Luigi Luini

Ultramarginal cost in da Empoli’s work: Towards a general approach to the theory of competition

Highlights the theory of competition advanced by da Empoli in the late 1920s. The main point is the existence of discontinuities in industrial concerns. This leads to the possibility that prices exceed marginal costs and depend also on ultramarginal costs, a new concept elaborated by da Empoli. They are costs that are incurred when the firm is producing beyond the marginal production. Also reviews the various implications of this approach. Stresses the innovative character of his approach and evaluates this in relation to contemporary and successive literature.

Demand Cross Elasticity Without Substitutability: Evidence from an Experiment

We study a market where goods are produced under low marginal costs with a poor degree of substitutability among products. In such an environment we ran an experiment in order to explain why prices are interdependent even when preferences are independent. We compare our results to previous theoretical and laboratory experimental literature on price fairness. We find that, even in absence of interaction among subjects, price fairness/unfairness do play a major role in accepting/rejecting a deal. Subjects tend to be more resistant to a price increase and reject a deal when the favourite product is not anchored to price increases of not substitutable products, if these products are considered to be a benchmark for fair conduct. Therefore demand cross elasticity can arise also between products which are not substitutes. This result has an important implication for the delineation of an antitrust market. Due to fairness concerns, in the markets that we consider products which are not interchangeable should be included in the relevant market.

The End of the Sole Mover Advantage: An Experiment

We present an experiment on a price-setting duopoly with symmetric production costs and asymmetric initial market shares. Firms compete for fifteen rounds facing a simulated market demand inertia, with the possibility of incurring into additional fixed marketing/advertising costs in order to offset the inertia effect. We show that subjects either reach a Stackelberg equilibrium and keep pricing differently, either price equally so as to reach a Cournot solution with elements of co-operation, or else the entrant overtakes the incumbent firm (leapfrogging). Finally, we discuss two potential economic applications for the experiment: (1) post-patent-expire competition and (2) liberalization of a former natural monopoly.