Exclusive Quality

It is shown in this study that in the case of vertically differentiated products, Bertrand competition at the retail level does not prevent an incumbent upstream firm from using exclusivity contracts to deter the entry of a more efficient rival, contrary to what happens in the homogenous product case. Indeed, because of differentiation, the incumbent's inferior product is not eliminated upon entry. As a result, a retailer who considers rejecting the exclusivity clause expects to earn much less than the incumbent's monopoly rents. Thus, in equilibrium, the incumbent can always offer high enough an upfront payment to induce all retailers to sign on the contract.vertical differentiation; contracts; exclusion; monopolization

Producers bargaining over a quality standard

We study an asymmetric information model in which two firms are active on a market where buyers only observe the average quality supplied. Quantities and cost structures are exogenously given and firms compete in quality. Before choosing their qualities, they bargain over a perfectly enforcable minimum quality standard. The bargaining outcome is given by the Kalai-Smorodinsky (KS) solution. Agreement on a binding standard is possible only if the firms are sufficiently similar with respect to their production costs. The agreed-upon standard always falls short of the joint-profit-maximizing (or, for that matter, the efficient) level. It is decreasing in the high-cost producer's cost of production. Yet, it first increases then decreases with the low-cost producer's cost of production, showing that the latter's bargaining position can be enhanced by seemingly adverse cost changes.asymmetric information; minimum quality standard; duopoly; bargaining; free riding.

The market for melons: Cournot competition with unobservable qualities

Two firms produce different qualities at possibly different, constant marginal costs. They compete in quantities on a market where buyers only observe the average quality supplied. The model is a generalization of the standard Cournot duopoly, which corresponds to the special case where the two qualities are equal. When the quality differential is large, the firms' output levels are not always strategic substitutes. There can be no, or up to three pure-strategy equilibria. Yet, as long as the cost differential is not extreme, there always exists a stable duopolistic equilibrium. In that sense, strategic quantity-setting helps prevent market unraveling.Cournot competition; quality; duopoly; asymmetric information; Nash equilibrium

Robustness to strategic uncertainty in price competition

We model a player's uncertainty about other player's strategy choices as probability distributions over their strategy sets. We call a strategy profile robust to strategic uncertainty if it is the limit, as uncertainty vanishes, of some sequence of strategy profiles in each of which every player's strategy is optimal under his or her uncertainty about the pthers. We apply this definition to Bertrand games with a continuum of equilibrium prices and show that our robustness criterion selects a unique Nash equilibrium price. This selection agrees with available experimental findings.Nash equilibrium; refinement; strategic uncertainty; price competition

Semi-Public Competitions *

Abstract The process of innovation is driven by two main factors: new inventions and institutions supporting the transformation of inventions into marketable innovations. This paper proposes a new institution, called a semi-public competition, that has been neglected by the economic literature but exists frequently in practice. I show how semi-public competitions can mitigate a dilemma that arises at an early stage of innovative activity and specify the conditions under which a semi-public competition can increase welfare. The results suggest that governments promote knowledge about the semi-public competition mechanism but refrain from direct public funding of competitions

EU Cartel Law and Economics

- The first book to offer an integrated legal and economic perspective on EU cartel law. - Written in a clear, non-technical style that makes material accessible to readers from both legal and economic backgrounds. - Provides a useful primer on the law and economics of cartels and their underlying mechanics, with a strong conceptual emphasis. - Includes timely coverage of practices at the intersection of anti-competitive collusion and pro-competitive agreements, such as information exchanges; and of civil damages, which are increasingly important in EU cartel law enforcement

Robustness to strategic uncertainty in the Nash demand game

This paper studies the role of strategic uncertainty in the Nash demand game. A player’s uncertainty about another player’s strategy is modeled as an atomless probability distribution over that player’s strategy set. A strategy profile is robust to strategic uncertainty if it is the limit, as uncertainty vanishes, of some sequence of strategy profiles in which every player’s strategy is optimal under his or her uncertainty about the others (Andersson et al., 2014). In the context of the Nash demand game, we show that robustness to symmetric (asymmetric) strategic uncertainty singles out the (generalized) Nash bargaining solution. The least uncertain party obtains the bigger share

Robustness to strategic uncertainty

We introduce a criterion for robustness to strategic uncertainty in games with continuum strategy sets. We model a player's uncertainty about another player's strategy as an atomless probability distribution over that player's strategy set. We call a strategy profile robust to strategic uncertainty if it is the limit, as uncertainty vanishes, of some sequence of strategy profiles in which every player's strategy is optimal under his or her uncertainty about the others. When payoff functions are continuous we show that our criterion is a refinement of Nash equilibrium and we also give sufficient conditions for existence of a robust strategy profile. In addition, we apply the criterion to Bertrand games with convex costs, a class of games with discontinuous payoff functions and a continuum of Nash equilibria. We show that it then selects a unique Nash equilibrium, in agreement with some recent experimental findings

Predation Under Perfect Information

In an oligopoly configuration characterized by high barriers to (re-)entry, a finite horizon, perfect information about demand and costs and the presence of three identical firms, we show that two of them (the predators) can choose to charge an initial price that is so low that the third (the prey) decides to exit immediately, after which the predators can enjoy higher profits, even if they do not raise their price. Predatory prices are thus observed on the equilibrium path and the predators end up earning more than in the best Bertrand (or even, collusive) equilibrium with three firms.