Copyright (c) 2009 All rights reserved. http://works.bepress.com/armin_schmutzler Recent documents in Armin Schmutzler en-us Wed, 30 Sep 2009 23:32:08 PDT 3600 http://works.bepress.com/armin_schmutzler/19 http://works.bepress.com/armin_schmutzler/19 Tue, 29 Sep 2009 07:46:55 PDT We consider a two-stage game with cost-reducing investments followed by a linear differentiated Cournot duopoly. With competition inversely parameterized by the extent of product differentiation, investment in the subgame-perfect equilibrium is typically minimal for intermediate levels of competition. Laboratory experiments partly confirm the U-shape in a reduced one-stage version of the game. In the two-stage version, there is no evidence for positive effects of moving from intermediate to intense competition. Armin Schmutzler Innovation and Spillovers Industrial Organisation Experimental Economics http://works.bepress.com/armin_schmutzler/18 http://works.bepress.com/armin_schmutzler/18 Tue, 29 Sep 2009 07:38:35 PDT Are initial competitive advantages self-reinforcing, so that markets exhibit an endogenous tendency to be dominated by only a few firms? Although this question is of great economic importance, no systematic empirical study has yet addressed it. Therefore, we examine experimentally whether firms with an initial cost advantage are more likely to invest in marginal cost reductions than firms with higher initial costs. We find that the initial competitive advantages are indeed self-reinforcing, but subjects in the role of firms overinvest relative to the Nash equilibrium. However, the pattern of overinvestment even strengthens the tendency towards self-reinforcing cost advantages relative to the theoretical prediction. Further, as predicted by the Nash equilibrium, mean-preserving spreads of the initial cost dis- tribution have no effects on aggregate investments. Finally, investment spillovers reduce investment, and investment is higher than the joint-profit maximizing benchmark for the case without spillovers and lower for the case with spillovers. Armin Schmutzler Innovation and Spillovers Industrial Organisation Experimental Economics http://works.bepress.com/armin_schmutzler/17 http://works.bepress.com/armin_schmutzler/17 Mon, 27 Oct 2008 02:39:38 PDT The paper characterizes the mixed-strategy equilibria in all-pay auctions with endogenous prizes that depend positively on own effort and negatively on the effort of competitors. Such auctions arise naturally in the context of investment games, lobbying games, and promotion tournaments. We also provide an experimental analysis of a special case which captures the strategic situation of a two-stage game with investment preceding homogenous Bertrand competition. We obtain overinvestment both relative to the mixed-strategy equilibrium and the social optimum. Armin Schmutzler Economic Theory Experimental Economics http://works.bepress.com/armin_schmutzler/16 http://works.bepress.com/armin_schmutzler/16 Mon, 27 Oct 2008 02:13:06 PDT Using a general two-stage framework, this paper gives sufficient conditions for increasing competition to have negative or positive effects on R&D-investment, respectively. Both possibilities arise in plausible situations, even if one uses relatively narrow concepts of increasing competition. The paper also shows that competition is more likely to increase the investments of leaders than those of laggards. When R&D-spillovers are strong, competition is less likely to increase investments. The paper also identifies conditions under which low initial levels of competition make a positive effects of competition on investment more likely. Armin Schmutzler Innovation and Spillovers Industrial Organisation http://works.bepress.com/armin_schmutzler/15 http://works.bepress.com/armin_schmutzler/15 Mon, 14 May 2007 01:44:37 PDT This paper examines the interplay of endogenous vertical integration and cost-reducing downstream investment in successive oligopoly. Analyzing a linear Cournot model, we establish the following key results: (i) Vertical integration increases own investment and decreases competitor investment (intimidation effect). (ii) Asymmetric integration is a non-degenerate equilibrium outcome. (iii) Compared to a benchmark model without investment, complete vertical separation is a less likely outcome. We argue that these findings generalize beyond the linear Cournot model under reasonable assumptions. Armin Schmutzler Industrial Organisation http://works.bepress.com/armin_schmutzler/14 http://works.bepress.com/armin_schmutzler/14 Mon, 14 May 2007 01:39:39 PDT We consider a reduced form model with acquisitions and entry. There are two investors and several small non-investing firms. One investor can acquire a small firm, the other investor decides about market entry. After that all firms play an oligopoly game. We derive conditions under which increasing market concentration arises with myopic firms. We apply the framework to a Cournot model with cost synergies and a Bertrand model where acquisitions extend the product spectrum of a firm. Zava Aydemir Industrial Organisation http://works.bepress.com/armin_schmutzler/13 http://works.bepress.com/armin_schmutzler/13 Mon, 14 May 2007 01:28:22 PDT This paper studies the effects of introducing competition for local passenger railway markets in the German state of Baden-Württemberg. We compare the evolution of the frequency of service on lines that were exposed to competition for the market with lines procured by direct negotiations with the incumbent. Our results suggest that the competitively procured lines enjoyed a stronger growth of the frequency of service than those that were not procured competitively, even after controlling for various line characteristics that might have had an independent influence on the frequency of service. Our results further suggest that the effects of competition may depend strongly on the operator. Armin Schmutzler Network Industries http://works.bepress.com/armin_schmutzler/12 http://works.bepress.com/armin_schmutzler/12 Fri, 11 May 2007 14:28:42 PDT We analyze a two-country model of Foreign Direct Investment (FDI). Two firms, each of which is originally situated in only one of the two countries, first decide whether to build a plant in the foreign country. Then, they decide whether to relocate R&D activities. Finally, they engage in product-market competition. Our main points are: first, FDI liberalization causes a relocation of R&D activities if intrafirm communication is sufficiently well developed, external spillovers are substantial, competition is not too strong and foreign markets are not too small. Second, such a relocation of R&D activities will usually nevertheless increase domestic welfare since it only occurs if intrafirm communication is well developed and therefore knowledge generated and obtained abroad flows back to the domestic country. Third, the potential of R&D offshoring makes FDI itself more likely. Fourth, when countries are asymmetric, the small-country firm is more likely to offshore its R&D activities into the large country than conversely. Hans Gersbach Innovation and Spillovers http://works.bepress.com/armin_schmutzler/11 http://works.bepress.com/armin_schmutzler/11 Fri, 11 May 2007 14:23:25 PDT We develop a product market theory that explains why firms provide their workers with skills that are sufficiently general to be potentially useful for competitors. We consider a model where firms first decide whether to invest in industry-specific human capital, then make wage offers for each others' trained employees and finally engage in imperfect product market competition. Equilibria with and without training, and multiple equilibria can emerge. If competition is sufficiently soft and returns to the number of trained workers decrease sufficiently,firms may invest in non-specific training if others do the same, because they would otherwise suffer a competitive disadvantage or need to pay high wages in order to attract trained workers. Hans Gersbach The Interaction of Product and Labor Markets http://works.bepress.com/armin_schmutzler/10 http://works.bepress.com/armin_schmutzler/10 Fri, 11 May 2007 14:00:10 PDT To examine the impact of globalization on managerial compensation, we consider a matching model where a number of firms compete both in the product market and in the managerial market. We show that globalization, i.e. the simultaneous integration of product markets and managerial pools, leads to an increase in the heterogeneity of managerial salaries. Typically, while the most able managers obtain a wage increase, less able managers are faced with a reduction in wages. Hence our model can explain the increasing heterogeneity of CEO compensation that has been observed in the last few decades. Armin Schmutzler The Interaction of Product and Labor Markets