DongJoon Lee

Port privatization under Cournot vs. Bertrand competition: a third-market approach

ABSTRACT By incorporating port competition into a third-market model consisting of two exporting firms and one importing country, we demonstrate the endogenous choice of port structures (i.e. privatization or public ownership) under either Bertrand or Cournot competition. In contrast to previous studies on port competition, we analyze the port strategy in view of all trading countries (i.e. importing country and exporting countries). We find that regardless of transport cost, the port ownership strategy alters according to exporting firm’s competition mode. Under Bertrand competition, the choice of port ownership structure depends on the degree of imperfect substitutability. However, under Cournot competition, all trading countries choose same ownership structures of each port. By comparing equilibrium of each competition mode, we show that welfare of exporting country under Cournot competition is higher than under Bertrand competition if goods are sufficiently substitutes. In contrast, importing country prefers Bertrand competition to Cournot competition when the competitive pressure is sufficiently high.

Resale Price Maintenance Versus Delegation, Under Asymmetric Information

In this paper we analyze vertical restraints by two manufacturers in which each sells through a separate retailer who has private information on the uncertain demand it faces. The degree of product differentiation plays an important role in equilibrium. If the products are differentiated, the dominant strategy is for each manufacturer to itself stipulate the retail price of its products. If the products are homogeneous, there exist two equilibria: either both manufacturers impose retail price maintenance (RPM), or both delegate pricing to the retailer. Social welfare is greater under regulatory regimes that permit RPM, irrespective of product differentiation or demand uncertainty.

First-Mover and Second-Mover Advantage in a Vertically Related Market

We consider the issue of first- and second-mover advantages in a vertically related market. First, we show that the standard conclusions about sequential-move games under Bertrand and Cournot competitions can change in the context of a vertically related market. This is because an upstream monopoly can control first- and second-mover advantages by adjusting input prices. Ultimately, the upstream firm can achieve optimal profits by removing the first-mover (second-mover) advantage under Cournot (Bertrand) competition. Moreover, the profit of the upstream firm and social welfare are equal between Cournot and Bertrand com- petition under both simultaneous- and sequential-move games in a vertically related market.

Boundaries of the Firm with Network Externalities

We examine that each manufacturer decides on whether or not to delegate to its retailer in the presence of network externalities. In this paper, we show a trade-off between competition and network size. Vertical separation has the advantage of softening a retailing competition, but has the disadvantage of downsizing a network size. On the other hand, vertical integration has advantage of increasing the network size, but has disadvantage of intensifying the retailing competition. In these circumstances, network effect and competition play important roles in equilibrium. Our conclusion differs sharply from the conventional results in two points. One is that it is a dominant strategy for each manufacturer to choose vertical integration if competition effect is overwhelmed by network effect. The other is that if network effect is strong, profits, consumer surplus, and social welfare are higher under vertical integration than separation.

Strategic trade policies with first-mover and second-mover advantages in a vertical structure

ABSTRACT With strategic trade policies, we consider first- and second-mover advantages in a vertical structure given the two-part tariff contract (composed of the input price and the fixed fee) of an upstream firm, where a home and a foreign final-good firms export to a third-country market. We find that the upstream firms’ and governments’ preference orderings over sequential versus simultaneous play and over free trade versus a regime of subsidies contrast with early results in the strategic trade policy. Thus, the endogenous market structure is that (i) the potential leader chooses the Leader role with quantity strategies, and the equilibrium trade regime is unilateral subsidy regardless of the nature of goods; (ii) with price strategies, the potential leader chooses the simultaneous timing, and the equilibrium trade regime is bilateral taxes (free trade) when goods are substitutes (complements).

Can We Duplicate a Sequential Game with an Asymmetric Simultaneous Game

This paper first examines the relation between simultaneous and sequential game in a vertical market structure. I show that the equilibrium in the sequential-move games can be duplicated with the asymmetric simultaneous-move games. Vertical separation plays an important role in our conclusion. Vertical separation induces the upstream to set higher (lower) input prices than its marginal costs in Bertrand (Cournot) competition. As a result, the separated upstream firm has the second-mover (first-mover) advantage in Bertrand (Cournot) competition.

Bertrand vs. Cournot Competition with Upstream Firm Investment

This paper compares Bertrand and Cournot competition in a vertical structure in which the upstream firm sets the input price and makes R&D investments. We show that from the downstream firms’ point of view, Cournot competition has the advantage of a more monopolistic effect, leading to the setting of a higher price, but has the disadvantage of inducing a lower incentive for the upstream firm to invest. On the other hand, Bertrand competition has the advantage of providing a greater incentive for the upstream firm to invest but has the disadvantage of a more competitive effect, leading to the setting of a lower price. Our main findings are as follows. First, R&D investment level is greater under Bertrand competition than under Cournot competition. Second, from the standpoint of the upstream firm and industry, Bertrand competition is more efficient than Cournot competition. Third, from the standpoint of the downstream firms, Bertrand competition is more efficient than Cournot when investment is sufficiently efficient and products are sufficiently differentiated.

Price versus quantity competition with asymmetric costs in a vertically related duopoly

This paper compares Bertrand model and Cournot model in a vertically related duopoly market with asymmetric costs between downstream firms. We focus on the cost-inferior downstream firm. We show, from the perspective of the upstream firm, that it is beneficial for it to set a lower input price to the cost-inferior downstream firm and to set a higher input price to the cost-superior downstream firm. From the viewpoint of the cost-inferior downstream firm, we also show that the quantity in Cournot competition is larger than that in Bertrand competition and the payoff in Bertrand is larger than that in Cournot.

A Note on Bertrand and Cournot Competition in a Vertically Related Duopoly

We revisit the classic discussion on the endogenous choice of a price or a quantity contract in a vertically related duopoly with a monopolistic upstream firm. We show, from the perspective of the upstream firm, choosing the price contract is a dominant strategy regardless of the nature of goods. We also show, from the perspective of the downstream firms, that the ranking of profits between Cournot and Bertrand competition in Singh and Vives (1984) is reversed. Thus, in equilibrium, downstream firms face a prisoners’ dilemma regardless of the nature of goods.

An analytic hierarchy process approach to fixed income market portfolio — The case of South Korean bond market

This paper proposes a Korea fixed income portfolio by using the analytic hierarchy process (AHP). We find that each criterion plays an important role in the portfolio. Nevertheless, the effect of the AHP-portfolio on the total returns is trivial. Therefore, we determine that the decision maker prefers the government bond to the others. We also determine that the portfolio generated by AHP accords with the decision makers preference.