Investment Dynamics: Good News Principle

We study a dynamic Cournot game with capacity accumulation under demand uncertainty, in which the investment is perfectly divisible, irreversible, and productive with a lag. We characterize equilibrium investments under closed-loop and S-adapted open-loop information structures. Contrary to what is established usually in the dynamic games literature with deterministic demand, we find that the firms may invest at a higher level in the open-loop equilibrium (which in some cases coincides with Markov perfect equilibrium) than in the closed-loop Nash equilibrium. The rankings of the investment levels obtained in the two equilibria actually depend on the initial capacities and on the degree of asymmetry between the firms. We also observe, contrary to the bad news principle of investment, that firms may invest more as demand volatility increases and they invest as if high demand (i.e., good news) will unfold in the future.Capacity Investment, Dynamic Games, S-adapted Open-Loop Equilibrium, Closed-loop Equilibrium.

Dynamic Models for International Environmental Agreements

In this paper we develop a model to analyze, in a dynamic framework, how countries join international environmental agreements (IEAs). In the model, where countries suffer from the same environmental damage as a result of the total global emissions, a non-signatory country decides its emissions by maximizing its own welfare, whereas a signatory country decides its emissions by maximizing the aggregate welfare of all signatory countries. Signatory countries are assumed to be able to punish the non-signatories at a cost. When countries decide on their pollution emissions they account for the evolution of the pollution over time. Moreover, we propose a mechanism to describe how countries reach a stable IEA. The model is able to capture situations with partial cooperation in an IEA stable over time. It also captures situations where all countries participate in a stable agreement, or situations where no stable agreement is feasible. When more than one possibility coexists, the long-term outcome of the game depends on the initial conditions (i.e. the size of the initial group of signatory countries and the pollution level).International Environmental Agreements, Non-Cooperative Dynamic Game, Coalition Stability

Cooperating firms in inventive and absorptive research

We consider a duopoly competing in quantity, where firms can invest in both innovative and absorptive R&D to reduce their unit production cost, and where they benefit from free R&D spillovers between them. We analyze the case where firms act non cooperatively and the case where they cooperate by forming a research joint venture. We show that, in both modes of play, there exists a unique symmetric solution. We find that the investment in innovative R&D is always higher than in absorptive R&D. We also find that the value of the learning parameter has almost no impact on innovative R&D, firms profits, consumer's surplus and social welfare. Finally, differences in investment in absorptive research and social welfare under the two regimes are in opposite directions according to the importance of the free spillover.Innovative R&D; Absorptive R&D; Learning Parameter; Spillover; Research Joint Venture

Structures de marché et intensité de la publicité

Certains auteurs ont mis en évidence les relations qui peuvent exister entre, d’une part, l’intensité de la publicité et, d’autre part, certaines caractéristiques de la demande et les structures du marché. Nous proposons ici une nouvelle vérification de ces liens dans le cadre de l’économie canadienne. Les résultats obtenus tendent à montrer que le degré de concentration et le caractère durable des produits fabriqués ne sont pas des facteurs significatifs de l’intensité de la publicité ainsi qu’il a été soutenu précédemment. En revanche, la taille du marché et le taux de croissance sont des facteurs explicatifs de l’ampleur de l’effort publicitaire.Many authors have put into evidence the relations that could exist between the market structure and some demand characteristics for an industry product, on the one hand, and the intensity of advertising undertaken by the same industry on the other hand.This paper's main objective is to present a new verification of these links within the Canadian economy context.The results suggest that the degree of concentration and the durability of the fabricated products are not significant determinants of the advertising intensity. While, in contrast, the market size and its growth rate seem to be the most explanatory factors of the scale of advertising effort

Inverted-U aggregate investment curves in a dynamic game of advertising

We revisit the relationship between market power and firms' investment incentives in a noncooperative differential oligopoly game in which firms sell differentiated goods and invest in advertising to increase the brand equity of their respective goods. The feedback equilibrium obtains under open-loop rules, and aggregate expenditure on goodwill takes an inverted-U shape under both Cournot and Bertrand behaviour, provided product differentiation is sufficiently high. Total industry expenditure is higher under Cournot competition

Structures de marché et intensité de la publicité

Many authors have put into evidence the relations that could exist between the market structure and some demand characteristics for an industry product, on the one hand, and the intensity of advertising undertaken by the same industry on the other hand. Certains auteurs ont mis en évidence les relations qui peuvent exister entre, d’une part, l’intensité de la publicité et, d’autre part, certaines caractéristiques de la demande et les structures du marché. Nous proposons ici une nouvelle vérification de ces liens dans le cadre de l’économie canadienne. Les résultats obtenus tendent à montrer que le degré de concentration et le caractère durable des produits fabriqués ne sont pas des facteurs significatifs de l’intensité de la publicité ainsi qu’il a été soutenu précédemment. En revanche, la taille du marché et le taux de croissance sont des facteurs explicatifs de l’ampleur de l’effort publicitaire.

Public Disclosure Programs vs. Traditional Approaches for Environmental Regulation: Green Goodwill and the Policies of the Firm

A Public Disclosure Program (PDP) is compared to a traditional environmental regulation (exemplified by a tax/subsidy) in a simple dynamic framework. A PDP aims at revealing the environmental record of firms to the public. This information affects its image (goodwill or brand equity), and ultimately its profit. In our model, this impact is endogenous, i.e., a firm polluting less than its prescribed target would win consumer's sympathy and raises its goodwill, whereas it is the other way around when the firm exceeds its emissions quota. The evolution of this goodwill is assumed to depend also on green activities or advertising expenditures. Within this framework, we analyse how a PDP affects the firm's optimal policies regarding emissions, pricing and advertising as compared to a traditional regulation. We show that advertising acts as a complementary device to pricing and that emissions are increasing in goodwill. We also conclude that the effects of a PDP are more pronounced than those of traditional instruments for firms with a high goodwill. Moreover, we study under which conditions a PDP may be profit improving and we connect this issue to the possibility that a PDP can induce firms to overcomply with the standard. The numerical value of the emission target is rather innocuous in a market-based setting but it turns to be a crucial variable in the presence of a PDP. The theoretical results are complemented with a numerical illustration.Market-based Environmental Regulation, Public Disclosure Program, Pricing, Advertising, Goodwill, Optimal Control.

Droit d’entrée et taux de redevance dans les franchises d’exploitation au Québec

Cet article procède à une analyse économétrique du droit d’entrée et du taux de redevance dans les franchises d’exploitation au Québec. Nos résultats montrent qu’il n’y a pas simultanéité dans la détermination des deux éléments de la structure de paiement. Cette dernière joue le rôle de signal et contribue à transiger avec les risques moraux du franchiseur et du franchisé. La contrainte de capital et le risque n’ont pas un impact direct sur le droit d’entrée et le taux de redevance.This paper provides an econometric analysis of franchise fees and royalties using a sample of franchises in Québec. Our results do not reveal any evidence of simultaneity between franchise fees and royalties. These elements act as a signal, from franchiser and franchisee, and deal with moral hazard. Franchise fees and royalties do not seem to be affected by risk and capital shortage