A theoretical study on yardstick competition and franchise bidding based on a dynamic model. (February 2018)

• Record Type: Journal Article
• Authors: Harada, Shumpei; Yamauchi, Hirotaka
• Is Part Of: Transport policy. Volume 62(2018)
• Page Start: 58
• Page End: 62
• Publication Date: 2018-02
• Subjects: Yardstick competition -- Franchise bidding -- Collusion -- Dynamic model -- Hidden action -- Hidden information; Transportation and state -- Periodicals; Transportation -- Rates -- Periodicals; 388
• DOI: 10.1016/j.tranpol.2017.03.005
• Languages: English
• ISSNs: 0967-070X

Abstract

Abstract: This study develops a dynamic model based on the static model of Harada and Yamauchi (2014), which compares yardstick competition with franchise bidding. We focus on collusion among firms, which is one of the differences between dynamic and static models. The results of the new model reveal that the Shleifer-style yardstick competition, which can effectively function under the static model, does not effectively function under the dynamic model. On the other hand, franchise bidding may effectively function under certain conditions. Thus, we demonstrate that franchise bidding is superior to yardstick competition.