nep-mic New Economics Papers
on Microeconomics
Issue of 2008‒12‒07
eleven papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  1. Margin Squeeze in Fixed-Network Telephony Markets – competitive or anticompetitive? By Wolfgang Briglauer; Georg Götz; Anton Schwarz
  2. Downstream labeling and upstream competition By Bonroy, O.; Lemarie, S.
  3. Anti-Dumping Regulations: Anti-Competitive and Anti-Export By Collie, David R.; Le, Vo Phuong Mai
  4. Getting a Better Price: Strategic Behaviour before Changes in Ownership of Corporate Assets By Friberg, Richard; Norbäck, Pehr-Johan; Persson, Lars
  5. Do we (still) need to regulate fixed network retail markets? By Wolfgang Briglauer; Georg Götz; Anton Schwarz
  6. What hampers innovation? Evidence from the UK CIS4 By Pablo D'Este; Simona Iammarino; Maria Savona; Nick von Tunzelmann
  7. The Impact of Firm’s R&D Strategy on Profit and Productivity By Johansson, Börje; Lööf, Hans
  8. Carbon Storage in a Growth Model with Climate and R&D Policy By GRIMAUD, André; MAGNE, Bertrand; ROUGÉ, Luc
  9. Venture Capitalists, Asymmetric Information, and Ownership in the Innovation Process By Fabrizi, Simona; Lippert, Steffen; Norbäck, Peh; Persson, Lars
  10. Learning and sharing in a Chinese high-technology cluster: A study of inter-firm and intra-firm knowledge flows between R&D employees By Matias Ramirez; Xibao Li
  11. The Transmission of Price Trends from Consumers to Producers and Tests of Market Power By Lkassbi, Driss; West, Gale E.; Clark, J. Stephen

  1. By: Wolfgang Briglauer (Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR), Economics Division); Georg Götz (Justus-Liebig-University Gießen, Department of Economics); Anton Schwarz (Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR), Economics Division)
    Abstract: This paper looks at the effects of different forms of wholesale and retail regulation on retail competition in fixed network telephony markets. We explicitly model two asymmetries between the incumbent operator and the entrant: (i) While the incumbent has zero marginal costs, the entrant has the wholesale access charge as (positive) marginal costs; (ii) While the incumbent is setting a two-part tariff at the retail level (fixed fee and calls price), the entrant can only set a linear price for calls. Competition from other infrastructures such as mobile telephony or cable is modelled as an ‘outside opportunity’ for consumers. We find that a horizontally differentiated entrant with market power may be subject to a margin squeeze due to double marginalization but will never be completely foreclosed. Entrants without market power might be subject to a margin squeeze if the wholesale access price is set at average costs and competitive pressure from other infrastructures increases. We argue that a wholesale price regulation at average costs is not optimal in such a situation and discuss retail minus and deregulation as potential alternatives.
    Keywords: access regulation, foreclosure, margin squeeze, telecommunications, fixed networks
    JEL: L12 L41 L42 L50 L96
    Date: 2008
  2. By: Bonroy, O.; Lemarie, S.
    Abstract: This paper analyses the impact of labeling in a context where the products come from a supply chain. We consider a case where there is an information problem about 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 competition in the upstream part of the chain. In particular, competition may be softened up to a point where both the high- and the low-quality upstream suppliers benefit from labeling while all the intermediary producers or final consumers lose from labeling. 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) where the quality of the downstream output is determined by the quality of the upstream input.
    JEL: L15 L50
    Date: 2008
  3. By: Collie, David R. (Cardiff Business School); Le, Vo Phuong Mai (Cardiff Business School)
    Abstract: In a Bertrand duopoly model, it is shown that an anti-dumping regulation can be strategically exploited by the domestic firm to reduce the degree of competition in the domestic market. The domestic firm commits not to export to the foreign market which gives the foreign firm a monopoly in its own market. As a result the foreign firm will increase its price allowing the domestic firm to increase its price and its profits. If the products are sufficiently close substitutes then the higher profits in the domestic market are large enough to compensate for the loss of profits on exports.
    Keywords: anti-dumping regulations; Bertrand oligopoly; strategic behaviour
    JEL: F13 L13
    Date: 2008–11
  4. By: Friberg, Richard (Stockholm School of Economics); Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: We propose a model of investments prior to corporate ownership changes. We derive conditions under which the selling of a firm triggers overinvestment by both the seller and the buyer prior to the asset transfer. In a setting with Cournot competition, we show that these incentives can drive the consumer prices in a post-acquisition duopoly below those of an ongoing triopoly. Our analysis warns against a mechanical use of pre-merger benchmarks in ex post merger evaluations.
    Keywords: Mergers & Acquisitions; Ownership; Auctions; Strategic Investments; Merger Evaluations
    JEL: L13 L40 L66
    Date: 2008–11–13
  5. By: Wolfgang Briglauer (Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR), Economics Division); Georg Götz (Justus-Liebig-University Gießen, Department of Economics); Anton Schwarz (Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR), Economics Division)
    Abstract: In the beginning of fixed network liberalisation in Europe in the late 1990s, the main concern of regulators was to lower calls prices. This was done by introducing wholesale regulation and promoting service based competition. Some years later, the concern of some regulators turned from too high calls prices to too low calls prices which might ‘squeeze’ entrants out of the market. We look at a simple model in which this development is explained by increasing competitive pressure from an ‘outside opportunity’, e.g. mobile telephony. We conclude that a margin squeeze is not necessarily used by the incumbent as a device to drive competitors out of the market and increase market power but can also result from increased inter-model competition. If this is the case, we argue that regulators should consider alternatives to cost oriented access prices such as retail minus or complete deregulation.
    Keywords: access regulation, vertical integration, foreclosure, price squeeze, telecommunications, fixed networks
    JEL: L12 L41 L42 L50 L96
    Date: 2008
  6. By: Pablo D'Este (SPRU, University of Sussex & School of Management, Cranfield University); Simona Iammarino (SPRU, University of Sussex); Maria Savona (SPRU, University of Sussex & Faculty of Economics & Social Sciences,University of Science & Technology Lille); Nick von Tunzelmann (SPRU, University of Sussex)
    Keywords: barriers to innovation, innovative firms, non-innovators
    JEL: O31 O32 O33
    Date: 2008–01–02
  7. By: Johansson, Börje (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Lööf, Hans (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This paper investigates how a firm’s R&D strategy influences the firm performance as measured by productivity and profitability. A formal production model is introduced to define and interpret alternative ways of measuring the impact of R&D. Studying 1,767 randomly selected firms from the Swedish manufacturing sector, the main findings are: (i) firms which apply persistent R&D perform better than firms with occasional as well as no R&D, (ii) occasional R&D is associated with lower performance than no R&D, and (iii) in quantile regressions the positive effect from R&D persistency is lacking for low productivity firms (lowest quartile) indicating a non-linear response. Moreover, the analysis recognises the different roles of ordinary and knowledge labour in production when specifying alternative performance measures and when identifying knowledge labour as a firm’s R&D capacity, which has a highly significant impact on firm performance. Introducing a formal production model in order to define and interpret alternative ways of measuring the impact of R&D, we apply simple ordinary OLS and quantile regressions on the economic model for analyzing the importance for a particular R&D strategy on firms’ productivity and profitability. To the best of our knowledge, we believe that the main findings of the analysis make contributions to the R&D literature.
    Keywords: R&D; productivity; profit; innovation; production analysis
    JEL: L19 O33
    Date: 2008–12–03
  8. By: GRIMAUD, André; MAGNE, Bertrand; ROUGÉ, Luc
    Date: 2008–03
  9. By: Fabrizi, Simona (Massey University Auckland); Lippert, Steffen (Massey University Auckland); Norbäck, Peh (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: In this paper we construct a model in which entrepreneurial innovations are sold into oligopolistic industries and where adverse selection problems between entrepreneurs, venture capitalists and incumbents are present. We show that as exacerbated development by better-informed venture-backed rms is used as a signal to enhance the sale price of developed innovations, venture capitalists must be sufciently more ecient in selecting innovative projects than incumbents in order to exist in equilibrium. Otherwise, incumbents undertake early preemptive, acquisitions to prevent the venture-backed rms' signaling-driven investment, despite the risk of buying a bad innovation. We nally show at what point the presence of active venture capitalists increases the incentives for entrepreneurial innovations.
    Keywords: Venture Capitalists; Innovation; Entrepreneurs; Signaling; Development;
    JEL: C70 D21 D82 G24 L20 M13 O30
    Date: 2008–11–06
  10. By: Matias Ramirez (SPRU, University of Sussex); Xibao Li (School of Economics & Management, Tsinghua University)
    Keywords: learning, China, knowledge work, knowledge transfer
    JEL: D83 J24
    Date: 2008–01–09
  11. By: Lkassbi, Driss; West, Gale E.; Clark, J. Stephen
    Abstract: This study examines the competitiveness of four Canadian agricultural industries (eggs, milk, chicken and turkey) using a general equilibrium farm to retail pricing model developed by Wohlgenant (1989). The model generates retail and farm pricing equations that are estimated using maximum likelihood developed by Johansen (1992). The results indicate that in all cases, long-run constant returns is rejected, indicating market power within the Canadian retail to farm marketing sector. The model also finds more cointegrating vectors than predicted by theory, also inconsistent with competitive markets. Results are based on commercial disappearance as a proxy for consumer demand and therefore confounding between uncompetitive markets and quality differences may be indicated. Less ambiguous results would be obtained if consumer expenditures rather than commercial disappearance data were available. Still, results are rather emphatic in rejection of competitive markets in food markets in Canada. More competitive markets are indicated in the United States using similar methods.
    Keywords: Market power, food processing, cointegration, Agribusiness, Agricultural and Food Policy, Consumer/Household Economics, Demand and Price Analysis, Food Consumption/Nutrition/Food Safety, D41, L66, Q13,
    Date: 2008–01

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