Issue 1

Volume 8 JOURNAL OF ECONOMICS & MANAGEMENT STRATEGY
Spring 1999

Adverse Selection with Competitive Inspection

Gary Biglaiser and James W. Friedman
We develop a model with heterogeneous buyers and sellers in which the sellers have private information about their goods' qualities. We show that efficient trading cannot occur without middlemen. Middlemen can provide two services: one is inspection, and the other is the sorting of buyers and sellers through the rationing of sellers and the provision of two different price schedules.

A Reexamination of Yardstick Competition

Joel Sobel
This paper shows that yardstick competition does not assist a regulator when lump-sum transfers are not costly and the regulator does not care about the distribution of income. Yardstick competition may discourage investment that would make efficient operation possible. The paper characterizes optimal regulatory schemes in a simple model and demonstrates that it may be optimal to limit the amount of information available to the regulator.

Empirical Evaluation of Regulatory Regimes in Local Telecommunications Markets

F. Gasmi, J. J. Laffont and W. W. Sharkey
This paper relies on an engineering optimization model of the local telecommunication exchange network to calibrate the functions entering various regulatory mechanisms, from both traditional and modern (incentive) regulation, and evaluate their relative performance. The engineering process model is used to generate data, which are econometrically synthesized in a translog economic cost function.

Price Dynamics and Consumer Learning

Ramon Caminal and Xavier Vives
This paper studies the price dynamics induced by strategic firm behavior in the presence of consumer learning about the uncertain quality differential of the products offered by a duopoly. It is found that consumers learn slowly and that prices converge also slowly to full-information levels.

Licensing vs. Litigation: The Effect of the Legal System on Incentives to Innovate

Reiko Aoki and Jin-Li Hu
With uncertain scope of patent protection and imperfect enforcement, the effective strength of patent protection is determined by the legal system. We analyze how the legal system affects the incentives of firms to innovate, taking into account possibilities of strategic licensing and litigation to deter imitation. The legal system that guarantees the patentee's monopoly power maximizes the R&D intensities.