Dan Sasaki

Research joint ventures, product differentiation, and price collusion

Abstract We investigate the interplay between firms’ decisions in product development, either joint or independent, and their ensuing repeated pricing, either collusive or Bertrand–Nash. A joint venture develops a single product, whereas independent ventures develop their respective products which can be differentiated. We prove that joint product development and the resulting lack of horizontal product differentiation may destabilise collusion, whilst firms’ R&D decisions have no bearings on collusive sustainability if differentiation is vertical. We also discover the non-monotone dependence of firms’ venture decisions at the development stage upon their time preferences, as well as upon consumers’ willingness to pay.

Strategic Choice of Quantity Stickiness and Stackelberg Leadership

This paper re-examines endogenous Stackelberg leader-follower relations by modelling an explicitly dynamic market. We analyze a twice-repeated duopoly where, in the beginning, each firm chooses either a quantity-sticky production mode or a quantity-flexible production mode. The size of the market becomes observable after the first period. In the second period, a firm can adjust its quantity if and only if it has adopted the flexible mode. Hence, if one firm chooses the sticky mode whilst the other chooses the flexible mode, then they respectively play the roles of a Stackelberg leader and a Stackelberg follower in the second marketing period. Somewhat intriguing is the finding that such a Stackelberg-like equilibrium can arise only when the relative weight of the pre-Stackelberg first marketing period is sufficiently high, with time preferences being sufficiently strong. Copyright 2001 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Optimal punishments in linear duopoly supergames with product differentiation

We analyze optimal penal codes in both Bertrand and Cournot supergames with product differentiation. We prove that the relationship between optimal punishments and the security level (individually rational discounted profit stream) depends critically on the degree of supermodularity in the stage game, using a linear duopoly supergame with product differentiation. The security level in the punishment phase is reached only under extreme supermodularity, i.e., when products are perfect substitutes and firms are price setters. Finally, we show that Abreus rule cannot be implemented under Cournot behavior and strong demand complementarity between products.

The strategic benefit from advance production

Advance production is a means of quantity commitment. Therefore, an oligopolist, unlike a monopolist, may have an incentive to invest in advance production in order to pre-empt opponent(s) even when [i] the investment is technologically more costly than on-spot production, and [ii] the investment does not give the firm Stackelberg leadership in the subsequent marketing stage. We show that some but not all firms may engage in advance production, whether the firms are a priori symmetric or not.

The value of information in oligopoly with demand uncertainty

This paper discusses the value of information in supermodular and submodular games, using a simple duopoly model where the level of demand is uncertain. It is shown that the value of information issuperadditive (resp.,subadditive) between players if the game issupermodular (resp.,submodular). For example, in a Bertrand (resp., Cournot) market with (possibly imperfect) substitute products, one firms information acquisition increases (resp., decreases) the other firms incentive to acquire the same information. Furthermore, when the game is either supermodular or submodular, the value of information is higher when the player isexpected to be informed according to the opponents belief than when the player is expected to be uninformed; this result is reversed when the game has asymmetric modularity (i.e., one players action is substitutional to the others, and the latters action is complemental to the formers). These qualitative observations have a potential to be applied to a larger class of games with uncertainty where payoffs are smooth (e.g., twice continuously differentiable) in actions and states.

Endogenous Co-Leadership when Demand Is Uncertain

Consider an oligopolistic industry where production is time-consuming, so that each firm needs to make quantity commitment by producing before the market opens. If demand uncertainty resolves some time before the market arrives, then those firms who produce early behave as simultaneous leaders (co-leaders), whilst those who wait until demand becomes observable will be followers. We discover that, in an n-firm oligopoly, the equilibrium number of co-leaders tends to be in excess of their socially optimal number, albeit both numbers monotonically decrease in the magnitude of demand uncertainty relative to the expected level of demand. We also find that, with demand uncertainty and the possibility of Stackelberg behaviour, whether the excess entry theorem applies depends upon the number of existing followers. Copyright 2000 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia

Marginal costs and collusive sustainability

Abstract In an oligopoly supergame, firms’ actions in prices and quantities are subject to non-negativity constraints. These constraints can obstruct the practicability of some of the tacitly collusive subgame perfect equilibria, such as single-period optimal punishment which relies indispensably upon firms’ ability to charge prices strictly below marginal costs, i.e. temporarily loss making pricing. Thereby under the presence of positive price constraints, marginal costs can serve as a ‘fudge’ to materialise such penal pricing. In this paper we briefly shed light on the effects of profit–cost ratios (or mark-ups) on the sustainability of tacit collusion.

Product Liability: Beyond Class Action

Can punitive product liability enhance economic efficiency? A very simple economic theory, assuming that the probability and the degree of product dissatisfaction are functions only of the producers not of the consumers effort, is modelled and analysed in this paper. The qualitative conclusion hinges critically upon whether the legal liability is reflected on price determination. If the price of the product is insensitive to product liability legislation, then punitive liability beyond the class action (i.e., compensatory payments more than proportional representation of potentially dissatisfied consumers) can induce socially desirable levels of effort exerted by the producer firm. This affirmative effect disappears if the price fully reflects all the expected legal liabilities, whereby punitive liability tends to reduce economic efficiency by encouraging costly lawsuit. Copyright 2000 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia