Strategic Supply Function Competition with Private Information

A Bayesian supply function equilibrium is characterized in a market where firms have private information about their uncertain costs. It is found that with supply function competition, and in contrast to Bayesian Cournot competition, competitiveness is affected by the parameters of the information structure: supply functions are steeper with more noise in the private signals or more correlation among the costs parameters. In fact, for large values of noise or correlation supply functions are downward sloping, margins are larger than the Cournot ones, and as we approach the common value case they tend to the collusive level. Furthermore, competition in supply functions aggregates the dispersed information of firms (the equilibrium is privately revealing) while Cournot competition does not. The implication is that with the former the only source of deadweight loss is market power while with the latter we have to add private information. As the market grows large the equilibrium becomes competitive and we obtain an approximation to how many competitors are needed to have a certain degree of competitiveness

Patent Licensing, Bargaining, and Product Positioning

Innovators who have developed advanced technologies, along with launching new products by themselves, often license these technologies to their rivals. When a firm launches a new product, product positioning is also an important matter. Using a standard linear city model with two firms, we investigate how the bargaining power of the licenser affects the product positions of the firms. We find that the inventor more likely chooses the central position when its bargaining power is weak. We also discuss the welfare implication. We find that the inverse U shape relationship between the bargaining power of the licenser and total social surplus, i.e., neither too strong nor too weak bargaining power of the licensor is optimal