Considerable attention has been directed at understanding the structural changes that are generating an increased need for skilled workers. These changes are perceived to be the result of developments associated with the emergence of the new knowledge economy, whose potential is often linked to the growth of new technology-based firms (NTBFs). Where are these firms to be found? Related work on changes in technology and innovativeness has been accompanied by the creation of taxonomies that classify industries as high-tech or high-knowledge, based primarily on the characteristics of large firms. There is a temptation to use these taxonomies to identify new technology-based firms only within certain sectors. This paper uses a special survey that collected data on new firms to argue that this would be unwise. The paper investigates the limitations of existing classification schemes that might be used to classify industries as high- or low-tech, as advanced or otherwise. Characteristically unidimensional in scope, many of these taxonomies employ conceptual and operational measures that are narrow and incomplete. Consequently, previous rankings that identify sectors as high- or low-tech using these measures obscure the degree of innovativeness and human capital formation exhibited by certain industries. In a policy environment wherein emotive 'scoreboard' classifications have direct effects on resource allocation, the social costs of misclassification are potentially significant. Using a comparative methodology, this study investigates the role that conceptualization plays in devising taxonomies of high- and low-tech industries. Far from producing definitive classifications, existing measures of technological advancement are found to be wanting when their underpinnings are examined closely. Our objective in the current analysis is to examine the limitations of standard classification schemes, particularly when applied to new small firms, and to suggest an alternative framework based on a competency-model of the firm.
{"title":"Are There High-Tech Industries or Only High-Tech Firms? Evidence from New Technology-Based Firms","authors":"J. Baldwin, Guy Gellatly","doi":"10.2139/ssrn.143867","DOIUrl":"https://doi.org/10.2139/ssrn.143867","url":null,"abstract":"Considerable attention has been directed at understanding the structural changes that are generating an increased need for skilled workers. These changes are perceived to be the result of developments associated with the emergence of the new knowledge economy, whose potential is often linked to the growth of new technology-based firms (NTBFs). Where are these firms to be found? Related work on changes in technology and innovativeness has been accompanied by the creation of taxonomies that classify industries as high-tech or high-knowledge, based primarily on the characteristics of large firms. There is a temptation to use these taxonomies to identify new technology-based firms only within certain sectors. This paper uses a special survey that collected data on new firms to argue that this would be unwise. The paper investigates the limitations of existing classification schemes that might be used to classify industries as high- or low-tech, as advanced or otherwise. Characteristically unidimensional in scope, many of these taxonomies employ conceptual and operational measures that are narrow and incomplete. Consequently, previous rankings that identify sectors as high- or low-tech using these measures obscure the degree of innovativeness and human capital formation exhibited by certain industries. In a policy environment wherein emotive 'scoreboard' classifications have direct effects on resource allocation, the social costs of misclassification are potentially significant. Using a comparative methodology, this study investigates the role that conceptualization plays in devising taxonomies of high- and low-tech industries. Far from producing definitive classifications, existing measures of technological advancement are found to be wanting when their underpinnings are examined closely. Our objective in the current analysis is to examine the limitations of standard classification schemes, particularly when applied to new small firms, and to suggest an alternative framework based on a competency-model of the firm.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131398531","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 analyses competition between firms who sell multiple products in the presence of negative externalities. The model involves two networks who each may offer several service classes. Service classes are generated by forming sub-networks differentiated by their congestion levels. The level of congestion on a sub-network is determined by its capacity and the number of users, i.e., quality of demand-dependent. This paper shows that networks will choose to offer only one service class, and thus not to form distinct sub-networks, in equilibrium. In addition to contributing to the theory of multiproduct competition, the paper addresses applied problems. For example, the results suggest that current proposals to implement pricing on the Internet will not be viable under competition.
{"title":"Multiproduct Competition between Congestible Networks","authors":"R. Gibbens, R. Mason, R. Steinberg","doi":"10.2139/ssrn.136739","DOIUrl":"https://doi.org/10.2139/ssrn.136739","url":null,"abstract":"This paper analyses competition between firms who sell multiple products in the presence of negative externalities. The model involves two networks who each may offer several service classes. Service classes are generated by forming sub-networks differentiated by their congestion levels. The level of congestion on a sub-network is determined by its capacity and the number of users, i.e., quality of demand-dependent. This paper shows that networks will choose to offer only one service class, and thus not to form distinct sub-networks, in equilibrium. In addition to contributing to the theory of multiproduct competition, the paper addresses applied problems. For example, the results suggest that current proposals to implement pricing on the Internet will not be viable under competition.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-11-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129743032","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}
Within the next few years, business-to-consumer electronic commerce will amount to tens of billions of dollars a year. Inevitably, a significant portion of that turnover will consist of transactions in which dishonest sellers attempt to defraud consumers by the use of deceptive marketing practices. An issue of growing importance is whether, and to what extent, the existing consumer protection regulatory regime may appropriately be applied to electronic commerce. This article rebuts the utopian thesis that government regulation of the Internet is neither necessary nor desirable, arguing, to the contrary, that governments retain their traditional regulatory role with respect to consumer transactions regardless of the means of communication used in carrying out such transactions. Certain novel characteristics of the online medium, however, make it impossible, or at least inadvisable, to apply the existing consumer protection regulatory regime to online transactions without making certain adjustments. Furthermore, co-regulation, consisting of coordinated efforts by governments and the private sector, should play a prominent role in controlling online deceptive marketing practices. The article concludes with a proposed set of guidelines for governments and the private sector to follow in their efforts to control online fraud.
{"title":"Protecting the Digital Consumer: The Limits of Cyberspace Utopianism","authors":"J. Rothchild","doi":"10.2139/SSRN.139452","DOIUrl":"https://doi.org/10.2139/SSRN.139452","url":null,"abstract":"Within the next few years, business-to-consumer electronic commerce will amount to tens of billions of dollars a year. Inevitably, a significant portion of that turnover will consist of transactions in which dishonest sellers attempt to defraud consumers by the use of deceptive marketing practices. An issue of growing importance is whether, and to what extent, the existing consumer protection regulatory regime may appropriately be applied to electronic commerce. This article rebuts the utopian thesis that government regulation of the Internet is neither necessary nor desirable, arguing, to the contrary, that governments retain their traditional regulatory role with respect to consumer transactions regardless of the means of communication used in carrying out such transactions. Certain novel characteristics of the online medium, however, make it impossible, or at least inadvisable, to apply the existing consumer protection regulatory regime to online transactions without making certain adjustments. Furthermore, co-regulation, consisting of coordinated efforts by governments and the private sector, should play a prominent role in controlling online deceptive marketing practices. The article concludes with a proposed set of guidelines for governments and the private sector to follow in their efforts to control online fraud.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-11-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132999835","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}
Heroic Plant research shows that persistently-rapid job creation by a select group of plants can be an important source of overall employment growth in manufacturing. Establishments in SICs 34 - 38 whose residual growth (after controlling for differences in plant age, size, industry, etc.) ranks in the top quarter of establishment growth rates across both 1977-1982 and 1982-1987, account for roughly 25% of total job creation by plants operating throughout this time. While these exceptional job creators tend to participate especially in growing sectors of the economy (favoring, for example, commercial over industrial markets), they are active across a variety of product markets, production processes and price ranges. Thus, sustained job growth does not appear simply to be a sectoral phenomenon within particular industries. Neither does Heroic Plant job creation appear to be the result of random shocks to establishment growth. Rather, in spite of the difficulties in measuring performance characteristics using time-series data, Heroic Plants display numerous characteristics of successful plants. For example, when their exceptional growth begins to be tracked (1977), these establishments are more capital intensive and productive, and they pay higher wages, than do plants whose growth will be less rapid and/or persistent during the next decade. They also distinguish themselves by larger gross investment ratios (relative to their current employment, value added or capital stock). In 1987, Heroic Plants are more productive than other establishments, in spite of their labor-intensive operations. These plants share with other persistent (although less rapid) growers an above-average tendency to use advanced technologies in 1988. Heroic Plants also pay lower wages to production workers than do other establishments, raising questions about the division of returns, between management and workers, from superior business performance.
{"title":"Heroic Plants: Persistently Rapid Job Creators in the Longitudinal Research Database--Their Distinguishing Characteristics and Contribution to Employment Growth","authors":"N. Musick","doi":"10.2139/ssrn.131438","DOIUrl":"https://doi.org/10.2139/ssrn.131438","url":null,"abstract":"Heroic Plant research shows that persistently-rapid job creation by a select group of plants can be an important source of overall employment growth in manufacturing. Establishments in SICs 34 - 38 whose residual growth (after controlling for differences in plant age, size, industry, etc.) ranks in the top quarter of establishment growth rates across both 1977-1982 and 1982-1987, account for roughly 25% of total job creation by plants operating throughout this time. While these exceptional job creators tend to participate especially in growing sectors of the economy (favoring, for example, commercial over industrial markets), they are active across a variety of product markets, production processes and price ranges. Thus, sustained job growth does not appear simply to be a sectoral phenomenon within particular industries. Neither does Heroic Plant job creation appear to be the result of random shocks to establishment growth. Rather, in spite of the difficulties in measuring performance characteristics using time-series data, Heroic Plants display numerous characteristics of successful plants. For example, when their exceptional growth begins to be tracked (1977), these establishments are more capital intensive and productive, and they pay higher wages, than do plants whose growth will be less rapid and/or persistent during the next decade. They also distinguish themselves by larger gross investment ratios (relative to their current employment, value added or capital stock). In 1987, Heroic Plants are more productive than other establishments, in spite of their labor-intensive operations. These plants share with other persistent (although less rapid) growers an above-average tendency to use advanced technologies in 1988. Heroic Plants also pay lower wages to production workers than do other establishments, raising questions about the division of returns, between management and workers, from superior business performance.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"127 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-11-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124611374","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}
The purpose of this paper is the following: firstly, to chart how much economic reform of CEE electricity industries has taken place to date; secondly, to discuss why progress has been so limited; and, thirdly, to consider the prospects over the next few years. In charting the economic progress to date, we will consider and discuss progress in electricity price unbundling and rebalancing; in utility commercialisation; in industry and market restructuring and liberalisation; and in privatisation, as well as the development of economic regulation. For the reasons outlined above, we will explore the pricing issues in some detail as they are essential for understanding the difficulties in making progress in the other aspects of economic reform. The analysis concentrates on the 10 countries with which the EU has an Association Agreement and who are stated candidates for EU membership (the EU 10).
{"title":"Economic Reform of the Electricity Industries of Central and Eastern Europe","authors":"J. Stern, Junior R. Davis","doi":"10.2139/ssrn.142358","DOIUrl":"https://doi.org/10.2139/ssrn.142358","url":null,"abstract":"The purpose of this paper is the following: firstly, to chart how much economic reform of CEE electricity industries has taken place to date; secondly, to discuss why progress has been so limited; and, thirdly, to consider the prospects over the next few years. In charting the economic progress to date, we will consider and discuss progress in electricity price unbundling and rebalancing; in utility commercialisation; in industry and market restructuring and liberalisation; and in privatisation, as well as the development of economic regulation. For the reasons outlined above, we will explore the pricing issues in some detail as they are essential for understanding the difficulties in making progress in the other aspects of economic reform. The analysis concentrates on the 10 countries with which the EU has an Association Agreement and who are stated candidates for EU membership (the EU 10).","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124018896","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 provide recent evidence on job characteristics by firm size in Canada. Using a variety of household surveys, we assemble a wide set of facts on wages, fringe benefits and work schedules in small and large firms. We show that the wage gap between small and large firms has reamined fairly stable over the past decade. After controlling for observable worker characteristics and industry-specific effects, large firms pay 15-20% more than small firms. Pension plan coverage remains at least four times higher in large firms than in small firms. While the gap in pension coverage between small and large firms has not increased over time for men, there is some evidence that it has increased for women. We assess the extent to which work schedules vary between small and large firms. Our results indicate that compared to workers in large firms, employees of small firms work at least as many weekly hours. Furthermore, they are more likely to work more than five days per week. This implies that the firm size wage premium cannot be explained by a longer workweek in large firms. As long as workers prefer working during the day, the greater frequency of shift work in large, goods-producing companies is one dimension along which work schedules are less desirable in large firms. According to the theory of compensating differentials, the size-wage differential may partially reflect the willingness of large firms to compensate workers for shift work. We test this hypothesis and conclude that shift work has virtually no effect on the firm size wage premium. Our results emphasize the need to look at several dimensions of work to assess how job quality varies between small and large firms.
{"title":"Recent Canadian Evidence on Job Quality by Firm Size","authors":"René Morissette","doi":"10.2139/SSRN.139788","DOIUrl":"https://doi.org/10.2139/SSRN.139788","url":null,"abstract":"We provide recent evidence on job characteristics by firm size in Canada. Using a variety of household surveys, we assemble a wide set of facts on wages, fringe benefits and work schedules in small and large firms. We show that the wage gap between small and large firms has reamined fairly stable over the past decade. After controlling for observable worker characteristics and industry-specific effects, large firms pay 15-20% more than small firms. Pension plan coverage remains at least four times higher in large firms than in small firms. While the gap in pension coverage between small and large firms has not increased over time for men, there is some evidence that it has increased for women. We assess the extent to which work schedules vary between small and large firms. Our results indicate that compared to workers in large firms, employees of small firms work at least as many weekly hours. Furthermore, they are more likely to work more than five days per week. This implies that the firm size wage premium cannot be explained by a longer workweek in large firms. As long as workers prefer working during the day, the greater frequency of shift work in large, goods-producing companies is one dimension along which work schedules are less desirable in large firms. According to the theory of compensating differentials, the size-wage differential may partially reflect the willingness of large firms to compensate workers for shift work. We test this hypothesis and conclude that shift work has virtually no effect on the firm size wage premium. Our results emphasize the need to look at several dimensions of work to assess how job quality varies between small and large firms.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"93 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117301141","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 consider an infinitely repeated Bertrand game, in which prices are publicly observed and each firm receives a privately observed, i.i.d. cost shock in each period. We focus on symmetric perfect public equilibria, wherein any "punishments" are borne equally by all firms. We identify a tradeoff that is associated with collusive pricing schemes in which the price to be charged by each firm is strictly increasing in its cost level: such "fully sorting" schemes offer efficiency benefits, as they ensure that the lowest-cost firm makes the current sale, but they also imply an informational cost (distorted pricing and/or equilibrium-path price wars), since a higher-cost firm must be deterred from mimicking a lower-cost firm by charging a lower price. A rigid-pricing scheme, where a firm's collusive price is independent of its current cost position, sacrifices efficiency benefits but also diminishes the informational cost. For a wide range of settings, the optimal symmetric collusive scheme requires (i) the absence of equilibrium-path price wars and (ii) a rigid price. If firms are sufficiently impatient, however, the rigid-pricing scheme cannot be enforced, and the collusive price of lower-cost firms may be distorted downward in order to diminish the incentive to cheat. When the model is modified to include i.i.d. public demand shocks, the downward pricing distortion that accompanies a firm's lower-cost realization may occur only when current demand is high. Copyright 2004, Wiley-Blackwell.
{"title":"Collusion and Price Rigidity","authors":"S. Athey, K. Bagwell, C. Sanchirico","doi":"10.2139/ssrn.140490","DOIUrl":"https://doi.org/10.2139/ssrn.140490","url":null,"abstract":"We consider an infinitely repeated Bertrand game, in which prices are publicly observed and each firm receives a privately observed, i.i.d. cost shock in each period. We focus on symmetric perfect public equilibria, wherein any \"punishments\" are borne equally by all firms. We identify a tradeoff that is associated with collusive pricing schemes in which the price to be charged by each firm is strictly increasing in its cost level: such \"fully sorting\" schemes offer efficiency benefits, as they ensure that the lowest-cost firm makes the current sale, but they also imply an informational cost (distorted pricing and/or equilibrium-path price wars), since a higher-cost firm must be deterred from mimicking a lower-cost firm by charging a lower price. A rigid-pricing scheme, where a firm's collusive price is independent of its current cost position, sacrifices efficiency benefits but also diminishes the informational cost. For a wide range of settings, the optimal symmetric collusive scheme requires (i) the absence of equilibrium-path price wars and (ii) a rigid price. If firms are sufficiently impatient, however, the rigid-pricing scheme cannot be enforced, and the collusive price of lower-cost firms may be distorted downward in order to diminish the incentive to cheat. When the model is modified to include i.i.d. public demand shocks, the downward pricing distortion that accompanies a firm's lower-cost realization may occur only when current demand is high. Copyright 2004, Wiley-Blackwell.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"56 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122120641","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}
Thomas D. Jeitschko, Leonard J. Mirman, Egas M. Salgueiro
The dynamics of incentive contracts under asymmetric information have long been an important topic in economics. We address this topic in this paper by considering a stochastic, two-period principal-agent relationship, in which the true state of the world can take on two possible values and is the same in each period. We study contracts that are short term, so that after the first period the principal designs a second contract, taking the information available about the state of the world at that stage into account--that is, the standard framework in which the "ratchet effect" occurs. Two significant changes emerge when compared to deterministic environments: First, if production is sufficiently noisy, a fully separating first period contract is optimal. The second change is that, unlike the deterministic setting where the high type's target is fixed over time, in a stochastic environment, the high type's target is ratcheted upward in the course of the interaction. This is the result of two opposing incentives of the principal: First, the principal experiments in order to increase the flow of information; and second, the principal attempts to dampen the first period signal to reduce up-front payments.
{"title":"Experimentation and Signal Dampening in Agency--The Ratchet Effect Revisited","authors":"Thomas D. Jeitschko, Leonard J. Mirman, Egas M. Salgueiro","doi":"10.2139/ssrn.149310","DOIUrl":"https://doi.org/10.2139/ssrn.149310","url":null,"abstract":"The dynamics of incentive contracts under asymmetric information have long been an important topic in economics. We address this topic in this paper by considering a stochastic, two-period principal-agent relationship, in which the true state of the world can take on two possible values and is the same in each period. We study contracts that are short term, so that after the first period the principal designs a second contract, taking the information available about the state of the world at that stage into account--that is, the standard framework in which the \"ratchet effect\" occurs. Two significant changes emerge when compared to deterministic environments: First, if production is sufficiently noisy, a fully separating first period contract is optimal. The second change is that, unlike the deterministic setting where the high type's target is fixed over time, in a stochastic environment, the high type's target is ratcheted upward in the course of the interaction. This is the result of two opposing incentives of the principal: First, the principal experiments in order to increase the flow of information; and second, the principal attempts to dampen the first period signal to reduce up-front payments.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121089683","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 considers a vertically separated industry with an upstream monopolist who supplies an essential input to two downstream Cournot firms. This situation is relevant to a number of sectors, including the telecommunications industry where trunk operators must have access to the local network of an incumbent firm to provide their long-distance service. The paper analyzes two-part access pricing and input price discrimination under different regulatory settings, and it finds that discrimination may produce adverse welfare effects when it is practiced by the unregulated upstream firm.
{"title":"Two-Part Access Pricing and Imperfect Competition","authors":"T. Valletti","doi":"10.2139/ssrn.122131","DOIUrl":"https://doi.org/10.2139/ssrn.122131","url":null,"abstract":"This paper considers a vertically separated industry with an upstream monopolist who supplies an essential input to two downstream Cournot firms. This situation is relevant to a number of sectors, including the telecommunications industry where trunk operators must have access to the local network of an incumbent firm to provide their long-distance service. The paper analyzes two-part access pricing and input price discrimination under different regulatory settings, and it finds that discrimination may produce adverse welfare effects when it is practiced by the unregulated upstream firm.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125863541","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 evolution of prices in a symmetric duopoly where firms are uncertain about the degree of product differentiation. Customers sometimes perceive the products as close substitutes, sometimes as highly differentiated. Firms learn about their competitive environment from the quantities sold and a background signal. As the information of the market outcomes increases with the price differential, there is scope for active learning. In a setting with linear demand curves, we derive firms' pricing strategies as payoff-symmetric mixed or correlated Markov perfect equilibria of a stochastic differential game where the common posterior belief is the natural state variable. When information has low value, firms charge the same price as would be set by myopic players, and there is no price dispersion. When firms value information more highly, on the other hand, they actively learn by creating price dispersion. This market experimentation is transient, and most likely to be observed when the firms' environment changes sufficiently often, but not too frequently.
{"title":"Market Experimentation in a Dynamic Differentiated-Goods Duopoly","authors":"Godfrey Keller, Sven Rady","doi":"10.2139/ssrn.137440","DOIUrl":"https://doi.org/10.2139/ssrn.137440","url":null,"abstract":"We study the evolution of prices in a symmetric duopoly where firms are uncertain about the degree of product differentiation. Customers sometimes perceive the products as close substitutes, sometimes as highly differentiated. Firms learn about their competitive environment from the quantities sold and a background signal. As the information of the market outcomes increases with the price differential, there is scope for active learning. In a setting with linear demand curves, we derive firms' pricing strategies as payoff-symmetric mixed or correlated Markov perfect equilibria of a stochastic differential game where the common posterior belief is the natural state variable. When information has low value, firms charge the same price as would be set by myopic players, and there is no price dispersion. When firms value information more highly, on the other hand, they actively learn by creating price dispersion. This market experimentation is transient, and most likely to be observed when the firms' environment changes sufficiently often, but not too frequently.","PeriodicalId":151613,"journal":{"name":"Industrial Organization & Regulation eJournal","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1998-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115646073","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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