smallholder market participation concepts and evidence from eastern and southern africa abstract this paper reviews the evidence on smallholder market participation with a focus on staple foodgrains i e cereals in eastern and southern africa in an effort to help better identify what interventions are most likely to break smallholders out of the semi subsistence poverty trap that appears to ensnare much of rural africa the conceptual and empirical evidence suggests that interventions aimed at facilitating smallholder organization at reducing the costs of intermarket commerce and perhaps especially at improving poorer households access to improved technologies and productive assets are central to stimulating smallholder market participation and escape from semi subsistence poverty traps macroeconomic and trade policy tools appear less useful in inducing market participation by poor smallholders in the region

input promotion within a complex subsector fertilizer in nigeria despite growing evidence that fertilizers can substantially increase yields and slow down environmental degradation in sub saharan africa ssa the region still lags far behind other developing areas in fertilizer use low use rates persist despite numerous efforts to ease farmers access to quality and affordable fertilizer this article reviews the effects of nigeria s fertilizer policies including fertilizer subsidies on fertilizer use we also compare the old government led fertilizer subsidy scheme with the more recent voucher based programs and their potential effects on private fertilizer sector development based on our analysis of nigeria s experience with fertilizer subsidies we identify the potential major challenges to be faced by the new fertilizer subsidy scheme currently being implemented nationwide

comparing approval procedures for new drugs we analyse how drug approval procedures influence the incentives of pharmaceutical firms to commercialise new drugs in the presence of international reference pricing since 1995 the european medicines agency ema coordinates a centralised approval procedure for specific new drugs in the eu with such a centralised procedure the ema grants simultaneous drug approvals for all eu countries alongside non centralised procedures coexist for approvals of other new drugs and approvals can be sequential we focus on the effects of the exogenous timing of drug approvals either simultaneous or sequential and we compare the effects of centralised versus non centralised procedures on the firms incentives to commercialise new drugs in different markets in a context of international reference pricing we show that a centralised procedure limits the number of countries where the firm commercialises new drugs compared to a non centralised procedure we also show in a simplified framework that countries are better off with non centralised procedures while pharmaceutical firms in theory prefer the drug to be approved everywhere as soon as possible as in an early centralised procedure this is in line with the stated objective of the ema to generate savings for the pharmaceutical firms

inflation and reputation in many macroeconomic models with rational expectations optimal policy is time inconsistent and therefore announced policy may not be credible this paper models the government s credibility explicitly using kreps and wilson s analysis time consistent optimal government policy emerges as a sequential equilibrium in a repeated game this policy is at least as good as the inconsistent optimal policy and dominates the consistent policy when reputational effects are ignored thus the analysis resolves the problem of specifying a credible optimal policy in such models the results show why attempts to disinflate may lead to recession even with perfectly flexible prices this abstract was borrowed from another version of this item

price discrimination through offers to match price in this paper a firm discriminates between two classes of customer who have a different cost of information by coupling a list price with an offer to match the pr ice of any other shop if the list price elsewhere is lower the firm will be successful in discrimination the list price of each firm is increasing in the number of sellers and the total sales are decreasi ng in the number of sellers furthermore if sellers coordinate they discriminate more efficaciously and increase their profits by increa sing their total sales copyright 1987 by the university of chicago

facilitating practices the effects of advance notice and best price policies even if firms in a market choose discount prices noncooperatively the use of most favored customer and meet or release contracts enables those firms to adopt quantity choice strategies consequently there can be a range of list prices that are impervious to unilateral nonselective discounts but this range does not include prices above the level determined in a cournot equilibrium the practice of advance public notification of list price increases can facilitate the establishment of such supracompetitive list prices as was argued in the recent ftc ethyl case the possibility of offering discounts selectively results in a much more competitive situation

the instability of fixed exchange rate systems when raising the nominal interest rate is costly abstract this paper points to a vicious circle which may arise when a government tries to defend its currency by raising the nominal interest rate in a fixed exchange rate system we present a stylised model in which raising the nominal interest rate helps to maintain the parity but is costly for the government the speculators are aware that this cost gives incentives for the government to stop defending the parity which in turn reinforces the speculation against the currency we show that this mechanism can generate self fulfilling currency crises the outcome of which depends on the level of sacrifice that the government is ready to endure and the evolution of domestic economic conditions we provide some informal evidence showing that this model explains some features of the 1992 93 ems crisis

credibility of policies versus credibility of policymakers standard models of policy credibility defined as the expectation that an announced policy will be carried out emphasize the preferences of the policymaker and the role of tough policies in signaling toughness and raising credibility whether a policy is carried out however will also reflect the state of the economy we present a model in which a policymaker maintains a fixed parity in good times but devalues if the unemployment rate gets too high our main conclusion is that if there is persistence in unemployment observing a tough policy in a given period may lower rather than raise the credibility of a no devaluation pledge in subsequent periods we test this implication on ems interest rates and find support for our hypothesis

models of currency crises with self fulfilling features the discomfort a government suffers from speculation against its currency determines the strategic incentives of speculators and the scope for multiple currency market equilibria after describing an illustrative model in which high unemployment may cause an exchange rate crisis with self fulfilling features the paper reviews some other self reinforcing mechanisms recent econometric evidence seems consistent with the practical importance of these mechanisms

government fertilizer subsidy and commercial sector fertilizer demand evidence from the federal market stabilization program fmsp in nigeria abstract we examine how the previous fertilizer subsidy program in nigeria fmsp affected the demand for commercial fertilizer we apply an endogenous double hurdle model to a pseudo panel and cross section data of farm households the methodology accounts for potential endogeneity of commercial fertilizer price with subsidy our specification is also appropriate where few farmers report the use of both subsidized and commercial fertilizer we find that 100 kg of subsidized fertilizer supplied to a farm household reduced the probability of its participation into commercial fertilizer market by 10 21 points while not affecting fertilizer use upon participation

exchange rate policy wage formation and credibility abstract since the collapse of the bretton woods system some european countries have pursued discretionary exchange rate policies in order to maintain or enhance the international competitiveness of the traded goods sector these countries which typically feature centralized wage setting have also tended to experience high nominal wage increases the overall outcome may be described as a devaluation wage spiral this paper applies two models of repeated games to analyze the strategic interaction between an exchange rate setting policy maker and a wage setting trade union it is shown how a devaluation wage spiral may result from a conflict of interest over the real wage it is also shown how reputational forces may provide a way out of the devaluation wage spiral

currency crises sunspots and markov switching regimes abstract this paper investigates the theoretical properties of a class of escape clause models of currency crises as well as their applicability to empirical work we show that under some conditions these models give rise to an arbitrarily large number of equilibria as well as cyclic or chaotic dynamics for the devaluation expectations we then propose an econometric technique based on the markov switching regimes framework by which these models can be brought to the data we illustrate this empirical approach by studying the experience of the french franc between 1987 and 1993 and find that the model performs significantly better when it allows the devaluation expectations to be influenced by sunspots

seigniorage revenue deficits and self fulfilling currency crises abstract this paper examines potential resolutions to the conflict between a fixed exchange rate and seigniorage revenue requirement of a stylized developing economy that gives rise to a currency crisis the government has an informational advantage and can decide when it is optimal to invoke an escape clause i e to drop the peg and float speculators must guess when the crisis will happen based on their assessment of the probability of collapse and this makes pegged exchange rate equilibria unstable

rational expectations and policy credibility following a change in regime we examine the dynamic path of an economy after a change in regime when neither the policy to be followed nor the reactions of the public are known the model is an application of kreps and wilson s reputation model to barro and gordon s macroeconomic policy game equilibrium is defined to be the dynamically consistent solution to a game between the government and the private sector it involves mixed strategies and bayesian learning by both sides until the uncertainty about government and public behaviour is resolved the absence of complete credibility of government policy and intransigence of private sector wage demands increase the output loss of disinflation the analysis also sheds light on the strategic nature of economic policymaking and the role of information in macroeconomics

the credibility of a fixed exchange rate how reputation is gained or lost we examine the interest rate differential between each of the four largest nordic countries and the countries of their foreign currency baskets on monthly data for the period 1978 79 92 the interest rate differential is assumed to reflect devaluation expectations which partly depend on government reputation we investigate the formation of the reputation of the government assuming that reputation is updated using bayes s formula it is shown theoretically that when there is no devaluation the improvement in government reputation is larger the larger the prior devaluation expectations for norway the evidence gives support to this assertion

destabilizing effects of exchange rate escape clauses abstract this paper studies policy rules with escape clauses analyzing as an example fixed exchange rate systems that allow member countries the freedom to realign in periods of stress while well designed escape clause rules can raise society s welfare in principle limited credibility makes it difficult to implement such rules in practice an ems type institution that imposes political costs on policymakers who realign may raise welfare but can also produce equilibria far inferior to an irrevocably fixed exchange rate switches between multiple equilibria may have the character of sudden speculative attacks

credibility and disinflation in the european monetary system analysis of interest differentials in the european monetary system has suggested a widespread lack of credibility of the exchange rate mechanism in the sense that in most countries the implicit expected rate of devaluation was significant and not far short of inflation differentials vis a vis the deutschmark we present and test a model in which prices reflect expectations of exchange rate behaviour the results provide mixed evidence that price setting in countries which participated in the erm was influenced by the exchange rate discipline

are currency crises self fulfilling abstract this paper studies the respective roles of the fundamentals and self fulfilling speculation in currency crises we first present a model of a fixed exchange rate system in which self fulfilling speculation can arise following a bifurcation in the fundamentals we then estimate the model in the case of the 1992 3 crisis of the french franc and find some evidence that self fulfilling speculation was at work

durable good monopoly and best price provisions best price provisions guarantee buyers that the prices they pay are the lowest available if the seller subsequently cuts price then each previous buyer is entitled to a refund a durable good monopolist who offers certain forms of these provisions can construct a consistent plan yielding the same profits as rental agreements and contracts with explicit quantity commitments the provisions require special circumstances to be practical but they are simple and effective and appear in a variety of economic settings three applications are discussed international commodity agreements markets for electric turbogenerators and markets for financial claims copyright 1990 by american economic association

understanding the disinflations in australia canada and new zealand using evidence from smooth transition analysis abstract this paper investigates the disinflation experiences of three countries australia canada and new zealand unlike previous approaches which have sought to use institutional data to pre determine the causes speed and duration of the transitions to low inflation regimes this paper allows price data itself to determine the speed and timing of the reforms using smooth transition analysis the results show that the process of transition is related to two factors central bank independence and the general slowdown in economic activity which occurred during the early 1990s in all oecd countries other reforms to the labor market and fiscal policy were less influential

gaining and losing erm credibility the case of the united kingdom the model of this paper highlights two aspects of credibility signaling the type of government which is assumed not to be known and for any type the likelihood that if circumstances are sufficiently unfavorable a devaluation will be impossible to avoid since not to do so would go against the government s interests these two factors have opposite implications for the link between unemployment and interest differentials high unemployment signals a tough government but also makes it less likely that even a tough government will maintain an existing parity copyright 1995 by royal economic society

crisis sustainability of electricity prices and state interventions in argentina this article examines the sustainability of wholesale power prices following the 2001 economic crisis in argentina we depart from the contractual disputes between the multinational power generating companies and the state of argentina arising from price and investment interventions after the economic crisis then we move on to argue that these sector specific measures were inevitable once some of the key macroeconomic policies such as the currency board system were discarded using an error correction method and estimating a counterfactual price series we demonstrate that in the absence of changes in the price determination method and direct public investment the level and the volatility of power prices would have been much higher with further knock on effects on the rest of the economy copyright 2012 the author 2011 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

can low price guarantees deter entry abstract this paper examines the strategic use of low price guarantees lpgs as an entry deterrent the entire space of contemporaneous lpg messages is partitioned according to their ability to deter entry and or increase the incumbent s profits while most price matching and price beating guarantees cannot deter entry into a perfectly contestable market there do exist special classes of price beating guarantees that enable the incumbent to prevent entry interestingly both price matching and price beating can be a part of the incumbent s strategy in subgame perfect equilibria of the game where the firms choose lpgs from 14 classes defined in the paper

the role of policymakers reputation in the ems disinflations abstract it is frequently argued that the ems itself in connection with the high anti inflation reputation of the german bundesbank is responsible for the inflation reduction and convergence which member countries have experienced based on the game theoretical model of backus and driffill 1985 american economic review 75 530 538 an empirical measure of the government s reputation for fighting inflation is derived by using a bayesian learning approach time varying estimates of these counterinflation reputation measures are computed for the original ems member countries and for a control group of major non ems countries the paper finds that only the smaller ems participants have gained anti inflation reputation during the ems period

optimal accommodation by strong policymakers under incomplete information abstract this paper examines the optimal behavior of a policymaker who is able to precommit labelled strong when the public entertains the possibility that he is either strong or weak unable to precommit the main result is that in the presence of doubts about their type it is optimal even for strong policymakers to partially accommodate inflationary expectations this contrasts with vickers 1986 who finds that when strength is conceived in terms of the relative concern for employment the strong policymaker inflates less under incomplete than under full information the paper also provides a theory of endogenous announcements

reputation and credibility in the european monetary system ems credibility axel weber this article provides a quantitative assessment of the credibility of the european monetary system during the disinflation period of the 1980s the results contradict the widely held view that the ems has operated as a dm zone it is shown that after a brief early phase the ems has functioned as a bipolar system with a hard currency option supplied by the german bundesbank and a soft currency option offered by the banque de france whilst from the onset the netherlands have chosen the hard currency option at least in a first stage the remaining smaller economies belgium denmark and ireland adopted the soft currency alternative at a later stage of the ems however the soft currency block has disintegrated and some countries most noticeably ireland and to a lesser extent france have shifted towards the hard currency standard it is argued that this increased tightening of the ems provides a favourable starting condition for the transition to economic and monetary union

the welfare effects of third degree price discrimination in intermediate good markets the case of bargaining this article examines the welfare effects of third degree price discrimination by a monopolist selling to downstream firms with bargaining power one of the downstream firms the chain store can integrate backward at lower cost than rivals bargaining powers also depend on disagreement profits bargaining weights and concession costs if the chain s integration threat is not credible price discrimination reduces the input price charged symmetric downstream firms and often reduces the average input price charged asymmetric downstream firms

the effects of platform most favored nation clauses on competition and entry abstractin the context of sellers who sell their products through intermediary platforms a platform most favored nation pmfn clause is a contractual restriction requiring that a particular seller will not sell at a lower price through a platform other than the one with which it has the pmfn agreement contractual restrictions observed in markets for e books and travel services among other settings can be viewed as examples of this phenomenon we show that pmfn clauses typically raise platform fees and retail prices and curtail entry or skew positioning decisions by potential entrants pursuing low end business models

disrupting demand for commercial seed input subsidies in malawi and zambia summary this study uses nationally representative household level panel data from malawi and zambia to identify the determinants of subsidized maize seed and fertilizer receipt and to estimate how input subsidies affect households commercial purchases of improved maize seed varieties in both countries we find that households in areas where the ruling party won the last presidential election acquire significantly more subsidized inputs than other households results also indicate that each additional kilogram of subsidized maize seed acquired by a household reduces its commercial improved maize seed purchases by 0 58 kg in malawi and by 0 49 kg in zambia on average

rational expectations econometric analysis of changes in regime an investigation of the term structure of interest rates abstract this paper is of interest both for its methodological contribution of new tools for analyzing rational expectations models and for its substantive conclusions concerning the term structure of interest rates during the monetary experiment of october 1979 the paper studies systems subject to changes in regime interpreted here as occasional discrete shifts in the parameters governing the time series behavior of exogenous economic variables the specification is shown to be quite tractable both theoretically and empirically the technique is used to analyze yields on three month treasury bills and ten year treasury bonds during 1962 to 1987 a constant parameter linear model for short term rates is shown to be inconsistent both with the univariate time series properties of short rates and with the observed bivariate relation between long and short rates under the expectations hypothesis of the term structure an alternative nonlinear model that admits the possibility of changes in regime affords a much better description of the univariate process for short rates moreover the cross equation restrictions implied by the expectations hypothesis of the term structure are consistent with the nonlinear specification indeed the residuals of the restricted relation have a standard error of only 0 8 basis points this is a third less than that of a completely unrestricted linear regression of long rates on short rates and compares with an unconditional standard deviation of long rates of 142 basis points i conclude that once the recognition by bond traders of changes in regime is taken into account the expectations hypothesis of the term structure of interest rates holds up fairly well for these data

a primer on financial contagion abstract this paper presents a theoretical framework to highlight possible channels for the international transmission of financial shocks we first review the different definitions and measures of contagion adopted by the literature we then use a simple multi country asset pricing model to classify the main elements of the current debate on contagion and provide a stylized account of how a crisis in one country can spread to the world economy in particular the model shows how crises can be transmitted across countries without assuming ad hoc portfolio management rules or market imperfections finally tracking our classification we survey the results of the empirical literature on contagion

matching own prices rivals prices or both many retailers promise that they will not be undersold by rivals and extend their promise to include their own future prices that is many retailers combine elements of both price matching guarantees and retroactive most favored customer clauses this is puzzling because the extant literature has shown that each practice independently has the potential to facilitate supracompetitive prices and thus one might think the two practices are substitutes in this paper we show that price matching guarantees and most favored customer clauses complement each other when offered unilaterally by a single firm and can lead to higher prices than either one could have facilitated by itself

credibility disinflation and gradualism abstract the following conundrum is examined success or failure of a disinflation policy depends largely on expectations of maintained lower money growth this suggests two equilibria a a policy is expected to be maintained and succeeds policy makers are re elected maintaining the policy and validating initial expectations b a policy is not expected to be maintained and fails policy makers are not re elected the policy is not maintained validating initial expectations

customer coalitions monopoly price discrimination and generic entry deterrence abstract this paper analyzes the interplay between a profit maximizing monopolist and a set of consumers who are able to form coalitions that bargain with the monopolist and or integrate into production we show that the monopolist will deter the formation of these countervailing coalitions through strategic selection of generic limit price offers to each consumer these limit prices are derived as subgame perfect equilibria in two alternative models of customer monopoly interplay in both models price discrimination emerges in environments wherein it has previously been considered unprofitable welfare analysis of the equilibria demonstrates the procompetitive effects of potential customer coalitions and generally provides an efficiency based motivation for a government ban on price discrimination

opportunism in multilateral vertical contracting nondiscrimination exclusivity and uniformity comment an input supplier selling to competing downstream firms would benefit from publicly committing at the outset to all contracts efficient commitment however would require complete contracts the authors study instead bilateral contracting without commitment regarding others terms each firm then fears that the supplier might opportunistically renegotiate another s contract to increase bilateral profit at the firm s expense the authors show that nondiscrimination clauses generally cannot curb such third party opportunism even with symmetric firms to reassure firms crude forms of commitment may be adopted this could explain the pervasiveness of exclusivity arrangements and the striking uniformity and intertemporal rigidity of franchise contracts copyright 1994 by american economic association

the aftermath of a currency collapse how different are emerging markets in currency crises unlike in orderly devaluations the financial markets dominate events previous research has shown that the output effects of a crisis tend to be worse in emerging markets and the current account adjustment greater this paper examines the evolution of a wider range of macroeconomic variables from two years before a currency collapse to two years afterwards on the basis of twelve recent episodes it is shown that currency collapses crises followed by depreciations have had a much greater adverse impact in emerging markets defined as relatively high income developing countries exposed to international capital markets than in developed countries there is greater nominal and real depreciation a substantial inflation shock a much bigger output effect and far greater import compression whilst inflows of portfolio capital virtually cease these differences are statistically significant nevertheless there is wide variation n the post collapse experience of the six emerging markets studied mexico thailand korea indonesia russia and brazil although all six experienced a sudden stop or even a reversal of capital flows and very sharp nominal depreciations inflation remained low in thailand korea and brazil and output losses were comparatively small in russia and brazil previous studies of individual crises suggest that important factors are the state of the banking system and its vulnerability to currency movements the ability of the authorities to establish a credible macroeconomic policy after the collapse and whether the crisis triggers significant political instability

fertilizer subsidies political influence and local food prices in sub saharan africa evidence from nigeria abstract the last decade has seen a resurgence in the use of fertilizer subsidies in sub saharan africa however there is limited empirical evidence on the effects of fertilizer subsidy programs on local food prices using an instrumental variables approach we explore the effect of a fertilizer subsidy program on the seasonal growth rates of grain prices in nigeria our results suggest that the fertilizer subsidy program had very small effects on the growth rates of grain prices between the post planting and post harvesting seasons we also find that political influence played a role in the distribution of subsidized fertilizer we discuss how the weak effects on the price growth rates may be caused by low market orientation output market structures greater focus on farmers incomes low marginal productivity of fertilizer and politically influenced targeting

the right of first offer abstract this paper examines the right of first offer which requires a seller to bargain with the contracted buyer before subsequent buyers arrive the contract also prevents the seller from selling his unique asset to subsequent buyers at a price below what he offers to the contracted buyer the right of first offer makes the seller less aggressive in bargaining with the contracted buyer who is privately informed about his valuation such a contract can reduce inter temporal misallocation in which a subsequent buyer gets the asset when the contracted buyer has higher valuation but it also may cause misallocation in which the contracted buyer gets the asset when subsequent buyers have higher valuations overall whether the right of first offer can increase the joint surplus for the seller and the contracted buyer as well as social welfare depends on the contracted buyer s renegotiation power and the distribution of the buyers valuations this paper also discusses the differences between the right of first offer and the most favored customer clause

the most favored nation pricing policy and negotiated prices previous work has viewed the most favored nation mfn contract as a practice capable of facilitating collusion among sellers but this paper shows that even a monopoly seller may gain by including the mfn provision in sales contracts we consider a case in which the seller negotiates price separately with each of two buyers by including a mfn clause in her contract with the first buyer the seller raises her cost of granting price concessions to the second buyer this increases the seller s bargaining strength with respect to the second buyer thereby helping her negotiate a higher price

do input subsidy programs crowd in or crowd out commercial market development modeling fertilizer demand in a two channel marketing system many governments in developing countries distribute fertilizer at subsidized prices in an effort to stimulate small farmers agricultural productivity and food security prior fertilizer demand studies have largely failed to account for the effects of government programs on farmers commercial purchases using a double hurdle model and nationally representative rural household panel data in zambia we distinguish between these sources and measure the contemporaneous crowding in and crowding out effects of government input programs on commercial fertilizer sales where the private sector is relatively active and average wealth is higher areas seemingly more likely to be targeted by government programs results indicate that subsidies have substantially crowded out the private sector in some cases to the point that such programs could actually lower overall fertilizer use on the other hand in poorer areas where the private sector is relatively inactive subsidies help to generate demand and crowd in private sector retailers empirical studies explicitly modeling farmers fertilizer purchase behavior within a dual marketing framework can provide important insights for agricultural policy discussions in developing countries

agency and strategic contracts theory and evidence from r d agreements in the pharmaceutical industry we examine the use of strategic rights in research and development r d agreements between a client and an agent when an entrant may compete with the client for the license of non contracted discoveries developed by the agent the agent puts effort either in the contracted project or into other r d activities which can result in non contracted discoveries strategic rights help the client and the agent extract rent from the entrant and also motivate the agent to place effort into the contracted project accordingly firms are more likely to adopt strategic rights when the likelihood of entry is larger moreover strategic rights and termination rights are substitutes in mitigating agency problems by investigating r d agreements between pharmaceutical clients and bio tech agents we find consistent evidence of the positive impact of entry threat on the use of strategic rights as well as evidence of the substitution between strategic rights and termination rights

sterling s relationship with the dollar and the deutschemark 1976 89 this paper evaluates the linkages between bilateral exchange rates using a time varying parameter model which can be estimated using the kalman filter the technique solves many of the statistical problems which arise when ordinary least squares is used to estimate currency correlation applying the technique to the dollar sterling dm sterling and dm dollar bilateral exchange rates the results suggest a market weakening strengthening of sterling s relationship with the dollar dm since the mid 1970s additionally these currency linkages are shown to have undergone a number of regime shifts suggesting that the timing of the weakening of the dollar sterling relationship is different to that proposed by previous studies copyright 1991 by royal economic society

calculating the equity cost of capital using the apt the impact of the erm abstract one of the expected benefits of membership of the exchange rate mechanism erm was a reduction in risk which should lead to a lower cost of capital and foster investment and growth using the apt we investigate the behavior of the equity market risk premium for the london stock exchange prior to and during sterling s membership of the erm we find that prior to and during the first year of membership the equity market risk premium fell quite dramatically however when conflict between domestic and erm policy requirements arose at the turn of 1991 the equity risk premium increased and continued to do so until sterling s exit partially wiping out the benefits of membership of the erm

the effects of price restrictions on competition between national and local firms i present a game theoretic model of competition between a national firm and local firms in which the introduction of most favored customer clauses into the sales contracts of the national firm decreases all industry prices the reason is that the price restriction makes the national firm a weak price competitor in each local market this produces a prisoners dilemma situation in which each local firm has the unilateral incentive to be more aggressive in nonprice decisions this increase in nonprice competition by all local firms causes prices to fall across the industry