implications of economic interdependence for endogenous wage indexation decisions this paper shows how economic interdependence affects the indexation decisions of atomistic wage setters in an environment in which monetary authorities do not observe stochastic disturbances before making their policy choices if stochastic disturbances are common across countries interdependence has no effect on equilibrium indexation choices in identical countries however if disturbances are country specific numerical simulations show that interdependence is likely to reduce equilibrium indexation choices relative to a small open economy we also show that indexation choices may be either strategic complements or strategic substitutes but that strategic complementarity becomes more likely as the degree of interdependence rises

non monotonic effects of market concentration on prices for residential solar photovoltaics in the united states abstract emerging renewable energy markets may become more concentrated over time as the most efficient firms accumulate market share the effects of this market concentration on prices are tested using a rich dataset of residential solar photovoltaic pv systems in the united states a novel hypothesis is explored that the effects of market concentration may be non monotonic prices may decline in market concentration due to efficiency gains associated with returns to scale but increase in concentration in already concentrated markets due to increasing market power the results of an econometric model provide evidence to support the non monotonic hypothesis however the data suggest that the relationship between prices and firm scale is nuanced and that both large and small scale pv installers may wield efficiency advantages

sticks and carrots two incentive mechanisms supporting intra group cooperation abstract in this note we introduce two distinct incentive mechanisms that support dynamic intra group cooperation in the context of prisoner s dilemma payoffs rewards for cooperating and punishments for defection where the rewarding or punishing party may be outside the relationship

money growth output gaps and inflation at low and high frequency spectral estimates for switzerland abstract while central banks generally have abandoned monetary targeting many continue to attach weight to monetary aggregates in setting policy this raises the issue of how money can be combined with other variables when analysing inflation we decompose inflation in switzerland into two frequency bands and show that inflation is granger caused by monetary factors at low frequencies defined as those corresponding to periodicities of more than 4 years but is granger caused by the output gap at high frequencies we also estimate phillips curve models that are augmented by the low frequency components of the monetary factors

is there more than one critical concentration ratio an empirical test for the portland cement industry past attempts to estimate the critical concentration ratio maintained the hypothesis of only two structural groupings competitive versus non competitive in view of the spectrum of competitive conduct allowed by oligopoly theory the validity of the two groupings is restrictive and should be tested using data from the portland cement industry this paper conducts such a test employing a non linear switching regression technique based on the logistic function the hypothesis of two structural groupings is not rejected

the role of multilateral institutions in international trade cooperation the world trade organization wfo lacks the power to directly enforce agreements it is therefore important to understand what role the wto can play to facilitate international cooperation and whether a multilateral institution can offer distinct advantages over a web of bilateral agreements this paper examines two potential benefits of a multilateral trade institution first verifying violations of the agreements and informing third parties thus facilitating multilateral reputation mechanisms second promoting multilateral trade negotiations rather than a web of bilateral negotiations the model suggests that a multilateral approach is particularly important when there are strong imbalances in bilateral trading relationships

collusion in multiproduct oligopoly games under a finite horizon applying recent results on finitely repeated games to oligopoly theory the author finds that there exists a class of finite horizon output games in which collusion can be achieved as a subgame perfect equilibrium trigger strategies prevent defection from the cooperative outcome by credibly threatening that the defector will be forced to exit the industry for the case of a multiproduct oligopoly it is shown that collusion in one market can be enforced by the threat of punishment in a second market if someone defects even though the two markets are structurally independent the firms make them strategically interdependent through their strategies copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

cost of living clauses in union contracts determinants and effects this study investigates for the period 1969 81 the determinants of the incidence and strength of cost of living adjustment cola clauses in u s manufacturing and the effect of those clauses on wage inflation the sample includes approximately 5 570 union contracts in over 2 600 bargaining relationships the authors find that both union bargaining power and inflation uncertainty positively affected the probability that a cola clause was adopted as well as the strength of the clause adopted negatively influencing the incidence and strength of cola clauses during the period studied were unanticipated changes in an industry s prices the authors also find evidence that wage inflation was greater under contracts with uncapped colas than under all other contracts a result that also was positively influenced by the amount of unanticipated inflation from these results the authors suggest a number of possible trends in the use and effects of cola clauses

entry exit and performance in airline markets abstract data from the airline industry indicate that 1 entry generally is not induced by price levels substantially above the norm 2 entry reduces fares and increases output and exit increases fares and reduces output and 3 incumbents cut price and maintain output in response to entry and survivors increase both price and output in response to exit these findings cast doubt on the ability of entry to prevent or reverse price increases from anticompetitive mergers

wage indexation and discretionary monetary policy since the early 1970 s both academic researchers and policymakers have devoted considerable attention to the macroeconomic effects of wage indexation however these two groups have focused on different effects starting with jo anna gray 1976 and stanley fischer 1977a formal models emphasize the role of indexation in stabilizing or destabilizing output in contrast informal policy discussions usually focus on the allegation that indexation is inflationary e g arthur okun 1971 mario simonsen 1983 eliana cardoso and rudiger dornbusch 1987 to reduce this gap this paper presents a model of the effects of indexation on inflation and asks whether indexation raises economic welfare when these effects are taken into account until recently it was difficult to formalize the argument that indexation is inflationary because economists lacked models of the sources of inflation this paper applies the insight of robert barro and david gordon 1983a that with discretionary policy the employment gains from surprise inflation tempt the monetary authority to create positive trend inflation as stressed by fischer and lawrence summers 1989 policies that reduce the costs of inflation such as indexation cause barro gordon policymakers to choose higher inflation indeed inflation can rise so much that welfare falls despite greater protection against inflation this effect is appealing because it captures the common argument that indexation weakens policymakers will to fight inflation 1 this is not the end of the story however because wage indexation has a second effect it reduces the employment effects of surprise inflation that is unlike most policies to reduce the costs of inflation such as indexation of interest rates wage indexation steepens the phillips curve in the barrogordon model a steeper phillips curve reduces the temptation to inflate and hence reduces equilibrium inflation since indexation has one inflationary effect lower costs of inflation and one anti inflationary effect a steeper phillips curve the net effect appears ambiguous even if the net effect on inflation is determined the welfare effect may remain unclear if inflation rises the welfare loss might or might not be outweighed by the lower cost of a given amount of inflation 2 these ambiguities cannot be resolved with the barro gordon model alone because the phillips curve and the effect of inflation on welfare are ad hoc it is plausible that indexation affects these relations but the relative strengths of the effects are unclear resolving the ambiguities requires a more structural model in which the effects of indexation are derived rather than assumed this paper studies such a model specifically we use a model of staggered wagesetting based on gray 1976 fischer 1977a b and john taylor 1980 the degree of indexation is an explicit parameter and so we can derive its net effects on inflation and welfare section i of this paper presents our basic model and derives equilibrium inflation in

evaluating the evidence on union employment and wages using current population survey data for the years 1973 86 this study tests the hypothesis that the steep decline of union employment shares since 1973 is related to increases in union wages relative to nonunion wages the authors show that although the aggregate union wage premium has changed little since 1973 some industry specific premiums have risen substantially and the industries with the rising premiums are those experiencing declines in union employment shares the increase in the premium explains from 21 to 64 of the decline in union shares depending on the equation specification the paper also presents a detailed set of union wage premiums and employment shares for the sample period

the determination of escalator clauses in collective agreements u ntil very recently the literature on the wider usage of escalator clauses has dealt mainly with their impact on inflation unemployment the trade balance and the exchange rate it is equally important however to understand why and in what circumstances employers and labor unions agree to incorporate such clauses in work contracts in the past few years shavell 1976 azariadis 1978 and blinder 1978 have outlined a theoretical framework for explaining the emergence of indexation to the best of our knowledge however none of the assumptions deriving from these models have been subjected to empirical testing the purpose of this paper is first to develop and test a number of these assumptions and second to consider the problem of simultaneity between two types of adjustments to inflation indexation versus shorter contract duration in the first section we summarize the contributions of the three aforementioned authors to the theory of wage indexation and extract from them a number of verifiable assumptions the second section provides an empirical framework since adjustments to uncertainty about inflation can take the form of shorter contract duration or indexation those two variables are simultaneously determined to overcome the problem of dummy endogenous variables in a simultaneous equation system we have applied the method suggested by heckman 1978 based on the use of maximum likelihood estimators in the third section we analyse the results and in the conclusion we draw their implications for economic policy

diversification multi market contact and profitability this paper analyses the relationships between diversification multi market contact and industry profitability it focuses on the link between diversification and multi market contact to show that when diversification establishes or increases the extent to which firms meet in more than one market the effect of such multi market contact is to increase the possibility that collusion emerges as an evolutionary stable strategy as a result multi market contact may increase the potential for tacit collusion and so lead to higher profitability the effects of diversification and multi market contact on the price cost margin and the rate of return to capital are estimated using a specially constructed new database for uk manufacturing industry in 1979 this database provides information on the diversification and multi market contact of 418 firms across 134 manufacturing industries thus linking firm and industry level data the results show a clear positive effect of multi market contact on industry profitability

money income prices and interest rates including data from the 1980s sharply weakens the postwar time series evidence indicating significant relationships between money however defined and nominal income or between money and either real income or prices separately focusing on data from 1970 onward destroys this evidence altogether evidence indicating cointegration of real income and real money balances with due allowance for the effect of interest rates also deteriorates when the sample extends through the 1980s a positive finding is that the spread between the commercial paper rate and the treasury bill rate consistently contains highly significant information about future movements in real income copyright 1992 by american economic association

stochastic inflation and wage indexation the choice between an indexed and an unindexed wage in a labor contract is studied in this paper it is shown that the expected rate of inflation does not affect the attractiveness of indexation that an increase in the uncertainty of inflation and an increase in the worker s risk aversion lead to an increase in the attractiveness of indexation and that an increase in the cost of indexation and an increase in the perfection of the capital market lead to a decrease in the attractiveness of indexation labor contracts often index the money wage to the price level indexation serves as an important means of reducing the variation in the real wage caused by stochastic inflation and it may therefore moderate the impact that stochastic inflation would otherwise have on a worker s consumption and working hours cf gray 1976 fischer 1977 a and azariadis 1978 accordingly indexation may benefit a worker who is averse to risk cf baily 1974 gordon 1974 and azariadis 1975 indexation may also reduce the variation in working hours thereby benefiting a firm that pro

un cola why have cost of living clauses disappeared from union contracts and will they return 1 introduction one of the major changes in collective bargaining in recent decades has been the gradual elimination of cost of living adjustments colas from union contracts in 1976 61 of union workers covered by major collective bargaining contracts had cola provisions but by the end of 1995 when the u s bureau of labor statistics stopped collecting data on collective bargaining settlements cola coverage had fallen to 22 1 although the decline in cola rates has been studied extensively there is no agreement as to which factors are primarily responsible for this decline one view attributes the elimination of colas or escalator clauses to declines in inflationary uncertainty a second view emphasizes the erosion of union power yet another view focuses on structural shifts in the u s economy previous research has not determined the relative importance of these and other hypotheses another reason to reassess cola determination is that the economy has changed since the early research was completed the bulk of studies to examine cola incidence statistically have relied on sample periods that end in 1982 or earlier 2 since then there have been major changes in union strength inflationary uncertainty and other potential determinants of wage indexation including deregulation of certain industries in addition more than 90 of the decline in cola rates has occurred since 1982 it is worthwhile to determine whether the factors deemed to be important in the early studies are still important we provide a comparison with previous research formally assess the contributions of various factors to the erosion of cola rates and provide insights as to likely changes in cola coverage in the future if inflation picks up and with it inflationary uncertainty 3 will cola rates rise to levels not seen since the 1970s what would be the consequences of a rebound in union power of further economic deregulation of likely industrial and demographic shifts in the economy once the major causes of past changes in cola coverage are understood it becomes possible to project the consequences of changes in key economic variables given the concern in macroeconomics with wage indexation and the linkage between wages and prices gray 1976 fischer 1986 ball and cecchetti 1991 schiller 1997 the extent to which cola coverage responds to economic factors has important implications for the economy underlying the empirical analysis is a pooled cross sectional time series model of cola incidence that accounts for industry fixed effects to estimate the model we assemble a panel data set of cola coverage and an array of characteristics for 32 private sector industries over a 22 year period because cola clauses are multiyear in nature the model also recognizes that the percentage of workers covered by cola clauses in a particular year depends on conditions in both the current year and previous years previewing results we find that the major cause of the decline in cola coverage has been the reduction in inflationary uncertainty second in importance has been the erosion of union power both the percentage of the industry s workforce that is unionized and the estimated union wage premium in the industry are highly significant determinants of cola coverage but because the union wage premium has remained largely intact in most industries changes in the premium are much less important than losses in unionization in explaining the overall decline in cola provisions economic deregulation industrial shifts and an increased presence of women in the workforce have had modest effects on cola rates on the basis of our findings a rebound in inflationary uncertainty to the levels experienced in the 1970s would raise cola coverage by 10 percentage points 2 background for workers in long term contracts colas provide at least partial protection from the consequences of unexpected inflation

the vanishing liquidity effect of money on interest analysis and implications for policy this paper seeks to re examine the effects of money on interest rates the earlier literature on this topic determined fairly well the pattern of response of interest rates to changes in money growth the notable studies of cagan 1972 cagan and gandolfi 1969 and gibson 1970 served to establish the professions stylized pattern as presented in section i section ii presents new evidence on the subject and finds that the old empirical generalizations no longer hold specifically the results suggest that the initial liquidity effect of faster money growth is likely to be offset within the month following the monetary policy change sections iii and iv investigate the reasons for the changing pattern of monetary effects on interest rates and discuss the policy implications of the new pattern

interpreting euro area inflation at high and low frequencies abstract several authors have recently interpreted the european central bank s ecb s two pillar framework as separate approaches to forecast and analyse inflation at different time horizons or frequency bands the ecb has publicly supported this understanding of the framework this paper presents further evidence on the behaviour of euro area inflation using band spectrum regressions which allow for a natural definition of the short and long run in terms of specific frequency bands and causality tests in the frequency domain the main finding is that variations in inflation are well explained by low frequency movements of money and real output growth and high frequency fluctuations of the output gap

competitive advantage and collusive optima cost differences may often be important in real oligopolies if side payments are impossible the standard cartel objective total industry profits lacks plausibility when costs differ this essay considers plausible alternatives four different technologies for effecting collusion which are essentially identical when costs are equal define sets of possible profits axiomatic bargaining models are used to select unconstrained optima from among these possibilities simple functional forms are employed low cost firms with large shares in cournot equilibrium may have little to gain from collusion if collusion is effective low cost firms will have relatively low estimated conjectural variations

resale and collusion in a dynamic market for semidurable goods the paper studies the incentives to form collusive agreements when goods can be traded in second hand markets it will be shown that such incentives crucially depend on the rate of depreciation of the durable good and on consumer heterogeneity the main contribution of the paper shows that an active second hand market may strengthen the incentives to collude as do policies that affect the functioning of the second hand market e g leasing policy and buy back it will also be argued that the oligopoly incentives to adopt strategies that strengthen collusion often differ from the monopoly incentives to increase profits

the determinants of wage changes in indexed and nonindexed contracts a switching model wage changes in a sample 1979 86 of canadian wage contracts are analyzed the sample is split into cost of living allowance cola and non cola contracts econometric estimation corrects for sample selectivity bias in non cola contracts the unemployment rate and a proxy for expected inflation are significant expected industry price changes and productivity changes exert smaller but significant effects in cola contracts ex ante inflation coverage ranges between 60 and 100 of expected inflation catch up for previous uncompensated inflation the unemployment rate and expected inflation are also significant a common wage structure across cola and non cola contracts is rejected by the data

recent developments in macroeconomics underlying the existence of macroeconomics as a separate field of study are the phenomena of economy wide fluctuations of output and prices and sometimes persistent high levels of unemployment two basic views of macroeconomic behavior have persisted even as conceptual innovati ons and the application of more powerful analytic and empirical techn iques have brought significant changes in understanding of the macroe conomy copyright 1988 by royal economic society

trade costs and multimarket collusion contrary to conventional wisdom this article argues that trade liberalization may facilitate collusion and reduce welfare with the help of a duopoly model in which firms interact repeatedly in multiple markets we first show that if trade costs i e tariffs transport costs and discount factors are not too high efficient cartel agreements necessitate the cross hauling of goods as that entails lower deviation incentives in this setting we then demonstrate that reciprocal trade liberalization always raises total output when trade costs are within a range whose lower bound exceeds a threshold level but may reduce total output and thus be pro collusive when trade costs are below that threshold level

indexing and inflation abstract much of the opposition to indexation as a means of adapting to ongoing inflation arises from the view that indexation is itself inflationary this paper examines the basic for that view in a simple macroeconomic model in which budget deficits are in part financed through the printing of money it is shown that all aspects of indexing wage indexation bond indexation and tax indexation tend to increase the impact on the price level of any inflationary shock however this association between indexation and inflation is in large part a consequence of the monetary and fiscal policies being followed by the government evidence from a cross section of forty countries on the effects of indexation on the inflationary impact of the oil price shock of 1973 1974 suggests that indexation did not in general increase the inflationary impact of the oil shock the evidence is further consistent with the view that the absence of an excess inflationary effect of indexation is a result of the countries with substantial indexation not having accommodated the oil price shock as much as other countries

organizational costs sticky equilibria and critical levels of concentration jn the thirty years since joe bain s seminal i study 1951 many economists have attempted to determine whether or not there exists a critical level of market concentration at which a discontinuity occurs in the relation between industry concentration and profitability in this paper we develop and test a more general model based on organizational costs which posits the existence of two critical levels of market concentration one at which an existing cooperative equilibrium will break down as concentration declines and one at which a cooperative equilibrium will become attainable as concentration increases we show that the standard model of the critical level of concentration can be regarded as a special case of our more general model and also that the more general model attains a statistically superior fit in section ii we briefly review some of the previous literature in this area we develop our model in section iii and specify and estimate it in sections iv and v in sections vi and vii we summarize and interpret our results and present some policy implications of our findings

on inflation and inflation uncertainty in the g7 countries abstract the relationship between inflation and inflation uncertainty is investigated in the g7 countries from 1948 to 1993 garch models are used to generate a measure of inflation uncertainty and then granger methods are employed to test the causality between average inflation and inflation uncertainty in all g7 countries inflation significantly raises inflation uncertainty as predicted by friedman and ball weaker evidence is found that inflation uncertainty granger causes inflation in three countries us uk and germany increased inflation uncertainty lowers inflation while in two countries japan and france increased inflation uncertainty raises inflation

concentration price and critical concentration ratios a potentially important parameter that has not yet been convincingly estimated is the critical concentration ratio this paper attempts to estimate it in three types of market the estimation of a critical concentration ratio if one exists seems of potentially great importance because of its implication for antitrust policy if a critical concentration ratio were found and if concentration had no effect below that level it would seem to follow that a horizontal merger in a market where concentration was below the critical level and where the merger could not increase concentration to the critical level could not substantially lessen competition or tend to create monopoly

the interaction between indexation contract duration and non contingent wage adjustment a model of the elasticity of indexation contract duration and non contingent wage adjustment is estimated using canadian wage agreements results suggest that the degree of indexation and contract duration are interdependent and are affected by their past values labour market conditions and inflation uncertainty the correlation between the industry product prices and the cpi affects the degree of indexation non contingent wage adjustment depends on expected inflation uncompensated past inflation duration and indexation values past and present and labour market conditions this model explains total wage adjustment as well as more aggregative models designed solely for that purpose

foreign direct investment location strategies in the tire industry we analyze the nature of international competition among multinational firms in the tire industry using the frameworks of the theories of oligopolistic reaction and foreign direct investment we find that the firms investment patterns are related to the number and identities of competitors host country characteristics and foreign experience global tire companies from several nations demonstrate oligopolistic reaction behavior

corporate environmental citizenship variation in developing countries an institutional framework this study focuses on why some companies in developing countries go beyond environmental regulations when implementing their corporate environmental social responsibilities or citizenship behavior drawing mainly upon the new institutional theory this study develops a conceptual framework to explain three institutional factors companies market orientations industrial characteristics and corporate identities accordingly we suggest that companies from developing countries that are oriented to markets in developed countries operate in highly concentrated industries and have missionary identities adopt corporate environmental citizenship behavior by going beyond environmental regulations the study also discusses the theoretical policy and managerial implications of the conceptual framework

real shocks efficient risk sharing and the duration of labor contracts it is widely believed that increased uncertainty leads to shorter duration of labor contracts this is indeed also the result obtained in the formal analysis in gray 1978 who concludes that a s expected increased variability regardless of source shortens contract length 1978 p 8 the basic argument is that production is inefficient unless the real wage happens to equate the demand and supply of labor and that the loss due to inefficient production increases with the deviation of the actual real wage from the real wage that would equate the demand and supply of labor it is assumed that the economy is exposed to both aggregate real shocks and nominal shocks but that the wage can only be indexed to the general price level an imperfect signal of the underlying shocks since uncertainty is greater for more distant periods the deviation of the actual real wage from the real wage that would equate the demand and supply also tends to be greater for more distant periods and it follows that the per period expected loss due to inefficient production increases with contract duration consequently increased uncertainty provides an incentive to reduce contract durations the reason contracts do not become arbitrarily short is the existence of a fixed contracting cost that militates against shortening the contract duration the oil price hikes of 1973 and 1978 presumably increased the a priori importance of aggregate real shocks and the efficientproduction hypothesis therefore leads one to expect a decrease in contract durations in the years following the price hikes the empirical fact however is that there has been no such tendency at least not in the united states this is clearly brought out in table i which shows that the average duration of major collective bargaining settlements negotiated in 1972 1987 has remained roughly constant

ambiguity aversion and the absence of wage indexation abstract this paper analyzes optimal wage contracting assuming agents are not subjective expected utility maximizers but are instead ambiguity or uncertainty averse decision makers who maximize choquet expected utility we show that such agents will choose not to include any indexation coverage in their wage contracts even when inflation is uncertain unless the perceived inflation uncertainty is high enough significantly the exercise does not presume any exogenous costs e g transactions costs of including indexation links

electrical energy usage over the business cycle causality from macroeconomic conditions to electrical usage overall and in the residential commercial industrial and other sectors is examined the paper shows that changes in macroeconomic conditions cause significant changes in electrical usage in the commercial and industrial sectors and overall in addition the paper shows that causality occurs at business cycle frequencies and that there are asymmetries over the business cycle an implication is that forecasts used to assess the probability of exceeding capacity constraints should incorporate forecasts of macroeconomic conditions asymmetries over the cycle and how the commercial and industrial sectors will respond to such changes

inflation and wage indexation in the postwar united states this paper examines the relationship between inflation and wage indexation in the postwar united states using data on the prevalence of cost of living adjustments in major collective bargaining agreements the author finds that increases in inflation precede increases in wage indexation but reductions in inflation do not precede reductions in wage indexation there is virtually no evidence that wage indexation affects inflation copyright 1995 by mit press

an empirical model of wage indexation provisions in union contracts this paper describes the responses of index linked wage rates to concurrent price increases for a sample of canadian union contracts and then analyzes theseresponses in terms of a simple model of indexation to the aggregate price level the model highlights the importance of aggregate price movements in conveying information about industry specific prices the empirical analysis confirms that industry specific correlations between input and output prices and the consumer price index are important determinants of the flexibility of wages to prices across indexed contracts

the indexation of wages and bonds in brazil this paper analyses the dynamic relationship between the degrees of indexation of wages and public bonds in brazil a simple model is constructed to show that both degrees of indexation are determined simultaneously we apply cointegration techniques and estimate error correction representations to assess the temporal causality between them our results provide empirical support for the existence of simultaneity in the degrees of indexation in brazil in the period 1980 93

leniency programs for multimarket firms the effect of amnesty plus on cartel formation we examine the effect of amnesty plus on dynamic cartel formation in a multimarket setting the amnesty plus program has been adopted as part of the us corporate leniency policy in 1999 and is now vigorously advertised as one of the most compelling tools in generating successful cartel investigations amnesty plus is aimed at attracting amnesty applications by encouraging firms convicted in one market to report their collusive agreements in other markets we show that amnesty plus has two opposite effects on firms ability and incentives to collude which are both increasing in the fine reduction granted first amnesty plus can reduce the deterrence of cartel activities by making it easier for firms to sustain multimarket collusion through strategies involving self reporting after a first cartel detection second it can reduce the expected duration of cartels or delay their formation by increasing firms incentives to self report after a first cartel detection

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

how high is the private gain from wage indexation the effects of firm specific shocks on the gain from writing state contingent wage contracts are examine in an extension of the model in gottfries 1992 it is shown that the introduction of firm specific uncertainty increases the gain from indexation to prices only moderately moreover nominal wage contracts should be more prevalent when unemployment benefits are high or unemployment spells are short

wage indexation and compensating wage differentials a stractthe theory of wage indexation implies that if workers are more risk averse than firms then workers will pay a price in order to obtain wage indexation this prediction is tested on a sample of 3 115 u s manufacturing collective bargaining negotiations from 1967 to 1982 the dependent variable is the expected real wage level taking into account expected cost of living payments colas using instrumental variables or fixed effects techniques to account for the endogeneity of indexation ve find a 2 to 22 real wage premium paid to get a cola however the 2 figure is most consistent with existing estimates of worker risk aversion and union nonunion wage differentials

discovering the link between inflation rates and inflation uncertainty a new time series model is used to reassess the strength of the link between inflation uncertainty and the level of inflation in the united states the model provides several statistical measures that can be used to examine different aspects of uncertainty the main finding is that uncertainty about the long rather than short term prospects for inflation moved strongly with the rate of inflation since the early 1970s copyright 1991 by ohio state university press

trade negotiations domestic policies and the most favored nation clause this paper illustrates how restricting trade instruments to non discrimination links trade agreements to non trade agreements and under certain conditions helps governments further lower tariffs and or domestic standards policies these conditions are i governments objective functions are sufficiently concave with respect to domestic standards policies ii domestic standards are sufficiently valued and iii policies are strategic complements these can then be used as a rationale for restricting safeguard measures to non discrimination ce texte montre comment le fait de restreindre les instruments de politique commerciale a la seule poursuite de liens commerciaux libres de discrimination relie accords commerciaux et non commerciaux et a certaines conditions aide les gouvernements a reduire encore davantage les tarifs douaniers et ou les normes politiques nationales ces conditions sont que i les fonctions objectives soient suffisamment concaves par rapport aux normes politiques nationales ii les normes nationales soient suffisamment valorisees et iii les politiques soient des complements strategiques ces arguments fournissent le rationale pour limiter les mesures de protection a la seule non discrimination

cost of living adjustment clauses in union contracts a summary of results our paper provides an explanation why cost of living adjustment cola provisions and their characteristics vary widely across u s industries we develop models of optimal risk sharing between a firm and union to investigate the determinants of a number of contract characteristics these include the presence and degree of wage indexing the magnitude of deferred noncontingent wage increases contract duration and the trade off between temporary layoffs and wage indexing preliminary empirical tests of some of the implications of the model are described one key finding is that the level of unemployment insurance benefits appears to influence the level of layoffs and the extent of cola coverage simultaneously

overcoming incentive constraints by linking decisions consider a bayesian collective decision problem in which the preferences of agents are private information we provide a general demonstration that the utility costs associated with incentive constraints become negligible when the decision problem is linked with a large number of independent copies of itself this is established by defining a mechanism in which agents must budget their representations of preferences so that the frequency of preferences across problems mirrors the underlying distribution of preferences and then arguing that agents incentives are to satisfy their budget by being as truthful as possible we also show that all equilibria of the linking mechanisms converge to the target utility levels the mechanisms do not require transferable utility or interpersonal comparisons of utility and are immune to manipulations by coalitions

relative price seasonality wage indexation and the perfect price index this paper defines the perfect price index as the price index which if used for wage indexation maximizes a worker s expected utility for given present value of the payment from a firm and it shows how the perfect price index depends on the attributes of the worker s utility function and on the relative price seasonality since in practice labor contracts rely on an official price index published in either unadjusted or deseasonalized form the paper also examines when either form of the official price index provides the belter basis for wage indexation and it shows how this is revealed by the design of the perfect price index

conspiracy at the pump abstract on the basis of evidence of price fixing in may 2006 the canadian competition bureau targeted retail gasoline outlets in some local markets in the province of quebec in june 2008 criminal charges were filed against many individuals and companies operating in those local markets we employ a differences in differences approach to determine whether the public announcement of the antitrust investigation triggered a reaction in one of the targeted markets we find that the price of gasoline in the targeted market fell by 1 75 cents per liter after the public announcement of the investigation we also briefly discuss how well the stiglerian theory of collusion performs in this real world conspiracy

optimal cartel equilibria with imperfect monitoring abstract there exist optimal symmetric equilibria in the green porter model 4 8 having an elementary intertemporal structure such an equilibrium is described entirely by two subsets of price space and two quantities the only production levels used by firms in any contingency the central technique employed in the analysis is the reduction of the repeated game to a family of static games

trends in aggregate concentration in the united states i assemble two rarely used data sets to measure aggregate concentration in the u s in the 1980s and 1990s despite the merger waves of those decades aggregate concentration declined in the 1980s and the early 1990s but rose modestly in the late 1990s the levels at the end of the decade were at or below the levels of the late 1980s or early 1990s the average size of firm and the relative importance of larger size classes of firms increased however gini coefficients for employment and payroll shares of companies showed moderate but steady increases from 1988 through 1999

the return of the liquidity effect a study of the short run relation between money growth and interest rates in this article i use band pass filters to investigate the short run relationship between money growth and interest rates i find a negative correlation between short run movements in money growth and interest rates which i interpret as evidence that the liquidity effect dominates the anticipated inflation effect

symmetric research joint ventures cooperative substitutes and complements we introduce the concepts of cooperative substitutes and complements and use them to explain when all firms in a research joint venture will choose equal levels of r d we show that the second order conditions for a symmetric optimum take a particularly simple form ruling out both excessive cooperative substitutability and excessive cooperative complementarity and nesting conditions already derived in the literature finally we apply our results to the comparison between cooperative and non cooperative r d and show in an important special case that asymmetric outcomes are only optimal for a very limited range of parameter values

indexation and incomes policy a study of wage adjustment in unionized manufacturing data from nearly 200 collective bargaining units are used to study the frequency of wage change from 1957 to 1978 it is shown that incomes policies during the kennedy johnson and nixon administrations encouraged changes in the length of time between wage adjustments inflation often thought to be responsible for fluctuations in the coverage of indexing provisions is found to play virtually no role the conclusion is that government intervention in the wageprice process aroused fears that the government will intervene again in the future in the presence of this uncertainty the wage adjustment provisions of collective bargaining contracts were changed

reply on comment to small firms and the merger mania research on performance differences between small and large firms is booming it emerges relatively separated from the mainstream industrial organization literature inspired by levy s comment on an earlier paper we try to bridge the gap between the two areas especially we screen non cooperative game theoretical models for predictions on performance differences most of them forecast higher profits for larger firms but there exist also some models which predict the opposite for very specific circumstances

the structure of competition how competition between one s rivals influences imitative market entry this paper investigates how the pattern of encounters between a firm s competitors affects the firm s inclination to follow its competitors into a new market we theorize that direct encounters between a firm s rivals lead to a herding effect making imitative market entry more likely past mutual forbearance between a firm s competitors resulting from asymmetric multimarket competition further strengthens this herding effect by enhancing the firm s expectations of market attractiveness in contrast aggressive past rivalry between the competitors resulting from symmetric multimarket contact dampens these expectations producing a competition effect that makes herding less probable we test our idea in two distinct contexts the chinese pharmaceutical industry and the taiwanese computer hardware industry and find consistent support in both settings we discuss how our analysis of what we call the structure of competition can be extended to research on other forms of firm behavior

commitment in utility regulation a model of reputation and policy applications abstract this paper builds a dynamic model of utility regulation where a government cannot commit to a time inconsistent policy of not expropriating investment by allowing the government s type to change over time i explore how reputation concerns may generate partial commitment restricting attention to equilibria that are strongly renegotiation proof i show that there is a unique perfect bayesian equilibrium this contains episodes of investment and good behaviour followed by periods of expropriation and non investment i then apply the model to consider how the power of the incentive scheme and decentralization may influence the properties of this equilibrium in the case of the power of incentives the model suggests that price caps may worsen commitment in developing countries but not in developed ones similarly the model suggests that decentralisation is likely to have a significant effect on commitment but that this effect will depend on the general ability of the government to commit overall we conclude that the effect of such policies on commitment will be different across countries depending on the institutional environment

forward and backward intergenerational goods why is social security good for the environment this paper studies the ability of nonmarket institutions to invest optimally in forward intergenerational goods figs such as education and the environment when agents are selfish or exhibit paternalistic altruism we show that backward intergenerational goods bigs such as social security play a crucial role in sustaining investment in figs without them investment is inefficiently low but with them optimal investment is possible we also show that making the provision of bigs mandatory crowds out the voluntary provision of figs and that population aging can increase investment in figs

on interdependent supergames multimarket contact concavity and collusion abstract following bernheim and whinston 1990 this paper addresses the effects of multimarket contact on firms ability to collude real world imperfections tend to make firms objective function strictly concave and market supergames interdependent firms payoffs in each market depend on how they are doing in others then multimarket contact always facilitates collusion it may even make collusion sustainable in all markets when otherwise it would not be sustainable in any the effects of conglomeration are discussed multigame contact is shown to facilitate cooperation in supergames other than oligopolies as long as agents objective function is submodular in material payoffs journal of economic literature classification numbers c72 d43 l13 l21

the effects of inside and outside money on industrial production across spectral frequency bands this paper examines money income causality using band spectral filtering techniques the paper s central finding is that relatively low frequency movements in outside money are responsible for the relationship between money and economic activity this result is inconsistent with theoretical models in which unanticipated changes in money are responsible for movements in real activity reverse causality is also examined the results are not supportive of a strong feedback relationship from income to inside money however there is evidence of strong feedback from income to outside money

concentration in the european electricity industry the internal market as solution abstract this article offers an analysis of the present competitive and regulatory framework of the european electricity sector and the results achieved with the liberalisation process considering the reactions of incumbents to the liberalisation the focus in this work is mainly on the problem of market concentration in the sector the new trends toward the creation of national champions as well as recent mergers between gas suppliers and electricity producers raise serious concerns about abuses of market power and risk of future collusion in particular the strategic linkage of existing markets and the expansion into new ones are analyzed in the light of the multimarket contact theory considering investment in interconnection among member states the internal market issue is investigated as a solution to the risks coming from liberalisation

multimarket contact economies of scope and firm performance we integrate the efficiency and competitive effects of product market scope choice into a comprehensive model of economic performance and empirically test the model in the context of the u s airli

multimarket contact competition and pricing in banking abstract in this paper we assess the impact of multimarket contact of banks on their market power by means of a simultaneous equation model in which the divergence of price from marginal cost is a function of multimarket linkages the model is estimated using aggregate data from the italian regions for the years 1997 2009 our results show that multimarket contact is positively and significantly correlated to the market power index and is also connected to both home and non home market concentration the evidence is robust to changes in model specification and multimarket contact measures and supports the idea that firms which have a greater amount of contact are more likely to collude

on the frequency of wage indexation abstract this paper analyzes the optimal frequency of wage indexation it demonstrates that a change in the expected value of money does not affect the optimal frequency but that an increase in the riskiness of the value of money leads to an increase in the optimal frequency an increase in the worker s risk aversion also leads to an increase in the optimal frequency while an increase in the cost of indexation leads to a decrease in the optimal frequency

price discrimination or uniform pricing which colludes more abstract conventional wisdom attributes different economic outcomes of uniform pricing and price discrimination to the heterogeneity in market conditions or market participants such as differences in demand elasticity or production costs we offer a new explanation for the observed differences that relates to behavioral aspects rather than demand or supply side effects in particular in a symmetric bertrand duopoly laboratory experiment for which theory predicts no differences between the two pricing regimes we find that tacit price collusion is systematically higher under price discrimination than under uniform pricing

adjustment costs and the sequencing of trade liberalisation a common feature of trade agreements between countries is that the integration of markets proceeds in stages this paper examin es conceptually the role played by adjustment costs in determining the best way to structure an agreement between two countries when there are multiple sectors to be liberalised adjustment costs to liberalisatio n of industries might influence the timing of liberalisatio n with the analysis bearing similarity to why tariff reductions tend to be phased in over time when two industries have no spillover eff ects trade agreements with sequential liberalisation will be less costly to sustain however if the liberalisation of one in dustry influences permanently the flow of benefits from liberalising the other industry simultaneous liberalisation may be easier to sustain

the effects of money growth on inflation and interest rates across spectral frequency bands band spectral regression techniques are used to identify the frequency bands that are most important in the relationships between money growth and inflation and between money growth and the nominal interest rate the results show that cycles in the growth rate of m1 from one to two years long produce higher frequency cycles in inflation and two distinct sets of higher frequency cycles in changes in the nominal interest rate the results support models where predictable changes in money growth produce liquidity and anticipated inflation effects on nominal interest rates copyright 1994 by ohio state university press

collusion at the extensive margin abstract we augment the multi market collusion model of bernheim and whinston 1990 by allowing for firm entry into and exit from individual markets we show that this gives rise to a new mechanism by which a cartel can sustain a collusive agreement collusion at the extensive margin whereby firms collude by avoiding entry into each other s markets or territories we characterise parameter values that sustain this type of collusion and identify the assumptions where this collusion is more likely to hold than its intensive margin counterpart specifically it is demonstrated that where duopoly competition is fierce collusion at the extensive margin is always sustainable finally we provide a theoretic foundation for the use of a proportional response enforcement mechanism

the phillips curve the persistence of inflation and the lucas critique evidence from exchange rate regimes comment we present evidence from the united states and the united kingdom that the persistence of price inflation is significantly higher under managed exchange rate regimes than under gold based fixed exchange rate regimes these differences are also reflected in expectations augmented phillips curves we use a two country macro model with forward looking price setters to demonstrate that higher monetary accommodation of inflation and exchange rate accommodation of inflation differentials increase inflation persistence the evidence does not contradict this hypothesis it supports the hypothesis of forward looking price setters and highlights the empirical significance of the lucas critique jel e31 e42 f33

two illustrations of the quantity theory of money of two central implications of the quantity theory of money that a given change in the rate of change in the quantity of money induces i an equal change in the rate of price inflation and ii an equal change in nominal rates of interest the illustrations were obtained by comparing moving averages of the three variables in question using quarterly u s time series for the period 1953 77 readers may find the results of interest as additional confirmation of the quantity theory as an example of one way in which the quantity theoretic relationships can be uncovered via atheoretical methods from time series which are subject to a variety of other forces or as a measure of the extent to which the inflation and interest rate experience of the postwar period can be understood in terms of purely classical monetary forces the theoretical background of the study is reviewed very briefly as it is familiar material in the next section the data processing methods are described and rationalized in section ii the illustrations