Filomena Garcia

Symmetry-breaking in two-player games via strategic substitutes and diagonal nonconcavity: A synthesis

This paper is an attempt to develop a unified approach to symmetry-breaking in strategic models arising in industrial organization by constructing two general classes of two-player symmetric games that always possess only asymmetric pure-strategy Nash equilibria. These classes of games are characterized in some abstract sense by two general properties: payoff nonconcavities and some form of strategic substitutability. Our framework relies on easily verified assumptions on the primitives of the game, and relies on the theory of supermodular games. The underlying natural assumptions are satisfied in a number of two-stage models with an investment decision preceding product market competition. To illustrate the generality and wide scope for application of our approach, we present some existing models dealing with R&D, capacity expansion and information provision, which motivated this study.

A Note on Expanding Networks and Monopoly Pricing

We obtain explicitly the optimal path of prices for a monopolist operating in a network industry during a finite number of periods. We describe this optimal path as a function of network intensity and horizon length and show that the prices are increasing in time and that, for very low network intensity, or very high horizon length, the monopolist will offer the good at zero price in the initial period.

Optimal Monopoly Price Paths with Expanding Networks

In this paper, we survey the literature on optimal pricing of a monopolist operating on a network industry. We also describe explicitly the optimal path of prices for a monopolist facing an expanding demand due to the presence of network effects. The optimal path of prices appears as a function of the network effect intensity and horizon length. Prices are increasing over time and for very low network effect intensity, or very high horizon length, the monopolist will offer the good at zero price in the initial period.

Endogenous Heterogeneity in Strategic Models: Symmetry-breaking via Strategic Substitutes and Nonconcavities

This paper is an attempt to develop a unified approach to endogenous heterogeneity by constructing general class of two-player symmetric games that always possess only asymmetric pure-strategy Nash equilibria. These classes of games are characterized in some abstract sense by two general properties: payoff non-concavities and some form of strategic substitutability. We provide a detailed discussion of the relationship of this work with Matsuyama’s symmetry breaking framework and with business strategy literature. Our framework generalizes a number of models dealing with two-stage games, with long term investment decisions in the first stage and product market competition in the second stage. We present the main examples that motivate this study to illustrate the generality of our approach.

R&D AS A PRISONER'S DILEMMA AND R&D‐AVOIDING CARTELS

Duopoly firms engaged in a standard two-stage game of R&D and Cournot competition are caught in a prisoners dilemma for their R&D decisions whenever spillover effects are low. This effect works to the advantage of consumers and society. This result provides an interesting perspective on the well-known wedge between private and social incentives for R&D. The prisoners dilemma is the key effect behind this wedge under low spillovers. The latter take over when sufficiently high, as is widely recognized. This mutually exclusive nature of the prisoners dilemma and significant spillovers also serves to explain the incentives to form R&D cartels.

Dynamic Games of Network Effects

Network effects occur when the benefit that agents derive from a good or service depends on how many other agents adopt the same good or service. This strategic complementarity between consumers’ actions has several implications on the behavior of firms. Namely, firms need to gain advantage from early marketing stages. Network effects are intrinsically a dynamic phenomena: past consumption of the good influences the utility of present consumers. This effect can be either direct, when consumers value interaction with their peers, and/or indirect, through an increase of the quality of the good. This chapter surveys the literature on dynamic network effects. First we provide general formulations for the modelization of network effects in a dynamic setting. Second, we analyse recent developments on the literature on firms’ strategies in the context of dynamic network effects. We survey the literature both on monopoly and oligopoly markets. In the case of oligopoly markets, we distinguish between situations in which firms produce horizontally and vertically differentiated goods. Main results on pricing and evolution of market shares are exposed.

Quality improvement and network externalities

We analyse the optimal pricing choice of an incumbent firm that sells a good with network externalities and is threatened by the entry of a higher quality variant. In the framework of a vertical differentiation model, we find a necessary and sufficient condition under which quality improvement occurs as a result of this competition.

Of Course Collusion Should Be Prosecuted. But Maybe... Or (The Case for International Antitrust Agreements)

We study the incentives of competition authorities to prosecute collusive practices of domestic and foreign firms in a multi-market contact model between two firms operating in two countries. In equilibrium, the country of origin of the firms might prefer to delay prosecution to protect pro ts in foreign markets. This strategic delay is valuable because prosecution in the country of origin of the firms activates an information spillover that triggers prosecution in the foreign country. Prosecution delays, however, are not optimal from the point of view of global welfare, something that could be solved by integrating the competition authorities. With multiple industries, both countries can be better off under integration or signing an international antitrust agreement.