Noriaki Matsushima

Mixed oligopoly and spatial agglomeration

We investigate a mixed market where a state-owned welfare-maximizing public firm competes against profit-maximizing private firms. We use a circular city model with quantity-setting competition. In contrast to a pure market case discussed by Pal (1998a), spatial agglomeration of private firms always appears in equilibrium. All private firms locate at the same point, and the public firm locates at the opposite side. We also find that this equilibrium pattern of the location is second best provided that output of each private firm cannot be controlled by the social planner.

Cournot competition and spatial agglomeration revisited

Abstract In a letter previously published in this journal, Pal [Economics Letters 60(1998) 49] show that firms locate equidistant from each other in a circular city. However, we show that the following location pattern is also an equilibrium outcome: firms agglomerate at two points in a circular city.

Mixed Duopoly with Product Differentiation: Sequential Choice of Location

We investigate the sequential choice of location in a mixed duopoly, where a welfare–maximising public firm competes against a profit–maximising private firm. We examine the desirable role of the public firm in a mixed market. We also consider the effect of price regulation. We find that the public firm should become the follower (leader) if a price regulation is (is not) imposed. We also find that neither price regulation nor privatisation of the public firm improves welfare.

Horizontal Mergers and Merger Waves in a Location Model

We consider sequential mergers in a spatial model with Cournot competition. This model is suitable for explaining the behaviour of some industries where several brands of the same product are delivered by plants. The automobile and oil product industries are examples. To discuss sequential mergers, we use the method of Nilssen and Sorgard (1998). We show that if the transportation cost per length is large relative to market size, a merger wave occurs. In addition, it might improve social surplus. On the other hand, if the transportation cost per length is relatively small, a merger wave does not occur even though firms would be better off with sequential mergers. We also compare our model to that of Levy and Reitzes (1992) who consider horizontal mergers with spatial price competition. We show that in a merger of neighbouring firms the merged firms profit decreases. This result is opposite to that of Levy and Reitzes (1992). Finally, we consider how a regulator affects sequential mergers. When each merger occurs, the regulator assesses each merger. In this case, there is a possibility that the existence of the regulator deters welfare-improving sequential mergers.

The Existence of Low-End Firms May Help High-End Firms

Two models of competition between high-end and low-end products benefiting the high-end firms are presented. One is a quantity competition model, and the other is a price competition model with product differentiation. The key factor is the existence of two heterogeneous consumer groups: those who demand only high-end name-brand products and those who care little whether products are high or low end. We show that, under certain conditions, the profits of firms in the high-end market are larger when there are firms producing low-end products than when there are not. The existence of price-sensitive consumers who care little about product quality intensifies competition among the high-end firms. The existence of low-end firms functions as a credible threat, which induces the high-end firms not to overproduce because price-sensitive consumers buy products from the low-end firms. The result provides a new theoretical mechanism concerning the profitability and pricing of national brand firms after the entry of private labels. It has an implication for pricing and marketing strategies: Established firms should not decrease their prices after the entry of nonestablished firms.

Airport Privatization and International Competition

We provide a simple theoretical model to explain the mechanism whereby the privatization of international airports can improve welfare. The model consists of a downstream (airline) duopoly with two inputs (landings at two airports) and two types of consumers. The airline companies compete internationally. We show that the outcome in which both airports are privatized is always an equilibrium, whereas that in which no airport is privatized is an equilibrium only if the degree of product differentiation is large. We also discuss airport congestion problems within the model framework.

Competitiveness And Stability Of Collusive Behavior

We investigate the relationship between the degree of competition and the stability of collusive behaviour, by introducing the element of relative performance in the objective functions of the firms. We show that an increase in the degree of competition destabilizes the collusion. This relation differs starkly in the standard symmetric Cournot and Bertrand duopoly models, with the former being more unstable than the latter.

Vertical Separation as a Defense against Strong Suppliers

We provide a simple model to investigate decisions about vertical separation. The key feature of this model is that more than one input is required for the final product of the downstream monopolist. We show that as the bargaining powers of independent complementary input suppliers grow larger, the downstream monopolist tends to separate from its input units. The results are related to a visible difference between the vertical structures of Japanese and US auto assemblers.

Locating Outside a Linear City Can Benefit Consumers

We investigate the effects of restricting the locations of firms in Hotelling duopoly models. In standard location‐price models, the equilibrium distance between firms is too great from the viewpoint of consumer welfare. Thus, restricting the locations of firms and shortening the distance between them improves consumer welfare by reducing prices and transport costs. We introduce strategic reward contracts into location‐price models and find that, in contrast to the above result, restrictions on the locations of firms reduce consumer welfare. These restrictions reduce transport costs but increase prices by changing the strategic commitments of the firms.

When Small Firms Fight Back Against Large Firms in R&D Activities

Abstract This paper investigates an asymmetric duopoly model with R&D competition and product positioning. We find that an inefficient (small) firm may engage in R&D more intensively than an efficient (large) firm in spite of economies of scale in R&D activities. Contrary to the findings of previous studies, competition is more likely to have a positive effect on the investments of the small firm than on those of the large firm. We also find that improving the efficiency of the inefficient firm can reduce both social and consumer surplus.