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on Microeconomics |
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Issue of 2008‒09‒20
sixteen papers chosen by Joao Carlos Correia Leitao Technical University of Lisbon |
| By: | Elisabetta Iossa; Francesca Stroffolini |
| Abstract: | We study how vertical integration in regulated network industries affects the acquisition and transmission of socially valuable information on demand. We consider a regulated upstream monopoly with downstream unregulated Cournot competition and demand uncertainty. Demand information serves to set the access price and to foster competition in the unregulated segment but demand realizations can be observed at some cost only by the upstream monopolist; information acquisition is also unobservable. We show that vertical integration favours acquisition of demand information because of the transmission of information generated by the public nature of the regulatory mechanism. This holds both when access to information is easier for the upstream firm and when it is easier for downstream firms. |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:edb:cedidp:08-03&r=mic |
| By: | Eddy Bekkers (Department of Economics, Johannes Kepler University Linz, Austria); Joseph Francis Francois (Department of Economics, Johannes Kepler University Linz, Austria) |
| Abstract: | We develop a model with endogeneity in key features of industrial structure linked to heterogeneous cost structures under Cournot competition. We use the model to explore issues related to cross-country differences in industry structure and the impact of globalization on markups and pricing, concentration, and productivity. The model nests two workhorse trade models, the Brander & Krugman reciprocal dumping model and the Ricardian technology-based trade model, as special cases. We examine both free entry and limited entry (free exit) cases. The model generates clear testable predictions on the probability of zero trade flows and the pattern of export prices, and on cross-country and industry variations in industrial structure controlling for openness. Market prices decline as a result of trade liberalization, the least productive firms get squeezed out of the market, exporting firms gain market share, and more firms become trade oriented. In addition, depending on the strength of underlying cost heterogeneity, falling prices are consistent with both increasing and falling industry concentration following episodes of integration. Welfare rises with trade liberalization, unless trade costs decline from a prohibitive level in the short run free exit case. Variation across industries and markets in markups, concentration, and pricing structures is otherwise a function of market size and the variation in cost heterogeneity across industries. |
| Keywords: | Firm heterogeneity, Cournot competition, Composition effects of trade liberalization |
| JEL: | L11 L13 F12 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2008_11&r=mic |
| By: | Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); M. Vittoria Levatia (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany); Matteo Ploner (Max Planck Institute of Economics, Strategic Interaction Group, Jena, Germany; University of Trento, Italy) |
| Abstract: | On a heterogeneous experimental oligopoly market, sellers choose a price, specify a set-valued prior-free conjecture about the others' behavior, and form their own profit-aspiration for each element of their conjecture. We formally define the concepts of satisficing and prior-free optimality and check if seller participants behave in accordance with them. We find that seller participants are satisficers, but fail to be "prior-free" optimal. |
| Keywords: | Satisficing behavior, Bounded rationality, Triopoly |
| JEL: | C92 C72 D43 |
| Date: | 2008–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2008-067&r=mic |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Karl Schlag (Department of Economics, Universitat Pompeu Fabra) |
| Abstract: | We consider a robust version of the classic problem of optimal monopoly pricing with incomplete information. In the robust version, the seller faces model uncertainty and only knows that the true demand distribution is in the neighborhood of a given model distribution. We characterize the optimal pricing policy under two distinct, but related, decision criteria with multiple priors: (i) maximin expected utility and (ii) minimax expected regret. The resulting optimal pricing policy under either criterion yields a robust policy to the model uncertainty. While the classic monopoly policy and the maximin criterion yield a single deterministic price, minimax regret always prescribes a random pricing policy, or equivalently, a multi-item menu policy. Distinct implications of how a monopolist responds to an increase in uncertainty emerge under the two criteria. |
| Keywords: | Monopoly, Optimal pricing, Robustness, Multiple priors, Regret |
| JEL: | C79 D82 |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:1527rr&r=mic |
| By: | Sznajd-Weron, Katarzyna; Weron, Rafal; Wloszczowska, Maja |
| Abstract: | In this paper we introduce two models of opinion dynamics in oligopoly markets and apply them to a situation, where a new entrant challenges two incumbents of the same size. The models differ in the way the two forces influencing consumer choice - (local) social interactions and (global) advertising - interact. We study the general behavior of the models using the Mean Field Approach and Monte Carlo simulations and calibrate the models to data from the Polish telecommunications market. For one of the models criticality is observed - below a certain critical level of advertising the market approaches a lock-in situation, where one market leader dominates the market and all other brands disappear. Interestingly, for both models the best fits to real data are obtained for conformity level 0.3<p<0.4. This agrees very well with the conformity level found by Solomon Asch in his famous social experiment. |
| Keywords: | opinion dynamics; outflow dynamics; agent-based model; oligopoly market; advertising; mobile telephony |
| JEL: | D70 L13 M37 C15 |
| Date: | 2008–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10422&r=mic |
| By: | Wan-Hsin LIU |
| Abstract: | Since 1997 the Hong Kong (HK) government has markedly changed its role from being a mere institution provider to being an active innovation promoter. As such, it has actively implemented innovation policies that focus especially on creating new funding opportunities and establishing several R&D centres to facilitate information flow and innovation cooperation between universities and industries. One of the industries in which it has been especially active is the electronics industry. Thus this study looks at the electronics industry to examine, using data collected from a questionnaire survey on the HK electronics SMEs, whether these policies have positively affected innovation intensity in HK. The survey findings indicate that there has been an increase in innovation activities in HK, but also that neither the R&D centres nor the universities have played important roles as innovation sources or innovation partners for the HK electronics SMEs. Rather, the main way through which universities and R&D centres support the HK electronics SMEs’ innovation activities seems to be the provision of a highly-qualified labour-force transmitting academic knowledge to companies |
| Keywords: | electronics, innovation, innovation policy, regional survey, Hong Kong, China |
| JEL: | D21 L60 O31 O33 O38 R10 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1445&r=mic |
| By: | Payot, Frederic (Universitie of Lausanne); Szalay, Dezsö (Economics Department, University of Warwick.) |
| Abstract: | We analyze a two-stage patent race. In the first phase firms seek to develop a research tool, an innovation that has no commercial value but is necessary to enter the second phase of the race. The firm that completes the second phase of the race first obtains a patent on the final innnovation and enjoys its profits. We ask whether patent protection for the innovator of the research tool is beneficial from the ex ante point of view. We show that there is a range of values of the final innovation such that firms prefer to have no Intellectual Property Rights for research tools. |
| Keywords: | Sequential Patent Race ; Intellectual Property Rights ; Knowledge Sharing |
| JEL: | D86 L00 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:864&r=mic |
| By: | Pedro Cosme da Costa Vieira (Faculdade de Economia, Universidade do Porto) |
| Abstract: | This paper relaxes the Motta & Vasconcelos’ (2005) short-term assumption that firms’ capital is fixed. We demonstrate that, contrary to the conclusion of that article, in the best interest of consumers, even when firms have large economies of scale, long-term forward-looking Antitrust Authorities must block firms’ merger plans whenever profits of firms are positive. |
| Keywords: | Antitrust policy, Economies of scale |
| JEL: | D43 L13 L25 L41 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:289&r=mic |
| By: | Takalo , Tuomas (Bank of Finland Research); Tanayama , Tanja (Helsinki Center of Economic Research (HECER)) |
| Abstract: | We study the interaction between private and public funding of innovative projects in the presence of adverse-selection based financing constraints. Government programmes allocating direct subsidies are based on ex-ante screening of the subsidy applications. This selection scheme may yield valuable information to market-based financiers. We find that under certain conditions, public R&D subsidies can reduce the financing constraints of technology-based entrepreneurial firms. Firstly, the subsidy itself reduces the capital costs related to innovation projects by reducing the amount of market-based capital required. Secondly, the observation that an entrepreneur has received a subsidy for an innovation project provides an informative signal to market-based financiers. We also find that public screening works more efficiently if it is accompanied by subsidy allocation. |
| Keywords: | adverse selection; innovation finance; financial constraints; R&D subsidies; certification |
| JEL: | D82 G28 H20 O30 O38 |
| Date: | 2008–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofrdp:2008_019&r=mic |
| By: | Meuleman, M.; De Maeseneire, W. (Vlerick Leuven Gent Management School) |
| Abstract: | Many countries spend sizeable sums of public money on R&D grants to alleviate debt and equity gaps for small firms’ innovation projects. In making such awards, knowledgeable government officials may certify firms to private financiers. This paper investigates whether government subsidies to R&D enhance SMEs’ access to external financing due to this certification effect. Using a unique Belgian dataset of 1107 approved requests and a control group of 501 denied requests for a specific type of R&D grant, we examine the impact on small firms’ external equity, short term and long term debt financing. We find that obtaining a R&D subsidy provides a positive signal about SME quality and results in better access to long-term debt. |
| Keywords: | R&D subsidies, government policy, SMEs, financial constraints, certification hypothesis, behavioural additionality |
| JEL: | G32 H25 O38 |
| Date: | 2008–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:vlg:vlgwps:2008-12&r=mic |
| By: | Ahlberg, Joakim (VTI) |
| Abstract: | We propose in this paper a discrete bidding model, both on quantities and in pricing. It has a two-unit demand environment where subjects bid for contracts with an unknown redemption value, common to all bidders. Prior to bidding, the bidders receive private signals of information on the (common) value. Both the value and the signals are drawn from a known discrete affiliated joint distribution. <p> The relevant task for the paper is to compare equilibrium strategies and the seller's revenue between the three auction formats. We find that, among the three auction formats below with two players, the Vickrey auction always gives the most revenue to the seller, where the discriminatory auction becomes second and the uniform auction last. We also find that, in equilibrium, bidders bid the same amount on both items in the discriminatory auction; a phenomenon we do not notice in either of the other two auction formats. There, different amount of demand reduction is encountered. |
| Keywords: | Multi-Unit Auction; Common Value Auction; Discrete Auction; Game Theory |
| JEL: | C72 D44 |
| Date: | 2008–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:vtiwps:2008_009&r=mic |
| By: | Martinsson, Gustav (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) |
| Abstract: | The Schumpeterian view on Business cycles treats recessions as a cleansing mechanism and a state where firms can regroup and innovate. Firms need to access finance externally in order to compensate declining cash flow in recessions. Due to financial frictions, the literature proposes that firms need to post collateral in order to mitigate problems of information asymmetries. In this paper I view knowledge within a firm as a prerequisite for it to be innovative. Combining financial frictions and firm knowledge intensity the overall hypothesis of this paper is: Firms which have collateral can retain its knowledge intensity when cash flow declines. This enables firms with collateral to benefit from recessions like Schumpeter proposed. In this paper I explore the impact of firm collateral on the cyclicality of knowledge intensity. This is conducted through using firm level data on 14,500 Swedish manufacturing firms over the period 1997-2004. The main results are: (i) the knowledge intensity of a firm without collateral is pro-cyclical. I.e. its share of highly educated employees is positively correlated with sales variation; (ii) on the other hand, the knowledge intensity of firms with collateral is counter-cyclical. Through retaining their knowledge intensity even as sales drops firms with collateral can benefit from recessions as Schumpeter proposed. |
| Keywords: | incomplete markets; asymmetric information; business fluctuations; business cycles; corporate finance; innovation |
| JEL: | D52 D82 E32 O16 O31 |
| Date: | 2008–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cesisp:0134&r=mic |
| By: | Zoltan J. Acs (George Mason University and Max Planck Institute of Economics); Mark Sanders (Utrecht School of Economics and Max Planck Institute of Economics) |
| Abstract: | We develop a model in which stronger protection of intellectual property rights has an inverted U-shaped effect on innovation. Intellectual property rights protection allows the incumbent firms to capture part of the rents of commercial exploration that would otherwise accrue to the entrepreneurs. Stronger patent protection will increase the incentive to do R+D and generate new knowledge. This has a positive impact on entrepreneurship and innovation. However, after some point, further strengthening patent protection will reduce the returns to entrepreneurship sufficiently to reduce overall economic growth. |
| Keywords: | Intellectual Property Rights, Endogenous Growth, Entrepreneurship, Incentives, Knowledge Spillovers, Rents |
| JEL: | J24 L26 M13 O3 |
| Date: | 2008–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2008-069&r=mic |
| By: | SENE, Serigne Moustapha |
| Abstract: | This paper deals with the explicative factors of entry rate for Senegalese industry branches. The entry rate is considered as a function of branches specificities and affaires environment features. One distinguishes the structural entry barriers, no linked to the strategic behaviors of firms already installed, of other explicative variables, namely concentration, profit rate and exit barriers. The estimation by the generalized least squares method shows that, a fall of 10% of structural barriers involves a growth of 1% of the entry rate. Also, the exit barriers and the development of the competition improve significantly the entry rate which is not meanwhile sensitive to the profit rate. Besides, a semi parametric model is estimated by taking into account the expectancy of the entry rate and the conditional competition at exit barriers. The results reveal that, if the firms already in activity maintain their strategic behaviors, with the same profit rate and if the economy structures are unchanged, then the number of industrial firms in activity may widely increase in relation to the number of the previous year. |
| Keywords: | Key words : entrepreneurship; market structure; panel data |
| JEL: | L11 C23 L26 |
| Date: | 2008–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10450&r=mic |
| By: | Andreas Eisingerich (Tanaka Business School, Imperial College London); Oliver Falck (Ifo Institute for Economic Research and CESifo); Stephan Heblich (Max Planck Institute of Economics); Tobias Kretschmer (Institute for Communication Economics, LMU Munich) |
| Abstract: | Industrial clusters develop regionally along the industry's lifecycle and typically exist over many product generations. In order to maintain their innovativeness, they have to develop and adjust along the industry lifecycle. We conduct 142 depth face-to-face interviews in clusters across two continents to examine the drivers of a cluster's innovativeness along the industry lifecycle. The results from our interviews suggest that the impact of key drivers of cluster innovativeness change depending on the stage of a cluster's underlying industry lifecycle. Classifying clusters as either being adolescent (information technology, biotechnology) or mature (automotive, chemicals), our regression analyses show a changing influence of cluster patterns along the industry lifecycle on a firm's innovativeness. Specifically, we analyze the impact of interorganizational network strength, openness, university collaboration, and intrapreneurship on radical innovation across adolescent and mature clusters. Implications for research and policy makers are discussed. |
| Keywords: | Cluster, Industry Lifecycle, Innovation |
| JEL: | O18 R12 L6 |
| Date: | 2008–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2008-070&r=mic |
| By: | Dermot Leahy; Catia Montagna |
| Abstract: | We consider the make-or-buy decision of oligopolistic firms in an industry in which final good production requires specialised inputs. Factor price considerations dictate that firms acquire the intermediate abroad, by either producing it in a wholly owned subsidiary or outsourcing it to a supplier who must make a relationship specific investment. Firms’ internationalisation mode depends on cost and strategic considerations. Crucially, asymmetric equilibria emerge, with firms choosing different modes of internationalisation, even when they are ex-ante identical. With ex-ante asymmetries, lower cost producers have a stronger incentive to vertically integrate (FDI), while higher cost firms are more likely to outsource. |
| Keywords: | Outsourcing, Foreign Direct Investment, Trade Liberalisation, Oligopoly |
| JEL: | F12 F23 L13 L14 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:dun:dpaper:215&r=mic |