Nicolás Figueroa

Loyalty Inducing Programs and Competition with Homogeneous Goods

We analyze a market where two firms producing a homogenous good compete by means of two mechanisms: prices and a loyalty bonus. We assume that firms act simultaneously when posting their loyalty bonus and prices. Consumers who purchase from a firmin the first period must return the bonus in case they switch providers in the second period. They fully anticipate the effects on future prices of accepting the bonus and maximize their total surplus over both periods. We first show that there is no equilibrium with prices and bonuses equal to zero. We then show the existence of a SPNE where firms are able to obtain half the monopoly profits using large bonuses in the first period and high prices in the second period. We completely characterize all the symmetric equilibria of the game and show that, in general, firms obtain positive profits even when they compete in prices, the good is homogenous, and consumers are forward-looking. Finally we show that if firms are allowed to discriminate between old and new customers, the standard zero price equilibria reappear. JEL Classification: L13.

Pricing with markups in industries with increasing marginal costs

We study a game that models a market in which heterogeneous producers of perfect substitutes make pricing decisions in a first stage, followed by consumers that select a producer that sells at lowest price. As opposed to Cournot or Bertrand competition, producers select prices using a supply function that maps prices to production levels. Solutions of this type of models are normally referred to as supply function equilibria. We consider a market where producers’ convex costs functions are proportional to each other, depending on the efficiency of each particular producer. We provide necessary and sufficient conditions for the existence of an equilibrium that uses simple supply functions that replicate the cost structure. We then specialize the model to monomial cost functions with exponent

What to Put on the Table

q>0

A Note on Optimal Allocation Mechanisms

, which allows us to reinterpret the simple supply functions as a markup applied to the production cost. We prove that an equilibrium for the markups exists if and only if the number of producers in the market is strictly larger than

Monopoly regulation under asymmetric information: prices versus quantities

1+q

Imperfect Information Transmission from Banks to Investors: Macroeconomic Implications

, and if an equilibrium exists, it is unique. The main result for monomials is that the equilibrium nearly minimizes the total production cost when the market is competitive. The result holds because when there is enough competition, markups are bounded, thus preventing prices to be significantly distorted from costs. Focusing on the case of linear unit-cost functions on the production quantities, we characterize the equilibrium accurately and refine the previous result to establish an almost tight bound on the worst-case inefficiency of equilibria. Finally, we derive explicitly the producers’ best response for series-parallel networks with linear unit-cost functions, extending our previous result to more general topologies. We prove that a unique equilibrium exists if and only if the network that captures the market structure is 3-edge-connected. For non-series-parallel markets, we provide an example that does not admit an equilibrium on markups.