Predatory pricing in a multiple market experiment: A note

Isaac and Smith (1985a,b) present a strong behavioral case that predatory pricing is not an observable laboratory phenomenon. We propose several modifications of their design, resulting in a multiple-market experiment in which predatory pricing is present. The primary modification involves conducting several markets concurrently, providing an active ‘escape’ opportunity for any prey and a potential reward to a reputation for predation. These results provide a ‘behavioral existence proof’ for the predatory pricing phenomenon. They do not address the issue of the phenomenon's behavioral robustness.     

Vertical Integration and International Predation

This paper investigates the interrelationship between a firm's incentive to engage in international predatory pricing and its domestic vertical industry ties in the context of the deep-pockct theory of predation. The deep pocket stems from a vertically integrated firm's ability to shift funds between its upstream and downstream divisions. enabling it to prey on vertically unintegrated upstream competitors. Vertical integration is shown to function as a cause of and a deterrent to foreign predatory behavior.     

COLLUSION AND PREDATION UNDER THE CONDITION OF STOCHASTIC BANKRUPTCY

In this paper, on the basis of the framework of repeated games, we consider the strategic interaction between firms that may face financial constraints and go into bankruptcy when they earn low profit. We demonstrate that under asymmetric information concerning the financial constraints of the rival firm, firms adopt a pricing pattern wherein they switch to high (or collusive) prices after maintaining low prices for some periods. There are always such predatory pricing strategies sustained as equilibria when firms are sufficiently patient. We also show that the set of feasible and individual rational payoffs becomes narrower than that of the ordinal repeated games.     

Peak-load pricing with continuous and interdependent demand

Issues concerning time-of-use (TOU) pricing with continuous and interdependent demand are examined in a context where increasing marginal costs of production, as opposed to capacity constraints, provide the major incentive for flattening the load curve. The analysis develops the underlying consumer preferences sufficient to insure a continuously varying load curve and generalizes previous considerations of the peak load pricing problem by simultaneously considering continuous and interdependent demand in determining optimal prices and pricing period lengths. A profit incentive for TOU pricing as a form of price discrimination is revealed, which is tempered as substitution across pricing periods allows limited intertemporal arbitrage. The profit incentive leads a price-regulated firm, ceteris paribus, to choose a peak pricing period longer than the social optimum.     

On the Cournot–Bertrand Profit Differential and the Structure of Unionisation in a Managerial Duopoly

This paper deals with the issue of the Cournot–Bertrand profit differential by bringing together two different strands of the industrial organisation literature: managerial delegation and unionised oligopolies. Relative to unionisation, two alternative regimes are analysed and compared: ‘decentralised unionisation’, involving firm‐specific unions, and ‘centralised unionisation’, in which an industry‐wide union sets a uniform wage for the entire industry. The ‘reversal result’ – that is, profits are higher under Bertrand than under Cournot – applies irrespective of the unionisation regime and for a very wide range of product differentiation. Moreover, it is more likely to occur when unionisation is decentralised than centralised and, especially when products are not too much differentiated, the profit differential in favour of price competition is also larger in the presence of firm‐specific unions. However, if firm owners not only delegate the choice of the strategic variable but also that of the competition regime, managers always opt to compete in quantities, thus generating an inefficient choice for owners.     

Decoupling in electric utilities

Distributing electricity to users has been covered through the charge per kilowatt-hour for electricity used. Conservation advocates have promoted policies that “decouple” distribution revenues or profits from the amount of electricity delivered, claiming that usage-based pricing leads utilities to encourage use and discourage conservation. Because decoupling separates profits from conduct, it runs against the dominant finding in regulatory economics in the last 20 years—that incentive-based regulation outperforms rate-of-return profit guarantees. Even if distribution costs are independent of use, some usage charges can be efficient. Price-cap regulation may distort incentives to inform consumers about energy efficiency—getting more performance from less electricity. Utilities will subsidize efficiency investments, but only when prices are too low. If consumers fail to adopt energy efficiency measures that would be individually beneficial, decoupling can increase welfare, but only if all energy revenues are separated from use, not just those associated with distribution.     

Growth, Competition and Welfare

The impact of competition on growth and welfare is analysed by developing a model in which the number of firms, profit margins and innovation rates are endogenous. Different regimes of oligopolistic competition are distinguished. The tougher the price competition, the lower the profit margins for a given rate of concentration. This reduces the number of firms and product variety in a free entry equilibrium. Consequently, tougher competition implies larger firm size and higher rates of innovation since new technologies can be applied in a larger market. Oligopolistic pricing leads to underinvestment in firm-specific knowledge, even if inter-firm knowledge spillovers are neglected.     

Endogenous direct advertising and price competition

This paper analyzes how the use of endogenous direct advertising affects the functioning of a horizontally-differentiated market. We formulate a two-stage game of pricing and informative advertising in which two firms, first, compete with mass advertising and, later, build a database using their historical sales records and compete by directly targeting the ads on their potential customers. We show that, compared to the case where firms only use mass advertising, direct advertising yields higher advertising efforts and an intertemporal reallocation of both market power and profits from the first to the second period. We also find that targeting increases the overall firms’ profit and the level of social welfare, but the impact on the average intertemporal price and consumer surplus is ambiguous. Finally, when reaching the potential market with mass advertising is sufficiently expensive, the use of direct advertising leads firms to provide the socially optimal level of advertising whereas, if mass advertising is cheap, firms tend to launch too little advertising in the first period and too much in the second.     

扶持我国出口导向企业实施RRC战略的理论依据

文章探讨本国企业与外国企业在以产量竞争的方式争夺出口市场的情况下,本国政府对本国企业实施提高竞争对手成本(RRC)战略的投资进行补贴的理论依据。通过两次运用两阶段博弈,文章对由补贴政策、企业RRC投资、产量和利润水平决定构成的三阶段博弈进行了因果关系的比较静态分析,认为在一般情况下,对本国企业RRC投资补贴有利于本国企业在国际市场中产量、市场份额和利润的增加,也有利于本国社会总福利水平的增加,对外国企业产量、利润和社会福利则形成负面影响。由于RRC战略较之掠夺性定价温和且更易实施,这一政策对于保持我国出口稳定增长具有一定积极意义。     

Fan welfare maximization as a club objective in a professional sports league

Motivated by aspects of European soccer club governance (members' clubs supporters' trusts), a first formal analysis of fan welfare maximization as a club objective in a sports league is provided, with comparisons to objectives studied previously (profit and win maximization). Positive comparisons focus on team qualities, ticket prices, attendances and the impact of capacity crowds; empirically observed ticket black markets and inelastic pricing are consistent only with fan welfare maximization. Normatively, social welfare (aggregate league surplus) is well-served by a league of fan welfare maximizers, or sometimes win maximizers, but not profit maximizers; leagues should not normally make profits.     

Bilateral Agreements in a MultiFirm Industry: Technology Transfer and Horizontal Merger

The paper studies the profitability of technology transfer and horizontal merger between two asymmetric firms in a multifirm Cournot oligopoly. If there is only one technologically advanced firm and one or many technologically backward firm(s), a profitable technology deal between two asymmetric firms exists if and only if the collaborating firms are "close" in terms of their initial technology levels. With more than one advanced firm such a technology deal is "always" profitable. Contrary to that, a profitable bilateral horizontal merger occurs if and only if the gap of technologies between the two partners is larger than a critical level. The paper also studies the relative profitability of these two bilateral arrangements.     

On the optimality of the full-cost pricing

This article is aimed at defining the full-cost pricing as a leader-follower game in two-tier organizations: (i) the upstream unit fixes the production capacity and uses it as a cost driver to compute the average cost; (ii) the downstream unit operates on the market and chooses the output level on the basis of the average cost. In the Cournot oligopoly case, the full-cost pricing is compared with other pricing rules. There exists a wide range of values of the fixed cost, for which the full-cost pricing dominates any other pricing rules, in terms of gross profit.     

Do consumers benefit from quantity discounts?

A monopoly selling to identical consumers gains at their expense if non-linear pricing is permitted. In contrast, under duopoly non-linear pricing may benefit consumers and lower equilibrium profit.     

Public Stackelberg Leadership in a Mixed Oligopoly with Foreign Firms

This is the first paper to consider a mixed oligopoly in which a public Stackelberg leader competes with both domestic and foreign private firms. The welfare maximising leader is shown to always produce less than under previous Cournot conjectures. Introducing leadership also alters previous public pricing rules resulting in prices that may be either greater than or less than marginal cost depending on the relative number of domestic firms. Furthermore, entry of a foreign firm will increase welfare only when the relative number of domestic firms is small, but that share is shown to be larger than has been indicated without leadership. Unlike previous models, the influence on public profit of a foreign acquisition is ambiguous and is related to the relative number of domestic firms. Finally, the consequences of privatisation are shown, for the first time, to depend on the relative number of domestic firms.     

The optimality of a control band policy

Consider a firm with an arbitrary profit function whose relative price follows a Brownian motion with negative drift. When the firm faces a fixed cost of price adjustment, we prove the optimal pricing policy is a control band if the following sufficient conditions are met: the profit function is continuous, strictly concave and single-peaked; moreover, together with its first and second derivatives, it is bounded in absolute value by a polynomial. We also demonstrate various ways of constructing the value function associated with the control band policy and show it has certain properties carried over from the profit function. Numerical examples are found to be consistent with empirical estimates regarding the frequency of price adjustments.     

The Broadband Access Market: Competition,Uniform Pricing and Geographical Coverage

In this paper we analyze the market for broadband access. A key feature of this market is that it is considerably more expensive to connect consumers in rural locations than in urban locations. We show that while competition increases welfare compared to monopoly when prices are free to differ across locations, the opposite may be true if there is a requirement of uniform pricing across locations. Furthermore, we show that given uniform pricing, the regulator may increase consumer surplus as well as profit by requiring a higher regional coverage than the market outcome.     

Loss-leader pricing and upgrades

A new theory of loss-leader pricing is provided in which firms advertise low (below cost) prices for certain goods to signal that their other unadvertised (substitute) goods are not priced too high. The theory is applied to the pricing of upgrades. The results contrast with most existing loss-leader theories in that firms make a loss on some consumers (who buy the basic version of the good) and a profit on others (who buy the upgrade).     

Political Entrepreneurship and the Democratic Allocation of Economic Resources

Political entrepreneurship occurs when an individual acts on a political profit opportunity. These profit opportunities can be divided into two categories: productive, and predatory. Productive opportunities enable entrepreneurs to profit from enhancing the efficiency of government, while predatory opportunities enable entrepreneurs to profit from forcibly transferring resources from some to others. This analysis shows that political institutions tend to favor predatory over productive political entrepreneurship, and shows that what is sometimes referred to as political exchange does not have the same efficiency characteristics as voluntary exchange in private markets.     

What are cost changes for produce implementing traceability systems in China? Evidence from enterprise A

Based on the survey data and information, this paper conducts analysis on the extra cost of traceability systems for agro-product enterprises in China. Calculation on concrete pricing of traceable products is conducted with Enterprise A as an example by using break-even pricing. The price that consumers are willing to pay for 10 traceable products in Enterprise A was measured by collecting 576 valid questionnaires in three cities in China. The benefit–cost ratio, contribution margin ration and profit growth rate are figured before and after implementing the traceability system to illustrate if Enterprise A is profitable after implementing the traceability system. The results show that extra cost incurred by the traceability system of Enterprise A is not high in China; it is not the main reason for the high price of traceable products. Enterprise A increases its operating efficiency and profit growth rate after implementing the traceability system. The pricing of traceable product should consider target consumers’ willingness to pay rather than setting prices blindingly. Government support and education to consumers are important to promote the construction of traceability system at the early stage of establishment of traceability system in China.