We treat the problem of existence of a location-then-price equilibrium in the circle model with a linear quadratic type of transportation cost function which can be either convex or concave. We show the existence of a unique perfect equilibrium for the concave case when the linear and quadratic terms are equal and of a unique perfect equilibrium for the convex case when the linear term is equal to zero. Aside from these two cases, there are feasible locations by the firms for which no equilibrium in the price subgame exists. Finally, we provide a full taxonomy of the price equilibrium regions in terms of weights of the linear and quadratic terms in the cost function.
Abstract. In a bankruptcy problem framework we consider rules immune to possible manipulations by the creditors involved in the problem via merging or splitting of their individual claims. The paper provides characterization theorems for the non manipulable rules, the no advantageous merging parametric rules and the no advantageous splitting parametric rules.JEL classification: C70, C71, D70
a b s t r a c tSeveral regulatory authorities worldwide have imposed forward contract commitments on electricity producers as a way to mitigate their market power. In this paper we analyze the impact of such commitments on equilibrium outcomes in a model that reflects important institutional and structural features of electricity markets. We show that, when firms are asymmetric, the distribution of contracts among firms matters. In the case of a single dominant firm, the regulator can be confident that allocating contracts to that firm will be pro competitive. However, when asymmetries are less extreme, certain contract allocations might yield anti competitive outcomes by elim inating more competitive equilibria. Our analysis thus suggests that forward contracts should be allocated so as to (virtually) reduce asymmetries across firms.
Using a model of market making with inventories based on Biais (1993), we find that investors obtain more favorable execution prices, and they hence invest more, when markets are fragmented. In our model, risk-averse dealers use less aggressive price strategies in more transparent markets (centralized) because quote dissemination alleviates uncertainty about the prices quoted by other dealers and, hence, reduces the need to compete aggressively for order flow. Further, we show that the move toward greater transparency (centralization) may have detrimental effects on liquidity and welfare.
We study the location-then-price game played by two firms in a circular market when consumers face non-linear transport costs. We show that for any convex transport cost function there exists a concave one such that the location-then-price games induced by these functions are strategically equivalent. Further, we provide a sufficient condition to guarantee that a similar equivalence result holds under oligopolistic competition among equidistant firms.
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