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.     

Court Efficiency and Procurement Performance

Disputes over penalties for breaching a contract are often resolved in court. A simple model illustrates how inefficient courts can sway public buyers from enforcing a penalty for late delivery in order to avoid litigation, thereby inducing sellers to delay contract delivery. By using a large dataset on Italian public procurement, we empirically study the effects of court inefficiency on public work performance. Where courts are inefficient, we find the following: public works are delivered with longer delays; delays increase for more valuable contracts; contracts are more often awarded to larger suppliers; and a higher share of the payment is postponed after delivery. Other interpretations receive less support from the data.     

基于买方市场的劳工标准移植研究

市场的竞争促使越来越多发展中国家的企业成为劳工认证供应链的一部分。本文基于买方主导型市场结构,运用信息租模型分析劳工标准在中国移植状况。研究表明,高劳工标准的存在,是供应商追求信息租金和采购商追求真实剩余博弈的均衡;当供应商类型分布不满足单调风险率性质时,会出现低标准混同均衡,也是采购商借助买方市场势力极大化真实剩余的结果;当采购商风险偏好属于规避型时,最后均衡劳工标准较之风险中性时要高,同时买卖双方福利都会提高。     

MANAGING SWITCHING COSTS IN MULTIPERIOD PROCUREMENTS WITH STRATEGIC BUYERS*

This article examines the use of switching costs by long‐lived strategic buyers to manage dynamic competition between rival suppliers. The analysis reveals how buyers may employ switching costs to their advantage. We show that when switching costs are high, a buyer may induce suppliers to price more competitively by credibly threatening to replace the incumbent supplier with his rivals. The implications of this finding for adoption of technology and firm organization are explored in settings in which the buyer is integrated with the suppliers and where the buyer is an outsourcer.     

ADVERSE SELECTION WITH HETEROGENEOUSLY INFORMED AGENTS

A model of over-the-counter markets is proposed. Some asset buyers are informed in that they can identify high-quality assets. Sellers with private information choose what type of buyers they want to trade with. When the measure of informed buyers is low, a unique equilibrium exists, and interestingly, price, trading volume and welfare typically decrease with more informed buyers. When the measure of informed buyers is intermediate, multiple equilibria arise. A switch from one equilibrium to another can lead to large drops in liquidity, price, trading volume, and welfare, like a financial crisis. Implications of an endogenous measure of informed buyers are also studied.     

Downstream merger with upstream market power

We examine how a downstream merger affects input prices and, in turn, the profitability of a such a merger under Cournot competition with differentiated products. Input suppliers can be interpreted as ordinary upstream firms, or trade unions organising workers. If the input suppliers are plant-specific, we find that a merger is more profitable than in a corresponding model with exogenous input prices. In contrast to the received literature, we find that it can be more profitable to take part in a merger than being an outsider. For firm-specific input suppliers, on the other hand, results are reversed. We apply our model to endogenous merger formation in an international oligopoly, and show that the equilibrium market structure is likely to be characterised by cross-border merger.     

Mix‐and‐match divestitures and merger harm

We consider the effects of a merger combined with a divestiture that mixes and matches the assets of the two pre‐merger suppliers into one higher‐cost and one lower‐cost post‐merger supplier. Such mix‐and‐match transactions leave the number of suppliers in a market unchanged but, as we show, can be procompetitive or anticompetitive depending on whether buyers are powerful and on the extent of outside competition. A powerful buyer can benefit from a divestiture that creates a lower‐cost supplier, even if it causes the second‐lowest cost to increase. In contrast, a buyer without power is always harmed by a weakening of the competitive constraint on the lowest‐cost supplier.     

Durable goods produced by state owned enterprises

A two-period durable-goods monopoly model is analyzed where the durable good is provided by a state owned enterprise (SOE). First, we suppose that the SOE is under pressure to provide employment, and therefore has an employment goal, as well as the traditional profit and consumer surplus objectives. Assuming that the SOE has difficulty committing to current buyers with respect to its profit and employment motives, we find that as the employment burden increases, the SOE tends to move further away from the efficient durability and provides a lower durability level than a pure profit maximizer. Additionally, we show that a durable-goods SOE without commitment power, will wish to partially privatize to help mitigate its commitment problem with buyers and increase social welfare. Both of these findings provide economic rationale for the partial privatization of SOEs in transitioning economies that have not been identified in the literature prior to this.     

Subcontractors for tractors: Theory and evidence on flexible specialization,supplier selection,and contracting

Buyer–Seller networks are pervasive in developing economies yet remain relatively understudied. Using primary data on contracts between the largest tractor assembler in Pakistan and its suppliers we find large variations in prices and quantities across suppliers of the same product. Surprisingly, “tied” suppliers – those that choose higher levels of specific investments – receive lower and more unstable orders and lower prices. These results are explained by developing a simple model of flexible specialization under demand uncertainty. A buyer faces multiple suppliers with heterogeneous types to supply customized parts. Specific investments raise surplus within the relationship but lower the seller's flexibility to cater to the outside market. Higher quality suppliers have a greater likelihood of selling outside and so this cost is greater for them. Therefore even if a buyer typically prefers high types, some low type suppliers might be kept as marginal suppliers because of their greater willingness to invest more in buyer-specific assets. Further empirical examination shows that the more tied suppliers are indeed of lower quality.     

Private labels, price rivalry, and public policy

The article examines (i) why low-quality private labels are introduced in some product categories and not in others, (ii) how the existence of a low-quality private label affects the pricing of a competing national brand, and (iii) how consumers’ surplus and welfare are affected by private labels. We find that the potential for private label introduction may—in return for national brand exclusivity in that particular retail store (exclusive dealing)—lead to price concessions from the producer of the national brand. If the national brand producer decides not to offer an exclusivity contract, a private label is introduced. In this case, private label introduction may lead to higher retail prices on national brands, which can be detrimental to consumer welfare as well as total welfare. We argue that our results have important implications for the interpretation of empirical results and the public policy towards national brands     

Information externalities and intermediaries in frictional search markets

In frictional matching markets with heterogeneous buyers and sellers, sellers incur discrete showing costs to show goods to buyers who incur discrete inspection costs to assess the suitability of the goods on offer. We study how brokers can help reduce these costs by managing the level and mix of goods in their inventory. Intermediaries emerge and improve social welfare when there is sufficient heterogeneity in the types of goods and preferences. Learning and inventory management enable search intermediaries to internalize information externalities generated in unintermediated private search.     

Protecting buyers from fine print

Buyers typically do not read the fine print in contracts, providing an incentive for a monopolist to draft terms which are unfavorable to buyers. We model this problem, proving that trade must then be inefficient. We show that regulation which mandates efficient terms raises welfare. More interestingly, regulations which prohibit the least efficient terms may reduce welfare by inducing the monopolist not to offer favorable terms. We extend these results to markets in which some buyers are naive, showing that prohibiting the least efficient terms may also harm the naive buyers.     

Price discrimination of buyers with identical preferences and collusion in a model of advertising

A model of advertising and price distributions is investigated whereby each seller can contact different buyers, whose preferences are identical, with different probabilities. The model features a continuum of equilibria parametrized by the ratio of the buyers contacted by one seller—differing across “market segments”—and by the other sellers. In general, the sellers practice price discrimination across segments. More asymmetric equilibria correspond to higher volumes of transactions and higher expected transaction prices. This results in a lower expected utility for the buyers and higher expected profits; thus, identifying areas of influence can help the sellers to support collusion.     

TO LIST OR TO MERGE? ENDOGENOUS CHOICE OF PRIVATIZATION METHODS IN A MIXED MARKET

When and how to privatize a public firm? This paper suggests that a welfare‐enhancing privatization may be triggered by a negative demand shock. When the shock is relatively mild, it is optimal to privatize a public firm by means of stock market listings; when the shock is sufficiently large, a public–private‐firm merger becomes optimal. This paper also considers a government that cares about privatization revenues and about social welfare. It characterizes how the weight attached to privatization revenues and the improvement in production efficiency of the privatized public firm through a stock market listing may affect the government's choices concerning privatization.     

Endogenous protection of R&D investments

Abstract .  We examine firms' incentives to protect their non-cooperative R&D investments from spilling over to competitors. We show that, contrary to findings in most of the literature, the lack of full appropriability can lead to an increase in R&D investments. Consequently, as long as the R&D spillovers are not too strong, firms decide to let their R&D knowledge flow. Since, as we show, welfare is higher when R&D spillovers are present, it follows that public policies that promote the dissemination of technological knowledge could be welfare-enhancing.     

The changing role of consumers and suppliers in a food safety event: the 2006 foodborne illness outbreak linked to spinach

This article provides a means for testing whether buyers or sellers are responsible for a drop in sales following a market shock. We show that suppliers’ responses dominated the market reaction to the 2006 US Food and Drug Administration warning to avoid fresh spinach contaminated with potentially deadly bacteria Escherichia coli O157:H7. A modified Durbin-Wu-Hausman test for temporary price endogeneity is developed and used in a leafy green vegetable demand model. Test results indicate the price of bagged spinach was exogenous before the announcement but endogenous for approximately 12 weeks afterward. We show these results are consistent with the notion that suppliers temporarily limited the availability of spinach to consumers. Instead of consumers choosing the quantity purchased given exogenous prices, it was suppliers who limited the quantity marketed and consumers’ choices established the market price.     

Preventing merger unilateral effects: A Nash–Cournot approach to asset divestitures

This paper aims to analyze the effectiveness of asset transfers in preventing unilateral effects of a merger. We show that asset divestitures allow the remedying of certain price increases. Market size negatively impacts the scope of the divestiture package, while the number of merging firms increases with it. In spite of the required asset sale, parties’ profitability remains ensured in most cases. Buyers always make profit from their purchase if industry fixed costs are rather low. We also add the alternative of a second buyer and compare outcomes with both consumer and welfare standards. Furthermore, as many mergers lead to efficiency gains, we integrate specific cost synergies and show that the higher the synergies, the smaller the divestiture share. In the case when no buyers are available, we show that the option of divesting to a start-up entity is bound to fail if firms’ technology remains the same. Lastly, we find that product differentiation can reduce the efficiency of the asset transfer.     

Income based price subsidies and parallel imports

We present a policy game where a Rich country has a higher ability than a Poor country to commit to certain elements of health policy such as providing income related price subsidies and allowing parallel imports (PI). When allowing PI is not a choice for the Poor country, the Rich country allows PI and both countries provide a subsidy to their poorer buyers as the subgame perfect equilibrium policies. However, when the Poor is able to PI a different equilibrium may arise. We show that the ability of the Poor to allow PI might increase welfare in this country even if it is never implemented. We also prove that as the Poor country gets richer, it will not be in their best interest to sign an agreement with the Rich to commit to not allowing PI.     

Who benefits from bilateral information exchange in a retail channel?

Retailers and their suppliers often exchange demand information, which is believed to benefit both firms and consumers. We show how such information exchange can benefit only the upstream supplier at the expense of the downstream retailer and consumers.     

Overconfidence in the Markets for Lemons

We extend Akerlof's “Market for Lemons” (1970, Quarterly Journal of Economics 84, 488–500) by assuming that some buyers are overconfident. Buyers in our model receive a noisy signal about the quality of the good that is on display for sale. Overconfident buyers do not update according to Bayes' rule but take the noisy signal at face value. We show that the presence of overconfident buyers can stabilize the market outcome by preventing total adverse selection. However, this stabilization comes at a cost: rational buyers are crowded out of the market.