Publication database

We study a canonical model of simultaneous price competition between firms that sell a homogeneous good to consumers who are characterized by the number of prices they are exogenously aware of. Our setting subsumes many employed in the literature over the last several decades. We show there is a unique equilibrium if and only if there exist some consumers who are aware of exactly two prices. The equilibrium we derive is in symmetric mixed strategies. Furthermore, when there are no consumers aware of exactly two prices, we show there is an uncountable-infinity of asymmetric equilibria in addition to the symmetric equilibrium. Our results show the paradigm generically produces a unique equilibrium. We also show that the commonly-sought symmetric equilibrium (which also nests the textbookBertrand pure strategy equilibrium as a special case) is robust to perturbations in consumer behaviour, while the asymmetric equilibria are not.

We build a framework where firm size is a source of market power in a frictional labor market. The key mechanism is that a granular employer can eliminate its own vacancies from a worker’s outside option in the wage bargain. Hence, a granular employer does not compete with itself for workers. We derive a structural mapping from a microfounded concentration index to average wages. Using the framework in Austrian micro-data, we find that granular market power depresses wages by 9-13 percent and can explain 40 percent of the observed decline in the labor share from 1997 to 2015. Merging the two largest firms in every labor market depresses market-wide wages by six percent.

This working paper was also published in the IZA Institute of Labour Economics discussion paper series: https://www.iza.org/publications/dp/12574

Also available on SSRN.

In the absence of externalities, marginality is equivalent to an independence property that rests on Harsanyi‘s dividends. These dividends identify the surplus inherent to each coalition. Independence states that a player‘s payoff stays the same if only dividends of coalitions to which this player does not belong to change. We introduce notions of marginality and independence for games with externalities. We measure a player‘s contribution in an embedded coalition by the change in the worth of this coalition that results when the player is removed from the game. We provide a characterization result using efficiency, anonymity, and marginality or independence, which generalizes Young‘s characterization of the Shapley value. An application of our result yields a new characterization of the solution put forth by Macho-Stadler et al. (J Econ Theor, 135, 2007, 339-356) without linearity, as well as for almost all generalizations put forth in the literature. The introduced method also allows us to investigate egalitarian solutions and to reveal how accounting for externalities may result in a deviation from the Shapley value. This is exemplified with a new solution that is designed in a way to not reward external effects, while at the same time it cannot be assumed that any partition is the default partition.

 

View all ESMT Working Papers in the ESMT Working Paper Series here. ESMT Working Papers are also available via SSRN, RePEc, EconStor, and the German National Library (DNB).

Consumers often do not have complete information about the choices they face and therefore have to spend time and effort in acquiring information. Since information acquisition is costly, consumers trade-off the value of better information against its cost, and make their final product choices based on imperfect information. We model this decision using the rational inattention approach and describe the rationally inattentive consumer’s choice behavior when she faces alternatives with different information costs. To this end, we introduce an information cost function that distinguishes between direct and implied information. We then analytically characterize the optimal choice probabilities. We find that non-uniform information costs can have a strong impact on product choice, which gets particularly conspicuous when the product alternatives are otherwise very similar. There are significant implications on how a seller should provide information about its products and how changes to the product set impacts consumer choice. For example, non-uniform information costs can lead to situations where it is disadvantageous for the seller to provide easier access to information for a particular product, and to situations where the addition of an inferior (never chosen) product increases the market share of another existing product (i.e., failure of regularity). We also provide an algorithm to compute the optimal choice probabilities and discuss how our framework can be empirically estimated from suitable choice data.

Betting on right technologies, selecting meaningful fields of application and thus steering technology developments with suitable properties in the right direction is crucial for the sustainable success of technology companies. However, due to the worldwide increase and rapid acceleration of research and development activities as well as the increasing integration of value chains, it is becoming increasingly difficult to correctly assess technology developments. At the same time, access to data and information has dramatically improved powered by the developments of the world wide web. Powerful information and telecommunication devices as well as software make large data sets easier to access and complex data analyses with new types of indicators possible. Thus, the possibilities of indicator-based technology assessments have also improved for companies that have very limited resources for technology analysis. In order to provide an up-to-date overview of which indicators and methods for technology analysis are currently used in practice and in science, the Chair of Innovation Management of the Free University Berlin conducted a survey of German-speaking experts* from business and science in November and December 2017. The results are presented in this report.

The Coleman Power of the Collectivity to Act (CPCA) is a popular statistic that reflects the ability of a committee to pass a proposal. Applying the Shapley value to this measure, we derive a new power index that indicates each voter's contribution to the CPCA. This index is characterized by four axioms: anonymity, the null voter property, transfer property, and a property that stipulates that sum of the voters' power equals the CPCA. Similar to the Shapley-Shubik index (SSI) and the Penrose-Banzhaf index (PBI), our new index emerges as the expectation of being a pivotal voter. Here, the coalitional formation model underlying the CPCA and the PBI is combined with the ordering approach underlying the SSI. In contrast to the SSI, the voters are not ordered according to their agreement with a potential bill but according to their vested interest in it. Among the most interested voters, the power is then measured in a similar way as with the PBI. Although we advocate the CSI against the PBI to capture a voter's influence on whether a proposal passes, the CSI gives new meaning to the PBI. The CSI is the decomposer of the PBI, splitting it into a voter's power as such and as her impact on the power of the other voters by threatening to block any proposal. We apply the index to the EU Council and the UN Security Council.

 

View all ESMT Working Papers in the ESMT Working Paper Series here. ESMT Working Papers are also available via SSRN, RePEc, EconStor, and the German National Library (DNB).