nep-mic New Economics Papers
on Microeconomics
Issue of 2009‒05‒16
seventeen papers chosen by
Joao Carlos Correia Leitao
Technical University of Lisbon

  1. Optional linear input prices in vertical relations By Claudia Salim
  2. R&D-hindering collusion. By E. Bacchiega; L. Lambertini; A. Mantovani
  3. Competitive Innovation with Codified And Tacit Knowledge By Tetsugen Haruyama
  4. Competition for Access: Spectrum Rights and Downstream Access in Wireless Telecommunications By Michiel J. Bijlsma; Gijsbert T.J. Zwart
  5. On the non-neutrality of profit taxation in a Cournot oligopoly with environmental effects By D. Dragone; L. Lambertini; A. Palestini
  6. Managerial incentive and the firms' propensity to invest in product and process innovation By R. Cellini; L. Lambertini; A. Sterlacchini
  7. Market Concentration and Business Survival in Static v Dynamic Industries By Andrew Burke; Aoife Hanley
  8. Technological Diversity and Future Product Diversity in the Drug Industry By Uwe Cantner; Tatiana Plotnikova
  9. Relation entry, exit and productivity By Viktoria Kocsis; Ruslan Lukach; Bert Minne; Victoria Shestalova; Nick Zubanov; Henry van der Wiel
  10. Retail and Wholesale Market Power in Organic Foods By Richards, Timothy J.; Acharya, Ram; Molina, Ignacio
  11. Competition, innovation and intellectual property rights in software markets By Michiel Bijlsma; Paul de Bijl; Viktoria Kocsis
  12. Monopolistic Competition and New Products: A Conjectural Equilibrium Approach By Bogliacino, F; Rampa, G
  13. Retail Pricing Behavior for Perishable Produce Products in the US with Implications for Farmer Welfare By Li, Chenguang; Sexton, Richard J.
  14. Costly Search and Design By Heski Bar-Isaac; Guillermo Caruana; Vicente Cuñat
  15. Asymmetric Price Transmission and Demand Characteristics By Xia, Tian; Li, Xianghong
  16. Scarcity of Ideas and R&D Options: Use it, Lose it or Bank it By Nisvan Erkal; Suzanne Scotchmer
  17. Bidimensional quality competition and scope economies By P. G. Garella; L. Lambertini

  1. By: Claudia Salim (Free University of Berlin)
    Abstract: This paper examines how the option of a regulated linear input price affects vertical contracting, where a monopolistic upstream supplier sequentially offers supply contracts to two symmetric downstream firms. We find that equilibrium contracts vary with production cost and regulated price level: If the regulated price is not too high, the option allows for price discrimination, but prevents foreclosure in the intermediary market. Indeed, if both cost and optional price are rather low, non-discriminatory input prices below cost may arise. Optional input prices are socially more desirable than a flat ban on price discrimination, as consumers benefit from more intense downstream competition.
    Keywords: price discrimination, vertical contracting, exclusion, regulatory outside option
    JEL: D42 L11 L42
    Date: 2009–04
  2. By: E. Bacchiega; L. Lambertini; A. Mantovani
    Date: 2008–11
  3. By: Tetsugen Haruyama (Graduate School of Economics, Kobe University)
    Abstract: R&D-based models of endogenous technical progress rest on a premise that technical progress is driven by profit-seeking entrepreneurs. This literature led to a dominant view that endogenous technical advance is not consistent with perfect competition with constant returns to scale. Departing from this dominant perspective, we demonstrate that technical progress endogenously occurs in a perfectly competitive economy under constant returns to scale in rivalrous inputs. Our result is based on a hypothesis that R&D creates codified and tacit knowledge as joint products. Empirical and case studies are discussed to support the hypothesis. Using the model, we demonstrate that stronger patent protection can encourage or discourage R&D, depending on the size of an economy.
    Date: 2009–04
  4. By: Michiel J. Bijlsma; Gijsbert T.J. Zwart
    Abstract: In the market for wireless telecommunications, radio spectrum is an essential input. We study downstream entry and capacity choice in this market, where licenses to use radio spectrum are owned by vertically integrated duopolists. Prior to network construction, these incumbents may offer contracts for capacity to an entrant, granting service-based access on the network they will construct. Alternatively, when spectrum trading is allowed, they may sell part of their license, allowing the entrant to build its own network and enter as an infrastructure player. We find that in this Cournot setting, access is generally provided, as incumbents compete to appropriate the profits of serving a differentiated market through the entrant. Although selling spectrum rights instead of network capacity leads to a loss of economies of scale in infrastructure construction, infrastructure-based entry may dominate as a result of a strategic effect. By delegating capacity choice to the entrant, the access providing incumbent can commit to compete more aggressively, causing its rival incumbent to reduce capacity. A lower aggregate capacity will increase prices and thereby profits.
    Keywords: Telecommunications; Vertical Integration; Vertical Foreclosure; Strategic Delegation
    JEL: L13 L42 L96
    Date: 2009–03
  5. By: D. Dragone; L. Lambertini; A. Palestini
    Date: 2009–03
  6. By: R. Cellini; L. Lambertini; A. Sterlacchini
    Date: 2009–02
  7. By: Andrew Burke; Aoife Hanley
    Abstract: We propose that the effect of market concentration on firm survival is different according to whether an industry is static (low entry and exit) or dynamic. In our empirical analysis we find support for this hypothesis. Industry concentration rates reduce the survival of new plants but only in markets marked by low entry and exit rates. Specifically, a 10 percent increase in the 5-firm concentration ratio in a dynamic market raises the survival rate of new ventures by approximately 2 percent. Our results have implications for the antitrust/competition law indicating less need for regulation of dominant firms in dynamic industries characterized by high entry and exit rates. We use a unique dataset comprising the population of new ventures that enter the UK market in 1998
    Keywords: new firms, start-ups, survival, dynamism, competition policy, industry concentration
    JEL: L11 L25 M13 M40
    Date: 2009–05
  8. By: Uwe Cantner (Friedrich-Schiller-University, Jena, Department of Economics, Chair of Economics); Tatiana Plotnikova (Friedrich-Schiller-University, Jena, GSBC-EIC The Economics of Innovative Change)
    Abstract: This paper deals with the topic of related R&D and innovation strategies of large firms. We ask what determines the diversity of a firm's product portfolio. More specifically, we try to explain large firms' expansion into new product markets driven by the characteristics of their technological knowledge. Empirically, we study firms in the pharmaceutical and biotech industries, using relevant data on product development and technological knowledge. We find a positive relationship between the diversity of a firm's future product portfolio and the diversity of its stock of technological knowledge. This relationship becomes weaker when the breadth of technological knowledge increases.
    Keywords: Product diversity, technological diversity, product relatedness, technological relatedness, coherence
    JEL: O32 L25 L65
    Date: 2009–05–05
  9. By: Viktoria Kocsis; Ruslan Lukach; Bert Minne; Victoria Shestalova; Nick Zubanov; Henry van der Wiel
    Abstract: This document provides a review of recent theoretical and empirical literature on the relationship between entry, exit and productivity. Decomposition methods show that entry and exit considerably contribute to productivity growth, but are unable to shed any light on the ultimate sources of productivity growth. However, the theories discussed do provide options for effective policy instruments. We argue that productivity or welfare should be the aim of policy and not the number of entrants, the intensity of competition or the amount of innovation expenditures. Taking a welfare approach, we address market failures with respect to entry. The most eminent market failure is market power of dominant incumbents. Lowering institutional entry barriers economy-wide is a promising policy option for further consideration. Whether such a policy measure actually improves social welfare depends also on the extent of other failures. Therefore, an ex ante cost-benefit analysis needs to precede intervention.
    Keywords: entry; exit; productivity
    JEL: B41 O30
    Date: 2009–03
  10. By: Richards, Timothy J.; Acharya, Ram; Molina, Ignacio
    Abstract: The demand for organic fresh fruits and vegetable continues to grow at a rate far higher than the rest of the produce industry. The cost of meeting organic certification standards, however, has meant that supply has been slow to adjust. With limited supply, we hypothesize that organic suppliers enjoy more market power in bargaining over their share of the retail-production cost margin for fresh apples. We test this hypothesis using a random parameters, generalized extreme value demand model (mixed logit) combined with a structural model of retail and wholesale pricing that allows conduct to vary by product attributes (organic or non-organic) and time. We find that organic growers do indeed earn a larger share of the total margin than non-organic growers, but this vertical market power is eroding over time as market supply adjusts.
    Keywords: organics, market power, mixed logit, game theory, non-linear pricing., Industrial Organization, C35, D12, D43, L13, L41, Q13.,
    Date: 2009
  11. By: Michiel Bijlsma; Paul de Bijl; Viktoria Kocsis
    Abstract: This study analyzes under which circumstances it may be desirable for the government to stimulate open source software as a response to market failures in software markets. To consider whether policy intervention can increase dynamic efficiency, we discuss the differences between proprietary software and open source software with respect to the incentives to innovate and market failures that may occur. The document proposes guidelines to determine which types of policy intervention may be suitable. Our most important finding is that directly stimulating open source software, e.g. by acting as a lead customer, can improve dynamic efficiency if (i) there is a serious customer lock-in problem, while (ii) to develop the software, there is no need to purchase specific, complementary inputs at a substantial cost, and (iii) follow-on innovations are socially valuable but there are impediments to contractual agreements between developers that aim at realizing such innovations.
    Keywords: Software markets; Intellectual property rights; Open source software; Public policy
    JEL: L17 L52 L86 O34
    Date: 2009–03
  12. By: Bogliacino, F; Rampa, G
    Abstract: In this paper we generalize the heterogeneous risk adverse agents model of diffusion of new products in a multi-firm, heterogeneous and interacting agents environment. We use a model of choice under uncertainty based on Bayesian theory. We discuss the possibility of product failures, the set of equilibria, their stability and some welfare properties.
    Keywords: Product diffusion; Risk aversion; Lock-in; Monopolistic competition; Multiple equilibria
    JEL: D81 O33 L15
    Date: 2009–01–08
  13. By: Li, Chenguang; Sexton, Richard J.
    Abstract: The typical model of retail pricing for produce products assumes retailers set price equal to the farm price plus a certain markup. However, observations from scanner data indicate a large degree of price dispersion in the grocery retailing market. In addition to markup pricing behavior, we document three alternative leading pricing patterns: fixed (constant) pricing, periodic sale, and high-low pricing. Retail price variations under these alternative pricing regimes in general have little correlation with the farm price. How do retailersâ alternative pricing behaviors affect farmersâ welfare? Using markup pricing as the baseline case, we parameterize the model to reflect a prototypical fresh produce market and carry out a series of simulations under different pricing regimes. Our study shows that if harvest cost is sufficiently low, retail prices adjusting only partially, or not at all, to supply shocks tends to diminish farm income and exacerbate farm price volatility relative to the baseline case. However, we also find that if harvest cost is sufficiently large and the harvest-cost constraint places a lower bound on the farm price, increased farm price volatility induced by retailersâ alternative pricing strategies may result in higher farm income, compared to markup pricing. Our study is the first to evaluate the welfare implications for producers of the diversified pricing strategies that retailers utilize in practice and the resulting attenuation of the relationship between prices at retail and at the farm gate.
    Keywords: Agribusiness, Demand and Price Analysis,
    Date: 2009
  14. By: Heski Bar-Isaac; Guillermo Caruana; Vicente Cuñat
    Abstract: Firms compete by choosing both a price and a design from a family of designs that can be represented as demand rotations. Consumers engage in costly sequential search among firms. Each time a consumer pays a search cost he observes a new offering. An offering consists of a price quote and a new good, where goods might vary in the extent to which they are good matches for the consumer. In equilibrium, only two design- styles arise: either the most niche where consumers are likely to either love or loathe the product, or the broadest where consumers are likely to have similar valuations. In equilibrium, different firms may simultaneously offer both design-styles. We perform comparative statics on the equilibrium and show that a fall in search costs can lead to higher industry prices and profits and lower consumer surplus. Our analysis is related to discussions of how the internet has led to the prevalence of niche goods and the "long tail" phenomenon.
    Keywords: Product design, search costs, long tail
    JEL: L10 D83 M31
    Date: 2009–04
  15. By: Xia, Tian; Li, Xianghong
    Abstract: Through analyzing the effect of a demand characteristic, this paper investigates the reasons for the market phenomenon that farm and/or wholesale price changes are transmitted asymmetrically to retail markets.
    Keywords: asymmetric price transmission, demand characteristics, Industrial Organization,
    Date: 2009
  16. By: Nisvan Erkal; Suzanne Scotchmer
    Abstract: We investigate rewards to R&D in a model where substitute ideas for innovation arrive to random recipients at random times. By foregoing investment in a current idea, society as a whole preserves an option to invest in a better idea for the same market niche, but with delay. Because successive ideas may occur to different people, there is a conflict between private and social optimality. We characterize the welfare-maximizing reward structure when the social planner learns over time about the arrival rate of ideas, and when private recipients of ideas can bank their ideas for future use. We argue that private incentives to create socially valuable options can be achieved by giving higher rewards where "ideas are scarce."
    JEL: K00 L00 O34
    Date: 2009–05
  17. By: P. G. Garella; L. Lambertini
    Date: 2008–11

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