Organizational Structure and the Choice of Price versus Quantity in a Mixed Duopoly

We consider the choice of price/quantity of a public and a private firm in a mixed differentiated duopoly. First, we study the way in which the strategic choice of the market variable is affected by different given organizational structures (managerial or entrepreneurial) of the public and the private firm. Second, we investigate how the price/quantity choice interacts with the endogenous choice of the organizational structure, thus determining a subgame perfect equilibrium at which firms choose to behave as price‐setters and to adopt a managerial structure.     

Mixed Competition and Patent Licensing

This paper studies the patent licensing decision of an insider patentee when two firms engage in a mixed (Cournot–Bertrand or Bertrand–Cournot) competition where one firm adopts the quantity strategy while the other uses the price strategy and vice versa. If either the fixed fee or royalty is applied, then the licensor prefers the fixed fee when the licensor takes the quantity strategy, while the licensee uses the price strategy (Cournot–Bertrand). If the two‐part tariff is applied, then the two‐part tariff is more likely to be adopted by the licensor under Cournot–Bertrand than under Bertrand–Cournot competition.     

Mixed pricing in oligopoly with limited monopoly

We analyze price competition between two brands. Buyers consist of switchers and two segments of customers with limited brand loyalty. We identify a unique symmetric mixed-strategy price equilibrium and find that competition is most relaxed when there exists some switchers.     

R&D Strategy in International Mixed Duopoly with Research Spillovers

This paper examines the international mixed duopoly behaviour with research spillovers. Using a two‐stage game with Research and Development (R&D) and output, we investigate the effects of imperfectly appropriable R&D on optimal R&D strategies of a domestic public firm and a foreign private firm across different market interactions: (i) international R&D competition, (ii) only the foreign firm conducts R&D, (iii) only the domestic public firm conducts R&D, (iv) no firm conducts R&D, and (v) research joint venture. The results show that firms' research performances are determined by the degree of spillovers and the optimal R&D strategies involve R&D competition. Spillovers are shown to be socially beneficial and their absence can prove to be a strategic deterrent, with the public firm monopolising the market. Some of these findings contrast with the traditional models of oligopoly (with or without R&D) and mixed oligopoly (without R&D).     

Managerial incentives and collusive behavior

I characterize the effects of empirically observed managerial incentives on long-run oligopolistic competition. When managers have a preference for smooth time-paths of profits - as revealed by the empirical literature on “income smoothing” - manager-led firms can sustain collusive agreements at lower discount factors. Capped bonus plans and incumbency rents with termination threats make collusion supportable at any discount factor, independent of contracts' duration. When managers have these preferences/incentives and demand fluctuates, “price wars during booms” need not occur: the most collusive price may then be pro-cyclical.     

Strategic spin-offs of input divisions

When a downstream producer enters backward into the input market, a “helping the rivals effect” exists: Such entry hurts the firm's downstream business as it increases upstream competition and thus benefits its rival downstream firms. This negative externality prevents the newly-created upstream unit from expanding. A spin-off enables the firm to credibly expand in the input market, thereby forcing its upstream competitors to behave less aggressively. Spin-offs occur in equilibrium if and only if the number of downstream firms exceeds a threshold level. When there is more than one integrated firm, a spin-off by a firm can trigger spin-offs by others that would not occur otherwise.     

The impact of bargaining on markets with price takers: Too many bargainers spoil the broth

In this paper we study how bargainers impact on markets in which firms set a list price to sell to those consumers who take prices as given. The list price acts as an outside option for the bargainers, so the higher the list price, the more the firms can extract from bargainers. We find that an increase in the proportion of consumers seeking to bargain can lower consumer surplus overall, even though new bargainers receive a lower price. The reason is that the list price for those who do not bargain and the bargained prices for those who were already bargaining rise: sellers have a greater incentive to make the bargainers’ outside option less attractive, reducing the incentive to compete for price takers. Competition Authority exhortations to bargain can therefore be misplaced. We also consider the implications for optimal seller bargaining.     

On the Cournot–Bertrand Profit Differential and the Structure of Unionisation in a Managerial Duopoly

This paper deals with the issue of the Cournot–Bertrand profit differential by bringing together two different strands of the industrial organisation literature: managerial delegation and unionised oligopolies. Relative to unionisation, two alternative regimes are analysed and compared: ‘decentralised unionisation’, involving firm‐specific unions, and ‘centralised unionisation’, in which an industry‐wide union sets a uniform wage for the entire industry. The ‘reversal result’ – that is, profits are higher under Bertrand than under Cournot – applies irrespective of the unionisation regime and for a very wide range of product differentiation. Moreover, it is more likely to occur when unionisation is decentralised than centralised and, especially when products are not too much differentiated, the profit differential in favour of price competition is also larger in the presence of firm‐specific unions. However, if firm owners not only delegate the choice of the strategic variable but also that of the competition regime, managers always opt to compete in quantities, thus generating an inefficient choice for owners.     

Spatial Cournot Competition in a Linear City with Directional Delivery Constraints

This study investigates a sequential game of location and transportation mode choices, as well as the subsequent quantity choice. The results show that spatial Cournot competition with directional delivery constraints yields a richer set of spatial configurations, involving midpoint agglomeration, maximum differentiation and asymmetric dispersion, and a richer set of transportation mode selections, involving delivery in different directions, asymmetric delivery between duopoly firms, and delivery in two directions by each firm, depending on the fixed cost of a transportation instrument. This paper concludes with an investigation of welfare analysis on optimal locations and transportation modes.     

The dynamics of a differentiated duopoly with quantity competition

We analyse the dynamics of a Cournot duopoly with heterogeneous players to investigate the effects of micro-founded differentiated products demand on stability. The present study, which indeed modifies and extends Zhang et al. (2007) (Zhang, J., Da, Q., Wang, Y., 2007. Analysis of nonlinear duopoly game with heterogeneous players. Economic Modelling 24, 138–148) and Tramontana, F., (2010) (Tramontana, F., 2010. Heterogeneous duopoly with isoelastic demand function. Economic Modelling 27, 350–357), reveals that a higher degree of product differentiation may destabilise the market equilibrium. Moreover, we show that a cascade of flip bifurcations may lead to periodic cycles and ultimately chaotic behaviours. Since a higher degree of product differentiation implies weaker competition, then a theoretical implication of our findings, that also constitute a policy warning, is that a fiercer (weaker) competition tends to stabilise (destabilise) the unique positive Cournot–Nash equilibrium.     

Endogenous market power

In this paper we develop a framework to study markets with heterogeneous atomic traders. The competitive model is augmented as we provide traders with correct beliefs about their price impacts to define equilibrium with endogenously determined market power and show that such equilibrium exists in economies with smooth utility and cost functions and is generically determinate. Traders? price impacts depend positively on the convexity of preferences or cost functions of the trading partners and are subject to mutual reinforcement. Compared to the competitive model, the volume of trade is reduced, and hence is Pareto inefficient. The price effects of non-competitive trading depend on the convexity of marginal utility or cost function.     

A public firm in a model of spatial duopoly with price discrimination

We visit the role of privatization in the location decision of firms in an industry where no firm can produce all varieties demanded. We demonstrate that the Nash equilibrium locations are socially optimal, in the presence of a publicly owned firm, notwithstanding the degree of privatization.     

The Cournot-Bertrand profit differential: A reversal result in a differentiated duopoly with wage bargaining

This paper compares Cournot and Bertrand equilibria in a downstream differentiated duopoly in which the input price (wage) paid by each downstream firm is the outcome of a strategic bargain with its upstream supplier (labor union). We show that the standard result that Cournot equilibrium profits exceed those under Bertrand competition - when the differentiated duopoly game is played in imperfect substitutes - is reversible. Whether equilibrium profits are higher under Cournot or Bertrand competition is shown to depend upon the nature of the upstream agents’ preferences and on the distribution of bargaining power over the input price. We find that the standard result holds unless unions are both powerful and place considerable weight on the wage argument in their utility function.     

Unilateral effects of mergers with general linear demand

We derive the formula for the unilateral price effects of mergers of two products with linear demand in the general asymmetric situation. The formula uses the same information required to calculate upward pricing pressure in the 2010 Horizontal Merger Guidelines.     

Platform intermediation in a market for differentiated products

We study a two-sided market where a platform attracts firms selling differentiated products and buyers interested in those products. In the subgame perfect equilibrium of the game, the platform fully internalises the network externalities present in the market and firms and consumers all participate in the platform with probability one. The monopolist intermediary extracts all the economic rents generated in the market, except when firms and consumers can trade outside the platform, in which case consumers obtain a rent that corresponds to the utility they would get if they did trade outside the platform. The market allocation is constraint-efficient in the sense that the monopoly platform does not introduce distortions over and above those arising from the market power of the differentiated product sellers. An increase in the number of retailers increases the amount of variety in the platform but at the same time increases competition. As a result, the platform lowers the firm fees and raises the consumer charges. In contrast, an increase in the extent of product differentiation raises the value of the platform for the consumers but weakens competition. In this case, the platform raises both the charge to the consumers and the fee for the firms.     

Efficiency and surplus bounds in Cournot competition

We derive bounds on the ratios of deadweight loss and consumer surplus to producer surplus under Cournot competition. To do so, we introduce a parameterization of the degree of curvature of market demand using the parallel concepts of ρ-concavity and ρ-convexity. The “more concave” is demand, the larger the share of producer surplus in overall surplus, the smaller is consumer surplus relative to producer surplus, and the lower the ratio of deadweight loss to producer surplus. Deadweight loss over total potential surplus is at first increasing with demand concavity, then eventually decreasing.     

Consumer search with asymmetric price sampling

We explore asymmetries in the way consumers sample prices in a simple sequential search framework. In equilibrium, the price distribution of a firm catering to more local consumers first-order stochastically dominates that of its rival. Prices rise in the degree of asymmetry.     

Input Prices as Signals of Costs to a Downstream Rival and Customer

We consider a dual distribution channel in which a vertically integrated manufacturer competes with a downstream rival in a retail market and also sells an input to the rival. We use a signalling model with a continuum of types to examine a situation in which the manufacturer has private information on the production cost of its retail product. We show that in a separating equilibrium under Cournot (Bertrand) retail competition, the manufacturer signals the uncompetitiveness (competitiveness) of its firm by charging a smaller input price than the optimal price under complete information.     

Buyer search and price dispersion: a laboratory study

We study markets with costly buyer search in which sellers simultaneously post prices. Buyers costlessly observe one or (with probability 1−q) two of the posted prices, and can accept one or pay to search again. The experiment varies q, the search cost, and the number of buyers. Equilibrium theory predicts a unified very low (high) price for q=0 (q=1) and predicts specific distributions of dispersed prices for q=1/3 and 2/3. Actual prices conform closely to the predictions in some treatments. Buyers’ reservation prices are biased away from the extremes, however, and sellers’ prices have positive autocorrelation and cross-sectional correlation.     

Endogenous Timing in a Mixed Duopoly: Price Competition

The endogenous order of moves is analyzed in a mixed duopoly for differentiated goods, where firms choose whether to set prices sequentially or simultaneously. It is shown that, in contrast to the private duopoly where firms set prices sequentially, in the mixed duopoly firms choose prices simultaneously. Moreover, the result obtained in the mixed duopoly under price competition differs from the one under quantity competition, since in the latter case decisions are taken sequentially.