Klaus G. Zauner

Product differentiation and location decisions under demand uncertainty

We investigate Hotellings duopoly game of location-then-price choices with quadratic transportation costs and uniformly distributed consumers under the assumption that firms are uncertain about the exact location of demand. We characterize the unique equilibrium and the socially optimal locations. Contrary to the individual-level random utility models, location uncertainty is a differentiation force. In equilibrium, increases in the variance of the uncertainty lead to greater differentiation, higher expected equilibrium prices and profits, and a greater welfare loss.

Quality Diversity and Prices in Markets for Experience Goods

We analyze vertical product differentiation in a model where a good’s quality is unobservable to customers before purchase, a continuum of quality levels is technologically feasible, and minimum quality is supplied by a competitive fringe of firms. After purchase the true quality of the good is revealed. To provide firms with incentives to actually deliver promised quality, prices must exceed unit variable costs. We show that for a large class of customer preferences there is “quality polarization,” that is, only minimum and maximum feasible quality are available in the market. For the case without quality polarization we derive sufficient conditions for the incentive constraints to completely determine equilibrium prices, regardless of demand, for all intermediate quality levels.

Uncertainty in Spatial Duopoly with Possibly Asymmetric Distributions: A State Space Approach

In spatial competition firms are likely to be uncertain about consumer locations when launching products either because of shifting demograph- ics or of asymmetric information about preferences. Realistically distri- butions of consumer locations should be allowed to vary over states and need not be uniform. However, the existing literature models location uncertainty as an additive shock to a uniform consumer distribution. The additive shock restricts uncertainty to the mean of the consumers loca- tions. We generalize this approach to a state space model in which a vector of parameters gives rise to different distributions of consumer tastes in dif- ferent states, allowing other moments (besides the mean) of the consumer distribution to be uncertain. We illustrate our model with an asymmetric consumer distribution and obtain a unique subgame perfect equilibrium with an explicit, closed-form solution. An equilibrium existence result is then given for the general case. For symmetric distributions, the unique subgame perfect equilibrium in the general case can be described by a simple closed-form solution.

The existence of equilibrium in games with randomly perturbed payoffs and applications to experimental economics

I present an equilibrium existence result for games with perturbed payoffs by extending Milgrom and Weber’s [Mathematics and Operations Research 10 (1985) 619] proof of existence of equilibrium in incomplete information games to integrable utility functions and show that their assumption of ‘Equicontinuous Payoffs’ is redundant. I apply this result to games with randomly, for example, normally, logistically, or double exponentially perturbed payoffs studied in experimental economics.

The Financial and Economic Performance of Social Banks

ABSTRACT The financial crisis of 2008 provides evidence for the instability of the conventional banking system. Social banks may present a viable alternative for conventional banks. This article analyses the performance of social banks related to the bank business model, economic efficiency, asset quality, and stability by comparing social banks with banks where the difference is likely to be large, namely with the 30 global systemically important banks (G-SIBs) of the Financial Stability Board over the period 2000–2014. We also analyse the relative impact of the global financial crisis on the bank performance. The performance of social banks and G-SIBs is surprisingly similar.