The Political Economy of Infrastructure Investment: Competition, Collusion and Uncertainty

Infrastructure, as it impacts transport costs, is crucial in determining equilibrium outcomes in spatial competition; however, infrastructure investment is typically exogenous. Our political economy analysis of infrastructure choice is based upon consumer preferences derived from Salop’s circular city model. In this setting, infrastructure investment has two effects: it directly lowers costs to consumers and indirectly affects market power. We show how political support for infrastructure investments depends crucially on the details of the market. Competition boosts popular support for infrastructure — often excessively so — while collusion leads to underinvestment. The uncertainty produced by infrastructure induced entry leads to traps and thresholds.

Spatial competition with unit-demand functions

This paper studies a spatial competition game between two firms that sell a homogeneous good at some pre-determined fixed price. A population of consumers is spread out over the real line, and the two firms simultaneously choose location in this same space. When buying from one of the firms, consumers incur the fixed price plus some transportation costs, which are increasing with their distance to the firm. Under the assumption that each consumer is ready to buy one unit of the good whatever the locations of the firms, firms converge to the median location: there is minimal differentiation. In this article, we relax this assumption and assume that there is an upper limit to the distance a consumer is ready to cover to buy the good. We show that the game always has at least one Nash equilibrium in pure strategy. Under this more general assumption, the "minimal differentiation" principle no longer holds in general. At equilibrium, firms choose "minimal", "intermediate" or "full" differentiation, depending on this critical distance a consumer is ready to cover and on the shape of the distribution of consumers' locations

Do Consumers' Preferences Really Matter? - A Note on Spatial Competition with Restricted Strategies

In the framework Hotelling-Downs competition two players can freely choose a position along a one-dimensional market. We introduce restrictions of feasible strategies and analyze the consequences for players and consumers. In equilibrium players may minimally differentiate away from the center of the market and even locate completely independently of consumers' preferences. We provide conditions for these novel cases as well as for the standard result that players locate on the median of the distribution of consumers. In addition to the short run, where restrictions are fixed, we elaborate on the long run by studying the players' choice of restrictions under (potential) market entry. In both settings, we find an inefficient outcome, in which a firm is capable of offering a product at the center of the market, but instead chooses a position that is worse for most of the consumers

Spatial competition, product characteristics, and demand uncertainty.

Wong, Ching Chuen.Thesis (M.Phil.)--Chinese University of Hong Kong, 2009.Includes bibliographical references (leaves 45-46).Abstract also in Chinese.Spatial Competition in Two-Dimensional Product Space --- p.1Chapter 1.1 --- Introduction --- p.1Chapter 1.2 --- First model: Ordinal characteristics --- p.5Chapter 1.3 --- Second model: Categorical characteristics --- p.14Chapter 1.4 --- Conclusion --- p.18Spatial Competition with Demand Uncertainty --- p.21Chapter 2.1 --- Introduction --- p.21Chapter 2.2 --- Model --- p.26Chapter 2.3 --- Revelation of market density before transportation --- p.29Chapter 2.4 --- Revelation of market density after transportation --- p.36Chapter 2.5 --- Perfectly informed consumers --- p.38Chapter 2.6 --- Application: Negative externality --- p.40Chapter 2.7 --- Conclusion --- p.42References --- p.4

Strategic design under uncertain evaluations : structural analysis of design-build auctions

I investigate firms' competition over price and product design under uncertain design evaluations in the context of Design-Build (DB) auctions. Reviewers' design evaluations contain uncertainty from a bidder's perspective, leading luck to curtail differences in firms' chances of winning. I model bidders' behavior and derive semiparametric identification of the model primitives. Uncertain evaluations worsen the expected price of design quality, and exacerbate an auctioneer's uncertainty in auction outcomes. A simple adjustment in the auction mechanism may completely shut down the impact of uncertain evaluations on bidding incentives, restoring efficient allocations of projects

Cooperative and strategic games in network economics

Es ist wohlbekannt, dass die Taten und Entscheidungen jedes handelten Subjektes - sei es ein einzelnes Individuum, eine Organisation oder sogar ein ganzes Land - sich unweigerlich mit den Handlungen anderer Subjekte verknüpfen und diese sich untereinander beeinflussen. In Abhängigkeit des jeweiligen Kontextes induzieren diese gegenseitigen Interdependenzen netzwerkartige Beziehungsgeflechte, die in vielfältigen Formen auftreten können. Da dieses Phänomen insbesondere im Ökonomischen Alltag zu finden ist, wurde der Theorie ökonomischer Netzwerke in den vergangenen Jahren ein stetig steigendes Maß an Aufmerksamkeit zuteil. Das Ziel dieser Dissertation ist nun, kooperative und strategische Spiele in der Netzwerktheorie näher zu beleuchten und diesen Aspekt zu ergänzen. Genauer: Die Hauptmotivation besteht darin, ausgewählte ökonomischen Probleme, die in diesem Forschungszweig behandelt werden, realistischer zu modellieren, um das Feld der möglichen Anwendungen zu erweitern. Dies wird durch eine flexiblere Gestaltung der Grundstruktur der Standardansätze umgesetzt.It is a well-accepted fact that doings and decisions of virtually every acting subject - whether it is an individual, an organization, or even an entire country - do inevitably influence and connect to the actions of other subjects. Depending on the context, these mutual interdependencies induce network-like relationships which may take various forms. Consequently, since the phenomenon occurs in many situations of economic life, for many years now more and more attention has been devoted to the study of economic networks and the number of publications dealing with this subject is continuously increasing. The objective of this thesis is to highlight cooperative as well as strategic games in this field of research in order to explore this aspect in more detail and to complement it by analyzing issues which have not been covered so far. More precisely: The main goal is to model the economic problems addressed in network economics more realistically in order to enlarge the field of possible applications. This is done by allowing for more flexibility in the formal substructure of the standard approaches.Tag der Verteidigung: 26.05.2014Paderborn, Univ., Diss., 201

Product differentiation and location decisions under demand uncertainty

We investigate Hotelling's duopoly game of location-then-price choices with quadratic transportation costs and uniformly distributed consumers under the assumption that firms are uncertain about the exact location of demand. We characterize the unique equilibrium and the socially optimal locations. Contrary to the individual-level random utility models, location uncertainty is a differentiation force. In equilibrium, increases in the variance of the uncertainty lead to greater differentiation, higher expected equilibrium prices and profits, and a greater welfare loss