Environmental taxation and mergers in oligopoly markets with product differentiation

We analyze the effect of mergers on optimal environmental taxation in a Cournot oligopoly market with product differentiation. Our result indicates that the adjustment in emission tax crucially depends on the post-merger output distortion and pollution intensities. Specifically, we find that the optimal emission tax increases post-merger as long as pollution intensity of firms is higher and output distortion smaller post-merger than pre-merger. Furthermore, our result suggests that there is no need to revise environmental policy in markets where pollution intensity of firms does not change post-merger and (i) products are completely differentiated, or (ii) there are many firms for any degree of product differentiation.     

Non‐Negative Quantity Constraints and the Duration of Punishment

In an oligopoly supergame, firms face an obvious technological constraint: the positivity of their production quantities. Applicability of single‐period optimal punishment hinges critically upon the degree of supermodularity in the stage game, as well as upon the positivity constraints on prices and/or quantities. If both prices and quantities are constrained to be positive, then the relevant multi‐period punishment prescribes securitylevel payoffs (where individual rationality binds) when and only when the game is perfectly supermodular, i.e. is either a Bertrand supergame with perfect substitute products or a Cournot supergame with perfect complement products. JEL classification numbers: D43, L13, C72.     

On the role of network externalities in strategic delegation contracts with an industry-wide union

This article analyses the role of network externalities in managerial delegation contracts for differentiated products when the marginal product costs (the wage) are set by an industry-wide union. The results show that, in both Bertrand and Cournot equilibria, each owner offers a profit-oriented incentive scheme to his or her managers by penalizing sales maximization, irrespective of the strength of the network externalities. In the presence of weak network externalities and low product differentiation, firms can obtain higher profits in the equilibrium under Cournot-type quantity competition compared with that under Bertrand-type price competition. Furthermore, the wage chosen by the union is higher in the Cournot than in the Bertrand equilibrium. In the Cournot equilibrium, the wage increases with the strength of the network externalities. However, in the Bertrand equilibrium, there exists a threshold level of the degree of product differentiation.     

Quantity competition vs. price competition under optimal subsidy in a mixed oligopoly

This paper reconsiders the literature on the irrelevance of privatization in mixed markets within which both quantity and price competition are investigated under product differentiation. By allowing for partially privatization of a state-controlled firm, we explore competition under different timings of firms' moves and derive the conditions under which an optimal subsidy allows to achieve maximum efficiency. We show that, irrespective of the mode of competition, while the ownership of the controlled firm is irrelevant when firms play simultaneously, it matters when firms compete sequentially, requiring the leader to be publicly-owned for an optimal subsidy to restore the first-best. The paper also focuses on the extent to which a subsidy is needed to attain the social optimum in the considered scenarios, providing an ordering which highlights the subsidy equivalence between Cournot (Bertrand) private leadership and simultaneous Bertrand (Cournot) under duopoly, and the dominance of the former in oligopoly.     

EXPORT SUBSIDIES, COST DIFFERENTIAL AND PRODUCT QUALITY

This paper presents a vertical product differentiation model to examine the relationship between optimal trade policies and product qualities for different export countries under Cournot quantity competition as well as Bertrand price competition. We can also use this quality model to explain why Japan as a high production-cost country may have incentives to offer high subsidies. This is a case that cannot be explained by the strategic trade theory models à la Brander and Spencer (1985) or Eaton and Grossman (1986).     

Emission tax and optimal privatization in Cournot–Bertrand comparison

We compare a Cournot with a Bertrand duopoly in a differentiated mixed market when both emission tax and privatization policies are used together. We find that the optimal emission tax is always lower than the marginal environmental damage, and it is always lower under Cournot than under Bertrand. We also find that the optimal privatization is always a partial privatization, and it is always higher under Cournot than under Bertrand. The socially optimal combinations of emission tax and privatization will damage the environment most, but Cournot yields lower environmental damage and social welfare than those under Bertrand. Finally, we show that the environmental damage is non-monotone in the level of privatization under both Cournot and Bertrand competitions.     

Symbiotic Production and Optimal Export Policy

This paper constructs a two‐country trade model to examine the optimal policies relating to the export of final and intermediate products under Cournot as well as Bertrand competition when firms engage in symbiotic production internationally. The paper shows that given linear demand for the final product, the optimal export policies are to tax the exports of both the final and intermediate goods under symbiotic production, regardless of whether firms engage in Cournot or Bertrand competition in the final good market, which is contrary to the conventional wisdom.     

Optimal Trade Policy with Horizontal Differentiation and Asymmetric Costs

This paper examines the optimal export policy under Bertrand competition when the products exhibit horizontal differentiation and production costs are asymmetric. The focus of this paper is on the product‐differentiation effect in the determination of the optimal export policy. We show that given that the equilibrium characteristic of a foreign firm's product R&D lies to the left‐hand side of its initial level , since the foreign firm has a unit cost advantage and the efficiency of its R&D technology is sufficiently low, a rise in the export subsidy of the domestic country increases a domestic firm's profits and then welfare by extending the degree of horizontal differentiation between the two products. Thus, the optimal export policy under Bertrand competition may turn out to be an export subsidy rather than an export tax. This result is in sharp contrast to that of Eaton and Grossman (1986 ).     

标准专利许可中可变价格的社会福利效应:基于产品差异化的视角

技术标准在产品生产过程中的使用越来越广泛,标准专利许可定价形式问题关系到技术标准所有者和产品生产者的收益,有待拓展研究。通过构建古诺竞争模型,从产品差异化角度对标准专利许可中可变价格形式的社会福利效应进行分析,得到的主要结论为:当产品市场达到均衡,且标准专利许可采用的价格形式是可变价格时,社会总福利随着产品差异化程度的提高而增加,随着差异化产品市场中标准专利使用者数量的增加而增加,随着可变价格中可变费用比率的提高而降低;均衡产量随着产品差异化程度的提高而增大,随着可变价格中可变费用比率的提高而降低;均衡价格与产品差异化程度呈现出倒“U”型关系,临界点为特定的市场规模;标准专利使用者的均衡利润随着产品差异化程度的提高而增大。由此可见,标准专利许可的可变费用比率下降有利于激励技术标准使用者生产更多的差异化产品,提升社会总福利。     

Profits and competition under alternative technologies in a unionized duopoly with product differentiation

This paper aims at investigating if the conventional wisdom (i.e. an increase of competition linked to a decrease in the degree of product differentiation always reduces firms׳ profits) can be reversed in a unionized duopoly model. We show that a decrease in the degree of product differentiation may affect wages, hence profits, differently, depending on both the firms׳ production technology and the mode of competition in the product market. Specifically, under constant returns to labour, the “reversal result” can apply under both Cournot and Bertrand competition, but it is more likely when firms compete in quantities. By contrast, under decreasing returns, profits can increase with competition but only if firms compete in prices.     

Reciprocal Dumping with Product Differentiation*

This paper examines if international trade can reduce total welfare in an international oligopoly with differentiated goods. We show that intra‐industry trade, i.e. “reciprocal dumping,” can result in lower total surplus than autarky in a Cournot model for any degree of product differentiation. Moreover, trade can reduce welfare compared to autarky in a Bertrand model when the local markets are sufficiently competitive and products are sufficiently close substitutes. Otherwise it unambiguously increases welfare.     

Emission Taxes and Product Differentiation in the Presence of Foreign Firms

Industries characterized by differentiated products are important contributors of greenhouse gases and currently subject to market‐based policies such as emission taxes. In the context of developing countries, fears about foreign investment leaving the country are often used as an argument not to address industry emissions through emission taxes. This paper develops a Cournot model with product differentiation in the presence of abatement efforts where host and foreign firms are subject to an emission tax. The analysis indicates that abatement efforts and differences in pollution intensity coefficients across firms may play a significant role in the characterization of optimal policy. The analysis also suggests that the government may opt to encourage foreign, less pollution‐intensive firms via higher taxation. Additionally, this paper examines how an optimal emission tax may be adjusted as products become more differentiated; industry emissions may fall/rise as a result of more differentiated products. One important contribution of this paper is that it emphasizes the role of abatement efforts, product differentiation, and differences in pollution intensity coefficients across firms in the characterization of the optimal emission tax.     

POLITICAL ECONOMY OF STRATEGIC EXPORT POLICY IN A DIFFERENTIATED DUOPOLY*

This paper investigates the effect of a home firm's lobbying on a strategic export policy in a third market with a differentiated duopoly. We focus on its effect on domestic welfare under Bertrand and Cournot competition. Regardless of the mode of competition, the strategic export policy cannot improve domestic welfare in the presence of lobbying if the degree of product differentiation is high or the government is overly concerned with political contribution relative to domestic welfare. Moreover, for the same degree of product differentiation, the lobbying‐induced export policy is more likely to deteriorate domestic welfare relative to free trade under Cournot competition.     

Incentives for sabotage in vertically related industries

We show that the incentives of a vertically integrated supplier to “sabotage” the activities of downstream rivals can vary with both the type of sabotage and the nature of downstream competition. Cost-increasing sabotage is typically profitable under both Cournot and Bertrand competition. In contrast, demand-reducing sabotage is often profitable under Cournot competition, but unprofitable under Bertrand competition. Incentives for sabotage can vary non-monotonically with the degree of product differentiation.      

Product differentiation, process R&D, and the nature of market competition

We investigate the relationship between process and product R&D and compare the incentives for both types of R&D under different modes of market competition (Bertrand versus Cournot). It is shown that: (i) process R&D investments increase with the degree of product differentiation and firms invest more in product R&D when they can do process R&D than when they cannot; (ii) Bertrand firms have a stronger incentive for product R&D whereas Cournot firms invest more in process R&D; and (iii) cooperation in product R&D promotes both types of R&D relative to competition whereas cooperation in both types of R&D discourages R&D relative to cooperation in just product R&D.     

Cartel sustainability with vertical product differentiation: Price versus quantity competition

In the context of a vertically differentiated duopoly, we analyse the influence of the degree of differentiation on cartel sustainability, under both price and quantity competition. We find that, under both Bertrand and Cournot competition, the effect of vertical product differentiation on sustainability of the collusive equilibrium is unclear. It is shown that, given a degree of differentiation, price collusion is more sustainable than quantity collusion.     

Price and Quantity Competition in a Differentiated Duopoly With Network Compatibility Effects

We consider the efficiency of price and quantity competition in a network products market, where we observe product compatibility with network externalities (hereafter, network compatibility effects). In particular, if network compatibility effects between firms are sufficiently asymmetric, the Cournot equilibrium is more efficient than the Bertrand equilibrium in terms of larger consumer, producer and total surpluses. Then, we consider an endogenous choice of the strategic variables, price and quantity. If the degree of network compatibility effects of the rival firm is larger (smaller) than the degree of product substitutability, then choosing prices (quantities) is a dominant strategy for the firm. Thus, if the network compatibility effects of both firms are larger (smaller), the Bertrand (Cournot) equilibrium arises. Furthermore, if the network compatibility effects between the firms are sufficiently asymmetric, the firm with a larger (smaller) network compatibility effect than a certain level of product substitutability chooses quantities (prices). In this case, the Cournot–Bertrand equilibrium arises, which is less (more) efficient than the Cournot equilibrium in terms of consumer (producer) surplus.     

Brand/product innovation and the optimal length of trademark/patent protection

A simple CES model of product differentiation is used to consider brand innovation and compulsory trademark licensing. Judd has used a different but closely related model to study product innovation and optimal patent length. Under Cournot assumptions, computer simulations show that the optimal length of trademark/patent protection is finite and varies in an intuitive way with the costs of innovation and production, interest rates and taste parameters.     

Insider trading with product differentiation

This paper investigates the effect of product differentiation on the real and financial decisions of a publicly-owned firm, competing $\grave{a}$ la Cournot with another privately-owned firm. The results show that the degree of product differentiation affects the stock price coefficients (i.e. the market maker’s response to the real signal and to the total order flow signal) and the output of the publicly-owned firm. It also appears to have a detrimental effect on the manager’s profits and compensation scheme. The paper then proposes an extension of the benchmark model to incorporate Cournot and Stackelberg competition between two insiders in the financial market. The type of the financial competition adopted has also an effect on the results of the benchmark model that sometimes depend on the degree of product differentiation.     

The Timing of Environmental Policy: A Note on the Role of Product Differentiation

We examine the role that product differentiation can play in the design of environmental policy under full commitment and no commitment on the part of the environmental regulator. We consider a setting with two firms selling a differentiated product which generates pollution through emissions. Firms can reduce their emissions by undertaking abatement activities while an environmental regulator taxes emissions. The main results are: (1) When products are highly differentiated, the optimal time-consistent (no commitment) tax is always lower than the optimal pre-commitment tax. As the degree of product differentiation decreases, for relatively efficient abatement technology and high damages, the time-consistent emission tax exceeds the optimal pre-commitment one. (2) Abatement when product differentiation is extensive is higher under the time-consistent regime unless the abatement technology is extremely efficient. The same ranking applies to social welfare. However, as products become more and more similar, these results are (partially) reversed and pre-commitment could lead to both higher levels of abatement and welfare.