CEF.UP – ECO Seminar/Webinar

Friday – January 27^th, 2023, at 1:00 p.m. | Room 305| Online

“The Japanese Textile Sector and the Influenza Pandemic of 1918-1920”

Ilan Noy – Victoria University of Wellington (joint work with Toshihiro Okubo and Eric Ströbl)

Abstract:

“The ongoing global pandemic has brought into sharp relief the possible interactions between the epidemiology of a virus, the structure of the economy and society that becomes exposed to it, and the actions chosen by government, individuals, and communities to combat it or ameliorate its economic impact. Surprisingly, there has not been sufficient research on these economic and policy interactions of the 1918-1920 influenza pandemic – the deadliest pandemic of the 20th century. The focus of much of the research has been on the pandemic’s mortality and other demographic impacts. This paper focuses on Japan, which as a minor participant, was not directly affected by World War I. We exploit the diversity of experiences with the pandemic and its attendant policy responses across Japanese prefectures; and investigate the importance of the pandemic’s toll (measured by excess mortality), and of non-pharmaceutical policy interventions (NPIs), in determining the pandemic’s economic impact. We do so by focusing on the production and employment in the textile sector, given the availability of data and the general importance of the textile sector for emerging economies (as Japan was at the time). We investigate the role of NPIs in ameliorating the economic costs for the sector during the pandemic years (1918-1920), and indeed find that the implemented NPIs were effective in ameliorating the pandemic’s economic consequences, rather than worsening them. In this case, there was no trade-off between money and life, but rather the two were complimentary.”

CEF.UP – ECO Seminar/Webinar

Thursday – December 15^th, 2022, at 1:00 p.m. |Room 305| Online

“The Global Transmission of U.S. Monetary Policy”

Giovanni Ricco – University of Warwick

Abstract:

“The US monetary policy propagates internationally by affecting external demand and due to the role of the dollar as the world’s dominant currency in financial markets, trade invoicing, and foreign exchange reserves. We quantify spillover effects by employing a state-of-the-art high-frequency identification and big data techniques, in conjunction with a harmonised dataset covering 30 economies and over 150,000 data-points. We report three novel stylised facts. First, a US monetary policy tightening has large and qualitatively homogeneous real and nominal contractionary spillovers onto both advanced and emerging economies. Second, flexible exchange rates cannot fully insulate domestic economies. Movements in risk premia limit central banks’ ability to control the yield curve, even in advanced economies. Third, financial channels dominate over demand and exchange rate channels in the transmission to real variables, while the transmission via oil and commodity prices determines nominal spillovers. The latter is an important novel channel not previously reported in the literature. ”

CEF.UP – ECO Seminar/Webinar

Tuesday – December 13^th, 2022, at 1:00 p.m. |Room 305| Online

“An Experiment on Gender Representation in Majoritarian Bargaining”

 Diogo Geraldes – University College Dublin – School of Economics

Abstract:

“Women are underrepresented in political and business decision-making bodies across the world. To investigate the causal effect of gender representation on multilateral negotiations, we experimentally manipulate the composition of triads in a majoritarian, divide-the-dollar game. First, we find that inclusive splits and unanimous agreement rates are highest in all-female groups and lowest in all-male groups suggesting that female representation increases fairness. Second, we document a robust gender gap in earnings, driven largely by the exclusion of women from coalitions rather than differential shares within coalitions. Experiments with different subject pools show that distinct bargaining dynamics can underlie the same inequitable outcomes: While gender-biased outcomes are sometimes caused by outright discrimination, they can also be driven by more complex dynamics related to gender differences in bargaining strategies. These different dynamics manifest in mixed-gender coalitions being less stable when the excluded party is male rather than female. Men are more likely to make opening offers and enjoy a payoff advantage for doing so, but women suffer backlash for proposing first.”

Brief Bio

Diogo Geraldes is a Senior Assistant Professor at the University College Dublin – School of Economics since August 2022. Diogo’s main research interests lie in the fields of Behavioral Economics, Experimental Economics, and Game Theory. Before arriving in beautiful Dublin, Diogo’s academic path navigated through Lisboa (Nova University), Barcelona (Pompeu Fabra University), New York (Columbia University), Maastricht University, and Utrecht University.

Additionally, Diogo is a Research Fellow of the Geary Institute for Public Policy and a Member of the UCD Behavioral Science & Policy Group. And also a Researcher at the Science of Diversity & Inclusion Initiative (University of Chicago).

CEF.UP – WiP Seminar/Webinar

Tuesday – December 6^th, 2022 at 1:00 p.m. | Room 305 | Online

“Firm Investment and Liquidity: Evidence from a Natural Disaster”

José Jorge – FEP and Cef.up (joint work with Sujiao Zhao)

Abstract:

“Natural disasters dramatically affect firms, but they also provide for an opportunity to start anew. We exploit information on the 15-16 October 2017 Portuguese wildfires and the ensuing official assistance that subsidized 85% of the losses, applying a differences-in-differences approach. Firms affected by the wildfires increase output and fixed assets, with employment and productivity remaining stable. Their book value of fixed assets increases substantially more than their economic value. Affected firms activate their existing credit lines, borrow long term credit, and increase cash holdings. The evidence is consistent with the theory that firms invest both in scale and in liquidity.”

CEF.UP – ECO Seminar/Webinar

Tuesday – November 29^th, 2022, at 1:00 p.m. |Room 305| Online

“Spectral decomposition of the information about latent variables in dynamic macroeconomic models”

 Nikolay Iskrev – Banco de Portugal

Abstract:

“In this paper, I show how to perform spectral decomposition of the information about latent variables in dynamic economic models. A model describes the joint probability distribution of a set of observed and latent variables. The amount of information transferred from the former to the latter is measured by the reduction of uncertainty in the posterior compared to the prior distribution of any given latent variable. Casting the analysis in the frequency domain allows decomposing the total amount of information in terms of frequency-specific contributions as well as in terms of information contributed by individual observed variables. I illustrate the usefulness of the proposed methodology with applications to two DSGE models taken from the literature.”

CEF.UP – WiP Seminar/Webinar

Tuesday – November 22^nd, 2022 at 1:00 p.m. | Room 305 | Online

“Universal Basic Income: The Worst Bar All Others?”

Luís Guimarães – Cef.up (joint work with Diogo Lourenço)

Abstract:

“Extant welfare programmes introduce unintended distortions and suffer from low take-up, transfers to ineligible recipients, and administrative costs. A noteworthy alternative, arguably immune to these imperfections, is a Universal Basic Income (UBI), i.e., an unconditional transfer to all citizens. Yet, UBI is a blunt instrument that does not discriminate rich from poor and is useless for incentivizing work or further education. The welfare and other macroeconomic impacts of replacing means-tested welfare programmes with a UBI are therefore far from obvious. To elucidate them, we build a dynamic general-equilibrium model with incomplete markets and heterogeneous agents. We find that replacing a suite of means-tested US programmes with an expenditure neutral UBI would increase the stock of capital, employment, and output, but lower welfare. Further experiments, however, also indicate that if the magnitude of current transfers increased substantially, an expenditure neutral UBI would be welfare-improving.”

CEF.UP – FIN Seminar/Webinar

Thursday – November 17^th, 2022 at 1:00 p.m. |Room 305| Online

“Committing to Grow: Privatizations and Firm Dynamics in East Germany”

Nicolas Serrano-Velarde – Bocconi University (joint work U. Akcigit, H. Alp and A. Diegmann)

Abstract:

“We study the implications of employment targets on firm dynamics during the privatization of the East German economy. Exploiting novel contract-level data, we document three stylized facts. First, the policy distorted firm size choices and generated bunching of firms around their committed employment target. Second, exploiting heterogeneous labor preferences of privatizers, we show that assigning tight commitments to firms causes an increase in employment growth and leads to higher productivity growth. Finally, tighter commitments also result in significant costs by leading to increased firm exit. We interpret these results through the lens of a dynamic model with endogenous productivity growth at the firm level. The model highlights that while tight commitments distort the employment decision statically and lead to a higher exit probability, they also induce a “catch-up” increase in productivity growth. This is because although firm profits are lower under tight commitments, marginal profits with respect to productivity are higher. We calibrate the model to our data and find that the policy lead to a 3 percentage points higher aggregate TFP growth thanks to the productivity improvements of firms with tight contracts.”

CEF.UP – ECO Seminar/Webinar

Tuesday – October 25^th, 2022, at 1:00 p.m. |Room 305| Online

“Firm Heterogeneity, Market Power and Macroeconomic Fragility”

 Francisco Queirós – Università Federico II

Abstract:

“We study how firm heterogeneity and market power affect macroeconomic fragility, defined as the probability of long-lasting recessions. We propose a theory in which the positive interaction between firm entry, competition and factor supply can give rise to multiple steady-states. We show that when firm heterogeneity is large, even small temporary shocks can trigger firm exit and make the economy spiral in a competition-driven poverty trap. Calibrating our model to incorporate the well-documented trends in increasing firm heterogeneity in the US economy, we find that, relative to 2007, an economy with the 1990 level of firm heterogeneity is 1.5 to 2 times less likely to experience a deep recession.We use our framework to study the 2008–09 recession and show that the model can rationalize the persistent deviation of output and most macroeconomic aggregates from trend, including the behavior of net entry, markups and the labor share. Post-crisis cross-industry data corroborates our proposed mechanism. We conclude by showing that firm subsidies can be powerful in preventing quasi-permanent recessions and can lead to up to a 21% increase in welfare.”

CEF.UP – FIN Seminar/Webinar

Thursday – October 13^th, 2022 at 1:00 p.m. |Room 305| Online

“The Innovation Arms’ Race” – access the paper here

Farooq Ahmad – SKEMA Business School (joint work with Eric de Bodt and Jarrad Harford)

Abstract:

“Economists have long recognized that competition and innovation interact as key drivers of economic growth (Schumpeter, 1943; Arrow, 1962; Aghion and Howitt, 1992). Acknowledging this, regulators carefully scrutinize competitive behaviors that potentially affect innovation incentives, in particular in the field of M&A (Shapiro, 2012). Do acquisitions of innovative targets spur or stifle innovation? To address this question, we test the Innovation Arms Race hypothesis, providing a first large scale empirical investigation of M&A effects on acquirer rivals’ incentives to innovate and the equilibrium outcome resulting from this competitive process. Our results are consistent with the Innovation Arms Race hypothesis predictions: acquisitions of innovative targets push acquirer rivals to invest more in innovation, both internally through research and development (R&D) and externally through acquisition of innovative targets (the correlated investment prediction) and this increase in innovation investment under pressure of rivals leads to a decrease in firm market valuation (the value decrease prediction). These results are robust to endogeneity and are driven by High-Technology and (to some extent) Healthcare industries. This arms race process appears stronger for leaders and (to some extent) firms under strong competitive pressure (so-called neck-and-neck firms). Initial patents and patent citations based evidence shows no sign of innovation investment efficiency decline, suggesting that the Innovation Arms Race generates a transfer of economic rent favorable to consumers.”

CEF.UP – ECO Seminar/Webinar

Tuesday – October 11^th, 2022, at 1:00 p.m. |Room 305| Online

“The current energy crisis in historical perspective”

 Astrid Kander – Lund University

Abstract:

“The energy crisis of 2022 has several similarities to the oil crises of the 1970s, but there are also differences. This paper takes a very long perspective on the situation where EU tries to free itself from fossil fuels to save the climate, and at the same time urgently stand united in the energy war that Putin has inflicted on especially Germany, but indirectly all of EU, by stopping the gas deliveries via Nord stream 1. We will discuss historical and contemporary limitations of areal energy resources, as well as the inflation and interest increases, which will possibly lead to stagflation (like in the 1970s), and the impact on energy markets as well as stock exchange markets. Last we will briefly touch upon whether this  energy crisis will make move EU faster in achieving its climate ambitions or the contrary.”

CEF.UP – ECO Seminar/Webinar

Tuesday – September 27^th, 2022, at 1:00 p.m. |Room 305| Online

“Firm Dynamics and Sectoral Reallocation with Hugo Hopenhayn and Rish Singhania”

 Julian Neira – University of Exeter, UK

Abstract:

This paper presents a tractable framework to jointly study patterns of sectoral reallocation and firm dynamics. The framework features input-output linkages across sectors, heterogeneous rates of firm creation and destruction, and common factor markets. We characterize the existence and uniqueness of the equilibrium. We present applications to sectoral reallocations in US data.

CEF.UP – ECO Seminar/Webinar

Friday – September 16^th, 2022, at 1:00 p.m. |Room 305| Online

“Public housing development and segregation: SRU law in France”

Guillaume Chapelle  – THEMA, CY Cergy Paris Université,  France

Abstract:

We study the effects of the SRU law introduced in France in December 2000 to support scattered development of public housing in cities and favor social mixity. This law imposes 20% of public housing to all medium and large municipalities of large-enough cities, with fees for those not abiding by the law. Using exhaustive fiscal data, we evaluate the effects of the law over the 1996-2008 period using a difference-in-differences approach at the municipality level. We find that the law stimulated public housing construction in treated municipalities with a low proportion of public dwellings. Within these municipalities, it decreased public housing segregation but it did not decrease much low-income segregation. We investigate their intra-municipal dynamics by running block-level regressions that include municipality fixed effects. Within these treated municipalities, the concentration of public dwellings increased to a larger extent in blocks with below-average income and below-average concentration of public dwellings.

CEF.UP – ECO Seminar/Webinar

Tuesday – July 12^th, 2022, at 1:00 p.m. |Room 305| Online

“Social Distancing and Risk Taking: Evidence from a Team Game Show”

José de Sousa  – Université Paris-Saclay (joint work with Jean-Marc Bourgeon and Alexis Noir-Luhalwe)

Abstract:

“We examine the risky choices of pairs of contestants in a popular radio game show in France. At the onset of the Covid-19 pandemic, the show, traditionally held in person, had to switch to all remote. We find that this exogenous change in social context affects risk-taking behavior. Remotely, pairs take far fewer risks when the stakes are high than in the flesh. This behavioral difference is consistent with prosocial behavior theories, which argue that the nature of social interactions influences risky choices. Our results suggest that working from home may reduce participation in profitable but risky team projects.”

CEF.UP – MaR Seminar/Webinar

Tuesday – June 7^th , 2022 6:30 p.m. – 7:30 p.m. | Room 305 | Online

“Exploring the boundaries of open innovation: Evidence from social media mining”

José Ramón Saura – Univ. Rey Juan Carlos, Spain (joint work with Daniel Palacios-Marqués and Domingo Ribeiro-Soriano)

Area: Mkt & Strat

CEF.UP – MaR Seminar/Webinar

Tuesday – May 31^st , 2022 6:30 p.m. – 7:30 p.m. | Room 305 | Online

“Creativity, Control and Communication in New Product Development”

Hanno Roberts – Norwegian BS, Norway (joint work with Emilia Skowrońska and João Oliveira)

Abstract:

“This paper focuses on New Product Development processes as these are both ‘creativity intensive’ as well as ‘control requisite’ areas within an organization. We explore how communication as a control practice orients and affects creativity in New Product Development processes, within a creativity-centered service & product design company based in Portugal. The paper untangles the communication processes and tools used, including their effects upon their creative (design) processes.

We identify a number of communication tools deployed in different stages of the product development process. Firstly, highly visual communication tools (e.g., maps and boards), had a positive effect not only upon creativity itself, but also upon the project self-organization of the designers. Secondly, meetings performed a crucial role in terms of communication interlinkage, with an immediately visible influence on employee creativity. Thirdly, the company, implicitly and unconsciously, started building its own version of an Interactive Control System (ICS) (Simons, 1994), supporting multiple organizational learning activities and leading up to the development of traits of a learning organization.

The paper contributes to the literature on Management Control in creative industries, by examining how communication underpins and is intertwined with management control, and supporting the view that the creativity-control tension described in the literature is, in fact, a false dichotomy. The paper reveals how multiple communication tools enable creativity and control to successfully co-exist. Together, creativity and control address the articulation of this company’s key resource (its creative employees) and, subsequently, transpose that articulation into an efficient deployment.”

Area: Acc & MC

CEF.UP – MaR Seminar/Webinar

Tuesday – May 24^th , 2022 6:30 p.m. – 7:30 p.m. | Room 631 | Online

“Internalizing Externalities: Disclosure Regulation for Hydraulic Fracturing, Drilling Activity and Water Quality”

Giovanna Michelon – Bristol University, UK (joint work with Pietro Bonetti and Christian Leuz)

Abstract:

“The rise of shale gas and tight oil development has triggered a major debate about hydraulic fracturing (HF). In an effort to mitigate risks from HF in unconventional development, many U.S. states have introduced disclosure mandates for HF fluids. In this paper, we study the effects of this important regulatory initiative on HF activity and its environmental impact. We find significant improvements in water quality, examining salts that are considered signatures for HF impact, after the disclosure mandates are introduced. We document effects along the extensive margin (less HF activity) and the intensive margin (less per-HF well impact). Most of the improvement comes from the intensive margin. Supporting this interpretation, we find that, after the introduction of disclosure, operators pollute less per unit of production, use fewer toxic chemicals, and that there are fewer spills related to the handling of HF fluids and wastewater. We also explore possible mechanisms   through which disclosure regulation can be effective and find that public pressure likely plays an important role. Taken together, our empirical assessment of a major regulatory initiative for HF provides novel evidence on how disclosure mandates can help to internalize negative and fairly widespread external effects.”

Area: Acc & MC

CEF.UP – WiP Webinar

Tuesday – May 24^th, 2022 at 1:00 p.m. | Online

“Pope Francis’ Economics of Fraternity: A Co-Evolutionary Analysis”

Fernando Oliveira – Cef.up and University of Auckland

Abstract:

“Pope Francis has criticized the economy of exclusion created by capitalism. Based on a stylized pie-sharing game, the article proposes a co-evolutionary network model, using reinforcement learning, to analyze the interaction between social classes. This article aims to answer the following questions: Why do socioeconomic classes exist? When do they increase social efficiency and individual effectiveness? What is the role of social exclusion? From a methodological perspective, the model extends the pie-sharing game to include a network of interactions and classes, social mobility, and evolving wealth. The results show that flatter societies tend to lead to higher average individual effectiveness, however social inequality emerges even in round-table societies. In flatter societies inequality decreases to the levels observed, at equilibrium, in round-table societies. In vertical societies wealth inequality persists. Furthermore, the analysis extends the network model to include the possibility of individuals changing social class (i.e., to consider social mobility), studying how it affects individual effectiveness: it increases the perceived wealth differences between classes and, in the long run, supports the status quo. Finally, the article studies societies in which social mobility seldom occurs between the upper and lower classes are a Nash equilibrium, even in the long-term. This analysis is illustrated using the process of wealth accumulation and social exclusion in New Zealand.”

CEF.UP – MaR Webinar

Thursday – May 19^th , 2022 6:30 p.m. – 7:30 p.m. | Online

“How to Get Published and Ensure Your Paper Achieves the Impact it Deserves?“

Hugh Scullion – University of Hull, UK 

Area: Research methods / process

CEF.UP – FIN Seminar/Webinar

Thursday – May 19^th, 2022 at 1:00 p.m. |Room 305| Online

“Negotiating Compensation“

Vladimir Vladimirov – University of Amsterdam (joint work with Florian Hoffmann)

Abstract:

“Workers can often negotiate their compensation. We develop a model showing that optimal negotiations and compensation design depend on whether capital and labor are substitutes or complements. This distinction — closely related to whether labor is low- or high-skilled — further affects whether workers can extract higher compensation by negotiating with fewer firms or by searching for additional job offers. It also affects whether cash constraints inflate or depress compensation when firms compete for workers. By solving for the optimal mechanism for workers to sell their labor, we further show how workers can compare different types of offers and negotiate with firms with different bargaining power.”

CEF.UP – MaR Webinar

Tuesday – May 17^th , 2022 6:30 p.m. – 7:30 p.m. |Online

“Talent management in the public sector: empirical evidence from the Emerging Economy of Dubai“

Hugh Scullion – University of Hull, UK (joint work with Hessa Al Jawali, Tamer K. Darwish, and Washika Haak-Saheem)

Area: Org & HR

CEF.UP – MaR Seminar/Webinar

Thursday – May 12^th , 2022 6:30 p.m. – 7:30 p.m. | Room 631 | Online

“Art of writing different types of literature reviews”

Justin Paul – Editor-in-Chief, International Journal of Consumer Studies (University of Puerto Rico, USA & University of Reading, UK)

 Area: Research methods / process

CEF.UP – FIN Seminar/Webinar

Thursday – May 5^th, 2022 at 1:00 p.m. |Room 305| Online

“The Correlation Risk Premium Term Structure “

Gonçalo Faria – Universidade Católica Portuguesa (joint work with Robert Kosowski)

Abstract:

“The aim of this paper is to study the term structure of correlation risk and exploit a unique dataset of correlation swap quotes. The main empirical findings are supported by a general equilibrium asset pricing model that endogenously generates a correlation risk term structure. We analyse two alternative measures of correlation risk and their term structure, based on S&P500 correlation swap quotes and the synthetic correlation swap rates estimated from option prices. Our main empirical findings are supported by a Lucas Orchard type model with heterogeneous agents that differ in their beliefs about the probability of a systemic rare disaster. When the latter occurs, there is an increase in the dispersion in beliefs about expected consumption growth rate and in the consumption share of the more pessimistic agent. This generates a flattening of the term structure for both the risk neutral expected correlation and the correlation risk premium during periods of enhanced uncertainty.”

CEF.UP – MaR Seminar/Webinar

Tuesday – May 3^rd , 2022 6:30 p.m. – 7:30 p.m. | Room 305 | Online

“Artificial Intelligence, Data Sciences, and Optimization in Economics and Finance. Neural network embeddings on corporate annual filings for portfolio selection“

Panos Pardalos – University of Florida, USA (joint work with George Adosoglou and Gianfranco Lombardo)

Area: Op & Log

CEF.UP – ECO Webinar

Tuesday – April  26^th, 2022 1:00 p.m. | Online

“Tight and Loose, and Red and Blue: A ‘Dance’ of Macro Policies in the US”

Tatiana Kirsanova – Adam Smith Business School (joint work with Celsa Machado and Ana Paula Ribeiro)

Abstract:

“Using an optimising policy framework, we build and estimate a small-scale DSGE model of the US, and present a narrative of monetary and fiscal policy interactions in 1955-2020.  We find that fiscal policy is important to identify shifts in monetary policy preferences, and it is shaped by the political color.
We use this model to analyse the episode of zero lower bound on interest rate in 2008-15. We find that the bound constrained monetary policy, explain some observed irregularities in macroeconomic data, and demonstrate that a change to price level targeting could have generated a strong lift-off from the constraint.”

CEF.UP – ECO Seminar/Webinar

Tuesday – April 5^th, 2022, at 1:00 p.m. |Room 305| Online

“European regional agglomeration: Central Place Theory, New Economic Geography and other geographic perspectives“

Fernando Bruna  – Universidade da Coruña

CEF.UP – MaR Seminar/Webinar

Tuesday – March 29^th, 2022 6:30 p.m. – 7:30 p.m. | Room 305 | Online

“Using a ‘lens’ to re-search business markets, relationships and networks: Tensions, challenges and possibilities“

Poul Houman Andersen – Aalborg University Business School, Denmark (joint work with Ilkka Ojansivu , Christopher John Medlin and Woonho Kim)

Area: Mkt & Strat

CEF.UP – ECO Seminar/Webinar

Friday – February  25^th, 2022 1:00 p.m. | Room 305 |Online

“Social Inequalities in Climate Change-Attributed Impacts of Hurricane Harvey”

Ilan Noy – Victoria University of Wellington

Abstract

Climate change is already increasing the severity of extreme weather events such as with rainfall during hurricanes. But no research to date investigates if, and to what extent, there are social inequalities in climate change-attributed extreme weather event impacts. Here, we use climate change attribution science paired with hydrological flood models to estimate climate change-attributed flood depths and damages during Hurricane Harvey in Harris County, Texas. Using detailed land-parcel and census tract socio-economic data, we then describe the socio-spatial characteristics of these climate change-induced impacts. We show that 30 to 50% of the flooded properties would not have flooded without climate change. Climate change-attributed impacts were particularly felt in Latina/x/o neighbourhoods, and especially so in Latina/x/o neighbourhoods that were low-income and among those located outside of FEMA’s 100-year floodplain. Our focus is thus on climate justice challenges that not only concern future climate change-induced risks, but are already affecting vulnerable populations disproportionately now.

CEF.UP – MaR Seminar/Webinar

Tuesday – February 15^th, 2022 6:30 p.m. – 7:30 p.m. | Room 305 | Online

“International employees’ adjustment research: retrospective overview using bibliometric analysis“

Vilmante Kumpikaite-Valiuniene – Kaunas U. of Technology, School of Economics and Business (joint work with Irma Baneviciene)

Area: Org & HR

CEF.UP – ECO Seminar/Webinar

Tuesday – February 8^th, 2022 1:00 p.m. | Room 305 | Online

“Endogenous Market Coverage with Quality Dependent Unit Production Costs”

Sílvia Jorge – Universidade de Aveiro (joint work with Joana Pinho, Margarida Catalão-Lopes, Cesaltina Pacheco Pires, Pedro Garcês and Adriana Alventosa)

Abstract

“This paper endogeneizes the level of market coverage through competing firms’ choices in a vertically differentiated market, using a two-stage imperfect information game in which firms decide their quality-price mix. Most of the existing literature has ex-ante assumed either full or partial coverage, which is misleading. The only exceptions consider nil costs or higher fixed costs for higher quality offered, which is too restrictive since the quality choice also influences variable production costs. We set up a more realistic scenario of unit production costs increasing with quality and derive the subgame perfect Nash equilibria in terms of quality, price and coverage level. We show that either full or partial market coverage may arise in equilibrium. Partial coverage occurs when the level of the lowest valuation consumer is low. When the level is intermediate or high, full coverage subsists in equilibrium, with positive or nil surplus for the lowest valuation consumer (full coverage corner solution). Our results have important implications in terms of firms´ market positioning and pricing decisions, presenting a deeper and complete endogenous market coverage equilibrium analysis.”