Carlo Capuano

Privatization in Oligopoly: The Impact of the Shadow Cost of Public Funds

The aim of this paper is to investigate the welfare effect of privatization in oligopoly when the government takes into account the distortionary effect of raising funds by taxation (shadow cost of public funds). We analyze the impact of the change in ownership not only on the objective function of the firms, but also on the timing of competition by endogenizing the determination of simultaneous (Nash-Cournot) versus sequential (Stackelberg) games. We show that, absent efficiency gains, privatization never increases welfare. Moreover, even when large efficiency gains are realized, an inefficient public firm may be preferred.

Demand Growth, Entry and Collusion Sustainability

The purpose of this paper is to represent in which way a stable and no negligible growth in demand can affect the level of sustainability of collusion. For the European Commission this assumption is seen as a factor that disincentives collusion and pushes to a competitive behavior. This fact maybe is not so obvious and I have shown that what is important is the final effect on entry in the market. In fact, expected oligopolistic profits are as the Faith Morgan that attracts competitors and disappears when they have come in. Entry is profitable if it is finite, i.e. one or very few entrants, and if prices above marginal cost are still successfully sustainable. Our result is that demand growth path is not a sufficient condition to neglect the risk of collective dominance, and in order to support our analysis we consider first some trigger strategy equilibria where deviation punishment is implemented by Nash Reversion forever. After that, we consider Abreus simple penal code (1986) and we have derived a non stationary optimal penal code that in our structural changing framework implements collusion before and after entry as a subgames perfect equilibrium. The final conclusion is that demand growth, ceteris paribus, is negatively correlated with the critical discount factor necessary to sustain collusion.

The Analysis of Network Additionality in the Context of Territorial Innovation Policy: The Case of Italian Technological Districts

Evidence from economic literature suggests that innovative activities based on extensive interactions between industry, universities and local government can yield high levels of economic performance. In many countries, therefore, steps have been taken at an institutional level to set up innovation networks and, in particular, regional technological districts. Our paper deals with Italian Technological Districts: we aim to analyse the network additionality for territorial innovation determined by district policy. The analysis is based on a priori structural regional characteristics and on Social Network Analysis techniques.

Mixed Duopoly, Privatization and the Shadow Cost of Public Funds

The purpose of this paper is to investigate the effect of privatization in a mixed duopoly, where a private firm competes in quantities with a welfare-maximizing public firm. We consider two inefficiencies of the public sector: a possible cost inefficiency, and an allocative inefficiency due to the distortionary effect of taxation (shadow cost of public funds). Furthermore, we analyze the effect of privatization on the timing of competition by endogenizing the determination of simultaneous (Nash-Cournot) versus sequential (Stackelberg) games using the model developed by Hamilton and Slutsky (1990). The latter is especially relevant for the analysis of privatization, given that results and policy prescription emerged in the literature crucially rely on the type of competition assumed. We show that privatization has generally the effect of shifting from Stackelberg to Cournot equilibrium and that, absent efficiency gains privatization never increases welfare. Moreover, even when large efficiency gains are realized, an inefficient public firm may be preferred.

Spillovers, product innovation and R&D cooperation: a theoretical model

ABSTRACT We analyze the impact of post-innovation knowledge spillovers on firms’ decisions to invest and cooperate in R&D, forming a research joint venture (RJV). We study the case of two potential investors involved in a non-tournament stochastic competition for developing a new but imitable product. We propose a theoretical model where cooperation may emerge as a subgame perfect Nash equilibrium of a three-stage game. In the first stage, firms decide whether to cooperate; in the second, they decide whether to invest; and in the third, they compete. We show that firms cooperate in R&D when the spillovers are high enough and the fixed costs associated with R&D activities are low enough; however, our analysis suggests that forming an RJV may not always be socially optimal, and subsidizing R&D cooperation may not be efficient. We propose an optimal scheme of subsidies, which should be designed according to the intensity of the spillovers, the level of the R&D costs, and the probability of innovation success. Finally, we show that in the case of mergers the private incentive to invest is maximized, and firms may not need public subsidies to cooperate. When subsidies are costly, not hindering mergers may be the second-best solution.

Reti di imprese nell’industria orafa italiana: il caso del distretto campano

The jewelry industry has a long tradition and a relevant role in the Italian economy. The sector is organised according to the productive arrangement of the industrial district. As for the jewelry district in Campania, the present work pursues the twofold objective of identifying the factors inducing enterprises’affiliation to the Tari, the principal consortium of the district, and the consequent benefits. The empirical analysis documents that enterprises affiliated to the Tari are larger and their costs have a greater incidence on the total level of production compared to the other enterprises. The principal benefit of participation is the reduction of the production costs, particularly of the costs for the services. However, there are no benefits in terms of revenue growth. Some implications for regional policy makers are discussed in the conclusions.

(Static) Non-cooperative Foreclosing or Collusive Equilibria in the Upstream Roaming Market are Sustainable Even If There Exist More Incumbents: A Model on the MVNOs Entry

The paper proves that (static) non cooperative foreclosing or collusive equilibria in the upstream roaming market are sustainable even if there exist more incumbents. In particular we focus on the complementarity that occurs when an incumbent upstream signs a roaming agreement with a new competitor. The first implication is a clear attitude to implement a less aggressive price war in the downstream market. Moreover, when the incumbents are tacitly coordinated at some foreclosing roaming proposals, the deviator is the only one affected by the downstream complementarity with the entrant and there exists an immediate instrument for punishing the deviator downstream. This attitude is just given by the lack of complementarity. In the first part of the paper we give some evidences that even if exogenous, the entries of new competitors have represented a significative increasing in the diffusion speed of mobile communication service. We propose an Arellano-Bond dynamic panel data estimation on European countries from 1985 to 2003.

Intertemporal Complementarity and Self-competition between Charge Profiles in Mobile Communication Services: A Case of Endogenous Most Favoured Customer Condition

We analyze competition between mobile operators in a repeated game framework focusing on the durability over time of the offered charge profile. In fact, customers and operators sign a contract that is usually enforced until the former decides to change it. The consequence is that anytime an operator decides to decrease its prices in order to attract new customers, it has to evaluate the negative impact on the old customers revenues, which can change their original charge profile. We underline an intertemporal substitution and a self or internal competition among different charge profiles offered by the same operator over time. In terms of strategical behaviour, we observe a sort of endogenous Most Favoured Customer condition that reduces price competition in oligopoly and generates an allocative inefficiency. In the paper we first formalize this property. Then, as a result, focusing on some Italian evidence, we show its impact on past and present mobile competition.

Abuse of Competitive Fringe

The purpose of this article is to analyze how the presence of a competitive fringe, composed by price taker firms, can affect the sustainability of collusive equilibria. Our starting point is that there exists a diffused misunderstanding about its strategical role as collusive minus factor. We deny that. In fact, if it is true that in single dominance cases the presence of a competitive fringe significantly reduces the price increasing profitability and the leader market power, when we consider collective dominance cases the deviation profitability and the punishment mechanism become crucial. In this paper after introducing a minimal structural and strategical framework needed for describing this kind of competition, we prove that not only the presence of a competitive fringe is a collusive plus factor, but also that there exists a critical dimension of the fringe such that collusion is a Nash equilibrium of the static game.