Christian Wey

Technology Adoption in Markets with Network Effects: Theory and Experimental Evidence

We examine a technology-adoption game with network effects in which coordination on either technology A or technology B constitutes a Nash equilibrium. Coordination on technology B is assumed to be payoff dominant. We define a technology’s critical mass as the minimal share of users, which is necessary to make the choice of this technology the best response for any remaining user. We show that the technology with the lower critical mass implies risk dominance and selection by the maximin criterion. We present experimental evidence that both payoff dominance and risk dominance explain participants’ choices in the technology-adoption game. The relative riskiness of a technology can be proxied using either technologies’ critical masses or stand-alone values absent any network effects.

Unionization Structures in International Oligopoly

We examine how competition in international markets affects a unions choice of wage regime which can be either uniform or discriminatory. Firms are heterogenous with regard to international competition. When unions choose their wage regimes sequentially, a discriminatory outcome becomes more likely when international competition increases. However, for intermediate levels a union may stick with a uniform wage regime even if the rival union adopts a discriminatory regime. When competition is sufficiently intense, both unions revert to the discriminatory regime. Paradoxically only in those latter instances all parties (consumers, workers and firms) may be better off (each in aggregate) if all unions adopt a uniform wage regime. We conclude that union incentives to coordinate their wage regimes should then also become largest.

Merger Control in the New Economy

This paper addresses the potential for conflict between antitrust authorities in the arena of merger control in the new economy. By “new economy” we mean two related developments. First, the internationalization of the economy, i.e. the ability to sell and produce products world-wide, and secondly, markets with certain characteristics such as network effects and other aspects of natural monopoly. We focus on three types of substantive issues in merger control – market definition, assessment of competitive effects, and the role of remedies. We argue that the scope for conflict varies significantly across these three arenas. In particular, conflict over market definition is less likely. By contrast, the assessment of competitive effects and the role of remedies are areas where conflict between antitrust authorities may be more likely in “new economy-type” markets.

A Cartel Analysis of the German Labor Institutions and its Implications for Labor Market Reforms

This paper offers a cartel explanation for the stability of German collective bargaining institutions.We show that a dense net of legal safeguards has been yarned around the wage setting cartel. These measures make deviation by cartel insiders less attractive and simultaneously erect entry barriers for alternative unions. As we argue many recent labor policy measures, which make wages more flexible, serve to further stabilize the labor cartel, while truly pro-competitive proposals have not been implemented exactly because of their destabilizing effects.We propose policy measures that remove entry barriers and facilitate outside competition by alternative collective bargaining organizations.(This abstract was borrowed from another version of this item.)

Structural remedies as a signaling device

We analyze the effects of structural remedies on merger activity when the Antitrust Agency (AA) cannot observe a proposed merger’s efficiency type. Provided the AA follows a consumer surplus standard, an efficient merger type is doomed to over-fix with its divestiture proposal in a pooling equilibrium, which is also possible under separation.

Estimating Level Effects in Diffusion of a New Technology: Barcode Scanning at the Checkout Counter

Cross-country or cross-industry studies of technology diffusion typically estimate how independent factors affect diffusion speed or timing, often based on a two-stage approach. In many applications, however, countries (industries) differ most in the saturation level of diffusion. In a single-stage econometric approach to a standard diffusion model, we therefore estimate how the saturation level covaries with independent factors. In our application to diffusion of an important retail information technology, we focus on the competitive effect of hypermarkets (superstores). We also find standard scale, income and labour substitution effects.

Location costs, product quality and implicit franchise contracts

In the literature on international trade, very little attention has been given to informational asymmetries between firms and consumers with respect to product quality. The few economic models that analyze the question of how asymmetric information about product quality might affect trade flows treat product quality as exogenous. In contrast, our model takes product quality as an endogenous variable, i.e. firms can choose the quality they wish to produce. In this case, location costs can signal product quality under certain conditions and thereby affect international trade flows. More specifically, intra-industry trade in vertical differentiated experience goods can be determined by information asymmetries about product quality. ZUSAMMENFASSUNG - (Standortkosten, Produktqualitat und implizite Franchisevertrage) In der internationalen Handelstheorie ist der Tatsache, das die Konsumenten in vielen Fallen nur unvollstandige Information uber die Produktqualitat besitzen, kaum Rechnung getragen worden. Die wenigen Arbeiten, die die Wirkungen asymmetrischer Information zwischen Herstellern und Konsumenten auf den internationalen Handel untersuchen, behandeln die Produktqualitat als exogene Variable. Im Gegensatz hierzu wird in diesem Beitrag Produktqualitat als eine endogene Variable angesehen, die von den Unternehmen gewahlt werden kann. Es wird argumentiert, das in diesem Fall die Standortkosten zur Signalisierung der Produktqualitat eines Unternehmens herangezogen werden konnen. Es zeigt sich, das unter bestimmten Bedingungen die geeignete Wahl von standortspezifischen variable Kosten in Verbindung mit Standortaustrittskosten zu einem Trenngleichgewicht fuhren kann, in dem an einem relativ teuren Standort Hochqualitatsprodukte und an einem relativ billigen Standort Niedrigqualitatsprodukte hergestellt werden. Aus diesen Uberlegungen folgt, das intra-industrieller Handel in vertikal differenzierten Erfahrungsgutern durch Informationsasymmetrien uber die Produktqualitat und internationalen Unterschieden in den spezifischen Standortkosten erklart werden kann. Aufgrund der Anreizwirkungen der Standortkostenstrukur auf die Wahl der Produktqualitat wird das Verhaltnis zwischen Landesregierung und Unternehmen als ein implizites Franchiseverhaltnis interpretiert.

On the (Mis-) Alignment of Consumer and Social Welfare in Markets with Network Effects

We analyze duopoly Bertrand competition under network effects. We consider both incompatible and compatible products. Our main result is that network effects create a fundamental conflict between the maximization of social welfare and consumer surplus whenever products are incompatible. While consumer surplus is highest in the symmetric equilibrium, social welfare is highest in the asymmetric equilibrium. We also show that both consumer surplus and social welfare are higher in any equilibrium under compatibility when compared with incompatible products. However, .firms never have strict incentives to achieve compatibility. Finally, we show the robustness of our results when products are horizontally differentiated.

Preisempfehlungen aus wettbewerbsökonomischer Sicht

Mein Vortrag rekapituliert Stand und offene Fragen der okonomischen Analyse von Preisempfehlungen in der Wertschopfung des Handels. Am Ende meines Vortrags nehme ich Stellung zum Schreiben der 11. Beschlusskammer des Bundeskartellamtes vom 13. April 2010.

Stabilität und Wandel von Arbeitsmarktinstitutionen aus wettbewerbsökonomischer Sicht

ZusammenfassungDieser Beitrag fasst die Ergebnisse unserer industrieökonomischen, theoretischen Forschung zur Fragestellung von Stabilität und Wandel von Arbeitsmarktinstitutionen zusammen. Wir verfolgen dabei einen wettbewerbsökonomischen Forschungsansatz, der Marktmacht sowohl auf Arbeits- als auch auf Absatzmärkten unterstellt. In der Literatur hat sich hierfür der Begriff unionised oligopolies eingebürgert. Damit wird zum Ausdruck gebracht, dass die verwendeten Modelle einerseits Verhandlungsmacht auf Arbeitsmärkten und andererseits unvollständigen Wettbewerb – und somit Marktmacht – auf Absatzmärkten berücksichtigen. Kern ist die Analyse von Wechselwirkungen zwischen Organisationsformen auf Arbeitsmärkten und Wettbewerbsverhältnissen auf Produktmärkten. In unserer Forschung analysieren wir aktuelle Entwicklungen auf dem deutschen Arbeitsmarkt wie die Einführung sektorspezifischer Mindestlöhne, die Rolle von Spartengewerkschaften, Formen der Gewinnbeteiligung von Arbeitnehmern sowie internationale Wettbewerbsaspekte wie die Verlagerung der Produktion durch internationale Unternehmen ins Ausland.AbstractThis contribution gives an overview of the main results of our theoretical research on the stability and change of labour market institutions. We use so-called models of unionised oligopolies which are borrowed from the theory of industrial organization in order to analyse the effects of simultaneous market power in both labour and product markets. The focus of our research is on the interaction between various organisational structures of labour markets and different forms of product market competition. In particular, we analyse some recent developments in Germany, such as the introduction of sector-specific minimum wages, the formation of craft unions, the increasing number of profit sharing contracts as well as the relocation of production facilities to foreign countries.