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.     

QUALITY AND WELFARE IN MIXED DUOPOLY: EFFECTS OF CAPACITY REDUCTION*

Under rationing of a public service due to its lower price and higher quality, the “privatization” could be regarded as a reduction in the capacity of the public service. We develop a model of mixed duopoly in which the service is vertically differentiated, a public firm is in a Stackelberg leader position, rationing happens, and the market is not covered. In one of two possible cases, it is shown that any reduction in the capacity of a public service will lower total surplus unless the price of the public service is too low and its quality is too high.     

THE FOUNDATION OF MARKET QUALITY ECONOMICS*

This study is based on my observation that high quality markets are indispensable for the healthy growth of a modern economy. Many problems surrounding markets are attributable to the lack of high quality markets. An industrial revolution creates extremely vibrant but unhealthy markets. This study introduces a concept of fairness in dealing and pricing (competitive fairness), which differs from efficiency, and defines market quality as a measure for the efficiency of allocation and the fairness of dealing and pricing. This study shows that competitive fairness is achieved by several market mechanisms that I constructed in my previous work.     

THE TENURE GAME: BUILDING UP ACADEMIC HABITS*

Why do some academics continue to be productive after receiving tenure? This paper answers this question by using a Stackelberg differential game between departments and scholars. We show that departments can set tenure rules and standards as incentives for scholars to accumulate academic habits. As a result, academic habits have a lasting positive impact on scholar's productivity, leading to higher productivity growth rates and higher productivity levels.     

A DYNAMIC ENTRY AND PRICE GAME WITH CAPACITY INDIVISIBILITY

Strategic market interaction is here modelled as a two‐stage game in which potential entrants choose capacities and next active firms compete in prices. Due to capital indivisibility, the capacity choice is made from a finite grid and there are economies of scale. In the simplest version of the model with a single production technique, the equilibrium turns out to depend on the ratio between the level of total output at the long‐run competitive equilibrium and the firm's minimum efficient scale: if that ratio is sufficiently large (the market is sufficiently ‘large’), then the competitive price emerges at a subgame‐perfect equilibrium of the capacity and price game; if not, then the firms randomize in prices on the equilibrium path. The role of the market size for the competitive outcome is shown to be even more important if there are several available production techniques.     

R&D INCENTIVES UNDER BERTRAND COMPETITION: A DIFFERENTIAL GAME*

We investigate dynamic R&D for process innovation in an oligopoly where firms invest in cost‐reducing activities. We focus on the correlation between R&D intensity and market structure, proving that the industry R&D investment at equilibrium monotonically increases in the number of firms. This result contradicts the established wisdom acquired from static games on the same topic. We also prove that, if competition is sufficiently tough, any increase in product substitutability reduces R&D efforts.     

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.     

COURNOT AND BERTRAND EQUILIBRIA COMPARED: A CRITICAL REVIEW AND AN EXTENSION FROM THE OUTPUT‐STRUCTURE VIEWPOINT*

This paper compares Bertrand competition with Cournot competition. In previous studies, the welfare ranking has not been examined in any general setting. One purpose of this work is to fill this gap. In the Zanchettin model, the ranking regarding the less efficient firm's output is sensitive to the degree of asymmetry between firms, whereas the welfare ranking is not. Another goal of this study aims at dealing with this paradox. We demonstrate that the rankings regarding average price, average output and the Herfindahl index are not sensitive to the degree of asymmetry, and hence can explain the welfare ranking.     

ENDOGENOUS TIMING IN A MIXED DUOPOLY: WEIGHTED WELFARE AND PRICE COMPETITION*

In this paper we analyse the endogenous order of moves in a mixed duopoly for differentiated goods. Firms choose whether to set prices sequentially or simultaneously. The private firm maximises profits while the public firm maximises the weighted sum of the consumer and producer surpluses (weighted welfare). It is shown that the result obtained in equilibrium depends crucially on the weight given to the consumer surplus in weighted welfare and on the degree to which goods are substitutes or complements. We also analyse whether the equilibria obtained maximise the sum of the consumer and producer surpluses or not. Finally we study whether the nationality of the private firm influences the results.     

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.     

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.     

UNEMPLOYMENT PERSISTENCE AND THE NAIRU: A BAYESIAN APPROACH

This paper estimates the United States and euro area NAIRU in a Bayesian framework. We set out a simple structural model explaining unemployment by demand and supply factors, which are treated as unobserved variables that have observable effects on measured unemployment, output and inflation. The model allows for unemployment persistence and a time-varying core inflation rate. The results show that although cyclical shocks are very persistent, most of the increase in European unemployment is driven by structural factors. The degree of persistence is lower in the United States but demand shocks seem to be more important in explaining variation in unemployment.     

JAPANESE CONTRIBUTIONS TO NONLINEAR CYCLE THEORY IN THE 1950s*

In the early 1950s pioneering contributions were made to the nonlinear theory of Keynesian macrodynamics by Shinichi Ichimura, Michio Morishima and Takuma Yasui. They were the first to formally investigate the existence, stability and uniqueness of limit cycles in macrodynamics. An attempt is made to place the contributions of this Japanese school of nonlinear trade cycle theorists within the context and development of math‐ematical economics in early post‐war Japan. As an additional, although minor, exercise, Morishima's model of the cycle is simplified and generalized to show, using the Andronov‐Hopf bifurcation theorem, the existence of a periodic orbit.     

A COMPARISON OF CONDITIONAL AND UNCONDITIONAL APPROACHES IN VALUE‐AT‐RISK ESTIMATION*

In this paper, we attempt to find the most important factor causing the differences in the performance of Value‐at‐Risk (VaR) estimation by comparing the performances of conditional and unconditional approaches. For each approach, we use various methods and models with different degrees of flexibility in their distributions including S_U‐normal distribution, which is one of the most flexible distribution functions. Our empirical results underscore the importance of the flexibility‐of‐distribution function in VaR estimation models. Even though it seems to be unclear which approach is better between conditional and unconditional approaches, it seems to be clear that the more flexible distribution we use, the better the performance, regardless of which approach we use.     

DOMESTIC COMPETITION POLICY AND TARIFF POLICY COMPARED*

M. Yano and F. Dei have demonstrated that, by controlling the degree of competition in a non‐tradables market (competition policy), a country can influence the terms of trade so as to increase its welfare, relative to free trade. Using their model, this study compares the extent of this effect with that of a tariff policy. It demonstrates that a competition policy can achieve a higher utility than a tariff policy if tariff rates are at levels currently tolerated in the real world. This demonstrates that domestic competition policy may play an important role as a substitute for tariff policy.     

TRADING VOLUME,VOLATILITY, AND GARCH EFFECTS IN THE SOUTH KOREAN WON/US DOLLAR EXCHANGE MARKET: EVIDENCE FROM CONDITIONAL QUANTILE ESTIMATION*

Under the MDH, this paper investigates the asymmetry in the positive relationship between unexpected volume and volatility, and whether the unexpected volume series as a proxy for the rate of information arrival absorbs the GARCH effects. This is achieved by applying a quantile regression approach to the won/dollar exchange market with reliable data on trading volumes. Interestingly, the results show that in a freely floating exchange rate system, the positive relationship increases as exchange rate returns are higher. Contrary to previous studies, despite a significantly positive relationship, the inclusion of volumes alone does not reduce volatility persistence at medium or high levels of returns. In addition, the reform of the South Korean exchange rate system had an impact on the relationship, which occurred in response to a financial crisis.     

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.     

THE DECISION TO HIRE MANAGERS IN MIXED MARKETS UNDER BERTRAND COMPETITION*

This paper analyses the decisions of firms as to whether or not to hire managers when there is a public firm competing with a private firm in the product market. It is shown that under Bertrand competition with heterogeneous goods both firms hire managers. This is in contrast with the result obtained under Cournot competition, where only the private firm hires a manager. Moreover, welfare is lower if both firms hire managers than if neither firm does. In contrast, under Cournot competition welfare is greater if both firms hire managers.