laboratory tests of equilibrium predictions with disequilibrium data we examine a common practice used within previous studies of laboratory markets testing equilibrium models using some data from markets that have not reached an equilibrium we examine the effect of this practice when it is applied to some laboratory markets where an appreciable number of them eventually satisfied an operational definition of an equilibrium our data suggest that for our markets significantly different equilibrium test results would be obtained when using all data available in market periods analysed in previous studies rather than using only equilibrium data for our markets choices made in disequilibrium are quite different from those in equilibrium this paper is primarily concerned with examining one common practice used in previous studies of laboratory markets this practice is testing equilibrium models using some data from markets that have not reached an equilibrium the data set used typically consists of all available laboratory data from the last period an average of the last few periods an average of all periods or from the nth period for some fixed n i know of no attempt at least formally to assure all data were from markets in equilibrium markets where market choices have stabilized recently some laboratory markets were run where an appreciable number of them eventually satisfied an operational definition of an equilibrium could the use of disequilibrium data significantly affect the results of tests we might make of some equilibrium models for these laboratory markets this practice would be desirable if the disequilibrium data provided a useful estimate of the behaviour that would have been observed if an equilibrium had been obtained on the other hand if some disequilibrium behaviour is qualitatively different from the behaviour that would be observed in an equilibrium this practice could produce misleading results within this paper we examine the effect of this practice when it is used on our laboratory data

the quantitative analytics of the basic neomonetarist model this paper constructs a dynamic macroeconomic model with less than perfect price flexibility which has a classical side consistent with real business cycle theory augmented by investment adjustment costs increasing returns to scale and a new flexible formalization of imperfect competition something akin to the classical dichotomy is justified by a mode of approximation appropriate for a model in which one state variable adjusts quickly while another state variable adjusts slowly even with investment adjustment costs monetary expansions are found to raise the real interest rate the determinants of real rigidity and the macroeconomic rate of price adjustment are investigated copyright 1995 by ohio state university press

real rigidities and the non neutrality of money rigidities in real prices are not sufficient to create rigidities in nominal prices and real effects of nominal shocks and by themselves small frictions in nominal adjustment such as costs of changing prices create only small non neutralities but this paper shows that substantial nominal rigidity can arise from a combination of real rigidities and small nominal frictions the paper shows the connection between real and nominal rigidity given the presence of nominal frictions both in general and for two specific sources of real rigidity one arising from goods market imperfections and the other from labour market imperfections

endogenous market structures in the credit market and ricardian equivalence we analyze the impact of imperfect competition in banking on fiscal policy in a dynamic model in an exchange two period economy the impact of deficit spending is to reduce private consumption and increase the spread between deposit and lending rates the reason is that a tax cut forces consumers to save more and makes their supply of savings more rigid which softens competition between banks leading to lower rates on deposits and a more than proportional increase in savings in a closed production economy this reduces the equilibrium interest rate on borrowers which promotes private investment

an ols approach to computing ramsey equilibria in medium scale macroeconomic models abstract this note describes a general procedure for solving for the steady state and the dynamics implied by the ramsey equilibrium of medium scale macroeconomic models the procedure yields an exact numerical solution for the steady state and second order accurate dynamics it introduces a novel projection based approach to calculating exact solutions to the steady state of ramsey equilibria

the effects of group composition in a strategic environment evidence from a field experiment abstract recent theoretical and empirical studies have explored the effect of group membership and identity on individual decision making this line of research highlights that economic models focusing on the individual as the sole entity in the decision making environment potentially miss critical features this study takes this literature in a new direction by overlaying a field experiment onto a setting where groups have arisen naturally our experimental laboratory is large open air markets where we are able to examine the effects of group membership on seller s collusive behavior as measured by prices and surplus allocations this permits us to explore strategic implications of group composition empirical results illustrate the importance of group composition on pricing decisions and show that deviations from nash equilibrium are crucially related to group membership

application of games with incomplete information for pricing electricity in deregulated power pools the authors present a game theory approach to the problem of pricing electricity in deregulated marketplaces they assume that an independent operator receives bids by pool participants and defines transactions among participants by looking for the minimum price that satisfies the demand in the pool the competition among pool participants is modeled as a noncooperative game with incomplete information they assume that each pool participant knows its own operation costs but does not know his opponents operation costs the game with incomplete information is transformed into a game with complete but imperfect information and solved using the nash equilibrium idea the approach presented in this paper is geared towards providing support for pricing electricity in deregulated pools

fuzzy adaptive particle swarm optimization for bidding strategy in uniform price spot market in a deregulated electricity market generators have to optimally bid to maximize their profit under incomplete information of other competing generators this paper addresses an optimal bidding strategy of a thermal generator in a uniform price spot market considering a precise model of nonlinear operating cost function and minimum up down constraints of unit commitment the bidding behaviors of other competing generators are described using normal probability distribution function bidding strategy of a generator for each trading period in a day ahead market is solved by fuzzy adaptive particle swarm optimization fapso where inertia weight is dynamically adjusted using fuzzy evaluation fapso can dynamically follow the frequently changing market demand and supply in each trading interval the effectiveness of the proposed approach is tested with examples and the results are compared with the solutions obtained using genetic algorithm ga approach and other versions of pso

new keynesian phillips curve with bertrand competition and endogenous entry abstract we derive a new keynesian phillips curve under calvo staggered pricing and endogenous market structures with bertrand competition both strategic interactions and endogenous business creation strengthen the nominal rigidities price adjusters change their prices less when there are more direct competitors that do not adjust which reduces the slope of the phillips curve current and future firms entering in the markets decrease current inflation because they reduce markups and the welfare based price index endogenous entry amplifies the impact of both monetary and supply shocks we also characterize the optimal social planner allocation that can be replicated with a labor subsidy and a dividend tax both decreasing in the number of firms and zero producer price inflation the optimal ramsey allocation implies zero inflation tax in steady state

nominal price rigidity money supply endogeneity and business cycles abstract this paper investigates the ability of nominal price rigidity to explain the co movement of inflation with the cyclical component of output observed in the post war u s data a dynamic general equilibrium model is constructed with the introduction of monopolistic competition and nominal price rigidity in a standard real business cycle model allowing for an endogenous money supply rule it is then demonstrated that sticky price models can explain the observed associations between movements in inflation and output much better than flexible price models this result depends little on whether money supply is assumed to be endogenous or not

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

implications of state dependent pricing for dynamic macroeconomic models abstract state dependent pricing sdp models treat the timing of price changes as a profit maximizing choice symmetrically with other decisions of firms using quantitative general equilibrium models which incorporate a generalized s s approach we investigate the implications of sdp for topics in two major areas of macroeconomic research the early 1990s sdp literature and more recent work on persistence mechanisms first we show that state dependent pricing leads to unusual macroeconomic dynamics which occur because of the timing of price adjustments chosen by firms as in the earlier literature in particular we display an example in which output responses peak at about a year while inflation responses peak at about 2 years after the shock second we examine whether the persistence enhancing effects of two new keynesian model features namely specific factor markets and variable elasticity demand curves depend importantly on whether pricing is state dependent in an sdp setting we provide examples in which specific factor markets perversely work to lower persistence while variable elasticity demand raises it

staggered price setting translog preferences and endogenous persistence abstract this paper generates persistent real effects of a monetary disturbance in the context of staggered price setters the model combines two related and reinforcing features a translog demand structure and a particular input output production structure these features offer a rationale why a firm when computing its own optimal contract price is influenced by the prices set in other overlapping contracts practically the two features interact in a positive manner and provide a way to generate significant endogenous persistence

the effects of discounting opportunities in laboratory posted offer markets abstract this experiment isolates the effects of allowing sellers to offer private discounts from posted prices although discounting was pervasive when permitted it did not always improve performance high prices and low efficiencies were observed in half of the discount markets

firm entry markups and the monetary transmission mechanism abstract two business cycle models with endogenous firm and product entry are estimated by matching impulse responses to a monetary policy shock the competition effect implies that entry lowers desired markups and dampens inflation under translog preferences where the substitutability between goods depends on their number we find evidence of such an effect that model generates more countercyclical markups than dixit and stiglitz 1977 monopolistic competition model where price stickiness is the only source of markup fluctuations in contrast a model with strategic interactions between oligopolistic firms cannot generate an empirically relevant competition effect and is statistically equivalent to the dixit stiglitz model

unions power collective bargaining and optimal monetary policy we study ramsey policies and optimal monetary policy rules in a model with sticky prices and unionized labour markets collective wage bargaining and unions monopoly power dampen wage uctuations and amplify employment uctuations relatively to a dnk model the optimal

posted offer markets in near continuous time an experimental investigation this paper reports an experiment conducted to evaluate a near continuous variant of the posted offer trading institution where the number of periods in a market session is increased by reducing sharply each period s maximum length experimental results suggest that although decisions in time truncated periods are not equivalent to periods of longer duration extensive repetition improves considerably the drawing power of equilibrium predictions in some challenging environments nevertheless significant deviations remain in the near continuous framework we also observe that the extra data collected in the near continuous framework allows new insights into price convergence and price signaling

oligopoly experimentation of learning with simulated markets abstract learning is investigated using experimental methods agents have no information about demand conditions the same oligopoly market is finitely repeated and the only link between successive markets is that agents acquire experience over time as the game is played adaptive as well as least squares learning are tested the model of price adjustment followed by firms indicates that the non cooperative bertrand nash equilibrium constitutes an attractor to players strategies

the hayek hypothesis in experimental auctions institutional effects and market power the hayek hypothesis in experimental auctions institutional effects and market power we report twelve market experiments utilizing a seller market power supply and demand structure where two of five sellers can unilaterally increase their profit by withholding supply the data indicate that both the double auction and posted offer institutions result in traders extracting the bulk of the potential gains from exchange in the market however prices generally occur above the competitive equilibrium prediction market power in the form of strategic supply withholding does not appear to be responsible for the supra competitive prices i introduction one important result arising from experimental market research is that the information flows and contracting rules which define the institutional structure of a market can exert a pronounced influence on market performance such institutional features may be more important than some traditional structural characteristics in determining whether market outcomes will correspond to the predictions of the competitive model in particular a large and growing body of experimental data suggests that markets can generate efficient outcomes even when there are a relatively small number of buyers and sellers with incomplete information on the underlying structure of the market based on evidence from a wide variety of experimental double auction markets vernon smith 1982 167 has expressed this more formally as the hayek hypothesis markets economize on information in the sense that strict privacy together with the public messages of the market are sufficient to produce efficient ce competitive equilibrium outcomes in this statement however the notion of an efficient ce outcome could be interpreted as 1 a simple efficiency claim that all exchange surplus will be extracted or 2 a price claim that all exchange surplus will be extracted via trades at the competitive equilibrium price a recent study by holt langan and villamil 1986 hereafter hlv examines the validity of the hayek hypothesis using the double auction institution and a market structure designed to provide a rather difficult test for the competitive model hlv s market power design provides a subset of sellers with an incentive to unilaterally generate a price increase via the strategic withholding of supply the resulting price deviation from the competitive equilibrium is substantial but results in a relatively small loss of market efficiency thus the price interpretation of the hayek hypothesis is violated in this design if holders of market power recognize their position and successfully affect prices to their advantage the efficiency interpretation however will still hold approximately even with the successful exercise of market power in fact the price interpretation of the hayek hypothesis tends to break down in hlv s markets but the efficiency interpretation tends to hold hlv report deviations from the competitive equilibrium price consistent with the exercise of market power in three of five seller market power experiments they also conjecture that deviations from the competitive equilibrium may increase as participants become more experienced with the trading institution this paper reports the results of twelve experiments that build on hlv s research our experiments compare market performance in hlv s seller market power smp design using both the double auction and posted offer trading institutions our purpose in conducting these experiments is twofold first we are interested in examining the effects of changes in trading institutions on deviations from the competitive equilibrium price in the smp design second to the extent that competitive equilibrium price deviations are observed we are interested in assessing whether the exercise of market power in the form of strategic withholding is the source of these deviations

information sharing and tacit collusion in laboratory duopoly markets i introduction economists have long believed that enhanced information about demand conditions or rival actions can play an important role in facilitating collusion for example because it simplifies detection of chiselers stigler 1964 an extensive theoretical literature examines the incentives for non cooperative firms to share information through a trade association about some uncertain parameter see sakai 1990 1991 for a survey firms in these models may cooperate by sharing information in the trade association even though most authors assume that the firms choose non cooperative strategies in the product market under these conditions vives 1984 shows that with demand uncertainty substitute goods and quantity competition each firm s dominant strategy is to conceal information from its rivals therefore under these conditions non cooperative firms will not find it in their interests to form an information sharing arrangement such as a trade association because non cooperative firms should not wish to share information clarke 1983 392 concludes that information pooling mechanisms like trade associations can be considered prima facie evidence that firms are illegally cooperating to restrict output however kirby 1988 shows that non cooperative firms will want to share information if cost functions are sufficiently quadratic moreover hviid 1989 demonstrates that non cooperative firms will prefer to share information if they are sufficiently risk averse these models typically assume that firms interact once and identify the static subgame perfect nash equilibrium ne of the two stage information sharing game this is sensible when the goal is to focus on a narrow set of non cooperative equilibria because the set of non cooperative equilibria becomes very large in these models in the more complex repeated game however repeated interaction between competing firms seems more relevant for empirical applications especially for providing policy insight for trade associations that permit long term interactions among firms unfortunately empirical work in this area based on field data is challenging because the information different decision makers possess and the corresponding residual uncertainty they face are typically difficult to identify this paper uses a different empirical approach we use a series of laboratory duopoly markets to examine the impact of demand uncertainty on sellers output choices specifically we examine the importance of information sharing in facilitating tacit collusion under conditions of demand uncertainty 1 our experiment employs repeated interaction between fixed pairs of subjects trading the ability to directly test the static models for a more realistic policy relevant study of outcomes in the repeated game 2 our results indicate the extent to which results from static theory carry over to the repeated environment and can help guide future theory for dynamic oligopoly models of information sharing the experiment includes four distinct treatment conditions in the primary treatment sellers face uncertain demand but can eliminate uncertainty through voluntary mutual information sharing three control treatments identify the reasons for voluntary information sharing and determine if it leads to more collusive outcomes the first two control treatments eliminate sellers information sharing opportunities in the first control treatment sellers always remain uncertain about demand when choosing output while in the second control treatment sellers always have perfect demand information we refer to these control treatments respectively as forced no sharing and forced sharing throughout the paper the third control treatment sharply reduces collusion incentives by truncating demand while still allowing voluntary information transmission we refer to this control treatment as the truncated demand treatment the results briefly stated are as follows

the effect of a common currency on the volatility of the extensive margin of trade abstract this paper studies the effects of the european monetary unification on the volatility of the extensive margin of trade first we highlight empirical novel facts about the effects of monetary unification we build country level measures of the extensive margin of intra emu exports and describe how their volatilities evolved over time we show that the adoption of a common currency has been associated with an increase of the volatility of the extensive margin of exports for most countries and a decrease in the volatility of the extensive margin of exports for germany second we address this question theoretically and build a two country version of the model of ghironi and melitz 2005 with endogenous entry heterogenous firms endogenous tradability endogenous labor supply and sticky prices we compare the volatility of the extensive margin of trade under fixed exchange rates and in a monetary union monetary unification does imply an increase in the volatility of the extensive margin of trade for pre emu followers such as france or the netherlands and a decrease in the volatility of the extensive margin of trade for the leader germany this pattern is qualitatively consistent with the data but arises only if monetary policy responds moderately to output

endogenous market structures and the business cycle we propose a flexible prices model where endogenous market structures and search and matching frictions in the labor market interact endogenously the interplay between firms endogenous entry strategic interactions among producers and labor market frictions represents a strong amplification channel of technology shocks on labor market variables and helps addressing the unemployment volatility puzzle consistently with u s evidence new firms create a large fraction of new jobs and grow faster than more mature firms net firms entry is procyclical and the price mark up is countercyclical

do antitrust laws facilitate collusion experimental evidence on costly communication in duopolies bertrand supergames with non binding communication are used to study price formation and stability of collusive agreements on experimental duopoly markets the experimental design consists of three treatments with different costs of communication zero cost low cost and high cost prices are found to be significantly higher when communication is costly moreover costly communication decreases the number of messages but more importantly it enhances the stability of collusive agreements mccutcheon 1997 presents an interesting application to antitrust policy by letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices although our experimental results do not support the mechanism of mccutcheon s 1997 argument the findings point in the direction of her prediction that antitrust laws might work in the interest of firms

inflation stabilization and welfare the case of a distorted steady state this paper considers the appropriate stabilization objectives for monetary policy in a microfounded model with staggered price setting rotemberg and woodford 1997 and woodford 2002 have shown that under certain conditions a local approximation to the expected utility of the representative household in a model of this kind is related inversely to the expected discounted value of a conventional quadratic loss function in which each period s loss is a weighted average of squared deviations of inflation and an output gap measure from their optimal values zero however those derivations rely on an assumption of the existence of an output or employment subsidy that offsets the distortion due to the market power of monopolistically competitive price setters so that the steady state under a zero inflation policy involves an efficient level of output here we show how to dispense with this unappealing assumption so that a valid linear quadratic approximation to the optimal policy problem is possible even when the steady state is distorted to an arbitrary extent allowing for tax distortions as well as market power and when as a consequence it is necessary to take account of the effects of stabilization policy on the average level of output we again obtain a welfare theoretic loss function that involves both inflation and an appropriately defined output gap though the degree of distortion of the steady state affects both the weights on the two stabilization objectives and the definition of the welfare relevant output gap in the light of these results we reconsider the conditions under which complete price stability is optimal and find that they are more restrictive in the case of a distorted steady state we also consider the conditions under which pure randomization of monetary policy can be welfare improving and find that this is possible in the case of a sufficiently distorted steady state though the parameter values required are probably not empirically realistic

a comparison of posted offer and double auction pricing institutions this paper presents an experimental study of a computerized posted offer pricing mechanism that captures many of the basic institutional features of retail exchange in the u s posted offer market performance is evaluated relative to double auction market performance using two supply and demand designs subject experience with the trading mechanism is explicitly considered as an experimental treatment variable the market data suggest that prices tend to be higher and efficiency lower under posted offer pricing relative to double auction however the institutional effect appears to interact with other design conditions when feasible the predictive power of competitive nash and limit price theoretic equilibria are empirically evaluated

information and conspiracy in sealed bid auctions abstract this paper examines the allocative properties of the sealed bid institution when different aspects of the available information to bidders are considered specifically we examine a the effect on price determination in repeated sealed bid auctions of post auction revelation of losing bids and b the effect on price determination when conspiratorial discussions are allowed

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

collusion in procurement auctions an experimental examination bart j wilson i introduction questioning the value of efforts to enforce federal anticonspiracy laws raises spirited debate among antitrust economists although everyone recognizes the welfare costs of successful conspiracies commentators such as armentano 1990 and cohen and scheffman 1989 argue that conspiratorial arrangements are pervasively ineffective and thus that social resources spent prosecuting cob lusion are wasted others including marvel et al 1988 express more ambivalence about the seriousness of conspiracies as a social problem but believe that the government manages to detect only the most ineffective arrangements still other economists clearly believe in the effectiveness of current government efforts see e g werden 1989 and froeb et al 1993 ultimately the pervasiveness of conspiratorial behavior and the magnitude of the consequent damages are empirical issues however the illegality of collusion complicates the collection of relevant data tip offs or complaints frequently expose conspiracies but good reasons exist for suspecting that conspiracies detected in this fashion tend to be the least profitable a conspirator likely rats on co conspirators only if he or she is disenchanted with the scheme suggesting that the conspiracy is about to collapse anyway similarly suspect are conspiracies that are sufficiently clumsy to raise the protests of buyers the detection problem would be vastly simplified if conspiracies could be identified in the absence of a smoking gun posner 1969 argues that such explicit evidence of conspiratorial behavior is unnecessary because conspiring firms exhibit identifiable patterns of activity that are alone sufficient to determine illegality kuhlman 1969 and gallo 1977 go still further and advocate the continuous computerized monitoring of pricing and sales data to detect conspiracies however as marshall and muerer 1998 observe a potentially condemning defect of any attempt to detect collusion via behavior is that depending on underlying conditions virtually any suspect pattern of behavior can be generated as a noncollusive nash equilibrium identical prices for example are often cited as an indication of coordinated activity e g mund 1960 1 but in games such as the one modeled by anton and yao 1992 agents submit identical bids in a nash equilibrium in the absence of collusion furthermore some evidence from collusion cases prosecuted by the department of justice suggests that identical prices are rarely part of collusive arrangements except when the industry is not very concentrated comanor and schankerman 1976 market rotations a second pricing scheme that is typically cited as a suspect pattern may also be consistent with a subgame perfect noncooperative nash equilibrium zona 1986 for example identifies a number of approximate equilibria involving contract rotations when sellers have steeply increasing cost structures also lang and rosenthal 1991 characterize a noncooperative static equilibrium for a multiproduct contracting environment where sellers both divide the market and submit noncompetitively high bids in the market where they do not expect to win 2 still other pricing patterns are possibly suspect porter and zona 1993 report evidence of bid rigging in procurement auctions from the pattern of losing bids the intuition is that in a competitive environment bids should be correlated with costs when prices are fixed however this correlation breaks down this article reports a laboratory experiment designed to explore the relationship between suspect behavior and collusion we focus on coordinated behavior in procurement auctions a context where collusion is often suspected and has been frequently observed 4 two environments are examined a set cost regime that contains some features critical to standard government procurement auctions for goods and an endogenous cost regime which exhibits some critical elements of procurement bidding for construction contracts

optimal simple and implementable monetary and fiscal rules welfare maximizing monetary and fiscal policy rules are studied in a model with sticky prices money and distortionary taxation the ramsey optimal policy is used as a point of comparison the main findings are the size of the inflation coefficient in the interest rate rule plays a minor role for welfare it matters only insofar as it affects the determinacy of equilibrium optimal monetary policy features a muted response to output interest rate rules that feature a positive response to output can lead to significant welfare losses the welfare gains from interest rate smoothing are negligible optimal fiscal policy is passive the optimal monetary and fiscal rule combination attains virtually the same level of welfare as the ramsey optimal policy

five facts about prices a reevaluation of menu cost models are price decreases 3 the frequency of price increases covaries strongly with inflation whereas the frequency of price decreases and the size of price increases and price decreases do not 4 the frequency of price change is highly seasonal it is highest in the first quarter and then declines 5 we find no evidence of upwardsloping hazard functions of price changes for individual products we show that the first second and third facts are consistent with a benchmark menu cost model whereas the fourth and fifth facts are not

advance production in experimental markets the effects of advance production in posted offer and double auction markets are investigated previously observed differences between these institutions in mean contract prices and in the distribution of producers and consumers surpluses under the production to demand condition disappear when sellers make output decisions and incur production costs prior to the start of trading the double auction institution remains more efficient under advance production the results suggest that the differential effects of alternative trading institutions on market outcomes may be partially offset by the production conditions characterizing a market

monopoly behaviour decentralized regulation and contestable markets an experimental evaluation this study provides a comparative experimental evaluation of several alternative approaches to the single product monopoly problem we contrast incentive compatible decentralized regulatory mechanisms with notions of market contestability in a decreasing cost environment the decentralized regulatory mechanisms are found to be significantly more effective at restraining monopoly power than is allowing direct contestability but the regulatory mechanisms examined require that the regulatory agency know the market demand curve though not the industry cost curve since this is significantly more information than is required to implement direct contestability an interesting tradeoff is suggested does the greater efficiency in monopoly restraint provided by the regulatory mechanism relative to direct contestability outweigh the former s greater informational requirements

ramsey monetary policy with labor market frictions abstract traditional new keynesian models prescribe that optimal monetary policy should aim at price stability in the absence of a labor market frictions the monetary authority faces no unemployment inflation trade off the design of optimal monetary policy is analyzed here for a framework with sticky prices and matching frictions in the labor market optimal policy features deviations from price stability in response to both productivity and government expenditure shocks when the hosios 1990 on the efficiency of matching and related models of search and unemployment review of economic studies 57 2 279 298 condition is not met search externalities make the flexible price allocation unfeasible optimal deviations from price stability increase with workers bargaining power as firms incentives to post vacancies fall and unemployment fluctuates above the pareto efficient one

trend inflation and firms price setting rotemberg versus calvo we compare the calvo and rotemberg price setting mechanisms in a new keynesian model with trend inflation we show that the long run relationship between inflation and output is positive in rotemberg and negative in calvo the dynamics of the two models differ even to a first order approximation positive trend inflation enlarges the determinacy region in the rotemberg model whereas it shrinks it in the calvo model the responses of output and inflation to technology shocks are amplified by trend inflation in calvo whereas they are dampened in rotemberg the two models imply differing non linear adjustments after a disinflation

optimal monetary policy with relative price distortions this paper analyzes optimal monetary policy in a sticky price model with calvo type staggered price setting in the paper the optimal monetary policy maximizes the expected utility of a representative household without having to rely on a set of linearly approximated equilibrium conditions given the distortions associated with the staggered price setting it shows that the complete stabilization of the price level is optimal in the absence of initial price dispersion while optimal inflation targets respond to changes in the level of relative price distortion in the presence of initial price dispersion

cooperation spillovers and price competition in experimental markets i introduction both competition and cooperation are important for the successful functioning of many economic systems for example firms compete in markets but they also cooperate with one another through arrangements such as research joint ventures lobbying cooperative marketing agreements and strategic alliances in this paper we use experiments to examine how competitive interactions affect agents propensity to cooperate we are interested in studying spillovers that may involve cooperation in one domain such as a research joint venture and competition in another such as in a market 1 cooperation could weaken competition perhaps promoting collusion or market competition could reduce incentives for non market cooperation these behavioral spillovers could go in either direction they are distinct from another type of spillover through knowledge externalities that occur in research and development r d when the innovator cannot fully appropriate the gains to innovation leading potentially to a socially inefficient level of research debondt 1996 2 as discussed below behavioral spillovers have been shown in experiments to increase cooperation in otherwise competitive environments for example through establishing cooperative precedents a large body of theoretical research has focused on firms cooperating in research joint ventures and how this impacts competition in output markets for example cooper and ross 2009 examine the mechanism by which agreements to cooperate in one market can have negative effects on competition in other markets even in situations when these markets are not linked via costs or demand cabral 2000 shows that product market prices are affected by r d agreements between firms caloghirou ioannides and vonortas 2003 lambertini poddar and sasaki 2003 and poyago theotoky 2007 also discuss the impact of forming research joint ventures on product markets and cartel formation 3 empirical work using field data has provided creative indirect evidence on the collusive potential of research joint ventures by exploiting natural policy experiments although the extent of this evidence is limited goeree and helland 2010 for example show that research joint ventures facilitate collusion because they became less popular following an enforcement policy change leniency that made collusion less attractive policy experiments such as these are often required since systematic collusion often goes undetected by authorities duso roller and seldeslachts 2010 also examine the link between research joint ventures and collusion using data from the u s national cooperation research act that granted certain research joint ventures milder antitrust scrutiny they find that horizontal research joint ventures lead to more collusion than vertical joint ventures our work provides complementary and more direct evidence since in the laboratory we can observe the level and sustainability of tacit and explicit collusion and can therefore circumvent the measurement and endogeneity issues that are often prevalent in field data the specific research goals of this study are the following first we wish to examine if agents take advantage of available gains from cooperation in the presence of payoff uncertainties that arise from stochastic innovation success second we are interested in learning if a behavioral spillover of cooperation can lead to collusion in markets or whether competition in markets reduces non market cooperation these notions of cooperation concern contributions to joint r d projects or collusion in price setting and are defined independently of any communication opportunities therefore our third goal is to determine how this interaction between cooperation and competition is affected by the introduction of non market communication opportunities finally we will measure the externalities from r d cooperation to non innovators in the market

inflation and optimal monetary policy in a model with firm heterogeneity and bertrand competition abstract we study the joint implications of heterogeneity of total factor productivity and strategic price interactions between firms on the dynamics of inflation and the design of optimal monetary policy in this setting more productive firms respond less to shocks affecting their marginal costs than less productive firms as a consequence economies with a larger proportion of highly productive firms face a flatter phillips curve moreover when these two features concur the ramsey problem gives rise to an optimal non zero long run inflation that amplifies the differences in relative prices between more efficient and less efficient firms thus increasing the market share of the former nevertheless in the presence of transitory technology shocks optimal short term deviations from this positive long run inflation are negligible

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

intermediate goods and business cycles implications for productivity and welfare this paper presents an aggregate demand driven model of business cycles that provides a new explanation for the procyclicality of productivity and simultaneously predicts large welfare losses from monetary nonneutrality the key features of the model are an input output production structure imperfect competition countercyclical markups and for some results state dependent price rigidity true technical efficiency is procyclical even though production takes place with constant returns without technology shocks or technological externalities the paper has observable implications that distinguish it empirically from related work these implications are generally supported by data from u s manufacturing industries copyright 1995 by american economic association

some experimental testing of the cournot nash hypothesis in small group rivalry situations abstract this study parallels a previous study by friedman and hoggatt 1980 but uses more realistic information conditions in addition to confirming the central tendency results of friedman and hoggatt we find that in the three to six corporation range the number of corporations in the experiment seems to have no effect on the tendency to grope towards the cournot nash solution on the other hand it seems clear that convergence to cournot nash is more likely if the subjects are experienced and less likely the higher the cournot nash markup over unit cost overall there is a strong tendency to converge to cournot nash

market power and mergers in laboratory markets with posted prices in this article we use laboratory methods to evaluate determinants of supracompetitive pricing the experiment involves three treatments each with the same market supply demand and competitive price in the baseline treatment capacity is divided among five sellers so that the competitive price is a nash equilibrium market power is created in a second treatment by reallocating capacity among the sellers this market power raises observed prices in all sessions in a third treatment the three smallest sellers are merged in a way that holds market power constant the consolidation has little residual effect on prices

the impact of collusion on price behavior empirical results from two recent cases abstract we use extended arch and garch models to examine the differences in the behavior of the first two moments of the price distribution during collusive and competitive phases of two recently discovered conspiracies citric acid and lysine according to our results the conspirators managed to raise prices by 9 and 25 cents per pound in the short run relative to non collusive periods also the variance of prices during the lysine conspiracy was lower and the variance of prices during the citric acid conspiracy was higher than during more competitive periods the proposed methodology may be used for antitrust screening and prosecution purposes

market power in tradable emission markets a laboratory testbed for emission trading in port phillip bay victoria abstract in theory competitive emission permit markets minimize total abatement costs permit markets are often imperfectly competitive however and may be thin and dominated by large firms the dominant firm s could exercise market power and increase other firms costs of pollution control while reducing their own emission control costs this paper reports a testbed laboratory experiment to examine whether a dominant firm can exercise market power in a permit market organized using the double auction trading institution our parameters approximate the abatement costs of sources in a proposed tradable emissions market for the reduction of nitrogen in the port phillip watershed in victoria australia we vary across treatments the initial allocation of permits to sources so that in one treatment the seller of permits is a monopolist and in another treatment the market is duopolistic we also vary the information that subjects have about the number and abatement costs of their competitors we find that prices and seller profits are higher and efficiency is lower on average in the monopoly sessions compared with the duopoly sessions but the differences are not substantial and are not statistically significant due to pronounced variation across sessions moreover prices profits and transaction volumes are usually much closer to the competitive equilibrium ce than the monopoly equilibrium

the opportunity for conspiracy in restraint of trade an experimental study a study is a limited exploration into the relationship between the opportunity for conspiracy in restraint of trade and the resulting market performance laboratory experimental methods are applied to separate competing theories the competitive model predicts well relative to cartel models nevertheless when measurements are taken relative to the performance of markets where conspiracies are not possible the effects of attempted conspiracies can be determined

optimal monetary policy with endogenous entry and product variety deviations from long run price stability are optimal in the presence of endogenous entry and product variety in a sticky price model in which price stability would be optimal otherwise long run inflation deflation is optimal when the benefit of variety to consumers falls short of exceeds the market incentive for creating that variety the desired markup price indexation exacerbates this mechanism plausible preference specifications and parameter values justify positive long run inflation rates however short run price stability around this non zero trend is close to optimal even in the presence of endogenously time varying desired markups that distort the intertemporal allocation of resources

the formulation of the optimal strategies for the electricity producers based on the particle swarm optimization algorithm in competitive electricity markets the producer as a market participant strives to find the optimal supply function with the objective of maximizing his her producer surplus in the market clearing the model of the producer surplus maximization is a bilevel mathematical programming problem within which the market clearing is taken into account by using the deterministic approaches it is difficult to obtain the global solution of the bilevel optimization problem even for a single hourly market clearing this is due to the fact that the objective function of such a problem is not concave and there are nonlinear complementarity terms introduced by using the kkt conditions to represent the market clearing when the bilevel optimization problem is modified to consider multiple hourly market clearings such as to maximize the total producer surplus in one day solving such a problem is almost intractable a heuristic approach should be another option for its simplicity and immunity to the local optimum the particle swarm optimization pso algorithm is employed in this paper to find the optimal supply function of the electricity producer based on the ieee 30 bus test system different simulation cases with respect to a single hourly market clearing and a daily market clearing are tested to show the efficiency and robustness of the pso algorithm in addition the parameterization techniques used in formulating the optimal supply function are analyzed based on the simulation results

oligopolistic competition and optimal monetary policy abstract this paper studies optimal monetary policy in a dsge model with supply side strategic complementarity as arising from oligopolistic competition and nominal rigidities firms oligopolistic rents induce inefficient fluctuations through both intra temporal and intertemporal time varying wedges optimality requires the use of state contingent inflation taxes to smooth and reduce firms rents hence under optimal ramsey policy ppi deviates significantly from zero a comparison of welfare costs for a set of operational rules relatively to the ramsey plan shows that targeting the output gap the mark up and the asset price improves upon a rule with aggressive response to inflation

optimal monetary policy optimal monetary policy maximizes the welfare of a representative agent given frictions in the economic environment constructing a model with two sets of frictions costly price adjustment by imperfectly competitive firms and costly exchange of wealth for goods we find optimal monetary policy is governed by two familiar principles first the average level of the nominal interest rate should be sufficiently low as suggested by milton friedman that there should be deflation on average yet the keynesian frictions imply that the optimal nominal interest rate is positive second as various shocks occur to the real and monetary sectors the price level should be largely stabilized as suggested by irving fisher albeit around a deflationary trend path since expected inflation is roughly constant through time the nominal interest rate must therefore vary with the fisherian determinants of the real interest rate although the monetary authority has substantial leverage over real activity in our model economy it chooses real allocations that closely resemble those which would occur if prices were flexible in our benchmark model there is some tendency for the monetary authority to smooth nominal and real interest rates

optimal taxation of capital income in general equilibrium with infinite lives this paper analyzes the optimal tax on capital income in general equilibrium models of the second best agents have infinite lives and utility functions which are extensions from the koopmans form the population is heterogeneous the important property of the models is the equality between the social and the private discount rates in the long run i find that the optimal tax rate is zero in the long run for a special case of additively separable utility functions i then determine the tax rates along the dynamic path and conditions that are sufficient for the local stability of the steady state

vertical integration and collusive incentives an experimental analysis abstract we consider vertically related industries with multiple downstream markets firms make simultaneous output choices in a repeated game upstream duopolists merge with producers in one of the downstream markets that also is a duopoly experimental duopoly markets are constructed to assess the effects of vertical integration upon outputs and profits we find that integration raises outputs in both downstream and upstream markets although only the upstream effect is statistically significant integrated profits are lower and consumer welfare is higher the integrated markets tend to equilibrate more quickly

natural monopoly and contested markets some experimental results a firm may become a monopolist because the average cost of producing the product reaches a minimum at an output rate that is big enough to satisfy the entire market at a price that is profitable in a situation of this sort if there is more than one firm producing the product each must be producing at a higher thanminimum level of average cost each may be inclined to cut the price to increase its output rate and reduce its average costs the result is likely to be economic warfare and the survival of a single victor the monopolist

communication and efficiency in competitive coordination games costless pre play communication has been found to effectively facilitate coordination and enhance efficiency in games with pareto ranked equilibria we report an experiment in which two groups compete in a weakest link contest by expending costly efforts allowing intra group communication leads to more aggressive competition and greater coordination than control treatments without any communication on the other hand allowing inter group communication leads to less destructive competition as a result intra group communication decreases while inter group communication increases payoffs our experiment thus provides an example of an environment where communication can either enhance or damage efficiency this contrasts sharply with experimental findings from public goods and other coordination games where communication always enhances efficiency and often leads to socially optimal outcomes

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