Volume 16, Issue 4:

Marin, Pedro L.

"Productivity differences in the airline industry: partial deregulation versus short run protection"

JEL codes: D24, L23, L59, L93
Keywords: productivity, network characteristics, efficiency, airline deregulation

Abstract: This paper specifies and estimates a production function for the airline industry, identifying firms' network characteristics and efficiency as the main determinants of their productivity. The application of this analysis to the European market shows that productivity differences among flag carriers could explain the governments' different views about deregulation at the beginning of the eighties. The introduction of liberal bilateral agreements by some European governments has given their flag carriers incentives to start adjusting their structure in anticipation of future liberalization in the European market while other European flag carriers have delayed this adjustment.

Belleflamme, Paul

"Adoption of network technologies in oligopolies"

JEL codes: C72, D43, D62, L13
Keywords: network externalities, standardization, oligopoly

Abstract: We analyze a two-stage non-cooperative game where the firms choose first to adopt (either simultaneously or sequentially) one of two network technologies, and then compete on the market. The two-stage procedure and the assumption that firms have heterogeneous tastes with respect to the technologies lead to a novel treatment of network externalities. In particular, as the network of some firm enlarges, the change in this firm's payoff is shown to depend both on the newcomer's identity and on the composition of the networks and, as a result, is not necessarily positive. JEL classification codes:

Schmutzler, Armin

"Changing places-the role of heterogeneity and externalities in cumulative processes "

JEL codes: C73
Keywords: economic geography, complementarities, positive externalities, cumulative processes

Abstract: We consider a simple class of dynamic games. A continuum of players chooses between two actions ("locations") in each period; per-period payoffs depend positively on the number of players choosing the same action. The resulting dynamics are investigated. If one location receives a favorable shock, the effects of the strength of externalities and the heterogeneity of the population on the extent of adjustment may be non-monotone and discontinuous, due to two competing effects. With stronger externalities (lower heterogeneity), less players move initially, but more players follow once the process has gained momentum.

Lutz, Nancy A. and Padmanabhan, V.

"Warranties, extended warranties, and product quality "

JEL codes: L15, L12, M31
Keywords: warranties, extended warranties, quality, moral hazard, screening

Abstract: We analyze the effect of extended warranties on a manufacturer's warranty policy under conditions of producer moral hazard. When all consumers in the market are identical, the manufacturer offers a full warranty. If consumers differ in their valuations of a working unit, then the manufacturer may offer partial warranties (and low quality) to low valuation consumers, and full warranties (and high quality) to high valuation consumers. The availability of extended warranties from an independent insurer has an important effect on this menu of warranty/quality choices. If such an insurer enters the market, the manufacturer may increase or decrease the warranty, price, and quality that it offers low valuation consumers. The result can be an increase in the manufacturer's profits.

Bonanno, Giacomo and Haworth, Barry

"Intensity of competition and the choice between product and process innovation"

JEL codes: L13
Keywords: product innovation, process innovation

Abstract: Two questions are examined within a model of vertical differentiation. The first is whether cost-reducing innovations are more likely to be observed in regimes of more intense (Bertrand) competition) or less intense (Cournot) competition. We find that there are cost-reducing innovations that are pursued under Cournot but not under Bertrand competition. The second is whether the regime of competition affects a firm's choice between product and process innovation. We show that for the high quality firm, whenever there is a difference between the choice made by a Bertrand competitor and the choice made by a Cournot competitor, the former opts for product innovation, while the latter prefers process innovation. For the low-quality firm the result is reversed.

Agarwal, Rajshree

"Evolutionary trends of industry varibles "

JEL codes: O30
Keywords: evolution, product life cycle, time trends

Abstract: This paper offers empirical evidence on the evolutionary trends of industry variables. It investigates the time path of patents, product price and quantity, and number of firms from the first introduction of a product to maturity of the market. The paper extends earlier work by Gort and Klepper by expanding the data on products through 1991, and augmenting it with new products and new data sources. The reexamination of the aging patterns reveal the Gort and Klepper results to be robust. The time trends follow the expected patterns with remarkable consistency and are strongly significant for most products. New evidence on patenting activity reveal an eventual decline in technological activity over the later years of the product life cycle.

Kamp, Brad

"Complimentary yours: free examination copies and textbook prices: comment "

JEL codes: L21, L82
Keywords: used textbook market

Abstract: I add the resale price to the model of Foster and Horowitz (1996) and examine how the sale of complimentary examination copies affects students' total textbook costs. At schools without internal buy back programs, the resale of complimentary texts might lower the resale price so much that the mean effective cost to the average student will increase.