李 東俊

In network industry under Cournot and Bertrand competition, we examine a model when owners of firms hire biased managers who have incorrect market demand. Contrast to previous studies, we show that (i) regardless of the strength of network externalities when consumers form the responsive and passive expectations, owners realize strategic advantage by hiring biased managers to be more aggressive under Cournot and Bertrand competition, (ii) firms prefer facing passive expectations for the weak network externalities and vice versa for the strong network exteranlities under Bertrand and Cournot competition, (iii) if the network size is sufficiently large, then the prisoner's dilemma that firms hire aggressive managers no longer exists under both competition modes. As with no delegation case, we obtain the different rankings of firms' profit depending on both network externalities and forming of expectations under Cournot and Bertrand competition.

We compare collusion stability under Bertrand and Cournot duopoly with differentiated network products. Contrast to previous studies, we show that (i) the range of collusion incentive is narrower under Cournot competition than under Bertrand competition, unless network externalities are sufficiently strong; (ii) collusion in prices (quantities) is more stable than in quantities (prices) if network externalities are strong (weak); and (iii) finally, regardless of the strength of network externalities, collusion under Bertrand competition is more stable for high levels of substitutability than under Cournot competition.

By allowing the supplier to contract simultaneously or sequentially with asymmetric retailers under Bertrand competition, we analyze the welfare implications of banning price discrimination in input markets. In contrast to Cournot competition, we find that: (i) under sequential contracting, the monopolistic supplier prefers to contract with an inefficient retailer first and an efficient retailer later; and (ii) when comparing consumers' surplus and social welfare under simultaneous and sequential contracting with uniform pricing (resp. price discrimination), consumers' surplus and welfare are smaller (resp. greater) in sequential contracting than in simultaneous contracting. However, the supplier always prefers simultaneous contracting over sequential contracting under Bertrand competition; and thus sequential contracting does not occur. And, in simultaneous contracting, consumer surplus and total welfare are higher for uniform pricing than price discrimination.

This study investigates the strategic commitment of downstream firms' private R&D investments. While an observable investment, as a pre-production commitment, influences an upstream firm's input price, it affects a rival downstream firm's output. We show that both downstream firms commit to underinvestment (overinvestment) to reduce an input price (compete with a rival firm) in cases of small (large) product substitutability. However, they make their aggressive investments unobservable in the market in cases of medium product substitutability. Furthermore, when both products are sufficiently differentiated, consumer surplus and social welfare are larger when downstream investments are unobservable.

We investigate the choice of endogenous timing in the presence of network externalities under Bertrand competition. Contrary to the results of sequentiality in equilibrium, we demonstrate that when managers are being delegated both the market and timing decision, there exists a unique simultaneous move in equilibrium regardless of network externalities. However, when the choice of timing remains in the owners' hands, if the network externalities are weak (strong), it involves sequential (simultaneous) equilibrium. Consequently, from the viewpoint of social welfare and consumer surplus, Pareto superiority can be obtained endogenously when the strength of network externalities is strong.

This study examines the endogenous vertical structure in which each manufacturer sells its product to its exclusive retailer who sells network goods to consumers (i.e. a duopoly in the upstream market) under Bertrand competition and Cournot competition with network externalities. We show that with strong (weak) network externalities under Bertrand competition, (a) it is a dominant strategy for each manufacturer to integrate (separate) its retailer; (b) with strong network externalities, the manufacturers’ profits, consumers’ surplus and social welfare are higher under vertical integration than under vertical separation. Under Cournot competition, (a) vertical separation is a unique subgame perfect Nash equilibrium; (b) with strong network externalities, the manufacturers’ profits, consumers’ surplus and social welfare are higher under vertical separation than under vertical integration.

We revisit firms’ strategic delegation in a Cournot game. We consider a market comprising two consumer groups, with either a high or low willingness to pay. In this market, we first consider firms’ identical marginal costs and show that either/both firms’ owners may strategically abandon the delegation option to avoid price collapse. We find three types of delegation decisions with either/both/no firm delegating in equilibrium. We further consider firms’ asymmetric marginal costs and show that the asymmetric equilibrium wherein only the less efficient firm delegates will exist in a wider parameter range, compared to that wherein only the more efficient firm delegates. Moreover, delegation may enable the less efficient firm to achieve a higher profit than her rival.

We examine the endogenous determination of a vertical market in an import-competing market with import tariff. We show that if firms commit to vertical organization before the government's commitment to trade policy, the home and foreign firms choose vertical separation and vertical integration, respectively, at equilibrium under Bertrand competition. Under Cournot competition, the subgame perfect Nash equilibrium entails both firms separating their retailers. Comparing profits between Bertrand competition to Cournot competition, we find that upstream manufacturer's profit can be higher under Bertrand competition with integration than under Cournot competition with separation when comparing foreign upstream manufacturer's profit.

This study investigates capacity choice in a vertical structure in which each downstream firm makes its capacity decision, then a monopolistic upstream firm proposes the input price or two-part tariff contract. Finally, each downstream firm chooses its output (or price). Contrary to the conventional wisdom that both firms hold excess capacity in an Cournot competition, we find that each downstream firm always chooses undercapacity regardless of both the nature of goods and the competition modes. Second, we also show that capacity efficiency is higher under Cournot competition than under Bertrand competition. Third, even though there are double marginalization distortion and rent-extracting effect, we can achieve the monopoly equilibrium of the vertically integrated firm though two-part tariff contract.

We examine an endogenous timing game in a mixed oligopoly by focusing on the vertical linkages. Our main findings are as follows. First, under discriminatory input pricing, public (private) leadership emerges in a price-setting (quantity-setting) mixed oligopoly. This results contrast with one-tier mixed oligopoly, where a simultaneous-move in Bertrand competition (Barcena-Ruiz, 2007) or a sequential-move with multiple equilibria in Cournot competition (Pal, 1998) emerges. Second, with downstream Bertrand competition, firms' profit and consumer surplus rankings are reversed between uniform and discriminatory input pricing. Finally, banning (allowing) price discrimination on imported inputs is socially desirable under downstream Bertrand (Cournot) competition.

Fershtman and Judd (1987) show that profit-oriented owners delegate pricing decisions to managers through contracts that incentivize them to behave less aggressively. Hoernig (2012) extends their analysis to environments with network effects and finds that, when network effects are strong enough, the result is reversed and that optimal delegation contracts incentivize managers to behave more aggressively. This paper revisits Hoernig (2012) by assuming that consumers form expectations about network sizes before owners choose delegation contracts, in contrast with Hoernig’s (2012) assumption that expectations are formed after the contracts are chosen. That is, the current study employs fulfilled (or passive) expectations, while Hoernig (2012) uses rational (or responsive) expectations. We show that under the fulfilled expectations, Fershtman and Judd’s (1987) results hold, regardless of the strength of the network effect.

This paper compares vertical integration and vertical separation with network externalities. Contrary to conventional wisdom, if network effects are stronger than the threshold level of the network ex- ternality parameter, manufacturers’ strategic choices of wholesale prices move in opposite directions (i.e., wholesale prices may be strategic substitutes under Bertrand competition). Second, if the strength of network effects is strong enough, both profits and outputs are larger under vertical separation than under integration. Finally, if network effects are strong (weak), outputs (wholesale prices, retail prices), consumer surplus, and social welfare are higher (lower) under separation than integration.

With strategic trade policies, we consider first- and second-mover advantages in a ver- tical structure given the two-part tariff contract (composed of the input price and the fixed fee) of an upstream firm, where a home and a foreign final-good firms export to a third-country market. We find that the upstream firms’ and governments’ preference orderings over sequential versus simultaneous play and over free trade versus a regime of subsidies contrast with early results in the strategic trade policy. Thus, the endoge- nous market structure is that (i) the potential leader chooses the Leader role with quan- tity strategies, and the equilibrium trade regime is unilateral subsidy regardless of the nature of goods; (ii) with price strategies, the potential leader chooses the simultaneous timing, and the equilibrium trade regime is bilateral taxes (free trade) when goods are substitutes (complements).

Considering the interplay between network externalities and the degree of product substitutability in a vertical structure, we compare the outcomes of vertical integration and vertical separation. In contrast to previous results, we show that when both products are sufficiently close substitutes, there is a threshold level of the network externality parameter, beyond which vertical separation is more efficient than vertical integration. This is due to the internalization of the network externality by a multiproduct monopolist, which, in the balance between the extensive and intensive margin, leads to higher output prices.

By incorporating port competition into a third-market model consisting of two exporting firms and one importing country, we demonstrate the endogenous choice of port structures (i.e. privatization or public ownership) under either Bertrand or Cournot competition. In contrast to previous studies on port competition, we analyze the port strategy in view of all trading countries (i.e. importing country and exporting countries). We find that regardless of transport cost, the port ownership strategy alters according to exporting firm’s competition mode. Under Bertrand competition, the choice of port ownership structure depends on the degree of imperfect substitutability. However, under Cournot competition, all trading countries choose same ownership structures of each port. By comparing equilibrium of each competition mode, we show that welfare of exporting country under Cournot competition is higher than under Bertrand competition if goods are sufficiently substitutes. In contrast, importing country prefers Bertrand competition to Cournot competition when the competitive pressure is sufficiently high.

This paper compares Bertrand and Cournot competition in a vertical structure in which the upstream firm sets the input price and makes R&D investments. We show that from the downstream firms’ point of view, Cournot competition has the advantage of a more monopolistic effect, leading to the setting of a higher price, but has the disadvantage of inducing a lower incentive for the upstream firm to invest. On the other hand, Bertrand competition has the advantage of providing a greater incentive for the upstream firm to invest but has the disadvantage of a more competitive effect, leading to the setting of a lower price. Our main findings are as follows. First, R&D investment level is greater under Bertrand competition than under Cournot competition. Second, from the standpoint of the upstream firm and industry, Bertrand competition is more efficient than Cournot competition. Third, from the standpoint of the downstream firms, Bertrand competition is more efficient than Cournot when investment is sufficiently efficient and products are sufficiently differentiated.

This paper first examines the relation between simultaneous and sequential game in a vertical market structure. I show that the equilibrium in the sequential-move games can be duplicated with the asymmetric simultaneous-move games. Vertical separation plays an important role in our conclusion. Vertical separation induces the upstream to set higher (lower) input prices than its marginal costs in Bertrand (Cournot) competition. As a result, the separated upstream firm has the second-mover (first-mover) advantage in Bertrand (Cournot) competition.

This paper compares Bertrand model and Cournot model in a vertically related duopoly market with asymmetric costs between downstream firms. We focus on the cost-inferior downstream firm. We show, from the perspective of the upstream firm, that it is beneficial for it to set a lower input price to the cost-inferior downstream firm and to set a higher input price to the cost-superior downstream firm. From the viewpoint of the cost-inferior downstream firm, we also show that the quantity in Cournot competition is larger than that in Bertrand competition and the payoff in Bertrand is larger than that in Cournot.

In this paper we analyze vertical restraints by two manufacturers in which each sells through a separate retailer who has private information on the uncertain demand it faces. The degree of product differentiation plays an important role in equilibrium. If the products are differentiated, the dominant strategy is for each manufacturer to itself stipulate the retail price of its products. If the products are homogeneous, there exist two equilibria: either both manufacturers impose retail price maintenance (RPM), or both delegate pricing to the retailer. Social welfare is greater under regulatory regimes that permit RPM, irrespective of product dif- ferentiation or demand uncertainty.

This paper proposes a Korea fixed income portfolio by using the analytic hierarchy process (AHP). We find that each criterion plays an important role in the portfolio. Nevertheless, the effect of the AHP-portfolio on the total returns is trivial. Therefore, we determine that the decision maker prefers the government bond to the others. We also determine that the portfolio generated by AHP accords with the decision maker's preference.