Financing Start-ups: Advising vs. Competing

High-tech start-ups get external finance and guidance mostly from venture capitalists and/or business angels. We identify a simultaneous double moral hazard for the management style of entrepreneurs and the decision to advise the firm for financiers. We embed this relationship into the financial competition where strategic choices are equity shares, liquidation rights and quality of advising. We show that the financier holds all liquidation rights, that more competition weakly decreases the financier's equity share. Surprisingly, the response in advising quality is non-monotone. In a regime of soft competition, the financier owns the start-up and more competition weakens advising quality. In a regime of acute competition, more competition improves advising quality and lowers the financier's equity share in the start-up. Hence, advising and equity, are substitutes at the industry level once competition effects are taken into account.Start-ups, Contract Design, Equity, Oligopoly Competition

Regulating quality by regulating quantity : a case against minimum quality standards

We show in a simple model of entry with sunk cost, that a regulator prefers limiting the output, or capacity, of the incumbent firm rather than imposing a "Minimum Quality Standard" in order to help the entrant to provide high quality. As a by-product, our analysis makes a contribution to the study of Bertrand-Edgeworth competition in a market with differentiated products.quality, minimum quality standards, price competition

Sales Restriction, Quality Selection and the Mode of Competition

A regulator imposing "sales restrictions" on firms competing in oligopolistic markets may enhance quality provision by the firms. Moreover, for most restrictions levels, the impact on quality selection is invariant to the mode of competition.Quality; Quota; Oligopolistic Competition

Entry accommodation under multiple commitment strategies: judo economics revisited

We consider a stage-game where the entrant may simultaneously commit to its product's quality and the level of its production capacity before price competition takes place. We show that capacity limitation is more effective than quality reduction as a way to induce entry accommodation: the entrant tends to rely exclusively on capacity limitation in a subgame perfect equilibrium. This is so because capacity limitation drastically changes the nature of price competition by introducing local strategic substitutability whereas quality differentiation only alters the intensity of price competition.entry, quality, differentiation, Bertrand-Edgeworth competition

Asymmetries of Information in Electronic Systems

We study the efficiency of the equilibrium price in a centralized, order-driven market where asymmetrically informed traders are active for several periods and can observe each other current and past orders, as in electronic systems of trading. We show that the more precise the information the higher the incentive to reveal it in the first trading rounds. On the contrary, strategic competition forces the less informed trader to wait the end of the trading period to reveal his information. This implies that when differences in information quality are very important, the liquidity of the market decreases as we approach the date of public revelation. We are able to show that more transparent markets as the ones organized via electronic systems are not performing better than markets organized on floor trade in terms of revelation of information, due to the oligopolistic behavior of insidersasymmetric information, liquidity, insider trading, strategic revelation

Enforcing Quality Leapfrogging through Quotas

Under price competition between a domestic and a foreign producer on a domestic market, an import quota can enforce the equilibrium quality ranking that favours the domestic producer and thereby increase domestic welfare

Entry under Capacity Limitation and Vertical Differentiation: return of the Judo Economics

Shaked and Sutton (1982) and Gelman and Salop (1983) are best remembered for their neat conclusions: a limited quality or limited capacity is an effective tool to relax competition and facilitate entry in a market. We aim at comparing the respective merits of these two strategic commitments. We claim that capacity limitation is more effective than quality reduction, mainly because it acts directly upon the incumbent to reduce his aggressiveness in the final price competition whereas quality tools works indirectly trough consumer's willingness to pay

Regulating quality by regulating quantity: a case against minimum quality standards

We show in a simple model of entry with sunk cost, that a regulator is best advised to limit the output or capacity of the incumbent firm rather than impose a general Minimum Quality Standard in order to maximize industry welfare. The quota amounts to protect the entrant (or low quality firm) from price competition. As a consequence it becomes more profitable to sink money into quality upgrades. As a by-product, our analysis makes a contribution to the study of Bertrand-Edgeworth competition in a market with differentiated products that extends and confirms Krishna (1989) for our particular model of duopolistic competition

Ensuring quality provision in deregulated industry

The deregulation of public monopolies has often generated a decrease in quality and reliability of service. Governments have coped with this issue by imposing Minimum Quality Standards (MQS) to entrants but a recent stream of literature has raised concerns about the inadequacy of this instrument. We propose an alternative, a sales quota to be imposed on the incumbent, to overcome the competition effects that tend to generate quality downgrading. In our model an entrant invests into quality because the limit on the incumbent sales eliminates price wars and enable him (as well as the incumbent) to recoup investments in quality. The maximal welfare is obtained when the sales quota is xed at 71% of the initial market. Laisser-faire leads to entrant s differentiation and a welfare of 91, 6% of the Pareto optimum while our solution leads to a welfare of 99, 4%. To reach this level a MQS should be set 66% above the ideal level chosen by the entrant under laisser-faire

Green certificates or feed-in premiums? The changes in the green certificate market in Wallonia

La Wallonie a mis en place en 2003 un mécanisme de certificats verts échangeables pour promouvoir le développement des énergies issues de sources renouvelables. Le marché des CV s’est trouvé dès 2007 en déséquilibre avec une offre excédentaire de certificats du fait notamment du soutien différencié et généreux à la filière solaire photovoltaïque. Ce déséquilibre persistant a fait chuter le prix des CV à un prix proche du prix de rachat garanti de 65 €. Dans les faits, le mécanisme des certificats verts s’est transformé en une prime de rachat garantie qu’il est aujourd’hui nécessaire de modifier