nep-mic New Economics Papers
on Microeconomics
Issue of 2008‒02‒16
five papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Reference Pricing Versus Co-Payment in the Pharmaceutical Industry: Firm's Pricing Strategies By Marisa Miraldo
  2. Trade Liberalization, Competition and Growth By Omar Licandro; Antonio Navas-Ruiz
  3. Spacial Equilibrium in a State Space Approach to Demand Uncertainty By Kieron J. Meagher; Klaus G. Zauner
  4. Market Segmentation: The Role of Opaque Travel Agencies By Dmitry Shapiro; Xianwen Shi
  5. Tenancy Default, Excess Demand and the Rental Market By Katherine Cuff; Nicolas Marceau

  1. By: Marisa Miraldo (Centre for Health Economics, University of York)
    Abstract: Within a horizontally differentiation model and allowing for heterogeneous qualities, we analyze the effects of reference pricing reimbursement on firms’ pricing strategies. With this analysis we find inherent incentives for firms’ pricing behaviour, and consequently we shed some light on time consistency of such policy. The analysis encompasses different reference price rules. Results show that if drugs have equal quality, reference pricing may lead to higher prices. With quality differentiation both the minimum and linear policies unambiguously lead to higher prices.
    Date: 2007–04
  2. By: Omar Licandro; Antonio Navas-Ruiz
    Abstract: The aim of this paper is to understand whether international trade may enhance innovation and growth through an increase in competition. We develop a two-country endogenous growth model, both countries producing the same set of goods, with firm speciffic R&D and a continuum of oligopolistic sectors under Cournot competition. Since countries produce the same setof goods, trade openness makes markets more competitive, reducing prices and raising the incentives to innovate. More general, a reduction on trade barriers enhances growth by reducing domestic firms' market power.
    Date: 2008–01
  3. By: Kieron J. Meagher (School of Economics, The University of New South Wales); Klaus G. Zauner (University of York)
    Abstract: Firms are likely to be uncertain about consumer preferences when launching products. The existing literature models preference uncertainty as an additive shock to the consumer distribution in a characteristic space model. The additive shock only shifts the mean of the consumers' ideal points. We generalize this approach to a state space model in which a vector of parameters can give rise to dierent distributions of consumer tastes in dierent states, allowing other moments of the consumer density to be uncertain. An equilibrium existence result is given. In the case of symmetric distributions, the unique subgame-perfect equilibrium can be described by a simple closed-form solution.
    Keywords: Location; Product Dierentiation; Uncertainty; Hotelling
    JEL: C72 D43 D81 L10 L13 R30 R39
    Date: 2007–06
  4. By: Dmitry Shapiro; Xianwen Shi
    Abstract: This paper investigates the role of discount travel agencies such as Priceline and Hotwire in the market segmentation of the hotel and airline industries. These agencies conceal important characteristics of the offered services, such as hotel locations or flight schedules. We explicitly model this opaque feature and show that it enables service providers to price discriminate between those customers who are sensitive to service characteristics and those who are not. Service providers can profit from such discrimination despite the fact that the opaque feature virtually erases product differentiation and thus intensifies competition. The reason is that the intensified competition for less sensitive customers enables service providers to commit to a higher price for more sensitive customers, which leads to higher profits overall. This explains why airlines or hotels are willing to lose the advantage of product differentiation and offer services through discount travel agencies.
    Keywords: market segmentation, opaque travel agency, separation equilibrium, price discrimination
    JEL: D43 D82 L11 M31
    Date: 2008–02–05
  5. By: Katherine Cuff; Nicolas Marceau
    Abstract: We develop a model of a competitive rental housing market with an endogenous rate of tenancy default arising from income uncertainty. Potential tenants must choose to engage in a costly search for rental housing, and must commit to a rental agreement before the uncertainty is resolved. We show that there are two possible equilibria in this market: a market-clearing equilibrium and an equilibrium with excess demand. Therefore, individuals might not have access to rental housing because they are unable to afford to look for housing, they are unable to pay their rent, or with excess demand in the market they are simply unable to find a rental unit. We show that government regulations affecting the cost of default to the housing suppliers and the quality of rental units can have different effects on the equilibrium variables of interest - rental rate, quantity demanded and supplied, and access to rental housing - depending on the type of equilibria in the market. A numerical example illustrates these results.
    Keywords: Tenancy Default, Excess Demand, Rental Housing Policies
    JEL: R21 R31 R38 D41
    Date: 2007

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