Is regionalism better for economic integration? : nations, regions, and risk sharing

Our analysis yields some conclusions about the political role of regions in the formation of supranational economic areas, which turns out to be quite di®erent from the role of nations. The claim that regions have more incentives than nations to attain a ¯scal agreement implying full economic integration is likely to be correct when nations are economic stable arrangements, i.e. when the rich region of a nation is not \exploited" by the poor region. When, on the other hand, it is not on the interest of a rich region to be part of a nation, attempts to achieve full economic integration among a group of nations is more likely to be successful if nations, instead of regions, are the decision makers

The Strategic Role of Information Asymmetry on Demand for the Multinational Enterprise

We study how asymmetric information impinge on oligopolistic firms’ decision between direct investment and exports in a game-theoretic model with Bayesian learning. Host firms have superior information about market demand and foreign firms can improve their knowledge if foreign direct investment (FDI) is undertaken. In addition to the well-known tension between the fixed set-up costs of investment, the additional variable costs of exports and oligopoly sizes, the incentive to invest abroad is explained by the strategic learning effect. FDI may be observed even if foreign firms are pessimistic or trade costs are zero. Interestingly, compared with the certainty equivalent, the equilibrium number of investors is larger when foreign firms hold optimistic beliefs or, if these are pessimistic, when the strategic learning effect outweighs the conjecture effect.Asymmetric information; Bayesian learning; FDI; international oligopoly

EQUILIBRIUM DISTRIBUTION SYSTEMS UNDER RETAILERS' STRATEGIC BEHAVIOR

This paper investigates what are the equilibrium distribution systems in a successive duopoly when retailers hold the power to choose the number of products they wish to market. Since they both can be multi-product sellers, the number of possible channel structures considered is larger than in previous work. Then, we study whether the resulting distribution systems obtained in earlier papers still remain. In particular, whether there are incentives to adopt exclusive distribution agreements, whether a manufacturer is foreclosed from the market and, essentially, whether there exists, at equilibrium, enough inter and intra-brand competition. The analysis shows that provided low brand asymmetry, it is sufficient that retailers hold the power to choose the number of products they wish to distribute to obtain endogenously both inter and intra-brand competition; both retailers become multi-product sellers. However, as the profitability of brands diverges sufficiently, only the most profitable brand will be distributed by both retailers thus only arising intra-brand competition at equilibrium. Neither the exclusive distribution system nor a common distribution system analized in the previous literature appears at equilibrium.Distribution systems, retailer power.

PRODUCT QUALITY AND DISTRIBUTION CHANNELS

We introduce strategic behaviour in assigning a certain distribution channel to a product of a particular quality. We propose a variety of models to analyze and study some of the determinants of the choice of distribution channels. Taking the Gabszewicz and Thisse's (1979) model as a benchmark, we first study whether there exist strategic incentives for delegation of sales in a vertically differentiated duopoly. Secondly, product quality is associated with a particular distribution channel. Finally, the model is extended to account for multi-quality production. The resulting equilibria of every game depend on the relative market profitability, the degree of vertical differentiation (i.e. the relative marginal utility of income for quality and the non-buying option), and hence on the intensity of inter-quality and intra-quality competition. In all of the games analyzed, delegation appears as an equilibrium action. In the first game it is a dominant action for both manufacturers. In the second game, at least one of the manufacturers delegates sales. Whether it is one or both crucially depends on market profitability for each quality and the intensity of inter-quality competition. In the third of the games, the single-product manufacturer delegates sales at equilibrium whereas the multi-product manufacturer delegates only one of the qualities. The multi-product manufacturer employs wholesale prices together with the decision of not delegating both qualities to optimally combine the trade-off between the intensity of intra-quality competition and intra-firm competition.vertical differentiation, distribution channels, multi-quality production.

- DUOPOLY PRICE COMMUNICATION

We investigate the role of price communication in imperfect information environments by setting up a dynamic differentiated duopoly where actions are not observable and where firms decide, before pricing, whether to communicate their choices to the rivals. When firms play simultaneously in the pricing stages, communication across them is a dominant strategy allowing firms to coordinate prices, thus reducing competition. However, when communication takes place within pricing stages, this meaning that firms are given the opportunity to choose roles, the above firms coordination in prices is mitigated. This is because of the existence of a second mover advantage effect. Communication by the leader acts as a pre-commitment device to a price umbrella that the follower will undercut. As a result, we end up with a more competitive situation although price levels will not go down to those without communication.commitment, price communication

STORE VS. NATIONAL BRANDS: A PRODUCT LINE MIX PUZZLE

This paper examines retailers' strategic decisions about store brand introduction when each retailer can stock a limited number of brands. The different product line mix equilibria depend on demand parameters that measure the cross-effect across national and store brands and the cross-effect within each brand type, thus leading to a simple testable implication. Store brand introduction is determined by the combination of the three effects that result from replacing a national brand by a store brand; the direct effect, the exclusivity effect and the in-store effect. Interestingly enough, we identify conditions under which similar retailers take different decisions concerning their product line mix.store brands, retail duopoly, product line mix

A theoretical model of nations, regions and fiscal integration

This paper analyzes how the incentives of regions differ from those of nations when choosing a supranational fiscal arrangement. Two types of fiscal arrangements are studied: a Union of nations and a Federation of nations. Under the Union, there is full fiscal integration, and under the Federation, there is only partial fiscal integration and partial insurance against local risks. We show that the claim that regions have stronger incentives than nations to form a supranational Union rather than a Federation might be true only in the case where regions have strong incentives to be part of a centralized nation.Ortuno-Ortin gratefully acknowledges financial support from Spanish Ministry of Science and Technology, Project SEJ2004-00968, Fundacion BBVA-3-04x and CAM 06/HSE/0157/2004Publicad

Trade liberalization in vertically related markets

This paper looks into the desirability of trade liberalization for manufacturers, retailers and consumers. The analysis compares the move from the autarky situation to either one of free trade that entails a change in the distribution system or not. We also examine whether the interests of manufacturers and retailers about the preferred distribution system coincide, provided trade opens. We find that market integration is beneficial to all agents only under certain conditions on the degree of market asymmetry and the degree of product differentiation. Interestingly, if integration entails a change in the distribution system, the conflict between manufacturers and retailers strengthens since only retailers prefer free trade when markets are not too asymmetric and when interbrand competition is sufficiently strong. Furthermore, consumers can be harmed by trade and, in a setting without exclusivities, one country may experience a welfare decrease. Finally, the analysis of the strategic choice concerning exclusivity clauses uncovers that retailers and manufacturers never agree about their preference for endogenous distribution systems.International competition, vertical relationships.