Dynamic Monopoly Research Articles

Advertising in a dynamic spatial monopoly

This paper characterises the dynamics of advertising investment in a spatial monopoly, contrasting the socially optimal behaviour of a benevolent planner against that of a profit-seeking monopolist. In steady state, the monopolist always distorts both output and advertising decisions as compared to the social optimum, except in a situation where, under both monopoly and social planning, the equilibrium entails full market coverage.

Wages and productivity growth in a dynamic monopoly

This paper studies the intertemporal problem of a monopolistic firm that engages in productivity enhancing innovations to reduce labor costs. The optimal innovation policy is not monotone and the rate of productivity growth is the highest when the firm's size is in some intermediate range. As long as its initial productivity is not too low, the firm eventually reaches a steady state where the rate of productivity growth is identical to the rate of wage growth. Productivity dependent wage differentials do not affect productivity growth in the steady state; they increase, however, the firm's long-run equilibrium cost level.

Network Externalities in a Dynamic Monopoly

We reconsider the role of network externalities in a dynamic spatial monopoly where the firm must invest in order to accumulate capacity, while consumers may have either linear or quadratic preferences. We (i) characterise saddle point equilibria, (ii) prove that the extent of market coverage is increasing in the network effect and (iii) unlike the existing static literature on the same problem, the monopolist may not make introductory price offers. Then, we briefly deal with the socially optimal solution, showing that, in general, a planner would serve more consumers than a profit-seeking monopolist.

Dynamic consistency and monopoly

A wide variety of papers study the time consistency issues and commitment problems associated with imperfectly competitive durable goods manufacturers who sell their output. Using a simple two-period model the authors show that this sort of commitment problem may occur even if the monopolist produces non-durable output. The model assumes consumers maximize their utility through the choice of a non-durable consumption good and saving through an asset that provides future returns and consumption flow. The analysis indicates that non-durable goods manufacturers with market power will wish to announce future prices that are sub-optimal (dynamically inconsistent) when the period is reached due to the impact on consumers' wealth constraint and current purchasing behavior. Thus, the so-called durable-goods monopoly commitment problem may also occur in non-durable goods industries. The model suggests that any type of intertemporal linkage may lead to time consistency and commitment problems for imperfectly competitive firms.

On time versus size for monotone dynamic monopolies in regular topologies

We consider a well-known distributed colouring game played on a simple connected graph: initially, each vertex is coloured black or white; at each round, each vertex simultaneously recolours itself by the colour of the simple (strong) majority of its neighbours. A set of vertices M is said to be a dynamo, if starting the game with only the vertices of M coloured black, the computation eventually reaches an all-black configuration. The importance of this game follows from the fact that it models the spread of faults in point-to-point systems with majority-based voting; in particular, dynamos correspond to those sets of initial failures which will lead the entire system to fail. Investigations on dynamos have been extensive but restricted to establishing tight bounds on the size (i.e., how small a dynamic monopoly might be). In this paper we start to study dynamos systematically with respect to both the size and the time (i.e., how many rounds are needed to reach all-black configuration) in various models and topologies. We derive tight tradeoffs between the size and the time for a number of regular graphs, including rings, complete d-ary trees, tori, wrapped butterflies, cube connected cycles and hypercubes. In addition, we determine optimal size bounds of irreversible dynamos for butterflies and shuffle-exchange using simple majority and for DeBruijn using strong majority rules. Finally, we make some observations concerning irreversible versus reversible monotone models and slow complete computations from minimal dynamos.

Menu Costs, Nominal Wage Revisions, and Intracontract Wage Behavior

We use data from indexed and nonindexed Canadian wage agreements to study the intracontract profile of nominal and real wages. Allowing for endogenous switching between the two indexation categories, we conclude that the number of nominal wage revisions depends on contract duration, expected inflation, and the cost of adjusting wages. Our results have implications for the menu cost, overlapping contracts, dynamic monopoly union, and efficient bargain literatures.

Dynamic Monopolies of Constant Size

The paper deals with a polling game on a graph. Initially, each vertex is colored white or black. At each round, each vertex is colored by the color shared by the majority of vertices in its neighborhood, at the previous round. (All recolorings are done simultaneously.) We say that a set W0 of vertices is a dynamic monopoly or dynamo if starting the game with the vertices of W0 colored white, the entire system is white after a finite number of rounds. D. Peleg (1998, Discrete Appl. Math.86, 262–273) asked how small a dynamic monopoly may be as a function of the number of vertices. We show that the answer is O(1).

Employment and Capital Accumulation in Unionised Labour Markets: Evidence from five south-European countries

This paper analyses the link between employment and capital accumulation in unionised labour markets by using a dynamic monopoly union model. The role of wage setting is also explored within the above context. The empirical analysis is based on annual data from the manufacturing sector of five European countries (France, Greece, Italy, Portugal and Spain). It verifies that capital accumulation has a positive influence on employment. Concerning wages, there is evidence that, in most countries, income opportunities in the public sector play an important role in wage determination. A larger public sector crowds out private investment and employment by serving as a safety net that allows wage setters to push for higher wage demands.

Size bounds for dynamic monopolies

This paper considers a repetitive polling game played on an n-vertex graph G. Initially, each vertex is colored black or white. At each round, each vertex (simultaneously) recolors itself by the color of the majority of its neighborhood. A set of vertices M is said to be a dynamic monopoly, abbreviated dynamo, if starting the game with the vertices of M colored white, the system eventually reaches an all-white global state. We study the question of how small a dynamic monopoly might be in various models. In a number of these models we derive tight bounds of Ω(√n) on the minimum size of monotone dynamos, namely, ones guaranteeing that throughout the game, a white vertex never turns black. In addition, in a number of these models we derive similar tight bounds (of Ω(√n)) on the minimum size of 2-round dynamos, namely, ones that lead to the all-white state in exactly two rounds. Finally, we make some observations concerning the existence of small “drawing sets”, that lead to nearly-balanced final states.

Quantity Adjustment Costs and Price Rigidity

It is by now well known that the presence of small lump sum costs of adjusting prices can lead to nominal price rigidity. However, the argument of adjustment costs could equally well be applied to quantities, thereby leading to rigid quantities. This paper examines the importance of adjustment costs on both prices and quantities in a dynamic monopoly model, where the firm has to decide whether it uses price or quantity or both as the adjustment mechanism to shocks which can be permanent or temporary. It is shown that there is more downward rigidity than upward and that this asymmetry is enhanced when the quantity adjustment costs consist of linear adjustment costs on top of the lump sum. Furthermore, prices seem to bear a relatively larger proportion of the adjustment burden when the shock is large, and vice versa for quantities when the shock is small. Finally, the firm may be rationed even when adjustment is carried out.

Dynamic monopoly pricing with network externalities

In this paper, we study the optimal dynamic monopoly pricing for a good which exhibits positive network externalities. When network externalities are of sufficient magnitude, we show that, contrary to the Coase theorem, (1) there is no time inconsistency problem; (2) subgame perfect equilibrium prices increase as time passes. From this point of view, positive network externalities allow the monopoly to commit itself credibly to increasing future prices.Ce papier étudie la tarification optimale intertemporelle d'un monopole qui vend un bien exhibant des externalités positives de réseau. Lorsque ces externalités sont suffisamment importantes, nous montrons que, contrairement au théorème de Coase, (1) il n'y a pas de problème d'incohérence temporelle, (2) les prix d'équilibre parfait croissent avec le temps. De ce point de vue, les externalités positives de réseau permettent au monopole de s'engager crédiblement sur une politique de prix futurs à la hausse.

Dynamic Monopoly with Nondurable Goods

A nondurable good monopolist who posts a single price will generally achieve an inefficient outcome. But is it possible that the monopolist would achieve efficiency by repeatedly posting prices before delivery? If buyers recognize the effect of current purchases on future prices, then, under complementary ideal conditions, the answer is yes. On the other hand, traditional concerns about monopoly are viable if the seller bears a small cost per buyer of market reopening.Journal of Economic LiteratureClassification Numbers: D42, L12.

On the Foundations of Dynamic Monopoly Theory

Previous articleNext article No AccessCommentOn the Foundations of Dynamic Monopoly TheoryMarc DudeyMarc Dudey Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Journal of Political Economy Volume 103, Number 4Aug., 1995 Article DOIhttps://doi.org/10.1086/262007 Views: 12Total views on this site Citations: 4Citations are reported from Crossref Copyright 1995 The University of ChicagoPDF download Crossref reports the following articles citing this article:Suren Basov Miscellaneous Models, (May 2016): 147–167.https://doi.org/10.1007/978-981-10-1041-5_8John Boyce, Jeffrey Church, Lucia Vojtassk Capacity Constraints in Durable Goods Monopoly: Coase and Hotelling, SSRN Electronic Journal (Jan 2012).https://doi.org/10.2139/ssrn.2103275Jae Nahm Durable-Goods Monopoly with Endogenous Innovation, Journal of Economics <html_ent glyph="@amp;" ascii="&"/> Management Strategy 13, no.22 (Jun 2004): 303–319.https://doi.org/10.1111/j.1530-9134.2004.00012.xMarc Dudey Marc Dudey on Hugo F. Sonnenschein, (): 273–293.https://doi.org/10.1007/978-3-540-74057-5_15

Foundations of dynamic monopoly and the coase conjecture

Subgame-perfect equilibria are characterized for a market in which the seller quotes a price each period. Assume zero costs, positive interest rate, continuum of buyers, and some technical conditions. If buyers' valuations are positive then equilibrium is unique, buyers' strategies are stationary, and the price sequence is determinant along the equilibrium path but possibly randomized elsewhere. Otherwise a continuum of stationary equilibria can exist, but at most one with analytic strategies. Coase's conjecture is verified for stationary strategies: reducing the period length drives all prices to zero or the least valuation. Connections to bargaining models are described.

Dynamic monopoly production, inventory, and price policy under sophisticated demand

In this paper a dynamic demand surface arises out of a consumer intertemporal utility maximization problem. The monopolistic firm uses this dynamic demand surface to formulate its optimal price, production, and inventory policy.

A discrimination model for the dynamic monopoly firm

A discrimination model for the dynamic monopoly firm

Discussion: The Organization of Agriculture

and Grass, Fortune 79(7):112-19 and 218-25, June 1969; and The King Ranch South of the Border, Fortune 80(1):132-36 and 140-44, July 1969. [7] SHAFFER, JAMES DUNCAN, On Institutional Obsolescence and InnovationBackground for Professional Dialogue on Public Policy, Am. J. Agr. Econ. 51:245-267, May 1969. [8] THOMAS, KENNETH H., Poly-Period Analysis of the Impact of Selected Variables Upon the Growth Process of Beginning Farm Firms, South-Central unpublished Ph.D. thesis, University of Minnesota, 1968. [9] THOMPSON, RUSSELL G., AND MICHAEL S. PROCTOR, Optimal Production, Investment, Advertising, and Price Controls for the Dynamic Monopoly Firm, Depts. of Econ. and Math., Texas A & M University, 1969, mimeo. [10] VAN ARSDALL, ROY N., AND WILLIAM ELDER, Economies of Size of Illinois CashGrain and Hog Farms, Illinois Agr. Exp. Sta. Bul. 733, Feb. 1969. [11] WALKER, ODELL L., AND JAMES R. MARTIN, Firm Growth Research Opportunities and Techniques, J. Farm Econ. 48:1522-1535, Dec. 1966. [12] WETTERHALL, HANS, New Orientation of Agrarian Structural Policy in Sweden, in UN FAO, Information on Land Reform, Land Settlement and Cooperatives, 2:19-25, 1967.

Optimal Production, Investment, Advertising, and Price Controls for the Dynamic Monopoly Firm

In this paper, a dynamic continuous time model, encompassing operations, investments, output prices, informative advertising, and brand advertising, is formulated as an optimal control problem in an activity analysis context. In the model, the objective of the firm is to maximise, subject to various constraints, the discounted value of accumulated savings over the finite decision-making interval plus the discounted value of capacity at the end of the interval. The state variables are capacity, goodwill of type 1 reflecting informative advertising, goodwill of type 2 reflecting brand advertising, net debt, and the output price. The controls are the scale of operation, the purchase of new capacity, informative advertising, brand advertising, and the rate of change of the output price. Final capacity, goodwill of types 1 and 2, net debt, and price are control parameters. There are several inequality constraints. Using results in control theory, the optimal controls are completely characterized. These results are interpreted using the properties of the Value Equation. In addition, the control problem is transformed into an approximate programming problem.

The Determinants of Industrial Research and Development: A Study of the Chemical, Drug, and Petroleum Industries

Economists have recently grown interested in doing research on research or R & D, as it is called in industrial circles. Several studies have tested Schumpeter's hoary hypothesis that large firms are responsible for most industrial inventive activity.1 Few of these studies, however, suggest why this hypothesis is apparently valid for some industries and not for others. And statistical studies going beyond this question, to try to relate R & D expenditures to firm profit expectations and the availability of funds as in other investment decisions, are rare (Mansfield, 1964; Mueller, 1967). This paper reports the results of an empirical investigation into the determinants of research expenditures in three industries-drugs, chemicals, and petroleum refining. These industries have three advantages for such a study: (1) they are among the leaders in total R & D expenditures; (2) most activity is concentrated in an appreciable number of large or moderately large firms; and (3) government support of research work is relatively small, so that decisions are more closely analogous to ordinary