Personalized pricing and advertising: An asymmetric equilibrium analysis

We study personalized price competition with costly advertising among n quality-cost differentiated firms. Strategies involve mixing over both prices and whether to advertise. In equilibrium, only the top two firms advertise, earning “Bertrand-like” profits. Welfare losses initially rise then fall with the ad cost, with losses due to excessive advertising and sales by the “wrong” firm. When firms are symmetric, the symmetric equilibrium yields perverse comparative statics and is unstable. Our key results apply when demand is elastic, when ad costs are heterogeneous, and with noise in consumer tastes.     

An experimental study of bidding in contests of incomplete information

In many contest situations, such as R&D competition and rent seeking, participants’ costs are private information. We report the results of an experimental study of bidding in contests under different information and symmetry conditions about players’ costs of effort. The theory predicts qualitatively different comparative statics between bids under complete and incomplete information in contests of two and more than two players. We use a 2×3 experimental design, (n=2, n=4)×(symmetric complete information, asymmetric complete information, incomplete information), to test the theoretical predictions. We find the comparative statics of bids across the information and symmetry conditions, and the qualitative differences in comparative statics across group sizes, in partial agreement with the theory.     

Comparative statics for oligopoly: A generalized result

We perform comparative statics for a general model of asymmetric oligopoly and derive a concise formula for the response of one firm to a marginal change in its rival’s strategic variable, taking into account the responses of all other firms. We obtain the conditions under which the sign of this response coincides with that of the mixed second-order partial derivative of the firm’s payoff function. We then propose a distinction between gross and net strategic relationships (i.e., strategic substitute and complement).     

A unified approach to comparative statics puzzles in experiments

The paper shows that several game-theoretic solution concepts provide similar comparative statics predictions over a wide class of games. I start from the observation that, in many experiments, behavior is affected by parameter shifts that leave the Nash equilibrium unchanged. I explain the direction of change with a heuristic structural approach, using properties such as strategic complementarities and increasing differences. I show that the approach is consistent with general comparative statics results for (i) the Nash equilibrium of a game with perturbed payoff functions, (ii) the quantal response equilibrium, (iii) level-k reasoning. I also relate the structural approach to equilibrium selection concepts.     

Measuring environmental efficiency of industry: a case study of thermal power generation in India

Technical and environmental efficiency of some coal-fired thermal power plants in India is estimated using a methodology that accounts for firm’s efforts to increase the production of good output and reduce pollution with the given resources and technology. The methodology used is directional output distance function. Estimates of firm-specific shadow prices of pollutants (bad outputs), and elasticity of substitution between good and bad outputs are also obtained. The technical and environmental inefficiency of a representative firm is estimated as 0.06 implying that the thermal power generating industry in Andhra Pradesh state of India could increase production of electricity by 6/ while decreasing generation of pollution by 6%. This result shows that there are incentives or win–win opportunities for the firms to voluntarily comply with the environmental regulation. It is found that there is a significant variation in marginal cost of pollution abatement or shadow prices of bad outputs across the firms and an increasing marginal cost of pollution abatement with respect to pollution reduction by the firms. This result calls for the use of economic instruments like pollution taxes instead of command and control regulation used currently in India to reduce air pollution.

WTO membership and corruption

Despite widespread belief that accession process and formal membership to the World Trade Organization (WTO) improve the quality of governance within a country, there is no convincing empirical evidence to substantiate this thought. Here, I investigate whether the WTO status of a country has a causal effect on firm-level reports of political corruption using a nonparametric partial identification approach to bound the average treatment effects (ATEs). I also analyze conditional ATEs to explore various sources of potential heterogeneity. Contrary to popular belief, I find that WTO membership is likely to have no causal effect on domestic corruption overall. And if anything, it is likely to increase corrupt practices, particularly among firms that are established post WTO membership and those that are government owned.     

Optimal tax perturbations

The paper considers an economy with H households, N+1 commodities and M fixed factors with commodity taxes and government expenditures on goods and services. The paper studies under what conditions (small) Pareto improving tax changes exist, i.e., tax changes which increase the utility of each household in the economy. The basic analytical technique used is just the usual comparative statics apparatus, except that duality theory is used in order to simplify the computations. The paper derives both the changes in prices and in real incomes that are induced by (small) changes in exogenous tax variables (differential real income balanced budget incidence analysis).     

On relative and partial risk attitudes: theory and implications

This paper develops context-free interpretations for the relative and partial Nth degree risk attitude measures and show that various conditions on theses measures are utility characterizations of the effects of scaling general stochastic changes in different settings. It is then shown that these characterizations can be applied to generalize comparative statics results in a number of important problems, including precautionary savings, optimal portfolio choice, and competitive firms under price uncertainty.     

The economics of joint ventures in centrally planned and labor-managed economies

The paper analyzes the allocational and distributional issues connected with the operation of joint ventures by firms in Yugoslavia, several Eastern European countries and the People's Republic of China with Western firms. A variable-bargaining-power model is used to examine the behavior of joint ventures under the various institutional circumstances of these countries. Contrary to Brada's conclusions (J. Comp. Econ.1(2):167–181, June 1977), the present study indicates that the behavior of joint ventures in most of these countries is likely to be quite similar.     

Seize the state, seize the day: state capture and influence in transition economies

Data from the 1999 Business Environment and Enterprise Performance Survey is used to examine state capture and influence in transition economies. We find that a capture economy has emerged in many transition countries, where rent-generating advantages are sold by public officials and politicians to private firms. While influence is a legacy of the past inherited by large, incumbent firms with existing ties to the state, state capture is a strategic choice made primarily by large de novo firms competing against influential incumbents. Captor firms, in high-capture economies, enjoy private advantages in terms of more protection of their own property rights and superior firm performance. Despite the private gains to captor firms, state capture is associated at the aggregate level with social costs in the form of weaker economy-wide firm performance. Journal of Comparative Economics 31 (4) (2003) 751–773.     

A MARKET WITH A SOCIAL CONSUMPTION EXTERNALITY*

We model a spatial market in which the utility of each consumer is affected by the consumers who buy precisely the same product. The marginal contribution of consumers x's purchase on consumer y depends on |x–y|, which declines as |x–y| increases. Such modelling of preferences fits goods that signal a consumer's place in society—clothing styles, automobiles and jewellry are examples. For 2n + 1 firms we find the unique symmetric equilibrium and derive comparative statics on the optimal number of firms, the largest number of firms the market can support, and the behaviour of profits per firm as n increases.     

Demand,innovation, and the dynamics of market structure: The role of experimental users and diverse preferences

The history of a number of industries is marked by a succession of eras, associated with different dominant technologies. Within any era, industry concentration tends to grow. Particular eras are broken by the introduction of a new technology which, while initially inferior to the established one in the prominent uses, has the potential to become competitive. In many case new entrants survive and grow, and the large established firms do not make the transition. In other cases, the established firms are able to switch over effectively, and compete in the new era. This paper explores a model which generates this pattern and has focused on the characteristics of the demand. We argue that the ability of the new firms exploring the new technology to survive long enough to get that technology effectively launched depends on the existence of fringe markets which the old technology does not serve well, or experimental users, or both. Established firms initially have little incentive to adopt the new technology, which initially is inferior to the technology they have mastered. New firms generally cannot survive in head-to-head conflict with established firms on the market well served by the latter. The new firms need to find a market that keeps them alive long enough so that they can develop the new technology to a point where it is competitive on the main market. Niche markets, or experimental users, can provide that space.

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Franco MalerbaEmail:

     

Increases in risk aversion and the distribution of portfolio payoffs

Oliver Hart proved the impossibility of deriving general comparative static properties in portfolio weights. Instead, we derive new comparative statics for the distribution of payoffs: A is less risk averse than B iff A?s payoff is always distributed as B?s payoff plus a non-negative random variable plus conditional-mean-zero noise. If either agent has nonincreasing absolute risk aversion, the non-negative part can be chosen to be constant. The main result also holds in some incomplete markets with two assets or two-fund separation, and in multiple periods for a mixture of payoff distributions over time (but not at every point in time).     

When and why do Austrian companies issue shares?

This paper examines the issuance of share capital via the Vienna Stock Exchange between 1985 and 2004. Evidence is supplied concerning the aggregate factors that help to explain the time-series variation in both the numbers of and proceeds from initial public offerings (IPOs) and seasoned equity offerings (SEOs). Results indicate that there is no cyclical sensitivity of issues, but that firms successfully time their offerings to take advantage of high stock market valuations and the associated low cost of equity capital. Corporate indebtedness and interest rates are significant determinants of SEOs in statistical and economic terms. The proceeds from IPOs, rather than funds raised by firms already listed, are used to finance subsequent investment.

Mutual supervision in preshipment inspection programs

Preshipment inspection (PSI) programmes are implemented in many developing countries to assist governments in the collection of revenue at their borders. These programs consist of the delegation of the inspection of imports to a private firm. To study these PSI programmes, we develop a hierarchical agency model in which the government authority can rely on two supervisors, namely the private inspection firm and the customs administration, to control importers' declarations. The government's optimal contract is fully characterized. We devote some attention to the inspection policy and its comparative statics properties. In particular, we identify the situations in which PSI programmes are revenue enhancing. We also discuss the reconciliation policy, i.e. what to do in case of conflicting inspection reports by the inspection firm and the customs administration. In the optimal mechanism, mutual supervision between the inspection firm and the customs administration is used to provide adequate incentives to all parties.     

Strategic technology choice in regulated markets with demand uncertainty

This paper presents a simple model of a non-competitive market with demand uncertainty in which firms can choose their technology of production. Technology is characterised by two parameters: capacity and flexibility. The first has a strong commitment value while flexibility is needed to face uncertainty. Lack of competition requires active regulation to ensure that the price is not set at excessive level. When choosing their technology, firms take into account not only the effects of this choice on the opponent(s) but also the effect on the regulated price. In this framework, and because of regulation, firms have an incentive to strategically manipulate their cost (cost padding). This causes monopoly regulation aiming at improving allocative efficiency to be ineffective. In fact, by “tying its hand” to a low level of capacity, the monopolistic firm is able to get round the constraint imposed by the regulator. Increasing the number of firms in the market may restore regulation effectiveness. The reason is that if demand is sufficiently volatile, then firms strategically choose flexible techniques and this effect dominates over the incentive to manipulate costs in order to escape regulation. In this case, regulation is effective precisely because cost padding is hampered by firms’ non-cooperative behaviour.

Measures of technical efficiency

Färe and Lovell (J. Econom. Theory19 (1978), 150–162) suggest four properties that a measure of technical efficiency should satisfy; the commonly employed Debreu-Farrell measure fails three of them. Necessary and sufficient conditions for a measure to satisfy the four conditions are provided and recently proposed measures are analyzed in the light of this result. Also, it is argued that the Debreu-Farrell measure has several desirable properties when one takes account of (1) (perhaps unknown) market prices and the relationship between technical and economic efficiency and (2) its characterization as a measure of economic efficiency using the shadow prices implicit in the production technology.     

CEO turnover, firm performance, and enterprise reform in China: Evidence from micro data

In this paper, we use unique data on China's listed firms from 1998 to 2002 to show that CEO turnover is significantly and inversely related to firm performance, although the magnitude of the relationship is modest. In addition, we find that this turnover-performance link is weaker for listed firms that are still controlled by the state and those that have a relatively weak non-state controlling shareholder. In contrast, the appointment of independent directors enhances the turnover-performance link. Moreover, the listing suspension mechanism, adopted by China's securities regulatory agency, appears to be effective in improving the turnover-performance tie. Finally, listed firms with CEOs holding additional positions among the controlling shareholders have a weaker turnover-performance link. Journal of Comparative Economics 34 (4) (2006) 796–817.     

Short-run efficiency in the labor-managed firm

This paper examines the short-run comparative statics of resource allocation in a labor-managed firm when workers are free to adjust work hours but not membership in a competitive market environment. It is found that the workers might encounter difficulties in attaining their utility-maximizing choices of work hours, but with the acceptance of a simple collective-choice decision rule, each worker's optimum becomes the Pareto-optimum.     

The stability of the cournot oligopoly model: A reassessment

The stability properties of the Cournot oligopoly model are examined for the continuous adjustment process. Sufficient conditions for instability are established which are shown to be of significance when the number of firms, n, is small. Local and global stability are shown under appropriate conditions which for global stability include the restriction n ? 5. The proof of global stability corrects a well-known proof by F. Hahn (Rev. Econ. Stud.29 (1962), 329–331). Results for the discrete time adjustment process are reported and the restrictiveness of the model's assumptions are discussed.