Endogenous vertical structure and trade policy in an import-competing market

We examine the endogenous determination of a vertical market in an import-competing market with import tariff. We show that if firms commit to vertical organization before the government's commitment to trade policy, the home and foreign firms choose vertical separation and vertical integration, respectively, at equilibrium under Bertrand competition. Under Cournot competition, the subgame perfect Nash equilibrium entails both firms separating their retailers. Comparing profits between Bertrand competition to Cournot competition, we find that upstream manufacturer's profit can be higher under Bertrand competition with integration than under Cournot competition with separation when comparing foreign upstream manufacturer's profit.     

The relationship between product market competition and unemployment with profit sharing

We investigate the implications of product market imperfections on negotiated wages and equilibrium unemployment under profit sharing. We show that intensified product market competition reduces equilibrium unemployment in a strictly monotonic way when the trade union's bargaining power exceeds the profit share. If the profit share exceeds the trade union's bargaining power, the effect of product market competition is ambiguous: there is a threshold for the benefit–replacement ratio above (below) which intensified product market competition increases (decreases) equilibrium unemployment. The profit share and the union's bargaining power affect the wage mark-up, and thereby equilibrium unemployment, in different directions.     

Cournot duopoly and insider trading with two insiders

We study the effect of competition among insiders in an extension of the static Kyle [Kyle, A. (1985). Continuous auctions and insider trading. Econometrica, 53, 1315–1335] model of insider trading introduced by Jain and Mirman (JMC) [Jain, N., & Mirman, L.J. (2002). Effects of insider trading under different market structures. The Quarterly Review of Economics and Finance, 42, 19–39]. In the JMC model competition in the real sector is introduced. In this paper we introduce competition in the stock sector in the JMC model by assuming that there is a manager who is responsible for making the real decisions of the firm as well as an ‘owner’ who has the same information as the manager but has no managerial responsibilities. In this way we can study the interaction between competition in the real sector and competition in the financial sector. We show that the stock price set by the market makers reveals more information than in the JMC model and that the expected equilibrium values of the manager’s profits sometimes decline and sometimes increase depending on the exogenous parameters of the model. Moreover, we prove that due to the competition in the financial sector, the level of output produced by the firm is less than in JMC. Finally, we also study the effect of financial competition in the case in which the market makers receive only one signal and analyze the comparative statics in this case.     

Competing for Consumers with Self‐Control Problems

I examine strategic implications of competing for consumers with self‐control problems. For investment goods, like health clubs, I find that the equilibrium sign‐up (lump‐sum) fees decrease when competition intensifies, similarly to prices in standard oligopoly models. However, the equilibrium attendance (per‐unit) price increases due to firms' deteriorated ability to take advantage of consumers' self‐control problems. Moreover, firms earn less profit due to consumers' self‐control problems—the firms have a unilateral incentive to charge per‐unit fees lower than the marginal cost; however, they cannot make up the lost margins by increasing the lump‐sum fee, due to competition. I also show that for plausible parameter regions the market adjusts to consumers' self‐control problem in such a way that firms play the standard equilibrium strategies that they would have engaged in with fully rational consumers, with identical market outcomes. Most of the results are qualitatively the same for leisure goods (for example, credit cards); however, some results are reversed: the per‐unit fees are higher than marginal cost and decrease as competition intensifies.     

Can platform competition support market segmentation? Network externalities versus matching efficiency in equity crowdfunding markets

We investigate whether, in spite of the existence of cross‐market network externalities, platform competition can lead to segmentation of the two sides of the market served by the platforms. We address this question in the context of competition between two equity crowdfunding platforms that connect startups looking for capital with prospective investors. Given the heterogeneity in the populations of startups and investors in terms of the riskiness of the former population and the degree of risk aversion of the latter population, we investigate whether there exists an equilibrium where the two populations are segmented to ensure an improved match between them. We find that the segmenting equilibrium can arise only when compatibility in terms of their risk profiles is of high importance to both populations, and compatibility is significantly more important than the size of the network externality considered by startups. Segmentation is likely to improve the welfare of both populations when the basic benefit from any kind of match is relatively high.     

A qualitative response analysis of UK firms' employment and output decisions

This paper investigates firms' employment and output decisions and presents some empirical evidence concerning the rationality of firms' expectations. The dymanic model is based on the assumptions of convex adjustment costs and monopolistic competition in the product market. The results are obtained using categorical information on individual firms contained in business surveys collected by the Confederation of British Industry. Ordered probit models are used to estimate the employment and output equations. We find that expected demand is a critical determinant of firms' decisions, the effect of changes in cost conditions is not as well determined, and the data are not consistent with the rational expectations hypothesis.     

Panel data estimates of the production function and product and labor market imperfections

Consistent with two models of imperfect competition in the labor market—the efficient bargaining model and the monopsony model—we provide two extensions of a microeconomic version of Hall's framework for estimating price‐cost margins. We show that both product and labor market imperfections generate a wedge between factor elasticities in the production function and their corresponding shares in revenue, which can be characterized by a ‘joint market imperfections parameter’. Using an unbalanced panel of 10,646 French firms in 38 manufacturing industries over the period 1978–2001, we can classify these industries into six different regimes depending on the type of competition in the product and the labor market. By far the most predominant regime is one of imperfect competition in the product market and efficient bargaining in the labor market (IC‐EB), followed by a regime of imperfect competition in the product market and perfect competition or right‐to‐manage bargaining in the labor market (IC‐PR), and by a regime of perfect competition in the product market and monopsony in the labor market (PC‐MO). For each of these three predominant regimes, we assess within‐regime firm differences in the estimated average price‐cost mark‐up and rent sharing or labor supply elasticity parameters, following the Swamy methodology to determine the degree of true firm dispersion. To assess the plausibility of our findings in the case of the dominant regime (IC‐EB), we also relate our industry and firm‐level estimates of price‐cost mark‐up and extent of rent sharing to industry characteristics and firm‐specific variables respectively. Copyright © 2011 John Wiley & Sons, Ltd.     

How Subordinate Financialization Shapes Urban Development: The Rise and Fall of Warsaw's Służewiec Business District

This article studies the development of Warsaw's S?u?ewiec neighbourhood, Poland's largest business district, as a case of real estate financialization. We argue that the neighbourhood's chaotic ‘de‐contextualized’ growth was shaped by Poland's semi‐peripheral position in the global economy on the one hand—enabling a process of subordinate financialization—and legacies of state socialism on the other. In so doing, we mobilize research on peripheral financialization and global economic hierarchies, and studies of post‐socialism to enhance debates about real estate financialization. Commercial real estate—and office development in particular—is a crucial domain in which contemporary core–periphery structures are produced and negotiated. A key function of subordinate financialization is to absorb globally mobile capital—the product of financialization in the core. The case of S?u?ewiec shows that only by considering the interplay of global hierarchies (Poland's position as capital absorbent), local dynamics (fragmented urban development, which was characterized by competition among these unequal municipalities, with local growth coalitions in some municipalities, but not in others) and specific historical legacies (Warsaw's socialist‐time functional organization and its transformation, which weakened the city) can we fully understand the specific dynamics that shape real estate financialization in different places.     

Convergence to Walrasian equilibrium with minimal information

We consider convergence to Walrasian equilibrium in a situation where firms know only market price and their own cost function. We term this a situation of minimal information. We model the problem as a large population game of Cournot competition. The Nash equilibrium of this model is identical to the Walrasian equilibrium. We apply the best response (BR) dynamic as our main evolutionary model. This dynamic can be applied under minimal information as firms need to know only the market price and the their own cost to compute payoffs. We show that the BR dynamic converges globally to Nash equilibrium in an aggregative game like the Cournot model. Hence, it converges globally to the Walrasian equilibrium under minimal information. We extend the result to some other evolutionary dynamics using the method of potential games.

     

Delegation and Incentives under Evolutionarily Stable Conjectures

Existing results show that in a homogenous Cournot duopoly, commitment by delegation harms profit. This conclusion presupposes that market conduct is the same whether incentives are aggressive or accommodating. We study delegation and incentives under evolutionarily stable conjectures and show how performance pay co‐determines market conduct. In fact, in equilibrium with evolutionarily stable conjectures, we show that commitment through delegation leads to a profit increase. Manipulation of managerial incentives produces less competition and therefore benefits firms' owners even in symmetric homogenous oligopoly. Copyright © 2016 John Wiley & Sons, Ltd.     

Analysts' utilization of historical earnings information

This study examines whether security analysts (in)efficiently utilize the information contained in past series of annual and quarterly earnings in producing earnings forecasts. To do so, it investigates whether equal-weighted combinations of security analysts' forecasts with forecasts from statistical models based on historical earnings are superior, both in terms of being a better surrogate for the market's expectations of earnings and of accuracy, to forecasts from either one of these two sources. The empirical findings indicate that, although analysts' forecasts are superior to forecasts from statistical models, performance can be improved—both in terms of accuracy and also of being a better surrogate for market earnings expectations—by combining analysts' forecasts with forecasts from statistical models based on past quarterly earnings. Improvements in proxying for market earnings expectations were obtained even when analysts' forecasts made in June of the forecast year were used in the combinations. An implication of these findings is that investors can improve their investment decisions by using an average of the mean analysts' forecasts and the forecast produced by a time-series model of quarterly earnings in their investment decisions.     

Long-Term or Short-Term Managerial Incentive Contracts

This paper deals with the strategic role of the temporal dimension of contracts in a duopoly market. Is it better for a firm to sign long-term incentive contracts with managers or short-term contracts? For the linear case, with strategic substitutes (complements) in the product market, the incentive variables are also strategic substitutes (complements). It is shown that a long-term contract makes a firm a leader in incentives, while a short-term contract makes it a follower. We find that, under Bertrand competition, in equilibrium one firm signs a long-term contract and the other firm short-term incentive contracts; however, under Cournot competition, the dominant strategy is to sign long-term incentive contracts.     

When patents matter: The impact of competition and patent age on the performance contribution of intellectual property rights protection

The question whether patenting impacts patenting firms' subsequent financial performance is important for technology-oriented companies. However, relevant research has led to contradictory results. We strive to overcome this impasse by introducing innovation competition and patent age as moderators of patents' performance contribution into the discourse. Based on a sample of 975 cases from diverse industries, we find strong support for our arguments. In line with our expectations, the results show that the number of patents granted, the degree of patent competition, and the timeliness of a patent contribute positively to financial performance. Moderation analysis nuances our findings by showing that the impact of patent protection on financial performance is stronger when the patent competition is stronger and the patents are younger.These findings provide insights into the conditions under which patenting leads to higher financial performance. Our findings highlight the importance of innovation competition and patent age for innovation research. The empirical results show firms that patenting pays and that, in order to tap the full potential of patents, they need to focus on emerging competing industries and reduce the time to market. Policy makers learn that patenting is a successful approach to foster innovation at limited social costs.     

Competitive market equilibrium under asymmetric information

This paper studies the existence of a competitive market equilibrium under asymmetric information. There are two agents involved in the trading of the risky assets: an “informed” trader and an “ordinary” trader. The market is competitive and the ordinary agent can infer the insider information from the price dynamics of the risky assets. The insider information is considered to be the total supply of the risky assets. The definition of market equilibrium is based on the law of supply-demand as described by a rational expectations equilibrium of the Grossman and Stiglitz (Am Econ Rev 70:393–408, 1980) model. We show that equilibrium can be attained by linear dynamics of an admissible price process of the risky assets for a given linear supply dynamics.      

Competition and innovation: The tango of the market and technology in the competitive landscape

Technology innovation can be a double‐edged sword in helping a firm to address competitive pressures. We explore the relationships among market competition, technology competition, and firms' advancement to a higher generation of production technology. Though market competition drives technology advancement as firms attempt to escape competition and technology competition also drives technology advancement as firms try to stay in the technology race, concurrent high market and technology competition lead a firm to defer advancement. We find supportive evidence with data on global flat panel display makers. Our findings shed light on how competition interacts with a firm's technology advancement decision and, in general, a firm's technology strategy.     

Multiple equilibria model with intrafirm bargaining and matching frictions

In this paper, we combine a matching model derived from Pissarides (2000) in the case of large firms with monopolistic competition on the product market and the model of intrafirm bargaining à la Stole and Zwiebel (1996). Moreover, we allow for increasing returns to scale in the aggregate production function leading to multiple equilibria. We study the dynamics of such a framework and propose numerical simulations. We show that labour market regulation can make unlikely the occurrence of the Pareto inferior equilibrium and that product market deregulation can have an effect on employment contrary to the expected result when the economy stands at this equilibrium. We give also some policy recommendations to reach the Pareto superior equilibrium when multiple equilibria exist.     

Market competition and pricing strategies in retail supply chains

This study provides a better explanation for the continued prevalence of high–low (Hi–Lo) pricing strategy. We investigate the impact of market competition on adopting two different pricing strategies in the retail industry: everyday low price (EDLP) strategy and Hi–Lo strategy. We developed two analytic models using a game-theoretic modeling approach: the profit maximization model and the sales revenue maximization model. We then conducted an econometric analysis based on retail store-level dataset. The result shows that an EDLP player's equilibrium price depends highly on the cost level rather than competitor's price whereas the Hi–Lo player's equilibrium price depends mainly on the range of promotional basket as well as the cost level.     

Competition Among Health Plans: A Two‐Sided Market Approach

We set up a two‐sided market framework to model competition between a Prefered Provider Organization (PPO) and a Health Maintenance Organization (HMO). Both health plans compete to attract policyholders on one side and providers on the other. The PPO, which is characterized by a higher diversity of providers, attracts riskier policyholders. Our two‐sided framework allows us to examine the consequences of this risk segmentation on the providers' side, especially in terms of remuneration. The outcome of the competition depends mainly on two effects: a demand effect, influenced by the value put by policyholders on the providers access and an adverse selection effect, captured by the characteristics of the health risk distribution. If the adverse selection effect is too strong, the HMO receives a higher profit in equilibrium. On the contrary, if the demand effect dominates, the PPO profit is higher in spite of the unfavorable risk segmentation. We believe that by highlighting the two‐sided market structure of the health plans' competition, our model provides a new insight to understand the increase in the PPOs' market share as observed in the USA during the last decade.     

THE THEORY OF ENDOGENOUS MARKET STRUCTURES

Most market structures are neither perfectly or monopolistically competitive: they are characterized by a few large firms that are engaged in strategic interactions in their production and investment decisions and whose number is endogenous. The theory of endogenous market structures analyzes markets in partial and general equilibrium where strategies affect entry and entry affects strategies, and exogenous primitive conditions on technology and preferences affect the equilibrium. We discuss applications to industrial organization, international trade, business cycle theory, international finance, growth and implications for welfare and for competition, trade, fiscal and monetary policy.     

Information or Opinion? Media Bias as Product Differentiation

Two aspects of media bias are important empirically. First, bias is persistent: it does not seem to disappear even when the media is under scrutiny. Second, bias is conflicting: different people often perceive bias in the same media outlet to be of opposite signs. We build a model in which both empirical characteristics of bias are observed in equilibrium. The key assumptions are that the information contained in the facts about a news event may not always be fully verifiable, and consumers have heterogeneous prior views ("ideologies") about the news event. Based on these ingredients of the model, we build a location model with entry to characterize firms' reports in equilibrium, and the nature of bias. When a news item comprises only fully verifiable facts, firms report these as such, so that there is no bias and the market looks like any market for information . When a news item comprises information that is mostly nonverifiable, however, then consumers may care both about opinion and editorials, and a firm's report will contain both these aspects—in which case the market resembles any differentiated product market . Thus, the appearance of bias is a result of equilibrium product differentiation when some facts are nonverifiable. We use the model to address several questions, including the impact of competition on bias, the incentives to report unpopular news, and the impact of owner ideology on bias. In general, competition does not lead to a reduction in bias unless this is accompanied by an increase in verifiability or a smaller dispersion of prior beliefs.