Damien J. Neven

Cournot Competition Yields Spatial Agglomeration

Most theoretical models of spatial competition show a strong tendency toward spatial dispersion of firms, yet common observations suggest that firms tend to agglomerate. In this paper, the authors show that competition between Cournot-type oligopolists that discriminate over space leads to spatial agglomeration. One implication is that firms do not (necessarily) earn supernormal profits at the free-entry equilibrium. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Endogenous sequential entry in a spatial model

In this paper, we simulate a sequential entry of firms in a differentiated industry a la Hotelling. Firms select a product (location) once for all. They are aware of the unique price equilibrium that will take place after entry has occurred, and take into account the behaviour of subsequent entrants. It is found that early entrants will systematically locate around the centre, but in such a way as not to induce later competitors to locate in between them. Location choices are also investigated as an instrument for entry deterrence, which is feasible because of a fixed cost; we identify several ranges of fixed cost, for which entry is ‘innocently’ deterred (corresponding to a natural monopoly, duopoly, triopoly …). Entry deterrence is then typically used to stretch the range of fixed cost for which a given number of firms can be sustained. Deterrence strategies are consistently such that firms locate at more regular intervals.

On Hotelling's competition with non-uniform customer distributions

Abstract Hotellings competition in a two-stage (location, price) game is examined with increasing densities of consumers towards the centre. It is shown that there is a range of, rather even, distributions for which firms locate at opposite ends of the market. As the distribution becomes more concentrated, duopolists will tend to move inside the market.

EEC integration towards 1992: some distributional aspects

Gains and losses from 1992nnDamien J. NevennnThis paper examines how the benefits and costs of the internal market programme will be shared across Member States. The main conclusion is that the Northern European countries stand to gain little from 1992. The only exception is the UK which will benefit from integration because initially it is less integrated than its Northern neighbours.nnThe main beneficiaries will be the Southern European countries. They will benefit both from a better exploitation of their comparative advantage in labour-intensive commodities and from the gains from unexploited scale economies which have already been substantially exploited in Northern Europe. Although Northern countries have a comparative advantage in goods which are intensive in human capital, Southern markets for these goods are relatively small. That is why it is the Southern countries which stand to gain most.nnEven if, in addition, EC trade with the rest of the world is liberalized at the same pace as within the EC, labour-intensive production (especially clothing and footwear) in the South could increase by as much as 14% after 1992. Areas in the North where such industries are concentrated may be the largest losers from 1992.

European integration and trade flows

We study a model of intra-European trade flows and trade between Europe and the rest of the world for 29 manufacturing sectors for 1975-85. We investigate the claim that European integration has slowed down in recent years and find that it has proceeded alongside integration with the rest of the world. Only in the food industry has European integration occurred at the expense of world integration. We also use an econometric model to investigate the factors underlying European trade flows and how these factors have changed over time.

Indirect taxation and cournot equilibrium

We analyse a Cournot model of oligopoly in an industry which is subject to indirect taxation. We consider value added as well as excise taxes. We allow for various types of demand and cost conditions, as well as cost differences across firms. As the tax is raised, two types of outcomes can prevail. On the one hand, the net price can increase, which is shown to lead to an increase in market share of high cost firms. On the other hand, the net price can fall, in which case efficiency is rewarded in that low cost firms gain market share. This latter outcome, which accords with intuition, will obtain in most instances. It is more likely to occur (i) with VAT rather than with an excise tax, (ii) with concave rather than convex demand and (iii) with decreasing rather than increasing marginal cost. Finally, we show that an increase in VAT can lead to higher profits for low cost firms, provided cost differences across firms are large enough.

Market efficiency with combinable products

Abstract We allow consumers to combine products to obtain a mix of their characteristics. We show there is a unique sub-game perfect equilibrium in a product location-price game, such that all consumers are able to attain their desired product mix. This solution is the socially optimal one, in stark contrast to ‘location’ models where combinability is debarred by assumption.

Cost differences and survival in declining industries: A case for 'picking winners'?

Abstract In this paper, we examine the relationship between firms cost structures and the order of exit from declining industries. We distinguish between two fundamental causes of demand decline, namely a shrinkage of the consumer base and a decrease in consumers willingness to pay. We show that it is not necessarily best to be small and flexible — the order of exit in a market driven outcome depends on the manner in which demand shrinks. We find that from a welfare perspective, the order of exit determined by market forces is not necessarily desirable. However, simple rules for picking ‘winners’ based on current unit cost, profitability, or productive efficiency do not provide sound guidance for policy.

Towards An Equilibrium-model of the Mutual Funds Industry

Abstract We consider an industry in which mutual funds can form portfolios at lower cost than individual investors. Investors can gather their own portfolio from primary securities and/or shares of mutual funds. In this context, we model competition between mutual funds as a non-cooperative game in which funds select their portfolios. We show that a small number of funds suffices to ensure a Pareto superior equilibrium.