A Simulation-Based Heuristic to Find Approximate Equilibria with Disaggregate Demand Models

Oligopolistic competition occurs in various transportation markets. In this paper, we introduce a framework to find approximate equilibrium solutions of oligopolistic markets in which demand is modeled at the disaggregate level using discrete choice models, according to random utility theory. Compared with aggregate demand models, the added value of discrete choice models is the possibility to account for more complex and precise representations of individual behaviors. Because of the form of the resulting demand functions, there is no guarantee that an equilibrium solution for the given market exists, nor is it possible to rely on derivative-based methods to find one. Therefore, we propose a model-based algorithmic approach to find approximate equilibria, which is structured as follows. A heuristic reduction of the search space is initially performed. Then, a subgame equilibrium problem is solved using a mixed integer optimization model inspired by the fixed-point iteration algorithm. The optimal solution of the subgame is compared against the best responses of all suppliers over the strategy sets of the original game. Best response strategies are added to the restricted problem until all ε-equilibrium conditions are satisfied simultaneously. Numerical experiments show that our methodology can approximate the results of an exact method that finds a pure equilibrium in the case of a multinomial logit model of demand with a single-product offer and homogeneous demand. Furthermore, it succeeds at finding approximate equilibria for two transportation case studies featuring more complex discrete choice models, heterogeneous demand, a multiproduct offer by suppliers, and price differentiation for which no analytical approach exists.

ECONOMIC MECHANISMS FOR REGULATING THE DEVELOPMENT OF ORGANIZATION INSTITUTIONAL FORMS OF FREIGHT AIR TRANSPORT

The article shows the strategic role of cargo air transport in the economies of the world, related to the maintenance of foreign trade, urgent delivery of goods, their transportation over long distances, and so on. The determining factors of the development of cargo air transport in the global economy are systematized: organizational innovations, information technologies, new forms of cooperation of air carriers and logistics solutions. The contribution of air transport to the formation of cargo turnover in Ukraine is determined. The opposite dynamics of volumes of cargo transportation by air and other types of transport is revealed. The contradiction between the low share of air cargo traffic and their strong absolute and structural growth is quantitatively shown. Air freight is defined by a market of oligopolistic competition due to a limited number of economic entities, the dominance of one large and several medium-sized players, the presence of barriers to entry, which are financial-investment and technical-technological nature. The attractiveness of the air freight market for investments is shown given the predominant positivity of financial results and the growing share of profitable enterprises. The institutional forms of organization of cargo air carriers (classic, combined, hybrid) are generalized, their advantages and disadvantages are defined. The principles of functioning of transport chains and realization of multimodal transportations on the basis of cargo air transport are substantiated. The main information systems of booking and management of air cargo transportation, distribution, pricing, calculations, tracking of luggage by buyers and sellers are characterized. The requirements of the International Air Transport Association for the use of innovative e-freight technologies in aviation are summarized, recommendations for joining the subjects of the domestic air cargo market in terms of electronic document management and simplification of customs procedures are developed. The improvement of economic mechanisms of development of cargo air transport in Ukraine on the basis of special economic zones of port type is offered.

Cooperative strategic games

The value is a solution concept for n‐person strategic games, developed by Nash, Shapley, and Harsanyi. The value of a game is an a priori evaluation of the economic worth of the position of each player, reflecting the players' strategic possibilities, including their ability to make threats against one another. Applications of the value in economics have been rare, at least in part because the existing definition (for games with more than two players) consists of an ad hoc scheme that does not easily lend itself to computation. This paper makes three contributions: We provide an axiomatic foundation for the value; exhibit a simple formula for its computation; and extend the value—its definition, axiomatic characterization, and computational formula—to Bayesian games. We then apply the value in simple models of corruption, oligopolistic competition, and information sharing.

Hybrid evolutionary oligopolies and the dynamics of corporate social responsibility

The diffusion of corporate social responsibility is investigated by employing a hybrid evolutionary game where a firm chooses between being either socially responsible, which implies devoting a fraction of its profit to social projects, or non-socially responsible. Consumers prize socially responsible companies by paying a higher reservation price for their products. The hybrid evolutionary framework is characterized by a quantity dynamics that describes the oligopolistic competition given firms’ belief about the composition of the industry. At regular intervals of time, this belief is endogenously updated by a retrospective comparison on the profits obtained and on the basis of an evolutionary mechanism. Assuming that firms are Nash players, that is at each instant of time they produce the Nash equilibrium-in-belief quantity, the investigation of the model reveals that an industry homogeneously populated by socially responsible firms is a stable equilibrium when the fraction of profits earmarked for socially responsible activities is sufficiently limited. However, the extra marginal profits of a socially responsible firm are reduced when the number of competitors increases, impeding the diffusion of socially responsible companies. In particular, the trade-off between a higher net margin on sales obtained by socially responsible firms and a lower level of production that reduces the profit gap between a socially responsible firm and the rest of the market shows that an increased size of the industry favors mixed oligopolies. Moreover, imposing the hypothesis of neutrality of CSR activities, the model reveals that being socially responsible is an evolutionarily stable strategy for firms and is convenient for customers. Relaxing the hypothesis of Nash players by introducing boundedly rational firms that decide their level of production according to a partial adjustment toward the best reply, the robustness of these results is confirmed.

Competition, Markups, and Predictable Returns

This paper jointly examines the link between competition and expected returns in the time series and in the cross-section. To this end, we build a general equilibrium model where markups vary because of firm entry with oligopolistic competition. When concentration is high, markups are more sensitive to entry risk. We find that higher markups are associated with higher expected returns over time and across industries, in line with the data. The model can also quantitatively account for the persistent rise in aggregate risk premiums and macroeconomic volatility associated with the secular increase trend industry concentration since the mid-1980s.