On the proportionality of EU spatial ex ante coexistence regulations

The EU is currently struggling to implement coherent coexistence regulations on genetically modified (GM) and non-GM crops in all member states. While it stresses that any approach needs to be “proportionate to the aim of achieving coexistence”, very few studies have actually attempted to assess whether the proposed spatial ex ante coexistence regulations (SEACERs) satisfy this proportionality condition. In this article, we propose a spatial framework based on an existing landscape and introduce the concept of shadow factor as a measure for the opportunity costs induced by SEACERs. Our empirical findings led us to advance the proposition that flexible SEACERs based on pollen barriers are more likely to respect the proportionality condition than rigid SEACERs based on isolation distances. Particularly in early adoption stages, imposing rigid SEACERs may substantially slow down GM crop adoption. Our findings argue for incorporating a certain degree of flexibility into SEACERs by advising pollen barrier agreements between farmers rather than imposing rigid isolation distances on GM farmers. The empirical questions of proportionality and flexibility have been largely ignored in the literature on coexistence and provide timely information for EU policy makers.     

On the proportionality of EU spatial ex ante coexistence regulations: Reply

Desquilbet and Bullock (2010) criticize some aspects of our analysis of the European Union’s (EU) spatial ex ante coexistence regulations (SEACERs) of genetically modified (GM) and non-GM crops presented in Demont et al. (2009). We argue that, besides misinterpreting some of our original arguments, the authors propose a policy analysis framework which is inconsistent with the main goal of the EU’s SEACERs. Their example incorrectly suggests that SEACERs play an additional role of regulating non-GM crop supply on the market. This would be inefficient from a policy economics perspective, especially in an open economy where global trade is taken into account. Therefore, we argue that analyzing flexibility of SEACERs in a market framework could lead to erroneous conclusions and in that case a simple farm level analysis such as presented in Demont et al. (2009) is preferred.     

Technology Choice and Coalition Formation in Standards Wars

We study the efficiency of the standard-setting process when standards result from competition between groups of firms sponsoring different technologies. We show that ex ante agreements may decrease welfare in the case of standards wars: Even though industry profits are larger with ex ante agreements, welfare is not necessarily larger, because the interests of firms and society may not be aligned. This result contrasts with the findings of previous works studying de jure monopoly standards. Including adopters in the standard-setting process may restore the efficiency of ex ante agreements.     

Migration and child development during the food price crisis in El Salvador

Migration is often used as parts of both ex post and ex ante strategies to mitigate risks to household incomes. There is little empirical evidence, however, of the way that migration actually helps households in times of shocks. In this paper, I describe how the peak of the worldwide food price crisis affected anthropometric statistics among young children in El Salvador, and how households with access to international migrants were not affected as negatively as households without such access. In 2008, El Salvador experienced food price inflation of 15%, and the evaluation of Red Solidaria, El Salvador’s conditional cash transfer program, shows that height-for-age (HAZ) Z scores among children under 3 years old declined by 0.2 standard deviations on average. In this paper, I use the Red Solidaria evaluation data to assess whether children in households with access to remittances or international migrants were better off than households without access to migration income. Using both repeated cross-sectional data and individual panel data, I find that as theory would expect, children in households with access to international migrants have much lower declines in their HAZ scores.     

Information Gathering Externalities for a Multi‐Attribute Good

Most goods and services vary in numerous dimensions. Customers choose to acquire information to assess some characteristics and not others. Their choices affect firms' incentives to invest in quality and so lead to indirect externalities in consumers' choices. We characterize a model in which a monopolist invests in the quality of a product with two characteristics, and consumers are heterogeneous ex‐ante. Consumers do not internalize their influence on the firm's investment incentives when choosing which information to acquire. Cheaper information affects consumers' information gathering and thereby firm investment. This can paradoxically reduce consumer surplus, profits, and welfare.     

Creating balance in dynamic competitions

We consider incentives for organizing competitions in multiple rounds, focusing on situations where there is heterogeneity among the contestants ex ante, which discourages effort in a single contest. Heterogeneity evolves across rounds depending upon the outcomes of previous rounds. We present conditions under which balance in such a competition can be created, by determining the number of rounds and dividing the prize fund carefully across them, so that full rent dissipation entails. In the model, each round is an all-pay auction where contestants differ in their abilities to gain a momentum from winning. We also discuss the case when negative prizes are feasible, demonstrating that this strengthens the full dissipation result; and we consider a case where the size of the winner’s momentum is related to the size of the prize attained, showing that the stronger this linkage, the less of the prize is awarded early on.     

An examination of the influence of guanxi and xinyong (utilization of personal trust) on negotiation outcome in China: An old friend approach

Managers of multi-national enterprises (MNEs) are at a disadvantage in negotiating outcomes with their Chinese counterparts when compared to local competitors. The reasons include: local competitors are more flexible in handling business terms and conditions; local Chinese managers prefer to negotiate with their old friends or insiders in the same guanxi network; and MNE managers perceive that cultural practices such as gift-giving and guanxi are problematic. This study advances our understanding of negotiation by using a model developed for the reference of MNEs to establish an “old friend” relational status with their local Chinese counterparts. This approach emphasizes cultural adaptation for MNE managers to achieve satisfying negotiation outcomes in China.The study reveals the following unique issues: 1) in addition to their problem-solving attitude, MNE managers should practice mianzi and gift-giving to build renqing with their Chinese counterparts at a new friend stage; 2) the reciprocity dynamics of renqing should enable these managers to accumulate ganqing and to become old friends of their Chinese counterparts; 3) the establishment of ganqing between MNE managers and their Chinese counterparts should enable the development of xinyong between the two exchange parties; and 4) desirable negotiation outcomes can be built on xinyong.     

Does data portability facilitate entry?

Data portability rules are generally thought to encourage consumers to switch between different service providers and facilitate entry of new firms. Some of these rules, however, only apply to data “provided by” the consumer (data subject), e.g., purchasing patterns. Data “derived by” a firm (data controller) with the help of data analytics, e.g., recommendations derived from purchasing patterns, does not fall under data portability rules. We show that, under the current legislation along with extensive use of data analytics, data portability may hinder switching and entry due to the demand-expansion effect: the prospect of easier switching due to data portability may entice consumers to provide even more data to the incumbent, which strengthens the incumbency advantage. Hence, the effectiveness of data portability in fostering competition will depend on what types of data are portable. More generally, in analysing the effectiveness of polices aiming at reducing ex post switching costs, it is important to take into account their impacts on ex ante actions that build up endogenous entry barrier.     

Promoting structural adjustment in agriculture: The economics of New Entrant Schemes for farmers

We examine the efficacy of incentives for new entrants to farming as an alternative to early retirement schemes for farmers. We briefly review previous studies on the effectiveness of Farmer Early Retirement Schemes in promoting structural adjustment in agriculture and conclude that the economic case for these schemes seems weak. We then employ a dynamic farm optimisation model, incorporating a realistic specification of farmer decision-making, on an original Northern Irish dataset to analyse ex ante the possible impacts of New Entrant Schemes. We find a more positive potential impact from these schemes, particularly the option of an interest rate subsidy on farm development loans. This is attributed to the dynamic effects of the farm investments associated with such schemes, a likely reflection of the long-term effects of differences in age related lifecycle goals. Younger farmers have a longer planning horizon and tend to invest more heavily in business growth than comparable older age groups.     

PARALLEL TRADE,INTERNATIONAL EXHAUSTION AND INTELLECTUAL PROPERTY RIGHTS: A WELFARE ANALYSIS*

This paper analyses the issue of parallel trade (arbitrage) for products protected by intellectual property rights. We discuss a basic trade‐off that arises between the ex post better allocation that typically occurs under parallel trade when demand dispersion is not too high, and the ex ante reduced product quality because of lower investment. We show that the size of the welfare effects is significantly affected by the presence of a ‘generic’ product, which represents a form of competition for the monopolist. The monopolist will introduce a ‘fighting brand’ to compete with the generic, which dilutes but does not eliminate the result on the adverse effects of parallel trade on investments.     

Should You Really Produce What Consumers Like Online? Empirical Evidence for Reciprocal Voting in Open Innovation Contests

In open innovation, firms increasingly rely on online consumer votes to evaluate ideas for new products and services. Votes can represent cost‐effective external information about idea quality that can inform and facilitate a firm's task of evaluating and screening of ideas at the early stages of the innovation process. Challenging this perception, we proposed that consumer votes provided in open innovation contests can be socially biased by reciprocal voting. On the basis of theories related to cooperation and social influence, we argued that both gregarious consumers (those who solicit social ties) and consumers who initiate direct reciprocity (those who vote for others) signal a willingness to cooperate that stimulates reciprocal voting from peers. We empirically investigated consumer voting behavior using a unique dataset with information obtained from actual open innovation contests in which consumers could submit their own ideas and see and vote for the ideas of others. We found that both gregariousness and the initiation of direct reciprocity positively influence votes received. Such cooperation pays off for consumers because firms indeed use votes to inform internal idea evaluations. We also found, however, that the votes an idea receives during an innovation contest cannot significantly explain its later revealed quality. Reciprocity may be an effective form of cooperation among consumers, but it has potentially negative implications for firms' evaluations. Our results also indicated that beyond reciprocity, consumers and firms value different types of ideas, which further differentiates their evaluations. Thus, firms should not only be aware of social biases in votes but also account for the diverging idea preferences of customers.     

Location and competition in retail banking

We investigate the impact of banking deregulation during the 1990s on consumer welfare. We estimate a spatial model of consumer demand for retail bank deposits that explicitly accounts for consumer disutility from distance traveled. This is important given the substantial changes in banks' branch networks observed in the data. Our model indicates that cross-price elasticities between banks whose branches are close to consumers (‘close’ banks) are larger than those between ‘far’ banks and more than double the cross-price elasticity of ‘close’ banks with respect to ‘far’ banks. We distinguish between thrifts and other banks and find that within-thrift competitive effects are stronger than within-bank effects or those between thrifts and banks. We use our estimates to predict the effect of changes in market structure on consumer welfare following the branching deregulation of the Riegle–Neal Act of 1994. Our results indicate that the median household gained around $60 per year from the changes. Approximately two thirds of the gains come from within-market changes in market structure. The gains were greater in markets with high initial numbers of banks than elsewhere.     

Credit Unions: Fringe Suppliers or Cournot Competitors?

Recent work has demonstrated the competitive relationship between credit unions and banks in consumer financial services. One issue underlying the nature of competition between the two, however, concerns the most appropriate way to model their interactions.Two possible approaches are the dominant-firm price-leadership model and the generalized Cournot model. In the former model, credit unions act as fringe suppliers who are price-takers in a homogeneous product market. In the latter, they possess (limited) market power. Oneway to distinguish the two is by examining the impact of credit union market shares on their pricing, as the two models imply differing effects. Our results are more consistent with the ``credit unions as fringe suppliers' view. Using a pooled cross-section time seriesof 77 small local consumer lending markets throughout the U.S., each with 10 observations over 5 years, the focus is on a loan product ex ante thought to be sold in local markets, unsecured (non-credit card) loans. For this product, increasing credit union market sharesreduces credit union loan rates, consistent with a fringe supplier hypothesis.     

Dark Side or Bright Light: Destructive and Constructive Deviant Content in Consumer Ideation Contests

Firms use ideation contests to generate ideas from consumers. This type of collaboration provides access to new knowledge and reveals latent consumer needs. But it also is risky, as firms give up control to an unknown crowd. Some contestants use ideation contests to post content that is unintended and unwanted by contest hosts, a behavior that represents deviant co‐creation. Drawing on literature from sociology and consumer research, deviance is defined as a relative, norm‐violating behavior that has the potential to activate others. We report the results from a netnography study to define the phenomenon of deviant co‐creation in ideation contests. Based on these findings, we provide a theoretical foundation for deviant co‐creation and conceptualize and empirically illustrate various patterns of deviant content, ranging from destructive to constructive. The study reveals that deviant content in ideation contests includes illegitimate as well as legitimate content. Legitimate content includes five themes: humorous, provocative, unique, violation from technical, and social norms. Deviant content usually bewilders evaluators and draws their attention to the content. Destructive deviant content may trigger visible and malicious protests or result in mocking and ridicule on the contest platform and other social media, thereby exposing the contest host to reputational risks. Constructive deviant content can lead to positive discussions in comment sections and other social media outlets, as well as foster further development of an initial idea, thereby contributing to the firm's innovation potential. This article provides managers a deeper understanding of deviant content raising awareness for the dark side risks as well as indicating how to leverage it to achieve constructive co‐creation.     

Personalized prices and uncertainty in monopsony

We analyze personalized pricing by a monopsonist facing a finite number of ex ante identical, capacity constrained suppliers with privately known costs. When the distribution of costs is sufficiently smooth and regular, the buyer chooses to make the same offer to all suppliers, leading to a posted price. When demand is sufficiently concave (convex) this price is lower (higher) than the classical monopsony price. In the limit as the seller capacities tend to zero, we obtain the classical monopsony price. Therefore, our model provides a decentralized micro-foundation for monopsony.     

Patent Quality and a Two‐Tiered Patent System

In this paper, we study the determinants of patent quality and volume of patent applications when inventors care about perceived patent quality. We analyze the effects of various policy reforms, specifically, a proposal to establish a two‐tiered patent system. In the two‐tiered system, applicants can choose between a regular patent and a more costly, possibly more thoroughly examined, ‘gold‐plate’ patent. Introducing a second patent‐tier can reduce patent applications, reduce the incidence of bad patents, and sometimes increase social welfare. The gold‐plate tier attracts inventors with high ex‐ante probability of validity, but not necessarily applicants with innovations of high economic value.     

Access regulation and investment in next generation networks — A ranking of regulatory regimes

This paper analyses how different types of access regulation to next generation networks affect investments and consumer welfare. The model consists of an investment stage with uncertain returns and subsequent quantity competition. The access price is a function of investment costs and the regulatory regime. A regime with fully distributed costs or a regulatory holiday induces highest investments, followed by risk-sharing and long run incremental costs regulation. Simulations indicate that risk-sharing creates most consumer welfare, followed by regimes with fully distributed costs, regulatory holiday and long run incremental costs, respectively. Risk-sharing benefits consumers as it combines relatively high ex-ante investment incentives with strong ex-post competitive intensity.     

Demand for farm animal welfare and producer implications: Results from a field experiment in Michigan

This study utilizes a Becker-DeGroot-Marschak (BDM) mechanism to assess Michigan consumer demand for animal welfare practices. Results are examined in the context of changing farm production costs and producer marketing margins. We find that while consumers are willing to pay significant premiums for animal welfare standards, failing to account for the costs associated with producing the entire animal under the new system could lead to suboptimal policy that negatively affects producer welfare. Our results suggest that consumer premiums for animal welfare are product specific and that WTP estimates should not be generalized to the entire animal. We discuss policy implications of our findings and highlight the importance of considering producer costs when evaluating consumer demand for farm animal welfare practices.     

The Economics of Retailing Formats: Competition Versus Bargaining

We set up a merger game between retailing stores to study the incentives of independent stores to form a big store when some consumers have preferences for one‐stop shopping. Such one‐stop shopping creates complementarity between products, leading in turn to lower prices after a big store is formed but may also lead to an improvement in the bargaining position vis‐à‐vis producers through the creation of an inside option that small stores do not have. We find that big stores will not be formed when the stores' ex ante bargaining power vis‐à‐vis producers is high. Otherwise, an asymmetric situation occurs with only one big store created when one‐stop shoppers are abundant.     

Divesting ownership in a rival

We examine the consumer welfare effect of a firm's partial ownership of a competitor and compare the implications of alternative forms of divestiture. We identify conditions under which turning voting shares into non-voting shares is preferable to selling the shares to the firm's current shareholders (an option frequently chosen). We also show that selling the voting shares to a large independent shareholder is preferable to selling them to small shareholders. We provide additional theoretical results and apply them to the divestiture of Portugal Telecom's holdings in PTM.