nep-mic New Economics Papers
on Microeconomics
Issue of 2010‒01‒10
sixteen papers chosen by
Vaishnavi Srivathsan
Indian Institute of Technology

  1. Does cartel leadership facilitate collusion? By Marc Escrihuela-Villar
  2. Incomplete Regulation, Competition and Entry in Increasing Returns to Scale Industries By Sara BIANCINI
  3. On the Channels of Pro-Social Behavior Evidence from a natural field experiment By Hannes Koppel; Günther G. Schulze
  4. Liquidity Constrained Competing Auctions By Richard Dutu; Benoit Julien; Ian King
  5. The Signaling Role of Prices: Cournot By Wassim DAHER; Leonard J. MIRMAN; Marc Santugini
  6. A Multiple Equilibria Model with Intrafirm Bargaining and Matching Frictions By Julie Beugnot; Mabel Tidball
  7. Crowdsourcing: What can be Outsourced to the Crowd, and Why ? By Eric Schenk; Claude Guittard
  8. Navigation in new terrain with familiar maps: Masterminding socio-spatial equality through resource oriented innovation policy. By Sjur Kasa; Anders Underthun
  9. The Impact of Distributional Preferences on (Experimental) Markets for Expert Services By Rudolf Kerschbamer; Matthias Sutter; Uwe Dulleck
  10. Black Gold & Fool’s Gold: Speculation in the Oil Futures Market By John E. Parsons
  11. Joan Robinson Was Almost Right:: Output under Third-Defree Price Discrimination. By Iñaki Aguirre
  12. Horizontal and Vertical Social Preferences in Tournaments By Gerald Eisenkopf; Sabrina Teyssier
  13. Predatory Pricing, Recoupment, and Consumers’ Reaction By Lisa Bruttel; Jochen Glöckner
  14. A Marketing Scheme for Making Money off Innocent People: A User’s Manual By Kaushik Basu
  15. Nash equilibria of games with monotonic best replies By Filippo L. Calciano
  16. Seeking similarity: how immigrants and natives manage at the labor market By Åslund, Olof; Hensvik, Lena; Nordström Skans, Oskar

  1. By: Marc Escrihuela-Villar (Universitat de les Illes Balears)
    Abstract: We discuss the implications of a Stackelberg sequence of play between a cartel and the fringe. We consider two different approaches to collusion: (i) one-stage static model and (ii) a multi-period oligopoly model. Our main result is that in the static model with quantity-setting firms a stable cartel only exist when cartel firms behave as a Stackelberg leader. It is also shown that in the supergame approach the cartel is always more easily sustained with the leadership than in the simultaneous-moves game. The opposite result is obtained in a price-setting supergame with differentiated products.
    Keywords: Collusion; Leadership; Stability; Sustainability
    JEL: L11 L13 L41 D43
    Date: 2009
  2. By: Sara BIANCINI (THEMA, Université de Cergy Pontoise)
    Abstract: The paper analyzes the effects of liberalization in increasing returns to scale industries. It studies the optimal regulation of an incumbent competing with an unregulated strategic competitor, when public funds are costly. The model shows a trade off between productive and allocative efficiency. Moreover, the welfare gains of liberalization, as compared with regulated monopoly, are a non monotonic function of the cost of public funds. Finally, in the case of severe cash constraint of the government, incomplete regulation may also dominate full regulation of duopoly.
    Keywords: Incomplete Regulation, Asymmetric Information, Incentives, Cost of Public Funds.
    JEL: L43 L51 D82
    Date: 2009
  3. By: Hannes Koppel (Max-Planck-Institute of Economics, Jena); Günther G. Schulze (Albert-Ludwigs-University Freiburg)
    Abstract: We conduct a natural field experiment on direct and indirect transfer mechanisms for small donations. Charitable contributions are significantly higher if made indirectly, i.e. if they are tied to the purchase of a good sold at a premium, than if they are made directly. Donations are signficantly higher under both transfer mechanisms if people are given a suggested reference donatio
    Keywords: Tied versus untied transfers, charitable donations, charity, willingness to give, pro social behavior
    JEL: D64 C93 H41
    Date: 2009–12–14
  4. By: Richard Dutu; Benoit Julien; Ian King
    Abstract: When goods are sold through competing auctions, what e¤ect does monetary policy have on the equilibrium allocation? To answer, we extend the competing auctions framework in several ways: buyers choose how much money they bring to an auction, the quantities traded at the auctions are endogenous, and sellers can charge a fee (either positive or negative) to buyers participating in their auction. We present two di¤erent speci?cations of the model. In the ?rst model, sellers post a quantity they wish to sell and a fee, and allow the price to be determined by an auction. In the second model, sellers post a price and a fee and allow the quantity sold to be determined by an auction. When sellers post a quantity and buyers bid prices, the Friedman rule implements the ?rst best and, in this case, no fee is charged by sellers. Sellers charge buyers a participation fee as soon as the nominal interest rate is positive, and marginal increments in money growth decrease both the posted quantity and buyers?entry. The use of auction fees reduces welfare in this environment. When sellers post a price and buyers bid quantities, the Friedman rule is optimal but does not yield the ?rst best as agents trade an ine¢ ciently low quantity in multilateral matches and an ine¢ ciently high quantity in pairwise matches. Marginal increments in money growth decrease the posted real price and the quantities traded. When the interest rate is low, sellers pay buyers who participate in their auction, which increases welfare. When the interest rate is high, sellers charge buyers who participate in their auction, which reduces welfare.
    Keywords: Competing auctions; money; search; in?ation; auction fees
    JEL: C78 D44 E40
    Date: 2009
  5. By: Wassim DAHER; Leonard J. MIRMAN; Marc Santugini (IEA, HEC Montréal)
    Abstract: Using the rational expectations approach, we study signaling in Cournot models, in which each oligopolist sets quantity, and, thus, partially controls the price-signal. We show that the quality of a homogeneous good is signaled by the market-clearing price. Moreover, our applications illustrate the tractability and usefulness of the rational expectations approach to signaling in complex economic settings. Indeed, the rational expectations equilibrium yields simple expressions for price, quantity, profit, and consumer surplus. Moreover, the rational expectations approach allows the model to specify posterior beliefs (including out-of-equilibrium beliefs).
    Keywords: Asymmetric information, Cournot, Learning, Oligopoly, Quality, Rational expectations, Signaling.
    JEL: D21 D43 D82 D83 D84 L13 L15
    Date: 2009–12
  6. By: Julie Beugnot; Mabel Tidball
    Abstract: In this paper, we combine a matching model derived from Pissarides (2000) in the case of large .rms with monopolistic competition on the product market and the model of intra.rm bargaining à la Stole and Zwiebel (1996). Moreover, we allow for increasing returns to scale in the aggregate production function leading to multiple equilibria. Then, we study the dynamics of such a framework for various size of returns to scale and propose numerical simulations. Finally, we show how the dynamical properties are altered in the case of multiple equilibria compared to that of a unique equilibrium and illustrate the issues of economic policy design in presence of multiple equilibria.
    Date: 2009–10
  7. By: Eric Schenk (LGeco - Laboratoire de Génie de la Conception - Institut National des Sciences Appliquées de Strasbourg, BETA - Bureau d'économie théorique et appliquée - CNRS : UMR7522 - Université de Strasbourg); Claude Guittard (BETA - Bureau d'économie théorique et appliquée - CNRS : UMR7522 - Université Louis Pasteur - Strasbourg I)
    Abstract: Why should a firm outsource certain activities in countries where labor is inexpensive, when by using the Internet, firms are a mouse click away from an eclectic, university educated, population ready to invest in intellectually stimulating projects for little or no remuneration ? The word Crowdsourcing –a compound contraction of Crowd and Outsourcing, was used by Howe in order to define outsourcing to the crowd. Beyond cost, benefits for the company can be substantial. It can externalize the risk of failure and it only pays for products or services that meet its expectations. The aim of this paper is to characterize Crowdsourcing from a management science perspective. Our approach is mainly theoretical, although we rely on extensive illustrations. First we discuss the definition of Crowdsourcing, and provide examples that illustrate the diversity of Crowdsourcing practices. Then, we present similarities and differences between Crowdsourcing and established theories (Open Innovation, User Innovation) and a phenomenon that has inspired many studies in Economics and Management, Open Source Software. Our goal is to avoid future misunderstandings and to show that Crowdsourcing is a concept per se. Finally, we propose and illustrate a typology of Crowdsourcing practices based on two criteria: the integrative or selective nature of the process and the type of tasks that are crowdsourced (routine, complex and creative tasks). In either case, the client firm seeks to mobilize external competencies. Relying upon the crowd can be an adequate method, because of its unique characteristics that are fostered by the Internet.
    Keywords: Web 2.0; Crowdsourcing; Open Source: Open Innovation; User Innovation
    Date: 2009–12–07
  8. By: Sjur Kasa (Centre for Technology, Innovation and Culture, University of Oslo); Anders Underthun (Department of Geography, The Norwegian University of Science and Technology)
    Abstract: This paper explores how political struggles influence innovation policy through a Norwegian case study on the formation of a state-funded research and development program for utilizing natural gas feedstock from the North Sea. Despite the apparent dominance of business, specialized branches of the state, and R&D institutions in the realm of innovation policy, the key argument of this paper is that labor unions and regional interests exert considerable influence in shaping national innovation policy, in particular when reflexively exploiting new forms of state accumulation strategies while retaining a defensive stance against deindustrialization. First, we argue that the struggle for state funding to natural-gasbased R&D was particularly effective because appropriate strategic political networks and alliances were mobilized. Second, the construction of strategic arguments to accommodate the social corporatist heritage of state intervention on the one hand and the competitionoriented language of flexible specialization on the other, proved crucial for acceptance as a state strategy. The paper engages a Strategic– Relational Approach to state theory and argues that this is a useful starting point when studying how particular contexts affect how and why certain innovation policies emerge. In doing so, we also address the lack of political analysis in innovation studies.
    Date: 2009–12
  9. By: Rudolf Kerschbamer; Matthias Sutter; Uwe Dulleck
    Abstract: Credence goods markets suffer from inefficiencies arising from informational asymmetries between expert sellers and customers. While standard theory predicts that inefficiencies disappear if customers can verify the quality received, verifiability fails to yield efficiency in experiments with endogenous prices. We identify heterogeneous distributional preferences as the main cause and design a parsimonious experiment with exogenous prices that allows classifying experts as either selfish, efficiency loving, inequality averse, inequality loving or competitive. Results show that most subjects exhibit non-standard distributional preferences, among which efficiency-loving and inequality aversion are most frequent. We discuss implications for institutional design and agent selection in credence goods markets.
    Keywords: Distributional Preferences, Credence Goods, Verifiability, Experiment
    JEL: C72 C91 D82
    Date: 2009–12
  10. By: John E. Parsons
    Abstract: This paper addresses the question of whether the oil price spike of 2003-2008 was a bubble. We document and discuss what is known about the level of speculation in the paper oil market. We then analyze the dynamics of the term structure of futures prices, both during the earlier period of 1985-2002 and during the spike. The dynamics of the term structure changed in important ways during this latter period, and we explain how this may have contributed to generating a bubble. We also explain how this answers the puzzle of the lack of accumulating above-ground inventories. Finally, we discuss the implications for regulatory reform of the paper oil markets.
    Date: 2009–09
  11. By: Iñaki Aguirre (UPV/EHU)
    Abstract: In this paper, we show that in order for third-degree price discrimination to increase total output, the demands of the strong markets should be, as conjectured by Robinson (1933), more concave than the demands of the weak markets. By making the distinction between adjusted concavity of the inverse demand and adjusted concavity of the direct demand, we are able to state necessary conditions and su¢ cient conditions for third-degree price discrimination to increase total output.
    Keywords: Third-Degree Discrimination, Output, Monopoly, Welfare
    JEL: D42 L12 L13
    Date: 2009–12–18
  12. By: Gerald Eisenkopf; Sabrina Teyssier
    Abstract: Most studies find no collusion in tournaments. This result suggests that social preferences are irrelevant in this context. We investigate the impact of social preferences in a tournament using data from a laboratory experiment with two treatments. In a conentional tournament, an agent receives either the full prize or no prize at all. The other tournament provides the same incentives but the actual payment of an agent equals her expected payment. In both treatments the principal chooses between a fair and an unfair contract. Standard economic theory predicts the same effort provision in all situations. Our results show instead that envy between agents and the fairness of the principal determine the effectiveness of tournaments. Moreover, we observe that collusion between the agents and reciprocity towards the principal are mutually exclusive.
    Keywords: Tournament, Collusion, Envy, Agency problem, Reciprocity
    Date: 2009
  13. By: Lisa Bruttel; Jochen Glöckner
    Abstract: This paper tests two basic assumptions underlying court made or statutory provisions prohibiting predatory pricing on the economic grounds that monopolistic pricing likely to occur in the long run will cause harm to competition and consumers. The first assumption under scrutiny is that customers will accept monopolistic prices during the subsequent phase of recoupment, even though they have become accustomed to low prices during the price war. The second assumption is that even in the subsequent phase of recoupment neither any displaced nor any other competitor will (re-)enter the market to undercut the monopolistic prices. We can confirm earlier data according to which predatory pricing occurs rarely in an experimental environment. Moreover, the experiment indicates that both assumptions are not backed up by actual decision making both of consumers and of competitors.
    Keywords: Predatory Pricing, Recoupment, Experiment
    Date: 2009
  14. By: Kaushik Basu
    Abstract: Firms often give away free goods with the product that they sell. Firms often give stock options to their top management and other employees. Mixing these two practices—giving stock options to consumers who buy the firm’s product—, creates a deadly brew. Large numbers of consumers can be lured into buying this product, giving the entrepreneur huge profits and the consumers a growing profit share. But this is a camouflaged Ponzi that will ultimately crash. By analogy it is argued that the common practice of giving stock options to employees can be a factor behind financial crashes. The aim of the paper is to help create a better regulatory structure.
    Keywords: employees, money, marketing, financial, entrepreneur, stock options, financial scams, product bundling, firms, consumers, employees, product, profit share, strategy, law, loans,
    Date: 2009
  15. By: Filippo L. Calciano
    Abstract: We introduce notions of increasingness for the best reply of a game that capture properly the intuitive idea of complementarity among players’ strategies. We show, by generalizing the fixpoint theorems of Veinott and Zhou, that the Nash sets of our games with increasing best replies are nonempty complete lattices. Hence we extend the class of games with strategic complementarities.
    Keywords: Complementarity, supermodular games, fixpoint theorem, Nash equilibria
    JEL: C60 C70 C72
    Date: 2009
  16. By: Åslund, Olof (IFAU - Institute for Labour Market Policy Evaluation); Hensvik, Lena (IFAU - Institute for Labour Market Policy Evaluation); Nordström Skans, Oskar (IFAU - Institute for Labour Market Policy Evaluation)
    Abstract: We show that immigrant managers are substantially more likely to hire immigrants than are native managers. The finding holds when comparing establishments in the same 5-digit industry and location, when comparing different establishments within the same firm, when analyzing establishments that change management over time, and when accounting for within-establishment trends in recruitment patterns. The effects are largest for small and owner managed establishments in the for-profit sector. Separations are more frequent when workers and managers have dissimilar origin, but only before workers become protected by EPL. We also find that native managers are unbiased in their recruitments of former co-workers, suggesting that information deficiencies are important. We find no effects on entry wages. Our findings suggest that a low frequency of immigrant managers may contribute to the observed disadvantages of immigrant workers.
    Keywords: Minority workers; Labor mobility; Workplace segregation
    JEL: J15 J21 J62 M51
    Date: 2009–12–07

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