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Frontiers of Economics in China

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, Volume 12 Issue 3 Previous Issue   
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Orginal Article
Hidden Reserve Prices with Risk-Averse Bidders
Huagang Li, Guofu Tan
Front. Econ. China. 2017, 12 (3): 341-370.   DOI: 10.3868/s060-006-017-0015-4
Abstract   PDF (469KB)

In this paper, we provide an alternative explanation for why auctioneers often keep the reserve price hidden or secret. We consider a standard independent private values environment in which the buyers are risk-averse and the seller has private information about her valuation of the object to be auctioned. The seller uses a first-price sealed-bid auction mechanism combined with either an announced reserve price or a hidden reserve price. We compare the seller’s ex ante expected profits under these two policies and find that the optimal hidden reserve price policy generates higher expected profits for the seller when the buyers are fairly risk-averse under particular restrictions on buyers’ preferences and the distributions of private values. As the number of the buyers increases, the hidden reserve price is more likely to dominate. Numerical methods are used to demonstrate the generality of our main results.

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Audit Competition in Insurance Oligopolies
Nicolas Boccard, Patrick Legros
Front. Econ. China. 2017, 12 (3): 371-399.   DOI: 10.3868/s060-006-017-0016-1
Abstract   PDF (762KB)

We provide a simple framework for analyzing how competition affects the choice of audit structures in an oligopolistic insurance industry. When the degree of competition increases, fraud increases but the response of the industry in terms of investment in audit quality follows a U-shaped pattern. Following increases in competition, the investment in audit quality will decrease if the industry is initially in a low competition regime while it will increase when the industry is in a high competition regime. We show that firms will benefit from forming a joint audit agency only when the degree of competition is intermediate; in this case, cooperation might improve total welfare and we analyze the effects of contract innovation on the performance of the industry.

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Industrialized Innovation: The Connection of Science & Technology Innovation with Industrial Innovation
Yinxing Hong, Yao Lu, Jianghuai Zheng
Front. Econ. China. 2017, 12 (3): 400-417.   DOI: 10.3868/s060-006-017-0017-8
Abstract   PDF (302KB)

In light of the relationship and the current disconnection between science & technology (S&T) innovation and industrial innovation in China, it is necessary to put forward and emphasize the concept of industrialized innovation. Industrialized innovation is the bridge and intermediation between S&T innovation and industrial innovation, which is not only a concept, but also a mechanism and combination force. There are two ways to achieve industrialized innovation: through industry-university-research coordination and through technology entrepreneurship. The meaning of industry-university-research coordination is not about coordination among industry, university and research sectors in an institutional sense; rather it is about the coordination of the functions of cultivation and development in new industries, new technologies, and new talents of industrialized innovation. The incentive mechanism for industrialized innovation should motivate not only innovation but also coordination. Technology entrepreneurship is the industrialization of new technology through business start-ups, which occurs beyond the stage of incubation and development of new technology. The capital of technology entrepreneurship is the set consisting of knowledge capital manifested through technological innovation, human capital manifested through entrepreneurs, and physical capital in the form of venture capital. While physical capital is indispensable, knowledge capital and human capital play the decisive role in technology entrepreneurship. The industrialization of technological innovation involves two requirements: one is to enable the new technology industry to achieve a large scale rapidly, and the other is to fully realize the potential value of the new technology. Both requirements are reliant on effective innovation in business models.

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Technical Progress and the Diffusion of Innovations: Classical and Schumpeterian Perspectives
Heinz D. Kurz
Front. Econ. China. 2017, 12 (3): 418-449.   DOI: 10.3868/s060-006-017-0018-5
Abstract   PDF (4170KB)

The paper discusses the diffusion of new technologies from the perspective of the classical economists and Schumpeter. After a comparison of the pre- and post-technical change long-period positions of the economy, we illustrate the process of transition between the two in terms of a two-sector model. Next, we turn to a system with joint production. The fact that some products may be “bads” that need to be disposed of leads to a study of systems of production-cum-disposal. Finally, we investigate the selection pressure innovations exert on incumbent firms. An important message is that technical change cannot generally be studied within a partial framework of the analysis.

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Product Market Competition and Innovation: What Can We Learn from Economic Theory?
Zhiqi Chen
Front. Econ. China. 2017, 12 (3): 450-464.   DOI: 10.3868/s060-006-017-0019-2
Abstract   PDF (231KB)

By means of a literature review, this paper strives to provide some clarity on the much-debated relationship between product market competition and firms’ incentives to innovate. It shows that in the literature there does not exist a robust relationship between competition and incentives to innovate. Therefore, it would be futile to continue the debate over whether competition stimulates or hinders innovation. A more useful approach is to make a distinction between pre-innovation competition and post-innovation competition, as it provides a way for reconciling many of the seemingly contradictory findings from the literature. Another important insight from the literature is that the relationship between competition and innovation depends on the source of increased competition.

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A Model of Endogenous Cross-Holdings in Oligopoly
Cheng-Zhong Qin, Dandan Zhu, Shengping Zhang
Front. Econ. China. 2017, 12 (3): 465-479.   DOI: 10.3868/s060-006-017-0020-6
Abstract   PDF (287KB)

A network approach is proposed to analyze the formation of cross-holdings and anti-competitive implications. Our approach is motivated by the bilateral arrangement of passive ownership between Microsoft and Apple in 1997. We provide a complete characterization of pairwise stable cross-holdings for a model of Cournot oligopoly with a homogeneous product. Our results strengthen the competitive implications of endogenous cross-holdings in Cournot oligopoly found in the literature.

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Private Label Positioning and Product Line
Stéphane Caprice
Front. Econ. China. 2017, 12 (3): 480-513.   DOI: 10.3868/s060-006-017-0021-3
Abstract   PDF (779KB)

This article examines (i) how retailers position private label products, (ii) why private labels are sold in some product categories but not in others, and why some national brand products may have difficulty in accessing retailers’ shelves, (iii) why some private label products are positioned as ”premium” brands, and (iv) how consumers’ surplus and totalwelfare are affected by private labels. We find that private label positioning leads to less differentiation in product category, which structurally changes a retailer’s product line in return. Consumer welfare and total welfare are lower.

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7 articles