laboratory tests of equilibrium predictions with disequilibrium data we examine a common practice used within previous studies of laboratory markets testing equilibrium models using some data from markets that have not reached an equilibrium we examine the effect of this practice when it is applied to some laboratory markets where an appreciable number of them eventually satisfied an operational definition of an equilibrium our data suggest that for our markets significantly different equilibrium test results would be obtained when using all data available in market periods analysed in previous studies rather than using only equilibrium data for our markets choices made in disequilibrium are quite different from those in equilibrium this paper is primarily concerned with examining one common practice used in previous studies of laboratory markets this practice is testing equilibrium models using some data from markets that have not reached an equilibrium the data set used typically consists of all available laboratory data from the last period an average of the last few periods an average of all periods or from the nth period for some fixed n i know of no attempt at least formally to assure all data were from markets in equilibrium markets where market choices have stabilized recently some laboratory markets were run where an appreciable number of them eventually satisfied an operational definition of an equilibrium could the use of disequilibrium data significantly affect the results of tests we might make of some equilibrium models for these laboratory markets this practice would be desirable if the disequilibrium data provided a useful estimate of the behaviour that would have been observed if an equilibrium had been obtained on the other hand if some disequilibrium behaviour is qualitatively different from the behaviour that would be observed in an equilibrium this practice could produce misleading results within this paper we examine the effect of this practice when it is used on our laboratory data

the effects of rent asymmetries in posted offer markets abstract we report the results of six posted offer market experiments designed to analyze the effects of asymmetric supply and demand configurations on the price convergence path to competitive equilibrium the posted offer experiments are compared with twelve double auction experiments reported by smith and williams 1982 results differ markedly across trading institutions unlike trading under double auction rules we cannot reject the proposition that contract price convergence paths are unaffected by the distribution of consumer and producer surplus posted offer contract prices tend to converge to the competitive equilibrium from above regardless of the distribution of the exchange surplus

the effects of rent asymmetries in experimental auction markets abstract we report the results of twelve double auction market experiments designed to analyze the effects of asymmetric induced supply and demand configurations on the price convergence path toward a competitive equilibrium the proposition convergence bias that prices tend to approach the competitive equilibrium from above below when consumer surplus is greater less than producer surplus cannot be rejected we do however reject the proposition convergence symmetry that these convergence biases are of equal absolute magnitude excesses of producer over consumer surplus are found to have a more pronounced effect on the sequence of contract prices

discussion of a laboratory investigation of the moral hazard problem in an agency relationship the first question concerned the assumption of risk neutrality of both the principals and agents in the models specifically given this assumption it was not clear what element s in the modeling or experimental design precluded the principal s from simply selling or renting the firm to the agent s more important the risk neutrality assumption has a direct effect on the predictions of the models the experimental results and their interpretation finally it was suggested that new experimental techniques such as those developed by berg et al forthcoming might be used to induce specific risk preferences given a particular model to be tested and its attendant experimental design although these techniques have not been fully tested using them may reduce the need to make assumptions about subjects risk preferences and thereby overcome the kinds of questions raised on this issue a second issue dealt with why the experimental study of the moral hazard problem in the principal agent relationship was carried out in a market setting with several principals and agents rather than following

currency internationalization and valuation effects based on the threshold model based on the three functions of currency internationalization including exchange medium pricing currency and foreign reserve this paper explores how the degree of currency internationalization a

contractual responses to the common pool prorationing of crude oil production this paper examines bargaining among firms to mitigate rent dissipation following the major oil discoveries of 1926 35 because of high bargaining costs firms chose prorationing instead of consolidation and unitization and success varied the analysis also shows that prorationing took the form it did because concession such as per well quotas were required to draw in small operations and the quotas led to predictable responses regarding rent dissipation prorationing despite its costs controlled total field production and costs conserved natural reservoir energies and lengthened field life when private agreements failed the parties successfully appealed for state enforcement since similar heterogeneities influnce regulations elsewhere in the economy detailed analysis of bargaining among firms is essential for insight into the emergence of various institutional forms 33 references 3 tables

diversification multi market contact and profitability this paper analyses the relationships between diversification multi market contact and industry profitability it focuses on the link between diversification and multi market contact to show that when diversification establishes or increases the extent to which firms meet in more than one market the effect of such multi market contact is to increase the possibility that collusion emerges as an evolutionary stable strategy as a result multi market contact may increase the potential for tacit collusion and so lead to higher profitability the effects of diversification and multi market contact on the price cost margin and the rate of return to capital are estimated using a specially constructed new database for uk manufacturing industry in 1979 this database provides information on the diversification and multi market contact of 418 firms across 134 manufacturing industries thus linking firm and industry level data the results show a clear positive effect of multi market contact on industry profitability

collusion and equilibrium selection in auctions we study bidder collusion and test the power of payoff dominance as an equilibrium selection principle in experimental multi object ascending auctions in these institutions low price collusive equilibria exist along with competitive payoff inferior equilibria achieving payoff superior collusive outcomes requires complex strategies that depending on the environment may involve signalling market splitting and bid rotation we provide the first systematic evidence of successful bidder collusion in such complex environments without communication the results demonstrate that in repeated settings bidders are often able to coordinate on payoff superior outcomes with the choice of collusive strategies varying systematically with the environment auctions for timber cars oil drilling rights and spectrum bandwidth are just a few examples of markets where multiple heterogeneous lots are offered for sale simultaneously in multi object ascending auctions the applied issue of collusion and the theoretical issue of equilibrium selection are closely linked in these auctions bidders can profit by splitting the markets by acting as local monopsonists for a disjoint subset of the objects the bidders lower the price they must pay as opposed to the sealed bid auction the ascending auction format provides bidders with the opportunity to coordinate tacitly on dividing markets and to punish non collusive bidding thus low price collusive equilibria co exist along with high price competitive equilibria even in a non repeated setting brusco and lopomo 2002 if there are complementarities in bidder values across objects and auctions are repeated bidders may further benefit by splitting the markets over time and taking turns in buying packages at low prices these opportunities make the multi object ascending auction an ideal institution for the study of equilibrium selection assuming that communication between the bidders is limited to the bidding any splitting of the markets must be tacitly coordinated in the early stages of the auction thus achieving payoff superior collusive outcomes requires complex strategies that depending on the environment may involve signalling market splitting and bid rotation while such tacit coordination is possible in theory it is an empirical question of whether it may be achieved in practice

market structure and the empirical specification of profit margins we present evidence from a panel of u k manufacturing industries to test the sensitivity of the margins concentration relationship to specification changes in the dependent variable instrumental variable estimates demonstrate that a positive association between profit margins and concentration is contingent on how the margin is formulated

the effects of group composition in a strategic environment evidence from a field experiment abstract recent theoretical and empirical studies have explored the effect of group membership and identity on individual decision making this line of research highlights that economic models focusing on the individual as the sole entity in the decision making environment potentially miss critical features this study takes this literature in a new direction by overlaying a field experiment onto a setting where groups have arisen naturally our experimental laboratory is large open air markets where we are able to examine the effects of group membership on seller s collusive behavior as measured by prices and surplus allocations this permits us to explore strategic implications of group composition empirical results illustrate the importance of group composition on pricing decisions and show that deviations from nash equilibrium are crucially related to group membership

the exercise of market power in laboratory experiments douglas d davis and charles a holt march 1998 introduction many aspects of antitrust policy are influenced by the possibility that sellers in concentrated markets may have the power to raise prices above competitive levels of course anyone can raise price so the issue is whether a change in structure e g a merger will allow one or more sellers to raise price profitably a price increase by one seller diverts sales to others so a firm is more likely to have market power when its competitors have limited capacity to expand their sales thus a merger that reduces competitors capacity may create market power in laboratory experiments any treatment that reassigns units of capacity from one seller to another may create or destroy market power even if the aggregate supply curve is unchanged for example giving one seller a relatively large endowment of infra marginal low cost units may make it less risky for this seller to raise price and forego the sale of high cost units thus it is not surprising that experiments with apparently similar supply and demand structures may yield different price outcomes as discussed below there are a number of other ways in which structural changes can affect the degree of power that sellers enjoy market power can also be sensitive to the trading institution and this is the context that power issues first arose in experimental economics for example the public posting of uniform prices in a posted offer auction eliminates the incentive to offer discounts on marginal units that arises in a double auction in fact smith 1981 found that even monopolists are sometimes unable to maintain prices above competitive levels in double auctions whereas supra competitive prices are the norm in postedoffer monopolies similarly holt langan and villamil 1986 found that sellers in concentrated double auctions were sometimes able to raise prices but that prices fell to competitive levels in about half of the sessions despite the high concentration of seller capacity davis and williams 1991 replicated the holt langan and villamil results for double auctions and then used the same market

communication and coordination in a two stage game we study the impact of communication on behavior in a two stage coordination game with asymmetric payoffs we test experimentally whether individuals can avoid a head to head confrontation by means of coordinated strategies in particular we analyze whether and how quickly a conflict avoidance take turn strategy can emerge first our results show that players learn to solve the conflict by choosing opposite options at both stages of the game second many adopt a take turn strategy to sustain coordination over time and alleviate the inequality induced by the asymmetry of payoffs third communication increases the likelihood of conflict resolution even when a single pair member has the right to communicate

unions and monopoly profits using cross sectional data for u s manufacturing the author identifies a negative effect of unions on the profits of highly concentrated industries and virtually no effect on the profits of unconcentrated industries the results for concentrated industries are explained in terms of the monopoly model which predicts a negative effect of unions on profits equivalent to the change in employer s surplus the monopoly model also suggests that previous profit studies which omitted the union variable were likely to significantly underestimate the relationship between concentration and profits this prediction is also supported by empirical evidence m sany studies have demonstrated the ability of unions to raise wages above the level of nonunion workers higher union wages in turn may affect the level of prices employment capital intensity productivity and profits recent studies by clark 1982 and freeman 1983 have found significant negative effects of unions on profit rates in the united states using line of business data from 1970 to 1980 for 900 firms clark found a negative effect of unions on the rate of return to capital more specifically the union effects were found to be significantly negative when market shares were low and insignificant when market shares were high according to clark the absence of a union effect in the latter case can be explained by the ability of firms with market power to pass on higher union wages into higher prices 1982 p 47 on the other hand freeman 1983 using data from the survey of manufactures from 1958 to 1976 and the internal revenue service from 1965 to 1976 also found a negative effect of unions on profits contrary to clark s results however the union profit effect was negative only in concentrated industries the point of contention appears to be the role of concentration in determining the union profit effect rather than the overall negative impact of unions the results of clark and freeman are important because previous industrial organization research on profit rates generally ignored unions for instance of the forty six profit studies surveyed by weiss 1974 none included a union variable more recently a profit study in this review by ravenscraft 1983 using high quality line of business data from the federal trade commission also ignored unionization as will be demonstrated the omission of the union variable leads to an understatement of the effect of industrial concentration on profits this means that concentrated industries generate much greater profits than indicated by previous research in order to measure the size of the understatement a new concept employer s surplus is developed which illustrates the theoretical impact of a union wage increase on monopoly profits the empirical estimates of employer s surplus in this paper indicate how monopoly profits are divided between firms and unions most of the data used in this study were obtained from james medoff and charles brown 2 unlike the previous two studies each observation corresponds to a state by two digit sic industry for manufacturing in 1972 because of the large variations in unionization across states this data set offers a useful test of the union profit effect i employer s surplus according to accepted theory the profit maximizing monopolist will employ labor up to the point where the market wage equals the marginal revenue product mrp 3 if for simplicity we assume that all other factors are variable then the mrp curve represents the monopolist s long run demand for labor in the absence of unions employment is determined by the intersection of the mrp curve and nonunion wage wn as pictured in figure 1 if unions raise wages to wa employment will decrease from ln to l with the reducreceived for publication november 28 1983 revision accepted for publication july 6 1984 eastern washington university i am very grateful to dave bunting lisa brown bill dickens claire brown and george strauss for their valuable suggestions on this research this paper is a revised version of chapter 3 from the author s ph d thesis the union impact on profits productivity and prices university of california berkeley 1 see parseley 1980 for a recent review of this literature 2 i would like to thank brown and medoff for making these data available to me 3 marginal revenue product is equal to marginal revenue multiplied by marginal physical product see rees 1979

when curiosity kills the profits an experimental examination economic theory predicts that in a first price auction with equal and observable valuations bidders earn zero profits theory also predicts that if valuations are not common knowledge then since it is weakly dominated to bid your valuation bidders will bid less and earn positive profits hence rational players in an auction game should prefer less public information we are perhaps more used to seeing these results in the equivalent bertrand setting in our experimental auction we find that individuals without information on each other s valuations earn more profits than those with common knowledge then given a choice between the two sets of rules half the individuals still preferred to have the public information we discuss possible explanations including ambiguity aversion

competitive behavior in market games evidence and theory we explore whether competitive outcomes arise in an experimental implementation of a market game introduced by shubik 1972 market games obtain pareto inferior strict nash equilibria in which some markets are closed we find that subjects do not coordinate on autarkic nash equilibria but favor more efficient nash equilibria in which all markets are open as the number of subjects participating in the market game increases the nash equilibrium they achieve approximates the associated walrasian equilibrium of the underlying economy motivated by these findings we investigate theoretically whether evolutionary forces lead to walrasian outcomes in market games we introduce a strong version of evolutionary stable strategies sess f orfinite populations our concept requires stability against deviations by coalitions of agents a small coalition of trading agents is sufficient for pareto improving trade to be generated in addition provided that agents lack market power nash equilibria corresponding to approximate competitive outcomes constitute the only approximate sess

behavioral heuristics and market patterns in a bertrand edgeworth game abstract this paper studies bertrand price setting behavior when firms face capacity constraints bertrand edgeworth game this game is known to lack equilibria in pure strategies while the mixed strategy equilibria are hard to characterize we explore families of heuristic rules for individual price setting behavior and the resulting market patterns through simulations of agent based models and laboratory experiments overall the individual pricing strategies observed experimentally can be represented approximately by a sales based simple rule in the experiments average market prices tend to converge from above and approach a state resembling a steady state with slow aggregate price variations and low price dispersion around an average near the competitive level however that configuration can be disturbed occasionally by excursions triggered by discrete price raises of some agents salient features of experimental results can be described by simulations where agents use sales based heuristics with parameters calibrated from the experiments the results obtained here suggest the existence of useful complementarities between analytical experimental and agent based simulation approaches

the effects of discounting opportunities in laboratory posted offer markets abstract this experiment isolates the effects of allowing sellers to offer private discounts from posted prices although discounting was pervasive when permitted it did not always improve performance high prices and low efficiencies were observed in half of the discount markets

financial integration and the wealth effect of exchange rate fluctuations abstract recent years have witnessed a large increase in international financial integration in the form of largely offsetting cross holdings across countries we assess how such financial leverage affects the international transmission of monetary shocks and find that it leads to sizable welfare differentials that far exceed the impact due to nominal rigidities we document the relevance of the exact nature of holdings with bond holdings associated with larger effects than equity holdings the impact of financial leverage on welfare is also sensitive to the extent of exchange rate pass through and the substitutability between goods produced in different countries

the effects of market organization on conspiracies in restraint of trade abstract mindful of the market structure conduct performance paradigm fundamental to industrial organization research this paper uses laboratory experimental techniques to study the impact of conspiratorial opportunities on market performance we compare posted offer markets where sellers but not buyers are all conspiratorial opportunities with observations from three control groups 1 posted offer markets without conspiratorial opportunities 2 double auction markets with conspiratorial opportunities and 3 posted offer markets with true single seller monopolists the basic conclusions generated by our experimental design are 1 seller conspiracies in posted offer markets tend to raise prices but not profits relative to similarly organized markets without conspiracies 2 posted offer conspiracies tend to generate higher prices but not profits than double auction conspiracies and 3 posted offer monopolies tend to generate higher profits but not prices then posted offer conspiracies

aggregate spending and the terms of trade is there a laursen metzler effect this paper investigates the spending and current account effects of terms of trade shifts in a model where households maximize utility over an infinite planning period in the framework developed here an economy specialized in production must experience a fall in aggregate spending and a current surplus as a result of an unanticipated permanent worsening in its terms of trade the paper s model thus provides a setting in which the current account deficit predicted by laursen and metzier harberger and others fails to materialize

price controls and the behavior of auction markets an experimental examination price ceilings and price floors are common in all market systems the ancient greeks and hellenistic era egyptians are known to have utilized price controls see h michele p 272 and j p levy p 41 and numerous public policy questions today involve them apparently for as long as price controls have existed their effects have been debated for example diocletion s favorable view of his price ceilings was disputed by the religious philosopher lactantius who charged that the policy led to scarcity and low grade articles p 145

papers in experimental economics competitive market institutions double auctions vs sealed bid offer auctions consider a market with the following characteristics 1 privacy that is each agent knows only his own valuation or cost conditions 2 exchange follows the rules of the oral double auction that is buyers freely announce bids or accept offers and sellers freely announce offers or accept bids 3 aggregate market supply and demand per trading period is stationary for at least two to three periods and 4 there are at least four buyers and as many sellers the literature reporting the results of a large number of experimental markets with these characteristics documents what appears to be a remarkably rapid convergence to a competitive equilibrium ce however any claim of double auction da convergence to the ce can only have meaning in one of three senses i the ce is attained immediately ii after t periods of trading some measure of the market s state such as mean price is nearer relative to experimental sampling variability to a ce than to some distinct alternative equilibrium such as a monopoly or nash equilibrium iii after t periods of trading this measure is nearer to a ce in da experimental markets than in markets organized under a different institution of contract for example a sealed bid auction since everything from electrons and the stars to rats and people yield state measures subject to error or random variation the deterministic criterion i can have no serious scientific standing by such criteria any hypothesis can be rejected and there could be no science of physics biology or economics 2 with the exception of certain very simple markets such as single object auctions or certain idealized markets such as the cournot quantity adjuster model economics has only two concepts of equilibrium monopoly and competitive the only formal model of da trading that has been proposed see david easley and john ledyard p 6 predicts stochastic convergence in finite time with probability one to a ce hence the only test alternative to the ce research hypothesis in da markets is a monopoly or monopsony equilibrium experimentalists have not reported statistical tests of the ce professor department of economics university of arizona assistant professor department of economics indiana university instructor department of economics university of arizona and sandia national laboratories albuquerque nm respectively we are indebted to the national science foundation for research support and to art denzau and mort kamien for helpful comments there is an early and recently growing body of experimental evidence for convergence to a competitive equilibrium under double auction rules the earliest evidence contained in experiments initiated in january 1956 is reported in smith 1962 1964 1965 1976 however these early experiments used between twenty and fifty or so participant buyers and sellers because in keeping with prevailing professional beliefs it was thought that a ce was unlikely to be approached unless numbers were quite large using large numbers was not unreasonable since it is a good beginning procedure to give a theory whatever is believed to be its best shot more recent evidence using six buyers six sellers and two traders in speculative da markets with cyclical demand is reported by r m miller charles plott and smith and williams 1979 for evidence from a comparison of oral and computerized da experiments with four buyers and four sellers see williams 1980 for further evidence in the context of the study of price controls see m isaac and plott 1981b and smith and williams 1981b in the context of a conspiracy study see isaac and plott 1981a in the context of comparisons between da and posted offer pricing see jon ketcham smith and williams in the context of a study of four variations on da rules see smith and williams 1980 all of these more recent papers report double auction experiments using no more than four buyers and four sellers 2as frederick mosteller once noted if you wanted to reject the inverse square law of attraction try tossing a sheet of paper out the window

teaching tools a public goods experiment for the classroom teaching tools a public goods experiment for the classroom george stigler wrote in the american economic review twenty seven years ago that the typical student in an introductory college economics course would memorize a few facts diagrams and policy recommendations and ten years later be as untutored in economics as the day he entered the class 1963 657 and later in the journal of economic education stigler argued that economics belongs in everyone s education once we have learned how to teach it 1970 80 as we enter the nineties academic economists continue groping for methods and techniques that will improve the way in which principles courses are taught the proliferation of commercially available materials in the form of textbooks workbooks software telecourses e g economics usa and transparencies provides evidence of the increasing interest and expenditure aimed at improving the teaching of economics however there exists at least one very promising teaching technique that continues to see relatively limited action in the typical economics classroom while experimental economic methods have become quite familiar to academic economists as a legitimate and powerful research tool their usefulness for the economics classroom has not yet been generally recognized 1 in this article i describe a simple yet powerful public goods experiment for use in microeconomics or public finance courses since it is likely that many instructors in economics are reluctant to use experimental methods without sufficient preparation 2 enough detail on experiment administration and suggested post experiment discussion is provided to assist even the novice experimenter with getting started instructors interested in additional information on experimental economics or experiments for the classroom should consult the references listed in the concluding section i experiment description 3 a theoretical concept that introductory students often find hard to understand is the vertical summation of individual demand curves to obtain the market demand for a public good the typical student also fails to fully appreciate how a free rider can cause underinvestment in public goods the experiment outlined below provides a simple yet powerful technique to teach not only the vertical addition and the free rider problems but also an ideal way to construct a prisoner s dilemma game and discuss the resulting underinvestment in the public good students are placed into n teams where a team may be as few as one person each team is endowed with t tokens and must choose in each of the decision making rounds whether to invest these tokens in the private account or the group account the private account will pay the team 0 30 per token invested each round the group account will earn for the entire society 0 50 per token invested each round from the group account each team will then receive 0 50 g sub i n where g sub i equals the total number of tokens invested in the group account in round i by all n teams note that regardless of how many tokens any single team places into the group account all n teams receive the same payout from the group account teams must invest all t tokens in each round and tokens cannot carry over from one round to the next finally earnings from previous rounds are not allowed to be reinvested in the future ii example experiment assume a representative class of sixty students 4 assume the instructor divides the class into twenty teams n 20 of three students each each team is endowed with t 25 tokens per round the teams read the instructions overhead transparency while the instructor distributes to each team i the team record sheet and ii the team decision ballots one for each round 5 for each round once all the team ballots have been submitted the instructor sums the tokens invested in the group account and reports this number and the dollar payout per team to the entire class

wage pressure bargaining and price cost margins in uk manufacturing to the extent that union employer bargaining is efficient price cost margins in oligopolistic industries are predicted to depend on wage rents and on the elasticity of substitution between wages and employment in union preferences unanticipated wage inflation will also affect margins cross section and time series analysis of price cost margins in u k manufacturing industries finds that margins tend to be eroded by the level of wage rents and are invariant to the rate of wage inflation copyright 1990 by blackwell publishing ltd

structural breaks in taylor rule based exchange rate models evidence from threshold time varying parameter models in this note we develop a taylor rule based empirical exchange rate model for eleven major currencies that endogenously determines the number of structural breaks in the coefficients using a constant parameter specification and a standard time varying parameter model as competitors reveals that our flexible modeling framework yields more precise density forecasts for all major currencies under scrutiny over the last 24 years

market power and the institutional asymmetry of the posted offer trading institution abstract this paper reports a series of market experiments examining the conjecture that the institutional asymmetry inherent in posted offer pricing can suppress the exercise of market power by the non posting side of the market the data clearly support this conjecture if market power is defined as a unilateral incentive to manipulate the market price via strategic quantity withholding

tacit collusion in auctions and conditions for its facilitation and prevention equilibrium selection in laboratory experimental markets the paper studies bidder behavior in simultaneous continuous ascending price auctions we design and implement a collusion incubator environment based on a type of public symmetrically folded and item aligned preferences tacit collusion develops quickly and reliably within the environment once tacit collusion developed it proved remarkably robust to institutional changes that weakened it as an equilibrium of a game theoretic model the only successful remedy was a non public change in the preference of participants that destroyed the symmetrically folded and item aligned patterns of preferences creating head to head competition between two agents reminiscent of the concept of a maverick

the profitability concentration relation market power or efficiency industrial economists have been studying the relationship between profitability and concentration using cross industry samples for many years now however as sometimes happens once it appeared that some consensus had been achieved with few exceptions market concentration and industry profitability are positively correlated peltzman i977 p 229 people began to question the interpretation of those results in particular demsetz e g i973 i974 and others suggested that rather than concentration market power leading to higher prices and profits the causal direction in fact ran from greater efficiency to both higher profits and incidentally to higher concentration our purpose here is to subject these conflicting hypotheses to cross industry empirical test using u k data in order to do this we first develop a model which is sufficiently general to allow for both alternative explanations of a positive concentration profitability correlation in the light of this model we then examine the implications for the within industry relation between market share and firm level profitability more specifically we explore demsetz s claim that the empirical form of this relationship should signal which of the alternative hypotheses is consistent with the between industry profitability concentration correlation our model suggests that in certain special circumstances this claim is partly justified in that it should be possible to assess the relative strengths of the market power and efficiency effects from the within industry relation more generally however factors such as product differentiation and scale economies may seriously impair the information content of the relation with at least a strong suspicion that the estimates will tend to exaggerate the evidence in favour of the efficiency hypothesis in the event our results tend to confirm that for most industries the within industry data offer little conclusive support for either hypothesis but for a not insignificant minority of industries the evidence suggests some support for the view that both efficiency and market power are at work simultaneously our model is detailed in section ii and estimated on u k data in section iii after which we offer a few comments in section iv first however we drovide a backcloth to the later analysis

dynamic security design convergence to continuous time and asset pricing implications an entrepreneur with limited liability needs to finance an infinite horizon investment project an agency problem arises because she can divert operating cash flows before reporting them to the financiers we first study the optimal contract in discrete time this contract can be implemented by cash reserves debt and equity the latter is split between the financiers and the entrepreneur and pays dividends when retained earnings reach a threshold to provide appropriate incentives to the entrepreneur the firm is downsized when it runs short of cash we then study the continuous time limit of the model we prove the convergence of the discrete time value functions and optimal contracts our analysis yields rich implications for the dynamics of security prices stock prices follow a diusion reflected at the dividend barrier and absorbed at zero their volatility as well as the leverage ratio of the firm increase after bad performance stock prices and book tomarket ratios are in a non monotonic relationship a more severe agency problem entails lower price earning ratios and firm liquidity and higher default risk

input contracts market structure and the empirical specification of price cost margins abstract we examine the implications for the empirical specification of the margins concentration relationship of different forms of contracting for intermediate inputs we offer an alternative explanation why the results of profit margin regressions depend on whether the margin is deflated by gross output or net output 1997 elsevier science s a

on the welfare benefits of an international currency abstract is it beneficial for a country s currency to be used internationally and if so can we quantify the benefit since the emergence of the euro there has been great interest in the consequences of a transfer of the dollar s premier international role to the euro this paper presents a novel model based approach towards assessing the welfare benefits associated with the international use of a country s currency apart from the familiar benefits associated with seigniorage residents of the issuing country experience an increase in the purchasing power of their currency both at home and abroad in the calibration exercise carried out in this paper we find the benefits of an international currency to be quantitatively significant the welfare gain for the euro area in having the euro internationally used ranges from 1 9 to 2 3 of consumption depending on relative inflation rates the rest of the world is not indifferent as to which currency circulates as the dominant international currency conditional on their currency not being used internationally their preference is for the dominant international currency to be the one with the lowest inflation rate

advance production and cournot outcomes an experimental investigation abstract an experiment designed to assess the effects of advance production decisions on posted offer market performance is reported six of the twelve triopolies were conducted under standard posted offer rules in the remaining markets sellers made binding production commitments prior to posting prices an alteration that shifts the unique stage game nash equilibrium from the competitive to the cournot outcome as predicted advance production decisions raised prices and lowered output nevertheless stable cournot outcomes were never observed

do antitrust laws facilitate collusion experimental evidence on costly communication in duopolies bertrand supergames with non binding communication are used to study price formation and stability of collusive agreements on experimental duopoly markets the experimental design consists of three treatments with different costs of communication zero cost low cost and high cost prices are found to be significantly higher when communication is costly moreover costly communication decreases the number of messages but more importantly it enhances the stability of collusive agreements mccutcheon 1997 presents an interesting application to antitrust policy by letting the cost of communication symbolize the presence of an antitrust law that prohibits firms from discussing prices although our experimental results do not support the mechanism of mccutcheon s 1997 argument the findings point in the direction of her prediction that antitrust laws might work in the interest of firms

a comparison of posted offer and double auction pricing institutions this paper presents an experimental study of a computerized posted offer pricing mechanism that captures many of the basic institutional features of retail exchange in the u s posted offer market performance is evaluated relative to double auction market performance using two supply and demand designs subject experience with the trading mechanism is explicitly considered as an experimental treatment variable the market data suggest that prices tend to be higher and efficiency lower under posted offer pricing relative to double auction however the institutional effect appears to interact with other design conditions when feasible the predictive power of competitive nash and limit price theoretic equilibria are empirically evaluated

collusion in procurement auctions an experimental examination bart j wilson i introduction questioning the value of efforts to enforce federal anticonspiracy laws raises spirited debate among antitrust economists although everyone recognizes the welfare costs of successful conspiracies commentators such as armentano 1990 and cohen and scheffman 1989 argue that conspiratorial arrangements are pervasively ineffective and thus that social resources spent prosecuting cob lusion are wasted others including marvel et al 1988 express more ambivalence about the seriousness of conspiracies as a social problem but believe that the government manages to detect only the most ineffective arrangements still other economists clearly believe in the effectiveness of current government efforts see e g werden 1989 and froeb et al 1993 ultimately the pervasiveness of conspiratorial behavior and the magnitude of the consequent damages are empirical issues however the illegality of collusion complicates the collection of relevant data tip offs or complaints frequently expose conspiracies but good reasons exist for suspecting that conspiracies detected in this fashion tend to be the least profitable a conspirator likely rats on co conspirators only if he or she is disenchanted with the scheme suggesting that the conspiracy is about to collapse anyway similarly suspect are conspiracies that are sufficiently clumsy to raise the protests of buyers the detection problem would be vastly simplified if conspiracies could be identified in the absence of a smoking gun posner 1969 argues that such explicit evidence of conspiratorial behavior is unnecessary because conspiring firms exhibit identifiable patterns of activity that are alone sufficient to determine illegality kuhlman 1969 and gallo 1977 go still further and advocate the continuous computerized monitoring of pricing and sales data to detect conspiracies however as marshall and muerer 1998 observe a potentially condemning defect of any attempt to detect collusion via behavior is that depending on underlying conditions virtually any suspect pattern of behavior can be generated as a noncollusive nash equilibrium identical prices for example are often cited as an indication of coordinated activity e g mund 1960 1 but in games such as the one modeled by anton and yao 1992 agents submit identical bids in a nash equilibrium in the absence of collusion furthermore some evidence from collusion cases prosecuted by the department of justice suggests that identical prices are rarely part of collusive arrangements except when the industry is not very concentrated comanor and schankerman 1976 market rotations a second pricing scheme that is typically cited as a suspect pattern may also be consistent with a subgame perfect noncooperative nash equilibrium zona 1986 for example identifies a number of approximate equilibria involving contract rotations when sellers have steeply increasing cost structures also lang and rosenthal 1991 characterize a noncooperative static equilibrium for a multiproduct contracting environment where sellers both divide the market and submit noncompetitively high bids in the market where they do not expect to win 2 still other pricing patterns are possibly suspect porter and zona 1993 report evidence of bid rigging in procurement auctions from the pattern of losing bids the intuition is that in a competitive environment bids should be correlated with costs when prices are fixed however this correlation breaks down this article reports a laboratory experiment designed to explore the relationship between suspect behavior and collusion we focus on coordinated behavior in procurement auctions a context where collusion is often suspected and has been frequently observed 4 two environments are examined a set cost regime that contains some features critical to standard government procurement auctions for goods and an endogenous cost regime which exhibits some critical elements of procurement bidding for construction contracts

information and conspiracy in sealed bid auctions abstract this paper examines the allocative properties of the sealed bid institution when different aspects of the available information to bidders are considered specifically we examine a the effect on price determination in repeated sealed bid auctions of post auction revelation of losing bids and b the effect on price determination when conspiratorial discussions are allowed

the determination of profit margins in uk manufacturing this paper examines the determinants of profit margins in 91 u k manufacturing industries over the period 1983 86 it considers how the inclusion of labor market characteristics in empirical industrial organization specifications affects the estimated concentration margins relationship the empirical work pays detailed attention to the endogenous nature of variables derived from structural industrial organization models the authors report instrumental variables estimates of margins equations in which there emerges a significant role for labor market characteristics indeed both unionization and industrywide unemployment are found to depress profit margins the impact of concentration is seen to be biased downward when these variables are omitted

asymmetric surplus distribution and the price convergence path in posted offer markets a note abstract we report results from five posted offer experiments with firm specific quotas the average contract price converges from below the competitive equilibrium thus the independence of the contract price convergence path from surplus distribution is questioned in our results

monopoly behaviour decentralized regulation and contestable markets an experimental evaluation this study provides a comparative experimental evaluation of several alternative approaches to the single product monopoly problem we contrast incentive compatible decentralized regulatory mechanisms with notions of market contestability in a decreasing cost environment the decentralized regulatory mechanisms are found to be significantly more effective at restraining monopoly power than is allowing direct contestability but the regulatory mechanisms examined require that the regulatory agency know the market demand curve though not the industry cost curve since this is significantly more information than is required to implement direct contestability an interesting tradeoff is suggested does the greater efficiency in monopoly restraint provided by the regulatory mechanism relative to direct contestability outweigh the former s greater informational requirements

market games as social dilemmas abstract in an experimental exchange market based on shapley and shubik 1977 two types of players with different preferences and endowments independently submit quantities of the goods they wish to exchange in this context although the nash equilibria of the game involve zero or minimum trade we obtain intense trade close to levels that maximize social welfare going a step forward we implement communication within pairs of traders from the same horizontal and opposite vertical sides of the market overall we find that horizontal communication tends to reduce bids whereas vertical communication has no effect

consumer and competitor reactions evidence from a field experiment abstract in response to a price change by a single seller it is common for the density of sellers in the market to influence both the quantity response of consumers and the price response of other sellers using field experiment data collected around a series of exogenously imposed price changes we find that an individual retailer with a larger number of competitors faces a more responsive demand this finding is fundamental to a predicted inverse relationship between market prices and the number of competitors we also examine the reaction of rival stations to exogenous price changes and find that the magnitude of a competitor s response is inversely related to the density of stations in the market

advance production in experimental markets the effects of advance production in posted offer and double auction markets are investigated previously observed differences between these institutions in mean contract prices and in the distribution of producers and consumers surpluses under the production to demand condition disappear when sellers make output decisions and incur production costs prior to the start of trading the double auction institution remains more efficient under advance production the results suggest that the differential effects of alternative trading institutions on market outcomes may be partially offset by the production conditions characterizing a market

tax and subsidy incidence equivalence theories experimental evidence from competitive markets abstract a basic tenet in microeconomics is tax incidence equivalence which holds that the burden of a unit tax on buyers and sellers is independent of who actually pays the tax by contrast policymakers and the public often mistake statutory incidence for economic incidence using competitive laboratory markets i test both tax incidence equivalence and an analogous theorem for subsidies for sufficiently large markets the results show strong support for both theories there is little to no evidence even in the short run of the popular misperception that statutory incidence equals economic incidence in smaller markets in which competitive forces are weaker and relative bargaining strengths may play a role the evidence for tax incidence equivalence is weaker as minor price discrepancies may persist between markets

cooperation spillovers and price competition in experimental markets i introduction both competition and cooperation are important for the successful functioning of many economic systems for example firms compete in markets but they also cooperate with one another through arrangements such as research joint ventures lobbying cooperative marketing agreements and strategic alliances in this paper we use experiments to examine how competitive interactions affect agents propensity to cooperate we are interested in studying spillovers that may involve cooperation in one domain such as a research joint venture and competition in another such as in a market 1 cooperation could weaken competition perhaps promoting collusion or market competition could reduce incentives for non market cooperation these behavioral spillovers could go in either direction they are distinct from another type of spillover through knowledge externalities that occur in research and development r d when the innovator cannot fully appropriate the gains to innovation leading potentially to a socially inefficient level of research debondt 1996 2 as discussed below behavioral spillovers have been shown in experiments to increase cooperation in otherwise competitive environments for example through establishing cooperative precedents a large body of theoretical research has focused on firms cooperating in research joint ventures and how this impacts competition in output markets for example cooper and ross 2009 examine the mechanism by which agreements to cooperate in one market can have negative effects on competition in other markets even in situations when these markets are not linked via costs or demand cabral 2000 shows that product market prices are affected by r d agreements between firms caloghirou ioannides and vonortas 2003 lambertini poddar and sasaki 2003 and poyago theotoky 2007 also discuss the impact of forming research joint ventures on product markets and cartel formation 3 empirical work using field data has provided creative indirect evidence on the collusive potential of research joint ventures by exploiting natural policy experiments although the extent of this evidence is limited goeree and helland 2010 for example show that research joint ventures facilitate collusion because they became less popular following an enforcement policy change leniency that made collusion less attractive policy experiments such as these are often required since systematic collusion often goes undetected by authorities duso roller and seldeslachts 2010 also examine the link between research joint ventures and collusion using data from the u s national cooperation research act that granted certain research joint ventures milder antitrust scrutiny they find that horizontal research joint ventures lead to more collusion than vertical joint ventures our work provides complementary and more direct evidence since in the laboratory we can observe the level and sustainability of tacit and explicit collusion and can therefore circumvent the measurement and endogeneity issues that are often prevalent in field data the specific research goals of this study are the following first we wish to examine if agents take advantage of available gains from cooperation in the presence of payoff uncertainties that arise from stochastic innovation success second we are interested in learning if a behavioral spillover of cooperation can lead to collusion in markets or whether competition in markets reduces non market cooperation these notions of cooperation concern contributions to joint r d projects or collusion in price setting and are defined independently of any communication opportunities therefore our third goal is to determine how this interaction between cooperation and competition is affected by the introduction of non market communication opportunities finally we will measure the externalities from r d cooperation to non innovators in the market

price formation in double auctions abstract we develop a model of information processing and strategy choice for participants in a double auction sellers in this model form beliefs that an offer will be accepted by some buyer similarly buyers form beliefs that a bid will be accepted these beliefs are formed on the basis of observed market data including frequencies of asks bids accepted asks and accepted bids then traders choose an action that maximizes their own expected surplus the trading activity resulting from these beliefs and strategies is sufficient to achieve transaction prices at competitive equilibrium and complete market efficiency after several periods of trading journal of economic literatureclassification numbers d41 d44 d8

collusion in private value ascending price auctions we investigate the effects of bid improvement rules and bidder value asymmetry on bidder collusion in experimental ascending price auctions without communication we find that the strict bid improvement rule and private values are not always sufficient to break collusion among well motivated bidders collusion still occurs as long as bidder gains from collusion are high

competitive equilibrium convergence in a posted offer market with extreme earnings inequities abstract we present the results of five laboratory posted offer experiments in which the competitive equilibrium model predicts that all exchange profits are received by one side of the market thus defining a boundary condition price converges to the prediction more slowly when buyers rather than sellers receive the exchange surplus apparently due to the increased market power of sellers in this trading mechanism a model of the seller s decision in this market is developed to explain this result we also observe costly signalling and tacit collusion in our experiments

bargaining versus posted price competition in customer markets abstract we compare posted price and bilateral bargaining or haggle market institutions in 12 pairs of laboratory market sessions each session runs for 50 75 periods in a customer market environment where buyers incur a cost to switch sellers costs evolve following a random walk process coasian and new institutionalist traditions provide competing conjectures on relative market performance we find that efficiency is lower sellers price higher and prices are stickier under haggle than under posted offer

investigating nonlinearities in real exchange rate adjustment threshold cointegration and the dynamics of exchange rates and relative prices abstract motivated by growing evidence of nonlinear mean reverting behavior in real exchange rates this paper investigates the underlying dynamics in the context of a threshold vector error correction model tvecm of nominal exchange rate and relative prices unlike univariate models our nonlinear multivariate framework takes into explicit account the joint behavior and individual dynamics of the nominal exchange rate and relative prices when these two key variables are threshold cointegrated our empirical application unravels their relative contribution to mean reversion and underscores the importance of capturing their interactions in investigating the nonlinear adjustment toward purchasing power parity

theory and experiments on spatial competition we present theoretical and experimental results on spatial competition between two firms firms choose locations simultaneously along a line representing a linear market identical consumers with non increasing demand functions are uniformly distributed along this line we solve for symmetric equilibrium payoffs in an infinitely repeated game for the case of linear demand and an arbitrary discount factor the set of equilibriums found includes both competitive and collusive payoffs in laboratory experiments in which the final period was unknown to the players in advance we observed both competitive and collusive outcomes non binding communication led to collusion

some experimental testing of the cournot nash hypothesis in small group rivalry situations abstract this study parallels a previous study by friedman and hoggatt 1980 but uses more realistic information conditions in addition to confirming the central tendency results of friedman and hoggatt we find that in the three to six corporation range the number of corporations in the experiment seems to have no effect on the tendency to grope towards the cournot nash solution on the other hand it seems clear that convergence to cournot nash is more likely if the subjects are experienced and less likely the higher the cournot nash markup over unit cost overall there is a strong tendency to converge to cournot nash

nash equilibrium and buyer rationing rules experimental evidence i introduction this paper presents the results of laboratory experiments comparing the effect of two buyer rationing rules on capacity constrained duopoly markets bertrand edgeworth games this setting offers an excellent opportunity to compare the stage game nash prediction with other equilibria of a repeated game under otherwise identical conditions the rationing rule generates either a unique pure strategy equilibrium or a unique mixed strategy equilibrium of the stage game further collusive outcomes of the repeated game are supported by a wider range of discount factors for one rationing rule than the other this study presents evidence that the single stage nash equilibrium has predictive power for both rationing rules even in repeated settings this result appears to be robust whether the nash equilibrium is in pure strategies or exists only in mixed strategies in modeling capacity constrained price games the choice of rationing rule is possibly the most arbitrary decision a theorist makes in the literature of single shot bertrand edgeworth games we can find examples of nearly identical models which yield substantively different results due to differences in the rationing rule assumed examples are beckmann s 1965 model and levitan and shubik 1972 allen and hellwig 1986 and vives 1986 and kreps and scheinkman 1983 and davidson and deneckere 1986 laboratory experiments provide an interesting opportunity to examine the empirical consequences of alternative buyer rationing rules knowledge of the type of buyer rationing scheme involved with field data is usually unavailable to a researcher in laboratory experiments the researcher can control the type of buyer rationing rule to be used and compare the effects of alternative rules this study provides a first step toward an empirical understanding of the effects of rationing rules one of the rationing rules that i study the value queue 1 is mathematically more tractable than an alternative the random queue 2 hence the authors are able to generalize the value queue models in other dimensions however the value queue assumption reservation values that comprise demand are ordered from highest to lowest should be viewed as a serious restriction on the applicability of these models section ii relates laboratory and field experiments to single shot bertrand edgeworth nash equilibria section iii describes the development and recent contributions to bertrand edgeworth oligopoly theory and demonstrates the effect of rationing rule assumptions on theoretical predictions i describe the experimental design in section iv and identify the competitive monopoly joint profit maximum and single shot nash predictions additionally qualitative differences predicted by single shot and repeated game nash equilibria are discussed experimental results follow in section v with concluding remarks in section vi ii laboratory and field experiments and the nash equilibrium existing laboratory evidence for capacity constrained price games has been compared to the single shot nash equilibrium only ketchum smith and williams 1984 and kruse rassenti reynolds and smith 1993 provide initial results as to the predictive strength of the single stage nash equilibrium in a laboratory environment ketchum smith and williams compare the prices resulting from four seller plato computer assisted posted offer markets the comparison is between one treatment group in which the competitive equilibrium is also the single stage nash equilibrium and another treatment group in which the competitive equilibrium is not a nash equilibrium they find significantly different market outcomes between the two groups kruse rassenti reynolds and smith 1987 test a four seller constant marginal cost bertrand edgeworth model using a komogorov smirnoff test they reject the hypothesis that the actual price distribution matches the mixed strategy price distribution predicted by the theory

vertical integration input contracts and the margins concentration relationship in recent years it has become common when specifying empirical price cost margins to use net output as opposed to the more usual gross output in the denominator it has been noted that with gross output as the denominator the point estimate on concentration from a regression of margins on concentration is lower than with net output as the denominator and the estimate is frequently insignificant the possible explanations that have been put forward to explain this empirical phenomenon are discussed and evidence is presented using data from the uk census of production and the uk input output tables neither theoretical nor empirical justification is found for the use of the adjusted margin but instead it is suggested that the empirical phenomenon is caused by the omission of appropriate variables to control for contracting relations in purchasing intermediate inputs

advertising and product quality in posted offer experiments advertising and product quality in posted offer experiments i introduction for years the federal trade commission ftc has attacked unfair and deceptive advertising recently it has turned its attention to errors of omission rather than commission by challenging agreements among sellers to limit advertising even when it is truthful one reason for eliminating advertising restrictions is to stimulate competition in the advertised dimension of the good or service for example price advertising may result in more price competition on the other hand professional associations argue that price competition causes product quality to deteriorate because sellers of high quality services are forced to match the lower prices of sellers of low quality products and through their codes professional associations have implicitly or explicitly discouraged some forms of advertising including price advertising restrictions of this nature still exist in some local markets although they have become the subject of ftc litigation 1 the quality deterioration argument of professional associations is plausible only when buyers are unable to observe quality prior to purchase 2 when buyers cannot distinguish quality moral hazard invites sellers to lower cost by providing lower quality adverse selection can result from price advertising causing lower cost products to drive out higher cost products as argued by akerlof 1970 the opposite point of view is that even when quality cannot be determined prior to purchase price advertising may enable sellers to signal quality and develop reputations 3 moreover transactions repeatedly involving the same buyers and sellers may enable buyers to form expectations about seller quality based on their experience that can make it worthwhile for a seller to provide higher quality the series of laboratory experiments described here permits the evaluation of market performance when buyers have very limited information the claim to be investigated is that price advertising prevents quality deterioration and improves market efficiency reputation formation through advertising is emphasized instead of other mechanisms such as warranties that may prevent quality deterioration 4 so that quality can be kept relatively neutral and easily understood by subjects we represent it as the grade of a commodity the structure underlying the experiments is based on holt s model of the determination of industry quality which is summarized in schmalensee 1979 demand is induced through the values for which buyers can redeem their purchases value is linearly related to grade so that no difference between average and marginal valuation of quality can arise to cause nonoptimal quality as it did in spence 1976 the production cost for each seller is quadratic in the grade selected by the seller therefore the efficient grade level is unique the most closely related experimental work on product quality decisions is reported in lynch miller plott and porter 1986 in their experiments sellers chose one of two quality levels prices were determined in an oral double auction efficient price and quality outcomes resulted when prospective buyers were given full information about quality removing the identities of sellers and allowing only post purchase quality information sometimes resulted in a lemons outcome in which sellers offer a low quality product even though the market would be more efficient with the production and sale of a high quality product private information tended to yield less efficient outcomes than full public information the posted offer experiments reported in this paper differ from the oral double auction experiments in lynch miller plott and porter because one of our objectives was to examine the effect of advertising restrictions on market efficiency in our experiments price advertising is implemented in a standard posted offer auction

labour s share market structure and trade unionism abstract using british manufacturing data this paper tests kalecki s degree of monopoly theory of the determination of factor incomes the paper demonstrates how both product market structure captured by the live firm concentration ratio and trade unionism measured by collective bargaining agreements shape production worker wage share we report estimates in which it emerges that there is an important role for seller concentration in influencing wage share but the estimated trade union coverage results are less robust our tests reveal that once idiosyncratic industry effects and accounted for the union effect on wage share disappears

the impact of collusion on price behavior empirical results from two recent cases abstract we use extended arch and garch models to examine the differences in the behavior of the first two moments of the price distribution during collusive and competitive phases of two recently discovered conspiracies citric acid and lysine according to our results the conspirators managed to raise prices by 9 and 25 cents per pound in the short run relative to non collusive periods also the variance of prices during the lysine conspiracy was lower and the variance of prices during the citric acid conspiracy was higher than during more competitive periods the proposed methodology may be used for antitrust screening and prosecution purposes

the external wealth of nations measures of foreign assets and liabilities for industrial and developing countries abstract although capital flows are closely monitored surprisingly little is known about the accumulated stocks of foreign assets and liabilities held by various countries especially in the developing world this paper constructs estimates of foreign assets and liabilities and their equity and debt subcomponents for a sample of 67 industrial and developing countries it characterizes the stylized facts of international balance sheets and asks whether there are trends in net foreign asset positions and shifts in debt equity ratios over time finally it explores the sensitivity of estimated stock positions to the treatment of valuation effects not captured in balance of payments data

communication in vertical markets experimental evidence abstract an upstream monopolist supplying competing downstream firms may fail to monopolize the market because it is unable to commit not to behave opportunistically we build on previous experimental studies of this well known commitment problem by introducing communication allowing the upstream firm to chat privately with each downstream firm reduces total offered quantity from near the cournot level observed in the absence of communication halfway toward the monopoly level allowing all firms to chat together openly results in complete monopolization downstream firms obtain such a bargaining advantage from open communication that all of the gains from monopolizing the market accrue to them a simple structural model of nash in nash bargaining fits the pattern of shifting surpluses well using third party coders unsupervised text mining among other approaches we uncover features of the rich chat data that are correlated with market outcomes we conclude with a discussion of the antitrust implications of open communication in vertical markets

micro macro and strategic forces in international trade invoicing synthesis and novel patterns abstract the currency used in invoicing international trade matters for the impact of exchange rate movements in the presence of price rigidities we present stylized facts on specific macro micro and other drivers of invoicing based on 45 million canadian import transactions four main results emerge first a large share of invoicing takes place in vehicle currencies that are neither the exporters nor the importers second we document a novel link between the size of individual transactions and invoicing both the absolute value of a transaction and its relative size at the industry level matter third the exchange rate plays an important role along three dimensions exchange rate volatility exchange rate regime and currency transaction volumes in foreign exchange markets finally we confirm the role of the market share of an exporting country at the industry level our results identify the most salient patterns in order to guide further developments in theoretical models of invoicing currency choice

market power in tradable emission markets a laboratory testbed for emission trading in port phillip bay victoria abstract in theory competitive emission permit markets minimize total abatement costs permit markets are often imperfectly competitive however and may be thin and dominated by large firms the dominant firm s could exercise market power and increase other firms costs of pollution control while reducing their own emission control costs this paper reports a testbed laboratory experiment to examine whether a dominant firm can exercise market power in a permit market organized using the double auction trading institution our parameters approximate the abatement costs of sources in a proposed tradable emissions market for the reduction of nitrogen in the port phillip watershed in victoria australia we vary across treatments the initial allocation of permits to sources so that in one treatment the seller of permits is a monopolist and in another treatment the market is duopolistic we also vary the information that subjects have about the number and abatement costs of their competitors we find that prices and seller profits are higher and efficiency is lower on average in the monopoly sessions compared with the duopoly sessions but the differences are not substantial and are not statistically significant due to pronounced variation across sessions moreover prices profits and transaction volumes are usually much closer to the competitive equilibrium ce than the monopoly equilibrium

founding family leadership and industry profitability in this article we argue that firms in high margin industries can benefit from founding family influence specifically in more profitable markets the influence of the founding family provides an additional corporate governance monitoring function the sample consists of 294 firm year observations from 98 publicly traded companies headquartered in sweden representing approximately half of all non financial traded firms our support that the effect of family leadership in publicly held firms should be assessed in relation to the intensity of industry competition

the opportunity for conspiracy in restraint of trade an experimental study a study is a limited exploration into the relationship between the opportunity for conspiracy in restraint of trade and the resulting market performance laboratory experimental methods are applied to separate competing theories the competitive model predicts well relative to cartel models nevertheless when measurements are taken relative to the performance of markets where conspiracies are not possible the effects of attempted conspiracies can be determined

contestability in the presence of an alternate market an experimental examination most earlier experimental tests ofthe contestable market hypothesis assume a zero opportunity cost of entry this design feature makes interpretation of results in terms of entry behavior problematic the experimental study that i report tests contestability with the addition of an alternate market that yields a positive profit with certainty this safe haven operationalizes a positive opportunity cost of entry hit and run entry is observed in the experiments adjusted mean prices are not significantly different from the zero opportunity cost case two methodological questions are also examined in one treatment sellers price offers are allowed only in 0 25 increments the simplification of the sellers decision space makes collusive arrangements more probable secondly market outcomes using human subject buyers are compared with outcomes from experiments with computer simulated demand the disciplining effect of human subject buyers results in market prices that converge to competitive levels more quickly the theory of contestable markets as presented by william baumol in his 1981 address as outgoing president of the american economic association has received considerable attention since its introduction the thesis of contestability is that we can model a market that attains a competitive outcome without the large numbers price taking assumption in the perfectly contestable market envisioned by baumol and others we would observe the efficient competitive price in equilibrium even with few or only one active seller the threat of entry is the disciplining force that sustains the efficient price as an equilibrium previous experimental tests of the contestable market hypothesis for the natural monopoly case all include at least two active firms pricing in every period the laboratory outcomes of these markets are indistinguishable from the destructive competition that has historically concerned scholars sharkey 1982 one can assert that the competitive prices that result from these natural monopoly markets are due to cutthroat competition because that market is the only game in town the study of the contestable natural monopoly that i report allows subjects the option of earning a normal rate of return in an alternate market thus there is at least the possibility that we can observe a single active seller choosing the efficient price

exchange rates market structure and price cost margins evidence from a developing country this paper analyses the sensitivity of firm performance to exchange rate fluctuations in a two country world consisting of a developing domestic country and a developed foreign country we show that this sensitivity is closely related with market structure and the share of imported inputs in total cost when the share of imported inputs is low depreciation leads to an increase in price cost margin this increase intensifies in more competitive industries when the imported input share is high the price cost margin may decrease as a result of depreciation and this effect becomes pronounced in more competitive industries the empirical test where we used 3 digit turkish manufacturing industry data support most of the findings of our model

the empirical specification of price cost margins abstract this paper examines why results for profit margin regressions may depend on whether the margin is deflated by industry sales or value added it attributes disparate results to stage of production effects which occur because the price elasticity of demand is an omitted variable

margins concentration unions and the business cycle theory and evidence for britain abstract a number of recent studies have examined the cyclical relationship between price cost margins concentration and unions u s data has concluded that unions reduce margins margins vary over the cycle and concentration unionisation and the cycle interact in their effect on margins however there is almost no theory to account for these results we propose a simple theory that assumes only that there is overhead labour present at the firm this produces theoretical predictions that can explain these results and discriminate between existing theories we present results of our own using u k panel data and show similar findings to the u s

natural monopoly and contested markets some experimental results a firm may become a monopolist because the average cost of producing the product reaches a minimum at an output rate that is big enough to satisfy the entire market at a price that is profitable in a situation of this sort if there is more than one firm producing the product each must be producing at a higher thanminimum level of average cost each may be inclined to cut the price to increase its output rate and reduce its average costs the result is likely to be economic warfare and the survival of a single victor the monopolist

tradable deficit permits efficient implementation of the stability pact in the european monetary union tradable deficit permits efficient implementation of the stability pact borrowing from the experience of environmental markets this paper proposes a system of tradable deficit permits as an efficient mechanism for implementing fiscal constraints in the european monetary union having chosen an aggregate target for the union and an initial distribution of permits emu countries could be allowed to trade rights to deficit creation the scheme exploits countries incentives to minimize their costs is transparent and flexible in accommodating idiosyncratic shocks and allows for adjustments in case of europe wide recessions in addition it need not treat all countries identically and can be designed to penalize countries with higher debt to gdp ratios finally the scheme rewards countries for reducing their deficit below the initial allowance lending credibility to the stability pact s goal of a balanced budget in the medium run alessandra casella

side communication yields efficiency of ascending auctions the two items case we analyze an ascending auction with anonymous item prices when there are two items that are substitutes this popular auction format entails increased opportunities for bidders to coordinate bids as the bidding process is longer and since bidders see the other bids and can respond to various signaling this has happened in many real auctions e g in the netherlands 3g telecom auction and in the fcc auctions in the us

a structural threshold model of the exchange rate under optimal intervention abstract by considering a social trade off between targeting the exchange rate and minimizing intervention costs nonlinear exchange rate dynamics can be captured by a structural threshold model this article provides a theory based empirical exchange rate model and shows how to put the model into an empirical investigation to estimate the structural threshold model we propose a two step procedure which separately estimates the permanent and temporary fundamentals of the foreign exchange market a demonstration of our approach is applied to 1981q3 2008q3 taiwan s foreign exchange market with a brief review of its monetary policies and central bank given prior estimation results are consistent with theoretical predictions and many intervention operations of taiwan s central bank are successfully identified

communication and efficiency in competitive coordination games costless pre play communication has been found to effectively facilitate coordination and enhance efficiency in games with pareto ranked equilibria we report an experiment in which two groups compete in a weakest link contest by expending costly efforts allowing intra group communication leads to more aggressive competition and greater coordination than control treatments without any communication on the other hand allowing inter group communication leads to less destructive competition as a result intra group communication decreases while inter group communication increases payoffs our experiment thus provides an example of an environment where communication can either enhance or damage efficiency this contrasts sharply with experimental findings from public goods and other coordination games where communication always enhances efficiency and often leads to socially optimal outcomes

collusion facilitating and collusion breaking power of simultaneous ascending and descending price auctions this article demonstrates that a robust tacit collusion evolves quickly in a collusion incubator environment but is destroyed by the simultaneous descending price auction theories of collusion producing behavior along with the detail of the states on which strategies are conditioned lead to a deeper understanding of how tacit collusion evolves and its necessary conditions these theories explain how the descending price auction destroys the collusion the experiments proceed by conducting simultaneous ascending price auctions in the collusion incubator then once the tacit collusion developed changing to the descending auction the change moved prices from collusive levels to near competitive levels

communication in multilateral bargaining one of the most robust phenomena in the experimental literature on multilateral bargaining is the failure of proposers to extract equilibrium rents however all previous experiments have overlooked the fact that outside the lab committee members are allowed to and do engage in sometimes intense communication processes prior to voting on a proposal we conduct an experimental test of the baron ferejohn model in which we allow committee members to engage in unrestricted cheap talk communication before a proposal is submitted we find that proposers extract a significantly higher share of resources when communication is allowed communication increases proposer power through two channels first it mitigates the uncertainty surrounding the amount a coalition member is willing to accept second it allows potential coalition members to compete for a place in the coalition by lowering this stated price

international currency exposures valuation effects and the global financial crisis abstract we examine the evolution of international currency exposures with a particular focus on the 2002 12 period during the run up to the global financial crisis there was a widespread shift towards positive net foreign currency positions such that relatively few countries exhibited the archetypal emerging market short foreign currency position on the eve of the global financial crisis during the crisis the upheaval in currency markets generated substantial currency generated valuation effects much of which were not reversed there is some evidence that the distribution of valuation effects was stabilizing in the sense of showing a negative covariation pattern with pre crisis net foreign asset positions