This paper studies the entry decision of a multinational enterprise into a foreign market. Two alternative entry modes for a foreign direct investment are considered: Greenfield investment versus acquisition. In contrast to existing approaches, the acquisition price and the profits under both entry modes are endogenously determined. Interestingly, we find that the optimal entry mode decision is...

In this paper we analyze the welfare effects of third-degree price discrimination when competitive pressure varies across markets. In particular, we study the economic aspects of the Robinson-Patman Act associated with the “meeting competition defense.” Using equilibrium models, the main result we find is that this defense might be used successfully in cases of primary line injury precisely whe...

We appraise the theoretical basis and the consequent empirical work of Frank Wolak in his study of the New Zealand Electricity Market in a report to the New Zealand Commerce Commission released in March 2009. The report found no multilateral actions, but concluded there was evidence of unilateral market power. We find that the theoretical and empirical methodologies employed to reach this posit...

Alternative market structures are distinguishable by the degree of parallel action exhibited by producers. We show that the correlation between output levels varies systematically with the degree of interdependence among firms, and establish an ordering among alternative behavioral hypotheses (Cournot, Stackelberg, Edgeworth/Bertrand, collusion, and perfect competition). Because the ordering is...

This paper reports a laboratory experiment to study pricing and advertising behavior with costly buyer search. Sellers simultaneously post prices and may incur a cost to advertise this price. In the unique symmetric equilibrium, sellers either charge a high unadvertised price or randomize in an interval of lower advertised prices. Increases in search or advertising costs raise equilibrium price...

In this note we take a first step towards the analysis of collusion in markets with spatial competition, focusing on the case of pure location choices. We find that collusion can only be profitable if a coalition contains more than half of all players. This result holds for location games played in k-dimensional Euclidean space as long as consumers are distributed via atomless density functions...

This paper explores the impact of university finance reforms on teaching quality. It is shown that the graduate tax can achieve efficiency with tuition fees administered by the government, while student grants, pure and income contingent loans can not. However, all options are inefficient when universities have the autonomy to set tuition fees. Then, pure loans dominate the graduate tax and are...

Considering markets with nonpivotal buyers, we analyze the anticompetitive effects of breakup fees used by an incumbent facing a more efficient entrant in the future. Buyers differ in their intrinsic switching costs. Breakup fees are profitably used to foreclose entry, regardless of the entrant’s efficiency advantage or level of switching costs. Banning breakup fees is beneficial to consumers. ...

We examine the relationship between the equilibrium number of the firms entering the market and socially efficient one. Salop (1979) investigates a mill pricing model and shows that the former is larger than the latter (excess entry theorem). We find that, in contrast to Salop (1979), the equilibrium number of the firms can be either larger or smaller than the efficient one. If the entry cost i...

The present paper studies repeated oligopoly where the firms compete with price in multiple markets. The markets are subject to independent, stochastic fluctuations in demands. The literature points out that while the demand fluctuations generally hinder collusion, the multimarket contact sometimes facilitates it. We show that on an intermediate range of discount factors where only partial coll...