Mario Pezzino

Oligopoly on a Salop Circle with Centre

Abstract We study an oligopolistic market in which consumers located around the perimeter of a Salop circle buy either from firms around this perimeter (providing horizontally differentiated goods) or from a firm located at the centre of the circle (providing a homogeneous good). An entry-pricing game is studied. The market equilibria and social optima indicate various possible market failures, including cases in which the market is served only by perimeter firms whilst central provision would be socially optimal (in this sense, more extreme than the standard Salop excessive product differentiation). Moreover, for some parameters, the standard Salop result might be reversed.

Sports League Quality, Broadcaster TV Rights Bids and Wholesale Regulation of Sports Channels

In a complete information auction, two integrated broadcasters bid for exclusive TV-rights to a sports league (e.g. the English Premier League), with two potential externalities: receipts feed through to the two league clubs who choose player expenditures, possibly enhancing league quality and the resulting sports channel (e.g. Sky Sports); also the right’s winner either offers the channel wholesale creating a product-differentiated retail duopoly, or forecloses. Under laissez-faire, outcomes can be “quality-driven” or “rivaldriven” depending on league/broadcaster parameters and auction protocol, and foreclosure never happens. Ofcom’s suggested wholesale regulation of Sky Sports typically reduces league rights income, quality and consumer surpluses.

Specification of financial incentives for quality in health care contracts

We consider how purchasers and providers negotiate the quality element of contracts when the purchasers are required to link a fixed proportion of revenue to quality. A simple model predicts that the complexity of the quality element will depend on purchaser and provider characteristics. Using data extracted from 153 of the 169 contracts for acute hospital services in England in 2010/11, we find that the complexity of the quality element of the contract is determined by the type of provider, whether negotiation was passed to an agency, the regional contractual constraints and whether the provider had teaching status.

Strategic Location Choice, R&D, and Sourcing Strategies

In the following chapter we figure out theoretical approaches in industrial organization to analyze firm’s strategic location choice decision in an oligopolistic environment. Our research interest is twofold. First, we consider firm’s investments and activities regarding R&D. Second, we focus on a firm’s sourcing channel choice. In both streams of literature our main interest is put on firms’ strategic interaction by means of the analysis of a firm decision’s influence on its competitors’ strategies. Due to the fact that this chapter does not solely display a review of the existing literature, we additionally highlight research questions and possible extensions for further research. In summary, we show the significance of firm’s strategic motives within their decision-making process for both itself and its rivals. Additionally, the influence of strategic effects plays an important role for policy makers.

International Strategic Choice of Minimum Quality Standards and Welfare

We study the influence of minimum quality standards in a two-region partial-equilibrium model of vertical product differentiation and trade. Three alternative standard setting arrangements are considered: Full Harmonization, National Treatment and Mutual Recognition. The analysis integrates the choice of a particular standard setting alternative by governments into the model. We provide a set of sufficient conditions for which Mutual Recognition emerges as one regulatory alternative that always improves welfare in both regions when compared to the case without regulation. We show that Mutual Recognition, being the default procedure if governments do not reach a unanimous decision, is the only possible equilibrium of the game.

Strategic delegation in oligopoly: Applications

One objective of this chapter is to provide the reader with a clear and intuitive, but yet rigorous, description of the topic of strategic managerial incentives under oligopolistic competition. We further discuss the closely related issues of vertical separation where a manufacturer delegates decision making to a retailer and the delegation of decisions to a certain type of agent. We start the discussion of each of these themes by reflecting on seminal papers that have first introduced the corresponding topic. We present and critically discuss the key assumptions behind each of the basic models and point out important applications along with some empirical and experimental evidence. We also discuss contributions that have provided important extensions to the basic frameworks.

Quality target negotiation in health care: evidence from the English NHS

We examine how public sector third-party purchasers and hospitals negotiate quality targets when a fixed proportion of hospital revenue is required to be linked to quality. We develop a bargaining model linking the number of quality targets to purchaser and hospital characteristics. Using data extracted from 153 contracts for acute hospital services in England in 2010/2011, we find that the number of quality targets is associated with the purchaser’s population health and its budget, the hospital type, whether the purchaser delegated negotiation to an agency, and the quality targets imposed by the supervising regional health authority.

Mixed Oligopoly, Vertical Product Differentiation and Fixed Quality-Dependent Costs

A private and a public firm face fixed quality-dependent costs of production and compete first in quality and then either in prices or in quantities. In the long run the public firm targets welfare maximization whereas the private firm maximizes profits. In the short run both firms compete in prices or quantities to maximize profits. Mixed competition is always socially desirable compared to a private duopoly regardless of the type of competition in the short run and the equilibrium quality ranking. In addition, mixed competition seems to be a more efficient regulatory instrument than the adoption of a minimum quality standard.

The dynamic effects of fiscal reforms and tax competition on tax compliance and migration

We study the dynamic effects of fiscal reforms on migration and tax evasion in an international context with two asymmetric countries. Given an initial international distribution of honest and dishonest taxpayers, the tax system (e.g., tax rates and degrees of progressivity) and the salary in each country, individuals decide where to reside and how much time to spend working. The model allows us to study in a dynamic setting how the distribution of honest and dishonest earners is geographically affected by fiscal reforms (e.g., variations in tax rates) and auditing efforts (e.g., probability of auditing and fines) of different countries. We show that various dynamic long term scenarios can be generated. The particular convergence of the model depends crucially on the initial geographic distribution of dishonest agents. This implies that tax reforms that have been successful in reducing tax evasion in one country may produce very different results in others, if initial conditions are significantly different. Chaotic cyclical behavior may also arise if individual propensity to migrate is sufficiently high.

Pay for Performance and Contractual Choice: the case of General Practitioners in England

The Quality and Outcomes Framework (QOF) is a Pay-for-Performance scheme introduced in England in 2004 to reward primary care providers. This incentive scheme provides financial incentives that reward the overall performance of a practice, not individual effort. Consequently, an important question is how the QOF may affect contractual choices, quality provision and doctor mobility in the primary healthcare labour market. The paper provides a simple theoretical model that shows that the introduction and further strengthening of the scheme may have induced practices to compete for the best doctors and modified their choices in terms of contractual agreements with practitioners. We test the implications of this model using a linkage between Doctors Census data and practices’ characteristics from 2003 to 2007. We use linear multilevel models with random intercept and we account for sample selection. We find that after the introduction of the QOF efficient doctors are more likely to become partners and mobility among doctors has increased. The strengthening of the scheme in 2005 is associated with an increase in the quality of primary care and a reduction in access to the market for new doctors.