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on Microeconomics |
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Issue of 2007‒03‒31
ten papers chosen by Joao Carlos Correia Leitao University of the Beira Interior |
| By: | Bastos Vareda, João Miguel; Hoernig, Steffen |
| Abstract: | We analyze the impact of mandatory access on the infrastructure investments of two competing communications networks, and show that for low (high) access charges firms wait (preempt each other). Contrary to previous results, under preemption a higher access charge can delay first investment. Constant access tariffs cannot achieve the first best. Optimal time-variant access tariffs may be increasing or decreasing over time. The first-best cannot be achieved at all through access tariff regulation if the follower’s private incentives are dominated by business-stealing. Here access holidays can improve welfare by allowing for lower future access charges, which delay the second investment. |
| Keywords: | Access holidays; Investments; Preemption; Time-variant access charges |
| JEL: | D92 L43 L51 L96 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6203&r=mic |
| By: | Bourreau, Marc; Hombert, Johan; Pouyet, Jérôme; Schutz, Nicolas |
| Abstract: | In telecommunications some operators have deployed their own networks whereas some others have not. The latter firms must purchase wholesale products from the former to be able to compete on the final market. We show that, even when network operators compete in prices and offer perfectly homogenous products on the wholesale market, that market may not be competitive. Based on our theoretical analysis, we derive some policy implications for the broadband and the mobile telephony markets. |
| Keywords: | telecommunications; upstream and downstream markets; vertical integration |
| JEL: | L13 L51 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6224&r=mic |
| By: | Lei Zhang; David Levinson; Shanjiang Zhu (Nexus (Networks, Economics, and Urban Systems) Research Group, Department of Civil Engineering, University of Minnesota) |
| Abstract: | Using consistent agent-based techniques, this research models the decision-making processes of users and infrastructure owner/operators to explore the welfare consequence of price competition, capacity choice, and product differentiation on congested transportation networks. Component models include: (1) An agent-based travel demand model wherein each traveler has learning capabilities and unique characteristics (e.g. value of time); (2) Econometric facility provision cost models; and (3) Representations of road authorities making pricing and capacity decisions. Different from small-network equilibrium models in prior literature, this agent-based model is applicable to pricing and investment analyses on large complex networks. The subsequent economic analysis focuses on the source, evolution, measurement, and impact of product differentiation with heterogeneous users on a mixed ownership network (with tolled and untolled roads). Two types of product differentiation in the presence of toll roads, path differentiation and space differentiation, are defined and measured for a base case and several variants with different types of price and capacity competition and with various degrees of user heterogeneity. The findings favor a fixed-rate road pricing policy compared to complete pricing freedom on toll roads. It is also shown that the relationship between net social benefit and user heterogeneity is not monotonic on a complex network with toll roads. |
| Keywords: | Network dynamics, road pricing, autonomous links, privatization, price competition, product differentiation, agent-based transportation model |
| JEL: | R40 R42 R48 D10 D21 D23 D24 D43 D83 D85 H21 H23 H44 L92 O33 C72 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:nex:wpaper:agentpricecompetition&r=mic |
| By: | Schmitz, Patrick W. |
| Abstract: | An upstream firm can license its innovation to downstream firms that have to exert further development effort. There are situations in which more licenses are sold if effort is a hidden action. Moral hazard may thus increase the probability that the product will be developed. |
| Keywords: | Innovation; Licences; Monopoly; Private information |
| JEL: | D45 D82 L12 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6207&r=mic |
| By: | David Bartolini |
| Abstract: | We consider a three-stage game in which symmetric firms decide whether to invest in a cost-reducing technology, then they have the possibility to merge (forming coalitions), and eventually, in the third stage, a Cournot oligopoly game is played by the resulting firms (coalitions). We show that, contrary to the existing literature, the monopoly market structure may fail to form even when the number of initial firms is just three. We then introduce a weighted sharing rule and show that a situation in which all firms acquire the cost-reducing asset cannot be sustained as a Subgame Perfect Equilibrium. |
| Date: | 2007–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:628&r=mic |
| By: | Belleflamme, Paul; Peitz, Martin |
| Abstract: | We analyze whether and how the fact that products are not sold on open or public platforms but on competing for-profit platforms affects sellers’ investment incentives. Investments in cost reduction, quality, or marketing measures are here the joint and coordinated efforts by sellers. We show that, in general, for-profit intermediation is not neutral to such investment incentives. As for-profit intermediaries reduce the rents that are available in the market, one might suspect that sellers have weaker investment incentives with competing for-profit platforms. However, this is not necessarily the case. The reason is that investment incentives affect the size of the network effects and thus competition between intermediaries. In particular, we show that whether for-profit intermediation raises or lowers investment incentives depends on which side of the market singlehomes. |
| Keywords: | intermediation; investment incentives; network effects; two-sided markets |
| JEL: | D40 L10 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6214&r=mic |
| By: | Doraszelski, Ulrich; Satterthwaite, Mark |
| Abstract: | We provide a general model of dynamic competition in an oligopolistic industry with investment, entry, and exit. To ensure that there exists a computationally tractable Markov perfect equilibrium, we introduce firm heterogeneity in the form of randomly drawn, privately known scrap values and setup costs into the model. Our game of incomplete information always has an equilibrium in cutoff entry/exit strategies. In contrast, the existence of an equilibrium in the Ericson & Pakes (1995) model of industry dynamics requires admissibility of mixed entry/exit strategies, contrary to the assertion in their paper, that existing algorithms cannot cope with. In addition, we provide a condition on the model's primitives that ensures that the equilibrium is in pure investment strategies. Building on this basic existence result, we first show that a symmetric equilibrium exists under appropriate assumptions on the model's primitives. Second, we show that, as the distribution of the random scrap values/setup costs becomes degenerate, equilibria in cutoff entry/exit strategies converge to equilibria in mixed entry/exit strategies of the game of complete information. Finally, we provide the first example of multiple symmetric equilibria in this literature. |
| Keywords: | dynamic oligopoly; industry dynamics; Markov perfect equilibrium |
| JEL: | C73 L13 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6212&r=mic |
| By: | Jean J. GABSZEWICZ (UNIVERSITE CATHOLIQUE DE LOUVAIN, Department of Economics); Didier, LAUSSEL; Tanguy, VAN YPERSELE; S, ZANAJ |
| Abstract: | This paper first introduces an approach relying on market games to examine how successive oligopolies do operate between downstream and upstream markets. This approach is then compared with the traditional analysis of oligopolistic interaction in successive markets. The market outcomes resulting from the two approaches are analysed under different technological regimes, decreasing vs constant returns |
| Keywords: | D43, L1, L13, L22 |
| Date: | 2007–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2007009&r=mic |
| By: | Keizo Mizuno (School of Businiess Administration, Kwansei Gakuin University); Testuya Shinkai (School of Economics, Kwansei Gakuin University) |
| Abstract: | This paper provides a simple model that examines a firmfs incentive to invest in a network infrastructure through coalition formation in an open access environment with a deregulated retail market. A regulator faces a dilemma between inducing an incentive for efficient investment and reducing the distortion generated by imperfect competition. We show that, in such a case, the degree of cost-reducing effect of the investment is crucial from a welfare point of view. In particular, when network investment through coalition formation creates a large (small) cost-reducing effect, the regulator can (should not) delegate an investment decision to firms with an appropriate level of access charge. |
| Keywords: | Network infrastructure, Coalition, Access Charge, Delegation |
| JEL: | L13 L22 L43 L90 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:28&r=mic |
| By: | Timo Goeschl (University of Heidelberg, Department of Economics); Grischa Perino (University of Heidelberg, Department of Economics) |
| Abstract: | The literature on environmental R&D frequently studies innovation as a two-stage process, with a single R&D event leading from a conventional polluting technology to a perfectly clean backstop. We allow for uncertainty in innovation in that the new technology may turn out to generate a new pollution problem. R&D may therefore be optimally undertaken more than once. Using and externding recent results from multi-stage optimal control theory, we provide a full characterization of the optimal pollution and R&D policies. The optimal R&D program is strictly sequential and has an endogenous stopping point. Uncertainty drives total R&D effort and its timing. |
| Keywords: | stock pollution, backstop technology, multi-stage optimal control, pollution thresholds, uncertainty |
| JEL: | Q55 Q53 O32 C61 |
| Date: | 2007–01 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0437&r=mic |