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

grain transport and rural credit in mozambique solving the space time problem this paper shows how credit market failures can lead to large welfare losses in grain markets by inducing increased transport for seasonal storage in locations with low credit costs the burden of these welfare losses falls primarily on rural households these conclusions are obtained from a spatial temporal model solved using a mixed complementarity formulation that easily handles interest rate differentials across space efforts to address credit market failures and to improve the efficiency of rural storage should be given priority as opposed to the creation of large formal sector grain collection centers

preemptive r d rent dissipation and the leverage theory this paper provides a new perspective on the validity of the so called leverage theory in a model of preemptive innovation in systems markets i examine the effect of bundling on r d incentives i find that bundling provides a channel through which monopoly slack in one component market can be shifted to another with the effect of mitigating rent dissipation in the systems market bundling can be profitable if this beneficial effect of reduced rent dissipation outweighs the negative effect of intensified price competition after demonstrating the private optimality of bundling its welfare implications are considered finally the results can be reinterpreted to analyze the relationship between compatibility decisions and r d incentives in mix and match models

gains from trade in a social choice context we ask whether there exists a rule in which nobody loses under trade liberalization we consider a resource allocation problem in which the traded commodities vary we propose an axiom stating that enlarging the set of tradable commodities hurts nobody we show that if a rule satisfies this axiom together with an allocative efficiency axiom and an institutional constraint axiom stating that only preferences over tradable commodities matter gains from trade can be given to only one individual in the first step of liberalization

the impact of transport and transaction cost reductions on food markets in developing countries evidence for tempered expectations for burkina faso reductions in transport and transaction costs are expected to have a major effect on the functioning of food markets in developing countries for burkina faso this is a relevant issue as it may have important consequences for the food markets in urban and rural deficit areas a partial equilibrium model is presented to analyze the short term effects of reduced costs on price formation inter regional cereal trade and farmers and traders storage strategies our results show that the high expectations with regard to the direct effects of cost reductions on food prices and food availability require some nuance the effects of a reduction of transport costs will be small moreover also the unintended negative consequences on the competitive position of farmers and traders in other regions that do not profit from road construction should be taken into account finally it is concluded that only if transport and transaction costs are reduced simultaneously will both the consumers and farmers benefit significantly c 2004 elsevier b v all rights reserved

tying in two sided markets with multi homing this paper analyzes the effects of tying on market competition and social welfare in two sided markets when economic agents can engage in multi homing by participating in multiple platforms to reap maximal network benefits the model shows that tying induces more consumers to multi home and makes platform specific exclusive content available to more consumers which is beneficial to content providers as a result tying can be welfare enhancing if multi homing is allowed even in cases where its welfare impacts are negative in the absence of multi homing the analysis thus can have important implications for recent antitrust cases in industries where multi homing is prevalent

an analysis of bundle pricing the case of biotech seeds biotechnology has provided opportunities for strategic management and pricing of patented products this article analyzes the economics and strategy of bundling and bundle pricing of biotech traits in seeds when the bundling of genes traits is decided by biotech firms firms may choose among subadditive pricing component pricing or superadditive pricing strategies we argue that complementarity among component genes contributes to subadditive pricing while substitution among components contributes to superadditive pricing the nature of bundle pricing is explored empirically using u s seed corn data from 2000 to 2007 we document that subadditive bundle pricing of traits is commonly found in the seed corn market however we also present evidence of superadditive pricing and component pricing the presence of different pricing and bundling strategies suggests a rapidly advancing and complex market the preponderance of subadditive pricing suggests that trait bundling offers benefits to farmers exhibiting strong demand for multiple complementary genetic traits jel classifications l4 l13 l65

vertical foreclosure with the choice of input specifications we develop an equilibrium model of vertical foreclosure with the choice of input specifications vertical foreclosure occurs as the upstream division of the integrated firm makes a specialized input for its sister downstream division while it would as an independent firm provide a generalized input the changes in incentives with vertical integration can be explained by the externalities the choice of a specialized input entails vertical integration allows the upstream firm to internalize the benefit of raising the rival firm s costs at the downstream level we derive conditions for equilibrium vertical foreclosure to occur and discuss its welfare consequences

exclusivity and tying in u s v microsoft what we know and don t know research on capital structure attempts to explain how corporations finance real investment with particular emphasis on the proportions of debt vs equity financing there is no universal theory of the debt equity choice and no reason to expect one but three useful conditional theories are reviewed in this paper the tradeoff theory says that firms seek debt levels that balance the tax advantages of additional debt against the costs of possible financial distress the pecking order theory says that the firm will borrow rather than issuing equity when internal cash flow is not sufficient to fund capital expenditures thus the amount of debt will reflect the firm s cumulative need for external funds the free cash flow theory says that dangerously high debt levels will increase value despite the threat of financial distress each of these theories works for some firms in some circumstances more general theories will require a deeper understanding of the financial objectives of corporate managers

consumer s surplus without apology reply i began my article consumer s surplus without apology henceforth cswa with the words the purpose of this paper is to settle the controversy surrounding consumer s surplus p 589 that is my purpose here as well however george mckenzie s published comments have taught me that if articles and careful analyses settle controversies they only do so very slowly mckenzie makes sweeping and attacking statements about cswa but fails to substantiate them he scatters birdshot criticisms at cswa that are based on misreadings of rather clear material he offers an example in which he miscalculates multiproduct consumer s surplus finally he contends that his own with ivor f pearce approach to welfare analysis is preferable to the consumer s surplus approach in this reply to keep the record straight i show in section i that each of mckenzie s strongly worded attacks is unsubstantiated and invalid and that each of his more technical sounding criticisms rests only on misreadings of cswa more interestingly in section ii i summarize some of the theory of multiproduct consumer s surplus that is needed to understand the calculatiop error in and proper interpretation of the example that mckenzie proffers in section iii i argue that the approach to welfare analysis advocated by mckenzie and pearce is far less useful than the consumer s surplus methodology

innovation rent extraction and integration in systems markets author s farrell joseph katz michael abstract we consider innovation incentives in markets where final goods comprise two strictly complementary components one of which is monopolized we focus on the case in which the complementary component is competitively supplied and in which innovation is important we explore ways in which the monopoly may have incentives to confiscate efficiency rents in the competitive sector thus weakening or destroying incentives for independent innovation we discuss how these problems are affected if the monopolist integrates into the competitive sector

tying compatibility and planned obsolescence according to the hypothesis of planned obsolescence a durable goods monopolist without commitment power has an excessive incentive to introduce new products that make old units obsolete and this reduces its overall profitability in this paper i reconsider the above hypothesis by examining the role of competition in a monopolist s upgrade decision i find that when a system add on is competitively supplied a monopolist chooses to tie the add on to a new system that is only backward compatible even if a commitment of not introducing the new system is available and socially optimal tying facilitates a price squeeze

peasant household behaviour with missing markets some paradoxes explained a model of peasant household behavior under varying degrees of household specific food and labor market failures is constructed to show that these structural features can explain several well known patterns of peasant response which have often been attributed to peculiar motives presumed specific to peasants the model explains sluggish response to cash crops prices and high instability in perceived food and labor scarcities the key role of manufactured consumer goods prices in stimulating peasants effort in cash crops production the effectiveness of taxation as opposed to incentives in stimulating cash crops production and the key role of technological change in food production to enhance cash crop production results are obtained analytically in the case of one market failure and by numerical simulation with more than one

no profitable decompositions in quasi linear allocation problems abstract we study the problem of allocating a bundle of perfectly divisible private goods from an axiomatic point of view in situations where compensations can be made through monetary transfers the key property we impose on the allocation rule requires that no agent should be able to gain by decomposing the problem into sequences of subproblems combined with additional standard properties it leads to a characterization of the rule that shares the total surplus equally hence a traditional welfarist rule emerges as the unique consequence of our axioms phrased in a natural economic environment

the seasonal and spatial dimensions of sorghum market liberalization in mexico mexico s attempt to deregulate its sorghum market in 1990 was unsuccessful because policy analysts failed to consider the seasonal and spatial dimensions of trade in this paper i present a detailed seasonal and spatially dissaggregated nonlinear programming model of the mexican sorghum market calibrated with survey data of storage and transport costs in mexico and compare the results obtained with models that ignore these characteristics the comparison demonstrates that the failure to incorporate these costs in trade models may lead to misleading conclusions and inappropriate policies

determinants and effects of income diversification amongst farm households in burkina faso using four years of household data from three agroecological zones in burkina faso sahelian sudanian and guinean the article examines the determinants and effects of household income diversification harvest shortfalls and terms of trade are found to drive diversification but land constraints do not income diversification is associated with higher incomes and food consumption and more stable income and consumption over years

do irrelevant commodities matter we study the possibility of making social evaluations of allocations independently of individuals preferences over unavailable commodities this is related to the well known problem of performing international comparisons of standard of living across countries with different consumption goods we prove impossibility results which suggest that such evaluations encounter difficulties when the objects of evaluation are allocations of ordinary commodities we show how possibility results can be retrieved when the objects of evaluation are allocations of composite commodities characteristics or human functionings

a spatial analysis of maize marketing policy reforms in zambia in this study we analyze recent and proposed maize marketing reforms in zambia to capture the effects of changing transport systems we use a continuous space model in place of the traditional point representation model of takayama and judge this method permits us to use prereform data on supply demand and transport costs to infer both intra and interregional effects of liberalization and shows that the welfare gains from liberalization are larger than commonly thought these results provide policy makers with estimates of the magnitude of change associated with alternative reform programs beyond what would be available from a conventional approach

inventory dynamics under transaction costs a conceptual model of storage behavior is developed optimal intertemporal pricing is derived to analyze the effects of transaction costs on storage andarbitrage pricing it is shown how transaction costs can rationalize the existence of an inverse carrying charge for inventory the model is applied to u s soybeans stocks for the period 1960 95 the empirical results suggest that transaction costs have a significant influence on storage behavior andintertemporal arbitrage pricing copyright 2000 oxford university press

government spending growth and poverty in rural india using state level data for 1970 93 a simultaneous equation model was developed to estimate the direct and indirect effects of different types of government expenditure on ruralpoverty and productivity growth in india the results show that in order to reduce rural poverty the indian government shoul d give highest priority to additionalinvestments in ruralroads and agricul turalresearch these types of investment not only have much larger poverty impacts per rupee spent than any other government investment but also generate higher productivity growth apart from government spending on education which has the third l argest marginalimpact on ruralpoverty and produc

social welfare functions for economic environments with and without the pareto principle it is shown for the case of private goods economies that every social welfare function satisfying a weak nonimposition condition and the independence of irrelevant alternatives axiom is of one of the following forms it is either null or the class of decisive coalitions is an ultrafilter or the class of anti decisive coalitions is an ultrafilter in the case of a private goods economy with finitely many traders the latter conditions imply the existence of either a dictator or anti dictator by requiring the pareto principle as well it is easily seen that the social welfare function must be dictatorial

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

a theory of commodity price fluctuations this paper studies the price fluctuations of storable commodities that are traded in open markets and are subject to random shocks to demand or more particularly to supply it relaxes the common assumption that the shocks are identically and independently distributed in favor of temporally dependent and periodic disturbances the existence of a unique stationary rational expectations equilibrium is demonstrated for each of the models analyzed and testable implications of the models are derived an illustrative empirical investigation is then undertaken for the model with periodic disturbances using monthly time series observations for seven commodities over the period 1960 93

optimal storage and marketing over space and time borrowing from the theory of optimal resource extraction we develop the mechanism guiding efficient commodity storage and marketing over producing regions through the crop year optimal storage occurs at producing areas and time in storage varies directly with distance to market prices grow with interest rates in locations where storage is efficient but more slowly elsewhere which explains why market prices i e prices at the market grow more slowly than interest rates the model is empirically supported by examining storage in the corn belt rates of price growth at various points and quarterly grain marketings

brand extension as informational leverage the marketing literature refers to the concept of brand capital and provides empirical evidence that firms with a large stock of well established brands have an advantage in introducing new products this paper develops a theory of brand extension as a mechanism for informational leverage in which a firm leverages off a good s reputation in one market to alleviate the problem of informational asymmetry encountered in other markets it is shown that brand extension helps a multi product monopolist introduce a new experience good with less price distortion thus the paper provides a theoretical foundation for the concept of brand capital

competitive storage and commodity price dynamics by buying cheap and selling dear risk neutral commodity speculators can smooth commodity prices and induce serial dependence in price even when none would exist under a simple process of supply and demand commodity prices are variable and strongly positively correlated from one year to the next the variability is often explained by supply factors and the autocorrelation by the activities of speculators we show that this explanation is not consistent with the evidence speculation can substantially increase autocorrelation for prices that are weakly autocorrelated in its absence but not to the high levels that are observed in the data

r d inefficiency with bundling in systems markets abstract with diminishing returns to r d bundling makes firms invest more in component products with higher production costs as a result bundling causes an inefficient allocation of r d resources from the social standpoint

arrovian theorems with private alternatives domains and selfish individuals abstract this paper proves that the impossibility theorems of arrow wilson and mas colell and sonnenschein hold if the individual preferences domains are hypersaturating for hypersaturating domains the set of social states has the structure of a cartesian product of sets of private alternatives individuals are selfish and the domain satisfies some further restrictions consumption sets are examples of hypersaturating domains when the individual preferences are continuous convex and monotonic but many other examples make hypersaturating domains meaningful for the analysis of problems involving private alternatives sets incidentally all the theorems hold for the case of divisible public goods

upgrades switching costs and the leverage theory of tying this article investigates the role of product upgrades and consumer switching costs in the tying of complementary products previous analyses have found that a monopolist of one product will not increase its profits and reduce social welfare by tying and leveraging its monopoly position into a complementary market if the initial monopolised product is essential where essential means that all uses of the complementary good require the initial monopolised product we show that this is not true in settings characterised by product upgrades and consumer switching costs we also discuss various extensions including the role of the reversibility of tying

transfer costs spatial arbitrage and testing for food market integration conventional tests for food market integration ask often misleadingly whether prices in different locations move together in this paper an alternative methodology the parity bounds model pbm is developed which uses information on transfer costs in addition to food prices to assess the efficiency of spatial arbitrage monte carlo experiments using data generated by a point space spatial price equilibrium model show the pbm to be statistically reliable an application to philippine rice markets demonstrates that the pbm detects efficient arbitrage when other tests do not

raising offtake from cattle grazed on natural rangelands in sub saharan africa a transaction cost economics approach farmers in sub saharan africa are constrained by large transaction costs associated with marketing of their livestock however transaction costs are often not taken into account in the analysis of factors hampering the development of livestock marketing in this region this article empirically measures the influence of transaction costs on the offtake from cattle grazed on natural rangelands in uganda the study is based on the monitoring of 696 cattle transactions in three districts of uganda from august 2004 to august 2005 the estimated models suggest that proportional transaction costs represented by the state of roads distance to markets and time taken to reach the market are important variables constraining market participation in order to raise offtake from the national herd it is essential to explicitly address these costs one potential solution is collective action in marketing of livestock in which proportional and fixed transaction costs are reduced and shared among the group members

informal barriers and agricultural trade does monetary integration matter eu enlargement and the recent sovereign debt crisis of euro zone countries have revived the debate around the european monetary union emu in this article we ask how informal barriers to agricultural and food trade have changed since the introduction of the common european currency and whether this evolution can be attributed to monetary integration we focus on the foreign trade of the 11 emu founder countries over a nine year period covering the creation of the emu and find a diminishing marginal trade impact of both information and institutional barriers we find a lower level of trade barriers but cannot attribute this outcome to the introduction to the euro

bundling new products with old to signal quality with application to the sequencing of new products abstract this paper provides a new rationale for bundling based on informational leverage bundling a product of established quality to one of unknown quality can mitigate the problem of asymmetric information encountered in the latter market leveraging reputation in one market into another has implications for the timing of new product introductions bundling motivated by informational leverage enhances efficiency by increasing consumer s access to costly information when the possibility of endogenous timing of product introduction is considered however the welfare consequences of bundling are ambiguous the positive effect of market creation must be weighed against the negative effect of market delay