Endogenous Entry and Antitrust Policy

This article derives antitrust implications for markets where entry can be regarded as endogenous (contrary to most analysis within the post-Chicago tradition). Many applications concern issues of abuse of dominance. Endogenous entry requires a wide revision of our understanding of the role of incumbents in pricing, producing in the presence of network externalities and multi-sided markets, bundling products, price discriminating and delegating to retailers through vertical restraints: when entry is endogenous, leaders adopt aggressive strategies without exclusionary purposes and without affecting welfare negatively. Endogenous entry has also implications for the analysis of mergers (that take place only if create enough cost efficiencies and do not harm consumers), the evaluation of collusive cartels (that are unfeasible in markets where entry is endogenous) and state aids for exporting firms (which are always unilaterally optimal for international markets with free entry). The spirit of the policy recommendations of the Chicago school is broadly supported by our analysis in a solid game-theoretic framework.Antitrust, Endogenous entry, Leadership, Chicago school

Advertising and Conspicuous Consumption

The paper formalizes the intuition that brands are consumed for image reasons and that advertising creates a brand’s image. The key idea is that advertising informs the public of brand names and creates the possibility of conspicuous consumption by rendering brands a signalling device. In a price competition framework, we show that advertising increases consumers’ willingness to pay and thus provide a foundation, based on optimization behavior, for persuasive approaches to advertising. Moreover, an incumbent might strategically overinvest in advertising to deter entry, there might be too much advertising, and competition might be socially undesirable

The Theory of Market Leaders, Antitrust Policy and the Microsoft Case

The New Economy, characterized by dynamic, global and innovative markets, requires a new way to approach many economic issues and also a new way to approach policymaking. This work will analyse a new approach toward competition policy based on recent progress in the theory of market leaders and discuss its implications with special reference to the markets in the New Economy, whose distinctive features, namely high fixed costs of R&D, less relevand marginal costs of production and network e?ects, require a di?erent approach from traditional markets. Close attention will be given to the software market, whose market leader has been (and still is) the subject of the attention of antitrust authorities around the world.The work is organized as follows. In Section1 I will present a brief overview of antitrust policy in US and EU and I will try to motivate the need for a new approach to competition policy, especially for the markets in the New Economy. Section 2 will survey traditional approaches to competition policy, while Section 3 will present the innovations associated with the theory of market leaders. Section 4 will apply the new approach to general issues of abuse of dominance with particular reference to the software market and to the Microsoft case. Section 5 will deal with bundling issues again with reference to the software market. Sections 6 will move to competition for the markets and to interoperability issues which are crucial for the dynamic markets of the New Economy. Section 7 concludes, while the Appendix contains some more technical results on the behaviour of market leaders.

Endogenous Market Structures and Contract Theory. Delegation, principal-agent contracts, screening, franchising and tying

I study the role of unilateral strategic contracts for firms active in markets with price competition and endogenous entry. Traditional results change substantially when the market structure is endogenous rather than exogenous. They concern 1) contracts of managerial delegation to non-profit maximizers, 2) incentive principal-agent contracts in the presence of moral hazard on cost reducing activities, 3) screening contracts in case of asymmetric information on the productivity of the managers, 4) vertical contracts of franchising in case of hold-up problems and 5) tying contracts by monopolists competing also in secondary markets. Firms use always these contracts to strengthen price competition and manage to obtain positive profits in spite of free entry.Strategic delegation, Incentive contracts, Screening contracts, Franchising, Tying, Endogenous market structures

Entry Deterrence in Durable-Goods Monopoly

Some industries support Schumpeter's notion of creative destruction through innovative entrants. Others exhibit a single, persistent technological leadership. This paper explores a durable-goods monopolist threatened by entry via a new generation of the durable good. It is shown that the durability of the good either acts as an entry barrier itself or creates an opportunity for the incumbent firm to deter entry by limit pricing. As a consequence, the industry tends to remain monopolized, with successive generations of the durable good being introduced by the incumbent monopolist. We show that entry deterrence by limit pricing can lead to underinvestment in innovation.

Quality improvement and network externalities

We analyse the optimal pricing choice of an incumbent firm that sells a good with network externalities and is threatened by the entry of a higher quality variant. In the framework of a vertical differentiation model, we find a necessary and sufficient condition under which quality improvement occurs as a result of this competition.Vertical product differentiation; network externalities; quality improvement

Endogenous Market Structures and Contract Theory

I study the role of unilateral strategic contracts for firms active in markets with price competition and endogenous entry. Traditional results change substantially when the market structure is endogenous rather than exogenous. They concern 1) contracts of managerial delegation to non-profit maximizers, 2) incentive contracts in the presence of moral hazard on cost reducing activities, 3) screening contracts in case of asymmetric information on the productivity of the managers, 4) vertical contracts of franchising in case of hold-up problems and 5) tying contracts by monopolists competing also in secondary markets. Firms use always these contracts to strengthen price competition and manage to obtain positive pro?ts in spite of free entry.Strategic delegation, Incentive contracts, Screening contracts, Franchising, Tying, Endogenous market structures