bank competition and ecb s monetary policy in a model of oligopolistic competition in the banking sector we analyse how the monetary policy rule chosen by the central bank can influence the incentive of banks to set high interest rates on loans over the business cycle we exploit the basic model to investigate the potential impact of emu implementation on collusion among banks in particular we consider the possible eaects of the european central bank s policy criteria with regard to the cost of credit in national markets 2000 elsevier science b v all rights reserved

public schooling for young children and maternal labor supply as policy makers have sought to reduce the welfare rolls by increasing labor supply among single mothers much attention has been given to the possible role of expanded child care subsidies including direct provision of public preschool at the same time public interest in child care subsidies for two parent households is high for example former vice president gore not long ago proposed to make high quality pre school fully available to every family for every child in every community in america albert gore 1999 in this paper i use 1980 census data to estimate the effect of public school enrollment for a woman s five year old on measures of labor supply and public assistance receipt this approach has two advantages first i am able to estimate the effect of a large implicit child care subsidy 1 second because public kindergarten is universally available to all age eligible children where it is provided selection problems related to means testing do not arise a difficulty with public school enrollment arises because parents may choose to hold their children back a year or enroll them in private school i deal with this issue by using five yearold s quarter of birth qob variables as instruments for public school enrollment status this strategy works because parents ability to enroll a child in public kindergarten in the academic year when the child turns five typically depends on the calendar date of the child s birth 2 in most states children born in the second quarter april 1 june 30 of 1974 will have been eligible to start kindergarten in the fall of 1979 while children born in the first quarter january 1march 31 of 1975 generally will not eligibility for children born between july 1 and december 31 1974 depends on the rules where they live 3

strategic responses of incumbents to new entry the effect of ownership structure capital structure and focus we examine how certain firm and market specific characteristics affect incumbent firms responses to new entry into their local markets data comes from the discount department store industry where wal mart entered a large number of markets in a short period of time consistent with existing research larger and more profitable incumbents respond more aggressively to wal mart s entry while more highly levered incumbents respond less aggressively also there is evidence that incumbent managers fight harder possibly overinvest when their job is at greater risk and high managerial ownership appears to reduce this agency problem incumbent firms behave differently in markets under attack by wal mart than in markets not yet threatened suggesting that some of the documented responses are specific to walmart s entry article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

collusion and cyclic pricing by managers in markets with fluctuating demand abstract we analyze the cyclicity of pricing by managers with stock based or with profit based compensation in a market with stochastic autocorrelated demand development since managers with stock based compensation have a higher incentive to collude the cyclicity of prices is lower in this case

disagreement in bargaining an empirical analysis of opec abstract we consider a stylised model in which two cartel members bargain over the aggregate production quota in a world of asymmetric information we show that when the two cartel members are sufficiently different the probability of agreement depends on both the current state of demand and initial production specifically the probability of agreement is much lower when demand is low and initial production is relatively high than when demand is high and initial production is relatively low we also find that regardless of the current demand state the more extreme is initial production the higher is the probability of agreement using an event study where we take as events opec production quota announcements we demonstrate empirically that the predictions of the model are borne out

child care and the labor supply of married women reduced form evidence this paper empirically analyzes family demands for market and nonmarket child care services and the impact of these demands on the work effort of married women the paperfirst develops a general model of child care and labor force participation the model predicts that higher wages increase the likelihood of labor force participation and that higher costs decrease the likelihood of child care utilization the paper then develops a threeequation reduced form econometric specification of the general model the equations in the specification are estimated simultaneously using 1985 data from the survey of income program participation the estimates reveal that the cost of market child care has a strong negative effect on the labor supply of married women

collusion fluctuating demand and price rigidity we study an infinitely repeated bertrand game in which an i i d demand shock occurs in each period each firm receives a private signal about the demand shock at the beginning of each period at the end of each period all information but the private signals becomes public we consider the optimal symmetric perfect public equilibrium sppe mainly for patient firms we show that price rigidity arises in the optimal sppe if the accuracy of the private signals is low we also study the implications of more firms and firms impatience on collusive pricing empirical evidence shows that prices in oligopolistic markets tend to be more rigid than prices in competitive markets dixon 1983 carlton 1986 this suggests that collusion may result in firms inflexible pricing behavior it is not obvious however that collusion causes price rigidity why do colluding firms not adjust prices according to changing environments by which they can potentially earn higher profits what limits colluding firms ability to coordinate thereby leading to price rigidity in this article we study how information asymmetry among firms limits colluding firms ability to respond to demand shocks and characterize the conditions under which prices are rigid specifically we consider private information about demand in an infinitely repeated bertrand game with two identical firms in which an i i d binary demand shock occurs in each period each firm receives a conditionally independent private signal about the underlying demand state at the beginning of each period and then charges a price the accuracy of private signals is measured by the probability of receiving a high respectively low signal conditional on a high respectively low underlying demand state therefore the lower the accuracy the higher the degree of informational asymmetry at the end of each period firms observe the underlying demand and the prices but they never observe their rivals signals we adopt symmetric perfect public equilibria sppe as our solution concept which requires that at each period firms pricing schemes

equilibrium in a durable goods market with lumpy adjustment abstract durable goods are an important component of the business cycle equilibrium models of durable goods markets are made difficult by the lumpy nature of individual purchases we show that a straightforward approximation of the distribution of durable goods holdings gives rise to a tractable equilibrium model we analyze the case of competition as well as that of a monopoly producer

regulation of a risk averse firm abstract we extend the laffont tirole regulation model to the case of risk averse firms our main results are the impact of risk aversion is to shift the optimal contract toward a cost plus contract as compared with the risk neutral case distortions are greater and informational rents are smaller for high levels of risk aversion the optimal contract involves cost ceilings and the less efficient firms are bunched together journal of economic literature classification numbers d8 l5

simple menus of contracts in cost based procurement and regulation in an influential paper jean jacques laffont and jean tirole 1986 formulated a principal agent model of cost based procurement and regulation and showed that the principal can implement the optimal mechanism by offering the agent a menu consisting of a continuum of linear contracts two related problems with applying this theory in practice have been that the economic logic and the underlying mathematics involved in calculating the optimal menu are quite complex and the principal must be able to specify the agent s entire disutility of effort function in order to calculate the optimal menu as a result the model has not been widely used in practice to either calculate actual incentive contracts or even to develop useful qualitative guidance about the nature of the optimal solution and how it is affected by various economic factors the purpose of this paper is to show that dramatically simpler menus which are easy to understand and calculate and which have lower informational requirements can at least in some cases capture a substantial share of the gains achievable by the fully optimal complex menu in particular this paper considers two item menus where one item is a cost reimbursement contract and the other item is a fixed price contract such menus are called fixed price cost reimbursement fpcr menus for the case where the agent s utility is quadratic and the agent s type is distributed uniformly it is shown that the optimal fpcr menu always captures at least three quarters of the gain that the optimal complex menu achieves where the gain is measured relative to the result of using a cost reimbursement contract this paper s research was originally motivated by a policy issue in defense procurement in the united states the department of defense dod purchases almost all major weapons systems from sole source contractors using contracting methods that essentially amount to using cost reimbursement contracts the best way to understand why dod uses costreimbursement contracting methods is that they perform precisely the function identified in laffont and tirole s principal agent model they guarantee in a situation that amounts to a bilateral monopoly that dod and the firm can reach an agreement i e they guarantee that the agent will always produce the good of course the use of cost reimbursement contracting methods

repeated newsvendor game with transshipments under dual allocations abstract we study a repeated newsvendor game with transshipments in every period n retailers face a stochastic demand for an identical product and independently place their inventory orders before demand realization after observing the actual demand each retailer decides how much of her leftover inventory or unsatisfied demand she wants to share with the other retailers residual inventories are then transshipped in order to meet residual demands and dual allocations are used to distribute residual profit unsold inventories are salvaged at the end of the period while in a single shot game retailers in an equilibrium withhold their residuals we show that it is a subgame perfect nash equilibrium for the retailers to share all of the residuals when the discount factor is large enough and the game is repeated infinitely many times we also study asymptotic behavior of the retailers order quantities and discount factors when n is large finally we provide conditions under which a system optimal solution can be achieved in a game with n retailers and develop a contract for achieving a system optimal outcome when these conditions are not satisfied

time varying competition normative models typically suggest that prices rise in periods of high demand and cost however in many markets prices fall when demand or costs rise this inconsistency occurs because the normative models assume that competitive intensity does not change with demand and cost conditions over time we therefore introduce the notion of time varying competition by suggesting that it is important not only to account for the direct effect of demand and cost on prices e g higher demand means higher prices but also the indirect effect of demand and cost changes on competition e g higher demand could cause more competition and hence lower prices we develop a general unified framework to empirically model the direct and indirect effects of demand and cost shifts on pricing in differentiated product markets our approach allows us to measure the indirect effect of multiple demand and cost drivers on competitive intensity and test predictions from alternative theories of repeated games the empirical application is to the u s photographic film industry where there are two main players kodak and fuji we find that the indirect effects are highly significant and comparable in magnitude to the direct effects competitive intensity is greater in periods of high demand and lower cost and is moderated by whether demand or costs are expected to grow or decline interestingly we find asymmetries in the competitive responses of kodak and fuji while kodak is sensitive to demand factors fuji is sensitive to costs our results suggest that market characteristics such as observability of competitor prices can be an important determinant of how competitive intensity is affected by demand and cost conditions

collusion and price rigidity we consider an in nitely repeated bertrand game in which prices are publicly observed and each rm receives a privately observed i i d cost shock in each period we focus on symmetric perfect public equilibria sppe wherein any punishments are borne equally by all rms we identify a tradeoff that is associated with collusive pricing schemes in which the price to be charged by each rm is strictly increasing in its cost level such fully sorting schemes offer efficiency bene ts as they ensure that the lowest cost rm makes the current sale but they also imply an informational cost distorted pricing and or equilibrium path price wars since a higher cost rm must be deterred from mimicking a lower cost rm by charging a lower price a rigid pricing scheme where a rm s collusive price is independent of its current cost position sacri ces efficiency bene ts but also diminishes the informational cost for a wide range of settings the optimal symmetric collusive scheme requires i the absence of equilibrium path price wars and ii a rigid price if rms are sufficiently impatient however the rigid pricing scheme cannot be enforced and the collusive price of lower cost rms may be distorted downward in order to diminish the incentive to cheat when the model is modi ed to include i i d public demand shocks the downward pricing distortion that accompanies a rm s lower cost realization may occur only when current demand is high

a dynamic theory of countervailing power in this article i develop a model of an infinitely repeated procurement auction with one buyer and several sellers the buyer can accumulate a backlog of unfilled orders which similar to a boom in demand forces the sellers to collude on a low price to prevent undercutting if the buyer s cost of shifiing its consumption over time is low enough then the extent of collusion is bounded away from the joint profit maximizing level even for discount factors approaching one the model is extended to allow for multiple buyers large buyers are shown to obtain lower prices from the sellers buyer mergers increase pro t for all buyers not just the merging pair at the expense of the sellers in contrast buyer growth through addition harms buyers that do not grow and benefits sellers

ratings quality over the business cycle credit rating agencies cras have long held that reputational concerns discipline their behavior the value of reputation however depends on economic fundamentals that vary over the business cycle in a model of ratings incorporating endogenous reputation and a market environment that varies we find that ratings quality is countercyclical specifically a cra is more likely to issue less accurate ratings when fee income is high competition in the labor market for analysts is tough and securities default probabilities are low persistence in economic conditions can diminish our results while mean reversion exacerbates them the presence of naive investors reduces overall quality but quality remains countercyclical finally we demonstrate that competition among cras yields similar results

business cycles and monetary regimes in emerging economies a role for a monopolistic banking sector abstract this study shows that the presence of imperfect competition in the banking system propagates external shocks and amplifies the business cycle strategic limit pricing aimed at protecting retail niches from potential competitors generates countercyclical bank markups markup increments during recessions directly increase borrowing costs for firms and indirectly damage the financial position of firms balance sheets increasing the risk perception of lenders i use bayesian techniques and data from argentina to show that the inclusion of monopolistic banking improves the fit of the new keynesian small open economy model

maquiladoras and market mamas women s work and childcare in guatemala city and accra abstract this paper analyses work childcare and earnings of mothers in the slums of guatemala city and accra similar factors affect decisions to work and to use formal daycare but the importance of childcare varies with the role of the formal labour sector in guatemala where formal sector work is important higher prices for informal care increase formal daycare use however daycare prices and proximity to daycare centers do not significantly affect earnings in guatemala city and accra respectively providing formal daycare may be more important to mothers decision to work in cities where formal sector work dominates

the effectiveness of hiring credits this article analyses the effectiveness of hiring credits using comprehensive administrative data we show that the french hiring credit implemented during the great recession had significant positive employment effects and no effects on wages relying on the quasi experimental variation in labour cost triggered by the hiring credit we estimate a structural search and matching model simulations of counterfactual policies show that the effectiveness of the hiring credit relied to a large extent on three features it was non anticipated temporary and targeted at jobs with rigid wages we estimate that the cost per job created by permanent hiring credits either countercyclical or time invariant in an environment with flexible wages would have been much higher

price dispersion and learning in a dynamic differentiated goods duopoly we study the evolution of prices set by duopolists who are uncertain about the perceived degree of product differentiation customers sometimes view the products as close substitutes sometimes as highly differentiated as the informativeness of the quantities sold increases with the price differential there is scope for active learning by firms when information has low value to the firms they charge the same price as would be set by myopic players and there is no price dispersion when firms value information more highly on the other hand they actively learn by creating price dispersion such price dispersion arises in a cyclical fashion and is most likely to be observed when the firms environment changes sufficiently often but not too frequently firms payoffs are higher when they use correlated pricing strategies contrary to what one might expect such coordination need not hurt consumers provided they are sufficiently impatient

the effect of household structure on women s economic activity and fertility evidence from recent mothers in urban mexico this study examines the effect of the presence of a mother substitute in the household on urban womens participation in the labor force and fertility in mexico in 1982 data were obtained from the 1982 mexican national demographic survey on reproductive history educational status employment status and household structure for a subsample of 2746 urban women who were married 90 or in a consensual union 10 and had had a child within the prior 5 years theoretically women with higher value of market time lower household income and lower value of nonmarket time will more likely be working women women had 3 4 surviving children 83 used contraceptives and 15 were employed analysis involved use of reduced form equations to model the joint determination of labor force participation and fertility justification of this method is given husbands education was a proxy for income level cost of child rearing is figured as the mothers number of children 5 years and household structure mother substitute was an additional unemployed female aged 13 years an imputed wage for all women in the sample is used to measure the value of time in the labor force probit regression estimation methods revealed that mothers were more likely to be working when their wage offers were higher those with a caretaker in the household and with a less well educated husband are also more likely to work those more likely to be employed also had few children 6 12 years and more children 13 years in the fully reduced form of the equation determinants of the wage offer education age region were substituted for the instrumental variable the results were consistent an additional woman in the household was significantly positively related to the likelihood of women working in the reduced form fertility equation women who were younger better educated with more children and with better educated partners were less likely to have more than 1 child born within the last 5 years the implication from the negative coefficient of the household structure variable is that women with additional caretakers are less likely to have more than 1 young child the causes are explained mother substitutes increase the likelihood of working women and do not increase the likelihood of having more children particularly among nonemployed mothers which differs from us results future research should refine the measure of mother substitute and account for her presence in the household

what determines cartel success following george stigler 1964 many economists assume that incentive problems undermine attempts by firms to collude to raise prices and restrict output but the potential profits from collusion can create a powerful incentive as well theory cannot tell us a priori which effect will dominate whether or when cartels succeed is thus an empirical question we examine a wide variety of empirical studies of cartels to answer the following questions 1 can cartels succeed 2 if so for how long 3 what impact do cartels have 4 what causes cartels to break up we conclude that many cartels do survive and that the distribution of duration is bimodal while the average duration of cartels across a range of studies is about five years many cartels break up very quickly i e in less than a year but there are many others that last between five and ten years and some that last decades limited evidence suggests that cartels are able to increase prices and profits to varying degrees cartels can also affect other non price variables including advertising innovation investment barriers to entry and concentration cartels break up occasionally because of cheating or lack of effective monitoring but the biggest challenges cartels face are entry and adjustment of the collusive agreement in response to changing economic conditions cartels that develop organizational structures that allow them the flexibility to respond to these changing conditions are more likely to survive price wars that erupt are often the result of bargaining issues that arise in such circumstances sophisticated cartel organizations are also able to develop multipronged strategies to monitor one another to deter cheating and a variety of interventions to increase barriers to entry

collusion with capacity constraints over the business cycle this paper investigates the efiect of capacity constraints on the sustainability of collusion in markets subject to cyclical demand uctuations in the absence of capacity constraints i e a limiting case of our model haltiwanger and harrington 1991 show that flrms flnd it more di cult to collude during periods of decreasing demand we flnd that this prediction can be overturned if flrms capacities are su ciently small capacity constraints imply that punishment proflts move procyclically so that periods of increasing demand may lead to lower losses from cheating even if collusive proflts are rising haltiwanger and harrington s main prediction remains valid for su ciently large capacities

liquidation risks in the rotemberg saloner implicit collusion model abstract we extend the rotemberg saloner s 1986 rotemberg j saloner g 1986 a supergame theoretic model of price wars during booms american economic review 76 390 407 implicit collusion framework to the consideration of capital market imperfections captured by a non zero probability of liquidation of firms in recessionary periods we show that the rotemberg saloner result of countercyclical markups is quite robust to the extension and moreover liquidation risks may even strengthen the degree of markup countercyclicality

sunk costs and cartel formation theory and application to the dyestuff industry we first develop a simple model of entry showing that cartels are more likely to emerge during periods of downturns and in industries with significant sunk costs cartel formation is also accompanied by a decline in profits we then use the framework to investigate the emergence of the swiss dyestuff export cartel during the inter war period and find empirical evidence that supports the main predictions of the model the analysis indicates that sunk costs and entry may be important determinants of cartel formation and are complementary to the traditional cartel stability conditions

price quality and income in child care choice recent legislation may substantially expand federal assistance in paying for child care this paper examines the potential effects of three aspects of federal assistance reducing child care price through vouchers or grants to providers improving its quality through incentives or regulation and increasing family income through tax credits on the child care choices employed mothers make the data come from the 1985 wave of the national longitudinal survey of youth ohio state university both multinomial and universal logit models are used the results suggest that price is a critical variable in child care choice the higher the price the lower the probability a mode of care will be chosen parents do not consistently select high quality care although overall quality improvements may increase the use of family day care mothers who earn more per hour and families who have higher incomes other than the mother s earnings are more likely to select center care over other modes consequently subsidizing child care expenditures directly through vouchers and reduced fees or increasing other family income through tax credits consistently increases the use of center based programs all else equal

employment of new mothers and child care choice differences by children s age working women frequently withdraw from the formal labor market for a period of time following their 1st birth while more than 1 3 of these mothers return to work within 3 months 1 2 remain out of formal employment 2 years after giving birth this paper examines the determinants of womens return to the labor market within 2 years of childbirth and the type of child care women choose employing data from the national longitudinal survey of youth the study found economic incentives to have powerful effects upon mothers work behavior despite cultural norms which may encourage mothers to care for their very young children mothers wages and other family income were important determinants the relationship between child care costs and work and child care choice change as children age with mothers being most sensitive to the psychic and financial costs of care in the months immediately following childbirth specifically the presence of mothers personal wages relates positively to early return to work and higher family income delays return to work greater child care tax credits increase the return to work within 3 months yet have little effect on later labor supply neither wages income nor tax credits significantly affected child care choice overall financial variables had less impact on type of child care than on the decision to work

capital market imperfections and countercyclical markups theory and evidence during recessions output prices seem to rise relative to wages and raw material prices one explanation is that imperfectly competitive firms compete less aggressively during recessions that is markups of price over marginal cost are countercyclical the authors present a model of countercyclical markups based on capital market imperfections during recessions liquidity constrained firms boost short run profits by raising prices to cut their investments in market share the authors provide evidence from the supermarket industry in support of this theory during regional and macroeconomic recessions more financially constrained supermarket chains raise their prices relative to less financially constrained chains copyright 1996 by american economic association

a model of collusion timing abstract i develop a dynamic model of collusion affording a substantial role to entry heterogeneous firms make collusion entry exit and investment decisions within an evolving environment the collusive agreement adopted is a rule of thumb motivated by the details of collusion in the lysine market it is found that an entrant will wait until it has a market share comparable to its competitors before agreeing to collude allowing for collusive possibilities tends to yield a less concentrated industry with reduced consumer welfare the model characterises events in the lysine market and could provide insights into markets with the potential for collusion and entry and uncertainty about the characteristics of potential entrants

tacit collusion under interest rate fluctuations previous literature has shown that demand fluctuations affect the scope for tacit collusion i study whether discount factor fluctuations can have similar effects i find that collusion depends not only on the level of the discount factor but also and more surprisingly on its volatility collusive prices and profits increase with a higher discount factor level but decrease with its volatility these results have important implications for empirical studies of collusive pricing the role that collusive pricing may play in economic cycles and the study of cooperation in repeated games

countercyclical pricing in customer markets i present a dynamic model of price determination in customer markets that are subject to exogenous business cycle fluctuations the business cycle is described in terms of a markov process in which market demand alternates stochastically between fast growth boom and slow growth recession phases in the consumers preferred equilibrium outcome 1 prices are below the monopoly level and 2 prices are countercyclical when demand growth rates are positively correlated through time a firm faces a dynamic trade off when making its current price selection while a higher price may raise a firm s profit in the short term it also may diminish the firm s reputation for low prices leading to lower profits in the future

collusion and heterogeneity of firms we examine the impact of heterogeneous discounting on collusion in dynamic bertrand competition we show exactly when collusion can be sustained and how collusion would be organized efficiently with heterogeneous discounting first we show that collusion is possible if and only if the average discount factor exceeds a certain threshold with or without capacity constraints next we identify a dynamic pattern of market share that characterizes efficient collusion and obtain the unique long run prediction despite the presence of multiple equilibria in the long run the most patient firm and the most impatient firm tend to dominate the market

women s employment and child care choices in urban china during the economic transition abstractchina s transition from a centrally planned to a market economy has substantially eroded governmental support for child care raising the concern about how the change of child care provision may affect women s labor market participation this article examines the impact of child care availability and affordability on the employment and child care choices of urban chinese women with preschool children during the transition the analysis shows that the presence of day care in the community is positively associated with a mother s labor force participation and labor hour supply and that the rising costs of hired caregivers reduce the mother s labor hour supply the analysis also finds that both the costs of hired caregivers and family income have important effects on the use of out of home care services simulations indicate that the decline in day care presence would account for 46 of the decrease in mothers labor force participation during the public sector restructuring between 1997 and 2000

cartel pricing dynamics in the presence of an antitrust authority cartel pricing is characterized when firms are concerned about creating suspicions that a cartel has formed balancing concerns about maintaining the stability of the cartel with those of avoiding detection the cartel may either i gradually raise price to its steady state level or ii gradually raise price and then have it decline to its steady state level antitrust laws may have a perverse effect as they make cartel stability easier and thus allow for higher cartel prices

negotiating contract types and contract clauses in the german construction industry during the third reich this article examines the determinants of contractual form and renegotiations in the german construction industry during the third reich at the beginning of world war ii firms dealt with growing uncertainty by convincing procurement agencies either to use cost plus contracts or to include an additional risk premium in fixed price contracts in the later years of the war procurement agencies initiated renegotiations over contract clauses to reduce the extraordinary profits resulting from information rents and high risk premiums this regulatory course undermined the credibility of the regulatory commitment thereby weakening the incentives of the fixed price contracts still in use

market power and price movements over the business cycle this paper develops and tests implications of an oligopoly pricing model the model predicts that during a demand expansion the short run competitive price is a pure strategy nash equilibrium but in a recession firms set prices above the competitive price thus price markups over the competitive price are countercyclical prices set during a recession are more variable than prices set in expansions because firms employ mixed strategy pricing in recessions the empirical analysis utilizes hamilton s time series switching regime filter to test the predictions of the model fourteen out of fifteen industries have fluctuations consistent with this oligopoly pricing model

robust collusion with private information the game theoretic literature on collusion has been hard pressed to explain why a cartel should engage in price wars without resorting to either impatience symmetry restrictions inability to communicate or failure to optimize this paper introduces a new explanation that relies on none of these assumptions if the cartel s member firms have private information about their costs price wars can be optimal in the face of complexity specifically equilibria that are robust to pay off irrelevant disruptions of the information environment generically cannot attain or approximate efficiency an optimal robust equilibrium must allocate market shares inefficiently and may call for price wars under certain conditions for a two firm cartel cost interdependence is a sufficient condition for price wars to arise in an optimal robust equilibrium that optimal equilibria are inefficient generically applies not only to collusion games but also to the entire separable pay off environment a class that includes most typical economic models copyright 2012 oxford university press

the limitations of industry concentration measures constructed with compustat data implications for finance research industry concentration measures calculated with compustat data which cover only the public firms in an industry are poor proxies for actual industry concentration these measures have correlations of only 13 with the corresponding u s census measures which are based on all public and private firms in an industry also only when u s census measures are used is there evidence consistent with theoretical predictions that moreconcentrated industries which should be more oligopolistic are populated by larger and fewer firms with higher price cost margins further the significant relations of compustatbased industry concentration measures with the dependent variables of several important prior studies are not obtained when u s census measures are used one of the reasons for this occurrence is that compustat based measures proxy for industry decline overall our results indicate that product markets research that uses compustat based industry concentration measures may lead to incorrect conclusions jel g10 g30 l10 a growing number of studies that consider the effects of product markets on financial economics related phenomena use industry concentration measures calculated with compustat data which cover only the public firms in an industry these studies examine issues related to asset pricing hou and robinson 2006 informed trading tookes 2008 idiosyncratic stock return volatility gaspar and massa 2006 mergers and acquisitions song and walkling 2000 fee and thomas 2004 shahrur 2005 corporate governance defond and park 1999 engel hayes andwang2003 rennie2006 karuna2007 capitalstructure lang and stulz 1992 kaleand shahrur 2007 corporate disclosurepolicy

the demand for quality in child care we estimate a model of demand for quality related attributes of child care group size staff child ratio and provider training the model is estimated jointly with equations for mode expenditure on and hours of care and the mother s labor supply the results show that a lower price of child care in a particular mode leads to substitution toward that mode and an increase in the use of paid child care a decrease in the price of care causes an increase in hours of care demanded and a decrease in the demand for qualityrelated attributes income effects on demand for quality are small

disclosure policy and industry fluctuations this paper examines voluntary disclosures in a repeated oligopoly and their association with price setting behavior and industry profits along industrial fluctuations the analysis focuses on the collectively optimal equilibrium among oligopoly firms we show that in industries that are highly concentrated or feature low cost of capital nondisclosure is prevalent and results in stable product prices and high profit margins otherwise firms may selectively disclose to soften competition in the product market under partial disclosure firms withhold information during sharp industry expansions or declines consequently the disclosure policy dampens the dissemination of shocks to the industry this paper was accepted by mary barth accounting

price response asymmetric information and competition we compare predictions from a theoretical model based on the structure of the main outdoor retail market in jerusalem with the results of an empirical analysis of price response to changes in cost we find that firms without adjacent competition exhibit both upward and downward price rigidity an outcome we ascribe to asymmetric information between the consumer and the firm given that previous studies have focused on downward price rigidities of firms with market power our findings highlight the importance of accounting for transitory information asymmetries between the consumer and the firm when studying price rigidity

exchange rate pass through for strategic pricing and advertising abstract this paper builds a model in the new empirical industrial organization framework bresnahan t 1989 industries and market power in schmalensee r willig r eds handbook of industrial organization north holland amsterdam to estimate exchange rate pass through in price and advertising price cost margins market structure and firm conduct are estimated endogenously allowing for precise estimation of the degree of and reasons for incomplete pass through i demonstrate that price and advertising pass through are functions of demand cost and market conduct in the short run in the long run the market conduct and cost technologies are in turn determined by the exchange rate movements 1997 elsevier science b v

urban labour market structure and job access in india a study of coimbatore develops new approaches to the analysis of labour market structure and segmentation notably stressing differences in labour status and in patterns of job access these ideas are applied in a south indian city showing how they help to analyze labour inequality supply and mobility

collusive price rigidity under price matching punishments by analysing an infinitely repeated game where unit costs alternate stochastically between low and high states and where firms follow a price matching punishment strategy we demonstrate that the best collusive prices are rigid over time when the two cost levels are sufficiently close this provides game theoretic support for the results of the kinked demand curve in contrast to the kinked demand curve it also generates predictions regarding the level and the determinants of the best collusive price which in turn has implications for the corresponding collusive profits the relationships between such price rigidity and the expected duration of a high cost phase the degree of product differentiation and the number of firms in the market are also investigated

competition in the economic crisis analysis of procurement auctions we study the effects of the recent economic crisis on firms bidding behavior and markups in sealed bid auctions using data from austrian construction procurements we estimate bidders construction costs within a private value auction model we find that markups of all bids submitted decrease by 1 5 percentage points in the recent economic crisis markups of winning bids decrease by 3 3 percentage points we also find that without the government stimulus package this decrease would have been larger these two pieces of evidence point to pro cyclical markups

collusion over the business cycle we present a theory of collusive pricing for markets in which demand alternates stochastically between fast growth boom and slow growth recession phases we show that 1 the most collusive prices are weakly procyclical countercyclical when demand growth rates are positively negatively correlated through time and 2 the amplitude of the collusive pricing cycle is larger when the expected duration of boom phases decreases and when the expected duration of recession phases increases we also offer a generalization of rotemberg and saloner s 1986 model interpreting their findings in terms of transitory demand shocks that occur within broader business cycle phases

a dynamic oligopoly with collusion and price wars we provide a collusive framework with heterogeneity among jirms investment entry and exit it is a symmetric information model in which it is hard to sustain collusion when there is an activejim that is likely to exit in the near future numerical analysis is used to compare a collusive to a noncollusive environment only the collusive industry generates price wars also the collusive industry offers both more and higherquality products to consumers albeit often at a higher price the positive effect of collusion on variety and quality more than compensates consumers for the negative effect of collusive prices so that consumer surplus is larger with collusion

examining models of collusion the market for lysine abstract we compare the experience with collusion in the market for lysine with the predictions of theory the lysine market provides an ideal setting following the confessions of cartel participants in antitrust investigations data availability allows demand and cost functions to be estimated and observed mark ups compared with predictions we find that several integral aspects of collusion in the lysine market are not adequately addressed in the literature the dynamics associated with entry and investment persistent asymmetries between firms the cartel s bargaining problem and the existence of cheating in equilibrium these issues are likely to have much wider applicability beyond the lysine market

the impact of capital structure on advertising competition an empirical study this article examines the interaction between capital structure and advertising competition using a sample of firms that raise significant amounts of capital we find that firms whose financial leverage has decreased as a result of their new funding increase their advertising significantly more than firms whose leverage has increased we also find that these firms industry rivals respond less aggressively with their own advertising when they have more debt in their capital structure overall our results support the view that financial leverage has a dampening effect on the intensity with which a firm chooses to compete in the product market

working women in an urban setting traders vendors and food security in accra abstract data collected from a 1997 household survey carried out in accra ghana are used to look at the crucial role that women play as income earners and securing access to food in urban areas one third of the households surveyed are headed by women for all households women s labor force participation is high with 75 of all households having at least one working woman the high number of female headed households and the large percentage of working women in the sample provide a good backdrop for looking at how women earn and spend income differently than men in an urban area livelihood strategies for both men and women are predominantly labor based and dependent on social networks for all households in the sample food is still the single most important item in the total budget yet important and striking differences between men s and women s livelihoods and expenditure patterns exist compared to men women are less likely to be employed as wage earners and more likely to work as street food vendors or petty traders women earn lower incomes but tend to allocate more of their budget to basic goods for themselves and their children while men spend more on entertainment for themselves only despite lower incomes and additional demands on their time as housewives and mothers female headed households petty traders and street food vendors have the largest percentage of food secure households women may be achieving household food security but at what cost this paper explores differences in income expenditure and consumption patterns in an effort to answer this question and suggests ways that urban planners and policy makers can address special concerns to working women in urban areas

child care subsidies and labor supply in sweden this paper utilizes data from a swedish household survey for 1984 the hus data in combination with data on public child care fees and spaces per child by community we argue that the subsidy rate and availability of spaces determined by the political leaders of the community is to a large extent exogenous to the household the joint out of home child care and labor supply decision is analyzed by logit and ordered probit choice models we find that the high quality public child care in sweden encourages labor market activity of women with preschoolers even when the spouse s income is high and that when spaces are not rationed a lower price encourages use

why do larger buyers pay lower prices intense supplier competition abstract the paper provides a theoretical explanation of the common claim that larger buyers pay lower prices in the model suppliers compete more aggressively for the business of larger buyers much as they do in boom periods of rotemberg and saloner

fixed costs matter even when the costs are sunk how firms set prices is key to understanding markets standard economics dictates that the fixed costs of a firm should not affect its prices nonetheless it is common practice for firms to raise their prices after a fixed costs increase we show that firms are correct in doing so if two ubiquitous conditions apply i future profits increase in current sales and ii firms are liquidity constrained

a structural model of labor supply and child care demand this paper specifies and estimates a structural model in which the decision to purchase market child care and the quality purchased is made simultaneously with the employment decision of the mother separate analyses are performed for married mothers and single mothers the structural estimates are used to simulate the effects and costs of changes in the federal child care tax credit the simulations indicate that a refundable child care tax credit would distribute child care benefits more equally across the population by increasing the shares of subsidies received by low income families and would induce a considerable increase in expenditures on market child care labor supply also increases but by considerably less than child care expenditures a surprising result is that despite large increases in child care

collusion under risk aversion and fixed costs we analyze collusion under demand uncertainty by risk averse cartels that care about the utility derived from profits with sufficient risk aversion and non trivial fixed operating costs it becomes difficult for cartels to collusively restrict output both when demand is low and marginal dollars are highly valued and when demand is high and potential defection profits are high output relative to monopoly levels becomes a u shaped function of demand greater risk aversion or higher fixed operating costs make collusion more difficult to support in recessions but easier to support in booms

tacit collusion in the presence of cyclical demand and endogenous capacity levels abstract we analyze tacit collusion in an industry characterized by cyclical demand and long run scale decisions firms face deterministic demand cycles and choose capacity levels prior to competing in prices our focus is on the nature of prices we find that two types of price wars may exist in one collusion can involve periods of mixed strategy price wars in the other consistent with the rotemberg and saloner 1986 definition of price wars we show that collusive prices can also become counter cyclical we also establish pricing patterns with respect to the relative prices in booms and recessions if the marginal cost of capacity is high enough holding current demand constant prices in the boom are generally lower than the prices in the recession this reverses the results of haltiwanger and harrington 1991 in contrast if the marginal cost of capacity is low enough then prices in the boom are generally higher than the prices in the recession for costs in an intermediate range numerical examples are calculated to show specific pricing patterns

household childcare choices and women s work behavior in russia the author models mothers participation in the labor force their working hours and household demand for childcare in russia the model estimates the effects of the price of childcare mothers wages and household income on household behavior and well being the theoretical model yields several predictions to test these reduced form equations of the discrete and continuous household choices are estimated jointly using the method of semi parametric full information maximum likelihood this method controls for the correlation of error terms across outcomes and the correlation of error terms that can result when panel data are used the results of this analysis indicate that the extent to which mothers participate in the labor force and for how many hours depends on the costs of childcare and on what level of hourly wage is available to them and to other members of the household the author s simulations show that family allowances intended to reduce poverty do not significantly affect the household choice of childcare arrangements replacing family allowances with childcare subsidies might have a strong positive effect on women s participation in the labor force and thus could be effective in reducing poverty