Endogenous Integration and Welfare in Complementary Goods Markets

This paper analyzes the strategic decision to integrate by firms that produce complementary products. Integration entails bundling pricing. We find out that integration is privately profitable for a high enough degree of product differentiation, that profits of the non-integrated firms decrease, and that consumer surplus need not necessarily increase when firms integrate despite the fact that prices diminish. Thus, integration of a system is welfare-improving for a high enough degree of product differentiation combined with a minimum demand advantage relative to the competing system. Overall, and from a number of extensions undertaken, we conclude that bundling need not be anti-competitive and that integration should be permitted only under some circumstances.complementary products; integration; bundling

STRATEGIC EFFECTS OF INTERNATIONAL AIRLINE ALLIANCES

The present paper develops a simple model of a network structure to analyze the profitability and the strategic effects of airline alliances in which two complementary alliances, following different paths, may be formed to serve a certain city-pair market. We examine whether airlines that employ the same hub have an incentive to create an alliance, analyze the effects on carriers outside the alliance and study how fares are affected. We conclude that complementary alliances are profitable for a sufficient degree of product differentiation, which implies that competition intensity is low; that an alliance hurts the outsiders; and that fares will decrease. These findings remain valid to the introduction of more competition in the form of a direct non-stop flight. Our results provide a very simple testable implication that relies on demand parameters that measure the degree of product differentiation, and our findings are consistent with some of the observed facts in the industry.complementary airline alliances, substitute trips, product differentiation

STRATEGIC EFFECTS OF AIRLINE ALLIANCES

This paper looks at the endogenous formation of airline alliances bymeans of a two-stage game where first airlines decide whether to form analliance and then fares are determined. We analyze the profitability and thestrategic effects of airline alliances when two complementary alliances,following different paths, may be formed to serve a certain city-pair market.The formation of a complementary alliance is shown to hurt outsiders and thatfares decrease in the interline market. Contrary to what might be expected, wefind that complementary alliances are not always profitable, even in thepresence of economies of traffic density. The interplay between market size, thedegree of product differentiation and the intensity of economies of trafficdensity determines whether the market equilibrium entails no alliances, a singlealliance or a double alliance.complementary airline alliances, economies of traffic density, product differentiation

La elección del momento oportuno de la política ambiental en un mercado duopolístico

[EN] In this paper the strategic use of innovation by two polluting firms to influence environ-mental policy is evaluated. The analysis is carried out by comparing two alternative policy regimes for two policy instruments: Taxes and standards. The first of the regimes assumes that the regulator commits to an ex-ante level of the policy instrument. In the second one, there is no commitment. The results show that when there is no commitment and a tax is used to control emissions, the strategic behavior of firms can be welfare improving if the efficiency of the clean technology is relatively low. If this is not the case, the strategic behavior of the duopolists has a detrimental effect on welfare regardless of the policy instru-ment used to control emissions[ES] En este trabajo se evalúa el uso estratégico de la innovación por dos empresas con-taminantes para influir en la política ambiental. El análisis se desarrolla comparando dos regímenes de política alternativos para dos instrumentos: impuestos y estándares. El primero de los regímenes supone que el regulador se compromete con un nivel ex-ante del instrumento de política. En el segundo, no hay compromiso. Los resultados muestran que cuando no hay compromiso y se utiliza un impuesto para con-trolar las emisiones, el comportamiento estratégico de las empresas mejora el bienestar si la eficiencia de las tecnologías limpias es relativamente baja. Si este no es el caso, el comportamiento estratégico de los duopolistas tiene un efecto perjudicial sobre el bienestar independientemente del instrumento de política utilizado para controlar las emisionesThe authors would like to thank two anonymous referees and Francisco André for their comments. The usual disclaimer applies. We gratefully acknowledge financial support from the Spanish Ministry of Economics and Competitiveness under project ECO2013-45045-R, and Generalitat Valenciana under project PROMETEO/2014 /Fase II.Moner-Colonques, R.; Rubio, S. (2015). The timing of environmental policy in a duopolistic market. Economía Agraria y Recursos Naturales - Agricultural and Resource Economics. 15(1):11-40. https://doi.org/10.7201/earn.2015.01.02SWORD114015

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

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.

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.

Competition and horizontal integration in maritime freight transport

This paper develops a theoretical model for freight transport characterized by competition between means of transport (the road and maritime sectors), where modes are perceived as differentiated products. Competitive behavior is assumed in the road freight sector, and there are constant returns to scale. In contrast, the freight maritime sector is characterized by oligopolistic behavior, where shipping lines enjoy economies of scale. The market equilibrium where the shipping lines behave as profit maximizers, provides a first approximation to the determinants of market shares, profits, and user welfare. We then characterize the equilibrium when horizontal integration of shipping lines occurs, with and without further economies of scale. An empirical application to the routes Valencia-Antwerp and Valencia-Genoa uncovers that the joint profit of the merged firms and social welfare always increase. However, user surplus only increases when economies of scale are significantly exploitedfreight transport, shipping lines, horizontal integration