Strategic Debt in Vertical Relationships

We study a vertical relationship between two firms, and we show that the extent of the downstream firm's borrowing affects the contract offered by the upstream firm. We establish a negative relationship between the level of debt and the downstream firm's probability of bankruptcy. We also show that, unless the interest rate is very high, there exists a conflict of interest between the upstream and the downstream firm: the latter wants to take on more debt than the former would like it to. We interpret this finding as an explanation of the constraint imposed by franchisors on the debt level of their franchisees. Such a result is tested using a dataset combining both survey and balance sheet data. We find some support for our theoretical prediction that agent firms can use debt strategically.

R&D investment, Credit Rationing and Sample Selection

We study whether R&D-intensive firms are liquidity-constrained, by also modeling their antecedent decision to apply for credit. This sample selection issue is relevant when studying a borrower-lender relationship, as the same factors can influence the decisions of both parties. We find firms with no or low R&D intensity to be less likely to request extra funds. When they do, we observe a higher probability of being denied credit. Such a relationship is not supported by evidence from the R&D-intensive firms. Thus, our findings lend support to the notion of credit constraints being severe only for a sub-sample of innovative firms. Furthermore, the results suggest that the way in which the R&D activity is organized may differentially affect a firms’ probability of being credit-constrained.Bivariate Probit; Innovation; selectivity; in-house R&D.

Hub Premium, Airport Dominance and Market Power in the European Airline Industry.

Using evidence from an original dataset of more than 12 million fares, this study sheds light on two issues relating to the pricing behaviour of the main European airlines: 1) the extent to which an airline’s dominant position at the origin airport, at the route and the city-pair level affects the airlines’ market power; 2) whether fares follow a monotonic time path consistent with the pursuing of an inter-temporal price discrimination strategy. Our estimates reveal that enjoying a dominant position within a route is conducive to higher fares, possibly because of the limited size of many “natural monopoly” routes that facilitate the incumbent’s engagement in a limit pricing strategy. On the contrary, a larger share within a city-pair does not seem to facilitate the exercise of market power, thereby suggesting the existence of a large degree of substitutability between the routes in a city-pair.on-line pricing; price discrimination; dispersion; yield management.

On cost restrictions in spatial competition models with heterogeneous firms

This paper investigates the properties of two types of cost restrictions that guarantee the existence of an equilibrium in pure strategies in Bayesian spatial competition models with heterogenous firms.Localized competition; market effciency, cost heterogeneity.

Technological Spillovers and Productivity in Italian Manufacturing Firms

We study whether a firm’s total factor productivity dynamics is positively influenced by its own R&D activity and by the technological spillovers generated at the intra- and inter-sectorial level. Our approach corrects simultaneously for the endogeneity and the selectivity biases introduced by the use of a firm’s own R&D as a regressor. A firm’s involvement in R&D activities accounts for significant productivity gains. Firms also benefit from spillovers originating from their own industries, as well as from innovative upstream sectors.R&D, TFP, selectivity, treatment effect

Why Should a Firm Choose to Limit the Size of its Market Area?

We study when a monopolistically-competitive firm may optimally choose to limit the size of its market. This may be the case when the cost of serving the market with geographically dispersed customers is increasing in size. We also investigate the incentives faced by a firm to limit the reach of its market, when it adopts different pricing schemes. We show that under certain assumptions the derived equilibria are constrained socially optimal.Monopolistic competition; Transport costs; Endogenous fixed costs; Overlapping market areas

On-line Booking and Revenue Management: Evidence from a Low-Cost Airline

Using unique data on a low-cost airline posted prices and seat availability, this study sheds some light on whether the airline's actual practice of yield management techniques con- forms with some predictions from economic models of peak-load pricing under demand uncertainty. On the one hand, robust support is found to the notion that prices increase as the seat availability decreases; on the other, theoretical models that do not account for stochastic peak-load pricing fail to capture an important source of dispersion in the data.Inter-temporal pricing, competition, price dispersion

Technological Spillovers and Productivity in Italian Manufacturing Firms

We study whether a firm’s total factor productivity dynamics is positively influenced by its own R&D activity and by the technological spillovers generated at the intra- and inter-sectorial level. Our approach corrects simultaneously for the endogeneity and the selectivity biases introduced by the use of a firm’s own R&D as a regressor. A firm’s involvement in R&D activities accounts for significant productivity gains. Firms also benefit from spillovers originating from their own industries, as well as from innovative upstream sectors.R&D, TFP, selectivity, treatment effect

The Circular City with Heterogenous Firms

The paper extends the Salop model of localized competition by allowing frms to have heterogeneous costs. We provide a general but highly tractable analytical solution for the equilibrium prices, and we study the long-run properties of the model using two different entry games. We show that cost heterogeneity affects the efficiency of the market equilibrium by increasing welfare and inducing less excessive entry. Further, we illustrate the positive effects of the existence of a selection mechanism, which induces less efficient firms not to start production. The model also replicates some recent results on dense markets.Localised Competition; market efficiency; cost heterogeneity; large markets.

Pricing strategies by European Low Cost Carriers.

We introduce an on-line pricing tactic where airlines post, at the same time and for the same flight, fares in different currencies that violate the law of One Price. Unexpectedly for an on-line market, we find that price discrimination may be accompanied by arbitrage opportunities and that both tend to persist before a flight’s departure. We find discrimination to be of a competitive type, although arbitrage opportunities are more likely in concentrated routes. Finally, the evidence suggests that discrimination may be used to manage stochastic demand.on-line pricing; price discrimination; Law of One Price; sample selection; dispersion; airlines, exchange rate.