regulatory reform in britain regulatory reform in britain john kay and john vickers major sectors of the british economy are currently undergoing far reaching regulatory reform deregulation removal of barriers to competition and the introduction of new methods of regulation are occurring notably in financial services some of the professions and in utility industries such as telecommunications gas and electricity this paper gives an economic assessment of these developments the authors examine the root causes of market failure that call for regulation externalities monopoly and information problems and the pros and cons of various regulatory responses a broad distinction is drawn between structural regulation the determination of which firms or types of firms can engage in which activities and conduct regulation the control of how firms behave in their chosen activities recent examples of deregulation plus re regulation in britain are seen in part as a shift from structural to conduct regulation the relative merits of the two modes of regulation are complex to assess but it is argued that some recent regulatory reforms are placing undue reliance on conduct regulation as well as assessing individual industries the authors draw general conclusions about the desirability of regulatory solutions that make full use of market forces

competition between multiple asymmetric networks theory and applications this paper presents a tractable model of network competition with many firms elastic subscriber demand off net price discrimination call externalities and cost and market share asymmetries we characterize stability in expectations and equilibrium under firm and market level network effects the model is applied to simulate the effects of termination rates market maturity and retail pricing strategies we show that predictions based on duopoly models can be misleading in particular concerning the effects of termination rates

competition and social influence the diffusion of the sixth generation processor in the global computer industry1 when is a social actor most strongly influenced by its peers this article addresses this question by clarifying when computer firms were most strongly affected by the choices of their structurally equivalent rivals to adopt a well known technology intel s sixth generation processor the core hypothesis is that the effect of adoptions by structurally equivalent firms increases with the competitive pressure that a focal firm faces in its market position the results show that a chosen firm is most strongly influenced by comparable others when it faces scale based competition and is diversified the implications of this study are twofold a social actor s sensitivity to the conduct of others may depend not only on its place in a hierarchy but also on the nature of its ties to an external audience and a contingent theory of social influence may be necessary to characterize diffusion processes correctly particularly when external and time varying nonnetwork factors have significant effects

tying and innovation a dynamic analysis of tying arrangements this paper analyses the effects of tying arrangements on r d incentives it shows that tying is a means through which a firm can commit to more aggressive r d investment in the tied goods market tying also has the strategic effect of reducing rivals incentives to invest in r d the strategy of tying is a profitable one if the gains via an increased share of dynamic rents in the tied goods market exceed the losses that result from intensified price competition in the market the welfare implications of tying and consequently the appropriate antitrust policy are discussed

why is on net traffic cheaper than off net traffic access markup as a collusive device abstract mobile telephony networks typically overcharge each other for the termination of incoming calls leading to high prices for off net traffic the existing theory claims that this behavior reduces profits since high termination charges make firms set high marginal prices thus leading to lower subscription fees and reduced profits this paper bridges the gap between theory and reality by incorporating several assumptions in a model that reflects the reality of mobile telephony markets one of the key assumptions is the fact that subscribers tend to place their calls to a limited number of people consisting mostly of friends and relatives the existence of such calling clubs combined with switching costs supports high access fees at the equilibrium we also discuss the implications of our analysis for eu regulation

decision costs in legislative bargaining an experimental analysis we conduct an experiment to assess the effects of different decision rules on the costs of decision making in a multilateral bargaining situation specifically we compare the amount of costly delay observed in an experimental bargaining game under majority and unanimity rule our main finding is that individual subjects are more likely to reject offers under unanimity rule this higher rejection rate as well as the requirement that all subjects agree leads to more costly delay this result provides empirical support for a classic argument in favor of less than unanimity decision rules put forth by buchanan and tullock the calculus of consent logical foundations of constitutional democracy university of michigan press ann arbor 1962

power illusion in coalitional bargaining an experimental analysis abstract one feature of legislative bargaining in naturally occurring settings is that the distribution of seats or voting weights often does not accurately reflect bargaining power game theoretic predictions about payoffs and coalition formation are insensitive to nominal differences in vote distributions and instead only depend on pivotality we conduct an experimental test of the classical baron ferejohn model with five player groups holding real power constant we compare treatments with differences in nominal power we find that initial effects of nominal differences become small or disappear with experience our results also point to the complexity of the environment as having a negative impact on the speed at which this transition takes place finally and of particular importance as a methodological observation giving subjects a pause accelerates learning

promoting network competition by regulating termination charges abstract this paper contributes to the policy debate about the optimal termination charge when penetration rates are explicitly taken into account although lowering termination charges towards cost leads to more efficient usage its impact on consumer surplus is ambiguous since it induces an increase in fixed subscription fee through the so called waterbed effect we show that a reduction in termination charge below cost has two opposing effects on consumer surplus it softens competition but also helps to internalize network externalities hence it can decrease or increase penetration depending on whether or not the first effect dominates the second we show that the first effect dominates the second when networks are weak substitutes or the penetration rate is high

mobile termination network externalities and consumer expectations we re examine the literature on mobile termination in the presence of network externalities externalities arise when firms discriminate between on and o net calls or when subscription demand is elastic this literature predicts that profit decreases and consumer surplus increases when termination charges increase this is puzzling since in reality regulators are pushing termination rates down while being opposed to do so by network operators this puzzle is resolved when consumers expectations are assumed passive but required to be fulfilled in equilibrium as defined by katz and shapiro aer 1985 instead of being responsive to non equilibrium prices as assumed until now

bargaining and reputation an experiment on bargaining in the presence of behavioural types we conduct a series of laboratory experiments to understand what role commitment and reputation play in bargaining the experiments implement the abreu and gul 2000 bargaining model that demonstrates how introducing behavioral types which are obstinate in their demands creates incentives for all players to build reputations for being hard bargainers the data are qualitatively consistent with the theory as subjects mimic induced types furthermore we find evidence for the presence of complementary types whose initial demands acquiesce to induced behavioural demands however there are quantitative deviations from the theory subjects make aggressive demands too often and participate in longer conflicts before reaching agreements overall the results suggest that the abreu and gul 2000 model can be used to gain insights to bargaining behavior particularly in environments where the process underlying obstinate play is well established

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

attack defence and contagion in networks sanjeev goyal acknowledges support from a keynes fellowship cambridge inet institute and european research area complexity net resilience and interaction of networks in ecology and economics adrien vigier acknowledges support from a gates cambridge fellowship as well as a core fellowship from universite catholique de louvain

using bill and keep interconnect arrangements to soften network competition abstract this paper demonstrates that low below marginal cost interconnect or access charges can be used to sustain high subscription prices under network competition with two part tariffs and price discrimination this result stands in contrast to other results in the literature suggesting that high interconnect charges can play a collusive role

bargaining in legislatures bargaining in legislatures is conducted according to formal rules specifying who may make proposals and how they will be decided legislative outcomes depend on those rules and on the structure of the legislature although the social choice literature provides theories about voting equilibria it does not endogenize the formation of the agenda on which the voting is based and rarely takes into account the institutional structure found in legislatures in our theory members of the legislature act noncooperatively in choosing strategies to serve their own districts explicitly taking into account the strategies members adopt in response to the sequential nature of proposal making and voting the model permits the characterization of a legislative equilibrium reflecting the structure of the legislature and also allows consideration of the choice of elements of that structure in a context in which the standard institution free model of social choice theory yields no equilibrium

money and liquidity effects separating demand from supply in the canonical monetary policy model money is endogenous to the optimal path for interest rates and output but when liquidity provision by banks dominates the demand for transactions money from the real economy money is likely to contain information for future output because of its impact on financial spreads and so we decompose broad money into primitive demand and supply shocks we find that supply shocks have played a significant role in the time series in each of the usa uk and eurozone in the short to medium term we further consider to what extent the supply of broad money is related to policy or to liquidity effects from financial intermediation

diffusion of a new product under network effects the us dvd market we formulate a model that captures the inter dependence between hardware demand and software supply indirect network effect in the dvd industry the identification of the network effect comes from the difference in software availability across two different formats vhs and dvd we find that a 1 increase in the number of dvd titles raises the demand for dvd players by 0 87 simultaneously a 1 increase in video player ownership leads to a 0 14 increase in the variety of video titles our simulations show that hardware manufacturers might be able to internalize the network externality to increase total industry revenues

business to business bargaining in two sided markets abstract bargaining regularly takes place on the business to business side of two sided markets however little is known about the consequences of these negotiations in this paper we allow the platform or a policy maker to choose between a standard design offering posted prices to both sides or a design with bargaining offering a posted price to consumers and negotiating with at least some firms we find that the platform pursues negotiations when it has a strong bargaining position and does so by targeting firms with the largest network effects while this behavior may appear exploitive we show that profits and welfare often align across platform designs this alignment stems from how bargaining incentivizes the platform greater platform bargaining power allows the platform to extract more of the network surpluses since it can convert more of the firm surplus into profits and this incentivizes the platform to draw in greater participation generating greater welfare these results suggest that platform and policy maker preferences often align in this setting

competitive price discrimination we model firms as supplying utility directly to consumers the equilibrium outcome of competition in utility space depends on the relationship u between profit and average utility per consumer public policy constraints on the deals firms may offer affect equilibrium outcomes via their effect on u f rom this perspective we examine the profit utility and welfare implications of price discrimination policies in an oligopolistic framework we also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two part tariffs

grabber holder dynamics and network effects in technology innovation abstract economists and marketing researchers have examined how network effects can have an impact on the adoption of technology and products and how an intrinsic inferior product or technology may dominate the market however their studies have not explained how a producer could create network effect for a new product and how after successfully creating the network effect for this product the producer could lose it in a short period of time while these studies provide insight into technology innovation after it happened they fail to shed light on understanding many of the surprises that we experience in the process the objective of this paper is to present a fundamental framework that helps us understand most of the surprising outcomes that we have seen in technology innovation processes especially the winners and losers in an innovation process the framework is built on a grabber holder dynamic model that captures how all the intelligent agents involved in an innovation shape the forces that either induce a strong network effect or destroy a network effect that is already in place the model can be used to explain many surprising events that have happened in technology innovation in this paper i apply the model to the personal computer innovation

network effects software provision and standardization in this paper we examine the software provision decision of software firms the provision decision by software firms determines the value and hence the market share of competing hardware technologies we show how the provision decision by software firms determines whether multiple hardware technologies are supported in equilibrium or whether there is de facto standardization with only one hardware technology supplied with software in equilibrium we show that when consumers place a high value on software variety there is a suboptimal amount of standardization by the market

the effects of market organization on conspiracies in restraint of trade abstract mindful of the market structure conduct performance paradigm fundamental to industrial organization research this paper uses laboratory experimental techniques to study the impact of conspiratorial opportunities on market performance we compare posted offer markets where sellers but not buyers are all conspiratorial opportunities with observations from three control groups 1 posted offer markets without conspiratorial opportunities 2 double auction markets with conspiratorial opportunities and 3 posted offer markets with true single seller monopolists the basic conclusions generated by our experimental design are 1 seller conspiracies in posted offer markets tend to raise prices but not profits relative to similarly organized markets without conspiracies 2 posted offer conspiracies tend to generate higher prices but not profits than double auction conspiracies and 3 posted offer monopolies tend to generate higher profits but not prices then posted offer conspiracies

bargaining and reputation the paper develops a reputation based theory of bargaining the idea is to investigate and highlight the influence of bargaining postures on bargaining outcomes a complete information bargaining model a la rubinstein is amended to accommodate irrational types who are obstinate and indeed for tractability assumed to be completely inflexible in their offers and demands a strong independence of procedures result is derived after initial postures have been adopted the bargaining outcome is independent of the fine details of the bargaining protocol so long as both players have the opportunity to make offers frequently the latter analysis yields a unique continuous time limit with a war of attrition structure in the continuous time game equilibrium is unique and entails delay consequently inefficiency the equilibrium outcome reflects the combined influence of the rates of time preference of the players and the ex ante probabilities of different irrational types as the probability of irrationality goes to zero delay and inefficiency disappear furthermore if there is a rich set of types for both agents the limit equilibrium payoffs are inversely proportional to their rates of time preference

competing by restricting choice the case of search platforms we show that a two sided matching platform can successfully compete by limiting the number of choices it offers to its customers while charging higher prices than platforms with unrestricted choice we develop a stylized model of online dating where agents with different outside options match based on how much they like each other starting from these microfoundations we derive the strength and direction of indirect network effects and show that increasing the number of potential matches has a positive effect due to larger choice but also a negative effect due to competition between agents on the same side agents resolve the trade off between these competing effects differently depending on their outside options for agents with high outside options the choice effect is stronger than the competition effect leading them to prefer an unrestricted choice platform the opposite is the case for agents with low outside options who then have higher willingness to pay for a platform restricting choice as

the term structure and time series properties of nominal interest rates implications from theory restrictions on the time series properties of one and two period nominal interest rates implied by a representative agent cash in advance model are derived and tested among these are the correlation of the difference between the forward rate and the one period spot rate with the subsequent change in the one period spot rate the relative volatility of long and short rates and the magnitude and sign of the term premium while the first two implications are corroborated by the data the observed behavior of the term premium is dramatically at odds with the predictions of the model for the data analyzed the average term premium was positive while the model predicts that it should be negative copyright 1990 by ohio state university press

a bargaining model of collective choice we present a general model of legislative bargaining in which the status quo is an arbitrary point in a multidimensional policy space in contrast to other bargaining models the status quo is not assumed to be bad and delay may be pareto efficient we prove existence of stationary equilibria the possibility of equilibrium delay depends on four factors risk aversion of the legislators the dimensionality of the policy space the voting rule and the possibility of transfers across districts if legislators are risk averse if there is more than one policy dimension and if voting is by majority rule for example then delay will almost never occur in one dimension delay is possible if and only if the status quo lies in the core of the voting rule and then it is the only possible outcome this core selection result yields a game theoretic foundation for the well known median voter theorem our comparative statics analysis yield two noteworthy insights i if the status quo is close to the core t hen equilibrium policy outcomes will also be close to the core a moderate status quo produces moderate policy outcomes and ii if legislators are patient then equilibrium proposals will be close to the core legislative patience leads to policy moderation

government turnover in parliamentary democracies in this paper we consider a dynamic model of government formation and termination in parliamentary democracies that accounts for the following phenomena 1 cabinet terminations due to replacement or early election 2 cabinet reshuf es 3 minority and surplus governments 4 the relative instability of minority governments

bond and stock returns in a simple exchange model this paper studies asset pricing in a general equilibrium representative agent exchange model the assumptions of isoelastic period utility and lognormal endowment allow the derivation of closed form solutions for asset returns without restricting the serial correlation of the log endowment risk premiums on stocks and real bonds are found to be simple functions of relative risk aversion the variance of the log endowment innovation and the weights in the moving average representation of the log endowment the paper analyzes the sign of term premiums the size of the equity premium and the effect of taste shocks on asset prices

competing technologies the learning curve and rational expectations abstract the problem of choice between several variants of a technology subject to dynamic learning economies is examined in a rational expectations model with overlapping adopters it is shown that even with rational expectations the long term market outcome depends sensitively on the pattern of early chance events and that only one variant of the technology will come to dominate the market in the long run this variant need not be the one which is socially optimal or most promising technically

inefficiency in legislative policymaking a dynamic analysis this paper develops an infinite horizon model of public spending and taxation in which policy decisions are determined by legislative bargaining the policy space incorporates both productive and distributive public spending and distortionary taxation the productive spending is investing in a public good that benefits all citizens e g national defense and the distributive spending is district specific transfers e g pork barrel spending investment in the public good creates a dynamic linkage across policymaking periods the analysis explores the dynamics of legislative policy choices focusing on the efficiency of the steady state level of

network competition ii price discrimination our companion article developed a clear conceptual framework of negotiated or regulated interconnection agreements between rival operators and studied competition between interconnected networks under the assumption of nondiscriminatory pricing this article relaxes this assumption and allows networks to charge different prices for calls terminating on the subscriber s network and those terminating on a rivals network this creates a price differential between services that are identical for the consumer and generates network externalities despite network interconnection we show that in both the mature and entry phases of the industry the nature of competition is substantially affected by such price discrimination

globalizing carbon lock in this paper extends the arguments surrounding carbon lock in elaborated in unruh energy policy 28 2000 817 30 2002 317 to countries currently undergoing industrialization it argues that for numerous reasons industrializing countries are unlikely to leapfrog carbon intensive energy development on the contrary carbon lock in may be globalizing and could further constrain climate change mitigation options it is then argued that many policy recommendations ignore carbon lock in possibly limiting their potential for successful implementation the paper then discusses four policy approaches that appear to have advantages given lock in conditions it is recognized however that relative ease of implementation does not necessarily equate with superiority instead it is merely a path dependent outcome of past development decisions pursuing policies on the basis of relative implementation ease may help address the issue of climate change but could also result in sub optimal outcomes along other dimensions of sustainable development

the term structure of interest rates over the business cycle abstract whether real gnp is assumed to be trend stationary or difference stationary which implies that shocks have transitory or permanent effects is critically important in explaining the behavior of the forward risk premium the term risk premium and changes in the yield curve over the business cycle while this is the main result there are two additional results of interest first although movements in the nominal yield spread are useful in predicting future economic activity these movements are not enough to separate real from nominal shocks the source of the shock can be determined if movements in the spread and shifts in the nominal yield curve are used jointly second the yield differential which is defined as the difference between the yields on inflation indexed bonds and nominal bonds is generally a biased predictor of expected inflation and may signal the wrong information about changes in expected inflation

legislative bargaining with teams abstract we study legislative bargaining with two person teams versus individuals teams come closer to the predictions of the stationary subgame perfect equilibrium passing minimum winning coalitions mwcs more often and having significantly more proposer power the increase in proposer power results from increased numbers of mwcs along with increased proposer power within an mwc we investigate the driving forces behind teams coming closer to the theoretical predictions the results favor their greater insightfulness as opposed to being more aggressive or more selfish

durable coalitions and communication public versus private negotiations abstract we present a laboratory experiment to study the effect of communication on durable coalitions coalitions that support the same allocation from one period to the next we study a bargaining setting where the status quo policy is determined by the policy implemented in the previous period our main experimental treatment is the opportunity for subjects to negotiate with one another through unrestricted cheap talk communication before a proposal is made and comes to a vote we compare committees with no communication committees where communication is public and messages are observed by all committee members and committees where communication is private and any committee member can send a private message to any other committee member we find that the opportunity to communicate has a significant impact on outcomes and coalitions when communication is public there are more universal coalitions and fewer majoritarian coalitions with private communication there are more majoritarian coalitions and fewer universal coalitions with either type of communication coalitions occur more frequently and last longer than with no communication the volume and content of communication is correlated with coalition type these findings suggest a coordination role for communication that varies with the mode of communication

nonlinear pricing with random participation the canonical selection contracting programme takes the agent s participation decision as deterministic and finds the optimal contract typically satisfying this constraint for the worst type upon weakening this assumption of known reservation values by introducing independent randomness into the agents outside options we find that some of the received wisdom from mechanism design and nonlinear pricing is not robust and the richer model which allows for stochastic participation affords a more general empirical specification we develop a multidimensional methodology for addressing this class of problems providing two important applications to nonlinear pricing first with nonlinear pricing by a monopolist the familiar nodistortion at the top result persists but in tandem with the surprising conclusion that there is either no distortion at the bottom or bunching second in a simple model of product differentiated duopolists competing with nonlinear pricing we show that generally the duopoly outcome is qualitatively similar to the monopoly outcome however when marginal costs are symmetric and competition is sufficiently intense distortions disappear and the equilibrium outcome takes a remarkably simple form efficient quality allocations with cost plus fee pricing

network competition in nonlinear pricing previous research assuming linear pricing has argued that telecommunications networks may use a high access charge as an instrument of collusion i show that this conclusion is difficult to maintain when operators compete in nonlinear pricing i as long as subscription demand is inelastic profits can remain independent of the access charge even when customers are heterogeneous and networks engage in second degree price discrimination ii when demand for subscriptions is elastic networks may increase profits by agreeing on an access charge below marginal cost relative to cost based access pricing welfare is typically increased by setting the access charge above marginal cost

persistence of power repeated multilateral bargaining with endogenous agenda setting authority abstract we extend a simple repeated multilateral bargaining model to allow successful agenda setters to hold on to power as long as they maintain the support of a majority of other committee members theoretically and experimentally we compare this endogenous power environment with a standard random power environment in which agenda setters are appointed randomly each period although the theoretical analysis predicts that the two environments are outcome equivalent the experimental analysis shows substantial differences in behavior and outcomes across the games the endogenous power environment results in the formation of more stable coalitions less equitable budget allocations the persistence of power across periods and higher long run inequality than the random power environment we present evidence that the stationary equilibrium refinements traditionally used in the literature fail to predict behavior in either game

legislative bargaining with heterogeneous disagreement values theory and experiments we study a legislative bargaining game in which failure to agree in a given round may result in a breakdown of negotiations in that case each player receives an exogenous disagreement value we characterize the set of stationary subgame perfect equilibria under all q majority rules under unanimity rule equilibrium payoffs are strictly increasing in disagreement values under all less than unanimity rules expected payoffs are either decreasing or first increasing and then decreasing in disagreement values we conduct experiments involving three players using majority and unanimity rule finding qualitative support for several but not all of our main predictions having a high disagreement value is indeed an advantage under unanimity under majority the player with the highest disagreement value is more likely to be excluded but this does not consistently result in a lower average payoff

are output fluctuations transitory according to the conventional view of the business cycle fluctuations in output represent temporary deviations from trend the purpose of this paper is to question this conventional view if fluctuations in output are dominated by temporary deviations from the natural rate of output then an unexpected change in output today should not substantially change one s forecast of output in say five or ten years our examination of quarterly postwar united states data leads us to be skeptical about this implication the data suggest that an unexpected change in real gnp of 1 percent should change one s forecast by over 1 percent over a long horizon

speeding up the internet regulation and investment in european fiber optic infrastructure in this paper we study how the coexistence of access regulations for legacy copper and fiber networks shapes the incentives to invest in network infrastructure to this end we develop a theoretical model explaining investment incentives by incumbent telecom operators and heterogeneous entrants and test its main predictions using panel data from 27 eu member states over the last decade our theoretical model extends the existing literature by among other things allowing for heterogeneous entrants in internet access markets as we consider both other telecom and cable tv operators as entrants in the empirical part we use a novel data set including information on physical fiber network investments legacy network access regulation and recently imposed fiber access regulations our main finding is that more stringent access regulations for both the legacy and the fiber networks harm investments by incumbent telecom operators but in line with our theoretical model do not affect cable tv operators

coordinating adoption decisions under externalities and incomplete information abstract a monopolist sells a good whose value depends on the number of buyers who adopt it as well as on their private types the seller coordinates the buyers adoption decisions based on their reported types and charges them the price based on the number of adoptions we study ex post implementable sales schemes that are collusion proof and show that under the revenue maximizing scheme more buyer types are willing to adopt when there are more adoptions and the number of adoptions is maximized subject to the participation constraints

rational incompatibility with international product standards abstract international product standardization enables traditional price based competition but the existence of redesign costs or network effects creates market frictions that diminish the incentive to standardize if there already exists a different technology in an established market this leads to multi attribute competition between products and will generally reduce trade flows not only do incumbent firms using a different technology have an incentive to deviate from an international standard but a host country government concerned for its consumers welfare has no incentive to enforce the international standard and may even value deviation from the international standard through technical barriers to trade

calling circles network competition with non uniform calling patterns we introduce a flexible model of telecommunications network competition with nonuniform calling patterns accounting for the fact that customers tend to make most calls to a small set of similar people equilibrium call prices are distorted away from marginal cost and competitive intensity is affected by the concentration of calling patterns contrary to previous predictions jointly profit maximizing access charges are set above termination cost in order to dampen competition if calling patterns are sufficiently concentrated we discuss implications for regulating access charges as well as on and off net price discrimination

a dynamic theory of public spending taxation and debt this paper presents a dynamic political economy theory of public spending taxation and debt policy choices are made by a legislature consisting of representatives elected by geographically defined districts the legislature can raise revenues via a distortionary income tax and by borrowing these revenues can be used tofinance a national public good and district specific transfers interpreted as pork barrel spending the value of the public good is stochastic reflecting shocks such as wars or natural disasters in equilibrium policy making cycles between two distinct regimes business as usual in which legislators bargain over the allocation of pork and responsible policy making in which policies maximize the collective good transitions between the two regimes are brought about by shocks in the value of the public good in the long run equilibrium tax rates are too high and too volatile public good provision is too low and debt levels are too high in some environments a balanced budget requirement can improve citizen welfare

termination fees revisited we reconsider the question of the optimal level of termination fees between communication networks in the context of heterogeneous usage and elastic participation the interaction between these two features yields new insights in our model i the profit maximizing reciprocal termination fee is above marginal cost ii the welfare maximizing termination fee is also above cost iii the welfare maximizing termination fee is below the profit maximizing one in the absence of termination based price discrimination but can be above it otherwise

foreclosing competition through high access charges and price discrimination this article analyzes competition between two asymmetric networks an incumbent and a new entrant networks compete in non linear tariffs and may charge different prices for on net and off net calls when access charges are high this allows the incumbent to foreclose the market in a profitable way if switching costs are sufficiently large in the absence of termination based price discrimination however such foreclosure strategies are not profitable

third degree price discrimination in oligopoly all out competition and strategic commitment price discrimination by imperfectly competitive firms may intensify competition leading to lower prices for all consumers the tradeoff of consumer groups welfare that is characteristic of monopolistic discrimination need not arise this escalation of competition may make firms worse off and as a result firms may wish to avoid the discriminatory outcome under conditions similar to those in which unambiguous price and welfare effects may arise unilateral commitments not to price discriminate including the adoption of everyday low pricing or no haggle policies may raise firm profits by softening price competition

the market value of rarity abstract most theories of demand assume that consumers value the characteristics of products but are unconcerned with how many other consumers also consume the product however several theories of demand argue that consumers can value the exclusivity of possessing a rare object we test this implication on a particular collectible rare coins our paper examines the case of coins of a given type and identical quality that have mintages in different quantities this allows us to exclude the common case in which rarity or price itself is an indicator of quality for our sample rarer coins command higher prices rarity in the form of original mintage more strongly influences the market price than does collectibility as represented by the rarest coins of each mint mark or year we also point out that here may be other goods such as automobiles for which rarity may influence market demand

theory and experiments on spatial competition we present theoretical and experimental results on spatial competition between two firms firms choose locations simultaneously along a line representing a linear market identical consumers with non increasing demand functions are uniformly distributed along this line we solve for symmetric equilibrium payoffs in an infinitely repeated game for the case of linear demand and an arbitrary discount factor the set of equilibriums found includes both competitive and collusive payoffs in laboratory experiments in which the final period was unknown to the players in advance we observed both competitive and collusive outcomes non binding communication led to collusion

local network externalities and market segmentation this paper models interaction between groups of agents by means of a graph where each node represents a group of agents and an arc represents bilateral interaction it departs from the standard katz shapiro framework by assuming that network benefits are restricted only amongst groups of linked agents it shows that even if rival firms engage in bertrand competition this form of network externalities permits strong market segmentation in which firms divide up the market and earn positive profits the analysis also shows that some graphs or network structures do not permit such segmentation while for others there are easy to interpret conditions under which market segmentation obtains in equilibrium c 2009 elsevier b v all rights reserved

morally motivated self regulation 2 this paper focuses on self regulation motivated by altruistic moral concerns the context is one in which individuals can voluntarily self regulate in the presence of opportunities to free ride on the self regulation of their trading partners moral preferences can mitigate free riding but moral preferences can be limited in the sense that they may be weaker the greater the socioeconomic distance from a trading partner and can depend on whether others are expected to reciprocate the scope of self regulation can be increased by moral suasion but individuals can also form organizations to reduce free riding this paper characterizes the scope of self regulation as a function of the form and strength of moral preferences and explains the effectiveness of organizations in expanding that scope moral preferences can be conditional on the actions of others or limited by socioeconomic distance a citizen thus may self regulate when interacting with someone close but not with someone far away moral preferences can also be conditional or unconditional unconditional moral preferences are independent of the action of others whereas with conditional preferences a citizen is more willing to self regulate if other citizens are expected to reciprocate 3

configuring value for competitive advantage on chains shops and networks building on thompson s 1967 typology of long linked intensive and mediating technologies this paper explores the idea that the value chain the value shop and the value network are three distinct generic value configuration models required to understand and analyze firm level value creation logic across a broad range of industries and firms while the long linked technology delivers value by transforming inputs into products the intensive technology delivers value by resolving unique customer problems and the mediating technology delivers value by enabling direct and indirect exchanges between customers with the identification of alternative value creation technologies value chain analysis is both sharpened and generalized into what we propose as a value configuration analysis approach to the diagnosis of competitive advantage with the long linked technology and the corresponding value chain configuration model as benchmark the paper reviews the distinctive logic and develops models of the value shop and the value network in terms of primary activity categories drivers of cost and value and strategic positioning options 1998 john wiley sons ltd

greasing the wheels pork and public goods contributions in a legislative bargaining experiment abstract when a legislature bargains over funds for pork and public goods and the funds come from a common budget increased spending on the public good means greater payoff equality since it comes at the expense of pork this paper explores whether inequity aversion then leads to greater public goods spending using both theory and a laboratory experiment we show inequity aversion generally decreases inequity within a coalition by limiting proposer power however this does not always mean greater public goods contributions because the types of proposals passed change in equilibrium in addition the experiment investigates the theoretical prediction that increasing players relative preference for pork can increase public goods contributions we show that while average public goods contributions remain unchanged there is evidence at the individual level that subjects hold out for higher public goods contributions as predicted

information exchange and competition in communications networks we develop a model of information exchange between calling parties we characterize the equilibrium when two interconnected networks compete by charging both for outgoing and incoming calls we show that networks have reduced incentives to use off net price discrimination to induce a connectivity breakdown when calls originated and received are complements in the information exchange this breakdown disappears if operators are allowed to negotiate reciprocal access charges we also study the relationship between sending and receiving retail charges as a function of the level of access charges we identify circumstances where private negotiations over access charges induce first best retail prices i introduction people use electronic communications in order to exchange information this exchange may take very different forms take as an example a situation with two individuals a and b a and b are academics trying to work on a joint paper but live in different places thus they rely on telephone conversations and e mail exchanges to conduct their work one day a and b are struggling to solve an equation a finds the solution and calls b b is obviously happy but then does not need to call a back since the problem has been solved another day a has an embryo of an idea and calls b b needs some time to ponder over this rudimental idea and then calls a back to tell him what she thinks about it in this second case b is still happy to have received a call from a since it may lead to an improvement of their paper but now the original call has initiated a chain reaction that has led b to return the call

theorizing path dependence a review of positive feedback mechanisms in technology markets regional clusters and organizations the concept of path dependence has often been criticized as vague and only narrowly applicable although we can find some very refined definitions of the concept we also find a wide range of empirical phenomena being described as path dependent we argue that more detailed accounts of the positive feedback mechanisms that form paths can take path dependence beyond this state of being overdetermined but under specified reviewing three well described cases of path dependent dynamics in technology markets regional clustering and organizations we define a core set of positive feedback mechanisms that constitute path dependence at different analysis levels and clarify the relationship between positive feedback and increasing returns we show that path dependent processes that is processes driven by positive feedback that veer toward rigidity or lock in can be but do not have to be found under many labels including structural inertia coevolution or institutional persistence we conclude that a precise definition of path dependence does not need to be at odds with the concept s widespread use in understanding organizational and industrial development processes copyright 2013 the author 2012 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

general equilibrium properties of the term structure of interest rates abstract the paper examines the allocation of consumption and investment in a three date binomial model in order to determine the sign of the real term structure premium in general equilibrium when production functions are concave markets are complete and future production possibilities are the same irrespective of which state of the world occurs the term structure premium will be positive in incomplete markets constant or increasing absolute risk aversion is sufficient to guarantee a positive term structure premium although in the more likely case of decreasing absolute risk aversion a negative premium cannot be ruled out

demand competition and policy compromise in legislative bargaining i propose a new majoritarian bargaining model in which more than one implicit proposal can be on the table at the same time institutional differences from system to system affect the order of play the equilibrium majorities and the policy outcome the ex post distribution of payoffs within a winning coalition is however invariant to fundamental institutional differences and it is always proportional to the distribution of relative ex ante bargaining power the bargaining process is modeled as a sequential demand game in which players are called to propose a policy and to specify their desired share of the private benefits related to being in office the order of play is endogenous and the distribution of payoffs within an equilibrium majority usually does not depend on who is the proposal maker the role of the head of state and the advantages to center parties are also studied

asset pricing implications of a new keynesian model to match the stylised facts of goods and labour markets the canonical new keynesian model augments the optimising neoclassical growth model with nominal and real rigidities we ask what the implications of this type of model are for asset prices using a second order numerical solution to the model we examine bond and equity returns the equity risk premium and the behaviour of the real and nominal term structure we catalogue the factors that are most important for determining the size of risk premia and the slope and level of the yield curve in a world of technology shocks only increasing the degree of real rigidities raises risk premia and increasing nominal rigidities reduces risk premia in a world of monetary policy shocks only both real and nominal rigidities raise risk premia the results indicate that the implications of the new keynesian model for average asset returns depend critically on the

network competition and entry deterrence we develop a model of logit demand that extends to a multi firm industry the traditional duopoly framework of network competition firstly we show that incumbents establish inefficiently the reciprocal access charge below cost when they compete in prices but they behave efficiently if they compete in utilities secondly we study how incumbents determine the industry wide access charge under the threat of entry we show that incumbents may accommodate all possible entrants only a group of them or may completely deter entry when entry deterrence is the preferred option incumbents distort the access charge upwards

real and nominal interest rates under uncertainty the fisher theorem and the term structure this paper examines the relation between nominal and real interest rates and the nominal and real term structure under uncertainty we show that two separate risk terms cause the fisher theorem to fail one risk term is related only to the variability of money prices while the other is related to the purchasing power riskiness of the nominal bond monetary policy can affect the value of both these risk terms we also show that the pure expectations hypothesis of the term structure fails for both real and nominal bonds because of risk premia even if the economy is neutral with respect to monetary policy monetary policy can alter the nominal term structure

behavioral identification in coalitional bargaining an experimental analysis of demand bargaining and alternating offers alternating offer and demand bargaining models of legislative bargaining make very different predictions in terms of both ex ante and ex post distribution of payoffs as well as in the role of the order of play the experiment shows that actual bargaining behavior is not as sensitive to the different bargaining rules as the theoretical point predictions whereas the comparative statics are in line with both models we compare our results to studies that attempt to distinguish between these two approaches using field data finding strong similarities between the laboratory and field data regardless of the underlying bargaining process

network interconnection in telecommunications this paper discusses industries such as telecommunications where firms each have their own customers and must interconnect with other firms to provide a comprehensive service two scenarios are considered i the case of a symmetric unregulated industry and ii the case of an industry with a dominant regulated incumbent in the first provided there is sufficient product differentiation it is shown that firms agree to set interconnection charges above associated costs in order to obtain the joint profit maximising outcome in the second a formula for the welfare maximizing interconnection charge is derived relations with the efficient component pricing rule are discussed

a positive theory of flexibility in accounting standards abstract we develop a positive theory of accounting standards when standards generate network externalities and differ in the amount of reporting discretion or flexibility they provide firms we evaluate expected value maximizing firms preferences between two standards regimes rigid and flexible as the number of firms subject to each standard varies as the organization of the securities market varies and as the mapping from the underlying economics of the firms transactions to the accounting reports produced under the two standards vary we also compare firms preferences between the two regimes to the preferences of profit maximizing traders in the firms securities

malapportionment and multilateral bargaining an experiment abstract members of collective decision making bodies often represent communities that differ in population sizes malapportionment results when decision making power is not allocated evenly across the population two well known institutions with malapportionment have emerged bicameralism and weighted voting this paper studies experimentally how agenda setting power affects the distribution of resources comparing across those two institutions conventional wisdom suggests that malapportionment favors scarcely populated states i find that this is the case under weighted voting but not necessarily in a bicameral system in the later case the allocation of agenda setting power can be used to eliminate distortions stemming from malapportionment

the economics of convention c onventions regulate much of economic and social life yet they have received surprisingly little attention from economists by a convention we mean a pattern of behavior that is customary expected and self enforcing everyone conforms everyone expects others to conform and everyone has good reason to conform because conforming is in each person s best interest when everyone else plans to conform lewis 1969 familiar examples include following rules of the road adhering to conventional codes of dress and using words with their conventional meanings conventions with direct economic implications include species of money and credit industrial and technological standards accounting rules and forms of economic contracts indeed it would scarcely be an exaggeration to say that almost all economic and social institutions are governed to some extent by convention the main feature of a convention is that out of a host of conceivable choices only one is actually used this fact also explains why conventions are needed they resolve problems of indeterminacy in interactions that have multiple equilibria indeed from a formal point of view we may define a convention as an equilibrium that everyone expects in interactions that have more than one equilibrium the economic significance of conventions is that they reduce transaction costs imagine the inconvenience if whenever two vehicles approached one another the important exceptions are sugden 1986 and ullman margalit 1977 the interested reader might also refer to the symposium on social norms that appeared in the fall 1989 issue of this journal with articles by sugden 1989 and elster 1989

network competition i overview and nondiscriminatory pricing we develop a model of unregulated competition between interconnected networks and analyze the mature and transition phases of the industry in this deregulated environ ment networks pay negotiated or regulated access charges to each other and com pete in prices for customers we show that a competitive equilibrium may fail to exist for large access charges or for large network substitutability and that freely negotiated access charges may prevent effective competition in the mature phase of the industry and erect barriers to entry in the transition toward competition last we examine the meaning and impact of policies such as the efficient component pricing rule

product compatibility as a signal of quality in a market with network externalities abstract in this paper i consider the compatibility decision as a signaling device of the quality of a newly introduced technology of which users are not informed provided that firms are located sufficiently far apart in hotelling s 0 1 interval i find separating equilibria where low compatibility signals high quality this possible separation is due to the fact that low compatibility is more advantageous to the high quality entrant than to the low quality entrant since it can prevent users of the established technology from enjoying network benefits from the new technology very much

on the term structure of interest rates abstract this paper tests the one good stochastic growth model with respect to its ability to explain the term structure of real interest rates we undertake both a qualitative and quantitative analysis first we assess the changing shape of the yield curve over the model economy s business cycle and compare our results with what is empirically observed second we employ the model to study various implications of informational and allocative efficiency properties which the artificial economy must possess it is found for example that long term rates are less volatile than short term rates and that holding premia can be highly correlated over time third we study the time varying risk premium implicit in the economy s forward rate structure a purely quantitative assessment of the model s explanatory power is also provided

communication in multilateral bargaining one of the most robust phenomena in the experimental literature on multilateral bargaining is the failure of proposers to extract equilibrium rents however all previous experiments have overlooked the fact that outside the lab committee members are allowed to and do engage in sometimes intense communication processes prior to voting on a proposal we conduct an experimental test of the baron ferejohn model in which we allow committee members to engage in unrestricted cheap talk communication before a proposal is submitted we find that proposers extract a significantly higher share of resources when communication is allowed communication increases proposer power through two channels first it mitigates the uncertainty surrounding the amount a coalition member is willing to accept second it allows potential coalition members to compete for a place in the coalition by lowering this stated price

network competition with income effects i generalize the workhorse model of network competition to include income effects in demand empirical work has shown income effects to be positive and statistically significant income effects deliver theoretical results consistent with regulatory concern about excessive termination rates unregulated network operators competing in nondiscriminatory retail contracts negotiate termination rates above cost for any positive income effect this also holds when operators discriminate between on net and off net calls if networks are differentiated operators profit from increasing termination rates above cost under second degree price discrimination if a sufficient share of consumers prefer on net off net contracts and their subscription demand is relatively inelastic