Search

In many emerging economies incumbent firms often use dubious means to deter entry of other firms. We analyze this scenario in a three‐stage game of entry deterrence. The incumbent has incomplete information about the entrant's costs but can increase this cost by resorting to unfair means (e.g. bribing a politician who harms the entrant). We completely characterize the optimal bribe and show that this depends on the “fairness index” and the “differentiation” parameter. We also show that zero bribes need not maximize welfare and market quality. Our results seem to be compatible with anecdotal evidence from emerging economies such as India.

This paper analyses the incentives to adopt cost-reducing technology by …rms in a horizon- tally dierentiated industry. In our model there are several suppliers of a new technology. The extent of the cost reduction depends on the quality of the new technology. A …rm has to buy the technology in a 'scoring auction'. This means that both the price and the quality (which aects marginal cost of production) of this new technology are no longer given but depend on the equilibrium outcome in the 'scoring auction'. We show that the nature of competition (Cournot or Bertrand) has no eect on the equilibrium decision of the …rms to adopt the new technology when the quality of the new technology oered by the suppliers lies in the interior of the feasible range of qualities. In this case, both …rms adopt new technology. However, when there is a corner solution, then it is possible to have equilibria where only one …rm (or no …rm) adopts the new technology. With corner solution the nature of competition (Cournot or Bertrand) makes a dierence to the equilibrium outcomes. Journal of Economic Literature No. L13, L11, D43, D44

We revisit the benchmark model of auctions and consider a more general class of utility functions that allow for income effects. We assume that all individuals have the same utility function but have different incomes. Incomes are private information. We analyze first-price, second-price, and all-pay auctions and show that non-quasilinearity changes many basic results of the benchmark model. While Vickrey's (1961) result on second-price auctions is very robust, revenue equivalence breaks down even with risk-neutral bidders, high enough incomes and identically and independently distributed types. In most cases, we find that all-pay auctions fetch the highest expected revenue.

This paper develops a model of determination of unionized wage in the presence of both collective bargaining and efficiency wage. The efficiency of each worker is positively related to both the wage and the unemployment rate in the economy. The unionized wage is greater than the efficiency wage. The firm finds it profitable to keep the unionized wage as close as possible to the efficiency wage. The union leader who is entrusted with the task of determining the unionized wage charges a bribe from the firm to keep the wage close to this level. The corrupt trade union leader and the management of the firm play a two-stage Nash bargaining game from where equilibrium unionized wage and the bribe are determined. The analysis leads to some interesting results which are important for anticorruption policy formulation.

In this paper we theoretically analyse effects of corruption in public procurements within a scoring-auction framework. A corrupt politician, who acts on behalf of the public sector, receives a kickback from the winning bidder. The politician selects the scoring rule. The paper shows that such corruption always leads to lower quality and lower price. Given a level of corruption, a higher bargaining power of the politician in extracting bribes does not affect the quality but leads to higher price.

In this paper we analyse scoring auctions with general non-quasilinear scoring rules. We assume that cost function of each rm is additively separable in quality and type. In sharp contrast to the recent results in the literature we show the following. (i) Equilibria in scoring auctions can be computed without any endogeneity problems and we get explicit solutions. (ii) We provide a complete characterisation of such equilibria and compare quality, price and expected scores across rst-score and second-score auctions. (iii) We show that such properties and rankings depend on the curvature properties of the scoring rule and the distribution function of types.

In this article we provide a brief survey of the literature on ‘scoring auctions’. We start with the benchmark model of the traditional auction theory and then proceed to the literature on scoring auctions. We first discuss the pioneering work of Che (1993) in detail. Then we review the major papers in the literature that extend and generalize the Che (1993) model. Thereafter, we discuss the recent results with non-quasilinear scoring rules. In the concluding section we pose some possible research questions for interested scholars in this area.

Scoring auctions are important mechanisms for procurement in both developed and developing countries. Till date the literature has mainly dealt with cases where the scoring rule is quasilinear. Very few papers in the literature have dealt with non-quasilinear scoring rules. In chapter 4 we fill this gap. Under some conditions we derive a clear ranking of the expected scores in first-score and second-score auctions. We show how in many cases second price auctions lead to higher expected score. We show with the help of two examples, that while expected score may be higher with second-score auctions, total expected welfare need not be higher.

In chapter 2 we discuss the problem of allocation of scarce resources (like radio spectrum or coal). How should the government in an emerging economy allocate such a scarce resource? Note that in emerging economies this is an extremely important policy issue. Conventional wisdom suggests that auctions are probably superior to administrative mechanisms as total welfare is likely to be higher with auctions. We demonstrate this need not be true in a multimarket oligopoly set-up. This has serious policy implications in emerging economies.

Chapter 5 discusses some specific issues and provide a survey of some recent results pertaining to the problems of market quality in emerging economies like India. We show how in some specific cases, insights from the theoretical results on oligopoly and auctions can be used to improve market quality. We also pose some research problems that may be taken up. We select the following themes: (i) Delegation in scoring auction (ii) Restricted entry and market quality (iii) Public Sector Leadership (iv) Designing credit institutions and (v) Corruption and Union Leadership.

In this paper we reconsider existence of Bertrand equilibrium in a symmetric-cost, homogenous-product oligopoly. We prove the following main results. (a) If the cost function is strictly superadditive on [0, ∞) then there exists a pure strategy Bertrand equilibrium. Such Bertrand equilibria are necessarily non-unique. (b) If the cost function is strictly subadditive on [0, ∞) then there exists no Bertrand equilibrium, either in pure strategies or in mixed strategies.

We consider an organisation which has been allotted a fixed budget ‘ A ’ by higher authorities, for procuring certain specified items. It seeks price quotations from firms. The firm quoting the lowest price secures the contract to sell the item to the organisation. In this context we compare first price and second price auctions and derive the following results. (i) The expected price in the first price auction is lower than the expected price in the second price auction. (ii) The expected quantity sold is the same across the two auctions. (iii) With a rise in the number of firms the expected price goes down and the expected quantity sold goes up in both FPA and SPA. (iv) The expected profit to any firm in equilibrium is also the same across the two auctions. (v) We analyse the effect of reserve prices and discuss optimal reserve price. (vi) We also discuss quantity auctions and show that they are equivalent to standard benchmark auctions.

This note develops a model of two stage game between a corrupt trade union leader and the management of the firm where the former negotiates for the wage of the workers with the firm. The firm bribes the leader so that he keeps the wage as close as possible to the workers’ reservation wage. The analysis leads to some interesting results which are important for anticorruption policy formulation.

In this paper we analyse the effects of third-degree price discrimination on output, profit and welfare in a symmetric cost duopoly. We provide sufficient conditions for output, profit and welfare to be higher (or lower) under third-degree price discrimination in a duopoly, compared with a uniform price regime. Comparing our findings with the traditional results on monopoly price discrimination, we show that the output and profit effects under duopoly price discrimination are very different from those under the monopoly case. However, the welfare effects are very similar.

In the present paper we study endogenous price leadership in the context of a homogeneous product Bertrand duopoly model in which the firms have different, strictly convex cost functions. In such a framework it is well known that a simultaneous move price choice game does not have an equilibrium in pure strategies, but it has an equilibrium in mixed strategies. In the Stackelberg games with an exogenous price leader, we show that a pure strategy subgame perfect Nash equilibrium (SPNE) always exists. Although the SPNE might not be unique, the payoffs are the same across all SPNE. Finally, we analyze the issue of endogenous price leadership using the continuous version of the Robson (1990) timing game. The result is unexpected. One would expect the more efficient firm to emerge as the endogenous price leader. This is not always true. In most cases the endogenous leader is the firm with the highest "threshold" price. However, we also provide conditions under which the more efficient firm emerges as the leader. Our paper essentially complements Yano (2001), which is based on the Hamilton and Slutsky (1990) framework.

In a homogeneous product duopoly with concave demand and strictly convex costs we bring together all the standard results of quantity Stackelberg games, provide some new results with price Stackelberg games and compare the equilibrium configuration of the quantity games with the price games. In the price Stackelberg game we show there is a unique SPNE where the leader chooses a lower price than the follower, but both get equal payoffs. We prove that generally quantity Stackelberg games are less competitive than price Stackelberg games. However, we also demonstrate the possibility of a reversal of this result.

We show here, in contrast to recent results, that if firms have different cost functions (that are strictly subadditive), such that the ‘monopoly breakeven prices’ are different, then in a homogeneous product duopoly there is always a Bertrand equilibrium (either in pure strategies or in mixed strategies).

In this paper we provide a sufficient condition for collusive outcomes in a single-shot game of simultaneous price choice in a homogeneous product market with symmetric firms and strictly convex costs. We also prove the counterintuitive result: if the second derivative of the cost function is nonincreasing in output, it is easier to sustain collusion when the number of firms increases.

This paper examines some aspects of trade intervention in a ‘reciprocal dumping’ framework of international trade. It is shown, in the presence of increasing returns to scale, that certain conventional wisdom regarding the effect of trade policies need not hold true.

This paper examines some general notions relating to the comparison of Cournot and Bertrand equilibrium outcomes. Results obtained by Vives in this connection are reconsidered in a homogeneous product market and it is shown that these results are sensitive to the market sharing rules. It is found that the results are always true under those market sharing rules which have the property of including the competitive equilibrium in the set of Bertrand equilibria (for example, the “capacity sharing” rule). If, however, the sharing rule does not have this property (for example, the “equal sharing” rule), then the results, referred to above, may not hold when costs are asymmetric.Journal of Economic LiteratureClassification Numbers: L13.

In a simple homogeneous product setting, the paper looks at the debate on whether firms should choose quantity or price as their strategic variable. It examines a two-stage game between firms with symmetric costs in which the firms choose the strategic mode of operation in the first period and then, in the second period, price or output are chosen simultaneously according to the mode chosen in the first stage. In this game it is possible to have two Nash equilibria where either both play in quantities or both play in prices. One firm choosing price and the other quantity can never be a Nash equilibrium in the two-stage game. Both choosing quantity is always a Nash equilibrium. Both choosing prices may be a Nash equilibrium only in some situations: the structure of the cost functions decides this issue.

The paper analyses the existence of pure strategy Nash equilibrium in price competition (or Bertrand equilibrium) in a homogeneous product market when costs are strictly convex and proves that if output is demand determined such equilibrium always exists. This paper also characterises such equilibria and shows that if firms are identical such equilibria are necessarily non-unique. However for firms with asymmetric costs it can be unique or non-unique.

We consider a two good world where an individual i with income mi has utility function u (x, y), where x ∈ [0, ∞) and y ∈ {0, 1}. We first derive the valuation (maximum price that he is willing to pay for the object) for good y as a function of his income. Then we consider the following problem. Suppose good x is available in a store at a fixed price 1. Good y can be obtained in an auction. In such a situation we show that bidding ones own valuation is an equilibrium in a second-price auction. With risk neutral bidders and high enough incomes we derive the symmetric equilibrium in first-price and all-pay auctions and show that revenue equivalence fails to hold. With risk neutrality we also show that under mild restrictions, the revenue maximising reserve price is zero for all the three auctions and the all-pay auction with zero reserve price fetches the highest expected revenue. With low enough incomes, we show that under some restrictions, bidding ones own valuation is a symmetric equilibrium even for first-price and all-pay auctions. Here also, the expected revenue is the highest with all-pay auctions.

The present note develops a model of vertical linkage between the formal and informal credit markets highlighting the presence of corruption in the distribution of formal credit. The existing dominant moneylender, the bank official and the new moneylenders move sequentially. The existing moneylender acts as a Stackelberg leader and unilaterally decides on the informal interest rate. We show that there may arise a case where an increase in the supply of formal credit results in an increase in the informal interest rate under reasonable parametric restrictions. This shows that apart from (i) asymmetric information on the part of informal sector lenders (Bose, 1998), (ii) an increase in the probability of default of all informal sector lenders (Hoff and Stiglitz 1997), and the (iii) possibility of informal lenders to collude (Floro and Ray 1997), the presence of corruption in the distribution of formal credit might be another factor responsible for the policy of vertical linkage to break down.