Kangsik Choi

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• Professor
• Professor at Pusan National University

In vertically related markets with exclusive channels, we demonstrate endogenous choice of competition mode under mutual outsourcing between downstream manufacturers. In contrast to previous results, the upstream supplier charges the downstream manufacturer an input price lower (higher) than the unit production cost under Bertrand (Cournot) competi...

In this paper, we investigate the issue of privatization in a mixed duopoly with vertical differentiation under Cournot and Bertrand competition. The public firm is assumed to produce a lower‐quality product with lower production costs. We find that under both Bertrand and Cournot competition, privatization is socially desirable (undesirable) if th...

We consider a vertically related market, in which each downstream firm produces a differentiated product by assembling a key input produced by a common supplier and another input produced by a dedicated upstream firm. On the one hand, vertical integration has the advantage of inducing the common supplier to set a lower input price, but the disadvan...

We examine the vertical strategies of home and foreign manufacturers that produce quality-differentiated products. In contrast to previous results that showed vertical separation as the dominant strategy, we find that the home manufacturer opts for vertical separation, while the foreign manufacturer chooses vertical integration under Bertrand compe...

Using the export rivalry model based exclusive dealer channel, we examine the endogenous determination of firms' vertical structure when optimal import tariffs are implemented by the importing country. In addition, we analyze the welfare effects of trade liberalization when firms' vertical structures are endogenous. We show that, despite being hete...

We ananlyze the endogenous firms' choice of organization form in the presence of endogenous freight rates, port fees with the public (or asymmetric) port ownership. We found that regardless of port ownership, one firm provides corporate incentives (i.e., U-form), and other firm provides divisional incentives (i.e., M-form). Thus, choosing U-form (r...

We examine the welfare implications of two tariff regimes when firms have a forward‐looking view on trade policy. Discriminatory tariffs lead to Cournot competition, whereas uniform tariffs lead to diverse competition modes. If exporters are identical in production costs, all the trading countries are better off under the uniform rather than discri...

In this paper, we investigate the issue of privatization in a mixed duopoly with quality differentiation under Cournot and Bertrand competition. The public firm is assumed to produce a lower-quality product with lower production costs. We find that under both Bertrand and Cournot competition, privatization is socially desirable (undesirable) if the...

This study examines the superiority of the discriminatory and uniform tariff regimes under both simultaneous and sequential arrangements in terms of social and global welfare by considering asymmetrically increasing marginal costs among exporters. Under Cournot competition, the importing country has an incentive to manipulate the tariff structure u...

Incorporating the excess burden of taxation into a mixed duopoly to evaluate privatization, we analyze competition of the public and private firms producing goods of different qualities between Cournot and Bertrand competition. When the only private firm offers a high quality, (i) under both Bertrand and Cournot competition, it is desirable to choo...

In network industry under Cournot and Bertrand competition, we examine a model when owners of firms hire biased managers who have incorrect market demand. Contrast to previous studies, we show that (i) regardless of the strength of network externalities when consumers form the responsive and passive expectations, owners realize strategic advantage...

By allowing the supplier to contract simultaneously or sequentially with asymmetric retailers under Bertrand competition, we analyze the welfare implications of banning price discrimination in input markets. In contrast to Cournot competition, we find that: (i) under sequential contracting, the monopolistic supplier prefers to contract with an inef...

In the presence of network externalities, we examine the endogenous delegation structure in an import-competing market with import tariff under Bertrand competition. We show that (i) with strong network externalities, choosing delegation for home and foreign firms is a dominant strategy, which implies that the managerial delegation for output expan...

Incorporating the excess burden of taxation into a mixed duopoly to evaluate privatization, we analyze competition of the public and private firms producing goods of different qualities between Cournot and Bertrand competition. When the only private firm offers a high quality, (i) under both Bertrand and Cournot competition, it is desirable to choo...

Focusing on the multiple exportable goods between intrabrand and interbrand competition in the export rivalry market, we analyze foreign firms' endogenous choice of organizational form in the face of tariffs. It is shown that if the degree of intrabrand competition is sufficiently high, firms provide corporate incentives (i.e., U‐form) when goods a...

We revisit the wholesale model and the agency model in differentiated markets of Lu (Review of Industrial Organization, 51, 151–172, 2017) and show the changes of the equilibrium outcomes of consumer surplus and social welfare. Unlike Lu (Review of Industrial Organization, 51, 151–172, 2017), we find that: (i) social welfare is always greater in ag...

We incorporate the excess burden of taxation into a multiproduct mixed oligopoly to analyze the endogenous choice of organizational forms between the multidivisional form (M-form) for divisional incentives and the unitary form (U-form) for corporate incentives. The M-form (U-form) in the managerial delegation for public and private firms is a domin...

Incorporating an exclusive dealing extension into Cournot competition, we analyze the multiproduct downstream firms’ choice of organizational form between the unitary form (U-form) for corporate incentive and the multidivisional form (M-form) for divisional incentive. The U-form in the managerial delegation for downstream firms is a dominant strate...

We analyze the endogenous choice of competition mode when asymmetric retailers engage in price discrimination and uniform pricing with upstream monopoly via a linear wholesale contract. In contrast to previous results, if the cost difference is sufficiently large between asymmetric retailers, choosing a price contract for the efficient retailer and...

We examine the endogenous choice of commitment device to consumers’ expectations with network effects. Under Cournot competition, we show that choosing commitment to expectations for each firm is a dominant strategy regardless of the strength of network effects. However, under Bertrand competition, three types of commitment with both/no commitment/...

We compare collusion stability under Bertrand and Cournot duopoly with differentiated network products. Contrast to previous studies, we show that (i) the range of collusion incentive is narrower under Cournot competition than under Bertrand competition, unless network externalities are sufficiently strong; (ii) collusion in prices (quantities) is...

We investigate the choice of endogenous timing in the presence of network externalities under Bertrand competition. Contrary to the results of sequentiality in equilibrium, we demonstrate that when managers are being delegated both the market and timing decision, there exists a unique simultaneous move in equilibrium regardless of network externali...

We analyze the endogenous choice of organizational form between a multidivisional form (i.e., M-form) and unitary form (i.e., U-form) in a multiproduct mixed duopoly. With managerial delegation in public and private firms, we find that if goods are substitutes (complements), choosing the M-form (U-form) for the public and private firms is the domin...

In the presence of network externalities, this study examines the endogenous delegation structure in an export rivalry market with import tariff under Bertrand competition. Contrast to previous works, we show that (i) with strong (weak) network externalities, choosing delegation for exporters is a dominant strategy, which implies the managerial del...

We revisit firms’ strategic delegation in a Cournot game. We consider a market comprising two consumer groups, with either a high or low willingness to pay. In this market, we first consider firms’ identical marginal costs and show that either/both firms’ owners may strategically abandon the delegation option to avoid price collapse. We find three...

This paper examines the endogenous determination of vertical organizationstructure (i.e., vertical integration or separation) when an optimal import tariff is implemented in an import-competing market, where one home firm and one foreign firm engage in price competition under network externalities. The optimal import tariff is higher when the forei...

This study examines the endogenous vertical structure in which each manufacturer sells its product to its exclusive retailer who sells network goods to consumers (i.e. a duopoly in the upstream market) under Bertrand competition and Cournot competition with network externalities. We show that with strong (weak) network externalities under Bertrand...

We examine the endogenous determination of a vertical market in an import‐competing market with import tariff. We show that if firms commit to vertical organization before the government's commitment to trade policy, the home and foreign firms choose vertical separation and vertical integration, respectively, at equilibrium under Bertrand competiti...

This study investigates capacity choice in a vertical structure in which each downstream firm makes its capacity decision, then a monopolistic upstream firm proposes the input price or two‐part tariff contract. Finally, each downstream firm chooses its output (or price). Contrary to the conventional wisdom that both firms hold excess capacity in an...

We examine that the bilateral supplier affects the incentive contracts that owners of retailers offer their managers, assuming that the manufacturer sets the input price after observing the terms of the incentive contracts offered to management in the downstream market. Thus, we compare the two models: (1) decentralized bargaining between manufactu...

Focusing on foreign ownership in the private firm, we examine the Cournot‐Bertrand comparison in a mixed oligopolistic market with vertical market structure. We have found that if public and private firms were charged with uniform price for their inputs, then Cournot‐Bertrand ranking in market outcomes confirms those obtained by Ghosh and Mitra (20...

This paper examines the endogenous choice of competition mode with strategic export policies in vertically related markets when each upstream firm located in each country determines the terms of the two-part tariff contract by maximizing generalized Nash bargaining. We show that (i) choosing Cournot (Bertrand) competition is the dominant strategy f...

This paper presents a theoretical investigation on trade and port policies, at a substantial level of abstraction. Applying an import-competing trade model, we examine the effect of port ownership on port charges, firm profits, and social welfare. We show that, depending on transport costs, the home country has different preferences in choosing por...

Fershtman and Judd (1987) show that profit-oriented owners delegate pricing decisions to managers through contracts that incentivize them to behave less aggressively. Hoernig (2012) extends their analysis to environments with network effects and finds that, when network effects are strong enough, the result is reversed and that optimal delegation c...

This paper compares vertical integration and vertical separation with network externalities. Contrary to conventional wisdom, if network effects are stronger than the threshold level of the network externality parameter, manufacturers’ strategic choices of wholesale prices move in opposite directions (i.e., wholesale prices may be strategic substit...

To analyze why export subsidies still exist, we demonstrate the endogenous choice of strategic variable (R&D subsidy or output subsidy) in the third-market model in which exporting firms perform the R&D investment. We find that even though each government can improve welfare when it chooses R&D subsidy policy simultaneously, choosing output subsidy...

By incorporating port competition into a third-market model consisting of two exporting firms and one importing country, we demonstrate the endogenous choice of port structures (i.e. privatization or public ownership) under either Bertrand or Cournot competition. In contrast to previous studies on port competition, we analyze the port strategy in v...

This study examines a first-mover and a second-mover advantage in a vertical structure in which each upstream firm trades with an exclusive retailer and downstream retailers move sequentially. We provide two main claims. One is that, in Cournot (Bertrand) competition, the leader’s upstream firm sets the input price equal to its marginal cost (equal...

With strategic trade policies, we consider first- and second-mover advantages in a vertical structure given the two-part tariff contract (composed of the input price and the fixed fee) of an upstream firm, where a home and a foreign final-good firms export to a third-country market. We find that the upstream firms’ and governments’ preference order...

We investigate government subsidy policy where a domestic and a foreign firm can choose either price or quantity in a third-country market. We demonstrate that even though firms can earn higher profits under Cournot competition than under Bertrand competition regardless of nature of goods, choosing Bertrand competition is the dominant strategy for...

Considering the interplay between network externalities and the degree of product substitutability in a vertical structure, we compare the outcomes of vertical integration and vertical separation. In contrast to previous results, we show that when both products are sufficiently close substitutes, there is a threshold level of the network externalit...

The paper analyzes an ex-ante contracting with limited liability constraints when agents feel envious of others' higher wages. We show that depending on the degree of limited liability constraints, the principal requires various distortions in output at both the top and bottom productivity levels for agent's type. Compared to the result without env...

This paper compares Bertrand and Cournot competition in a vertical structure in which the upstream firm sets the input price and makes R&D investments. We show that from the downstream firms’ point of view, Cournot competition has the advantage of a more monopolistic effect, leading to the setting of a higher price, but has the disadvantage of indu...

We consider a mixed duopoly in which private and public firms can choose to strategically set prices or quantities when the public firm is less efficient than the private firm. Thus, even with cost asymmetry, we obtain exactly the same result (i.e., Bertrand competition) of Matsumura and Ogawa (2012) if Singh and Vives’ (1984) assumption of positiv...

We revisit the classic discussion on the endogenous choice of a price or a quantity contract in a vertically related duopoly with a monopolistic upstream firm. We show, from the perspective of the upstream firm, choosing the price contract is a dominant strategy regardless of the nature of goods. We also show, from the perspective of the downstream...

We consider the issue of first- and second-mover advantages in a vertically related market. First, we show that the standard conclusions about sequential-move games under Bertrand and Cournot competitions can change in the context of a vertically related market. This is because an upstream monopoly can control first- and second-mover advantages by...

By introducing Cournot and Bertrand competition in adifferentiated goods with the case of complements into Nash bargaining solution problem, we investigate timing of endogenous wage setting where wages can be negotiated either simultaneously or sequentially. Contrary to the case of substitutes, we show that regardless of the bargaining power, the t...

The paper analyses the optimal pricing of the product quality scheme when concerns for relative standing exist among consumers. We demonstrate that if the proportion of high-value consumers is over (respectively, under) 1/2 of the total consumers, a firm has an incentive to select a large (respectively, small) quality gap among products. Therefore,...

We investigate a differentiated mixed duopoly in which private and public firms can choose to strategically set prices or quantities when unions are present. For the case of a unionised mixed duopoly, there exists a dominant strategy only for the public firm that chooses Bertrand competition irrespective of whether the goods are substitutes or comp...

We investigate a differentiated mixed duopoly in which private and public firms can choose to strategically set prices or quantities when the public firm is less efficient than the private firm. Thus, if the Singh and Vives assumption of positive primary outputs holds, (i) Bertrand competition or quantity-price competition can occur depending on th...

This paper considers the budget‐constraint problem where the government decides whether or not to impose a budget constraint on the public firm, assuming the public firm is less efficient than private firms. We find that imposing budget constraints on the public firm is the preferred choice because of the welfare‐improving effect. Our model suggest...

By introducing the government's preference for tax revenues into the theoretical framework of unionized mixed oligopolies, this study investigates the efficiency of privatization. The results are twofold. First, regardless of the government's preference for tax revenues and the number of private firms, the government and the public firm do not alwa...

The paper analyzes the optimal pricing of quality when consumers feel envious of other purchase deals. The influence of envy on the optimal pricing of quality varies depending on whether consumers are concerned about envy in payments or in rents. If consumers compare their payments with those of other consumers, the firm has an incentive to produce...

We investigated the endogenous choice of roles by managerial firms in the presence of unilateral externality. The choice over timing can be taken either by managers or by owners. It is shown that (i) the choice of the timing by managers entails the same profit that owners would have achieved by specifying the timing in the delegation contract; and...

To examine the effects of peer pressure in adverse selection problem, we define a peer pressure function that represents the psychological costs and incorporate it into the agent's utility function. Based on these assumptions, the efficient agent who has conformity preference produces less outputs than the first-best level, while the inefficient ag...

A model of endogenous payoff motives and endogenous order of moves is analysed in a mixed duopoly. We find that, when a non-negative price constraint is imposed on public and private firms' quantity choice, both firms always choose to be relative-payoff-maximisers, and both simultaneous move and sequential move can be sustained in equilibrium. In c...

The paper analyzes the optimal income taxation policy when inequity aversion exists among taxpayers. The influence of inequity aversion on the optimal income tax scheme depends on whether taxpayers are concerned about inequality in wages or in rents (i.e., wages minus effort costs). If agents compare wages, then a more productive agent who is avers...

By introducing the government's preference for tax revenues into the theoretical framework of unionized mixed oligopolies, this study investigates the efficiency of privatization. The results show that (i) regardless of the government's preference for tax revenues, its incentive to privatize a public firm depends on the number of the private firms...

In this paper, we generalize Kato's (Economics Bulletin, 2008) model by allowing many private firms in the mixed oligopoly setting, rather than the mixed duopoly framework of Kato (2008). By introducing the government's preference for tax revenues into the theoretical framework of mixed oligopoly, we show that Kato's results are robust when there a...

We investigate a differentiated mixed duopoly in which private and public firms can choose to strategically set prices or quantities by facing a union bargaining process. For the case of a unionized mixed duopoly, only public firm is able to choose a type of contract based on the degree of substitutability in the equilibrium. Focusing on the case o...

If the public and private firm have mixed motives about payoff in a simultaneous-move game, Choi (2006) analyzes that the resulting equilibrium turns out to be an inefficient level with the monopoly of private firm even if there are Nash equilibria. However, we find that if we use equilibrium profit, we would have solved its unique Nash equilibrium...

We introduce that the principal and the agent can contract at the ex ante stage, and allow for risk-averse agents with inequity aversion to analyse the properties of the optimal incentive scheme under adverse selection. Contrary to the solutions of standard adverse selection problems, our main finding is that the efficient agent who is a risk-avers...

This paper investigates the simultaneous-move games in a mixed duopoly where firms are maximizers of either profits or relative profits. Contrary to previous results, if each firm has mixed motives about payoff in a simultaneous-move game, a private firm monopolizes whereas the public firm produces nothing.

This study investigates social welfare and privatization depending on the government's pref-erence for tax revenues and the timing of wage setting in either a unionized-mixed or a unionized-privatized duopolistic market. We show that bargaining over wages is always se-quential regardless of who decide the timing of endogenous wage setting and marke...

Main findings were obtained regarding the optimal pricing of product quality model, (1) the no-distortion-at-the-top rule is violated when envy is related to the payment differential; and (2) at the optimum, when consumers comparing their rents, the high valuation consumers do not suffer from distortions while low valuation consumers generally do s...

We investigate a differentiated mixed duopoly in which private and public firms can choose to strategically set prices or quantities by facing a union bargaining process. For the case of a unionized mixed duopoly, only the public firm is able to choose a type of contract irrespective of whether the goods are substitutes or complements in the equili...

In this paper, we examine the behavior of the agent who envies his principal's wealth, and characterize the properties of the optimal incentive scheme under adverse selection. Under restrictive envy conditions, contracting structures often differ from those predicted by standard solutions of canonical adverse selection problem .

In this paper, we introduce that the principal and the agent can contract at the ex ante stage, and allow for risk-averse agents with inequity aversion to analyze the properties of the optimal incentive scheme under adverse selection. Under inequity restrictive condi- tions, ex ante contracting structures often differ from those predicted by standa...

This paper investigates Bertrand competition of unionized mixed duopoly when the public firm is less efficient than the private firm, including endogenous imposition of the budget constraint on the public firm. Thus, we show that if the public firm's inefficiency is sufficiently small, no imposition of budget constraint is more likely to improve we...

The paper examines the timing of endogenous wage setting under Bertrand competition in a unionized mixed duopoly. The results are that when the public firm chooses the timing of wage setting: (1) sequential wage setting is the outcome and (2) simultaneous wage setting is the outcome. The first result coincides with the choices of the private firm,...