Conformity based behavior and the dynamics of price competition: a new rational for fashion shifts

This paper deals with dynamic price competition in markets in which the perception of consumers regarding the value of goods depends on the choices of other consumers in the market. In particular, we consider the case in which consumers tend to imitate their peers, generating a conformity effect. In the context of a finite horizon model, we show that conformity based behavior creates new channels of dynamic interaction between firms, changing the nature of price competition. As time evolves, both price strategic complementarity and substitutability may arise along the equilibrium trajectory. This leads to V-shaped equilibrium price paths and oscillating trajectories of market shares. We provide also a new rational for the inversion of fashion trends.dynamic price competition, consumer behavior, conformity, fashion shift

Does the absence of competition in the market foster competition for the market ? A dynamic approach to aftermarkets

In this paper, we investigate dynamic price competition when firms strategically interact in two distinct but interrelated markets : a primary market and an aftermarket, where indirect network effects arise. We set up a differential game of two-dimensional price competition and we conclude that the absence of price competition in the aftermarket (competition in the market) fosters dynamic price competition in the primary market (competition for the market). We also investigate the impact of network sizes on firms’ prices in the primary market concluding that, in equilibrium, larger firms have incentives to compete more fiercely for new ‘uncolonized’ consumers.dynamic competition; differential games; Linear Markov Perfect equilibrium

A Profit Efficiency Perspective on the Future Strategic Positioning of the Portuguese Banks

The Portuguese banking sector has been recently subjected to important structural changes. The diversification of the supply of financial services, the specialization phenomena and the growing importance of new technologies are changing the sector dramatically. A profit perspective is used to investigate the efficiency performance of the commercial banking sector in Portugal in the period 2000-2004 and infer some implications for the banks´ management strategic orientation. The Nerlovian and an alternative profit efficiency measures are used, illustrating the potentialities of the directional distance functions to the profit efficiency analysis. A decomposition of the alternative profit efficiency measure is also proposed.Banking; Nerlovian profit efficiency; alternative profit efficiency; directional distance functions

Does the absence of competition in the market foster competition for the market? A dynamic approach to aftermarkets

In this paper, we investigate dynamic price competition when firms strategically interact in two distinct but interrelated markets: a primary market and an aftermarket, where indirect network effects arise. We set up a differential game of two-dimensional price competition and we conclude that the absence of price competition in the aftermarket (competition in the market) fosters dynamic price competition in the primary market (competition for the market). We also investigate the impact of network sizes on firms' prices in the primary market concluding that, in equilibrium, larger firms have incentives to compete more fiercely for new "uncolonized" consumers.dynamic competition, differential games, Linear Markov Perfect Equilibrium, aftermarkets, network effects.

Competitive Targeted Advertising with Price Discrimination

This paper investigates the effects of price discrimination by means of targeted advertising in a duopolistic market where the distribution of consumers' preferences is discrete and where advertising plays two major roles. It is used by firms as a way to transmit relevant information to otherwise uninformed consumers, and it is used as a price discrimination device. We compare the firms' optimal marketing mix (advertising and pricing) when they adopt mass advertising/non-discrimination strategies and targeted advertising/price discrimination strategies. If firms are able to adopt targeted advertising strategies, we find that the symmetric price equilibrium is in mixed strategies, while the advertising is chosen deterministically. Our results also unveil that as long as we allow for imperfect substitutability between the goods, ?rms do not necessarily target more ads to their own market. In particular, firms' optimal marketing mix leads to higher advertising reach in the rival's market than in the firms' own market, provided that advertising costs are sufficiently low in relation to the consumer's reservation value. The comparison of the optimal marketing-mix under mass advertising strategies and targeted advertising strategies reveals that targeted advertising might constitute a tool to dampen price competition. In particular, if advertising costs are sufficiently low in relation to the value of the goods, we obtain that average prices with non-discrimination (mass advertising) are below those with price discrimination and targeted advertising (regardless of the market segment). Accordingly, when (i) goods are imperfect substitutes, (ii) advertising is not too expensive, and (iii) targeted advertising constitutes an effective price discrimination tool, price discrimination through targeted advertising may be detrimental to social welfare since it boosts industry profits at the expense of consumer surplus.

Thematic clubs and the supremacy of network externalities

We raise the problem of the minorities survival in the presence of positive network externalities. We rely on the example of thematic clubs to illustrate why and in which circumstances such survival problems might appear, first considering the case of simple network externalities and then the case of cross network externalitiesthematic clubs, network externalities, cross network externalities

On Gale and Shapley ‘College admissions and stability of marriage’

In this note, we start to claim that established marriages can be heavily destabilized when the population of existing couples is enriched by the arrival of new candidates to marriage. Afterwards, we discuss briefly how stability concepts can be extended to account for entry and exit phenomena affecting the composition of the marriage market.Matching; stability; marriage model; divorce cascades

Free daily newspapers: too many incentives to print?

We consider a model in which a free daily newspaper distributes news to readers and sells ad-space to advertisers, having private information about its readership. Depending on the type of readers in the market, the newspaper's may have a "plentiful and seeking" audience or a "lacking and avoiding" audience. We find that if the readers are plentiful and seeking, the newspaper prints an excessive number of copies. The rationale for this over-printing strategy lies on the newspaper's need to send a credible signal to the advertisers that there are plentiful and seeking readers in the market. When the readers are lacking and avoiding, the newspaper chooses the socially optimal tirage (does not try to cheat the advertisers).two-sided markets, asymmetric information, free press

Emission permits trading and downstream strategic market interaction

This paper studies inefficiencies arising in oligopolies subject to environmental regulation based on tradable emission permits. We propose a duopoly model of upstream–downstream strategic competition: in the permits market a leader sets the price, whereas in the output market Cournot competition occurs. We find that strategic interaction in the output market gives rise to an additional distortion in the permits market where both firms adopt ‘rival's cost-rising’ strategies to gain a competitive advantage in the output market. As a result, the price of permits is always higher than firms' marginal abatement costs