economies of traffic density in the deregulated airline industry this article estimates a structural model of competition among hub and spoke airlines in order to measure the strength of economies of traffic density on individual route segments we find that economies of density were strong during the sample period fourth quarter 1985 stronger than previous estimates by douglas caves laurits christensen and michael tretheway derived from traditional cost function methods we also find that the airlines competitive behavior was far from collusive in the markets under study markets requiring a connection at a hub airport our structural model also provides plausible estimates of demand elasticities we use our estimates to provide a cost based rationale for the major changes in the structure of the industry following deregulation for example the increase in airport and industry wide concentration and the increase in competition at the city pair market level and to simulate the effects of a merger of airlines that share a hub

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

enterprise level amount of energy saved targets in china weaknesses and a way forward abstract recognizing the industrial sector s high energy use and vast potential for energy saving many national governments have established voluntary or negotiated agreements that set quantitative energy saving targets for individual industrial enterprises the most commonly used energy saving targets worldwide are volume and energy intensity targets since 2006 the chinese government has set mandatory enterprise level energy saving targets in terms of the amount of energy saved this represents a unique category that differs from both volume and energy intensity targets based on first hand data collected at ten case enterprises this paper represents one of the first attempts to verify the reliability of the amount of energy saved data reported by the chinese government and to rigorously and systematically investigate the inherent weaknesses of the amount of energy saved targets through a comparison with the mainstream categories of energy saving targets the ten case enterprises reported four different types of amount of energy saved while all of the case enterprises claimed full achievement of their amount of energy saved targets four enterprises exaggerated their performance by violating the national standard for calculating the amount of energy saved of enterprises the paper thus hypothesizes that the national top 1000 enterprise program s alleged achievement of performance 65 higher relative to its amount of energy saved target is likely an overestimation although amount of energy saved targets constitute an innovative energy saving indicator they do not represent a step forward from conventional volume and intensity targets because of the following four weaknesses 1 amount of energy saved targets provide limited potential for comparison given the different types of amount of energy saved and the different calculation methods 2 they generate uncertain environmental outcomes as it is possible to meet a portion of an amount of energy saved target through production volume expansion 3 they are difficult to enforce due to the complexity of data verification on the part of local government agencies and 4 they are poorly correlated with the national target for reducing energy intensity amount of energy saved targets should therefore be replaced with double control targets that impose both volume and intensity targets on industrial enterprises

localized market power in the u s airline industry this paper tests whether the observed dominance of most city pair markets and airports in the u s domestic airline industry by single carriers confers any pricing power on the dominan t firms the results of fixed effects estimation indicate that airport dominance by a carrier does confer upon it substantial pricing power whereas dominance at the route level seems to confer no such pricing power additionally the authors find a positive yet small correlation between both route concentration and price and airport concentration and price the quantitative importance of airport dominance reveals that the most promising direction for public polic y aimed at improving the industry s performance is to ensure equal acc ess to sunk airport facilities copyright 1993 by mit press

the effect of adoption of long term performance plans on stock prices and accounting numbers long term performance plans are theoretically adopted to better align the interests of the managers and stockholders by redirecting managerial decision making toward the longterm performance of the corporation this study reports significant positive excess returns around the announcement of performance plan adoption which is consistent with the view that such plans would reduce the agency problem in addition this study finds an association between the adoption of long term performance plans and subsequent growth in profitability suggesting that long term performance plans may have been successful in motivating an enhancement in the accounting measures of profitability used to reward managers under the plan finally the excess returns around the announcement of performance plan adoption are found to be positively correlated with subsequent change in growth of earnings per share the most commonly used accounting performance measure

the evolution of u s airline competition studies by academic economists were a significant force in the movement towards deregulation of the domestic airline industry in the early 1970s levine 1965 jordan 1970 keeler 1972 douglas and miller 1974 during the critical 1977 78 period in which deregulation was imposed first de facto by the civil aeronautics board cab and then de jure by congress the chairman and vice chairman of the cab were economists for the 14 years since deregulation economists have continued intensive study of the industry in part because of the unusual availability of reliable firm and transaction level data and in part because of the rare opportunity to observe an industry as it evolves from strict economic regulation to fairly unimpeded competition and strategic behavior the simplest prediction of economists about airline deregulation and one of the few on which nearly all economists agreed was that deregulation would improve consumer welfare in comparison to continued price and entry regulation fourteen years later nearly all economists still agree on this though the degree of enthusiasm for the deregulation outcome varies considerably there was substantial disagreement among economists about the market structure that would result because studies of scale economies in the airline industry had concluded that none existed beyond the scale of the smaller major airlines of the 1970s caves 1962 eads et al 1969 many economists argued that deregulation would result in more than the 11 major airlines that existed at the time of deregulation others predicted that only a few or possibly only one airline would survive at a large scale two noted university of chicago economists sam peltzman and lester telser made a bet in 1979 on whether

u s airline deregulation its effects on passengers capital and labor his paper presents an analysis of the effects of airline deregulation on passengers business and personal first class and coach and explores how capital and labor have fared in a free market the evidence corroborates many benefits that proponents of deregulation predicted but it has not worked perfectly prices are not fully competitive and for certain dimensions service quality is down furthermore the contestability hypothesis as applied to the airline industry does not withstand statistical examination

optimal incentive contracts in the presence of career concerns theory and evidence this paper studies optimal incentive contracts when workers have career concerns concerns about the effects of current performance on future compensation we show that the optimal compensation contract optimizes total incentives the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract thus the explicit incentives from the optimal compensation contract should be strongest for workers close to retirement because career concerns are weakest for these workers we find empirical support for this prediction in the relation between chief executive compensation and stock market performance

concentration potential entry and performance in the airline industry airline markets do not satisfy the theoretical conditions for perfect contestability and theory does not indicate which deviations from perfect contestibilty significantly affect performance thus the effect of potential entry on performance in airline markets is explored empirically the best model for explaining fares is found to be one in which the measure of market concentration takes into account not only the number and size distribution of incumbents but also the number of potential entrants not significantly disadvantaged due to economies of scale and scope the hypothesis that all city pair markets are perfectly contestable is rejected coauthors are richard l johnson andrew s joskow gregory j werden and michael a williams copyright 1989 by blackwell publishing ltd

potential competition and possible collusion in forest service timber auctions i introduction potential entrants to an imperfectly competitive market in theory limit the ability of existing firms to charge high prices this claim has rarely been tested due mainly to the problems of identifying potential entrants and determining whether established firms perceive them as future competition in previous work neal 1987 finds option bid ask spreads lower when they are eligible for multiple listing kuhlman and johnson 1983 find winning highway construction bids insignificantly related to the number of firms buying plans for the particular project and hurdle et al 1989 show that performance in the airline industry is affected by the number of potential entrants not deterred by economies of scale or scope this paper determines whether potential competition influenced winning bids in forest service oral and sealed bid timber auctions held during 1977 prior to 1977 oral bidding was the dominant method of selling timber in the pacific northwest the national forest management act of 1976 required that sealed bidding be used on all sales with exceptions made only by the secretary of agriculture the sealed bidding requirement was overturned in 1978 after firms in communities dependent upon forest service timber complained that sealed bidding resulted in greater uncertainty in obtaining steady timber supplies 1 firms pay the government for the rights to harvest timber in forest service timber auctions and the highest bid wins bidding theory predicts that greater competition should result in higher winning bids 2 the relevant measure of competition in an oral auction is the actual number of competitive bidders participants in a sealed bid auction however should base their bids on the potential number of competitors timber is costly to haul and timber transportation distances from the sale site to the closest mill of potential competitors are used to define two measures of potential competition the first measure is a simple count of the number of firms whose closest mill lies within the geographical market for forest service timber auctions and is termed potential competition the second results from a probit analysis relating auction participation to hauling distance and is called expected competition the results show that these measures are as expected considerably more important in explaining winning sealed bids however actual competition explains winning bids better than either potential or expected competition under both oral and sealed bidding in addition contrary to expectations increases in hauling distances result in higher winning bids when sealed bidding is used collusion in sealed bid auctions and preclusive bidding a type of collusion in oral auctions are explanations for both of these results the possibility of collusion in sealed bid auctions is supported by an index based on stigler s 1964 theory of oligopoly and feinstein block and nold s 1985 research on bid rigging in highway construction auctions representing the likelihood that a given auction was rigged mead 1966 was among the first to discuss the possibility of preclusive bidding in oral auctions preclusive bidding occurs when firms close to a sale site bid above levels which are profitable to firms farther from the site given that oral bidding entails greater participation costs participants must be present preclusive bidding or the threat of preclusive bidding deters outsider firms from bidding in future oral auctions firms close to the site benefit from the decreased competition and may win at a lower price oral and sealed bid comparisons of winning bid variances overbids and numbers of bidders support the explanation of preclusive bidding in oral auctions public policy should be concerned with obtaining the highest possible value for public timber and ensuring that it is awarded efficiently to the firm having the highest timber value

a non parametric revealed preference test of optimal intra firm resource allocation the collective rationality hypothesis initiated by chiappori 1988a and applied by seaton 1997 2001 for a two person household is used to distinguish the organizational behaviour of firms firms produce satisfaction to groups as traditional managerial and early behavioural theories of the firm of williamson baumol and marris suggest as well as more modern principle agent models under certain conditions intra firm bargaining leads to a pareto optimal outcome what makes this work an important contribution is that it identifies a set of nonvacuous testable restrictions to empirically detect if firm level data satisfy pareto optimal behaviour for the main decision makers in the organization

corporate governance performance and take overs an empirical analysis of uk mergers this paper analyses the relationship between the probability of being acquired firm performance and governance structures the acquired firms were all fully quoted on the london stock exchange and the acquisitions took place between 1990 and 1993 they were matched by a sample of non acquired quoted companies the sample was also analysed in terms of hostile and non hostile acquisitions it was found that the key governance characteristics which differentiated between acquired and nonacquired corporations related to the proportion of non executive directors on the board and to whether or not the roles of chief executive officer and chairman were combined it was also found that acquired firms were poor performers which suggests that the internal governance structures had been ineffective these results applied to hostile and non hostile targets the findings support the view that hostile acquisitions are disciplinary but cast doubt on the claim that non hostile acquisitions are purely synergistic the r

contestable markets an uprising in the theory of industry structure presents a transcript of the presidential address delivered at the 94th meeting of the american economic association on december 29 1981 discussion of developments in the theory of industry structure welfare attributes of contestable markets behavior characteristics of oligopoly equilibrium intertemporal vulnerability to inefficient entry ebsco

the relative impact of actual and potential rivalry on firm profitability in the pharmaceutical industry this paper estimates the effects of actual and potential rivalry on profitability of firms in the u s pharmaceutical industry during the 20 year period 1963 82 the results show that during the 1960s actual rivalry among the sampled firms did not materially affect firm profitability but that during the 1970s competition among incumbents had an increasingly adverse effect on their profitability the results also show that potential competition significantly reduced drug firms profitability during the entire 20 year period copyright 1999 john wiley sons ltd

endogenous mergers and cost heterogeneity the objective of this article is to analyze the effect of firms heterogeneity on their incentives to merge to reach this target merger decisions are modelled as endogenous to simplify the analysis we focus on the extreme case where merger leads to monopolization kamien and zang 1990 1993 give monopolization conditions in static and dynamic acquisition games introducing cost heterogeneity in a n firm industry we provide more general monopolization conditions indeed we show that any industry can be monopolized if cost heterogeneity is large enough this result provides new information to competition authorities on concentration possibilities and allows them to focus particularly on some industries

ceo duality and firm performance what s the fuss rising shareholder activism following poor corporate performance and a subsequent drop in shareholder value at many major u s corporations had rekindled interest in duality and corporate governance despite limited empirical evidence duality chairman of the board and ceo are the same individual has been blamed in many cases for the poor performance and failure of firms to adapt to a changing environment in examining the relationship between duality and firm performance this study considers the announcement effects of changes in duality status accounting measures of operating performance for firms that have changed their duality structure and long term measures of performance for firms that have had a consistent history of a duality structure our results suggest that 1 the market is indifferent to changes in a firm s duality status 2 there is little evidence of operating performance changes around changes in duality status and 3 there is only weak evidence that duality status affects long term performance after controlling for other factors that might impact that performance

explaining and predicting airline yields with non parametric regression trees abstract recently developed non parametric regression trees are found both to explain more of the variation and to better predict airline yields on city pairs than linear regressions

deregulation and governance plight of japanese banks in the 1990s the governance structure of public corporations is determined by the agency relationship between shareholders and managers and the agency theory predicts that deregulation of an industry leads to governance adaptation deregulation of the japanese banking business in the 1980s offers an interesting case study in this framework as japanese banks fell into serious solvency problems in the post deregulation 1990s this paper investigates whether ineffective governance was responsible for the plight of japanese banks the sample is 384 corporations that were listed on the tokyo stock exchange between 1983 and 1990 which includes 59 banks one of the findings is that bank shareholders allowed more diffuse ownership structure after deregulation which demonstrates that the agency theory did not hold for shareholders of japanese banks

the competitive impact of air crashes stock market evidence abstract we examine stock market reactions to commercial air crashes to test the hypothesis that consumers respond by switching to rival airlines and or flying less we focus on the stock price reactions of airlines not involved in the crash if switching occurs noncrash airlines should benefit to the extent that they are direct competitors of the crash airline we develop a measure of market overlap and regress individual non crash airline abnormal returns on this measure allowing the constant term to capture any negative spillovers the evidence supports both a switching effect and a spillover

price price dispersion and number of sellers at a low entry cost shopbot abstract shopbots function as market intermediaries by providing unprecedented quantities of information to buyers and sellers this paper explores the role of market structure across shopbot mediated markets using an unbalanced panel of 399 digital camera models it extends prior work by using an ultra low entry cost site additionally allowing controls for life cycle and popularity effects we find a robust negative relationship between seller number and price which persists even as markets become crowded with sellers the results are capable of either an scp or a carlson mcafee heterogeneous cost interpretation but observed entry behaviour here is consistent with the latter

the structure of ownership and the theory of the firm the separation of ownership from control produces a condition where the interests of owner and of ultimate manager may and often do diverge and where many of the checks which formerly operated to limit the use of power disappear in creating these new relationships the quasi public corporation may fairly be said to work a revolution it has divided ownership into nominal ownership and the power formerly joined to it thereby the corporation has changed the nature of profit seeking enterprise 1

capacity and product market competition measuring market power in a puppy dog industry abstract in this paper we specify and estimate a structural model which accounts for competition in two variables capacity and prices the model has a two stage setup in the first stage firms make capacity decisions followed by a product differentiated price setting game in the second stage since costs are endogenized through the first stage this has important implications for the measurement of market power in the product market in particular simpler one stage specifications would result in a bias in the measurement of market power which can be linked to the taxonomy for two stage games given in fudenberg and tirole 1984 fudenberg d tirole j 1984 the fat cat effect the puppy dog ploy and the lean and hungry look american economic review paper and proceedings 74 361 366 we then estimate this model demand cost short and long run and conduct for the european airline industry using data for the period of 1976 1990 we perform a number of specification tests and reject a simple one stage specification in favor of our two stage set up in particular we find that some degree of market power in the product market exists however market conduct in the two stage set up is significantly less collusive than in the more widely employed one stage specification which is consistent with the direction of bias in puppy dog games this illustrates that collusiveness of firms market conduct in the product market is significantly overestimated whenever capacity competition is not accounted for