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The diversion of manufacturers' branded products outside the authorized channel leads to the emergence of gray markets (GMs), which is legal under the doctrine of first sale. Product diversion to GMs can negatively affect manufacturers' brand reputation. In this study, we analyze a manufacturer's strategic channel choice decision and its implications for social welfare in the presence of GMs and strategic consumers. We present scenarios in which the presence of GMs can either have a positive or negative impact on the manufacturer and the supply chain. Our findings indicate that the manufacturer and the supply chain become worse off due to product diversion to GMs under lower channel differentiation and high penalty cost for the loss of brand reputation due to product diversion. This effect is more severe for a decentralized supply chain, where product diversion does not directly affect the retailer's profitability due to the erosion of brand reputation. In such scenarios, we suggest that manufacturers should follow a brand-protection strategy to curb product diversion to GMs. However, manufacturers selling product categories with low brand equity can follow a market-expansion strategy. In such cases, the presence of GMs provides an alternative channel to expand sales by capturing untapped consumer segments without incurring additional market search or advertising costs. This strategy also facilitates indirect price discrimination among consumers. We find that social welfare is higher when channel differentiation is low under a decentralized supply chain. [ABSTRACT FROM AUTHOR]

This paper considers a dual-channel supply chain consisting of a monopoly manufacturer, an independent retailer and a continuum of heterogeneous consumers who are classified into two segments according to their channel preferences. Due to various activities undertaken in different channels leading to retail costs, we highlight the effect of retail costs (i.e. fixed, linear and quadratic costs) on the optimal channel structures for the manufacturer, consumers and society. Our results show that the retail cost greatly influences the optimal channel structures for different parties. First, the manufacturer's channel selection varies considerably across retail costs. Specifically, when there are variable costs (linear and quadratic costs): on the one hand, the manufacturer might give up the grocery encroachment strategy; on the other hand, some profitable strategies which are missed in the case with fixed cost are likely to be implemented. Second, both consumer surplus and social welfare are maximised in the manufacturer-owned online channel unless the linear costs are sufficiently high or the cost gap between different channels is large. Collectively, the optimal channel structure for the manufacturer is not always optimal for consumer surplus or social welfare. [ABSTRACT FROM AUTHOR]

ABSTRACTIn the context of a vertically differentiated duopoly model with endogenous quality choice, we analyzes the welfare effect of overlapping ownership when the market is fully covered. The results show that overlapping ownership, while detrimental for consumer surplus, may increase or decrease social welfare and firms’ profits. In particular, when the overlapping ownership structure is such that the lower-quality firm acquires a positive share of the higher-quality firm’s profit, an increase in overlapping ownership reduces the lower-quality firm’s incentive to compete against its rival, leading to a higher level of industry profit and, therefore, a higher level of overall welfare.

Objective: To explore the changes in social welfare before and after the implementation of the national volume-based procurement (NVBP). Explore whether the NVBP promotes the healthy development of manufacturers under the premise of benefiting patients. Then put forward relevant suggestions on how to effectively intervene the government in the pharmaceutical market. Methods: Starting with consumer surplus and producer surplus, social welfare was studied from the three perspectives of price, supply, and demand. Results: Consumer surplus was significantly increased, and the drug welfare of patients was significantly improved. The profits of the whole pharmaceutical industry have decreased but will increase in the future. The welfare of individual pharmaceutical enterprises varies. Overall social welfare has been significantly improved. Conclusion: The core purpose of the NVBP is to improve the medication welfare of patients, and through the increase of consumer surplus, it can affect the increase of producer surplus. Under such a linkage mechanism, the diversified linkage system of "price, demand, and supply" will achieve the effect of "1 + 1+1 > 3". [ABSTRACT FROM AUTHOR]

In most European and Asian countries, the owner of the high-speed train (HST) track is either fully independent from, or integrated with, the operations of train service. In this paper, we build a simple model to analyze a particularly unique ownership structure of HST infrastructure, namely, a mixed structure featuring both integration and separation within a network. We compare this mixed case with the scenario where ownership and operations of HST are integrated and identify a conflict between social welfare (consumer surplus) and HST profit. Specifically, consumer surplus and social welfare are higher in the mixed case (compared with the integrated case), while the profit of the HST industry is lower if any of the following conditions holds: 1) the size of the market, where ownership and operations may be separated, is sufficiently small; 2) the weight that the HST operator puts on social welfare is sufficiently small; 3) the fee paid by the infrastructure owner to HST operator for operational services is sufficiently high. Our results prove to be robust when there exists competition from airlines. Additionally, we observe consistent outcomes when varying the weights on social welfare. Finally, several policy implications are discussed. [ABSTRACT FROM AUTHOR]

This paper studies a green manufacturer's strategic licensing of its green technology to a brown rival under the consideration of the green manufacturer's environmental concerns. Consumers in the market have green awareness. Adopting the green technology not only helps manufacturers to reduce carbon emissions, but also to increase market sizes. The green manufacturer can choose from three technology licensing strategies, i.e., no licensing (N), royalty licensing (R) or fixed-fee licensing (F). The equilibrium licensing strategy can be derived by comparing the respective payoff after adopting the three strategies. It is found that the green manufacturer should choose fixed-fee licensing strategy when the market size expansion effect is strong, and the competition intensity is moderate; otherwise, the green manufacturer should choose royalty licensing strategy. Furthermore, it is found that when the green manufacturer is more concerned about environmental impacts, it will be more willing to choose fixed-fee licensing strategy, rather than royalty licensing strategy. Through numerical tests, some interesting results are also found. For example, the brown manufacturer might be hurt even if the cost reduction effect of technology licensing is relatively stronger. Moreover, it is found that consumer surplus and social welfare nonmonotonically change with the substitution level. In summary, this research tries to provide some guidelines to the industry and the society on better managing green technology diffusions. [ABSTRACT FROM AUTHOR]

We revisit the wholesale model and the agency model in differentiated markets of Lu (Review of Industrial Organization,51, 151–172, 2017) and show the changes of the equilibrium outcomes of consumer surplus and social welfare. Unlike Lu (Review of Industrial Organization,51, 151–172, 2017), we find that: (i) social welfare is always greater in agency model than in wholesale model; and (ii) different rankings of equilibrium aggregate profits and social welfare are obtained under the two models. [ABSTRACT FROM AUTHOR]

Service contracts are common practice in some industries while being eliminated in others. To investigate this phenomenon, we identify expectation–reality discrepancy (ERD) as a key determinant. A provider's ERD is defined as consumers' ex‐ante expected valuation minus their ex‐post realized valuation of the provider's service. Our analysis reveals that providers' contract strategies critically depend on their ERDs rather than the true service valuations. A provider with a higher ERD is more likely to enforce contracts, regardless of whether the true service valuation is higher than that of the competitor. Providers should enforce contracts only when they have positive ERDs. Furthermore, contracts have a competition‐intensifying effect: when providers enforce contracts, their competition on promoting consumer expectations through marketing efforts is intensified, leading to higher ERDs with contracts than without contracts. Finally, consumers and society as a whole may benefit from higher switching costs because positive ERDs may mislead consumers to make wrong switching decisions and switching costs can help deter such switching behaviors. [ABSTRACT FROM AUTHOR]

In order to develop the biomedical industry, government subsidy of biosimilars is an incentive policy which has been used by the government. Different government subsidy strategies have an impact on drug price, consumer surplus, social welfare, the income of biosimilars enterprises and the demand of biosimilars, which have been deeply analyzed through backward induction of the dynamic game theory. The analysis shows that the price coefficient and the influence of the subsidy on demand will affect the choice of government subsidy strategies. It is concluded that under different subsidy strategies, consumer surplus, social welfare and the income of biosimilars enterprises are positively correlated with the amount of subsidy per unit product. This paper provides a decision-making basis for developing government subsidy strategies scientifically.

This research seeks to determine effects of rising interest in gluten-free foods on U.S. retail food demand and, ultimately, producer and consumer welfare. Increased gluten-free interest led to a modest reduction in cereals and bakery demand and increases in meat, alcoholic beverages, and food away from home demand. Combining estimated effects with an equilibrium displacement model suggests the reduction in cereal and bakery demand decreases wheat and barley producer profits by US$7.2 million/year. After accounting for positive demand impacts on other products, results indicate wheat and barley supply is redistributed away from food production into animal production, increasing wheat producer welfare. [ABSTRACT FROM AUTHOR]

Whether broadband service providers (BSPs) should be allowed to vertically integrate with content providers is a contentious issue. This is even more so when viewed through the lens of the net neutrality debate, since the vertically integrated firm can prioritize the delivery of its own content at the expense of that of its competitors if net neutrality is not enforced. Using a game-theoretic model, we analyze the issues of vertical integration of content and broadband services surrounding this debate from an economic perspective. Our analysis establishes the various equilibria in the game and shows that the vertically integrated BSP does not have any incentive to abide by the principles of net neutrality. If net neutrality is not enforced, social welfare might, in certain cases, decrease with vertical integration, and in such cases, the BSP's objectives are at odds with that of the social planner. With other ranges of parameter values, social welfare increases with vertical integration at the expense of the competing pure-play content provider. Interestingly, we find that it is not always true that the BSP will always degrade the delivery of the competing content, and in fact will sometimes have the incentive to prioritize the latter over its own. The analysis thus provides crucial inputs to policymakers as they decide on whether to allow vertical integration between a BSP and a content provider in the absence of net neutrality. [ABSTRACT FROM AUTHOR]

Trust is particularly important in online markets to facilitate the transfer of sensitive consumer information to online retailers. In electronic markets, various proposals have been made to facilitate these information transfers. We develop analytic models of hidden information to analyze the effectiveness of these regimes to build trust and their efficiency in terms of social welfare. We find that firms' ability to influence consumer beliefs about trust depends on whether firms can send unambiguous signals to consumers regarding their intention of protecting privacy. Ambiguous signals can lead to a breakdown of consumer trust, while the clarity and credibility of the signal under industry self-regulation can lead to enhanced trust and improved social welfare. Our results also indicate that although overarching government regulations can enhance consumer trust, regulation may not be socially optimal in all environments because of lower profit margins for firms and higher prices for consumers. [ABSTRACT FROM AUTHOR]

A well-known result with important policy implications is that an output increase is a necessary condition for social welfare to increase with third-degree price discrimination. In this paper, we explore the robustness of this result to the introduction of an assumption that is different than the conventional approach, namely preferences not being quasilinear. We show that in the presence of income differences among consumers, the aggregate utility of consumers may increase with price discrimination while total output remains constant. This result questions the general policy recommendation that third-degree price discrimination should be disapproved because it reduces welfare unless output increases. Our result highlights the crucial role of the assumption of quasilinear preferences in standard welfare calculations. In the presence of income differences, consumer surplus may be a biased welfare measure, thus potentially leading to incorrect conclusions when assessing the impact of specific policies. [ABSTRACT FROM AUTHOR]

• The connection price can be set according to the rate of return regulation model. • Connection price policy reform will increase social welfare in the long run. • Connection price policy reform will reduce social welfare in the short run. • Policy reform's impact on social welfare relates to connection costs transfer mode. • How connection costs are shared will affect social welfare after the policy reform. To reduce the electricity costs of the whole society and promote the fair sharing of dedicated power grid connection costs, the Chinese government plans to explore and implement the electricity user connection price policy reform. Therefore, it is of great practical significance to explore the potential social welfare effect of the reform. Based on the principle of costs fair allocation, this paper constructs a two-part connection pricing model with the goal of minimizing the electricity costs of the whole society, and theoretically analyzes the impact of the electricity user connection price policy reform on social welfare, including consumer surplus and grid enterprise profit in the short run and long run, which under the scenarios where the connection costs are borne by the grid enterprise or the government and transferred to the electricity consumers through connection price or taxes respectively, and further selected financial data of State Grid Corporation of China and China Southern Power Grid from 2016 to 2020 for numerical simulation test. The results show that: The electricity user connection price policy reform should be carried out in the way that grid enterprise only charge connection price from dedicated power grid users, and the connection price should be formulated using the rate of return regulation model. Although this policy reform will lose about 3.11 % of social welfare in the short run, it will increase social welfare by about 0.48 % in the long run. For every 0.1 % increase in the proportion of the connection costs in the transmission and distribution costs, social welfare will increase by about 0.177 billion RMB. In addition, the redistribution between the dedicated power grid users' consumer surplus and the grid enterprise profit can be realized by adjusting the proportion of the connection costs borne by dedicated power grid users, thereby achieving different policy goals. [ABSTRACT FROM AUTHOR]

This paper explores a monopolist's optimal multi-tier quantity-discount prices and shows that only the last tier's marginal cost is relevant in determining the tier prices and each tier's price is equal to its preceding tier's marginal revenue. An increase in total output is associated with larger individual tiers' own and cumulative outputs (the stretching effect), and the increases in their cumulative outputs are smaller if their tiers are closer to the first one (the ripple effect). The pricing structure is further characterized by the tier Lerner indices and the price elasticities defined on individual tiers' own and their commutative outputs. [ABSTRACT FROM AUTHOR]

Internet service providers (ISPs) are experimenting with a business model that allows content providers (CPs) to subsidize Internet access for end consumers. In this study, we develop a game-theoretical model to analyze the effects of this sponsorship of consumer data usage. We find that the ISP's optimal network management choice of data sponsorship crucially depends on market conditions, such as the revenue rates of CPs and the fit cost of consumers. If the fit cost is low, the ISP will either allow both CPs to subsidize consumers' Internet access, or will allow only the more competitive CP to subsidize, depending on the per-consumer revenue generation rates of CPs. If the fit cost is high, it is in the ISPs interest not to allow any subsidization. We also identify conditions under which the ISP's network management choices of data sponsorship deviate from social optimum. These results should be of interest to the telecom industry as it searches additional revenue models, and to online CPs competing for customer loyalty. It should also be of interest to policymakers investigating into this issue. [ABSTRACT FROM AUTHOR]

Many original equipment manufacturers (OEMs) allow third-party remanufacturers (3PRs) to perform remanufacturing operations of branded or patented products – through either outsourcing or authorization. This study compares these two modes by modeling the game between the OEM and the 3PR on equilibrium quantities, prices, and profits. The results suggest that when consumers perceive the remanufactured products with a low value, the 3PR prefers the authorization approach; otherwise the 3PR prefers the outsourcing approach. However, in both scenarios, the OEM obtains higher profit through outsourcing than through authorization. Our further analysis compares two modes’ impacts on consumer surplus, social welfare, and environment. [ABSTRACT FROM AUTHOR]

This paper attempts to analyze the idea of social business - a brainchild of Dr. Muhammad Yunus and a very recent addition to the economic thoughts. It tries to show the welfare implications of social business with the help of graphical illustrations. It also provides an overview of the idea. Drawing upon the simple frameworks of monopoly and competitive markets, the graphical analyses show that conversion of traditional business companies into social business companies results in increased social welfare. [ABSTRACT FROM AUTHOR]

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Generation expansion planning (GEP) is the problem of determining the optimal strategy to plan the construction of new generation plants while satisfying technical and economic constraints. Over the past few years, the environmental issues have become a society concern and the Clean Air Act Amendments passage the laws indicating the need for renewable resources promotion. Multifarious incentive-based support schemes have been designed to increase the penetration rate of the renewables in power generation. In this context, open questions remain regarding the financial resources of the support schemes. This paper addresses the impacts of Feed-In-Tariff (FIT) mechanism on the social welfare in an integrated renewable-conventional GEP framework, while consumers are considered for patronizing the financial burden of FIT ( Б FIT ). Hence, after applying the gravitational search algorithm to a multistage GEP model, the benefit of generation company (GENCO) and consumer surplus are both determined as the social welfare terms. The virtual price criterion is also introduced to evaluate the effect of FIT expenditure on consumers' surplus. The numerical studies emphasize that implementation of FIT regime in the GEP results in social welfare improvement even if the Б FIT is imposed on the demand-side consumers. [ABSTRACT FROM AUTHOR]

The status quo of prohibiting broadband service providers from charging websites for preferential access to their customers-the bedrock principle of net neutrality (NN)—is under fierce debate. We develop a game-theoretic model to address two critical issues of NN: (1) Who are gainers and losers of abandoning NN? (2) Will broadband service providers have greater incentive to expand their capacity without NN? We find that if the principle of NN is abolished, the broadband service provider stands to gain from the arrangement, as a result of extracting the preferential access fees from content providers. Content providers are thus left worse off, mirroring the stances of the two sides in the debate. Depending on parameter values in our framework, consumer surplus either does not change or is higher in the short run. When compared to the baseline case under NN, social welfare in the short run increases if one content provider pays for preferential treatment but remains unchanged if both content providers pay. Finally, we find that the incentive to expand infrastructure capacity for the broadband service provider and its optimal capacity choice under NN are higher than those under the no-net-neutrality (NNN) regime, except in some specific cases. Under NN, the broadband service provider always invests in broadband infrastructure at the socially optimal level but either under- or overinvests in infrastructure capacity in the absence of NN. [ABSTRACT FROM AUTHOR]

Electric vehicles enjoy not only vigorous promotion in many countries via green license plates but also state subsidies. This study investigates a traditional combustion-vehicle market and the coexistence of combustion and electric vehicles under the influence of network effects. It evaluates the impact of the greenness gap and network effect on their pricing, subsidies, and market returns, respectively. We then consider the conditions for introducing electric vehicles into the market. The results show that when the network effect is not considered, introducing electric vehicles is beneficial to customers, manufacturer and society. However, when the network effect is considered, introducing electric vehicles can increase manufacturer's profit and social welfare only when the fixed costs of the new product line are sufficiently low. Finally, electric vehicles should be introduced if the greenness gap between the two products is small because this can increase profit, consumer surplus, and social welfare. • The impact of network effects on introducing electric vehicles is studied. • Introducing electric vehicles benefits the manufacturer without network effects. • Introducing electric vehicles might harm the manufacturer with network effects. [ABSTRACT FROM AUTHOR]

There are several conclusions will be made to study the impact of multinational firm, industry chain and the buying power on consumer surplus and social welfare by using a vertical pricing model as following. Firstly, an enterprise increasing its buying power will harm the benefits of its upper firm no matter domestic firms or foreign firms. Secondly, whether there is an industrial alliance or not, if a domestic firm increases its buying power, then raising the consumer surplus and social welfare, however, if a foreign firm does that, then reducing the consumer surplus and the social welfare. Thirdly, on matter what kind of status of its upper firm, a lower national firm with its upper firm to form an industry chain will improve the social welfare. [ABSTRACT FROM AUTHOR]

We study a model of imperfect competition and limited production capacity in which a key feature is the trade-off between quality and quantity. In particular, lowering product quality enables firms to increase total production. We illustrate that, in the presence of limited capacity, the choice of lower quality often results in increased social welfare. We also explore the relation between the extent of competition and the choice of quality. We find that, in some cases, reduced competition leads to increased production, decreased average quality, increased total welfare, and makes consumers better off. Finally, we consider the possibility of regulator-mandated quality standards. Imposing high-quality standards never improves welfare in our model. On the other hand, mandating an upper bound on quality could either increase or decrease welfare in either a monopoly or a duopoly market. [ABSTRACT FROM AUTHOR]

Background: The US Food and Drug Administration (FDA) recently held a meeting to determine whether the status of second-generation antihistamines (SGAs) should be switched from prescription (Rx) to over-the-counter (OTC) status.Objective: This article provides a conceptual microeconomic framework for addressing issues regarding the impact of such a switch on social welfare.Methods: A review of the economic literature on Rx-to-OTC switches was conducted. Relevant articles published in English between 1990 and 2001 were identified through searches of ABI Info, EconLit, PsychInfo, MEDLINE, CANCERLIT, AIDSLINE, and HealthStar, as well as a general Internet search for statements in the press or on the FDA Web site. The search terms used were Rx, prescription, OTC, over-the-counter, second-generation antihistamines, nonsedating antihistamines, first-generation antihistamines, and sedating antihistamines. Microeconomic models focusing on consumer surplus were employed to determine the potential price response and social-welfare implications of a switch of SGAs to OTC status.Results: Unlike the agents involved in previous Rx-to-OTC switches, SGAs are still under patent protection. Economic theory suggests that a firm that is protected by a patent will price aggressively. The market for OTC SGAs is likely to be more elastic due to a lack of insurance coverage for OTC products; hence, drug manufacturers would be likely to charge a lower price if SGAs were sold OTC. However, a lower price does not necessarily guarantee an improvement in social welfare; the net impact is determined by whether the increase in consumer surplus outweighs the deadweight loss (losses of consumer and producer surplus not transferred to other parties). Additionally, the assumption of a price reduction would be called into question if there were inequalities in marginal costs between the Rx and OTC markets. In this situation, the postswitch price might increase or not be reduced significantly.Conclusions: It is uncertain whether granting OTC status to SGAs would be cost saving to society, particularly as these drugs are patent protected. The social-welfare implications of such a switch would depend heavily on pricing strategies and consumer behavior. Further analyses are needed to determine how both factors influence social welfare; only then can the costs and benefits of a switch be understood completely. [Copyright &y& Elsevier]