|
Contents of |
Abstracts of my research papers
Abstract: We examine a two-sided market where intermediaries compete to
attract advertising from firms and audience from buyers. Firms sell
homogeneous products, compete in prices and must advertise them in the
intermediary platforms to attract consumers. Buyers must subscribe to the
intermediaries to receive product and price information. We show that a
monopolist intermediary fully internalizes the externalities between buyers
and
Abstract: We examine an export
game where two firms (home and foreign), located in two different countries,
produce vertically differentiated products. The foreign firm is the most
efficient in terms of R\&D costs of quality development and the foreign
country is relatively larger and endowed with a relatively higher income. The
unique (risk-dominant) Nash equilibrium involves intra-industry trade where
the foreign producer manufactures a good of higher quality than the
Abstract: We modify the
paper of Stahl (1989) on sequential consumer search in an oligopoly context
by relaxing the assumption that consumers obtain the first price quotation
for free. When all price quotations are costly to obtain, a new equilibrium
arises where consumers randomize between not searching at all and searching
for one price. The region of parameters for which this equilibrium exists
becomes larger as the number of shoppers decreases and/or the number of firms
increases. The comparative statics properties of this new equilibrium are
interesting. In particular, the expected price increases as search cost
decreases, and is constant in the number of shoppers and in the number of
firms. We show that the Diamond result never obtains with truly costly
search. (Download Full
Text)
Abstract: This paper
presents an empirical examination of oligopoly pricing and consumer search.
The theoretical model allows for sequential and non-sequential search and
using the theoretical restrictions firm and consumer behavior impose on the
data we study the empirical validity of the models. Two equilibria arise: one
with costless search and the other with costly search. We find that the
costless search equilibrium works well for products with a relatively low
value, and, by implication, a small number of sellers. By contrast, the
costly search equilibrium explains the observed data in a manner that is
consistent with the underlying theoretical model for almost all products (for
86 out of 87!).(Download Full Text)
Abstract: We examine wage
competition in a model where identical workers choose the number of jobs to
apply for and identical firms simultaneously post a wage. The Nash
equilibrium of this game exhibits the following properties: (i) an
equilibrium where workers apply for just one job exhibits unemployment and
absence of wage dispersion; (ii) an equilibrium where workers apply for two
or for more (but not for all) jobs always exhibits wage dispersion and,
typically, unemployment; (iii) the equilibrium wage distribution with a
higher vacancy-to-unemployment ratio first-order stochastically dominates the
wage distribution with a lower level of labor market tightness; (iv) the
average wage is non-monotonic in the number of applications; (v) the
equilibrium number of applications is non-monotonic in the vacancy-to-unemployment
ratio; (vi) a minimum wage increase can be welfare improving because it
compresses the wage distribution and reduces the congestion effects caused by
the socially excessive number of applications; and (vii) the only way to obtain efficiency is to impose a mandatory wage that
eliminates wage dispersion altogether. (Download Full Text)
Abstract: This paper examines the small
world hypothesis. The first part of the paper presents empirical evidence on the
evolution of a particular world: the world of journal publishing economists
during the period 1970-2000. We find that in the 1970's the world of
economics was a collection of islands, with the largest island having about
15% of the population. Two decades later, in the 1990's the world of
economics was much more integrated, with the largest island covering close to
half the population. At the same time, the distance between individuals on
the largest island had fallen significantly. Thus we believe that economics
is an an emerging small world. What
is it about the network structure that makes the world small? An exploration
of the micro aspects of the network yields three findings: one, the average
number of co-authors is very small but increasing, two, the distribution of
co-authors is very unequal, and three, there exist a number of `stars',
individuals who have a large number of co-authors (25 times the average
number) most of whom do not write with each other. Thus the economics world
is a set of inter-connected stars. We take the view that individuals decide on whether to work alone or with others; this means that individual incentives should help us understand why the economics world has the structure it does. The second part of the paper develops a simple theoretical model of co-authorship. The main finding of the model is that in the presence of productivity differentials and a shortage of high productivity individuals, inter-connected stars will arise naturally in equilibrium. Falling costs of communication and increasing credit for joint research leads to greater co-authorship and this is consistent with the growth in the size of the giant component. (Download Full Text)
Abstract: We examine a model of R&D competition and collaboration in which individual firms carry out independent in-house research but can also enter into collaborative research projects with other firms. We examine the impact of collaboration on in-house research and explore the circumstances under which a hybrid organization of R&D which combines the two is optimal for firms and society. We find that investments in independent research and in joint research are complementary: an increase in the number of joint projects also increases in-house research. Firm profits are highest under a hybrid organization if the number of firms is small (less than 5) while they are highest with pure in-house research if the number of firms is large (5 or more). However, social welfare is maximized under a hybrid organization of R&D in all cases. Our analysis also yields new results on the role of cooperative R&D. We find that non-cooperative decision making by firms leads to larger R&D investments and higher social welfare than fully cooperative decision making. However, a hybrid form of decision making where there is bilateral cooperation in joint projects and non-cooperative decision making in in-house research yields the highest level of welfare in concentrated industries.(Download Full Text)
Abstract: We present a strategic game of pricing and targeted-advertising. Firms can simultaneously target price advertisements to different groups of customers, or to the entire market. Pure strategy equilibria do not exist and thus market segmentation cannot occur surely. Equilibria exhibit random advertising --to induce an unequal distribution of information in the market-- and random pricing --to obtain profits from badly informed buyers--. We characterize a positive profits equilibrium where firms advertise low prices to a segment of consumers, high prices to a distinct segment of consumers, and intermediate prices to the entire market. As a result market segmentation arises only from time to time and presents substantial price dispersion. (Download Full Text)
Abstract: We consider a market where a single seller employs advertising to launch a new product of observable quality. The monopolist may use mass, targeted or direct-to-consumer (DTC) advertising. We show that his choice depends on the economic properties of the advertising technology. If the advertising technology exhibits strong economies of targeting, DTC advertising arises in equilibrium. Mass and targeted advertising arise under conditions that seem to be quite restrictive, from both the theoretical and empirical points of view. We also show that different advertising strategies have a bearing on the market outcome. While under mass and targeted advertising, the price-quality choice of the monopolist equals that under full information, under DTC advertising the seller brings fewer units to the market, and distorts the quality of the product and the price in a direction that depends on the nature of product quality. (Download Full Text)
Abstract: This paper presents a positive
analysis of uniform and non-uniform ad valorem taxation in a vertically
differentiated market. Under Bertrand competition, a tax on low (high)
quality is a facilitative (procompetitive) device and thus it
is (not) passed on to the consumers. Thus, a tax on low quality is also paid
by the consumers of high quality. Uniform taxation under price competition
strengthens (weakens) competition if and only if the elasticity of the
marginal cost of quality function is declining (increasing) in quality.
Abstract: We present an oligopoly model
where a certain fraction of consumers engage in costly non-sequential search
to discover prices. There are three distinct price dispersed equilibria
characterized by
Abstract: This paper focuses on ignored issues regarding the impact of trade reforms in transition economies. These economies are primarily characterized by a low quality of their products, large depreciations of their currencies, and a high degree of government intervention in economic activity. These elements are embedded in a duopoly model of vertical product differentiation and international trade. First, we show that trade liberalization in transition economies reduces the output of local firms. Second, neither free trade nor zero subsidy is optimal. There exists a rationale for infant-industry protection in that a commitment by the government to use a socially optimal trade and industrial policy can release the domestic firm from low-quality production. Since greater profits are derived from high-quality products, this enables local firms to finance productivity and technology improvements. Third, in terms of social welfare, no equivalence result between the effects of exchange rate changes and the optimal trade policy can be obtained. (Download Full Text)
Abstract: Many markets are characterized by
a high level of inter-firm collaboration in R\&D activity. This paper develops
a simple model of strategic networks which captures two distinctive features
of such collaboration activity: bilateral agreements and non-exclusive
relationships. We study the effects of collaborations on individual R\&D
effort, cost reduction, and market performance. We then examine the
incentives of firms to form collaborative links and the architecture of
strategically stable networks.
Abstract: Despite the mixed empirical evidence, many economists still hold to the view that Internet will promote competition between firms, thereby lowering prices and increasing economic welfare. This paper presents a search model that provides a different view. We analyze the market for a homogeneous good where some consumers are fully informed while others are not. Depending on the parameter values, there may be three types of equilibria and the comparative statics results are different for each of these equilibria. For example, a reduction in search cost may raise equilibrium prices when consumers' search intensity is low, but reduce prices when consumers search intensity is high. These different comparative statics results may explain the mixed empirical evidence found so far. (Download Full Text)
Abstract: We study the optimal trade policy
against a foreign oligopoly with endogenous quality. We show that, under the
Most Favoured Nation (MFN) clause, a uniform tariff policy is always welfare
improving over the free trade equilibrium. However, a nonuniform tariff
policy is always desirable on welfare grounds. First best policy typically
consists of setting a subsidy on the low-quality product and a tax on
high-quality one. Another example of such a nonuniform tariff policy is a
Regional Trade Agreement (RTA). We show that, if a welfare improvement is
possible through a RTA, it is always with the low-quality producing country
that it has to be
Abstract: In a market where past-sales embody information about consumers' tastes, we analyze a seller's incentives to invest in a costly advertising campaign to report past-sales. If consumers are poorly informed, a pooling equilibrium with past-sales advertising obtains. Information revelation only occurs when the seller benefits from the consumers' herding behavior brought about by the advertising campaign. If consumers are better informed, a separating equilibrium with past-sales advertising arises. Information revelation always happens, either through prices or through costly advertisements. (Download Full Text).
Abstract: We model green markets in which purchasers, either firms or consumers, have higher willingness-to-pay for less polluting goods. The effectiveness of pollution reduction policies is examined in a duopoly setting. We show that duopolists' strategic behaviour may increase pollution levels. Maximum emission standards, commonly used in green markets, improve the environmental features of products. Nonetheless, overall pollution levels will rise because government regulation also affects market shares and boosts firms' sales. Consequently, social welfare may be reduced. We also explore the effects of technological subsidies and product charges, including differentiation of charges. (Download Full Text)
Abstract: We consider a single period model where a monopolist introduces a product of uncertain quality. Before pricing and informative advertising decisions take place, the producer observes the true quality of the good while consumers receive an independent signal which is correlated with the true quality of the product. We show that if informative advertising occurs in equilibrium, there must exist some pooling. Further, we prove that for an advertising full pooling equilibrium to exist, (a) consumers' valuation for the high quality, advertising cost and consumers' prior probability of high quality must be sufficiently high and (b) informativeness of the market signal must be sufficiently low. Existence of an advertising semi-separating equilibrium requires similar conditions. When informative advertising appears in equilibrium, the adverse selection problem is partially mitigated.
Abstract: This paper studies sales promotions through coupons in an oligopoly under imperfect price information. Sellers can distribute either ordinary coupons, or coupon (price) advertising, or both types of coupons, at distant locations to attract consumers from their rivals' markets. A unique symmetric pure-strategy equilibrium exists where rebates and couponing intensity are always positive. In the ordinary-coupon equilibrium, prices, promotional efforts, and sellers' profits are higher than in the coupon-advertising equilibrium. However, if sellers are allowed to distribute both types of coupons, only coupon advertising is sent out in equilibrium.
Abstract: In this paper we evaluate the effectiveness of alternative regulatory policies on reducing aggregate pollution in an environmentally differentiated market. Two firms first choose their environmental quality and then their prices in a market where consumers differ in their valuations of the environmental features of the products. We first show that environmental standards may have an adverse impact on aggregate pollution. Moreover, we find that a uniform ad-valorem tax rate unambiguously increases the level of pollution in the market. When the tax is set in favor of the environmentally cleaner product, aggregate pollution decreases. Finally, direct subsidies on the abatement technology always decrease pollution. |
“Strategic Intermediation in a
Two-sided Market,” (joint with A. Galeotti), October 2004.