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on Microeconomics |
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Issue of 2009‒05‒09
eight papers chosen by Joao Carlos Correia Leitao Technical University of Lisbon |
| By: | João Leão (MIT - Department of Economics, ISCTE - Department of Economics and UNIDE-ERC) |
| Abstract: | This paper examines the use of exclusive dealing agreements to prevent the entry of rival firms. An exclusive dealing agreement is a contract between a buyer and a seller where the buyer commits to buy a good exclusively from the seller. One main concern of the literature is to explain how an incumbent seller is able to persuade the buyers to sign an exclusive dealing agreement that deters the entry of a more efficient rival seller. We propose a new explanation when the buyers are downstream firms and both the seller and the buyers face the threat of entry. In this case, the entry of more efficient upstream seller, by decreasing the market power of the upstream firms, can make entry in the downstream market more attractive. This can lead to further entry in the downstream market and to an increase in the competition faced by the downstream firms. Since part of the bigger surplus created by the entry of a more efficient seller is now captured by the downstream entrant firms, entry in the upstream market does not necessarily benefit the incumbent downstream firms. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:isc:wpaper:ercwp2408&r=mic |
| By: | João Leão (MIT - Department of Economics, ISCTE - Department of Economics and UNIDE-ERC); Vasco Santos (FE-UNL and INOVA) |
| Abstract: | New horizontally-differentiated goods involving product-specific network effects are quite prevalent. Consumers’ preferences for each of these new goods often are initially unknown. Later, as sales data begin to accumulate, agents learn market-wide preferences which thus become common knowledge. We call network goods’ markets showing these two features “new network markets.” For such markets, we pinpoint the factors determining whether the market-wide preferred firm reinforces its lead as time elapses, both when market-wide preferences are time invariant and when they may change. The latter case allows for the study of markets subject to consumer fads (unanticipated and fleeting consumers’ preference for one product). We show that in new network markets subject to such fads, the firm that benefits from a fad in a mature phase of the industry may be better off than one that benefits from an equal-strength fad at an earlier stage despite the presence of network effects. Moreover, we show that new network markets are more prone to increased sales dominance of the leading firm than are regular network markets. Finally, we characterize the social-welfare maximizing allocation of consumers to networks and use it to evaluate from a social-welfare viewpoint the market outcomes of both types of new network goods as well as regular network goods. |
| Keywords: | Network Effects, Learning, Horizontal Differentiation, Vertical Differentiation |
| JEL: | L14 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:isc:wpaper:ercwp2308&r=mic |
| By: | Rodrigo Harrison (Instituto de Economía. Pontificia Universidad Católica de Chile.); Gonzalo Hernández; Roberto Muñoz. |
| Abstract: | This paper studies the welfare implications of equilibrium behavior in a market characterized by competition between two interconnected telecommunication ?rms, subject to constraints: the customers belong to a social network. It also shows that social networks matter because equilibrium prices and welfare critically depend on how people are socially related. Next, the model is used to study e¤ectiveness of alternative regulatory schemes. The standard regulated environement, in which the authority de?nes interconnection ac cess charges as being equal to marginal costs and ?nal prices are left to the market, is considered as a benchmark . Then, we focus on the performance of two di¤erent regulatory interventions. First, access prices are set below marginal costs to foster competition. Second, switching costs are reduced to intensify competition. The results show that the second strategy is more efective to obtain equilibrium prices closer to Ramsey?s level. |
| Keywords: | Access charges, social networks, random regular graphs. |
| JEL: | C70 D43 D60 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:350&r=mic |
| By: | Einy, Ezra; Haimanko, Ori; Moreno, Diego; Shitovitz, Benyamin |
| Abstract: | We show that when firms have incomplete information about the market demand and their costs, a (Bayesian) Cournot equilibrium in pure strategies may not exist, or be unique. In fact, we are able to construct surprisingly simple and robust examples of duopolies with these features. However, we also find some sufficient conditions for existence, and for uniqueness, of Cournot equilibrium in a certain class of industries. More general results arise when negative prices are possible. |
| Keywords: | Oligopoly, Incomplete Information, Bayesian, Cournot, Equilibrium, Existence, Uniqueness |
| JEL: | C72 D43 L13 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:hit:econdp:2008-11&r=mic |
| By: | Gormsen, Christian (Department of Economics, Aarhus School of Business) |
| Abstract: | This paper analyzes anti-dumping (AD) policies in a two-country model with heterogeneous firms in monopolistic competition. Effective AD legislation in one country imposes a no-dumping condition on firms exporting from the other country, altering their pricing both domestically and abroad. Some firms with intermediate productivities cease export activity, and entry shifts towards the AD protected country, which has now become relatively more attractive. Protecting firms with AD therefore increases the number of firms entering and eventually increases competition, and the consumers enjoy welfare gains. In the country without AD legislation, there is a welfare loss due to fewer entrants. |
| Keywords: | Trade policy; Anti-dumping; Monopolistic competition; Heterogeneous firms |
| JEL: | F12 F13 |
| Date: | 2008–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:aareco:2008_024&r=mic |
| By: | Juan Pablo Montero (Instituto de Economía. Pontificia Universidad Católica de Chile.); Matti Liski. |
| Abstract: | It has been long recognized that an exhaustible-resource monopsonist faces a commitment problem similar to that of a durable-good monopolist. Indeed, H¨orner and Kamien (2004) demonstrate that the two problems are formally equivalent under full commitment. We show that there is no such equivalence in the absence of commitment. The existence of a choke price at which the monopsonist adopts the substitute (backstop) supply divides the surplus between the buyer and the sellers in a way that is unique to the resource model. Resource sellers receive a surplus share independently of their cost heterogeneity; a result in sharp contrast with the durable-good monopoly logic. The resource buyer can distort the equilibrium through delayed purchases, but the Coase conjecture arises under extreme patience (zero discount rate). |
| Keywords: | durable goods, exhaustible resources, Coase conjecture |
| JEL: | D42 L12 Q30 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:351&r=mic |
| By: | Ludwig Ensthaler; Thomas Giebe |
| Abstract: | A budget-constrained buyer wants to purchase items from a shortlisted set. Items are differentiated by quality and sellers have private reserve prices for their items. Sellers quote prices strategically, inducing a knapsack game. The buyer's problem is to select a subset of maximal quality. We propose a buying mechanism which can be viewed as a game theoretic extension of Dantzig's greedy heuristic for the classic knapsack problem. We use Monte Carlo simulations to analyse the performance of our mechanism. Finally, we discuss how the mechanism can be applied to award R&D subsidies. |
| Keywords: | Auctions, Subsidies, Market Design, Knapsack Problem |
| JEL: | D21 D43 D44 D45 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp880&r=mic |
| By: | Bellone, Flora (GREDEG-CNRS); Musso, Patrick (GREDEG-CNRS); Nesta, Lionel (GREDEG-CNRS); Warzynski, Frederic (Department of Economics, Aarhus School of Business) |
| Abstract: | In this paper, we test key micro-level theoretical predictions ofMelitz and Ottaviano (MO) (2008), a model of international trade with heterogenous firms and endogenous mark-ups. At the firm-level, the MO model predicts that: 1) firm markups are negatively related to domestic market size; 2) markups are positively related to firm productivity; 3) markups are negatively related to import penetration; 4) markups are positively related to firm export intensity and markups are higher on the export market than on the domestic ones in the presence of trade barriers and/or if competitors on the export market are less efficient than competitors on the domestic market. We estimate micro-level price cost margins (PCMs) using firm-level data extending the techniques developed by Hall (1986, 1988) and extended by Domowitz et al. (1988) and Roeger (1995) for the French manufacturing industry from 1986 to 2004. We find evidence in favor of these theoretical predictions. |
| Keywords: | Endogenous markups; Export behavior; Productivity; Firm-level |
| JEL: | D24 F12 |
| Date: | 2008–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:aareco:2008_020&r=mic |