An Example of Procompetitive Trade Policies

The procompetitive effects of trade policies are analyzed in a foreign duopoly model of vertical product differentiation. A uniform tariff policy complying with the Most Favored Nation (MFN) clause is welfare superior to free trade because of a pure rent-extracting effect. A nonuniform tariff policy yields an even higher level of social welfare because of procompetitive effects. The optimalpolicyissensitivetofirms’ cost asymmetries: if these are high, imports of low quality are subsidized and imports of high quality face a tariff; otherwise, both imports face a tariff. Regional Trade Agreements (RTAs) are examples of such nonuniform tariff policies. They yield higher welfare than free trade because they are procompetitive; moreover, a RTA with a lowquality producing country yields larger gains than a RTA with a high-quality producing country because the former enables the importer to extract foreign rents.endogenous quality, hedonic prices, procompetitive policies, regional trade agreements

Advertising for attention in a consumer search model

We model the idea that when consumers search for products, they first visit the firm whose advertising is more salient. The gains a firm derives from being visited early increase in search costs, so equilibrium advertising increases as search costs rise. This may result in lower firm profits when search costs increase. We extend the basic model by allowing for firm heterogeneity in advertising costs. Firms whose advertising is more salient and therefore raise attention more easily charge lower prices in equilibrium and obtain higher profits. As advertising cost asymmetries increase, aggregate profits increase, advertising falls and welfare increases.Advertising; attention; consumer search; saliency;

Comparison Sites

Web search technologies are fundamental tools to easily navigate through the huge amount of information available in the Internet. One particular type of search technologies are the so- called shopbots, or comparison sites. The emergence of Internet shopbots and their implications for price competition and market efficiency are the focus of this chapter. We develop a simple model where a price comparison site tries to attract (possibly vertically and horizontally differentiated) online retailers on the one hand, and consumers on the other hand. The analysis of the model reveals that differentiation among the products of the retailers as well as their ability to price discriminate between on- and off-comparison-site consumers play a critical role. When products are homogeneous, if online retailers cannot charge different on- and off-the-comparison- site prices, then the comparison site has incentives to charge fees so high that some firms are excluded, which generates price dispersion and an inefficient outcome. By contrast, when on- and off-comparison-site prices can be different, the comparison site attracts all the players to the platform and the allocation is efficient. A similar result obtains when products are horizontally differentiated. In that case, the comparison site becomes an aggregator of product information and no matter whether firms can price discriminate or not, the comparison site attracts all the players to the platform and an efficient outcome ensues. We argue that the lack of vertical product differentiation may also be critical for this efficiency result. In fact, we show that when quality differences are large, the comparison site may find it profitable to charge fees such that low quality producers are excluded, thereby inducing an inefficient outcome.

Do Firms Sell Forward for Strategic Reasons? An Application to the Wholesale Market for Natural Gas

Building on a model of the interaction of risk-averse firms that compete in forward and spot markets, we develop an empirical strategy to test whether oligopolistic firms use forward contracts for strategic motives, for risk-hedging, or for both. An increase in the number of players weakens the incentives to sell forward for risk-hedging reasons. However, if strategic motives are also relevant, then an increase in the number of players strengthens the incentives to sell forward. This difference provides the analyst with a way to identify whether strategic considerations are important at motivating firms to sell forward. Using data from the Dutch wholesale market for natural gas where we observe the number of players, spot and forward sales, and churn rates, we find evidence that strategic reasons play an important role at explaining the observed firms’ (inverse) hedge ratios. In addition, the data lend support to the existence of a learning effect by wholesalers.market power, risk-hedging, forward contracts, spot market, over-the-counter trade, market transparency, churn rates

Hybrid R&D

We develop a model of R&D competition and collaborationin which individual firms carry out independent in-house researchand also undertake joint research projects with other firms. Weexamine the impact of collaboration on in-house research andexplore the circumstances under which a hybrid organization ofR&D which combines the two is optimal for firms andsociety. We find that investments in independent research and injoint research are complementary: an increase in the number ofjoint projects also increases in-house research. Firm profits arehighest under a hybrid organization if the number of firms issmall (less than 5) while they are highest with pure in-houseresearch if the number of firms is large (5 or more). However,social welfare is maximized under a hybrid organization of R&D inall cases. Our analysis also yields new results on the role ofcooperative R&D. We find that non-cooperative decision making byfirms leads to larger R&D investments and higher social welfarethan fully cooperative decision making. However, a hybrid form ofdecision making where there is bilateral cooperation in jointprojects and non-cooperative decision making in in-house researchyields the highest level of welfare in concentrated industries.

Hybrid R&D

We develop a model of R&D competition and collaboration in which individual firms carry out independent in-house research and also undertake joint research projects with other firms. We examine the impact of collaboration on in-house research and explore the circumstances under which a hybrid organization of R&D which combines the two is optimal for firms and society. We find that investments in independent research and in joint research are complementary: an increase in the number of joint projects also increases in-house research. Firm profits are highest under a hybrid organization if the number of firms is small (less than 5) while they are highest with pure in-house research if the number of firms is large (5 or more). However, social welfare is maximized under a hybrid organization of R&D in all cases. Our analysis also yields new results on the role of cooperative R&D. We find that non-cooperative decision making by firms leads to larger R&D investments and higher social welfare than fully cooperative decision making. However, a hybrid form of decision making where there is bilateral cooperation in joint projects and non-cooperative decision making in in-house research yields the highest level of welfare in concentrated industries.

Nonsequential Search Equilibrium with Search Cost Heterogeneity

We generalize the model of Burdett and Judd (1983) to the case where an arbitrary finite number of firms sells a homogeneous good to buyers who have heterogeneous search costs. We show that a price dispersed symmetric Nash equilibrium always exists. Numerical results show that the behavior of prices with respect to the number of firms hinges upon the shape of the search cost distribution: when search costs are relatively concentrated (dispersed), entry of firms leads to higher (lower) average prices.nonsequential search, oligopoly, arbitrary search cost distributions

On the Identification of the Costs of Simultaneous Search

This paper studies the identification of the costs of simultaneous search in a class of (portfolio) problems studied by Chade and Smith (2006). We show that aggregate data from a single market, or disaggregate data from a single market segment, do not provide sufficient information to identify the costs of simultaneous search in any reasonable interval. We then show that by pooling aggregate data from multiple markets, or disaggregate data from multiple market segments, the econometrician can identify the costs of simultaneous search in a non-empty interval. Within the context of specific examples, we illustrate that identification of the search cost distribution in its full support may easily be obtained.search costs, portfolio choice, non-parametric identification

R&D Networks

Many markets are characterized by a high level of inter-firm collaboration in R&D activity. This paper develops a simple model of strategic networks which captures two distinctive features of such collaboration activity: bilateral agreements and non-exclusive relationships. We study the effects of collaborations on individual R&D effort, cost reduction, and market performance. We then examine the incentives of firms to form collaborative links and the architecture of strategically stable networks. Our analysis highlights the interaction between market competition and R&D network structure. We find that if firms are Cournot competitors then individual R&D effort is declining in the level of collaborative activity. However, cost reduction and social welfare are maximized under an intermediate level of collaboration. In some cases, firms can gain market power, and even induce exit of rival firms, by forming suitable collaboration agreements. Moreover, under certain circumstances, such asymmetric collaboration networks are also strategically stable. By contrast, if firms operate in independent markets then individual R&D effort is increasing in the level of collaborative activity. Cost reduction and social welfare are maximized under the complete network, which is also strategically stable.strategic alliances;networks;research and development

Internetmarkten: wie profiteert?

Economen lijken het er over eens dat het internet positieve welvaartseffecten kan hebben. Maar of het werkelijk de mogelijkheden biedt om tot een perfecte markt te komen, blijft de vraag. Werpt het internet geen nieuwe barrières op? En aan wie valt de extra welvaart toe? Over visionairs en technocraten