25/05/2016 : Olga Rozanova thesis

Olga Rozanova will defend her thesis on « Essays on Vertical Relations, Demand-Enhancing Investments and Regulation  » the 25th May 2016, Room MF 323 at 2:30 pm.

Memberships

• Zohra BOUAMRA-MECHEMACHE , TSE researcher, Senior researcher INRA - Toulouse
• Professor Patrick REY, TSE - University of Toulouse 1 Capitole
• Yassine LEFOUILI, TSE researcher, University of Toulouse 1 Capitole
• Claire CHAMBOLLE, INRA researcher, Associated at the Ecole Polytechnique
• Professor Christian WEY, University of Düsseldorf
• Professor Markus REISINGER, Francfort School of Finance and Management

Abstract

Part I consists of two works. It challenges some generally accepted beliefs in economics.

The first essay ("Integration versus separation when upstream investments matter") reverses a conventional wisdom about the harmful effect of the intermediaries on consumers. More precisely, I show that the presence of the middlemen gives more incentives to the upstream firms to invest in demand-enhancement. The effect on investments may outweigh the one on prices and, as a result, the consumers may benefit from the presence of "passive" intermediaries (i.e. intermediaries that don't do more than just reselling the goods).

 In the second work (called "Vertical separation as a driving force for price-increasing competition") I demonstrate that the entrance of the second vertical structure may result in final good equilibrium price rise and the consumer surplus decrease. In other words, consumers may be better-off in the situation with one final good supplier than in the duopoly case. This irregular effect of the number of competitors on price and consumer surplus is explained by the fact that under vertical separation the upstream firms set wholesale prices at a higher level in the presence of competition compared to the single good supplier case.

 Part II consists of one essay called "Intermediate vs. final price-cap regulation in the presence of demand-enhancing investments." This work is motivated by well documented evidence about the relationship between price-cap regulation and the level of demand-enhancing investments. Both theoretically and empirically it is demonstrated that introduction of price-caps lowers the firms' incentives to invest in product quality improvement (or infrastructure improvement in case of the utility industry). In the paper I propose to regulate intermediate price (instead of the final one). I prove that under two-part tariff contracts between the upstream-monopolist and symmetric downstream firms, the introduction of the cap on the intermediate price results in a higher level of demand-enhancing investments (compared to the one under final price-cap regulation) provided that both regulation schemes guarantee the same level of final prices.

Part III of the thesis provides several examples under which the introduction of the vertical relations completely reverses the equilibrium outcome of a corresponding one-tier game. There are three works in this part.

The first work is the paper called "Cournot-Bertrand model in vertically related markets". Here I prove that the introduction of the vertical component into the model, where one of the firms is a Cournot-type competitor (i.e. it chooses quantity), while another one is a Bertrand-type competitor (i.e. it sets price)  totally reverses the equilibrium outcome of the one-tier framework. In particular, in case of differentiated goods it is more profitable to be a Bertrand-type firm (while the opposite is true in a one-tier framework). In case of homogenous goods, the equilibrium price may be sustained at the higher than the monopoly level (while marginal cost pricing arises in a one-tier model). The latter result implies that the collusion between the downstream firms may be welfare-enhancing.

The second work of Part III is a note called "Choice of price or quantity contract under centralized bargaining. Generalization”. Here I generalize the result illustrated in the recent paper Basak & Wang (2016). Basak & Wang (2016) demonstrates (for the case of linear demands) that under centralized bargaining among upstream-monopolist and downstream-duopolists, the equilibrium competition mode is a Bertrand one. This result contrasts the one in a seminal paper by Singh and Vives(1984). I prove the validity of the result in Basak & Wang (2016) for general functional forms of the demands.

The third work of Part III is a note-response to a recent paper Alipranti et al. (2014). I show that a slight modification of the framework studied in Alipranti et al.(2014) (namely, if the renegotiations of the contract terms between upstream and downstream firms are allowed) reverses the conclusion on downstream profits in Alipranti et al.(2014). As a result, Bertrand competition mode arises in equilibrium. This latter outcome is in contrast with the one in a seminal paper by Singh and Vives(1984).

 Part IV consists of two notes on wholesale prices.

In the first one I demonstrate the validity of a well-known result on the wholesale price for a rather general framework. Namely, I prove that equilibrium wholesale prices (under two-part tariff contracts) are always above (below) upstream firms' marginal costs in case of Bertrand (Cournot) competition downstream.

In the second note I study the equilibrium wholesale prices in case of a mixed competition downstream.  The results contrast the ones under pure competition downstream. Namely, I demonstrate that the equilibrium wholesale price paid by Cournot-type (Bertrand-type) firm is higher (lower) than the marginal costs of a corresponding upstream firm.