Price Versus Quantity in a Duopoly with a Unilateral Effect and with Bargaining over Managerial Contracts

This study examines the endogenous choice of each firm’s strategic contract, that is, a price contract or a quantity contract, in a duopoly in which their demand functions are asymmetric when the content of their managerial contracts is determined through bargaining between the owner and the manager. The degree of asymmetry between their demand functions corresponds to the relation between the goods they produce. In contrast to the case wherein each firm’s delegation parameter is determined through profit maximization, we show that the quantity competition cannot become the equilibrium market structure when the bargaining power of the manager relative to that of the owner is sufficiently low. In particular, when the relation between the two goods is complementary, two asymmetric market structures can be observed in equilibrium. Furthermore, we consider the situation in which the relative bargaining power of the manager to that of the owner within each firm is different between the two firms.     

Competitive location-based mobile coupon targeting strategy

At present, retailers are increasingly targeting consumers based on consumers' geographic locations by distributing mobile coupons. We develop a theoretical model to compare uniform coupon targeting with one-to-one coupon targeting for two competing retailers with asymmetric mobile accessibilities. We find that retailers engage in targeting promotion only when the marginal cost of targeting is not too high. Adopting uniform coupon targeting does not necessarily lead to the prisoner's dilemma. Additionally, the asymmetry of mobile accessibility lessens inter-firm price competition. Finally, our results further demonstrate that marketers should switch from offensive to defensive targeting as the marginal cost of targeting declines.     

A Dynamic Growth Model with Equity for Guarantee Swap and Asymmetric Information*

We develop an endogenous dynamic growth model in which a financially constrained firm optimizes the entrance timing and financing structure in different information exposure scenes. An innovation financing tool called equity‐for‐guarantee swap is introduced to solve the dilemma of financing constraints. The productivity of the firm is a random variable following a two‐point distribution and its value can be observed in advance by the entrepreneur but not by the insurer. Our main goal is to fix the fair guarantee cost with asymmetry information and examine how the cost differs from the one under the same situation except with symmetric information. We solve a Nash equilibrium of the game between the entrepreneur and the insurer and specify the condition to determine whether a separating equilibrium or pooling one will be achieved. We find that at the separating equilibrium, the high‐profit firm will sacrifice a profit to send a signal for the purpose of separating itself from the low‐profit one by increasing the latter's mimicking cost. The pooling equilibrium occurs when the insurer can not distinguish the firm's type and therefore, the insurer demands the same guarantee cost for all firms.     

Impact of personalization and privacy concerns on information disclosure and pricing

Advances in IT have enabled some firms to offer personalized products according to the private information disclosed by consumers, while others are still offering standardized products, which brings about asymmetric competition. For consumers, disclosing private information for personalized products leads to reduced misfit cost as well as privacy loss. To illuminate the impact of consumers' trade-off between the benefit of information disclosure and the associated privacy concerns on firms' asymmetric price competition, we consider a setting where only one firm is capable of product personalization based on consumers' personal information. The capable firm makes a profit from selling the product and monetizing consumers' information. We demonstrate that as the capable firm becomes more adept at personalization, he may raise or lower the price depending on his profit foci, and an improvement in his capability does not always guarantee a higher profit. Counterintuitively, an increase in the unit misfit cost (i.e., greater product differentiation) can, under certain circumstances, intensity price competition, making both firms worse off and leading to higher consumer surplus. We also show that when consumers are more privacy-concerned, there exists an indirect effect that weakens the impact of an increase in price on the monetization of consumers’ information, and hence price competition can be mitigated and both firms can be better off. Furthermore, we demonstrate that product personalization with misfit-reducing effect always increases consumer surplus under the asymmetric competition. Our findings provide firms and policy-makers with great managerial insights.     

Profit Shifting in Two‐Sided Markets

We investigate how multinational two‐sided platform firms set their prices on intra‐firm transactions. Two‐sided platform firms derive income from two customer groups that are connected through at least one positive network externality from one group to the other. A main finding is that, even in the absence of taxation, transfer prices deviate from marginal cost of production. A second result of the paper is that it is inherently difficult to establish arm’s length prices in two‐sided markets. Finally, we find that differences in national tax rates may be welfare enhancing, despite the use of (abusive) transfer prices as a profit‐shifting device.     

Effects of Joint Outsourcing on Consumer Welfare

This work models outsourcing under oligopolistic competition with nonlinear costs. I show that in a covered market, if each firm’s marginal cost before outsourcing is lower than the industry’s average cost, outsourcing leads to increased prices and decreased consumer welfare. Joint outsourcing is more profitable if the firms’ equilibrium quantity produced is in the economies of scale part of their cost curve.     

RISK‐AVERSION,OPTIMAL LEVERAGE AND THE INVESTMENT–UNCERTAINTY RELATION

We develop a partial equilibrium dynamic model in which firms are risk‐averse. We analyse the determinants of the investment–uncertainty relationship by means of numerical techniques. When firms can borrow ‘outside’ resources at the riskless rate, an increase in price volatility depresses investment for realistic parameter values. In our model, portfolio considerations play an important role. When the marginal revenue of capital becomes more uncertain, the risk‐averse firm's owners reduce their ‘short position’ in the risk‐free asset, thus diminishing the firm's debt level. The contraction in leverage reduces the expected returns on investment because the expected marginal revenue product is higher than the user cost of capital. In turn, the reduction in expected yields tends to depress investment.     

Information Asymmetry and Quarterly Disclosure Decisions by Firms: Evidence From the Tokyo Stock Exchange

This study investigates whether the new quarterly disclosure reporting requirement issued by the Tokyo Stock Exchange was related to the reduction of the degree of private information‐based trade and the liquidity of listed stocks in Japan, or as a reverse causality, helped dichotomize good firms and bad firms as a separating signaling equilibrium. We use the probability of asymmetric information‐based trade (Adjusted PIN) as a measure of information asymmetry and the probability of symmetric order‐flow shock (PSOS) as a measure of market illiquidity. We use a sample of public firms from 2002 to 2007 that chose to either disclose or not disclose quarterly financial reports. We find that the disclosing firms had lower information asymmetry (Adjusted PIN), lower symmetric order‐flow shocks (PSOS), and lower private information‐based trade (PIN). When we conduct further difference‐in‐differences tests, we find that the firms with lower information asymmetry and higher liquidity had a higher tendency to disclose their financial statements and vice versa. Thus, the new disclosure requirement did not necessarily improve the information asymmetry and liquidity of firms, but instead helped good and bad firms form a case for a separating signaling equilibrium.     

A Bertrand model of pricing of complementary goods under information asymmetry

Parties in a supply chain, being independent firms, have private information about various aspects of the business not normally available to other parties. We consider a market where customers need to buy two complementary goods as mixed bundle, offered by two separate firms. The demand for each firm is dependent on the pricing strategy of both firms, which, in turn, depends on the quantities offered as per their own forecasts. We present a profit maximization model to obtain optimal strategies for a firm making decisions under information asymmetry. The model follows a simultaneously played Bertrand type game. We contrast and compare three scenarios: (1) when forecast information is asymmetric between the firms; (2) when forecast information is shared between the firms; and (3) when the firms form a strategic alliance.     

On the Choice of Royalty Rule to Cover Fixed Costs in Input Joint Ventures

In a model where two competing downstream firms establish an input joint venture (JV), we analyze how different royalty rules for covering fixed costs affect channel profits. Under running royalties, the downstream firms’ perceived marginal costs are above the true marginal costs since fixed costs are incorporated. We find that tougher competition between the JV partners may actually increase channel profit under such a scheme. However, lump-sum royalties are preferable if the competitive pressure is weak.     

Harrodian instability in a post-Keynesian growth and distribution model

This article examines afresh the problem of Harrodian instability by incorporating into a post-Keynesian growth model an additional link, first proposed by Adrian Wood (A theory of profit, 1975), between firms’ pricing policies (which determine their profit margins) and their accumulation policies. It is assumed that firms’ pricing strategies are wholly linked to their need to self-finance some of their investments. Such a link suggests, a priori, that there is an endogenous self-correcting force, originating at the micro-level, that is capable of mitigating Harrodian instability. When investment increases or declines uncontrolledly, the variation in the accompanying profit margin is able to exert a contrary smoothing effect on effective demand (through changes in the multiplier). It is shown, firstly, that this effect is such that it leads to the emergence of a basin of attraction for multiple stationary growth rates. However, there is every likelihood that the growth rates in this basin of attraction will be higher than the natural growth rate (and will therefore be unsustainable in the long term). It is shown, secondly, that a sufficiently high budget deficit makes it possible to draw the convergent growth rate space towards a state of stationary equilibrium within the “sphere of the possible”. It is shown, finally, that the state has sufficient room for manoeuvre to arbitrate between competing objectives (employment–distribution–budget deficit) by virtue of the existence of a whole continuum of stationary equilibria.     

Innovation and Exporting: Does Quality Matter?

We study the effect of innovation on a firm’s propensity to export, developing a simple model where heterogeneous firms operate in a monopolistically competitive market and set their prices as a markup above the marginal cost. The key proposition of our model is that firms that invest in better quality products are more likely to export. We test it using Italian firms’ data. Econometric results suggest that innovation, defined as quality upgrading, has a significant effect on the firms’ propensity to export; and, for those who are already exporting, innovation—defined as new products—has a significant effect on a firm’s turnover.     

Duopoly Pricing Under ‘Private Knowledge’ of Product Differentiation

This note studies price decisions in a duopoly industry where firms have private information over the degree of product differentiation (product-type). A Bayesian-Nash price solution is derived assuming firms maximize their ??certainty-equivalent?? profit levels. The comparative-statics indicate that increased risk aversion over the rival??s product triggers price competition. Consequently, the results of the study suggest revealing information is a higher reward strategy than concealing information in situations where rivals have asymmetric information over product type. These findings contribute to the industrial economic literature by generalizing the Bertrand equilibrium in an asymmetric information game model.     

How do firms make money selling digital goods online?

We review research on revenue models used by online firms who offer digital goods. Such goods are non-rival, have near zero marginal cost of production and distribution, low marginal cost of consumer search, and low transaction costs. Additionally, firms can easily observe and measure consumer behavior. We start by asking what consumers can offer in exchange for digital goods. We suggest that consumers can offer their money, personal information, or time. Firms, in turn, can generate revenue by selling digital content, brokering consumer information, or showing advertising. We discuss the firm’s trade-off in choosing between the different revenue streams, such as offering paid content or free content while relying on advertising revenues. We then turn to specific challenges firms face when choosing a revenue model based on either content, information, or advertising. Additionally, we discuss nascent revenue models that combine different revenue streams such as crowdfunding (content and information) or blogs (information and advertising). We conclude with a discussion of opportunities for future research including implications for firms’ revenue models from the increasing importance of the mobile Internet.     

A Statistical Equilibrium Approach to the Distribution of Profit Rates

Motivated by classical political economy we detail a probabilistic, ‘statistical equilibrium’ approach to explaining why even in equilibrium, the equalization of profit rates leads to a non‐degenerate distribution. Based on this approach we investigate the empirical content of the profit rate distribution for previously unexamined annual firm level data comprising over 24,000 publicly listed North American firms for the period 1962–2014. We find strong evidence for a structural organization and equalization of profit rates on a relatively short time scale both at the economy wide and one‐ and two‐digit SIC industry levels into a Laplace or double exponential distribution. We show that the statistical equilibrium approach is consistent with economic theorizing about profit rates and discuss research questions emerging from this novel look at profit rate distributions. We also highlight the applicability of the underlying principle of maximum entropy for inference in a wide range of economic topics.     

Endogenous Market Structures in the Presence of a Socially Responsible Firm

We consider the endogenous selection of strategic contracts in an asymmetric duopoly with substitutable goods. the duopoly comprises a typical managerial firm with a sales delegation and a socially responsible firm (CSR firm) with a linear combination of social welfare and quantity as its managerial delegation contract. In particular, we examine how the equilibrium market structure changes from the case wthere both firms adopt sales delegation contracts to the case wthere one of the firms becomes a CSR firm, after the owners of the firms select their strategic contracts. We show that two market structures that are asymmetric with respect to their strategic contracts can become equilibrium market structures under the pure strategic contract class. Furthermore, we consider a unique mixed strategy equilibrium to examine how the risk domination between the two asymmetric equilibrium market structures affects equilibrium selection. there, we find that the competition wthere the firm with the sales delegation and the CSR firm have a price contract and a quantity contract, respectively, risk-dominates the competition wthere the firms have a quantity contract and a price contract, respectively. Finally, by deriving the order of social welfare among the four subgames, we show that the social incentive does not coincide with the private incentive in the robust equilibrium with respect to risk domination in the endogenous selection game of the strategic contracts of the asymmetric duopoly with the firm with a sales delegation and the CSR firm.     

Retailer Heterogeneity,Intra-Brand Competition and Social Welfare

This paper considers a model where a manufacturer sells its product to consumers through competitive retailers who are heterogeneous in marginal distribution costs and geographic locations. We study the welfare implications of resale price maintenance (RPM), which eliminates the intra-brand competition. We show that with RPM, the manufacturer can make more profit at the cost of the consumers. RPM helps the high-cost retailers to stay competitive in the market, and therefore increases the total distribution cost of the society. We suggest that antitrust authorities should be concerned when intra-brand competition is lessened.     

异质性企业国际转移的动力机制与路径选择——HFT模型和NEG模型的拓展及验证

将新经济地理学模型(NEG)引入到经典的异质企业贸易模型(HFT)分析框架中,抛弃边际成本不可知的假定,由边际成本度量生产率的差异,拓展了已有的分析模型。研究结果表明,企业生产率的异质性引致了企业的国际转移,且这种转移具有双向性,因而生产率的高低会影响企业对FDI、出口等转移路径的不同选择。并采用我国制造业分行业面板数据验证了模型结论对现实的适用性。我国企业应根据自身的生产率水平来选择是否转移及转移路径,政府应适度鼓励企业对外转移和对内承接,科学推动国际转移内外平衡的发展。     

Subcontracting bargaining power and the trade policy

In this paper, we consider that the split of surplus from a subcontracting deal depends on the relative bargaining powers of domestic and foreign firms. The finding shows that a domestic optimal export policy is a tax (subsidy) if the bargaining power of the domestic firm is sufficiently small (large). We also demonstrate that a domestic firm’s higher bargaining power increases (may decrease) domestic profit if the export policy is exogenous (endogenous). In the presence of an outsider option, the domestic optimal export policy will be threatened by the outsider option if the domestic firm’s bargaining power is sufficiently small, and thus a large bargaining power increases the optimal export tax. At the same time, the foreign firm may still subcontract to the domestic firm even if the domestic firm has a higher total marginal cost of the intermediate good than the outsider option.     

Asymmetric Collusion with Growing Demand

We characterize collusion sustainability in markets where demand growth triggers the entry of a new firm whose efficiency may be different from the efficiency of the incumbents. We find that the profit-sharing rule that firms adopt to divide the cartel profit after entry is a key determinant of the incentives for collusion (before and after entry). In particular, if the incumbents and the entrant are very asymmetric, collusion without side-payments cannot be sustained. However, if firms divide joint profits through bargaining and are sufficiently patient, collusion is sustainable even if firms are very asymmetric.