Monopoly Model Research Articles

The Impact of Tariffs on a Transnational Supply Chain under Different Power Structures in China

In the trade environment of a globalized economy, tariffs play a crucial role in transnational supply chains. At the same time, the power structure of the supply chain also plays an important role in the decision making and income distribution of a transnational supply chain. Therefore, we construct game-theoretic models to analyze the impacts of tariffs and power structures on the decision making and revenue distribution of transnational supply chains. First, we consider a bilateral monopoly model consisting of a Chinese manufacturer and a U.S. retailer and analyze the effects of tariffs and power structures on decision making and revenue distributions in this supply chain. Then, we extend the model to a duopoly competition model consisting of two Chinese manufacturers and one American retailer, further analyzing the roles of tariffs and power structures. The results indicate that in the bilateral monopoly model, the impact of tariffs on the manufacturer’s profits is always greater than on the retailer’s profits under a manufacturer-led circumstance. However, in a competitive model, when the market size is large, the impact of tariffs on the manufacturer’s profits exceeds that of the retailer’s profits; conversely, when the market size is smaller, the impact of tariffs on the retailer’s profits is greater than on the manufacturer’s profits. Furthermore, we find that in the duopoly competition model, under the manufacturer-led circumstance, both the manufacturer and the retailer earn the highest profits.

Stockpiling‐based pricing and its welfare effects

AbstractConsumer stockpiling involves the intertemporal demand substitution that allows the firm to differentiate stockpilers from others and employ varying pricing strategies. In this paper, I set up a two‐period monopoly model that incorporates consumer stockpiling behavior to investigate the effect of stockpiling‐based pricing. In equilibrium, I show that when the level of heterogeneity among consumers is high, consumer stockpiling can be used as a device for the firm to identify preferences and price discrimination. Welfare analysis suggests that consumer stockpiling improves consumer surplus and profit despite the associated stockpiling‐based pricing.

Cost subsidy or environmental regulation? The effects of government interventions on environmental quality and 3BL performance

Green product development and innovation play a crucial role in addressing environmental issues. Governments often promote innovation by motivating manufacturers to enhance their products' environmental qualities (i.e., greenness, energy efficiency, recyclability). This paper investigates the implications of cost subsidy and environmental regulation for manufacturers’ pricing and environmental quality decisions, and triple-bottom-line (3BL) performance. We develop theoretical models involving one social welfare-maximizing government and one or two manufacturers. In the monopoly model, environmental regulation can achieve the same level of social welfare and environmental performance as cost subsidy when consumers have low environmental awareness. In the competitive model, market scale asymmetry between manufacturers drives differences in product price and environmental quality. Specifically, the manufacturer with a larger market share is also the leader in environmental quality and profit. Furthermore, cost subsidy and environmental regulation have distinct effects on environmental quality competition. A higher subsidy rate widens the gap between environmental qualities, helping competing manufacturers better differentiate their products. Conversely, a stricter regulatory standard narrows the gap between environmental qualities, hindering product differentiation. Moreover, numerical analysis shows that the dominating policy in the competitive model depends on environmental and market characteristics. Finally, we check the robustness of the results by considering two extensions of our models and find that the main insights remain valid.

Knowledge Management: High-Quality Production Decisions in Partial Volume Flexibility to Create Value for Customers

Uncertainty in the demand of individual customers increases demand volatility in the entire market. In this context, partial volume flexibility can help hedge against demand uncertainty and competition pressure, and subsequently help create value by means of high-quality production decisions and market responsiveness, within the assumption of transformation and applied knowledge incorporated into the production stages. The article aims to investigate this phenomenon. To achieve this, as part of the methodology, a unified measure, the flexibility degree, is taken to represent the level of partial volume flexibility. We find that under demand uncertainty, a firm goes through a process with four stages—capacity decision, stable production, flexible production, and pricing. In a monopoly model, we find that a slight change in the flexibility degree could significantly increase a firm's adjustable production range to respond to demand changes. Furthermore, we develop a general asymmetric duopoly model. We characterize the equilibrium and find that a firm with a higher flexibility degree is more sensitive to demand changes. Accordingly, in response to specific demand, a higher flexibility firm obtains more profit only when the demand is sufficiently high or low, otherwise, the lower flexibility firm wins. Finally, we observe that a firm's capacity increases in its flexibility degree and decreases in its rival's flexibility degree; this is because the firm balances the market share and product profitability.

Conflict between consumer and worker surpluses under monopoly power

Using a simple model of monopoly and monopsony, I examine the effect of a labor-augmenting productivity gain on workers. I show that, although such a productivity gain always increases the output and consumer welfare, a firm with monopoly power may lower the labor demand and worker welfare because of the discrepancy between the marginal product and marginal revenue product of workers. The misalignment between consumer and worker welfare suggests that competition authorities need to be cautious about the potential harm of consumer-benefiting productivity gains on workers when assessing antitrust cases such as mergers.

How Does Downstream Firms’ Efficiency Affect Exclusive Supply Agreements?

We develop a bilateral monopoly model with a downstream entrant to examine anticompetitive exclusive supply contracts that prevent the upstream supplier from selling inputs to the downstream entrant. When the entrant is more efficient and needs a lesser amount of the input that is produced by the supplier than does the incumbent, the input demand may not increase significantly following the entry. Therefore, the socially efficient entry does not increase the supplier’s profits significantly, which allows the downstream incumbent to deter socially efficient entry through an exclusive supply contract. This result holds even in the simplest framework, which is composed of a single seller, buyer, and entrant.

Resale Price Maintenance in a Successive Monopoly Model*

We explain why a manufacturer may impose a minimum resale price in a successive monopoly setting. Our argument relies on the retailer having noncontractible choice variables such as the price of a substitute good and/or the retailer's service effort. Our explanation for minimum resale prices is empirically distinguishable from alternative justifications that rely, for instance, on retailer competition and service free riding among retailers. Whether a min RPM benefits or harms consumers depends on its effects: if it softens competition with the substitute product, it tends to harm consumers, and if it secures service provision, it tends to benefit consumers.

Обоснованность регулирования сборов и тарифов на услуги в аэропортах

The article examines the problem of the validity of regulation of airport services’ fees and tariffs. The study is relevant amid criticism of the need for regulation in the context of commercialization of the industry given the disputes over natural monopoly’ status of airports, potential competition between airports and the viability of alternative transaction governance mechanisms. The objective of the research is to analyze possible justifications for the necessity of airport services regulation and to reveal limitations of each of justifications. The analysis is carried out within the framework of two approaches: the natural monopoly model of the theory of industry organization and a comparative analysis of discrete structural alternatives from the new institutional economic theory. The following results were obtained. Firstly, the research shows that the necessity of regulation within the framework of these approaches is justified by the presence of two risks – the risk of abuse of a dominant position and the risk of expropriation of investments made by consumers of airport services. Secondly, concerning the limitations of the justifications, the article systematizes the factors contributing to the strengthening or weakening of the market power of airports. Thirdly, the research identifies the characteristics of airports that are subject to examination when examining the need of for regulation. Fourth, it is demonstrated that the level of risk of expropriation of assets varies depending on the scale of the airport’s activities and the role of the airport in the route networks of airlines. Thus, the paper concludes that within the framework of each of the approaches considered, the decision to introduce regulation of services at airports should be made not for the industry as a whole, but for individual airports, and shows the possible risks of a selective approach to regulating services at airports (the expansion of the regulator’s discretion, the increase in the regulator’s costs due to the need for analysis for the airports under consideration, corruption risks), which must be taken into account when designing relevant regulations if a decision is made to implement the proposed approach to regulation.

Production and decarbonisation of conventional gasoline vehicle automakers under subsidy and regulation policies

ABSTRACT Decarbonising the transportation sector through electrification is critical to reducing greenhouse gas emissions. To explore the decarbonisation of conventional gasoline vehicle (GV) automakers in GV and/or electric vehicle (EV) production, we develop analytical models under pure subsidy, pure regulation, and hybrid subsidy-regulation policies. We first examine the monopoly GV automaker’s EV market entry intention in each policy and find that it always increases with consumer range sensitivity and subsidy/regulation parameters, but decreases with product substitutability between the two vehicles. Then, we analyse the implication of policy changes on equilibrium outcomes. Our results show that although introducing regulations and removing subsidies have opposite effects on optimal production and driving range decisions, both might stimulate or restrict the GV automaker to decarbonise, depending on the unit carbon emissions of GVs and EVs. Finally, we extend the monopoly model to the duopoly case, showing that while entering the EV market hurts the EV automaker, it allows the GV automaker’s carbon emissions to always decrease with GV credit coefficients. Together with sensitivity analyses on key parameters, our findings provide insights not only for GV automakers to respond to policy changes but also for governments to design incentives for EV diffusion.

On the foundation of monopoly in bilateral exchange

We address the problem of monopoly in general equilibrium in a mixed version of a monopolistic two-commodity exchange economy where the monopolist, represented as an atom, is endowed with one commodity and “small traders,” represented by an atomless part, are endowed only with the other. First we provide an economic theoretical foundation of the monopoly solution in this bilateral framework through a formalization of an explicit trading process inspired by Pareto (Cours d’économie politique. F. Rouge Editeur, Lausanne, 1896) for an exchange economy with a finite number of commodities, and we give the conditions under which our monopoly solution has the geometric characterization proposed by Schydlowsky and Siamwalla (Q J Econ 80:147–153, 1966). Then, we provide a game theoretical foundation of our monopoly solution through a two-stage reformulation of our model. This allows us to prove that the set of the allocations corresponding to a monopoly equilibrium and the set of the allocations corresponding to a subgame perfect equilibrium of the two-stage game coincide. Finally, we compare our model of monopoly with a bilateral exchange version of a pioneering model proposed by Forchheimer (Jahrbuch für Gesetzgebung, Verwaltung und Volkswirschafts im Deutschen Reich 32:1–12, 1908), known as a model of “partial monopoly” since there a monopolist shares a market with a“competitive fringe.” Journal of Economic Literature Classification Numbers: D42, D51.

A Monopoly Model with Vertical Supply

A Monopoly Model with Vertical Supply

IMPACT OF SHAREHOLDING REFORMS OF STATE-OWNED ENTERPRISES ON ENVIRONMENTAL POLLUTION PREVENTION POLICY

This paper establishes a three-stage mixed monopoly model, and deeply discusses the impact of the shareholding reform on environmental tax rate or reward and subsidy intensity, green research and development level, environmental damage and social welfare under the two policies of collecting environmental tax and issuing incentive subsidy funds, and analyses the effect of the two policies. The results show that when implementing the environmental tax policy, the low degree of privatisation of state-owned enterprises will cause less damage to the environment and social welfare; when implementing the reward and subsidy policy, the higher degree of privatisation will cause less damage to the environment and social welfare. Comparing the effects of the two policies, it is better to implement the reward and subsidy fund policy when the privatisation degree of state-owned enterprises is relatively high. If the privatisation degree is not high, the policy choice is related to the social goals expected by the government.

Bundling with Resale*

How does resale affect multiproduct bundling? I investigate using a model of monopoly bundling with costly resale. Consumers purchase in the primary market while anticipating resale, then participate in a resale market with market‐clearing prices. Resale forces the monopolist to balance the additional profit from a discounted bundle against the opportunity for consumer arbitrage. In equilibrium, the monopolist may still offer a discounted bundle, but resale reduces the returns to bundling and has an ambiguous effect on consumer and total welfare. When consumers have heterogeneous costs of resale, it is possible for consumers to resell in equilibrium.

Nonlinear dynamics and adjunct profits in two boundedly rational models of monopoly

This paper studies the dynamic characteristics of a nonlinear monopoly model involving two boundedly rational monopolists with different information and knowledge on the market demand. The ℓ-monopolist knows only the actual values of output and the profit in the immediate past two periods, whereas the k-monopolist knows the marginal revenue but lacks computational ability to solve the profit maximization conditions. The price and cost functions are assumed to be cubic. These monopolists adopt a gradient-based method to determine their productions. For the dynamics of the ℓ -monopolist, the stability conditions and the explicit forms of the period-4 periodic points are obtained. The k-monopolist loses stability through a supercritical Neimark–Sacker bifurcation and a period-doubling bifurcation when the expected demand is formed with the past data. For comparison of the economic gains of the monopolists, the average profit associated with the nonlinear dynamics are calculated. It is numerically demonstrated that more information does not necessarily mean more profit.

State monopoly on gambling on the example of the organization lotteries by state-owned banks

The article analyzes the model of absolute state monopoly on gambling on the example of the idea of the Government of Ukraine to organize a lottery market by state-owned banks. The object of the study is the process of assessing the risks and economic benefits of involving state-owned banks to the organization and conduct of lotteries. The methodical instruments of the study were general scientific and special research methods (system-structural, formal-logical (dogmatic), economic, comparative, sociological, statistical). The study period is selected from 2014 to 2021. Based on the research conducted by the authors, the inefficiency and high riskiness of the combination of banks and lottery activities, as well as its economic disadvantage for the state, is proved by the authors. The main risk from the combination of these types of activities is that the bank can use the money attracted from the population not for their direct purpose, in particular: to use funds from the banking activity and the needs of the organization of lotteries or payouts, or to use funds of the prize money to goals other than payouts. In addition, the combination of these activities leads to an increase the number of crimes in the banking sector.

Doubling Back on Double Marginalization

“Double marginalization” and “Elimination of Double marginalization” are catch-phrases commonly used in the IO literature. In this article, I trace back the origin of the idea to Cournot (1838, Ch. IX) on complementary goods monopolies. Through the years Cournot’s contribution remained a reference but ended being viewed as a special case of the bilateral monopoly model. Yet, it is worth wondering why the most cited paper on this issue is nowadays (Spengler in J Polit Econ 58(4):347–352, 1950) which contains only an informal treatment of the question. In addition to retracing the origin of the idea, I emphasize the elegant proof of Cournot for the simultaneous game and extend it to the sequential game. I also show that prices are usually higher in the sequential game but that they could be lower if demand is very convex.

The Investigation of Monthly/Seasonal Data Clustering Impact on Short-Term Electricity Price Forecasting Accuracy: Ontario Province Case Study

The transformation of the electricity market structure from a monopoly model to a competitive market has caused electricity to be exchanged like a commercial commodity in the electricity market. The electricity price participants should forecast the price in different horizons to make an optimal offer as a buyer or a seller. Therefore, accurate electricity price prediction is very important for market participants. This paper investigates the monthly/seasonal data clustering impact on price forecasting. To this end, after clustering the data, the effective parameters in the electricity price forecasting problem are selected using a grey correlation analysis method and the parameters with a low degree of correlation are removed. At the end, the long short-term memory neural network has been implemented to predict the electricity price for the next day. The proposed method is implemented on Ontario—Canada data and the prediction results are compared in three modes, including non-clustering, seasonal, and monthly clustering. The studies show that the prediction error in the monthly clustering mode has decreased compared to the non-clustering and seasonal clustering modes in two different values of the correlation coefficient, 0.5 and 0.6.

ЗАКОНОДАВЧА ФОРМА ПУБЛІЧНОГО УПРАВЛІННЯ ГРАЛЬНИМ БІЗНЕСОМ

The article deals with the form of public governance of gambling in Ukraine from 2020 – the state monopoly on the organization and conduct of gambling. Based on the generalizations of the world's existing forms of public management of gambling, it was concluded that the state monopoly is the most successful model of public administration for our state. But the form of its implementation (a kind of state monopoly) is manifested, considering the historical development of our country, the peculiarities of its society, the tendency of the population to form gambling addiction, society's attitude to gambling, forms of government and more. Today, Ukraine is introducing a second type of state monopoly – free access to the gambling market for companies (subject to organizational and qualification requirements), while limiting the maximum number of gambling establishments that can operate simultaneously in the country. At the same time, in the future it is possible to combine this type with special territorial gambling zones (the Cabinet of Ministers has the right to determine no more than five of them on the territory of the state). Based on the study, the author offers to improve national legislation on gambling taxation and to introduce the idea of social utility of public gambling management for the full implementation of Ukraine's chosen model of state monopoly. Keywords: gambling business, organization and conduct of gambling, state monopoly, special gambling zones, gambling establishments

MANAGEMENT OF FINANCIAL AND ECONOMIC SECURITY OF BUSINESS ENTITIES IN DURING CRISIS CONDITIONS AND ITS STATE REGULATION

Recently, the development of the economy and the lack of financial resources have set the task for businesses to determine the optimal financing strategy that provides maximum profit growth with minimal risks. In this regard, the problem of financial and economic security of business entities and the definition of its management mechanism is important. The stages of the management concept on financial and economic security of business entities consist of timely detection of internal and external threats and establishment of an effective management mechanism against them. At the same time, it is noted that the dominant countries of the world financial market, which have formed a monopoly model in the distribution of wealth, still see countries such as the Republic of Azerbaijan as their resource provider. This is a source of risk for the national economy in the short and long terms. Therefore, the mechanisms to ensure economic security should be carried out in parallel with the forecasting of socio-economic development of the state.

Corporate Social Responsibility Externalities in a Bilateral Monopoly Model

Corporate Social Responsibility Externalities in a Bilateral Monopoly Model