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Articles 91 - 106 of 106
Full-Text Articles in Economic Theory
The Distribution Of Money And Prices In An Equilibrium With Lotteries, Aleksander Berentsen, Gabriele Camera, Christopher Waller
The Distribution Of Money And Prices In An Equilibrium With Lotteries, Aleksander Berentsen, Gabriele Camera, Christopher Waller
Economics Faculty Articles and Research
We construct a tractable ‘fundamental’ model of money with equilibrium heterogeneity in money balances and prices. We do so by considering randomized monetary trades in a standard search-theoretic model of money where agents can hold multiple units of indivisible ‘tokens’ and can offer lotteries on monetary transfers. By studying a simple trading pattern, we can analytically characterize the monetary distribution. Interestingly, such distributions match those observed in numerically simulated economies with fully divisible money and price heterogeneity.
Excess Capacity: A Note, Sougata Poddar
Excess Capacity: A Note, Sougata Poddar
Economics Faculty Articles and Research
In a two period model of strategic entry deterrence where the incumbent firm moves before the entrant by installing capacity for production, Dixit (1980) argued that in a (perfect) equilibrium excess capacity would not be observed, contradicting Spence's (1977) result on the same issue. In this note, we show that Dixit may not always remain true when we allow for demand uncertainty.
Rjvs In Product Innovation And Cartel Stability, Luca Lambertini, Sougata Poddar, Dan Sasaki
Rjvs In Product Innovation And Cartel Stability, Luca Lambertini, Sougata Poddar, Dan Sasaki
Economics Faculty Articles and Research
We characterise the interplay between firms' decision in product development undertaken through a research joing venture (RJV), and the nature of their ensuing market behaviour. Participant firms in an RJV face a trade-off between saving the costs of product innovation by developing similar products to one another, e.g. by sharing most of the basic components of their products, and investing higher initial efforts in product innovation in order to develop more distinct products. We prove that the more the fims' products are distinct and thus less substitutable, the easier their collusion is to sustain in the marketing supergame, either in …
Research Joint Ventures, Product Differentiation, And Price Collusion, Luca Lambertini, Sougata Poddar, Dan Sasaki
Research Joint Ventures, Product Differentiation, And Price Collusion, Luca Lambertini, Sougata Poddar, Dan Sasaki
Economics Faculty Articles and Research
We investigate the interplay between firms’ decisions in product development, either joint or independent, and their ensuing repeated pricing, either collusive or Bertrand–Nash. A joint venture develops a single product, whereas independent ventures develop their respective products which can be differentiated. We prove that joint product development and the resulting lack of horizontal product differentiation may destabilise collusion, whilst firms’ R&D decisions have no bearings on collusive sustainability if differentiation is vertical. We also discover the non-monotone dependence of firms’ venture decisions at the development stage upon their time preferences, as well as upon consumers’ willingness to pay.
Dirty Money, Gabriele Camera
Dirty Money, Gabriele Camera
Economics Faculty Articles and Research
An inter-governmental body is encouraging the replacement of currency with the objective of discouraging illegal economic activities. This policy is analyzed in a search-theoretic model where individuals choose legal or illegal production, settle trades via monetary or costly intermediated exchange, and where the government imperfectly monitors monetary transactions. Stationary monetary equilibria with both legal and illegal production exist, in which case the over-provision of currency may increment the extent of illegal production. This result holds also in the presence of intermediated exchange of legal goods. Equilibria with differing transaction patterns and degrees of illicit activities coexist.
Standardization And The Stability Of Collusion, Luca Lambertini, Sougata Poddar, Dan Sasaki
Standardization And The Stability Of Collusion, Luca Lambertini, Sougata Poddar, Dan Sasaki
Economics Faculty Articles and Research
We characterize the interplay between firms' decision in terms of product standardization and the nature of their ensuing market behaviour. We prove the existence of a non-monotone relationship between firms' decision at the product stage and their intertemporal preferences.
Network Structure And Entry In The Deregulated Airline Industry, Joseph Berechman, Sougata Poddar, Oz Shy
Network Structure And Entry In The Deregulated Airline Industry, Joseph Berechman, Sougata Poddar, Oz Shy
Economics Faculty Articles and Research
We explore how an incumbent airline firm structures its route network under the threat of entry caused by deregulation. We show that entry induces the incumbent firm to strategically alter its flight operating network from a fully connected network (FC) to a hub-and-spoke network (HS). While most of the literature always assumed that the use of of HS network is primarily for the purpose of cost reduction, we show that hub-and-spoke operation can be used as a strategic device by the incumbent firm when it faces a threat of entry in its operating zone.
Demand Fluctuations And Capacity Utilization Under Duopoly, J. J. Gabszewicz, Sougata Poddar
Demand Fluctuations And Capacity Utilization Under Duopoly, J. J. Gabszewicz, Sougata Poddar
Economics Faculty Articles and Research
This paper studies the impact of uncertain demand on firms' capacity decisions when they operate in an oligopolistic environment. We define a two-stage game where firms choose capacity in the first stage without knowing which state of nature is going to realize, and output levels in the second, knowing which state is realized. We prove the existence of a symmetric subgame perfect equilibrium at which firms are in excess capacity compared with the capacity they would choose in the Cournot certainty equivalent game.
Gatt, Dispute Settlement And Cooperation: A Reply, Dan Kovenock, Marie Thursby
Gatt, Dispute Settlement And Cooperation: A Reply, Dan Kovenock, Marie Thursby
Economics Faculty Articles and Research
In our 1992 paper, we analyzed GATT and its dispute settlement procedure (DSP) in the context of a supergame model of international trade featuring both explicit (GATT) and implicit (non-GATT) agreements. Our paper departed from the previous economics literature on GATT enforcement (see, for instance Hungerford (1991) and Ludema (1990)) by incorporating the ``twin engines of international obligation and retaliation'' (Hudec, 1990). International obligation imposed a cost of violating an explicit international agreement, such as GATT, while retaliation could take place either within the rules stipulated by the international agreement or by punishment outside of the agreement. In Section 2 …
The All-Pay Auction With Complete Information, Michael R. Baye, Dan Kovenock, Casper G. De Vries
The All-Pay Auction With Complete Information, Michael R. Baye, Dan Kovenock, Casper G. De Vries
Economics Faculty Articles and Research
In a (first price) all-pay auction, bidders simultaneously submit bids for an item. All players forfeit their bids, and the high bidder receives the item. This auction is widely used in economics to model rent seeking, R&D races, political contests, and job promotion tournaments. We fully characterize equilibrium for this class of games, and show that the set of equilibria is much larger than has been recognized in the literature. When there are more than two players, for instance, we show that even when the auction is symmetric there exists a continuum of asymmetric equilibria. Moreover, for economically important configurations …
Capital Structure And Product-Market Rivalry: How Do We Reconcile Theory And Evidence?, Dan Kovenock, Gordon Phillips
Capital Structure And Product-Market Rivalry: How Do We Reconcile Theory And Evidence?, Dan Kovenock, Gordon Phillips
Economics Faculty Articles and Research
This paper presents empirical evidence on the interaction of capital structure decisions and product market behavior. We examine when firms recapitalize and increase the proportion of debt in their capital structure. The evidence in this paper shows that firms with low productivity plants in highly concentrated industries are more likely to recapitalize and increase debt financing. This finding suggests that debt plays a role in highly concentrated industries where agency costs are not significantly reduced by product market competition. Following the empirical evidence we introduce the "strategic investment" effects of debt and argue that this effect, in conjunction with agency …
Rigging The Lobbying Process: An Application Of The All-Pay Auction, Michael R. Baye, Dan Kovenock, Casper G. De Vries
Rigging The Lobbying Process: An Application Of The All-Pay Auction, Michael R. Baye, Dan Kovenock, Casper G. De Vries
Economics Faculty Articles and Research
In a world where a politician can explicitly auction off a prize to the high bidder, the standard auction literature can be used to analyse political behavior. The justice system, however, precludes politicians from explicitly selling the prize to the highest bidder. Thus politicians cannot let it become public knowledge that they are in the business of selling political favors. An institution has emerged in political markets to overcome this constraint which are termed as lobbying. Lobbyists make implicit payments to the politician through campaign contributions. If these up-front payments were rebated to those failing to receive the prize, it …
Rational Choice: The Contrast Between Economics And Psychology, Vernon L. Smith
Rational Choice: The Contrast Between Economics And Psychology, Vernon L. Smith
Economics Faculty Articles and Research
Rational Choice--the published record of a conference on economics and psychology--frames the issues as a contest between economic theory and the falsifying evidence from psychology. According to a third perspective, that of experimental economics, most standard theory provides a correct first approximation in predicting motivated behavior in laboratory experimental markets, but the theory is incomplete, particularly in articulating convergence processes in time and in ignoring decision cost. This view has roots in the work of Herbert Simon and Sidney Siegel, but it is not plainly represented in contemporary research in economic pyschology.
Natural Monopoly And The Contestable Markets Hypothesis: Some Preliminary Results From Laboratory Experiments, Don R. Coursey, R. Mark Isaac, Vernon L. Smith
Natural Monopoly And The Contestable Markets Hypothesis: Some Preliminary Results From Laboratory Experiments, Don R. Coursey, R. Mark Isaac, Vernon L. Smith
Economics Faculty Articles and Research
The concept of natural monopoly is one of the most familiar in economics. Many supposed natural monopolies are the object of widespread state, local, and federal regulation. It was in addressing issues of public utility regulation that Demsetz laid the foundation for an alternative scenario for decreasing cost markets. Demsetz's article promoted a debate over whether a formal auction system might provide a practical approach to monopoly control. This literature is rich in examining the practical difficulties of implementing such an institution. The important characteristic of the contestable markets hypothesis, as we interpret it, is that at least two firms …
Capital Gains Taxation In An Economy With An ‘Austrian Sector’, Dan Kovenock, Michael Rothschild
Capital Gains Taxation In An Economy With An ‘Austrian Sector’, Dan Kovenock, Michael Rothschild
Economics Faculty Articles and Research
This paper examines the effects of a proportional capital gains in an economy with an Austrian sector (with wine and trees) and an ordinary sector. We analyze the effect of capital gains taxation (on both an accrual and a realization basis) on the efficiency with which resources are used within the Austrian sector. Since time is the only input which can be varied in the Austrian sector, this amounts to looking at the effect of capital gains taxation on the harvesting time or selling time of assets. Accrual taxation decreases the selling time of Austrian assets. Realization taxation decreases the …
An Experimental Study Of Competitive Market Behavior, Vernon L. Smith
An Experimental Study Of Competitive Market Behavior, Vernon L. Smith
Economics Faculty Articles and Research
Recent years have witnessed a growing interest in experimental games such as management decision-making games and games designed to simulate oligopolistic market phenomena. This article reports on a series of experimental games designed to study some of the hypotheses of neoclassical competitive market theory.