A Comparison of the Wholesale Model and the Agency Model in Differentiated Markets

We compare the wholesale model and the agency model that characterise a vertical relation in a bilateral duopoly framework. Results suggest that the agency model may be regarded as an example of retailer power resale price maintenance and provide an economic view of why restraints of this kind should be evaluated under the rule of reason. While competition is more likely to be undercut under the agency model, relative to the wholesale model, the agency model benefits consumers by offering relatively lower retail prices and greater demand

Unilateral market power in wholesale electricity markets - A Cournot based analysis

This thesis studies the unilateral market power in wholesale electricity markets, its reasons and its extent. The study is constructed on a Cournot competition model. I first go through the Cournot duopoly competition and then present the Cournot competition for n firms. I show that the Cournot equilibrium always settles between the competitive and the monopoly equilibriums. I then construct an electricity market specific duopoly game considering different marginal costs for different (base and peak load) capacities. I play five games, each with a slightly different setting. I prove that firms' unilateral market power rises along with the marginal costs of electricity. When capacity gets more expensive firms have less incentives to offer it to the market and are therefore also more aware of their rival's preferred strategies. I prove my point by presenting some of the most relevant previous empirical studies from two chosen markets, the United Kingdom and California. I study the British electricity market from its reform in 1990 until 2001. The empirical work shows that the market power abuse was maintained at a very low level in Britain's duopolistic market thanks to strict regulation. However evidence of collusive behavior towards the end of the decade is strong. Also evidence for regulation-responding behavior is found. I also examine California's electricity market during its crisis in 1998-2000. Researchers have found that large part of the increase in electricity's wholesale prices was due to decreased hydroelectric energy input, increased natural gas price and increased demand. However strong evidence of capacity withholding exists and the hypothesis for market power abuse cannot be rejected. Certain studies also show prices to be very close to Cournot equilibrium

Essays on strategic firms, vertical contracts and horizontal agreements

Inspired by some newly emerged topics from the real world, this thesis comprises of four essays that study firms’ strategic incentives, as well as the vertical and horizontal agreements between firms. The first essay assesses theoretically firms’ incentives to engage in quality proliferation. We show that it is possible for vertical proliferation to be completely undesirable in the absence of entry threats, therefore proliferation of any level might be anticompetitive. Nevertheless, when proliferation is optimally conducted, it always benefits consumers. The second and third essays focus on vertical contracts between successive stages of production. The second essay places the controversial agency model involved in the e-book case in the context of antitrust treatment to vertical restraints, and examines its effects on competition and welfare relative to the wholesale model. The third essay goes beyond and develops a framework allowing us to clarify the ceteris paribus effects of changing each of the two key elements written in a vertical contract: decision roles and forms of the transfer payment. Based on this framework, we show that it is meaningful to distinguish between classic RRM, by which a manufacturer sets the transfer payment as well as the retail price, and agency RPM, by which a retailer is able to set the transfer payment before a manufacturer set the retail price. The final essay focuses on horizontal cartel agreements and experimentally investigates the effects of endogenous enforcement on cartel prices. We highlight the strategic uncertainty in cartel coordination as a channel of composition deterrence, as well as the potential trade-off between frequency and composition deterrence

The Evolution of Shopping Center Research: A Review and Analysis

Retail research has evolved over the past sixty years. Christaller\u27s early work on central place theory, with its simplistic combination of range and threshold has been advanced to include complex consumer shopping patterns and retailer behavior in agglomerated retail centers. Hotelling\u27s seminal research on competition in a spatial duopoly has been realized in the form of comparison shopping in regional shopping centers. The research that has followed Christaller and Hoteling has been as wide as it has been deep, including literature in geography, economics, finance, marketing, and real estate. In combination, the many extensions of central place theory and retail agglomeration economics have clearly enhanced the understanding of both retailer and consumer behavior. In addition to these two broad areas of shopping center research, two more narrowly focused areas of research have emerged. The most recent focus in the literature has been on the positive effects large anchor tenants have on smaller non-anchor tenant sales. These positive effects are referred to as retail demand externalities. Exploring the theoretical basis for the valuation of shopping centers has been another area of interest to researchers. The primary focus of this literature is based in the valuation of current and expected lease contracts

When Old Meets New: Wholesale and Agency Models in the Market for Printed and Electronic Books

In this work, I seek explanations to some of the curious phenomena reported in the book market by focusing on its two important characteristics: (i) the substitutability between the printed- and the e-book versions, and (ii) the mixture of the old wholesaling arrangement for printed-book versions and the new agency model for e-book versions. In this exploration, using a game theoretic model, I find that an increase in the agency fee that the retailer collects in the e-book market can depress the vitality of the market, which not only ends up hurting the publisher, but also the retailer. This raises a caution that retailers should be moderate in their efforts to get a bigger cut in the agency arrangement. I also find that some of the perplexing phenomena observed in the real world may be due to an excessively large agency fee in the e-book market, and that reducing this fee can lead to a win-win outcome for both the publisher and the retailer

Essays in Vertical Agreements and Consumer Behavior

This thesis collects three independent essays and a literature review. Two of them relate to vertical agreements. The first essay explores a retailer's choice in allocating control rights over the decision of retail prices. Results show that retailers adopt a hybrid configuration as a middle ground between two extremes, where pricing decisions are delegated, for all products, either to retailer or manufacturers. The second essay investigates the make-it-or-license-it choice of a brand owner under the risk of moral hazard when licensing the extension product to a third party. Brand licensing emerges as an equilibrium choice under brand dilution (respectively, enhancement) when the consumer perceives a large (small) distance between the extension product and parent brand. The third essay explores the issue of rating bubbles within online feedback systems by means of a field experiment. The analysis found the presence of positive social influence bias, in that high ratings affect the individual rating behavior in a significant way. The last paper is accompanied by a thorough and deep review of the literature about the consequences of online user ratings on product sales/performance (economic dimension) and product adoption/rating behavior (behavioral dimension). The topic is increasingly investigated by academic researchers and industry professionals alike. This overview presents established results and insights as issues for future research

An Examination of the Evolution of Broadband Technologies in the UK

The aim of this thesis is to examine the reasons due to which Digital Subscriber Line (DSL) became the most widely used technology to deliver broadband connectivity in the United Kingdom (UK). The research examines the outcome starting with events in 1960s when broadband as it is defined today did not exist. The research shows that a combination of factors involving regulatory decisions, changing market conditions, and unexpected technological breakthroughs contributed to the current day mix of broadband technologies in the last mile access in the UK. To interpret the events that have shaped the development, deployment, and adoption of broadband technologies in the UK, the thesis draws from various theoretical ideas related to Science and Technology Studies (STS) to understand and analyse the events. In order to discover and establish the historical context, the thesis employs original, unpublished interviews along with the extensive use of archival material and secondary sources. Influenced by some of the core ideas of social constructionist studies, this research combines concepts from economic studies of technological change along with themes involving maintenance of technology, path dependence, and the role of bandwagon effect. These research threads are combined to understand the way development, deployment, and adoption of broadband technologies took place in the UK. The research is intended to contribute to the understanding of technology in a constantly changing regulatory and socio-economic environment and how it is shaped by multiple factors. The targeted readership is researchers, analysts, and decision makers working with broadband technology, telecommunications policy, and STS. Further research is suggested in the form of studies of wireless broadband technologies and the role of regulatory policies in the development of the UK communications market

Agency Selling or Reselling? Channel Structures in Electronic Retailing

In recent years, online retailers (also called e-tailers) have started allowing manufacturers direct access to their customers while charging a fee for providing this access, a format commonly referred to as agency selling. In this paper, we use a stylized theoretical model to answer a key question that e-tailers are facing: When should they use an agency selling format instead of using the more conventional reselling format? We find that agency selling is more efficient than reselling and leads to lower retail prices; however, the e-tailers end up giving control over retail prices to the manufacturer. Therefore, the reaction by the manufacturer, who makes electronic channel pricing decisions based on their impact on demand in the traditional channel (brick-and-mortar retailing), is an important factor for e-tailers to consider. We find that when sales in the electronic channel lead to a negative effect on demand in the traditional channel, e-tailers prefer agency selling, whereas when sales in the electronic channel lead to substantial stimulation of demand in the traditional channel, e-tailers prefer reselling. This preference is mediated by competition between e-tailers—as competition between them increases, e-tailers prefer to use agency selling. We also find that when e-tailers benefit from positive externalities from the sales of the focal product (such as additional profits from sales of associated products), retail prices may be lower under reselling than under agency selling, and the e-tailers prefer reselling under some conditions for which they would prefer agency selling without the positive externalities