strategic buyers and exclusionary contracts this paper characterizes equilibrium exclusionary contracts between buyers an incumbent firm and a potential entrant when buyers can either vertically integrate or contract with the outside entrant in this setting exclusionary contracts are generally shown to be efficient and to deter inefficient entry that would otherwise occur with multiple unorganized buyers equilibrium contracts are shown to take a divide and conquer form and in some cases to deter some efficient entry in such cases efficient contracting can be restored by a policy that prohibits price discrimination and gives agents free reign to sign exclusionary agreements copyright 1994 by american economic association

estimating the foreclosure effect of exclusive dealing evidence from the entry of specialty beer producers this paper estimates an entry model to study the effect of exclusive dealing between anheuser busch and its distributors on rival brewers entry decisions and consumer surplus the entry model accounts for post entry demand conditions and strategic spillover effects i recover a brewer s fixed costs using a two step estimator and find spillover effects on brewers entry decisions i find that a brewer has higher fixed costs at locations where anheuser busch employ exclusive distributors but the effect is only statistically significant in certain local areas the estimates also show that a brewer is less likely to enter a location that is farther from its brewery has lower expected demand or is smaller in store size i implement counterfactual experiments to study the effect of banning exclusive contracts between anheuser busch and its distributors the results show that the welfare improvement associated with banning such contracts is very small

efficiency and equalization payments in a federal system of government a synthesis and extensions of recent results this paper investigates the rationale for a system of equalization transfers in a federal system of government the existing sources of inefficiency of resource allocation in economies with more than one level of government are synthesized in the framework of a simple decentralized multiprovince model with mobile factors of production the sources of inefficiency arise first because migrants respond at the margin to incorrect signals owing to the phenomena of rent sharing and fiscal exterality and second because of global rather than local inefficiencies the model is then extended to consider the role of the federal government in providing intergovernmental transfers in the face of such inefficiencies in addition to synthesizing the sources of inefficiency in federal models the equity arguments for equalization are briefly recounted efficacite et paiements de perequation dans un systeme federal de gouvernement synthese et extensions de certains resultats recents ce memoire examine la logique qui soustend un systeme de paiements de perequation dans un systeme fdderal de gouverement les auteurs utilisent un modele simple d un systeme multi provincial decentralise avec des facteurs de production mobiles pour definir les sources d inefficacite dans l allocation des ressources dans les dconomies qui possedent plus d un niveau de gouvernement ces inefficacites proviennent de ce que d abord ceux qui se deplacent le font en reponse a la marge a des signaux incorrects engendres par le partage de la rente sur la base de la residence et par les phenomenes d exteralites fiscales elles sont aussi le resultat d inefficacites globales plutot que locales dans le cadre de ce modele les auteurs analysent le role du gouvernement federal effectuant des transferts inter gouverementaux pour corriger ces inefficacites en plus de presenter une synthese des sources d inefficacite dans les regimes federaux les auteurs font un bref rappel en passant a l ensemble des arguments fondes sur l equite qu on utilise pour rationaliser les paiements de perequation this paper is a linear combination of two papers presented at the may 1982 meetings of the canadian economics association in halifax entitled the case for equalization payments by the authors and recent developments in the theory of regional economic policy in canada by boadway the authors are grateful for comments by the discussants jim johnson and baxter macdonald and by jack mintz brian scarfe gerard belanger david sewell tom courchene and the referees we are especially heavily indebted to dan usher for many stimulating comments and suggestions while the work was in progress some of the above persons will undoubtedly disagree with the emphasis we have chosen to put on various aspects of the analysis for policy purposes support for some of this work has been provided by the economic council of canada and is gratefully acknowledged canadian journal of economics revue canadienne d economique xv no 4 november novembre 1982 printed in canada imprimd au canada 0008 4085 82 0000 0613 01 50 1982 canadian economics association this content downloaded from 207 46 13 127 on wed 12 oct 2016 04 27 47 utc all use subject to http about jstor org terms 614 robin boadway and frank flatters

the competitive effects of vertical agreements for many years there were few distinctions drawn between horizontal and vertical agreements both were considered anticompetitive and subject to per se condemnation under the antitrust laws recently however this approach has come under attack and what was once the conventional wisdom is no longer so indeed there is growing acceptance of the view that vertical agreements can rarely have anticompetitive consequences per se legality would then be the appropriate standard in this paper we investigate the competitive implications of a particular vertical agreement the imposition of exclusive dealing requirements by a manufacturer on his distributors however to maintain the focus of the analysis we do not consider ultimate welfare gains or losses in an early application of economic analysis to this practice aaron director and edward levi 1956 suggest that exclusive dealing would be anticompetitive if it raised entry costs for rivals our object following this conjecture see their p 293 is to examine the market conditions under which exclusive dealing impedes entry howard marvel 1982 dealt with the practice of exclusive dealing he provides an efficiency rationale for exclusive dealing ignores the prospect that anticompetitive effects may follow and concludes that exclusive dealing ought therefore to be treated as legal per se p 25 this paper examines the possible anticompetitive effects neglected by marvel i market conditions for exclusive dealing

a tiebout theory of public vs private provision of collective goods abstract we study whether coercive public provision or voluntary private provision of public goods can survive when individuals who vote with their feet can choose between communities that differ in the way that public goods are provided we obtain the following findings i an equilibrium always exists in which all individuals migrate to the community which uses voluntary provision ii under very robust conditions on preferences and income distribution an equilibrium exists in which all individuals migrate to the community which uses coercive provision iii interior equilibria in which collections of individuals move to both communities exist when income distribution is sufficiently polarized such equilibria are shown to be stratified richer individuals migrate to the community with voluntary provision while poorer individuals reside in the public provision community in the case where there are two types of wealth endowments existence of stratified equilibria seems to require a negative trade off between the wealth ratio of the rich to the poor and the numerical ratio of rich to poor in society

contracts as a barrier to entry it is shown that an incumbent seller who faces a threat of entry into his or her market will sign long term contracts that prevent the entry of some lower cost producers even though they do not preclude entry completely moreover when a seller possesses superior information about the likelihood of entry it is shown that the length of the contract may act as a signal of the true probability of entry

foreign ownership and corporate income taxation an empirical evaluation abstract foreign ownership allows countries to effectively export part of their corporate tax burden hence countries with high foreign ownership are expected to impose relatively high corporate taxes the findings of this paper suggest that there indeed is an economically significant positive relationship between foreign ownership and tax burdens in europe already significant foreign ownership levels in europe offer an explanation for the absence of a race to the bottom in corporate tax levels

raising retailers profits on vertical practices and the exclusion of rivals resale price maintenance rpm slotting fees loyalty rebates and other related vertical practices can allow an incumbent manufacturer to transfer profits to retailers if these retailers were to accommodate entry upstream competition could lead to lower industry profits and the breakdown of these profit transfers thus in equilibrium retailers can internalize the effect of accommodating entry on the incumbent s profits consequently if entry requires downstream accommodation entry can be deterred we discuss policy implications of this aspect of vertical contracting practices jel l14 l22 l25 l42 l81 this paper considers the upstream exclusionary effect of vertical practices that create rents for downstream retailers without carrying a contractual obligation for exclusivity 1 examples of interest include allowing the manufacturer to set the price at which a retailer sells to consumers resale price maintenance or rpm periodic lump sum payments to retailers through slotting fees or loyalty rebates and mar ket division schemes such as the allocation of clients to specific retailers or the use of exclusive territories we explore equilibria that can arise when an upstream incumbent uses a vertical practice of the sort outlined above to share industry profits with retailers we show that if entry by another upstream manufacturer leads to competition that reduces industry profits sufficiently and entry requires accommodation by retailers then equilibria exist in which retailers do not accommodate the entrant this results in exclusion in essence the vertical practice creates a quasi rent that retailers in equilibrium have an incentive to protect

centralized versus decentralized provision of local public goods a political economy approach abstract this paper takes a fresh look at the trade off between centralized and decentralized provision of local public goods it argues that the sharing of the costs of local public spending in a centralized system will create a conflict of interest between citizens in different jurisdictions when spending decisions are made by a legislature of locally elected representatives this conflict of interest will play out in the legislature depending on precisely how the legislature behaves the result may be excessive public spending or allocations of public goods characterized by uncertainty and misallocation across districts the extent of the conflict of interest between districts is affected by spillovers and differences in tastes for public spending thus the relative performance of centralized and decentralized systems depends upon spillovers and differences in tastes for public spending but for different reasons than suggested in the existing literature

bargaining around cost benefit standards abstract injurers often purchase the property of potential victims to avoid liability or to comply with regulations this paper shows that injurers subject to cost benefit standards could profit from buying out victims even if they attach no value to the victims property because buyouts allow injurers to take fewer precautions a buyout of one victim produces a negative externality for the remaining victims injurers can consequently exploit victims and thereby reduce social welfare by adopting a divide and conquer strategy or by negotiating with victims sequentially perhaps surprisingly buyouts may reduce social welfare and victims joint profits even if victims make simultaneous or sequential take it or leave it buyout demands to the injurer

income redistribution in a common labor market when households are mobile among jurisdictions income redistribution by individual jurisdictions creates fiscal externalities a model of interjurisdictional migration is used to study the nature of this redistributive externality analysis of optimal redistribution and optimal corrective subsidies from higher level governments shows that benefit levels for the recipients of income transfers and tax rates on mobile taxpayers should be equalized across jurisdictions a system of jurisdictions with a common labor market can achieve welfare improvements through coordination of domestic redistributive policy or through the intervention of a higher level government copyright 1991 by american economic association

depressing dependence transfers and economic growth in the german states 1975 2005 abstractdepressing dependence transfers and economic growth in the german states 1975 2005 regional studies most countries pay substantial intergovernmental transfers to poor regions with the aim of achieving regional convergence consequently transfers should have a positive effect on economic growth however it is equally possible that transfers perpetuate underdevelopment this paper studies empirically the effect of intergovernmental transfers on economic growth with a panel of west german states over the period 1975 2005 the findings suggest that transfers do not foster economic growth presumably because the recipients use them to subsidize declining industries

the political geography of tax h e avens and tax hells worldwide many governments rely on personal income taxation as one of their major sources of tax revenue casual empirical evidence suggests that although most developed countries levy substantial taxes particularly on higher incomes there also exist a few countries that are characterized by no or very low income taxation a distinguishing feature of the countries in the latter group is that they are geographically very small as can be seen from table 1 which presents international income tax policies and geographical dimensions of some selected countries in the present paper we investigate whether the geography of a country is related to its pattern of taxation central to our argument is the ongoing international integration in the last decades in some cases e g in the european union the process has advanced to the point at which all formal constraints to mobility have been abandoned this development has also greatly improved the mobility of households across states or national borders in contrast to the mobility of production factors however the effects of household mobility migration are not confined to budgetary consequences as taxpayers immigrate or emigrate the inand outflow of citizens also alters policy objectives by changing the composition of the electorate in a jurisdiction at the same time migration decisions especially those of wealthy individuals are based on local tax policies consequently the migration of households determines fiscal policies through the interplay of two basic effects 1 residential choices determine tax rates through a process in which a jurisdiction s inhabitants select their local policies and 2 tax and welfare policies in each jurisdiction influence residential decisions as we argue in this paper this interdependency of residential and political decisions may provide an explanation for the stylized facts illustrated in table 1 we consider a simple framework in which households differ in incomes and national tax policies are democratically determined as a natural implication of their earning characteristics high income households ceteris paribus prefer to live in countries with low taxation for ease of exposition we refer to those countries as tax h e avens in a slight perturbation of popular nomenclature low income households in contrast are more interested in generous public spending than in low income tax rates ceteris paribus they prefer to reside in countries with large welfare programs financed by substantial taxation which we call tax hells for obvious reasons thus individual preferences imply a self selection process which leads to the segregation of households across countries according to income classes 1 if this segregation is in turn supported by a national vote for low taxes in countries where high income earners live and high taxes in countries where lower income earners live an equilibrium with tax heavens populated by wealthy residents and tax hells populated by the less affluent evolves yet the geographical size of countries plays a crucial role in this development first it affects the number of a country s inhabitants the population size because households sort hansen apax partners company possartstr 11 81679 miinchen germany kessler department of economics university of bonn adenauerallee 24 42 53113 bonn germany kessler wipol uni bonn de we thank two anonymous referees marcus berliant dennis epple christian ewerhart gerhard glomm david pines urs schweizer and participants in presentations at the university of munich the 1997 site meeting stanford the 1997 american econometric society summer meeting pasadena and the 1996 iipf congress tel aviv for helpful suggestions and discussions both authors gratefully acknowledge financial support by the deutsche forschungsgemeinschaft sfb 303 at the university of bonn remaining errors are our own the views expressed in this paper should not be attributed to apax partners company 1 the sorting of individuals by preferences across jurisdictions goes back to the famous contribution of charles m tiebout 1956 on migration as a means to reveal preferences over public goods

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

competing for capital when labor is heterogeneous this paper investigates the impacts of capital mobility and tax competition in a setting with imperfect matching between firms and workers the small country always gains and the large country always loses from tax competition thus implying tax competition leads to redistribution from the large to the small country however the large country always attains a higher utility than does the small country these results imply that our model encapsulates both the importance of being small as well as the importance of being large we also show that tax harmonization leads to redistribution from the large to the small country

exclusive dealing with network effects abstract this paper explores the ability of an incumbent to use introductory offers to dominate a market in the face of a more efficient rival when network effects rather than scale economies are present both in the case of one sided and two sided markets for introductory offers to be profitable when consumers can multihome they need to be discriminatory and exclusive in this setting exclusivity as opposed to just commitment to purchase is critical consumers must commit not to purchase from the rival in the future in order that introductory offers can work the use of such contracts is anticompetitive and inefficient but does not necessarily result in complete foreclosure

congestion function specification and the publicness of local public goods abstract this paper is about the measurement of congestion within the median voter demand framework the model of congestion traditionally used in the literature and four others are compared and tested in a median voter framework the results show that a more flexible functional form which imposes fewer a priori restrictions on the data does at least as good a job of explaining variations in local government expenditures furthermore it is shown that measured publicness of local public goods depends entirely on the a priori restrictions imposed on the congestion function

exclusionary vertical contracts and product market competition this article considers whether a monopolist is able to deter more efficient entrants through contracting with buyers in the antitrust literature the chicago school s stand is that such contracts cannot be anticompetitive hence vertical contracts should be accorded per se legal status in a four stage game with the following features 1 the incumbent enjoys a first mover advantage 2 the entrant must incur some sunk cost to enter the market and 3 entry is uncertain the author shows that vertical contracts can be anticompetitive if there exists product market competition thus the author advocates caution in treating all contracts as per se legal a three factor repeated measures experiment tested the effect of leadership style charismatic structuring and considerate on performance improvement on a manufacturing task over four trials findings from a repeated measures multivariate analysis of variance indicated that individual exposed to considerate leadership had superior initial performance but that this difference faded over time further analysis indicated that self efficacy fully mediated the relationship between leadership style and performance copyright 1999 by university of chicago press

discounts as a barrier to entry abstract to what extent can an incumbent manufacturer use discount contracts to foreclose efficient entry we show that off list price rebates that do not commit buyers to unconditional transfers like the rebates in eu commission v michelin ii for instance cannot be anticompetitive this is true even in the presence of cost uncertainty scale economies or intense downstream competition all three market settings where exclusion has been shown to emerge with exclusive dealing contracts the difference stems from the fact that unlike exclusive dealing provisions rebates do not contractually commit retailers to exclusivity when signing the contract jel d43 d86 k21 l13 l14 l42 l60

the competitive effects of vertical agreements comment recent economic analyses of vertical restraints and integration emphasize the circumstances under which these arrangements are socially efficient efficiency claims have proven contentious however for exclusive dealing a vertical restraint that prohibits any outlet carrying a manufacturer s product from stocking substitute brands this paper analyzes the impact of exclusive dealing on competition and allocative efficiency opinions expressed on the impact of exclusive dealing range from the extreme view that it is invariably anticompetitive to the view that it is always procompetitive the u s supreme court has concluded that in hundreds if not thousands of communities where there is a single retailer for a product

exclusive dealing investment promotion may facilitate inefficient foreclosure this paper studies a model whereby exclusive dealing ed can both promote investment and foreclose a more efficient supplier since ed promotes the incumbent seller s investment the seller and the buyer realize a greater surplus from bilateral trade under exclusivity hence the parties involved may sign an ed contract that excludes a more efficient entrant in circumstances where ed would not arise absent investment the paper therefore invites a more cautious attitude towards accepting possible investment promotion arguments as a defense for ed

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

trade and industrial location with heterogeneous labor we show in the context of a new economic geography model that when labor is heterogenous trade liberalization may lead to industrial agglomeration and inter regional trade labor heterogeneity gives local monopoly power tofirms but also introduces variations in the quality of the job match matches are likely to be better when there are more fi rms and workers in the local market giving rise to an agglomeration force which can offset the forces against trade costs and the erosion of monopoly power we derive analytically a robust agglomeration equilibrium and illustrate its properties with numerical simulations

optimality free mobility and the regional authority in a federation abstract this paper examines the efficiency properties of a federation characterized by strategically competing regions and freely mobile homogeneous individuals analyses of this economy have concluded that achieving a pareto optimal will require intervention by a national authority this paper makes one basic point the nash equilibrium of regional authority behavior is pareto optimal the implication is that there is no role for a national authority in either providing interregional transfers or correcting for decentralized provision of public goods the nash equilibrium involves samuelson public goods provision and regions purchasing preferred population distributions with optimal interregional transfers

central governance or subsidiarity a property rights approach to federalism abstract we consider a model where one region in a federation can realize a public project after undertaking value increasing investments while negotiations on the federal level ensure that an efficient project size is implemented in equilibrium non contractibility of investments causes the overall outcome to differ across regimes if the region bears the entire implementation costs of its policies underinvestment prevails and subsidiarity centralized governance is superior when spillovers are weak strong conversely if linear cost sharing arrangements are feasible decentralized authority often admits a socially optimal outcome while centralized authority with majority or unanimity rule does not

naked exclusion efficient breach and downstream competition previous papers by eric b rasmusen j mark ramseyer and john s wiley jr 1991 and ilya r segal and michael d whinston 2000 argue that exclusive contracts can inefficiently deter entry in the presence of scale economies and multiple buyers we first show that these results no longer hold when buyers are final consumers who can breach these contracts and pay expectation damages we then show however that exclusive contracts can inefficiently deter entry if buyers are downstream competitors even in the absence of scale economies and even if breach is possible

exclusive quality exclusive quality in the case of vertically differentiated products bertrand competition at the retail level does not prevent an incumbent upstream firm from using exclusivity contracts to deter the entry of a high quality rival indeed because of differentiation the incumbent s inferior product is not eliminated upon entry due to the resulting competitive pressure a retailer who considers rejecting the exclusivity contract expects to earn much less than the incumbent s monopoly rents thus in equilibrium the incumbent can always offer high enough an upfront payment to induce all retailers to sign the contract and achieve exclusion this is true under linear pricing for intermediate levels of entry costs and with two part tariffs even in the absence of entry costs copyright 2010 the author the journal of industrial economics 2010 blackwell publishing ltd and the editorial board of the journal of industrial economics

exclusive dealing and entry when buyers compete rasmusen et al 1991 and segal and whinston 2000 show that an incumbent monopolist might prevent entry of a more efficient competitor by exploiting externalities among buyers we show that their results hold only when downstream competition among buyers is weak under fierce downstream competition if entry took place a free buyer would become more competitive and increase its output and profits at the expense of buyers that sign an exclusive deal with the incumbent anticipating that orders from a single buyer would trigger entry no buyer will sign the exclusive deal and entry will occur this result is robust across different specifications of the game jel k21 l12 l42

wage competition with heterogeneous workers and firms we study imperfect competition in the labor market when both workers and firms are heterogeneous when firms cannot observe workers skill firms pay workers equal wages but workers absorb training costs when firms can identify worker types firms pay different net wages to different workers voters select the level of general education that is financed by a lump sum tax workers are on average better off when firms can observe workers skill for a given level of general human capital but the median voter prefers a higher level of general human capital when firms cannot observe worker types

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

non existence of equilibria in multicommunity models abstract this paper reconsiders equilibrium existence in models with migration and voting over local public goods we show that under some straightforward assumptions on preferences and income distributions the basic structure of multicommunity models i e perfect mobility majority rule single crossing property implies that no equilibrium with jurisdictions conducting different policies can exist stratification equilibria with sorting of the population according to income classes are therefore not as natural as is sometimes suggested mechanisms that can serve to support stratification i e tight housing markets returns to scale in the provision of publicly consumed goods are discussed

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

the breakup of nations a political economy analysis this paper develops a model of the breakup or unification of nations in each nation the decision to separate is taken by majority voting a basic trade off between the efficiency gains of unification and the costs in terms of loss of control on political decisions is highlighted the model emphasizes political conflicts over redistribution policies the main results of the paper are i when income distributions vary across regions and the efficiency gains from unification are small separation occurs in equilibrium and ii when all factors of production are perfectly mobile all incentives for separation disappear i introduction following the demise of communism the entire map of europe from the atlantic coast to the urals is being redrawn and issues of separation unification and the redrawing of borders are yet again at the forefront of european concerns many of the issues raised by this process are primarily of a political cultural or linguistic nature however there are also economic considerations that bear on this problem the objective of this paper is to analyze some important economic and political determinants of the process of unification and separation of democratic nations the starting point of our analysis is to suppose that from an economic efficiency point of view separation of nations is never desirable a unified nation is always more efficient since free trade among regions is guaranteed duplication costs in defense and law enforcement are avoided and local public goods provision such as transportation and communication networks or common standards can be coordinated furthermore any benefits of decentralization that might be obtained in a world with several nations may also be achieved within a unified nation by replicating the administrative structure of the world with several

mobility and redistribution the ability of individuals to move freely from one jurisdiction to another is generally seen as a constraint on the amount of redistribution that each jurisdiction within a system of governments can undertake in this paper we look at this proposition by developing a positive analysis of income redistribution by local governments in a federal system we ask how much redistribution occurs when only local governments can have tax transfer instruments individuals can move freely among jurisdictions and voters in each jurisdiction are fully aware of the migration effects of redistributive policies local redistribution is shown to induce sorting of the population with the poorest households located in the communities that provide the most redistribution while the threat of out migration affects the potential for redistribution our results suggest that significant local redistribution is nonetheless feasible numerical computations indicate that the proportion of residents who are renters is a major factor affecting the local choice of level of redistribution

federalism as a commitment to reserving market incentives the authors advance a new perspective in the study of federalism their approach views federalism as a governance solution of the state to credibly preserving market incentives market incentives are preserved if the state is credibly prevented from compromising on future economic success and from bailing out future failures the salient features of federalism decentralization of information and authority and interjurisdictional competition help provide credible commitment or these purposes in addition the authors suggest that some federalism are self sustaining

commitment through renegotiation proof contracts with third parties the paper analyzes contracts as means of strategic commitment that is commitment against outside parties to the agreement it considers the example of an incumbent firm which enters a contractual relationship with its workers in order to deter entry it assumes away the possibility for the parties to precommit not to make pareto improving renegotiations of the agreement once entry has taken place under symmetric information the contract is thus found to be useless for entry deterrence if the incumbent firm or workers possess some private information excessive post entry production levels can however be sustained ex post since output reductions may not be incentive compatible while information asymmetries are usually welfare decreasing when the goal is optimal risk sharing they can thus be welfare improving for the contracting parties when commitment against outsiders is the goal of the contract the role of the renegotiation process as a constraint on sustainable agreements is stressed in the paper and the general relevance of strategic contractual commitment is discussed

naked exclusion an experimental study of contracts with externalities this paper reports the results of an experiment designed to assess the ability of an incumbent seller to profitably foreclose a market with exclusive contracts we use the strategic environment described by rasmusen ramseyer and wiley 1991 and segal and whinston 2000 where entry is unprofitable when sufficiently many downstream buyers sign exclusive contracts with the incumbent when discrimination is impossible the game resembles a stag hunt coordination game in which the buyers payoffs are endogenously chosen by the incumbent seller exclusion occurs when the buyers fail to coordinate on their preferred equilibrium two way non binding pre play communication among the buyers lowers the power of exclusive contracts and induces more generous contract terms from the seller when discrimination and communication are possible the exclusion rate rises divide and conquer strategies are observed more frequently when buyers can communicate with each other exclusion rates are significantly higher when the buyers payoffs are endogenously chosen rather than exogenously given finally secret offers are shown to decrease the incumbent s power to profitably exclude

federal fiscal constitutions risk sharing and redistribution the paper studies the political and economic determinants of regional public transfers specifically it focuses on how such transfers are shaped by alternative fiscal constitutions where a constitution is an allocation of fiscal instruments across different levels of governments plus a procedure for the collective choice of these instruments realistic restrictions on fiscal instruments introduce a tradeoff between risk sharing and redistribution different constitutions produce very different results in particular a federal social insurance scheme chosen by voting provides overinsurance whereas an intergovernmental transfer scheme chosen by bargaining provides underinsurance

factor endowments and welfare levels in an asymmetric tax competition game abstract this paper addresses capital tax competition among an arbitrary number of countries countries are asymmetric not only in their population endowment but also in their capital endowment per inhabitant national governments tax capital and labor in order to finance a fixed public budget asymmetric capital taxation arises at equilibrium leading to a distortion on the international capital market we fully characterize how equilibrium taxes and welfare levels depend upon countries population and capital endowments we compare it to the autarky situation and show that fiscal competition erodes some but not all of the gains from capital markets liberalization

exclusive dealing and entry when buyers compete comment in this paper fm s equilibrium analysis is shown to contain some errors fixing these errors changes their conclusions for some of the cases they consider exclusive deals written between an incumbent and competitive downstream buyers will still often arise in equilibrium thereby block ing efficient entry inefficient exclusion arises to protect industry profits from competition the issue centers on how competition works when upstream firms sell to consumers through two com peting downstream buyers in the case upstream firms can offer downstream buyers two part tariffs the analysis of competition in this setting turns out to be surprisingly subtle and the analysis here should be of more general interest to those modeling competition in vertical settings the particular model fm consider is based on the cost specification in segal and whinston 2000 sect iv in which the incumbent faces a potential entrant that has a lower cost of production but faces some fixed cost of entry two identical downstream buyers compete in prices for final consum ers exclusive deals involve the incumbent offering buyers a fixed compensation for agreeing not to purchase from the entrant fm derive their results under two different assumptions on wholesale pricing upstream firms are required to set linear wholesale prices section i and upstream firms are allowed to offer two part tariff contracts section ii since restricting upstream firms to charge linear wholesale prices to buyers seems inconsistent with assuming the incumbent can offer exclu sive contracts with a fixed compensation in the initial stage and since linear wholesale prices can lead to double marginalization problems the focus in this paper is on the less restrictive case consid ered by fm where upstream firms are allowed to offer downstream buyers two part tariffs 1 in this setting correcting fm s analysis shows that entry arises only when scale economies are not too important and the entrant s efficiency advantage is sufficiently large when either

exclusion via non exclusive contracts we establish that non linear vertical contracts can allow an incumbent to exclude an upstream rival in a setting that does not rely on the exclusivity of the incumbent s contracts with downstream firms or any limits on distribution channels available to the incumbent or rival the optimal contract we describe is a three part quantity discounting contract that involves the payment of an allowance to a downstream distributor and a marginal wholesale price below the incumbent s marginal cost for sufficiently large quantities the optimal contract is robust to allowing parties to renegotiate contracts in case of entry l exclusion par le biais des contrats non exclusifs nous etablissons que des contrats verticaux non lineaires peuvent permettre a un titulaire d exclure un rival en amont dans un cadre qui ne de pend pas de l exclusivite des contrats du titulaire avec les entreprises en aval ou des limites sur les canaux de distribution disponibles pour le titulaire ou un rival le contrat optimal que nous decrivons est un contrat de rabais en trois parties base sur la quantite pre voyant le versement d une indemnite a un distributeur en aval et un prix de gros marginal inferieur au cout marginal de l operateur historique pour des quantites suffisamment importantes le contrat optimal est robuste si on permet aux parties de renegocier les contrats en cas d entree

exclusive contracts and demand foreclosure a firm may induce some customers to sign exclusive contracts in order to deprive a rival of the minimum viable size exclude it from the market and enjoy increased market power this strategy may result in socially inefficient exclusion even if the excluded firm is present at the contracting stage and can make counteroffers in addition allowing for breach penalty clauses decreases firms incentives to exclude rivals because such clauses allow a firm to use customers as a conduit for the transfer of another firm s profits

cost pass through and inverse demand curvature in vertical relationships with upstream and downstream competition this paper provides two characterizations of the retailer s markup relative to the manufacturer s markup in vertical relationships with homogeneous manufacturers and homogeneous retailers we first show that retailer s relative markup is equal to the ratio of the retail pass through to the wholesale pass through multiplied by the number of manufacturers relative to the number of retailers we then provide its expression in terms of the inverse demand curvature

ends against the middle determining public service provision when there are private alternatives abstract public provision of a service coexists with private market provision the quality of public provision is determined by majority vote preferences are not single peaked owing to the presence of private alternatives we identify two cases in one majority voting equilibrium always exists and the median income voter is pivotal in the other a necessary condition for equilibrium indentifies the pivotal voter who must have income below the median when equilibrium exists a coalition of middle income households who consume the public alternative will be opposed by a coalition of rich and poor households with the rich choosing private consumption

contracting with externalities the paper studies inefficiencies arising in contracting between one principal and n agents when the utility of each agent depends on all agents trades with the principal when the principal commits to a set of publicly observable bilateral contract offers the arising inefficiency is due entirely to the externalities imposed on non signers in contrast when the principal s offers are privately observed the distortion is due to the externalities given agents equilibrium trades comparison of the two externalities determines the relative efficiency of the two contracting regimes in both cases we show that when n is large each agent can be treated as non pivotal provided that appropriate continuity assumptions are satisfied we also study the case in which the principal can condition each agent s trade on other agents messages we characterize the set of such mechanisms in which each agent s participation is voluntary when the principal can commit to any such mechanism she implements the first best outcome while threatening each deviator with the harshest possible punishment however in the presence of noise that goes to zero slower than n goes to infinity in the limit we obtain a generally inefficient outcome in which each agent feels non pivotal

naked exclusion with minimum share requirements we consider a class of contracts in which buyers commit to giving a seller some minimum share of their total purchases we show that such contracts can be used by an incumbent seller to reduce the probability of entry by a rival seller when the incumbent can commit to its selling price as part of the contract we further show that such contracts can be profitable for the incumbent even when exclusive dealing would not be and even when buyers can coordinate their accept or reject decisions the average price paid by the buyers will be higher and welfare will be lower whether or not the incumbent s exclusionary conduct turns out to be successful in preventing entry

asymmetric tax competition abstract the paper analyzes nash equilibrium when two jurisdictions set tax rates on a tax base which is mobile between them population differences imply tax differences the smaller jurisdiction levies a lower tax rate in equilibrium and its residents are better off than those in the larger jurisdiction the nash equilibrium is inefficient if the two jurisdictions merged the resulting allocation would be efficient however if differences in population are great enough residents of the small jurisdiction would be made worse off by such a merger

exclusive dealing as a barrier to entry evidence from automobiles exclusive dealing contracts between manufacturers and retailers force new entrants to set up their own costly dealer networks to enter the market we ask whether such contracts may act as an entry barrier and provide an empirical analysis of the european car market we first estimate a demand model with product and spatial differentiation and quantify consumers valuations for dealer proximity and dealer exclusivity we then perform policy counterfactuals to assess the profit incentives and possible entry deterring effects of exclusive dealing we find that there are no unilateral incentives to maintain exclusive dealing but there is a collective incentive for the industry as a whole furthermore a ban on exclusive dealing would raise the smaller entrants market share but more importantly consumers would gain not so much because of increased price competition but rather because of the increased spatial availability which compensates for the demand inefficiency from a loss of dealer exclusivity

spatial inequality and development is there an inverted u relationship abstract this paper studies the hypothesis of an inverted u shaped relationship between spatial inequality and economic development the theory of kuznets 1955 and williamson 1965 suggests that spatial inequality first increases in the process of development and then decreases to test this hypothesis i have used a unique panel data set of spatial inequalities in 56 countries at different stages of economic development covering the period 1980 2009 parametric and semiparametric regressions are carried out using cross section and unbalanced panel data the results provide strong support for the existence of an inverted u i also find some evidence that spatial inequalities increase again at very high levels of economic development

skill mismatch and unemployment we consider a finite number of heterogeneous firms which compete imperfectly for heterogeneous workers we show that unemployment may arise in equilibrium because of job mismatch and firms market power

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

on the pervasiveness of home market effects paul krugman s model of trade predicts that the country with the relatively large number of consumers is the net exporter and hosts a disproportionate share of firms in the increasing returns sector he terms these results home market effects this paper analyses three additional models featuring increasing returns firm mobility and trade costs to assess the robustness of home market effects to alternative modelling assumptions we find strikingly similar results for two of the models that relax assumptions about the nature of demand competition and trade costs however a model that links varieties to nations rather than firms can generate opposite results

equilibrium and inefficiency in a community model with peer group effects public service output depends on input expenditures on own personal characteristics and on the characteristics of the other residents in the community the peer group effect in a community model with public expenditures set by voting with migration between communities and with land price differentials capitalization it is shown that communities may become heterogeneous in composition and second best inefficient this equilibrium occurs when the peer group effect is neither too strong nor too weak the inefficiency arises because an externality is created by migration the land price differential does not play the part of the price of the better peer group but of a transfer payment

market size and tax competition abstract with international externalities different country sizes imperfect competition and trade costs tax competition for mobile firms is efficiency enhancing with respect to the free market outcome under both scenarios the resulting inefficiencies in international specialization and trade flows vanish when trade costs are low enough otherwise only international tax coordination can implement the efficient spatial distribution of firms

exclusionary vertical contracts with multiple entrants abstract this paper constructs a model of anticompetitive exclusive dealing in the presence of multiple entrants unlike the single entrant model in previous literature an entrant competes not only with the incumbent to deal with buyers but also with other entrants the competition among entrants then serves as a commitment such that low wholesale prices are offered to buyers when they deviate from exclusive contracts we argue that this commitment effect becomes a barrier to exclusive dealing and that the results differ drastically from the predictions of the single entrant framework

naked exclusion comment the ability of an incumbent firm to deter entry by writing exclusionary contracts with customers has been a subject of contention in the antitrust literature the courts concern with such exclusionary contracts has been challenged by those who argue that an incumbent faced with buyers whose interest is to promote entry and competition would have to pay buyers more for the inclusion of exclusionary provisions than it could possibly gain from exclusion in a provocative article eric b rasmusen et al 1991 henceforth rrw have argued that an incumbent may in fact be able to exclude rivals profitably using such contractual provisions because it can exploit buyers lack of coordination in essence if buyers expect other buyers to sign such provisions then they may see little reason not to do so themselves the rrw argument is potentially an important one because most alleged instances of entry deterrence through exclusionary contracts with customers occur in situations with multiple buyers unfortunately however rrw s two main results contain errors in this note we reconsider the rrw model providing correct characterizations of the likelihood and cost of exclusion for an incumbent firm our results indicate that while the intuition suggested by rrw is valid the equilibrium likelihood and cost of exclusion differ from what rrw derive moreover our analysis illuminates some further aspects of exclusionary contracting with multiple buyers among these issues we focus on how an incumbent can use discriminatory offers to exploit the externalities that exist among buyers in the provision of competition in section i we review the basic assumptions of the rrw model in sections ii and iii we then consider in turn the cases of simultaneous and sequential offers studied by rrw for the simultaneous model we distinguish between settings in which the incumbent can and cannot discriminate in its offers to different buyers this distinction is the source of the problem in rrw s analysis their simultaneous offer model assumes no discrimination but the proof of their proposition 2 assumes at times that discrimination is feasible we show that absent the ability to discriminate the incumbent can exclude profitably only when buyers fail to coordinate on their most preferred continuation equilibrium in contrast we show that when discrimination is possible the incumbent need not rely on a lack of buyer coordination to segal department of economics landau building stanford university stanford ca 94305 e mail ilya segal stanford edu whinston department of economics northwestern university 2003 sheridan road evanston il 60208 e mail mwhinston nwu edu we thank eric rasmusen john wiley and participants in the berkeley stanford iofest the university of copenhagen vertical restraints conference and a seminar at the antitrust division of the u s department of justice for helpful comments we thank federico echenique for excellent research assistance 1 for example a recent department of justice investigation concerned the use of exclusive contracts by the leading provider of computerized ticketing services ticketmaster most major cities have several large concert sports venues in many cities ticketmaster has exclusive contracts with a very large share of these venues 2 the other leading response to the argument that contracts with buyers cannot be a profitable method of exclusion is given in philippe aghion and patrick bolton 1987 section i one factor limiting the applicability of the aghion and bolton theory however is that it involves partial exclusion the contracts signed are not fully exclusionary they involve finite stipulated damages and the profitability of the strategy arises from extracting rents from an entrant when entry occurs indeed in the aghion and bolton model contracts that fully exclude offer no benefits over writing no contract at all in section iii of their paper aghion and bolton also discuss a two buyer version of their model in which externalities arise across buyers in contrast to the analysis here and in rrw they allow the incumbent to make an offer to a buyer i that is conditional on the acceptance decision of the other buyer 3 r innes and r j sexton 1994 also discuss the use of discriminatory offers in the context of a model in which buyers can form coalitions with the entrant

assessing the importance of tiebout sorting local heterogeneity from 1850 to 1990 this paper argues that long run trends in geographic segregation are inconsistent with models where residential choice depends solely on local public goods the tiebout hypothesis we develop an extension of the tiebout model that predicts as mobility costs fall the heterogeneity across communities of individual public good preferences and of public good provision must weakly increase given the secular decline in mobility costs these predictions can be evaluated using historical data we find decreasing heterogeneity in policies and proxies for preferences across i a sample of u s municipalities 1870 1990 ii all boston area municipalities 1870 1990 and iii all u s counties 1850 1990

exclusive dealing before bork and beyond abstractantitrust scholars have come to accept the basic ideas about exclusive dealing that bork articulated in the antitrust paradox indeed they have even extended his list of reasons why exclusive dealing can promote economic efficiency yet they have also taken up his challenge to explain when exclusive dealing might possibly cause harm and have modeled a variety of special cases where it does some albeit not all of these are sufficiently plausible to be useful to prosecutors and judges

exclusive contracts and bargaining power abstract incorporating nash bargaining into the standard one buyer one supplier framework in the chicago school critique we show a possibility that an inefficient incumbent supplier can deter a socially efficient new supplier entry through exclusive contracts

harmonization and side payments in political cooperation for two districts or countries that try to internalize externalities i analyze a bargaining game under private information i derive conditions for when it is efficient with uniform policies across regions with and without side payments and when it is efficient to prohibit side payments in the negotiations while policy differentiation and side payments allow the policy to better reflect local conditions they create conflicts between the regions and thus delay the results also describe when political centralization outperforms decentralized cooperation and they provide a theoretical foundation for the controversial uniformity assumption traditionally used by the fiscal federalism literature

an experimental study of exclusive contracts abstract this paper reports results from a laboratory experiment based on exclusive contracts that may theoretically lead to inefficient naked exclusion of a potential rival the data indicate that changes in the number of buyers in the market have no significant effect on exclusion rates but the likelihood of inefficient exclusion is decreased both when a larger fraction of signed buyers are needed to deter a rival s entry and when buyers engage in non binding communication these results have antitrust implications both in terms of helping to identify at risk market characteristics and suggesting potential competition enhancing strategies a sub game of the experiment where buyers make signing decisions can be illustrated as a coordination game with the unique feature that payoffs are affected by a separate but interested party the incumbent seller i find that the height of the potential function and relevant basin of attraction especially when combined with quantal response estimation have larger predictive power in this sub game than several other equilibrium selection criteria

labor specialization and the extent of the market this paper presents an analytical model of labor specialization workers make human capital investment decisions on the depth and the breadth of their skill given that firms have diverse job requirements and increasing returns to scale workers invest more for the depth of their human capital and less for the breadth as the size of the labor market increases also the larger the size of the market the more varieties of job requirements are used so that the average match between a worker and a firm improves

rationalizability learning and equilibrium in games with strategic complementarities we study a rich class of noncooperative games that includes models of oligopoly competition macroeconomic coordination failures arms races bank runs technology adoption and diffusion r d competition pretrial bargaining coordination in teams and many others for all these games the sets of pure strategy nash equilibria correlated equilibria and rationalizable strategies have identical bounds also for a class of models of dynamic adaptive choice behavior that encompasses both best response dynamics and bayesian learning the players choices lie eventually within the same bounds these bounds are shown to vary monotonically with certain exogenous parameters we study the class of noncooperative supermodular games introduced by topkis 1979 and further analyzed by vives 1985 1989 who also pointed out the importance of these games in industrial economics supermodular games are games in which each player s strategy set is partially ordered the marginal returns to increasing one s strategy rise with increases in the competitors strategies so that the game exhibits strategic complementarity 2 and if a player s strategies are multidimensional marginal returns to any one com ponent of the player s strategy rise with increases in the other components this class turns out to encompass many of the most important economic applications of noncooperative game theory in macroeconomics diamond s 1982 search model and bryant s 1983 1984 rational expectations models can be represented as supermodular games in each of these models more activity by some members of the economy raises the returns to increased levels of activity by others in oligopoly theory some models of bertrand oligopoly with differentiated products qualify as supermodu lar games in these games when a firm s competitors raise their prices the marginal profitability of the firm s own price increase rises a similar structure is present in games of new technology adoption such as those of dybvig and spatt 1983 farrell and saloner 1986 and katz and shapiro 1986 when more users hook into a communication system or more manufacturers adopt an interface standard the marginal return to others of doing the same often rises similarly in some specifications of the bank runs model introduced by diamond and dybvig 1983 when more depositors withdraw their funds from a bank it is more worthwhile for other depositors to do the same in the warrant exercise

on the measurement of σ convergence abstract we demonstrate that two popular measures of inequality related to the discussion of convergence lead to different conclusions when used on data from penn world table the reason is that the measures assign different weights to individual countries growth performance

distributive politics and the costs of centralization this paper studies the choice between centralization and decentralization of fiscal policy in a political economy setting with centralization regional delegates vote over agendas comprising sets of region specific projects the outcome is inefficient because the choice of projects is insufficiently sensitive to within region benefits the number of projects funded may be non monotonic in the strength of project externalities the efficiency gains from decentralization and the performance of constitutional rules such as majority voting which may be used to choose between decentralization and centralization are then discussed in this framework weaker externalities and more heterogeneity between regions need not increase the efficiency gain from decentralization

heterogeneity stratification and growth macroeconomic implications of community structure and school finance this paper examines how socioeconomic stratification and alternative systems of education finance affect inequality and growth agents interact through local public goods or externalities school funding neighborhood effects and economywide linkages complementary skills knowledge spillovers sorting families into homogeneous communities often minimizes the costs of existing heterogeneity but mixing reduces heterogeneity faster integration therefore tends to slow down growth in the short run yet raise it in the long run a move to state funding of education presents society with a similar intertemporal trade off local and global complementarities play major roles in determining the efficient social and educational structures copyright 1996 by american economic association

interregional redistribution and mobility in federations a positive approach the paper studies the effects and the determinants of interregional redistribution in a model of residential and political choice we find that paradoxical consequences of inter jurisdictional transfers arise if people are mobile while self sufficient regions are nec essarily identical with respect to policies and average incomes in our model interregional redistribution always leads to the divergence of regional policies and per capita incomes thus interregional redistribution prevents interregional equality at the same time however transfers may allow for more interpersonal equality among the inhabitants of each region the voting population may therefore in a decision over the fiscal constitution deliberately implement such a transfer scheme to foster regional divergence empirical evidence from panel data from oecd countries and candian provinces is consistent with the theory

naked exclusion in the lab the case of sequential contracting in the context of the naked exclusion model of rasmusen ramseyer and wiley 1991 and segal and whinston 2000b we examine whether sequential contracting is more conducive to exclusion in the lab and whether it leads to lower exclusion costs for the incumbent than simultaneous contracting we find that an incumbent who proposes exclusive contracts to buyers sequentially is better able to deter entry than an incumbent who proposes contracts simultaneously in contrast to theory this comes at a substantial cost for the incumbent

exclusive contracts and market dominance we propose a new theory of exclusive dealing the theory is based on the assumption that a dominant firm has a competitive advantage over its rivals and that the buyers willingness to pay for the product is private information in this setting the dominant firm can impose contractual restrictions on buyers without necessarily compensating them implying that exclusive dealing contracts can be both profitable and anticompetitive we discuss the general implications of the theory for competition policy and illustrate by examples its applicability to antitrust cases jel d21 d43 d82 d86 k21 l13 l40