Managers Compensation and Collusive Behaviour under Cournot Oligopoly

The aim of the present paper is to show that the existence of a concrete outside option for firms' executives can induce, under specific circumstances, every firm to adopt restrictive output practises. In particular, the paper characterizes the conditions for which, under Cournot oligopoly, existing firms behave more collusively than in a standard Cournot model. It is also shown that room exists for perfect and stable collusive agreements amongst firms. Other interesting findings are also twofold. Firstly, that the equilibrium executives' pay will usually be dependant upon the number of companies initially disposing of the technology and/or of the organizational knowledge required to set up the business. Secondly, that companies' procedures difficult to duplicate can constitute a beneficial form of competition policy in that they induce the firms to behave less collusively in the product market.Managers' Compensation, Oligopoly, Collusion, Outside Option

Stable producer co-operatives in competitive markets

An argument often adopted to explain the relatively scarce presence of Producer Co-operatives (PCs) in Western capitalist economies is the instability that may affect this type of firm during the positive phases of the business cycle. In a nutshell the argument is that in profitable industries PCs can have an incentive to hire fixed-wage workers to replace the relatively more expensive firm's members. The paper shows that this phenomenon can fail to hold in very competitive and low barrier-to-entry markets in which, potentially, dismissed members have a chance to set up new firms. Furthermore, since some basic results on PC's stability are due to the assumption of an exogenous equilibrium wage as opposed to an endogenous PC's payoff, the paper attempts to remove this assumption. Two main insights are thus provided. Firstly, that workers possess an incentive to set up PCs only under specific circumstances. Secondly, that once PCs enter a market, conditions exist under which they are stable against the temptation to dismiss members to hire fixed-wage workers.Producer Co-operatives, Wages, Self-employment

The value of a new idea: knowledge transmission, workers' mobility and market structure

We model the process of knowledge transmission among firms via workers mobility as a multi-stage game. In our setup an idea to be realized needs that the agent informed about the idea recruits another agent from a pool of uninformed people. This constraint generates a recursive effect of knowledge transmission via players mobility across firms which affects simultaneously the players payoffs and the number of active players engaged in market competition. We provide sufficient conditions for the game to possess a unique symmetric subgame perfect equilibrium in which all incumbent players deter the exit of their collaborators. The equilibrium outcome is shown to depend upon the success of the idea over time, expressed by the behaviour of the market demand and on playerstime preferences. A few other intuitions are provided on the interplay between technology, market structure and the market value of an innovative idea.Innovation; Workers’ Mobility; Knowledge Transmission; Subgame Perfect Nash Equilibrium; Recursive Games

Coalitional Approaches to Collusive Agreements in Oligopoly Games.

In this paper we review a number of coalitional solution concepts for the analysis of the stability of cartels and mergers under oligopoly. We show that, although so far the industrial organization and the cooperative game-theoretic literature have proceeded somehow independently on this topic, the two approaches are highly inter-connected. We first consider the basic problem of the stability of the whole industry association of firms under oligopoly and, for this purpose, we introduce the concept of core in games with externalities. We show that different assumptions on the behaviour as well as on the timing of the coalitions of firms yield very di¤erent results on the set of allocations which are core-stable. We then consider the stability of associations of firms organized in coalition structures different from the grand coalition. To this end, various coalition formation games recently introduced by the so called endogenous coalition formation literature are critically reviewed. Again, di¤erent assumptions concerning the timing and the behaviout of firms are shown to yield a wide range of different results.Cooperative Games, Coalitions, Mergers, Cartels, Core, Games with Externalities, Endogenous Coalition Formation.

A conjectural cooperative equilibrium for strategic form games

This paper presents a new cooperative equilibrium for strategic form games, denoted Conjectural Cooperative Equilibrium (CCE). This concept is based on the expectation that joint deviations from any strategy profile are followed by an optimal and noncooperative reaction of non deviators. We show that CCE exist for all symmetric supermodular games. Furthermore, we discuss the existence of a CCE in specific submodular games employed in the literature on environmental agreements.Strong Nash Equilibrium, Cooperative Games, Public Goods

Lead, Follow or Cooperate? Endogenous Timing & Cooperation in Symmetric Duopoly Games.

The aim of this paper is to extend Hamilton and Slutsky's (1990) endogenous timing game by including the possibility for players to cooperate. At an initial stage players are assumed to announce both their purpose to play early or late a given duopoly game as well as their intention to cooperate or not with their rival. The cooperation and timing formation rule is rather simple: when both players agree to cooperate and play with a given timing, they end up playing their actions coordinately and simultaneously. Otherwise, they play as singletons with the timing as prescribed by their own announcement. We check for the existence of a subgame perfect Nash equilibrium (in pure strategies) of such a cooperation-timing duopoly game. Two main results on the emergence of cooperation are provided. If players' actions in the symmetric duopoly game are strategic substitutes and there is no discount, cooperating early is a subgame perfect equilibrium of the extended timing-cooperation game. Conversely, cooperating late (at period two) represents an equilibrium when players' strategies are strategic complements. Other equilibria are also possible. Most importantly, our model shows that, in general, the success of cooperation is a¤ected by the endogenous timing of the game. Moreover, the slope of players' best-replies appears crucial both for the success of cooperation as well as for the players' choice of sequencing their market actions.Endogenous Timing, Cooperation

The Kinked Demand Model and the Stability of Cooperation

This paper revisits a particular behaviour for firms competing in imperfect competitive markets, underlying the well known model of kinked demand curve. We show that under some symmetry and regularity conditions, this asymmetric behaviour of firms sustains monopoly pricing, and possesses therefore some "rationality" interpretation. We also show that such a behaviour can be generalized and interpreted as a norm of behaviour that sustains efficient outcomes in a more general class of symmetric games.Kinked Demand, Symmetric Games, Norms of Behaviour.

Coalition Formation in Games without Synergies

This paper establishes sufficient conditions for the existence of a stable coalition structure in the ”coalition unanimity” game of coalition formation, first defined by Hart and Kurz (1983) and more recently studied by Yi (1997, 2000). Our conditions are defined on the strategic form game used to derive the payoffs the game of coalition formation. We show that if no synergies are generated by the formation of coalitions, a stable coalition structure always exists provided that players are symmetric and either the game exhibits strategic complementarity or, if strategies are substitutes, the best reply functions are contractions. We illustrate the role of synergies in a Cournot oligopoly example with cost reducing R&D.Coalition formation, Synergies, Strong Nash equilibrium

Individual uncertainty and the political acceptability of road pricing policies

This paper investigates the issue of political feasibility of a road pricing policies (RPP). Referring to a literature developed in international trade theory (Fernandez and Rodrick, 1991), this paper presents a model regarding the role and relevance of individual specific uncertainty in explaining the political acceptability of RPP. It is shown that: a) without money transfers, i.e., reimbursements of the tax levied, and with no uncertainty, RPP might not be accepted thus giving rise to an evident trade-off between economic efficiency and political acceptability; b) when individual specific uncertainty is assumed, optimal level of RPP, may, under given conditions concerning the number of voters and people preferences, become politically acceptable. Two different strategies can be envisaged to render RPP politically feasible: gradual and radical. The first strategy foresees a low corrective tax that eliminates only a small proportion of the excessive use of the public good and provides an acceptable balance between monetary loss and environment improvement. Alternatively, a radical strategy would foresee a much higher level of tax substantially reducing the number of people consuming the public good and providing a potentially higher and concentrated payoff to those still consuming it after the policy is implemented. This latter policy appears more easily sustainable under majority than unanimity voting.transport pricing, road pricing, specific uncertainty

Road pricing as a citizen-candidate game

We construct a political economy model to analyze the political acceptability of road pricing policies. We use a citizen-candidate framework with a population composed by three groups differing for their income level. We show that road pricing policies are never applied when there is no redistribution of the resources in favour of other modes of transport or when the congestion of these types of transport is relatively high. The results suggest that the efficiency of the redistribution of resources from road to the alternative types of transport as well as the fraction of the population that uses the road transport are key factors in explaining the adoption of road pricing schemes.Road pricing; Political acceptability; Citizen-candidate.