stock price dynamics and firm size an empirical investigation we show that after controlling for the effects of bid ask spreads and trading volume the conditional future volatility of equity returns is negatively related to the level of stock price this leverage effect is stronger for small as compared to large firms we also document that while the essential characteristics of the relations between stock price dynamics and firm size are stable the strengths of the relationships appear to change over time a number of empirical studies have documented that stock volatility tends to fall subsequent to an increase in stock prices and rise following a decline in stock prices an observation commonly attributed to the leverage effect as explained by black 1976 leverage can induce future stock volatility to vary inversely with the stock price a fall in a firm s stock value relative to the market value of its debt causes a rise in its debt equity ratio and increases its stock volatility for example black 1976 and christie 1982 use individual securities and french schwert and stambaugh 1987 gallant rossi and tauchen 1990 schwert 1990 and nelson 1991 use market indices to provide evidence consistent with the leverage effect however these papers demonstrate a leverage effect either intertemporally or cross sectionally for some assets relatively little work has examined the intertemporal behavior of individual assets by taking into account conditional heteroskedasticity and changing expected returns in this paper we examine and characterize the cross sectional and temporal relations between stock price dynamics and firm size in particular we investigate the possibility of an inverse relation between future stock volatility and stock price and whether this effect varies across time and or across firms with different market capitalization our study uses the exponential garch egarch formulation of nelson 1991 as a model for the timeseries behavior of individual security returns nonparametric methods are

credible spatial preemption it is often argued that incumbent firms may deter entry by preemptive investment in new goods we show that these conclusions are reversed when multiproduct incumbentfirms may exit in response to entry once entrants are in an industry an incumbent will often want to withdraw some goods to prevent competition with the entrant from reducing profits on other goods such a reaction makes entry more attractive to a potential entrant the equilibrium industry structure is less likely to be monopolistic as the goods are better substitutes as exit costs are low and as the competition between producers of the same good is more intense

endogenous sequential entry in a spatial model in this paper we simulate a sequential entry of firms in a differentiated industry a la hotelling firms select a product location once for all they are aware of the unique price equilibrium that will take place after entry has occurred and take into account the behaviour of subsequent entrants it is found that early entrants will systematically locate around the centre but in such a way as not to induce later competitors to locate in between them location choices are also investigated as an instrument for entry deterrence which is feasible because of a fixed cost we identify several ranges of fixed cost for which entry is innocently deterred corresponding to a natural monopoly duopoly triopoly entry deterrence is then typically used to stretch the range of fixed cost for which a given number of firms can be sustained deterrence strategies are consistently such that firms locate at more regular intervals

the impact of bse on the demand for beef and other meats in great britain indices of media coverage of bse are incorporated in a dynamic aids model of meat demand the publicity which bse has received is found to have had significant effects on the allocation of consumer expenditure among the meats a short run impact has been identified which accounts in large part for the discernible drop in the market share of beef in the early 1990s and more important there also appears to be a significant long run impact of bse which by the end of 1993 has reduced the beef market share by 4 5

the dynamic annihilation of a rational competitive fringe by a low cost dominant firm abstract a low cost dominant firm will drive all competitive fringe firms out of the market if all firms have rational expectations however the dominant firm will not predate price below marginal cost since a dominant firm will not drive out fringe firms if they have myopic expectations it may be in the dominant firm s best interests to inform the fringe the effects of governmental intervention on the optimal path and welfare are presented

contestable markets under uncertainty in this article we present a model of a market which is ex post contestable we show that in a market characterized by uncertainty a firm will face a tradeoff between efficiency and flexibility and generally will make some precommitments to take advantage of ex ante technologies we show that in the face of potential entry the incumbent will increase his precommitments and in so doing will affect the probability of entry the degree of market contestability is therefore endogenously determined by the choice of precommitments the extent to which precommitments will be used to affect entry probabilities is shown to depend on the efficiency of ex ante production adjustment costs and the degree of uncertainty in particular we show that the market becomes more contestable as the relative efficiency of ex post production increases and as market conditions become more uncertain

location choice product proliferation and entry deterrence within a slightly modified version of hotelling s model we reconsider the claim that the threat of entry induces existing firms to produce a larger number of products than they would otherwise we show that entry deterrence although optimal need not be achieved through product proliferation in some cases the incumbent monopolist resorts to an entry deterring strategy based on location choice rather than product proliferation we also show that in some cases the number of products chosen by the incumbent facing the threat of entry is strictly greater than the minimum number required to deter entry

the effects of shifts in a return distribution on optimal portfolios when the distribution of the returns of a risky asset undergoes a stochastically dominating shift a risk averse investor may not necessarily increase the investment in that asset this paper provides restrictions on the investor s utility function that are necessary and sufficient for a dominating shift to bring about no decrease in the investment in the respective asset if there are two risky assets in the portfolio these conditions are also necessary if there are n 2 assets and are necessary and sufficient if the utility function exhibits constant absolute risk aversion copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a note on credible spatial entry deterrence abstract this note revisits the question of spatial entry deterrence to investigate the credibility of pre emption by crowding in a differentiated market judd rand j econ 16 1985 153 argues that pre emption by crowding is not a credible entry barrier because an incumbent monopolist has an ex post incentive to withdraw products in response to entry we demonstrate that pre emption by crowding may be a credible entry barrier if multiple potential entrants choose the timing of entry endogenously

advertising information and product quality the case of butter this study examines the roles of cholesterol information and advertising in explaining consumption trends for fats and oils focusing on butter results suggest increased consumer awareness of the health effects of blood cholesterol has contributed to the secular decline in butter consumption in canada although consumers responses to negative information appear to outweigh their responses to positive information the industry advertising campaign launched in 1978 by the dairy bureau of canada has had a positive effect on butter demand

entry deterrence and the free rider problem the public good aspect of entry prevention is examined in an industry characterized by an established oligopoly facing a potential entrant although incumbent firms act noncooperatively underinvestment in entry deterrence does not occur and in fact incumbents may find themselves in a pareto dominated arrangement in terms of profits by preventing entry

single name credit risk portfolio risk and credit rationing this paper introduces non diversifiable risk in the stiglitz weiss adverse selection model so that an increase in the average riskiness of the borrower pool causes higher portfolio risk this opens up the possibility of equilibrium credit rationing comparative statics analysis shows that an increase in risk aversion turns a two price equilibrium into a rationing equilibrium a two price equilibrium is more inefficient than a rationing equilibrium and a usury law that rules out the higher of the two interest rates can be welfare improving contrary to the common result the equilibrium may be characterized by over investment

search with learning from prices does increased inflationary uncertainty lead to higher markups aggregate cost uncertainty arising from real shocks or unanticipated inflation reduces the informativeness of prices by scrambling relative and aggregate variations but when agents can acquire additional information such increased noise may in fact lead them to become better informed and price competition will intensify we examine these issues in a model of search with learning where consumers search optimally from an unknown price distribution while firms price optimally given consumers search rules we show that the decisive factor in whether inflation variability increases or reduces the incentive to search and thereby market efficiency is the size of informational costs

market competition r d and firm profits in asymmetric oligopoly we investigate a cournot model with strategic r d investments wherein efficient low cost firms compete against less efficient high cost firms we findthat an increase in the number of high cost firms can stimulate r d by the low cost firms while it always reduces r d by the high cost firms more importantly this force can be strong enough to compensate for the loss that arises from more intense market competition the low cost firms profits may indeed increase with the number of high cost firms an implication of this result is far reaching as it gives low cost firms an incentive to help rather than harm high cost competitors we relate this implication to a practice known as open knowledge disclosure especially ford s strategy of disclosing its know how publicly and extensively at the beginning of the 20th century

equilibrium number of firms and economic welfare in a spatial price discrimination model abstract we examine welfare implications of the equilibrium number of entering firms in a spatial price discrimination model in contrast to salop salop s 1979 monopolistic competition with outside goods bell journal of economics 10 141 156 the equilibrium number of firms can be either excessive or insufficient from the normative viewpoint

the bright side of having an enemy conventional wisdom suggests that more intense competition will lower firms profits the authors show that this may not hold in a channel setting with exclusive retailers they find that a manufac

deterrence by market sharing a strategic incentive for licensing the potential of an incumbent firm to retain its dominant position in a market is a focal point of the modem theory of industrial organization a recent literature examines this issue for markets in which challengers threaten an incumbent s position by engaging in research for a new technology richard gilbert and david newbery 1982 show that an incumbent firm with a firstmover advantage will preempt potential entrants by inventing a new technology slightly earlier than would its rivals in a stochastic r d therefore its introduction does not alter the decision to research when the pre innovation market is characterized by an incumbent and potential entrants stephen salant 1984 shows that licensing ex post to innovation can alter the research decision as anticipation of the returns from future licensing encourages research by the entrant as a counterpoint to the salant result i find that licensing ex ante to research may discourage further research by the entrant indeed this strategic incentive for licensing may be so strong as to persuade the incumbent as well as the entrant to terminate research activity to isolate this incentive for licensing from the one discussed by salant a simple model is constructed in which licensing of future technologies is not desirable anecdotal evidence suggests that the strategic incentive does lead innovators in some markets to license their technologies examples of this information sharing are prevalent in markets where technological change is rapid in the 1940 s standard oil of new jersey discovered a process for synthetic rubber it traded patent rights on this process for a synthetic oil production process discovered by farben a german rubber company in both the synthetic oil and synthetic rubber markets rival companies were department of economics scarsborough college university of toronto toronto ontario canada m5s lal i thank jon cohen and ron saunders for discussions that inspired this paper i am also grateful to yehuda kotowitz andy mclennan jennifer reinganum ralph winter myma wooders two anonymous referees and seminar participants at the university of toronto for helpful comments on earlier drafts

food scare crises and price volatility the case of the bse in spain abstract recent incidents of contaminated food products coupled with the widespread diffusion of news by mass media and the growing social concerns about food safety have resulted in significant food market crises one of the most highly publicized recent food scares involved bovine spongiform encephalopathy bse in our analysis we evaluate the impacts from a bse outbreak on the price volatility transmission along the spanish food marketing chain by using a smooth transition conditional correlation stcc garch model our work is the first to assess price volatility responses to food scares results suggest that two distinct regimes involving different price volatility behavior can be distinguished one characterized by turbulent markets and another where markets are calming down

sequential entry industry structure and welfare in this paper we reexamine the relationship between potential competition industry structure and welfare in a market subject to a sequential entry threat where firms can make quantity commitments and have access to a constant returns technology it is shown that provided entry is not blockaded the incumbent s will either prevent entry or allow all the potential entrants in furthermore actual entry may decrease but social welfare never goes down with more potential entrants nevertheless with a finite number of potential entrants policies which lower the cost of entry need not be beneficial in welfare terms

a note on credible spatial preemption in an entry exit game i investigate how an incumbent firm deters entry by crowding the market even when the incumbent can withdraw its stores in response to entry in a two location model judd 1985 shows such spatial entry deterrence is not credible in contrast i demonstrate spatial preemption can be credibly employed in a circular city model if the incumbent can build its stores on sufficiently many locations and transportation costs are linear

strengthening a weak rival for a fight abstract we provide a new model wherein firms of different productivities survive in an industry despite the threat of entry by high productivity firms we demonstrate that an efficient incumbent has a unilateral incentive to establish a relational contract softening price competition to strengthen its inefficient rival in a war of attrition that emerges post entry and raising the price of the inefficient firm in the acquisition market we show that this equilibrium gives rise to persistent performance differences market compression and stability in the identity of firms in the market moreover the relational contracting equilibrium is facilitated by strong anti trust laws

a fresh meat almost ideal demand system incorporating negative tv press and advertising impact abstract this paper investigates fresh meat consumption in belgium during 1995 1998 through the specification of a three equation almost ideal demand system aids incorporating a media index of tv coverage and advertising expenditures as explanatory variables estimated parameters and elasticity coefficients are plausible and consistent with demand theory own price elasticities are relatively low indicating a low fresh meat demand sensitivity to price changes over this period which was dominated by mass media reports about the potential health risks associated with meat consumption the scope of the paper extends beyond the estimation of elasticity coefficients and includes the specification of a media index and simulations that provide insights into the impact of negative press relative to advertising efforts specifically the impact of television publicity is shown to have been particularly negative on beef veal expenditures in favour of pork mixture this finding corroborates expectations since mass media issues mainly pertained to bse mad cow disease and hormone residues during the investigated period with relatively little effort being undertaken and with its current strategy fresh meat advertising is found to have only a minor impact compared with negative press

weak entrants are welcome abstract this paper investigates the decision problem of an incumbent firm confronted by both a weak and strong entrant in a differentiated market suppose that the incumbent can deter entry of the weak firm but cannot deter entry of the strong firm by itself then the incumbent may allow entry of the weak firm and use it to alter the strong firm s entry decision the present paper formalizes this idea and it sheds new light on the fact that domestic firms are sometimes able to block strong foreign firms after trade liberalization the idea also explains why a dominant firm lets fringe firms be in the market

news and volatility of food prices financial markets exhibit an asymmetric news effect with unexpected low prices generating more price volatility than news of high prices the present study examines us food markets for such asymmetric news effects analysis of 25 years of monthly data for 45 retail food items shows that price news destabilizes about a third of the markets with unexpected price increases more destabilizing

optimal saving under general changes in uncertainty a nonexpected utility maximizing approach there has been an extensive discussion of optimal consumption saving behavior of expected utility maximizing risk averse individuals 6 7 there are however two limitations of such works first the widely used time additive von neumann morgenstern vnm preferences may not be suitable for analyzing choice problems in a dynamic context since for this class of preferences the coefficient of relative risk aversion turns out to be the reciprocal of the elasticity of intertemporal substitution these preferences fail to distinguish between the importance of intertemporal substitution and risk aversion in determining the optimal choice for the individual decision maker secondly in analyzing the comparative static effect of an increase in risk the increase in risk has been usually captured by the mean preserving spread of the distribution of the underlying random variable but since the mean of the distribution is stipulated to be unchanged the mean preserving spread undoubtedly provides a restrictive characterization of an increase in risk the limitation of the vnm preferences has motivated researchers to look for an alternative framework to analyze dynamic choices under uncertainty it was selden 8 9 who developed a nonexpected utility maximizing approach by proposing the ordinal certainty equivalent oce preferences to distinguish between intertemporal substitution and risk aversion since then a number of other authors have further examined the implications of the nonexpected utility maximizing framework not surprisingly in the literature of nonexpected utility maximizing analysis a considerable attention has been given to the individual saving decision under capital risk in a clear departure from the expected utility maximizing analysis under the nonexpected utility maximizing approach optimal saving tends to be determined by the elasticity of intertemporal substitution as well as the risk aversion parameter however even in the nonexpected utility maximizing framework the increase in capital risk has usually been characterized in terms of a mean preserving spread of the random rate of return it has been shown by selden 9 and weil 10 that the effect of an increase in capital risk on the level of saving depends only on the elasticity of intertemporal substitution and not on the risk

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

does food safety information impact u s meat demand a theoretical model of consumer response to publicized food safety information on meat demand is developed with an empirical application to u s meat consumption evidence is found for the existence of pre committed levels of consumption seasonal factors time trends and contemporaneous own and cross commodity food safety concerns the average demand response to food safety concerns is small especially in comparison to price effects and to previous estimates of health related issues this small average effect masks periods of significantly larger responses corresponding with prominent food safety events but these larger impacts are short lived with no apparent food safety lagged effects on food safety concerns in the united states have dramatically increased in the past decade with regard to incidences of contaminated meat products concerns have arisen because contaminated meat products can result in serious risk to the well being and health of consumers contamination comes from a myriad of sources including but not limited to outbreaks of listeria monocytogenes escherichia coli e coli and salmonella centers for disease control and prevention food safety problems are not isolated to the united states as other unsafe contaminates in meats have emerged across the world including highly publicized outbreaks of bovine spongiform encephalopathy bse in europe the potential impacts of publicized food safety events on consumer s demand for meat products in the united states include own effects on the demand for the contaminated meat involved as well as cross effects impacting the demand for other meats the objective of this article is to investigate whether publicized food safety concerns surrounding beef pork and poultry chicken and turkey have impacted meat consumption food safety indices are constructed separately for beef pork and poultry

the theory of food price stabilisation a small and very volatile fraction of total domestic food production many countries aim at food self sufficiency with the consequence that the country may be an exporter in good years but an importer in bad years international and domestic transport and handling costs are a significant fraction of the average price of cereals so the domestic price fluctuations will tend to be an amplified version of international price fluctuations the difference between the domestic price in exporting and importing years will be twice the transport costs if the world price is unchanged it would require a strong negative correlation between domestic and world supply to offset this additional source of instability 1

strategic wholesale pricing in a supply chain with a potential entrant this paper develops an adverse selection model for a two stage supply chain with one supplier one retailer and a potential outside entrant supplier who makes a partially substitutable product the work is different from most research on entry deterrence that only considers a single stage model our main interest is to investigate how the incumbent supplier can strategically maximize her profit by a wholesale pricing policy when facing the potential entrant we focus on a model where the entrant supplier will sell her product through the same incumbent retailer we derive the optimal decisions for each player and study the comparative statics of the equilibrium to investigate how the supply chain structure may affect the deterrence strategy of the incumbent supplier we also consider three alternative models with different channel structures when both suppliers sell their products directly when the entrant has another independent retailer and when the entrant sells her product directly through the comparison we find that the existence of the common downstream retailer often enhances the deterring motivation of the incumbent supplier

can price competition dominate market segmentation this note analyses duopoly competition in a two stage location price game while allowing each firm to establish a couple of outlets both the circle and the line model of spatial competition are considered our main result is clear cut in equilibrium neither firm will take up the opportunity of opening two stores this is a warning that market segmentation i e competition from multiple outlets might not be attractive at all because it entails more intense price competition

modeling beef supply response and price volatility under cap reforms the case of greece abstract this study examines the supply response of the greek beef market and the possible effect of the european union s common agricultural policy cap on the greek beef sector during the period 1993 2005 a generalized autoregressive conditional heteroskedasticity garch process is used to estimate expected price and price volatility while several different symmetric asymmetric and non linear garch models are estimated the empirical results show that price volatility and feed price are important risk factors in the supply response function while the negative asymmetric price volatility that was detected implies that producers have a weak market position furthermore the empirical findings confirm that the annual premium paid by the eu to beef producers had a positive impact on the production level and also the change of the eu price support regime after 2006 is having negative effects on beef production level in greece

bioeconomic diversity dynamics of a marine ecosystem this paper models the bio economic diversity dynamics of a marine ecosystem made up by its entire commercial fish species and from the fitted model obtains a quantitative measure of its resilienc

the impact of food scares on price adjustment in the uk beef market abstract this paper considers the impact of food scares predominately concerns relating to bse on uk beef prices at retail wholesale and producer levels over the 1990s acknowledging the co movement that exists between prices in the meat marketing chain we use a co integrating framework the results of which show the importance of publicity regarding the safety of food in the transmission of beef prices in the uk the food publicity index that we use has a marked negative impact on the prices at all levels a result that is consistent with the effect of an inward shift in the demand function moreover the extent of price decline varies between the marketing stages entailing that the price spreads rise in response to an increase in the negative publicity about food safety while not a formal test of market power these observations are consistent with recent theoretical results demonstrating that market power exacerbates price changes in the upstream sectors for a given change in the retail demand function the implication of these varying price changes is that the food safety concerns also cause the marketing margins between the stages to widen the uk s competition commission has recently investigated the abuse of market power in the food sector inspired largely by this specific issue