Additive and Multiplicative Uncertainty Revisited: What Explains the Contrasting Biases?

above the certainty level while for additive uncertainty the price should be lower than the certainty level. This note gives an intuitive explanation for the result after first presenting a parsimonious review of the two models. We also discuss which, if either, of the two models is more realistic. Received December 14, 2001; revised version received July 16, 2002 Published online: April 30, 2003 We thank referees for helpful comments. Ciaran Driver would like to acknowledge the research facilities from ANU, Canberra for their help in writing this paper.     

Strategic Price Discrimination in Compulsory Insurance Markets

This paper considers price discrimination when competing firms do not observe a customer’s type but only some other variable correlated to it. This is a typical situation in many insurance markets—such as motor insurance—where it is also often the case that insurance is compulsory. We characterise the equilibria and their welfare properties under various price regimes. We show that discrimination based on immutable characteristics such as gender is a dominant strategy, either when firms offer policies at a fixed price or when they charge according to some consumption variable that is correlated to costs. In the latter case, gender discrimination can be an outcome of strategic interaction alone in situations where it would not be adopted by a monopolist. Strategic price discrimination may also increase cross subsidies between types, contrary to expectations.JEL Classification No.: L13, G22     

Calling circles: network competition with nonuniform calling patterns

We introduce a flexible model of telecommunications network competition with nonuniform calling patterns, accounting for the fact that customers tend to make most calls to a small set of similar people. Equilibrium call prices are distorted away from marginal cost, and competitive intensity is affected by the concentration of calling patterns. Contrary to previous predictions, jointly profit‐maximizing access charges are set above termination cost in order to dampen competition if calling patterns are sufficiently concentrated. We discuss implications for regulating access charges as well as on‐ and off‐net price discrimination.     

Minimum Quality Standards Under Cournot Competition

I study the consequences of imposing a minimum quality standard on an industry in which firms first incur fixed quality development costs and subsequently compete over quantity. I find that a mildly restrictive minimum quality standard unambiguously reduces total welfare, in contrast to previous findings derived in the literature where it is assumed that firms compete over prices.     

Incentives for input foreclosure

We analyze the incentives of a vertically integrated firm to foreclose downstream rivals in a model of upstream price competition between suppliers of only imperfectly substitutable inputs. Our main motivation is a critical assessment of common assertions that draw inferences from pre-merger observable variables to post-merger incentives to foreclose. In particular, we find that, contrary to some commonly expressed views, high margins on the downstream and low margins on the upstream market are not good predictors for the incentives of a newly integrated firm to foreclose rivals. Besides this contribution to policy, our model also extends existing results in the literature on vertical foreclosure through allowing for the interaction of product differentiation on the upstream and on the downstream market.     

Universal Service and Entry: The Role of Uniform Pricing and Coverage Constraints

Universal service objectives are pervasive in telecommunications, and have gained new relevance after the introduction of competition in many markets. Despite their policy relevance, little work has been done allowing for a thorough discussion of instruments designed to achieve universal service objectives under competition. We intend to fill this gap, and disaggregate the problem into interacting forms of regulatory intervention such as uniform pricing and coverage constraints. It is shown that these are not competitively neutral and may have far-reaching strategic effects. Under uniform pricing, equilibrium coverage of both incumbent and entrant may be lower than without regulation. These effects depend on which measures are imposed at the same time, thus no single measure can be evaluated in isolation. We also point out that different groups of consumers are affected in different ways, making welfare comparisons difficult.     

Is Mobile Telephony a Natural Oligopoly?

This paper presents a model of competitive interaction among mobile telecommunications operators. Operators can offer services in twoseparate markets, urban and rural areas, and customers commute between them. Market coverage of an operator can then be interpreted as a parameter of vertical productdifferentiation. The main implication is that the industry has strong features of a``natural oligopoly': Only a limited number of operators with possibly different coverage cansurvive in equilibrium. It is also shown that competing operators do not have an incentiveto reach roaming agreements over non-overlapping areas. On the contrary, roamingcan be easily agreed upon by colluding operators.     

Content and advertising in the media: Pay-tv versus free-to-air

We compare the advertising intensity and content of programming in a market with competing media platforms. With pay-tv, media platforms have two sources of revenues, advertising revenues and revenues from viewers. With free-to-air, media platforms receive all revenues from advertising. We show that if viewers strongly dislike advertising, the advertising intensity is greater under free-to-air television. We also show that free-to-air television tends to provide less differentiated content whereas pay-tv stations always maximally differentiate their content. In addition, we compare the welfare properties of the two different schemes.