We model firms as supplying utility directly to consumers. The equilibrium outcome of competition in utility space depends on the relationship π (u) between profit and average utility per consumer. Public policy constraints on the “deals” firms may offer affect equilibrium outcomes via their effect on π(u) .F rom this perspective we examine the profit, utility, and welfare implications of price discrimination policies in an oligopolistic framework. We also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two-part tariffs.

/pdf/competitive-price-discrimination-3ms9kalsk0.pdf

Competitive price discrimination

Consider strategic risk-neutral traders competing in schedules to supply liquidity to a risk-averse agent who is privately informed about the value of the asset and his hedging needs. Imperfect competition in this common value environment is analyzed as a multi-principal game in which liquidity suppliers offer trading mechanisms in a decentralized way. Each liquidity supplier behaves as a monopolist facing a residual demand curve resulting from the maximizing behavior of the informed agent and the trading mechanisms offered by his competitors. There exists a unique equilibrium in convex schedules. It is symmetric and differentiable and exhibits typical features of market-power: Equilibrium trading volume is lower than ex ante efficiency would require. Liquidity suppliers charge positive mark-ups and make positive expected profits, but these profits decrease with the number of competitors. In the limit, as this number goes to infinity, ask (resp. bid) prices converge towards the upper (resp. lower) tail expectations obtained in Glosten (1994) and expected profits are zero.

/pdf/competing-mechanisms-in-a-common-value-environment-1og2q5i7ju.pdf

Competing mechanisms in a common value environment

Retail markets are extremely important, but economists have few practical tools for analyzing the way dispersed buyers and sellers affect the properties of markets. I develop an econometric model of retail demand in which products are location specific and consumers have preferences over both geographic proximity and other store and product characteristics. The model uses data on the observed geographic distribution of consumers within a market to (1) help explain observed variation in market shares and (2) affect predicted substitution patterns between stores. Using data from the U.S. cinema industry, I use the estimated model to evaluate the form of consumer transport costs, the effect of a theater's price and quality choices on rivals, the effects of geographic differentiation, and the nature and extent of market power.

Spatial competition in retail markets: movie theaters

Mergers can reduce costs and alter incentives about how to position products, so that theory alone cannot predict whether mergers will increase product variety. We document the effect of mergers on variety by exploiting the natural experiment provided by the1996 Telecommunications Act. We find that consolidation reduced station entry and increased the number of formats available relative to the number of stations. We find some evidence that increased concentration increases variety absolutely. Based on the programming overlap of jointly owned stations, we can infer that the effects operate through product crowding that is consistent with spatial preemption.

Do Mergers Increase Product Variety? Evidence from Radio Broadcasting

We study price competition in the presence of search costs and product differentiation. The limit cases of the model are the "Bertrand Paradox," the "Diamond Paradox," and Chamberlinian monopolistic competition. Market prices rise with search costs and decrease with the number of firms. Prices may initially fall with the degree of product differentiation because more diversity leads to more search and more competition. Equilibrium diversity rises with search costs, while the optimum level falls, so entry is excessive. The market failure is most pronounced for low preference for variety and high search costs.

https://www.jstor.org/stable/pdfplus/2556072.pdf

Pricing, Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond Model

This paper considers the theory of market versus optimal product diversity in the light of two recent advances in oligopoly theory. The first is the development of discrete choice models to describe heterogeneous consumer tastes, and the application of such models to oligopolistic competition. The second advance is the proof that logconcavity of the consumer taste density guarantees the existence of a price equilibrium. We analyze an oligopoly model with price competition and free entry, taking explicit account of the integer constraint. Under the Chamberlinian symmetry assumption (that tastes are i.i.d.), we first show that logconcavity of the taste density implies there is excessive market provision of variety when each consumer buys one unit of the product from one of the firms. We then show that this result extends to price-sensitive individual demands by proving that the equilibrium number of firms is at least as great as that which would be provided at the second-best social optimum subject to a zero-profit constraint for firms. Our results call into question previous findings for representative consumer models that left open the possibility of insufficient product diversity.

Sp. Anderson

Papers

Oligopolistic Competition and the Optimal Provision of Products