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We study the potential benefits of adding a lottery component to cut the main risks associated with standard negotiated and rule-based auction procurement procedures. We show that adopting a two stage approach in which bureaucrats first negotiate with a small number of bidders to assess their eligibility and, next, rely on a lottery to award the contract reduces corruption risks often observed in negotiated procedures. For rule-based procedures, we show that a “third-price lottery” in which the two highest bidders are selected with equal probability and the project is contracted at a price corresponding to the third highest bid can reduce limited liability, renegotiation, bid rigging and collusion risks.

This paper studies the role of technology standards in firms’ product innovation in terms of both incremental innovation (within a technology life cycle) and radical innovation (beyond the present technology cycle). We first develop a theoretical model which predicts that technology standards can be used by firms as an “insurance” hedging against the risky process of developing new products. This insurance mechanism fosters incremental innovation and product growth especially for those further away from the technological frontier. Using data from a weighted panel of UK manufacturing firms over seven years, we find that the use of technology standards over past years significantly enables a firm’s incremental innovation while also reducing its incentive to deliver radical innovation. Additionally, we show that this relationship is contingent on a firm’s R&D intensity in line with predictions of our theoretical model.

We study a game in which two firms compete in quality to serve a market consisting of consumers with different initial consideration sets. If both firms invest below a certain threshold, they only compete for those consumers already aware of their existence. Above this threshold, a firm is visible to all and the highest investment attracts all consumers. On the one hand, the existence of initially captive consumers introduces an anti-competitive element: holding fixed the behavior of its rival, a firm with a larger captive segment enjoys a higher payoff from not investing at all. On the other hand, the fact that a firm’s initially captive consumers can still be attracted by very high quality introduces a pro-competitive element: a high investment becomes more profitable for the underdog when the captive segment of the dominant firm increases. The share of initially captive consumers therefore has a non-monotonic effect on the investment levels of both firms and on consumer surplus. We relate our findings to competition cases in digital markets.

Consumption in the time of Internet is characterized by extremely low search costs, leading to increased product diversity (the long tail) and large mainstream products (superstars). In this paper, I show how the mainstream taste can be catered by a niche product, while minority tastes can be mainstream. A competitive market with arbitrarily small search costs supplies a product design corresponding to the mainstream taste at a price that only mainstream buyers are willing to pay. Products corresponding to the taste of the minority are offered at lower price, and bought by several types of buyers.

We study two platforms competing for members by investing in network quality. Quality is complementary to the network size: the marginal utility generated by an additional member increases with the network's quality. Platforms are imperfect substitutes: a share of the potential members are biased toward each of the platforms and some are indifferent ex ante. We assume that, in case of multiple equilibria, consumers use the investment in quality as a coordination device. We find that, in equilibrium, platforms randomize over two disconnected intervals of investment levels, corresponding to competing for either the entire population or the mass of ex-ante different members. While the "prize" of winning the competition for members is identical for both platforms, the value of the outside option "not investing" depends on a platform's share of ex-ante biased members. The platform with the smallest share of ex-ante biased members bids more aggressively to compensate for its lower outside option and achieves a monopoly network with higher probability than its competitor.

Competing intermediaries search on behalf of consumers among a large number of horizontally differentiated sellers. Consumers either pick the best deal offered by an intermediary, or compare the intermediaries. A higher number of intermediaries has the direct effect of decreasing their search effort. Hence, if an exogenous share of consumers do not compare, more competition hurts them. More competition however also increases the incentives for consumers to compare. A higher share of informed consumers in turn increases the search effort of intermediaries. If consumers are ex-ante identical and rationally choose whether to become informed, the total effect of a higher number of intermediaries is to make each of them (weakly) choosier. Moreover, it always decreases the price offered by sellers. Allowing intermediaries to bias their advice by making sponsored links prominent has a similar effect of making all consumers better off in expectation.

We study strategic decentralization in the provision of a global public good. A federation, with the aim of maximizing the aggregate utility of its members, may find it advantageous to decentralize the decision-making, so that its members act autonomously to maximize their own utility. If utility is fully transferable within a federation, the larger a federation is or the more sensitive it is to the public good, the more it has incentives to remain centralized. If an overall increase in the sensitivity to the public good induces some federation(s) to decentralize, it may lead to a decrease in the aggregate provision. With non-transferable utility within a federation, those members that are smaller or less sensitive to the public good are more likely to prefer decentralization. Some members within a federation becoming more sensitive to the public good may thus lead to a lower aggregate provision, because the increased heterogeneity of the federation makes it more inclined to decentralize. © 2017 Elsevier Inc.

Cost inefficiencies in public procurement tend to come from two sources: corruption (moral hazard) and incompetence (adverse selection). In most countries, audit authorities are responsible for monitoring costs but do not distinguish both sources of inefficiency in their audits. Judicial courts typically rely on these cost audits, but only sanction corruption. In a model of public procurement by politicians, we study how the respective quality of the two courts affects corruption as well as cost efficiency. We find that while better courts have the direct effect of decreasing corruption, they may have a negative indirect effect on the abilities of the pool of politicians, so that the net effect on cost efficiency is ambiguous.

This paper shows that ignoring the political relevance of labor and social policies can lead to the failure of an industrial policy designed to modernize an economy. Our analysis is based on a simple model of a two-sector economy (one old and one new) in which policy decisions are adopted under a majority rule. This model suggests that unless, (i) the labor policy ensures that workers have enough bargaining power to give them an incentive to find a job matching their skills in a restructured economy and (ii) the government adopts a social policy compensating the losers of the industrial policy, the new sector is unlikely to develop. Moreover, we find that the credibility of the commitments made drives the effectiveness of the coordination of the three policy elements.

I study product diversity in the presence of search costs and groups of consumers. Groups with heterogeneous tastes create a leverage effect on competition: a large majority of firms may end up offering a product that corresponds to the taste of the minority. I illustrate this idea with smoking bans in bars and restaurants. When the first nonsmoking restaurants opened, there were few of them with little competition and high market power on nonsmokers. By extracting a large surplus from nonsmokers, nonsmoking restaurants became unattractive to other groups, while smoking restaurants were plenty and competitive, attracting both smokers and mixed groups.

We explore the implications of an increase in clean technology spillovers between developed and developing countries. We build a game of abatements in which players are linked with technology spillovers determined by an initial choice of absorptive capacities by developing countries. We show that, within a non-cooperative framework, the response of clean technology investments in developed countries to an increase in cross-country technology spillovers is ambiguous. If the marginal benefits of these additional abatements are not sufficiently high, developed countries have a strategic incentive to decrease investments. Such a strategic response jeopardizes the initial effects of an increase in technology spillovers on climate change mitigation and decreases the incentives for developing countries to enhance their absorptive capacities., SCOPUS: ar.j, info:eu-repo/semantics/published

We study a model in which two parties compete by announcing their policies, after receiving conditionally independent private signals about the true state of the world. Parties are both office- and policy-motivated. Our model can explain radically different policy positions, even when parties receive identical signals and have unbiased preferences. This holds in an asymmetric equilibrium in which both parties reveal their private information to the voters and the implemented policy is (almost) first-best for all possible realizations of parties’ signals. In this equilibrium, one party adopts extreme and the other one moderate policy positions.

Motivated by the comeback of the vinyl, we explore the idea that the success of a third-generation technology (digital music) can have adverse effects on the second generation (CD) but positive effects on the first one (vinyl). This phenomenon arises in a market if the process of innovation is not transitive. In particular, we identify a condition such that the second generation completely substitutes the first one, the third generation completely substitutes the second one, but the first and the third generations have enough complementarities to coexist. Beyond the case of music industry, our model has implications on product positioning and product design.

This paper investigates Western professional bankers’ perceptions of Islamic finance. Exploiting data from an original survey, we carry out a principal component analysis (PCA) to characterize the main dimensions on which financial agents diverge. The PCA extracts five dimensions—accounting for 61 % of the variance in the agents’ answers—that we interpret with the help of a pilot field survey. In addition to confirm the increased association of Islamic financial values with ethical practices in the West, our results allow us to understand how the observed growth of the industry has been conceptualized by conventional agents. The five dimensions identified shed light on the multitude of constructs that have informed the diffusion of Islamic financial ideas to international markets. This supports the fact that Islamic finance cannot be seen as a single movement but is characterized by opposing and concurrent logics in global markets.

En theorie, quand les marches sont competitifs, des biens identiques sont vendus a un prix unique. En pratique, cette loi ne se verifie pas. Cet article s’attache a comprendre comment un marche disposant des caracteristiques proches de la concurrence parfaite peut presenter une dispersion des prix. C’est le cas lorsqu’il existe un cout infime de recherche de l’information et une possibilite pour les vendeurs de diversifier leurs espaces de vente, a qualite identique. En presence d’une telle dispersion des prix, le marche est inefficace a apparier vendeurs et acheteurs : une part des acheteurs consomme dans un magasin ne correspondant pas a ses preferences. Quand la consommation resulte d’une decision de groupe, comme c’est le cas pour de nombreux biens de loisirs, une deuxieme defaillance de marche s’ajoute : une trop grande diversite de l’offre diminue la possibilite pour les groupes heterogenes de disposer d’un appariement.

In a model of horizontal matching on the labor market, we show that increasing the bargainingpower of workers may increase the incentive of some employers to switch to newproduction activities. In particular, this could lead to (i) higher wages, (ii) more jobs, (iii)better jobs and (iv) higher profits. Paradoxically, the median voter may object to the economicadjustments because search costs could cut the surplus for workers of the majority type, evenwhen it creates jobs for the other ones and increases aggregate surplus.

This paper shows how high bargaining power for firms and search costs in the labor market can impede a switch towards new, more competitive economic activities. This is because search costs drive the quality of the horizontal matching between worker types and the old and new sectors of the economy. The high bargaining power of firms pushes wages down, so that small search costs are enough for young workers or workers with new skills to give up looking for jobs in the new sector. Employers end up giving up offering these jobs as well. Politically popular labor policies protecting a dominating old sector and old workers, fail to address the mismatches and increase unemployment. Simply switching support to the new sector may cut jobs for the older workers and thus create other welfare losses. A more effective modernization policy, for both jobs and products, is to link wages to output.

We study the choice of transportation modes within a city where commuters have het- erogeneous preferences for a car. As in standard models of externalities, the market outcome never maximizes aggregate welfare. We show that in the presence of multiple equilibria prob- lems of coordination can worsen this result. Hence, a social planner focusing on the marginal impact of policies may miss the largest source of inefficiency. We discuss two policy tools: taxation and traffic separation (e.g. exclusive lanes for public transportation). Setting the optimal levels of taxation and of traffic separation constitutes a necessary but not a sufficient condition to reach the first best equilibrium. Comparing the relative efficiency of both poli- cies, we show that traffic separation should be preferred for large-scale policies while taxation better applies to marginal modifications of commuting patterns.

We study a game in which two firms compete in quality to serve a market consisting of consumers with different initial consideration sets. If both firms invest below a certain threshold, they only compete for those consumers already aware of their existence. Above this threshold, a firm is visible to all and the highest investment attracts all consumers. On the one hand, the existence of initially captive consumers introduces an anti-competitive element: holding fixed the behavior of its rival, a firm with a larger captive segment enjoys a higher payoff from not investing at all. On the other hand, the fact that a firm's initially captive consumers can still be attracted by very high quality introduces a pro-competitive element: a high investment becomes more profitable for the underdog when the captive segment of the dominant firm increases. The share of initially captive consumers therefore has a non-monotonic effect on the investment levels of both firms and on consumer surplus. We relate our findings to competition cases in digital markets.