Entrepreneurial Innovations in Network Industries

We contribute to the literature network effects by allowing entrepreneurs to sell their innovations to incumbents in addition to entering the industry. We identify three new effects. Stronger network effects make selling innovations attractive, as incumbents bid up the sales price in fear of letting a rival obtain the innovation. This improves innovation incentives. Increased compatibility, however, reduces innovation incentives by reducing the relative advantage the owner of the innovation gets, in turn resulting in a lower sales price. Finally, bidding competition for innovations is crucial. Innovation waves can occur in network industries as bidding competition is fierce in young industries with several players competing for the top spot, but weak in mature industries with a clear leader

Network Competition: Workhorse Resurrection

I generalize the workhorse model of network competition (Armstrong, 1998; Laffont, Rey and Tirole, 1998a,b) to include income effects in call demand. Income effects imply that call demand depends also on the subscription fee, not only on the call price. In the standard case of differentiated networks, weak income effects are enough to deliver results in line with stylized facts: The networks have an incentive to agree on high mobile termination rates to soften competition. They charge a higher price for calls outside (off-net) than inside (on-net) the network. This vindicates the use of (a perturbation of) the workhorse model of network competition

Entrepreneurial Innovations in Network Industries

We contribute to the literature network effects by allowing entrepreneurs to sell their innovations to incumbents in addition to entering the industry. We identify three new effects. Stronger network effects make selling innovations attractive, as incumbents bid up the sales price in fear of letting a rival obtain the innovation. This improves innovation incentives. Increased compatibility, however, reduces innovation incentives by reducing the relative advantage the owner of the innovation gets, in turn resulting in a lower sales price. Finally, bidding competition for innovations is crucial. Innovation waves can occur in network industries as bidding competition is fierce in young industries with several players competing for the top spot, but weak in mature industries with a clear leader

Intense Network Competition

First, we demonstrate how unregulated price setting in mobile telecommunications may lead to monopolization, even when networks are highly substitutable. Second, we demonstrate that a menu of structural rules, including (i) mandatory interconnection, (ii) reciprocal access prices and (iii) a ban on price discrimination of calls to other networks may restore competition. This regulation requires neither demand data nor information about call costs

Competition vs. Regulation in Mobile Telecommunications

This paper questions whether competition can replace sector-specific regulation of mobile telecommunications. We show that the monopolistic outcome may prevail independently of market concentration when access prices are determined in bilateral negotiations. A light-handed regulatory policy can induce effective competition. Call prices are close to the marginal cost if the networks are sufficiently close substitutes. Neither demand nor cost information is required. A unique and symmetric call price equilibrium exists under symmetric access prices, provided that call demand is sufficiently inelastic. Existence encompasses the case of many networks and high network substitutability

Competition vs. Regulation in Mobile Telecommunications

This paper questions whether competition can replace sector-specific regulation of mobile telecommunications. We show that the monopolistic outcome may prevail independently of market concentration when access prices are determined in bilateral negotiations. A light-handed regulatory policy can induce effective competition. Call prices are close to the marginal cost if the networks are sufficiently close substitutes. Neither demand nor cost information is required. A unique and symmetric call price equilibrium exists under symmetric access prices, provided that call demand is sufficiently inelastic. Existence encompasses the case of many networks and high network substitutability

Homothetic Efficiency: Theory and Applications

We provide a nonparametric revealed preference approach to demand analysis based on homothetic efficiency. Homotheticity is widely assumed (often implicitly) because it is a convenient and often useful restriction. However, this assumption is rarely tested, and data rarely satisfy testable conditions. To overcome this, we provide a way to estimate homothetic efficiency of consumption choices. The method provides considerably higher discriminatory power against random behavior than the commonly used Afriat efficiency. We use experimental and household survey data to illustrate how our approach is useful for different empirical applications and can provide greater predictive success

MARKET AND GOVERNMENT FAILURES RELATED TO THE INTRODUCTION OF TAX INCENTIVES REGIME

Abstract: The paper deals with problem of effectiveness of tax incentive regimes. The main purpose of this paper is to define causes, factors and measures aimed to prevent and neutralize failures of introduction of tax incentives. In order to examine the behavior of economic agents we used game theory tools, notably the “principal-agent” model, similar to the Allingham-Sandmo model. To solve a problem of inefficient interaction, when investors unreasonably pretend on tax incentives and government ignore that by granting them incentives, we proposed to use Nash-equilibrium in pure strategies. Finally we defined factors of improvement of efficiency of tax incentive regimes, particularly mechanisms of their implementation and termination