Networks of knowledge among unionized firms
We develop a model of strategic networks in order to analyze how trade unions will affect the stability of R&D networks through which knowledge is transmitted in an oligopolistic industry. Whenever firms settle wages, the partially connected network is likely to emerge in the long run if and only if knowledge spillovers are large enough. However, when unions settle wages, the complete network is the unique stable network. In other words, the stronger the union bargaining power is, the more symmetric stable R&D networks will be. In terms of network efficiency, the partially connected network (when firms settle wages) does not Pareto dominate the complete network (when unions settle wages) an…
Rail access charges and internal competition in high speed trains
Abstract This paper develops an ex ante analysis of the introduction of on-track competition in High Speed Rail (HSR) lines. The distinctive elements of our analysis are the consideration of: (i) the vertical structure of the rail sector, (ii) operators that compete in prices and number of services, and (iii) access charges for the use of the rail infrastructure that are endogenous. We provide simulation results for three Spanish HSR routes. The socio-economic viability of entry is found to depend on whether infrastructure and rail operations are integrated or separated, and also on the policy rule to set rail access charges. Firstly, separation without entry is not an appropriate good poli…
Alternative pricing regimes in interurban passenger transport with externalities and modal competition
Abstract We develop an interurban passenger transport model with modal competition, where modes are perceived as differentiated products, and capture all major externalities. Our objective is to establish whether alternative regulatory regimes, which may involve road tolls, may lead to a traffic allocation, user welfare, and total welfare that may be closer to the social optimum. An empirical application to interurban Spanish travel is undertaken. We find that the private regime yields the lowest total welfare level: 12.6% below the social optimum level. Optimum pricing requires a toll on car transport of 5.1 cents of per passenger-km, and a price decrease of all other modes, relative to th…
Viability of new road infrastructure with heterogeneous users
This paper explores the importance of heterogeneity in value of time and route choice when assessing the viability of new road infrastructure to alleviate congestion problems. The model incorporates strategic interaction between road operators in a cost-benefit framework and several competitive regimes are considered. It is then employed to establish the financial and socio-economic viability of a congestion pricing demonstration entering Madrid city centre, where road users have to choose between a free but highly congested road and a priced free-flowing road (semi-private regime). A logit estimation is undertaken with information from a questionnaire among road users in the Eastern Madrid…
Networks of Manufacturers and Retailers
We study the endogenous formation of networks between manufacturers of differentiated goods and multi-product retailers who interact in a successive duopoly. Joint consent is needed to establish and/or maintain a costly link between a manufacturer and a retailer. We find that only three distribution networks are stable for particular values of the degree of product differentiation and link costs: (i) the non-exclusive distribution and non-exclusive dealing network in which both retailers distribute both products is stable for intermediate degree of product differentiation and small link costs; (ii) the exclusive distribution and exclusive dealing network in which each retailer distributes a…
R&D Networks Among Unionized Firms
We develop a model of strategic networks in order to analyze how trade unions will affect the stability and efficiency of RD otherwise, the efficient network is the partially connected network. Thus, a conflict between stability and efficiency may occur: efficient networks are pairwise stable, but the reverse is not true. Strong stability even reinforces this conflict. However, once unions settle wages such conflict disappears: the complete network is the unique pairwise and strongly stable network and is the efficient network whatever the spillovers.
Asymmetric Demand Information and Foreign Direct Investment
We examine the FDI versus exports decision of firms competing in an oligopolistic (quantitysetting) market under demand uncertainty and asymmetric information. Compared to a firm that chooses to export, a firm that chooses to set up a plant in the host market has superior information about local market demand. In addition to the well-known tension between the fixed set-up costs of investment, the additional variable costs of exports and oligopoly sizes, the incentive to invest abroad is explained by the strategic learning effect. FDI may be observed even if trade costs are zero. The analysis is robust to price competition and to the possibility that a foreign firm can engage in both FDI and…
Networks of manufacturers and retailers
We study the endogenous formation of networks between manufacturers of differentiated goods and multi-product retailers who interact in a successive duopoly. Joint consent is needed to establish and/or maintain a costly link between a manufacturer and a retailer. We find that only three distribution networks are stable for particular values of the degree of product differentiation and link costs: (i) the non-exclusive distribution & non-exclusive dealing network in which both retailers distribute both products is stable for intermediate degree of product differentiation and small link costs; (ii) the exclusive distribution & exclusive dealing network in which each retailer distributes a dif…
Brand price differentials in retail distribution: product quality and service quality
ABSTRACTA theoretical model is proposed to disentangle the contribution of brand quality and retailer service quality in explaining brand price differentials across retailers. Two testable hypotheses emerge: (i) for each brand type, price differences across retailers are independent of brand quality differentials and (ii) at a given retailer, price differences between different brand qualities are independent of service quality differentials. Our empirical analysis, for a sample of the U.K. grocery retailer prices, discloses that retailers that offer higher service quality sell same quality brands at higher prices. In particular, service quality premia amount to 6% for national brands and a…
A three-stage competition game in an air transport network under asymmetric valuation of flight frequencies
Abstract This paper analyzes the effects of changes in aeronautical charges as brought by several airport management regimes on the air transport industry. Airlines compete on both price and non-prices variables, where connecting passengers have asymmetric valuations of flight frequencies in different legs. Changes in landing fees trigger airlines reactions on flight frequencies and airfares, whose sign depends on the weight attached to flight frequencies. Thus, an increase in the spoke landing fee leads to more international flights under low valuations of frequencies at spoke airports. Simulation exercises show that profit-maximizing aeronautical charges only at the spoke airport are pref…
R&D Competition, Cooperation, and Microeconomic Policies
This chapter aims to contribute to the better understanding of R&D by scholars and practitioners. It includes a first section where the concept of innovation is defined and its public good nature and cumulative dimension are analysed. Next, the incentives that firms have to undertake R&D to attain a competitive edge upon rivals are considered. This entails the consideration of both ex ante and ex post incentives to undertake R&D. Since innovation is costly and derives important external effects, cooperation in R&D activities is prominent in several industries where firms enter into research joint ventures, or form research networks. The effect of cooperation is that, under s…
Equilibrium mergers in a composite good industry with efficiencies
This paper studies equilibrium merging behavior in composite good industries. Component producers face the option to either merge with a similar component producer (horizontal merger) or a complementary one (complementary merger) of a composite good. Focusing only on strategic reasons, complementary mergers arise at equilibrium only when composite goods are very differentiated while horizontal mergers otherwise. Next, when efficiencies are considered, the level of marginal cost saving required for a horizontal merger in a composite industry to result in a non- increase in the upward price pressure index (UPPI) is greater as compared with the one in a regular industry. This result can be use…
Pricing and infrastructure fees in shaping cooperation in a model of high-speed rail and airline competition
Abstract This paper studies the effects of cooperation in a hub-and-spoke network with high-speed rail and airline competition. The distinctive elements of our analysis are the consideration of: (i) per-passenger airport and rail infrastructure fees; (ii) mixed bundling pricing by partners, and (iii) an airline duopoly in the international market. We show that partners fix the cheapest bundle price of the combined trip, that non-allied operators respond by decreasing the prices per link, and that connecting traffic increases. Per-passenger fees significantly affect the price differences following cooperation. An empirical application confirms that it is privately profitable and that welfare…
The impact on port competition of the integration of port and inland transport services
The performance of the transport chain is important for the efficiency and competitiveness of an economy. In the context of port competition, there has been an increasing cooperation between firms involved in the intermodal transport chain including seaport services. This paper examines the economic incentives and welfare implications to the integration of port activities with inland transport services under inter-ports competition. Although ports find it advantageous to engage in such integration process it may be detrimental to welfare, since shippers’ aggregate surplus decreases – noting that farther away users benefit at the expense of those closer to the ports. Several scenarios not le…
R&D Network Formation with Myopic and Farsighted Firms
We study the formation of R&D networks when each firm benefits from the research done by other firms it is connected to. Firms can be either myopic or farsighted when deciding about the links they want to form. We propose the notion of myopic-farsighted stable set to determine the R&D networks that emerge in the long run. When the majority of firms is myopic, stability leads to R&D networks consisting of either two asymmetric components with the largest component comprises three-quarters of firms or two symmetric components of nearly equal size with the largest component having only myopic firms. But, once the majority of firms becomes farsighted, only R&D networks with two asymmetric compo…
Farsighted R&D networks
We analyze the formation of bilateral R&D collaborations in an oligopoly when each firm benefits from the research done by other firms it is connected to. In contrast to myopic stability, farsighted stability leads to R&D networks consisting of two minimally connected components, with the largest one comprising three-quarters of firms.
Licensing policies for a new product
This paper studies licensing policies for the owner of a new product and addresses their welfare impact in the assessment of market failures. We show that the best licensing policy for the patent holder is fixed fee licensing with an exclusive territory clause. Consumers are also better off with fixed fees but do not prefer the exclusive territory clause. Social welfare is higher under exclusive territories when fixed costs are not too large. As for efficiency, the number of licences in the private market equilibrium falls short of the socially optimal solution. Our analysis discloses that (i) any policy measures aimed at enhancing the diffusion of technology, in terms of the number of lice…
A model of internal and external competition in a High Speed Rail line
This paper is a contribution to evaluate structural and behavioral changes in railway passenger markets. The novel elements of our analysis are the following: (i) the consideration of inter-modal and intra-modal competition, (ii) the presence of public and private operators, and (iii) endogenous service frequency. After calibrating the model using actual data from two Spanish High Speed Rail lines, simulation exercises allow us to conclude the following. Privatization, whether entry occurs or not, would prompt an increase in prices and a reduction in the number of train services, eventually leading to welfare decreases, as compared with a regime where the incumbent rail operator remained pu…
Competition and horizontal integration in maritime freight transport
This paper develops a theoretical model for freight transport characterized by competition between means of transport (the road and maritime sectors), where modes are perceived as differentiated products. Competitive behavior is assumed in the road freight sector, and there are constant returns to scale. In contrast, the freight maritime sector is characterized by oligopolistic behavior, where shipping lines enjoy economies of scale. The market equilibrium where the shipping lines behave as profit maximizers, provides a first approximation to the determinants of market shares, profits, and user welfare. We then characterize the equilibrium when horizontal integration of shipping lines occur…
Vertical integration and exclusivities in maritime freight transport
A key recent theme in maritime freight transport is the involvement of shipping lines in terminal management. Such investments are costly but allow liners to provide better service. Most of these new terminals are dedicated terminals but some are non-exclusive and let rivals access them for a fee. In this paper, we show that a shipping line that builds its own terminal finds it strategically profitable (i) to continue routing part of its cargo through the open port facilities, and (ii) to keep its terminal non-exclusive. In this way, the liner investor pushes part of the rival's freight from the open to the new terminal. Besides, under non-exclusivities, the shipping lines offer a wider var…
The effect of cooperative infrastructure fees on high-speed rail and airline competition
Abstract This paper explores the effects of cooperation between rail and air infrastructures in setting per-passenger fees prior to competition among airlines and high-speed rail (HSR) in a transport network. It is shown that, for a sufficiently low degree of substitution, cooperation results in lower fees and greater HSR traffic than under competition. Besides, it leads to more connecting passengers. An empirical application allows for a quantitative assessment of cooperation. Gains to passengers and operators are sizeable when cooperation either involves all infrastructure managers or the rail and the hub airport managers. Welfare gains are in the range of 10.4–11.1%. Our contribution off…
Product Line Choice in Retail Duopoly
This paper develops a successive duopoly model to identify conditions under which differentiated retailers that compete in quantities, when deciding on the range of brands to offer, will carry overlapping product lines. They will do so when retail margins on each brand are not too asymmetric. Otherwise, the less profitable brand is foreclosed from the market. It is shown that welfare increases if the upstream industry is perfectly competitive, even though fewer brands may be sold. With price competition though, exclusive dealing arises when retailers are not too differentiated and in-store competition is sufficiently intense.