Complementarities, Below-Cost Pricing, and Welfare Losses

Pricing Below Cost under Exchange-Rate Risk

Technical Note – Pricing Below Cost Under Exchange-Rate Risk

P ricing below cost is often classified as “dumping” in international trade and as “predatory pricing” in local markets. It is legally prohibited from practice because of earlier findings that it leads to predatory behavior by either eliminating competition or stealing market share. This study shows that a stochastic exchange rate can create incentives for a profit-minded monopoly firm to set p...

Welfare losses under Cournot competition

In a market for a homogeneous good where firms are identical, compete in quantities and produce with constant returns, the percentage of welfare losses (PWL) is small with as few as five competitors for a class of demand functions which includes linear and isoelastic cases. We study markets with positive fixed costs and asymmetric firms. We provide exact formulae of PWL and robust constructions...

Welfare Losses in Commodity Storage

We develop a game theoretic model of a shared commodity storage facility whose injection/ejection and space resources have been allocated to multiple selfish firms. We assume a setting where each firms injectability and deliverability depend on overall inventory within the store. This is most common in settings that involve the storage of liquids or gases such as natural gas or oil. We analyze ...

Spillovers Reconsidered : Analysing Economic Welfare under complementarities in R & D

We analyse economic welfare in R&D intensive industries under varying assumptions on the spillover process. The focus lies on spillover processes with complementary R&D investments such as those modelling absorptive capacity. There spillovers give rise to both negative and positive externalities. We show that the rationale for public policy intervention is strengthened where spillovers also hav...