Joao Montez - Department of Economics HEC Lausanne

Full Professor, Department of 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. He is also interested in experimental work aiming to understand how cooperation emerges among individuals.

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

His CV can be found here.

Research Interests: Microeconomics - Industrial Organization and Game Theory

Publications (click on title for direct access)

Multigame Contact: A Double-Edged Sword for Cooperation (with Vincent Laferrière, Christian Thoeni, Catherine Roux)

American Economic Journal (Microeconomics), Forthcoming

CEPR working paper version  here

We study the effect of multigame contact on cooperation. In our experimental setup, each subject plays a pair of indefinitely repeated prisoner’s dilemmas. Multigame contact is present if a subject plays both games with a single partner, and it is absent if a subject plays each of the two games with a different partner. In contrast to the theoretical prediction, we find no evidence of multigame contact increasing overall cooperation rates. Nonetheless, multigame contact systematically affects behavior and outcomes, acting like a double-edged sword, in the sense that subjects link decisions across games and, consequently, periods of mutual cooperation and defection in both games become more likely, while periods of mutual cooperation in a single game become less likely. 

All-pay oligopolies: price competition with unobservable inventory choices (with Nicolas Schutz)

Review of Economic Studies, Volume 88, Issue 5, October 2021, Pages 2407–2438

CEPR working paper version here and Online Appendix

We study a class of games where stores source unobservable inventories in advance, and then simultaneously set prices. Our framework allows for firm asymmetries, heterogeneous consumer tastes, endogenous consumer information through advertising, and salvage values for unsold units. The payoff structure relates to a complete-information all-pay contest with outside options, non-monotonic winning and losing functions, and conditional investments. In the generically unique equilibrium, stores randomize their price choice and, conditional on that choice, serve all their targeted demand---thus, some inventories may remain unsold. As inventory costs become fully recoverable, the equilibrium price distribution converges to an equilibrium of the associated Bertrand game (where firms first choose prices and then produce to order). This suggests that with production in advance, the choice between a Cournot analysis and a Bertrand-type analysis, as properly generalized in this paper, should depend on whether or not stores observe rivals' inventories before setting prices.

Buyer power and mutual dependency in a model of negotiations  (with Roman Inderst)

Rand Journal of Economics, spring 2019, vol. 50 pp. 29-56 Online Appendix

 We study bilateral bargaining between several buyers and sellers in a framework that allows both sides, in case of a bilateral disagreement, flexibility to adjust trade with each of their other trading partners and receive the gross benefit generated by each adjustment. A larger buyer pays a higher per unit price when buyers' bargaining power in bilateral negotiations is sufficiently low, and a lower price otherwise. An analogous result holds for sellers. These predictions, and the implications of different technologies, are explained by the fact that size is a source of mutual dependency and not an unequivocal source of power.


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

 Management Science, June 2018 vol. 64, pp. 2716–2733

 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.


Controlling opportunism in vertical contracting when production precedes sales

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

In a make-to-stock vertical contracting setting with private contracts, when retailers do not observe each other's stocks before choosing their prices, an opportunism problem always exist in contract equilibria but public market-wide Resale Price Maintenance (RPM) can restore monopoly power. However other widely used tools which do not fall under antitrust scrutiny and require only private bilateral contracts, such as buyback contracts, also allow the producer to fully exercise his monopoly power. We conclude that a more lenient policy toward RPM is unlikely to affect the producer's ability to control opportunism.

One-to-many bargaining when pairwise agreements are non-renegotiable

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."


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.


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.

Working papers and work in progress

Licensing at the patent cliff and market entry (with Annabelle Marxen)

CEPR working paper version here

We study the incentives for a monopoly incumbent to reach an agreement allowing a generic to enter just before its patent expires, i.e., at the patent cliff, and its consumer and social welfare effects. In our model, entry by more than one entrant is unprofitable. Thus, in the absence of an agreement, the entry game has a "grab the dollar" structure, with each generic entering in each period with a low (high) probability if entry costs are high (low). In that case the incumbent can remain a monopolist for some time after patent expiry, until one or more generics finally enter. An early entry agreement guarantees a single generic enters the market immediately, and it allows the incumbent to extract the entrant's profit. It will be reached in equilibrium when entry costs are low or the entry process is short. In these instances, early entry agreements do however tend to hurt consumers. Yet, allowing for such agreements increases overall social welfare in a benchmark model of vertical differentiation, even if the expected competition on the market is reduced. The same holds in a benchmark model with captive consumers and shoppers, provided the share of captives is not too high.

Private versus public inventories (with Nicolas Schutz)

In industries characterized by production in advance, firms may or may not observe how much inventories their rivals have sourced before choosing prices (respectively, public and private inventory information). In line with conventional wisdom, public information on inventories softens oligopolistic competition and raises industry pro.ts. However, and contrary to conventional wisdom, we .find that public information on inventories can also increase both social welfare and consumer surplus in static oligopoly, and make it harder for firms to collusively obtain the industry monopoly pro.t in a repeated oligopoly. Finally, we endogenize inventory information by allowing firms to disclose their inventories before setting prices. We .find that whether inventory information is public or private depends on the quality of the disclosure technology.

 When returns intensify retail competition, and the role of secondary markets (with Nicolas Schutz) draft on request

Often manufacturers offer retailers the possibility to return unsold inventories for a fraction of the wholesale price. We show that when retailers cannot observe each others'’ inventories before choosing prices, returns give retailers the incentive to order excess inventories, which intensifies retail competition by squeezing retailers’margins. The production cost of such excess inventories is however paid up-front by the manufacturer. This gives rise to a trade-off when determining the return price. The optimal return price, as a percentage of the wholesale price, decreases as the manufacturing marginal cost increases. Returns can increase significantly the manufacturer’s pro t, by up to 25% if demand is linear. 

Old models: delist or discount? (with Sandro Shelegia)

We study price and product line decisions of a seller that introduces a new model, which can be either a significant or a mild improvement over an old model of known quality, and only a fraction of consumers knows the new product’s quality. As the fraction of uninformed consumers increases, in a separating equilibrium, the high-quality model is first offered at a distorted premium over the old model’s full information price; that premium is then held constant, but the old model is discounted; finally, the old model is delisted (while the new model price may or not be distorted). Once the fraction of uninformed becomes extremely high, the old model may be offered again but below its cost.

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, 28th April 2007 (Opinion article with Nicole Mathys in Swiss newspaper of wide circulation) 

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