nep-mic New Economics Papers
on Microeconomics
Issue of 2008‒01‒12
eleven papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Active firms in horizontal mergers and cartel stability By Emilie Dargaud
  2. Nonparametric Estimation of the Costs of Non-Sequential Search By Jose Luis Moraga-Gonzalez; Zsolt Sandor; Matthijs R. Wildenbeest
  3. Competitive Equilibrium and Reputation under Imperfect Public Monitoring By Bernardita Vial
  4. Unbundling and Incumbent Investment in Quality Upgrades and Cost Reduction By Vareda, João
  5. Access Regulation under Asymmetric Information about Demand By Vareda, João
  6. Driving Forces for Research and Development Strategies : An Empirical Analysis Based on Firm-level Panel Data By Martin Woerter
  7. Public Servants: a Competitive Advantage for Public Firms? By FRIEBEL, Guido; MAGNAC, Thierry
  8. The race for telecoms infrastructure investment with bypass: Can access regulation achieve the ?rst best? By Vareda, João; Hoernig, Steffen
  9. Credit Constraints as a Barrier to the Entry and Post-Entry Growth of Firms By Philippe Aghion; Thibault Fally; Stefano Scarpetta
  10. Policy games, policy neutrality and Tinbergen controllability under rational expectations By Di Bartolomeo Giovanni; Hughes Hallett Andrew; Acocella Nicola
  11. Existence of Nash Networks in One-Way Flow Models By Pascal Billand; Christophe Bravard; Sudipta Sarangi

  1. By: Emilie Dargaud (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)
    Abstract: In this paper, we study the optimal number of active firms in a<br />coalition and in a merger. We consider two kinds of game : a merger game<br />and a coalition game, both in the context of price competition with horizontal<br />product differentiation. These are two-stage games. The first stage consists<br />of determining the number of active firms; the second stage is price competition<br />between active firms. Firms belonging to the same owner or to the<br />same coalition play cooperatively between themselves but face competition<br />between other firms.<br />We show that when there is no competitive pressure (i.e. no outside firm)<br />then only merged equilibria can occur in the merger case. In the coalition<br />case we obtain a similar result in which the number of active firms in the<br />second stage is less than the initial number of firms.<br />Moreover we show that if competitive pressure is high enough then the<br />initial number of firms in the industry is the same as the number of active<br />firms in the last stage for each kind of game.
    Keywords: Mergers ; Coalitions ; Product differentiation
    Date: 2007
  2. By: Jose Luis Moraga-Gonzalez (University of Groningen and CESifo); Zsolt Sandor (Universidad Carlos III de Madrid); Matthijs R. Wildenbeest (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: We study a consumer non-sequential search oligopoly model with search cost heterogeneity. We first prove that an equilibrium in mixed strategies always exists. We then examine the nonparametric identification and estimation of the costs of search. We find that the sequence of points on the support of the search cost distribution that can be identified is convergent to zero as the number of firms increases. As a result, when the econometrician has price data from only one market, the search cost distribution cannot be identified accurately at quantiles other than the lowest. To solve this pitfall, we propose to consider a richer framework where the researcher has price data from many markets with the same underlying search cost distribution. We provide conditions under which pooling the data allows for the identification of the search cost distribution at all the points of its support. We estimate the search cost density function directly by a semi-nonparametric density estimator whose parameters are chosen to maximize the joint likelihood corresponding to all the markets. A Monte Carlo study shows the advantages of the new approach and an application using a data set of online prices for memory chips is presented.
    Keywords: consumer search, oligopoly, search costs, semi-nonparametric estimation
    JEL: C14 D43 D83 L13
    Date: 2007–12
  3. By: Bernardita Vial (Instituto de Economía. Pontificia Universidad Católica de Chile.)
    Abstract: In this paper we analyze a reputation-based mechanism that sustains the provision of high quality in a market for an experience good. In contrast to existing models of reputation, however, we consider a competitive market: there is a continuum of firms, each serving at most one consumer each period. We assume a perpetual probability of type replacement and imperfect public monitoring, and we analyze the evolution of firms' reputations in the high quality equilibrium. We find that there is an invariant long run distribution of firms' reputations: each firm's reputation changes every period even in the long run, but the population distribution of reputations remains constant. We consider the long run distribution of firms' reputations to further characterize the steady-state high quality equilibrium. In the equilibrium of the stage game firms with a higher reputation charge a higher price. Furthermore, we show that if the cost of high quality is decreasing in some consumer's characteristic, then buyers pay personalized prices in equilibrium.
    Keywords: reputation, incomplete information, perfect competition, general equilibrium
    JEL: C70 D80
    Date: 2008
  4. By: Vareda, João
    Abstract: We study the investment of a telecommunications incumbent in quality and in cost reduction when an entrant can use its network through unbundling of the local loop. We ?nd that unbundling may lower incentives for quality improvements, but raises incentives for cost reduction. Therefore, it is not true that all types of investment are crowded out with unbundling. If the regulator can commit to a socially optimal unbundling price before investment, the incumbent makes both types of investment. In the absence of commitment, the incumbent will not invest, so that unbundling regulation may lower welfare as compared to no regulation.
    Date: 2007
  5. By: Vareda, João
    Abstract: We study the impact of access regulation in a telecommunications market on an entrant's decision whether to invest in a network or ask for access when the regulator cannot observe its potential demand. Since the entrant has incentives to not compete vigorously right after entry in order to convince the regulator that it needs cheap access in the future, the regulator must set access prices which tend to be distorted (lower or higher) as compared to ?rst best. Still, this is better than committing to ignore ex post demand information. Consulting the entrant earlier about its expectations improves welfare and may help to achieve the first best.
    Date: 2007
  6. By: Martin Woerter (KOF Swiss Economic Institute, ETH Zurich)
    Abstract: This paper investigates empirically different ways to organise R&D within Swiss firms. Based on a longitudinal data set comprising three cross sections (1999, 2002, and 2005) of the Swiss innovation survey, four different types of R&D strategies could have been separated; firms combine in-house R&D with R&D co-operations (coop), or in-house R&D with external R&D (buy), or they conduct in-house R&D, external R&D and R&D co-operations (mixed), or they exclusively rely on in-house R&D (make). It is the aim of this paper to understand what drives firms to go for different strategies. Based on econometric estimations controlling for correlations between the dependent variables and endogeneity among the independent variables it was found that concepts related to the absorptive capacity, incoming spillovers and appropriability, the importance of different knowledge resources, the competitive environment, costs and skill aspects as well as technological uncertainty are essential factors to determine firm’s decision to choose a specific way to organise R&D.
    Keywords: Research and Development, R&D Co-operations, Empirical Analysis (Firm Panel), R&D Strategies
    JEL: O30
    Date: 2007–12
  7. By: FRIEBEL, Guido; MAGNAC, Thierry
    Date: 2007–03
  8. By: Vareda, João; Hoernig, Steffen
    Abstract: We analyze the impact of mandatory access on the infrastructure investments of two competing communications networks, and show that for low (high) access charges ?rms wait (preempt each other). Contrary to previous results, under preemption a higher access charge can delay ?rst investment. While ?rst-best investment cannot be achieved with a ?xed access tari¤, simple instruments such as banning access in the future, or granting access holidays right after investment, can improve e¢ ciency. The former forces investment when it would happen too late, while the latter allows for lower access charges in order to delay the second investment when it would happen too early.
    Date: 2007
  9. By: Philippe Aghion (Harvard University); Thibault Fally (Paris-Jourdan Sciences Economiques); Stefano Scarpetta (OECD and IZA)
    Abstract: Advanced market economies are characterized by a continuous process of creative destruction. Market forces and technological developments play a major role in shaping this process, but institutional and policy settings also influence firms’ decision to enter, to expand if successful and to exit if competition becomes unbearable. In this paper, we focus on the effects of financial development on the entry of new firms and the expansion of successful new businesses. Drawing from harmonized firm-level data for 16 industrialized and emerging economies, we find that access to finance matters most for the entry of small firms and in sectors that are more dependent upon external finance. This finding is robust to controlling for other potential entry barriers (labor market regulations and entry regulations). On the other hand, financial development has either no effect or a negative effect on entry by large firms. Access to finance also helps new firms expand if successful. Both private credit and stock market capitalization are important for promoting entry and post entry growth of firms. Altogether, these results suggest that, despite significant progress over the past decade, many countries, including those in Continental Europe, should improve their financial markets so as to get the most out of creative destruction, by encouraging the entry of new (especially small) firms and the post-entry growth of successful young businesses.
    Keywords: financial development, entry, post-entry growth, firm size, micro data
    JEL: D21 D92 L11 G32
    Date: 2007–12
  10. By: Di Bartolomeo Giovanni; Hughes Hallett Andrew; Acocella Nicola
    Abstract: This paper shows the relationship between static controllability (the well-known Tinbergen golden rule), and the existence and other properties of the Nash equilibrium in a dynamic setting with rational expectations for future behavior. We show how to determine the existence of equilibrium outcomes; the conditions under which no equilibrium exists; and who will get to dominate (or who will find their policies to have become ineffective) in those equilibria, without having to compute and enumerate all the possible equilibria directly.
    Keywords: Policy games, policy effectiveness, controllability, Nash equilibrium existence, rational expectations
    JEL: C72 E52 E61
    Date: 2008–01
  11. By: Pascal Billand; Christophe Bravard; Sudipta Sarangi
    Abstract: This paper addresses the existence of Nash equilibria in one-way flow or directed network models in a number of different settings. In these models players form costly links with other players and obtain resources from them through the directed path connecting them. We find that heterogeneity in the costs of establishing links play a crucial role in the existence of Nash networks. We also provide conditions for the existence of Nash networks in models where costs and values of links are heterogeneous.
    Keywords: Network Formation, Non-cooperative Games
    JEL: C72 D85
    Date: 2007

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