An Asymmetric Oligopolist can Improve Welfare by Raising Price

We demonstrate that, in Bertrand/Cournot equilibrium, a firm with a relatively small market share may improve social welfare by raising its price. This could be because the price increase can mitigate an output-structure distortion: if there are two goods which have the same marginal cost, then, under some conditions, the good in higher demand (the efficient good) will have a higher markup rate than the other good (the inefficient good). This suggests that the output structure is distorted in favor of the inefficient good, since the higher markup rate of the efficient good should lead to a considerable increase in demand for the inefficient good.     

Manipulation Through Biased Product Reviews*

We study a signal-jamming model of product review manipulation in which rational consumers consult product reviews and price to better estimate a product's quality, and a firm, whose quality is either high or low, chooses its price and how much bias to insert into product reviews. We show that both firm types always exert positive effort to manipulate product reviews, and, depending on the equilibrium price level, one or both of them can increase its sales. When the high-type firm exerts more effort than the low-type, review manipulation benefits consumers by raising [lowering] their demand for the high-quality [low-quality] product.     

Endogenous Average Cost Based Access Pricing

We analyze an endogenous average cost based access pricing rule, where both the regulated firm and its rivals realize the interdependence among their outputs and the regulated access price. In contrast, the existing literature on access pricing has always assumed that the access price is exogenously fixed ex-ante. We show that endogenous access pricing neutralizes the artificial cost advantage that is enjoyed by the incumbent firm. Further, endogenous access pricing results in a consumer surplus that is equal to or higher than that under exogenous access pricing. If the entrant is more efficient than the incumbent, then the welfare under endogenous access pricing is higher than that under exogenous access pricing.     

A Search Model Where Consumers Choose Quantity Based on Expected Price

I describe a price game in which consumers face search costs and base their quantity decision on the expected price. Because of search costs, the choice of the firm they will buy from is described by a random process. I show that the expected equilibrium price is above the monopoly price. This result does not change if demand comes from a small share of perfectly informed consumers with zero search costs.     

How to Launch a New Durable Good: A Signaling Rationale for Hunger Marketing

We study the increasingly popular “hunger marketing” strategy (the combination of an artificially low price and a supply limit) adopted by many high-tech startups to launch their products. In a two-period model, a firm offers an artificially low introductory price and also imposes a limit on the quantity available for sale in the first period, which leads to a shortage in the equilibrium. We show that when effective word of mouth is present, such a strategy allows a firm to credibly convince the market of the premium quality of its product. We demonstrate that word of mouth plays a critical role in catalyzing the signaling mechanism. When word of mouth becomes more efficient, e.g., enabled by social media, shortage is larger in the equilibrium, and the introductory price falls further. Our study provides a rationale for hunger marketing.     

Experimenting to Learn about Demand in Duopoly with Forward‐Looking Consumers

Using a two‐period model, I show that competition between two symmetric duopolists trying to learn about unknown features of demand results in an informationally suboptimal process. Because a firm’s marginal return to price experimentation equals zero if the rival’s price is matched in the first period, myopic symmetric pricing arises in equilibrium even though a firm’s expected second‐period profit attains a local minimum. Furthermore, forward‐looking consumers suffer from ratcheting because their first‐period purchase decisions partly reveal their preferences, which exacerbates the informational suboptimality of the firms’ experimentation process without affecting their pricing. The role of firm asymmetries is also analyzed.     

Pricing in revenue management for multiple firms competing for customers

We consider the pricing strategies of multiple firms providing the same service in competition for a common pool of customers in a revenue management context. The firms have finite capacity and the demand at each firm depends on the selling prices charged by all firms, each of which satisfies demand up to a given capacity limit. We use game theory to analyze the systems when firms face either a deterministic demand or a general stochastic demand. The existence and uniqueness conditions of a Nash equilibrium are derived, and we calculate the explicit Nash equilibrium point when the demand at each firm is a linear function of price. We also conduct sensitivity analysis of the equilibrium prices with respect to cost and capacity parameters.     

Risk sharing in procurement

We introduce bilateral risk aversion into the mixed adverse selection - moral hazard model of Laffont and Tirole (1986). The presence of exogenous risk interacts with the adverse selection problem in interesting ways. In particular, we show that it is never optimal to present the firm with a fixed price contract, that the efficient firm typically bears more risk than the inefficient firm, and that an increase in exogenous risk may bring about a decrease in expected cost of the project. As a by-product, we also establish that the famous ‘no-distortion-on-the top’ result in adverse selection models relies on risk neutrality of the agent.     

Exclusionary Pricing When Scale Matters

We consider an incumbent firm and a more efficient entrant, both offering a network good to several asymmetric buyers, and both being able to price discriminate. The good has positive value to buyers only if the network size exceeds a certain threshold. The incumbent's installed base guarantees this critical size to the incumbent, while the entrant needs to attract enough ‘new’ buyers to meet this threshold. We show that price discrimination (in the various forms it may take) reduces the set of achievable socially efficient entry equilibria, and discuss the policy implications of this result.     

Pricing policies of multinational enterprises : Host country regulation and welfare

This paper examines host country price-regulation policies towards a foreign subsidiary. The analysis considers two prices, namely the transfer prices charged to the subsidiary, and the market price of the subsidiary's products. It is shown that host countries should regulate both of these prices. Regulation of the transfer price alone may induce an increase in the subsidiary's market price and cause a loss of host country welfare. Regulation of both prices is more efficient for it enables the host country to attain a higher level of welfare and allows the foreign firm to earn the same level of profits as would regulation of only one of those prices.     

厂商市场份额的品牌经济模型及其现实解释

厂商的市场份额决定了其利润率,从而决定了厂商能否在残酷的竞争中生存、增长与发展。而在经济过剩的条件下,消费者的选择决定了厂商的市场份额,货币价格与品牌及品牌信用度决定的选择成本作为消费者选择和购买过程中的局限条件制约和影响着消费者的选择与购买。本文建立起引入品类需求强度系数、价格、选择成本的需求函数,并以此模型解释了厂商市场份额的决定是通过价格机制与品牌机制共同作用而实现的。在理论分析的基础上,对大量的现实进行了解释,在验证该模型的同时,对未来市场竞争及厂商市场份额做出了预测。同时,本文提出了提高厂商市场份额与定价权的＂品类需求强度—品牌信用度＂二维模型,并分别从开发具有较高品类需求强度的品类市场和提高品牌信用度的品牌建设方面给现实中的厂商提供了相应策略。     

Are Losers Picked? An Empirical Analysis of Capacity Divestment and Production Reallocation in the Japanese Cement Industry

As demand in an industry shrinks, pressure for the reduction of capacity arises. A key issue is whether plants which, from an efficiency perspective, should reduce output in fact do so. Focusing on the Japanese cement industry, we examine whether less efficient plants reduce capacity. We find that less efficient firms are not more likely to reduce capacity than more efficient firms; however, less efficient plants within a multi‐plant firm are more likely to reduce capacity than more efficient plants. In addition, we find that this divestment pattern has led to a substantial drop in industry‐wide allocative efficiency.     

Investment under Demand Uncertainty,Ex-Ante Pricing,and Oligopoly

This paper considers the capacity choice of duopolists who set price ex-ante under demand uncertainty with risk-neutrality. The duopolists compete for market shares on the basis of availability of supply, rather than by price competition. Collusive pricing coexists with Cournot–Nash capacity choice. A formal model is presented, where the market share of each firm may deviate from the certainty share due to rationing. With shares reflecting different costs, capacity utilisation for the lower cost firm is expected to be substantially lower. The implications for the price-cost margin and capacity formation are also explored.     

The Dominant Firm Model Revisited

This paper extends the standard Forchheimer dominant firm model by making more explicit shifts in the fringe supply when the market price set the dominant firm deviate from its limit price. It demonstrated how, when a dominant firm engages in short-run profit maximization, the market price it sets in the long run will equal its limit price and that, in certain situations, increased production cost for fringe lead to an increase in the number of fringe firms in the long run.     

Prominence,complexity, and pricing

This paper analyzes prominence in a homogeneous product market where two firms simultaneously choose both prices and price complexity levels. Market-wide complexity results in consumer confusion. Confused consumers are more likely to buy from the prominent firm. In equilibrium, there is dispersion in both prices and price complexity. The nature of equilibrium depends on prominence. Compared to its rival, the prominent firm makes higher profit, associates a smaller price range with lowest complexity, puts lower probability on lowest complexity, and sets a higher average price. However, higher prominence may benefit consumers and, conditional on choosing lowest complexity, the prominent firm’s average price is lower, which is consistent with confused consumers’ bias.     

Efficient versus Responsive Supply Chain Choice: An Empirical Examination of Influential Factors

Contemporary strategies in operations management suggest that successful firms align supply chain assets with product demand characteristics in order to exploit the profit potential of product lines fully. However, observation suggests that supply chain assets often are longer lived than product line decisions. This suggests that alignment between supply chain assets and demand characteristics is most likely to occur at the time of initial market entry. This article examines the association between product demand characteristics and the initial investment in a supply chain at the time of market entry. We characterize supply chains as responsive or efficient. A responsive supply chain is distinguished by short production lead‐times, low set‐up costs, and small batch sizes that allow the responsive firm to adapt quickly to market demand, but often at a higher unit cost. An efficient supply chain is distinguished by longer production lead‐times, high set‐up costs, and larger batch sizes that allow the efficient firm to produce at a low unit cost, but often at the expense of market responsiveness. We hypothesize that a firm's choice of responsive supply chain will be associated with lower industry growth rates, higher contribution margins, higher product variety, and higher demand or technological uncertainty. We further hypothesize that interactions among these variables either can reinforce or can temper the main effects. We report that lower industry growth rates are associated with responsive market entry, but this effect is offset if growth occurs during periods of high variety and high demand uncertainty. We report that higher contribution margins are associated with responsive market entry and that this effect is more pronounced when occurring with periods of high variety. Finally, we report that responsive market entry also is correlated positively with higher technological demand uncertainty. These results are found using data from the North American mountain bike industry.     

Collusion and leadership

The paper explores the role of price or quantity leadership in facilitating collusion. It extends the standard analysis of tacit collusion by allowing firms to make their strategic choices either simultaneously or sequentially. It is shown that price leadership indeed facilitates collusion by making it easier to punish deviations by the leader. In case of pure Bertrand competition, price leadership restores the scope for (perfect) collusion in markets where collusion would not be sustainable otherwise. When firms face asymmetric costs or offer differentiated products, price leadership can also enhance the profitability of collusion—in case of asymmetric costs, the less efficient firm must act as the leader. Finally, such leadership is less effective in case of Cournot competition since, following an aggressive deviation by the leader, the follower would rather limit its own output, making it more difficult to punish the deviation. Still, quantity leadership may enhance collusion when it is already somewhat effective in a simultaneous move setting.     

INPUT PRICE DISCRIMINATION WHEN BUYERS OPERATE IN MULTIPLE MARKETS*

This paper revisits third‐degree price discrimination when input buyers serve multiple product markets. Such circumstances are prevalent since buyers often use the same input to produce different outputs, and even homogenous outputs are routinely sold through different locations. The typical view is that price discrimination stifles efficiency (and welfare) by resulting in price concessions to less efficient firms. When buyers serve multiple markets, price discrimination leads to price breaks for firms in markets with lower demand. When lower demand markets also have less competition, price discrimination can provide welfare gains by shifting output to less competitive markets.     

Sequential price and quantity decisions under supply and demand risks

Firms need to deal with not only risks from stochastic demand but also risks from supply side. The supply side risk may be due to parts/service outsourcing, third party logistics, or random yield in production processes. In this paper, we study how firms sequentially make price and quantity decisions under these two risks. The first question we try to answer is how these two risks affect the decisions and profits of the firm. We find that increased supply risk usually causes increased quantity/stocking decision, however, there exists a threshold level of supply risk above which the firm reduces quantity/stocking amount as supply risk increases. This observation may be used in a supply chain setting, where reduction of the supply risk can cause higher delivered quantity and improve supply chain performance. This observation also provides support and insights on prioritizing the risk reduction efforts from marketing and operations to achieve better coordination. At the same time, reduction of the risks help not only firms but also consumers as the optimal price decreases. To further improve decision making process under both uncertainties, we study the impact from information revelation and postponement of decisions. We compare results from different sequential decision making cases. As illustrated in the paper, firms gain competing advantage when decision postponement is available and this advantage becomes further significant as the risks increase. Our numerical examples also indicate that price postponement strategy is usually preferred but the relative profit difference between price postponement and quantity postponement become smaller as consumers become more sensitive to the price.     

A sufficient statistics approach for welfare analysis of oligopolistic third‐degree price discrimination

This paper proposes a sufficient statistics approach to studying the welfare effects of third-degree price discrimination in differentiated oligopoly. Specifically, our sufficient conditions for price discrimination to increase or decrease social welfare simply entail a cross-market comparison of multiplications of such sufficient statistics as pass-through, conduct, and profit margin that are functions of first-order and second-order elasticities of the firm’s demand. Notably, these results are derived under a general class of market demand, and can be readily extended to accommodate heterogeneous firms. These features suggest that our approach has potential for conducting welfare analysis without a full specification of an oligopoly model.