcing or standardizing the platform is a warranty for B against expropriation of rents. The different pieces of software are considered as assets in the sense of the property rights literature (see Hart and Moore (Journal of Political Economy, 1990)). Two cases of joint ownership are considered beyond the standard cases of integration and non-integration: platform standardization (both parties can veto changes) and open source (no veto rights). In line with the literature, the more important a party’s specific investments the more rights it should have. In contrast to Hart and Moore, however, joint ownership can be optimal in our setting. Open source is optimal if investments in the applications are more important than in the platform. The results are driven by the fact that in our model firms invest in physical (and not in human) capital and that there is non-rivalry in consumption for software. |
| Keywords: | Platforms; open source; standardization; incomplete contracts; property rights; joint ownership |
| JEL: | C70 D23 L13 L22 L86 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp0707&r=mic |
| By: | Damian S. Damianov (University of Texas-Pan American); Jörg Oechssler (University of Heidelberg, Department of Economics); Johannes Gerd Becker (ETH Zürich, Department of Economics) |
| Abstract: | In the variable supply auction considered here, the seller decides how many costumers with unit demand to serve after observing their bids. Bidders are uncertain about the seller's cost. We experimentally investigate whether a uniform or a discriminatory price auction is better for the seller in this setting. Exactly as predicted by theory, it turns out that the uniform price auction produces substantially higher bids, and consequently yields higher revenues and profits for the seller. Somewhat surprisingly but again predicted by theory, it also yields a higher number of transactions, which makes it the more efficient auction format. |
| Keywords: | auctions, experiment, discriminatory, uniform |
| JEL: | D44 C92 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0460&r=mic |
| By: | Andersson, Henrik (VTI); Ögren, Mikael (VTI) |
| Abstract: | One way of mitigating the negative effects of noise from road traffic is to include the external cost of noise in a road charging system. This study shows how standardized calculation methods for road traffic noise can be used together with monetary estimates of the social cost of noise exposure to calculate charges based on the social marginal cost. Using Swedish data on traffic volume and individuals exposed to road noise, together with official Swedish monetary values for noise exposure, we estimate road-noise charges for light (cars) and heavy (trucks) vehicles. |
| Keywords: | Externalities; Marginal Cost; Noise; Road Traffic |
| JEL: | D62 Q51 R41 |
| Date: | 2007–12–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:vtiwps:2007_015&r=mic |