nep-mic New Economics Papers
on Microeconomics
Issue of 2008‒11‒25
29 papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  2. Dynamic Location Games By Simon Loertscher; Gerd Muehlheusser
  3. Formal and informal external linkages and firms' innovative strategies: A cross-country comparison By Isabel Maria Bodas Freitas; Tommy Clausen; Roberto Fontana; Bart Verspagen
  4. Cournot Duopoly when the Competitors Operate Multiple Production Plants By Fabio Tramontana; Laura Gardini; Tönu Puu
  5. The Impact of Technological and Non-Technological Innovations on Firm Growth By Jyrki Ali-Yrkkö; Olli Martikainen
  6. Tracing the Woes: An Empirical Analysis of the Airline Industry By Steven Berry; Panle Jia
  7. Trade and mergers in the presence of firm heterogeneity By Noriaki Matsushima; Yasuhiro Sato; Kazuhiro Yamamoto
  9. Market integration in network industries By MAULEON, Ana; VANNETELBOSCH, Vincent; VERGARI, Cecilia
  10. Compatibility choice in vertically differentiated technologies By GARCIA, Filomena; VERGARI, Cecilia
  11. Demand for differentiated milk products: Implications for price competition By Elena López; Rigoberto A. López
  12. Optimal Sharing Strategies in Dynamic Games of Research and Development By Nisvan Erkal; Deborah Minehart
  13. The effect of competition between two spatially separated markets- An investigation of two interlinked Bak-Sneppen models. By Damgaard, M.
  14. Does the absence of competition in the market foster competition for the market? A dynamic approach to aftermarkets By LAUSSEL, Didier; RESENDE, Joana
  15. Uncertainty quality, product variety and price competition By GABSZEWICZ, Jean J.; RESENDE, Joana
  16. On investment decisions in liberalized electricity markets: the impact of price caps at the spot market By ZOETTL, Gregor
  17. Market Structure and Competition in Food Retail: Some Evidences from Brazil By Monterio, G.F.A.; Farina, E.M.M.Q.; Nunes, R.
  18. Mixed duopoly, privatization and the shadow cost of public funds By CAPUANO, Carlo; DE FEO, Giuseppe
  19. Imperfect competition in the fresh tomato industry By Vincent, Requillart; Michel, Simioni; Xose Luis, Verela Irimia
  20. Efficiency gains and mergers By DE FEO, Giuseppe
  21. To acquire, or to compete? An entry dilemna By GABSZEWICZ, Jean; LAUSSEL, Didier; TAROLA, Ornella
  22. Managing Strategic Buyers By Johannes Horner; Larry Samuelson
  23. Investment decisions in liberalized electricity markets: A framework of peak load pricing with strategic firms By ZOETTL, Gregor
  24. Why Powerful Buyers finance Suppliers’ R&D By Werner Bönte; Lars Wiethaus
  25. Equilibrium Price Dynamics in Perishable Goods Markets: The Case of Secondary Markets for Major League Baseball Tickets By Andrew Sweeting
  26. Upstream Competition and Downstream Labelling By Bonroy, Olivier; Lemarie, Stephane
  27. Searching for innovations ? the technological determinants of acquisitions in the pharmaceutical industry. By Gautier Duflos; Etienne Pfister
  28. Asymmetric Network Effects By Estelle Cantillon; Pai-Ling Yin;
  29. Auctions with Dynamic Populations: Efficiency and Revenue Maximization By Said, Maher

  1. By: Scoppola, Margherita
    Abstract: The paper develops a two-stage capacity constrained model, in which the mode of competition is endogenous and the constraint is flexible, to investigate the impact of Tariff Rate Quotas (TRQs) and of different liberalization options in oligopolistic markets. The model predicts that the equilibrium moves from a pure Bertrand outcome to a Cournot outcome as the effectiveness of the capacity constraint increase, that is, as the gap between the cost of the licences plus the in-quota tariff and the out-of-quota tariff increases. The results show that the impacts of the various liberalization options - the expansion of quotas by means of an increase in the number of operators or in the quota allocated to incumbents, the reduction in the in-quota and out-of-quota tariffs and improvements in the TRQ administration system - are rather diverse from those predicted by models assuming perfect competition.
    Keywords: Tariff Rate Quotas, Oligopoly, Trade Liberalization., Agricultural and Food Policy, Industrial Organization, International Relations/Trade, Q18, F13, L13,
    Date: 2008–11–13
  2. By: Simon Loertscher; Gerd Muehlheusser
    Abstract: We study a location game where consumers are distributed according to some density f and where market entry is costly and occurs sequentially. This permits an endogenous determination of the number of active ¯rms, their locations and the sequence in which these locations are occupied. While in general the analysis of such games is complicated by the fact that equilibrium locations and the sequence of settlement must be determined simul-taneously, we show that they can be independently derived for certain classes of densities including monotone and, under some additional restrictions, hump-shaped and U-shaped ones. For these classes we characterize the subgame perfect equilibrium outcome. More-over, when f is monotone and concave the equilibrium locations in areas where the density is larger tend to be more pro¯table. When f is uniform the number of ¯rms entering in equilibrium is minimal.
    Keywords: Spatial competition product differentiation dynamic games entry deterrence
    JEL: D43 L13 D21
    Date: 2008
  3. By: Isabel Maria Bodas Freitas (Grenoble Ecole de Management); Tommy Clausen (Centre for Technology, Innovation and Culture, University of Oslo); Roberto Fontana (Department of Economics, University of Pavia); Bart Verspagen (Centre for Technology, Innovation and Culture, University of Oslo)
    Abstract: Firms increasingly rely upon external actors for their innovation process. Interaction with these actors may occur formally (i.e. through a collaboration agreement) or informally (i.e. external actors acts as sources of knowledge). This paper analyses the reasons why firms consider it to be important to develop formal and informal external linkages in the innovation process by looking at the role played by firms’ innovative strategies and by taking into account that a complementarity or substitutive relationship might exist between formal and informal linkages. Data come from the Third Community Innovation Survey (CIS 3), where we have access to firm level micro-data from Norway, Sweden, the Netherlands and the UK.
    Keywords: External knowledge sources, Innovation strategy, Formal cooperation, Multinomial Probit.
    JEL: O31 O33 O38
    Date: 2008–11
  4. By: Fabio Tramontana (Università Politecnica delle Marche & Dipartimento di Economia e Metodi Quantitativi, Università di Urbino); Laura Gardini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy)); Tönu Puu (CERUM, Umeå University, SE-90187 Umeå, Sweden)
    Abstract: This article considers a Cournot duopoly under an isoelastic demand function and cost functions with built-in capacity limits. The special feature is that each fi…rm is assumed to operate multiple plants, which can be run alone or in combination. Each …firm has two plants with different capacity limits, so each has three cost options, the third being to run both plants, dividing the load according to the principle of equal marginal costs. As a consequence, the marginal costs functions come in three disjoint pieces, so the reaction functions, derived on basis of global pro…fit maximization, may also consist of disjoint pieces. This is reflected in a particular bifurcation structure, due to border collision bifurcations, and to particular basin boundaries, related to the discontinuities. It is shown that stable cycles may coexist, and the non-existence of unstable cycles constitutes a new property. We also compare the coexistent short periodic solutions in terms of the resulting real pro…fits.
    Keywords: Cournot duopoly, isoelastic demand function, cost functions with built-in capacity limits, bifurcation structure.
    JEL: C15 C62 D24 D43
    Date: 2008
  5. By: Jyrki Ali-Yrkkö; Olli Martikainen
    Abstract: ABSTRACT : This study investigates the relationship between innovations and firm growth, based on the data of Finnish firms operating in the software industry. We find that in terms of turnover and employment, firms with only technological innovations do not grow more rapidly than other firms. However, firm growth is positively associated with the combination of technological and non-technological innovations.
    Keywords: innovation, technological, non-technological, R&D, firm, development, employment, growth, Finland
    JEL: O3 O33 L2
    Date: 2008–11–13
  6. By: Steven Berry; Panle Jia
    Abstract: The U.S. airline industry went through tremendous turmoil in the early 2000's. There were four major bankruptcies and two major mergers, with all legacy carriers reporting a large profit reduction. This paper presents a structural model of the airline industry, and estimates the impact of demand and supply changes on profitability. We find that, compared with the late 1990s, in 2006, a) air-travel demand was 8% more price sensitive; b) passengers displayed a strong preference for direct flights, and the connection semi-elasticity was 17% higher; c) the changes of marginal cost significantly favored direct flights. These findings are present in all the specifications we estimated. Together with the expansion of low cost carriers, they explained more than 80% of the decrease in legacy carriers' variable profits.
    JEL: L0 L1 L13 L91 L93
    Date: 2008–11
  7. By: Noriaki Matsushima (Kobe University); Yasuhiro Sato (Osaka University); Kazuhiro Yamamoto (Osaka University)
    Abstract: We investigate the role of firm heterogeneity in considering profitability and desirability of mergers in the international economy. Analysis shows that higher trade costs make only crossborder mergers profitable whereas larger firm heterogeneity is likely to increase both domestic and cross-border mergers. Furthermore, it is shown that whether or not a merger leads to merger waves depends on the types of firms involved in it. It is also demonstrated that larger firm heterogeneity can reduce the discrepancy between profitability and desirability of mergers when the trade cost is sufficiently low.
    Keywords: M&As, trade, firm heterogeneity, Cournot competition
    JEL: F12 G34 L13
    Date: 2008–11
  8. By: D€Ùlessio, Massimiliano; Maietta, Ornella Wanda
    Abstract: Objective of the paper is to verify which are the determinants of innovations in the Italian food industry and which role R&D networking, through the cooperative nature of firm, plays among these determinants. The data used are the 9th (2001-2003) wave of Capitalia surveys based on a representative sample of manufacturing firms with information on firm characteristics, employee education levels, innovation and R&D investments. The approach is a bivariate probit analysis where the two dependent variables are the presence of firm R&D and of innovations and the independent variables are firm characteristics. The results of the analysis show that, among the determinants of firm R&D intra moenia and of firm innovations in the Italian food industry for the years 2001-03, the presence of subsidies for R&D extra moenia, is the most significant variable with the highest marginal effect while the cooperative variable turns out to be positive and significant (6%) after including relative input prices.
    Keywords: innovations, R&D networking, firm property rights., Consumer/Household Economics, Research and Development/Tech Change/Emerging Technologies, O31, O32, D21,
    Date: 2008–11–14
  9. By: MAULEON, Ana (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); VANNETELBOSCH, Vincent (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); VERGARI, Cecilia (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: What is the effect of product market integration on the market equilibrium in the presence of international network externalities in consumption? To address this question, we set up a spatial two-country model and we find that the economic forces at work may have an ambiguous effect on prices.
    Keywords: compatibility, horizontal differentiation, network effect
    JEL: L13 L15
    Date: 2008–05
  10. By: GARCIA, Filomena (ISEG, Technical University of Lisbon); VERGARI, Cecilia (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: We analyse firms' incentives to provide two-way compatibility between two network goods with different intrinsic qualities. We study how the relative importance of vertical differentiation with respect to the network effect influences the price competition as well as the compatibility choice. The final degree of compatibility allows firms to manipulate the overall differentiation. Under weak network effect, full compatibility may arise: the low quality firm has higher incentives to offer it in order to prevent the rival from dominating the market. Under strong network effect we observe multiple equilibria for consumers' demands. However, in any equilibrium of the full game, coordination takes place on the high quality good which, we assume, always maintains its overall quality dominance.
    Keywords: compatibility, vertical differentiation, network effect.
    JEL: L13 L15
    Date: 2008–03
  11. By: Elena López; Rigoberto A. López (Departamento de Fundamentos de Economía e H.E. , Universidad de Alcalá, and Department of Agricultural and Resource Economics, University of Conneticut.)
    Abstract: We apply the Berry, Levinsohn and Pakes (1995) model to scanner data from Boston supermarkets augmented with consumer characteristics data in order to analyze consumer choices and price competition in a differentiated fluid milk market. Milk characteristics include price, fat content, brand name and the organic and/or lactose-free nature of the product. Empirical results show that consumer valuation of fat decreases with income but increases with the number of children. Low-fat and specialty milks, such as organic and lactose-free milks, are preferred by high-income consumers with no children. Although all milks are price elastic at the individual brand level, the cross-price elasticities are quite low and negligible for specialty milks. Based on calculated Lerner indexes, private label milks have the highest percent markups despite their lower prices, while specialty milks have the lowest markups despite their higher prices, which attests to a greater degree of market power for conventional and particularly for private label milk.
    Keywords: Demand analysis, Random coefficients model, Milk, Consumer behavior, Retail pricing, Markups, Competition.
    JEL: D12 D40 L11 L81
    Date: 2008
  12. By: Nisvan Erkal; Deborah Minehart
    Abstract: This paper builds a theoretical foundation for the dynamics of knowledge sharing in private industry. In practice, research and development projects can take years or even decades to complete. We model an uncertain research process, where research projects consist of multiple sequential steps. We ask how the incentives to license intermediate steps to rivals change over time as the research project approaches maturity and the uncertainty that the firms face decreases. Such a dynamic approach allows us to analyze the interaction between how close the firms are to product market competition and how intense that competition is. If product market competition is relatively moderate, the lagging firm is expected never to drop out and the incentives to share intermediate research outcomes decreases monotonically with progress. However, if product market competition is relatively intense, the incentives to share may increase with progress. These results illustrate under what circumstances it is necessary to have policies aimed at encouraging cooperation in R&D and when such policies should be directed towards early vs. later stage research
    Keywords: Multi-stage R&D; innovation; knowledge sharing; licensing; dynamic games
    JEL: L24 O30 D81
    Date: 2008
  13. By: Damgaard, M.
    Abstract: This paper investigates the effect of competition in a market consisting of interlinked economic agents. In particular, the effect of increased competition from the surrounding markets is demonstrated. The presented work is an extension of the Bak-Sneppen model (Bak and Sneppen 1993). Here are two Bak-Sneppen models interlinked such that if the lowest fitness value of one market exceeds the fitness values of the other market minus transportation cost, all cells lower than this band will receive a new random value. The model shows that interdependency between markets has a strong effect on the competitiveness of the least competitive market. The external competition is able to make the least competitive market perform better as well as worse than on its own.
    Keywords: Bak-Sneppen model, interdependency, competition, Marketing,
    Date: 2008
  14. By: LAUSSEL, Didier; RESENDE, Joana (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: In this paper, we investigate dynamic price competition when firms strategically interact in two distinct but interrelated markets: a primary market and an aftermarket, where indirect network effects arise. We set up a differential game of two-dimensional price competition and we conclude that the absence of price competition in the aftermarket (competition in the market) fosters dynamic price competition in the primary market (competition for the market). We also investigate the impact of network sizes on firms' prices in the primary market concluding that, in equilibrium, larger firms have incentives to compete more fiercely for new "uncolonized" consumers.
    Keywords: dynamic competition, differential games, Linear Markov Perfect Equilibrium, aftermarkets, network effects.
    JEL: C61 L11 L13
    Date: 2008–05
  15. By: GABSZEWICZ, Jean J. (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); RESENDE, Joana
    Abstract: This paper analyses price competition under product differentiation when goods are defined in a two dimensional characteristic space, and consumers do not know which firm sells which quality. Equilibrium prices consist of two additive terms, which balance consumers' relative valuation of goods' expected quality and consumers' preferences for variety. However the relative importance of these terms differ under vertical and horizontal dominance.
    Keywords: product differentiation, variety, quality, uncertainty
    JEL: D43 D80 L15
    Date: 2008–06
  16. By: ZOETTL, Gregor
    Abstract: We analyze the impact of a uniform price cap at electricity spot markets on firms investment decisions and on welfare. Since investment decisions for those markets are taken in the long run, fluctuating demand at the spot market eventually gives rise to high price spikes in case of binding capacities. Those price spikes are considered to send accurate signals for investment in generation capacities, limiting those spikes by price caps is thought to reduce firms' investment incentives. We are able to show that this is not true for the case of strategic investment behavior. More specifically we analyze a market game where firms choose capacities prior to a spot market which is subject to fluctuating or uncertain demand. We derive, that appropriately chosen price caps do always increase firms investment incentives under imperfect competition. We furthermore characterize the optimal price cap. Based on the theoretical framework, we empirically analyze the impact of uniform price caps on the German electricity market.
    Keywords: Investment incentives, price caps, fluctuating demand, electricity markets
    JEL: D43 L13 D41 D42 D81
    Date: 2008–06
  17. By: Monterio, G.F.A.; Farina, E.M.M.Q.; Nunes, R.
    Abstract: The paper analyzes competition among supermarkets in Brazil. In contrast to part of the economic literature which suggests that the fast growth of big supermarket chains would destroy independent, medium and small supermarkets, the paper argues that big supermarket chains can coexist with different formats of independent food retailing. As a result, competition in food retail is complex and cannot be described as a simple Darwinian process of market concentration. The analysis is divided in two parts. In the first part, the competition between hypermarkets and supermarkets is examined. Evidences for the district of Sao Paulo, Brazil, suggest that these retailers form separate markets. The second part is focused on neighborhood supermarkets. The results differ from the general belief that independent supermarkets establish higher prices in comparison to big chain supermarkets. The analysis brings to light the heterogeneity of the competitive fringe in the oligopoly model of Brazilian retailing.
    Keywords: Food retail, Supermarkets, Differentiation, Agribusiness, Industrial Organization,
    Date: 2008
  18. By: CAPUANO, Carlo (University of Naples Federico II); DE FEO, Giuseppe (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: The purpose of this paper is to investigate the effect of privatization in a mixed duopoly, where a private firm competes in quantities with a welfare-maximizing public firm. We consider two inefficiencies of the public sector: a possible cost inefficiency, and an allocative inefficiency due to the distortionary effect of taxation (shadow cost of public funds). Furthermore, we analyze the effect of privatization on the timing of competition by endogenizing the determination of simultaneous (Nash-Cournot) versus sequential (Stackelberg) games using the model developed by Hamilton and Slutsky (1990). The latter is especially relevant for the analysis of privatization, given that results and policy prescription emerged in the literature crucially rely on the type of competition assumed. We show that privatization has generally the effect of shifting from Stackelberg to Cournot equilibrium and that, absent efficiency gains privatization never increases welfare. Moreover, even when large efficiency gains are realized, an inefficient public firm may be preferred.
    Keywords: mixed oligopoly, privatization, endogenous timing, distortionary taxes.
    JEL: H2 H42 L13 L32 L33
    Date: 2008–03
  19. By: Vincent, Requillart; Michel, Simioni; Xose Luis, Verela Irimia
    Abstract: In this paper, we analyse the market power of the retail industry in the French tomato market. Following the methods developed in the New Empirical Industrial Organization, we develop a structural model of this industry. The analysis is based on detailed data on final consumption and prices at both shipper and consumer levels for two types of tomatoes in France. The structural model is composed of a system of demand equations, supply equations and pricing equations which include terms which capture the oligopoly and oligopsony power of the retail sector. We show that i) elasticity of demand varies during the year ii) the retail sector exercise only a €حoderate€٠market power iii) the exercise of market power decreases over time iv) If markets were competitive, in the case of tomato €زonde€٠ retail price would decrease by about 1.2% to 4.5% depending on the year; v) In absence of market power, shipping price might be 6% to 24% higher than observed. We find higher distortions in the case of tomato €اrappe€ٮ We also find that the distortions tend to decrease over time. We conclude to a moderate exercise of market power of the retail sector in the French tomato market.
    Keywords: Oligopoly, Oligopsony, Fresh products, Industrial Organization,
    Date: 2008
  20. By: DE FEO, Giuseppe (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))
    Abstract: In the theoretical literature, strong arguments have been provided in support of the efficiency defense in antitrust merger policy. One of the most often cited results is due to Williamson (1968) that shows how relatively small reduction in cost could offset the deadweight loss of a large price increase. Furthermore, Salant et al. (1983) demonstrate that (not for monopoly) mergers are unprofitable absent efficiency gains. The general result, drawn in a Cournot framework by Farrell and Shapiro (1990), is that (not too large) mergers that are profitable are always welfare improving. In the present work we challenge the conclusions of this literature in two aspects. First, we show that Williamson's results underestimate the welfare loss due to a price increase and overestimate the effect of efficiency gains. Then, we prove that the conditions for welfare improving mergers defined by Farrell and Shapiro (1990) hold true only when consumers are adversely affected. This seems an argument to disregard their policy prescriptions when antitrust authorities are more "consumers-oriented". In this respect, we provide a necessary and sufficient condition for a consumer surplus improving merger: in a two firm merger, efficiency gains must be larger than the pre-merger average markup.
    Keywords: mergers, efficiency gains, Cournot oligopoly.
    JEL: D43 L11 L22
    Date: 2008–01
  21. By: GABSZEWICZ, Jean (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE)); LAUSSEL, Didier; TAROLA, Ornella
    Abstract: In this paper we address the following question: is it more profitable, for an entrant in a differentiated market, to acquire an existing firm than to compete? We illustrate the answer by considering competition in the banking sector.
    Keywords: Vertical differentiation, entry, banking competition
    JEL: G34 L13 L22
    Date: 2008–05
  22. By: Johannes Horner (Cowles Foundation, Yale University); Larry Samuelson (Cowles Foundation, Yale University)
    Abstract: We consider the problem of a monopolist with an object to sell before some deadline, facing n buyers with independent private values. The monopolist posts prices but has no commitment power. We show that the monopolist can always secure at least the larger of the static monopoly profit and the revenue from a Dutch auction with a zero reserve price. When there are only a few buyers, her profits are higher than this bound, and she essentially posts unacceptable prices up to the very end, at which point prices collapse to a "reservation price" that exceeds marginal cost. When there are many buyers, the seller abandons this reservation price in order to more effectively screen buyers. Her optimal policy then replicates a Dutch auction, with prices decreasing continuously over time. With more units to sell, prices jump up after each sale.
    Keywords: Revenue management, Intertemporal price discrimination, Coase conjecture, Perishable goods, Reserve price, Dutch auction
    JEL: C72 D42 D82
    Date: 2008–11
  23. By: ZOETTL, Gregor
    Abstract: In this article we analyze firms investment incentives in liberalized electricity markets. Since electricity is economically non storable, it is optimal for firms to invest in a differentiated portfolio of technologies in order to serve strongly fluctuating demand. Prior to the Liberalization of electricity markets, for regulated monopolists, optimal investment and pricing strategies haven been analyzed in the peak load pricing literature (compare Crew and Kleindorder (1986)). In restructured electricity markets regulated monopolistic generators have often been replaced by competing and potentially strategic firms. This article aims to respond to the changed reality and model investment decisions of strategic firms in those markets. We derive equilibrium investment for strategic firms and compare to the benchmark cases of perfect competition and monopoly outcomes. We find that strategic firms have an incentive to overinvest in base-load technologies but choose total capacities too low from a welfare point of view. By fitting the framework to a specific electricity market (Germany) we are able to empirically analyze Investment choices of strategic firms, and quantify the potential for market power and its impact on generation portfolios in restructured electricity markets in the long run.
    Keywords: Investment decisions, technology choice, restructured electricity markets, peak load pricing, strategic firms.
    Date: 2008–07
  24. By: Werner Bönte (Schumpeter School of Business and Economics, University of Wuppertal); Lars Wiethaus (ESMT Competition Analysis)
    Abstract: It is a common concern that pricing pressure by powerful buyers discourages suppliers' R&D investments. Employing a simple monopsonist - competitive upstream industry - framework, this paper qualifies this view in two respects. First, the monopsonist has an incentive to subsidize upstream R&D which yields more upstream R&D and higher profits in both industries than the monopsonist's commitment to higher prices. Secondly, in the presence of intra-industry R&D spillovers between upstream firms, the monopsonist has an even stronger incentive to finance upstream R&D. If the monopsonist finances more than fifty percent of suppliers R&D efforts, R&D investments in upstream industry will be higher than in the case of buyer competition.
    Keywords: Vertical Relationships, Monopsony, Buyer Power, R&D, Knowledge Spillovers
    JEL: O31 O32 L13 L20
    Date: 2008–10
  25. By: Andrew Sweeting
    Abstract: This paper analyzes the dynamics of prices in two online secondary markets for Major League Baseball tickets. Controlling for ticket quality, prices tend to decline significantly as a game approaches. The paper describes and tests alternative theoretical explanations for why this happens in equilibrium, considering the problems of both buyers and sellers. It shows that sellers cut prices (either fixed prices or reserve prices in auctions) because of declining opportunity costs of holding onto tickets as their future selling opportunities disappear. Even though prices can be expected to fall, the majority of observed early purchases can be rationalized by plausible ticket valuations and return to market costs given product differentiation and uncertainties about ticket availability.
    JEL: L11 L81
    Date: 2008–11
  26. By: Bonroy, Olivier; Lemarie, Stephane
    Abstract: This paper analyses the impact of labelling in a context where the products come from a rather long supply chain. We consider a case where there is an information problem about the product quality in the downstream part of the chain, but not in the upstream part. We show that the implementation of a label to solve this information problem affects the competition in the upstream part of the chain. In particular, competition may be soften up to a point where both the high and the low quality upstream suppliers both benefit from labelling while all the intermediary producers or final consumers loose from labelling. This result is established on the basis of a simple model with two vertically related markets (a competitive downstream market which is supplied by an upstream duopoly) and where the quality of the output downstream is determined by the quality of the input upstream. This analysis is informative to understand the impact of labelling in different cases concerning the agricultural sector (poultry meat, GMOs).
    Keywords: Label, Imperfect information, Vertical product differentiation, Vertical relations, Regulation, Industrial Organization,
    Date: 2008
  27. By: Gautier Duflos (Centre d'Economie de la Sorbonne - Paris School of Economics); Etienne Pfister (BETA-Règles - Université de Nancy II)
    Abstract: This article analyzes the individual determinants of acquisition activity and target choices in the pharmaceutical industry over the period 1978-2002. The "innovation gap" hypothesis states that acquiring firms lack promising drug compounds and acquire firms with more promising drug prospects. A duration model implemented over a panel of more than 400 firms relates the probabilities of being an purchaser or a target to financial, R&D ant patent data to investigate this explanation more deeply. Results show that purchasers are firms with a lower Tobin's Q and decreasing sales, which could indicate that acquisitions are used to compensate for low internal growth prospects. Firms with a higher proportion of radical patents in their portfolio, especially in pharmaceutical and biothechnological patent classes, face a higher probability of being targeted, indicating that acquiring firms are indeed searching for innovative competencies. However, acquiring firms also present a significant absorptive capacity : their R&D investment increases in the year preceding the operation and their patent stock is larger and more diversified than for non-acquiring firms. Finally, we observe that over the last ten years of the sample period, firms have paid a greater attention to the size of the target's portfolio.
    Keywords: M&A, pharmaceutical, innovations, patent citations.
    JEL: G34 L15 L21 O3
    Date: 2008–09
  28. By: Estelle Cantillon (ECARES, Université Libre de Bruxelles); Pai-Ling Yin (MIT Sloan School of Management);
    Abstract: When platforms compete for consumers, two types of consumer heterogeneity will matter: consumers value the presence of other consumers on a platform differently, and consumers contribute to the value of the platform differently. The optimal discriminatory pricing policy for platforms will depend on whether those two dimensions of consumer heterogeneity are positively or negatively correlated, which is an empirical question. In a companion paper (Cantillon & Yin, 2008), we study membership decisions of trading firms for two competing exchanges: LIFFE and DTB. Our analysis shows that different traders care about liquidity differently. In this paper, we estimate the heterogeneous contribution to liquidity by different types. We combine the estimates from both papers of heterogeneous preferences and contributions to liquidity. We find that valuations of liquidity tend to be correlated with contributions to liquidity in this setting.
    Keywords: derivatives exchange, network effects, heterogeneity, entry strategy, adoption, liquidity, platform competition
    JEL: L1 G15
    Date: 2008–11
  29. By: Said, Maher
    Abstract: We examine an environment where goods and privately informed buyers arrive stochastically to a market. A seller in this setting faces a sequential allocation problem with a changing population. We characterize the set of incentive compatible allocation rules and provide a generalized revenue equivalence result. In contrast to a static setting where incentive compatibility implies that higher-valued buyers have a greater likelihood of receiving an object, in this dynamic setting, incentive compatibility implies that higher-valued buyers have a greater likelihood of receiving an object sooner. We also characterize the set of efficient allocation rules and show that a dynamic Vickrey-Clarke-Groves mechanism is efficient and dominant strategy incentive compatible. We then derive an optimal direct mechanism. We show that the revenue-maximizing direct mechanism is a pivot mechanism with a reserve price. Finally, we consider sequential ascending auctions in this setting, both with and without a reserve price. We construct memoryless equilibrium bidding strategies in this indirect mechanism. Bidders reveal their private information in every period, yielding the same outcomes as the direct mechanisms. Thus, the sequential ascending auction is a natural institution for achieving either efficient or optimal outcomes. Interestingly, this is not the case for sequential second-price auctions, as the bids in a second-price auction do not reveal sufficient information to realize either the efficient or optimal allocation.
    Keywords: Dynamic mechanism design; Random arrivals; Revenue equivalence; Indirect mechanisms; Sequential ascending auctions.
    JEL: D44 D82 D83 C73
    Date: 2008–11–19

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