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on Microeconomics |
| By: | Sjaak Hurkens; Doh-Shin Jeon |
| Abstract: | In this paper, we study how access pricing affects network competition when subscription demand is elastic and each network uses non-linear prices and can apply termination-based price discrimination. In the case of a fixed per minute termination charge, we find that a reduction of the termination charge below cost has two opposing effects: it softens competition but helps to internalize network externalities. The former reduces mobile penetration while the latter boosts it. We find that firms always prefer termination charge below cost for either motive while the regulator prefers termination below cost only when this boosts penetration. Next, we consider the retail benchmarking approach (Jeon and Hurkens, 2008) that determines termination charges as a function of retail prices and show that this approach allows the regulator to increase penetration without distorting call volumes. |
| Keywords: | Mobile Penetration, Termination Charge, Access Pricing, Networks, Interconnection, Regulation, Telecommunications. |
| JEL: | D4 K23 L51 L96 |
| Date: | 2009–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:777.09&r=mic |
| By: | Timothy Dunne; Shawn Klimek; Mark Roberts; Daniel Yi Xu |
| Abstract: | Market structure is determined by the entry and exit decisions of individual producers. These decisions are driven by expectations of future profits which, in turn, depend on the nature of competition within the market. In this paper we estimate a dynamic, structural model of entry and exit in an oligopolistic industry and use it to quantify the determinants of market structure and long-run firm values for two U.S. service industries, dentists and chiropractors. We find that entry costs faced by potential entrants, fixed costs faced by incumbent producers, and the toughness of short-run price competition are all important determinants of long run firm values and market structure. As the number of firms in the market increases, the value of continuing in the market and the value of entering the market both decline, the probability of exit rises, and the probability of entry declines. The magnitude of these effects differ substantially across markets due to differences in exogenous cost and demand factors and across the dentist and chiropractor industries. Simulations using the estimated model for the dentist industry show that pressure from both potential entrants and incumbent firms discipline long-run profits. We calculate that a seven percent reduction in the mean sunk entry cost would reduce a monopolist's long-run profits by the same amount as if the firm operated in a duopoly. |
| Keywords: | entry, exit, market structure, competition, service industry |
| JEL: | L11 L13 L84 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:09-23&r=mic |
| By: | Ramon Caminal |
| Abstract: | The choice of language is a crucial decision for firms competing in cultural goods and media markets with a bilingual or multilingual consumer base. To the extent that multilingual consumers have preferences over the intrinsic characteristics (content) as well as over the language of the product, we can examine the efficiency of market outcomes regarding linguistic diversity. In this paper, I extend the spokes model and introduce language as an additional dimension of product differentiation. I show that: (i) if firms supply their product in a single language (the adoption model) then the degree of linguistic diversity is inefficiently low, and (ii) if some firms supply more than one linguistic version (the translation model) then in principle the market outcome may exhibit insufficient or excessive linguistic diversity. However, excessive diversity is associated to markets where the fraction of products in the minority language is disproportionately high with respect to the relative size of the linguistic minority. |
| Keywords: | Product variety, language, translation |
| JEL: | D43 L13 L82 |
| Date: | 2009–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:aub:autbar:781.09&r=mic |
| By: | Zimmermann, Jörg; Grimpe, Christoph; Sofka, Wolfgang |
| Abstract: | Young firms with the ability to internationalize early and decisively have received much attention in recent academic discussion. However, relatively little is known about the underlying processes that enable them to skip several stages of the internationalization process. We contribute to this research stream by establishing theoretical links with the emerging open innovation paradigm of firms optimizing their R&D activities by interconnecting them with external partners such as leading customers, universities or specialized suppliers. Based on a sample of more than 2,500 firms in Germany we contrast young and mature firms with regard to the effect of open innovation strategies on internationalization performance. Our results show that both the breadth and depth of search strategies for external knowledge help young firms to enter international markets. Once they have entered these markets, though, the drivers for success seem to shift from general knowledge sourcing to targeted and specific ones. |
| Keywords: | New ventures,internationalization,innovation,search strategies,entrepreneurship |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:09017&r=mic |
| By: | Christiane Ernst; Christian Thöni |
| Abstract: | We report results from experimental first-price, sealed-bid, all-pay auctions for a good with a common and known value. We observe bidding strategies in groups of two and three bidders and under two extreme information conditions. As predicted by the Nash equilibrium, subjects use mixed strategies. In contrast to the prediction under standard assumptions bids are drawn from a bimodal distribution: very high and very low bids are much more frequent than intermediate bids. Standard risk preferences cannot account for our results. However, bidding behavior is consistent with the predictions of a model with reference dependent preferences as proposed by the prospect theory. |
| Keywords: | All-pay Auction; Prospect Theory, Experiment |
| JEL: | D44 D72 D80 C91 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:usg:dp2009:2009-25&r=mic |
| By: | Janda, Karel |
| Abstract: | This article belongs to the game theoretic and information economics literature dealing with the problem of signaling in the context of game theoretical models of entry into the industry. As opposed to the majority of literature we consider the situation of asymmetric information where the private information belongs to the entrant. We model the capacity decision of the entrant as a signal of his strength. We show that in the Stackelberg model of market entry for some values of underlying parameters the entrant fully utilizes his capacity while for other parameter values he builds excess capacity. The model may be empirically relevant for industrial organization analysis of the entry of a new supplier to the existing supply chain. |
| Keywords: | Signaling; Entry; Capacity |
| JEL: | L13 D82 D43 |
| Date: | 2009–08–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17007&r=mic |
| By: | Adela Luque; C.J. Krizan |
| Abstract: | As in many other developed countries, the share of skilled workers in Spain’s labor force dramatically increased during the 1990s. This paper decomposes the aggregate skill mix change by a set of key firm characteristics and in the context of Spain’s dual labor market. We find that continuing firms were the major drivers of skill mix growth and that expanding firms in particular increased their ratio of skilled workers. Net entry played a smaller but positive role due to higher-skilled entrants and lower-skilled exiters. Finally, we find that although firms with higher concentrations of temporary workers make bigger employment changes overall, firms’ low-skilled employment is more strongly pro-cyclical than is high skilled employment. |
| Keywords: | Microdata, Skill Mix, Decomposition Methodology, Business Cycle, Dual Labor Markets |
| JEL: | L2 O3 |
| Date: | 2009–05 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:09-12&r=mic |
| By: | Nicola Cetorelli |
| Abstract: | Empirical studies show that competition in the credit markets has important effects on the entry and growth of firms in nonfinancial industries. This paper explores the hypothesis that the availability of credit at the time of a firm’s founding has a profound effect on that firm’s nature. I conjecture that in times when financial capital is difficult to obtain, firms will need to be built as relatively solid organizations. However, in an environment of easily available financial capital, firms can be constituted with an intrinsically weaker structure. To test this conjecture, I use confidential data from the U.S. Census Bureau on the entire universe of business establishments in existence over a thirty-year period; I follow the life cycles of those same establishments through a period of regulatory reform during which U.S. states were allowed to remove barriers to entry in the banking industry, a development that resulted in significantly improved credit competition. The evidence confirms my conjecture. Firms constituted in post-reform years are intrinsically frailer than those founded in a more financially constrained environment, while firms of pre-reform vintage do not seem to adapt their nature to an easier credit environment. Credit market competition does lead to more entry and growth of firms, but also to complex dynamics experienced by the population of business organizations. |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:09-07&r=mic |
| By: | Thomas Eichner; Rüdiger Pethig |
| Abstract: | Policies of lowering carbon demand may aggravate rather than alleviate climate change (green paradox). In a two-period three-country general equilibrium model with finite endowment of fossil fuel one country enforces an emissions cap in the first or second period. When that cap is tightened the extent of carbon leakage depends on the interaction of various parameters and elasticities. Conditions for the green paradox are specified. All determinants of carbon leakage resulting from tightening the first-period cap work in opposite direction when the second-period cap is tightened. Tightening the second-period cap does not necessarily lead to the green paradox. |
| Keywords: | carbon leakage, green paradox, emissions cap |
| JEL: | H22 Q32 Q54 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:sie:siegen:136-09&r=mic |
| By: | Andrew Bernard; Stephen Redding; Peter Schott |
| Abstract: | This paper develops a general equilibrium model of international trade that features selection across firms, products and countries. Firms’ export decisions depend on a combination of firm “productivity” and firm-product-country “consumer tastes”, both of which are stochastic and unknown prior to the payment of a sunk cost of entry. Higher-productivity firms export a wider range of products to a larger set of countries than lower-productivity firms. Trade liberalization induces endogenous reallocations of resources that foster productivity growth both within and across firms. Empirically, we find key implications of the model to be consistent with U.S. trade data. |
| Keywords: | heterogeneous firms, endogenous product scope, love of variety, core competency |
| JEL: | F12 F13 L11 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:09-21&r=mic |
| By: | Pivato, Marcus |
| Abstract: | Some social choice models assume that precise interpersonal comparisons of utility (either ordinal or cardinal) are possible, allowing a rich theory of distributive justice. Other models assume that absolutely no interpersonal comparisons are possible, or even meaningful; hence all Pareto-efficient outcomes are equally socially desirable. We compromise between these two extremes, by developing a model of `approximate' interpersonal comparisons of well-being, in terms of an incomplete preorder on the space of psychophysical states. We then define and characterize `approximate' versions of the classical egalitarian and utilitarian social welfare orderings. We show that even very weak assumptions about interpersonal comparability can yield preorders on the space of social alternatives which, while incomplete, are far more complete than the Pareto preorder (e.g. they select relatively small subsets of the Pareto frontier as being `socially optimal'). Along the way, we give sufficient conditions for an incomplete preorder to be representable using a collection of utility functions. We also develop a variant of Harsanyi's Social Aggregation Theorem. |
| Keywords: | interpersonal comparisons of utility; interpersonal comparisons of well-being; social choice; social welfare; approximate egalitarian; approximate utilitarian; Suppes-Sen; utility representations of partial orders; utility representations of preorders |
| JEL: | D81 D63 D70 |
| Date: | 2009–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17060&r=mic |
| By: | Alistair Ulph; David Ulph |
| Abstract: | This paper examines the optimal design of climate change policies in the context where governments want to encourage the private sector to undertake significant immediate investment in developing cleaner technologies, but the carbon taxes and other environmental policies that could in principle stimulate such investment will be imposed over a very long future. The conventional claim by environmental economists is that environmental policies alone are sufficient to induce firms to undertake optimal investment. However this argument requires governments to be able to commit to these future taxes, and it is far from clear that governments have this degree of commitment. We assume instead that governments cannot commit, and so both they and the private sector have to contemplate the possibility of there being governments in power in the future that give different (relative) weights to the environment. We show that this lack of commitment has a significant asymmetric effect. Compared to the situation where governments can commit it increases the incentive of the current government to have the investment undertaken, but reduces the incentive of the private sector to invest. Consequently governments may need to use additional policy instruments – such as R&D subsidies – to stimulate the required investmen |
| Keywords: | Climate Change; Emissions Taxes; Impact on R&D; Timing and Commitment |
| JEL: | H23 Q54 Q55 Q58 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:san:wpecon:0909&r=mic |
| By: | Claudio Henrique da Silveira Barbedo; José Valentim Machado Vicente; Octávio Manuel Bessada Lion |
| Abstract: | Pricing interest rate derivatives is a challenging task that has attracted the attention of many researchers in recent decades. Portfolio and risk managers, policymakers, traders and more generally all market participants are looking for valuable information from derivative instruments. We use a standard procedure to implement the HJM model and to price IDI options. We intend to assess the importance of the principal components of pricing and interest rate hedging derivatives in Brazil, one of the major emerging markets. Our results indicate that the HJM model consistently underprices IDI options traded in the over-the-counter market while it overprices those traded in the exchange studied. We also find a direct relationship between time to maturity and pricing error and a negative relation with moneyness. |
| Date: | 2009–06 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:188&r=mic |
| By: | John Duggan (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 14627-0158); Tasos Kalandrakis (W. Allen Wallis Institute of Political Economy, 107 Harkness Hall, University of Rochester, Rochester, NY 14627-0158) |
| Abstract: | We develop and implement a collocation method to solve for an equilibrium in the dynamic legislative bargaining game of Duggan and Kalandrakis (2008). We formulate the collocation equations in a quasi-discrete version of the model, and we show that the collocation equations are locally Lipchitz continuous and directionally differentiable. In numerical experiments, we successfully implement a globally convergent variant of Broyden's method on a preconditioned version of the collocation equations, and the method economizes on computation cost by more than 50% compared to the value iteration method. We rely on a continuity property of the equilibrium set to obtain increasingly precise approximations of solutions to the continuum model. We showcase these techniques with an illustration of the dynamic core convergence theorem of Duggan and Kalandrakis (2008) in a nine-player, two-dimensional model with negative quadratic preferences. |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:roc:wallis:wp60&r=mic |
| By: | Delia Furtado; Nikolaos Theodoropoulos |
| Abstract: | Social networks are commonly understood to play a large role in the labor market success of immigrants. Using 2000 U.S. Census data, this paper examines whether access to native networks, as measured by marriage to a native, increases the probability of immigrant employment. We start by confirming in both least squares and instrumental variables frameworks that marriage to a native indeed increases immigrant employment rates. Next, we show that the returns to marrying a native are not likely to arise solely from citizenship rights acquired through marriage or characteristics of native spouses. We then present several pieces of evidence suggesting that networks obtained through marriage play an important part in explaining the relationship between marriage decisions and employment. |
| Keywords: | Immigration, Marriage, Employment, Networks |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:3-2009&r=mic |
| By: | Kobayashi, Teruyoshi; Muto, Ichiro |
| Abstract: | This study examines the expectational stability of the rational expectation equilibria(REE) under Taylor rules when trend inflation is non-zero. We find that whether or not a higher (lower) trend inflation makes the REE more (less) unstable depends largely on the data (such as contemporaneous data, forecasts and lagged data) used in the conduct of monetary policy. |
| Keywords: | adaptive learning; E-stability; Taylor rule; trend inflation |
| JEL: | D84 E31 E52 |
| Date: | 2009–09–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:17082&r=mic |
| By: | Richard Cornes; Roger Hartley |
| Abstract: | A game is fully aggregative if payoffs and marginal payoffs depend only on a player's own strategy and a function of the strategy profile which is common to all players. We characterize the form which this function must take in such a game and show that the game will be strategically equivalent to another game in which the function is the simple sum of strategies. |
| JEL: | C72 |
| Date: | 2009–08 |
| URL: | http://d.repec.org/n?u=RePEc:acb:cbeeco:2009-505&r=mic |