a dynamic general equilibrium analysis of deviations from the laws of one price abstract using disaggregated west german prices this study documents movements in relative export and producer prices and in relative import and producer prices which are variable and highly autocorrelated this suggests the presence of time varying persistent deviations from the laws of one price perfect competition monopoly and monopolistic competition with constant mark up pricing are inconsistent with the variability in relative export and producer prices furthermore cournot oligopoly is inconsistent with the variability in relative import and producer prices a dynamic general equilibrium model with differentiated oligopolistic competition and strategic pricing is shown to generate variable and persistent movements in both measures of relative prices

how housing slumps end we construct a simple model of the end of housing slumps we show that the probability that real housing prices stop falling is higher the smaller was the pre slump house price run up the greater has been the cumulative house price decline the faster is gdp growth and most importantly the lower are mortgage interest rates slumps are longer where the construction sector is more responsive allowing booms to create larger supply overhangs but shorter the more developed are financial markets and institutions enabling new buyers to access credit and enter the market falling house prices can lead to lower private sector credit flows in turn limiting the scope for new home purchases and creating the danger of a vicious spiral of slumping housing prices and distressed financial institutions this suggests that policymakers should take steps to break the link between the housing market problems and banking problems by intervening to recapitalize distressed banking systems while using quantitative easing and credit easing to lower mortgage interest rates and help revive the housing market directly agustin s benetrix barry eichengreen and kevin h o rourke

durable goods oligopoly abstract this paper models a durable goods oligopoly as a differential game two cases are treated sales where firms cannot lease but must sell the good in question and leasing where firms do not sell but only rent in the sales case firms face increasing marginal cost of production and the good in question depreciates for this case a rational expectations feedback nash equilibrium is constructed for which monopoly or oligopoly output is less than the efficient level this gap between oligopoly and competitive output diminishes as the number of firms increases when firms can only lease the good the good is assumed not to depreciate and the monopoly level of steady state output is compared with the level of steady state output for a feedback equilibrium duopoly for this case the duopoly equilibrium has steady state output that is less than the corresponding efficient level but greater than the monopoly level the leasing model is shown to be isomorphic to the adjustment cost duopoly model of driskill and mccafferty journal of economic theory 49 1989 324 338

booms and busts in the uk housing market the often volatile behaviour of uk house prices between 1957 and 1994 is analysed in an annual econometric model theory suggests that financial liberalisation of mortgage markets in the 1980s should have led to notable shifts in house price behaviour the evidence supports the predictions of theory suggesting shifts took place in wealth effects as in the consumption function and that real interest rates and income expectations became more important the presence of transactions costs suggests important nonlinearities in house price dynamics the paper also contains an explicit econometric treatment of expectations demography supply spillovers from the rented sector and of composition biases in the official house price index

the effects of learning on the firm s optimal design quality path abstract the product design decision making process requires the manager to initially set a target value of the design quality dimensions and then through a continuous product development effort adjust these targets to meet the changing needs of the market in this paper we present a control theoretic model with the design quality level as the decision variable under the control of the firm the model captures the effect of learning on production cost the market is assumed to be reactive to both the design quality level of the product and its price optimal decision policies for the design quality path i e the sequence of design quality targets over the product life cycle under a set of functional assumptions are obtained analytically effects of changes in the manufacturing and market conditions e g increase in learning rate cost of providing certain level of quality market sensitivities to quality and price and various pricing strategies are discussed through the results of extensive numerical experimentation

bank lending and property prices in hong kong abstract this paper studies the relationship between residential property prices and bank lending in hong kong this is an interesting topic for three reasons first swings in property prices have been extremely large and frequent in hong kong second under the currency board regime monetary policy cannot be used to guard against asset price swings third despite the collapse in property prices since 1998 the banking sector remains sound while the contemporaneous correlation between lending and property prices is large our results suggest that the direction of influence goes from property prices to bank credit rather than conversely

time consistent protection with learning by doing abstract can a government induce efficiency gains in his domestic industry by protecting it against foreign competition would such trade protection be time consistent the present paper builds a dynamic equilibrium model that accounts for learning by doing effects that link firms strategies over time the model shows that the existence of dynamic economies of scale suffices to overcome the traditional government s lack of commitment of its tariff policy this paper compares the infinite horizon markov perfect equilibrium of this game with the dynamic equilibrium under commitment as well as the static nash equilibrium equilibrium strategies are derived in closed form by solving a linear quadratic differential game optimal trade policy involves higher tariff levels than in the static setup in order to account for future gains in efficiency under reasonable assumptions the unique stable mpe is characterized by a domestic price and tariff that decrease as experience accumulates thus supporting the future liberalization of trade as an equilibrium feature of this dynamic game

a differential oligopoly game for optimal production planning and water savings abstract a production planning single decision problem is extended to a production planning and water saving dual decision problem a differential oligopoly game in which product prices are sticky and water right trading occurs is used to study this problem unlike previous studies appeared in the literature the decisions in this study are affected simultaneously by both the product and the water right prices static open loop closed loop and feedback equilibria are analyzed to show optimal production plans and water saving decisions the impact of oligopoly competition on the social welfare is finally analyzed different optimal solutions as the values of the parameters change are also simulated numerically the results show that the firms optimal production plans and water saving decisions are strongly influenced by the water efficiency initial water right allocations and water right reservation prices

on adjustment costs and the stability of equilibria in practice one does not expect conflicting agents to move instantaneously to an equilibrium instead the final equilibrium is often the consequence of disequilibrium dynamics this paper through the use of local game theory introduces a general framework for disequilibrium dynamics based on the existence of adjustment costs the analysis is presented within the context of oligopoly theory and shows that the existence of adjustment costs will in many cases result in a unique equilibrium at which market shares are inversely proportional to these costs this paper also introduces two new solution concepts for n person normal form games

dynamic duopoly with adjustment costs a differential game approach abstract this paper develops a differential game model of duopoly in which firms incur costs associated with how fast they change their level of output the analysis solves for a subgame perfect equilibrium to the model in which the steady state level of output lies strictly between the static cournot and perfect competition solutions furthermore we demonstrate that the limit game in which the speed of adjustment parameter approaches zero does not tend toward the static cournot equilibrium

timing and quality decisions for entrepreneurial product development abstract an entrepreneur is developing a new product and each period must decide whether to enter the market or to continue development we formulate a model of this decision for ventures facing diminishing returns to product quality and for which funding availability product development success and market competition growth are uncertain we characterize the profit maximizing time to stop product development and enter the market and then show how this stopping time is affected by changes in the business environment by further focussing our modeling assumptions we are able to translate our time based criteria into product quality terms we propose that management set a target quality level that the product must meet in order for the venture to maximize profit we also demonstrate that management should decrease this target and hence the quality of the final product over time and adjust it to respond to changes in the business context

financial institutions and markets across countries and over time the updated financial development and structure database this article introduces the updated and expanded version of the financial development and structure database the database includes indicators on the size efficiency and stability of banks nonbank financial institutions and equity and bond markets over 1960 2007 it also contains indicators of financial globalization

dynamic duopolistic competition with sticky prices the authors study duopolistic competition in a homogeneous good through time under the assumption that its current desirability is an exponentially weighted function of accumulated past consumption this implies that the current price of the good does not decline by as much to accommodate any given level of current consumption our an alysis is conducted in terms of a differential game it is found that the equilibrium price corresponding to the open loop nash equilibriu m strategies approaches the static cournot equilibrium price while th e equilibrium price corresponding to the closed loop nash equilibrium strategies which are subgame perfect approaches a price below it copyright 1987 by the econometric society

strategic incentives in dynamic duopoly abstract we compare steady states of open loop and locally stable markov perfect equilibria mpe in a general symmetric differential game duopoly model with costs of adjustment strategic incentives at the mpe depend on whether an increase in the state variable of a firm hurts or helps the rival and on whether at the mpe there is intertemporal strategic substitutability or complementarity a full characterization is provided in the linear quadratic case then with price competition and costly production adjustment static strategic complementarity turns into intertemporal strategic substitutability and the mpe steady state outcome is more competitive than static bertrand competition

a dynamic model of quality competition with endogenous prices abstract we develop a dynamic model of price and quality competition in order to analyze the effects of competition on quality provision and to which extent an unregulated market is able to provide a socially optimal quality level our model combines a differential game approach with a hotelling spatial competition framework and our analysis applies in particular to industries such as long term care health care child care and education if providers nursing homes hospitals schools nurseries use closed loop decision rules which imply strategic interaction over time we show that although increased competition leads to higher quality in the steady state quality provision is nevertheless lower than under open loop rules and also suboptimally low from a welfare perspective thus our analysis identifies dynamic strategic interaction between competing providers as a potential source of inefficiency in quality provision

markov puppy dogs and related animals abstract it is shown that steady state markov perfect equilibria of discrete time infinite horizon quadratic adjustment cost games differ from equilibria of their infinitely repeated counterpart games with zero adjustment costs even though no adjustment costs are paid in the steady state in contrast to continuous time games the limit of these equilibria as adjustment costs approach zero is the same as the equilibria of their static counterpart games a classification scheme is presented and it is shown that the taxonomy is identical to that of analogous two stage games such as those analyzed by fudenberg and tirole american economic review papers and proceedings 1984 74 361 366 this classification is useful in that it implies that steady state equilibria need not be explicitly calculated to analyze qualitatively the effects of adjustment costs in strategic environments it is also argued that estimated conjectural variations parameters may capture a well defined property of strategic interaction in a dynamic game

a differential oligopoly game with differentiated goods and sticky prices we investigate a dynamic oligopoly game where goods are differentiated and prices are sticky we study the open loop and the closed loop memoryless nash equilibrium and show that the latter equilibrium entails a larger level of steady state production as compared to the former both equilibria entail a larger level of production in steady state than the static game we also study the effects of price stickiness and product differentiation upon the steady state equilibrium allocation and profits the per firm equilibrium output is increasing in both product differentiation and price stickiness while profits are increasing in both product differentiation and the speed of price adjustment the steady state social welfare monotonically increases in the speed of price adjustment and the overproduction entailed by dynamic competition has beneficial effect from a social standpoint

the closed loop motive for voluntary export restraints this paper examines the effects of voluntary export restraints in a dynamic game model of duopolistic competition it is shown that the imposition of a voluntary export restraint at the free trade level of imports increases the market price and the profits of all firms in the industry if free trade is identified as the closed loop subgame perfect cournot equilibrium of the game hence the authors conclude that the predictions of static cournot competition do not carry over to the dynamic case

n firm oligopolies with production adjustment costs best responses and equilibrium abstract n firm single product oligopolies will be examined without product differentiation and with production adjustment costs the best response functions of the firms will be first determined in terms of the outputs of the rest of the industry and the firm s own outputs of the previous time period this function is always decreasing not necessarily continuous and might have two different values then the best response will be determined when the output of the rest of the industry is replaced by the output of the entire industry we will show that this function might have infinitely many values leading to infinitely many equilibria a complete description of the equilibrium set will also be given the theoretical findings will be illustrated with the case of linear price and linear cost functions

the evolution of consistent conjectures in this paper we model the evolution of conjectures in an economy consisting of a large number of firms which meet in duopolies the duopoly game is modelled by the conjectural variation cv model an evolutionary process leads to more profitable conjectures becoming more common payoff monotonic dynamics under this class of selection dynamics convergence occurs to a small set of serially undominated strategies containing the consistent conjecture this set can be made arbitrarily small by appropriate choice of the strategy set if the game is dominance solvable then the dynamics converge globally to the unique attractor

capacity investment preemption and commitment in an infinite horizon model the commitment value of capacity is analyzed in an infinite horizon duopoly model the paper focuses on the role of alternative behavioral assumptions about the ability of firms to commit to investment paths each firm s investment strategy in a feedback nash equilibrium is shown to be a decreasing function of its rival s current capacity this creates an incentive for a firm to expand its capacity to preempt subsequent rival investment in a precommitment equilibrium there are no incentives to invest preemptively as a consequence steady state capacity levels are greater in a feedback nash equilibrium than in a precommitment equilibrium copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

durability and strategic trade are there rents to be captured abstract this paper analyzes strategic trade policy when home and foreign duopolists produce a durable good that is either sold or leased in a third country durability is important for two reasons it characterizes most of the products discussed in the strategic trade literature and it also calls for explicit dynamic modeling for duopolists who sell their product in a third country market this paper finds the optimal policy to be a tax on domestic output for duopolists who lease the good in a third country market though the optimal policy is a subsidy

optimal firm growth under the threat of entry the paper studies the incumbent entrant problem in a fully dynamic setting we find that under an open loop information structure the incumbent anticipates entry by overinvesting whereas in the markov perfect equilibrium the incumbent slightly underinvests in the period before the entry the entry cost level where entry accommodation passes into entry deterrence is lower in the markov perfect equilibrium further we find that the incumbent s capital stock level needed to deter entry is hump shaped as a function of the entry time whereas the corresponding entry cost where the entrant is indifferent between entry and non entry is u shaped

housing market cycles and duration dependence in the united states and canada housing wealth is a large component of households total wealth and plays an important role in aggregate business cycles in this article we explore data on real house price cycles at the aggregate level and city level for the us and canada using a panel of 137 cities we examine the duration and characteristics of housing market cycles in north america we find that north american housing cycles are long averaging 5 years of expansion and 4 years of contraction we estimate a discrete time survival model with a probit specification for house price expansions and contractions this model allows us to test for duration dependence we find that us housing market expansions have positive duration dependence since their exit probabilities increase with duration while contractions seem to have no duration dependence canadian house price cycles did not exhibit duration dependence standard determinants of house prices interest rates income and population growth are included as controls

on the markovian efficiency of bertrand and cournot equilibria we characterize and compare closed loop feedback price and quantity strategies within a full fledged dynamic model of oligopolistic competition in which production requires exploitation of a renewable productive asset unlike previous papers on the strategic exploitation of productive assets we allow for imperfect product substitutability which enables us to deal with price competition we show that the traditional result that the bertrand equilibrium is more efficient than the cournot equilibrium does not necessarily hold in a markovian environment either in the short run or at the stationary equilibrium or using the discounted sum of welfare as a criterion for relative efficiency

competition in a duopoly with sticky price and advertising abstract this paper develops a differential duopolistic game where price is sticky and firms can invest in market enlarging promotional activities which have a public good nature one finding indicates that advertising and not output as in fershtman and kamien econometrica 55 1987 1151 1164 is responsible for the higher stationary price found in the open loop equilibrium relative to the linear feedback one that is free riding is more intense when firms play linear markov feedback strategies however the collusive outcome can be approximated and opportunism eliminated if firms can engage in preplay negotiations where they select a nonlinear markov perfect strategy for output and advertising achieving the collusive outcome requires as in the folk theorem for infinitely repeated games the discount rate to be sufficiently small

oligopoly models for optimal advertising when production costs obey a learning curve business policy questions frequently involve competitive encounters among several different firms oligopoly theory in economics was devised to answer similar questions but its results so far are largely confined to cases of monopoly one firm duopoly two firms and many firms wheat farmers the cases with n firms where 3 n 10 are of great interest to business policy but are rarely treated in the economics literature because of their extreme difficulty the natural mathematical model for studying such questions is the theory of differential games originally devised by r isaacs isaacs r 1975 differential games robert e krieger publishing co huntington new york originally published by john wiley sons new york 1965 for pursuer evader games later it was extended by j case case j h 1979 economics and the competitive process new york university press new york to nonzero sum differential games for application to questions of economic competition the problem of characterizing an optimal advertising policy over time is an important question in the field of marketing it is especially important during the period of the introduction of a new product and it is also during this time that the production learning curve phenomenon is most pronounced in this paper we study oligopoly models which combine elements of bass s demand growth model bass f m 1969 a new product growth model for consumer durables management sci 15 january 215 227 the vidale wolfe vidale m l h b wolfe 1957 an operations research study of sales response to advertising oper res 5 370 381 and ozga ozga s 1960 imperfect markets through lack of knowledge quart j econom 74 29 52 advertising models with linear or quadratic costs and the production learning curve hirschmann w p 1964 profit from the learning curve harvard bus rev 42 january february 125 139 the boston consulting group 1972 perspectives on experience the boston consulting group boston in the monopoly case n 1 the optimal advertising function is derived by applying green s theorem in the duopoly n 2 and triopoly n 3 cases we use discrete differential game models and find nash equilibrium solutions in each of these models the form of the optimal policy is easy to find but because of the complicated nature of the resulting differential equations closed form solutions for the optimal state and control trajectories are impossible to find hence we use a computer to compute these optimal trajectories and plot them for various parameter settings because 13n parameters must be chosen to define a model with n players a complete search of the parameter space is clearly impossible we content ourselves in this paper with presenting computer plots of four different interesting encounters of the triopoly model our methods can be extended to work just as well for competitive encounters among n players where 1 n 10 we believe that in this paper we have opened up the way to studying oligopoly theory with a small number of participants and under widely varying conditions although the lack of closed form solutions may disappoint some readers we feel that the easy availability of graphical solutions is a more than adequate substitute