Quality and Quantity Competition in a Multiproduct Duopoly

This article proposes a Cournot model of two‐stage competition to examine the patterns of vertical product differentiation in a multiproduct duopoly. Firms simultaneously choose the number of products and their qualities at the first stage and compete in quantities at the second stage. We show that when the fixed setup cost of a product is high enough to result in a monopoly outcome, the monopolist always sells a single product. Moreover, in any equilibrium of a multiproduct duopoly, quality differentiation between them will develop into a nonsegmented pattern because each firm desires to avoid a strong effect of cannibalization. The set of equilibria reveals the properties of quality differentiation between multiproduct firms. In a multiproduct duopoly, the profit from a high‐quality product can be lower than that from a low‐quality product. This finding sharply contrasts with the literature on single‐product firms, which finds the high‐quality advantage.     

Endogenous Price Leadership and the Strategic Acquisition of Information

We model a differentiated Bertrand duopoly in which a firm's earlier knowledge of market demand than its competitor results in endogenous price leadership with the information advantaged firm leading. In such a setting with second‐mover advantage, we then study the firms’ incentives to acquire information and analyze an information acquisition game. Both (i) neither firm acquiring information and (ii) one firm acquiring information can arise as subgame perfect equilibrium, but both firms acquiring information is never an equilibrium outcome, even if information is free. Information may have a negative value if it causes a change in the timing of price competition.     

Endogenous Efficiency Gains from Mergers

This article analyzes endogenous efficiency gains from mergers. It considers oligopolistic homogeneous good markets and duopolistic and triopolistic markets under product differentiation (PD) (quantity and price competition). In a two‐stage game, firms invest in cost‐reducing innovation (with and without mergers) and then compete in output/prices. It is found that in homogeneous good markets, all possible mergers generate efficiency gains, and that these are most significant when R&D spillovers are very low or very high. Efficiency gains increase with the number of insiders and generally decrease with the number of outsiders. With PD, in most cases, the merger generates efficiency gains when spillovers and/or PD are sufficiently high. With PD, efficiency gains increase with spillovers, but may increase or decrease with the level of PD. The implications of the results for the relationship between competition and innovation outputs and for merger policy are discussed.     

Optimal R&D Policy and Managerial Delegation Under Vertically Differentiated Duopoly

The paper investigates the optimal research and development (R&D) policy in a vertically differentiated market with managerial delegation. We consider not only discriminatory R&D policy but uniform R&D policy as well. It shows that R&D policy can vary depending on the regulator's objective: social welfare, consumer surplus or producer surplus; however, the outcomes are invariant to the nature of market competition. Undoubtedly, the relative‐performance contract plays a crucial role for elaborating policy effects. The government prefers discriminatory R&D policy to uniform policy under a consumer‐oriented objective. On the contrary, under a producer‐oriented objective, the government would prefer to choose uniform R&D policy rather than discriminatory policy.     

垂直产品差异、外国企业纵向控制与研发政策

在Spencer和Brander(1983)模型的基础上,本文引入产品纵向控制因素,考虑生产高质量产品的非一体化企业与另一国生产低质量产品的一体化企业进行市场竞争时,政府的最优研发政策。在企业进行Cournot竞争的情形下,若产品质量差异较大(小),非一体化企业所在国政府的最优研发政策为征税(补贴),而在企业进行Bertrand竞争的情形下,非一体化企业所在国政府的最优研发策略则是征税。     

Mixed oligopoly,endogenous timing and mergers

The present paper discusses endogenous timing in a mixed oligopoly model, comprising one public firm and two private firms, assuming both a merger between the two private firms and between one private and one public firm. The paper proves that although a merger between the two private firms does not change the timing of the game, a merger between the public firm and the private firm into a mixed firm could change the market structure from Stackelberg to Cournot competition.     

Mixed duopoly,location choice,and shadow cost of public funds

We examine the relationship between equilibrium and efficient levels of product differentiation in a mixed duopoly, where a welfare‐maximizing public enterprise competes with a profit‐maximizing private firm. We introduce shadow costs of public funding (i.e., the excess burden of taxation). The profits of public firms obtained by the government reduce these costs. We find that in a mixed duopoly, the level of product differentiation is too low for social welfare. This result is in sharp contrast to the private oligopoly, where the level of product differentiation is too high. Finally, we show that when the shadow cost is high, privatizing the public enterprise improves welfare.     

外生单向溢出效应下纵向差异化产品Cournot和Bertrand竞争均衡的比较研究

研究价格(Bertrand)和数量(Cournot)竞争模式下,单向溢出对企业质量选择、利润的影响。以纵向差异化市场结构为例,建立了基于单向质量溢出的不对称寡头竞争模型,运用赋值计算对模型的均衡解进行了比较分析,结论是:1给定溢出因子和学习效应的合理取值范围,领先和跟随企业的质量与利润在价格竞争下都小于数量竞争;2质量间的单向溢出效应、跟随者的学习努力都会导致领先者初始质量的下降,但在价格竞争时,这种"逆向选择"效应的程度较低;3跟随者的学习激励随着溢出效应的提高而降低,并不受竞争策略变化的影响。这些发现可以解释中国轿车产业竞争模式对合资和自主创新企业关系变化的影响。     

Brand familiarity and product knowledge in customization

I adopt Hotelling's model with two firms. Each consumer has a most preferred variety and possesses a certain level of category‐specific knowledge. When a firm offers customization, consumers must interact with the firm to create their products. Consumers familiar with the brand can do this seamlessly, whereas consumers unfamiliar with the brand have difficulty expressing their individual needs (the difficulty decreases with consumers' knowledge). The firms first simultaneously decide whether to customize, then engage in price competition. Although customization makes the products less differentiated, the frictions caused by consumer co‐design activities relax price competition. Customization by one of the firms occurs in equilibrium.     

What Are SEC Football Tickets Worth? Evidence from Secondary Market Transactions

Tickets to sporting events are highly differentiated—seat location, date and time of the game, and home‐team and opponent qualities make each ticket unique. Preferences also differ nontrivially across fans, all of which make the supplier's pricing problem complex. We examine strategies employed by Southeastern Conference (SEC) universities in pricing their football tickets and evaluate their effectiveness in extracting surplus from fans. We use hedonic analysis of data collected from online secondary market transactions to construct a synthetic season ticket, which we compare to prices actually charged by university athletic departments. We also compare quality premiums charged by universities for better seats with market evaluations of those quality differences.     

Testing Oil Refiners' Conduct in Korea: A Differentiated Product Approach

This paper investigates oil refiners' conduct in the Korean gasoline market. Specifically, I examine which of two modes of conduct, Bertrand–Nash competition or collusion, better fits the data. Unlike previous literature, this paper employs a differentiated product approach to address the stylized discrepancy in refiners' brands' prices: stable stratification of prices among refiners, but an unlikely equilibrium outcome in the homogenous goods market. Correct understanding of refiners' conduct is important because appropriate policy responses to collusion differ significantly from appropriate responses to competition‐driven outcomes. The results of this paper support the hypothesis that Bertrand–Nash competition better explains refiners' conduct.     

Quality and capacity choices in a vertical differentiation model with congestion

We consider a vertically differentiated market in which consumers’ utility is assumed to depend on the price, congestion level and the stand‐alone quality of the good or service. Two firms compete on this market, choosing capacities, stand‐alone qualities and prices. We characterize completely the subgame perfect equilibrium for the homogenous market case (where only one firm is active without congestion). We prove that both firms are active, choosing minimal differentiation along the capacity and quality dimensions. Therefore, the presence of congestion rules out market preemption as a possible outcome in equilibrium and weakens the incentive to differentiate.     

Corporate Social Responsibility or Payoff Asymmetry? A Study of an Endogenous Timing Game

We revisit an endogenous timing game by introducing corporate social responsibility into firms' payoffs. Previous research investigates an endogenous timing game in a mixed oligopoly, wherein one welfare‐maximizing public firm competes against profit‐maximizing private firms. It shows that the outcome is completely different from that of private oligopoly. In contrast to its result, we find that this change in payoff does not matter as long as the payoffs are symmetric. Our result indicates that asymmetry, and not welfare‐concerning objectives, yields specific results in the literature on mixed oligopoly.     

Buyer‐Induced Exclusive Dealing

Large retailers may exercise buyer power in their interactions with manufacturers. This article explores the use of exclusive dealing arrangements by a monopoly retailer when purchasing a differentiated product from competing manufacturers. Interactions among the firms are modeled as a bargaining game. When consumers' brand preferences are weak and/or when one brand is preferred by a significant majority of consumers, it is more profitable for the retailer to negotiate an exclusive dealing arrangement with one of the manufacturers than to distribute both products. Also, it is more profitable for the retailer to induce exclusive dealing if the manufacturer of the excluded brand has a lot of bargaining power when negotiating with the retailer. If buyer‐induced exclusive dealing reduces the retail price of the exclusive brand in order to encourage “brand switching” by consumers who favor the excluded brand, the practice may increase consumer welfare and even total welfare.     

An Equilibrium Selection Theory of Monopolization

We develop a duopoly model in which firms compete for the market (e.g., investing in process innovation or product development) as well as in the market (e.g., setting quantities or prices). Competition for the market generates multiple equilibria that differ in the firms’ investment levels, relative size, and profitability. We show that monopolization that affects competition in the market can act as an equilibrium selection device in competition for the market. In particular, it eliminates equilibria that are undesirable for the monopolizing firm, while not generating new equilibria. This result complicates the task of determining whether a firm's dominance in a given market is the result of fair competition or unlawful monopolization. We discuss a number of implications for antitrust policy and litigation, and illustrate these by means of two well‐known antitrust cases.     

Strategic corporate social responsibility of high-speed rail in China

This paper investigates the strategic corporate social responsibility (CSR) of a high-speed rail (HSR) firm when competing with an airline firm in a differentiated transportation market and the interactions with government environmental policies in the context of a Cournot–Bertrand comparison. We find that a standard CSR chosen by the government is lower under Cournot than that under Bertrand when both the marginal cost of HSR and product substitutability are low enough, while a voluntary CSR chosen by the HSR operator is always higher under Cournot than that under Bertrand. We also find that the voluntary CSR could be higher or lower than the standard CSR, depending on marginal costs, product substitutability, and competition modes. We then show that when the government imposes an environmental tax together with CSR activities, both the strategic CSR and environmental tax are always lower under Cournot than those under Bertrand. Finally, we show that equilibrium traffic volumes, ticket fares, consumer welfare, and social welfare are independent of competition modes with environmental tax.     

The Discriminating Beta: Prices and Capacity with Correlated Demands

Uniform customer‐class pricing can do much of the work of congestion‐based or time‐of‐day pricing in communication or wireless networks. A monopolist exploits differences in the stochastic characteristics of demands. If demands are correlated and the firm faces a capacity constraint, then it can set prices to reduce the variability of aggregate demand, thereby reducing the probability of excess demand and the associated service quality deterioration. Demands that covary negatively with aggregate demand are valuable to the firm in much the same way that securities that covary negatively with the market are valuable in a stock portfolio. Customer classes that exhibit low covariance with aggregate demand realize lower optimal prices. Optimal capacity is also affected by these covariances. As long as demands are not perfectly positively correlated, expected costs of joint production are less than expected costs of serving demands separately.     

Open Source Software: Competition with A Public Good

This paper looks at price and quality competition in software markets under two different forms of competition—one where two proprietary firms first choose quality and then engage in price competition, and second where a proprietary firm faces competition from an open source software (OSS) firm that allows its users to determine quality level and provides the software at zero price. We find that OSS competition never improves quality for consumers who value quality highly. However, it may provide greater quality to users with a low valuation for quality. In addition, we find that although OSS has a zero market price, the public good nature of OSS competition can lessen price competition, making the proprietary firm better-off with increased profit but leaving consumers worse-off with lower surplus.     

Choice of flexible production technologies under strategic delegation

This paper analyzes a managerial delegation model in which firms can choose between a flexible production technology which allows them to produce two different products and a dedicated production technology which limits production to only one product. We analyze whether the incentives to adopt the flexible technology are smaller or greater in a managerial delegation model than under strict profit maximization. We obtain that the asymmetric equilibrium in which only one firm adopts the flexible technology can be sustained under strategic delegation but not under strict profit maximization when products are substitutes. We extend the analysis to consider welfare implications.