VERTICAL MERGERS AND PRODUCT DIFFERENTIATION*

This paper presents an equilibrium theory of vertical mergers that incorporates strategic behaviors in the Hotelling‐type location model. This enables one to consider the relationship between downstream firms' strategies for product differentiation and vertical integration. I show that vertical integration enhances the degree of product differentiation of the integrated firm. Under some conditions, partial integration arises in equilibrium, which may increase the profit of the nonintegrated downstream firm. The paper also discusses the welfare implications of vertical integration.     

FINITELY REPEATED PRISONERS' DILEMMA WITH SMALL FINES: THE PENANCE CONTRACT*

This paper investigates finitely repeated prisoners' dilemma games with explicit contractual devices. It shows that full collusion can be achieved in a unique manner by incentivizing the players' final‐period play with small fines. The incentivizing modality is the penance contract, by which a player is penalized if and only if he deviates from the penance strategy in the final period. Using this contractual agreement brings the penance strategy profile into unique subgame perfect equilibrium in the entire game and achieves full collusion without being invalidated by renegotiation.     

AIRPORT PRIVATIZATION AND INTERNATIONAL COMPETITION

We provide a simple theoretical model to explain the mechanism whereby the privatization of international airports can improve welfare. The model consists of a downstream (airline) duopoly with two inputs (landings at two airports) and two types of consumers. The airline companies compete internationally. We show that the outcome in which both airports are privatized is always an equilibrium, whereas that in which no airport is privatized is an equilibrium only if the degree of product differentiation is large. We also discuss airport congestion problems within the model framework.     

ON DETAIL‐FREE MECHANISM DESIGN AND RATIONALITY*

Mechanism design theory has been criticized, because mechanisms depend on the detail of specification and agents’ behaviour relies on strong rationality assumptions. Hence the study of “detail‐free” mechanism design with weak rationality is important as a practical theory. This paper emphasizes that, even if we confine our attention to detail‐free mechanisms with weak rationality, there exists plenty of scope for the development of new and significant ideas. I describe my recent work along these lines, and argue that stochastic decisions work in large double auction environments, and that moral preferences improve the implementability of social choice functions.     

HOUSEHOLD USES OF TIME — TRANSITIONS FROM 1960 TO 1980

Studies of time-use in Japan were reviewed by Tanaka at the Uppsala Conference,¹ followed by a review of time-input for household work given by Matsushima at the Bulgaria Conference.² This paper will study the changes of household work with data based on past national 5-year interval surveys, the NHK (Nippon Hoso Kyokai) Japan Broadcasting Corporation surveys of 1960, 1965, 1970, (1973 interim), 1975 and 1980. The latest 1980 survey has been summarized by Nakanishi.³     

TIME-INPUT AND HOUSEHOLD WORK-OUTPUT STUDIES IN JAPAN – PRESENT STATE AND FUTURE PROSPECTS

Studies of time-use in Japan were reviewed by Tanaka at the Uppsala Conference¹. This paper intends to focus on time-input for household work as it relates to families, with data based on individual, group, and national studies, and with the following objectives to fulfil: first, to comprehend the nature of household work as a non-market production and the need to discover if the scientific measurement of time is useful in assessment of non-market labour; second, to present data on the utilization of time by members of families with focus on the problems of research methods and their comparability as presented by Stajkov² and Aas³.     

MARKET COMPETITION,R&D AND FIRM PROFITS IN ASYMMETRIC OLIGOPOLY*

We investigate a Cournot model with strategic R&D investments wherein efficient low‐cost firms compete against less efficient high‐cost firms. We find that an increase in the number of high‐cost firms can stimulate R&D by the low‐cost firms, while it always reduces R&D by the high‐cost firms. More importantly, this force can be strong enough to compensate for the loss that arises from more intense market competition: the low‐cost firms' profits may indeed increase with the number of high‐cost firms. An implication of this result is far‐reaching, as it gives low‐cost firms an incentive to help, rather than harm, high‐cost competitors. We relate this implication to a practice known as open knowledge disclosure, especially Ford's strategy of disclosing its know‐how publicly and extensively at the beginning of the 20th century.     

ROLE OF RELATIVE AND ABSOLUTE PERFORMANCE EVALUATIONS IN INTERGROUP COMPETITION

We investigate the moral hazard problem in which a principal delegates multiple tasks to multiple workers. The principal imperfectly monitors their action choices by observing the public signals that are correlated with each other through a macro shock. He divides the workers into two groups and makes them compete with each other. We show that when the number of tasks is sufficiently large, relative performance evaluation between the groups accompanied by absolute performance evaluation results in eliminating unwanted equilibria. In this case, any approximate Nash equilibrium nearly induces the first‐best allocation.