Simon P. Anderson

Market Provision of Broadcasting: A Welfare Analysis

This paper presents a theory of the market provision of broadcasting and uses it to address the nature of market failure in the industry. Equilibrium advertising levels may be too low or too high, depending on the nuisance cost to viewers, the substitutability of programmes, and the expected benefits to advertisers from contacting viewers. The equilibrium amount of programming may also be below or above the socially optimal level. Perhaps surprisingly, the ability to price programming may reduce social surplus, while monopoly ownership may increase it. Copyright 2005, Wiley-Blackwell.

Pricing, Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond Model

We study price competition in the presence of search costs and product differentiation. The limit cases of the model are the ‘‘Bertrand Paradox,’’ the ‘‘Diamond Paradox,’’ and Chamberlinian monopolistic competition. Market prices rise with search costs and decrease with the number of firms. Prices may initially fall with the degree of product differentiation because more diversity leads to more search and hence more competition. Equilibrium diversity rises with search costs, while the optimum level falls, so entry is excessive. The market failure is most pronounced for low preference for variety and high search costs.

A theoretical analysis of altruism and decision error in public goods games

Abstract We formalize an equilibrium model in which altruism and decision-error parameters determine the distribution of contributions for linear and quadratic public goods games. The equilibrium density is exponential for linear games, and normal for quadratic games. Our model implies: (i) contributions increase with the marginal value of the public good, (ii) total contributions increase with the number of participants, (iii) mean contributions lie between the Nash prediction and half the endowment. These predictions, which are not implied by a Nash analysis, are consistent with laboratory data. Maximum likelihood estimates of altruism and error parameters are significant and plausible.

Cournot Competition Yields Spatial Agglomeration

Most theoretical models of spatial competition show a strong tendency toward spatial dispersion of firms, yet common observations suggest that firms tend to agglomerate. In this paper, the authors show that competition between Cournot-type oligopolists that discriminate over space leads to spatial agglomeration. One implication is that firms do not (necessarily) earn supernormal profits at the free-entry equilibrium. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Tax incidence in differentiated product oligopoly

Abstract We analyze the incidence of ad valorem and unit excise taxes in an oligopolistic industry with differentiated products and price-setting (Bertrand) firms. Both taxes may be passed on to consumers by more than 100 percent, and an increase in the tax rate can increase short run firm profits (and hence the long run number of firms). We provide summary conditions for these effects to arise. The conditions depend on demand curvatures and are written in elasticity form. Surprisingly, the analysis largely corroborates Cournot results with homogeneous demand.

Multiproduct Firms: A Nested Logit Approach

Thie paper proves the existence of a symmetric equilibrium with multiproduct firms using a nested logit model of demand. The demand model is parametrized by two variable which characterize different dimensions of preference variety. These reflect intragroup heterogeneity and intergropu heterogeneity, a group (or nest) being the set of products produced by a firm. There are then two dimensions to market performance; the total number of firms and the range of products produced per firm. It is shown that the market equilibrium involves an excessive number of firms, but each firm provides too few products.

Privatization and Efficiency in a Differentiated Industry

We consider a market in which a public firm competes against private ones, and ask what happens when the public firm is privatized. In the short run, privatization is harmful because prices rise: the disciplinary role of the public firm is lost. In the long run, privatization leads to further entry; the net effect is beneficial if consumer preference for variety is not too weak. A sufficient statistic for the social surplus to he higher in the long run is that the public firm makes a loss. This suggests that profitable firma should not necessarily be privatized.

Rent Seeking with Bounded Rationality: An Analysis of the All-Pay Auction

The winner‐take‐all nature of all‐pay auctions makes the outcome sensitive to decision errors, which we introduce with a logit formulation. The equilibrium bid distribution is a fixed point: the belief distributions that determine expected payoffs equal the choice distributions determined by expected payoffs. We prove existence, uniqueness, and symmetry properties. In contrast to the Nash equilibrium, the comparative statics of the logit equilibrium are intuitive: rent dissipation increases with the number of players and the bid cost. Overdissipation of rents is impossible under full rationality but is observed in laboratory experiments. Our model predicts this property.

Demand for Differentiated Products, Discrete Choice Models, and the Characteristics Approach

We propose a specific characteristics framework in order to construct linkages between alternative conceptual approaches to modelling product differentiation. First, it is shown that a demand system which satisfies the gross substitutes property imposes specific requirements on the locations of products. In particular, the dimension of the characteristics space must be larger than or equal to the number of products minus one. We then identify a method for casting a given demand system (subject to certain restrictions) into our characteristics framework. This is illustrated for the logit, probit and linear probability models of discrete choice theory. Finally, we find a characteristics representation of the CES representative consumer.

Spatial Price Discrimination with Heterogeneous Products

Product heterogeneity is introduced into the context of spatial price discrimination. Many of the strong properties of the standard homogeneous goods case (which are attained as a limit case here) are shown to be no longer valid. In particular, the social optimum is no longer sustainable as a market equilibrium unless products are either identical or else very different.