measuring returns to scale in dea models when the firm is regulated in the standard framework of data envelopment analysis dea models the returns to scale are fully characterized using the multiplier on the convexity constraint of inefficient decision making units dmu using the projection of the input output vector on the frontier in this note we investigate how the returns to scale measurements in dea models are affected by the presence of regulatory constraints these additional constraints change the role played by the convexity constraint in order to avoid biased estimation of the returns to scale we show that the interaction between the regulatory and the convexity constraints has to be taken into account

opec and the international oil market can a cartel fuel the engine of economic development abstract the opec cartel was formed to promote two economic goals one microeconomic low oil market volatility the other macroeconomic promotes economic development of its members these goals create a tension since the cartel s single tool is output quotas using this dual micro macro perspective we analyze oil exporting countries behavior we find that the effects of the cartel s choices will be reflected in oil market stability long term macroeconomic development and international oil market structure if an oil producing country cares about both oil industry profits and macroeconomic stability the goal of output stability may be inconsistent with cartel membership

entry exit and performance in airline markets abstract data from the airline industry indicate that 1 entry generally is not induced by price levels substantially above the norm 2 entry reduces fares and increases output and exit increases fares and reduces output and 3 incumbents cut price and maintain output in response to entry and survivors increase both price and output in response to exit these findings cast doubt on the ability of entry to prevent or reverse price increases from anticompetitive mergers

sunk costs financial markets and contestability abstract this paper analyzes the proposition that the theory or contestable markets will yield good predictions for markets in which sunk costs although present are unimportant two results are of interest 1 if costs are at all sunk incumbent firms will be able to engage in strategic behavior with respect to entrants 2 if no costs are sunk but firms finance investment by borrowing incumbent firms will be able to engage in strategic behavior with respect to entrants in these cases one must analyze strategic behavior of incumbent firms to analyze market performance

toward a public choice theory of monopoly regulation its many dimensions from the perspective of market economics this new thrust was consolidated in 1976 by s peltzman who developed a formal market model in which regulations were viewed as commodities brokered via political markets in response to bids and counter bids by those who stood to gain or to lose from specific regulation outcomes the subsequent contribution by becker 1983 added insights and institutional flesh to the stigler peltzman embryo confirming regulation as an integral component of mainstream market economics an important implication of such contributions especially those from the chicago perspective is that regulation for the most part confirms resource efficiency within market process that political markets in the absence of entry barriers are just as effective as are competitive commodity markets in achieving economic efficiency defined within a comparative institutions framework nowhere is this complacency more apparent than in the conclusion drawn by becker 1983 from a detailed formal analysis of competition among pressure groups for political influence

the risk of second tier supplier failures in serial supply chains implications for order policies and distributor autonomy abstract as organizations decrease inventory the potential impact of a supply disruption increases however due to supply chain structural changes the likelihood of a disruption may be less additionally independent supply chain actors may react to policy changes changing supply chain configurations and perhaps reducing loss magnitudes if risk is a product of likelihood and magnitude does higher inventory reduce an organization s supply related risk this paper examines the supply risk issue within the context of a second tier supply failure and is grounded in inventory and resource dependency theories by evaluating risk assessment in a simulation environment exploratory findings suggest that increased inventory in a tiered supply chain can sometimes increase supply risk rather than decrease it managerial insights into the effects of supply chain stability and coordination are provided by taking a systems perspective of supply risk management organizations will be better able to manage supply risk concerns

regulatory design for res e support mechanisms learning curves market structure and burden sharing drawing from relevant experiences in power systems around the world this paper offers a review of existing policy support mechanisms for res e with a detailed analysis of their regulatory implications while recent studies provide an account of current res e support systems in this paper we focus on some of the impacts these mechanisms have on the overall energy market structure and its performance given the rising importance of res e in systems everywhere these impacts should no longer be overlooked

antitrust and technological innovation in the us ideas institutions decisions and impacts 1890 2000 abstract the history of antitrust policy in the us as it relates to technological innovation exhibits major swings every few decades between favoring concentration and favoring deconcentration this paper sketches for each period the contending ideas that frame antitrust technology policy debates the salience of these ideas in the larger antitrust policy process the institutions for agenda setting and decision making in this area the policy decisions themselves and more speculatively the impacts of these decisions on technological innovation and industrial development the paper concludes with a preliminary attempt to identify the cyclical secular and static processes that have shaped the history of this policy area and to use this analysis to inform future policy makers

the uk s levy control framework for renewable electricity support effects and significance there is a long standing debate over price vs quantity approaches to supporting the deployment of renewable electricity technologies in the context of a a recent shift from quantity to price based support the uk has also introduced a new form of budgetary framework the levy control framework lcf the introduction of the lcf has been very important for investors but has received relatively little attention in the academic literature the paper gives an overview of the lcf explores its effects on renewables policy on consumers and on investor confidence arguing that an unintended consequence of its introduction has been to increase uncertainty through interactions with underlying support mechanisms a number of problems with the current scope and design of the lcf are noted it is argued that the lcf is best understood as aimed at avoiding a political backlash against renewable support policy in a context where the benefits of such policy are concentrated economically and socially the paper concludes by placing the lcf within a wider context of a shift towards greater budgetary control over renewable energy support policy across european countries

some models for estimating technical and scale inefficiencies in data envelopment analysis in management contexts mathematical programming is usually used to evaluate a collection of possible alternative courses of action en route to selecting one which is best in this capacity mathematical programming serves as a planning aid to management data envelopment analysis reverses this role and employs mathematical programming to obtain ex post facto evaluations of the relative efficiency of management accomplishments however they may have been planned or executed mathematical programming is thereby extended for use as a tool for control and evaluation of past accomplishments as well as a tool to aid in planning future activities the ccr ratio form introduced by charnes cooper and rhodes as part of their data envelopment analysis approach comprehends both technical and scale inefficiencies via the optimal value of the ratio form as obtained directly from the data without requiring a priori specification of weights and or explicit delineation of assumed functional forms of relations between inputs and outputs a separation into technical and scale efficiencies is accomplished by the methods developed in this paper without altering the latter conditions for use of dea directly on observational data technical inefficiencies are identified with failures to achieve best possible output levels and or usage of excessive amounts of inputs methods for identifying and correcting the magnitudes of these inefficiencies as supplied in prior work are illustrated in the present paper a new separate variable is introduced which makes it possible to determine whether operations were conducted in regions of increasing constant or decreasing returns to scale in multiple input and multiple output situations the results are discussed and related not only to classical single output economics but also to more modern versions of economics which are identified with contestable market theories

currency competition a hayekian perspective on international monetary integration currency internationalization is examined from the vantage point of friedrich hayek s contributions in the 1970s compared with received commentaries in which only an idealized case for private money is attributed to hayek this paper underscores other dimensions of hayek s work on money and currency hayek s case for choice in currency draws on his theory of competition anticipates competition between government suppliers of fiat money accommodates many aspects of international monetary integration and embodies a distinctive approach to monetary independence choice of exchange rate regime and the transnationalization of currency hayekian predictions are outlined for future developments in currency competition

price changes supply elasticities industry organization and dairy output distribution long run price elasticities of milk supply are decomposed into price elasticities of yield herd size and farm population for northeastern u s dairy farms these elasticities are shown to vary with farm size because of size related differences in capital intensity specialization yield and herd size variability and rates of entry exit into dairy in the short run price responsiveness is shown to decrease with farm size in the long run large farms are shown to be most price responsive results suggest that lower milk prices could make revenue distribution less equal in both the short and long run by altering output and population distributions

contestability queues and governmental entry deterrence this paper demonstrates that a perverse kind of entry deterrence can result when government subsidized production is combined with non price rationing in the form of queuing even though queuing leads to a total cost to the consumer not including the tax cost that is higher than the cost of an unsubsidized private supplier and even though the government s money price is rigid the market is not contestable the key to the result is that the waiting cost portion of the consumer s acquisition cost declines immediately upon entry and losses would be forced upon the entrant privatization would negate the entry deterrence thus leading to entry increased output at lower full prices lower average production costs decreased waiting costs increased profits and increased consumer surplus

real wages and unemployment in the big squeeze uk real wage growth has slowed down stagnated and recently turned sharply negative we document the nature of real wage changes across the wage distribution over the last three decades showing that recent patterns represent a distinct break of trend that pre dates the onset of recession we explore whether unemployment has become a stronger moderating influence on real wage growth and report using aggregate economy wide and regional panel data that real wage unemployment sensitivities have become stronger in the period from 2003 onwards finally we offer some assessment of possible drivers of this increased sensitivity of real wages to unemployment

entry in monopoly market this paper develops new empirical models of market concentration from game theoretic models of entry we construct our models from inequality conditions that describe entrants equilibrium strategies in simultaneous move and sequential move games and use them to study the effects of entry in isolated monopoly markets for new automobiles from estimates of the market size necessary to support one and two dealers we conclude that monopoly dealers do not block the entry of a second dealer we also find that entry does not cause price cost margins to fall by much

efficiency of dynamic quantity competition a remark on markovian equilibria this paper extends maskin and tirole analysis of dynamic quantity competition in terms of markov perfect equilibria to the case in which firms have different fixed costs it is proved that allocative efficiency still prevails but not productive efficiency

determining the optimal size of supply base with the consideration of risks of supply disruptions abstract determining the optimal size of the supply base has haunted managers for years a small supply base gives rise to the risk of supply disruption whereas a large supply base increases the fixed cost in this paper we consider the risks of supply disruption due to occurrence of super semi super and unique events in order to formulate a model to determine the optimal size of supply base we depict the model in a decision tree like structure and forward a tabular method of solution that obviates the need avoids evaluation of a majority of non optimal solutions and thus overcomes the problem of dimensionality

clusters entrepreneurial ecosystem co creation and appropriability a conceptual framework extant literature on clusters underplays the role of entrepreneurs and entrepreneurial management in creating and co creating organizations markets and supporting ecosystems we employ transaction costs resource knowledge capabilities and power control based theories to provide a comparative static governance based perspective on clusters we embed this into a more general co evolutionary entrepreneurial theory of the emergence evolution and co evolution of markets ecosystems and clusters we suggest that clusters can involve advantages that help engender superior appropriation of co created value as compared to alternatives entrepreneurial managers faced with a degree of choice will help co create clusters and be part of them for as long as they can appropriate more value in this way than through alternatives

contestability in a resource market with non convex costs consider an intertemporal resource market with n identical firms each managing an exhaustible resource deposit the extraction from which is governed by a u shaped average cost curve eswaran lewis and heaps 1983 elh show that such a market cannot have a competitive equilibrium in their comments on elh kimmel 1984 and mumy 1984 point out however that the elh result is driven by there being a small number of firms which is inconsistent with price taking behavior this provides a motivation for analyzing the situation considered by elh under alternative assumptions of market behavior in general perfect contestability applies to circumstances where perfect competition is impossible because economies of scale are present see baumol et al 1982 since the non convexities in elh are not caused by once and for all setup or shut down costs rather the flow of costs is assumed to be a non convex function of the flow of extraction replacing the assumption of price taking behavior with an assumption of ultra free entry 2 provides a potential means of restoring a market equilibrium in the present case contestability theory holds that the threat of competition by potential entrants can discipline the pricing behavior of the active firms however as pointed out by cairns 1991 footnote 9 a non active firm can be the source of this kind of discipline in an exhaustible resource market only if its remaining reserves are positive caution should therefore be exercised in applying contestability theory to a resource market in this note existence of an equilibrium in such an exhaustible resource market is shown partly by relying on the possibility of ultra free entry we

us and canadian livestock prices market integration and trade dependence cointegration of canadian and us livestock prices points to the existence of market integration in the period january 1996 to december 2004 trade flows of livestock and beef products were nonexistent between canada and the united states for many months in 2003 and 2004 suggesting market segmentation this lack of trade in beef and livestock was due to livestock beef import bans by both countries due to bovine spongiform encephalopathy it was also determined that canada s trade dependence in livestock and beef is cointegrated with canadian and us livestock prices however as the trade dependence variable is shocked the effects on canadian and us prices are opposite although one would expect that in an integrated market the price responses to an exogenous shock would be similar or statistically identical this result reinforces the case against the use of price cointegration analysis in determining presence or absence of market integration empirical results in this article raise some very difficult q

value of information in capacitated supply chains we incorporate information flow between a supplier and a retailer in a two echelon model that captures the capacitated setting of a typical supply chain we consider three situations 1 a traditional model where there is no information to the supplier prior to a demand to him except for past data 2 the supplier knows the s s policy used by the retailer as well as the end item demand distribution and 3 the supplier has full information about the state of the retailer order up to policies continue to be optimal for models with information flow for the finite horizon the infinite horizon discounted and the infinite horizon average cost cases study of these three models enables us to understand the relationships between capacity inventory and information at the supplier level as well as how they are affected by the retailer s s s values and end item demand distribution we estimate the savings at the supplier due to information flow and study when information is most beneficial

explaining government choices for promoting renewable energy abstract many advanced industrialized countries have in recent years experienced a significant expansion of electricity production from renewables yet we know quite little about the dynamics of the underlying policychoices in this area using new data on adoptions and changes in feed in tariff and green certificate schemes in 26 advanced industrialized countries over 20 years we examine both domestic driving forces as well as international determinants the findings suggest that three factors play a particularly important role in pushing countries towards market based support systems characteristics of the existing energy supply system a federalist structure of the political system and eu membership particularly noteworthy is the finding that higher shares of fossil and nuclear energy in the national energy supply as well as higher co 2 intensity of the economy do not as we had expected stand in the way of policies for supporting renewables in electricity production to the contrary they increase the likelihood of a country adopting such policies we also find however that higher economic growth and higher growth in solar and wind energy capacity tend to reduce the political appetite for reforms of existing schemes

symmetric or asymmetric price adjustments in the oil market an empirical analysis of the relations between international and domestic prices in the federal republic of germany 1972 89 abstract this paper investigates how german consumer and wholesale prices for gasoline and light heating oil react to changes in the corresponding rotterdam prices monthly data from 1972 to 1989 are employed and the subperiods of the 1970s 1972 to 1979 and 1980s 1980 1989 are distinguished error correction models are estimated to seperate long run equilibrium relations and short run adjustment processes for the 1980s we find rapid symmetric and full adjustment of the german prices to the rotterdam prices whereas during the 1970s we find some asymmetries and at least for gasoline the adjustment processes took considerably more time

information distortion in a supply chain the bullwhip effect this article originally appeared in management science april 1997 volume 43 number 4 pp 546 558 published by the institute of management sciences consider a series of companies in a supply chain each of whom orders from its immediate upstream member in this setting inbound orders from a downstream member serve as a valuable informational input to upstream production and inventory decisions this paper claims that the information transferred in the form of orders tends to be distorted and can misguide upstream members in their inventory and production decisions in particular the variance of orders may be larger than that of sales and distortion tends to increase as one moves upstream a phenomenon termed bullwhip effect this paper analyzes four sources of the bullwhip effect demand signal processing rationing game order batching and price variations actions that can be taken to mitigate the detrimental impact of this distortion are also discussed

the flypaper effect and competition in the local market for public goods in this paper we explore how the ability of bureaucrats to extract resources from their community may be limited by competition in the local market for public goods specifically we examine intergovernmental aid as a resource bureaucrats seek to control intergovernmental aid has been found to be more stimulative of local government expenditures than predicted by neo classical economic theory in this research the flypaper effect is used as an indicator of the ability of bureaucrats to control local resources in excess of local demand and preferences we empirically relate variation in the flypaper effect to the extent of competition in the local market for public goods competition does not consistently limit the flypaper effect the implications of this finding for theories of competition in the local market for public goods are then discussed

analysis of an inventory system under supply uncertainty in this paper we analyze a periodic review single item inventory model under supply uncertainty the objective is to minimize expected holding and backorder costs over a finite planning horizon under the supply constraints the uncertainty in supply is modeled using a three point probability mass function the supply is either completely available partially available or the supply is unavailable machine breakdowns shortages in the capacity of the supplier strikes etc are possible causes of uncertainty in supply we demonstrate various properties of the expected cost function and show the optimality of order up to type policies using a stochastic dynamic programming formulation under the assumption of a bernoulli type supply process in which the supply is either completely available or unavailable and when the demand is deterministic and dynamic we provide a newsboy like formula which explicitly characterizes the optimal order up to levels an algorithm is given that computes the optimal inventory levels over the planning horizon extensions and computational analysis are presented for the case where the partial supply availability has positive probability of occurrence

selection in dynamic entry games abstract this paper proposes a game theoretic framework to study dynamic competition with entry deterrence sufficient conditions are given such that the competition process results in the most efficient firm being eventually selected we show this selection property for asymmetric firms to be the natural economic extension to the rent dissipation property obtained for symmetric firms this framework is used to discuss previous models in which the selection property had not been studied dynamic limit pricing and capacity renewal or may fail to hold quantity competition journal of economic literature classification numbers c73 d43 l12

long run competition in the u s aluminum industry abstract a methodology for examining dynamic structure performance relationships in a single industry is proposed and illustrated implications of long run competitive behavior for a simple simultaneous equations model of structure and performance are derived and tested using recently developed methods for the interpretation of economic time series it is concluded that the structure and performance in the u s aluminum industry in the postwar period conform well with the hypothesis that the primary aluminum market was competitive in the long run

contestable markets an uprising in the theory of industry structure presents a transcript of the presidential address delivered at the 94th meeting of the american economic association on december 29 1981 discussion of developments in the theory of industry structure welfare attributes of contestable markets behavior characteristics of oligopoly equilibrium intertemporal vulnerability to inefficient entry ebsco

forward induction and sunk costs give average cost pricing abstract this paper applies the idea of forward induction to a classical economic problem the existence of an efficient form of competition in the case of increasing returns to scale it proves that properly formalized this idea leads to average cost pricing as the horizon goes to infinity journal of economic literature classification numbers

structure and performance with profit measures based on stock market prices the theory that there is a causal relationship between industry structure conduct and performance is the fundamental premise in the field of industrial organization the most carefully researched component of that general theory is the hypothesis that increasing industrial concentration will give rise to increasing profits this traditional view is important not only because of its prominence in the academic analysis of industrial markets but also because of its implications for government policy especially antitrust policy the traditional view typically has been tested by treating an accounting based measure of industry profit as the dependent variable with concentration and other structural variables as independent variables within a cross section of manufacturing industries at a given point in time numerous papers have found that concentration has a positive impact on profits the methodology adopted in this paper is different the profit measures are based on stock market prices and are adjusted for risk this is an improvement because accounting methods are so poorly adapted to the measurement of economic profit and because risk may vary with concentration 2 39 another methodological innovation is the choice of time series over cross section analysis the question asked is whether the change over time in each industry s level of concentration had an impact on profits this minimizes the problem of omitted or inaccurately measured independent variables since there should be less change in basic structural characteristics over short time periods within an industry than between industries at a single point in time 2 a second important advantage is freedom from a basic assumption of crosssection studies the assumption that the relationship between concentration and profit is homogeneous across industries if the assumption is invalid empirical results are subject to bias two tests 7 26 have firmly rejected the homogeneity assumption 3

retailer policy uncertainty reduction and supply chain performance abstract we investigate how the retailer s inventory policy affects the total cost of a serial supply chain when the retailer uses the locally optimal s s policy there is randomness in order time and order quantity to the supplier whereas the supplier sees randomness only in order quantity for the suboptimal r t policy and only in order time for another suboptimal q r policy using an extensive computational study we find that the suboptimal policies perform better from the total supply chain perspective the benefit of policy changes is magnified when the retailer costs are low when the supplier costs are high and when there is information sharing

learning from experience the development of the renewables obligation in england and wales 2002 2010 abstract the uk has enviable renewable resources both onshore wind and offshore wind wave and tidal the offshore valuation group 2010 the government has had policy mechanisms in place since 1990 to encourage these resources to be developed the current mechanism the renewables obligation ro was specifically designed to emphasise competition and therefore to fit in with the uk s overall strategic approach to energy policy however as yet it has not delivered the capacity that it was designed to do and as a result the uk faces a difficult challenge in attempting to meet european wide renewable energy targets for 2020 as well as longer term decarbonisation targets this paper explores some of the major reasons why the ro has performed so poorly to date and considers the prospects for improvement up to 2020 it concludes that the strategic emphasis on competition in the support mechanisms has played a key role in limiting renewables development but that the mechanism has changed significantly since it was introduced however these changes together with proposals for electricity market reform still do not address important elements of risk in comparison with a standard feed in tariff

is there a causal effect of concentration on persistent profitability differentials this article searches for a causal effect of industry concentration on estimates of persistent profitability differentials i offer solutions to identification problems that plague related analyses by applying an iv and a natural experiment this is the first study that explains estimates of persistent profit differentials using business segments data allowing to match micro and industry level data more consistently testing linear relations critical concentration levels and interactions with mobility barriers i find no evidence that concentration has any positive effect on long run profitability differences results rather tend to point to a statistically and economically significant negative causal effect

contestability a revisionist view many claims have been made about the significance of the contribution of contestability theory to industrial organizat ion this paper concludes that contestability theory leaves unanswere d questions about the identity of entrants and the source of their re sources a modification to the theory is proposed rather than as a h indrance to potential entry sunk costs are viewed as being of key si gnificance for the disciplining of oligopolists through potential ent ry with the proposed modification the analysis of the costs of mult iproduct firms may be more easily integrated with recent developments in industrial organization copyright 1988 by the london school of economics and political science

credible regulatory threats abstract as competition emerges in parts of utility industries and utility regulation policy is reviewed it is useful to examine alternative forms of regulation that may be implemented when hit and run entry is believed to be a non credible threat potential entry may not constrain incumbent firms pricing and production decisions this paper proposes that the credible threat of intervention by a regulator may impact upon incumbent firms decisions empirical evidence from the english and welsh electricity pool market is investigated to discover whether the threat of regulator intervention may have influenced the pricing strategies of the dominant firms in this market

does trade globalization induce or inhibit corporate transparency unbundling the growth potential and product market competition channels abstract trade globalization may affect corporate transparency via multiple channels with potentially opposite signs we aim to empirically disentangle these channels by tracking evolution of corporate transparency for 4061 listed firms in tradable sectors in 49 countries during 1992 2005 by using detailed tariff schedules we measure changes in growth opportunities and product market competition enabled by foreign and domestic trade liberalizations respectively on the one hand higher growth opportunities engendered by foreign trade reforms are disproportionately associated with better corporate transparency in industries that depend more heavily on external financing on the other hand greater product market competition engendered by domestic tariff reductions has no significant impact on corporate transparency

contestability vs competition analyzes the ultra free entry as normative contribution to industrial organization ultra free entry in context of the evolving field of industrial organization assessment of the conceptual validity of william baumol elizabeth bailey john panzar and robert willig s analysis in representing the nature of competition empirical issues in measuring and testing ultra free entry ebsco

how effective is potential competition abstract i examine robustness of perfect contestability a small sunk cost s causes large deviations from the results if the response lag l is even smaller there is an essential discontinuity at s 0 l i also examine what happens if incumbant not entrant exists after l

on milk prices in kyrgyzstan dynamic relationships among weekly retail prices for milk from three regions of kyrgyzstan are studied in an error correction framework observational data over the period january 1995 may 1999 are used in the analysis results show that prices from the oblasts of issyk kul and djalal abad form one long run cointegration relationship with prices from issyk kul exhibiting the property of weak exogeneity prices from the osh oblast are not part of this relationship these results are related to the levels of state run milk marketing facilities versus private run milk marketing facilities and surplus versus deficit milk production in each region

the inefficiency of private adaptation to pollution in the presence of endogenous market structure the paper considers an industry where production costs rise due to pollution but where this effect can be partially off set by investing in adaptation as a private good the focus is not on external effects but industries where economies of scale are introduced from adapting to pollution the structure of the resulting oligopolistic market is endogenous since the level of adaptation is chosen by the firms the analysis of externalities usually disregards defensive or adaptation measures with a few exceptions that point to considerable complications the present debate on adaptation to climate change shows the importance of understanding defensive measures i show that the market failure caused by economies of scale leads to production costs above the social optimum i e to under adapation when pollution increases adaptation only increases if demand is price inelastic otherwise welfare loss from market failure decreases with pollution the total welfare loss is only convex if demand is price inelastic and the influence of pollution on production costs is stronger than the influence of adaptation concave welfare loss has crucial implications for abatement policies

contestable markets an uprising in the theory of industry structure comment a situation traditionally identified as conducive to imperfect competition is when average costs decline and the cheapest scale of production is large relative to the size of the market however some of the more recent literature on industrial organization has emphasized a supposed distinction between fixed costs of production and sunk costs of production a point frequently made is that while the possibility of sunk costs can create genuine barriers to entry pure fixed costs per se do not inhibit competitive market performance this approach finds its logical extreme in the norm or abstraction of perfect contestability perfect contestability is essentially a theory of the polar case of frictionless entry and exit as william baumol stated a contestable market is one into which entry is absolutely free and exit is absolutely costless p 3 certainly this is the most reasonable interpretation of a situation where potential entrants feel free to disregard an incumbent s price response suppose every potential and actual producer has access to the same technology in a perfectly contestable market there are no set up or shut down losses the main result is that even with declining average costs of production the incumbent firm does not dare to post a price higher than average cost price above cost invites being undercut by a hit and run shadow entrant capable of producing at the same flow rate and at identical unit cost during just the briefest instant of time i argue that this line of reasoning is misleading perfect contestability gets around the problem of increasing returns only by in effect assuming it away a hit and run technology makes the firm behave as if it is competitive in a market precisely because the convexity preconditions for competition are de facto being met in that market this comment shows that strictly speaking there is no such thing as a pure fixed cost unless there are sunk costs located somewhere in the relevant production technology all costs are variable as a matter of formal theory you cannot have a range of decreasing average cost without sunk costs presumably there is also an approximation theorem which states that when sunk costs are close to being negligible then average production costs are practically nondecreasing perfect contestability holds approximately in a market only to the extent that production costs for the market are approximately nondecreasing my discussion will be restricted to the familiar case of a single well defined homogeneous fully divisible commodity while more general approaches are possible for the sake of simplicity the following definition is used the average cost function a c y t describes say the minimum cost per unit of output produced at a uniform flow rate y throughout the time interval 0 t especially in applications to industrial organization theory it is essential to remember that cost functions are not generally timeless and that writing ac as a function of y alone can be dangerously vague behind the free entry and exit of a hitand run technology in a perfectly contestable market is the abstraction of no sunk costs investments are fully reversible because nothing is lost in setting up or shutting down production

contestability vs competition once more baumol willig and other advocates of contestability theory continue to urge the idea not only for its insights but also as a clear basis for many antitrust and regulatory decisions yet the limits of the theory remain the three key assumptions are extremely strict and two of them are in mutual conflict the theory is not robust to imperfections in order to displace effective competition with contestability baumol must adopt a sequence of implausible propositions which unfortunately have little analytical or empirical basis

on the robustness of contestability theory abstract the robustness of contestability theory is discussed with special attention to the role of price response lags the possibility of collusion in the post entry game is examined by modeling an infinitely repeated game moreover the hit and run strategy is obtained as the unique subgame perfect equilibrium of a repeated game with infinite horizon under certain conditions

contestability reconsidered the meaning of market exit costs abstract this paper analyses the main result of the contestable market approach namely that potential competition reaches its maximum power if market entry and exit is costless and newcomers can use the hit and run strategy different time lag structures are considered average cost pricing turns out to be no equilibrium if there are no market exit costs furthermore exit costs don t necessarily create a barrier to entry but may even strengthen the discipline arising from the threat of entry

entry and price dynamics in a perfect foresight model abstract this paper studies firms entry and price dynamics in a model that combines the assumptions of free entry and perfect foresight with the hypothesis of consumer s loyalty postulated by phelps and winter the analysis of the transition to long run equilibrium reveals that in such a model the entry of firms is related to the difference between current prices and costs in relation to the growth of the firms output it is shown that the model is consistent with gibrat s law finally it is shown that the size distribution of firms approaches asymptotically a pareto distribution

the politics of renewable energy policies the case of feed in tariffs in ontario canada designing and implementing a renewable energy policy involves political decisions and actors yet most research on renewable energy policies comparatively evaluates instruments from an economic or technical perspective this paper presents a case study of ontario s feed in tariff policies between 1997 and 2012 to analyze how the political process affects renewable energy policy design and implementation ontario s policy although initially successful has met with increasing resistance over time the case reveals key political tensions that arise during implementation first high level support for a policy does not necessarily translate into widespread public support particularly for local deployment second the government often struggles under asymmetric information during price setting which may weaken the policy s legitimacy with the public due to higher costs third there is an unacknowledged tension that governments must navigate between policy stability to spur investment and adaptive policymaking to improve policy design fourth when multiple jurisdictions pursue the same policies simultaneously international political conflict over jobs and innovation may occur these implementation tensions result from political choices during policy design and present underappreciated challenges to transforming the electricity system governments need to critically recognize the political dimension of renewable energy policies to secure sustained political support

the persistence of monopoly an investigation of the effectiveness of the united kingdom monopolies commission a sample of twenty eight markets investigated by the uk monopolies and mergers commission is taken and market share changes are analysed for subsequent erosion of dominance the evidence points to a modest erosion for leading firms but only rarely to a loss of leadership although there is no significant difference between the rates of decline for leading firms in the mmc sample and a control group the achievement of some erosion of dominance in markets where entry barriers were reduced may represent some limited success for competition policy