Ignorance promotes competition: An auction model with endogenous private valuations

We study a situation in which an auctioneer wishes to sell an object toone of N risk-neutral bidders with heterogeneous preferences. Theauctioneer does not know bidders preferences but has private informationabout the characteristics of the ob ject, and must decide how muchinformation to reveal prior to the auction. We show that the auctioneerhas incentives to release less information than would be efficient andthat the amount of information released increases with the level ofcompetition (as measured by the number of bidders). Furthermore, in aperfectly competitive market the auctioneer would provide the efficientlevel of information.

Multi-period vendor managed inventory systems

In this paper we develop two models for an inventory system in which the distributormanages the inventory at the retailers location. These type of systems correspondto the Vendor Managed Inventory (VMI) systems described ib the literature. Thesesystems are very common in many different types of industries, such as retailingand manufacturing, although assuming different characteristics.The objective of our model is to minimize total inventory cost for the distributorin a multi-period multi-retailer setting. The inventory system includes holdingand stock-out costs and we study the case whre an additional fixed setup cost ischarged per delivery.We construct a numerical experiment to analyze the model bahavior and observe theimpact of the characteristics of the model on the solutions.

Causes of subcontracting: Evidence from panel data on construction firms

This paper examines factors explaining subcontracting decisions in the construction industry. Rather than the more common cross-sectional analyses, we use panel data to evaluate the influence of all relevant variables. We design and use a new index of the closeness to small numbers situations to estimate the extent of hold-up problems. Results show that as specificity grows, firms tend to subcontract less. The opposite happens when output heterogeneity and the use of intangible assets and capabilities increase. Neither temporary shortage of capacity nor geographical dispersion of activities seem to affect the extent of subcontracting. Finally, proxies for uncertainty do not show any clear effect.

Separated by a common currency? Evidence from the Euro changeover

We study the price convergence of goods and services in the euro area in 2001-2002. To measure the degree of convergence, we compare the prices of around 220 items in 32 European cities. The width of the border is the price di¤erence attributed to the fact that the two cities are in different countries. We find that the 2001 European borders are negative, which suggests that the markets were very integrated before the euro changeover. Moreover, we do not identify an integration effect attributable to the introduction of the euro. We then explore the determinants of the European borders. We find that different languages, wealth and population differences tend to split the markets. Historical inflation, though, tends to lead to price convergence.

Product market deregulation and the U.S. employment miracle

We consider the dynamic relationship between product market entry regulation and equilibrium unemployment. The main theoretical contribution is combining a job matchingmodel with monopolistic competition in the goods market and individual wage bargaining.Product market competition affects unemployment by two channels: the output expansion effect and a countervailing effect due to a hiring externality. Competition is then linked to barriers to entry. We calibrate the model to US data and perform a policy experiment to assess whether the decrease in trend unemployment during the 1980 s and 1990 s could be attributed to product market deregulation. Our quantitative analysis suggests that under individual bargaining, a decrease of less than two tenths of a percentage point of unemployment rates can be attributed to product market deregulation, a surprisingly small amount.

Price regulation of plastic money: A critical assessment of Spanish rules

Recent decisions by the Spanish national competition authority (TDC) mandate paymentsystems to include only two costs when setting their domestic multilateral interchange fees(MIF): a fixed processing cost and a variable cost for the risk of fraud. This artificiallowering of MIFs will not lower consumer prices, because of uncompetitive retailing; but itwill however lead to higher cardholders fees and, likely, new prices for point of saleterminals, delaying the development of the immature Spanish card market. Also, to the extent that increased cardholders fees do not offset the fall in MIFs revenue, the task of issuing new cards will be underpaid relatively to the task of acquiring new merchants, causing an imbalance between the two sides of the networks. Moreover, the pricing scheme arising from the decisions will cause unbundling and underprovision of those services whose costs are excluded. Indeed, the payment guarantee and the free funding period will tend to be removed from the package of services currently provided, to be either provided by third parties, by issuers for a separate fee, or not provided at all, especially to smaller and medium-sized merchants. Transaction services will also suffer the consequences that the TDC precludes pricing them in variable terms.

Inventory-routing model, for a multi-period problem with stochastic and deterministic demand

The need for integration in the supply chain management leads us to considerthe coordination of two logistic planning functions: transportation andinventory. The coordination of these activities can be an extremely importantsource of competitive advantage in the supply chain management. The battle forcost reduction can pass through the equilibrium of transportation versusinventory managing costs. In this work, we study the specific case of aninventory-routing problem for a week planning period with different types ofdemand. A heuristic methodology, based on the Iterated Local Search, isproposed to solve the Multi-Period Inventory Routing Problem with stochasticand deterministic demand.

What form of relative performance evaluation?

We study relative performance evaluation in executive compensation whenexecutives have private information about their ability. We assume that thejoint distribution of an individual firm s profit and market movements dependson the ability of the executive that runs the firm. In the equilibrium of theexecutive labor market, compensation schemes exploit this fact to sortexecutives of di ?erent abilities. This implies that executive compensation isincreasing in own performance, but may also be increasing in industryperformance-a sharp departure from standard relative performance evaluation.This result provides an explanation for the scarcity of relative performanceconsiderations in executive compensation documented by the empirical literature.

Timing of seasonal sales

We present a model of timing of seasonal sales where stores chooseseveral designs at the beginning of the season without knowingwich one, if any, will be fashionable. Fashionable designs have achance to fetch high prices in fashion markets while non-fashionableones must be sold in a discount market. In the beginning of theseason, stores charge high prices in the hope of capturing theirfashion market. As the end of the season approaches with goods stillon the shelves, stores adjust downward their expectations that theyare carrying a fashionable design, and may have sales to capture thediscount market. Having a greater number of designs induces a storeto put one of them on sales earlier to test the market. Moreover,price competition in the discount market induces stores to startsales earlier because of a greater perceived first-mover advantage incapturing the discount market. More competition, perhaps due todecreases in the cost of product innovation, makes sales occur evenearlier. These results are consistent with the observation that thetrend toward earlier sales since mid-1970's coincides with increasingproduct varieties in fashion good markets and increasing storecompetition.

A one-shot Prisoners’ Dilemma with procedural utility

This article introduces a model of rationality that combines procedural utility over actions with consequential utility over payoffs. It applies the model to the Prisoners Dilemma and shows that empirically observed cooperative behaviors can be rationally explained by a procedural utility for cooperation. The model characterizes the situations in which cooperation emerges as a Nash equilibrium. When rational individuals are not solely concerned by the consequences of their behavior but also care for the process by which these consequences are obtained, there is no one single rational solution to a Prisoners Dilemma. Rational behavior depends on the payoffs at stake and on the procedural utility of individuals. In this manner, this model of procedural utility reflects how ethical considerations, social norms or emotions can transform a game of consequences.

How competition controls team production: The case of fishing firms

Under team production, those who monitor individual productivity areusually the only ones compensated with a residual that varies withthe performance of the team. This pattern is efficient, as is shownby the prevalence of conventional firms, except for small teams andwhen specialized monitoring is ineffective. Profit sharing in repeatedteam production induces all team members to take disciplinary actionagainst underperformers through switching and separation decisions,however. Such action provides effective self-enforcemnt when themarkets for team members are competitive, even for large teams usingspecialized monitoring. The traditional share system of fishing firmsshows that for this competition to provide powerful enough incentivesthe costs of switching teams and measuring team productivity must bebellow. Risk allocation may constrain the organizational designdefined by the use of a share system. It does not account for itsexistence, however.

Specialization and rent-seeking in moral enforcement: The case of confession

Moral codes are produced and enforced by more or less specialized means and are subject to standard economic forces. This paper argues that the intermediary role played by the Catholic Church between God and Christians, a key difference from Protestantism, faces the standard trade-off of specialization benefits and agency costs. It applies this trade-off hypothesis to confession of sins to priests, an institution that epitomizes such intermediation, showing that this hypothesis fits cognitive, historical and econometric evidence better than a simpler rent-seeking story. In particular, Catholics who confess more often are observed to comply more with the moral code; however, no relationship is observed between mass attendance and moral compliance. The data also links the current decline in confession to the rise in education, which makes moral self-enforcement less costly, and to the productivity gap suffered by confession services, given its necessarily interpersonal nature.

Optimal law enforcement and criminal organization

In this paper, we take an organizational view of organized crime. In particular, we study the organizational consequences of product illegality attending at the following characteristics: (i) contracts are not enforceable in court, (ii) all participants are subject to the risk of being punished, (iii) employees present a major threat to the entrepreneur having the most detailed knowledge concerning participation, (iv) separation between ownership and management is difficult because record-keeping and auditing augments criminal evidence.

Diffusion with delayed informational spillovers

I study the relation between the delay in the transmission of spilloversof information and diffusion. When a firm enters or innovates it benefitsfrom the information it gets by observing past entry. Delays in the processof receiving the information reduce the benefits of the spillover and affectthe entry process.I derive the effects this delay has on diffusion, on the dynamics of priceand cost of entry, and on efficiency. I explain why, when spillovers ofinformation are delayed, a zero profit condition requires an initial set ofentrants bigger than zero. I also illustrate how an S-shaped diffusion curvecan be generated. I show that competitive equilibrium entails a slowergeneration of information relative to the social optimum and how a socialplanner can improve efficiency.

Endogeneizing know-how flows through the nature of R&D investments

In this paper we carefully link knowledge flows to and from a firm s innovation process with this firm s investment decisions. Three types of investments are considered: investments in applied research, investments in basic research, and investments in intellectual property protection. Only when basic research is performed, can the firm effectively access incoming knowledge flows and these incoming spillovers serve to increase the efficiency of own applied research. The firm can at the same time influence outgoing knowledge flows, improving appropriability of its innovations, by investing in protection. Our results indicate that firms with small budgets for innovation will not invest in basic research. This occurs in the short run, when the budget for know-how creation is restricted, or in the long-run, when market opportunities are low, when legal protection is not very important, or, when the pool of accessible and relevant external know-how is limited. The ratio of basic to applied research is non-decreasing in the size of the pool of accessible external know-how, the size and opportunity of the market, and, the effectiveness of intellectual property rights protection. This indicates the existence of economies of scale in basic research due to external market related factors. Empirical evidence from a sample of innovative manufacturing firms in Belgium confirms the economies of scale in basic research as a consequence of the firm s capacity to access external knowledge flows and to protectintellectual property, as well as the complementarity between legal and strategic investments.