Volume 16, Issue 2:

Ollinger, Michael and Fernandez-Cornejo, Jorge

"Sunk costs and regulation in the U.S. pesticide industry"

JEL codes: L11
Keywords: Sunk costs; Pesticide regulation; Market structure

Abstract: This paper examines the impact of sunk costs and market demand on the number of innovative companies, the U.S. market share of foreign-based firms, and merge choice in the U.S. Pesticide industry. Results are consistent with Sutton's (1991) view of sunk costs and market structure in that rising endogenous sunk research costs and exogenous sunk pesticide product regulation costs and declining demand negatively affect the number of firms in the industry, have a stronger negative impact on the number of smaller firms, and encourage foreign-based firm expansion.

Auriol, Emmanuelle

"Deregulation and quality"

JEL codes: D43, D44, D82, L15, L43
Keywords: Regulations; Quality; Market structure

Abstract: This paper analyses, within a static model, the effect of quality concern on optimal market structure. It focuses on cases where industry quality has public-good like features and is not contractible. It is shown that the introduction of competition raises a free-rider problem, which depresses quality (the smaller producer free-rides on its competitor's investment which as a result underinvests). To encourage the efficient producer to provide quality, the regulatory diminishes the market share of the opportunistic producer and chooses more often a monopoly. However, when quality is verifiable the introduction of competition entrails no welfare loss whether the regulator observes total quality outcome or individual contributions.

Salant, Stephen W. and Shaffer, Greg

"Optimal asymmetric strategies in research joint ventures"

JEL codes: D43, L13, L22
Keywords: research and development, cartels, side payments, asymmetry

Abstract: This paper identifies an overlooked implication of models of research joint ventures initiated by d'Aspremont and Jacquemin (1988). Even though the aggregate R&D cost of identical firms in a research joint venture would be lowest if they invested equally to reduce subsequent production costs, nonetheless members may often enlarge their overall joint profit by making unequal investments. Such a strategy raises costs in the investment stage but may create more than offsetting benefits in the production stage since industry profits are larger there when the firms are of unequal size. When the consideration leading to asymmetry prevails, we find that, in contrast to previous work, a research joint venture can raise welfare even when there are no spillovers.

Albćk, Svend and Overgaard, Per Baltzer

"Receiver discretion in signalling models: information transmission to competing retailers"

JEL codes: C72, D82, L1
Keywords: Wholesale price signalling, retail competition, receiver discretion

Abstract: This paper draws attention to the fact that receiver discretion is an integral aspect of any economic situation in which signalling considerations are important. We illustrate our main point in a model of a manufacturer, privately informed about the strength of demand, with a number of competing retailers. We show that the manufacturer will not distort his wholesale price, as is usual in separating equilibria if the retail competition is sufficiently intense, and the retailers' discretion in their price decisions is limited, whether as a consequence of a large number of retailers or of the retailers' products being close substitutes.

Singh, Satwinder, Utton, Michael, and Waterson, Michael

"Strategic behaviour of incumbent firms in the UK"

JEL codes: L21, L12, L60
Keywords: Strategic behaviour, Questionnarire; Firm strategies; Competitive strategies.    

Abstract: The main purpose of this paper is to examine the incidence of strategic behaviour in the UK by means of a questionnaire study performed across three broad manufacturing industries 3/4 food, electrical engineering and chemicals. Of the strategies which have received substantial theoretical attention, R&D and advertising appear widely used, patenting, pricing and excess capacity much less so. Vertical instruments such as purchasing policy also stand out as important. But possibly only a minority of firms in our sample actively pursue strategic instruments.

Steinmetz, Sébastien

"Spatial preemption with finitely lived equipments"

JEL codes: L13, D92, R32
Keywords: hoizontal differentiation, capital durability, sustainability, mill pricing, discriminatory pricing

Abstract: This paper proposes a dynamic approach to potential competition in a spatial framework where productive investments are location specific and have finite duration. We define a notion of strategic sustainability against multiple entries, in which spatial preemption comes from anticipated renewal policies of plants. We show that, in an infinite horizon model with no discounting, potential competition leads to average-cost renewal but a positive value can be attached to incumbency. The conditions for the existence of such strategically sustainable structures are determined in the model of the circular city, under mill or discriminatory pricing rules. Our results are finally related to the usual two-stage notion of free entry equilibrium in spatial models.