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on Industrial Competition |
| By: | Hikmet Gunay |
| Abstract: | When a durable good of uncertain quality is introduced to the market, some consumers strategically delay their buying to the next period with the hope of learning the unknown quality. We analyze the monopolist's pricing and "waiting" strategies when consumers have strategic delay incentives. We show when the monopolist offers introductory low prices in pooling equilibria. We also find two types of separating equilibria: one where high type signals its quality by choosing a different price than the low type in the first period, and another where the high-type monopolist announces the product in the first period and waits to sell only in the second period. Waiting creates a credible cost for signalling; hence, the monopolist uses it as a signalling device. |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0877&r=com |
| By: | Catherine Gendron-Saulnier; Marc Santugini (IEA, HEC Montréal) |
| Abstract: | We consider a monopoly supplying a homogeneous good to two separate markets with different demands. In one of the markets, some buyers do not know the quality of the good, but learn about it from observing prices. Under noisy demand, third-degree price discrimination is shown to alter the informational content of the price-signals received by the uninformed buyers. Specifically, discriminatory pricing have informational benefits over uniform pricing, i.e., the posterior beliefs of the uninformed buyers have a smaller bias and a lower variance. |
| Keywords: | Market segmentation, Monopoly, Quality of information, Signaling, Third-degree price discrimination |
| JEL: | D82 D83 L12 L15 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:iea:carech:1302&r=com |
| By: | Hiroshi Kitamura; Noriaki Matsushima; Misato Sato |
| Abstract: | This study constructs a model for examining anticompetitive exclusive supply contracts that prevent an upstream supplier from selling input to a new downstream firm. With regard to the technology to transform the input produced by the supplier, as an entrant becomes increasingly efficient, its input demand can decrease, and thus, the supplier earns smaller profits when socially efficient entry is allowed. Hence, the inefficient incumbent can deter socially efficient entry via exclusive supply contracts, even in the framework of the Chicago School argument where a single seller, a single buyer, and a single entrant exist. |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0878&r=com |
| By: | Junichiro Ishida |
| Abstract: | In many facets of life, we often face competition with a multilayered structure in which different levels of competition take place simultaneously. In this paper, we propose a new class of tournament models, called multilayered tournaments, to capture this type of competitive environment. Among other things, we find that: (i) an increase in individual incentives, holding the level of team incentives fixed, can lower total effort as it induces inefficient allocation of effort; (ii) the optimal level of individual incentives depends on and is complementary to the level of team incentives. The analysis illuminates the essential role of economic subgroups, such as firms, in achieving some degree of cooperation in an inherently competitive environment, and provides an explanation for why high-powered incentives are more common in market arrangements than within firms. |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0879&r=com |
| By: | Carlos Noton |
| Abstract: | This paper characterizes the price adjustment costs that are consistent with observed price dynamics in the European car market. Using the methodology developed by Bajari, Benkard, and Levin (2007), I estimate a dynamic model of international multiproduct firms that set prices in different currencies while facing price adjustment costs. There are three main results. First, the incomplete degree of exchange rate pass-through can be explained by a sizable destination-currency cost component. Second, large price adjustment costs are not needed to rationalize the large degree of price inertia in a highly autocorrelated economic environment. In fact, small adjustment costs can rationalize the persistent prices observed. Third, the paper identi.es an unexplored temporal dimension of "pricing-to-market" behavior, that is the practice of setting prices differently across segmented markets. Estimates of the price adjustment cost suggest that a uniform cost structure is not consistent with the pricing behavior observed. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edj:ceauch:303&r=com |
| By: | Miller, Marcus (University of Warwick); Zhang, lei (University of Warwick) |
| Abstract: | The classic Diamond-Dybvig model of banking assumes perfect competition and abstracts from issues of moral hazard,hardly appropriate when considering modern UK banking.We therefore modify the classic model to ncorporate franchise values due to market power; and risk-taking by banks with limited liability.We go further to show how the capacity of franchis evalues to mitigate risk taking maybe undermined by the bailout option; with explicit analytical results provided for the case of extreme risk-aversion.After a brief discussion of how this may impact on the distribution of income, we outline the ways in which the Vickers Report seeks to remedy these problems. |
| Keywords: | Money and banking,Seigniorage,Risk-taking,Bailouts,Regulation |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:cge:warwcg:134&r=com |
| By: | Ronald Fischer; Patricio Valenzuela |
| Abstract: | This paper empirically examines whether the effect of financial openness on private credit depends on the market structure of the banking sector prior liberalization. We find that financial openness has a positive effect on private credit in countries characterized by a highly competitive banking sector. However, this effect vanishes and even becomes negative in countries where the market structure is one of imperfect competition. These findings are consistent with the predictions of recent theoretical models. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edj:ceauch:297&r=com |
| By: | Ronald Fischer; Nicolás Inostroza; Felipe J. Ramírez |
| Abstract: | We consider a two-period model of a banking system to explore the effects of competition on the stability and efficiency of economic activity. In the model, competing banks lend to entrepreneurs. After entrepreneurs receive the loans for their projects, there is a probability of a shock. The shock implies that a fraction of firms will default and be unable to pay back their loans. This will require banks to use their capital and reserves to pay back depositors, restricting restrict second period lending, thus amplifying the economic effect of the initial shock. There are two possible types of equilibria, a prudent equilibrium in which banks do not collapse after the shock, and an imprudent equilibrium where banks collapse. We examine the effects of increased competition in this setting. First, we find existence conditions for prudent equilibria. Second, we showthat the effect of increased banking competition is to increase the efficiency of the economy at the expense of increased variance in second period economic results. In particular, if the probability of a shock is small, increased competition raises both expected GDP over the two period and expected activity in the second period, after the shock. Increased competition also increases the attractiveness of imprudent equilibria. Unpredicted regulatory forbearance in the aftermath of a shock can be used to reduce or eliminate the variance in economic activity. However, if regulatory forbearance is expected in response to a shock, the effect on the variance after the shock is ambiguous and can even lead to increased variance after a shock. We also show the expected result that as the size of a shock increases, there is less lending in a prudent equilibrium. Finally we show that independently of the type of equilibria or the possibility of a switch among types of equilibria, increased banking competition increases the amplification effect after a shock. |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:edj:ceauch:296&r=com |