Incomplete Contracts and Industrial Organization

We develop an equilibrium model of industrial structure in which the organization of firms is endogenous. Differentiated consumer products can be produced either by vertically integrated firms or by pairs of specialized companies. Production of each variety of consumer good requires a unique, specialized component. Vertically integrated firms can manufacture the components they need in the quantity and type that maximizes profits, but they face a relatively high cost of governance. Specialized firms can produce at lower cost, but input suppliers face a potential hold-up problem. We study the equilibrium mode of organization when inputs are fully or partially specialized. We consider how the degree of competition in the market and other parameters affect the equilibrium choices, and how the equilibrium compares with the efficient allocation.

The complementarity foundations of industrial organization

In this paper we review the state of the art of Games with Strategic Complementarities (GSC), which are fundamental tools in modern Industrial Organization. The originality of the paper lies in the way the material is presented. Indeed, the mathematical aspects of GSC are complex and scattered in a literature which spans a long time period and a variety of research fields such as economics, applied mathematics and operations research. We organize a large amount of material in a unified and self-contained way, and concentrate on the intuitions and conceptual points that lie in the background of the mathematical modeling, with special emphasis on the modeling of complementarity. On the technical side, we investigate in details the choice and content of the assumptions. The scope of the paper is to allow the applied researcher to understand the theory, so that she may rapidly develop her own ability to deal with concrete problems.strategic complementarity, oligopoly theory, supermodularity, Nash equilibria, lattices

Tipping, firm strategy, and industrial organization

Tipping is a phenomenon that has been studied for many years, but is receiving increased attention in recent years. The magnitude of tips is very large – in the US, for example, tips in the food industry alone amount to about $42 billion each year, and tips are given in many other establishments and countries, so annual worldwide tips are much higher than that. Millions of workers in the US alone derive most of their income from tips and tipping is prevalent in numerous countries and occupations. These are all good reasons to study tipping, but it is clear that tipping has created much interest also because it is puzzling from a theoretical perspective. The common assumption in economics that people maximize utility (which is derived by consuming various goods) subject to a budget constraint implies that people should give up money only when they receive something in return. This is not the case, however, when people tip: service has already been provided by the time the tip is given, so the tip is a voluntary payment that does not buy something real (such as improved service) in return. The literature on tipping can be divided to two main areas. The first area can be termed "understanding tipping behavior." This includes studies that try to understand why people tip, what affects their tipping behavior, why tipping is different across countries, etc. The second research area, which started to receive attention more recently, can be defined as "tipping, firm strategy, and industrial organization." This part of the literature deals with the effect of tipping on firms and markets. For example, firms can sometimes choose between voluntary tipping and compulsory service charges – which one is better for the firm? How should the existence of tips affect optimal pricing by the firm? How should firms monitor workers and provide incentives to them when tipping exists? Why does tipping exist in some industries but not in others? Does tipping increase social welfare in industries in which it is the norm? All these questions belong to this second research area and demonstrate the close relationship of tipping to industrial organization and firm strategy. Several review articles made an attempt to summarize and synthesize the extensive literature in the area of understanding tipping behavior, but no article has offered an extensive literature review that focuses on the area of "tipping, firm strategy, and industrial organization." The purpose of this paper, therefore, is to review and summarize the literature in this area of research.tipping; firm strategy; business strategy; industrial organization; social norms; norms; restaurants; waiters; servers; the service industry; tips; gratuities; strategy

Behavioral industrial organization, firm strategy, and consumer economics

The field of behavioral economics is one of the fastest-growing fields in economics in recent years. Not long ago this was a small field, but over the last decade or so, the field gained more recognition, and today it seems clear that psychological motivations and biases affect economic behavior in many important ways. Insights from psychology were incorporated in several areas of economics. This paper offers a short review of the application of behavioral economics to industrial organization, which can be denoted “behavioral industrial organization,” and on the relationship between behavioral industrial organization, firm strategy, and consumer economics.industrial organization; behavioral economics; strategy; firm strategy; business strategy; economic psychology; behavioral industrial organization; consumer behavior; consumer economics