Morten Hviid

Export Subsidies as Signals of Competitiveness

In a Cournot duopoly model of international competition between a domestic and foreign firm, it is shown that when the foreign firm has incomplete information about the marginal cost of the domestic firm then the domestic government can use an export subsidy to signal the competitiveness of its firm. This signaling effect strengthens the usual profit-shifting argument for an export subsidy. The optimal export subsidy in the signaling equilibrium may be twice as large as the optimal profit-sharing export subsidy under complete information. Copyright 1993 by The editors of the Scandinavian Journal of Economics.

Promises to match or beat the competition: Evidence from retail tire prices

Given the widespread adoption of low-price guarantees and discussion of their anti-competitive effects in the theoretical literature, it is unfortunate that there is little empirical evidence available on the subject. This chapter analyzes the effects of low-price guarantees on advertised tire prices, based on P185/75R14 retail tire prices collected from U.S. Sunday newspapers. We find that although a tire retailers own price-matching or price-beating guarantee has no significant effect on the retailers advertised tire price, an increase in the percentage of firms in the market announcing low-price guarantees tends to raise the firms advertised tire price. In particular, we find that the predicted tire prices are approximately

Matching Own Prices, Rivals' Prices or Both?

4 higher (about 10 percent of the average advertised price of a P185/75R14 tire) in markets in which all firms advertise an LPG when compared to markets without any LPGs.

Risk-Averse Duopolists and Voluntary Information Transmission

Many retailers promise that they will not be undersold by rivals (price-matching guarantees) and extend their promise to include their own future prices (most-favored-customer clauses). This is puzzling because the extant literature has shown that each promise independently has the potential to facilitate supracompetitive prices, and so one might think that the two promises are substitutes. In this paper, we consider why a firm might make both promises in the same guarantee, and show that price-matching guarantees and most-favored-customer clauses complement each other and can lead to higher prices than either one could have facilitated by itself.

Non‐Discrimination Clauses in the Retail Energy Sector

This paper considers the incentives for risk-averse firms to share their private information. They show that the introduction of risk aversion in some cases reverses the result in the literature that no such incentives exist. Further, they show that the output level of risk-averse Cournot duopolists is increasing in the quality of their private information and decreasing in their perception of risk. Copyright 1989 by Blackwell Publishing Ltd.

Tariffs for a foreign monopolist under incomplete information

The British energy regulator has recently reviewed a non‐discrimination licence condition imposed to ensure that energy retailers charge the same mark‐up in different regions. Loyalty by many to incumbent firms necessitated heavy discounting by entrants to attract customers, which had led to regional price discrimination. Matching characteristics of the energy market to models of discrimination, we identify the necessary conditions for the licence condition to have a positive effect for consumers, and particularly ‘vulnerable’ consumers. The licence condition is likely to have reduced competition in the mainstream energy markets, which seems confirmed by the regulators subsequent review of the retail market.

Capacity constrained duopolies, uncertain demand and non-existence of pure strategy equilibria

When the domestic government is better informed about demand in the domestic market than a foreign monopolist that exports to the domestic market, the domestic government can use its tariff to signal about demand. In the signalling equilibrium, the domestic government uses a tariff which is larger than the optimal tariff under complete information. However, it is possible that welfare in the signalling equilibrium is lower than welfare when the domestic government is uncertain about demand. The domestic government can avoid the cost of signalling by delegating tariff-setting to a revenue-maximising agent.

Law and Peace: Contracts and the Success of the Danish Dairy Cooperatives

Abstract The paper analyses the effect of uncertainty in duopoly models where capacity constrained firms compete in prices. We show that no pure strategy Nash equilibrium exist in this game. If capacity is endogenous and chosen before prices, this result holds regardless of whether the realisation of demand is known to firms before or after they choose their prices.

Merger Failure and Merger Profitability

We consider the successful early emergence of cooperative creameries in Denmark in the late nineteenth century within the framework of the ‘new institutional economics’ presented by Williamson (2000). Previous work has focused on the social cohesion of the Danes, but we demonstrate that this was not sufficient for the success. The Danish legal system, which we compare to that of other countries, was also of crucial importance, along with the way in which rules were monitored and enforced. Of particular importance was the Danish cooperatives’ use of contracts, which we explore with evidence from a variety of primary and secondary sources.

Sequential Capacity and Price Choices in a Duopoly Model with Demand Uncertainty

The focus of this paper is the effect of merger proposals on the expected profitability of the bidder and the target. The authors illustrate how an unsuccessful bid may increase the profitability of the target but reduce the profitability of the bidding firm, relative to the profitability of the firms before the merger offer. The profitability of a merger proposal is lowered due to learning from rejection. The authors use their theoretical model to explain empirical work on this issue. Copyright 1993 by Blackwell Publishing Ltd.