nep-mic New Economics Papers
on Microeconomics
Issue of 2009‒02‒07
twelve papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  1. Should R&D Champions be Protected from Foreign Takeovers? By Katariina Nilsson Hakkala; Bertrand; Norbäck Olivier; Persson Pehr-Johan; Lars
  2. Effectiveness of R&D Tax Incentives in Small and Large Enterprises in Québec By Rufin Baghana; Pierre Mohnen
  3. Holiday Price Rigidity and Cost of Price Adjustment By Levy, Daniel; Müller, Georg; Chen, Allan (Haipeng); Bergen, Mark; Dutta, Shantanu
  4. Managers and Students Playing Cournot: Experimental Evidence from Malaysia By Waichmann, Israel; Requate, Tilman; Siang, Ch'ng Kean
  5. Imitators and Optimizers in Cournot Oligopoly By Schipper, Burkhard
  6. Prices and Profits in Dominant Firm Adjudication By Scherer, F. M.
  7. On the Non-Optimality of Information: An Analysis of the Welfare Effects of Anticipated Shocks in the New Keynesian Model By Wohltmann, Hans-Werner; Winkler, Roland
  8. Price Variation in Markets with Homogeneous Goods: The Case of Medigap By Nicole Maestas; Mathis Schroeder; Dana Goldman
  9. Government spending composition, technical change and wage inequality By Guido Cozzi; Giammario Impullitti
  10. How Much are Consumers Paying for Organic Baby Food? By Smith, Travis A.; Huang, Chung L.; Lin, Biing-Hwan
  11. Innovation – source to obtain the competitive advantage in the global economy By Sipos, Gabriela Lucia
  12. Non-cooperative Game Theory By Bonanno, Giacomo

  1. By: Katariina Nilsson Hakkala; Bertrand; Norbäck Olivier; Persson Pehr-Johan; Lars
    Abstract: We analyze how the entry mode of Foreign Direct Investments (FDI) affects affiliate R&D activities. Using unique affiliate level data for Swedish multinational firms, we first present empirical evidence that acquired affiliates have a higher level of R&D intensity than Greenfield (start-up) affiliates. This gap persists over time and with the age of the affiliates, as well as for different firm types and industries. To explain this finding, we develop an acquisitioninvestment-oligopoly model where we show that for a foreign acquisition to take place in equilibrium, the acquiring MNE must invest sufficiently in sequential R&D in the affiliate. Otherwise, rivals will expand their business, thus making the acquisition unprofitable. Two additional predictions of the model ? that foreign firms acquire high-quality domestic firms and that the gap in R&D between acquired and greenfield affiliates decreases in acquisition transaction costs ? are consistent with the data. JEL classification: F23, L10, L20, O30
    Keywords: FDI, M&A, R&D, Multinational Firms
    Date: 2008–11–07
  2. By: Rufin Baghana; Pierre Mohnen
    Abstract: In this paper we evaluate the effectiveness of R&D tax incentives in Quebec, using manufacturing firm data from 1997 to 2003 originating from R&D surveys, annual surveys of manufactures and administrative data. The estimated price elasticity of R&D is -0.10 in the short run and -0.14 in the long run, with a slightly higher elasticities for small firms than for large firms. We show that there is a deadweight loss associated with level-based R&D tax incentives that is particularly acute for large firms. For small firms it is not sizeable enough to suppress the R&D additionality, at least not during quite a number of years after the initial tax change. Incremental R&D tax credits do not suffer from this deadweight loss and are from that perspective preferable to level-based tax incentives. <P>Nous estimons l’efficacité des incitations fiscales à la R-D au Québec à partir des données des enquêtes annuelles de la R&D et de la manufacture et à partir des données administratives pour la période 1997 à 2003. L’élasticité-prix de court terme est estimée à -0.10 et celle de long terme à -0.14, avec une élasticité légèrement supérieure pour les petites entreprises. Nous trouvons une perte sèche assez nette pour les grandes firmes associée aux crédits d’impôt basés sur les niveaux de R-D. Pour les petites firmes cette perte sèche n’est pas suffisante pour détruire l’additionalité des crédits d’impôt. Les crédits d’impôt basés sur la recherche incrémentale n’accusent pas de perte sèche et sont de ce point de vue préférables aux crédits en proportion du niveau de R-D.
    Keywords: R&D tax incentives, price elasticity of R&D, Quebec, Incitations fiscales à la R-D, élasticité-prix de court terme, Québec.
    Date: 2009–01–01
  3. By: Levy, Daniel; Müller, Georg; Chen, Allan (Haipeng); Bergen, Mark; Dutta, Shantanu
    Abstract: The Thanksgiving-Christmas holiday period is a major sales period for US retailers. Due to higher store traffic, tasks such as restocking shelves, handling customers’ questions and inquiries, running cash registers, cleaning, and bagging, become more urgent during holidays. As a result, the holiday-period opportunity cost of price adjustment may increase dramatically for retail stores, which should lead to greater price rigidity during holidays. We test this prediction using weekly retail scanner price data from a major Midwestern supermarket chain. We find that indeed, prices are more rigid during holiday periods than non-holiday periods. For example, the econometric model we estimate suggests that the probability of a price change is lower during holiday periods, even after accounting for cost changes. Moreover, we find that the probability of a price change increases with the size of the cost change, during both, the holiday as well as non-holiday periods. We argue that these findings are best explained by higher price adjustment costs (menu cost) the retailers face during the holiday periods. Our data provides a natural experiment for studying variation in price rigidity because most aspects of market environment such as market structure, industry concentration, the nature of long-term relationships, contractual arrangements, etc., do not vary between holiday and nonholiday periods. We, therefore, are able to rule out these commonly used alternative explanations for the price rigidity, and conclude that the menu cost theory offers the best explanation for the holiday period price rigidity.
    Keywords: Price Rigidity; Sticky Price; Rigid Price; Cost of Price Adjustment; Menu Cost; Holiday Period; Asymmetric Price Adjustment; Monetary Policy
    JEL: L16 M31 E12 L11 E31 E52 E50 M21
    Date: 2008–05–06
  4. By: Waichmann, Israel; Requate, Tilman; Siang, Ch'ng Kean
    Abstract: We report results from a Cournot triopoly experiment with different subject pools: German students, Malaysian students, and Malaysian managers. While German students play Nash, we reject the hypothesis that both Malaysian students and managers select the Nash quantity. Moreover, Malaysian managers perform significantly less competitively than Malaysian students. Finally, the affect of gender is opposite for German and Malaysian subjects.
    Keywords: artefactual field experiment, subject pools, Cournot oligopoly, managers, non-cooperative behavior
    JEL: C72 C93 D21 D43 L13
    Date: 2008
  5. By: Schipper, Burkhard (U of California, Davis)
    Abstract: We analyze a symmetric n-firm Cournot oligopoly with a heterogeneous population of optimizers and imitators. Imitators mimic the output decision of the most successful firms of the previous round a la Vega-Redondo (1997). Optimizers play a myopic best response to the opponents' previous output. Firms are allowed to make mistakes and deviate from their decision rules with a small probability. Applying stochastic stability analysis, we find that the long run distribution converges to a recurrent set of states in which imitators are better off than are optimizers. This finding appears to be robust even when optimizers are more sophisticated. It suggests that imitators drive optimizers out of the market contradicting a fundamental conjecture by Friedman (1953).
    JEL: C72
    Date: 2008–02
  6. By: Scherer, F. M. (Harvard U)
    Abstract: Written for a conference at the University of Lisbon, this paper analyzes policies toward prices and profits in competition policy actions targeting dominant or monopolistic enterprises. Its motivation came from dilemmas posed by the European Commission's recent actions with respect to the Microsoft Corporation. The paper traces reasons why competition policy enforcers have been reluctant to assess the reasonableness of prices and profits and to prescribe changes in price levels. It identifies cases in which such oversight is essential for effective policy implementation. Drawing upon the Microsoft experience, it asks whether governmental intervention with respect to intellectual property licenses and the royalties they carry jeopardizes technological progress. An optimistic conclusion is reached.
    Date: 2008–10
  7. By: Wohltmann, Hans-Werner; Winkler, Roland
    Abstract: This paper compares the welfare effects of anticipated and unanticipated cost-push shocks in the canonical New Keynesian model with optimal monetary policy. We find that, for empirically plausible degrees of nominal rigidity, the anticipation of a future cost-push shock leads to a higher welfare loss than an unanticipated shock. A welfare gain from the anticipation of a future cost shock may only occur if prices are sufficiently flexible. We analytically show that this surprising result holds although unanticipated shocks lead to higher negative impact effects on welfare than anticipated shocks.
    Keywords: Anticipated Shocks, Optimal Monetary Policy, Sticky Prices, Welfare Analysis
    JEL: E31 E32 E52
    Date: 2008
  8. By: Nicole Maestas; Mathis Schroeder; Dana Goldman
    Abstract: Nearly 30 percent of Americans age 65 and older supplement their Medicare health insurance through the Medigap private insurance market. We show that prices for Medigap policies vary widely, despite the fact that all plans are standardized, and even after controlling for firm heterogeneity. Economic theory suggests that heterogeneous consumer search costs can lead to a non-degenerate price distribution within a market for otherwise homogenous goods. Using a structural model of equilibrium search costs first posed by Carlson and McAfee (1983), we estimate average search costs to be $72. We argue that information problems arise from the complexity of the insurance product and lead individuals to rely on insurance agents who do not necessarily guide them to the lowest prices.
    JEL: I2
    Date: 2009–01
  9. By: Guido Cozzi; Giammario Impullitti
    Abstract: In this paper we argue that government spending played a significant role in stimulating the wave of innovation that hit the U.S. economy in the late 1970s and in the 1980s, as well as the simultaneous increase in inequality and in education attainment. Since the late 1970’s U.S. policy makers began targeting commercial innovations more directly and explicitly. We focus on the shift in the composition of public demand towards high-tech goods which, by increasing the market-size of innovative firms, functions as a de-facto innovation policy tool. We build a quality-ladder non- scale growth model with heterogeneous industries and endogenous supply of skills, and show that increases in the technological content of public spending stimulates R&D, raise the wage of skilled workers and, at the same time, stimulate human capital accumulation. A calibrated version of the model suggests that government policy explains between 12 and 15 percent of the observed increase in wage inequality in the period 1976-91.
    Keywords: R&D-driven growth theory, heteregeneous industries, fiscal policy composition, innovation policy, wage inequality, educational choice.
    JEL: E62 H57 J31 O31 O32 O41
    Date: 2008–12
  10. By: Smith, Travis A.; Huang, Chung L.; Lin, Biing-Hwan
    Abstract: Using retail purchase data, price premiums and discounts associated with household demographics, market factors, and product attributes (focusing on the organic attribute for strained baby food) are estimated using a hedonic pricing model. Results suggest that the organic premium ranges from about 12 to 49 percent in 2004 and from 30 to 52 percent in 2006. Tests for significant changes relative to product attributes show that while the price of conventional baby food has stayed relatively the same, the premium for organic baby food has increased.
    Keywords: organic baby food, hedonic price, market factors, product attributes, Nielsen Homescan, organic premium, Consumer/Household Economics, Demand and Price Analysis,
    Date: 2009
  11. By: Sipos, Gabriela Lucia
    Abstract: A strong motivation to replace the comparative advantage theory with the competitive advantage theory is given by the significant change of the present economic conditions comparing with the old conditions that inspired the competitive advantage issues. The dynamic character of the market competition and the fact that, in the present, the competitiveness is located to enterprise’s level and not to the level of the national economy are some important argues that sustain the necessity and the opportunity to move the economic thinking from the comparative advantage theory to the competitive advantage theory. In the past, the comparative advantage of an economy was given by the natural resources, by the geographical position or by the specific features of products or services. Nowadays the competitive advantage is created through innovation by all its forms.
    Keywords: innovation; comparative advantage; competitive advantage
    JEL: O32
    Date: 2008–04
  12. By: Bonanno, Giacomo (U of California, Davis)
    Abstract: This is the first draft of the entry “Game Theory” to appear in the Sage Handbook of the Philosophy of Social Science (edited by Ian Jarvie & Jesús Zamora Bonilla), Part III, Chapter 16.
    Date: 2008–08

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