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COMPETING WITH MENUS OF TARIFF OPTIONS
(Click above to download a pdf copy of the paper)
- Abstract: The nature of numerous strategies of firms
is often discrete or countable. This adds difficulty to measuring and
testing for the existence of complementarities among several strategies.
This paper introduces a generalized multivariate count data model that
allows estimating correlations of any sign among the pricing decisions of
competing firms in a manner that is robust to the existence of unobserved
heterogeneity leading to either over and underdispersion of the distribution
of counts. Thus, it is possible to overcome a major challange in testing
whether two decisions are strategic complements or substitutes, i.e., dealing
with the effect of unobserved heterogeneity. I study how firms actually
compete in nonlinear tariffs by analyzing the interrelation between the
incumbent and entrant's decisions to offer a given number of tariff options.
Results document the existence of complementarity among tariff options
regardless of whether they are dominated or not. This result supports the
view that the implementation of nonlinear tariffs by means of a menu of
self-selecting two-part tariffs has some strategic value in competitive
environments.
- Publication: Journal of the European Economic Association, (refereed) Symposium Issue on Complementarity and Information, 7, 188-205, March 2009.
- JEL: D43, L96, M21.
- First version: January 2007.
- Final version: July 2008.
- Funding: NET Institute.
- Seminars: None.
- Conferences: Texas Camp Econometrics XII (2007); Workshop on Industrial Organization and Finance, IESE, June 2007; 48th Annual Conference of the New Zealand Association of Economists.
- Presentations: PPT; PDF.
- Media Citations: None.
- Noteworthy: Previously circulated as NET Institute Working Paper #07-02. and CEPR DP No. 6279.
- Data.
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