HORIZONTAL MERGERS IN A DIFFERENTIATED COURNOT OLIGOPOLY

Using a standard differentiated goods quantity competition setting, we show three facts about horizontal two‐firm mergers that are not true for a homogeneous goods Cournot market. First, merger of two firms is profitable for the merging firms provided that goods are sufficiently distant substitutes. Second, merging of two firms can lead to more two‐firm mergers. Third, an initially non‐profitable two‐firm merger can occur in anticipation of subsequent mergers. These facts imply that mergers are more likely to occur in differentiated goods markets than in homogeneous goods markets.     

PRIVATIZATION AND EFFICIENCY GAIN IN AN INTERNATIONAL MIXED OLIGOPOLY WITH ASYMMETRIC COSTS*

This paper examines two policy instruments, privatization of the domestic public firm and imposition of a tariff on foreign private firms in an international mixed oligopolistic model with asymmetric costs. It first demonstrates that different orders of moves of firms will imply different government decisions on optimal tariff and on privatization policy. Following Hamilton and Slutsky (1990 ), this paper then uses an extended game to discuss endogenous roles. It indicates that the efficiency gain that highlights the importance of foreign competition is crucial in determining the welfare improving privatization policy. Moreover, the endogenous equilibria are associated with different government decisions on privatization.     

QUALITY DIFFERENTIATION,WELFARE, AND THE MODE OF COMPETITION IN A VERTICALLY DIFFERENTIATED PRODUCT MARKET: A NOTE*

We analyse the implications of quality differences in a vertically differentiated product market for social welfare by employing an endogenous quality choice model. We find that in of Bertrand and Cournot duopolies, the degree of quality differentiation at equilibrium in an unregulated market is larger or smaller, respectively, than that of the socially second‐best optimum. This implies that a reduction in quality difference, respectively, increases or decreases social welfare in the case of Bertrand or Cournot duopolies.     

A SPATIAL MODEL OF CARTEL STABILITY: THE INFLUENCE OF PRODUCTION COST CONVEXITY

We uniquely introduce convex production costs into a cartel model involving spatial price discrimination. We demonstrate that greater convexity improves cartel stability and that for sufficient convexity first best locations will be adopted. We show that allowing locations to vary over the game reduces cartel stability but that greater convexity continues to improve that stability. Moreover, when the degree of convexity does not support the first best collusive locations, other collusive locations exist that require less stability and these may either increase or decrease social welfare relative to competition. Critically, these locations that require less stability are more dispersed in sharp contrast to the known result assuming linear production costs.     

THE EXISTENCE OF EQUILIBRIUM IN A DIFFERENTIATED DUOPOLY WITH NETWORK EXTERNALITIES*

The existence of a pure‐strategy subgame‐perfect equilibrium in qualities and prices is investigated in a duopoly model of vertical differentiation where quality improvements require a quadratic variable cost and network externalities operate. We show that there exists a parameter region where the incentive to predate at the quality stage prevents firms from reaching a pure‐strategy non‐cooperative equilibrium with prices above marginal costs. If network externalities are sufficiently large, a Bertrand equilibrium with zero profits may arise, although the amount of product differentiation is strictly positive.     

FARSIGHTED COALITIONAL STABILITY OF A PRICE LEADERSHIP CARTEL

This paper analyzes the farsighted behaviour of firms that form a dominant price leadership cartel. We consider stability concepts such as the farsighted core, the farsighted stable sets, and the largest consistent set. We show that: (i) the farsighted core is either an empty set or a singleton set of the grand cartel; (ii) any Pareto efficient cartel is itself a farsighted stable set; and (iii) the set of cartels in which fringe firms enjoy higher profits than the firms in the minimal Pareto efficient cartel is the largest consistent set.     

EQUILIBRIUM SELECTION IN THE YANO MODEL OF PRICE LEADERSHIP

Abstract. A number of studies have provided a theoretical explanation for the fact that the technologically superior firm becomes a price leader in a duopoly market for a homogeneous product. While previous studies show that the state in which the technologically superior firm becomes a price leader is a Nash equilibrium (superior leader equilibrium), they do not eliminate the possibility that the state in which the technologically inferior firm becomes a price leader is also a Nash equilibrium (inferior leader equilibrium). We demonstrate that an inferior leader equilibrium can be eliminated by the iterative elimination of weakly dominated strategies.     

STRATEGIC BUDGET CONSTRAINTS IN A UNIONIZED MIXED OLIGOPOLY

This paper considers the budget‐constraint problem where the government decides whether or not to impose a budget constraint on the public firm, assuming the public firm is less efficient than private firms. We find that imposing budget constraints on the public firm is the preferred choice because of the welfare‐improving effect. Our model suggests that the wage levels of the public firm can be lower or higher than those of private firms depending upon the degree of inefficiency. These results differ from Ishida and Matsushima's findings that in a unionized mixed duopoly, tight budget constraints can enhance social welfare when the public firm is as efficient as private firms.     

INTER-MARKET COMPETITION THROUGH BUNDLING IN THE PRESENCE OF COST ADVANTAGE

This paper presents a model of inter-market competition through bundling wherein each firm has a cost advantage in a different market and competes against fringe firms. Without cost saving through bundling, there is no equilibrium in which the bundled good is provided. However, with cost saving through bundling, there exist equilibria in which one firm provides bundling and the other does not. In this case, bundling can be used as a device for entry deterrence. Finally, we illustrate that bundling can reduce social welfare by discouraging the efficient entrant from entering the market.     

ON THE PRICE EFFECTS OF HORIZONTAL MERGERS: A THEORETICAL INTERPRETATION

Horizontal mergers are usually under the scrutiny of antitrust authorities due to their potential undesirable effects on prices and consumer surplus. Ex‐post evidence, however, suggests that these effects do not always take place and even relevant mergers may end up having negligible price effects. The analysis of mergers in the context of non‐localized spatial competition may offer a further interpretation to the ones proposed in the literature: in this framework both positive and zero price effects are possible outcomes of the merger activity.     

COMPETITION,REGULATION AND WELFARE IN THE PRESENCE OF NETWORK EXTERNALITIES*

In this paper we consider a simple model of an industry with network externalities, where a benefit to each consumer from network services depends on the size of the network. We first consider a single network and cover the cases with and without fixed cost of entry. We then turn to the two‐network industry, where the incumbent network and a new entrant network compete for the market and may differ both in their marginal costs and demand structures. In addition, we identify several situations where public policy may play a crucial role in sustaining socially advantageous network service provision.     

COLLUSION AND PREDATION UNDER THE CONDITION OF STOCHASTIC BANKRUPTCY

In this paper, on the basis of the framework of repeated games, we consider the strategic interaction between firms that may face financial constraints and go into bankruptcy when they earn low profit. We demonstrate that under asymmetric information concerning the financial constraints of the rival firm, firms adopt a pricing pattern wherein they switch to high (or collusive) prices after maintaining low prices for some periods. There are always such predatory pricing strategies sustained as equilibria when firms are sufficiently patient. We also show that the set of feasible and individual rational payoffs becomes narrower than that of the ordinal repeated games.     

ALTERNATIVE STRATEGIES OF A PUBLIC ENTERPRISE IN OLIGOPOLY REVISITED: AN EXTENSION TO STACKELBERG COMPETITION

This paper revisits De Fraja and Delbono (1989), which is the seminal paper on mixed oligopoly, in order to pay more attention to Stackelberg competition. First, we show that, even in Cournot competition, if the number of private firms is sufficiently small, privatization necessarily reduces social welfare. Second, we demonstrate that when a public firm is a Stackelberg leader before and after privatization, privatization necessarily reduces welfare irrespective of the number of private firms. Moreover, we show that even when a public firm remains a follower, privatization reduces welfare if the number of private firms is relatively small.     

论我国城市边缘区行政管理体制的区域整合

城市边缘区具有城乡过渡特点,不仅地域空间日益融合,而且在经济、文化等方面也日益融合,迫切需要建立-元化管理,即实现行政管理的区域整合.本文在分析城市边缘区行政管理体制现状特点和问题的基础上,提出实现行政管理区域整合的对策.     

A NONCOOPERATIVE SHIPPING COURNOT DUOPOLY WITH LINEAR‐QUADRATIC TRANSPORT COSTS AND CIRCULAR SPACE*

The mixed strategy equilibria in a location quantity duopoly model with circular markets are investigated. We find that a continuum of equilibria exists when the transport cost function is linear. However, if costs are strictly concave or convex, most strategies fail to qualify as equilibria. For any integer n, there are nondegenerate mixed strategy equilibria in which each firm locates at n possible locations with equal probability. This result explains possible outcomes in which firms’ on‐path locations are not minimally or maximally differentiated.     

PRICE AND QUANTITY COMPETITION WITH ASYMMETRIC COSTS IN A MIXED DUOPOLY: A TECHNICAL NOTE

We consider a mixed duopoly in which private and public firms can choose to strategically set prices or quantities when the public firm is less efficient than the private firm. Thus, even with cost asymmetry, we obtain exactly the same result (i.e., Bertrand competition) of Matsumura and Ogawa (2012) if Singh and Vives’ (1984) assumption of positive primary outputs holds. However, compared to endogenous determination of the type of contract without cost asymmetry, our main finding is that in the wider range of cost asymmetry, different type(s) of equilibrium related to or not related to the limit‐pricing strategy of the private firm can be sustained. Thus, when considering an implication on privatization, we may overestimate the welfare gain of privatization because Cournot competition takes place after privatization even though cost asymmetry exists between firms. While the result of Matsumura and Ogawa (2012) holds true if the goods are complements, we find the novel results in the case of substitutes.     

INSUFFICIENT ENTRY OF EMPLOYEE‐CONTROLLED FIRMS IN A FREE‐ENTRY OLIGOPOLY

This study is a theoretical examination of whether employee‐controlled firms (ECFs) enter a free‐entry oligopolistic market excessively or insufficiently, from the viewpoint of welfare maximization. The excess entry theorem is well known in oligopoly theory. According to this theorem, a greater number of profit‐maximizing firms enter a free‐entry oligopolistic market than is optimal for welfare maximization. We demonstrate the possibility that insufficient entry arises when ECFs compete in a free‐entry market. In particular, we show that if both the demand and cost functions are convex, insufficient ECF entry necessarily occurs. Our results suggest that competition among firms seeking purposes other than profit might lead to insufficient entry because differences in competing firms’ objectives affect the intensity of market competition.     

HORIZONTAL MERGERS WITH CAPITAL ADJUSTMENT: WORKERS' COOPERATIVES AND THE MERGER PARADOX

We study the incentives towards horizontal merger among firms when the amount of capital is the strategic variable. We focus on workers' cooperatives, but our conclusions apply also to employment‐constrained profit maximizers. Within a simple oligopoly model, we prove that the horizontal merger, for any merger size, is: (i) privately efficient for insiders as well as for outsiders; (ii) socially efficient if market size is large enough, even in the case of merger to monopoly.     

A UNIFIED ANALYSIS OF TRADE GAINS IN THE PRESENCE OF PUBLIC GOODS*

It has long been known that free trade is potentially (after lumpsum compensatory transfers) beneficial for each trading country if the autarkic and post‐compensation free‐trade equilibria are perfectly competitive, with market distortions limited to non‐negative taxes on imports and exports. However these conditions are merely sufficient. It can now be shown that, under alternative sufficient conditions, free trade is potentially beneficial to each trading country even in the context of public goods.     

Bundled discounts: Strategic substitutes or complements?

Bundled discounts by pairs of otherwise independent firms play an increasingly important role as a strategic tool in several industries. Given that prices of firms competing for the same consumers are strategic complements, one would expect their discounts levels also to be strategic complements. However, in this paper we show that under some circumstances bundled discounts may be strategic substitutes. This occurs under vertically differentiated products where a low quality pair of producers may indeed prefer to lower its discount after an increase in the discount offered by a high quality pair of producers.