Compatibility choice in vertically differentiated technologies

We analyse firms' incentives to provide two-way compatibility between two network goods with different intrinsic qualities. We study how the relative importance of vertical differentiation with respect to the network effect influences the price competition as well as the compatibility choice. The final degree of compatibility allows firms to manipulate the overall differentiation. Under weak network effect, full compatibility may arise: the low quality firm has higher incentives to offer it in order to prevent the rival from dominating the market. Under strong network effect we observe multiple equilibria for consumers' demands. However, in any equilibrium of the full game, coordination takes place on the high quality good which, we assume, always maintains its overall quality dominance.compatibility, vertical differentiation, network effect.

Conformity based behavior and the dynamics of price competition: a new rational for fashion shifts

This paper deals with dynamic price competition in markets in which the perception of consumers regarding the value of goods depends on the choices of other consumers in the market. In particular, we consider the case in which consumers tend to imitate their peers, generating a conformity effect. In the context of a finite horizon model, we show that conformity based behavior creates new channels of dynamic interaction between firms, changing the nature of price competition. As time evolves, both price strategic complementarity and substitutability may arise along the equilibrium trajectory. This leads to V-shaped equilibrium price paths and oscillating trajectories of market shares. We provide also a new rational for the inversion of fashion trends.dynamic price competition, consumer behavior, conformity, fashion shift

Compatibility Choice in vertically differentiated technologies

We analyse firms’ incentives to provide two-way compatibility between two network goods with different intrinsic qualities. We study how the relative importance of vertical differentiation with respect to the network effect influences the price competition as well as the compatibility choice. The final degree of compatibility allows firms to manipulate the overall differentiation. Under weak network effect, full compatibility may arise : the low quality firm has higher incentives to offer it in order to prevent the rival from dominating the market. Under strong network effect we observe multiple equilibria for consumers’ demand. However, in any equilibrium of the full game, coordination takes place on the high quality good which, we assume, always maintains its overall quality dominance.compatibility, vertical differentiation, network effect

Quality improvement and network externalities

We analyse the optimal pricing choice of an incumbent firm that sells a good with network externalities and is threatened by the entry of a higher quality variant. In the framework of a vertical differentiation model, we find a necessary and sufficient condition under which quality improvement occurs as a result of this competition.Vertical product differentiation; network externalities; quality improvement

A Note on Expanding Networks and Monopoly Pricing

We obtain explicitly the optimal path of prices for a monopolist operating in a network industry during a finite number of periods. We describe this optimal path as a function of network intensity and horizon length and show that the prices are increasing in time and that, for very low network intensity, or very high horizon length, the monopolist will offer the good at zero price in the initial period.

Endogenous Heterogeneity in Strategic Models: Symmetry-breaking via Strategic Substitutes and Nonconcavities

This paper is an attempt to develop a unified approach to endogenous heterogeneity by constructing general class of two-player symmetric games that always possess only asymmetric pure-strategy Nash equilibria. These classes of games are characterized in some abstract sense by two general properties: payo? non-concavities and some form of strategic substitutability. We provide a detailed discussion of the relationship of this work with Matsuyama’s symmetry breaking framework and with business strategy literature. Our framework generalizes a number of models dealing with two-stage games, with long term investment decisions in the first stage and product market competition in the second stage. We present the main examples that motivate this study to illustrate the generality of our approach.firm heterogeneity; submodular games; business strategy; innovation strategies.

Revealing incentives for compatibility provision in vertically differentiated network industries

We determine the incentives for compatibility provision of firms that produce network goods with different intrinsic qualities when firms do not have veto power over compatibility. When network effects are strong, there are multiple equilibria in pricing and consumer decisions. We show that in some equilibria, it is the high quality firm that invests in compatibility, whereas in others, the low quality firm triggers compatibility. The socially optimal compatibility degree is zero, except under very strong network effects, where one of the equilibria has all consumers buying the low quality good. In this case, a partial degree of compatibility is optimal

Wealth inequality, systemic financial fragility and government intervention

Does wealth inequality make financial crises more likely? If so, how can a government intervene, and how does this affect the distribution of resources in the economy? To answer these questions, we study a banking model where strategic complementarities among wealth-heterogeneous depositors trigger systemic self-fulfilling runs. In equilibrium, higher wealth inequality increases directly the incentives to run of the poor, and indirectly those of the rich via higher bank liquidity insurance, thus increasing the probability of a systemic self-fulfilling run overall. A government intervention on illiquid but solvent banks redistributes resources towards the poor and makes systemic self-fulfilling runs less likely

Study on the efficiency and effectiveness of public spending on tertiary education

The purpose of the study is to assess efficiency in public tertiary education systems across EU countries plus Japan and the US with semi-parametric methods and stochastic frontier analysis.  The study identifies a core group of efficient countries. A good quality secondary system, output-based funding rules, institutions' independent evaluation and staff policy autonomy are positively related to efficiency.  Moreover, the study provides evidence that public spending on tertiary education is more effective in what concerns labour productivity growth and employability when it is coupled with efficiency.Efficiency, effectiveness, public spending, tertiary education, Universities, Study on the efficiency and effectiveness of public spending on tertiary education

On Gale and Shapley ‘College admissions and stability of marriage’

In this note, we start to claim that established marriages can be heavily destabilized when the population of existing couples is enriched by the arrival of new candidates to marriage. Afterwards, we discuss briefly how stability concepts can be extended to account for entry and exit phenomena affecting the composition of the marriage market.Matching; stability; marriage model; divorce cascades