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Full-Text Articles in Social and Behavioral Sciences
When Does Aftermarket Monopolization Soften Foremarket Competition?, Yuk-Fai Fong
When Does Aftermarket Monopolization Soften Foremarket Competition?, Yuk-Fai Fong
Yuk-Fai Fong
This paper investigates firms' abilities to collude when these firms each monopolize a proprietary aftermarket. When firms' aftermarkets are isolated from foremarket competition, they cannot tacitly collude more easily than single product firms do. However, when their aftermarket power is contested by foremarket competition as equipment owners view new equipment as a substitute for their incumbent firm's aftermarket product, the monopoly profit is sustainable among a larger number of firms. More strikingly, as long as existing customers have a shorter market life expectancy than incoming customers, for any discount factor, supranormal profits are sustainable among arbitrarily many firms each selling …
Compensation For Quality Difference In A Search Model Of Money, Yuk-Fai Fong, Balazs Szentes
Compensation For Quality Difference In A Search Model Of Money, Yuk-Fai Fong, Balazs Szentes
Yuk-Fai Fong
We study an economy in which there is always double coincidence of wants, agents have perfect information about qualities of goods, and there are no transaction costs. The hold-up problem arises because efforts invested in improving quality prior to search may not be compensated in the market. Situations in which barter fails to motivate quality improvement are identified. With money, however, the extra effort in quality improvement will be compensated when high-quality good producers trade with agents holding both the low-quality good and money. Injection of money can induce almost all agents to produce the high-quality good.
When Do Experts Cheat And Whom Do They Target?, Yuk-Fai Fong
When Do Experts Cheat And Whom Do They Target?, Yuk-Fai Fong
Yuk-Fai Fong
A credence good is a product or service whose usefulness or necessity is better known to the seller than to the buyer. This information asymmetry often persists even after the credence good is consumed. The author proposes two new theories of expert cheating, suggesting that identifiable heterogeneities among customers can cause expert sellers to defraud their customers. According to these theories, cheating arises as a substitute for price discrimination, and experts cheat selectively. For instance, experts target high-valuation and high-cost customers. Finally, selective cheating may damage the communication of useful information from customers to experts and result in inferior services.