Strategic delegation under quality competition

This paper examines strategic manipulations of incentive contracts in a model where firms compete in quality as well as in price. Compensation schemes for managers are based on a linear combination of profits and sales. For a given level of quality, a firm desires to reduce the manager's compensation when product sales increase; this serves as the firm's commitment to raise prices. Nevertheless, in general, a manager has a stronger incentive to produce goods of higher quality if he is compensated according to sales. Therefore, a compensation scheme that penalizes a manager when sales increase may result in products that are inferior to those of its rival. We show that, depending on the nature of quality, a positive weight on sales may be desirable when firms compete in quality and price. Welfare implications are also explored.     

Strategic competition and optimal parallel import policy

Abstract In a two‐country Hotelling type duopoly model of price competition, we show that parallel import (PI) policy can act as an instrument of strategic trade policy. The home firm’s profit is higher when it cannot price discriminate internationally if and only if the foreign market is sufficiently bigger than the domestic one. The key mechanism in the model is that the home firm’s incentive to keep its domestic price close to the optimal monopoly price affects its behavior during price competition abroad. We also analyze the welfare implications of PI policies and show that our key insights extend to quantity competition.     

Strategic commitment and Cournot competition with labor-managed and profit-maximizing firms

This paper examines the behavior of a labor-managed income-per-member-maximizing firm and a profit-maximizing firm in a quantity-setting model with a strategic commitment. First, each firm independently decides whether or not to make a commitment to capacity. This capacity may subsequently be increased, but cannot be decreased. Hence, each firm’s investment choice changes its capital cost from a variable one into a fixed one. Second, each firm independently chooses its actual output. The paper examines the equilibrium of the quantity-setting mixed model and shows whether or not capacity investment is effective for the labor-managed firm and the profit-maximizing firm.     

On the accessibility of core-extensions

Sengupta and Sengupta (1996) study the accessibility of the core of a TU game and show that the core, if non-empty, can be reached from any non-core allocation via a finite sequence of successive blocks. This paper complements the result by showing that when the core is empty, a number of non-empty core-extensions, including the least core and the weak least core (Maschler et al., 1979), the positive core (Orshan and Sudhölter, 2001) and the extended core (Bejan and Gómez, 2009), are accessible in a strong sense, namely each allocation in each of the foregoing core-extensions can be reached from any allocation through a finite sequence of successive blocks.     

Strategic incentives under vertical integration: the case of wireline-affiliated wireless carriers and intermodal competition in the US

In its review of the Cingular/AT&T Wireless merger, the FCC noted the potentially conflicting incentives of wireline-affiliated (vertically integrated) versus independent (non-integrated) wireless carriers to act as intermodal competitors in the wireline exchange access market. Specifically, because Cingular and Verizon Wireless are owned by wireline carriers, they may have an incentive to compete “less aggressively” within their parents’ wireline territories while AT&T Wireless, an independent wireless carrier, would not. This paper examines these and other hypotheses by examining pre-merger data on the wireless plans offered by the three carriers. The empirical analysis suggests that AT&T Wireless did not design its plans based upon a regional strategy, whereas Cingular offered substantially smaller-minute wireless plans within its parents’ wireline territories. However, the results also suggest that Verizon Wireless did not design its plans in a markedly different fashion within and outside of its parent’s wireline region. It is posited that these findings might reflect the differing ownership and control structures of Cingular and Verizon Wireless.      

Entrepreneurial innovations,competition and competition policy

We construct a model where an entrepreneur can innovate for entry or for sale. It is shown that increased product market competition tends to increase the relative profitability of innovation for sale. Increased competition not only reduces the profits of entrants and the acquirer of the inventions in a similar fashion, but also reduces the profit of non-acquirers. Therefore, incumbents' valuations of innovations are less negatively affected by increased competition, and the incentive for innovation for sale can increase with increased competition. Moreover, a stricter, but not too strict, merger policy is shown to increase the incentive for innovations for sale by ensuring the bidding competition for the innovation.     

Undesirable competition

We show that the entry of private profit-maximising firms makes the consumers worse off compared to having a nationalised monopoly. Such entry increases the nationalised firm’s profit, industry profit, and social welfare, at the expense of the consumers. Our result is important for competition policy.     

Site accessibility and prioritization of nature reserves

Nature reserves not only protect habitat-stressed species but also provide recreation and welfare services to people. Therefore, site accessibility matters in reserve design. This study incorporates public accessibility, determined by urban populations and distances between urban areas and reserve sites, as an additional factor in conservation reserve design besides species representation and economic characteristics of individual sites. An optimization approach is introduced to determine a reserve network with maximum accessibility while satisfying specified representation targets under financial constraints. The paper also presents an empirical application of this approach to endangered/threatened birds in Illinois, USA, and analyzes the tradeoffs between ecological, economic, and social objectives of biological conservation. The results show that: i) the conventional minimal representation approach would result in a small reserve network, but this network would have poor accessibility; ii) public accessibility can be improved significantly by selecting alternative sites with the same amount of conservation budget; iii) further improvement in accessibility can be achieved by enlarging the network, but in this particular case the gains would be insignificant after the first few additional sites; and iv) a regionally integrated conservation plan, as opposed to decentralized conservation efforts, is beneficial for both species protection and social welfare.     

战略计划与战略思维简析

战略计划在战略管理中占有重要地位,但这一思想后来受到了许多管理学家的批评,有关战略计划与战略思维的关系,是理论界长期争辩的一个问题。本文对战略计划的批判性观点,以及战略计划与战略思维的关系的主要观点进行了梳理。在此基础上,从理论上分析了战略管理者应具有辩证思维,战略计划与战略思维是辩证统一的关系,并提出了在实践中保持二者辩证统一的机制。     

Winner-take-all price competition

Summary. We analyze an oligopoly model of homogeneous product price competition that allows for discontinuities in demand and/or costs. Conditions under which only zero profit equilibrium outcomes obtain in such settings are provided. We then illustrate through a series of examples that the conditions provided are “tight” in the sense that their relaxation leads to positive profit outcomes. Received: April 7, 2000; revised version: September 14, 2000     

Efficient spatial competition

Game-theoretic models of spatial competition usually assume that firms set prices after their choices of locations. Rather than make this assumption, this paper uses the core to model the competition between the firms. Two conditions are shown to be sufficient for efficient spatial competition. The first is that the firms' location choices satisfy a no-externalities condition. The second is that the second-stage game satisfy a separable-value condition, namely that the value (gains from trade) can be created on a buyer-by-buyer basis. This approach yields two further benefits. First, efficient location can be stable in situations with arbitrary distributions of buyers, arbitrary willingness-to-pay functions, and completely general location spaces. Second, efficiency in location games can be shown to be related to the Second Welfare Theorem.     

Evaluating the accessibility of essential medicines in China

Objective: To evaluate the accessibility of essential medicines in China through a new system which integrated the structure, process, and effect of the National Essential Medicine Policy (NEMP).

Methods: A structural equation model was built to verify the reliability of the evaluation system. This study utilized the Delphi method to obtain the structure and process index data, and used the WHO/HAI standard method for the effect index data to evaluate the NEMP. Six regions were selected for empirical analysis so that suggestions for optimization could be put forward.

Results: The structural equation model consisted of three parts: organization structure, executive process, and effect. The factor loading of the three indicators exceeded 0.5, indicating that this model complied with the preliminary fit criteria. In the organizational structure, rules and regulations and resource investment accounted for a large proportion, indicating that they had a great impact on the effect. As for the executive process, the weight of the seven indicators were similar, and they accounted for a large proportion, indicating that each indicator had a non-negligible impact on the effect. The “p” of all the three hypothesizes was less than .01, especially the “p” of hypothesis 3 was less than .001, indicating that the structure and process of NEMP affected the accessibility of the essential medicines, and three components of the model were positively correlated.

Limitations: Some errors may exist in achieving appropriate expert selection because of potential researcher bias in the Delphi approach. The results from only six provinces in China may not be generalized nationwide.

Conclusion: The structural indicators and process indicators have a significant impact on outcome indicators, and they also have correlations. That is, the formulation and implementation of the national drug policy and related supporting measures play an important role in improving the accessibility of essential medicines.     

Valuing urban accessibility and air quality in Sweden

This article is concerned with the implicit values of urban accessibility and air quality in Sweden. Based on the hedonic wage and rent theory, we construct an econometric model to compute such values, and illustrate their implications for regional welfare analysis. It is shown that for most Swedish cities, welfare has increased from 1986 to 1998 due to improved air quality but the positive effect is partly offset by the deteriorated accessibility in some areas. The results also indicate that the values people place on urban accessibility and air quality vary considerably across regions.     

Strategic argumentation

I analyze a game between an uninformed decision maker and a possibly biased expert. The expert receives a set of arguments, and each argument favors one of two alternatives. He can disclose each argument credibly, but cannot prove whether he has disclosed everything. In all equilibria, the biased expert sends messages containing arguments both for and against his preferred alternative. However, the decision maker is not influenced by the unfavorable arguments revealed by the biased expert. The latter is able to convince the decision maker to choose the biased expert?s preferred alternative only if he reveals sufficiently many favorable arguments.     

Scarcity and appropriative competition

This paper formalizes the commonsensical hypothesis that resource scarcity causes a large allocation of time and effort to appropriative competition. Our main innovation is to model explicitly the positive intertemporal effect of consumption on the probability of survival. The critical assumption is that this effect becomes stronger as resources become scarcer. We also show that anticipated future resource abundance increases the incremental value of survival and, consequently, amplifies the current allocation of time and effort to appropriative competition. Interestingly, if resources are currently scarce, then larger anticipated future abundance can cause a big enough increase in the time and effort allocated to appropriative competition to result in a decrease in the sum of current and expected future utility, a “paradox of anticipated abundance”.     

Price distributions and competition

This paper utilizes an equilibrium search model to investigate market structure and price dispersion. In a market with one large firm and a competitive fringe, the large firm offers the highest price. Fringe firms offer a distribution of lower prices.     

Monopolistic competition and non-neighboring-goods

Summary This paper studies price games played by a continuum of differentiated producers who face demands generated by additively separable preferences exhibiting a non-neighboring goods property. The examples of exact equilibria show that an asymmetric Chamberlian outcome is compatible with nonzero profits for nonmarginal firms and also with constant average costs, contrary to long sustained views. The paper tries also to short out the structure behind this class of examples and identify as general features the presence of nonperfectly elastic demands facing individual firms and the existence of an approximate Chamberlinian equilibrium.I am indebted to J. Ostroy for very helpful comments and to L. Jones, P. Romer and W. Zame for several conversations.     

Tax evasion and competition

Using a Cournot oligopoly model with an endogenous number of firms and evasion of indirect taxes, we show that more intense competition may have the negative side effect of increasing tax evasion, thereby, lowering public revenues and welfare. This will be the case if market entry costs decrease. A similar result will hold if marginal production costs fall and demand is either weakly concave, or convex and inelastic. The result of more competition, less evasion and higher public revenues will be obtained if (a) marginal production costs fall and demand is convex and elastic or (b) the demand elasticity increases. As a policy implication, we prove that tax enforcement should be intensified if there is a negative trade‐off between competition and evasion.     

Liquid markets and competition

A market is liquid if no individual's actions have a big effect on the prices of goods traded in that market. Perfectly competitive markets are therefore perfectly liquid. It is well known that market liquidity can be achieved by increasing the number of traders so that individual trades are small compared to total trades. We show that even when there are only few traders, market liquidity can be achieved through large short sales in which net trades are small relative to gross trades. In particular, for a natural variant of the market game which permits unlimited short sales, we show that there is always a Nash equilibrium allocation arbitrarily close to a competitive equilibrium allocation. Of course, not all NE are near competitive. Only the large-short-sales NE are nearly liquid and hence close to CE.