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COMPETING WITH MENUS OF TARIFF OPTIONS
Eugenio J. Miravete
University of Texas at Austin, CEPR, and S.T. Lee Fellow at ISCR
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COMPETING WITH MENUS OF TARIFF OPTIONS Eugenio J. Miravete - - PowerPoint PPT Presentation
COMPETING WITH MENUS OF TARIFF OPTIONS Eugenio J. Miravete - - PowerPoint PPT Presentation
COMPETING WITH MENUS OF TARIFF OPTIONS Eugenio J. Miravete University of Texas at Austin, CEPR, and S.T. Lee Fellow at ISCR Motivation: Economic Theory Firms rarely offer the fully nonlinear tariff predicted by theoretical models.
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More interestingly, the number of options
- ffered may also respond to strategic
considerations:
Attempt to segment the market. Attempt to differentiate products/services that are
- therwise homogeneous.
To take advantage of any bounded rationality limitation of consumers.
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Competing views:
Symmetric equilibrium – minimal product differentiation.
Armstrong and Vickers (2001). Rochet and Stole (2002).
Asymmetric equilibrium – differentiation through pricing.
Yang and Ye (2006).
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What is the question of economic interest? Are the pricing policies of competing firms strategic substitutes or strategic complements? Of course we need to control for observed heterogeneity (and ideally by unobserved heterogeneity as well).
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Motivation: Econometrics
Ideally we want to estimate a SUR count data model… … not such model exists, or at least not one with the following properties:
Accommodate both over and underdispersion of counts. Allow for positive and negative correlations of the errors. Dispersion and correlation determined by different parameters.
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This paper develops such flexible econometric model. Ingredients:
Efron’s (1986) Double Poisson distribution. Sklar’s (1959) copula result. Gaussian copula specification.
Advantages:
Straightforward generalizations to n-dimensions. Very fast computation.
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Data
50 U.S. local cellular monopolist (1984-1988).
Temporary monopoly of the wireline carrier.
Exogenous entry of the second firm. No need to model entry or entry deterrence strategies.
Largest SMSA markets. All tariff plans offered by the incumbent: Focus on the lower envelope of the peak tariff. Include the first and last quarter in the sample.
Complemented with data from:
Census, FBI, and U.S. HCN.
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Model
Double Poisson:
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Straightforward estimation:
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Continuation of count variables:
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Gaussian copula:
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