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on Microeconomics |
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Issue of 2008‒01‒19
fifteen papers chosen by Joao Carlos Correia Leitao University of the Beira Interior |
| By: | Bouckaert, J.M.C.; Degryse, H.A.; Dijk, T. van (Tilburg University, Center for Economic Research) |
| Abstract: | Competition authorities and regulatory agencies sometimes impose pricing restrictions on firms with substantial market power ? the ?dominant? firms. We analyze the welfare effects of a ban on behaviour-based price discrimination in a two-period setting where the market displays a competitive and a sheltered segment. A ban on ?higher-prices-to-shelteredconsumers? decreases prices in the sheltered segment, relaxes competition in the competitive segment, increases the rival?s profits, and may harm the dominant firm?s profits. We show that a ban on ?higher-prices-to-sheltered-consumers? increases the dominant firm?s share of the first-period market. A ban on ?lower-prices-to-rival?s-customers? decreases prices in the competitive segment, lowers the rival?s profits, and augments the consumer surplus. In particular, while second-period competition is relaxed by a ban on ?lower-prices-to-rival?scustomers?, first-period competition is intensified substantially, which leads to lower prices ?on-average? over the two periods. Our findings indicate that a dynamic two-period analysis may lead to conclusions opposite to those drawn from a static one-period analysis. |
| Keywords: | dominant firms;price discrimination;competition policy;regulation. |
| JEL: | D11 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:20083&r=mic |
| By: | Bonroy, O.; Constantatos, C. |
| Abstract: | We analyze credence goods markets in the case of two firms. Consumers know that the quality of the good varies but do not know which firm is of high quality. First, we show that the high quality producer may be unable to monopolize the market, or even to survive in some cases, in situations where it is efficient and trusted by all consumers. Second, although a label restoring full information improves welfare, it may also reduce both firms? profits by intensifying competition. Since even the high quality producer may not wish to label its product, in such cases the label must be mandatory. Third, an imperfect label which moves everybody?s beliefs closer to the truth without restoring full information may produce adverse results on market structure and welfare, either by increasing or by reducing the variance of beliefs. |
| Keywords: | CREDENCE GOODS;INCOMPLETE INFORMATION;QUALITY;LABEL;DIFFERENTIATION |
| JEL: | D82 L15 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:gbl:wpaper:200709&r=mic |
| By: | Bruce Lyons (School of Economics and Centre for Competition Policy, University of East Anglia) |
| Abstract: | Monopoly pricing is a textbook market failure that is taught in the first year of any economics course. The implied welfare loss (or ‘exploitative abuse’) justifies a whole range of competition policy towards cartels, mergers and regulated industries. Yet there is widespread hostility to prosecuting the same exploitative abuse in the textbook monopoly case (i.e. under Article 82EC)! This paper seeks to understand this paradox. I conclude that, while there are important problems with prosecuting Article 82 exploitation cases (because of problems relating to measurement, market dynamics, multi-sided markets and remedy issues), it is important to keep open the possibility of prosecution; for example, in the forthcoming Article 82 Guidelines. |
| Keywords: | exclusionary abuse, exploitative abuse, monopoly pricing, welfare loss |
| JEL: | D42 I38 L41 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:ccp:wpaper:wp08-01&r=mic |
| By: | Wilfred Dolfsma; Gerben van der Panne |
| Abstract: | In this paper we investigate which elements in both an industry’s structure and in an industry’s dynamics affect innovativeness. We use the most appropriate measure for innovativeness –new product announcements- to find specifically that dominance of large firms consistently affect industry innovativeness negatively. Other industry structure characteristics are surprisingly consistent across different model specifications. Our findings for indicators of industry dynamics are noteworthy for instance as they contrast with the ILC predication that firm entry will boost innovativeness. |
| Keywords: | Innovation, small vs large firms, industry structure, industry dynamics, Industry Life Cycle |
| JEL: | L1 O1 O3 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0730&r=mic |
| By: | Christoph Grimpe (Centre for European Economic Research (ZEW), Mannheim); Ulrich Kaiser (University of Southern Denmark) |
| Abstract: | Determining the research and development (R&D) boundaries of the firm as the choice between internal, collaborative and external technology acquisition has since long been a major challenge for firms to secure a continuous stream of innovative products or processes. While research on R&D cooperation or strategic alliances is abundant, little is known about the outsourcing of R&D activities to contract research organizations and its implications for innovation performance. This paper investigates the driving forces of external technology sourcing through contract research based on arguments from transaction cost theory and the resource-based view of the firm. Using a large and comprehensive data set of innovating firms from Germany our findings suggest that technological uncertainty, contractual experience and openness to external knowledge sources motivate the choice for engaging in contract research activities. Moreover, we show that internal and external R&D sourcing are complements: the marginal contribution of internal (external) R&D is the larger the more firms spend on external (internal) R&D. |
| Keywords: | contract research, innovation; transaction cost theory; firm capabilities |
| JEL: | O32 C24 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuieci:2008-01&r=mic |
| By: | Hege, Ulrich; Hennessy, Christopher |
| Abstract: | In this paper, the authors analyze optimal financial structure for an incumbent and potential entrant accounting for feedback effects in secondary asset markets. |
| Keywords: | Financial Flexibility; Market Entry; Acquisition; Exit Values; Predation; Financial Contracting; Product Market Competition |
| JEL: | G32 G34 |
| Date: | 2007–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:0878&r=mic |
| By: | Uwe Cantner (Friedrich Schiller Universität Jena); Kristin Joel (Friedrich Schiller Universität Jena); Tobias Schmidt (Deutsche Bundesbank, Economic Research Centre) |
| Abstract: | In this paper we investigate factors that influence a firm's decision to implement knowledge management practices. Our focus is on knowledge management practices implemented to increase collaboration between actors within a firm on innovation activities. Using information on over 1,500 innovative German firms from the Mannheim Innovationpanel of 2003, we find that an innovation strategy targeted at consumers and continuous R+D activities is positively related to KM usage. In addition, more general firm characteristics like size and the industry of a firm do influence the decision to use knowledge management as well. |
| Keywords: | knowledge management, innovation, Mannheim Innovation Panel |
| JEL: | D23 O31 O32 |
| Date: | 2008–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2008-002&r=mic |
| By: | Nadine Chlaß (Max Planck Institute of Economics, Jena, Germany); Werner Güth (Max Planck Institute of Economics, Jena, Germany.) |
| Abstract: | Theoretically and experimentally, we generalize the analysis of acquiring a company (Samuelson and Bazerman 1985) by allowing for competition of both, buyers and sellers. Naivety of both is related to the idea that higher prices exclude worse qualities. While competition of naive buyers increases prices, competition of naive sellers promotes effciency enhancing trade. Our predictions are tested experimentally. |
| Keywords: | incomplete information, common value auction, experiment |
| JEL: | D01 D42 D43 D44 D61 D82 L13 L15 |
| Date: | 2007–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-105&r=mic |
| By: | Jacob Bikker; Janko Gorter |
| Abstract: | This paper investigates competition in the Dutch non-life insurance industry indirectly by measuring scale economies and X-inefficiency, assuming that strong competition would force insurance firms to exploit unused scale economies and to push down inefficiencies. We observe substantial economies of scale (on average 11%) that are larger for smaller firms. Despite considerable consolidation in the industry over the last decade, scale economies have increased, as the optimal scale has outgrown the actual one. Comparing estimates across aggregation levels, we find that scale economies are smaller for groups and lines of business than they are for firms. Besides scale, focus and organizational form are important cost determinants as well: generally, specialized insurers have lower costs and face greater economies of scale. Estimates of thick frontier efficiency point to huge cost differences across firms and within lines of business.Overall, our results suggest that there is a lack of competitive pressure in the Dutch non-life insurance industry. |
| Keywords: | Non-life insurance; economies of scale; market structure; concentration; competition; X-efficiency; total cost function; aggregation: insurance groups; firms and lines of business; |
| JEL: | D4 D61 G22 L1 |
| Date: | 2008–01 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:164&r=mic |
| By: | Jacob A. Bikker; Laura Spierdijk; Paul Finnie |
| Abstract: | Using a measure of competition based on the Panzar-Rosse model, this paper explains bank competition across 76 countries on the basis of various determinants. Studies explaining banking competition are rare and typically insuffciently robust as they are based on a limited number of countries only. Traditionally, market structure indicators, such as the number of banks and banking concentration, have been considered the major determinants of competition in the banking sector. However, we find that these variables have no significant impact on market power. Instead, we show that a country's institutional framework is a key factor in explaining banking competition. Extensive regulation, particularly antitrust policies, improves the competitive environment. The foreign investment climate, a proxy of contestability, also plays an important role. The fewer restrictions on foreign investments exist, the more competitive the banking sector becomes. In addition, activity restrictions make large banks less competitive and collusion markups are procyclical. Finally, competition is substantially weaker in countries with a socialist past, such as Central- and Eastern Europe. |
| Keywords: | banking competition, market structure, concentration, contestability, interindustry competition |
| JEL: | D4 G21 L11 L13 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:0729&r=mic |
| By: | Guido Cozzi; Silvia Galli |
| Abstract: | Brilliant ideas are key to economic growth. They often emerge from scienti c discoveries with no immediate commercial value so rewards may not be aligned to e¤ort. Should basic research be publicly or privately funded? And, to foster innovation and growth, what kinds of discovery should be protected? Post 1980, the US intellectual property institutions facilitated the patentability of basic research. The European and other patenting regimes are slowly changing in the same direction, also encouraged by TRIPs. Did the US choose the better path? We build a Schumpeterian model to re-assess this important turning point. |
| Keywords: | R&D and Growth, Sequential Innovation, Research Tools, Patent Laws, Kremer Mechanism |
| JEL: | O31 O34 O41 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2008_01&r=mic |
| By: | Dalton, Patricio (Department of Economics, University of Warwick); Ghosal, Sayantan (Department of Economics, University of Warwick) |
| Abstract: | We study decision problems where (a) preference parameters are defined to include psychological/moral considerations and (b) there is a feedback effect from chosen actions to preference parameters. In a standard decision problem the chosen action is required to be optimal when the feedback effect from actions to preference parameters is fully taken into account. In a behavioural decision problem the chosen action is optimal taking preference parameters as given although chosen actions and preference parameters are required to be mutually consistent. Our framework unifes seemingly disconnected papers in the literature. We characterize the conditions under which behavioural and standard decisions problems are indistinguishable : in smooth settings, the two decision problems are generically distinguishable. We show that in general, revealed preferences cannot be used for making welfare judgements and we characterize the conditions under which they can inform welfare analysis. We provide an existence result for the case of incomplete preferences. We suggest novel implications for policy and welfare analysis. |
| Keywords: | Decisions ; psychology ; indistinguishability ; revealed preferences ; welfare ; existence ; aspirations |
| JEL: | D01 D62 C61 I30 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:834&r=mic |
| By: | Max Keilbach (Max Planck Institute of Economics, Jena); Mark Sanders (Utrecht School of Economics) |
| Abstract: | We formulate a model that explicitly separates two functions in the innovation process: The introduction of new goods and the quality improvement of existing goods. While the latter is performed by the corporate R+D sector, the first is performed by entrepreneurs. We show that in a three sector economy, which also includes a producing sector, there exists a stable non trivial allocation of labor to production, innovation and entrepreneurship. We compute the steady state allocation of labor to production, R+D and Entrepreneurship. We show that the innovation rate decreases if one of the innovative sectors does not exist. |
| Keywords: | Innovation, Variety Expansion, Quality Ladders, Entrepreneurship, R+D Sector. |
| JEL: | O31 O41 |
| Date: | 2007–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2007-108&r=mic |
| By: | Rajneesh Narula (Department of Economics, University of Reading Business School); Grazia D. Santangelo (Facoltà di Scienze Politiche, Università degli Studi di Catania) |
| Abstract: | This paper shows empirically that in an intra-industry oligopolistic scenario the location of a firm’s innovative activities plays an important role in determining its partner selection in R&D alliances. Such a role is mainly attributed to a strategic use of R&D alliances as a means to limit knowledge flows and protect competences, rather than to promote knowledge flows. By drawing on a novel dataset matching alliances and patent data for the European ICT industry, the econometric analysis shows that partners’ prior co-location (at both national and sub-national regional level), previous ties and technological overlap matter in the choice of partner, while common nationality has a negative impact on alliance formation. |
| Keywords: | Alliances, R&D location, strategy, co-location, knowledge flows |
| JEL: | D23 F23 O18 O32 R3 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:rdg:wpaper:em-dp2007-43&r=mic |
| By: | Ferrari, S.; Verboven, F.L.; Degryse, H.A. (Tilburg University, Center for Economic Research) |
| Abstract: | When new technologies become available, it is not only essential that firms have the correct investment incentives, but often also that consumers make the proper usage decisions. This paper studies investment and usage in a shared ATM network. Be- cause all banks coordinate their ATM investment decisions, there is no strategic but only a pure cost-saving incentive to invest. At the same time, because retail fees for cash withdrawals are regulated to zero at both branches and ATMs, consumers may not have the proper incentives to substitute their transactions from branches to the available ATMs. We develop an empirical model of coordinated investment and cash withdrawal demand, where banks choose the number of ATMs and consumers decide whether to withdraw cash at ATMs or branches. We find that banks substantially underinvested in the shared ATM network and thus provided too little geographic coverage. This contrasts with earlier findings of strategic overinvestment in networks with partial incompatibility. Furthermore, we find that consumer usage of the avail- able ATM network is too low because of the zero retail fees for cash withdrawals at branches. A direct promotion of investment (through subsidies or other means) can improve welfare, but the introduction of retail fees on cash withdrawals at branches would be more effective, even if this does not encourage investment per se. |
| Keywords: | technology investment;usage;efficiency;ATM;empirical industrial or- ganisation and structural econometric models |
| JEL: | L10 L89 G21 L50 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:20081&r=mic |