nep-mic New Economics Papers
on Microeconomics
Issue of 2008‒04‒04
fourteen papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. One-Way Compatibility, Two-Way Compatibility and Entry in Network Industries By Fabio Maria Manenti; Ernesto Somma
  2. Strategic Debt: Evidence from Bertrand and Cournot Competition By Abe de Jong; Thuy Thu Nguyen; Mathijs A. van Dijk
  3. Are Local Milieus the Key to Innovation Performance? By Binz, Hanna L.; Czarnitzki, Dirk
  4. Imitation Games and Computation By Andrew McLennan; Rabee Tourky
  5. Entrepreneurship and Innovation Strategies in ICT SMEs in Enlarged Europe (EU25) By Lal, Kaushalesh; Dunnewijk, Theo
  6. SMEs and Competitive Advantage: a Mix of Innovation, Marketing and ICT. The Case of "Made in Italy" By Eleonora Di Maria; Stefano Micelli
  7. Imitation and the Evolution of Walrasian Behavior: Theoretically Fragile but Behaviorally Robust By Apesteguia, Jose; Huck, Steffen; Oechssler, Jörg; Weidenholzer, Simon
  8. Service Oligopolies and Australia's Economy-Wide Performance By Rod Tyers; Lucy Rees
  9. Uniform vs. Discriminatory Auctions with Variable Supply - Experimental Evidence By Damianov, Damian S.; Oechssler, Jörg; Becker, Johannes Gerd
  10. Managerial perceptions of works councils' effectiveness in the Netherlands By Annette van den Berg; Yolanda Grift; Michael Arjen van Witteloostuijn
  11. The transition from imitation to innovation: An enquiry into China’s evolving institutions and firm capabilities By Wendy Dobson; A.E. Safarian
  12. Satisficing in sales competition: experimental evidence By Berninghaus, Siegfried K.; Gueth, Werner; Levati, M. Vittoria; Qiu, Jianying
  13. Bandwagon, underdog, and political competition: The uni-dimensional case By Woojin Lee
  14. Innovation and Export of Vietnam's SME Sector By Anh Ngoc Nguyen; Ngoc Quang Pham; Chuc Dinh Nguyen; Nhat Duc Nguyen

  1. By: Fabio Maria Manenti (University of Padua); Ernesto Somma (University of Bari)
    Abstract: We study the strategic choice of compatibility between two initially incompatible network goods in a two-stage game played by an incumbent and an entrant firm. Compatibility may be achieved by means of a converter. We derive a number of results under different assumptions about the nature of the converter (one-way vs two-way), the existence of property rights and the possibility of side payments. With incompatibility, entry deterrence occurs for sufficiently strong network effects. In the case of a two-way converter, which can only be supplied by the incumbent, incompatibility will result in equilibrium unless side payments are allowed and the network externalities are sufficiently low. When both firms can build a one-way converter and there are no property rights on the necessary technical specifications, the unique equilibrium involves full compatibility. Finally, when each firm has property rights on its technical specifications, full incompatibility is observed at the equilibrium with no side payments; when these are allowed the entrant sells access to its network to the incumbent which refuses to do the same and asymmetric one-way compatibility results in equilibrium. The welfare analysis shows that the equilibrium compatibility regime is socially inefficient for most levels of the network effects.
    Keywords: network externalities, one-way compatibility, two-way compatibility, entry
    JEL: L13 L15 D43
    Date: 2008
  2. By: Abe de Jong (RSM Erasmus University); Thuy Thu Nguyen (RSM Erasmus University); Mathijs A. van Dijk (RSM Erasmus University)
    Abstract: We investigate how competitive behavior affects the capital structure of a firm. Theory predicts that the impact of different types of output market uncertainty (in particular, unanticipated shocks in demand and costs) on a firm's leverage depends on the type of competition in an industry. We test these predictions in a sample of U.S. manufacturing firms by classifying firms into Cournot competition (strategic substitutes), and Bertrand competition (strategic complements). We show that demand uncertainty is positively related to leverage for firms in both the Cournot and the Bertrand sample. Cost uncertainty has a significantly positive impact on the leverage of Cournot firms, but plays a negligible role for Bertrand firms. Our results support the strategic use of debt and highlight the role of firms' competitive behavior in the product market in their capital structure decisions.
    Keywords: Strategic debt, Cournot competition, Bertrand competition, demand and cost uncertainty, leverage
    JEL: G32 L10 L60
    Date: 2008
  3. By: Binz, Hanna L.; Czarnitzki, Dirk
    Abstract: This study investigates how local milieus foster innovation success of firms. We complement the common practice of linking firm performance indicators to regional characteristics with survey evidence on the perceived importance of locational factors. While the former approach assumes that location characteristics affect all firms in the same way, the survey allows us to model firms judging the attractiveness of locations by a heterogeneous set of criteria. It turns out that the availability of highly skilled labor and the proximity to suppliers matters for firms’ innovation performance. Interestingly, location factors obtained from the survey provide a more accurate explanation on how local milieus facilitate innovation.
    Keywords: Innovation performance, R&D, location factors, Flanders
    JEL: O31 O38
    Date: 2008
  4. By: Andrew McLennan (School of Economics, The University of Queensland); Rabee Tourky (School of Economics, The University of Queensland)
    Abstract: TAn imitation game is a finite two person normal form game in which the two players have the same set of pure strategies and the goal of the second player is to choose the same pure strategy as the first player. Gale et al. (1950) gave a way of passing from a given two person game to a symmetric game whose symmetric Nash equilibria are in oneto-one correspondence with the Nash equilibria of the given game. We give a way of passing from a given symmetric two person game to an imitation game whose Nash equilibria are in one-to-one correspondence with the symmetric Nash equilibria of the given symmetric game. Lemke (1965) portrayed the Lemke-Howson algorithm as a special case of the Lemke paths algorithm. Using imitation games, we show how Lemke paths may be obtained by projecting Lemke-Howson paths.
    Date: 2008
  5. By: Lal, Kaushalesh (UNU-MERIT); Dunnewijk, Theo (UNU-MERIT, Maastricht University)
    Abstract: Innovation strategies of entrepreneurs are mapped with growth and performance of their firms in this study. Findings of the study are based on the data collected from 1238 small ICT firms located in 25 member states of European Union. The survey was conducted during October 2006 and March 2007. Results of Logit analysis suggest that firms that pursued continuous innovation strategies experienced more employment growth, higher profitability, and better sales dynamics than those that adopted occasional innovation approach. Market growth of continuous innovating firms realized faster pace than other type of firms. Another distinguishing characteristic of two types of firms emerged is market preference. Target market of continuous innovating firms has been European or global markets while innovative activities of other firms targeted domestic market. The study concludes that European innovation policies should be focused towards continuous innovation activities with due attention at human resource development policies.
    Keywords: dynamic capabilities, continuous innovation, occasional innovation, competitiveness, human resources, internationalization
    JEL: O31 O32 O38 L25 L63 O15 J24
    Date: 2008
  6. By: Eleonora Di Maria (University of Padua); Stefano Micelli (University of Bari)
    Abstract: Global economy is transforming the sources of the competitive advantages of firms, especially for firms embedded in local manufacturing systems. Based on the theoretical contributions to knowledge management and industrial districts, this paper describes alternative firm's strategies and upgrading options by exploring the relationships among innovation, marketing and network technologies. Starting from the analysis of the Global Competitiveness Report and the European Innovation Scoreboard, this paper focuses on the case of firms specializing in the "Made in Italy" industries (fashion, furniture, home products) to outline a framework explaining the new competitive opportunities for SMEs. Through a qualitative analysis,this paper presents four case studies of Italian firms that promote successful strategies based on a coherent mix of R&D-based innovation, experienced marketing and design, by leveraging on ICT.
    Date: 2008
  7. By: Apesteguia, Jose (Department of Economics and Business, Universitat Pompeu Fabra); Huck, Steffen (Department of Economics, University College London); Oechssler, Jörg (Department of Economics, University of Heidelberg); Weidenholzer, Simon (Department of Economics, University of Vienna)
    Abstract: A well-known result by Vega-Redondo implies that in symmetric Cournot oligopoly, imitation leads to the Walrasian outcome where price equals marginal cost. In this paper we show that this result is not robust to the slightest asymmetry in fixed costs. Instead of obtaining the Walrasian outcome as unique prediction, every outcome where agents choose identical actions will be played some fraction of the time in the long run. We then conduct experiments to check this fragility. We obtain that, contrary to the theoretical prediction, the Walrasian outcome is still a good predictor of behavior.
    Date: 2007–12–05
  8. By: Rod Tyers; Lucy Rees
    Abstract: The retreat from public ownership of service firms and industries has left behind numerous private monopolies and oligopolies supervised by regulatory agencies. Services industries in government and private ownership generate two-thirds of Australia's value added and employ three quarters of its workforce. This study offers an economy-wide approach that represents monopoly and oligopoly behaviour explicitly. It examines the implications of oligopoly rents for factor markets and the real exchange rate, the extent of sectoral interactions and the potential economy wide gains from tighter price cap regulation, with the results confirming the merit of an economy-wide approach. External shocks, like the present "China boom", are also simulated. Such positive shocks are shown to expand the potential for oligopoly rents and therefore to raise the bar for regulatory agencies. Moreover, less than tight price caps are shown to exacerbate entry-exit hysteresis in boom and bust cycles.
    JEL: C68 D43 D58 L13 L43 L51 L80
    Date: 2008–03
  9. By: Damianov, Damian S. (The University of Texas-Pan American); Oechssler, Jörg (Department of Economics, University of Heidelberg); Becker, Johannes Gerd (ETH Zurich, Department of Economics)
    Abstract: In the variable supply auction considered here, the seller decides how many costumers with unit demand to serve after observing their bids. Bidders are uncertain about the seller's cost. We experimentally investigate whether a uniform or a discriminatory price auction is better for the seller in this setting. Exactly as predicted by theory, it turns out that the uniform price auction produces substantially higher bids, and consequently yields higher revenues and profits for the seller. Somewhat surprisingly but again predicted by theory, it also yields a higher number of transactions, which makes it the more efficient auction format.
    Date: 2007–12–05
  10. By: Annette van den Berg; Yolanda Grift; Michael Arjen van Witteloostuijn
    Abstract: Although works councils have, by and large, equally extensive legal rights in Germany and the Netherlands, this is the first econometric analysis that investigates the influence of works councils on firm performance for the Netherlands. We use a nation-wide Dutch dataset with information on management's perceptions of the works council's impact on their firms' efficiency and innovation. Following Jirjahn and Smith (2006), we find that managerial perceptions crucially depend on the firm's human resource management policies and market strategies. Additionally, we argue that managerial perceptions are related to the works council's role attitude and management's leadership style. For this argument, we find support, too.
    Keywords: works councils, managerial response, effectiveness, efficiency, innovation
    JEL: J53 M54
    Date: 2008–03
  11. By: Wendy Dobson (Institute for International Business, Rotman School of Management); A.E. Safarian (Rotman School of Management)
    Abstract: How is the Chinese economy making the transition from imitation to innovation as the source of sustained long term growth? We address this question using the evolutionary approach to growth in which institutions support technical advance and enterprises develop capabilities to learn and innovate. Growth is seen as a series of disequilibria in which obstacles to innovation such as outdated institutions and weak incentive systems can cause growth to slow. We review existing literatures on institutions and firm behavior in China and compare these findings with those of our survey of Chinese firms in 2006. Industry and firm studies in the literature show how productivity is rising because of firm entry and exit rather than the adoption of new technologies. A striking feature both of the studies in the literature and our survey is the increasing competitive pressures on firms that encourage learning. Our survey of privately owned small and medium enterprises in five high tech industries in Zhejiang province found a market-based innovation system and evidence of much process and some product innovations. These enterprises respond to growing product competition and demanding customers with intensive internal learning, investment in R&D and a variety of international and research linkages.
    JEL: O23 H20
    Date: 2008–03
  12. By: Berninghaus, Siegfried K. (Universität Karlsruhe); Gueth, Werner (Max Planck Institute for Research into Economic Systems, Strategic Interaction Group); Levati, M. Vittoria (Max Planck Institute of Economics, Strategic Interaction Group); Qiu, Jianying (Max Planck Institute of Economics, Strategic Interaction Group)
    Abstract: In a duopoly market, aspirations express how much sellers want to earn given their expectations about the other's behavior. We define individually and mutually satisficing sales behavior for given individual beliefs and aspirations. In a first experimental phase, whenever satisficing is not possible, beliefs, aspirations, or sales have to be adapted. In a second phase, testing the absorption of satisficing, participants are free to select nonsatisficing sales profiles. The results reveal that most people are satisficers who, either mandatorily or deliberately, tend to adjust aspiration levels if they cannot be satisfied.
    Date: 2007–05–16
  13. By: Woojin Lee (University of Massachusetts Amherst)
    Abstract: The present paper studies the Hotelling-Downs and Wittman-Roemer models of two-party competition when voter conformism is present and the policy space is uni-dimensional. We consider two types of voter conformism, bandwagon and underdog, and study their effects on the political equilibrium of the two models. Even if voter conformism is present, the Hotelling- Downs parties propose an identical policy at the equilibrium, which is equal to a strict Condorcet winner. Thus voter conformism, both bandwagon and underdog, has no effect on the Hotelling- Downs political equilibrium. In the Wittman-Roemer model, parties propose differentiated equilibrium policies, and the extent of such policy differentiation depends on the degree of voter conformism. In general, the stronger the bandwagon effect is, the more differentiated the equilibrium policies are. The opposite holds when the underdog effect is present; an increasing underdog effect mitigates the policy differentiation of the two parties, although the effect is not large. We also find multiple Wittman-Roemer equilibria when the bandwagon effect is sufficiently strong. JEL Categories: D3, D7, H2
    Keywords: bandwagon effect, underdog effect, Hotelling-Downs model, Wittman- Roemer model
    Date: 2008–03
  14. By: Anh Ngoc Nguyen (Development and Policies Research Center (DEPOCEN), 216 Tran Quang Khai Street, Hanoi, Vietnam); Ngoc Quang Pham (Development and Policies Research Center (DEPOCEN), 216 Tran Quang Khai Street, Hanoi, Vietnam); Chuc Dinh Nguyen (Aston Business School, Aston University, UK); Nhat Duc Nguyen (Development and Policies Research Center (DEPOCEN), 216 Tran Quang Khai Street, Hanoi, Vietnam)
    Abstract: Innovation has long been considered an important factor for creating and maintaining the competitiveness of nations and firms. Common knowledge stands that innovation is the cause of the increase of exports. However, contradicting empirical evidences are reported in the literature on the causality between innovation and export. In this paper we examine whether innovation performed by small and medium enterprises (SMEs) enhances their exporting likelihood in the context of a developing country of Vietnam. Using an uniquely rich Vietnamese SMEs database, we find that innovation as measured directly by 'new products', 'new production process' and 'improvement of existing products' are important determinants of exports by Vietnamese SMEs. We add to the current literature by examining modification of existing products as an innovation activity. We also find evidence of endogeneity of innovation that may lead to biased estimate of innovation in previous studies, which failed to take this problem into account.
    Keywords: Innovation, Export, Vietnam, SME, Instrumental Variable, Bivariate
    JEL: F02 L2 O3
    Date: 2008–03

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