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Strategic Complements (strategic + complement)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

Revisiting Oligopolistic Reaction: Are Decisions on Foreign Direct Investment Strategic Complements?

JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY, Issue 3 2002
Keith Head
Knickerbocker (1973) introduced the notion of oligopolistic reaction to explain why firms follow rivals into foreign markets. We develop a model that incorporates central features of Knickerbocker's story,oligopoly, uncertainty, and risk aversion,to establish the conditions required to generate follow-the-leader behavior. We find that rival foreign investment will make risk-neutral firms less inclined to move abroad once its rivals have done so. We show that Knickerbocker's prediction relies on risk aversion and derive an expression for the minimum amount of risk aversion needed to generate oligopolistic reaction. [source]

Strategic Consumption Complementarities: Can Price Flexibility Eliminate Inefficiencies and Instability?

JOURNAL OF PUBLIC ECONOMIC THEORY, Issue 2 2010
EMANUELA RANDON
Generally, two facts occur with strategic complementarities and fixed prices: (i) the equilibria are multiple and (ii) if the complementarities are strong, the law of demand is violated and the equilibrium is unstable. In this paper, we analyse the effect of price flexibility on these features as well as on market welfare properties. Assuming an exchange economy with,H,agents consuming two goods with one strategic complement, we show that flexibility of prices may remove both the multiplicity of the equilibria and the instability of behavior when the externalities are strong. Moreover, we find conditions to correct instability when it is caused by perverse wealth effects. When preferences are quasilinear and identical, if the externality is beneficial, any equilibrium is Pareto optimal despite the externality. But if the externality is detrimental, corrections are required. [source]

Detection Avoidance and Deterrence: Some Paradoxical Arithmetic

JOURNAL OF PUBLIC ECONOMIC THEORY, Issue 3 2008
ERIC LANGLAIS
This paper extends Malik's analysis to the case where criminals' avoidance efforts and public expenditures in the detection of criminals are strategic complements in the aggregate technology of control of illegal behaviors. In this set up, we show that whenever criminals' avoidance efforts are more sensitive to the frequency than to the severity of sanctions, it is always socially efficient to set the fine at the maximal possible level. However, several paradoxical consequences occur: there may exist overdeterrence at optimum; more repressive policies lead to fewer arrests of offenders while more crimes may be committed; at the same time, the society may be closer to the first best number of crimes. [source]

Strategic managerial incentives under adverse selection

MANAGERIAL AND DECISION ECONOMICS, Issue 8 2005
Michel Cavagnac
We extend the strategic contract model where the owner designs incentive schemes for her manager before the latter takes output decisions. Firstly, we introduce private knowledge regarding costs within each owner,manager pair. Under adverse selection, we show that delegation involves a trade-off between strategic commitment and the cost of an extra informational rent linked to decentralization. Which policies will arise in equilibrium? We introduce in the game an initial stage where owners can simultaneously choose between control and delegation. We show that if decision variables are strategic substitutes, choosing output control through a quantity-lump sum transfer contract is a dominating strategy. If decision variables are strategic complements, this policy is a dominated strategy. Further, two types of dominant-strategies equilibrium may arise: in the first type, both principals use delegation; in the second one, both principals implement delegation for a low-cost manager and output control for a high-cost one. Copyright © 2005 John Wiley & Sons, Ltd. [source]

Optimal Regulation of Cooperative R&D Under Incomplete Information

THE JOURNAL OF INDUSTRIAL ECONOMICS, Issue 1 2004
Isabelle Brocas
A regulator offers a cooperation contract to two firms to develop a research project. The contract provides incentives to encourage skill-sharing and coordinate subsequent efforts. Innovators must get informational rents to disclose their privately known skills, which results in distorting R&D efforts with respect to the first-best level. When efforts are strategic complements, both efforts are distorted downwards. By contrast, when efforts are strategic substitutes, the effort of the firm with most valuable skills is distorted downwards (to decrease rents) and the effort of the other firm is distorted upwards (to compensate the previous efficiency loss). [source]

Strategic Bidding By Potential Competitors: Will Monopoly Persist?

THE JOURNAL OF INDUSTRIAL ECONOMICS, Issue 2 2000
Yongmin Chen
Who will win the bidding to become the sole producer of a new product: the monopolist of a related product or a new entrant? When there exists potential entry to the monopolist's existing business, the standard result that monopoly persists (Gilbert and Newbery, ,Preemptive Patenting and the Persistence of Monopoly', American Economic Review, 72, pp. 514,526, 1982) may or may not hold, depending crucially on how the new product relates to the existing product of the monopolist. The monopolist tends to win the bidding and to dominate both products if the two products are strategic complements; and the entrant tends to win the bidding if the two products are strategic substitutes. [source]

The Most-Favoured-Customer Pricing Policy and Competitive Advantage

BULLETIN OF ECONOMIC RESEARCH, Issue 3 2000
Iñaki Aguirre
The paper investigates the effects on competition of the unilateral most-favoured-customer pricing policy. A model is considered in which a multimarket incumbent firm faces a threat of entry in one of its two markets. It is shown that contemporaneous most-favoured-customer clauses may change competition to the advantage of the incumbent both under strategic substitutes and strategic complements. If the duopolistic market is strong, the most-favoured-customer policy makes the incumbent ,tough' and may be used for entry deterrence purposes. [source]