nep-mic New Economics Papers
on Microeconomics
Issue of 2008‒05‒05
seven papers chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Türk Mobil Telekomünikasyon Hizmetlerinde Yeni Firmalarin Piyasaya Girisi ve Regülasyon Sorunlari By Mehmet Karaçuka; Recep Kök
  2. The R&D Investment-Uncertainty Relationship: Do Competition and Firm Size Matter? By Czarnitzki, Dirk; Toole, Andrew A.
  3. Nash’s Bargaining Formula Revisited: A Note on Self-Referential Logic By James Gander
  4. Does a Disadvantaged Candidate Choose an Extremist Position? By Soubeyran, R.
  5. Field-of-use restrictions in licensing agreements By Schuett, Florian
  6. Forest-Mill Integration: A Transaction Costs Perspective By Kurt Niquidet; Glen O'Kelly
  7. Adverse Selection, Credit, and Efficiency: the Case of the Missing Market By Alberto Martin

  1. By: Mehmet Karaçuka (Department of Economics, Ege University); Recep Kök (Department of Economics, Dokuz Eylul University)
    Abstract: (This Paper is in Turkish) Services that are based on telecommunication networks, which are crucial infrastructural elements of the information societies, have been gaining increasing attention as composing higher shares within the economies. However, economies of scale in the supply side and network effects in the demand side prevent these markets to be perfectly competitive, and to reach social welfare maximizing equilibria; therefore making regulation a crucial instrument. Turkish mobile telecommunication services form the most competitive segment of overall telecommunication services in Turkey, where the competition process is dysfunctional in the fixed line services. Literature on network industries points out that incumbent firms may prevent new entrants’ competition via network effects and access/ interconnection charges. Our study emphasizes the importance of ex-ante regulation by analysing the strategic interaction among the entrant and incumbent firms in Turkish mobile telecommunications, as well as regulation problems.
    Keywords: Network effects, Competition in telecommunication markets, Regulation, Turkish mobile telecommunication markets, Sebeke etkileri, Telekomünikasyon piyasalarinda rekabet, Regülasyon, Türk mobil telekomünikasyon piyasalari
    Date: 2008–04
  2. By: Czarnitzki, Dirk; Toole, Andrew A.
    Abstract: This paper investigates how competition and firm size affect the relationship between market uncertainty and R&D investment. We use an intuitively appealing measure of firm-specific uncertainty along with panel data to show that firms invest less in current R&D as uncertainty about market returns increases. The effect of firm-specific uncertainty on R&D investment is smaller in concentrated markets – those where market power is higher and strategic rivalry is more intense. Further, the effect of uncertainty on R&D investment is attenuated for large firms which may be the result greater economies of scope. Unsicherheit ist ein immanenter Faktor von Forschungs- und Entwicklung (FuE) und hat einen grundlegenden Einfluss auf Investitionsentscheidungen. Die Literatur zu „Real Options“ Modellen bildet eine Basis für empirische Analysen von Investitionsentscheidungen, insbesondere wenn es sich um größtenteils irreversible Ausgaben wie FuE-Aktivitäten handelt. Wenn Profite solcher Investitionsprojekte ungewiss sind und Unternehmen diese Investition verzögern können, zeigen ökonomische Theorien, dass bei höherer Unsicherheit weniger investiert wird. Jedoch gibt es auch Modelle, die beschreiben, dass die Option die Investition zu verzögern, nicht profitabel sein muss, wenn Unternehmen einem hohen Konkurrenzdruck ausgesetzt sind, oder wenn diese FuE-Aktivitäten hinreichende Wachstumsmöglichkeiten versprechen. Durch solche gegensätzlichen Anreize ist der Effekt von Unsicherheit auf das Investitionsverhalten nicht eindeutig. In dieser Studie analysieren wir empirisch, wie Wettbewerb und Unternehmensgröße einen möglichen negativen Zusammenhang zwischen Investitionen und Unsicherheit beeinflussen. Mit Hilfe von Paneldaten können wir zeigen, dass Unternehmen bei höherer Unsicherheit über die erwarteten Profite tatsächlich weniger investieren. Jedoch ist der Effekt der firmenspezifischen Unsicherheit kleiner in konzentrierten Märkten sowie in Großunternehmen. Wir führen dies auf zwei Gründe zurück. In konzentrierten Märkten kann die strategische Interaktion zwischen Unternehmen intensiver sein als in anderen Märkten. Durch Innovationsaktivitäten kann ein Konkurrenzkampf in Produktmärkten vorweggenommen werden, sodass der negative Effekt von Unsicherheit reduziert wird. Ferner können Großunternehmen Erkenntnisse aus FuE-Aktivitäten besser in alternative Verwendungen transferieren als kleine Unternehmen („economies of scope“), was auch zur Reduktion der negativen Investitionsanreize unter Unsicherheit führt.
    Keywords: Real Options Theory, Uncertainty, R&D, Competition, Firm Size
    JEL: G31 L11 O31
    Date: 2008
  3. By: James Gander
    Abstract: The note focuses on the marginal rates of substitution (MRS) in Nash’s product formula solution to bargaining and why the formula works. Two simple examples from duopoly and bilateral monopoly are used to demonstrate that the MRS’s for both players are implicitly in the contract curve and the product formula. They are equal in the former by design. They become equal in the latter in equilibrium. The self-referential logic is evident. The bargaining model or system is self-contained and circular and is analogous to the proposition given by x = F(x).
    Keywords: Bargaining, Pareto Optimum, Self-Referential Logic
    JEL: C71 C78 C65
    Date: 2008–10
  4. By: Soubeyran, R.
    Abstract: Does a disadvantaged candidate always choose an extremist program? When does a less competent candidate have an incentive to move to extreme positions in order to differentiate himself from the more competent candidate? Recent works answer by the affirmative (Groseclose 1999, Ansolabehere and Snyder 2000, Aragones and Palfrey 2002, 2003). We consider a two candidates electoral competition over public consumption, with a two dimensional policy space and two dimensions of candidates heterogeneity. In this setting, we show that the conclusion depends on candidates relative competences over the two public goods and distinguish between two types of advantages (an absolute advantage and comparative advantage in providing the two public goods). ...French Abstract : Cet article traite de l'entrée dans une industrie dans laquelle les firmes partagent une réputation collective. Premièrement, nous montrons que l'entrée libre n'est pas socialement optimale, il existe un besoin de régulation à travers l'imposition d'un standard minimum de qualité (par exemple). Deuxièmement, nous montrons qu'un standard minimum de qualité peut inciter des firmes à entrer sur le marché. Contrairement à la pensée commune, un standard minimum de qualité ne doit pas être toujours considéré comme une barrière à l'entrée.
    JEL: C72 D72
    Date: 2008
  5. By: Schuett, Florian
    Abstract: A widely used clause in license contracts -- the field-of-use restriction (FOUR) -- precludes licensees from operating outside of the specified technical field. When a technology has several distinct applications, FOUR allow the licensor to slice up his rights and attribute them to the lowest-cost producer in each field of use. This can improve production efficiency. However, with complex technologies, the boundaries of fields of use may be difficult to codify, entailing a risk of overlap of licensees' rights. We explore how this affects the optimal license contract in a moral hazard framework where the licensor's effort determines the probability of overlap. We show that depending on the contracting environment, the license agreement may include output restrictions and nonlinear royalty schemes.
    JEL: L24
    Date: 2007–07–15
  6. By: Kurt Niquidet; Glen O'Kelly
    Abstract: In Canada, where public ownership of forestland is prevalent, a central decision facing policy makers is how to allocate timber resources to private forest companies. Debates tend to focus around what proportion of the annual harvest should be devoted to markets opposed to long-term contracts. To give a guide to policy makers, we surveyed forest firms from New Zealand and Sweden where this decision is based purely on a commercial basis. On average, mills source fifty percent of their fibre from the market. However, using a fractional logit model, we test whether theories from transaction cost economics influence this decision. Results are consistent with transaction cost economics; firms decrease the proportion of fibre sourced from a market with increasing fibre specificity, capital intensity, and uncertainty.
    Keywords: transaction costs, forest tenure, vertical integration
    JEL: D23 K23 L22 L73
    Date: 2008–04
  7. By: Alberto Martin
    Abstract: We analyze a standard environment of adverse selection in credit markets. In our envi- ronment, entrepreneurs who are privately informed about the quality of their projects need to borrow from banks. As is generally the case in economies with adverse selection, the competitive equilibrium of our economy is shown to be ine¢ cient. Under adverse selection, the choices made by one type of agents limit what can be o¤ered to other types in an incentive-compatible manner. This gives rise to an externality, which cannot be internalized in a competitive equilibrium. We show that, in this type of environment, the ine¢ ciency associated to adverse selection is the consequence of one implicit assumption: entrepreneurs can only borrow from banks. If an additional market is added (say, a .security market.), in which entrepreneurs can obtain funds beyond those o¤ered by banks, we show that the e¢ cient allocation is an equilibrium of the economy. In such an equilibrium, all entrepreneurs borrow at a pooling rate in the security market. When they apply to bank loans, though, only entrepreneurs with good projects pledge these additional funds as collateral. This equilibrium thus simultaneously entails cross- subsidization and separation between di¤erent types of entrepreneurs.
    Keywords: Adverse Selection, Credit Markets, Collateral, Screening
    JEL: D82 G20 D62
    Date: 2008–04

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