http://repub.eur.nl/res/aut/11957/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/19988/ 2010-01-01T00:00:00Z Firms signal quality through prices even if the market structure is very competitive and price competition is severe. In a symmetric Bertrand oligopoly where products may differ only in their quality and each firm's product quality is private information (unknown to consumers and to other firms), there exist symmetric fully revealing perfect Bayesian equilibria where low quality firms randomize over an interval of prices and high quality firms charge high prices. Signaling requires that the market power and rent of low quality firms be large enough and often this requires that high quality firms exercise sufficient market power. There is a unique symmetric fully revealing equilibrium satisfying the D1 criterion; in this equilibrium too, both low and high quality firms may exhibit considerable market power. Market power of high quality firms may persist even as the number of firms becomes arbitrarily large. Every D1 equilibrium involves some revelation of information. http://repub.eur.nl/res/pub/10748/ 2007-10-17T00:00:00Z Firms signal high quality through high prices even if the market structure is highly competitive and price competition is severe. In a symmetric Bertrand oligopoly where products may differ only in their quality, production cost is increasing in quality and the quality of each firm’s product is private information (not known to consumers or to other firms), we show that there exist fully revealing equilibria in mixed strategies. In such equilibria, low quality firms enjoy market power when other firms are of high quality. High quality firms charge higher prices than low quality firms but lose business to rival firms with higher probability. Some of the revealing equilibria involve high degree of market power (price close to full information monopoly level) while others are more “competitive”. Under certain conditions, if the number of firms is large enough, information is revealed in every equilibrium. http://repub.eur.nl/res/pub/11631/ 2004-08-01T00:00:00Z We investigate the nature of trading and sorting induced by the dynamic price mechanism in a competitive durable good market with adverse selection and exogenous entry of traders over time. The model is a dynamic version of Akerlof (1970). Identical cohorts of durable goods, whose quality is known only to potential sellers, enter the market over time. We show that there exists a cyclical equilibrium where all goods are traded within a finite number of periods after entry. Market failure is reflected in the length of waiting time before trade. The model also provides an explanation of market fluctuations. http://repub.eur.nl/res/pub/11640/ 2002-01-01T00:00:00Z We analyze a dynamic version of the Akerlof–Wilson “lemons” market in a competitive durable good setting. There is a fixed set of sellers with private information about the quality of their wares. The price mechanism sorts sellers of different qualities into different time periods—prices and average quality of goods traded increase over time. Goods of all qualities are traded in finite time. Market failure arises because of the waiting involved—particularly for sellers of better quality. The equilibrium path may exhibit intermediate breaks in trading. http://repub.eur.nl/res/pub/12953/ 1998-12-01T00:00:00Z We investigate the strategic incentives for vertical foreign direct investment by oligopolistic firms under exchange rate uncertainty. Domestic final good firms meet their input requirements either by investing abroad and producing directly through a subsidiary (intra-firm trade) or by buying from an oligopolistic market abroad (inter-firm trade). Firms undertaking vertical investment can bid up the input price faced by their rivals through strategic purchase. We demonstrate the possibility of vertical foreclosure, multiple equilibria, complementarity and bunching of investment decisions. Increase in the variability of exchange rate has positive effects on foreign direct investment and trade in the intermediate good; an appreciation of investor's currency has similar effects. http://repub.eur.nl/res/pub/7780/ 1998-02-09T00:00:00Z We demonstrate the possibility of shake-out of firms and emergence of inter-firm heterogeneity along the (socially optimal) dynamic equilibrium path of a competitive industry with free entry and exit, even when there is no uncertainty and all firms are ex ante identical with perfect foresight. Atomistic firms with upward sloping marginal cost curves undertake investment in firm- specific cost reduction. They earn negative net profit in early periods, compensated later by strictly positive net profits; no entry occurs after the initial time period. Some firms may exit before others even while other firms earn positive net profit. http://repub.eur.nl/res/pub/12950/ 1998-01-01T00:00:00Z Analyzes international trade where consumer preferences exhibit country bias. Why country biases arise; How trade can occur in the presence of country bias; Implication for the pattern of trade and specialization.