nep-mic New Economics Papers
on Microeconomics
Issue of 2008‒12‒14
eleven papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  1. Existence Advertising, Price Competition, and Asymmetric Market Structure By Curtis B. Eaton; Ian A. MacDonald; Laura Meriluoto
  2. Duopoly Competition in Supermarket Industry: The Case of Seattle-Tacoma Milk Market By Chidmi, Benaissa; Murova, Olga
  3. Green consumerism and collective action By CHANDER, Parkash; MUTHUKRISHNAN, Subhashini
  4. Investment decisions in liberalized electricity markets : A framework of peak load pricing with strategic firms By Gregor, ZOETTL
  5. What Drives the Productive Efficiency of a Firm? The Importance of Industry,Location, R&D, and Size By Stephan, Andreas; Badunenko, Oleg; Fritsch, Michael
  6. Intellectual Property Disclosure as 'Threat' By Baker, Scott; Lee, Pak Yee; Mezzetti, Claudio
  7. The optimal size of a sports league By Kesenne S.
  8. Market Price Mechanisms and Stackelberg General Equilibria By Ludovic A. Julien; Fabrice Tricou
  9. A note on the existence of Nash equilibrium in the stochastic bottleneck model By Fosgerau, Mogens; Jensen, Henning F.
  10. Competition and the Ratchet Effect By Gary Charness; Peter Kuhn; Marie-Claire Villeval
  11. High-Speed Rail & Air Transport Competition By Nicole Adler; Chris Nash; Eric Pels

  1. By: Curtis B. Eaton; Ian A. MacDonald; Laura Meriluoto (University of Canterbury)
    Abstract: We examine a two stage duopoly game in which firms advertise their existence to consumers in stage 1 and compete in prices in stage 2. Whenever the advertising technology generates positive overlap in customer bases the equilib- rium for the stage 1 game is asymmetric in that one firm chooses to remain small in comparison to its competitor. For a specific random advertising technology we show that one firm will always be half as large as the other. No equilibrium in pure price strategies exists in the stage 2 game and as long as there is some overlap in customer bases the mixed strategy equilibrium is far from the Bertrand equilibrium.
    Keywords: Existence advertising; price dispersion; Bertrand paradox; information; duopoly
    JEL: D43 D80
    Date: 2008–10–15
  2. By: Chidmi, Benaissa; Murova, Olga
    Abstract: The Seattle-Tacoma consumers have been paying higher prices for fresh milk than consumers in other Western states of United States. For instance, the retail price for whole milk averaged $3.27/gallon during the period of April 1999- April 2003 in Seattle-Tacoma, while it did not go beyond $2.86/gallon in most of the large metropolitan areas in Western U.S, during the same period (Carman and Sexton, 2006). In addition, retail prices in Seattle-Tacoma do not respond similarly to farm price increases and decreases. Supermarkets are prompt to pass on to consumers any increase in farm price, while they do not pass or lag behind when farm price decreases. The present study attempts to analyze the pricing conduct of supermarket chains in a duopoly setting using a structural model of consumers and firms behavior. In this paper, we examine the pricing conduct of two supermarket chains using retail supermarket-level data on sales and prices from Seattle-Tacoma market area.
    Keywords: Agribusiness, Demand and Price Analysis,
    Date: 2008
  3. By: CHANDER, Parkash; MUTHUKRISHNAN, Subhashini
    Abstract: We analyze the effect of collective action by green/environmentally aware consumers on ambient environmental quality and market equilibrium. We consider a model with two types of consumers who differ in their willingness-to-pay for a good available in two different environmental qualities, and two competing firms: one selling the good of high environmental quality and the other of low environmental quality. We show that collective action by green consumers reduces competition and leads to higher prices for the good of both qualities. Though it improves the ambient environmental quality, it may reduce the welfare of both types of consumers.
    Keywords: green consumers, collective action, environmental quality, differentiated duopoly, firm profitability
    JEL: H23 Q20 L13
    Date: 2007–08
  4. By: Gregor, ZOETTL
    Abstract: In this article we analyze firms investment incentives in liberalized electricity markets. Since electricity is economically non storable, it is optional 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 have 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 Investic choices of strategic firms, and quantifiy the potential for market power and its impact on generation portfolios in restructured electricity markets in the long run.
    Date: 2008–08–27
  5. By: Stephan, Andreas (Jönköping International Business School); Badunenko, Oleg (German Institute for Economic Research, DIW Berlin); Fritsch, Michael (Friedrich Schiller University Jena)
    Abstract: This paper investigates the factors that explain the level and dynamics of productive efficiency of a manufacturing firm. In our empirical analysis, we use a unique sample of about 39,000 firms in 256 industries from the German Cost Structure Census over the years 1992–2005. We estimate the efficiencies of the firms and relate them to firm-specific and environmental factors. <p> We find that (1) about half of the model’s explanatory power is due to industry effects, (2) that firm size accounts for another twenty percent, and (3) that the headquarters’ location explains approximately fifteen percent. <p> Interestingly, most other firm characteristics such as R&D intensity, outsourcing activities or the number of owners have an extremely small explanatory power. Surprisingly, our findings suggest that higher R&D intensity is associated with being less efficient, though higher R&D spending increases a firm’s efficiency over time.
    Keywords: Frontier analysis; determinants of efficiency; firm performance; industry effects; regional effects; firm size
    JEL: D24 L10 L25
    Date: 2008–03–25
  6. By: Baker, Scott (University of North Carolina, School of Law); Lee, Pak Yee (University of Leicester,Department of Economics); Mezzetti, Claudio (University of Warwick,Department of Economics)
    Abstract: This paper models the disclosure of knowledge via licensing to outsiders or fringe firms as a threat, useful in ensuring firms keep their commitments. We show that firms holding intellectual property are better able to enforce agreements than firms that don't. In markets requiring innovation to make a product, IP disclosure presents a more powerful threat than entry by the punishing firm alone. Occasionally, a punishing firm won't be able to translate its intellectual property into a full-blown product, making it impossible for it to enter the cheating firm's market and punish. Even if it can't make a product itself, the punishing firm can always credibly threaten to license the intellectual property it has on hand to someone else. With this intellectual property as a springboard, chances are at least one fringe firm will be able to do the translation, make the product and enter the cheating firm's market. In short, the potential for licensing increases the likelihood of punishment for uncooperative behavior.In the model, firms contract explicitly to ex-change knowledge and tacitly to coordinate the introduction of innovations to the marketplace. We find conditions under which firms can self-enforce both agreements. The enforcement conditions are weaker when (1) firms possess knowledge and (2) knowledge is easily transferable to other firms. The disclosure threat has implications for antitrust law generally, which are considered.
    Date: 2008
  7. By: Kesenne S.
    Abstract: In this contribution, we try to investigate, based on a simple theoretical model, what the optimal number of teams in a league is, taking into account the most important determinants of club revenue and fans’ utility. The number of teams fixed by a monopoly league representing the interests of the participating clubs is clearly smaller than the number of teams in the competitive free-entry market equilibrium. We have also tested, using European football data, whether the long-term equilibrium number of teams in the national top divisions has been determined by the market or by the insiders of the monopoly leagues.
    Date: 2008–10
  8. By: Ludovic A. Julien; Fabrice Tricou
    Abstract: This paper considers Stackelberg competition in a general equilibrium framework with production. The working of market power and the confi…gurations of strategic interactions are complexi…ed by the presence of an active leader. Two market price mechanisms are here studied: one is associated with the Stackelberg-Walras equilibrium, the other is linked to the Stackelberg-Cournot equilibrium. In the context of an exchange economy with a production sector, several results are obtained about equilibria mergings and about welfare comparisons.
    Date: 2008
  9. By: Fosgerau, Mogens; Jensen, Henning F.
    Abstract: Consider Vickrey's dynamic bottleneck model of a congested facility. Let capacity be stochastic and assume that identical users minimize expected cost. This note shows that Nash equilibrium does not always exist. A counter-example is provided for the case of linear scheduling costs, where Nash equilibrium does not exist whenever the marginal cost of earliness is sufficiently low. Such a threshold exists for any absolutely continuous distribution of capacity.
    Keywords: Bottleneck model; Random capacity; Nash equilibrium
    JEL: R41
    Date: 2008
  10. By: Gary Charness (Department of Economics, University of California, Santa Barbara); Peter Kuhn (Department of Economics, University of California, Santa Barbara); Marie-Claire Villeval (GATE, University of Lyon, CNRS, ENS-LSH, Centre Léon Bérard, France)
    Abstract: The ‘ratchet effect’ refers to a situation where a principal uses private information that is revealed by an agent’s early actions to the agent’s later disadvantage, in a context where binding multi-period contracts are not enforceable. In a simple, context-rich environment, we experimentally study the robustness of the ratchet effect to the introduction of ex post competition for principals or agents. While we do observe substantial and significant ratchet effects in the baseline (no competition) case of our model, we find that ratchet behavior is nearly eliminated by labor-market competition; interestingly this is true regardless of whether market conditions favor principals or agents.
    Keywords: Ratchet effect, competition, experiment, private information, labor markets
    JEL: C91 D23 D82 J24 L14
    Date: 2008
  11. By: Nicole Adler (Hebrew University of Jerusalem, Israel); Chris Nash (Institute for Transport Studies, Leeds, England); Eric Pels (VU University Amsterdam)
    Abstract: This paper develops a methodology to assess transport infrastructure investments and their effects on a Nash equilibria taking into account competition between multiple privatized transport operator types. The operators, including high-speed rail, hub and spoke legacy airlines and low cost carriers, maximize profit functions via prices, frequency and train/plane sizes, given infrastructure provision and costs and environmental charges. The methodology is subsequently applied to all 27 European Union countries, specifically analyzing four of the prioritized Trans-European Networks.
    Keywords: airlines; high-speed rail; networks; applied game theory; infrastructure pricing
    JEL: R40 L92 L93
    Date: 2008–10–31

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