Issue 4

Volume 4 JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY
Winter 1995

Nonlinear Pricing and Oligopoly

Lars A. Stole
We consider the general problem of price discrimination with nonlinear pricing in an oligopoly setting where firms are spatially differentiated. We characterize the nature of optimal pricing schedules, which in turn depends importantly upon the type of private information the customer possesses–either horizontal uncertainty regarding brand preference or vertical uncertainty regarding quality preference. We show that as competition increases, the resulting quality distortions decrease, as well as price and quality dispersions.

Better Late than Early: Vertical Differentiation in the Adoption of a New Technology

Prajit K. Dutta, Saul Lach and Aldo Rustichini
After the initial breakthrough in the research phase of R&D, a new product undergoes a process of change, improvement, and adaptation to market conditions. We model the strategic behavior of firms in this development phase. We emphasize that a key dimension to this competition is the innovation that leads to product differentiation and quality improvement.

Shareholder Activism, “Voluntary” Restructuring, and Internal Labor Markets

Gerald T. Garvey and Peter L. Swan
We model an internal labor market in which employee behavior and compensation are affected by the firm's financial position and the threat of hostile takeover or other exercise of shareholder “voice.” We show how good past performance can result in excessively generous promotion and pay decisions. While the threat of shareholder activism will remove this “slack,” activists optimally face a positive cost barrier, which in turn varies across firms.

Vertical Contracts as Strategic Commitments: How are They Enforced?

Cindy R. Alexander and David Reiffen
This paper addresses the strategic commitment value of various price and nonprice vertical contracts. Assuming contract offers are sufficiently public to have strategic importance, we focus on commitment as a necessary and separable condition to be met. The analysis has two components.

Stable R&D Cooperation with Spillovers

Katrien Kesteloot and Reinhilde Veugelers
The literature on the incentives for R & D cooperation with spillovers typically deals only with the factors affecting cooperative profits. This paper focuses on the incentives to cheat and the stability of such cooperative agreements in a repeated game framework. It is shown that the stability of cooperation is influenced by the nature and magnitude of spillovers, relative to the nature and degree of product market competition.