duopoly supergames with product differentiation abstract when goods are complements or very close substitutes more tacit collusion is supported by trigger strategies in price setting supergames than in quantity setting supergames for moderate or poor substitutes the situation is reversed this contrasts with the static situation where price setting strategies always lead to higher welfare

market shares and price quality relationships an econometric investigation of the u s automobile market the objective of this paper is to investigate the role of marketing competition in the northamerican automobile market this is accomplished by estimating a market share demand function the main difficulty with the analysis of demand for automobiles is heterogeneity of model types quality differences among different models both at a point in time and through time cannot be ignored since price and sales depend on them one way to remedy this situation is to apply the hedonic method by regressing the price of a model on its characteristics in this way the implicit prices for each of the qualitative attributes are derived and then used free of quality differences in the second stage estimation of a market share demand function there has been considerable interest in estimating demand functions for automobiles however most of the previous research has focused on total automobile demand in this approach equations on total sales are estimated without taking into account differences in quality characteristics of different model types these studies usually relate the depreciation of the service level of the currently held stock of automobiles to the demand for new stock this leads to a very general stock adjustment 7 or generalized acceleration framework 10 the best known time series studies of the aggregate automobile demand using different variants of this approach are those of chow 2 suits 15 wykoff 19 and westin 18 the estimates of price elasticities from these studies are about 1 and income elasticities range from 1 5 to 4 previous research on automobile demand allowing for qualitative differences in characteristics among different models is much less extensive the most important research effort in this direction is the paper by cowling and cubbin 4 they explained market share movements for different car manufacturers by changes in quality adjusted prices using data from england for the period 1957 1968 their quality adjusted price vector is proxied by the residuals from hedonic price regressions using the data on manufacturer s models the idea that the residuals from the regression of prices of differentiated goods on their qualitative attributes are the quality adjusted prices was suggested by griliches 8 cowling and cubbin used as their quality adjusted price for a specific manufacturing firm the mean residual computed by taking into account all the models offered by

judo economics in markets with asymmetric firms abstract i study a market entry game with price competition and perfectly substitutable products limiting the initial capacity judo economics is a plausible entry strategy i show that under asymmetry in production cost or product quality capacity limitation can become obsolete

price setting supergames with capacity constraints this paper examines the role of industry capacity in enforcing collusion in the context of repeated games for a fixed capacity per firm it is shown that changes in the number of firms have a non monotone effect on the best enforceable cartel price this is due to the fact that while an additional firm lowers the share that each of the other firms enjoys at the collusive price it also increases the losses to each firm should the cartel fail

country asymmetries endogenous product choice and the timing of trade liberalization abstract we analyze the effects of trade liberalization on firms decisions and profits in a vertical product differentiation model with countries which have different characteristics firms decide product specifications at the beginning of the game in which autarky is followed by trade liberalization whose date is anticipated our analysis suggests that a firm located in a large or rich country is the likely market leader at the trade equilibrium this outcome might be reversed if small country firms have a strong cost advantage transport costs are negligible or if the large country opens its market before the small one

sunk costs and strategic commitment a proposed three stage equilibrium dixit s i980 paper in this journal the role of investment in entry deterrence has attracted considerable interest from economists concerned with constructing a modern theory of strategic behaviour towards entry in fact the paper has spawned quite an industry of commitment models in which the equilibrium payoffs in some final period game can be influenced by strategic commitments made by the players in an earlier period for similar models with important insights into strategic entry deterrence see eaton and lipsey i980 i98i schmalensee i98i the purpose of this note is to argue that when the instrument of stragetic commitment takes the form of sunk costs which both entrant and incumbent have to bear as it does in dixit s paper and in many other examples a three stage model rather than the two stage model presented by dixit is required although the proposed equilibrium differs from dixit s its qualitative features are the same it may or may not be profitable to deter entry and if it is the first mover may still prefer to play an accommodation strategy and allow entry to take place following dixit we restrict our attention to the asymmetric case in which one firm the incumbent makes the first move the two stage game involves the first mover sinking part of its costs in advance so that in the second stage equilibrium it will have a current cost advantage over the entrant which must incur the full cost of producing any desired output level the second period cost asymmetry ensures the incumbent a lar ger share of the post entry market which may be sufficient to deter entry altogether the problem with the two stage game lies in the nature of sunk costs sunk costs by definition are committed before the production period takes place if they were expended as a flow simultaneously with production they would not be sunk the installation of capacity is the natural example employed by dixit and well illustrates the point if installed capacity is a sunk cost which it must be for the incumbent to acquire any strategic advantage at all then the entrant s installed capacity is equally sunk and must also be committed before the production period takes place given this observation the post entry final period equilibrium should not be modelled as if the entrant were simultaneously incurring both variable and sunk costs but the incumbent only incurs variable costs this implies too great an asymmetry in favour of the incumbent the final period equilibrium should involve both firms incurring only variable

competitive advantage and collusive optima cost differences may often be important in real oligopolies if side payments are impossible the standard cartel objective total industry profits lacks plausibility when costs differ this essay considers plausible alternatives four different technologies for effecting collusion which are essentially identical when costs are equal define sets of possible profits axiomatic bargaining models are used to select unconstrained optima from among these possibilities simple functional forms are employed low cost firms with large shares in cournot equilibrium may have little to gain from collusion if collusion is effective low cost firms will have relatively low estimated conjectural variations

excess capacity and collusion in this paper the authors analyze a restricted class of equilibria in the dynamic model of j p benoit and v krishna 1987 in which firms choose their scale of operation before engaging in a repeated game of price competition benoit and krishna established that all firms carry excess capacity in all collusive equilibria as the authors are interested in the relationship between excess capacity and collusion in price they examine equilibria in which firms tacitly collude in price but not in investment decisions copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

quality and quantity competition in a multiproduct duopoly author affiliation yi ling cheng ylcheng thu edu twshin kun peng speng econ sinica edu tw acknowledgment we are most grateful to three anonymous referees who generously offered a number of insightful comments to improve this article we have also benefited much from fruitful discussions with takatoshi tabuchi hong hwang and toshihiro matsumura which led to significant improvements in this article we are especially indebted to takatoshi tabuchi for his contributive comments and suggestions finally we would like to thank conference participants at 2010 association for public economic theory in istanbul society for the advancement of economic theory in singapore as well as seminar participants at institute of economics academia sinica and national taiwan university financial support from academia sinica and the national science council taiwan is gratefully acknowledged the usual disclaimer applies 1 introductionmost of the literature dealing with vertical product differentiation such as bonanno 1986 and motta 1993 assumes that each firm can produce only one product however multiproduct firms abound in the real world firms in various industries produce multiple quality differentiated goods for example mercedes benz provides three different classes of sedans namely its c class e class and s class and bmw has its 3 series 5 series and 7 series in addition both lenovo and sony supply around 20 kinds of laptops ranked in accordance with their central processing units and outfits 1a casual survey of the empirical evidence also suggests that any two multiproduct oligopolies usually differentiate the qualities of their products and the patterns of their quality differentiation can be classified into the segmented type and the nonsegmented type the former type implies that the products of one firm are always of higher quality and more highly priced than those of the other firm such as the sedans of bmw and honda all the sedans sold by bmw are more expensive and of higher quality than those of honda the latter type denotes completely different patterns where the products produced by the two firms have interlacing patterns of their prices qualities for example the prices of the mercedes benz c e and s classes are respectively 32 900 52 700 and 87 800 while the prices of bmw s 3 5 and 7 series are given as 33 600 45 800 and 80 300 respectively 2 the prices of their sedans are interlaced and it is inferred that their qualities are interlaced and nonsegmented other examples include the whiskey offered by johnnie walker and edrington and the plasma televisions provided by samsung and sony the nonsegmented patterns of differentiation between the multiproduct firms with similar technological capabilities are very common in reality however the related literature has not shed enough light studying them while the segmented type of quality differentiation has been characterized by champsaur and rochet 1989 1990 with a quality then price competition of multiproduct duopolists the nonsegmented one so far has not been captured and explained in the literature 3therefore this article intends to examine the equilibrium qualities as well as the number of products chosen by the multiproduct firms with identical similar technological capabilities such as mercedes benz and bmw our main purpose is to characterize the patterns of vertical product differentiation and to reveal the properties of quality differentiation between them the contributive articles gal or 1983 de fraja 1996 johnson and myatt 2003 2006 examine a variety quality and quantity competition between multiproduct firms 4 gal or 1983 de fraja 1996 and johnson and myatt 2003 proposition 6 conclude that firms with equal technological capabilities will compete head to head by producing identical products qualities

sunk costs and trade liberalization a model of vertical product differentiation is applied to the study of trade between two countries of differing sizes firms in the small country choose lower quality products in autarky unlike a shaked and j sutton 1984 welfare effects of trade are fully analyzed and shown to depend on the degree of sunkness of costs if firms have not sunk costs losses from trade may arise for the small country in the short run when quality is fixed and for the large country in the long run when quality is variable if costs are sunk both countries always gain from trade copyright 1992 by royal economic society

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

demand equations for individual new car models estimated using transaction prices with implications for regulatory issues the economic impact of the automobile industry on the u s economy hardly needs to be emphasized taking into account related and feeder industries such as rubber steel zinc it has been estimated that one business in six is automobile related over the last 20 years the auto industry has been subject to increasing regulation laws have been passed which require manufacturers to install certain safety equipment and pollution control equipment and recently have mandated that fuel efficiency cafe standards be met on average by the fleet of cars sold by each manufacturer 2 the impact of these cafe standards is enormous currently the domestic auto manufacturers have plans to spend over 40 billion dollars to essentially redesign all of their models 3 the effects all these regulations have had and will have on the health and structure of the u s automobile industry has been the subject of much debate auto manufacturers have argued that 1 consumers do not value the safety and pollution control equipment and that therefore the expense of such equipment merely hurts their sales 4 and 2 due to the differential ability of the four major auto companies to meet any given standard the imposition of them disrupts the competitive market relationships which exist between the companies advocates of these regulations on the other hand view the u s auto industry as resisting change in order to protect its profits

competition under generalized attraction models applications to quality competition under yield uncertainty we characterize the equilibrium behavior in a broad class of competition models in which the competing firms market shares are given by an attraction model and the aggregate sales in the industry depend on the aggregate attraction value according to a general function each firm s revenues and costs are proportional with its expected sales volume with a cost rate that depends on the firm s chosen attraction value according to an arbitrary increasing function whereas most existing competition papers with attraction models can be viewed as special cases of this general model we apply our general results to a new set of quality competition models here an industry has n suppliers of a given product who compete for the business of one or more buyers each of the suppliers encounters an uncertain yield factor with a given general yield distribution the buyers face uncertain demands over the course of a given sales season the suppliers compete by selecting key characteristics of their yield distributions either their means their standard deviations or both these choices have implications for their per unit cost rates

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

a dynamic model of quality competition with endogenous prices abstract we develop a dynamic model of price and quality competition in order to analyze the effects of competition on quality provision and to which extent an unregulated market is able to provide a socially optimal quality level our model combines a differential game approach with a hotelling spatial competition framework and our analysis applies in particular to industries such as long term care health care child care and education if providers nursing homes hospitals schools nurseries use closed loop decision rules which imply strategic interaction over time we show that although increased competition leads to higher quality in the steady state quality provision is nevertheless lower than under open loop rules and also suboptimally low from a welfare perspective thus our analysis identifies dynamic strategic interaction between competing providers as a potential source of inefficiency in quality provision

diversification specialization convergence and divergence of sectoral employment structures in the british urban system 1991 2001 o donoghue d and townshend i j 2005 diversification specialization convergence and divergence of sectoral employment structures in the british urban system 1991 2001 regional studies 39 585 601 this paper examines the changing employment structure of 150 travel to work areas ttwas in britain from 1991 to 2001 using data from the annual employment survey and the annual business inquiry 20 sectors of economic activity are defined and investigated the analysis clearly identifies the continued shift away from primary and manufacturing employment as increasingly more people are employed in the so called service based and informational economy clear spatial patterns emerge associated with employment change across sectors and these are also explored given the changing pattern of employment and the spatial characteristics of each sector new patterns of specialization and diversification are expected to emerge the analysis identifies these patterns and places their explanation into the context

judo economics reconsidered capacity limitation entry and collusion abstract the capacity investment by a new firm into an established market is explored in a repeated price game if the entrant expects collusion to prevail upon entry it may not practice judo economics but instead choose to install enough capacity to serve the entire market this occurs when collusion involves optimal punishment paths if instead collusion is based upon the static nash equilibrium punishment and the incumbent has excess capacity and the entrant is at a cost disadvantage the entrant will strategically limit its capacity so as to restrain the incumbent s price response to entry

a comment on a model of vertical product differentiation in a duopoly model with vertical differentiation if the firms do not cover the market the lower quality firm chooses a quality level exactly 4 7 of that of the higher quality firm and chooses a price that is 2 7 of the price of the higher quality firm copyright 1992 by blackwell publishing ltd

on the efficiency of bertrand and cournot equilibria with product differentation in a differentiated products setting with n varieties it is shown under certain regularity conditions that if the demand structure is symmetric and bertrand and cournot equilibria are unique then prices and profits are larger and quantities smaller in cournot than in bertrand competition and as n grows both equilibria converge to the efficient outcome at a rate of at least 1n if bertrand reaction functions slope upwards and are continuous then even with an asymmetric demand structure given any cournot equilibrium price vector one can find a bertrand equilibrium with lower prices in particular if the bertrand equilibrium is unique then it has lower prices than any cournot equilibrium

low quality leadership in a vertically differentiated duopoly with cournot competition abstract we model a vertically differentiated duopoly with quantity setting firms as an extended game in which firms noncooperatively choose the timing of moves at the quality stage to show that at the subgame perfect equilibrium sequential play obtains with the low quality firm taking the leader s role

rising metropoli the geography of mergers and acquisitions in germany high levels of mergers and acquisitions m as were a characteristic of the global economy in the 1990s the overall effects of m as on economic welfare and their spatial implications however remain a profoundly neglected topic using three standardised indices representing the relative quantity of take overs in each german regierungsbezirk the paper demonstrates that the recent wave of m as has resulted in a major concentration of firms and economic activity in the main german metropoli the paper then turns to a study of the flows of m a transactions by means of regression analysis it identifies the main drivers of the geographical concentration of firms to be indicators of the general level of agglomeration i e regional gdp and population and the concentration of political power in the region the results also indicate that investment in r d the general level of education or unemployment when considered in combination with agglomeration indicators play a negligible role in determining m a f

holding idle capacity to deter entry in this journal dixit i980 carefully analysed the extent to which an established firm facing a prospective entrant might make an investment in capacity beyond that which is optimal for its pre entry output in his model both the established firm and prospective entrants understand that a quantity setting nash equilibrium would be established in any post entry game dixit showed that spence i977 had studied an imperfect equilibrium that is an equilibrium that depended upon a threat that was not credible to obtain his result that firms might hold excess capacity to deter entry in a perfect equilibrium a firm would not wish to install capacity that would be left idle if entry did not occur dixit s conclusion however depends on his assumption that each firm s marginal revenue is always decreasing in the other s output this is quite a restrictive assumption for example it is never satisfied in the relevant range for economists second favourite demand curve constant elasticity demand the basic point is unchanged if the firms anticipate price competition with differentiated products rather thanquantity competition in any post entry game under quite plausible conditions rational firms facing rational potential entrants may install capacity that will certainly be left idle we are thus able to rehabilitate spence s original proposition in a perfect equilibrium setting

strategic it investments the impact of switching cost and declining it cost the declining cost of information technology it over time provides the later entrant in information intensive industries a cost advantage on the other hand the earlier entrant has the potential to build and retain its market share if consumers incur a cost in switching to the later entrant we investigate the impact of a decline in the it cost and the switching cost on it investment strategies of firms we find that a declining it cost always hurts the early entrant s profit the early entrant may assume an aggressive investment strategy or a defensive investment strategy in response to a decline in the it cost depending on whether the switching cost relative to the extent of decline in the it cost is high or low respectively a decline in it cost also hurts the later entrant s profit if the switching cost is high a surprising result is that when the decline in the it cost is higher than a critical value a higher switching cost increases consumer surplus when firms control the switching cost the early entrant increases its investment in quality and switching cost and maintains its quality and its market share leadership irrespective of the extent of decline in the it cost

dynamic duopoly prices and quantities we study a dynamic model of duopoly in which firms choose both prices and quantities if quantity capacity choices are relatively inflexible firms generally carry excess idle capacity in equilibrium because of this enforcement cost firms are unable to achieve monopoly levels this contrasts with models in which which firms compete in either prices or quantities alone on the other hand if capacities are flexible firms may be able to sustain monopoly behaviour

collusion among asymmetric firms the case of different discount factors abstract this study investigates collusive behavior among asymmetric firms for this purpose we develop a selection criterion for deriving a unique collusive outcome and apply it to the case when firms have different discount factors our analysis reveals that for collusion to be self enforcing it is unnecessary that all firms have sufficiently high discount factors but rather only that firms on average have a sufficiently long run view the optimal collusive outcome entails a strict ordering of output quotas in which firms with relatively low discount factors receive a disproportionate share of market demand as found in the case of a common discount factor a fall in a firm s discount factor reduces the likelihood of successful collusion this effect reduces firm profits on the other hand in the event that firms can collude a lowering of a firm s discount factor increases its output quota so that its profits rise

forces shaping urban europe the paper describes seven major forces which are currently affecting the spatial structure of urban europe globalisation of the world economy has emphasised comparative advantage leading to the deindustrialisation of many older cities and the emergence of a very select group of eurocities changes in east central europe will provide a new stimulus to the growth of capital and second order cities in which new investment will be concentrated the urban impact of the shift to the informational sector is twofold major capitals will intensify their dominance but at a lower level of function there will be dispersal technological innovations in transport and communications are likely to lead to more polycentric cities lastly the impacts on european cities of urban marketing and socio demographic changes are described

endogenous quality choice price vs quantity competition two versions of a vertical product differentiation model one with fixed and the other with variable costs of quality are analyzed to study how the hypotheses of price versus quantity competition affect equilibrium solutions product differentiation arises under all the scenarios considered contrasting previous findings of symmetric quality choices under cournot behavior however to relax harsher market competition firms differentiate more under bertrand than under cournot a simple welfare measure also indicates that the economy is better off when firms compete on prices with fixed costs of quality not only consumer but also producer surplus is higher under price competition copyright 1993 by blackwell publishing ltd

add on pricing by asymmetric firms this paper uses an analytical model to examine the consequences of add on pricing when firms are both horizontally and vertically differentiated and there is a segment of boundedly rational consumers who are unaware of the add on fees at the time of initial purchase we find that consumers who know the add on fees can be penalized and increasingly so by the existence of boundedly rational consumers our consideration of quality asymmetries on base goods and add ons plus the inclusion of boundedly rational consumers leads to several novel findings regarding firm profits when quality asymmetry is on base goods only and with boundedly rational consumers add on pricing can diminish profit for a qualitatively superior firm and increase profit for an inferior firm i e a lose win result compared to when add on pricing is prohibited or infeasible when quality asymmetries exist on both base goods and add ons and without boundedly rational consumers the opposite win lose result prevails when quality asymmetries exist on both base goods and add ons and with boundedly rational consumers the result can be win win win lose or lose win depending on the magnitude of quality differentiation on add ons this paper was accepted by j miguel villas boas marketing

cooperative r d and vertical product differentiation abstract a partial equilibrium model with vertical product differentiation coumot competition and quality determined by r d expenses is analysed cooperative agreements on r d entail higher levels of r d quality output and welfare than at the non cooperative equilibrium under well denned conditions on spillover rates this confirms in a new setting a well known outcome of models with cost reducing r d further cooperation in r d allows a larger number of firms to operate in the industry than in the non cooperative case via a reduction in prices a new source of social gains from cooperative research is identified

collusion in dynamic oligopolies in the presence of entry threats this paper considers a generalized oligopoly supergame where an endogenous entry decision is included the author proves that strategies based on most severe symmetric punishments can sustain some degree of collusion even with arbitrarily small entry barriers provided that the discount rate is sufficiently small the model provides a justification for a view suggesting that neither substantial barriers to entry nor strategic or informational asymmetries are necessary for an oligopoly with some degree of cooperation to prevail copyright 1990 by blackwell publishing ltd

the determination of price and output quotas in a heterogeneous cartel applying a selection criterion that uses both subgame perfection and the nash bargaining solution this paper investigates the relationship between firms cost functions and collusive behavior it is found that the optimal collusive price exceeds the price that the low cost firm would set if it was a monopolist comparative statics reveal that the optimal collusive price is increasing in the low cost firm s unit cost but is decreasing in the high cost firm s unit cost when the cost differential between firms is sufficiently large copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

automobiles and implicit markets an estimate of a structural demand model for automobile characteristics economists have always found it difficult to investigate the demand for the automobile good due to its heterogeneity in this paper the automobile is treated as a differentiated product and a two step approach is used to estimate a system of structural demand equations for automobile attributes the obtained results are statistically sound and in conformity with theoretical expectations this should be taken as an indication of the validity and robustness of the procedure used in this analysis

monopolistic third degree price discrimination under vertical product differentiation this paper shows in a vertical product differentiation model with variable costs of quality that monopolistic third degree price discrimination always reduces welfare regardless of whether the quality is fixed or is endogenous the results provide rich implications for antitrust policy

list pricing and discounting in a bertrand edgeworth duopoly list or retail pricing is a widely used trading institution where firms announce a price that may be discounted at a later stage competition authorities view list pricing and discounting as a procompetitive practice we modify the standard bertrand edgeworth duopoly model to include list pricing and a subsequent discounting stage both firms first simultaneously choose a maximum list price and then decide whether to discount or not in a subsequent stage we show that list pricing works as a credible commitment device that induces a pure strategy outcome this is true for a general class of rationing rules further unlike the dominant firm interpretation of a price leader the low capacity firm may have incentives to commit to a low price and in this sense assume the role of a leader

a price setting supergame between two heterogeneous firms when firms attempt to tacitly collude they inevitably face a market sharing problem this problem is further complicated when firms have asymmetries this paper studies a price setting supergame between two firms with different costs the paper investigates sustainability of tacit collusion and solves the market sharing problem under tacit collusion the resulting equilibrium from the supergame is used to study limit pricing government policies toward entrants and welfare change due to technological progress and a change in the time discount rate the paper shows that even costlessly achieved technological progress can decrease social welfare