Quality and Quantity Competition in a Multiproduct Duopoly

This article proposes a Cournot model of two‐stage competition to examine the patterns of vertical product differentiation in a multiproduct duopoly. Firms simultaneously choose the number of products and their qualities at the first stage and compete in quantities at the second stage. We show that when the fixed setup cost of a product is high enough to result in a monopoly outcome, the monopolist always sells a single product. Moreover, in any equilibrium of a multiproduct duopoly, quality differentiation between them will develop into a nonsegmented pattern because each firm desires to avoid a strong effect of cannibalization. The set of equilibria reveals the properties of quality differentiation between multiproduct firms. In a multiproduct duopoly, the profit from a high‐quality product can be lower than that from a low‐quality product. This finding sharply contrasts with the literature on single‐product firms, which finds the high‐quality advantage.     

Price‐Match Announcements in a Consumer Search Duopoly

Using a model of sequential search, we show that announcements to price‐match raise prices by altering consumer search behavior. First, price‐matching diminishes firms’ incentives to lower prices to attract consumers who have no search costs. Second, for consumers with positive search costs, price‐matching lowers the marginal benefit of search, inducing them to accept higher prices. Finally, price‐matching can lead to asymmetric equilibria where one firm runs fewer sales and both firms tend to offer smaller discounts than in a symmetric equilibrium. Price increases grow in the proportion of consumers who invoke price‐matching guarantees and in the level of equilibrium asymmetry.     

The All‐Pay Auction with Nonmonotonic Payoff

I model innovation contests as an all‐pay auction in which it is possible not to achieve successful innovation despite costly R&D investments, and as a result, there is no winner. In such a case, the winning payoff turns out to be nonmonotonic in own bid. I derive the sufficient conditions for the existence of pure strategy equilibria, and fully characterize the nondegenerate mixed strategy equilibrium. In the mixed strategy equilibrium, the support of the low‐value bidder is not continuous, and both the high‐value and the low‐value bidders place an atom in the (distinct) lower bound of their respective support. Under symmetric valuation, both bidders place an atom at zero. These results can explain why one does not observe very low quality innovation in real life, or why even symmetric firms may stay out of an innovation contest.     

Two-Part Pricing with Costly Arbitrage

This paper considers the optimal two-part pricing strategy of a monopolist whose customers collude when they purchase the firm's product. In contrast to the sentiment in the existing price discrimination literature, I find that a monopolist's profit can actually increase when consumers share its good. When transaction costs for collusion are zero the firm can extract the full consumer surplus through two-part prices. When transaction costs are positive or there are a substantial number of consumers without access to resale, the firm may be hurt by arbitrage.     

Ethics,Welfare, and Markets: An Economic Analysis

The present article examines society's welfare when goods with identical physical attributes can be produced using two alternative technologies, one of them less ethically desirable but less expensive for at least some producers. For the scenario where identification costs must be borne by producers and consumers of the high‐quality good, the outcome under unregulated markets is identical to the optimal solution of a central planner constrained to neither ban the undesirable technology nor segregate the low‐quality good. However, under certain circumstances the unregulated market equilibrium may be improved upon by government intervention that shifts the burden of identification costs to the producers of the low‐quality good, or which bans the production of the low‐quality good. The optimal intervention needs to be determined case‐by‐case and depends on consumer preferences, relative production costs, and relative costs of identification and fraud prevention.     

Shipping the Good Horses Out

The 1964 effect states that when a fixed per‐unit cost is added to two substitutes, the more expensive (higher quality) one becomes relatively cheaper, and, thus, its consumption will increase. When applied to trade in vertically‐differentiated goods, the importing regions demand relatively more high‐quality goods. We examine how this result changes when the importing region is also endowed with the goods. We use a vertically‐differentiated goods model with heterogeneous consumers in which prices are endogenously determined. We show that the importing regions with an endowment have a stronger Alchian‐Allen effect than the regions that are not endowed. We use the auction data of Australian thoroughbred yearlings to empirically test our model and find consistent empirical patterns.     

External Shocks and High Volatility in Consumption in Low‐Income Countries

According to the well‐known concept of consumption smoothing, the volatility of consumption is low even when income is volatile; this is confirmed by data from G7 countries. Surprisingly, however, consumption volatility in many low‐income countries is nontrivially higher than income volatility. Here I examine what causes high consumption volatility in low‐income countries. In general, volatile consumption makes consumers worse off. Therefore, understanding the causes of high consumption volatility can contribute to improving welfare in low‐income countries by suggesting measures to assist in the stabilization of consumption. Unlike much previous research, I focus on international factors when explaining high consumption volatility. The results suggest that external shocks, which are far more volatile in low‐income countries than in industrialized countries, strongly swing consumption. By capturing these mechanisms, the model I use successfully accounts for consumption volatility's differences between the sample low‐income country and sample industrialized country.     

The Discriminating Beta: Prices and Capacity with Correlated Demands

Uniform customer‐class pricing can do much of the work of congestion‐based or time‐of‐day pricing in communication or wireless networks. A monopolist exploits differences in the stochastic characteristics of demands. If demands are correlated and the firm faces a capacity constraint, then it can set prices to reduce the variability of aggregate demand, thereby reducing the probability of excess demand and the associated service quality deterioration. Demands that covary negatively with aggregate demand are valuable to the firm in much the same way that securities that covary negatively with the market are valuable in a stock portfolio. Customer classes that exhibit low covariance with aggregate demand realize lower optimal prices. Optimal capacity is also affected by these covariances. As long as demands are not perfectly positively correlated, expected costs of joint production are less than expected costs of serving demands separately.     

Complements Integration and Foreclosure: The Case of Joint Consumption

In some cases, complementary products are sold to different sets of agents to aid in transactions between them. In the context of a simplified model, this article shows that a monopolist has an incentive to integrate into and foreclose other sellers of a complementary product used in fixed proportions with the monopolized product, but which is sold to different consumers. While these latter consumers are made worse off by integration and leverage, output is expanded and the monopolist's original consumers are made better off. The effect of integration and leverage on overall welfare is uncertain. I illustrate this model with an example involving trucking fleet cards (sold to trucking companies) and fuel desk point-of-sale systems (sold to truck stops) that are used in conjunction when diesel fuel is purchased.     

How Large Looms the Ghost of the Past? State Dependence versus Heterogeneity in Coordination Games

In games with multiple, Pareto‐rankable equilibria and repeated play, does a history of playing an inefficient equilibrium make it harder for players to reach the efficient equilibrium? In other words, can people “get stuck” in bad equilibria? Previous studies have found support for this, but they have relied on naturally occurring variation in precedent. I implement randomized control to establish that precedent effects are important, but that naturally occurring variation exaggerates the importance of precedent. I present evidence that some of the endogeneity of naturally occurring precedents is due to variation in risk attitudes. This is because in the coordination games used, the inefficient equilibrium is associated with a safe strategy. Understanding the causal effect of precedent is important since many development problems are viewed as coordination games. Moreover, an appreciation of the way in which potential heterogeneity may interact with the policy is essential when trying to lift groups out of bad precedents.     

The Max‐Min Group Contest: Weakest‐link (Group) All‐Pay Auction

We investigate a group all‐pay auction in which each group's effort is represented by the minimum among the effort levels exerted by the group members and the prize is a group‐specific public good. We fully characterize the symmetric equilibria for two groups. There are four types of equilibria: the pure strategy equilibria in which all (active) players exert the same effort; the semi‐pure strategy equilibria in which the players in a group play the same pure strategy whereas those in the other group play the same mixed strategy; the nondegenerate mixed strategy equilibria with continuous support; and the nondegenerate mixed strategy equilibria with discontinuous support. We then analyze a general contest with n groups.     

Stopping on Nine: Evidence of Heuristic Managerial Decision‐Making in Major League Baseball Pitcher Substitutions

Economic agents who exhibit left digit bias over‐emphasize round numbers. Using data on managers' pitcher substitution decisions in Major League Baseball, I find that managers remove starting pitchers more often when the next pitch will result in a pitch count ending in zero. Unlike counts ending in nine, pitch counts ending in eight do not exhibit higher substitution rates despite the fact that pitchers usually throw multiple pitches before the manager's next decision opportunity. Managers apparently use rules‐of‐thumb that emphasize leftmost digits and ignore at least some future consequences of present actions. However, these significant biases disappear when the stakes are high. I find no evidence of disproportionate substitutions on the nine's in close games, and the final digit of the pitch count does not discontinuously affect the probability of winning. Managers act in a manner consistent with rational inattention, using heuristics only when the stakes are low.     

A Portion of Profits to Charity: Corporate Social Responsibility and Firm Profitability

I develop a model in which a firm can choose to donate a portion of its profits to the provision of a public good. Consumers value this public good and are willing to pay a price premium to a firm which makes such a donation. When this price premium is sufficiently large, the firm can raise its net profits by pledging a portion of those profits to provision of the public good. This is more likely when the consumer's marginal valuation of contributions to the public good is high and when the firm (in the absence of donations) has a high ratio of fixed costs to operating profits. I also identify circumstances under which corporate social responsibility makes consumers worse off.     

Brand familiarity and product knowledge in customization

I adopt Hotelling's model with two firms. Each consumer has a most preferred variety and possesses a certain level of category‐specific knowledge. When a firm offers customization, consumers must interact with the firm to create their products. Consumers familiar with the brand can do this seamlessly, whereas consumers unfamiliar with the brand have difficulty expressing their individual needs (the difficulty decreases with consumers' knowledge). The firms first simultaneously decide whether to customize, then engage in price competition. Although customization makes the products less differentiated, the frictions caused by consumer co‐design activities relax price competition. Customization by one of the firms occurs in equilibrium.     

Regulating the Anticommons: Insights from Public‐Expenditure Theory

This article offers a new interpretation of the traditional Cournot complements problem, or anticommons, by using the theory of public goods to gain a perspective on the problem. Specifically, I examine the pricing strategies and regulation of multiple monopolies that produce products which consumers view as perfect complements. I show that collusion by the firms increases total social welfare and that the collusion problem can be reinterpreted as a problem of provision of public goods from the point of view of the firms. I take this insight further and derive the familiar concepts of the Samuelson marginal condition and the ratio equilibrium for the firms. I compare these outcomes to the first best solution and then apply incentive‐compatible mechanisms to strategically implement the Pareto superior ratio‐equilibrium outcome and the optimal marginal‐cost pricing outcome. Finally, I show how this methodology can be applied to the more familiar Cournot model of oligopoly.     

Dynamic consistency and monopoly

A wide variety of papers study the time consistency issues and commitment problems associated with imperfectly competitive durable goods manufacturers who sell their output. Using a simple two-period model the authors show that this sort of commitment problem may occur even if the monopolist produces non-durable output. The model assumes consumers maximize their utility through the choice of a non-durable consumption good and saving through an asset that provides future returns and consumption flow. The analysis indicates that non-durable goods manufacturers with market power will wish to announce future prices that are sub-optimal (dynamically inconsistent) when the period is reached due to the impact on consumers' wealth constraint and current purchasing behavior. Thus, the so-called durable-goods monopoly commitment problem may also occur in non-durable goods industries. The model suggests that any type of intertemporal linkage may lead to time consistency and commitment problems for imperfectly competitive firms.     

Strategic R&D investment,competitive toughness and growth

We show, within a single industry, the possibility that R&D‐investment is non‐monotonically related to competitive toughness: increasing when competition is soft and decreasing when competition is tough. This possibility results from the combination of a Schumpeterian markup squeezing effect discouraging innovation, and a concentration effect spurring innovators. It is obtained in a sectoral model where the number of innovators is random and where non‐successful investors may remain productive. The result is extended to a multisectoral stochastic endogenous growth model with overlapping generations of consumers and firms, the number of which is endogenously determined in the capital market.     

All entrepreneurial productivity increases are not created equal

We examine the impact of productivity increases in a setting where wealth‐constrained entrepreneurs are privately informed about whether their project will succeed with high (p_H) or low (p_L) probability. Not surprisingly, many productivity increases (e.g., an increase in p_H) generate gains for entrepreneurs and/or venture capitalists. However, some productivity increases (e.g., an increase in p_L) can generate widespread losses. Furthermore, entrepreneurs with low‐productivity projects can benefit more from policies that increase the productivity of high‐quality projects than from policies that increase their own productivity. Therefore, the design of policy to enhance welfare in the entrepreneurial sector can entail important subtleties.     

在线评价发布网站对消费者购买意愿影响的实证研究

随着互联网对人们生活的渗透,在线评价作为消费者选择评估的依据,对购买决策产生重要影响。正面评价对企业销量产生直接影响,部分商家通过贿赂、威胁等手段强迫消费者给予正面评价,因此,中立态度的第三方点评网站尤为重要。但第三方点评网站并不是十全十美,由于其用户发布评价不存在限制,因此也存在一些非中立信息。围绕在线评价可信度与消费者购买意愿的影响因素,主要考察了网站类型对这两方面的影响因素进行探讨,其次考察了评价质量对它们的影响,进一步考察了不同性别消费者的差别。采用实验法进行研究,通过对自变量(网站类型及评价质量)不同水平的操控,设置了四种实验情景,分别是第三方点评网站与高质量评价的组合、第三方点评网站与低质量评价组合、销售网站与高质量评价组合、销售网站与低质量评价组合。利用双因子方差分析、事后检验对假设以及研究问题进行检验和考察。文章最后归纳了对理论的贡献,并根据研究结论提出第三方点评网站未来发展建议及企业营销启示。     

A few bad apples: Communication in the presence of strategic ideologues

I propose a very simple model of strategic communication. The motivation is to help explain widespread persistent disagreement about objective facts. In the model, there is a message sender and a receiver, and two possible states of the world, left or right. The sender is one of three types: honest, or a leftist or rightist “ideologue.” The honest type observes a private signal in , with higher values implying stronger support for the right state, and reports the observed value truthfully. Ideologues strategically choose any message from this set to maximize the receiver's belief in their preferred state, ignoring any private information they may have. I show that a small presence of ideologues can have a large effect on communication: while we might expect ideologues to just send extreme messages, in most equilibria ideologues use “strategic understatement,” and in many cases actually mix over all non‐neutral (non‐N∕2) messages to mimic honest types and gain credibility. This distorts the interpretation of these messages such that all messages on a side of the spectrum (above or below N∕2) have the same effect on receiver beliefs. This coarsened communication is less informative than even the weakest non‐neutral messages in the absence of ideologues. I show by example how ideologues can cause large delays in the time required for receiver beliefs to converge to truth.