currency and credit in a private information economy in an environment with private information spatial separation and limited communication a currency like object and more standard named credits can be distinguished the credit objects can be used among agents in an enduring relationship that is among agents with known trading histories whereas the currency like object must be used among relative strangers in this environment collectively determined pareto optimal rules make the level of the currency like object and the mix of currency to named credits responsive to individual needs and to economywide states total indebtedness is determined by the number of lenders that is by preference or demand shocks and the mix of currency to credits is determined by transaction patterns among the agents

exclusion and moral hazard the case of identical demand abstract this paper examines the problem of costly exclusion of individuals from a public good previous analyses of exclusion have treated it as solely a question of technologies in our analysis exclusion depends on technology and incentives in this paper providers of the good design a mechanism to provide an optimal level of deterrence to free riders if individuals are heterogeneous optimal deterrence may allow some free riders we examine the effect of costs of exclusion on the samuelson condition for optimal provision and see that the desire to deter free riding leads to underprovision of the good irrespective of the degree of rivalry of the good

optimal investment in learning curve technologies we study optimal investment in technologies characterized by the learning curve there are two investment patterns depending on the shape of the learning curve if the learning process is slow firms invest relatively late and on a larger scale if the curve is steep firms invest earlier and on a smaller scale we further demonstrate that learning investment differs greatly from investment in technologies without learning effects learning investments generate substantial initial losses and are very sensitive to downside risk we show that the most susceptible to losses and risk are technologies with intermediate speed of learning

housing conditions and their structural determinants comparisons within the enlarged eu housing conditions vary widely across the eu and the fact that new member states are lagging behind in this regard has even come onto the european policy agenda this article examines housing conditions as an outcome of complex social developments and highlights specific reasons why housing conditions vary so much within the eu thus the specific impact is observed of factors which have been identified in the literature as characterising distinctive housing models the eastern european housing model the southern european housing model and the distinction between cost renting and homeowning countries further the impact of these factors along with general socioeconomic development is empirically assessed by a linear regression model based on the eqls 2003 dataset the results clearly support the thesis of economic development playing a decisive role with it being the biggest single factor explaining variations in housing conditions across the eu followed by the significant influence of policy choice

throwing the books at them amazon s puzzling long run pricing strategy firms competing for consumers to adopt new platforms have incentives to charge low prices to promote adoption followed by higher prices later on this study explores amazon s dynamic pricing strategy by comparing its contemporary pricing on e books a relatively new product with complementary hardware and switching costs with its pricing on physical books a now mature product without complementary hardware or switching costs using over 150 000 hourly observations on prices and sales ranks for electronic and physical bestseller books between 2012 and 2013 in conjunction with actual quantity data we estimate the price elasticities of demand for books at amazon despite inherent challenges in data availability and measurement we find it surprising that both electronic and physical book prices fall substantially short of the static profit maximizing level two decades after amazon s launch these findings raise questions for both policymakers and shareholders

money is privacy an extensive literature in monetary theory has emphasized the role of money as a record keeping device money assumes this role in situations where using credit would be too costly and some might argue that this role will diminish as the cost of information and thus the cost of credit based transactions continues to fall in this paper we investigate another use for money the provision of privacy that is a money purchase does not identify the purchaser while a credit purchase does in a simple trading economy with moral hazard the efficiency of money is compared with that of credit and we find that money may be useful even when information is free

the akzo decision a case of predatory pricing in december 1985 a fine was imposed on the dutch multinational akzo for predatory abuse of a dominant position an appeal by akzo was rejected by the court of justice of the communities in july 1991 this note suggests that according to the facts reported by the commission of the european economic communities itself this is a case of active competition not of predation copyright 1993 by blackwell publishing ltd

the economics of predation what drives pricing when there is learning by doing predatory pricing a deliberate strategy of pricing aggressively in order to eliminate competitors is one of the more contentious areas of antitrust policy and its existence and efficacy are widely debated the purpose of this paper is to formally characterize predatory pricing in a modern industry dynamics framework that endogenizes competitive advantage and industry structure our framework encompasses important phenomena such as learning by doing network effects switching costs dynamic demand and certain types of adjustment costs due to its prominent role in legal cases involving alleged predation we examine learning by doing in more detail we first show that predation like behavior arises routinely in our learning by doing model equilibria involving predation like behavior typically coexist with equilibria involving much less aggressive pricing to disentangle predatory pricing from mere competition for efficiency on a learning curve we next decompose the equilibrium pricing condition and develop alternative characterizations of a firm s predatory pricing incentives we finally measure the impact of these incentives on industry structure conduct and performance we show that forcing a firm to ignore the predatory incentives in setting its price can have a large impact and that this impact stems from eliminating equilibria with predation like behavior along with the predation like behavior however a fair amount of competition for the market is eliminated

a simple theory of predation abstractwe propose a simple theory of predatory pricing based on incumbency advantages scale economies and sequential buyers or markets the prey needs a critical scale to be successful the incumbent or predator has an initial advantage and is ready to make losses on earlier buyers to deprive the prey of the scale it needs thus making monopoly profits on later buyers several extensions are considered including cases in which scale economies exist because of demand externalities or two sided market effects and in which markets are characterized by common costs conditions under which predation may or may not take place in actual cases are also discussed

credit and identity theft abstract the quintessential crime of the information age is identity theft the malicious use of personal identifying data in this paper we model identity and its use in credit transactions various types of identity theft occur in equilibrium including new account fraud existing account fraud and friendly fraud the equilibrium incidence of identity theft represents a tradeoff between a desire to avoid costly or invasive monitoring of individuals on the one hand and the need to control transactions fraud on the other our results suggest that technological advances will not eliminate this tradeoff

the learning curve predation antitrust and welfare an economic definition of predation is applied to a dynamic model of duopoly competition with learning curves it is shown that rational predation occurs in equilibrium although below cost pricing is neither a necessary nor a sufficient indicator of predation a conceptual framework for antitrust analysis of predation shows that a prohibition of predation might help or harm consumer welfare depending on details of market structure although the informational requirements of fashioning an effective legal rule against harmful predation are formidable

the learning curve market dominance and predatory pricing sufficient conditions for id and iid are given in the case of two step learning in which a firm reaches the bottom of its learning curve after just two sales however examples are also constructed for the two step learning case in which neither id nor iid holds it is also shown that in equilibrium iid implies that learning is privately disadvantageous although it is socially advantageous finally introducing avoidable fixed costs and possible exit into the model yields a new theory of predatory pricing based on the learning curve hypothesis

optimal pricing of payment services abstract payments are increasingly being made with payment cards despite the fact that the cost of clearing a card payment usually exceeds the cost of transferring cash we examine this puzzle through the lens of monetary theory we consider the design of an optimal card based payment system when cash is available as an alternative means of payment we find that a feature akin to the controversial no surcharge rule may be necessary to ensure the viability of the card payment system this rule states that merchants cannot charge a customer who pays by card more than a customer who pays by cash

social norms and money abstract in an economy where there is no double coincidence of wants and without public record keeping of past transactions money is usually seen as the only mechanism that can support exchange in this paper we show that as long as the population is finite and agents are sufficiently patient a social norm establishing gift exchange can substitute for money however for a given discount factor population growth eventually leads to the breakdown of the social norm additionally increases in the degree of specialization in the economy can also undermine the social norm by contrast monetary equilibrium exists independent of the population size we conclude that money is essential as a medium of exchange when the population is large

investment timing and predatory behavior in a duopoly with endogenous exit abstract this paper investigates the interplay of investment irreversibility and endogenous exit in a duopoly with aggregate demand uncertainty endogenous exit and investment irreversibility produce predatory behavior in very competitive industries in which prices react strongly to changes in quantity and in which capacity increases are not too costly when the market is in decline firms increase capacity in order to subsequently monopolize this market upon a further decrease in demand predatory behavior is particularly likely to occur if fixed costs of operation are substantial large uncertainty has the opposite effect and makes predatory behavior less prevalent predation occurs as investment irreversibility gives commitment power to delay one s own exit and to promote the exit of a competitor this explains predatory behavior in a duopoly without invoking reputation network effects or learning effects

money and credit redux do we need both money and credit in models with explicit roles for payment instruments we show the answer is no if credit is easy money is useless if credit is tight money can be essential but then credit is irrelevant and changes in debt limits are neutral real balances respond endogenously to leave total liquidity constant this is true for exogenous or endogenous policy and debt limits secured or unsecured credit and fairly general preferences and pricing mechanisms while we also show how to overturn some results the benchmark model suggests credit conditions matter less than some people think

the learning curve in a competitive industry we consider the learning curve in an industry with free entry and exit and price taking firms a unique equilibrium exists if the fixed cost is positive although equilibrium profits are zero mature firms earn rents on their learning and if costs are convex no firm can profitably enter after the date the industry begins under some cost and demand conditions however firms may have to exit the market despite their experience gained earlier furthermore identical firms facing the same prices may produce different quantities the market outcome is always socially efficient even if it dictates that firms exit after learning finally actual and optimal industry concentration does not always increase in the intensity of learning

rationalizable strategic behavior the notion of equilibrium proposed by nash 19 has come to play a dominant role in economic applications of noncooperative games while analyses of nash equilibria have unquestionably contributed to our understanding of economic behavior it would be unreasonably optimistic to maintain that nash solved the problem of noncooperative strategic choice there is a small literature beginning with ellsberg 6 and a much larger oral tradition which argues that nash behavior is neither a necessary consequence of rationality nor a reasonable empirical proposition in this paper i take the view that although there may be various reasons why an agent might select a nash strategy the notion of an equilibrium has little intrinsic appeal within a strategic context when an agent reaches a decision in ignorance of the strategies adopted by other players rationality consists of making a choice which is justifiable by an internally consistent system of beliefs rather than one which is optimal post hoc this point of view is not original indeed most serious justifications of the nash hypothesis embrace such an approach arguing that agents will expect the game to yield a nash outcome and consequently will choose their equilibrium strategies nevertheless when we think in terms of maximizing utility subject to expectations rather than realizations it becomes clear that the nash hypothesis far from being a consequence of rationality arises from certain restrictions on agents expectations which may or may not be plausible depending upon the game being played we are then quite naturally led to ask are there any restrictions of individuals expectations and hence choices which are required by rationality alone rather than by subjective plausibility this paper is concerned with defining justifying characterizing and refining a criterion for rational strategic choice which i label rationalizability

learning by doing organizational forgetting and industry dynamics learning by doing and organizational forgetting have been shown to be important in a variety of industrial settings this paper provides a general model of dynamic competition that accounts for these economic fundamentals and shows how they shape industry structure and dynamics previously obtained results regarding the dominance properties of flrms pricing behavior no longer hold in this more general setting we show that forgetting does not simply negate learning rather learning and forgetting are distinct economic forces in particular a model with learning and forgetting can give rise to aggressive pricing behavior market dominance and multiple equilibria whereas a model with learning alone cannot

in the margin of the welfare state labour market position and housing conditions of undocumented immigrants in rotterdam undocumented immigrants form a substantial share of minority populations data on the city of rotterdam show that the fate of undocumented immigrants to a large degree is dependent on established migrant communities differences between migrant communities in terms of numbers and access to social housing seem to have significant effects on the position of undocumented immigrants with the same ethnic or national background undocumented immigrants both feed on and contribute to migrant communities in terms of housing opportunity and segregation in the age of migration any serious study of migrant communities has to take into account the presence and social position of undocumented immigrants

real estate regulations in accra some macroeconomic consequences ghana has been one of the most rapidly growing economies in sub saharan africa this growth has been aided by ghana s improving policy environment in light of this the paper addresses the question of why given its higher level of per capita income and relatively strong growth the housing conditions of the poor in accra are considerably worse than those in a number of other african cities with lower incomes there are not many data available to answer this question so the method is indirect and takes two approaches first a variant of the monocentric city model is used to calculate accra s housing supply elasticity relative to those of other similarly sized african cities the model suggests that housing supply responsiveness is considerably lower in accra a result consistent with the observed higher housing costs secondly a number of traditional housing demand and reduced form equations are estimated for accra and the other cities this allows the formation of a quantitative judgment about accra

appropriability and commercialization evidence from mit inventions the effects of appropriability on invention have been well studied but there has been little analysis of the effect of appropriability on the commercialization of existing inventions exploiting a database of 805 attempts by private firms to commercialize inventions licensed from the massachusetts institute of technology mit between 1980 and 1996 we explore the influence of several appropriability mechanisms on the commercialization and termination of projects to develop products based on university inventions our central hypothesis is that the relationship between a licensee s decision to either terminate or commercialize the invention is driven by the current market value of the invention as well as the option value of delaying its commercialization we use a competing risks framework that allows for nonparametric heterogeneity and correlated risks we find that better appropriability in the sense of more effective patent strength and secrecy has a strong negative effect on the hazard of license termination the effectiveness of learning has a strong positive effect on the hazard of technology commercialization while lead time has a negative effect

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

sacrifice tests for predation in a dynamic pricing model ordover and willig 1981 and cabral and riordan 1997 meet ericson and pakes 1995 abstract to detect the presence of predatory pricing antitrust authorities and courts routinely ask whether a firm sacrifices current profit in exchange for the expectation of higher future profit following the exit of its rival because predatory pricing is an inherently dynamic phenomenon we show in this paper how to construct sacrifice tests for predatory pricing in a modern industry dynamics framework along the lines of ericson and pakes 1995 in particular we adapt the definitions of predation due to ordover and willig 1981 and cabral and riordan 1997 to this setting and construct the corresponding sacrifice tests

heteroscedasticity of deviations in market bubble moments how the goods and bads lead to the ugly abstractwe conjecture that market bubbles may be the results of the interplay of goods and bads toxic products which develop through three interlocking moments herding swarming and stampeding with deviations marked by heteroscedasticity we use our stylized model of financial predation the consolidated model of financial predation and data we have accumulated through in the field eight year research and the study of 30 years of u s market history in order to explore the foundations of market crises we find that blind trust or the positivity bias and of the fear to miss out on an opportunity to enter exit a market impacts the investors decisions to invest or retract we show how markets are driven towards a make or break predatory dynamic that creates winners and losers due in part to weak regulations and identify a constant k that permeates market behaviours

money and dynamic credit arrangements with private information abstract we construct a model with private information in which consumers write dynamic contracts with financial intermediaries a role for money arises due to random limited participation of consumers in the financial market without defection constraints a friedman rule is optimal the mean and variability of wealth tend to fall with inflation in the steady state and the welfare effects of inflation are very small with defection constraints the effects of inflation on the distribution of welfare and consumption are large but the effect on average welfare is still small the relaxation of defection constraints resulting from higher inflation can cause a substantial increase in the real interest rate journal of economic literature classification numbers d8 e4 g2

globalisation and housing finance systems in advanced and transition economies globalisation is only the most recent manifestation of convergence theory this article shows how distinctive housing finance systems in the advanced economies contribute to distinctive housing systems with important social and economic implications it also suggests that the evidence from the european union confirms what can be derived from a priori reasoning that mobility of finance does not alter the nationally based components of the wider housing finance system hence even huge changes in the nature of intermediaries fail to alter the fundamental nature of the mortgage product combined with lack of any evidence to suggest that government support for home ownership is in general or irreversible retreat it is suggested that the former socialist transition countries have considerably more opportunity to shape their housing finance systems than might be suggested by convergence theory

currency and credit are equivalent mechanisms i study a pure exchange economy with many agents whose marginal utility of consumption is stochastically heterogeneous and independent of wealth with realized marginal utility of wealth private information i show that currency and credit are equivalent to a contract that is efficient when the privacy of information is viewed as a constraint and that the cash in advance constraint is an expression of an incentive constraint

a model of the threat of counterfeiting abstract a simple matching model of money with the potential for counterfeiting is constructed in contrast to the existing literature lotteries are included these provide scope for the operation of the intuitive criterion of cho and kreps the application of that refinement is shown to imply that there is no equilibrium with counterfeiting if the cost of producing counterfeits is low enough then there is no monetary equilibrium otherwise there is a monetary equilibrium without counterfeiting in other words the threat of counterfeiting can eliminate the monetary equilibrium

the current state of the law and economics of predatory pricing it has been almost 20 years since phillip areeda and donald f turner introduced their proposals for antitrust policy toward predatory pricing their 1975 harvard law review article predatory pricing and related practices under section 2 of the sherman act sparked a lively debate among legal scholars and economists that continued mostly in law reviews for several years the controversy focused on the core areeda turner at test which put forward short run marginal cost as the appropriate but difficult to measure standard of a lawful price and recommended reasonably anticipated average variable cost as a surrogate the discussion included consideration of other cost based measures as well as alternative rules restricting dominant firm pricing and output policies and both structured and open textured rule of reason analyses the controversy also helped to illuminate the qualifications that areeda and turner imposed on their proposal one of the central issues in the debate concerning the at test was whether or not it gave sufficient weight to the dynamic and strategic character of predatory pricing all the participants in the discussion including areeda and turner themselves recognized that since the essence of predatory pricing is the predator s sacrifice of short run gains for longer run gains and consequent harm to the public the problem being addressed is inherently strategic the lawyers and economists engaged in the debate differed however about whether anything practical could be done to cope with the intertemporal strategic issues areeda and turner s reliance on a static model of dominant firm behavior to derive their test reflected their doubt that a sound legal rule could be fashioned to cope with the inherently speculative and indeterminate assessment of longrun considerations curiously enough just as the debate in the law reviews was winding down the market organization literature was beginning to see an infusion of contributions that used modern game theoretic concepts and techniques to analyze well specified models of strategic firm behavior in oligopolistic markets in particular several important contributions analyzed models of markets in which predatory pricing emerged as part of a set of equilibrium strategies these contributions effectively undermined the view that because of its costs to the would be predator predation is irrational and hence not likely to occur this work is well categorized and well surveyed in the chapter that janusz ordover and garth saloner 1989 contributed to the handbook of industrial organization a central feature of this class of models is some asymmetry of information between market actors the dominant incumbent firm is better informed than its smaller rival in models where the predator induces exit of competitors the incumbent is better informed than potential entrants in models where predation takes the form of entry deterrence and firms in general are better informed about their prospects than are their sources of financing the new market organization literature on predation offered three major types of models first there were well developed game theoretic analyses of the long purse or deep pocket theories of predation theories which lester g telser 1966 had analyzed earlier in a perfect information tdiscussants paul joskow massachusetts institute of technology joseph stiglitz stanford university

dynamic retail price and investment competition we develop a model of retail competition in which retailers select prices and investments in cost reduction an equilibrium is constructed in which several identical firms enter and then engage in a phase of vigorous price competition this phase is concluded with a shakeout as a low price low cost firm comes to dominate the market a central feature of the equilibrium is that low prices are complementary with large investments in cost reduction even though the dominant firm s price rises through time and initially may be below marginal cost we argue that an interpretation of predatory pricing may be inappropriate

incomplete record keeping and optimal payment arrangements abstract we study a random matching absence of double coincidence environment in which people cannot precommit and in which there are two imperfect ways to keep track of what other people have done in the past money and a public record of all past actions that is updated with an average lag we study how the magnitude of that lag affects the allocations that are optimal from among allocations that are stationary and feasible and that satisfy incentive constraints which arise from the absence of commitment and the imperfect ways of keeping track of what others have done in the past journal of economic literature classification numbers e40 c73 d82

colluding on excluding abstract in an oligopoly characterized by barriers to re entry a finite horizon complete information convex costs and the presence of three identical firms i show that in subgame perfect equilibrium two of them the predators can choose to charge an initial price that is so low that the third the prey decides to exit immediately in this predatory pricing equilibrium the predators can enjoy higher profits than in the best collusive equilibrium with three firms thus a coalition of two firms can benefit from colluding on excluding

money is memory abstract this paper examines the sets of feasible allocations in a large class of economic environments in which commitment is impossible following myerson 8 the standard definition of feasibility is adapted to take account of the lack of commitment the environments feature either memory or money memory is defined as knowledge on the part of an agent of the full histories of all agents with whom he has had direct or indirect contact in the past money is defined as an object that does not enter utility or production functions and is available in fixed supply the main proposition is that any allocation that is feasible in an environment with money is also feasible in the same environment with memory depending on the environment the converse may or may not be true hence from a technological point of view money is equivalent to a primitive form of memory journal of economic literature classification numbers e40 c73 d82

research among copycats r d spillovers and feedback strategies abstract we study a stochastic dynamic game of process innovation in which firms can initiate and terminate r d efforts and production at different times we discern the impact of knowledge spillovers on the investments in existing markets as well as on the likely structure of newly forming markets for all possible asymmetries in production costs between firms while an increase in spillovers may improve the likelihood of a competitive market it may at the same time reduce the level to which a technology is developed we show that the effects of spillovers on investments and surpluses crucially depend on the stage of technology development considered in particular we show that high spillovers are not necessarily pro competitive as they can make it harder for the laggard to catch up with the technology leader

competition for exclusive customers comparing equilibrium and welfare under one part and two part pricing this paper compares one part pricing and two types of two part pricing in a general discretecontinuous choice model providing more extensive welfare results than prior literature under two part pricing rms may set xed fees with or without unit price commitment when unitprice commitment is present both xed fees and unit prices are set before consumers choose their exclusive suppliers in the absence of unit price commitment consumers choose exclusive suppliers based on known xed fees and anticipated future unit prices resulting in high unit prices consistent with models of aftermarket monopolization of the three possible pricing policies we nd that two part pricing with unit price commitment is rms dominant unilateral pricing policy and it also yields the highest joint pro ts under appropriate demand assumptions in terms of both consumer and social welfare two part pricing without unit price commitment is dominated by the other pricing policies with su ciently elastic usage demand and su ciently small customerspeci c xed costs one part pricing produces the highest consumer and social welfare but the lowest rm pro ts of the three pricing policies jel classi cation l1 d4 keywords two part pricing aftermarket monopolization bertrand competition discrete continuous random utility model