Three essays on network economics [Elektronische Ressource] : incentives for compatibility choice, standard setting and infrastructure investment / vorgelegt von Jan Philipp Bender

Jan Philipp Bender

Informations

• Publié par: ludwig-maximilians-universitat_munchen
• Publié le: 01 janvier 2008
• Nombre de lectures: 61
• Langue: English

Extrait

Three Essays onNetworkEconomics
Incentives for Compatibility Choice, Standard Setting and
Infrastructure Investment
Inaugural-Dissertation
zur Erlangung des Grades
Doctor oeconomiae publicae (Dr. oec. publ.)
an der Ludwig-Maximilians-Universit?t M?nchen
2008
vorgelegt von
Jan Philipp Bender
Referent: Prof. Dr. Klaus M. Schmidt
Korreferentin: Prof. Dr. Monika Schnitzer
Promotionsabschlussberatung: 4. Februar 2009Acknowledgements
First and foremost, I would like to thank Klaus M. Schmidt. He has been an excellent
supervisor and mentor ?o⁄ering guiding advice and inspiring encouragement. As the
co-authortoChapter2of thisdissertationhein?uencedalothowInowapproachand
analyzearesearchquestionbyuseof economictheory. I amgrateful forhis supportive
counsel on the stay abroad, on my career concerns and scholarship applications. I am
also thankful to Monika Schnitzer who agreed to serve as the second supervisor to my
dissertation. I bene?tted a lot from her insightful comments and the seminars held
at her chair. Tobias Kretschmer has shared his exceptional practical and empirical
expertise on network economics for which I thank him a lot.
Overtheyears, colleagues, conferenceandseminarparticipants have in?uencedmy
workthroughtheircommentsandsuggestions. BasakAkbel,GeorgGebhardt,Joachim
Klein, Maria Lehner, Ines Pelger, Tu-Lam Pham and Christina Strassmair deserve
special mention. Just as much I thank my colleagues at the Seminar for Economic
Theory for making this time so enjoyable. I am particularly grateful for the support
by Brigitte Gebhard. Many others have contributed in many ways to the completion
of this thesis. My thanks extend to all of them.
I was very fortunate to ?nd a similarly welcoming and inspiring atmosphere at
Nu¢ eld College (University of Oxford) where I spent two terms as a Visiting PhD
student. I thank the students and sta⁄for their hospitality, in particular Meg Meyer
who volunteered to be my local supervisor. I thank the Kurt-Fordan Stiftung and the
DAAD for ?nancing this research stay. Grants through the DFG via SFB TR 15, the
Royal Economic Society and the Deutsche Bundesbank are gratefully acknowledged.
More than anything I thank my girlfriend Anouk and my family. Your love and
constant support throughout my academic journey remains invaluable. This piece of
work is a result thereof. Therefore this is for you.
JanPhilippBenderContents
Preface 1
1 CompatibilityIncentiveswithinanOligopolywithAsymmetricFirms 6
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.2.1 Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.2.2 Network Sizes and Compatibility . . . . . . . . . . . . . . . . . 13
1.3 Equilibrium Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1.3.1 Cournot Equilibria . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.3.2 Compatibility Choice ( ) . . . . . . . . . . . . . . . . . . . 22
5
1.3.3 Comparative Statics . . . . . . . . . . . . . . . . . . . . . . . . 26
1.4 E¢ cient Bargaining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
1.5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
1.6 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
1.6.1 Derivation of Demand System in General Form . . . . . . . . . 38
1.6.2 Competition in Semi-Di⁄erentiated Cournot . . . . . . . . . . . 40
1.6.3 Proofs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Contents ii
2 Cooperative versus Competitive Standard Setting 55
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
2.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
2.3 Ex Post Compatibility, Price Competition and Investment Incentives . 61
2.3.1 Price Competition with and without Compatibility . . . . . . . 61
2.3.2 Investments in Quality . . . . . . . . . . . . . . . . . . . . . . . 64
2.3.3 Welfare Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . 66
2.4 Ex Ante Compatibility, Technology Sharing and Royalties . . . . . . . 70
2.4.1 Technology Sharing and Royalties . . . . . . . . . . . . . . . . . 70
2.4.2 Optimal Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . 72
2.4.3 Incentives to Share Technology . . . . . . . . . . . . . . . . . . 73
2.5 Private and Social Incentives to Adopt a Common Standard . . . . . . 74
2.6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
2.7 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
2.7.1 Proofs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
2.7.2 Novell-Microsoft Agreement . . . . . . . . . . . . . . . . . . . . 88Contents iii
3 Vertical Structure, Investment and Financing of Network Utilities 89
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
3.2 The Model Setup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
3.3 Vertical Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
3.3.1 Cost-Reducing Investments . . . . . . . . . . . . . . . . . . . . 97
3.3.2 Quality-Increasing Investments . . . . . . . . . . . . . . . . . . 104
3.4 Vertical Separation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
3.4.1 Cost-Reducing Investments . . . . . . . . . . . . . . . . . . . . 110
3.4.2 Quality-Increasing Investments . . . . . . . . . . . . . . . . . . 114
3.5 Welfare and Policy Implications . . . . . . . . . . . . . . . . . . . . . . 117
3.6 Excursion: Public Financing . . . . . . . . . . . . . . . . . . . . . . . . 119
3.7 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
3.8 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
3.8.1 Graphical Analysis of Investments in a Cournot Model . . . . . 127
3.8.2 Co-Existence of Both Investments . . . . . . . . . . . . . . . . . 129
3.8.3 Proofs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Bibliography 138List of Figures
1.1 Time Structure of the Model . . . . . . . . . . . . . . . . . . . . . . . . 12
1.2 Possible Equilibria under Di⁄erent Compatibility Regimes . . . . . . . 19
1.3 Firm 1?s Preferred Compatibility Regimes . . . . . . . . . . . . . . . . 23
1.4 Comparative Statics in Asymmetry of Rivals . . . . . . . . . . . . . . . 28
1.5 Industry Con?guration with Horizontal Product Di⁄erentiation . . . . 30
1.6 Comparative Statics in Degree of Product Di⁄erentiation . . . . . . . . 32
1.7 Compatibility Regimes with Highest Joint Pro?ts . . . . . . . . . . . . 34
1.8 Group A Consumer Buying Behavior . . . . . . . . . . . . . . . . . . . 39
2.1 Time Structure of the Model . . . . . . . . . . . . . . . . . . . . . . . . 61
3.1 Time Structure of the Model . . . . . . . . . . . . . . . . . . . . . . . 96
3.2 Time Structure of the Model (No Commitment) . . . . . . . . . . . . . 122
3.3 Cost-Reducing and Quality-Increasing Investments . . . . . . . . . . . 127
3.4 Public vs. Private Financing . . . . . . . . . . . . . . . . . . . . . . . . 128Preface
?Many of the e⁄ects that drive the new information economy were there in
1the old industrial economy ?you just have to know where to look.?
In the following we present three models that use applied oligopoly theory to re-
search market behavior in network industries. The ?rst two chapters focus on ?rms?
compatibilitydecisions inthenewinformationeconomyas exempli?edbythesoftware
industry. Chapter 1 derives the equilibrium compatibility regime when asymmetric
?rms compete within an oligopolistic structure. Chapter 2 compares the performance
ofstandardsthatareestablishedthroughmarketcompetitionagainstthoseestablished
throughcooperativeagreements. InChapter3weinvestigateanetworkindustrywhich
is part of the old industrial economy. By using the example of the railroad industry,
we discuss which industry structure and regulatory environment provide the best in-
centivesforinfrastructureinvestments. Beforeintroducingthechaptersinmoredetail,
we brie?y discuss below what these industries from the old and new economies have
in common. In doing so, this preface speci?cally focuses on the implications of these
common elements for market structure, ?rm strategy and government policy.
Manyindustriesintheoldindustrialeconomyarecharacterizedbystrongeconomies
of scale in production ?i.e. on the supply-side. This applies particularly for network
utilities which rely on a physical network infrastructure to provide their services to
consumers. These infrastructures involve large, ?xed investment costs and thus render
utilities the most commonly cited example for natural monopolies. Because of the
tendency towards monopolistic structures, these "classical" network industries, such
as rail, electricity, gas, telecoms and water are closely monitored by both regulatory
agencies as well as competition authorities. Regulatory scrutiny appears to be espe-
ciallyimportant whenrecalling that the e¢ cient supplyof these services is essential as
an input to numerous production processes.
1Farrell, Shapiro and Varian (2004), page 12.Preface 2
New information industries typically also exhibit high ?xed and low marginal c