cooperative and noncooperative r d in duopoly with spillovers contrary to the usual assumption made in most oligopoly models relations among firms are seldom of a wholly cooperative or noncooperative type in many situations they compete in some fields while they cooperate in others an important example is the case of cooperative research efforts bringing fierce competitors together two types of agreement are observed first r d cooperation can take place at the so called precompetitive stage companies share basic information and efforts in the r d stage but remain rivals in the market place 1 a second type of agreement involves an extended collusion between partners creating common policies at the product level the usual justifications of this extension are the difficulties of protecting intellectual property the idea is then to allow partners who have achieved inventions together to also control together the processes and products which embody the results of their collaboration in order to recuperate jointly their r d investments 2 what could be expected from these types of agreement is a reduction in r d expenditures because of less wasteful duplication and a reduction of total production because of more reprinted from the american economic review 78 5 1133 1137 1988 center for operations research econometrics 1348 louvain la neuve belgium we are grateful to jean

durable goods theory for real world markets the early 1970s witnessed three major advances in durable goods theory swan 1970 1971 and sieper and swan 1973 on optimal durability coase 1972 on time inconsistency and akerlof 1970 on adverse selection this paper surveys durable goods theory starting with these three contributions where much of the focus is on recent literature and on models that explain real world phenomena in addition to the ideas found in the contributions of swan coase and akerlof topics covered include why producers sometimes practice planned obsolescence the role of adverse selection in new car leasing and reasons for aftermarket monopolization

stochastic convenience yield and the pricing of oil contingent claims this paper develops and empirically tests a two factor model for pricing financial and real assets contingent on the price of oil the factors are the spot price of oil and the instantaneous convenience yield the parameters of the model are estimated using weekly oil futures contract prices from january 1984 to november 1988 and the model s performance is assessed out of sample by valuing futures contracts over the period november 1988 to may 1989 finally the model is applied to determine the present values of one barrel of oil deliverable in one to ten years time

redistributing income back to european community consumers and taxpayers through the common agricultural policy a multiple policy instrument generalization of gardner s surplus transformation curve analysis is applied to an empirical model of the ec wheat sector to compare welfare effects of policy change proposals a production quota support price combination is estimated as the most efficient means of making relatively small transfers from ec agriculture to consumers taxpayers a coresponsibility levy support price combination is estimated as the most efficient means of making larger transfers the importance of accounting for income transfer size distortions in related markets and the structure of markets when comparing welfare effects of policy change proposals is demonstrated

the marginal welfare cost of public funds theory and estimates abstract we derive a general analytic formula for the marginal welfare cost mwc of public funds without imposing restrictive assumptions on preferences or technologies the framework encompasses the various special cases previously considered and reconciles the disparities among the reported estimates of mwc unresolved differences in existing estimates are fully explained by appropriate interpretations of intended thought experiments and alternative assumptions about the elasticity of labor supply with respect to public spending further progress in measuring mwc requires empirical estimation of labor supply functions that include government spending as an explanatory variable

valuation of commodity based swing options in the energy markets in particular the electricity and natural gas markets many contracts incorporate flexibility of delivery options known as swing or take or pay options subject to daily as well as periodic constraints these contracts permit the option holder to repeatedly exercise the right to receive greater or smaller amounts of energy we extract market information from forward prices and volatilities and build a pricing framework for swing options based on a one factor mean reverting stochastic process for energy prices that explicitly incorporates seasonal effects we present a numerical scheme for the valuation of swing options calibrated for the case of natural gas

measuring the social costs of suboptimal combinations of policy instruments a general framework and an example abstract since most agricultural programs employ two or more policy instruments simultaneously it is notable that little research has attempted to find optimal instrument combinations and no research exists which evaluates the social costs unrealized benefits of combining instruments suboptimally in our paper we report a simple and feasible method to find optimal policy instrument combinations and we provide the first general formal approach to measuring the social costs of suboptimal policy instrument combinations our approach is illustrated in an analysis for five major u s crops corn feed grains wheat rice cotton the simple model we employ for the illustration suggests that except for the feed grains program the observed programs combined policy instruments quite suboptimally we conclude that agricultural economics research now can and should begin placing increased emphasis on studying optimal policy instrument combinations

some neglected social costs of government spending in farm programs economic welfare analyses of farm programs typically assume that the direct social opportunity cost of subsidy payments is one dollar per dollar of government spending recent literature suggests that the marginal opportunity cost of a dollar of u s federal government spending is more likely to be in the range of 1 20 to 1 50 this implies that the net social costs of farm programs that involve government spending are significantly greater than the typical estimates in addition the normative efficiency ranking of alternative policies is sensitive to the marginal opportunity cost of government spending

efficiency of decoupled farm programs under distortionary taxation when lump sum taxation is not feasible decoupled transfers to farmers which require raising government revenue will entail welfare loss somewhere in the economy assuming the government s objective is to assure a given welfare level for farmers we show that when decoupling is possible free trade is always superior to some tariff protection for a small country even under distortionary taxation as expected for a large country there is scope for an optimal tariff policy that improves the terms of trade however we show a separation between the exercise of market power through an optimal tariff and the interaction of distortionary taxation with transfers to farmers we conclude that decoupling is usually desirable even in a distorted economy in which lump sum taxation is not feasible

efficient income redistribution for a small country using optimal combined instruments abstract in this paper i improve gardner s surplus transformation curve framework by assuming that governments are able to vary many policy instruments simultaneously instead of only one i use my framework to find the combination of the currently used instruments which provides the most efficient income redistribution for the austrian bread grains market comparing the most efficient policy with the actual policy reveals that 464 10 6 austrian shillings were wasted i theoretically compare for a small country the transfer efficiency of every possible pair of the four major agricultural policy instruments floor price production quota co responsibility levy and deficiency payments without considering the marginal cost of public funds mcf deficiency payments cum quota equal to a fully decoupled direct income support is the most efficient policy succeeded by floor price cum quota and floor price cum deficiency payments if the mcf is taken into account the ranking crucially depends on the market parameters the transfer level and the value of the mcf for the austrian bread grains market i empirically demonstrate that given the present support level a fully decoupled direct income support redistributes income most efficiently as long as the mcf is lower than 1 17 beyond this value a floor price cum quota policy becomes more efficient a floor price cum deficiency payments policy is never superior to the floor price cum quota

high and declining prices signal product quality high and declining prices signal a high quality product high prices are the efficient means of signaling because the consequent loss of sales volume is most damaging for lower cost lower quality products as time passes and the number of informed consumers increases the signaling distortion lessens resulting in a declining price profile the prediction of high and declining prices is robust across a variety of dynamic models and is consistent with recent empirical findings copyright 1991 by american economic association

contract duration and relationship specific investments empirical evidence from coal markets this paper examines the importance of specific relationship investments in determining the duration of coal contracts negotiated between coal suppliers and electric utilities data for 277 coal contracts are used to perform the analysis the results provide strong support for the view that buyers and sellers make longer commitments to the terms of future trade at the contract execution stage and rely less on repeated bargaining when relationship specific investments are more important

spatial allocation and the shadow pricing of product characteristics abstract the paper considers an industry transforming primary commodities farm products into processed commodities food products it focuses on the allocation of embedded characteristics carbohydrate protein etc both across space and among commodities the approach generates a spatial competitive market equilibrium of production consumption transformation and trade for both primary and processed commodities along with the spatial distribution of shadow prices for the product characteristics the model provides a basis for analyzing the allocation and pricing of agricultural products food products and characteristics in spatial markets the empirical usefulness of the model is illustrated in the context of regional resource allocation in the u s dairy sector

credible signals of the release of new versions i introduction many products are marketed some time after they have been developed for instance a new smartphone may be developed and tested well before it is available for purchase a new car might be prototyped and driven months before it comes to the market indeed a firm will often have several products concurrently in a development pipeline consumers may know a product is in that pipeline without knowing its progress towards the market because the outcome of such development and testing is not visible to outsiders the firm knows whether it can market a product before consumers do consumers are uninformed about when and if the new product will be marketed to them economists have long recognized that the present demand for durable goods depends on future prospects such as the future price or the introduction of an improved version 1 the existence of such an improved version is often the seller s private information if consumers anticipate a new version some will defer purchases until the new version is available and the seller will face low demand for the present version disclosing the new version is not in a monopoly seller s interest a seller whose good does not have a new version would also like to communicate that fact to consumers while a firm with a successful product innovation can credibly disclose the new version with relative ease a firm that has failed to develop a new product could have great difficulty convincing consumers that the product has no new version in such situations it is important to examine whether prices can inform consumers whether a new version will be marketed in the near future in a recent paper choi et al 2010 developed a model with a risky product development process in which reputation effects allow cheap talk announcements to signal successful product development to consumers an announcement induces consumers to delay or divert purchases to the announcer s coming product which increases the announcer s profit and can improve welfare 2 in their model the announcer and her non innovative rivals supply the original good competitively because of this an announcement does not reduce profit on the current version this paper will focus on markets where the seller has substantial market power before innovating so announcing a successful product development has a cost in terms of current revenue further because we attend to prices as signals this model may also apply to markets where a long run relationship between consumers and firms may not be sustainable another objective of this paper is to examine the welfare effects of mandatory disclosure a government policy mandating disclosure of any new version is an alternative means of informing consumers 3 as long as firms are not willing to lie to the government such a policy would credibly communicate whether a new version of a durable is coming mandatory disclosure would bring about full information as consumers are informed about any improved future version before observing the price of the current version in this paper we explore a two period model of a durable good monopoly in which consumers are initially uninformed about whether there will be a new version of the current good the monopoly seller is privately informed if he will be able to market an improved version in the second period in the first period consumers must decide whether to purchase the good now or wait for an upgraded version they may be able to infer from the price of the current version whether the seller will bring a new version to the market it is important to see first whether prices can serve as signals and second how welfare compares between any signaling outcome and a full information benchmark corresponding to mandatory disclosure we will show that there is a unique equilibrium supported by intuitive beliefs in this equilibrium the seller s private information about an improved version is completely revealed to consumers

on requiring the durable goods monopolist to sell abstract requiring a monopolist to sell its output rather than renting it my lead to beneficial output adjustments or harmful quality adjustments in a durable goods model we show that requiring sales decreases welfare in only a small fraction of cases but it strictly increases welfare in a majority of cases

an economic theory of planned obsolescence planned obsolescence is the production of goods with uneconomically short useful lives so that customers will have to make repeat purchases however rational customers will pay for only the present value of the future services of a product therefore profit maximization seemingly implies producing any given flow of services as cheaply as possible with production involving efficient useful lives this paper shows why this analysis is incomplete and therefore incorrect monopolists are shown to desire uneconomically short useful lives for their goods oligopolists have the monopolist s incentive for short lives as well as a second incentive that may either increase or decrease their chosen durability however oligopolists can generally gain by colluding to reduce durability and increase rentals relative to sales some evidence is presented that appears to be generally consistent with the predictions of the theory

efficiency of alternative policies for the ec s common agricultural policy the common agricultural policy cap of the european community ec is facing a crisis from budgetary and political pressures this study analyzes the relative efficiency of four policy options discussed at the recent emergency summit in brussels including a price reduction coresponsibility levies production controls and a two price plan these are assessed in terms of their efficiency in achieving producer welfare a two price plan is superior to a production quota only at lower producer income goals a price reduction policy is more efficacious than a coresponsibility levy but both are shown to be inferior to either quotas or a two price plan

causes of u s farm commodity programs this paper i s an attempt to explain variations by commodity in producer protection afforded by farm price support programs since the1930s particularly emphasized are theideas that these programs are essentially income redistributional measures and that given political forces the programs are attempts to redistribute efficiently variables associated with the cost to producers of generating political pressure and the social cost deadweight losses of redistribution are both found to be empirically important copyright 1987 by university of chicago press

a new perspective on planned obsolescence automobile manufacturers have long had a policy of introducing annual style changes into their new model cars textbook publishers have a policy of periodically bringing out revised editions of their popular books recently ibm changed the operating system used in its personal computers causing a reduction in the compatibility between its old and new machines if one were to ask the typical man in the street to explain what is happening in these markets he would not hesitate before giving the following answer in economists terminology he would say that for the above firms the incentive to introduce new products that make old units obsolete is too high i e the firms have an incentive to practice planned obsolescence of course just as is true for the man in the street economists have also long observed and commented on the speed with which new products are introduced for example galbraith 1958 suggests that the annual model changes of automobile manufacturers are socially wasteful while fisher griliches and kaysen 1962 provide empirical estimates of the costs of these changes there have also been numerous theoretical attempts to model the idea of planned obsolescence or the related idea of killing off the market for secondhand goods but most of these models have in fact considered the choice a monopolist faces concerning how much durability to build initially into his product rather than the monopolist s incentive to introduce new versions of his product over time 1 in this paper i consider planned obsolescence from the standpoint of a firm that can change the nature of what it sells and show that the man in the street is in fact correct in many settings the incentive for a durable goods monopolist to introduce new products that make old units obsolete will be above that which is socially optimal

valuation of path dependent contingent claims with multiple exercise decisions over time the case of take or pay hull and white 1993 introduced a method to extend lattice based contingent claim val uation techniques to problems with path dependent payoffs this paper builds upon their method in the process of valuing two types of commodity purchase contracts that ex hibit a form of timing flexibility not previously analyzed in the literature the techniques demonstrated take advantage of characteristics of claims that simplify incorporation of path dependencies possible uses for the methods demonstrated include the valuation of port folios of mortgages capital projects where intensity of use affects productivity ofthe asset and capital projects with storage characteristics

durable goods monopolists rational consumers and improving products we consider the case of a monopolist supplying an improving durable product to a population that is heterogeneous in its valuation of product quality in a two period framework we show that if consumers expect the product to improve in present value terms then intertemporal discrimination might result in the first period marginal consumer being left with zero surplus and some higher end consumers postponing purchase the resulting trajectories for quality and price do not constitute a subgame perfect equilibrium one of our conclusions is that the logic of profit maximization in the context of rational consumer choice imposes a demand side constraint on the rate of product improvement we also emphasize the disequilibrium consequences of improving a product so rapidly that high end consumers are tempted to wait for a future new and improved version finally the formulation adopted in the paper may be useful to understand observed differences in product improvement rates in different markets

planned obsolescence and the r d decision by investing in rd i e the r d choice that maximizes current profitability does not maximize overall profitability the result is that if output is sold rather than rented then in its r d decision the monopolist has an incentive to practice a type of planned obsolescence that lowers its own profitability

pricing for a durable goods monopolist under rapid sequential innovation a durable goods monopolist who will be introducing new and improved versions of his product must decide how to price his products keeping in mind the relative attractiveness of the current and future products dhebar 1994 has shown that if technology is changing too quickly and the producer cannot credibly commit to future prices and quality then no equilibrium strategy exists that is there is no credible strategy for the future product that the producer can commit to in the first period we show that an equilibrium pricing strategy exists if the monopolist does not offer upgrade pricing that is special pricing to consumers who have bought an earlier version the author shows the possible purchase patterns in equilibrium and derives the optimal pricing strategy

partial market liberalization and the efficiency of policy reform the case of the european dairy sector this article analyzes the efficiency of partial market liberalization and policy reform with an application to the european dairy sector in a second best world partial moves toward market liberalization are not always efficiency improving we develop a general equilibrium model to investigate the efficiency implications of discrete changes in government policy the analysis covers price and quantity instruments used in both domestic and trade policy we derive simple conditions under which partial market liberalization is efficiency improving we apply the approach to agricultural policy reform in the european dairy sector and identify market liberalization scenarios that are not efficiency improving

durable goods market structure and the incentives to innovate a commonly cited finding in the innovation literature is that a monopoly tends to innovate too little this paper demonstrates that a monopoly may devote more resources to innovation than is socially optimal if it produces a durable good this possibility occurs because durability creates new innovation incentives once an initial stock of a durable good has been produced the monopoly faces a residual demand for the good innovation may allow the monopoly to more profitably exploit this residual demand and this ability may lead the monopoly to devote more resources to innovation than is socially optimal copyright 1987 by the review of economic studies limited

efficient redistribution through commodity markets efficiency in redistribution is measured in terms of deadweight loss generated per dollar of economic surplus transferred between consumers and producers of a commodity by means of market intervention the implications of supply and demand elasticities for efficiency in redistribution are examined with special attention to the comparison of production control and deficiency payment programs the results may be used to aid in the evaluation of commodity programs and as a basis for consideration of the hypothesis that observed policies are efficient given the political power of interest groups

multilateral policy reforms and quantity restrictions on trade abstract we specify a many nation many commodity model of international trade involving tariff and quota distortions we derive conditions for the existence of strict pareto improving multilateral reforms of quotas and obtain recommendations for specific directions of such quota reforms given a mild rank condition on the world trade matrix all directions of quota reform that attain a strict pareto improvement using international lump sum compensation remain strict pareto improving even without lump sum compensation provided that the quota reform is accompanied by a multilateral reform of tariffs the precise nature of the tariff reform that accomplishes the redistribution task is determined

a note on welfare in the durable goods monopoly depending upon the shape of the rental demand curve facing a durable goods monopolist social welfare may be raised or lowered by requiring the monopolist to sell rather than rent its output indeed the equilibrium under rentals may pareto dominate the equilibrium under sales copyright 1989 by the london school of economics and political science

price support acreage controls and efficient redistribution this study is concerned with the combination of target price and acreage controls as the two major mechanisms of farm policy acreage controls are shown to enhance the efficiency of redistribution under a target price program more specifically this study demonstrates that if the traditional cobb douglas production function is assumed acreage controls do not enhance the efficiency of target price programs in the process of redistributing income to the farm sector the study proves that if the elasticity of substitution between land and all other inputs is less than one then the income redistributional costs are likely to be reduced moreover by using an empirical estimate of the elasticity of substitution and farm data for the time period 1984 88 this study demonstrates that acreage control programs have drastically reduced the deadweight losses associated with income redistribution flowing from target price programs these results lend strong support to the public choice notion that politicians favo

explaining differences in milk quota values the role of economic efficiency this paper explores the relationship between milk quota values and economic efficiency in order to analyze current government interventions in quota allocations among producers for this purpose we estimate a short run variable cost function using a panel of spanish dairy farms quota values are then decomposed into economic efficiency price and scale effects in order to assess the relative influence of these factors on quota values we find that efficiency is important in explaining quota values but is uncorrelated with observable farm characteristics this casts doubts on the government s ability to allocate quotas to efficient farms in the way a well functioning quota market does

rationalizing agricultural export subsidies export subsidies are an important form of agricultural policy especially for large traders such as the united states and the european community a number of small countries also use export subsidies in effect e g saudi arabian wheat or canadian dairy products in that the domestic price is set well above world levels and surplus production is dumped onto the world market a number of recent contributions to trade theory have argued that export subsidies can be welfare enhancing for the subsidizing country and by implication that the policy choice is consistent with the hypothesis that a benevolent government is pursuing pareto efficiency in the present paper we examine these arguments and present an alternative explanation of export subsidies utilizing the concept of efficient redistribution becker gardner 1983 in standard trade models arguments in favor of global export subsidies arise from failure to exploit market power in another good itoh and kiyono feenstra itoh and kiyono use a threegood model to show that subsidies on marginal goods defined as goods not exported at all or exported in small quantities can increase welfare in the subsidizing country a subsidy on marginal goods causes their production to increase and the supply of nonmarginal goods to decrease thereby raising the price of the nonmarginal goods and increasing the exporter s terms of trade feenstra also employs a threegood model and demonstrates that it is possible for the pattern of substitutability and complementarity across goods to allow subsidies to increase welfare the necessary condition is that the subsidized export be a stronger substitute for another exported good or a stronger complement for an imported good in the subsidizing country than abroad the export subsidy increases welfare by improving the terms of trade in the other imported or exported good the distortion in feenstra s model is the failure to exploit market power in the second or third market as an alternative to global export subsidies abbott paarlberg and sharples aps have examined targeted export subsidies and found that in some circumstances they can be welfare improving dutton later showed the aps result arises because they first constrain the export tax to the rest of the world to be zero so that it becomes theoretically possible for the best export tax to the targeted country to be negative the aps result hinges on differences in import demand elasticities and the exporting country s use of market power in order to price discrim

trade reform with quotas partial rent retention and tariffs quotas are the predominant means of protection in developed countries with quota rents commonly shared between exporter and importer this paper derives shadow prices appropriate to evaluating trade reform under these circumstances and provides a number of useful sufficient conditions for welfare improving piecemeal reform in doing so the authors apply the distorted quantity constrained expenditure function and use implicit separability to derive more powerful results than have previously been available

vaporware as a means of entry deterrence firms in the computer industry are often accused of vaporware the untruthful pre announcement of a new version of their product by claiming they have a new product critics argue these firms try to deter potential entrants the paper analyzes this phenomenon it shows that vaporware is an equilibrium strategy in a signaling game in which the possibility to market a new product is private information in this model the possibility of vaporware can hurt consumers also in the case the incumbent does have a new version of its product the welfare effects of vaporware are ambiguous

durable goods monopoly with discrete demand we analyze a dynamic game between consumers and the sole seller of a durable good unlike previous analyses we assume that there exists a finite collection of buyers rather than a continuum none of the main conclusions of the literature on durable goods monopoly survives this change in assumption coase s conjecture that a durable goods monopolist cannot earn supracompetitive profits in the continuous time limit bulow s proposition that renting a durable is always more profitable than selling it and stokey s proposition that precommitting to a time path of prices is always optimal are all false when the set of buyers is finite thus the assumption of a continuum of consumers so innocuous and useful a simplification in other contexts has proved misleading in the context of durable goods monopoly

imperfect durability and the coase conjecture this article considers a market served by a monopolist who sells a durable good that depreciates stochastically over time we show that there exist three types of stationary equilibria a coase conjecture equilibrium a monopoly equilibrium and a reputational equilibrium when the depreciation rate is low the coase conjecture equilibrium is the unique equilibrium for intermediate values of the depreciation rate all three equilibrium types coexist when the depreciation rate is high the monopoly equilibrium is the unique equilibrium consequently when selling a good of sufficiently low durability the monopolist does not lose any of her monopoly power furthermore the steady state output in the reputational equilibrium falls below the monopoly quantity hence in durable goods markets welfare losses due to monopoly power may be larger than in markets for perishables

eliminating the market for secondhand goods an alternative explanation for leasing there are a number of prominent specific instances in which a durable goods manufacturer with significant market power employed a lease only policy i united shoe in the market for shoe machinery ii ibm in the market for computers and iii xerox in the market for copiers the obvious question that arises is why would such a firm prefer leasing over selling in this article i argue that one role of the lease only policy was to eliminate the market for secondhand goods the article formally demonstrates the argument discusses the relationship between this article and earlier literature on secondhand markets and discusses the implications for antitrust policy

the neo luddite s lament excessive upgrades in the software industry we examine two reasons why a monopoly supplier of software may introduce more upgrades than is socially optimal when the upgrade is backward but not forward compatible so users who upgrade reduce others network benefits one explanation involves a commitment problem profits and social welfare may suffer because ex post the monopolist will want to sell the upgraded product to new consumers the second involves consumer heterogeneity here oversupply arises from the difference between the externality that upgrades impose on the marginal and average consumer and from the effect of upgrades on sales of the base good