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Assistant Professor - Economics, HEC Lausanne

Joao Montez is a business economist. He uses game theory to answer questions in competition policy and strategy, on topics such as pricing, bargaining, and supply-chains. His CV can be found here.

Before joining HEC Lausanne in 2016, he was an Assistant Professor at the London Business School. He completed postgraduate education at Toulouse, Lausanne and Columbia Universities. He is a CEPR Research Affiliate and an Associate Editor of the Journal of Industrial Economics.

Research Interests: Microeconomics - Industrial Organization and Game Theory


Downstream mergers and producer's capacity choice: why bake a larger pie when getting a smaller slice                                          

Rand Journal of Economics, winter 2007 Vol. 38 pp. 948-966

We study the effect of downstream horizontal mergers on the upstream producer's capacity choice. Contrary to conventional wisdom, we find a non-monotonic relationship: horizontal mergers induce a higher upstream capacity if the cost of capacity is low and a lower upstream capacity if this cost is high. We explain this result by decomposing the total effect into two competing effects: a change in hold-up and a change in bargaining erosion.

Inefficient sales delays by a durable-good monopoly facing a finite number of buyers
Rand Journal of Economics, fall 2013 Vol. 44 pp. 425-437 (working paper version and web appendix)

This article offers a new explanation for unscheduled price cuts and slow adoption of durable-goods. We study a standard durable-goods monopoly model with a finite number of buyers and show that this game can have multiple subgame perfect equilibria in addition to the Pacman outcome--including the Coase conjecture. Of particular interest is a class of equilibria where the seller first charges a high price, and only lowers that price once some---but not all---high-valuation buyers purchase. This price structure creates a war of attrition between those buyers, which delays market clearing and rationalizes unscheduled purchase and price cut dates.


Journal of Economic Theory, July 2014 vol. 152 pp. 249-265 (working paper version)

We study a model where a central player (the principal) bargains bilaterally with each of several players (the agents) to create and share the surplus of a coalitional game. It is known that, if the payments that were previously agreed (with each of the remaining agents) are renegotiated in case any bilateral negotiation permanently breaks down, then the Shapley value is the unique efficient and individual rational outcome consistent with bilateral Nash bargaining. Here we show that when instead the agreed payments cannot be renegotiated the outcome is also unique but it now coincides with the Nucleolus of an associated bankruptcy problem. We provide a strategic foundation for this outcome. Then we study how such renegotiation affects the principal's payoff according to the properties of the surplus function. We find, for example, that renegotiation benefits the principal when agents are complements and it hurts him when they are substitutes (situations with, respectively, increasing and decreasing marginal contributions

Previous version with additional applications, circulated as "The worth of binding agreements in one-to-many bargaining."

Rand Journal of Economics, fall 2015, vol. 46 pp. 650–670

In a make-to-stock vertical contracting setting with private contracts, we show that when retailers do not observe each other's stocks before choosing their prices then in any contract equilibrium the opportunism problem is extreme: a monopolist producer makes no profit. Market-wide price floors and RPM can under some conditions restore monopoly power. However other tools which do not fall under antitrust scrutiny and require only bilateral private contracts already allow the producer to exercise monopoly power in contract equilibria, such as bilateral contracts with buybacks---buybacks are a price paid by the producer to the retailer for each unit of unsold stock. We conclude that a more lenient policy towards RPM is therefore unlikely to have a significant effect on a producer's ability to control opportunism.

Competitive intensity and its two-sided effect on the boundaries of firm performance (with Mike Ryall and Francisco Ruiz-Aliseda)

Management Science forthcoming (working paper version)
We contribute to the "value capture'' stream in strategy, which uses cooperative games to study firm performance under competition. We are motivated by the idea that there are two sides to competition -- a good side (competition for the firm) and a bad side (competition for the firm's transaction partners). We develop three increasingly general measures of competitive intensity and demonstrate that intensity on the good side places a minimum bound on the value captured by the firm, while that on the bad side imposes a maximum. The core, a standard solution concept appropriate for productive deals in free markets, associates each agent with an interval of payoffs. Because our bounds contain the core and require less information to compute, they may be interpreted as alternative solutions consistent with boundedly-rational agents. They also provide empirically testable implications and normative guidance in settings where the computation of core intervals is not practical.

Working papers

We study bilateral bargaining between several buyers and sellers in a framework that allows both sides flexibility to adjust trades during (temporary) disagreement. We find that a larger buyer pays a lower per unit price when buyers' bargaining power in bilateral negotiations is sufficiently high, and a higher price otherwise. An analogous result holds for larger sellers and specific changes in the well-known concentration measure HHI. These predictions and the implications of different technologies are explained by the fact that size, rather than being an unequivocal source of power, is a source of mutual dependency---with simultaneously positive and negative effects.

Why variable inventory costs intensify retail competition, and a case for manufacturer returns

We study how the extent to which the inventory cost is sunk or remains variable affects retail competition when retailers do not observe each others' stocks before choosing their prices. We find intense price competition when inventory costs remain variable, and that markups increase as the sunk fraction increases. We then study whether a manufacturer should endogenously reduce the extent to which retailers' inventory cost is sunk by offering the possibility of returning unsold stocks for a fraction of the wholesale price. The answer solves a trade-off: returns intensify retail competition by giving retailers the incentive to order excess stocks, but such inefficient over-production must be paid up-front by the manufacturer. Therefore the optimal return decreases as the manufacturing marginal cost increases.

Why and when to allow competitors to share information on capacities (with Nicolas Schutz)

We study a symmetric duopoly game where firms invest in capacities before setting prices, under the assumption that capacities remain unobservable. The game has a unique equilibrium, which features two types of distortions: Firms charge positive markups; Firms tends to produce garbage, i.e., part of the equilibrium output ends up not being sold to consumers. Despite these distortions, the equilibrium is second-best efficient, in the sense that it cannot be improved upon by taxation. We study how equilibrium behavior is affected by the extent to which capacity costs are sunk, cost asymmetry and the presence of captive consumers. In particular we show that standard Bertrand and Varian’s sales outcomes are both limiting cases of the present model when inventory costs become only variable. Finally, contrary to conventional wisdom, we find that horizontal information sharing about capacities before price competition can increase welfare and consumer surplus in the static game, and hinder collusion in a dynamic version of the game.

Work in progress

Unions and investment with intra-firm bargaining

Exclusive dealing, relationship length and specific investments (with Bjørn Johansen)



"Taxe sur les huiles de chauffage: Faut-il réformer le droit du bail?" Le Temps (Swiss newspaper of wide circulation), 28th April 2007 (Opinion article with Nicole Mathys) 

"Why some MBA's are reading Plato"  Wall Street Journal, 30 April 2014 (link) (feature on his LBS course Nobel Thinking)