On the optimality of the full cost pricing

Most companies prefer to use absorption costing rule rather than marginal cost pricing. This article is aimed at defining the absorption costing rule as deriving from a principal-agent formulation of two tier organizations : (i) the upstream unit fixes the production capacity and uses it as a cost driver to compute the average cost (ii) the downstream unit operates on the market and chooses the output level on the basis of the average cost. Absorption costing results in two policies to be used according to the magnitude of the fixed cost. When the fixed cost is low, the capacity is fully used and a full cost pricing policy holds; when the fixed cost is high, a partial cost pricing policy holds since only a part of the fixed cost is passed on. The absorption costing rule competes with three pricing rules related to this two-tier structure and various payoffs functions associated to the decision levels: the separation, the tranfer pricing and the integration These rules are analyzed in the Cournot oligopoly case and comparisons in terms of profits are made. Except in the monopoly case, there exists a wide range of values of the fixed cost, for which the full cost pricing dominates all the other rules. In addition, there exists a specific value of the fixed cost for which the full cost pricing duplicates the monopoly and then leads to the first best solution of the Cournot oligopoly.Full cost pricing, imperfect competition.

The Effectiveness of Antitrust Enforcement Instruments: A Matter of Agency Relation

This paper explores how antitrust enforcement instruments modify the incentives and relations within companies, in the context of cartels. Among all relations, agency relations between shareholders and managers are the focus of this study. In the absence of individual liability, sanctions target the undertaking - or the principal of the agency relation; but not the responsible individuals - or the agent, who may engage the company in a cartel. Undertakings that face asymmetries of information and discrepancies of interests between actors may not have the ability and incentive to transfer a sanction to the responsible individuals. Thus, penalties that target the principal are deemed effective only if the company can reduce the interest gap internally and at low cost. Sanctions addressed to individuals in addition to companies, are able to impact directly the incentives of the agent of the agency relation. This paper argues that understanding the potential effects of competition law instruments on the agency relation is of utmost importance to assess their effectiveness to deter and detect cartel conduct. For competition policy purposes, it seems desirable that the agent and the principal have aligned interests towards sanctions. In contrast, leniency policy or bounty programmes that target the agent are effective if they aggravate the tension gap in the agency relation. The developments are based on the EU, and its member states, the US and other jurisdictions when relevant

Retailing regulation via parking taxation

This paper explores the idea to regulate retailing industry through a tax on the store parking size. In Western economies, retailers use common resources (land use, road networks) contributing to the store accessibility that they do not pay for. This kind of free riding gives gross merchandisers and hypermakets a competitive advantage which establishes undue market power while creating, presumably, inefficiencies when social cost is taken into account. Hence the idea to tax the parking, which is a proxy measure of the accessibility resources used by the retailer. By using a standard model of horizontal differentiation, we explore the impact of parking taxation in a monopoly and in duopoly and we characterize optimal taxation policies.spatial competition, optimal taxation, parking

Hawks and doves in segmented markets : A formal approach to competitive aggressiveness

Competitive aggressiveness is analyzed in a simple spatial oligopolistic competition model, where each one of two firms supplies two connected market segments, one captive the other contested. To begin with, firms are simply assumed to maximize profit subject to two constraints, one related to competitiveness, the other to market feasibility. The competitive aggressiveness of each firm, measured by the relative implicit price of the former constraint, is then endogenous and may be taken as a parameter to characterize the set of equilibria. A further step consists in supposing that competitive aggressiveness is controlled by each firm through its manager hiring decision, in a preliminary stage of a delegation game. When competition is exogenously intensified, through higher product substitutability or through larger relative size of the contested market segment, competitive aggressiveness is decreased at the subgame perfect equilibrium. This decrease partially compensates for the negative effect on profitability of more intense competition.

Negative agency costs

Managerial opportunism is commonly considered as destructive for the parties involved in an agency relationship. Using a close formulation to Jensen and Meckling’s equity model, we consider an agency relationship between a manager and an investor. The latter is assumed to benefit from a market power through external funding opportunities. For high values of the prevailing rate of interest, we prove that the agency costs can be negative, either when the manager or the investor acts as the leader in the agency relation. These results suggest that external conditions may have a differentiated impact on the ex ante and ex post inefficiencies created by managerial opportunism.Corporate finance, agency cost, market power.

Doping in Sport and Competition Design

We develop a game-theoretic model of doping which focuses on the economic aspects of competitive sports. According to the model, incentives for athletes to use doping increase when (i) the efficiency of the drug test system is low, (ii) the number of competitions during one season is high, (iii) the spread of prizes from sports events is large, (iv) the perceived health cost is low. Implication for anti-doping policy are derived. We also discuss the optimal (anti-doping) competition design.

On the optimality of the full cost pricing

This article is aimed at defining the full-cost pricing as a leader-follower game in two-tier organizations: (i) the upstream unit fixes the production capacity and uses it as a cost driver to compute the average cost; (ii) the downstream unit operates on the market and chooses the output level on the basis of the average cost. In the Cournot oligopoly case, the full-cost pricing is compared with other pricing rules. There exists a wide range of values of the fixed cost, for which the full-cost pricing dominates any other pricing rules, in terms of gross profit

Les ingénieurs des mines compagnons du père Enfantin

La place de plus en plus grande occupée par les Ingénieurs des Mines dans les structures administratives de la France fit que ces hommes ne furent pas à l’abri des poussées de fièvre qui affectaient régulièrement la société française. Aussi n’est-il pas étonnant de voir certains d’entre eux s’impliquer dans la réflexion sociale et l’action politique. Après tout, les Ingénieurs du Corps des Mines, de par leurs fonctions, étaient souvent les mieux à même d’observer et d’analyser les conséquence..

Les ingénieurs des mines compagnons du père Enfantin

La place de plus en plus grande occupée par les Ingénieurs des Mines dans les structures administratives de la France fit que ces hommes ne furent pas à l’abri des poussées de fièvre qui affectaient régulièrement la société française. Aussi n’est-il pas étonnant de voir certains d’entre eux s’impliquer dans la réflexion sociale et l’action politique. Après tout, les Ingénieurs du Corps des Mines, de par leurs fonctions, étaient souvent les mieux à même d’observer et d’analyser les conséquence..

Investissement et financement dans un monopole avec bénéfices privés

Cet article étudie l’impact des bénéfices privés sur l’investissement et le financement d’une entreprise en situation de monopole. À l’origine actionnaire à 100 %, son dirigeant doit décider la part du capital qu’il cède à un investisseur extérieur et/ou l’emprunt qu’il contracte pour financer un investissement en capacité. Nous étudions ici comment se combinent ces deux sources de financement lorsque le dirigeant prélève un bénéfice privé qui renchérit le coût de production. Nous montrons que l’emprunt devient indirectement une source privilégiée de financement de ces bénéfices privés.This article examines the impact of private benefits on investment and financing decisions in a monopoly. Originally a 100 % shareholder, its manager must decide both the amount of capital sold to an outside investor and / or the loan he makes to finance an investment in capacity. We study how to combine these two sources of funding when the manager extracts private benefits that increase the cost of production. We show that borrowing indirectly becomes a prime source of funding for these private benefit