modelling long run scenarios this paper intends to draw overall lessons from a long term study on co2 emission in france a country with a rather low energy gdp ration and in which transition to non fossil based production of electricity has been achieved more generally it points out the importance of possible bifurcation effects and draws methodological and policy implications from these statements it discusses modelling approaches to the linkages between energy and the rest of economy and addresses the issue of difficulties in cost assessment analysis in the presence of several baseline scenarios finally it proposes a more encompassing definition of no regrets policies

the role of energy in productivity growth the objective of this paper is to analyze the role of energy in the growth of productivity the special significance of energy in economic growth was first established in the classic study energy and the american economy 1850 1975 by sam schurr and his associates 1960 at resources for the future for the period from 1920 to 1955 schurr noted that energy intensity of production had fallen while both labor and total factor productivity were rising the simultaneous decline in energy intensity and labor intensity of production ruled out the possibility of explaining the growth of productivity solely on the basis of substitution of less expensive energy for more expensive labor since the quantity of both energy and labor inputs required for a given level of output had been reduced technical change is also a critical explanatory factor an alternative explanation for growth of output with declining energy and labor intensity required an examination of the character of technical change this examination was motivated by the fact that from 1920 to 1955 the utilization of electricity had expanded by a factor of more than ten while consumption of all other forms of energy only doubled the two key features of technical change during this period were that the thermal efficiency of conversion of fuels into electricity increased by a factor of three and that the unusual characteristics of electricity had made it possible to perform tasks in altogether different ways than if the fuels had to be used directly schurr 1983 p 3 schurr 1982 has recently extended the analysis of energy and the american economy through 1981 for the period through 1969 his conclusions are as follows although the inverse relationship between total factor productivity and energy intensity virtually disappeared during the 1953 1969 period it is still noteworthy that high rates of improvement in total factor productivity were essentially not associated with increases in energy intensity 1982 p 6 schurr 1982 has analyzed the experience of the u s economy in the aftermath of the oil embargo of 1973 he points out that energy intensity of production has fallen steadily since 1973 and that the rate of decline accelerated sharply after the second oil price shock in 1979 following the iranian revolution he goes on to point out that

on the role of demand and strategic uncertainty in capacity investment and disinvestment dynamics abstract even mature industries seldom settle down into a long run steady state fluctuations in demand disrupt the status quo and call for firms to adjust their capacities on an ongoing basis we construct a fully dynamic model of an oligopolistic industry with lumpy capacity and lumpy investment disinvestment decisions in addition to uncertainty about the evolution of demand a firm faces strategic uncertainty concerning the decisions of its rivals we numerically solve the model for its markov perfect equilibria for one set of parameter values three equilibria exist and while all of them have simple intuitive structures they exhibit widely varying patterns of response to demand shocks at one extreme one firm dominates the industry almost as a monopolist and changes its capacity to accommodate demand at the other extreme the larger firm keeps its capacity nearly constant while the smaller firm acts as the swing producer

uncertain regulatory timing and market dynamics abstract using a dynamic model of capacity accumulation i examine the relationship between uncertainty about the timing of a new pigouvian tax and oligopolistic competition i find that for some market structures uncertainty about the timing of the regulatory change leads firms to increase investment these results stem from the nature of the uncertainty and its interaction with firms strategic incentive to engage in capacity races they dramatize the importance of accounting for initial conditions when forecasting firms reactions to anticipated regulatory changes in addition i find that more protracted uncertainty leads to greater welfare costs

entrepreneurs growth and cycles i expound a model of a one good economy where long run growth and output fluctuations are endogenous consequences of the decisions taken by entrepreneurs on the allocation of their resources between production and innovation in a markovian sequence of one period games i show first that the log of output follows a process with random walk characteristics second that contrarywise to the mechanism at work in real business cycle models the variability in the rate of productivity growth does not imply by itself the occurrence of any recession third that a recession is the consequence not of a kydland prescott 1982 negative shock on technology but of the reallocation of factors in the face of an increased opportunity ex ante which the entrepreneurs fail to exploit ex post fourth and finally that although any generation could make itself unilaterally better off by reducing its level of research the onegood economy is intertemporally efficient in that such a move would imply a reduction in the level of welfare of future generations

cournot duopoly with two production periods and cost differentials abstract saloner 1987 analyzes a cournot model with two production periods before the market clears if costs do not vary across periods any point on the outer envelope of the reaction functions between the firms stackelberg outputs is attainable with a subgame perfect nash equilibrium spne saloner s analysis is generalized by allowing for cost differences across periods the continuum of equilibria vanishes for any cost differential if costs fall slightly over time there are multiple leader follower equilibria otherwise the model generates a unique spne where both firms produce their single period cournot outputs in the period when production is cheaper

an analysis of preemptive behavior in the titanium dioxide industry abstract much of the recent theoretical work on oligopoly theory focuses on preemptive capital expansion this paper continues this work by testing whether dupont s behavior in the titanium dioxide industry was consistent with the capital commitment model between 1972 and 1977 this is different from previous empirical papers analyzing preemptive capital expansion because it focuses on strategic behavior in a specific industry and because the hypothesis tests in this paper are based on a formal model of firms optimizing behavior the results lend support to the conclusion that dupont committed capital to preempt the smallest five firms in the industry between 1972 and 1977

symmetry breaking in two player games via strategic substitutes and diagonal nonconcavity a synthesis abstract this paper is an attempt to develop a unified approach to symmetry breaking in strategic models arising in industrial organization by constructing two general classes of two player symmetric games that always possess only asymmetric pure strategy nash equilibria these classes of games are characterized in some abstract sense by two general properties payoff nonconcavities and some form of strategic substitutability our framework relies on easily verified assumptions on the primitives of the game and relies on the theory of supermodular games the underlying natural assumptions are satisfied in a number of two stage models with an investment decision preceding product market competition to illustrate the generality and wide scope for application of our approach we present some existing models dealing with r d capacity expansion and information provision which motivated this study

long run competition in capacity short run competition in price and the cournot model in this article we investigate the nature of equilibrium in markets in which firms choose the scale of operation before they make pricing decisions we analyze a duopoly model in which firms choose their capacities before engaging in bertrand like price competition we demonstrate that the cournot outcome is unlikely to emerge in such markets and that the equilibrium tends to be more competitive than the cournot model would predict in addition our results indicate a tendency toward asymmetric firm sizes and price dispersion that results from the mixed strategies firms use in equilibrium

dynamic cournot duopoly with intertemporal capacity constraints this paper studies a dynamic cournot duopoly in which suppliers have a limited amount of products available for two consecutive periods we derive optimal sales strategies and analyze welfare effects with and without commitment under commitment strategies do not depend on the rival s realized sales in this case there is a unique nash equilibrium for any allocation of initial supplies and prices increase over time absent commitment sellers can adjust their supply decision after the first period in this case a subgame perfect nash equilibrium does not always exist and prices may decline over time a more asymmetric allocation of stocks generally leads to higher first period prices whereas the impact on second period prices is ambiguous the larger firm typically prefers not to commit whereas the smaller firm is better off under commitment commitment generates a higher total surplus and almost always a higher consumer surplus our findings thus suggest that market transparency or flexible supply contracts can adversely affect welfare in situations where production precedes sales and firms face an intertemporal capacity constraint

on markov equilibria in dynamic inventory competition we provide a review of the types of equilibria typically found in operations management inventory papers and a discussion on when the commonly used stationary infinite horizon open loop equilibrium may be sufficient for study we focus particularly on order up to and basestock equilibria in the context of inventory duopolies we give conditions under which the stationary infinite horizon equilibrium is also a markov perfect closed loop equilibrium these conditions are then applied to three specific duopolies the first application is one with stockout based substitution where the firms face independent direct demand but some fraction of a firm s lost sales will switch to the other firm the second application is one where shelf space display stimulates primary demand and reduces demand for the other firm s product the final application is one where the state variables represent goodwill rather than inventory these specific problems have been previously studied in both the single period and or stationary infinite horizon open loop settings but not in markov perfect closed loop settings under the markov perfect setting a variety of interesting dynamics may occur including that there may be a so called commitment value to inventory

entrepreneurship and economic theory this article discusses economic theories of entrepreneurship drawing principally on work conducted in labour economics microeconomics macroeconomics and financial economics the article explains how incentives and constraints of various kinds affect occupational choices and entrepreneurial innovation as well as how entrepreneurial decisions affect macroeconomic performance implications for public policy are drawn

the impact of electric power on productivity according to the historical record the increased use of energy in general and electric power in particular stands as one of the key factors in productivity growth growth accountants however find little support for this view rejecting claims that the productivity slowdown can be attributed to the lower rate of growth of the energy input in us manufacturing in this study an attempt at reconciling the historical record with the empirical facts is made specifically the commonly used factor income shares in the relevant divisia input growth index are replaced by the estimated output input elasticities the latter attribute a considerably larger role to electric power than previous studies indicated these are then used to reevaluate the sources of growth in us manufacturing

a model of the evolution of duopoly does the asymmetry between firms tend to increase or decrease this paper is an attempt to identify some of the factors that affect the evolution of market structure in a model of dynamic competition between two firms the stochastic evolution of the state of competition depends on the respective effort rates of the firms the question is whether the current leader works harder than the laggard does the gap between firms tend to increase or decrease we show that several effects are at work the state tends to evolve in the direction where joint payoffs are greater since joint payoffs are related to joint product market profits less joint effort costs there are two classes of effect the joint profit effect and various joint cost effects the latter result in part from the pattern of profits and in part from endpoint effects that give relief from efforts asymptotic expansions illuminate these influences moreover we show by numerical simulation that there is another kind of joint cost effect the pattern of joint effort costs can influence the pattern of evolution of market structure and the evolution of the pattern of market structure can influence the pattern of efforts in a mutually self reinforcing manner in particular there may be equilibria in which this last effect means that the laggard works harder than the leader even though all the other effects work in favour of the leader

review of economic growth and energy consumption a panel cointegration analysis for eu countries abstract this paper examines the long run relationship between energy consumption and real gdp including fixed capital and total employment for 18 eu countries from 1995 to 2012 the analysis was based on the panel unit root tests panel cointegration test and fully modified ordinary least squares fmols estimator and dynamic ordinary least squares dols estimator data were analyzed in three groups all sample visegrad countries v4 and old 14 eu countries indeed the results demonstrate that economic growth and the variables energy consumption gross fixed capital are cointegrated for the whole panel of countries as well as for the two selected groups of countries furthermore the panel fmols and dols estimators reveal that the relationship between energy consumption gross fixed capital and economic growth is positive

a dynamic theory of conjectural variations this paper explores the relationship between dynamic oligopolistic competition and static conjectural variations equilibria using an infinite horizon adjustment cost model the author demonstrates that any steady state closed loop subgame perfect equilibrium coincides with a conjectural variations equilibrium in the case of linear demand and quadratic costs the dynamic conjectures consistent with closed loop steady state equilibria are negative constant symmetric and vary continuously with the discount rate and the adjustment cost parameter in an interval between the static consistent conjectures and zero cournot copyright 1992 by blackwell publishing ltd

computable markov perfect industry dynamics we provide a general model of dynamic competition in an oligopolistic industry with investment entry andexit toensurethatthereexistsacomputationallytractablemarkov perfectequilibrium we introduce firm heterogeneity in the form of randomly drawn privately known scrap values and setup costs into the model our game of incomplete information always has an equilibrium in cutoff entry exit strategies in contrast the existence of an equilibrium in the ericson and pakes model of industry dynamics requires admissibility of mixed entry exit strategies contrary to the assertion in their article that existing algorithms cannot cope with in addition we provide a condition on the model s primitives that ensures that the equilibrium is in pure investment strategies building on this basic existence result we first show that a symmetric equilibrium exists under appropriate assumptions on the model s primitives second we show that as the distribution of the random scrap values setup costs becomes degenerate equilibria in cutoff entry exit strategies converge to equilibria in mixed entry exit strategies of the game of complete information

a dynamic duopoly investment game without commitment under uncertain market expansion abstract we model capacity building investments in a homogeneous product duopoly facing uncertain demand growth capacity building is achieved through the addition of production units that are durable and lumpy and whose cost is irreversible while building their capacity over time firms compete a la cournot in the product market given their installed capacity there is no exogenous order of moves no commitment regarding future decisions and no finite horizon we investigate markov perfect equilibrium mpe paths of the investment game which may include episodes during which firms invest at different times a preemption pattern and episodes in which firms invest simultaneously a tacit collusion pattern these episodes may alternate and are typically several when firms have yet to invest in capacity the sole pattern that is mpe compatible is a preemption episode firms invest at different times but have equal value the first such investment may occur earlier and therefore be riskier than socially optimal when both firms hold capacity tacit collusion episodes may be mpe compatible firms invest simultaneously at a postponed time hence holding back production in the meantime thereby generating an investment wave in the industry such investment episodes are more likely with higher demand volatility faster market growth and lower cost of capital discount rate

energy prices and productivity growth the sharp decline in economic growth since 1973 presents a problem comparable in scientific interest and social importance to the problem of unemployment in the great depression of the 1930s conventional methods of economic analysis have been tried and have been found to be inadequate this paper outlines a new framework for understanding the slowdown in economic growth we find that the fall in u s economic growth since 1973 has been due to the dramatic decline in productivity growth within the new framework we identify higher energy prices as an important determinant of the productivity slowdown

avoiding market dominance product compatibility in markets with network effects as is well recognized market dominance is a typical outcome in markets with network effects a firm with a larger installed base offers a more attractive product which induces more consumers to buy its product which produces a yet bigger installed base advantage such a setting is investigated here but with the main difference that firms have the option of making their products compatible when firms have similar installed bases they make their products compatible in order to expand the market nevertheless random forces could result in one firm having a bigger installed base in which case the larger firm may make its product incompatible we find that strategic pricing tends to prevent the installed base differential from expanding to the point that incompatibility occurs this pricing dynamic is able to neutralize increasing returns and avoid the emergence of market dominance

the demand for capital labor and energy in european manufacturing industry before and after the oil price shocks the price and substitution elasticities for factor inputs capital labor fuels and electricity are estimated for total manufacturing industry on the basis of a pooled crosscountry time series analysis for nine west european countries the impact of the economic disturbances in the 1970s on the price sensitivity of demand is analyzed by estimating a translog cost function for two separate periods 1960 72 and 1973 80 hicks neutral technical change is rejected for both periods the results indicate some quite significant changes in the elasticities over the two periods

a framework for dynamic oligopoly in concentrated industries in this article we introduce a new computationally tractable framework for ericson and pakes style dynamic oligopoly models that overcomes the computational complexity involved in computing markov perfect equilibrium mpe first we define a new equilibrium concept that we call moment based markov equilibrium mme in which firms keep track of their own state the detailed state of dominant firms and few moments of the distribution of fringe firms states second we provide guidelines to use mme in applied work and illustrate with an application how it can endogenize the market structure in a dynamic industry model even with hundreds of firms third we develop a series of results that provide support for using mme as an approximation we present numerical experiments showing that mme approximates mpe for important classes of models then we introduce novel unilateral deviation error bounds that can be used to test the accuracy of mme as an approximation in large scale settings overall our new framework opens the door to study new issues in industry dynamics

bertrand edgeworth competition demand uncertainty and asymmetric outcomes abstract we analyze investment and pricing incentives in a symmetric bertrand edgeworth framework with uncertain demand firms choose production capacities before observing demand prices are chosen after demand is observed if the extent of demand variation exceeds a threshold level then a symmetric equilibrium in pure strategies for capacities does not exist a smaller firm has no incentive ex ante to expand its capacity because capacity expansion would reduce its expected revenue in the event that demand is lower than expected output prices are predicted to have positive variance when demand is low and zero variance when demand is high journal of economic literature classification numbers d43 l13

competition for scarce resources we model a downstream industry where firms compete to buy capacity in an upstream market which allocates capacity efficiently although downstream firms have symmetric production technologies we show that industry structure is symmetric only if capacity is sufficiently scarce otherwise it is asymmetric with one large fat capacity hoarding firm and a fringe of smaller lean capacity constrained firms as demand varies the industry switches between symmetric and asymmetric phases generating predictions for firm size and costs across the business cycle surprisingly increasing available capacity can cause a reduction in output and consumer surplus by resulting in such a switch

capital as a commitment strategic investment to deter mobility abstract this paper analyzes how an early entrant in a market can exploit its head start by strategic investment the analysis is based on spence s paper investment strategy and growth in a new market bell j econ 10 1979 1 19 we frist study the investment game in the no discounting case which embodies the key features of mobility deterrence we establish the existence of a set of perfect equilibria and suggest that one particular equilibrium is most reasonable this equilibrium also valid with discounting involves the follower firm being forever deterred from investing to its steady state reaction curve in contrast to spence s proposed solution

are output fluctuations transitory according to the conventional view of the business cycle fluctuations in output represent temporary deviations from trend the purpose of this paper is to question this conventional view if fluctuations in output are dominated by temporary deviations from the natural rate of output then an unexpected change in output today should not substantially change one s forecast of output in say five or ten years our examination of quarterly postwar united states data leads us to be skeptical about this implication the data suggest that an unexpected change in real gnp of 1 percent should change one s forecast by over 1 percent over a long horizon

r d competition versus r d cooperation in oligopolistic markets with evolving structure this paper considers investment behavior of duopolistic firms subject to technological progress it is assumed that initially both firms offer a homogeneous product but after a stochastic waiting time they are able to implement a product innovation production capacities of both firms are product specific it is shown that firms anticipate a future product innovation by under investing if the new product is a substitute to the established product and higher profits and over investing in case of complements and lower profits compared to the corresponding standard capital accumulation game this anticipation effect is stronger in the case of r d cooperation furthermore since due to r d cooperation firms introduce the new product at the same time this leads to intensified competition and lower firm profits right after the new product has been introduced in addition we show that under r d competition the firm that innovates first overshoots in new product capacity buildup in order to exploit its temporary monopoly position taking into account all these effects the result is that if the new product is neither a close substitute nor a strong complement of the established product positive synergy effects in r d cooperation are necessary to make it more profitable for firms than r d competition

r d induced industry polarization and shake outs abstract we consider the standard two stage game of r d and cournot competition with ex ante identical firms but depart from the literature in assuming that r d is characterized by mildly instead of strongly decreasing returns to scale we establish that only extreme r d levels are possible at equilibrium and that for a broad range of parameters equilibria are asymmetric in r d levels possibly leading one firm to endogenously exit this provides a simple link between returns to scale in r d and industry polarization including shake outs a novelty is that exit may be triggered by positive opportunities in a strategic setting given the original nature of our r d equilibrium a complete welfare analysis is conducted including a possible role for r d subsidies

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

the impact of disaggregated energy on productivity abstract the issue of the productivity slowdown of the 1970s and 1980s has received considerable analysis in the literature however the issue of the impact of energy on productivity is still debated this study contributes to the debate with the hope that some sight could be provided through disaggregating the factor input energy into two components a petroleum component and a non petroleum component by analysing labour productivity growth total factor productivity growth and labour intensity ratios the disaggregated energy component can be viewed as a major influence in explaining the productivity decline

international technological knowledge differences and economic growth comparisons usa versus west germany and sweden versus norway 1963 1988 the main interest in this paper is governed by the methodology for making evolutive growth comparisons in the international context the paper analysis differences in levels and changes of these levels of aggregate output between the above mentioned countries in terms of differences in factors input and levels of technological knowledge for the period 1963 1988 sources of economic growth in each country are also examined on an annual and average annual basis th conclusion is that technological knowledge differences between countries hold a central role in explaining output differences between them a slight overtake of the technological lead is observed in comparing sweden and norway between 1977 and 1985 when a recovery by sweden begining in 1986 is detected a certain part of the output differences between the us and west germany is explaining by the differences in technology between these two countries however capital intensity in the us is found to be almost double in 1988 and this accounts fo

endogenous asymmetry in a dynamic procurement auction we show how to numerically solve for a markov perfect equilibrium of a dynamic auction game where a procurer repeatedly purchases construction services from capacity constrained firms we find that the procurer is best off scheduling frequent auctions for small project sizes otherwise firm capacity utilization rates become larger and more asymmetric which softens competition and increases procurement costs we also find that forward looking bidding dampens the competition softening effects of asymmetry farsighted firms compete more intensely than myopic ones this can undermine the goal of a bid preference style affirmative action program more farsighted firms respond less to the asymmetry induced via bid preferences

lumpy capacity investment and disinvestment dynamics capacity addition and withdrawal decisions are among the most important strategic decisions made by firms in oligopolistic industries in this paper we develop and analyze a fully dynamic model of an oligopolistic industry with lumpy capacity and lumpy investment disinvestment we use our model to suggest answers to two questions first what economic factors facilitate preemption races second what economic factors facilitate capacity coordination with a series of examples we show that low product differentiation low investment sunkness and high depreciation tend to promote preemption races the same examples also show that low product differentiation and low investment sunkness tend to promote capacity coordination although depreciation removes capacity it might impede capacity coordination finally our examples show that multiple equilibria arise over at least some range of parameter values the distinct structures of these equilibria suggest that firms expectations play a key role in determining whether or not industry dynamics are characterized by preemption races and capacity coordination taken together our results suggest that preemption races and excess capacity in the short run often go hand in hand with capacity coordination in the long run

rising bank concentration abstract concentration of insured deposit funding among the top four commercial banks in the u s has risen from 15 in 1984 to 44 in 2018 a roughly three fold increase regulation has often been attributed as a factor in that increase the riegle neal interstate banking and branching efficiency act of 1994 removed many of the restrictions on opening bank branches across state lines we interpret the riegle neal act as lowering the cost of expanding a bank s funding base in this paper we build an industry equilibrium model in which banks endogenously climb a funding base ladder rising concentration occurs along a transition path between two steady states after branching costs decline

real business cycles a new keynesian perspective the debate over the source and propagation of economic fluctuations rages as fiercely today as it did 50 years ago in the aftermath of keynes s the general theory and in the midst of the great depression today as then there are two schools of thought the classical school emphasizes the optimization of private economic actors the adjustment of relative prices to equate supply and demand and the efficiency of unfettered markets the keynesian school believes that understanding economic fluctuations requires not just studying the intricacies of general equilibrium but also appreciating the possibility of market failure on a grand scale

time to build and fluctuations in bulk shipping abstract this paper explores the nature of fluctuations in world bulk shipping by quantifying the impact of time to build and demand uncertainty on investment and prices we examine the impact of both construction lags and their lengthening in periods of high investment activity by constructing a dynamic model of ship entry and exit a rich dataset of secondhand ship sales allows for a new estimation strategy resale prices provide direct information on value functions and allow their nonparametric estimation we find that moving from time varying to constant to no time to build reduces prices while significantly increasing both the level and volatility of investment jel g31 l11 l62 l92

dynamic price competition with capacity constraints and a strategic buyer we analyze a simple dynamic durable good model two incumbent sellers and potential entrants choose their capacities at the start of the game we solve for equilibrium capacity choices and the necessarily mixed pricing strategies in equilibrium the buyer splits the order with positive probability to preserve competition making it possible that a high and low price seller both have sales sellers command a rent above the value of unmet demand by the other seller a buyer benefits from either a commitment not to make future purchases or by hiring an agent to always buy from the lowest priced seller

causes of the current stagflation since 1975 labour slack has been unusually high in the oecd countries and yet inflation has not diminished the less favourable mix of unemployment and rate of change of inflation which we call stagflation is explained by a fall in the feasible rate of growth of real wages unmatched by a reduction in the constant term in phillips curve to investigate this mechanism conventional wage and price equations are estimated for 19 countries and then used for simulation stagflation has been caused in roughly equal amounts by rising relative import prices and by the fall in the rate of productivity growth in the basic model the phillips curve is assumed not to adapt to falls in feasible real wage growth but in a final section an adaptive wage equation is estimated which confirms that the process of adaptation is slow

long run market configurations in a dynamic quality ladder model with externalities abstract we study the impact of standard setting by introducing an externality that increases product compatibility in the presence of asymmetric returns to investment in a dynamic quality ladder type model we classify the long run multi modal probability distributions over different market structures that arise from this model in some cases the lagging firm may remain in the market in the long run depending on the strength of the externality in the case where only the laggard invests in compatibility it is possible that the laggard becomes a monopolist if the leader has a relatively low r d capability and the two firms are almost symmetric in this same regard this variety of multi modal long run distributions may have important consequences for the estimation and the simulation of this class of dynamic models

dynamics in research joint ventures and r d collaborations abstract we investigate the short and long term effects of different types of r d collaborations on firms consumers and the industry to that end we consider a differentiated product market in which firms compete a la bertrand and invest in process innovation in order to lower the production cost over time investments are stochastic and there can be cartelization or competition strategies among firms at the moment of making the decision on the amount to invest in r d our results show that in equilibrium the long run welfare is larger under a research joint venture than under other environments discounted present value profits increase with the level of the spillover but there are asymmetries that depend on the firms asymmetry on marginal costs

detection and impact of industrial subsidies the case of world shipbuilding this paper provides a model based empirical strategy to i detect the presence and gauge the magnitude of government subsidies and ii quantify their impact on production reallocation across countries industry prices costs and consumer surplus i construct and estimate an industry model that allows for dynamic agents in both demand and supply and apply my strategy to world shipbuilding a classic target of industrial policy i nd strong evidence consistent with china having intervened and reducing shipyard costs by 15 20 corresponding to 5 billion us dollars between 2006 and 2012 the subsidies led to substantial reallocation of ship production across the world with japan in particular losing signi cant market share they also misaligned costs and production while leading to minor surplus gains for shippers

collusion and dynamic under investment in quality in a dynamic game of investment in product quality i investigate whether collusive underinvestment equilibria can be supported by the threat of escalation in investment outlays when there are no spillovers underinvestment equilibria exist even though by deviating a firm can gain a persistent strategic advantage when there are strong spillovers underinvestment equilibria fail to exist a weakening of patent protection can thus lead to more investment in equilibrium a nonfragmentation result is shown to hold in all free entry equilibria industry concentration is bounded away from zero no matter how large the market and despite the existence of underinvestment equilibria

the value of collusion with endogenous capacity and demand uncertainty collusion has often been alleged in industries where long lived capacity investments are important this article develops a computational duopoly model with capacity investments demand shocks and either competitive or collusive pricing it shows that allowing for endogenous capacity investments can sometimes make collusion less valuable than competition and that it can change the normal relationships between the profitability of collusion and both the discount rate and industry wide demand shocks

capacity investment preemption and commitment in an infinite horizon model the commitment value of capacity is analyzed in an infinite horizon duopoly model the paper focuses on the role of alternative behavioral assumptions about the ability of firms to commit to investment paths each firm s investment strategy in a feedback nash equilibrium is shown to be a decreasing function of its rival s current capacity this creates an incentive for a firm to expand its capacity to preempt subsequent rival investment in a precommitment equilibrium there are no incentives to invest preemptively as a consequence steady state capacity levels are greater in a feedback nash equilibrium than in a precommitment equilibrium copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

managerial attention and worker performance we present a novel theory of the employment relationship a manager can invest in attention technology to recognize good worker performance the technology may break and is costly to replace we show that as time passes without recognition the worker s belief about the manager s technology worsens and his effort declines the manager responds by investing but this investment is insufficient to stop the decline in effort and eventually becomes decreasing the relationship therefore continues deteriorating and a return to high performance becomes increasingly unlikely these deteriorating dynamics do not arise when recognition is of bad performance or independent of effort

modeling production for general equilibrium analysis the purpose of this paper is to present econometric models of producer behavior suitable for incorporation into a general equilibrium model implementation of these models requires a time series of inter industry transactions tables second implementation requires methods for estimation of parameters in systems of nonlinear simultaneous equations finally the economic theory of producer behavior implies equality and inequality restrictions on the parameters that must be incorporated into the estimation we discuss an empirical application to modeling producer behavior in thirty six industrial sectors of the u s economy

identification and estimation of dynamic games when players beliefs are not in equilibrium this article deals with the identification and estimation of dynamic games when players beliefs about other players actions are biased that is beliefs do not represent the probability distribution of the actual behaviour of other players conditional on the information available first we show that an exclusion restriction typically used to identify empirical games provides testable non parametric restrictions of the null hypothesis of equilibrium beliefs in dynamic games with either finite or infinite horizon we use this result to construct a simple likelihood ratio test of equilibrium beliefs second we prove that this exclusion restriction together with consistent estimates of beliefs at two points in the support of the variable involved in the exclusion restriction is sufficient for non parametric point identification of players belief functions as well as useful functions of payoffs third we propose a simple two step estimation method we illustrate our model and methods using both monte carlo experiments and an empirical application of a dynamic game of store location by retail chains the key conditions for the identification of beliefs and payoffs in our application are the following 1 the previous year s network of stores of the competitor does not have a direct effect on the profit of a firm but the firm s own network of stores at previous year does affect its profit because the existence of sunk entry costs and economies of density in these costs and 2 firms beliefs are unbiased in those markets that are close in a geographic sense to the opponent s network of stores though beliefs are unrestricted and potentially biased for unexplored markets which are farther away from the competitors network our estimates show significant evidence of biased beliefs furthermore imposing the restriction of unbiased beliefs generates a substantial attenuation bias in the estimate of competition effects

investment in electricity capacity under fuel cost uncertainty dual fuel and a mix of single fuel technologies abstract we study the effect of the price and price volatility of natural gas on investment in electricity capacity in two technology scenarios 1 dual fuel units that use natural gas and diesel and 2 a mix of single fuel plants that use coal or natural gas we develop a two stage capacity and operation model and derive analytical solutions for both scenarios based on the observed log normal distribution of the natural gas price we show that optimal capacity investment increases moderately with natural gas price volatility countering a commonly held view that fuel cost uncertainty tends to discourage capacity investment thus higher volatility of the natural gas price tends to reduce the missing money problem we use texas data to show that higher gas price volatility implies higher profits and consumer surplus in the first scenario even when the per mwh diesel cost is much higher than the expected value of the per mwh gas cost in the second scenario firms invest only in gas capacity unless the per mwh coal cost is significantly below the expected per mwh gas cost thus explaining the popularity of gas generation

dynamic oligopoly with capacity adjustment costs abstract the literature on strategic investment emphasized the case of completely irreversible investment this paper considers an oligopoly model in which investment is reversible and capacity is subject to adjustment costs an n player linear quadratic differential game is analyzed existence and characterization results for perfect equilibrium feedback strategies are provided feedback strategies provide incentives for each player to invest strategically so as to preempt subsequent expansion by rivals a larger set of perfect equilibria is constructed by using memory dependent trigger strategies equilibria of this type are shown to support joint value maximization for some initial states and asymmetric steady states

entry deterrence by timing rather than overinvestment in a strategic real options framework this paper examines a dynamic incumbent entrant framework with stochastic evolution of the inverse demand in which both the optimal timing of the investments and the capacity choices are explicitly considered we find that the incumbent invests earlier than the entrant and that entry deterrence is achieved through timing rather than through overinvestment this is because the incumbent invests earlier and in a smaller amount compared to a scenario without potential entry if on the other hand the size of the investment is exogenously given the investment order changes and the entrant invests before the incumbent does

practical implications of game theoretic models of r and d the purpose of this paper is to survey recent game theoretic models of research and development and to ask whether they yield practical implications or testable hypotheses the papers i will be discussing have been written or published within the past five years they have a good deal in common relying upon similar assumptions and building upon each other because of this the literature surveyed here may seem narrow and some relevant work has probably been inadvertently omitted i apologize for these omissions for want of space i will not discuss the normative conclusions of this literature

investments of uncertain cost abstract this paper examines irreversible investment decisions when projects take time to complete and are subject to two types of cost uncertainty the first is technical uncertainty i e uncertainty over the physical difficulty of completing a project which is only resolved as the investment proceeds the second is input cost uncertainty i e uncertainty over the prices of construction inputs or over government regulations affecting construction costs which is external to the firm these two types of uncertainty have very different effects on the investment decision a simple investment rule is derived that maximizes firm value and is used to analyze the decision to start or continue building a nuclear power plant during the 1980s

the dynamics of bidding markets with financial constraints we develop a model of bidding markets with financial constraints a la che and gale 15 in which two firms choose their budgets optimally and we extend it to a dynamic setting over an infinite horizon we provide three main results for the case in which the exogenous cash flow is not too large and the opportunity cost of budgets is positive but arbitrarily low first firms keep small budgets and markups are high most of the time second the dispersion of markups and money left on the table across procurement auctions hinges on differences both endogenous and exogenous in the availability of financial resources rather than on significant private information third we explain why the empirical analysis of the size of markups based on the standard auction model may have a bias downwards or upwards positively correlated with the availability of financial resources a numerical example illustrates that our model is able to generate a rich set of values for markups bid dispersion and concentration

understanding real business cycles he 1 960s were a time of great optimism for macroeconomists many economists viewed the business cycle as dead the keynesian model was the reigning paradigm and it provided all the necessary instructions for manipulating the levers of monetary and fiscal policy to control aggregate demand inflation occurred if aggregate demand was stimulated excessively and unemployment arose if demand was insufficient the only dilemma faced by policymakers was determining the most desirable location along this inflation unemployment tradeoff or phillips curve the remaining intellectual challenge was to establish coherent microeconomic foundations for the aggregate behavioral relations posited by the keynesian framework but this was broadly regarded as a detail that should not deter policymakers in their efforts to stabilize the economy the return of the business cycle in the 1970s after almost a decade of economic expansion and the accompanying high rates of inflation came as a rude awakening for many economists it became increasingly apparent that the basic keynesian framework was not the appropriate vehicle for understanding what happens during a business cycle nor did it seem capable of providing the empirically correct answers to questions involving changes in the economic environment or changes in monetary or fiscal policy the view that keynesian economics was an empirical success even if it lacked sound theoretical foundations could no longer be taken seriously the essential flaw in the keynesian interpretation of macroeconomic phenomenon was the absence of a consistent foundation based on the choice theoretic framework of microeconomics two important papers one by milton friedman 1968 and the other by robert lucas 1976 forcefully demonstrated examples of

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

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

capacity dynamics and endogenous asymmetries in firm size empirical evidence suggests that there are substantial and persistent differences in the sizes of firms in most industries we propose a dynamic model of capacity accumulation that is consistent with the observed facts the model highlights the mode of product market competition and the extent of investment reversibility as key determinants of the size distribution of firms in an industry in particular if firms compete in prices and the rate of depreciation is large then the industry moves toward an outcome with one dominant firm and one small firm industry dynamics in this case resemble a preemption race contrary to the usual intuition this preemption race becomes more brutal as investment becomes more reversible

endogenous leadership in a new market in this article i analyze strategic investment under uncertainty in a new market where firms face a tradeoff between commitment and flexibility the model predicts asymmetric equilibria under fairly general conditions even though firms are ex ante identical and have symmetric opportunities to enter the market in equilibrium one firm commits to early investment and the other firm follows a wait and see strategy in the ex post outcome firms end up with asymmetric sizes if the market profitability turns out close to or lower than expected firms end up in symmetric position if the market turns out highly profitable if uncertainty is small the model yields approximately stackelberg outcomes

the scope and organization of production firm dynamics over the learning curve i introduce a bayesian learning model of the firm to account for a variety of empirical facts about firms the many tasks the firm can undertake the scope of the firm are informationally related so that the firm can enjoy some economies of scope from information the model predicts changes in firm size and its comovement with firm scope that are broadly consistent with the empirical evidence it also provides an explanation for the limits to the scope of the firm the firm may lack information or it may be costly to communicate the information necessary to undertake many tasks