Oligopoly, auctions and market quality

Economics, Law, and Institutions in Asia Pacific Krishnendu Ghosh Dastidar Oligopoly, Auctions and Market Quality www.ebook3000.com Economics, Law, and Institutions in Asia Pacific Series Editor Makoto Yano (Professor of Economics, Kyoto University, Japan; President and Chief Research Officer, Research Institute of Economy, Trade and Industry (RIETI), Japan) Editorial Board Members Reiko Aoki (Professor of Economics, Kyushu University, Japan) Youngsub Chun (Professor of Economics, Seoul National University, Republic of Korea) Avinash K Dixit (John J F Sherrerd ‘52 University Professor of Economics, Emeritus, Princeton University, USA) Masahisa Fujita (Fellow, The Japan Academy, Japan) Takashi Kamihigashi (Professor and Director, Research Institute for Economics and Business Administration (RIEB), Kobe University, Japan) Masahiro Kawai (Project Professor, Graduate School of Public Policy, The University of Tokyo, Japan) Chang-fa Lo (Honourable Justice, The Constitutional Court, Taipei, Taiwan) Mitsuo Matsushita (Professor Emeritus, The University of Tokyo, Japan) Kazuo Nishimura (Professor, Research Institute for Economics and Business Administration (RIEB) and Interfaculty Initiative in the Social Sciences (IISS), Kobe University, Japan; Fellow, The Japan Academy, Japan) Akira Okada (Professor of Economics, Institute of Economic Research, Kyoto University, Japan) Shiro Yabushita (Professor Emeritus, Waseda University, Japan) Naoyuki Yoshino (Dean, Asian Development Bank Institute, Japan; Professor Emeritus, Keio University, Japan) The Asia Pacific region is expected to steadily enhance its economic and political presence in the world during the twenty-first century At the same time, many serious economic and political issues remain unresolved in the region To further academic enquiry and enhance readers’ understanding about this vibrant region, the present series, Economics, Law, and Institutions in Asia Pacific, aims to present cutting-edge research on the Asia Pacific region and its relationship with the rest of the world For countries in this region to achieve robust economic growth, it is of foremost importance that they improve the quality of their markets, as history shows that healthy economic growth cannot be achieved without high-quality markets High-quality markets can be established and maintained only under a well-designed set of rules and laws, without which competition will not flourish Based on these principles, this series places a special focus on economic, business, legal, and institutional issues geared towards the healthy development of Asia Pacific markets The series considers book proposals for scientific research, either theoretical or empirical, that is related to the theme of improving market quality and has policy implications for the Asia Pacific region The types of books that will be considered for publication include research monographs as well as relevant proceedings The series show-cases work by Asia-Pacific based researchers but also encourages the work of social scientists not limited to the Asia Pacific region Each proposal will be subject to evaluation by the editorial board and experts in the field More information about this series at http://www.springer.com/series/13451 www.ebook3000.com Krishnendu Ghosh Dastidar Oligopoly, Auctions and Market Quality 123 Krishnendu Ghosh Dastidar Centre for Economic Studies and Planning, School of Social Sciences (II) Jawaharlal Nehru University New Delhi India ISSN 2199-8620 ISSN 2199-8639 (electronic) Economics, Law, and Institutions in Asia Pacific ISBN 978-4-431-55395-3 ISBN 978-4-431-55396-0 (eBook) DOI 10.1007/978-4-431-55396-0 Library of Congress Control Number: 2017948620 © Springer Japan KK 2017 This work is subject to copyright All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations Printed on acid-free paper This Springer imprint is published by Springer Nature The registered company is Springer Japan KK The registered company address is: Chiyoda First Bldg East, 3-8-1 Nishi-Kanda, Chiyoda-ku, Tokyo 101-0065, Japan www.ebook3000.com To the memory of my mother, Kalpana Ghosh Dastidar, who taught only by example Preface This book provides an economic analysis of various aspects of ‘market quality’ using the tools of ‘oligopoly theory’ and ‘auction theory’ While many of the problems are motivated by real-life examples, mostly from emerging economies, the analysis herein is entirely theoretical The genesis of ‘oligopoly theory’ can be traced to the nineteenth century with the publication of the seminal work by Augustin Cournot in 1838 The advent of game theory in the twentieth century made possible the formalization of important ideas about oligopolistic competition Modern ‘auction theory’ began with the remarkable contribution by William Vickrey in 1961 The full flowering of auction theory came later in the 1970s and 1980s ‘Market quality’ is a relatively new concept that came up in the twenty-first century based on the research of Makoto Yano This field has not been a part of traditional economics Its basic idea is that, just as there are high-quality and low-quality products, there are also high-quality and low-quality markets High-quality markets tend to enrich economic activity; low-quality markets tend to impoverish it The quality of the market is a crucial link that connects science and technology with economic outcomes The introductory chapter of this book provides a brief overview of oligopoly theory, auction theory and market quality theory Subsequent chapters demonstrate how insights from oligopoly and auction theory help explain several features of market quality Chapters 2, and contain new and hitherto unpublished results Chapter provides a survey on recent results related to market quality issues in emerging economies Each chapter also discusses certain open research problems It may be noted that this book does not claim to be a complete reference manual on market quality, and the excluded topics are not necessarily regarded as unimportant The selection inevitably reflects the author’s personal preferences and interests This book is meant for advanced undergraduate and graduate students of economics who have had an exposure to oligopoly theory and auction theory It is hoped that some of them will take interest in ‘market quality theory’ and work on the open research problems suggested in this book New Delhi, India Krishnendu Ghosh Dastidar vii www.ebook3000.com Acknowledgements I am greatly indebted to Makoto Yano whose constant support and inspiration saw me through this book He introduced me to the literature on ‘market quality’ in many long sessions in his office, at a time when the literature was not yet an integral part of the economics curriculum I have been extremely fortunate to collaborate with Makoto Yano since 2013 and have continued to benefit from his insights Without him, this book would have been a non-starter This book was conceived while I was on sabbatical leave from ‘Jawaharlal Nehru University’ during the academic year 2013–2014 I am grateful to my home institution for giving me this opportunity and to the ‘Institute of Social and Economic Research’ (ISER) at Osaka University, Japan, for hosting me during that year ISER provided excellent facilities and an extremely supportive environment for my research Since 2014, I have made several short visits to ‘Institute of Economic Research’ (IER), Kyoto University, Japan IER also provided me with excellent facilities for research Interactions with faculty members and students there were very helpful I must especially thank Masaki Aoyagi, my host in ISER, for the long hours of discussions that I had with him; in what was supposed to be a give and take of knowledge, I got away with a disproportionate amount of ‘take’ I must also thank Tatsuyoshi Saijo, my host in ISER during my first visit there in 2010 He has also been very supportive of my research Tadashi Sekiguchi provided extremely valuable comments on Chap My former student, Rittwik Chatterjee, provided valuable research assistance on Chap Earlier versions of Chap were circulated and presented in a few seminars Comments at various stages, on the results of this chapter from Estelle Cantillon, Gouranga G Das, Hikmet Gunay, Makoto Hanazono, Junichiro Ishida, Jinwoo Kim, Takashi Komatsubara, Noriaki Matsushima, Toshihiro Matsumura, Yasuyuki Miyahara, Eiichi Miyagawa and Shigehiro Serizawa, have been extremely helpful My earlier research work with Sarbajit Chaudhuri, Fumio Dei, Diganta Mukherjee and Uday Bhanu Sinha has provided valuable inputs for this book Discussions on ix x Acknowledgements related topics with Subrata Guha, Rajendra Kundu and Achintya Ray have helped me in many ways I must thank my Ph.D supervisor Anjan Mukherji He introduced me to research on economic theory and has been a lifelong mentor I am extremely grateful to him on many counts My former teacher Satish Jain taught me how to think logically, and I would like to express my gratitude to him Over the years, Sarmila Banerjee, Kazuo Nishimura, Yoshiyasu Ono and Soumyen Sikdar have been very supportive of my research Juno Kawakami of Springer, apart from being a wonderful person, very graciously allowed me to miss every deadline I had committed to The last one year of this work was especially difficult for me personally and for my family, and I thank them Without the love and support of my wife, Ananya, and my daughter, Kheya, I could not have finished this book My cousin, Anirban, has also been a constant source of support for me I fondly remember my mother, Kalpana Ghosh Dastidar, for the unfailing love and emotional support she always provided She passed away before this book could be published I dedicate this book in her memory www.ebook3000.com Contents 2 6 10 11 12 12 14 14 16 17 20 22 22 Allocation of Scarce Resources 2.1 Introduction 2.1.1 The 2G Spectrum Scam in India 2.1.2 The Coal-Block Scam 2.1.3 Appropriate Policy for Allocating Scarce Resource 2.1.4 Summary of Our Findings 29 29 29 31 32 34 Introduction 1.1 Oligopoly Theory 1.1.1 The Classical Literature 1.1.2 Modern Times: Game Theory and Oligopoly 1.1.3 Mechanism Design and Regulation 1.1.4 Concluding Remarks on Oligopoly Theory 1.2 Auction Theory 1.2.1 Why Study Auction? 1.2.2 Basics of Auction Theory 1.2.3 Basic Results of the Canonical Model 1.2.4 Interdependent Values 1.2.5 Some Other Extensions 1.2.6 Recent Work and Practical Auction Design 1.2.7 Concluding Remarks on Auction Theory 1.3 Market Quality 1.3.1 Basic Concepts 1.3.2 Definition and Measures of Market Quality 1.3.3 A Historical Background 1.3.4 Concluding Remarks on Market Quality 1.4 Summary of the Book xi 5.5 Designing Credit Institutions 175 higher bribes While lower informal sector interest rate is good, but higher bribes means more ‘fraud’ and hence is bad for market quality Note that market quality has many dimensions: efficiency, fairness, non-discrimination It would be interesting to capture some of these dimensions in the context of credit subsidy policy in a developing nation No work has been on it so far This remains an open research problem 5.6 Corruption and Union Leadership The phenomenon of corruption has existed for ages Over the last few decades, it has become all-pervasive, especially in many developing countries, and is widely believed to be the single most important obstacle to development Wide spread corruption across organizations, both public and private, surely goes a long way in explaining the poor performance of developing countries Such corruption is often responsible for poor quality of markets which results in significant welfare loss.22 The paper by Chaudhuri and Dastidar (2014b) tries to analyze a specific form of such political corruption that plagues the working of markets in many emerging economies The paper considers a scenario where a corrupt leader of a labour union strikes a deal with the management of a firm This is very common in a country like India 5.6.1 Related Literature Ever since Becker and Stigler (1974), many theoretical papers e.g Banfield (1975), Rose-Ackerman (1975, 1978) and Klitgaard (1988, 1991) focus on the principalagent framework of corruption These models deal with the relationship between the principal, i.e the top level of the government (say, a minister) and the agent (an official) who takes a bribe from private individuals interested in some governmentproduced goods or services Cadot (1987) and Basu et al (1992) analyze bribery in a model with a hierarchical administration In a different context, Shleifer and Vishny (1992, 1993) show how corrupt practices in a socialist economies lead to reduction in production and welfare Since the planners (bureaucrats in the ministries and managers of firms) in such economies cannot keep the official profits that public sector firms earn, it is in their interest to create shortages of output and to collect bribes from consumers 22 See the classic paper on corruption by Shleifer and Vishny (1993) See Bardhan (1997) for a review of issues related to corruption in developing nations The edited book by Mishra (2005) consist of a very interesting set of articles on corruption Basu (2011) provides some interesting ideas on tackling corruption in India www.ebook3000.com 176 Some Specific Market Quality Issues in Emerging Economies Contributions of Chaudhuri and Dastidar (2014b) This paper deals with a the effects of the presence of a corrupt union leader in a unionized industry, who strikes a deal with the management of a firm In many industrial sectors in India, corrupt deals between the union leader and the management are common and are often reported in newspapers The paper by Chaudhuri and Dastidar (2014b) considers two types of worker: skilled and unskilled The paper assumes that production in the firm requires only skilled labour earning the level of wage W The skilled labour market is distorted due to efficiency wage and collective bargaining The efficiency of each skilled worker is positively related to both the wage, W , and the unemployment rate, U , in the economy.23 U refers to the skilled unemployment rate The unskilled workers are all in the informal sector The labour market in the informal sector is perfectly competitive (i.e free of efficiency wage and collective bargaining) so that it provides employment to all unskilled workers at the market clearing unskilled wage, W 24 As noted earlier, the efficiency of a skilled worker is positively related to both the wage and unemployment rate in the economy In the absence of collective bargaining, up to a certain level of wage (efficiency wage), the firm’s profit and the wage rate are positively related and the profit maximizing firm chooses the unit-cost minimizing wage However, in the presence of collective bargaining, the unionized wage is higher than the efficiency wage and the profitability of the firm and the wage rate are negatively correlated In this context, the management of the firm finds it profitable to negotiate with the union leader so as to keep the unionized wage as close as possible to the efficiency wage This gives the union leader an opportunity to demand a bribe from the firm for keeping the unionized close to that desired level The workers of the firm are unsure about whether a shady deal has been struck between the two parties (the management and the union leader) However, if the wage is set too low they may suspect that something is wrong Consequently, there is a risk associated with bribetaking The lower the wage agreed upon by the two parties (management and the union leader), the higher would be the probability that the bribery on the part of the leader would be detected by the union members If the union leader is detected as having resorted to bribe taking, he will be immediately removed from his post and 23 Note that the theory of “efficiency wage” postulates that the efficiency of a worker is positively related to both the wage and unemployment rate in the economy 24 There is no unemployment of unskilled labour in the economy (as the labour market is competitive) The formal sector is characterised by unemployment (the labour market for this segment is not competitive) This scenario is common in a country like India Even though in a developing economy like India there is dichotomy in the unskilled labour market as well and formal-informal division, more than 70% of the unskilled workforce is employed in the informal sector Typically, the unskilled workers flock to the informal sector and earn a competitive wage But, here we concentrate only on the skilled labour market and assume away the formal segment of the unskilled labour market and hence unskilled unemployment The skilled workers, on the other hand, operate mainly in the formal sector where formal labour laws are applicable As such, the formal sector is characterised by unemployment 5.6 Corruption and Union Leadership 177 will have no other option but to seek employment in the informal sector offering a low competitive wage, W As this corrupt practice (negotiation on a bribe to keep the wage low) is mutually beneficial to both the parties, the management of the firm and the union leader play a cooperative game To model such a scenario, the paper considered a two-stage game In the first stage the union leader and the management play a Nash bargaining game where the two players jointly determine the unionized wage and the bribe In the second stage the firm decides on the number of workers to be employed The equilibrium levels of employment, unionized wage and the bribe are computed and this is followed by some comparative static exercises.25 The analysis leads to some interesting results (i) An increase in the price of the final output or an increase in the economy-wide unemployment rate lead to increases in both the unionized wage and bribe However, there is a reduction in the equilibrium level of employment in the firm (ii) Similar effects are observed when there is an increase in the reservation income of the leader or a decrease in the fixed cost of the firm (iii) Policies that raise the informal sector wage lead to reduction in both the unionized wage and bribe and an increase in equilibrium employment Consequently, the paper advocates policies like strict implementation of the minimum wage law and employment guarantee programs for the poorer section since such policies are likely to raise the informal sector wage 5.6.2 Links to Market Quality Corruption severely affects the fairness of dealing and pricing in markets and consequently reduces the quality of markets Corruption takes different forms Chaudhuri and Dastidar (2014b) analyzed a specific form of corrupt practice in the labour market Here the corrupt practices are undertaken by a trade union leader who is entrusted with the task of bargaining with the firm to decide on the unionized wage in a competitive industry This scenario is very common in a country like India Intuitively, it appears that these activities seriously affect social welfare and market quality An interesting research problem would be how to formalize these aspects in terms of a model and analyze the effects on market quality in such cases As noted before market quality has many dimensions: efficiency, fairness, nondiscrimination To capture some of these in the context of a corrupt unionized industry in an emerging economy would be an interesting and challenging course of research 25 The paper by Chaudhuri and Dastidar (2016) has a similar approach and shows that presence of a corrupt union leader often contribute to perpetuation of low wages among workers, especially in emerging economies However, Chaudhuri and Dastidar (2016) not consider the effects of ‘efficiency wage’ www.ebook3000.com 178 Some Specific Market Quality Issues in Emerging Economies 5.7 Concluding Remarks As noted before, ‘market quality’ is a relatively new concept that came up in the twenty-first century based on the research of Makoto Yano In this book we tried to provide an analysis of various aspects of ‘market quality’ using the tools of ‘oligopoly theory’ and ‘auction theory’ While many of the problems were motivated by real life examples, mostly from emerging economies, we kept the analysis entirely theoretical This book is meant for advanced undergraduate and graduate students of economics who had some exposure to oligopoly theory and auction theory It is hoped that some of these young scholars will take interest in ‘market quality theory’ and work on the open research problems suggested here References Abreu, D 1986 Extremal equilibria of oligopolistic supergames Journal of Economic Theory 39: 191–225 Abreu, D 1988 On the theory of infinitely repeated games with discounting Econometrica 56: 383–96 Acemoglu, D., and J.A Robinson 2012 Why nations fail London: Profile Books Alipranti, M., C Milliou, and E Petrakis 2014 Price versus quantity competition in a vertically related market Economics Letters 124: 122–6 Anderson, S.P., A de Palma, and J.-F Thisse 1997 Privatization and efficiency in a differentiated industry European Economic Review 41: 1635–1654 Asker, J., and E Cantillon 2008 Properties of scoring auctions Rand Journal of Economics 39: 69–85 Asker, J., and E Cantillon 2010 Procurement when price and quality matter Rand Journal of Economics 41: 1–34 Aumann, R., and L Shapley 1994 Long term competition: A game theoretic analysis In Essays in game theory: In honor of Michael Maschler, ed N Megiddo New York: Springer Banfield, E 1975 Corruption as a feature of government organization Journal of Law and Economics 18: 587–605 Barcena-Ruiz, J.C 2007 Endogenous timing in a mixed duopoly: Price competition Journal of Economics 91: 263–272 Bardhan, P 1997 Corruption and development: A review of issues Journal of Economic Literature 35: 1320–1346 Basu, K 1993 Lectures in industrial organization theory Oxford: Blackwell Basu, K 2011 Why, for a class of bribes, the act of giving a bribe should be treated as legal, mimeo http://www.kaushikbasu.org/Act_Giving_Bribe_Legal.pdf Basu, K., S Bhattacharya, and A Mishra 1992 Notes on bribery and the control of corruption Journal of Public Economics 48: 349–59 Baye, M.R., and D Kovenock, 2008 Bertrand competition In The new Palgrave dictionary of economics online, eds S.N Durlauf, and L.E Blume Palgrave Macmillan http:// dictionaryofeconomics.com/article?id=pde2008_B000336 Becker, G.S., and G.J Stigler 1974 Law enforcement, malfeasance, and the compensation of enforcers Journal of Legal Studies 3: 1–19 Bertrand, J 1883 Review of Theorie Mathematique de la Richese Sociale and “Recherches sur les Thesis de la Theorie de Richesses” Journal des Savants English Translation (by J.W Friedman) in Daughety, A.F (eds.) 1988 Cournot Oligopoly UK: Cambridge University Press © Springer Japan KK 2017 K.G Dastidar, Oligopoly, Auctions and Market Quality, Economics, Law, and Institutions in Asia Pacific, DOI 10.1007/978-4-431-55396-0 www.ebook3000.com 179 180 References Bester, H., and E Petrakis 1993 The incentives for cost reduction in a differentiated industry International Journal of Industrial Organization 11: 519–534 Borgers, T 2015 An introduction to the theory of mechanism design New York: Oxford University Press Bose, P 1998 Formal-informal sector interaction in rural credit markets Journal of Development Economics 56: 265–80 Branco, F 1997 The design of multidimensional auctions Rand Journal of Economics 28: 63–81 Bulow, J., J Geanakoplos, and P Klemperer 1985 Multimarket oligopoly: Strategic substitutes and complements Journal of Political Economy 93: 488–511 Bulow, J.I., M Huang, and P Klemperer 1999 Toeholds and takeovers Journal of Political Economy 107: 427–454 Bulow, J.I., and P 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multidimensional procurement auctions under asymmetry, mimeo, Indira Gandhi Institute of Development Research India: Mumbai Chaudhuri, S., and K.G Dastidar 2011 Corruption in a model of vertical linkage between formal and informal credit sources and credit subsidy policy Economic Modelling 28: 2596–2599 Chaudhuri, S and K.G Dastidar, 2014a Vertical linkage between formal and informal credit markets: Corruption and credit subsidy policy In Emerging issues in economic development: A contemporary theoretical perspective, eds S Marjit, and R Meenakshi New Delhi: Oxford University Press Chaudhuri, S., and K.G Dastidar 2014b Corruption, efficiency wage and union leadership Pacific Economic Review 19: 559–576 Chaudhuri, S and K.G Dastidar, 2016 Corruption in union leadership (co-author S Chaudhuri) In Themes in economic analysis: Theory, policy and measurement, eds S Guha, R.K Kundu, and S Subramanian New Delhi: Routledge Chaudhuri, S., and M.R Gupta 1996 Delayed formal credit, bribing and the informal credit market in agriculture: A theoretical analysis Journal of Development Economics 51: 433–449 Che, Y.-K 1993 Design competition through multidimensional auctions Rand Journal of Economics 24: 668–680 Che, Y.-K., and I Gale 1998 Standard auctions with financially constrained bidders Review of Economic Studies 65: 1–22 Chen, M.-J., and I.C MacMillan 1992 Nonresponse and delayed response to competitive moves: the roles of competitor dependence and action irreversibility Academy of Management Journal 35: 539–570 Chen, M.-J., S Venkataraman, S Black, and I MacMillan 2002 The role of irreversibilities in competitive interaction: Behavioral considerations from organization theory Managerial and Decision Economics 23: 187–207 References 181 Cournot, A 1838 Recherches sur les Principes Hathematiques de la theorie des Richeses English Edition (ed N.T Bacon) “Researches into the Mathematical Principles of the Theory of Wealth” (1897) New York: Macmillan Cremer, H., M Marchand, 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http://www.ey.com/Publication/vwLUAssets/Managing_bribery_ and_corruption_risks_in_the_construction_and_infrastructure_industry/$FILE/Assurance_% 20FIDS_sector_paper_Construction.pdf Fershtman, C 1990 The interdependence between ownership status and market structure: The case of privatization Economica 57: 319–328 Finkelstein, S., D.C Hambrick, and A.A Cannella 2008 Strategic leadership: Theory and research on executives, top management teams, and boards New York: Oxford University Press Fjell, K., and D Pal 1996 A mixed oligopoly in the presence of foreign private firms Canadian Journal of Economics 29: 737–743 Fjell, K., and J.S Heywood 2002 Public Stackelberg leadership in a mixed oligopoly with foreign firms Australian Economic Papers 41: 267–281 Fjell, K., and J.S Heywood 2004 Mixed oligopoly, subsidization and the order of firm’s moves: The relevance of privatization Economics Letters 83: 411–416 Floro, M.S., and D Ray 1997 Vertical links between Formal and Informal Financial Institutions Review of Development Economics 1: 34–56 Friedman, J.W 1971 A Non-cooperative equilibrium for supergames Review of Economic Studies 28: 1–12 Friedman, J.W 1983 Oligopoly theory Cambridge: Cambridge University Press Fudenberg, D., and J Tirole 1984 The fat cat effect, the puppy dog ploy and the lean and hungry look American Economic Review Papers and Proceedings 74: 361–68 Fudenberg, D., and J Tirole 1991 Game theory Cambridge: MIT Press Furukawa, Y., and M Yano 2014 Market quality and market infrastructure in the South and technology diffusion International Journal of Economic Theory 10 (1): 139–146 Ghemawat, P 1991 Commitment: The dynamic of strategy New York: Free Press Gibbons, R.S 2005 Incentives between firms (and within) Management Science 51: 2–17 Goold, M., and J.J Quinn 1990 The paradox of strategic controls Strategic Management Journal 11: 43–57 Green, E.J., and R.H Porter 1984 Noncooperative Collusion under imperfect price information Econometrica 52: 87–100 Griesmer, J.H., R.E Levitanand, and M Shubik 1967 Toward a study of bidding processes part IV: Games with unknown costs Naval Research Logistics Quarterly 14: 415–433 Gupta, M.R., and S Chaudhuri 1997 Formal credit, corruption and the informal credit market in agriculture: A theoretical analysis Economica 64: 331–43 Hackner, J 2000 A Note on price and quantity competition in differentiated oligopolies Journal of Economic Theory 93: 233–239 Hahn, F.H 1962 The stability of cournot oligopoly solution Review of Economic Studies 29: 329–331 Han, L., and H Ogawa 2008 Economic integration and strategic privatization in an international mixed oligopoly FinanzArchiv 64: 352–363 Hanazono, M 2010 An equilibrium bidding strategy in scoring auctions with a price quality ratio scoring rule The Economic Science 57: 149–157 (Nagoya University), in Japanese Hanazono, M., J Nakabayashi, and M Tsuruoka 2015 Procurement auction with general pricequality evaluation, mimeo, School of Economics, Nagoya University, Chikusa, Nagoya 464-8601, Japan Harsanyi, J 1967-68 Games of incomplete information played by ‘Bayesian’ players, I–III Management Science 14: 159–182, 320–334, 486–502 References 183 Harstad, B., and J Svensson 2011 Bribes, lobbying, and development American Political Science Review 105: 46–63 Hessami, Z 2014 Political corruption, public procurement, and budget composition: theory and evidence from OECD countries European Journal of Political Economy 34: 372–389 Higuchi, Y 2005a Koshitu na Rodo Shijou no Keisei ni Mukete”, in Japanese (“To form quality labour markets”) In Rodo Shijou Sekkei no Keizai Bunseki (Economic Analysis of Labour Market Design), eds Y., T Kodama, M Abe Toyo Keizai, Tokyo, Japan Higuchi, Y 2005b “Nihon no Kakei Kodo no Dainamizumu I”, in Japanese (Dynamism of Household Behavior in Japan), Tokyo: Keio University Press Japan: Tokyo Higuchi, Y 2008 Support for the continued employment of women: The effects of labour law reforms and macroeconomic conditions In The Japanese economy-a market quality perspective, ed M Yano Japan: Keio University Press, Tokyo Higuchi, Y., and R Yamakawa 2008 Policies to create high quality labour markets: From the perspective of law and economics In The Japanese economy- a market quality perspective, ed M Yano Japan: Keio University Press, Tokyo Hoernig, S.H 2007 Bertrand games and sharing rules Economic Theory 31: 573–85 Hoff, K., and J Stiglitz 1997 Moneylenders and bankers: Price-increasing subsidies in a monopolistically competitive market Journal of Development Economics 52: 429–62 Hosoda, E 2008 A new regime for high quality recycling in the East Asian Region In The Japanese economy- a market quality perspective, ed M Yano Japan: Keio University Press, Tokyo Hotelling, H 1929 Stability in competition Economic Journal 34: 41–57 Ikeo, K 2008 Financial system reform: Status and issues In The Japanese economy- a market quality perspective, ed M Yano Japan: Keio University Press, Tokyo Keats, B., and H.M O’Neill 2001 Organizational structure: looking through a strategy lens In The Blackwell handbook of strategic management, eds Hitt, M A., R.E Freeman, and J.S Harrison Oxford: Blackwell Klemperer, P 2004 Auctions: Theory and practice Princeton: Princeton University Press Klitgaard, R 1988 Controlling corruption Berkeley: University of California Press Klitgaard, R 1991 Gifts and bribes In Strategy and Choice, ed R Zeckhauser Cambridge, MA: MIT Press Kolstad, C.D., and L Mathiesen 1987 Necessary and sufficient condition for uniqueness of cournot equilibrium Review of Economic Studies 54: 681–690 Koning, P., and A van de Meerendonk 2014 The impact of scoring weights on price and quality outcomes: An application to the procurement of welfare-to-work contracts European Economic Review 71: 1–14 Kreps, D., and R Wilson 1982 Sequential equilibrium Econometrica 50: 863–94 Krishna, V 2010 Auction theory, 2nd ed San Diego: Academic Press Kurokawa, Y 2008 The quality of earnings and the quality of capital market In The Japanese economy- a market quality perspective, ed M Yano Japan: Keio University Press, Tokyo Laffont, J., and J Tirole 1993 The theory of incentives in procurement and regulation Cambridge: MIT Press Lengwiler, W., and E Wolfstetter 2006 Corruption in procurement auctions In Handbook of procurement, ed by Dimitri, N., G Piga, and G Spagnolo Cambridge: Cambridge University Press Lu, Y 2006 Endogenous timing in a mixed oligopoly with foreign competitors: The linear demand case Journal of Economics 88: 49–68 Majumdar, S., and D Pal 1998 Effects of indirect taxation in a mixed oligopoly Economics Letters 58: 199–204 Mankiw, N.G., and M.D Whinston 1986 Free entry and social inefficiency Rand Journal of Economics 17: 48–58 Martin, S 2010 Industrial organization in context New York: Oxford University Press Maskin, E.S., and J.G Riley 1984 Optimal auctions with risk averse buyers Econometrica 52: 1473–1518 www.ebook3000.com 184 References Maskin, E., and J Tirole 2001 Markov perfect equilibrium I Observable actions Journal of Economic Theory 100: 191–219 Matsumura, T 1998 Partial privatization in mixed duopoly Journal of Public Economics 70: 473– 483 Matsumura, T 2003a Stackelberg mixed duopoly with a foreign competitor Bulletin of Economic Research 55: 275–287 Matsumura, T 2003b Endogenous role in mixed markets: A two period production model Southern Economic Journal 70: 403–413 Matsushima, N., and T Matsumura 2003 Mixed duopoly with product differentiation: Sequential choice of location Australian Economic Papers 42: 18–34 Matsushima, N., and T Matsumura 2006 Mixed oligopoly, foreign firms, and location choice Regional Science and Urban Economics 36: 753–772 Menezes, F.M., and P.K Monteiro 2005 An introduction to auction theory Oxford: Oxford University Press Milgrom, P 2004 Putting auction theory to work Cambridge: Cambridge University Press Milgrom, P., and J Roberts 1982 Limit pricing and entry under incomplete information: An equilibrium analysis Econometrica 50: 443–59 Milgrom, P.R., and R.J Weber 1982 A theory of auctions and competitive bidding Econometrica 50: 1089–1122 Mishra, A (ed.) 2005 The economics of corruption New Delhi: Oxford University Press Miyoshi, K 2008 Male-female wage differentials in Japan Japan and the World Economy 20: 479–496 Mood, A.M., F.A Graybill, and D.C Boes 1974 Introduction to the theory of statistics New York: McGraw-Hill Myerson, R.B 1981 Optimal auction design Mathematics of Operations Research 6: 58–73 Myles, G 2002 Mixed oligopoly, subsidization and the order of firms’ moves: An irrelevance result for the general case Economics Bulletin 12: 1–6 Nakabayashi, J., and Y Hirose 2014 Structural estimation of the scoring auction model, mimeo, Department of Economics, Tohoku University, Kawauchi 27-1, Aoba, Sendai, Miyagi, 980-8576, Japan Nakamura, Y., and M Takahashi 2016 Airbnb faces major threat in Japan, its fastest growing market Bloomberg Business, February 19, 2016 http://www.bloomberg.com/news/articles/201602-18/fastest-growing-airbnb-market-under-threat-as-japan-cracks-down Nash, J.F 1950a Equilibrium points in n-person games Proceedings National Academy of Sciences 36: 48–49 Nash, J.F 1950b The bargaining problem Econometrica 18: 155–162 Nash, J.F 1951 Non-cooperative games Annals of Mathematics 54: 286–295 Nash, J.F 1953 Two-person cooperative games Econometrica 21: 128–140 Nett, L 1994 Why private firms are more innovative than public firms European Journal of Political Economy 10: 639–653 Nishimura, T 2015 Optimal design of scoring auction with multidimensional quality Review of Economic Design 19: 117–143 Novshek, W 1985 On the existence of cournot equilibria Review of Economic Studies 52: 85–98 Ockenfels, A., and A Sadrieh eds 2010 The Selten School of Behavioral Economics: A collection of essays in honor of Reinhard Selten Berlin: Springer OECD, 2013 Government at a glance 2013 Paris, France: OECD Publishing http://dx.doi.org/10 1787/gov_glance-2013-en Ogawa, A., and K Kato 2006 Price competition in a mixed duopoly Economics Bulletin 12: 1–5 Ohnishi, K 2010 Domestic and International mixed models with price competition International Review of Economics 57: 1–7 Ortega Reichert, A 1968 Models for competitive bidding under uncertainty, Ph.D thesis, Stanford University (and Technical Report No 8, Department of Operations Research, Stanford University) References 185 Pal, D 1998 Endogenous timing in a mixed oligopoly Economics Letters 61: 181–185 Pal, D., and M White 1998 Mixed oligopoly, privatization and strategic trade policy Southern Economic Journal 65: 264–282 Pal, R 2010 Technology adoption in a differentiated duopoly: Cournot versus Bertrand Research in Economics 64: 128–136 Pepall, L., D Richards, and G Norman 2008 Industrial organisation: Contemporary theory and empirical observations Massachusetts, USA: Blackwel Publishing Piketty, T 2013 Capital in the twenty- first century Cambridge: Harvard University 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G Saloner 1986 A super game theoretic model of business cycles and price wars during booms American Economic Review 76: 390–407 Rubinstein, A 1979 Equilibrium in supergames with the overtaking criterion Journal of Economic Theory 21: 1–9 Salop, S.C., and D.T Scheffman 1987 Cost-raising strategies Journal of Industrial Economics 36: 19–34 Salop, S.C., and D.T Scheffman 1983 Raising rivals’ costs American Economic Review 73: 267– 271 Saporiti, A., and G Coloma, 2010 Bertrand price competition in markets with fixed costs The B.E Journal of Theoretical Economics 10(1): (Contributions), Article 27 Sarap, K 1991 Interlinked Agrarian markets in Rural India New Delhi: Sage Publications Schelling, T 1960 The strategy of conflict New York: Oxford University Press Seade, J 1980 The stability of cournot revisited Journal of Economic Theory 23: 15–27 Selten, R 1965 Spieltheoretische behandlung eines oligopolmodells mit nachfragetragheit” Zeitschrift für die Gesamte Staatswissenschuft vol 121, pp 301–324 and 667–689 Selten, R 1975 Re-examination of the perfectness concept for equilibrium points in extensive games International Journal of Game Theory 4: 25–55 Sengul, M., J Gimeno, and J Dial 2012 Strategic delegation: A review, theoretical integration, and research agenda Journal of Management 38: 375–414 Shapiro, C 1989 Theories of oligopoly behavior In Handbook of Industrial Organization, vol I, eds Schmalensee, R., and R.D Willig North Holland, U.S.A Shleifer, A., and R.W Vishny 1992 Pervasive shortage under socialism Rand Journal of Economics 23: 237–46 Shleifer, A., and R.W Vishny 1993 Corruption The Quarterly Journal of Economics 108: 599–617 Singh, N., and X Vives 1984 Price and quantity competition in a differentiated duopoly Rand Journal of Economics 15: 546–554 Stackelberg, H 1934 Marketform und Gleichgewicht Springer Vienna: Austria Stigler, G 1964 A theory of oligopoly Journal of Political Economy 72: 44–61 Tirole, J 1988 Industrial organization theory Cambridge: MIT Press Umali, D 1990 The structure and price performance of the philippine rice marketing system, Ph.D dissertation, Stanford University, U.S.A www.ebook3000.com 186 References Vetter, S 2013 Delegating decision rights for anticipated rewards as an alternative to corruption: An experiment European Journal of Political Economy 31: 188–204 Vickrey, W 1961 Counterspeculation, auctions, and competitive sealed tenders Journal of Finance 1: 8–37 Vives, X 1999 Oligopoly pricing: Old ideas and new tools Cambridge: MIT Press von Neumann, J., and O Morgenstern 1944 Theory of games and economic behavior Princeton: Princeton University Press Wang, M., and S Liu 2014 Equilibrium bids in practical multi-attribute auctions Economics Letters 123: 352–355 White, M 1996 Mixed oligopoly, privatization and subsidization Economics Letters 53: 189–195 Wilson, R 1969 Competitive bidding with disparate information Management Science 15: 446– 448 Wolfstetter, E 1999 Topics in microeconomics Industrial organization, auctions, and incentives Cambridge: Cambridge University Press Yano, M 2005 Coexistence of large firms and less efficient small firms under price competition with free entry International Journal of Economic Theory 1: 167–188 Yano, M 2006 A price competition game under free entry Economic Theory 29: 395–414 Yano, M 2007 Shijo to Shijo Kyoso no Ruru [Markets and Rules for Market Competition], ed Yano, Ho to Keizaigaku [Law and Economics] Tokyo: University of Tokyo Press Yano, M 2008a Competitive fairness and the concept of a fair price under Delaware Law on M&A International Journal of Economic Theory 4: 175–190 Yano, M 2008b Economic analysis of market quality In The Japanese economy - a market quality perspective, ed M Yano, 3–20 Tokyo: Keio University Press Yano, M 2009 The foundation of market quality economics Japanese Economic Review 60: 1–32 Yano, M 2010 The 2008 World financial crisis and market quality theory Asian Economic Papers 9: 172–192 Yano, M 2016 Law and economics on market quality In Special BBL Seminar (May 24, 2016) http://www.rieti.go.jp/en/events/bbl/16052401.html Yano, M., and T Komatsubara 2014 Participation of ordinary investors and stock market quality: A comparison between Japanese and US markets Pacific Economic Review 19: 537–558 Zanchettin, P 2006 Differentiated duopoly with asymmetric costs Journal of Economics and Management Strategy 15: 999–1015 Index A Additive separability, 105, 119, 127, 153 Allocation, 1, 6, 13, 18, 23, 29–33, 35, 36, 59, 72, 73, 162 Allocative efficiency, 23, 29, 35, 72 Asymmetric information, 5, 17, 172, 174 Auction, 1, 6–14, 23–25, 29, 30, 32–37, 40– 47, 49, 50, 54, 56, 57, 59, 60, 63, 64, 67, 71–73, 84, 89, 105, 113–118, 120, 126–128, 130–136, 138–140, 148– 150, 153, 155–157, 159, 160 B Bargaining, 26, 27, 158–160, 176, 177 Bayesian Nash equilibrium, 3, 9, 11, 105 Bertrand, 2, 3, 73, 166, 167, 169, 170 Bidder, 8–13, 23, 24, 34, 37, 78, 88, 113, 115, 117, 120, 121, 137–139, 153, 156, 158 Bids, 8, 9, 13, 24, 37, 78, 80, 83, 85, 89, 113, 117, 118, 120, 139, 149 Bribe, 13, 16, 17, 26, 78, 81–86, 88, 89, 99, 102, 103, 156, 158, 159, 161–165, 172, 174–177 Budget constraint, 12 Bureaucrat, 18, 23, 156, 171, 175 Business stealing, 164 C Capacity constraints, 23, 34, 35, 38, 59, 64, 72 Coal-block, 31 Coercive sales, 16, 25, 75, 155 Collusion, 4, 14 Common good, 29, 31, 32, 72 Common value, 11 Competition, 2–4, 14–16, 18, 19, 21, 26, 44, 73, 75, 83, 117, 139, 160, 165, 167, 170, 172 Complements, 23, 26, 34–36, 57, 68, 165 Comptroller and Auditor General, 23, 29, 30, 32, 33, 36, 46, 72 Construction, 7, 17, 24, 76–78, 80, 82, 88, 113–115 Consumer, 2, 24, 36, 43, 44, 46, 54, 75, 83, 111, 112, 175 Contract, 7, 8, 24, 25, 54, 80, 84, 85, 89, 103, 105, 107, 113–115, 119, 126, 127, 149, 156, 157, 160 Corrupt, 17, 24–27, 77, 79, 81, 82, 85, 103, 153, 156, 160, 162, 171, 172, 174, 175 Corruption, 1, 16, 17, 24–26, 30, 33, 35, 73, 75–78, 81, 83, 84, 94, 112, 153, 156, 160, 161, 164, 165, 171, 173, 175, 177 Cournot, 2, 3, 34, 73, 165 Credit, 8, 19, 26, 171–174 D Dalits, 19 Delegation, 25, 155, 156, 160 Demand, 12, 26, 34, 36, 37, 158, 167, 168, 173, 176 Differentiated product, 23, 32, 34, 36, 162, 167 Discrimination, 19, 171 Diseconomies, 23, 34, 35, 37, 38, 46, 59, 72 Distribution, 9, 19, 36, 40, 44, 45, 85, 103, 118, 119, 123, 144, 148–150, 152, 153, 157, 162, 171, 173 © Springer Japan KK 2017 K.G Dastidar, Oligopoly, Auctions and Market Quality, Economics, Law, and Institutions in Asia Pacific, DOI 10.1007/978-4-431-55396-0 www.ebook3000.com 187 188 Duopoly, 23, 26, 34, 37, 161, 167, 169, 170 Dutch, 9, 10, 14 E Efficiency, 17–20, 22, 33, 103, 119, 162, 171, 176 Emerging economy, 23, 25, 29, 32, 36, 72, 80, 81, 102, 164, 174, 177 English, 7, Entry, 3, 5, 7, 18, 19, 26, 36, 161, 163, 164, 172 Entry Deterrence, 4, 16, 163 Exclusion, 19 Expected score, 25, 116–118, 139, 140, 142, 143, 148–150, 153, 154 Expected welfare, 36, 42, 44, 45, 49, 57–59, 64, 69, 71, 81, 82, 86, 94, 97, 99, 102, 107, 116, 118, 149, 150, 160, 164 F Fairness, 16, 18, 19, 22, 27, 33, 35, 73, 76, 81–83, 88, 101–103, 160, 162, 165, 175, 177 Fairness in dealing, 17, 18, 76, 102 Fairness in pricing, 73 Fairness index, 81, 82, 86, 88, 94, 164 Firm, 2–5, 13, 16, 23, 26, 27, 34–37, 40, 42, 44, 46, 49, 63, 72, 80–82, 85, 92, 102, 104, 107, 113, 114, 116, 127, 149, 159, 161, 162, 164, 167, 168, 170, 171 First price, 8, 12, 114 First score, 116, 130, 150 First stage, 27, 34–38, 40, 46, 47, 49, 58, 60, 64, 70, 72, 81, 173, 177 Fraud, 16, 25, 75, 79, 101, 171, 175 G Game theory, 3, Generally accepted rules, 18 Government, 1, 5, 7, 13, 16, 18, 23, 29, 31, 33–35, 38, 44, 49, 57, 63, 70, 80, 85, 102, 111, 161 H High quality, 22 I Income effects, 12 Index Incompetence, 1, 17, 24, 75, 80, 83, 103, 112 Incompetent, 17, 24, 78, 82, 84, 103, 112 Incomplete information, 3, 4, 6, 37, 163 Incumbent, 4, 16, 26, 161, 162, 164, 165 Independent types, India, 1, 12, 13, 15, 17, 19, 23, 25, 29–32, 36, 72, 77, 79, 101, 160, 164 Industrial Revolution, 20, 21 Informal, 26, 171–174, 176, 177 Information, 4, 9, 11, 16, 21, 36, 56, 75, 83, 102, 157, 172 Infrastructure, 1, 22, 24, 75, 154, 156, 160 Institutions, 26, 79, 82, 84, 101, 103, 156, 171 Interdependent, 9, 11 Interrelated cost, 46 J Judgement, 13, 30, 33, 44, 54 L Laws, 16, 18, 19, 101, 160 Leadership, 26, 156, 166, 167, 170, 171, 175 Legal, 13, 32 Lobby, 16 Lottery, 23, 33–35, 42, 44, 46, 49, 56, 57, 59, 64, 72, 73 Low quality, 77, 78, 88 M Management, 26, 27, 80, 175–177 Market quality, 1, 14–19, 21, 22, 24–27, 33, 35, 75, 86, 100–103, 112, 153, 155, 160–162, 165, 171, 175, 177, 178 Mechanism, 1, 5, 7, 11, 19, 23, 25, 33, 101, 115, 154 Misinformation, 17 Moneylenders, 26, 171–173 Monitoring, 1, 17, 24, 75, 76, 79, 80, 103, 112 Multidimensional bids, 24, 25 Multimarket, 1, 32, 35, 72 N Nash equilibrium, 11, 64, 89, 92, 105, 153, 168 Natural resources, 7, 13, 21, 23, 29–31, 72 Non-discrimination, 17, 19, 22, 33, 35, 73, 103, 171, 175, 177 Non-quasilinear, 1, 25, 114–117, 127, 129, 143, 144, 148, 153, 154, 160 Index 189 O Oligopoly, 1–3, 6, 72, 165, 178 Optimal mechanism, 17, 83, 84, 115, 154, 158, 159 Order statistics, 93, 120, 123 P Policy, 1, 5, 25, 26, 31, 33, 44, 72, 117, 153, 165, 171–175 Politician, 23, 25, 26, 29, 30, 73, 156, 158– 161, 171 Price setting games, 167, 171 Private, 4, 9–11, 26, 31, 32, 166, 167, 169, 170, 175 Private values, 11 Procurement, 1, 8, 24, 25, 77, 84, 103, 111, 154, 156, 160 Procurement auction, 8, 77, 83, 113, 156 Product differentiation, 2, 34, 36, 167 Product quality, 76 Profit, 16, 17, 31, 37, 38, 44, 46, 54, 81, 85, 86, 89, 102, 149, 161, 163, 175 Public sector, 8, 25, 26, 156, 157, 166, 175 Q Quality, 1, 5, 15–17, 24, 75–77, 79–85, 102, 103, 110, 127, 135, 139, 149 Quantity, 37, 157, 166 Quantity setting games, 167 Quasilinear, 1, 115, 118, 130 R Radio spectrum, 13 Real estate, 8, 9, 21, 165 Regulation, 5, 18, 101 Resource allocation, 18, 26 Resources, 1, 7, 18, 31, 72, 172 Restricted entry, 16, 161, 164 Revenue, 7, 12, 13, 23, 32, 117 Revenue equivalence, 11, 143 Risk aversion, 10 Rival, 3, 16, 161 Rules, 1, 5, 8, 13, 16, 18, 19, 25, 114, 116, 126, 130, 154, 161 S Scarce resources, 23, 29, 72 Scope, 23, 37, 59, 72 Score equivalence, 143 Scoring auction, 1, 24, 84, 114, 115, 153, 159 Scoring rule, 1, 25, 83, 114, 115, 117, 130, 143, 153, 157, 159 Second price, 8, 25 Second score, 118, 126, 153 Second stage, 23, 34, 37, 63, 89, 93, 107, 173 Sequential, 4, 170 Simultaneous, 12, 37, 167 Standard auction, 8, 10, 113 Strategic complements, 38 Strategic substitutes, 34, 38 Strategies, 3, 116 Subgame perfect equilibrium, Substitutes, 23, 34, 36, 54, 57, 165 Supreme court, 13, 23, 30, 32, 33, 44, 72 Surplus, 18, 25, 44, 54, 75, 112 Symmetric, 9, 35, 42, 64, 83, 105, 125 T Telecom, 29, 30 Third stage, 23, 37, 48, 81, 163, 165 2G spectrum, 29, 30 U Unfair, 18, 19, 162 Union, 26, 175–177 Utility, 12, 36, 43, 85, 86, 111, 116, 157–159 W Welfare, 1, 18, 23, 24, 29, 31, 33–35, 44, 45, 49, 50, 54, 57, 67, 73, 75, 107, 112, 153, 164, 166–168, 175 Winner’s curse, 11, 12 www.ebook3000.com ... high -quality and low -quality products, there are also high -quality and low -quality markets High -quality markets tend to enrich economic activity; low -quality markets tend to impoverish it The quality. .. high -quality and low -quality products, there are also high -quality and low -quality markets High -quality markets tend to enrich economic activity; low -quality tend to impoverish it Market quality. .. to understand exactly what is meant by market quality However, www.ebook3000.com 1.3 Market Quality 15 common sense suggests that there are bad markets and good markets For example, a market in