r d investments under endogenous cluster formation abstract we provide an innovative theory based explanation for the positive relationship between firms r d intensity and their degree of r d cooperation we show that when oligopolistic firms decide on long term r d investment before forming research clusters among competitors investment incentives are increased by the desire to become a member of an attractive cluster this can result in over investment compared to the welfare optimum and compared to a scenario where research clusters are ex ante fixed thereby as a theoretical contribution we fully characterize the equilibria of the unanimity game on cluster formation with heterogeneous firms

optimal r d policy and endogenous quality choice abstract in a quality differentiated duopoly where i quality is endogenously chosen before production ii fixed costs are increasing and convex in quality and iii variable production costs are insubstantial an r d subsidy for the firm producing a high quality product improves social welfare irrespective of whether the ensuing product market competition is bertrand or cournot while an r d subsidy for the firm producing a low quality product improves social welfare only if bertrand and not if cournot

asymmetric price responses of residential energy demand in ontario during the last few decades oil prices have experienced both sharp increases and more recently equally sharp decreases a number of researchers e g gately 1993a 1993b hogan 1993 shealy 1990 have examined the demand responses to these price movements and concluded that price induced changes in demand have not been symmetric more specifically this asymmetry is said to have taken the form of larger demand changes for price increases than for price decreases to explain this phenomenon it is typically argued that the oil price rises of the 1970s and early 1980s set in motion behavioural changes that had long lasting effects so that when price decreases occurred later in the 1980s relatively small changes in demand were observed shealy 1990 among others points to the capital stock as playing an important role in this process but does not explicitly incorporate infornmation on the stock of capital in the model he estimates studies that have examined this issue are typically based on as many as three broad levels of aggregation they tend to aggregate geographically focusing on entire countries or even groups of countries many of these studies also aggregate across sectors of the economy and thus fail to take into account the different patterns of energy utilization in different regions and or sectors of the economy finally by looking only at the demand for oil products or at total energy demand these studies do not explicitly allow for inter fuel substitution in contrast we examine residential energy demand in a single province ontario and allow for inter fuel substitution by specifying a system of fuel expenditure share equations which is estimated using annual data for the period 1962 1989 our focus on the residential sector is predicated on the

cost reduction competition and industry performance in many markets firms compete over time by expending resources with the purpose of reducing their costs sometimes the cost reducing investments operate directly on costs in many instances they take the form of developing new products that deliver what customers need more cheaply therefore product development can have the same ultimate effect as direct cost reduction in fact if one thinks of the product as the services it delivers to the customer in the way that lancaster pioneered then product development often is just cost reduction

indirect taxation and undesirable competition abstract this paper studies undesirable competition in an asymmetric oligopoly under ad valorem taxation we show that when the cost advantage of efficient firms is large both the entry of and the cost reduction in efficient firms raise social welfare but unexpectedly hurt consumers moreover we find that unit taxation yields higher consumer surplus in equilibrium and it could also be welfare superior to ad valorem taxation under certain conditions

statistical moments analysis of production and welfare in multi product cournot oligopoly abstract our context involves n cournot oligopolists producing m products at constant marginal costs when preferences are quasi linear we identify relationships between second moments of unit costs and second moments of firm level production for example a larger variance in unit costs of a product increases own output variance and the variance of any other output we also investigate how second moments of unit costs affect industry cost efficiency industry costs can rise if the wrong firm secures a cost reduction for quadratic preferences it is shown that zhao s zhao j 2001 a characterization for the negative welfare effects of cost reduction in cournot oligopoly international journal of industrial organization 19 455 469 3 4 march share criteria for an increase in unit costs to increase welfare extend to the multi product setting

does society prefer small innovation abstract in this paper we show how the size of innovation can affect the incentive for cooperative r d and social welfare when cost difference between large and small innovations is not sufficiently large then social welfare can be more under small innovation compared to large innovation however the innovating firm always prefers large innovation

international coordination of trade and domestic policies the past half century has seen a dramatic multilateral reduction in tariff barriers under general agreement on tariffs and trade gatt negotiations however as tariff barriers have fallen attention has shifted to the use of domestic policies as secondary trade barriers a primary concern is that as countries sign trade agreements that constrain their ability to pursue trade goals through trade policy there will be unilateral incentives for governments to distort their domestic policies as a secondary means of protection 1 increasingly international trade disputes revolve around a country s use of internal regulations as a means of restricting trade the united states has successfully challenged the system of liquor taxes in both japan and korea as discriminating against imported liquor while venezuela and brazil have challenged american standards for reformulated and conventional gasoline as trade protection masquerading as environmentalism gatt contains several articles concerning the international regulation of domestic policies but the question of how to fully incorporate domestic policies within gatt negotiations and other international trade agreements remains contentious indeed at both the ministerial meeting in 1994 at the close of the uruguay round and the recent unsuccessful ministerial conference in seattle many gatt delegates renewed demands for the relationship between trade and various domestic policies e g environmental policy labor standards or competition policy to be examined despite the importance that has recently been placed on international cooperation over domestic policies no theoretical basis exists for considering how to cooperate over both trade and domestic policies within an international agreement previous papers on negotiation over two instruments of protection e g copeland 1989 1990 thomas l hungerford 1991 have assumed asymmetric limitations on cooperation i e they assume that one of the two instruments is either nonobservable or nonnegotiable this paper extends such work by investigating cooperation over two negotiable instruments of protection under symmetric limitations on cooperation and provides insight into the design of international trade agreements that incorporate cooperation over domestic policies i adopt the view that enforcement issues are central to the understanding of international cooperation one of the challenges of international cooperation is the absence of a central authority to enforce the terms of an agreement without access to an external enforcement mechanism international agreements are viable only as long as member countries view continued cooperation to be in their own self interest i e the benefits from cooperating outweigh the potential gains from cheating 2 while the gatt department of economics university of miami p o box 248126 coral gables fl 33124 e mail ederington miami edu i would like to thank bob staiger bob baldwin wolfgang keller phillip mccalman jenny minier seminar participants at the nber conference on trade the environment and natural resources and two anonymous referees for comments on earlier versions of this paper any remaining errors are of course my own for example brian r copeland 1990 examined negotiation over one trade barrier leaving a secondary trade barrier e g nontariff barriers domestic legislation etc to be set noncooperatively he shows that trade liberalization will induce substitution toward the less efficient nonnegotiable instrument of protection due to the unilateral incentives to maintain trade protection facing countries thus within a cooperative framework the two types of barriers serve as imperfect substitutes for each other 2 as stated by kenneth w dam in his review of the gatt institution the best guarantee that a commitment of any kind will be kept particularly in an international setting where courts are of limited importance and even more important marshals and jails are nonexistent is that the parties continue to view adherence to their agreement in their mutual interest thus the gatt system unlike most legal systems is not designed to exclude self help in the form of retaliation rather retaliation subjected to established procedures and kept within prescribed bounds is made the heart of the gatt system dam 1970 pp 80 81

computing welfare losses from data under imperfect competition with heterogeneous goods abstract we study the percentage of welfare losses pwl yielded by imperfect competition under product differentiation when demand is linear even if prices outputs costs and the number of firms can be observed pwl is arbitrary in both cournot and bertrand equilibria if in addition the elasticity of demand resp cross elasticity of demand is known we can calculate pwl in a cournot resp bertrand equilibrium when demand is isoelastic and there are many firms pwl can be computed from prices outputs costs and the number of firms we find that price marginal cost margins and demand elasticities may influence pwl in a counterintuitive way we also provide conditions under which pwl increases or decreases with concentration

a mixed oligopoly in the presence of foreign private firms in this paper a mixed oligopoly model is considered in which a state owned public firm competes with both domestic and foreign private firms previous articles on mixed oligopoly did not include foreign private firms the effect on the equilibrium involves a lower price and a different allocation of production relative to the case when all private firms are domestically owned in addition issues such as the effects of an open door policy allowing foreign firms to enter and the effects of foreign acquisition of domestic firms are discussed

long run welfare effect of energy conservation regulation we investigate the long run effect of energy conservation regulation which forces firms to raise energy saving investment above the cost minimizing level if pigovian tax is imposed additional regulation always harms social welfare under perfect competition while it can improve welfare under imperfect competition our result under imperfect competition holds regardless of whether strategies are strategic substitutes or complements in contrast to direct entry regulation

welfare reductions from small cost reductions in differentiated oligopoly abstract this paper compares the welfare effects of cost reductions in differentiated bertrand and cournot oligopolies using a linear demand system the paper provides the critical levels of output shares below which a small cost reduction by a bertrand or cournot firm reduces welfare it then shows that the critical value is larger under bertrand competition than cournot competition

international business alliance under asymmetric information technology vis a vis information advantage author affiliation chifeng dai daic siu edusajal lahiri lahiri siu edu corresponding author acknowledgment we are grateful to two anonymous referees for extremely helpful comments and suggestions 1 introductioninternational inter firm business cooperation as a means to reach a foreign marketplace has been rapidly increasing in popularity and has been growing hand in hand with the overall process of globalization business collaborations in general take different forms licensing franchising and joint venture jv are two important forms of this collaboration the exact nature of the contract between firms can also take different forms involving one or more of the following up front licensing fees equity investments annual maintenance fees milestone payments and royalties 1 for example under the jv agreement between generex biotechnology canada and sejong capital korea sejong agrees to invest 25 million in the jv as a non refundable license fee paid to generex and to purchase 5 million of generex s equity under the jv agreement between cambridge biostability united kingdom and panacea biotec india panacea purchased 1 935 million of cambridge s equity up front and signed a long term licensing agreement that provides gross royalty income to cambridge over the agreement period 2apart from the contractual arrangements another important issue in international business cooperation is the question of transfer or adaptation of technology for the international alliance ia and this has received a lot of attention in the literature see for example katz rebentisch and allen 1996 it is generally agreed that the technology adaptation issue is a rather complicated engineering and economic issue and often requires significant efforts there are four broad research questions here first why do firms from developing and industrialized countries form an alliance miller et al 1997 studied 76 ias in six developing countries they found that more than 65 of the foreign companies chose domestic partners because of their knowledge of local politics government regulations local custom and local markets and more than 70 of the domestic firms in developing countries sought collaboration with multinationals based on their superior technology the second question involves why ias have diverse contractual arrangements the third question involves how each firm s advantage and disadvantage in technology and market information affect their profits in ias do firms in the alliance always prefer more market information and better technology the final question has to do with whether technology spillover hinders the formation of an ia 3in order to answer some of the research questions outlined above we consider a simple model consisting of two firms a multinational corporation mnc and a domestic firm the firms operate under uncertain market demand the mnc possesses a production technology that is superior to that of the domestic firm however the domestic firm has an information advantage in the sense that with costly and non contractable efforts it can predict demand conditions with some probability we start with the case in which the credit market is perfect and the technology adaptation in the ia is exogenous and costless we show that in the ia the mnc optimally charges the domestic firm a lump sum payment but offers it the entire profits of the ia under the contractual arrangement market uncertainty and the domestic firm s ability to gather information increase the domestic firm s profits but not the mnc s profits in ia however the mnc prefers duopoly competition to ia if the technology adaptation is imperfect and the domestic firm s production technology is exceedingly inferior we then deviate from the benchmark case in two different directions but one at a time

the welfare effects of third degree price discrimination in the author examines third degree price discrimination by an upstream monopolist in an intermediate good market discrimination is motivated by the fact that downstream firms differ in their abilities to integrate backward into supply of the input the author shows that under reasonable specifications of equilibrium price discrimination leads to all buyers facing higher input prices in other cases discrimination raises some prices and lowers others the author derives conditions under which discrimination lowers welfare by reducing total output and shows that in some markets discrimination will raise welfare by preventing socially inefficient backward integration copyright 1987 by american economic association

economic welfare in delivered pricing duopoly bertrand and cournot abstract we investigate two delivered pricing models we find that in the bertrand cournot model the equilibrium distance between two firms locations is too large small for maximum social welfare while it is too small for maximum consumer surplus in both models

choosing a licensee from heterogeneous rivals we examine a rm that can license its production technology to a rival when rms are heterogeneous in production costs we show that a complete technology transfer from one rm to another always increases joint pro t under weakly concave demand when at least three rms remain in the industry a jointly pro table transfer may reduce social welfare although a jointly pro table transfer from the most e cient rm always increases welfare we also consider two auction games under complete information a standard rst price auction and a menu auction by bernheim and whinston 1986 with natural re nement of equilibria we show that the resulting licensees are ordered by degree of e ciency menu auction simple auction and joint pro t maximizing licensees in weakly descending order

the unilateral incentives for technology transfers predation and deterrence by proxy abstract joint production between rival firms often entails knowledge transfers without direct compensation leaving the question as to why more efficient firms would give their rivals such an advantage we find that such transfers are credible mechanisms to make the market more competitive so as to deter entry or force exit we determine that with free entry such transfers are profitable and further it may be optimal to predate or deter every firm possible so that a market with many firms can become a duopoly while consumers are harmed by such action production efficiency normally increases sufficiently so that welfare increases

cost heterogeneity industry concentration and strategic trade policies abstract we show that if domestic firms do not have identical unit costs then the interplay between the herfindahl index of concentration and the elasticity of the slope of the demand curve is of major importance in the determination of optimal trade policies in some cases the direction of optimal policy is reversed

redistribution state trading enterprises and politically optimal tariffs state trading enterprises stes are widely used and can be viewed as instruments of trade policy we analyse two aspects the first is their potential trade distorting effect the second is how they modify the case for the politically optimal tariff we show that the ste can reduce the need for a tariff designed for domestic redistribution this result introduces some ambiguity about how stes are interpreted from a multilateralist perspective they should be dealt with in the same way as other non tariff barriers from a nationalistic perspective they can reduce the need for politically optimal redistribution entreprises d etat impliquees dans le commerce international et tarifs politiquement optimaux les entreprises d etat impliquees dans le commerce international eeici sont communement utilisees comme instruments de politique commerciale on analyse deux aspects de cette intervention le premier est leur effet potentiel de distorsion sur les flux commerciaux le second est jusqu a quel point cette intervention modifie l argument du tarif politiquement optimal on montre que les eeici peuvent reduire le besoin d un tarif defini pour des fins de redistribution au niveau domestique le resultat injecte une certaine ambiguite dans le traitement des eeici d un point de vue international on devrait les traiter comme toute autre barriere non tarifaire d un point de vue nationaliste ils peuvent reduire le besoin de faire appel au politiquement optimal

optimal taxation and heterogeneous oligopoly this paper examines the effects of firm specific taxes on an oligopoly composed of firms of unequal sizes holding different conjectures operating with nonidentical costs four types of effects are analyzed on profits on industry concentration on total tax revenue and on social welfare the author derives 1 the revenue maximizing taxes 2 the welfare maximizing taxes and 3 welfare maximizing taxes subject to a revenue constraint

cost manipulation games in oligopoly with costs of manipulating we analyze a class of two stage games where rival firms incur real resource costs in manipulating their marginal costs so as to influence the outcome of the game they want to play in stage two marginal costs may be manipulated by various means such as redistribution of productive assets choice of location or creation of an internal input market a general formulation of the game is provided and several applications are analyzed we show that the optimal allocation of resources within an oligopoly can be asymmetric even for ex ante symmetric firms this is an additional explanation of heterogeneity in oligopoly

optimal tariffs in the presence of middlemen in this paper the authors examine the question of optimal tariffs when producers and sellers are different entities a number of alternative market structures are considered it is found that the sign of the optimal tariff may depend on the nature of the producer seller relationship viz who the leader is in particular the authors find that the optimal tariff is negative when the only seller is the leader and there is only one foreign producer there is also a case where it is optimal for the government of the home country to subsidize imports no matter who the leader is

comparative statics for oligopoly a generalized result we perform comparative statics for a general model of asymmetric oligopoly and derive a concise formula for the response of one firm to a marginal change in its rival s strategic variable taking into account the responses of all other firms we obtain the conditions under which the sign of this response coincides with that of the mixed second order partial derivative of the firm s payoff function we then propose a distinction between gross and net strategic relationships i e strategic substitute and complement

welfare maximizing and revenue maximizing tariffs with a few domestic firms in this paper we compare the orthodox optimal tariff formula with the appropriate welfare maximizing tariff when there are a few producing or importing firms the welfare maximizing tariff can be very low voire negative in some cases while in others it can even exceed the maximum revenue tariff the relationship between the welfare maximizing tariff and the number of firms need not be monotonically increasing because the tariff is not strictly used to internalize terms of trade externality it is also used to manipulate cost asym metries between producing and importing firms welfare maximizing specific tariffs are never worse than their ad valorem counterparts jel classification f13 l13

reexamining the effect of the most favored nation provision in input prices on r and d incentives abstract we examine the effect of the most favored nation provision in input prices on downstream firms r and d incentives contrary to the previous literature we show that the effect depends on the extent of substitutability between downstream firms if they compete in two part tariffs when a downstream firm lowers its marginal cost it entails two conflicting effects on the upstream firm s pricing for inputs the standard elasticity effect of penalizing the low cost firm and the market share effect of rewarding it if substitutability between downstream products is high enough the latter dominates the former and thus downstream firms will choose a higher marginal cost technology under the mfn provision

price discrimination and social welfare studies the effect of price discrimination on social welfare using methods from duality theory features of the reservation model presented quasi linear utility and consumers surplus upper and lower bounds on welfare change bounds on welfare change with optimal price discrimination from ebsco

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

welfare losses under cournot competition abstract in a market for a homogeneous good where firms are identical compete in quantities and produce with constant returns the percentage of welfare losses pwl is small with as few as five competitors for a class of demand functions which includes linear and isoelastic cases we study markets with positive fixed costs and asymmetric firms we provide exact formulae of pwl and robust constructions of markets were pwl is close to one in these two cases we show that the market structure that maximizes pwl is either monopoly or dominant firm depending on demand finally we prove that pwl is minimized when all firms are identical a clear indication that the assumption of identical firms biases the estimation of pwl downwards

liberalisation consumption heterogeneity and the dynamics of energy prices in this study the methodology var and the cointegration analysis are used to examine the dynamic interaction among the energy prices of the competitor energy sources in a liberalised market data from the uk market were applied and models for the residential and industrial sectors were developed our results indicate the existence of long run relationships between the energy prices before and after the liberalisation implying the possibility of substitution among the different forms of energy however the results appear to be also largely influenced by external variables not included in the models that may be reducing the importance of the energy prices over their own evolution and offsetting the basic substitution relationships the general results of the impulse response functions both for the residential and industrial sectors present low statistical significance which seems to be due to the still slow rate of adjustment of the energy market to price changes along with the immaturity of the liberalisation process taking into consideration the results some routes for future research are pointed out namely the need to include in the analysis variables which would proxy the general state of the economy

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

economies of feedlot scale biosecurity investment and endemic livestock disease infectious livestock disease creates externalities for proximate animal production enterprises the distribution of production scale within a region should influence and be influenced by these disease externalities taking the distribution of the unit costs of stocking an animal as primitive we show that an increase in the variance of these unit costs reduces consumer surplus the effect on producer surplus total surplus and animal concentration across feedlots depends on the demand elasticity a subsidy to smaller herds can reduce social welfare and immiserize the farm sector by increasing the extent of disease while nash behavior involves excessive stocking disease effects can be such that aggregate output declines relative to first best disease externalities can induce more adoption of a cost reducing technology by larger herds so that animals become more concentrated across herds for strategic reasons excess overall adoption of the innovation may occur larger herds are also more likely to adopt biosecurity innovations explaining why larger herds may be less diseased in equilibrium

the trade distorting effect of state trading enterprises in importing countries abstract this paper focuses on the potential trade distorting effect of state trading enterprises an issue that is likely to receive greater attention than hitherto in the context of the current agricultural negotiations in the wto although state trading enterprises can arise in both exporting and importing countries the emphasis here is on the importing country case our results show that state trading enterprises do distort trade though the nature of the distortion i e whether it is equivalent to an import tariff or import subsidy depends on the nature of exclusive rights bestowed by government on the state enterprise we also consider state trading enterprises in both developed and developing economies the main difference being the nature of the government s pay off function the theoretical framework allows us to derive the tariff equivalent effects for various types of stes the results suggesting that the trade distorting effect is likely to vary considerably dependent on the type of ste that arises in particular circumstances

idiosyncratic shocks in an asymmetric cournot oligopoly abstract several authors have studied the impact of a marginal cost variation in the cournot model on consumers surplus firms profits and social welfare we unify and extend the results when all marginal costs change simultaneously hence we bring together two strands of literature respectively on mean preserving and subgroup common shocks the effect of any shock is decomposed into two parts an average impact ai and a heterogeneity effect he the former improves welfare if the inverse demand function is concave enough and the market is concentrated enough the latter when the diffusion of the shock is negatively correlated with the market share distribution finally we apply our decomposition to various special cases

market integration and competition in environmental and trade policies recent empirics suggest the relevance of transport cost reductions for world trade growth along with eliminations in protectionist trade barriers to address the welfare effects of trade cost reductions in a context of trade and the environment we develop a two stage game model where governments choose environmental and trade policies and firms play a cournot nash game we show that reductions in transport costs lead to lower emission taxes and higher tariffs and we find that the degree of pollution damage plays a central role in whether market integration is welfare improving relative to autarky

green tax reform in an oligopolistic industry oecd countries reduce or eliminate certain taxes when they introduce new environmental taxes the purpose of this paper is to analyze the incidence of such green tax reform in an oligopolistic industry the paper shows that a rise in taxes could result in the expansion of the aggregate pollution in the presence of a large technology gap the paper further shows that the government loses tax revenue as a result of the green tax reform if it continues to apply the same environmental standard this implies that the government needs to raise environmental standards to keep the existing level of public spending after a green tax reform

endogenous role in mixed markets a two production period model in this paper i investigate endogenous roles in a mixed duopoly where private and state owned public firms compete by allowing two production periods i find that many equilibria exist including the cournot type equilibrium and one stackelberg type equilibrium where the public firm becomes the follower however another stackelberg type equilibrium where the public firm becomes the leader does not exist if small inventory costs are introduced the unique equilibrium outcome becomes the stackelberg type where the public firm is the follower

strategic interaction among nations negotiable and non negotiable trade barriers trade policy is modelled as a two stage game between governments governments choose a negotiable trade barrier in the first stage of the game which is co operative the level of this barrier is treated as a binding commitment in the second stage of the game where the non negotiable trade barrier is chosen non co operatively hence governments choose trade barriers during negotiations with a view to influencing the equilibrium of the non co operative game to follow this proves to be a convenient framework in which to analyse the idea that trade agreements contain loopholes which can be exploited by protectionist governments trade negotiations induce substitution toward less efficient instruments of protection but are nevertheless welfare improving as long as the negotiations are relevant i e the negotiable barrier is actually in use and the two instruments are not perfect substitutes

the market selects the wrong firms in the long run we consider the effects of free entry on the market structure and social welfare of an asymmetric cournot oligopoly even if we allow for the existence of different types of firms initially only one type in almost all cases can survive in the long run free entry leads an economy to a symmetric equilibrium in which the excess entry theorem holds further we consider the socially optimal policy for this economy in cases of either i a concave demand which implies strategic substitutability or ii strategic complementarity which implies a convex demand the type of firms that should remain in the market to achieve social optimality does not necessarily coincide with the type of firms that will survive in the long run the market may select not only the wrong number of firms but also the wrong type of firms in the long run

upstream and downstream pollution taxations in vertically related markets with imperfect competition when two markets are vertically related the government can control pollution at the upstream as well as the downstream market levels this paper employs the stylized model of input price discrimination and compares the effectiveness of upstream and downstream pollution taxations we consider the situation in which downstream firms have heterogeneous abatement technologies and an upstream monopolist performs input price discrimination against them in order to mitigate pollution the government imposes input tax on the intermediate inputs and emission tax on the pollutant we show that the degree of input price discrimination decreases with a rise in the input tax and increases with a rise in the emission tax we further examine the effect of a green tax reform in which the government changes the source of taxation from input tax to emission tax we argue that although this green tax reform may reduce the tax revenue of the government it will certainly increase social welfare

entry barriers and economic welfare the relationship between economic welfare and the number of firms in a quasi cournot market is examined in the first place we presuppose the existence of a strong first best government that can enforce the marginal cost principle to the firms along with regulating the number of firms it is shown that there exist excessive number of firms at the free entry quasicournot equilibrium vis a vis the first best welfare maximizing number of firms the thrust of this result essentially survives even if we replace a utopian first best government by a secondbest government that leaves the firms to pursue their respective profit maximization freely and engages solely in regulating the number of firms it can be shown that the excess entry prevails again in this second best world recent studies in the theoretical industrial organization literature have uncovered several instances which cast serious doubt on the reasonableness of a widespread belief that increasing competition will increase welfare stiglitz 1981 p 184 it has been shown that there are cases which are not altogether unreasonable where social welfare will be increased by strengthening rather than weakening the protection of incumbent firms from the threat of potential entry this is in sharp contrast with the traditional belief 2 what is not known however is how robust these pathologies in fact are we intend to settle this problem by proving two excess entry theorems in the quasi cournot parametric conjectural variations homogeneous oligopoly model seade 1980a b in the first place we presuppose the existence of a strong first best government that could costlessly enforce the marginal cost pricing principle by firms in an oligopolistic market and regulate entry in pursuit of first best social welfare optimization it is shown that the number of firms at the free entry equilibrium exceeds the first best welfare optimizing number of firms the result has already been noted by von weizsacker 1980a b and others in terms of numerical examples our theorem 1 asserts that this phenomenon always holds true for the family of quasi cournot models at hand an implication of this result is that the existence of entry barriers which protect incumbent firms from potential competitors is not necessarily welfare decreasing in sharp contrast with the traditional belief a problem remains with theorem 1 however in that an omnipotent first best government does not exist in reality and the first best ideal is unrealizable in the actual economy therefore even if the intervention by a first best government with a view to restricting the number of firms within an industry may be welfare improving it does

a characterization for the negative welfare effects of cost reduction in cournot oligopoly abstract this paper characterizes the welfare effects of cost reductions in a cournot model with linear costs under linear demand a small reduction in a firm s marginal cost reduces welfare if and only if its market share is less than 1 2n 2 or equivalently its marginal cost exceeds a critical level determined by the market a large cost reduction by the firm increases welfare if and only if its magnitude is at least twice the difference between the current marginal cost and its critical value the paper also extends the results to non linear demand but the characterizations become less tractable

price discrimination in input markets quantity discounts and private information we consider a monopolistic supplier s optimal choice of wholesale tariffs when downstream firms are privately informed about their retail costs under discriminatory pricing downstream firms that differ in their ex ante distribution of retail costs are offered different tariffs under uniform pricing the same wholesale tariff is offered to all downstream firms in contrast to the extant literature on price discrimination with nonlinear wholesale tariffs we find that banning discriminatory wholesale contracts often improves welfare this also holds if the manufacturer is not an unconstrained monopolist moreover uniform pricing increases downstream investments in cost reduction in the long run

partial privatization in mixed duopoly abstract we investigate a quantity setting duopoly involving a private firm and a privatized firm jointly owned by the public and private sectors the private firm maximizes profits while the privatized firm takes both profits and social welfare into consideration we consider how many shares the government should hold in the privatized firm we find that neither full privatization the government does not hold any shares nor full nationalization the government holds all of the shares is optimal under moderate conditions

input price discrimination when buyers operate in multiple markets this paper revisits third degree price discrimination when input buyers serve multiple product markets such circumstances are prevalent since buyers often use the same input to produce different outputs and even homogenous outputs are routinely sold through different locations the typical view is that price discrimination stifles efficiency and welfare by resulting in price concessions to less efficient firms when buyers serve multiple markets price discrimination leads to price breaks for firms in markets with lower demand when lower demand markets also have less competition price discrimination can provide welfare gains by shifting output to less competitive markets

sensitivity of price elasticity of demand to aggregation unobserved heterogeneity price trends and price endogeneity evidence from u s data abstract price elasticity estimates of residential electricity demand vary widely across the energy economics and policy literature in this paper we seek to explain these findings using three nationwide datasets from the u s the american housing survey forms eia 861 and the residential energy consumption survey we examine the role of the sample period level of aggregation use of panel data use of instrumental variables and inclusion of housing characteristics and capital stock our findings suggest that price elasticities have remained relatively constant over time upon splitting our panel datasets into annual cross sections we do observe a negative relationship between price elasticities and the average price whether prices are rising or falling appears to have little effect on our estimates we also find that aggregating our data can result in both higher and lower price elasticity estimates depending on the dataset used and that controlling for unit level fixed effects with panel data generally results in more inelastic demand functions addressing the endogeneity of price and or measurement error in price with instrumental variables has a small but noticeable effect on the price elasticities finally controlling for housing characteristics and capital stock produces a lower price elasticity

a model for efficient consumer pricing schemes in electricity markets suppliers in competitive electricity markets regularly respond to prices that change hour by hour or even more frequently but most consumers respond to price changes on a very different time scale i e they observe and respond to changes in price as reflected on their monthly bills in this paper we examine mixed complementarity programming models of equilibrium that can bridge the speed of response gap between suppliers and consumers yet adhere to the principle of marginal cost pricing of electricity we develop a computable equilibrium model to estimate ex ante time of use tou prices for a retail electricity market it is intended that the proposed models would be useful 1 for jurisdictions e g ontario where consumers prices are regulated but suppliers offer into a competitive market 2 for forecasting forward prices in unregulated markets and 3 in evaluation and welfare analysis of the policies regarding regulated tou pricing compared to regulated single pricing

mixed oligopoly privatization and strategic trade policy this paper investigates the effects of privatization in the presence of strategic trade policies within an international mixed oligopoly serving a single market if the government uses a domestic production subsidy then welfare is always increased with privatization while the optimal subsidy falls if the government uses an import tariff privatization increases welfare over much of the parameter space the optimal tariff however may rise or fall in recent years many countries around the world are privatizing their state owned industries at the same time many of these countries are also showing remarkable changes in their economic policies toward international trade on many occasions tariffs are significantly altered and domestic production subsidies are substantially reduced for example russia has privatized its aircraft industry and doubled its tariff on imported aircraft colombia has privatized its stateowned automobile maker colombia automotriz and reduced the import tariffs on foreign made cars in argentina the government is pursuing a policy of selective privatization and subsequent reduction of subsidies in western europe countries such as germany and spain have privatized their major airlines lufthansa and iberia respectively and significantly reduced subsidies what is the connection between privatization and strategic trade policies does privatization require a welfare maximizing government to alter trade barriers the objective of this paper is to answer these questions by investigating the interaction between privatization and strategic trade policies the effects of privatization are typically analyzed in the context of mixed oligopoly models where state owned welfare maximizing public firms interact with profit maximizing private firms 1 we investigate the interaction between privatization and strategic trade policies by incorporating strategic trade instruments in an international mixed oligopoly model specifically we consider two strategic trade instruments an import tariff and a domestic production subsidy the government chooses the optimal level of tariff or subsidy to maximize domestic welfare for each trade instrument we primarily focus on two questions first does privatization increase

input price discrimination with downstream cournot competitors abstract this paper addresses third degree price discrimination in input markets i decompose the upstream monopolist s profit into two parts one that depends on average input prices and one that depends on their distribution this decomposition is useful in comparing the welfare properties of price discrimination against uniform pricing under reasonable assumptions input price discrimination negatively affects both consumer surplus and total welfare

residential water demand responds asymmetrically to rising and falling prices this paper econometrically estimates residential water consumption in germany between 2007 and 2013 based on a panel of almost 3000 supply areas in particular the analysis distinguishes periods o

when additional resource stocks reduce welfare in the dominant firm model we show that an increase of the fringe s reserves of a nonrenewable resource may lead to a decrease in aggregate discounted social welfare this happens when the difference between the fringe s extraction cost and the dominant firm s is positive and large enough we also show that welfare might decrease if the fringe s marginal extraction cost decreases

innovation market structure and welfare many writers subscribe to joseph schumpeter s view that while perfectly competitive firms allocate resources efficiently in a static sense they perform poorly when it comes to innovation from this point of view the optimal form of market structure is unlikely to be perfect competition but some other type of dynamic competition which includes significant elements of monopoly recently considerable effort has been focused on modelling schumpeter s notion of competition perhaps best exemplified by the 1980 work of partha dasgupta and joseph stiglitz hereafter d s 2 this approach views free entry to the rd see nelson and winter 1977 3readers will recognize a similarity of this approach with the notion of contestable markets discussed most recently by william baumol 1982 and by baumnol john panzar and robert willig 1982 for an interesting comparison of the schumpeterian with the marxian notion of competition see john elliott 1980 4this was noted for example by robert wilson 1975 5in such industries the long term gains from dynamically efficient innovation become of paramount importance consequently the optimal market structure would consist of a small number of firms the driving force behind such a result is what scherer 1972 has called the lebensraum effect firms performing r d must at least break even they derive their profits from

consumer benefiting exclusive territories i investigate the effect of exclusive territories which are typical vertical controls imposed by upstream firms using shipping spatial models i consider an industry that consists of many independent local markets an upstream monopolist restricts competition between downstream firms using exclusive territories i find that exclusive territories reduce the prices of final products in all local markets in quantity setting competition in price setting competition they raise prices in half the local markets reduce them in other markets and also reduce the total consumer surplus jel classification l42 r32 a propos de territoires exclusifs qui profitent aux consommateurs l auteur analyse les effets de la regle des territoires exclusifs qui est souvent imposee comme controle vertical par les entreprises en amont a l aide de modeles spatiaux de livraison on considere le cas d une industrie composee de plusieurs marches locaux independants un monopoleur en amont reduit la concurrence entre entreprises en aval en imposant la regle des territoires exclusifs on decouvre que cette regle reduit les prix du produit final dans tous les marches locaux s il y a concurrence par les quantites s il y a concurrence par les prix la regle accroit les prix dans la moitie des marches locaux les reduit dans les autres et reduit aussi le surplus au consommateur

helping minor firms reduces welfare the effect on national welfare of uneven technical progress and eli mination of a firm is analyzed under the existence of a cournot oligopolistic sector an increase in the share of an inefficient firm owing to its innovations results in a shift of production from more efficient firms to the inefficient firm causing a less efficie nt allocation of production it may decrease welfare even though the innovation itself is beneficial conversely policies keeping ineffic ient firms from innovations or eliminating them may increase welfare though they make the market structure more oligopolistic copyright 1988 by royal economic society

third degree price discrimination in input markets output and welfare if price discrimination is realized the economy shifts from one equilibrium to another it clearly involves welfare effects the price discriminator clearly gains some consumers may also gain from the price cut but others may lose faced with higher prices etc traditionally the change in social welfare is known to be closely related to the change in total output in the case of third degree price discrimination it is well known that an increase in total output is a necessary condition for welfare improvement richard schmalensee 1981 proves this fact in a model in which the monopolist with constant marginal cost can perfectly separate markets further hal r varian 1985 extends this result to the case of interdependent markets permnitting increasing marginal cost of the monopolist and finally the assumption of nondecreasing marginal cost is eliminated by marius schwartz 1990 roughly speaking this proposition says that if there is a welfare gain from price discrimination there has to be some gain to offset the distortion involved on the other hand the vast majority of legal and other policy disputes over the price discrimination concern input markets not final good markets thus it seems important to investigate the situation in which a discriminating monopolist is not a final good supplier but an input supplier and the buyers of the input are downstream producers of a final good as is assumed in this paper if the downstream firms have different technologies their input demand functions will be different and thus the monopolist has an incentive to price discriminate in this scenario michael l katz 1987 and patrick degraba 1990 study the effect of inputmarket price discrimination and show that price discrimination always lowers welfare because it involves the distortion that a lower cost downstream firm is assigned a higher price unfortunately in their simple settings on the technology of downstream industry price discrimination can never change total output of the input or of the final good 1 thus we must say that welfare effect of input market price discrimination remains open to question if it has some effect on total output in particular we are curious as to whether we can obtain some close relationship between the changes in welfare and total output as we have obtained in the final good market settings with this motivation we will construct a model which involves change in total output of the final good in the next section the model and assumptions are provided in section ii after we extend the result of katz 1987 and degraba 1990 we find a relationship between the changes in welfare and total output strikingly it states that an increase in the total output of the final good is a sufficient condition for welfare deterioration this result contrasts with that obtained by schmalensee 1981 varian 1985 and schwartz 1990 from usual models of price discrimination in a final good market section iii concludes the analysis

when are nash equilibria independent of the distribution of agents characteristics author s bergstrom ted varian hal r abstract we present examples of nash equilibria that do not vary with the distribution of a parameter across agents and then offer a general theorem that characterizes this independence

oligopolistic equilibrium and financial constraints we provide a model of dynamic duopoly in which rms face nancial constraints and dissapear when they are unable to ful ll them we show that in some cases cournot outputs are no longer supported in equilibrium because if these outputs were set a rm may have incentives to ruin the other in these cases standard grim trigger strategies in which collusion is sustained by in nite reversion to cournot outputs cannot be used we show that there is a stationary markov equilibrium in mixed strategies where predation occurs with a positive probability we also obtain a modi ed folk theorem we show that any bankruptcy free outputs outputs in which no rm can drive another rm to bankruptcy without becoming bankrupt itself that attain individually rational pro ts re ecting bankruptcy consideration can be supported by a subgame perfect nash equilibrium when rms are su ciently long sighted

partial agglomeration or dispersion in spatial cournot competition 1 introductionsince the seminal work of hotelling 1929 a rich and diverse literature on spatial competition has emerged location models can be classified into two types one type is shipping or spatial price discrimination model where sellers bear transport costs the other is shopping or mill pricing model where buyers pay for transport for each type one can have either bertrand type price setting or cournot type quantity setting 1most studies on location theory use shopping mill pricing models with bertrand competition although cournot and bertrand types of non spatial models are equally popular the body of literature on spatial competition that uses cournot type models is relatively small economists have recently considered shipping models with cournot competition hamilton thisse and weskamp 1989 and anderson and neven 1991 carry out pioneering works on location models 2 they use linear city models and show that all firms agglomerate at the central point pal 1998 shows that their result is crucially dependent on the assumption of a linear city he investigates a circular city duopoly model3 and finds that an equidistant location pattern appears in equilibrium that is locational dispersion appears 4 matsushima 2001a extends pal s model to an n firm oligopoly and shows another equilibrium where half of the firms locate at one point and the other half locate at the opposite point partial agglomeration these results indicate the multiplicity of equilibria in spatial cournot models with a circular city the multiplicity of equilibria restricts the applicability of the model because the model does not give us a distinct prediction in this article we take a close look at pal 1998 and matsushima 2001a we try to solve this problem by extending their linear transport cost model to one with nonlinear transport cost 5 we consider a simplified model the numbers of firms and markets and so possible locations are four four firms choose location a b c or d see if each of the four firms chooses a different location we call this outcome pal type if two firms locate at a and the other two locate at c we call this outcome matsushima type we find that the pal type equilibrium is much more robust because i pal type equilibrium always exists as long as transport cost is increasing in distance while matsushima type equilibrium fails to exist when the transport cost function is significantly convex or concave proposition 1 ii if firms choose their locations sequentially the unique equilibrium outcome is pal type under nonlinear transport cost functions proposition 2 and iii the profit of each firm in pal type is never smaller than that in matsushima type and the former is strictly larger if the transport cost function is nonlinear proposition 3 we also compare the welfare implications of pal type and matsushima type models if the transport cost function is linear the two outcomes yield exactly the same profits consumer surplus and total social surplus however this equivalence does not hold if the transport cost function is nonlinear either convex or concave in this case pal type yields greater total social surplus and profit of each firm while matsushima type yields greater consumer surplus these results indicate that the welfare implications are sensitive to whether or not the transport cost function is linear anderson and neven 1991 show that in the linear city model a strong concavity in transport cost changes the equilibrium outcome this result is related to our results but we emphasize that our results are different from theirs first we show that both concavity and convexity of the transport cost function affect the results while in anderson and neven 1991 only strong convexity changes the result second in our propositions 2 and 3 even a slight nonlinearity changes the results

how many firms should be leaders beneficial concentration revisited we investigate how the number of stackelberg leaders and followers aects economic welfare first we discuss the model with m leaders and n m followers compete in a homogeneous good market daughety 1990 nds that under constant marginal costs the stackelberg model m2 0 n yield a higher welfare than the cournot model m 0 or

input market price discrimination and the choice of technology recent concerns over the effects of the robinson patman act and so called priceprotection policies such as most favoredcustomer clauses mfc s 2 on market performance have given economists new reasons to examine the welfare effects of third degree price discrimination in order to assess these effects correctly it is imperative that one understand how price discrimination influences market behavior joan robinson s 1933 work launched the formal inquiry into the welfare effects of third degree price discrimination building on the intuition presented by arthur pigou 1932 she showed that if a monopolist faces two independent linear demand curves the use of price discrimination will not affect industry output but will reduce welfare richard schmalensee 1981 extends these results to nonlinear demand curves and shows that an increase in total industry output is a necessary condition for price discrimination to be welfare improving hal varian 1985 broadens these results by deriving upper and lower bounds on the welfare change due to the use of price discrimination he shows that these results can be applied to markets in which there are nonzero cross price effects all of this work examines how the ability of a monopolist to price discriminate will affect the market outcome when all other characteristics of the market are treated as exogenous recently two lines of research have extended this inquiry beyond the case of a monopolist in a market with exogenously fixed parameters the first line considers the case of oligopoly the work of charles holt and david scheffman 1985 and thomas cooper 1986 has shown that restrictions on price discrimination imposed by the use of mfc s can facilitate collusion between oligopolists attempting to restrict output this implies that third degree price discrimination can be welfare improving the second line of research shows that price discrimination by a firm can affect nonprice decisions made by other market participants thus affecting the market outcome michael katz 1987 presents a model in which a large firm s ability to vertically integrate backward into the production of an input allows it to obtain a lower per unit price from the supplier of the input than can be obtained by smaller firms without this ability he shows that third degree price discrimination reduces welfare unless it prevents inefficient backward integration degraba 1987 shows that the use or nonuse of price discrimination by a national firm can affect nonprice decisions made by local firms that compete with the national firm in this situation third degree price discrimination is welfare reducing because it induces local firms to produce a product that is overly differentiated from the product of the national firm in all of the work cited above price discrimination is important when sellers set prices in separate markets or charge different prices to different customers in the same market the following analysis which can be considered a contribution to the second line of research suggests that price discrimination can be important even when a seller faces a single market in which all customers are identical the intuition behind this result is that nonprice decisions made by downstream producers such as the choice of technology can be affected by the use or johnson graduate school of management cornell university ithaca ny 14853 i thank robert frank robert smiley richard thaler and the participants of the jgsm applied microeconomics workshop for their helpful comments see william baldwin 1987 pp 438 40 for a good summary of the debate 2see john kwoka and lawrence white 1989 pp 196 7

mixed oligopoly and spatial agglomeration abstract we investigate a mixed market where a state owned welfare maximizing public firm competes against profit maximizing private firms we use a circular city model with quantity setting competition in contrast to a pure market case discussed by pal 1998a spatial agglomeration of private firms always appears in equilibrium all private firms locate at the same point and the public firm locates at the opposite side we also find that this equilibrium pattern of the location is second best provided that output of each private firm cannot be controlled by the social planner jel classification h42 l13 oligopole mixte et agglomeration spatiale les auteurs examinent un marche mixte ou une entreprise publique possedee par l etat et cherchant a maximiser le niveau de bien etre est en concurrence avec des entreprises privees qui cherchent a maximiser leurs profits on utilise un modele de cite circulaire ou la concurrence se fait en choisissant la quantite produite en contraste avec le cas du marche parfait discute par pal 1998a l agglomeration spatiale des entreprises privees parait etre en equilibre toutes les entreprises privees se localisent au meme point et l entreprise publique se localise du cote oppose il appert que ce pattern d equilibre de localisation est un equilibre de second ordre compte tenu du fait que la production de chaque entreprise privee ne peut etre controlee par le planificateur social