nep-mic New Economics Papers
on Microeconomics
Issue of 2008‒09‒29
seventeen papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  1. Patent Applications and the Grant Lag under Early Disclosure System: Empirical Estimates for Japanese Firms By Nakanishi, Yasuo; Yamada, Setsuo
  2. Economic Factors Underlying the Unbundling of Advertising Agency Services By Mohammad Arzaghi; Ernst R. Berndt; James C. Davis; Alvin J. Silk
  3. Noncooperative Oligopoly in Markets with a Continuum of Traders By Busetto, Francesca; Codognato, Giulio; Ghosal, Sayantan
  4. A Lead Market Approach Towards the Emergence and Diffusion of Coal-fired Power Plant Technology By Rennings, Klaus; Smidt, Wilko
  5. Nonparametric Identification of Dynamic Models with Unobserved State Variables By Iwan Bos; Joseph E. Harrington, Jr.
  6. The Efficiency and Evolution of R&D Networks By Michael D. König; S. Battiston; M. Napoletano; F. Schweitzer
  7. Measuring changes in preferences and perception due to the entry of a new brand with choice data By Lutz Hildebrandt; Lea Kalweit
  8. Seemingly competitive food retail regulations : who do they really help ? By Larue, B.; Bonroy, O.
  9. Buying Online: Sequential Decision Making by Shopbot Visitors By Dulleck, Uwe; Hackl, Franz; Weiss, Bernhard; Winter-Ebmer, Rudolf
  10. Modelling and measuring the effects of public subsidies on business R&D: theoretical and econometric issues By Cerulli Giovanni
  11. Analysis of the World Market for Steam Coal Using a Complementarity Model By Clemens Haftendorn; Franziska Holz
  12. Nash Demand Game and the Kalai-Smorodinsky Solution By Nejat Anbarci; John Boyd
  13. Non-smooth Dynamics and Multiple Equilibria in a Cournot-Ramsey Model with Endogenous Markups By Brito, Paulo; Costa, Luís F.; Dixon, Huw
  14. An extension of Reny's theorem without quasiconcavity By Philippe Bich
  15. Innovation on Demand: Can Public Procurement Drive Market Success of Innovations By Aschhoff, Birgit; Sofka, Wolfgang
  16. When Market Competition Benefits Firms By Junichiro Ishida; Toshihiro Matsumura; Noriaki Matsushima
  17. Linking Natural Gas Markets - Is LNG Doing Its Job? By Anne Neumann

  1. By: Nakanishi, Yasuo; Yamada, Setsuo
    Abstract: The purpose of this paper is to investigate the impact of the length of the grant lag under the early disclosure system in Japan. First, we measure the length of the grant lag. Second, we investigate whether reducing the grant lag significantly increases patent applications. We use data from 1985 to 2000 on 101 Japanese companies. The parameter for the grant lag was significantly negative in all equations. Therefore, reducing the grant lag increases patent applications. We also empirically investigated the determination of R\D. The grant lag significantly affects R\D
    Keywords: Patent; Grant Lag; Patent Policy; R\D
    JEL: O33 O32
    Date: 2008–04
  2. By: Mohammad Arzaghi; Ernst R. Berndt; James C. Davis; Alvin J. Silk
    Abstract: This paper addresses a longstanding puzzle involving the unbundling of services that has occurred over more than two decades in the U.S. advertising agency industry: How can the shift from the bundling to the unbundling of services be explained and what accounts for the slow pace of change? Using a cost-based theoretical framework of bundling due to Evans and Salinger (2005, 2008), we develop a simple model of an advertising agency's decision to unbundle its services as a tradeoff between the fixed cost to the advertiser of establishing and maintaining a relationship with an advertising agency and pecuniary economies of scale available in providing media services. The results from an econometric analysis of cross-sectional and pooled data collected by the U.S. Census Bureau for quinquenial censuses conducted between 1982 and 2002 support the key predictions of the model. We find that advertising agency establishments are more likely to unbundle if they are large and diversified in their service offerings and are less likely to do so with increasing age and greater geographical scope. We also find a strong trend toward unbundling over time, a result that is partially explained by increases in media prices over time.
    JEL: D4 L84 M37
    Date: 2008–09
  3. By: Busetto, Francesca (Dipartimento di Scienze Economiche, Universitµa degli Studi di Udine); Codognato, Giulio (Dipartimento di Scienze Economiche, Universitµa degli Studi di Udine); Ghosal, Sayantan (Department of Economics, University of Warwick)
    Abstract: In this paper, we study three prototypical models of noncooperative oligopoly in markets with a continuum of traders : the model of Cournot-Walras equilibrium of Codognato and Gabszewicz (1991), the model of Cournot-Nash equilibrium of Lloyd S. Shapley, and the model of Cournot-Walras equilibrium of Busetto et al. (2008). We argue that these models are all distinct and only the Shapley's model with a continuum of traders and atoms gives an endogenous explanation of the perfectly and imperfectly competitive behavior of agents in a one-stage setting. For this model, we prove a theorem of existence of a Cournot-Nash equilibrium.
    JEL: C72 D51
    Date: 2008
  4. By: Rennings, Klaus; Smidt, Wilko
    Abstract: Today, more than 70% of the world’s total electricity production is supplied by power plants using conventional fossil fuels. Coal accounts for more than half of the fossil fuel combustion in electricity plants. Future mega trends give reason to believe that electricity demand will double until 2030. The abundance of coal reserves in many countries and increasing fuel prices for gas and oil against the background of a growing need to provide sufficient, secure and affordable energy make coal an attractive option in worldwide electricity production. Against this background, the aim of this paper is to analyse why clean coal technologies in some countries diffuse faster and to a greater extent than in other nations. The paper applies the lead market concept. Lead markets are markets that adopt an innovation before it is adopted by most other countries and therefore lead the global diffusion of the innovation. The most important technological trajectory for coal power plants is the pulverised coal-fired steam cycle (PC) which is the basis for all other coal combustion technologies. Modern PC technology is well developed and accounts for over 90% of coal-fired capacity worldwide. Therefore it will be taken as a reference technology, with SC (Supercritical) coal-fired power generation technologies being selected as an innovative technology within this trajectory. As for the diffusion of SC, the paper concentrates on Germany, USA, China and Japan. The analysis shows that the typical lead market pattern applies only to a limited extent. In the 1960s and 1970s, the USA has established a lead market for SC technology. In the meanwhile, Japan has surpassed the United States, although it started out as typical lag market. After analysing the technology diffusion in the four countries, one central question evolves: Can we determine a lead market for coal-fired power plant technology today? The discussion of lead market factors shows that currently no clear lead market exists for coal-fired power plant technology. Although the United States still has comparative advantages in terms of prices, demand and market structure, Japan has caught up in terms of transfer advantage and Germany in terms of regulation. In the near future, demand advantages will switch to China. This supports also the hypothesis that - apart from the demand-oriented lead market model - push factors such as R&D activity play a strong role as well. The transfer advantage of Japan stems mainly from its intensive R&D activities. Thus it can be concluded that a mix of push and pull policies is necessary in order to establish a lead market position.
    Keywords: Lead Markets, Coal Power plants, Energy Technology, Energy Policy
    JEL: L50 O33 Q50
    Date: 2008
  5. By: Iwan Bos; Joseph E. Harrington, Jr.
    Abstract: In the context of an in.nitely repeated capacity-constrained price game, we endogenize the composition of a cartel when firms are heterogeneous in their capacities. When firms are sufficiently patient, there is always a stable cartel involving the largest firms. A firm with sufficiently small capacity is not a member of any stable cartel. When a cartel is not all-inclusive, colluding firms set a price that serves as an umbrella with non-cartel members pricing below it and producing at capacity. Contrary to previous work, our results suggest that the most severe coordinated effects may come from mergers involving moderate-sized firms, rather than the largest or smallest firms.
    Date: 2008–09
  6. By: Michael D. König (Chair of Systems Design, ETH Zurich, Switzerland); S. Battiston (Chair of Systems Design, ETH Zurich, Switzerland); M. Napoletano (Chair of Systems Design, ETH Zurich and Observatoire Français des Conjonctures Economiques, Department for Research on Innovation and Competition, Valbonne, France); F. Schweitzer (Chair of Systems Design, ETH Zurich, Switzerland)
    Abstract: This work introduces a new model to investigate the efficiency and evolution of networks of firms exchanging knowledge in R&D partnerships. We first examine the efficiency of a given network structure in terms of the maximization of total profits in the industry. We show that the efficient network structure depends on the marginal cost of collaboration. When the marginal cost is low, the complete graph is efficient. However, a high marginal cost implies that the efficient network is sparser and has a core-periphery structure. Next, we examine the evolution of the network struc- ture when the decision on collaborating partners is decentralized. We show the existence of mul- tiple equilibrium structures which are in general inefficient. This is due to (i) the path dependent character of the partner selection process, (ii) the presence of knowledge externalities and (iii) the presence of severance costs involved in link deletion. Finally, we study the properties of the emerg- ing equilibrium networks and we show that they are coherent with the stylized facts of R&D net- works.
    Keywords: R&D networks, technology spillovers, network efficiency, network formation
    JEL: D85 L24 O33
    Date: 2008–09
  7. By: Lutz Hildebrandt; Lea Kalweit
    Abstract: Context effects can have a major influence on brand choice behavior after the introduction of a new product. Based on behavioral literature, several hypotheses about the effects of a new brand on perception, preferences and choice behavior can be derived, but studies with real choice data are still lacking. We employ an internal market structure analysis to measure context effects caused by a new product in scanner panel data, and to discriminate between alternative theoretical explanations. An empirical investigation reveals strong support for categorization effects and changes in perception, which affect customers in two out of five segments.
    Keywords: context effects, categorization, brand choice models, new brand introduction
    JEL: M31 C23 C51
    Date: 2008–08
  8. By: Larue, B.; Bonroy, O.
    Abstract: The food distribution and retail sectors in Quebec are highly concentrated and integrated as large food distributors are also involved in food retailing. As such, they are competing with small grocery and convenience stores they sell inputs to. A review of the industry suggests that there are important economies of size in distribution, but that smaller stores offering convenience face a more inelastic demand. Concerns over the survival of smaller stores in Quebec have motivated two types of regulations. The first type aims at reducing the cost advantage of dominant retailers by restricting the number of employees that they are allowed to use during specific time periods. The second type restricts retail prices. We develop a simple model capturing the main features of the industry to ascertain the impact of these regulations on retail and wholesale prices. Our results suggest that these regulations reduce welfare and may induce both tighter margins and lower surplus for small retailers.
    JEL: L22
    Date: 2008
  9. By: Dulleck, Uwe (School of Economics and Finance, Queensland University of Technology, Brisbane, Australia); Hackl, Franz (Department of Economics, University of Linz, Linz, Austria); Weiss, Bernhard (Department of Economics, University of Linz, Linz, Austria); Winter-Ebmer, Rudolf (Department of Economics, University of Linz, Linz, Austria, and Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria)
    Abstract: In this article we propose a two stage procedure to model demand decisions by customers who are balancing several dimensions of a product. We then test our procedure by analyzing the behavior of buyers from an Austrian price comparison site. Although in such a market a consumer will typically search for the cheapest price for a given product, reliability and service of the supplier are other important characteristics of a retailer. In our data, consumers follow such a two stage procedure: they select a shortlist of suppliers by using the price variable only; finally, they trade off reliability and price among these shortlisted suppliers.
    Keywords: E-commerce, price comparison, decision theory, heuristics, seller reputation
    JEL: L81 D83
    Date: 2008–09
  10. By: Cerulli Giovanni (Ceris - Institute for Economic Research on Firms and Growth, Rome, Italy)
    Abstract: It is the aim of this paper to review the principal econometric models used so far to measure the effect of government’s support to private R&D expenditure; in order to reach this task, we first present a basic theoretical framework to identify the effects of public subsidies on business R&D, going on by extending it to the case of dynamic complementarities and presence of subsidy spillovers. The review of the econometric models, the core of the paper, starts from section 4. We first classify econometric models according to three dimensions: 1. structural (based on a system of equations) and non-structural (based on a reduced-form equation and, possibly, a counterfactual) models; 2. models using the subsidy variable in a continuous or in a binary form; and finally, 3. studies exploiting a cross-section versus a longitudinal (panel data) structure. The final part of the paper is an original contribution providing some guidelines to implement R&D policy evaluation in a dynamic subsidization setting.
    Keywords: business R&D; public incentives; econometric evaluation; dynamic treatment
    JEL: O32 C52 O38
    Date: 2008–06
  11. By: Clemens Haftendorn; Franziska Holz
    Abstract: With its resource availability and the prospect of climate friendly technology, coal continues to play an important role in the global energy sector. We develop a complementarity model of the international market for steam coal. We want to analyze the level of competition in this market which is strategic for the importers' security of energy supply. In a spatial equilibrium framework, we assume the steam coal exporters to maximize their profits by choosing the optimal quantity to sell to each importing country. We compare two possible scenarios: perfect competition and Cournot competition. The results, especially the price levels, indicate that the Cournot model is not realistic, suggesting that the producing countries do not exert market power. However, the trade flows and prices observed in reality suggests that there is some form of market power with price discrimination, possibly following a Bertrand model in a spatial setting.
    Keywords: Coal, energy, market structure, simulation model
    JEL: L11 L72 C69
    Date: 2008
  12. By: Nejat Anbarci (School of Accounting, Economics and Finance, Deakin University,); John Boyd (Department of Economics, Florida International University)
    Abstract: We introduce two new variations on the Nash demand game. One, like all known Nash-like demand games so far, has the Nash solution outcome as its equilibrium outcome. In the other, the range of solutions depends on an exogenous breakdown probability; surprisingly, the Kalai-Smorodinsky outcome proves to be the most robust equilibrium outcome. While the Kalai-Smorodinsky solution always finishes on top, there is no possible general ranking among the remaining solution concepts considered; in fact, the rest of the solution concepts take their turns at the bottom at various bargaining problems, depending on the specifics of the bargaining setup.
    Keywords: Nash demand game, Kalai-Smorodinsky Solution.
    Date: 2008–09
  13. By: Brito, Paulo; Costa, Luís F.; Dixon, Huw (Cardiff Business School)
    Abstract: We develop a simple Ramsey model with numerous Cournotian industries where entry generates an endogenous markup. The model produces two different regimes: a monopoly and an oligopoly one. We provide a rigorous study of non-smooth dynamics and we also analyse the global dynamics of the model, demonstrating the model exhibits robust heteroclinic orbits, either of the smooth or the non-smooth type. Similar economies may be in any of these regimes and they may change regime along its convergence path. Fixed costs and elasticities of demand, play a crucial role and changing their values may alter the dynamics in a radical way, either by inducing a discontinuous transition or a discontinuous hysteresis.
    Keywords: endogenous mark-ups; non-smooth dynamics; discontinuous induced bifurcations; heteroclinic orbits
    JEL: C62 D43 E32
    Date: 2008–09
  14. By: Philippe Bich (CERMSEM - CEntre de Recherche en Mathématiques, Statistique et Économie Mathématique - CNRS : UMR8095 - Université Panthéon-Sorbonne - Paris I, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)
    Abstract: In a recent but well known paper, Reny has proved the existence of Nash equilibria for compact and quasiconcave games, with possibly discontinuous payoff functions. In this paper, we prove that the quasiconcavity assumption in Reny's theorem can be weakened: roughly, we introduce a measure allowing to localize the lack of quasiconcavity; this allows to refine the analysis of equilibrium existence
    Keywords: Nash equilibrium, existence, discontinuous games, non quasiconcave
    Date: 2008–09–20
  15. By: Aschhoff, Birgit; Sofka, Wolfgang
    Abstract: Public procurement has been at the centre of recent discussions on innovation policy on both European and national levels (e.g., Aho-Report, Barcelona Strategy). It has a large potential to stimulate innovation since it accounts for 16% of combined EU-15 GDP. We embed public procurement for innovation into the broader framework of public policies to stimulate innovation: regulations, R&D subsidies and knowledge infrastructure (i.e. basic research at universities). We synthesize the characteristics of all four instruments based on existing literature and quantitatively compare their effects on innovation success. Our empirical investigation rests upon a survey of more than 1,100 innovative firms in Germany. Our survey puts us in the position to trace all sources of valuable innovation impulses, namely public customers, law and regulations, universities and public funding for R&D. We relate these sources back to innovation success. We find that (non-defense related) public procurement and knowledge spillovers from universities propel innovation success equally. In a second step, we explore whether these effects vary across firms (e.g. size, location, industry). The benefits of university knowledge apply uniformly to all firms. However, public procurement is especially effective for smaller firms in regions under economic stress as well as in distributive and technological services. Based on these findings targeted policy recommendations can be developed.
    Keywords: Innovation policy, public procurement, comparison of instruments, innovation success
    JEL: C34 H32 O38
    Date: 2008
  16. By: Junichiro Ishida (Osaka School of International Public Policy (OSIPP),Osaka University); Toshihiro Matsumura (Institute of Social Science, University of Tokyo); Noriaki Matsushima (Graduate School of Business Administration, Kobe University)
    Abstract: A conventional wisdom in economics posits that more intense market competition, measured in almost any way, reduces firm profit. In this paper, we challenge this conventional wisdom in a simple Cournot model with strategic R&D investments wherein an efficient firm (dominant firm) competes against less efficient firms (fringe firms). We find that an increase in the number of fringe firms can stimulate R&D by the dominant firm, while it always reduces R&D by each of the fringe firms. More importantly, this force can be strong enough to compensate for the loss that arises from more intense market competition: the dominant firm's profit may indeed increase with the number of fringe firms, quite contrary to the conventional wisdom. An implication of this result is far-reaching, as it gives dominant firms to help, rather than harm, fringe competitors. We relate this implication to a practice know as open knowledge disclosure, especially Ford's strategy of disclosing its know-how publicly and extensively at the beginning of the 20th century.
    Keywords: competition, oligopoly, R&D, heterogeneity, entry
    Date: 2008–09
  17. By: Anne Neumann
    Abstract: The increase in liquefied natural gas trade has accelerated the integration of previously segmented markets in North America, Europe, and Asia. This paper provides evidence on the integration of the transatlantic natural gas market. We test the theoretical proposition that in integrating markets commodity prices should move closer than before. Using 2,059 pairs of daily spot prices for natural gas in North America and Europe we investigate price dynamics covering the period from 1999 until 2008. We apply the Kalman Filter technique to gain detailed information on trends inherent over time. Results suggest an increasing convergence of spot prices on either side of the Atlantic Basin.
    Keywords: Market integration, spot markets, LNG, natural gas
    JEL: L95 Q49 F15
    Date: 2008

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