Laurent Linnemer

Intermodal competition and regional inequalities

Abstract In a model a la Hotelling with discriminatory pricing, we study the impacts of the creation of a new transportation infrastructure that connects two points (as planes or high-speed trains do) and coexists with an old infrastructure that continuously serves space (as roads do). Thus, two transportation modes compete: only road or road plus plane. We characterize the equilibria of a location and price game between two firms. Although airports are symmetrically located, asymmetric equilibria in locations emerge. When the airports are built, relocation of firms induce a decrease of total welfare, if the cost of the transport by plane is not small enough. Regional inequalities appear: in most cases, the welfare of one region decreases when that of the other increases. However consumers’ surplus increases, and firms’ profits decrease. Finally, we study the optimal location and pricing of the new infrastructure.

Optimal litigation strategies with observable case preparation

This paper investigates the strategic effects of case preparation in litigation. Specifically, it shows how the pretrial efforts incurred by one party may alter its adversarys incentives to settle. We build a sequential game with one-sided asymmetric information where the informed party first decides to invest in case preparation, and the uninformed party then makes a settlement offer. Overinvestment, or bluff, always prevails in equilibrium: with positive probability, plaintiffs with weak cases take a chance on investing, and regret it in case of trial. Furthermore, due to the endogenous investment decision, the probability of trial may (locally) decrease with case strength. Overinvestment generates inefficient preparation costs, but may trigger more settlements, thereby reducing trial costs.