Endogenous timing and the choice of quality in a vertically differentiated duopoly
In: Research in economics: Ricerche economiche, Band 53, Heft 1, S. 101-109
ISSN: 1090-9451
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In: Research in economics: Ricerche economiche, Band 53, Heft 1, S. 101-109
ISSN: 1090-9451
Which shape market competition is likely to exhibit? This question is addressed in the present paper, where firms can choose whether to act as quantity or price setters, whether to move early or delay as long as possible at the market stage and finally whether to be entrepreneurial or managerial. Moreover, firms can endogenously determine the sequence of such decisions. It is shown that in correspondence of the (unique) subgame perfect equilibrium of the game, all firms first decide to delay, then to act as Cournot competitors, and finally stockholders decide to delegate control to managers. Hence, sequential play between either managerial or entrepreneurial firms, as well as simultaneous play between entrepreneurial firms are ruled out.
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This paper tackles the issue of choosing roles in duopoly games. First, it is shown that the two necessary (and sufficient, if both satisfied) conditions for sequential play to emerge at equilibrium are that both leader and follower are at least weakly better off than under simultaneous play. Second, by means of a two-stage game of vertical differentiation, it is shown that if firms can commit to their respective timing decisions, there may exists a case where the leader is not necessarily better off than in the simultaneous equilibrium. Finally, in the absence of any commitment devices, it is proved that the timing choice can be time inconsistent if it is taken before firms proceed to play in both stages taking place in real time.
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The issue of timing is addressed in a game between managerial firms. The choice over timing can be taken either by managers or by entrepreneurs. It is shown that (i) delegation drastically modifies the owners' preferences concerning the distribution of roles, as compared to the setting where firms act as pure profitmaximizers; and (ii) the ability of moving first in the market game entails that, at least observationally, the owner of the leading firm prefers not to delegate. I show that the choice of the timing by managers entails the same profit owners would achieve by specifying the timing in the delegation contract.
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The choice between quantity and price in order to stabilize collusion is modeled here. It is shown that this relocates the prisoners' dilemma backwards, from the market stage to the stage where the market variable is chosen in order to sustain collusion, and where discount rates appear as the payo¤s. Likewise, a prisoners' dilemma arises also when both the market variable and the type of behavior (cooperative or non-cooperative) are simultaneously chosen.
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I describe the entry process in a spatial market over an infinite time horizon. I show that, as long as the strategy space at the location stage is unbounded, the results derived from the single-period Stackelberg model of entry coincide with those obtained in the infinite horizon model. On the contrary, if the strategy space is bounded, then the later the follower enters, the closer to the center of the market the leader locates at the initial date.
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I investigate the behaviour of a multiproduct monopolist supplying vertically differentiated varieties of the same good. The discretemodel adopted here allows to obtain a continuous model when, in the limit, the number of varieties becomes infinitely large. The main finding establishes that the tendency on the part of the monopolist to undersupply all qualities but the top one can take two alternative forms, i.e., either qualities correspond to the socially optimal ones but the allocation of consumers across qualities is distorted by the price schedule, or qualities are indeed lower than those supplied under social planning. The first case arises when the monopolist finds it profitable to restrict output, while the second obtains when the market is rich enough to induce the monopolist to supply the same quantity a social planner would produce. Policy implications are discussed.
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The endogenous choice of timing is discussed in a vertically differentiated duopoly where quality improvement requires a fixed convex cost. The timing decision concerns the quality stage. Using an extended game with observable delay, it is shown that only simultaneous equilibria can arise. This puts into question the ability of Stackelberg games to describe the entry process.
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The issue of the persistence of monopoly when at least one labour-managed firm takes part in an auction for a cost-reducing innovation is tackled in this paper. It is shown that (i) when the incumbent is a profit-maximizing firm while the entrant is a labour-managed firm, monopoly persists; (ii) when both firms are labour-managed, monopoly persists only if the technology initially employed by the incumbent is highly inefficient as compared to the new one; and, finally, (iii) when the incumbent is labour-managed while the outsider is a profit seeking agent, then entry always occurs and monopoly changes hands.
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The consequences of free trade are investigated in an international duopoly under horizontal differentiation and convex transportation costs. It is shown that the smaller country may benefit from trade if it is sufficiently small to allow for a significant volume of exports by the domestic firm. On the contrary, the larger country never benefits from trade, since liberalization decreases the domestic firm's profit more than it increases consumer surplus.
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In: Bulletin of economic research, Band 48, Heft 4, S. 329-335
ISSN: 1467-8586
ABSTRACTThe stability of collusion is analysed for a family of demand functions whose curvature is determined by a parameter varying between zero and infinity. When the number of firms is low, firms may prefer to act as quantity setters in order to increase cartel stability if demand is sufficiently convex. Otherwise, price‐setting behaviour enhances their ability to collude. As the number of firms tends to infinity, Cournot behaviour is preferable to Bertrand behaviour in order to stabilize collusion, independently of the characteristics of market demand.
This paper reformulates the issue of the international coordination of monetary policy in the framework of an extended game with observable delay, where governments are required to set the timing of their respective actions before proceeding to the actual choice of their monetary policies. This allows to shrink signi…cantly the set of equilibria.
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The issue of a cartel stability is investigated in a vertical differentiation framework with convex variable production costs. The behaviour of firms' critical discount factors as the curvature of the cost function varies is analysed, considering either the noncooperative or cooperative qualities, and either price or quantity behaviour. It emerges that, if firms aim at stabilizing the cartel, they are better off paying à la Counot and prefer not to choose the monopoly qualities.
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This paper reformulates the issue of the international coordination of monetary policy in the framework of an extended game with observable delay, where governments are required to set the timing of their respective actions before proceeding to the actual choice of their monetary policies. This allows to shrink signi…cantly the set of equilibria.
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This paper tackles the issue of choosing roles in differentiated duopoly games. First, it is shown that the leader is not necessarily better off than in the simultaneous equilibrium. Second, it is proved that the sequential equilibria obtain only if both firms are better off under sequential play than under simultaneous play. Finally, a duopoly game under vertical differentiation and Bertrand competition is illustrated, where the price leader can indeed happen to be worse off than in the simultaneous equilibrium.
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