ENTRY AND QUALITY SIGNALLING WHEN ONLY SOME CONSUMERS ARE INFORMED OF THE ENTRANT'S QUALITY

This paper focuses on competition between an incumbent and an entrant when only the entrant's quality is unknown to (some) consumers. The incumbent may or may not know the entrant's quality. The model reveals a separating equilibrium where the entrant's high price signals its high quality when the proportion of informed consumers is at some intermediate value. The case in which the incumbent knows the entrant's quality generates two additional equilibria. When the proportion of informed consumers is large enough, firms choose their prices as in the complete information case. The entrant's high price in combination with the incumbent's low price signals the entrant's high quality. When the proportion of informed consumers is at some intermediate value, the incumbent's high price signals the entrant's low quality, while its low price signals the entrant's high quality. Interestingly, we find that entry may be facilitated with informational product differentiation.     

Consumer poaching,brand switching,and price transparency

This paper addresses price transparency on the consumer side in markets with behavioral price discrimination which feature welfare reducing brand switching. When long-term contracts are not available, an increase in transparency intensifies competition, lowers prices and profits, reduces brand switching and benefits consumers and welfare. With long-term contracts, an increase in transparency reduces the use of long-term contracts, leading to more brand switching and a welfare loss. Otherwise, the results are the same as without long-term contracts.     

Nonlinear pricing with self-control preferences

A basic assumption of economics is that consumers choose what they want. However, many consumers find it difficult to stop overeating, overspending, smoking, procrastinating, etc, even though they want to. In reality, consumers have temptation and it is psychologically costly to exercise self-control. To clarify the implications of the existence of temptation and self-control costs, this paper studies a firm's optimal selling strategy exploiting the behavioral features of consumers. We characterize optimal nonlinear pricing schemes for a monopoly when self-control is costly for consumers. Since consumers have a preference for commitment, the firm faces a trade-off between offering a small menu that makes the consumers’ self-control easier and offering a large menu that achieves better price discrimination. We show that the optimal menu resembles the one in the standard nonlinear pricing problem with a price ceiling, where the upper bound on prices is determined endogenously by a participation constraint. The ceiling motivates the firm to offer a relatively flat and compact price schedule, serving more consumers with low demand. The characterization also shows that the firm may earn less if consumers have temptation.     

The “Dark Side” of Deregulation: How Competition Affects the Size of the Shadow Economy

This paper builds a theory that explains the dramatic expansion of the underground economy in the late 1990s by the sharp increase in market competition worldwide. I model an oligopoly game where firms first decide on entry and sector, and then compete in price. Operating in the underground sector reduces variable costs, but comes at the risk of being detected and fined. As competition intensifies (i.e., as consumers become more and more price‐sensitive), underground firms attract more demand, thus stealing business and profits from official firms. As a consequence, more firms enter the underground economy. A lenient policy toward the underground economy may increase welfare when markups are high, but will be welfare‐detrimental when markups are low.     

The impact of bargaining on markets with price takers: Too many bargainers spoil the broth

In this paper we study how bargainers impact on markets in which firms set a list price to sell to those consumers who take prices as given. The list price acts as an outside option for the bargainers, so the higher the list price, the more the firms can extract from bargainers. We find that an increase in the proportion of consumers seeking to bargain can lower consumer surplus overall, even though new bargainers receive a lower price. The reason is that the list price for those who do not bargain and the bargained prices for those who were already bargaining rise: sellers have a greater incentive to make the bargainers’ outside option less attractive, reducing the incentive to compete for price takers. Competition Authority exhortations to bargain can therefore be misplaced. We also consider the implications for optimal seller bargaining.     

EFFECTS OF ASYMMETRIC INFORMATION WITHIN A FIRM ON OLIGOPOLISTIC MARKET OUTCOMES

I analyze the implications of the Laffont–Tirole type agency problems on oligopolistic market outcomes. In the model, a firm's marginal cost is decreasing in managerial effort and is subject to an additive shock. Both managerial effort and the realization of the shock are a manager's private information. A firm first offers a menu of contract to its manager, and then competes in the product market. As in the model of single principal and single agent, the incentive contracts implement efforts that are distorted downward relative to full information. In this model, with multiple agency relationships, an additional source for upward distortion of effort emerges as a result of the interaction in the product market. The results are robust to whether firms compete in price or quantity.     

Should Mobile Marketers Collect Data Other Than Geo‐Location?*

We take today's mobile marketing data landscape as a starting point and consider a duopoly model of third‐degree price discrimination in which firms can complement geo‐location information with data on consumer flexibility of varying quality. We show that, depending on consumer heterogeneity, higher‐quality flexibility data affect profits according to three different patterns. In equilibrium, both firms tend to acquire data if the data are of high quality, while only one acquires data if the data quality is low. Firms are likely to gain from additional data if consumers have similar preferences and/or when data are precise. Although social welfare (weakly) improves, consumers can be harmed.     

Strategic Pricing, Consumer Search and the Number of Firms

We examine an oligopoly model where some consumers engage in costly non-sequential search to discover prices. There are three distinct price-dispersed equilibria characterized by low, moderate and high search intensity. The effects of an increase in the number of firms on search behaviour, expected prices, price dispersion and welfare are sensitive (i) to the equilibrium consumers' search intensity, and (ii) to the status quo number of firms. For instance, when consumers search with low intensity, an increase in the number of firms reduces search, does not affect expected price, leads to greater price dispersion and reduces welfare. In contrast, when consumers search with high intensity, increased competition results in more search and lower prices when the number of competitors in the market is low to begin with, but in less search and higher prices when the number of competitors is large. Duopoly yields identical expected price and price dispersion but higher welfare than an infinite number of firms.     

COURNOT AND BERTRAND EQUILIBRIA COMPARED: A CRITICAL REVIEW AND AN EXTENSION FROM THE OUTPUT‐STRUCTURE VIEWPOINT*

This paper compares Bertrand competition with Cournot competition. In previous studies, the welfare ranking has not been examined in any general setting. One purpose of this work is to fill this gap. In the Zanchettin model, the ranking regarding the less efficient firm's output is sensitive to the degree of asymmetry between firms, whereas the welfare ranking is not. Another goal of this study aims at dealing with this paradox. We demonstrate that the rankings regarding average price, average output and the Herfindahl index are not sensitive to the degree of asymmetry, and hence can explain the welfare ranking.     

TALKING,SEARCHING, AND PRICING*

I study the implications of interpersonal communication for incentives for consumers to acquire information and firms’ pricing behavior. Firms market a homogeneous product and choose its price; consumers acquire price information at some cost to themselves. Also, each consumer accesses the information acquired by a sample of other consumers—interpersonal communication. An exogenous increase in the level of interpersonal communication decreases the information that consumers acquire, and, when search costs are low, firms price less aggressively. In an extension, consumers may choose to invest in interpersonal communication at some cost. A decrease in the costs of interpersonal communication decreases firms’ competition.     

Undesirable competition

We show that the entry of private profit-maximising firms makes the consumers worse off compared to having a nationalised monopoly. Such entry increases the nationalised firm’s profit, industry profit, and social welfare, at the expense of the consumers. Our result is important for competition policy.     

Can product differentiation mitigate conflicts of interest between principal stakeholders? A cournot-bertrand comparison

This paper aims to investigate the impact of product differentiation on the extent of conflict of interest between principal stakeholders (shareholders, employees, and consumers), which is one of the most important concerns of stakeholder-oriented corporate governance. We consider a differentiated duopoly competing either in price or quantity after the wages of employees are negotiated with a labor union. We find that price competition and quantity competition have drastically different implications on whether product differentiation mitigates stakeholders' conflicts. Specifically, product differentiation can mitigate stakeholders' conflicts when firms compete in price, but not when they compete in quantity. Therefore, the product differentiation effect in mitigating stakeholders' conflicts differs across markets characterized by price competition versus quantity competition.     

Price Competition and Consumer Externalities in a Vertically Differentiated Duopoly with Information Disparities

In this paper, we extend the model of vertical product differentiation to consider information disparities about quality differences and their effects on price competition. If uninformed consumers overestimate vertical differentiation, asymmetric information is a source of market power and informed consumers exert positive externalities on high quality product purchasers and negative externalities on low quality product purchasers. Such a result is consistent with the fact that information undermines brand. If uninformed consumers are skeptical, adverse selection issues arise and market demands may be perfectly inelastic to prices. With elastic demands equilibrium prices may be either distorted downwards or reflect real quality if the share of informed consumers is suffciently high. Therefore, with skeptical consumers firms may want either to signal quality or subsidize information provision.     

Product customization

The advent of the Internet has revolutionized the way companies advertise, develop and distribute products. Firms can now customize their advertising messages and products to the particular characteristics and needs of customers. Customers themselves can create their own products. We investigate investments by firms in product-customization capabilities within a duopoly model of horizontal product differentiation. We find that (i) if brand name effects are not too strong, one firm emerges as a leader in product customization—firms make asymmetric investments in product-customization technologies in order to reduce price competition, (ii) if brand name effects are strong, both firms make extensive investments in product customization, and (iii) the possibility of product customization can raise industry profits if brand names are weak, but not when they are strong.     

Price discrimination via information provision

We study price discrimination where different prices are offered as a bundle with different levels of information about a product. The seller’s price discrimination induces high valuation buyers to purchase a good without information and low valuation buyers to purchase with information. Our analysis highlights several interesting results about price discrimination: (i) the seller’s choice of information provision is the combination of full information and no information, (ii) products can be cheaper without information provision than with information provision, (iii) as a result of price discrimination, prices can be more dispersed as buyers’ valuations become largely similar, and (iv) the high valuation buyers purchase a damaged good and may earn negative surplus. Furthermore, we investigate under which circumstances price discrimination is more profitable than uniform pricing. We show that a decline in transportation costs which facilitate price discrimination can be welfare reducing.     

Welfare effects of competitive lobbying efforts in international oligopoly markets

Conventionally, rent-seeking activities have been considered to deteriorate social welfare and to distort resource allocation. This paper examines whether rent-seeking behavior can improve social welfare by focusing on the welfare effects of firms’ competitive lobbying efforts when governments can impose market entry regulation against foreign firms. We demonstrate that competitive lobbying efforts can improve social welfare when such lobbying efforts are directed to reduce market entry barriers. In addition, social welfare can be maximized when the government shows the maximum sensitivity to the foreign firm's political contributions while maintaining competitive market structure. Moreover, it is shown that the dominant strategy for a domestic firm is to allocate more resources to R&D sectors while it is optimal for foreign firms is to exert more efforts in lobbying to reduce the market entry barriers when a government makes political economic approach in market entry regulations.     

High Price Strategy and Quality Signalling

I investigate a high price strategy by a durable‐goods producer for signalling the high quality of goods. It is assumed that two types of monopolists exist: high‐quality and low‐quality. The monopolist's type is assumed to be unknown to consumers in the first period. Before the beginning of the second period, a product reputation established in the past period enables consumers to recognize the real type of the monopolist. I show that there occurs a signalling equilibrium where the high‐quality type monopolist uses a high price strategy. An interaction between the new and old products peculiar to the durable‐goods markets plays an important role in the pricing strategy.     

A MARKET WITH A SOCIAL CONSUMPTION EXTERNALITY*

We model a spatial market in which the utility of each consumer is affected by the consumers who buy precisely the same product. The marginal contribution of consumers x's purchase on consumer y depends on |x–y|, which declines as |x–y| increases. Such modelling of preferences fits goods that signal a consumer's place in society—clothing styles, automobiles and jewellry are examples. For 2n + 1 firms we find the unique symmetric equilibrium and derive comparative statics on the optimal number of firms, the largest number of firms the market can support, and the behaviour of profits per firm as n increases.     

Competition and confidentiality: Signaling quality in a duopoly when there is universal private information

We model non-cooperative signaling by two firms that compete over a continuum of consumers, assuming each consumer has private information about the intensity of her preferences for the firms' respective products and each firm has private information about its own product's quality. We characterize a symmetric separating equilibrium in which each firm's price reveals its respective product quality. We show that the equilibrium prices, the difference between those prices, the associated outputs, and profits are all increasing functions of the ex ante probability of high safety. If horizontal product differentiation is sufficiently great then equilibrium prices and profits are higher under incomplete information about quality than if quality were commonly known. Thus, while signaling imposes a distortionary loss on a monopolist using price to signal quality, duopolists may benefit from the distortion as it can reduce competition. Finally, average quality is lower since signaling quality redistributes demand towards low-quality firms.     

THE POTENTIAL FOR SHORT‐RUN SHIFTING OF A CORPORATE PROFITS TAX

Can the owners of a firm shift a corporate profits tax to consumers? Not in the short run if the tax is stated as a proportion of profits and the firm is a profit maximizer. But what if the firm wishes to pursue a strategy other than profit maximization, say revenue maximization subject to a profit constraint? Under such a condition the firm's reaction to a tax or tax increase might be a price rise that captures part of the foregone profits. We show that firms which operate at a point on their demand curve that differs from profit maximization have an incentive to raise price in response to the tax – and that high cost firms have a greater incentive to raise price than do low cost firms. Our empirical analysis of the US beer industry confirms this finding, and sheds light on the Krzyzaniak–Musgrave analysis of the 1960s which suggested that the corporation income tax produced significant short‐run shifting.