Indirect Taxation in Vertical Oligopoly

Abstract:

This paper analyzes the effects of specific and ad valorem taxation in an indus-
try with downstream and upstream oligopoly. We find that in the short run, i.e.
when the number of firms in both markets is exogenous, the results concerning tax incidence tend to be qualitatively similar to models where the upstream market is perfectly competitive. However, both over- and undershifting are more pronounced, potentially to a very large extent. Instead, in the long run under endogenous entry and exit overshifting of both taxes is more likely to occur and is more pronounced under upstream oligopoly. As a result of this, a tax increase is more likely to be welfare reducing. We also demonstrate that downstream and upstream taxation are equivalent in the short run while this is not true for the ad valorem tax in the long run. We show that it is normally more efficient to tax downstream.
JEL classification: D43, H21, H22, L13
Keywords: Specific Tax, Ad Valorem Tax, Value-Added Tax, Tax Incidence,
Tax Efficiency, Indirect Taxation, Imperfect Competition, Vertical Oligopoly.

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255.pdf

The Actual Structure of eBay’s Feedback Mechanism and Early Evidence on the Effects of Recent Changes

Abstract:

eBay’s feedback mechanism is considered crucial to establishing and maintaining trust on the world’s largest trading platform. The effects of a user’s reputation on the probability of sale and on prices are at the center of a large number of studies. More recent theoretical work considers aspects of the mechanism itself. Yet, there is confusion amongst users about its exact institutional details, which also changed substantially in the last few months. An understanding of these details, and how the mechanism is perceived by users, is crucial for any assessment of the system. We provide a thorough description of the institutional setup of eBay’s feedback mechanism, including recent changes to it. Most importantly, buyers now have the possibility to leave additional, anonymous ratings on sellers on four different criteria. We discuss the implications of these changes and provide first descriptive evidence on their impact on rating behavior.
Keywords: eBay, reputation mechanism, strategic feedback behavior, informational content, reciprocity, fear of retaliation
JEL classification: D44, L15, L86
November 2007

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220.pdf

Internet Peering as a Network of Relations

Abstract:

We apply results from recent theoretical work on networks of relations to analyze optimal peering strategies for asymmetric ISPs. It is shown that - from a network of relations perspective – ISPs’ asymmetry in bilateral peering agreements need not be a problem, since when these form a closed network, asymmetries are pooled and information transmission is faster. Both these effects reduce the incentives for opportunism in general, and interconnection quality degradation in particular. We also explain why bilateral monetary transfers between asymmetric ISPs (Bilateral Paid Peering), though potentially good for bilateral peering, may have rather negative effects on the sustainability of the overall peering network.
November 2006

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191.pdf

Umbrella Branding and the Provision of Quality

Abstract:

Consider a two-product firm that decides on the quality of each product. Product quality is unknown to consumers. If the firm sells both products under the same brand name, consumers adjust their beliefs about quality subject to the performance of both products. We show that if the probability that low quality will be detected is in an intermediate range, the firm produces high quality under umbrella branding whereas it would sell low quality in the absence of umbrella branding. Hence, umbrella branding mitigates the moral hazard problem. We also find that umbrella branding survives in asymmetric markets and that even unprofitable products may be used to stabilize the umbrella brand. However, umbrella branding does not necessarily imply high quality; the firm may choose low-quality products with positive probability.
Keywords: Umbrella branding, reputation transfer, signaling, experience goods.
JEL classification: L14, L15, M37, D82
June 2006

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132.pdf

Observable Reputation Trading

Abstract:

Is the reputation of a firm tradable when the change in ownership is observable? We consider a competitive market in which a share of owners must retire in each period. New owners bid for the firms that are for sale. Customers learn the owner’s type, which reflects the quality of the good or service provided, through experience. After observing an ownership change they may want to switch firm. However, in equilibrium, good new owners buy from good old owners and retain high-value customers. Hence reputation is a tradable intangible asset, although ownership change is observable.
Keywords: Reputation, ownership change, intangible assets, theory of the firm.
JEL classification: D40, D82, L14, L15
June 2006

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131.pdf

“Ineffective” competition: a puzzle?

Abstract:

Conventionally, we think of an increase in competition as weakly decreasing prices, increasing the number of consumers served, thus increasing consumer surplus, decreasing firms profits, etc. Here, we demonstrate that, under some tame circumstances, an increase in competition may lead to a price increase in a horizontally differentiated market. We show this relationship for the petrol market in German cities.
May 2006

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117.pdf

Leniency Policies and Illegal Transactions

Abstract:

Forthcoming in the Journal of Public Economics
We study the consequences of leniency – reduced legal sanctions for wrongdoers who spontaneously self-report to law enforcers – on sequential, bilateral, illegal transactions, such as corruption, manager-auditor collusion, or drug deals. It is known that leniency helps deterring illegal relationships sustained by repeated interaction. Here we find that - when not properly designed - leniency may simultaneously provide an effective governance mechanism for occasional sequential illegal transactions that would not be feasible in its absence.
Keywords: amnesty, corruption, collusion, financial fraud, governance, hold up, hostages, illegal trade, immunity, law enforcement, leniency, organized crime, self-reporting, whistleblowers
JEL classification: K42, K21
September 2005

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74.pdf

Last Minute Feedback

Abstract:

Feedback mechanisms that allow partners to rate each other after a transaction are considered crucial for the success of anonymous internet trading platforms. We document an asymmetry in the feedback behavior on eBay, propose an explanation based on the micro structure of the feedback mechanism and the time when feedbacks are given, and support this explanation by findings from a large data set. Our analysis implies that the informational content of feedback records is likely to be low. The reason for this is that agents appear to leave feedbacks strategically. Negative feedbacks are given late, in the "last minute," or not given at all, most likely because of the fear of retaliative negative feedback. Conversely, positive feedbacks are given early in order to encourage reciprocation. Towards refining our insights into the observed pattern, we look separately at buyers and sellers, and relate the magnitude of the effects to the trading partners' experience.
Keywords: eBay, reputation mechanism, strategic feedback behavior, informational content, reciprocity, fear of retaliation
JEL classification: D44, L15, L86
March 2006

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62.pdf

An Economist's Guide to Digital Music

Abstract:

In this guide, we discuss the impact of digitalization on the music industry. We rely on market and survey data at the international level as well as expert statements from the industry. The guide investigates recent developments in legal and technological protection of digital music and describes new business models as well as consumers' attitude towards music downloads. We conclude the guide by a discussion of the evolution of the music industry.
Keywords: Music, Internet, File-sharing, Peer-to-peer, Piracy, Digital Rights Management, Copyright, E-commerce
December 2004

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32.pdf

File-Sharing, Sampling, and Music Distribution

Abstract:

The use of file-sharing technologies, so-called Peer-to-Peer (P2P) networks, to copy music files has become common since the arrival of Napster. P2P networks may actually improve the matching between products and buyers - we call this the matching effect. For a label the downside of P2P networks is that consumers receive a copy which, although it is an imperfect substitute to the original, may reduce their willingness-to-pay for the original - we call this the competition effect. We show that the matching effect may dominate so that a label’s profits are higher with P2P networks than without. Furthermore, we show that the existence of P2P networks may alter the standard business model: sampling may replace costly marketing and promotion. This may allow labels to increase profits in spite of lower revenues.
Keywords: ?le-sharing, P2P, sampling, information transmission, piracy, music
JEL classification: L11, L82
December 2004

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31.pdf

Networks of Relations

Abstract:

We model networks of relational (or implicit) contracts, exploring how sanctioning power and equilibrium conditions change under different network configurations and information transmission technologies. In our model, relations are the links, and the value of the network lies in its ability to enforce cooperative agreements that could not be sustained if agents had no access to other network members’ sanctioning power and information. We identify conditions for network stability and in-network information transmission as well as conditions under which stable subnetworks inhibit more valuable larger networks.
Keywords: Networks, Relational Contracts, Indirect Multimarket Contact, Social Capital.
JEL classification: L13, L29, D23, D43, O17
November 2004

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28.pdf

Trade, growth and geography: A synthetic

Abstract:

Economic integration affects economic development through two main channels: growth and localization of the economic activities. The theories of endogenous growth and economic geography enable us to understand these mechanisms. We study in this paper their similarities and specificities before suggesting their useful combination within a single model. Indeed, both theories are based on the same Spence-Dixit-Stiglitz monopolistic competition framework. However, they suggest two different approaches to deal with the impact of economic integration. We consider that a third path, by proposing a synthetic approach, better answers the issues raised in terms of economic convergence and divergence by these two sets of models.
Keywords: regional economic integration, endogenous growth, economic geography
JEL classification: F12, F15, F43, O18, O30, O41, R11, R12, R13
March 2004

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22.pdf

Regional integration and economic development: An empirical approach

Abstract:

This paper contributes to the empirical literature by providing a quantitative measurement of the influence of regional trade integration on productivity. For this purpose we address the link between trade and productivity thanks to knowledge spillovers in a multi-country model. The interdependence that connects countries in an international web promotes exchanges of goods, services, people, capital and hence ideas, knowledge, innovation, and technology. Economic integration encourages thus both new ideas and their diffusion. We observe that a country’s productivity depends on its own R&D efforts as well as the R&D efforts of its trading partners. These R&D spillovers can then spread across countries and sectors. Thanks to the transfer of technology allowed by bilateral trade and investment, regional trade integration has a positive impact on long-term growth.
Keywords: regional economic integration, endogenous growth, economic geography
JEL classification: F12, F15, F43, O18, O30, O41, R11, R12, R13
March 2004

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21.pdf

Regional integration and economic development: A theoretical approach

Abstract:

We use a model of combined endogenous growth and economic geography to study the impact of regional economic integration on the member and non-member countries of a regional union. Regional integration affects growth through interregional technology diffusion symbolized by knowledge spillovers generated at home and spreading to the partner countries. Spillovers flow from the leader to the follower. Following integration, the lagging country has access to a bigger stock of knowledge that fosters an increase in its rate of growth and extends the diversity of its products. Trade in goods - or in FDI - and flows of ideas are two faces of the same coin. We show that the progressive decrease in transaction costs through the phasing out of barriers to trade together with product imitation can foster growth and convergence in the member countries. However, in order to avoid eventual trade and investment diversions, the non-member should envisage to join the integrated zone.
Keywords: regional economic integration, endogenous growth, economic geography
JEL classification: F12, F15, F43, O18, O30, O41, R11, R12, R13
March 2004

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20.pdf

Platform Ownership

Abstract:

Lecture on the first SFB/TR 15 meeting, Gummersbach, July, 18 - 20, 2004

We develop a general theoretical framework of trade on a platform on which buyers and sellers interact. The platform may be owned by a single large, or many small independent or vertically integrated intermediaries. We provide a positive and normative analysis of the impact of platform ownership structure on platform size. The strength of network effects is important in the ranking of ownership structures by induced platform size and welfare. While vertical integration may be welfare-enhancing if network effects are weak, monopoly platform ownership is socially preferred if they are strong. These are also the ownership structures likely to emerge.
Keywords: Two-Sided Markets, Network Effects, Intermediation, Product Diversity
JEL classification: L10, D40
July 2004

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16.pdf