Customization with Vertically Differentiated Products

We consider a duopoly market with heterogeneous consumers. The firms initially produce vertically differentiated standard products located at the end points of the variety interval. Customization provides ideal varieties for consumers but has no effect on quality. The firms first choose whether to customize their products, then engage in price competition. We show that the low‐quality firm never customizes alone; customization becomes more likely as the difference between the firms’ qualities increases; and less likely as the fixed cost of customization increases. We extend the base model by relaxing two important assumptions—uniform pricing and exogenous quality. The main conclusions with uniform pricing continue to hold when price customization is allowed. In the second extension the firms’ qualities are endogenously determined. We show that the firms choose to be either substantially differentiated in quality or nondifferentiated.     

The Information Content of Stock Prices,Legal Environments,and Accounting Standards: International Evidence

Abstract

In this paper, we investigate the impact of accounting standards on the information content of stock prices using a sample of 44 countries from around the world. We find that the adoption of International Financial Reporting Standards or US Generally Accepted Accounting Principles per se does not make stock prices more informative, but that better accounting standards are helpful only in countries having effective legal environments. In particular, we find a significantly negative relationship between stock price synchronicity and the quality of accounting standards in countries with a common-law legal origin and generally better shareholder protection. Our findings are consistent with the theoretical prediction in Zhang [(2013). Accounting standards, cost of capital, resource allocation, and welfare in a large economy. The Accounting Review, 88(4), 1459–1488] that improving accounting standards effectively would increase social welfare in general.     

A Computational Dynamic Model of Strategic Behavior in the US Retail Banking Market

This paper examines the dynamics of bank strategies and performance in retail deposit markets. I develop an infinite‐horizon computational dynamic equilibrium duopoly model of value‐maximizing banks. It is used to analyze several critical aspects of behavior in local banking markets such as price and non‐price competition, strategic interactions between small and large banks, de novo bank growth, and consumer switching. The results suggest that growing banks offer higher deposit interest rates than established banks. Established banks are more likely to engage in non‐price competition, which can impede the effectiveness of de novo bank strategies and growth. Copyright © 2015 John Wiley & Sons, Ltd.     

Price and Quantity Contracts in a Mixed Duopoly with a Socially Concerned Firm

I study the endogenous choice of a price or quantity contract in a mixed duopoly with a socially concerned firm, which maximizes a combination of profit and consumer welfare. Equilibria with price and quantity contracts might co‐exist; welfare under price competition might be lower than under quantity competition; the firms' profit ranking might be different from that of a private duopoly or mixed duopoly with a public firm. Hence, if a firm follows a social strategy, the optimal market strategy crucially depends on the levels of social concern and competition in the market. The presence of socially concerned firms may change the mode of competition. Copyright © 2014 John Wiley & Sons, Ltd.     

Privatisation and vertical integration under a mixed duopoly

This paper analyses the privatisation of public firms when private firms may be vertically integrated with their suppliers. We consider a mixed duopoly with a vertically integrated public firm. The private firm bargains the price of the input with its supplier if they are not vertically integrated. We find that for a given bargaining power of the private firm, it vertically integrates with its supplier if goods are weak substitutes. We also find that there is less vertical integration in the mixed duopoly than in the private duopoly. Finally, in general, the public firm is privatised when goods are close substitutes and the bargaining power of the private firm is low enough.     

Multiproduct Firms in Hotelling’s Spatial Competition

Oligopoly models are usually analyzed in the context of two firms, anticipating that market outcomes would be qualitatively similar in the case of three or more firms. The literature on Hotelling’s location‐then‐price competition is not an exception. In this paper, we show that the main finding of brand bunching in Hotelling’s duopoly no longer holds once three or more firms are allowed to enter the market. That is, in oligopoly with three or more firms, firms proliferate brands.     

Implementation of competitive nonlinear pricing: tariffs with inclusive consumption

The paper studies how the optimal nonlinear quantity-payment allocation can be truthfully implemented by optional tariffs in a differentiated goods duopoly. Consumers choose from a menu of tariffs and are subsequently billed according to this. We find that implementation by simple two part tariffs may not be a feasible strategy in a duopoly because the optimal nonlinear tariff exhibits a convexity for lower quantities. We show that the optimal outcome can be implemented if the firms can use two part tariffs with inclusive consumption. The fixed fee includes a free consumption allowance, whereas subsequent consumption is charged according to a steep unit price. That way the firm is able to secure voluntary participation without violating the incentive constraint. The paper shows some examples from the telecommunications industry where firms offer two part tariffs with free call minutes to low demand segments.     

Product Line Choice in Retail Duopoly

This paper develops a successive duopoly model to identify conditions under which differentiated retailers that compete in quantities, when deciding on the range of brands to offer, will carry overlapping product lines. They will do so when retail margins on each brand are not too asymmetric. Otherwise, the less profitable brand is foreclosed from the market. It is shown that welfare increases if the upstream industry is perfectly competitive, even though fewer brands may be sold. With price competition though, exclusive dealing arises when retailers are not too differentiated and in‐store competition is sufficiently intense.     

Random encounters and information diffusion about product quality

This paper explores how social interactions among consumers shape markets. In a two-country model, consumers meet and exchange information about the quality of the goods. As information spreads, demand evolves, affecting the prices and quantities manufactured by profit-maximizing firms. We show that market prices with informational frictions reach the duopoly price with full information at the limit. However, this convergence can take different paths depending on the size asymmetry between countries. In particular, when the country producing the low-quality good is relatively large, the single market does not immediately turn into a duopoly and can be temporarily trapped in a situation of price instability where no Nash equilibrium in pure (but only in mixed) strategies exists and prices can fluctuate between their monopoly and duopoly levels. It follows that the classical price-reducing effects of international trade may take longer to appear. In view of an intense globalization process, understanding how social meetings affect market outcomes is critical for understanding the performance of international economic integration.     

Endogenous timing in a mixed duopoly: price competition with managerial delegation

We introduce a managerial delegation contract into the mixed duopoly model and examine its influence on price setting in a mixed duopoly in the context of the endogenous‐timing problem. We obtain the result that owners of a public and a private firm prefer to delay the setting of the prices of their products as much as possible. Thus, in equilibrium, the firms choose their prices simultaneously in the latter stage of the game. This is in contrast to the findings of the entrepreneurial case, according to which firms choose prices simultaneously in the former stage. Copyright © 2009 John Wiley & Sons, Ltd.     

基于Bertrand模型的区域港口双寡头定价策略

基于Bertrand模型的数理分析研究了区域港口双寡头的最优定价策略,指出双寡头在定价策略上的合作有利于提高双方的价格和利润。当寡头存在强弱之分时,强势的寡头定价高一些,弱势的寡头定价低一些,在双方价格的纳什均衡点,双方可以获得最大化的均衡利润。并以上海港与宁波-舟山港为案例进行了实证分析。     

Price and Quantity Competition in a Differentiated Duopoly with Upstream Suppliers

This paper analyzes the noncooperative game on the choice of strategic variable to set in duopoly in the presence of an upstream market for the input. For the case of labor input, the analysis shows that if the wage is the result of decentralized firm-union bargain, a duopoly producing substitutes may choose to compete either in the quantity space or in the price space, depending upon the distribution of bargaining power in the wage negotiation and the union's relative preference over the wage. For the case of input suppliers as profit-maximizing firms, the paper shows that a vertically differentiated duopoly may prefer to compete either in the quantity space or in a mixed strategy setting where the high-quality firm plays price and the low-quality firm plays quantity, depending upon the extent of substitutability, the degree of vertical product differentiation and the distribution of bargaining power in the input price negotiation.     

Quantity precommitment and price-matching

We study the effects of price-matching in a capacity-constrained duopoly setting. We show that no firm does worse at any pure equilibrium under price-matching relative to Bertrand, but as capacity increases, one or both firms do better relative to Bertrand. If the firms choose their capacities simultaneously before making pricing decisions, then the effect of price-matching varies with the cost of capacity. Specifically, when the cost is “high” price-matching either (i) has no effect on the market price, i.e., the market price associated with the pure SPEs is the Cournot one, or (ii) weakly decreases the market price relative to Cournot. Furthermore, when the cost is “low” price-matching leads to a set of (pure) SPE prices that includes the Cournot price in the interior. Therefore, price-matching does not necessarily benefit the firms when firms select their capacities before competing in price.     

Incentive pay and rent in oligopoly

Our purpose is to examine strategic delegation in nonlinear Cournot oligopoly. The findings generalize earlier results and show that managerial contracts reward sales under the condition of a fixed input price. Alternatively, under a variable input price, owners might punish sales even when goods are strategic substitutes. We conclude that optimal strategic motivation depends critically on the input price. For example, motivation that supports positive owner profit under a fixed input price nullifies owner-profit if an upstream monopolist with convex costs sets the input price. In a vertical relationship between a duopoly and an upstream monopolist, strategic delegation punishes sales.     

Estimating a Parsimonious Model of Inequality Aversion in Stackelberg Duopoly Experiments*

In the Stackelberg duopoly experiments in Huck et al. (2001) , nearly half of the followers’ behaviours are inconsistent with conventional prediction. We use a test in which the conventional self‐interested model is nested as a special case of an inequality aversion model. Maximum likelihood methods applied to the Huck et al. (2001) data set reject the self‐interested model. We find that almost 40% of the players have disadvantageous inequality aversion that is statistically different from zero and economically significant, but advantageous inequality aversion is relatively unimportant. These estimates provide support for a more parsimonious model with no advantageous inequality aversion.     

Real‐time forecast combinations for the oil price

Baumeister and Kilian (Journal of Business and Economic Statistics, 2015, 33(3), 338–351) combine forecasts from six empirical models to predict real oil prices. In this paper, we broadly reproduce their main economic findings, employing their preferred measures of the real oil price and other real‐time variables. Mindful of the importance of Brent crude oil as a global price benchmark, we extend consideration to the North Sea‐based measure and update the evaluation sample to 2017:12. We model the oil price futures curve using a factor‐based Nelson–Siegel specification estimated in real time to fill in missing values for oil price futures in the raw data. We find that the combined forecasts for Brent are as effective as for other oil price measures. The extended sample using the oil price measures adopted by Baumeister and Kilian yields similar results to those reported in their paper. Also, the futures‐based model improves forecast accuracy at longer horizons.     

Stability of a Cournot-Nash equilibrium: The multiproduct case

This paper examines the stability conditions of Cournot-Nash equilibria in models in which each firm produces multiple outputs in m related markets. Using a discrete adjustment process, we establish sufficient and necessary conditions for stability. We derive further specialized stability conditions for three important cases, namely a multiproduct duopoly, a multiproduct oligopoly with homogeneous products, and a single-product oligopoly with product heterogeneity. The paper shows that the stability conditions of the m markets individually are in general sufficient nor necessary for the stability of the m markets as a group. In addition, an example is given of how the stability conditions can be applied to determine comparative statics for multiproduct oligopoly.     

Wholesale price discrimination: Innovation incentives and upstream competition

In intermediate good markets where there are alternative supply sources, wholesale price discrimination may enhance innovation incentives downstream. We consider a vertical chain where a dominant firm and a competitive fringe supply imperfect substitutes to duopoly retailers which carry both varieties. We show that a ban on price discrimination by the dominant supplier makes uniform pricing credible and reduces retailers’ incentives to decrease the cost of acquiring the competitively supplied variety, leading to higher upstream profits and lower downstream welfare. Our analysis complements existing results by identifying a novel channel through which wholesale price discrimination can improve dynamic market efficiency.     

Optimal Fiscal Regime in a Spatial Duopoly

We investigate a horizontally differentiated duopoly in which a public authority can either tax or subsidize firms, in order to induce duopolists to choose the socially optimal locations. The policy proposed here is such that welfare maximization is achieved by directly affecting firms' location without explicitly modifying their price behavior.