Supplier development and supplier integration are two deeply interconnected strategic tools that manufacturers often employ to improve the efficiency and competitiveness of their supply chains. This paper studies the interaction of these two strategic decisions in a competitive environment. Specifically, we analyze a duopoly model where manufacturers source two (different) components from their suppliers to produce and sell substitutable products in the market. Each manufacturer has a distinct collaborative supplier whom it decides whether to integrate with and how much to invest on to help reduce the supplier’s cost. We consider two sourcing structures: dedicated sourcing (sourcing both components only from its collaborative supplier) and diversified sourcing (sourcing one component from its collaborative supplier and the other from its competitor’s). We find that in most cases supplier integration leads to a larger investment on supplier development; and at equilibrium both manufacturers integrate with their collaborative suppliers. However, when the heterogeneity of the manufacturers’ supplier development capabilities is high, under the dedicated sourcing, supplier integration may result in a lower supplier development level from the less capable manufacturer who, at equilibrium, prefers not to integrate with its supplier. Furthermore, we find that in most cases, the manufacturers invest more on supplier development under the dedicated sourcing, while both manufacturers prefer the diversified sourcing to the dedicated one. The exception occurs when the heterogeneity of the manufacturers’ supplier development capabilities is high: the less capable manufacturer may invest more on supplier development under the diversified sourcing and the more capable manufacturer is better-off under the dedicated sourcing. Finally, by comparing with the monopoly case, we show that the market competition is one important driver to many of the preceding results.
{"title":"Supplier Development and Integration in Competitive Supply Chains","authors":"Yannan Jin, Q. Hu, Sang Won Kim, Sean X. Zhou","doi":"10.2139/ssrn.2848993","DOIUrl":"https://doi.org/10.2139/ssrn.2848993","url":null,"abstract":"Supplier development and supplier integration are two deeply interconnected strategic tools that manufacturers often employ to improve the efficiency and competitiveness of their supply chains. This paper studies the interaction of these two strategic decisions in a competitive environment. Specifically, we analyze a duopoly model where manufacturers source two (different) components from their suppliers to produce and sell substitutable products in the market. Each manufacturer has a distinct collaborative supplier whom it decides whether to integrate with and how much to invest on to help reduce the supplier’s cost. We consider two sourcing structures: dedicated sourcing (sourcing both components only from its collaborative supplier) and diversified sourcing (sourcing one component from its collaborative supplier and the other from its competitor’s). We find that in most cases supplier integration leads to a larger investment on supplier development; and at equilibrium both manufacturers integrate with their collaborative suppliers. However, when the heterogeneity of the manufacturers’ supplier development capabilities is high, under the dedicated sourcing, supplier integration may result in a lower supplier development level from the less capable manufacturer who, at equilibrium, prefers not to integrate with its supplier. Furthermore, we find that in most cases, the manufacturers invest more on supplier development under the dedicated sourcing, while both manufacturers prefer the diversified sourcing to the dedicated one. The exception occurs when the heterogeneity of the manufacturers’ supplier development capabilities is high: the less capable manufacturer may invest more on supplier development under the diversified sourcing and the more capable manufacturer is better-off under the dedicated sourcing. Finally, by comparing with the monopoly case, we show that the market competition is one important driver to many of the preceding results.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"49 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-10-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122347868","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a theoretical model to study how changes in the durability of the goods affects prices of stolen goods, the incentives to steal and the equilibrium crime rate. When studying the production of durable goods, we find that the presence of crime affects consumer and producer surplus and thus their behaviour, market equilibrium, and, in turn, the social optimum. Lower durability of goods reduces the incentive to steal those goods, thus reducing crime. When crime is included in the standard framework of durable goods, the socially optimal durability level is lower. When considering different stealing technologies, perfect competition either over-produces durability or produces zero (minimum) durability. The monopolist under-produces durability. The model has a clear policy implication: the durability of goods, and the market structure for those goods, can be an effective instrument to reduce crime. In particular, making the durability of a good contingent upon that good being stolen is likely to increase welfare. We also study the incentives to develop and use this optimal technology.
{"title":"Crime and Durable Goods","authors":"Sebastian Galiani, L. Jaitman, F. Weinschelbaum","doi":"10.2139/ssrn.2858370","DOIUrl":"https://doi.org/10.2139/ssrn.2858370","url":null,"abstract":"We develop a theoretical model to study how changes in the durability of the goods affects prices of stolen goods, the incentives to steal and the equilibrium crime rate. When studying the production of durable goods, we find that the presence of crime affects consumer and producer surplus and thus their behaviour, market equilibrium, and, in turn, the social optimum. Lower durability of goods reduces the incentive to steal those goods, thus reducing crime. When crime is included in the standard framework of durable goods, the socially optimal durability level is lower. When considering different stealing technologies, perfect competition either over-produces durability or produces zero (minimum) durability. The monopolist under-produces durability. The model has a clear policy implication: the durability of goods, and the market structure for those goods, can be an effective instrument to reduce crime. In particular, making the durability of a good contingent upon that good being stolen is likely to increase welfare. We also study the incentives to develop and use this optimal technology.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"68 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123885677","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper evaluates how different lengths of entry protection impact market structure and market performance. We formulate a dynamic oligopoly model in the tradition of Ericson and Pakes (1995) and allow entry costs to vary over time. Firms decide when to enter a market, followed by production and exit decisions. Using a detailed dataset on quarterly firm-level data on the static random access memory industry from 1974 to 2003, we find that entry costs decline by more than 90% within the first three years. We perform a policy experiment in which a social planner can control the protection length of the first entrant. Our policy experiment assesses to what extent ”excessive entry” causes social inefficiencies. We especially focus on dynamic economies of scale, time variant entry costs and dynamic efficiency gains for assessing the impact on consumer and producerwelfare. Our policy experiments provide evidence that the duration of entry protection has a negative impact on consumer surplus. We also find that entry protection increases social welfare if the protection duration is either sufficiently short or sufficiently long. If entry prot ection duration is short, the increase in monopolist’s profits and entry cost saving dominate the reduction in consumer welfare, which affects total welfare positively. If the protection period is long, dynamic efficiency gains, i.e., the delay of subsequent entry and savings on entry costs impact total welfare positively.
{"title":"Excessive Entry and Social Inefficiencies: A Policy Experiment on Dynamic Efficiency Gains","authors":"An-Hsiang Liu, R. Siebert, Christine Zulehner","doi":"10.2139/ssrn.3007844","DOIUrl":"https://doi.org/10.2139/ssrn.3007844","url":null,"abstract":"This paper evaluates how different lengths of entry protection impact market structure and market performance. We formulate a dynamic oligopoly model in the tradition of Ericson and Pakes (1995) and allow entry costs to vary over time. Firms decide when to enter a market, followed by production and exit decisions. Using a detailed dataset on quarterly firm-level data on the static random access memory industry from 1974 to 2003, we find that entry costs decline by more than 90% within the first three years. We perform a policy experiment in which a social planner can control the protection length of the first entrant. Our policy experiment assesses to what extent ”excessive entry” causes social inefficiencies. We especially focus on dynamic economies of scale, time variant entry costs and dynamic efficiency gains for assessing the impact on consumer and producerwelfare. Our policy experiments provide evidence that the duration of entry protection has a negative impact on consumer surplus. We also find that entry protection increases social welfare if the protection duration is either sufficiently short or sufficiently long. If entry prot ection duration is short, the increase in monopolist’s profits and entry cost saving dominate the reduction in consumer welfare, which affects total welfare positively. If the protection period is long, dynamic efficiency gains, i.e., the delay of subsequent entry and savings on entry costs impact total welfare positively.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116664230","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper resolves the chainstore paradox by viewing each game of a monopolist against a single competitor as a sequential game. Every game is done under perfect and complete information. In this sequential game, with subgame perfection imposed, the number of sequential stages - even or odd - matter greatly for the resulting equilibrium, with odd supporting the deterrence theory equilibrium and even supporting the induction theory equilibrium.
{"title":"A 'Truly Sequential' Resolution to Chainstore Paradox","authors":"Bryce M. Kim","doi":"10.2139/ssrn.2807682","DOIUrl":"https://doi.org/10.2139/ssrn.2807682","url":null,"abstract":"This paper resolves the chainstore paradox by viewing each game of a monopolist against a single competitor as a sequential game. Every game is done under perfect and complete information. In this sequential game, with subgame perfection imposed, the number of sequential stages - even or odd - matter greatly for the resulting equilibrium, with odd supporting the deterrence theory equilibrium and even supporting the induction theory equilibrium.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"47 23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122306479","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Needs and wants offer a simple, consistent and intuitive foundation for demand. Indifference curves for essential goods bend sharply as use approaches zero because no amount of any other good may substitute for the essential. The sharp curvature implies inelastic demand and gross complementarity with most other goods. Indifference curves for inessentials bend less implying elastic demand and gross substitutability with most other goods. Monopoly theories that depend on elastic demand rule out essential goods. Given the importance of monopolies of life saving drugs, we believe a new monopoly theory, based on the dictator game, will prove valuable.
{"title":"A Theory of Demand Based on Essential and Inessential Goods","authors":"Steven R. Beckman, James W. Smith","doi":"10.2139/ssrn.2653907","DOIUrl":"https://doi.org/10.2139/ssrn.2653907","url":null,"abstract":"Needs and wants offer a simple, consistent and intuitive foundation for demand. Indifference curves for essential goods bend sharply as use approaches zero because no amount of any other good may substitute for the essential. The sharp curvature implies inelastic demand and gross complementarity with most other goods. Indifference curves for inessentials bend less implying elastic demand and gross substitutability with most other goods. Monopoly theories that depend on elastic demand rule out essential goods. Given the importance of monopolies of life saving drugs, we believe a new monopoly theory, based on the dictator game, will prove valuable.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"123 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132794874","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Russian Abstract: В статье показано создание монопольных предприятий в волжском паровом судоходстве в начале XX века. Даны сведения по созданию мощных монополистических предприятий в судоходном деле рассматриваемого периода.English Abstract: The article shows the creation of a monopoly of the enterprises in the Volga steam navigation in the early twentieth century. Provides information on the creation of powerful monopolistic companies in the shipping case the review period.
{"title":"Создание Монопольных Предприятий в Волжском Паровом Судоходстве (Начало XX в.) (The Creation of a Monopoly of the Enterprises in the Volga Steam Navigation (Beginning of XX Century))","authors":"Alexey Alexeevich Halin","doi":"10.2139/SSRN.2705815","DOIUrl":"https://doi.org/10.2139/SSRN.2705815","url":null,"abstract":"Russian Abstract: В статье показано создание монопольных предприятий в волжском паровом судоходстве в начале XX века. Даны сведения по созданию мощных монополистических предприятий в судоходном деле рассматриваемого периода.English Abstract: The article shows the creation of a monopoly of the enterprises in the Volga steam navigation in the early twentieth century. Provides information on the creation of powerful monopolistic companies in the shipping case the review period.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-12-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122301334","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There is an extensive literature studying the welfare comparison of third-degree price discrimination vs. uniform pricing, typically under the assumption that all markets are served under uniform pricing. In this study, we allow market foreclosure and show that the welfare comparison of price discrimination vs. uniform pricing depends on whether market foreclosure is allowed. We also analyze how firms' foreclosure incentives vary with competition intensity. Our results show that an increase in competition intensity makes complete foreclosure less likely to be an equilibrium. On the other hand, the impact of competition intensity on partial foreclosure is non-monotonic. We also show that equilibrium under uniform pricing may feature strategic market foreclosure, defined as committing not to serve a market when demand there is positive.
{"title":"Market Foreclosure and the Welfare Impacts of Price Discrimination","authors":"Qihong Liu","doi":"10.2139/ssrn.1903857","DOIUrl":"https://doi.org/10.2139/ssrn.1903857","url":null,"abstract":"There is an extensive literature studying the welfare comparison of third-degree price discrimination vs. uniform pricing, typically under the assumption that all markets are served under uniform pricing. In this study, we allow market foreclosure and show that the welfare comparison of price discrimination vs. uniform pricing depends on whether market foreclosure is allowed. We also analyze how firms' foreclosure incentives vary with competition intensity. Our results show that an increase in competition intensity makes complete foreclosure less likely to be an equilibrium. On the other hand, the impact of competition intensity on partial foreclosure is non-monotonic. We also show that equilibrium under uniform pricing may feature strategic market foreclosure, defined as committing not to serve a market when demand there is positive.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"44 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-12-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131956979","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Compared to the well‐known oligopoly models such as those of Cournot, the so‐called Bowley duopoly is less known, and almost ignored in the literature. This neglect reflects the assumption that as a leader–leader model incorporating apparent excess rivalry it is presumably untenable, at least in theory. However, it is, in fact, observable in practice. Furthermore, the predicted excess competition is not only observable empirically but also accountable theoretically. We show how excess competition emerges when an upstream monopolist offers the downstream retailers a compensated game in which each acts as a leader. The outcome is not only stable but also benefits all involved actors, including consumers under vertically‐related markets, such as those presided over by a monopolist producer. This result of emergent stability shows that the Bowley duopoly should be considered alongside other oligopoly models.
{"title":"Bowley Duopoly Under Vertical Relations","authors":"T. Wako, H. Ohta","doi":"10.1111/1468-0106.12143","DOIUrl":"https://doi.org/10.1111/1468-0106.12143","url":null,"abstract":"Compared to the well‐known oligopoly models such as those of Cournot, the so‐called Bowley duopoly is less known, and almost ignored in the literature. This neglect reflects the assumption that as a leader–leader model incorporating apparent excess rivalry it is presumably untenable, at least in theory. However, it is, in fact, observable in practice. Furthermore, the predicted excess competition is not only observable empirically but also accountable theoretically. We show how excess competition emerges when an upstream monopolist offers the downstream retailers a compensated game in which each acts as a leader. The outcome is not only stable but also benefits all involved actors, including consumers under vertically‐related markets, such as those presided over by a monopolist producer. This result of emergent stability shows that the Bowley duopoly should be considered alongside other oligopoly models.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115738652","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A monopolist can use a ‘tracking’ technology to identify a consumer’s willingness to pay with some probability. Consumers can counteract tracking by acquiring a ‘hiding’ technology. We show that consumers may be collectively better off absent this hiding technology.
{"title":"Monopoly Price Discrimination and Privacy: The Hidden Cost of Hiding","authors":"Paul Belleflamme","doi":"10.2139/ssrn.2699085","DOIUrl":"https://doi.org/10.2139/ssrn.2699085","url":null,"abstract":"A monopolist can use a ‘tracking’ technology to identify a consumer’s willingness to pay with some probability. Consumers can counteract tracking by acquiring a ‘hiding’ technology. We show that consumers may be collectively better off absent this hiding technology.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-10-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129782538","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the problem of optimal dynamic pricing for a monopolist selling a product to consumers in a social network. In the proposed model, the only means of spread of information about the product is via Word of Mouth communication; consumers' knowledge of the product is only through friends who already know about the product's existence. Both buyers and non-buyers contribute to information diffusion while buyers are more likely to get engaged. By analyzing the structure of the underlying endogenous process, we show that the optimal dynamic pricing policy for durable products with zero or negligible marginal cost, drops the price to zero infinitely often. By attracting low-valuation agents with free-offers and getting them more engaged in the spread, the firm can reach out to potential high-valuation consumers in parts of the network that would otherwise remain untouched without the price drops. We provide evidence for this behavior from smartphone app market, where price histories indicate frequent free-offerings. Moreover, we show that despite infinitely often drops of the price to zero, the optimal price trajectory does not get trapped near zero. We demonstrate the validity of our results in face of strategic forward-looking agents, homophily-based engagement in word of mouth, network externalities, and consumer inattention to price changes. We further unravel the key role of the product type in the drops by showing that the price fluctuations disappear after a finite time for a nondurable product.
{"title":"Dynamic Pricing in Social Networks: The Word of Mouth Effect","authors":"A. Ajorlou, A. Jadbabaie, A. Kakhbod","doi":"10.2139/ssrn.2495509","DOIUrl":"https://doi.org/10.2139/ssrn.2495509","url":null,"abstract":"We study the problem of optimal dynamic pricing for a monopolist selling a product to consumers in a social network. In the proposed model, the only means of spread of information about the product is via Word of Mouth communication; consumers' knowledge of the product is only through friends who already know about the product's existence. Both buyers and non-buyers contribute to information diffusion while buyers are more likely to get engaged. By analyzing the structure of the underlying endogenous process, we show that the optimal dynamic pricing policy for durable products with zero or negligible marginal cost, drops the price to zero infinitely often. By attracting low-valuation agents with free-offers and getting them more engaged in the spread, the firm can reach out to potential high-valuation consumers in parts of the network that would otherwise remain untouched without the price drops. We provide evidence for this behavior from smartphone app market, where price histories indicate frequent free-offerings. Moreover, we show that despite infinitely often drops of the price to zero, the optimal price trajectory does not get trapped near zero. We demonstrate the validity of our results in face of strategic forward-looking agents, homophily-based engagement in word of mouth, network externalities, and consumer inattention to price changes. We further unravel the key role of the product type in the drops by showing that the price fluctuations disappear after a finite time for a nondurable product.","PeriodicalId":142139,"journal":{"name":"ERN: Monopoly","volume":"67 s267","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2015-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"113953742","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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