R&D in a strategic delegation game

This paper studies how a separation of ownership and management affects firms' R&D and production decisions in Cournot quantity competition. It is found that when R&D spillovers are small, owners strategically direct their managers away from profit maximization towards sales. Consequently, managerial firms invest more in R&D and have higher output and lower prices compared to their entrepreneurial counterparts. On the other hand, when spillovers are large, owners ‘penalize’ managers for sales. In this case, managerial firms have lower R&D, lower output and higher prices. Nonetheless, managerial firms have lower profits than their entrepreneurial counterparts regardless of spillovers. This paper also examines the welfare effects of a separation of ownership and management. It is found that in terms of first-best social welfare, managerial firms are more (less) efficient than their entrepreneurial counterparts with low (high) spillovers. However, in terms of second-best social welfare, managerial firms are less efficient with all spillovers. © 1997 John Wiley & Sons, Ltd.     

ECONOMIC WELFARE ANALYSIS OF THE LEGALIZATION OF DRUGS: A CGE MICROSIMULATION MODEL FOR COLOMBIA

In this paper, a computable general equilibrium (CGE) microsimulation model is used to analyze the effects of an ex ante legalization of drugs on the Colombian economy. The model consists of 11 productive sectors, 3 different labor force categories with unemployment, and 20 households divided by income and location. Changes in wages and migration are estimated using a labor participation model, and a NIDS estimates the demands of the households. Changes in household economic welfare, measured by changes in income and prices (CV and EV measurements), are very sensitive to the reinvestments that the government makes in the economy. By analyzing six different scenarios with different assumptions about changes in drug prices, investments of the government, and the termination of the armed conflict, the results suggest that economic welfare improves when the government reinvests military expenditures in other productive sectors or when the ‘economy of war’ continues and the legalization does not end the armed conflict.     

Consumer Stockpiling and Price Competition in Differentiated Markets

In many storable-goods markets, firms are often aware that consumers may strategically adjust purchase timing in response to expected price dynamics. For example, in periods when prices are low, consumers stockpile for future consumption. This paper investigates the dynamic impact of consumer stockpiling on competing firms' strategic pricing decisions in differentiated markets. The necessity of equilibrium consumer storage for storable products is re-examined. It is shown that preference heterogeneity generates differential consumer stockpiling propensity, thereby intensifying future price competition. As a result, consumer storage may not necessarily arise as an equilibrium outcome. Economic forces are also investigated that may mitigate the competition-intensifying effect of consumer inventories and that, hence, may lead to equilibrium consumer storage.     

Multi-store competition: Market segmentation or interlacing?

This paper develops a model for multi-store competition between firms. Using the fact that different firms have different outlets and produce horizontally differentiated goods, we obtain a pure strategy equilibrium where firms choose a different location for each outlet and firms' locations are interlaced. The location decisions of multi-store firms are completely independent of each other. Firms choose locations that minimize transportation costs of consumers. Moreover, generically, the subgame perfect equilibrium is unique and when the firms have an equal number of outlets, prices are independent of the number of outlets.     

Equilibrium Principal‐Agent Contracts: Competition and R&D Incentives

We analyze competition between firms engaged in R&D activities and market competition to study the choice of the incentive contracts for managers with hidden productivity. Oligopolistic screening requires extra effort/investment from the most productive managers: under additional assumptions on the hazard rate of the distribution of types we obtain no distortion in the middle rather than at the top. The equilibrium contracts are characterized by effort differentials between (any) two types always increasing with the number of firms, suggesting a positive relation between competition and high‐powered incentives. An inverted U curve between competition and absolute investments can emerge for the most productive managers.     

Unicity of the equilibrium in the unconstrained Hotelling model

A spatial duopoly is described, where firms are free to locate along the real axis, while consumers are distributed along a linear city of finite length. By adding a preplay stage where firms are required to set the timing of moves, one can analyze issues such as the endogenous choice of roles and the nature of differentiation at equilibrium. The distribution of roles is discussed both at the location stage and at the price stage. The game exhibits a unique subgame perfect equilibrium in pure strategies (up to a permutation), where firms play simultaneously in locations and sequentially in prices. Moreover, the results highlight the relevance of endogenous differentiation in altering some of the conclusions reached by previous literature. Finally, it turns out that the nature of differentiation may be heavily affected by the sequence of decisions.     

Price Discrimination in Two‐Sided Markets

We examine the profitability and welfare implications of targeted price discrimination (PD) in two‐sided markets. First, we show that equilibrium discriminatory prices exhibit novel features relative to discriminatory prices in one‐sided models and uniform prices in two‐sided models. Second, we compare the profitability of perfect PD, relative to uniform prices in a two‐sided market. The conventional wisdom from one‐sided horizontally differentiated markets is that PD hurts the firms and benefits consumers, prisoners' dilemma. We show that PD, in a two‐sided market, may actually soften the competition. Our results suggest that the conventional advice that PD is good for competition based on one‐sided markets may not carry over to two‐sided markets.     

Hassle Costs: The Achilles' Heel of Price-Matching Guarantees*

We show that price-matching guarantees can facilitate monopoly pricing only if firms automatically match prices. If consumers must instead request refunds (thereby incurring hassle costs), we find that any increase in equilibrium prices due to firms' price-matching policies will be small; often, no price increase can be supported. In symmetric markets price-matching guarantees cannot support any rise in prices, even if hassle costs are arbitrarily small In asymmetric markets, higher prices can be supported, but the prices fall well short of maximizing joint profits. Our model can explain why some firms adopt price-matching guarantees while others do not.     

Can we identify Walrasian allocations?

Abstract. We consider a discrete time, pure exchange infinite horizon economy with consumers and consumption goods per period. Within the framework of decentralized mechanisms, we show that for any given consumption trade at any period of time, say at time one, the consumers will need in general an infinite dimensional (informational) space to identify such a trade as an intertemporal Walrasian one. However, we show a set of environments where the Walrasian trades at each period of time can be achieved as the equilibrium trades of a sequence of decentralized competitive mechanisms, using only both current prices and quantities to coordinate decisions. Received: 1 December 1999 / Accepted: 31 October 2000     

房地产商与购房者的博弈分析

房价是一个关系社会民生的问题,而作为市场经济中的一部分,房地产商与消费者之间进行的是买卖交易,从而存在双方买卖博弈。从2007年至今的房价下调,是在政府干预下的房地产商与消费者的博弈结果。在继续对峙的时期,房地产商与购房者各自该如何决策,怎样达到双赢及社会福利的最大化,文中采用买卖博弈,找出纳什均衡策略。     

Dynamic Competition with Experience Goods

This paper considers dynamic competition in the case in which consumers are only able to learn about their preferences for a certain product after experiencing it. After trying a product a consumer has more information about that product than about untried products. When competing in such a market firms with more sales in the past have an informational advantage because more consumers know their products. If products provide a better-than-expected fit with greater likelihood, taking advantage of that informational advantage may lead to an informational disadvantage in the future. This paper considers this competition with an infinite horizon model in a duopoly market with overlapping generations of consumers. Two effects are identified: On one hand marginal forward-looking consumers realize that by purchasing a product in the current period will be charged a higher expected price in the future. This effect results in reduced price sensitivity and higher equilibrium prices. On the other hand, forward-looking firms realize that they gain in the future from having a greater market share in the current period and compete more aggressively in prices. For similar discount factors for consumers and firms, the former effect is more important, and prices are higher the greater the informational advantages. The paper also characterizes oscillating market share dynamics, and comparative statics of the equilibrium with respect to consumer and firm patience, and the importance of the experience in the ex post valuation of the product.     

Location decisions and welfare under spatial price discrimination

The welfare effects of regulation are of crucial importance to policy makers. To this end, we present a model of n firms with differentiated costs competing in a linear market within the framework of spatial price discrimination. We prove that the Nash equilibrium locations of firms are always socially optimal irrespective of the number of competitors, the distribution of consumers, firms' cost heterogeneity, the level of privatization, and the number and/or the varieties of the produced goods. We also provide an algorithm on how to find the unique Nash equilibrium in the case of uniformly distributed consumers.     

Learning quality through prices and word‐of‐mouth communication

This paper studies the effect of word‐of‐mouth communication on the optimal pricing strategy for new experience goods. I consider a dynamic monopoly model with asymmetric information about product quality, in which consumers learn in equilibrium from both prices and other consumers. The main result is that word‐of‐mouth communication is essential for the existence of separating equilibria, wherein the high‐quality monopolist signals high quality through a low introductory price (lower than the monopoly price), and the low‐quality one charges the monopoly price. The intuition is simple: low prices are costly, and will only be used by firms confident enough that increased experimentation (and therefore communication among consumers) will yield good news about quality and increased future profits. Additional results are the following: for the high‐quality seller, the expected price (quantity) is increasing (decreasing) over time; whereas for the low‐quality one, the opposite is true. Moreover, signaling becomes more difficult when consumers pay less attention to their peers' reports and more attention to past prices. Finally, word‐of‐mouth communication improves consumer welfare.     

Consumer Search with Limited Product Evaluation

Consumers need not evaluate all available product information before making a purchase. This may arise because shopping environments prevent a full evaluation (e.g., online). We develop a model of simultaneous search in which consumers have limited ability in product evaluation in order to study the impact of search cost on prices, consumer surplus, and social welfare. If consumers are endowed with the ability to choose how much information to acquire from a searched product, they may choose limited product evaluation. We find that consumers may evaluate more firms, enjoy lower prices, and higher surplus despite this limited ability. This implies that prices can decrease and consumer surplus can increase in search costs. We then extend our setting to the case of multiproduct firms and find similar effects due to changes in within‐firm search costs.     

Personalized Pricing and Quality Customization

We embed the principal–agent model in a model of spatial differentiation with correlated consumer preferences to investigate the competitive implications of personalized pricing and quality allocation (PPQ), whereby duopoly firms charge different prices and offer different qualities to different consumers, based on their willingness to pay. Our model sheds light on the equilibrium product-line pricing and quality schedules offered by firms, given that none, one, or both firms implement PPQ. The adoption of PPQ has three effects in our model: it enables firms to extract higher rents from loyal customers, intensifies price competition for nonloyal customers, and eliminates cannibalization from customer self-selection. Contrary to prior literature on one-to-one marketing and price discrimination, we show that even symmetric firms can avoid the well-known Prisoner's Dilemma problem when they engage in personalized pricing and quality customization. When both firms have PPQ, consumer surplus is nonmonotonic in valuations such that some low-valuation consumers get higher surplus than high-valuation consumers. The adoption of PPQ can reduce information asymmetry, and therefore sellers offer higher-quality products after the adoption of PPQ. Overall, we find that while the simultaneous adoption of PPQ generally improves total social welfare and firm profits, it decreases total consumer surplus.     

Nominal rigidities equilibria in a non-Ricardian economy

I consider a cash-in-advance economy with nominal price rigidities. Nominal interest rates are the cost of liquidity and fiscal policy sets nominal transfers that affect the distribution of wealth. Under a fiscal policy associated with an unequal distribution of wealth and for policies of low or even zero interest rates, coordination failures exist, that is, involuntary unemployment persist even if prices are set at full employment levels. Coordination failures exist if and only if nominal rates are below a threshold. Moreover, I demonstrate the following result on welfare: full employment allocations at a nominal rate equal to the threshold (high liquidity costs) are better, in terms of welfare, from unemployment allocations at any non-negative interest rates below the threshold. On the other hand, under a sufficiently progressive fiscal system that reduces the inequality in the wealth distribution, coordination failures do not exist.     

Ramsey policies in a small open economy with sticky prices and capital

This paper analyzes jointly optimal fiscal and monetary policies in a small open economy with capital and sticky prices. We allow for trade in consumption goods under perfect international risk-sharing. We consider balanced-budget fiscal policies where authorities use distortionary taxes on labor and capital together with monetary policy using the nominal interest rate. First, as long as a symmetric equilibrium is considered, the steady state in an open economy is isomorphic to that of a closed economy. Second, sticky prices’ allocations are almost indistinguishable from flexible prices allocations both in open and closed economies. Third, the open economy dimension delivers results that are qualitatively similar to those of a closed economy but with significant quantitative changes. Tax rates are both more volatile and more persistent to undo the distortions implied by terms of trade fluctuations.     

Mergers to Monopoly

Horizontal mergers between firms that have different costs are examined. Owners can transfer technology to an acquired firm and decide whether to consolidate or operate their firms as separate entities in the product market. Thus mergers can exhibit both efficiencies and a market-power effect. The prices of target firms are determined via a bargaining game. An equilibrium sequence of mergers entails the largest firm targeting the next largest rival firm. Initially, this sequence of mergers with technology transfers involves no consolidations and improves welfare. Ultimately, the acquisitions lead to consolidation and may decrease total welfare.     

Coasian equilibrium

We consider a general equilibrium economy with public goods and externalities. Following Boyd and Conley (1997), we treat externality markets directly instead of indirectly through Arrovian commodities. Because such direct externality markets are not subject to the nonconvexities that Starrett [Starrett, D., 1972. Fundamental nonconvexities in the theory of externalities. Journal of Economic Theory 4, 180–199] shows are fundamental to Arrow’s externality markets, this new approach admits the use of largely standard methods to prove welfare and existence theorems in an economy with externalities. We extend the Boyd and Conley model to allow firms to benefit from public goods and be damaged by externalities, and to allow consumers to produce externalities. We state a first welfare theorem and prove the existence of a competitive equilibrium. Taken together, this can be viewed as a type of general equilibrium Coase theorem. Considered as a special case, these theorems also represent a significant generalization of existing results for pure public goods economies.     

Fiscal policies in open cities with firms and households

This paper provides an equilibrium numerical model of an open city economy with mobile firms and resident workers. Given household preferences and firm technologies and an exogenous configuration of city tax rates and national grants and fiscal mandates, the model calculates equilibrium values for aggregate city economic activity, factor prices, and finally, local tax bases, revenues, and public goods provision. The model is calibrated to the Philadelphia economy for Fiscal Year 1998. We then explore the economic and fiscal consequences of raising city tax rates and the city’s ability to finance rising local welfare payments. We find the city to be incapable of bearing significant increases in local responsibility for welfare transfers.