nep-mic New Economics Papers
on Microeconomics
Issue of 2008‒01‒26
fifteen papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Do Consumers Care about How Prices Are Set? By Pascal Courty; Mario Pagliero
  2. Price Variation Antagonism and Firm Pricing Policies By Pascal Courty; Mario Pagliero
  3. Competition and innovative intentions: A study of Dutch SMEs By Jeroen de Jong
  4. Regulation, generic competition and pharmaceutical prices: Theory and evidence from a natural experiment By Kurt R. Brekke; Tor Helge Holmås; Odd Rune Straume
  5. The Dynamics of Price and Advertising as Signals of Quality By Musa Ayar
  6. Product Innovation and Survival in a High-Tech Industry By Roberto Fontana; Lionel Nesta
  7. Intra-Household Effects on Demand for Telephone Service: Empirical Evidence By Huang, Ching-I
  8. Does Responsive Pricing Smooth Demand Shocks? By Pascal Courty; Mario Pagliero
  10. The Drama of Fishing Commons: Cournot-Nash Model and Cooperation By José António Filipe
  11. A contribution of experimental economics toward characterization of the use of market power in oligopolisitc markets By Fabien Petit; Yannick Phulpin; Marcelo Saguan; Philippe Dessante
  12. Export prices and increasing world competition: evidence from French, German, and Italian pricing behavior By Sarah Guillou; Stefano Schiavo
  13. Cournot-Walras Equilibrium as a Subgame Perfect Equilibrium By Busetto, Francesca; Codognato, Giulio; Ghosal, Sayantan
  14. Profiting in the info-communications in the age of broadband: lessons and new considerations By Jackie Krafft
  15. Telecommunications, the Internet and Mr Schumpeter By Jackie Krafft

  1. By: Pascal Courty; Mario Pagliero
    Abstract: Using a survey approach, we ask consumers to reveal their preferences over pricing schemes that may differ in terms of the average price of consumption, the amount of price variation, and the probability of being rationed. We find that consumers dislike pricing schemes that vary prices more but that they are willing to trade off price variation and rationing. Surprisingly, they are not willing to trade off an increase in price variation for a decrease in expected prices. We discuss the implications of these findings for firm pricing policies.
    Keywords: Consumer demand, rationing, demand fluctuation, antagonism, fairness
    JEL: A12 D01 D12
    Date: 2008
  2. By: Pascal Courty; Mario Pagliero
    Abstract: Pricing schemes that vary prices in response to demand shocks may antagonize consumers and reduce demand. At the same time, consumers may take advantage of the opportunities offered by price changes. Overall, the net impact of varying price on demand is ambiguous. We investigate the issue empirically, exploiting a unique dataset from a firm that has experimented with different pricing schemes. Each scheme is characterized by how much prices respond to demand variations. Holding average price and other variables constant, we find that demand is higher when prices vary more. The evidence suggests that the antagonism effect cannot be first order.
    Keywords: Consumer demand, responsive pricing, fairness
    JEL: D01 D12 L86
    Date: 2008
  3. By: Jeroen de Jong
    Abstract: This paper explores the complex relationship between competition and innovation. Traditional measures of competition using industry statistics are often challenged andfound wanting. This paper distinguishes between three types of competitive forces: internal rivalry among incumbent firms in an industry, bargaining power of suppliers,and bargaining power of buyers. Using survey data from 2,281 Dutch firms, we apply new perception-based measures for these competitive forces to explore how competition relates to firms innovative intentions. We also investigate the influence of innovation strategy as a contingency variable. Results show that specific innovative intentions, i.e. to invest in product and process innovation, are related to different competitive forces. Process innovation is correlated with the bargaining power of suppliers, while intentions to invest in product innovation are associated with buyer power. Finally, intended product innovation is related to internal rivalry, but only when firms have no innovation strategy.
    Date: 2007–05–30
  4. By: Kurt R. Brekke (Department of Economics, Norwegian School of Economics and Business Administration, and Health Economics Bergen); Tor Helge Holmås (Institute for Research in Economics and Business Administration, and Health Economics Bergen); Odd Rune Straume (Universidade do Minho - NIPE)
    Abstract: We study the impact of regulatory regimes on generic competition and pharmaceutical pricing using a unique policy experiment in Norway, where reference pricing (RP) replaced price cap regulation in 2003 for a sub-sample of off-patent products. We exploit a detailed panel dataset at product level covering a wide set of off-patent drugs before and after the policy reform. Off-patent drugs not subject to reference pricing serve as our control group. We find that RP leads to lower relative prices, with the effect being driven by strong brand-name price reductions, and not increases in generic prices. We also find that RP increases generic competition, resulting in lower brand-name market shares. Finally, we show that RP has a strong negative effect on average prices at molecule level, suggesting significant cost-savings.
    Keywords: Pharmaceuticals, Regulation, Generic Competition.
    JEL: I11 I18 L13 L65
    Date: 2008
  5. By: Musa Ayar (University of Western Ontario)
    Abstract: A monopolist introduces a new product of either low or high quality. It advertises to make consumers aware of the product and signals product quality using both price and advertising. When consumption does not re- veal product quality, price is higher and advertising is lower than they would be if product quality is observable. Price rises and advertising falls as the fraction of aware consumers increases. When consumption reveals product quality, price is higher and advertising is lower than they would be if prod- uct quality is observable. Price declines as the fraction of aware consumers increases and advertising follows an inverted U shape. We ¯nd support for these empirical predictions from a data set on Direct-to-Consumer advertis- ing on pharmaceutical drugs.
    Keywords: quality; signaling; pricing; advertising
    JEL: D82 L15 M37
    Date: 2007
  6. By: Roberto Fontana; Lionel Nesta
    Date: 2007
  7. By: Huang, Ching-I
    Abstract: I present a game-theoretical model to estimate consumption demand, accounting for intra-household interaction among household members. Although multiple Nash equilibria of consumption decisions may exist in a household, model parameters are pointwise identified from household-level data for households with only two members. I propose a semiparametric maximum likelihood estimator and apply it to empirically analyze the subscription decision for cellular phone service in Taiwan. On average, a consumer's probability of subscribing to cellular service rises 35 percentage points when the other household member chooses to subscribe. This result suggests the existence of intra-household network effects on cellular phone consumption. The intra-household effect increases in household income, but decreases in the number of kids and the age difference in a household.
    Keywords: consumption externality; multiple Nash equilibria; demand estimation; mobile phone service; cellular phone service; network effect
    JEL: D13 D12 C35
    Date: 2008–01
  8. By: Pascal Courty; Mario Pagliero
    Abstract: Using data from a unique pricing experiment, we investigate Vickrey’s conjecture that responsive pricing can be used to smooth both predictable and unpredictable demand shocks. Our evidence shows that increasing the responsiveness of price to demand conditions reduces the magnitude of deviations in capacity utilization rates from a pre-determined target level. A 10 percent increase in price variability leads to a decrease in the variability of capacity utilization rates between 2 and 6 percent. We discuss implications for the use of demand-side incentives to deal with congestible resources.
    Keywords: Consumer demand, responsive pricing, capacity utilization, price variability
    JEL: D01 D12 L11 L86
    Date: 2008
  9. By: Maud ROUCAN-KANE; David UBILAVA; Pei XU (Department of Agricultural Economics, College of Agriculture, Purdue University)
    Abstract: The objective of this paper is to determine how the firm's infrastructure, the financial characteristics of a company (net income, sales), and the organizational structure (number of acquisitions, age of establishment of the firm) affect R&D investments in the agricultural sector. We use data for companies under the SIC codes for agricultural chemicals, and crop planning and protection. The results based on analysis of 69 observations of 12 firms revealed that firm's financial and organizational infrastructure does affect its R&D expenditures. Older and larger firms tend to spend more on R&D. During the last 17 years the R&D expenditures with respect to the sales of the company have been reduced. Finally, contrary to the expectations, previous year's profit margins are negatively correlated with the R&D over the sales ratio of the following year.
    Keywords: Manufactured Housing; R&D, agriculture, chemicals, crop planning, crop protection, agribusiness, expenditures
    JEL: A10 O32 Q16
    Date: 2007
  10. By: José António Filipe
    Keywords: Cournot-Nash model; drama of the commons; cooperation; game theory; fishing effort.
    Date: 2007
  11. By: Fabien Petit (SUPELEC-Campus Gif - SUPELEC); Yannick Phulpin (SUPELEC-Campus Gif - SUPELEC); Marcelo Saguan (SUPELEC-Campus Gif - SUPELEC); Philippe Dessante (SUPELEC-Campus Gif - SUPELEC)
    Abstract: Despite the numerous researches about imperfect competition, the market power remains difficult to quantify using traditional economics methods. In this paper, we propose an experimental economics design and outline some ways of analysis of its results toward characterization of the use of market power. A simple system with two regions and a limited interconnection transfer capacity allocated by an implicit auction is studied. Depending on the experiments two or three subjects share equitably the production capacity in one region, while the production capacity is equitably shared among 5 subjects leading to a more competitive situation in the second one. In both regions, we observe a market price that is different from the theoretical results allowing a quantification of the use of market power. Results are also analyzed based on a characterization of the subjects’ behaviour. Further the impact of subjects’ behaviour on the market price evolution is described.
    Keywords: experimental economics, market power, electricity markets, oligopolistic markets
    Date: 2007–06–13
  12. By: Sarah Guillou (Observatoire Français des Conjonctures Économiques); Stefano Schiavo (Observatoire Français des Conjonctures Économiques)
    Date: 2007
  13. By: Busetto, Francesca (University of Udine); Codognato, Giulio (University of Udine); Ghosal, Sayantan (Department of Economics, University of Warwick)
    Abstract: In this paper, we investigate the problem of the strategic foundation of the Cournot-Walras equilibrium approach. To this end, we respecify a'la Cournot-Walras the mixed version of a model of simultaneous, noncooperative exchange, originally proposed by Lloyd S.Shapley. We show, through an example, that the set of the Cournot-Walras equilibrium allocations of this respecification does not coincide with the set of the Cournot-Nash equilibrium allocations of the mixed version of the original Shapley's model. As the nonequivalence, in a one-stage setting, can be explained by the intrinsic two-stage nature of the Cournot-Walras equilibrium concept, we are led to consider a further reformulation of the Shapley's model as a two-stage game, where the atoms move in the first stage and the atomless sector moves in the second stage. Our main result shows that the set of the Cournot-Walras equilibrium allocations coincides with a specific set of subgame perfect equilibrium allocations of this two-stage game, which we call the set of the Pseudo-Markov perfect equilibrium allocations.
    JEL: C72 D51
    Date: 2008
  14. By: Jackie Krafft (GREDEG - Groupe de recherche en Droit Economie Gestion - Université de Nice Sophia-Antipolis)
    Abstract: Who profits in the info-coms industry in the broadband age, and how? This paper looks at this question, decomposing the industry in terms of five complementary activities: (1) equipment provision, (2) network operation, (3) Internet access and service provision, (4) navigation and security provision, and (5) Internet content provision, which correspond to five different assets in the sense of Teece (1986). By focusing on two key stylized facts (SF1: “R&D and patent licensing are increasingly high in this industry, but the initiators of innovations have greatly changed over time”, and SF2: “Small, facilities-less companies emerged during the development of the Internet industry, but have generally performed badly as the industry has matured and broadband use has become widespread”) the paper analyses the robustness of Teece (1986) in its ability to provide a framework appropriate to the changes that have occurred in the broadband industry. The paper draws some lessons, and provides some new considerations related to the robustness of Teece’s framework.
    Date: 2008–01–11
  15. By: Jackie Krafft (GREDEG - Groupe de recherche en Droit Economie Gestion - Université de Nice Sophia-Antipolis)
    Abstract: The purpose of this chapter is thus to understand the ups and downs of this industry, and especially to identify in Schumpeter’s vision of capitalism what could be the determinants of such an evolution. In a nutshell, the paper will investigate to what extent the key notions of Schumpeter’s analysis – which include economic development and creative destruction, entrepreneurship and large firms, patterns of industry dynamics and evolution, competition as a process, and invention and innovation – can shed a new light on the evidence of the rise and decay of the telecommunications industry viewed as an exemplifying and central figure of modern economic capitalism.
    Date: 2007

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