Target pricing: Demand-side versus supply-side approaches

The practice of target pricing has been a key factor in the success of Japanese manufacturers. In the more commonly known demand-side approach, the target price for the supplier equals the manufacturer's market price less a percent margin for the manufacturer but no cost-improvement expenses are shared. In the supply-side approach, cost-improvement expenses are shared and the target price equals the supplier's cost plus a percent margin for the supplier. Using a general oligopoly and Cournot duopoly models, we characterize the equilibrium and optimal policy for each approach under various conditions. We find that sharing cost-reduction expenses allows the manufacturer using the supply-side approach to attain competitive advantage in the form of increased market share and higher profit, particularly in industrial conditions where margins are thin and price sensitivities are high.     

存货质押业务中银行与物流企业Stackelberg博弈行为分析

完全信息下的存货质押融资业务中,物流企业作为先行决策者决定风险承担比例,银行据此决定利率,对实践中双方博弈行为进行分析与求解的数值仿真研究表明:完全信息下由银行和物流企业"双边决定市场"的优势大于由银行单边决定的市场;借款企业高履约水平时,物流企业愿意通过提高自身的风险承担比例来换取银行减让利率;利率敏感度对均衡结果的影响较自有资金敏感度更为显著。     

Moore's law and price trends of digital products: the case of smartphones

ABSTRACT

Since the introduction of the iPhone by Apple in 2007 and Google's Android platform in 2009, the two systems have accounted for a total of 90% of the U.S. smartphone market. Apple, however, reaps most of the profit in the industry. In the second quarter of 2016, for example, Apple's iPhone gets 104% of the sector's profit. This suggests that the smartphone market resembles a Stackelberg leadership model. Despite Apple's strong market power, we investigate if the market leader is under pressure to be price competitive. We calculate a quality-adjusted price index for smartphones from 2007 to 2016. Our results show that the average price declines at an average rate of over 27% per year. The price trend is similar to other digit products such as computers, cameras, and portable music players. We observe that the large price decline reflects the effect of Moore's law, which predicts that the capacity of integrated circuits undergoes an exponential growth. The effect of Moore's law is incorporated into the Stackelberg model. We also observe that price trends of other digital products also follow a similar pattern. This suggest that the long-run price trends of digital consumer goods are somewhat independent of the market structures.     

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.     

Output commitment through product bundling: Experimental evidence

We analyze the impact of product bundling in experimental markets. One firm has monopoly power in a first market but competes with another firm à la Cournot in a second market. We compare treatments where the multi-product firm (i) always bundles, (ii) never bundles, and (iii) chooses whether to bundle or not. We also contrast the simultaneous and the sequential order of moves in the duopoly market. Our data indicate support for the theory of product bundling: with bundling and simultaneous moves, the multi-product firm offers the predicted number of units. When the multi-product firm is the Stackelberg leader, the predicted equilibrium is better attained with bundling, especially when it chooses to bundle, even though in theory bundling should not make a difference here. In sum, bundling works as a commitment device that enables the transfer of market power from one market to another.     

NON‐RIGID WAGES AND MERGER PROFITABILITY REVERSAL UNDER CONVEX COSTS AND CENTRALIZED UNIONIZATION

Can a merger from duopoly to monopoly be detrimental for profits? This paper deals with this issue by focusing on the interaction between decreasing returns to labour (which imply firms’ convex costs) and centralized unionization. First, it is highlighted that a wage ‘non‐rigidity’ result applies: the post‐merger wage is higher than in the pre‐merger equilibrium. Second, it is shown that a ‘reversal result’ in relation to merger profitability actually realizes when the union is sufficiently oriented towards wages. Moreover, the higher the reservation wage, the degree of product differentiation, and the union's relative bargaining power, the higher the probability that a merger reduces profits.     

To adjust or not to adjust after a cost-push shock? A simple duopoly model with (and without) resilience

We characterize the equilibrium in a homogeneous good Cournot duopoly in which firms have the choice to react to a cost-push shock by paying a lump-sum adjustment cost in order to offset the initial rise in marginal cost. Our results show that the size of the shock and the size of the adjustment cost jointly determine the nature and the number of the equilibria generated in the game. In particular, if the adjustment cost is high enough, at least one firm decides not to adjust at the pure-strategy equilibrium, and such a partial adjustment by the industry can be socially efficient as well. The main conclusions are robust to the endogenization of the adjustment cost as an increasing function of the shock size. Some implications of this partial equilibrium analysis about industry's resilience are outlined.     

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.     

Dynamic management of water transfer between two interconnected river basins

This paper analyzes the dynamic interaction between two regions with interconnected river basins. Precipitation is higher in one river-basin while water productivity is higher in the other. Water transfer increases productivity in the recipient basin, but may cause environmental damage in the donor basin. The recipient faces a trade-off between paying the price of the water transfer, or investing in alternative water supplies to achieve a higher usable water capacity. We analyze the design of this transfer using a dynamic modeling approach, which relies on non-cooperative game theory, and compare solutions with different information structures (Nash open-loop, Nash feedback, and Stackelberg) with the social optimum. We first assume that the equilibrium between supply and demand determines the optimal transfer price and amount. We show that, contrary to the static case, in a realistic dynamic setting in which the recipient uses a feedback information structure the social optimum will not emerge as the equilibrium solution. We then study different leadership situations in the water market and observe that the transfer amount decreases toward a long-run value lower than the transfer under perfect competition, which in turn lays below the social optimum. In consequence, the water in the donor's river-basin river converges to a better quality in the presence of market power. Finally, we numerically compare our results to the Tagus-Segura water transfer described in Ballestero (2004). Welfare gains are compared for the different scenarios. We show that in all dynamic settings, the long-run transfer amount is lower than in Ballestero's static model. Further, we show that the long-run price settles at a lower level than in Ballestero's model, but is still higher than the average cost-based price determined by the Spanish government.     

我国制造商应对外资强势零售商的合作广告策略

文章研究了在外资强势零售商对我国零售业强烈冲击下,制造商应对强势零售商的合作广告策略。文章运用Hotelling模型建立了一个我国制造商和零售商合作广告模型,并运用Stackelberg博弈得到了模型的Nash均衡。研究发现,合作广告策略下强势零售商的利润下降的同时,制造商的利润提高了,但我国零售商的利润下降了。同时还发现,合作广告存在的条件是相对于强势零售商我国零售商的差异化适中,过小的差异化会造成竞争加剧,而过大的差异化会造成强势零售商更大的竞争优势。