microéconomie_20112007

Source : NEP (New Economics Papers) | RePEc

Competition and Innovation: An Experimental Investigation
Date:     2007-10
By:     Dario Sacco (Socioeconomic Institute, University of Zurich)
The paper analyzes the effects of competitive intensity on firms’ incentives to invest in process innovations through an experiment based on two-stage games, where R&D investment choices are followed by product market competition. An increase in the intensity of competition is modeled as an increase in the number of Þrms or as a switch from Cournot to Bertrand. The theoretical prediction is that more intense competition is unfavorable to investments for both cases. In the experiment it turns out that the way of modeling the intensity of competition is essential. The theoretical prediction is confirmed for the number effects. On the other hand, the comparison of Cournot and Bertrand shows that more intense competition is beneÞcial for investments.
Keywords:     R&D investment, intensity of competition, experiment
JEL:     C92 L13 O31

Dynamic Advertising with Spillovers: Cartel vs Competitive Fringe
Date:     2007-07
By:     Luca Lambertini (University of Bologna and The Rimini Centre for Economics Analysis, Italy.)
Arsen Palestini (University of Bologna, Italy)
A differential oligopoly game with advertising is investigated, where different dynamics occur between two groups of agents, the former playing a competitive Nash game and the latter cooperating as a cartel. Sufficient conditions for stability and a qualitative analysis of the profit ratio and social welfare at equilibrium are provided. A threshold value for the size of the competitive fringe is pointed out by a suitable numerical simulation.
Keywords:     Advertising, Differential games, Oligopoly, Collusion
JEL:     C73 D43 D92 L13 M37

On a foundation for Cournot equilibrium
Date:     2007-10
By:     Alex Dickson (Keele University, Centre for Economic Research and School of Economic and Management Studies)
Roger Hartley (Department of Economics, University of Manchester)
We show in the context of a bilateral oligopoly where all agents are allowed to behave strategically the unexpected result that when the number of buyers becomes large the outcomes in a strategic market game do not converge to those at the Cournot equilibrium. However, convergence to Cournot outcomes is restored if the game is sequential: sellers move simultaneously as do buyers, but the former always move before the latter. This suggests that the ability to commit to supply decisions is an essential feature of Cournot equilibrium.
Keywords:     Cournot competition, strategic market game, strategic foundation.
JEL:     C72 D43 D51 L13

The Control of Porting in Two-Sided Markets
Date:     2007-11
By:     Pollock, R.
A sizable literature has grown up in recent years focusing on two-sided markets in which economies of scale combined with complementarities between a platform and its associated ‘software’ or ‘services’ can generate indirect network effects (that is positive feedback between the number of consumers using that platform and the utility of an individual consumer). In this paper we introduce a model of ‘porting’ in such markets where porting denotes the conversion of ‘software’ or ‘services’ developed for one platform to run on another. Focusing on the case where a dominant platform exists we investigate the impact on equilibrium and the consequences for welfare of the ability to control porting. Specifically, we show that the welfare costs associated with the ‘control of porting’ may be more significant than those arising from pricing alone. This model and its associated results are of particul ar relevance because of the light they shed on debates about the motivations and effects of actions by a dominant platform owner. Recent examples of such debates include those about Microsoft’s behaviour both in relation to its operating system and its media player, Apple’s behaviour in relation to its DRM and iTunes platform, and Ebay’s use of the cyber-trespass doctrine to prevent access to its site. Key words: Network Effects, Two-Sided Markets, Porting, Antitrust, Competition.
JEL:     L15 L12 L13

Protecting the Domestic Market: Industrial Policy and Strategic Firm Behaviour
Date:     2007-10
By:     Jens Metge
Foreign firms to break into a new market commonly undercut domestic prices and, hence, subsidise the consumer’s costs of switching in order to get a positive market share. However, this may constitute the act of dumping as drawn in Article VI of the General Agreement on Tariffs and Trade (GATT). Consequently, domestic firms trying to protect themselves against potential competitors often demand an anti-dumping (AD) investigation. In a two-period model of market entry with horizontally differentiated products and exogenous switching costs, it is demonstrated that the mere existence of switching costs and AD-rules may result in an anti-competition effect: the administratively set minimum-price rule protects the domestic firm and yields larger prices. Therefore, there are some consumers who will not buy either product in both periods although they would have done so in absence of AD. Consequently, competition policy s hould reassess the AD-regulation.
Keywords:     Industrial Policy; Anti-Dumping; Hotelling; Switching Costs; Market Entry

Understanding the Lack of Competition in Natural Gas Markets: The Impact of Storage Ownership and Upstream Competition
Date:     2007-09
By:     Michal Mravec
Motivated by the failure of competition to emerge after the natural gas market in the Czech Republic was liberalized, I explore the impact of natural gas storage ownership and upstream competition on the downstream level. I extend standard Cournot models to understand current and likely future developments, paying particular attention to the impact of market liberalization on a country characterized by a lack of domestic production, limited foreign upstream competition, and highly concentrated (and bundled) control over an essential input in the production of the final product: gas storage. I show that the upstream producer may practice his market power to capture some of the benefits of liberalization and increase the wholesale price, which hinders the desired decline of the end-user price in the long run. This pricing change in turn makes the entry of new players in the transition period more difficult. I further more analyze three prominent storage structure scenarios and conclude that higher consumer welfare can be reached only in the case of regulated storage access.
Keywords:     Natural gas, liberalization, deregulation, successive oligopoly, monopoly, Czech Republic, gas storage.
JEL:     D42 D43 L11 L12 L13 L51

International Competition in Vertically Differentiated Markets with Innovation and Imitation: Trade Policy versus Free Trade
Date:     2007-08
By:     Eugen Kovac
Kresimir Zigic
The important characteristic of international competition between developed and less developed countries is vertical product differentiation, where firms’ quality choices represent strategic decisions. Unlike the previous literature, we allow for a leadership in quality choice and the possibility of imitation and learning by the domestic firm. We compare both positive and normative aspects of this setup in the free trade and the strategic trade policy regime and show that the value of leadership may change dramatically when moving from free trade to trade policy. We also identify conditions under which trade policy can initiate the change in the quality ladders (known as quality reversal) and demonstrate that such a policy has a somewhat limited scope to achieve it. Thus, free trade can still be an optimal trade arrangement.
Keywords:     Vertical differentiation, free trade, strategic trade policy, quality rever-sal, leadership, imitation.
JEL:     D43 F12 F13 L13

Inflow Uncertainty in Hydropower Markets
Date:     2007-10
By:     Petter Vegard Hansen (Statistics Norway)
In order to analyse the consequences of uncertainty for prices and efficiency in a hydropower system, we apply a two-period model with uncertainty in water inflow. We study three different market structures, perfect competition, monopoly and oligopoly and stress the importance of the shape of the demand function under different distributions of water inflow. The uncertainty element creates possibilities of exercising market power depending on the distribution of uncertainty among producers. The introduction of thermal power into the hydropower market has an impact on the residual demand function, which is important for the hydropower producers’ possibilities of exercising market power.
Keywords:     hydropower; uncertainty; electricity; thermal power; demand functions; monopoly; duopoly
JEL:     D40 Q11 Q41 L10

The relation between competition and innovation – Why is it such a mess?
Date:     2007-11
By:     Armin Schmutzler (Socioeconomic Institute, University of Zurich)
Using several simple examples, this paper shows that the effects of increasing competition on cost-reducing investments can be positive, negative or non-monotone. Also, competition is more likely to increase the investments of leaders than of laggards. To explain these findings, I use a reduced-form model. I identify four different transmission channels by which competition affects investments. Competition typically (i) reduces markups, but (ii) increases the sensitivity of equilibrium demand to marginal costs — this already implies countervailing effects on investment incentives. These difficulties are compounded because competition has ambiguous effects on (iii) the level of equilibrium demand and (iv) the extent to which efficiency gains are passed through to consumers as lower prices. Because of these ambiguities, there is not much hope of establishing a robust relation between competition and investment.
Keywords:     competition, investment, cost reduction
JEL:     L13 L20 L22

Probalilistic duopoly with differentiation by attributes
Date:     2007
By:     Reynald-Alexandre Laurent
This paper proposes a discrete choice duopoly in which products are described and differentiated by their specific attributes. These attributes can be discrete characteristics or differences in continuous variables, such as prices or qualities. Consumers follow a probabilistic reasoning which is consistent with random decision rule models such as Tversky’s “Elimination by Aspects” framework (1972a,b). This type of behavior is relevant for small everyday life purchases. The demand system provides a general structure of product differentiation in which special cases are given by classical models of horizontal and vertical differentiation. Existence and uniqueness of a price Nash equilibrium in pure strategies are established in the duopoly. When attributes’ utilities vary, comparative statics properties of profits can be explained by “attractiveness” and “differentiation” effects. These effects are combined in a new way compared to the deterministic structures or to the logit duopoly. For example, an increase in the low utility index of attributes strengthens product differentiation.

Standards Competition In The Presence Of Digital Conversion Technology: An Empirical Analysis Of The Flash Memory Card Market
Date:     2007-09
By:     Charles Z. Liu (Katz Graduate School of Business, University of Pittsburgh)
Chris F. Kemerer (Katz Graduate School of Business, University of Pittsburgh)
Michael D. Smith (Heinz School of Public Policy and Management, Carnegie Mellon University)
Both theoretical and empirical evidence suggest that in markets with standards competition, strong network effects can make the strong grow stronger and, in some circumstances, even “tip” the market towards a single, winner-take-all standard. We theorize that in the presence of low cost conversion technologies and digital content, the tendency towards market dominance can be lessened to the point where multiple incompatible standards are viable. Our hypotheses are empirically examined in the context of the flash memory card market where both network effects and high quality conversion are present. The results show that the availability of digital converters reduces the price premium of the leading flash card formats more than of the minority formats. Therefore, producers of the non-dominant standards can be better off with the provision of conversion technology as this technology neutralizes the impact of netwo rk effects that would have otherwise been more potent. We discuss both the social and private implications of our findings.
Keywords:     network effects, standards competition, conversion technologies, flash memory, digital goods
JEL:     C12 C23 D62 L11 L15

Search Engine Advertising: Pricing Ads to Context
Date:     2007-09
By:     Avi Goldfarb (Rotman School of Management, University of Toronto)
Catherine Tucker (Sloan School of Management, MIT)
Each search term put into a search engine produces a separate set of results. Correspondingly, each of the sets of ads displayed alongside these results is priced using a separate auction. Search engine advertising prices therefore reflect willingness to pay for context, unlike traditional ad prices that reflect willingness to pay for audience demographics. A growing policy debate asks if this marketing strategy merely makes advertising more informative, or whether it also effectively extracts rent from advertisers. To inform this debate and to better understand search engine advertising more generally, we examine advertising prices paid by lawyers for 174 Google search terms in 195 locations and exploit a natural experiment in “ambulance-chaser” regulations across states. Where contingency fee limits exist, the relative price of advertising is $2.27 lower. This suggests that context-based pricing allows prices to reflect heterogeneity in the profitability of customer leads. When lawyers cannot contact a client in writing, the relative price per ad click is $0.93 higher. This suggests that context-based pricing allows prices to reflect heterogeneity in advertisers’ other advertising options, even within a given local market. Thus, our results suggest that search engine advertising does give market power to the media platform; however, this market power is mitigated by substantial competition from offline marketing communications channels.
Keywords:     search engines, advertising, market power, advertising prices
JEL:     L86 M37

Escalation Game with Endogenous Demands and The Nash Bargaining Solution
Date:     2007
By:     Helena Hye-Young Kim (Department of Economics, Korea University)
Frand Spinnewyn (Department of Economic, K.U.Leuven)
The paper examines the behavior of two agents who need to make a joint decision but they have conflicting preferences about the choice of the outcome. Conventionally such problem is considered as the bargaining problem described as the situation of dividing a pie. But we introduce the model that sheds a different light on the problem in question. The problem is described as the conflict situation modelled as a two-stage game. In the first stage players propose outcomes. The settlement is made if the proposed outcomes are the same. If not, the game moves onto the second stage where they play the concession game called the escalation game. In the escalation game, each player, in turn, has the choice between either to submit by accepting the other’s demand or to escalate by way of insisting his demand to be accepted. Each escalation generates a probability of an inefficient outcome. There are two main findings: (1) it is shown that the player’s decision is determined by his risk limit which measures his intensity towards winning. (2) if the escalation game allocates the demand of the player with the highest risk limit, then players propose the Nash cooperative solution.
Keywords:     Bargaining, Risk Limit, Nash Bargaining Solution
JEL:     C72 C78

Gradual Revelation Mechanism with Two-Sided Screening
Date:     2007
By:     Helena Hye-Young Kim (Department of Economics, Korea University)
Frans Spinnewyn (Department of Economic, K.U.Leuven)
Luc Lauwers (Department of Economic, K.U.Leuven)
We investigate the mechanism that provides the optimal decision rule for two agents making joint decisions. It is shown that, a special rectangular mechanism with two sided screening, elicit correct information when agents?preferences are private information. Such mechanism is presented as a game of incomplete information. It is shown that if types are uniformly distributed, then a three stage sequential game with an exogenously given probability of a terminal break down cannot be improved upon within a restricted class of models.
Keywords:     Mechanism Design, Efficiency, Risk Limit

Water Demand Under Alternative Price Structures
Date:     2007-11
By:     Sheila Olmstead
W. Michael Hanemann
Robert N. Stavins
We estimate the price elasticity of water demand with household-level data, structurally modeling the piecewise-linear budget constraints imposed by increasing-block pricing. We develop a mathematical expression for the unconditional price elasticity of demand under increasing-block prices and compare conditional and unconditional elasticities analytically and empirically. We test the hypothesis that price elasticity may depend on price structure, beyond technical differences in elasticity concepts. Due to the possibility of endogenous utility price structure choice, observed differences in elasticity across price structures may be due either to a behavioral response to price structure, or to underlying heterogeneity among water utility service areas.
JEL:     D12 L95 Q21 Q25 Q28

Firms’ Differential Innovative Success and Market Dynamics
Date:     2007-11-01
By:     Uwe Cantner (Friedrich Schiller University Jena, Faculty of Economics and Business Administration)
This paper deals with innovative activities of firms, the resulting market success as well as the interdependencies between both. In a first theoretical part, different cases of those interdependencies are investigated by the way of a simple model based on replicator dynamics. It is shown that the resulting differential success (in those activities) of firms in a market leads to specific characteristic pattern of industry dynamics. The second empirical part of the paper is used to get an account of the working of replicator dynamics mechanism within German manufacturing. Doing so changes in firms’ market shares and the relation to their respective relative technological performance and to their or innovative performance are investigated with productivity levels as a proxy for technological performance and productivity changes as proxy for innovative performance.
Keywords:     Innovation, market competition, replicator dynamics, productivity decomposition
JEL:     O3 L1 D24

Advertising and production of a seasonal good for a heterogeneous market: from total segment separability to real media
Date:     2007-10
By:     Daniela Favaretto (Department of Applied Mathematics, University of Venice)
Bruno Viscolani (Dept. of Pure and Applied Mathematics, University of Padua)
Market segmentation is a fundamental topic of marketing theory and practice. We bring some market segmentation concepts into the statement of an advertising and production problem for a seasonal product with Nerlove-Arrow’s linear goodwill dynamics, along the lines of some analyses concerning the introduction of a new product. We consider two kinds of situations. In the first one, we assume that the advertising process can reach selectively each segment. In the second one, we assume that one advertising medium is available and that it has a known effectiveness segment-spectrum for a non-trivial set of segments. In both cases we study the optimal control problems in which goodwill productivity of advertising is either linear or concave, and good production costs are (convex and) quadratic. We obtain the explicit optimal solutions using the Pontryagin’s Maximum Principle conditions.
JEL:     M37 M31 C61

Sequential Location under one-sided Demand Uncertainty
Date:     2007-11
By:     Aurélie Bonein
Stéphane Turolla
By entering new market, firms face uncertainty about their potential demand. We depart from the usual Hotelling duopoly model with sequential entry. Firms can locate outside the city and market conditions are common knowledge. Then we introduce one-sided demand uncertainty. It results that demand uncertainty can be seen as a diferentiation force when the first entrant faces demand uncertainty and as an agglomeration force when it is the second entrant. Finally, firm 2’s imperfect information implies higher welfare losses.

Strategic Debt: Evidence from Bertrand and Cournot Competition
Date:     2007-09-17
By:     Jong, A. de
Nguyen, T.T.
Dijk, M.A. van (Erasmus Research Institute of Management (ERIM), RSM Erasmus University)
We investigate how competitive behavior affects the capital structure of a firm. Theory predicts that the impact of different types of output market uncertainty (in particular, unanticipated shocks in demand and costs) on a firm?s leverage depends on the type of competition in an industry. We test these predictions in a sample of U.S. manufacturing firms by classifying firms into Cournot competition (strategic substitutes), and Bertrand competition (strategic complements). We show that demand uncertainty is positively related to leverage for firms in both the Cournot and the Bertrand sample. Cost uncertainty has a significantly positive impact on the leverage of Cournot firms, but plays a negligible role for Bertrand firms. Our results support the strategic use of debt and highlight the role of firms? competitive behavior in the product market in their capital structure decisions.
Keywords:     Strategic debt;Cournot competition;Bertrand competition;demand and cost uncertainty;leverage;

Cost Hetrogeneity and Strategic Divisionalization
Date:     2007
By:     Kazumichi, Iwasa
Toru , Kikuchi
In this note, we consider a simple duopoly environment in which two parent firms compete in a market. We assume that there are cost differentials between these two parent firms. The parent firms’ choices of divisionalization are modeled as a two-stage game. It will be shown that the number of divisions of a parent firm with a cost advantage (i.e., lower marginal costs) is relatively large. The results imply that the cost advantage of one parent firm will be magnified through divisionalization decisions.
JEL:     L11

Endogenous Mechanisms and Nash Equilibrium in Competitive Contracting
Date:     2007-11
By:     Frank H. Page, Jr. (Indiana University Bloomington)
Paulo K. Monteiro (EPGE/FGV)
We model strategic competition in a market with asymmetric information as a noncooperative game in which each firm competes for the business of a buyer of unknown type by offering the buyer a catalog of products and prices. The timing in our model is Stackelberg: in the first stage, given the distribution of buyer types known to all firms and the deducible, type-dependent best responses of the agent, firms simultaneously and noncooperatively choose their catalog offers. In the second stage the buyer, knowing his type, chooses a single firm and product-price pair from that firm’s catalog. By backward induction, this Stackelberg game with asymmetric information reduces to a game over catalogs with payoff indeterminacies. In particular, due to ties within catalogs and/or across catalogs, corresponding to any catalog profile offered by firms there may be multiple possible expected firm payoffs, all consistent with the rational optimizing behavior of the agent for each of his types. The resolution of these indeterminacies depends on the tie-breaking mechanism which emerges in the market. Because each tie-breaking mechanism induces a particular game over catalogs, a reasonable candidate would be a tie-breaking mechanism which supports a Nash equilibrium in the corresponding catalog game. We call such a mechanism an endogenous Nash mechanism. The fundamental question we address in this paper is, does there exist an endogenous Nash mechanism – and therefore, does there exist a Nash equilibrium for the catalog game? We show under fairly mild conditions on primitives that catalog games naturally possess tie-breaking mechanisms which support Nash equilibria.
Keywords:     common agency with adverse selection, endogenous contracting mechanisms, discontinuous games, catalog games, existence of Nash equilibrium, competitive contracting
JEL:     C6 C7 D4

Dynamic games in the wholesale electricity market
Date:     2007-11
By:     DAKHLAOUI Ahlem
MODES OF INNOVATION & UNCERTAINTIES IN THE CAPITAL GOODS INDUSTRY
Date:     2007-11
By:     Celeste Amorim Varum (Universidade de Aveiro)
Leonildo Monteiro (Universidade de Aveiro)
http://d.repec.org/n?u=RePEc:ave:wpaper:472007&r=mic
Product innovation is a subtle process, frequently leading to shifts in the competitiveness of firms. Developing products in an environment undergoing technological change is given to frequent failure, even in well-established and sophisticated organizations. In order to tackle competitiveness and to deal with innovation uncertainty, firms develop diverse innovation processes. Two modes of innovation are suggested in recent literature: 1) Science, Technology and Innovation (STI) mode, which is based on the production and use of codified scientific and technical knowledge; and 2) Doing, Using and Interacting (DUI) mode, which relies on informal processes of learning and experience-based know-how. In this paper we analyse product innovation at firm level. We perform an exploratory analysis in four leading equipment and machinery producers from the Aveiro region, in Portugal. Doing so, we explore the main features of the capital goods’ industry with implications for innovation, and analyse the dominant uncertainties associated to the innovation process. and modes of innovation. Key findings include the complete absence of DUI mode in the cases studied, and even a low learning characteristic in one company. The paper concludes by considering the implications for firms’ competitiveness and for innovation policy.
Keywords:     modes of innovation, uncertainties, R&D, capital goods, SME
JEL:     O32 L6

Consumer Networks and Firm Reputation: A First Experimental Investigation
Date:     2007-11
By:     Gabriele K. Lünser (University College London)
Jean-Robert Tyran (Department of Economics, University of Copenhagen)
Arguing that consumers are the carriers of firms’ reputations, we examine the role of consumer networks for trust in markets that suffer from moral hazard. When consumers are embedded in a network, they can exchange information with their neighbours about their private experiences with different sellers. We find that such information exchange fosters firms’ incentives for reputation building and, thus, enhances trust and efficiency in markets. This efficiency-enhancing effect is already achieved with a rather low level of network density.
Keywords:     trust; consumer networks; moral hazard; information conditions; reputation
JEL:     C72 C92 D40 L14

On the Formation of Buyer-Seller Relationships when Product Quality is Perfectly Observable
Date:     2007
By:     Yann Bramoullé
John A. List
Michael K. Price
This study explores the formation of buyer-seller relationships in markets with observable quality. We develop a model that explains why relationships form in equilibrium within such markets. A key feature of our model is that as individuals gain experience in the marketplace, they resolve uncertainty over unobserved bargainer types. Relationships thus form as a means to reduce such transactions costs and uncertainty. We explore the usefulness of our theory by using a battery of simulations and experimental treatments. Overall, we find that our theoretical predictions are largely confirmed. Interestingly, the quantitative impact of relationships on overall market efficiency depends critically on the extend to which market structure affects the matching of buyers and sellers that could profitably transact. In certain important cases, a greater number of buyer-seller relationships can reduce market efficiency.
Keywords:     Field experiments, pricing, market structure
JEL:     C93 D4

Platform Competition in Pay-TV Market
Date:     2007-11-10
By:     Kasuga, Norihro
Manabu, Shishikura
Masanori, Kondo
In this paper, we undertake an empirical analysis of the current Japanese pay-TV market, where cable TV carriers and CS digital satellite carriers are the main players. After examining the factors for subscribing to pay-TV and the competitive situation in the market, we have the following findings; (1) Cable TV carriers promote high value-added service provision, such as bundling internet access, and these activities result in competitive superiority over CS carriers. (2) Cable TV carriers receiving bigger investment from local governments tend to gain higher rates of subscription, although they provide smaller numbers of channels with a low charge. (3) The number of terrestrial broadcasting channels which are transmitted via pay-TV carriers can have a large impact on competitive advantage when getting subscribers in the pay-TV market.
Keywords:     Platform Competition; Cable Television; Communication Satellite; Pay-TV; subscriber penetration; high-value added service
JEL:     L82 R22 L51