The possibility of mixed-strategy equilibria with constant-returns-to-scale technology under Bertrand competition

Abstract. We analyze the Nash equilibria of a standard Bertrand model. We show that in addition to the marginal-cost pricing equilibrium there is a possibility for mixed-strategy equilibria yielding positive profit levels. We characterize these equilibria and find that having unbounded revenues is the necessary and sufficient condition for their existence. Hence, we demonstrate that under realistic assumptions the only equilibrium is marginal-cost pricing.     

Competition versus efficiency: What drives franchise values in European banking?

This paper investigates how stock market investors perceive the impact of market structure and efficiency on the long-run performance potential of European banks. To that end, a modified Tobin’s Q ratio is introduced as a measure of bank franchise value. This measure is applied to discriminate between the market structure and efficient-structure hypotheses in a coherent forward-looking framework, in which differences in banks’ horizontal and vertical differentiation strategies are controlled for. The results show that banks with better management or production technologies possess a long-run competitive advantage. In addition, bank market concentration does not affect all banks equally. Only the banks with a large market share in a concentrated market are able to generate non-competitive rents. The paper further documents that the forward-looking, long-run perspective and the noise-adjustment of the performance measure overcome most of the drawbacks associated with testing these hypotheses in a multi-country set-up. Finally, notwithstanding the international expansion of bank activities, the harmonization of regulation and the macroeconomic convergence in the European Union (EU15), we still find that country-specific macroeconomic variables have a significant impact on bank performance. The findings indicate that there is a trade-off between competition and stability that should be taken into account when assessing mergers or acquisitions.     

Applying the marketing concept to design new products

This article is an empirical application of the marketing concept in the design of new product offerings in the area of religious instructional materials. The general approach and methodology of this research should be appropriate for many types of consumer products and organizations. The marketing concept was applied to the design of religious instructional materials in this study through an empirical investigation of the values, attitudes, and perceived needs of key market populations. The study consisted of determination of perceived needs for alternative topics, identification of educational themes around which specific topics could be integrated into instructional packages, and assessment of the importance of these themes across alternative market segments. A total of 1161 respondents (464 pastors and 697 lay members) completed a mail questionnaire which solicited their perceptions of themselves and the domain of the church in their lives. Respondents also indicated the level of importance they placed on alternative instructional topics. The data were analyzed through the use of multivariate techniques to provide understanding and interpretation of the perceived needs of alternative market segments. Results of the analyses were very useful in determining which instructional packages to develop and the target markets for each package.     

OPTIMAL CORPORATE LENIENCY PROGRAMS*

This study characterizes the corporate leniency policy that minimizes the frequency with which collusion occurs. Though it can be optimal to provide only partial leniency, plausible sufficient conditions are provided whereby the antitrust authority should waive all penalties for the first firm to come forward. It is also shown that restrictions should be placed on when amnesty is awarded, though it can be optimal to award amnesty even when the antitrust authority is very likely to win the case without insider testimony.     

Thirty years of international business scholarship in Canada

Upon the invitation of the Hemant Merchant (Editor, Strategic Management and International Business Division) I have reviewed the development of international business (IB) scholarship in Canada and related this to my own research conducted while I was a faculty member at the University of Winnipeg 1970–79, Concordia University 1979–80, Dalhousie University 1980–87, and the University of Toronto 1987–98. I have developed a retrospective analysis of four key thematic areas of research that are specifically relevant in a Canadian context. Copyright © 2008 ASAC. Published by John Wiley & Sons, Ltd.     

TRAFFIC MANAGEMENT IN WHOLESALE INTERNATIONAL ROAMING: TOWARDS A MORE EFFICIENT MARKET?*

Despite a general trend of lower charges for mobile calls, in Europe, prices for international roaming calls have remained at levels that are surprisingly high. The apparent reluctance of mobile network operators to lower roaming tariff is generating many antitrust concerns. This paper presents in a two‐country two‐firm framework the functioning of the current system governing wholesale international roaming agreements based on interoperator tariffs. The focus is on the role of traffic management; thanks to the emergence of traffic direction techniques, mobile network operators are allowed to select the roaming partner. We show that, unless these techniques do not allow for perfect control on traffic flows, traffic management does not improve the market's efficiency. In line with the regulatory mechanism recently adopted by the European Commission, we show that a simple price cap mechanism may restore partial efficiency in the wholesale market. We also show that although cross‐border cooperation at the wholesale level is Pareto efficient, it will not emerge as an equilibrium of a two‐sided matching game.     

REGULATORY ENVIRONMENT ANALYSIS IN THE SOUTH AFRICAN TELECOMMUNICATIONS INDUSTRY

The regulation of the telecommunications industry in South Africa is, by design, a complex matter, since it is mired with overlaps of mandates between the regulator, Independent Communications Authority of South Africa (ICASA) and the Competition Commission on competition matters, coupled with vetoing powers of the Minister of Communications. The Harvard Business Model is employed in this article to show that there is a lack of coordinated effort between the regulator and its supporting structures. This then compromises efficiency as demanded by Parliament from state enacted bodies. Since ICASA is faced with dynamic economic and regulatory challenges, it is recommended that the regulator be fully resourced and granted regulatory as well as competitive authority in the telecommunications industry.     

Prices vs. quantities: Public finance and the choice of regulatory instruments

Since Montgomery [1972. Markets in licenses and efficient pollution control programs. Journal of Economic Theory 5, 395-418] and Weitzman [1974. Prices vs. quantities. Review of Economic Studies 41, 477-491], it has generally been assumed that, in a full-information setting, tradable quotas and taxes are equivalent regulatory instruments. We demonstrate that, if the government is movitated by public-finance concerns, this equivalence holds only if quotas are short lived. Moreover, the government prefers quotas with the shortest possible lifetime, or, what is equivalent in our setting, taxes.     

Firm Heterogeneity,Contract Enforcement,and the Industry Dynamics of Offshoring*

We develop an endogenous growth model with R&D spillovers to study the long‐run consequences of offshoring with firm heterogeneity and incomplete contracts. In so doing, we model offshoring as the geographical fragmentation of a firm's production chain between a home upstream division and a foreign downstream division. While there is always a positive correlation between upstream bargaining weight and offshoring activities, there is an inverted U‐shaped relationship between these and growth. Whether offshoring with incomplete contracts also increases consumption depends on firm heterogeneity. As for welfare, whereas with complete contracts an R&D subsidy is enough to solve the inefficiency due to R&D spillovers, with incomplete contracts a production subsidy is also needed.     

Industry concentration in South African manufacturing industry: Trends and consequences, 1972–96

This paper reports industry concentration measures for the South African manufacturing sector over the 1972–1996 period for the three digit industry classification. Noted are high level of industry concentration in South African manufacturing, and a rising trend in concentration across a wide range of industries as measured by the Gini coefficient, though some countervailing evidence emerges on the Rosenbluth index. Analytically the paper examines the impact of concentration on employment and investment rates. Results show that increased concentration unambiguously lowers employment. For investment rates, increased inequality of market share serves to raise investment rates, while falling firm numbers for any given inequality of market share lowers investment rates. The difference is consistent with a disciplining effect of a competitive fringe of firms on the behaviour of large firms in a market.