nep-mic New Economics Papers
on Microeconomics
Issue of 2009‒12‒11
twelve papers chosen by
Vaishnavi Srivathsan
Indian Institute of Technology

  1. A theory of sharecropping: the role of price behavior and imperfect competition By Sen, Debapriya
  2. The importance of R&D subsidies and technological infrastructure for regional innovation performance - A conditional efficiency approach By Tom Broekel; Charlotte Schlump
  3. Private label introduction: Does it benefit the supply chain? By Sachon, Marc; Martinez de Albeniz, Victor
  4. Testing Theories of Scarcity Pricing in the Airline Industry By Steven L. Puller; Anirban Sengupta; Steven N. Wiggins
  5. Leadership Games with Convex Strategy Sets By Bernhard von Stengel; Shmuel Zamir
  6. Competitive Balance and Revenue Sharing in Sports Leagues with Utility-Maximizing Teams By Helmut Dietl; Martin Grossmann; Markus Lang
  7. Mixed Strategies in Discriminatory Divisible-good Auctions By Anderson, Edward J.; Holmberg, Pär; Philpott, Andrew B.
  8. Identification, Screening and Stereotyping in Labour Market Discrimination By Vendrik, Maarten; Schwieren, Christiane
  9. Group versus Individual Liability: Long Term Evidence from Philippine Microcredit Lending Groups By Karlan, Dean; Gine, Xavier
  10. Strategic Capacity Investment under Holdup Threats: The Role of Contract Length and Width By Durand-Viel, Laure; Villeneuve, Bertrand
  11. Diffusion Processes on Complex Networks By Natalie Svarcova; Petr Svarc
  12. The Balassa-Samuelson model in general equilibrium with markup variations By Romain Restout

  1. By: Sen, Debapriya
    Abstract: This paper proposes a theory of sharecropping on the basis of price behavior in agriculture and imperfectly competitive nature of rural product markets. We consider a contractual setting between one landlord and one tenant with seasonal variation of price, where the tenant receives a low price for his output while the landlord can sell his output at a higher price, and show the superiority of sharecropping over fixed rental contracts. Then we consider more general interlinked contracts to show that there are multiple optimal interlinked contracts. Finally, proposing an equilibrium refinement that incorporates imperfect competition in the rural product market, it is shown that the unique contract that is robust to this refinement results in sharecropping.
    Keywords: Sharecropping; price variation; imperfect competition; interlinkage; the epsilon-agent
    JEL: D23 J43 O17 D02 Q15 O12
    Date: 2009–12–04
  2. By: Tom Broekel; Charlotte Schlump
    Abstract: The importance of R&D subsidies for innovation activities is highlighted by numerous firm-level studies. These approaches miss however the systematic regional character of innovation activities and potential firm-spanning effects of this policy measure. The literature on regional innovation performance has widely neglected R&D subsidies so far. This paper analyzes the importance of R&D subsidies as well as the relevance of a publicly funded technological infrastructure for the innovation efficiency of German regions. Using conditional nonparametric frontier techniques we find positive effects of R&D subsidies and somewhat smaller ones for the technological infrastructure, which however vary between industries.
    Keywords: innovation policy, regional innovation efficiency, technological infrastructure, stepwise conditional efficiency analysis
    JEL: O18 O38 R58 R12
    Date: 2009–11
  3. By: Sachon, Marc (IESE Business School); Martinez de Albeniz, Victor (IESE Business School)
    Abstract: Private labels, also called store brands or distributor brands, have changed the retail industry during the last three decades. Consumer data shows strong growth of private label market share, and in countries like Germany or Spain, the penetration of private labels is above 30% of total retail sales. This paper analyzes the channel dynamics in a category where a private label is introduced. We focus on the impact of private labels on retail and wholesale equilibrium prices, as well as on the profits of each firm of the supply chain. While private label introduction helps the retailer reduce manufacturer brand's prices, we find that it does not always improve the total profits of the supply chain. Generally, the supply chain benefits from this introduction only when cross-elasticities are small, i.e., competitive interactions are weak. With our model, we formulate the general conditions under which retailers should consider introducing private labels.
    Keywords: Private label; non-cooperative game theory; supply chain efficiency;
    Date: 2009–11–03
  4. By: Steven L. Puller; Anirban Sengupta; Steven N. Wiggins
    Abstract: This paper investigates why passengers pay substantially different fares for travel on the same airline between the same two airports. We investigate questions that are fundamentally different from those in the existing literature on airline price dispersion. We use a unique new dataset to test between two broad classes of theories regarding airline pricing. The first group of theories, as advanced by Dana (1999b) and Gale and Holmes (1993), postulates that airlines practice scarcity based pricing and predicts that variation in ticket prices is driven by differences between high demand and low demand periods. The second group of theories is that airlines practice price discrimination by using ticketing restrictions to segment customers by willingness to pay. We use a unique dataset, a census of ticket transactions from one of the major computer reservation systems, to study the relationships between fares, ticket characteristics, and flight load factors. The central advantage of our dataset is that it contains variables not previously available that permit a test of these theories. We find only mixed support for the scarcity pricing theories. Flights during high demand periods have slightly higher fares but exhibit no more fare dispersion than flights where demand is low. Moreover, the fraction of discounted advance purchase seats is only slightly higher on off-peak flights. However, ticket characteristics that are associated with second-degree price discrimination drive much of the variation in ticket pricing.
    JEL: L1 L93
    Date: 2009–12
  5. By: Bernhard von Stengel; Shmuel Zamir
    Abstract: A basic model of commitment is to convert a two-player game in strategic form to a “leadership game†with the same payoffs, where one player, the leader, commits to a strategy, to which the second player always chooses a best reply. This paper studies such leadership games for games with convex strategy sets. We apply them to mixed extensions of finite games, which we analyze completely, including nongeneric games. The main result is that leadership is advantageous in the sense that, as a set, the leader’s payoffs in equilibrium are at least as high as his Nash and correlated equilibrium payoffs in the simultaneous game. We also consider leadership games with three or more players, where most conclusions no longer hold.
    Date: 2009–11
  6. By: Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Martin Grossmann (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: This paper develops a contest model of a professional sports league in which clubs maximize a weighted sum of profits and wins (utility maximization). The model analyzes how more win-orientated behavior of certain clubs affects talent investments, competitive balance and club profits. Moreover, in contrast to traditional models, we show that revenue sharing does not always reduce investment incentives due to the dulling effect. We identify a new effect of revenue sharing called the "sharpening effect". In the presence of the sharpening effect (dulling effect), revenue sharing enhances (reduces) investment incentives and improves (deteriorates) competitive balance in the league.
    Keywords: Competitive balance, contest, invariance proposition, objective function, revenue sharing, team sports league, utility maximization
    JEL: L83 D43 C72
    Date: 2009–12
  7. By: Anderson, Edward J. (Faculty of Economics and Business); Holmberg, Pär (Research Institute of Industrial Economics (IFN)); Philpott, Andrew B. (Department of Engineering Science)
    Abstract: Author: Edward J. Anderson, Pär Holmberg and Andrew B. Philpott Keywords: Pay-as-bid Auction; Divisible Good Auction; Mixed Strategy Equilibria; Wholesale Electricity Markets Pages: 71 Published: November 24, 2009 JEL-codes: D43; D44; C72 Download Wp814.pdf (756 kB) Abstract Using the concept of market-distribution functions, we derive general optimality conditions for discriminatory divisible-good auctions, which are also applicable to Bertrand games and non-linear pricing. We introduce the concept of offer distribution function to analyze randomized offer curves, and characterize mixed-strategy Nash equilibria for pay-as-bid auctions where demand is uncertain and costs are common knowledge; a setting for which pure-strategy supply function equilibria typically do not exist. We generalize previous results on mixtures over horizontal offers as in Bertrand-Edgeworth games, but more importantly we characterize novel mixtures over partly increasing supply functions.
    Keywords: Pay-as-bid Auction; Divisible Good Auction; Mixed Strategy Equilibria; Wholesale Electricity Markets
    JEL: C72 D43 D44
    Date: 2009–11–24
  8. By: Vendrik, Maarten (Maastricht University); Schwieren, Christiane (University of Heidelberg)
    Abstract: According to social-psychological research, feelings of uncertainty in decision-making evoke two opposite responses: (i) reduction of uncertainty by information search, leading to less stereotyping of people, and hence less discrimination; (ii) social identification with an ingroup, inducing more reliance on stereotypic perceptions and prejudices, and hence more discrimination against an outgroup. We integrate both responses in a microeconomic model of hiring and pay decisions by an employer. Increasing competition in the product market makes the employer feel more uncertain about his profits, but also raises the opportunity cost of screening expenditures. This elicits substitution of ingroup identification for screening expenditures, and hence enhances discrimination.
    Keywords: discrimination, stereotyping, social identity, uncertainty, screening
    JEL: J7 M51
    Date: 2009–11
  9. By: Karlan, Dean (Yale University and Innovations for Poverty Action); Gine, Xavier (World Bank)
    Abstract: Group liability in microcredit purports to improve repayment rates through peer screening, monitoring, and enforcement. However, it may create excessive pressure, and discourage reliable clients from borrowing. Two randomized trials tested the overall effect, as well as specific mechanisms. The first removed group liability from pre-existing groups and the second randomly assigned villages to either group or individual liability loans. In both, groups still held weekly meetings. We find no increase in default and larger groups after three years in preexisting areas, and no change in default but fewer groups created after two years in the expansion areas.
    JEL: C93 D71 D82 D91 G21 O12 O16 O17
    Date: 2009–05
  10. By: Durand-Viel, Laure; Villeneuve, Bertrand
    Abstract: This article analyzes the impact of incomplete contracts’ length on investment in a bilateral relationship. The seller has the power to set the contract terms whereas the buyer decides on the investment level, which acts as a cap on future demand. Two-part tariffs succeed at implementing the optimal investment and consumption even if commitment is limited, and the contract’s duration is irrelevant. Interestingly, this efficient solution is rendered possible by subsidies on consumption during the contract. In other terms, duration matters hugely for the contract details (the timing of transfers), not for its performance. Under certain circumstances that we discuss, linear pricing may have to be used, which leads to suboptimal investment. We show that longer contracts are less efficient, meaning that a degree of completeness (pricing width) may be strictly complementary to another one (contract length). The buyer’s surplus increases with respect to the contract duration, whereas the seller loses more in profit than the social surplus decreases. A longer contract actually protects expropriable investors rather than investment itself.
    Keywords: Long-term Contracts ; Incomplete Contracting ; Infrastructure Investment
    JEL: L95 D45 D92 D42
    Date: 2009–11–23
  11. By: Natalie Svarcova (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Petr Svarc (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: In this paper we apply agent-based methodology on an issue that is fundamental for economic prosperity and growth: the diffusion of innovations. The diffusion of innovations is one of the topics where agent-based simulation is an extremely fruitful method allowing not only the observation of stable states but also the process and development of the diffusion. Furthermore, empirical studies revealed that the topological structure of interactions among individuals importantly influences the diffusion’s course and outcomes. We analyze diffusion outcomes for five different topologies, assuming markets where individuals are highly influenced by the adoption decision of their peers and innovations are introduced into the markets in two different ways: mass media campaigns and seeding procedures. Our results indicate that the topology of the relations among individuals importantly influences the speed and development of the diffusion process as well as final market penetration. Scale free topology seems to promote fast innovation diffusion, at the same time being characterized by the high uncertainty of the diffusion outcomes. Less heterogeneous networks (small worlds, two-dimensional lattice and ring) yield a much slower diffusion of the innovation, at the same time being much less unpredictable than scale free topology.
    Keywords: innovation diffusion, complex networks, scale-free networks
    JEL: O31 O33
    Date: 2009–12
  12. By: Romain Restout
    Abstract: This contribution embeds the Balassa-Samuelson hypothesis in a general equilibrium model that combines monopolistic competition and markup variations to examine the determinants of relative prices of nontradables. The model emphasizes the role of markup variations as an important aspect driving relative price movements. Variations in the markup makes fiscal policy non-neutral and provides a strong magnification mechanism for shocks to productivity. The empirical evidence of these predictions are examined by using a panel cointegration framework. On the whole, the econometric findings support theoretical implications, suggesting that our model is more closely in line with data relative to the supply-side Balassa-Samuelson framework that abstracts from variations in the degree of competition.
    Keywords: Balassa-Samuelson effect, Monopolistic competition, Fiscal policy.
    JEL: E20 E62 F31 F41
    Date: 2009

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