Nikolaos Vettas

"Dynamic Price Competition with Capacity Constraints and Strategic Buyers", with Gary Biglaiser (University of North Carolina), CEPR discussion paper No. 4315 (March 2004) [abstract][paper]

Abstract: We analyze a set of simple dynamic models where sellers are capacity constrained over the length of the model. Buyers act strategically in the market, knowing that their purchases may affect future prices. The model is examined when there are single and multiple buyers, with both linear and non-linear pricing. We find that, in general, there are only mixed strategy equilibria and that sellers get a rent above the amount needed to satisfy the market demand that the other seller cannot meet. Buyers would like to commit not to buy in the future. Furthermore, sellers' market shares tend to be maximally asymmetric with high probability, even though they are ex ante identical.

"Location Choices under Quality Uncertainty" with Charalambos Christou (Athens University of Economics and Business), CEPR discussion paper No. 4323 (March 2004) [abstract][paper]

Abstract: We examine a linear city duopoly where firms choose their locations to maximize expected profits, uncertain about how consumers will assess the relative quality of their products. Equilibrium locations depend on the ratio of the expected quality superiority to the strength of horizontal differentiation. When it is small, firms locate at opposite endpoints. As it becomes larger, agglomeration around the center also emerges as an equilibrium and, eventually, agglomeration becomes the only equilibrium.

"Endogenous Contracts under Bargaining in Competing Vertical Chains", with Chrysovalantou Milliou (Carlos III) and Emmanuel Petrakis (University of Crete), CEPR discussion paper No. 3976 (July 2003). [abstract][paper]

Abstract: We study competing vertical chains where both upstream and downstream firms participate actively in the determination of the type and terms of vertical contracts. We find that price-quantity bundles, specifying an input quantity and its corresponding price, dominate two-part tariffs and emerge, in equilibrium, for a large space of parameters. We also specify conditions under which (linear) wholesale prices contracts also emerge; such contracts are inefficient from the viewpoint of each chain but, under certain conditions, may lead to higher total profits. We demonstrate that a more even distribution of bargaining power within the chains may hurt consumers (and benefit the chains and all firms), because it may imply a different equilibrium trading form (linear contracts) than an uneven distribution.

"Informative Advertising and Product Differentiation" with Charalambos Christou (Athens University of Economics and Business), CEPR discussion paper No. 3953 (June 2003) revise-and-resubmit at Economic Theory. [abstract][paper]

Abstract: We study informative advertising within a random-utility, non-localized competition, model of product differentiation. In a symmetric equilibrium, advertisement is suboptimal when product differentiation is small, and excessive otherwise. Increasing the number of firms may increase or decrease the market price. We emphasize that quasi-concavity of profits may fail, as firms may prefer a high price deviation, targeting consumers that only become informed about their product (a feature that, while present in earlier models of informative advertising, has not received enough attention). As product differentiation becomes small, a symmetric equilibrium does not exist.

"Location as a Signal of Quality", CEPR discussion paper No. 2165 (June 1999), revise-and-resubmit at the International Journal of Industrial Organization. [abstract][paper]

Abstract: We examine a horizontal product differentiation duopoly model where firms are also differentiated with respect to the quality of their products. Firms first choose their locations (or product characteristics) and then compete in prices. Under full information, whereas the low-quality firm prefers to locate as far as possible from its competitor, the same is not true for the high-quality firm, unless the quality difference is small enough. An explanation is then presented for spatial agglomeration based on incomplete information considerations. Because it is less costly for a high-quality firm than for a low-quality firm to locate close to a rival firm, choosing a location closer to a rival signals high quality.

"Two-part tariffs in a homogeneous product duopoly", with Krina Griva (University of Ioannina), working paper (January 2004) [abstract][paper]

Abstract: We consider competition between two firms providing a service when consumers differ with respect to their usage rates. Pricing takes the form of a two-part tariff, a fixed fee and a rate per unit of usage. Consumers view the products of the two firms as perfect substitutes and, if both the fees and the rates are chosen by firms at the same time, competition leads to zero profit. Still, competition via one price dimension may leave both firms with strictly positive profits if the other price can be set at predetermined levels that are not too close to each other. There is, then, an endogenous segmentation of the market, with the heavier users choosing the lower rate and higher fee firm and the lighter users opting for the higher rate and lower fee firm.

"Price competition in a differentiated products duopoly under network effects", with Krina Griva (University of Ioannina), working paper (January 2004) [abstract][paper]

Abstract: We consider price competition between two sellers of differentiated products under network effects. The two products can differ with respect to "location" (horizontally) and with respect to quality (vertically). When consumers' expectations cannot be affected by the prices firms' charge, when the network effect is relatively strong and the quality difference is not too large in comparison to the network effect, then in equilibrium, the low-quality firm may capture the entire market. When expectations are affected by prices, the high quality firm captures a larger market share than its rival, or even the entire market, depending on the strength of the network effects.

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