Repeated price competition between individuals and between teams

We conducted an experimental study of price competition in a duopolistic market. The market was operationalized as a repeated game between two “teams” with one, two, or three players in each team. We found that asking (and winning) prices were significantly higher in competition between individuals than in competition between two- or three-person teams. There were no general effects of team size, but prices increased with time when each team member was paid his or her own asking price and decreased when the team's profits were divided equally. This result is consistent with a simple model of individual learning.     

Relaxing competition through quality differentiation and price discrimination

In this paper, I compare two-part tariff competition to linear pricing in a vertically differentiated duopoly. Consumers have identical tastes for quality but differ in their preferences for quantity. The main finding is that quality differentiation occurs in equilibrium if and only if two-part tariffs are feasible. Furthermore, two-part tariff competition encourages entry, which in turn increases welfare. Nevertheless, two-part tariff competition decreases consumer surplus compared to linear pricing.     

Information transmission and incentives not to price discriminate

This paper analyzes how the pricing policy of an incumbent may signal information not only on the demand level but also on the demand composition. A signalling game with two periods and two players (an established firm and a potential entrant) is considered. The potential entrant has incomplete information on market demand. There exist many sequential equilibria in which the uniform price policy acts as an entry deterrence device by hiding actual market profitability. We can interpret the uniform pricing policy as a rejection of the use of superior information on market demand composition in order to reduce the entrant's expected profits.     

Financial reporting quality and price competition among nonprofit firms

The article examines some statistical evidence that supports the view that US labour and capital shares of income return to some long-run historical values. We estimate the long-run share values and the length of time it takes to converge to them. We account for the interdependence of the shares by using a vector error–correction model, and this specification is tested against a VAR alternative using Johansen's method to characterize the properties of the cointegrating vector. We find support for the idea that labour and capital shares have historically been mean reverting, in spite of the fairly restrictive assumptions implied when invoking the Cobb–Douglas production function as the rationale. The cumulative impulse response functions indicate that for capital and labour shares, the time required to revert back to long run levels is in the order of thirty quarters.     

Partial privatization in mixed duopoly with price and quality competition

We analyze price and quality competition in a mixed duopoly in which a profit-maximizing private firm competes against a state-owned public firm. We first show that the welfare-maximizing public firm provides a lower quality product than the private firm when they are equally efficient. In order to maximize social welfare, government manipulates the objective of the public firm that is given by a convex combination of profits and social welfare. It is demonstrated that an optimal incentive of the public firm is welfare maximization under the absence of quality competition, but it is neither welfare maximization nor profit maximization under the presence of quality competition. The result supports a completely mixed objective between welfare and profit maximizations or partial privatization of the public firm.      

旅行社价格战的博弈分析

旅行社是旅游产品设计、组织和销售的渠道商以及消费者之间的桥梁.旅行社对旅游业具有重要影响，旅行社之间的价格竞争日益严重，盈利率低。随着我国加入世贸组织，越来越多的外国旅行社进入我国、针对我国旅行社如何走出困境，本文从博弈角度分析旅行社的价格竞争及其对策。     

Shopping hours and price competition

This paper develops an argument why retail prices may rise in response to the deregulation of opening hours. We make this point in a model of imperfect duopolistic competition. In a deregulated market retailers view the choice of opening hours as a means to increase the degree of perceived product differentiation thus relaxing price competition. If the consumers’ preference intensity for time is sufficiently high the equilibrium configuration has asymmetric shopping hours where one retailer stays open for longer than the other. Both retailers charge higher prices than under regulation, and both are strictly better off.     

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.     

Downstream labeling and upstream price competition

This paper analyses the economic consequences of labeling in a setting with two vertically related markets. Labeling on the downstream market affects upstream price competition through two effects: a differentiation effect and a ranking effect. The magnitude of these two effects determines who in the supply chain will receive the benefits and who will bear the burden of labeling. For instance, whenever the ranking effect dominates the differentiation effect, the low-quality upstream firm loses from labeling while all downstream actors are individually better off. By decreasing the low-quality input price, the label acts as a subsidy and leads to an increase of the downstream market welfare. This analysis furthers our understanding of the economic consequences of labeling in cases like those of GMOs or restaurants.     

Differentiated credence goods and price competition

This paper analyses price competition between two firms producing horizontally and vertically differentiated goods. These are assumed to be credence goods, as consumers can hardly ascertain the quality of the commodities. To illustrate the model, we adapt it to represent a newspaper industry with two outlets, when the population of readers have preferences both on the political stance of the newspapers and on the accuracy of the news they dispatch.     

The limits to competition between economic regimes

Inaugural lecture at the University of Vienna, January 10, 1990.     

Pricing and price competition in consumer markets

This paper offers a simple model of the price mechanism in markets where buyers take prices as given and prices are set by sellers, as in most consumer markets. It explains price competition by arguing that a market price goes down if—and only if—a price cut appears profitable to a firm even if its competitors follow suit. It also explains why markets do not always clear, that is, why production can be restricted by sales and not capacity at prices set by firms.     

A laboratory study of advertising and price competition

We use a laboratory experiment to study advertising and pricing behavior in a market where consumers differ in price sensitivity. Equilibrium in this market entails variation in the number of firms advertising and price dispersion in advertised prices. We vary the cost to advertise as well as varying the number of competing firms. Theory predicts that advertising costs act as a facilitating device: higher costs increase firm profits at the expense of consumers. We find that higher advertising costs decrease demand for advertising and raise advertised prices, as predicted. Further, this comes at the expense of consumers. However, advertising strategies are more aggressive than theory predicts with the result that firm profits do not increase.     

Differentiating use and nonuse values for coastal pond water quality improvements

This paper measures the benefits of water quality improvements in three coastal ponds on the island of Martha's Vineyard, Massachusetts, U.S.A. Use, option, and existence values were elicited from Martha's Vineyard property owners by the contingent valuation method. On average, more than half of the total benefits are attributed to existence value. Results from the Heckman selection model show that the exclusion of protest, as well as missing bids, does not cause significant bias in estimating respondents' willingness-to-pay. Socioeconomic characteristics are found to have distinctively different influences on use, option, and existence values. Different model parameters are likely to be estimated depending on which value categories are measured by a selected valuation technique. These findings emphasize the importance of nonuse values from water quality improvements and of socioeconomic characteristics for measuring different categories of values.Associate Scientist, the Marine Policy Center, Woods Hole Oceanographic Institution. Support for this research was provided by the Pew Charitable Trust, and the Marine Policy Center. Thanks are due Elliot Backerman for making the data available to the author, and Peter Britz and Sarah Repetto for research assistance. Comments and suggestions on an earlier draft of this paper from Steven Edwards, A. Myrick Freeman, Porter Hoagland, Raymond Kopp, V. Kerry Smith and two anonymous reviewers are gratefully acknowledged. This article is WHOI Contribution No. 7752.     

Price and quality competition

This study considers an oligopoly model with simultaneous price and quality choice. Ex-ante homogeneous sellers compete by offering products at one of two quality levels. The consumers have heterogeneous tastes for quality: for some consumers it is efficient to buy a high quality product, while for others it is efficient to buy a low quality product. In the symmetric equilibrium firms use mixed strategies that randomize both price and quality, and obtain strictly positive profits. This framework highlights trade-offs which determine the impact of consumer protection policy in the form of quality standards.     

Domestic and international mixed models with price competition

This article examines domestic (respectively, international) mixed competition in which a state-owned welfare-maximizing public firm competes on price with a domestic (respectively, foreign) profit-maximizing private firm. The article presents and compares the equilibrium outcomes of the two mixed models.     

Capacity precommitment,price competition and forward markets

The Cournot model can be seen as a reduced form of a more realistic model of capacity choice followed by price competition. We show that this is not the case if forward markets are added as their pro-competitive effects no longer hold.     

The price normalization problem in imperfect competition and the objective of the firm

Summary. General equilibrium models of oligopolistic competition give rise to relative prices only without determining the price level. It is well known that the choice of a numéraire or, more generally, of a normalization rule converting relative prices into absolute prices entails drastic consequences for the resulting set of Nash equilibria when firms are assumed to maximize profits. This is due to the fact that changing the price normalization amounts to altering the objective functions of the firms. Clearly, the objective of a firm must not be based on price normalization rules void of any economic content. In this paper we propose a definition of the objective of a firm, called maximization of shareholders' real wealth, which takes shareholders' demand explicitly into account. This objective depends on relative prices only. Real wealth maxima are shown to exist under certain conditions. Moreover, we consider an oligopolistic market and prove the existence of a Nash equilibrium in which each firm maximizes the real wealth of its shareholders. Received: July 10, 1997; revised version: July 27, 1998     

The price of silence: Media competition,capture, and electoral accountability

Is competition in the mass media market an effective deterrent against media capture? Does it prevent political groups from influencing reporting? This paper shows that in some cases it does not. Building on the literature on media capture, the model highlights that, under fairly generic assumptions, high competition in the media market can drive the cost of media capture to zero, making capture easier. Moreover, it highlights conditions on the parameters where the effect of competition on capture is non-monotonic, i.e. capture may occur for levels of competition lower, but also higher, than those leading to media freedom.