Taking firms’ margin targets seriously in a model of competition in supply functions
We introduce price-markup objectives into a model of supply function competition. We characterize the corresponding supply-function equilibrium and study its qualitative properties. Adherence to price-markup targets is conducive to reduced market competition and increased firm profitability. While pursuing such goals reduces social welfare, welfare never drops below the level corresponding to a Cournot oligopoly. Finally, we establish conditions under which consumer preference for fair pricing inhibits the industry's use of markups as a collusive device.
A new rationale for not picking low hanging fruits: the separation of property and control
National audience; Technological innovations make possible a continuous improvement of the energy efficiency of industrial systems. The optimization of production processes in combination with the acquisition of innovative energy efficiency solutions enables better energy management and performance. These improvements are deemed to be profitable since they strengthen the competitiveness of the firm while enabling the achievement of social and environmental responsibility objectives such as reducing pollutant emissions. From this perspective, firms should seize every opportunity to improve their energy efficiency. In actual practice, however, even investments that involve low up-front expend…
Regulation of Investments in Infrastructure: The Interplay between Strategic Behaviors and Initial Endowments
This paper explores the dynamic properties of price-based policies in a model of competition between two jurisdictions. Jurisdictions invest over time in infrastructure to increase the quality of the environment, a global public good. They are identical in all respects but one: initial stocks of infrastructure. This is a dynamic type of heterogeneity that disappears in the long run. Therefore, at the steady state, usual intuitions from static settings apply: identical jurisdictions inefficiently underinvest, calling for public subsidies. In the short run, however, counterintuitive properties are established: (i) the evolution of capital stocks can be nonmonotonic and (ii) one jurisdiction c…
A new rationale for not picking low hanging fruits: The separation of ownership and control
Recent attempts at explaining the energy-efficiency gap rely on considerations related to organizational and behavioral/cognitive failures. In this paper, we build on the strategic delegation literature to advance a complementary explanation. It is shown that strategic market interaction may encourage business owners to instill a bias against energy efficiency in managerial compensation contracts. Since managers respond to financial incentives, their decisions will reflect this bias, resulting in lack of investment.