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on Microeconomics |
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Issue of 2008‒03‒01
ten papers chosen by Joao Carlos Correia Leitao University of the Beira Interior |
| By: | Kurt R. Brekke (Department of Economics, Norwegian School of Economics and Business Administration, and Health Economics Bergen); Luigi Siciliani (Department of Economics and Related Studies, and Centre for Health Economics, University of York); Odd Rune Straume (Universidade do Minho - NIPE) |
| Abstract: | We analyse the effect of competition on quality in hospital market with regulated prices, considering both the effect of free patient choice (monopoly versus competition) and increased competition through lower transportation costs (increased substitutability). With partially altruistic providers and a convex cost function that is non-separable in activity and quality, we show - in both cases - that the effect is generally ambiguous. In contrast to the received theoretical literature, this is consistent with, and potentially explains, the mixed empirical evidence. |
| Keywords: | Hospital, Competition, Quality. |
| JEL: | H42 I11 I18 L13 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:06/2008&r=mic |
| By: | Dobson, Paul W. (Loughborough University Business School); Waterson, Michael (University of Warwick) |
| Abstract: | Retail chains essentially practice one of two broad strategies in setting prices across their stores. The more straightforward is to set a chain- or country- wide price. Alternatively, managers of retail chains may customize prices to the store level according to local demand and competitive conditions. For example, a chain may price lower in a location with lower demand and/or more competition. However, despite having the ability to customize prices to local market conditions, some choose instead to commit to uniform pricing with a “one price policy” across their entire store network. As an illustration, we focus on UK supermarket chains. Is there an advantage to be gained from deliberately choosing not to price discriminate across locations? We show generally and illustrate through means of a specific model that there exists a strategic incentive to soften competition in competitive markets by committing not to customize prices at the store level and instead adopt uniform pricing across the store network, and to raise overall profits thereby. Furthermore, we characterize quite precisely the circumstances under which uniform pricing is, and is not, profitable and illustrate that under a range of circumstances uniform pricing may be the preferable strategy. |
| Keywords: | Chain-store retailers ; price discrimination ; uniform pricing ; local pricing ; commitment |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:840&r=mic |
| By: | Géraldine Broye; Laurent Weill (Laboratoire de Recherche en Gestion et Economie, Institut d'Etudes Politiques, Strasbourg) |
| Abstract: | This paper aims at investigating the effects of concentration on competition and cost efficiency of the French audit market. Competition is measured with the Rosse-Panzar model, while cost efficiency is estimated with stochastic frontier approach. Cost efficiency levels are estimated at around 75% with greater efficiency for Big-Four firms, while the nature of competition appears to be monopolistic competition. Dynamic analysis shows a reduction in competition, and a decrease in cost efficiency for Big-Four and non-Big-Four firms between 1999 and 2003. We therefore provide support to a negative impact of concentration on competition and cost efficiency. |
| Keywords: | Auditing, audit market, competition, efficiency. |
| JEL: | L1 M4 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:lar:wpaper:2008-04&r=mic |
| By: | Duc-De Ngo (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans); Mahito Okura |
| Abstract: | In this study, we aim to investigate the impact of privatization on the degree of cooperation and competition in a mixed oligopoly market. We consider a duopoly market that comprises one semipublic firm and one private firm. Each firm is assumed to determine the level of two types of effort: the cooperative effort made to enlarge the total market size and the competitive effort made to increase market share. <br />In a contest framework, our results show that the competitive effort level of the semipublic firm is smaller than that of the private firm. The more the semipublic firm is concerned for social welfare, the less it competes. On the basis of average costs, we then analyze the case in which only the semipublic firm undertakes cooperative effort. In this case, the private firm behaves as a free rider. Furthermore, we find that the semipublic firm expends more cooperative effort than does the private firm. |
| Keywords: | Coopetition, Mixed oligopoly, Contests, Free rider |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:hal:papers:halshs-00258638_v1&r=mic |
| By: | Molnár, József (Bank of Finland Research) |
| Abstract: | This paper tests market power in the banking industry. Price-cost margins predicted by different oligopoly models are calculated using discrete-choice demand estimates of own-price and cross-price elasticities. These predicted price-cost margins are then compared with price-cost margins computed using observed interest rates and estimates of marginal costs. This paper is among the first to apply this methodology on a detailed, bank-level dataset from the retail banking sector. It extends on previous papers and illustrates the advantages of structural modelling by simulating a counterfactual merger experiment with a number of mergers, each of which involves two major banks, and studying the unilateral effect of the mergers on interest rates. This provides more evidence that concentration measures (such as the Herfindahl index) could be very misleading indicators of market power. |
| Keywords: | demand; discrete choice; product differentiation; banking; market power; merger simulation |
| JEL: | G21 L11 L13 |
| Date: | 2008–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2008_004&r=mic |
| By: | Colciago, Andrea; Etro, Federico |
| Abstract: | We introduce Cournot competition and endogenous entry in an otherwise neoclassical macroeconomic framework. First, we develop a model with exogenous savings à la Solow describing the dynamic path of business creation. Then, we develop a model à la Ramsey describing the dynamic interaction of consumption and business creation. Our models are able to explain why markups vary countercylically and profits are procyclical. The analysis of permanent and temporary technology and preference shocks and of the second moments suggests that our model can outperform the Real Business Cycle framework in many dimensions. |
| Keywords: | Business Cycle; Cournot Competition; Endogenous Entry |
| JEL: | E32 L13 |
| Date: | 2007–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:7326&r=mic |
| By: | Broström, Anders (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | R&D managers at 50 firms randomly selected from all firms who have formal relations with two research universities in Stockholm are being interviewed about their rationales for collaboration. Drawing on this material, a distinctive typology of rationales and the therewith associated effects from cooperative relations is presented. As expected, rationales related to innovation, in terms of invented or improved products or processes, are found to be the main drivers for interaction. As regards the nature of the innovation process leading to innovation, most respondents indicate that “indirect” relationships between collaboration outcomes and successful innovation dominate over “direct” appropriation of results. Contrasting open ended search rationales with pursuit of defined objectives, we find that both types are strongly represented among the studied collaborative linkages. We also find that interaction rationales often go beyond the pursuit of innovation per se; firms also work with university researchers to access academic networks, to develop its human capital and to realise direct business opportunities. The consequences of these findings for policy measures steered towards the strengthening of collaborative university-industry linkages are discussed. |
| Keywords: | R&D collaboration; technology transfer; university-industry linkages; innovation collaboration |
| JEL: | O32 O33 O38 |
| Date: | 2008–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0115&r=mic |
| By: | Ebel, Nikos; Lefouili, Yassine |
| Abstract: | We analyze the effects of a modified Yardstick competition on firms’ cost-reduction efforts. Departing from the existing literature, we use a relative cost-plus approach: firms are regulated on the basis of other firms’ performances, but they are granted a mark-up and not a lump-sum transfer in order to be compensated for their investments. We show that the cost-reduction effort of a regulated firm is decreasing in the mark-up under relative regulation while it is increasing in the mark-up under individual regulation. Hence, the trade-off between encouraging cost reduction and minimizing prices that the regulator faces under individual cost-plus regulation does not exist under relative cost-plus regulation. We extend our model by including technical spillovers and we investigate their effects on firms’ cost reduction efforts and on the efficiency of the whole industry. Finally, we allow for quality-enhancing investments and study the interplay between them and cost reduction investments under relative cost-plus regulation. |
| Keywords: | Yardstick Competition; Cost Reduction; Cost-Plus Regulation. |
| JEL: | L90 L50 D49 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:7314&r=mic |
| By: | Lindelauf, R.; Borm, P.E.M.; Hamers, H.J.M. (Tilburg University, Center for Economic Research) |
| Abstract: | In order to be able to devise successful strategies for destabilizing terrorist organizations it is vital to recognize and understand their structural properties. This paper deals with the opti- mal communication structure of terrorist organizations when considering the tradeoff between secrecy and operational efficiency. We use elements from game theory and graph theory to determine the `optimal' communication structure a covert network should adopt. Every covert organization faces the constant dilemma of staying secret and ensuring the necessary coordina- tion between its members. For several different secrecy and information scenarios this dilemma is modeled as a game theoretic bargaining problem over the set of connected graphs of given order. Assuming uniform exposure probability of individuals in the network we show that the Nash bargaining solution corresponds to either a network with a central individual (the star graph) or an all-to-all network (the complete graph) depending on the link detection probabil- ity, which is the probability that communication between individuals will be detected. If the probability that an individual is exposed as member of the network depends on the information hierarchy determined by the structure of the graph, the Nash bargaining solution corresponds to cellular-like networks. |
| Keywords: | covert networks;terrorist networks;Nash bargaining;game theory;information;secrecy. |
| JEL: | C50 C78 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200823&r=mic |
| By: | Rousseau Sandra (K.U.Leuven-Center for Economic Studies); Arguedasa Carmen (Departamento de Análisis Económico: Teoría Económica e Historia Económica, Universidad Autónoma de Madrid) |
| Abstract: | TOver time, inspection agencies gather information about firms that cause harmful externalities. This information may allow agencies to differentiate their monitoring strategies in the future, since inspections can be influenced by firms’ past performance relative to other competitors in the market. If a firm is less successful than its peers in reducing the externality, it faces the risk of being targeted for increased inspections in the next period. This risk of stricter monitoring might induce high cost firms to mimic low cost firms, while the latter might try to avoid being mimicked. We show that under certain circumstances, mimicking, or even the threat of mimicking, might reduce socially harmful activities and thus be welfare improving. |
| Keywords: | Monitoring and enforcement; externalities; learning; mimicking |
| JEL: | D82 H83 K42 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:ete:etewps:ete0802&r=mic |