cartel stability when costs are heterogeneous abstract this paper addresses a neglected question in the literature of cartel stability and the use of trigger strategies to maintain such stability we employ a model in which market demand is linear and involving n firms each operating subject to one of possibly n different cost functions we show that the stability of the cartel may depend crucially upon the relative efficiencies of the firms and argue that in such models explicit attention must be given to this possibility

on the indeterminacy of capital accumulation paths abstract in neoclassical optimal growth models the stability of the accumulation paths depends on the discount parameter we prove that for discount factors small enough the policy function which describes an optimal path can be of any type the result is achieved using the notion of concavity we adopt a constructive approach given any twice differentiable map we show how to construct an optimal growth problem which produces that map as the optimal policy function a consequence is that chaos can appear in these models we also provide bounds on the values of the discount parameter for which indeterminacy is possible

semicollusion in the norwegian cement market abstract a model of semicollusion where firms collude on prices and compete on capacities is tailor made to the characteristics of the norwegian cement market and tested on this particular market for the period 1927 1982 the results indicate that the rapid increase in capacity and thereby in exports in the period 1956 1967 the late phase of the price cartel best can be explained by the market sharing agreement each firm overinvested in capacity to receive a large quota in the domestic market

time preference and international lending and borrowing in an overlapping generations model two economies represented by diamond type overlapping generations models and differing only in their pure rates of time preference are joined together capital formation balance of payments behavior and welfare are compared under autarky and openness with a positive natural rate of growth the low time preference country runs a current account surplus in the steady state but not necessarily outside it if preexisting capital is not shiftable between countries integration in the world economy makes the high time preference country worse off in the short run the ranking of stationary utility levels under autarky and openness is ambiguous

capacity constraints mergers and collusion abstract the objective of this paper is two fold to contribute to the analysis of tacit collusion in bertrand supergames with asymmetric capacity constraints and from a more applied perspective to bring a new light on merger analysis and provide useful guidelines for competition policy taking into account dynamic aspects of competition it is well known that capacity constraints affect tacit collusion as they limit both incentives to deviate e g to undercut rivals and retaliation possibilities however most studies have so far focused on symmetric situations where all firms have the same capacity which leads to ambiguous and unintuitive results and also considerably limits the scope of application studying asymmetric situations makes it possible to analyse the impact of changes in the distribution of these capacities expansions but also mergers split offs transfers etc and to provide guidelines for competition policy and particularly for merger policy these guidelines which differ substantially from those inspired by more static analyses such as the herfindahl or other standard concentration tests are applied to a famous merger that took place in the french bottled water market the nestle perrier merger case

a dynamic model of redistribution inheritance and inequality comparing steady states of an overlapping generations economy gary s becker and nigel tomes 1979 and james b davies 1986 have noted that redistributive taxation can be disequalizing this paper solves for the full transition path of inequality after a redistributive tax increase the authors find in contrast to the steady state results that redistribution works in the first generation under quite general conditions even when fully anticipated by all previous generations further inequality is likely to fall for several generations before approaching its new steady state level from below

does redistribution reduce inequality the steady state effect on inequality of linear redistributive schemes based on the taxation of earnings inheritances or some combination of the two is examined dynasties that exhibit asexual reproduction and altruism are modeled earnings ability which may be correlated across generations is exogenous and drawn from a stationary distribution taxing inheritances increases inequality by reducing the intergenerational averaging of luck in an example paying out the tax revenue in uniform transfers typically does not reverse this result taxing lifetime wealth or income adds a lump sum tax on earnings making redistribution more successful however this success is sensitive to the relative size of mean earnings and inheritances

cartel unity over the business cycle in this paper cartel behavior in business cycles when some firms are vulnerable to bankruptcy in the downturns is investigated this vulnerability would restrict the set of collusive equilibria that are feasible in a repeated game and possibly result in a breakdown in recessions of all collusive agreements it is demonstrated however that the existence of a low cost producer in the cartel could prevent this breakdown by adjusting market shares across the business cycle and thereby eliminating the possibility of bankruptcy for its inefficient rivals this swing producer could enlarge the set of self enforcing collusive equilibria the results of this paper are seen to be consistent with a wide range of observations on the behavior of cartels over the business cycle

a study of cartel stability the joint executive committee 1880 1886 this article employs weekly time series data on the joint executive committee railroad cartel from 1880 to 1886 to test empirically the proposition that observed prices reflected switches from collusive to noncooperative behavior an equilibrium model of dynamic oligopoly with asymmetric firms together with explicit functional form assumptions about costs and demand determines the estimating equations and stochastic structure of the econometric model the hypothesis that no switch took place so that price and quantity movements were solely attributable to exogenous shifts in the demand and cost functions is then tested against this alternative and rejected

collusive behavior with heterogeneous firms in a repeated duopoly with heterogeneous firms i ask which enforceable collusive arrangement is likely to prevail i propose the equilibrium at which both firms are just indifferent between colluding and defecting for discount factors not exceeding a critical level i show this equilibrium is pareto optimal possibly even the unique pareto optimum i then apply bargaining theory and show that the proposed equilibrium is the likely outcome of explicit negotiations finally i argue that the proposed equilibrium is an obvious focal point on which firms may tacitly coordinate the proposed equilibrium promises to be useful for comparative statics analysis of collusive oligopoly

cartels profits and excess capacity a model of a collusive duopoly in which each firm has limited capacity is studied the negotiated output quotas depend on the bargaining power of the firms which derives from the damage the firms can do by cutting prices for fixed capacities the unit profit of the small firm is at least as large as that of the large firm and the relative position of the small firm is better when demand is low when the capacities can be chosen once and for all there is excess capacity in equilibrium so long as the cost of capacity is not too high copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

endogenous cartel formation with heterogeneous firms in the context of an infinitely repeated capacity constrained price game we endogenize the composition of a cartel when firms are heterogeneous in their capacities when firms are sufficiently patient there exists a stable cartel involving the largest firms a firm with sufficiently small capacity is not a member of any stable cartel when a cartel is not all inclusive colluding firms set a price that serves as an umbrella with non cartel members pricing below it and producing at capacity contrary to previous work our results suggest that the most severe coordinated effects may come from mergers involving moderate sized firms rather than the largest or smallest firms

competitive advantage and collusive optima cost differences may often be important in real oligopolies if side payments are impossible the standard cartel objective total industry profits lacks plausibility when costs differ this essay considers plausible alternatives four different technologies for effecting collusion which are essentially identical when costs are equal define sets of possible profits axiomatic bargaining models are used to select unconstrained optima from among these possibilities simple functional forms are employed low cost firms with large shares in cournot equilibrium may have little to gain from collusion if collusion is effective low cost firms will have relatively low estimated conjectural variations

how do value creation and competition determine whether a firm appropriates value how does competition among economic actors determine the value that each is able to appropriate we provide a formal general framework within which this question can be posed and answered and then provide several results chief among them is a condition that is both required for and guarantees value appropriation we apply our methodology to i assess the familiar notion that uniqueness inimitability and competition imply value appropriation and ii determine the value appropriation possibilities for an innovator whose unique discovery is of use to several others who can compete for the right to use it

specification of the joy of giving insights from altruism this paper analyzes the joy of giving bequest motive in which the utility obtained from leaving a bequest depends only on the size of the bequest it exploits the fact that this formulation can be interpreted as a reduced form of an altruistic bequest motive to derive a relation between the value of the altruism parameter and the value of the joy of giving parameter using previous discussions of an a priori range of plausible values for the altruism parameter we then derive plausible restrictions on the joy of giving parameter we demonstrate that this parameter may well be orders of magnitude larger than assumed in the existing literature this abstract was borrowed from another version of this item

endogenous mergers and collusion in asymmetric market structures recent empirical evidence shows that cartels are often asymmetric while cartel theory suggests that firm symmetry is conducive to collusion including an indivisible cost of cartelization we show that medium asymmetric market structures are more conducive to collusion since they balance the small firms incentives to stay in the cartel against the need to cover the cartel leaders indivisible cartelization cost using an endogenous merger model we also show that forbidding mergers leading to symmetric market structures can induce mergers leading to asymmetric market structures with a higher risk of collusion current antisymmetry merger policy can thus be counterproductive

effects of aspirations and habits on the distribution of wealth we analyze how the introduction of habits and aspirations affects the distribution of wealth when the labor productivity of individuals is subject to idiosyncratic shocks and when bequests arise from a joy of giving motive in the presence of either bequests or aspirations labor income shocks are transmitted intergenerationally and this transmission together with contemporaneous shocks determines the distribution of wealth we show that the introduction of aspirations habits decreases increases the average wealth and increases decreases both its intragenerational variability and the degree of intergenerational mobility therefore a distinction between aspirations and habits is relevant because they involve different implications for the distribution of wealth

nonlinear dynamics and stock returns simple deterministic systems are capable of generating chaotic output that mimics the output of stochastic systems for this reason algorithms have been developed to distinguish between these two alternatives these algorithms and related statistical tests are also useful in detecting the presence of nonlinear dependence in time series in this article the authors apply these procedures to stock returns and find evidence that indicates the presence of nonlinear dependence on weekly returns from the center for research in security prices value weighted index copyright 1989 by the university of chicago

regression toward mediocrity in economic stature this paper provides estimates of the correlation in lifetime earnings between fathers and sons intergenerational data from the national longitudinal survey are used earlier studies conducted for the united states report elasticities of children s earnings with respect to parent s earnings of 0 2 or less suggesting extensive integenerational mobility these estimates however are biased downward by error contaminated measures of lifetime economic status estimates presented in this paper correct for the problem of measurement error and find the intergenerational correlation in income to be on the order of 0 4 this suggests considerably less intergenerational mobility than previously believed jel j62

intergenerational income mobility in the united states social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the united states but remarkably little empirical evidence is available the few existing estimates of the intergenerational correlation in income have been biased downward by measurement error unrepresentative samples or both new estimates based on intergenerational data from the panel study of income dynamics imply that the intergenerational correlation in long run income is at least 0 4 indicating dramatically less mobility than suggested by earlier research copyright 1992 by american economic association

estate taxation with intended and accidental bequests abstract in this paper we examine the properties of the optimal estate tax in the presence of a complete set of tax instruments available to the social planner we allow for both types of bequest motives namely altruistic and accidental we examine the case for estate taxation which seems to be the strongest but not impeccable with accidental bequests in general the estate tax is highly sensitive to the relative importance of the two bequest motives

on the workings of a cartel evidence from the norwegian cement industry using the institutional set up of the norwegian cement industry in particular its sharing rule we are able to identify the workings of a cartel in some detail given data on prices production and exports we are able to identify marginal costs as well as the effectiveness of the cartel we compare our marginal cost estimates which are derived from an equilibrium condition to detailed cost accounting data and find that our estimate of marginal cost is very much in line with the data we then show that the cement cartel has been ineffective in the sense that the sharing rule induces overproduction and exporting below marginal costs in this sense it is consumers not firms that benefi tf rom the sharing rule we find that the ineffectiveness of the cartel is becoming so large that domestic welfare of a merger to monopoly would in fact be positive at around 1968 which is exactly when the merger actually took place however we also show that competition would have resulted in even higher welfare gains over the entire sample

ringleaders in larger number asymmetric cartels the concept of a cartel ringleader has specific legal meaning but has received relatively little attention in the economic literature of cartels this article draws on a sample of 89 european cartels to identify how often ringleaders exist who they are and what they do it argues that ringleaders are more likely where the traditional cartel problems are likely to be most acute i e with larger numbers of members exhibiting substantial size asymmetries this is confirmed for price fixing and bid rigging cartels and is especially pronounced where the ringleader displays aggressive as opposed to merely organisational behaviour

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

non linear taxation of bequests equal sharing rules and the tradeoff between intra and inter family inequalities this paper studies the design of the tax and regulatory regime applied to bequests bequests are observable while parent s wealth and children s earning abilities are not parents know their children s earning abilities parents are altruistic their utility depends on their children s utilities but weights may differ between children the optimal tax schedule strikes a balance between the often conflicting incentive and corrective effects when parents attach identical weights to their children an estate taxation is sufficient equal sharing rules appear to be appropriate only in extreme cases such as in presence of the so called cinderella effect

the impact of intergenerational transfers on household wealth inequality in japan and the united states our paper sheds light on the implications of intergenerational transfers for wealth inequality by examining whether or not individuals who receive intergenerational transfers from their parents are more likely to leave bequests to their children than those who do not using microdata for japan and the united states the estimation results show that the receipt of intergenerational transfers from parents and or parents in law increases the likelihood of individuals leaving bequests to their children in both japan and the united states which in turn is likely to contribute to the persistence or widening of wealth disparities however such a tendency is found to be stronger among less better off households in both countries and this may help alleviate the disequalising effect of intergenerational transfers on the distribution of wealth at least to some extent

simulating the transmission of wealth inequality via bequests abstract this paper develops calibrates and simulates a dynamic 88 period olg model to study the intergenerational transmission of u s wealth inequality via bequests the model features marriage realistic fertility patterns random death assortative mating based on skills heterogeneous skill endowments heterogeneous rates of return skill inheritability progressive income taxation and resource annuitization via social security all bequests arise from imperfect annuitization nonetheless the model generates a realistic ratio of aggregate wealth to aggregate labor income a realistic bequest flow relative to the stock of wealth and a realistic wealth distribution at retirement skill differences assortative mating social security and the time preference are the primary determinants of wealth inequality bequests do propagate wealth inequality but only in the presence of social security which disproportionately disinherits the lifetime poor intergenerational wealth immobility also considered here is primarily determined by the inheritance of skills from one s parents and the magnification of the impact of this inheritance by marital sorting

the interaction effect of rivalry restraint and competitive advantage on profit why the whole is less than the sum of the parts rivalry restraint based theoretical mechanisms predict that an industry s profits will increase when its firms engage in less price competition or less direct competition with each other competitive advantage based theoretical mechanisms predict that a firm s profits will increase when it creates superior economic value that direct and indirect competitors cannot fully compete away but what is the interaction effect on profit of simultaneously restraining rivalry and increasing competitive advantage do they positively amplify reinforce each other or negatively dampen undermine each other this paper s theoretical model predicts a negative interaction effect with potentially significant implications for theory practice and pedagogy

on the distribution of wealth and intergenerational transfers we develop a simple behavioral model of intergenerational transfers with individuals being subject to uncertainty about their children s incomes individuals differ with respect to innate ability and to wealth transfers they receive at birth the distributions of total wealth of total income and of their components are uniquely determined from the equilibrium distribution of intergenerational transfers for which existence and uniqueness are proven for a particular utility function and provided that earned income follows a stable law we show that so do all endogenous distributions intergenerational transfers are relatively more equally distributed than earnings capital income and lifetime wealth

on the nature and significance of collusive price leadership abstract with the help of a simple analytical model we are able to analyze and to further clarify the conditions for collusive price leadership as they were originally devised by jesse markham within the confines of this model we show how collusion increases price cost margins but at the same time decreases concentration in the industry

being better vs being different differentiation competition and pricing strategies in the spanish hotel industry we study the effects of vertical and horizontal differentiation on pricing policy in a large sample of hotels in spain we show that hotels with more stars i e vertically differentiated offer smaller discounts over listed prices in addition to charging higher prices similarly hotels that belong to a branded chain i e horizontal differentiation also charge higher prices and provide smaller discounts we show how the degree of local competition moderates the effect of differentiation on pricing policy but only for vertical differentiation differentiation indeed protects hotels from the pressure to reduce prices as competition increases but being better seems to be more effective than just being different

bequests taxation and the distribution of wealth in a general equilibrium model this paper examines the role of bequests and of taxation on bequests for the distribution of wealth we investigate a model with overlapping generations and heterogenous households where parents derive utility directly from their bequests we obtain all results analytically using the coefficient of variation as the measure of inequality bequests per se diminish the inequality of wealth since they raise private savings and hence average wealth holdings more than the variance of wealth from a policy perspective taxing bequests and redistributing government revenue lump sum among the young generation further decreases wealth inequality

should continued family firms face lower taxes than other estates abstract taxes on estates and inheritances may induce heirs to discontinue family firms because firm dissolution incurs transaction costs a preferential tax treatment of transferred family businesses seems to be desirable from a macroeconomic viewpoint the support of dynastic succession however entails also a cost on the economy if firm continuation by less able heirs prevents entry into entrepreneurship here we investigate analytically and quantitatively the trade off between transaction costs saved and creative destruction prevented we find that a unique general equilibrium exists at which depending on the institutional setup low ability heirs either abandon type 1 or continue type 2 a family business a calibration of the model with german data suggests that preferential tax treatment of family firms has severe negative consequences on macroeconomic performance if it causes a threshold crossing from type 1 to type 2 equilibrium it also reveals that the descendants of less able entrepreneurs who were caused by continuation friendly tax policy to keep a family business always lose relative to their status in an economy without such a policy

strategic factor market intelligence an application of information economics to strategy formulation and competitor intelligence this paper develops a model of information acquisition decisions by firms that are competing in a strategic factor market barney 1986 to purchase a scarce resource whose value is unknown and differs across firms the model builds on the argument that more accurate expectations about the firm specific value of resources is other than luck the only way for firms to obtain the specific resources required for competitive advantage we address the more specific question of what types of information firms should gather to accomplish this goal the model generates a series of testable hypotheses about how a firm s optimal mix of different types of information is affected by a number of factors including the level of uncertainty about the value of the resource being acquired the rarity imitability and nonsubstitutability of that resource the level of inscrutability of firms pre existing stocks of resources and firms information gathering and information processing capacities

capital income taxation when inherited wealth is not observable this paper extends the atkinson stiglitz model of direct and indirect taxation to a dynamic setting with two unobservable characteristics productive ability and inherited wealth bequests are motivated by the joy of giving a child s inheritance is a random variable with a probability distribution that depends on his parent s investment in a bequest technology public borrowing is assumed and implies the modified golden rule we study the optimal tax policy when two instruments are available a non linear wage income tax and a proportional tax on capital income we show that the second instrument ought in general to be used but that the tax rate is not necessarily positive however a positive tax rate is more likely when there is a positive correlation between inherited wealth and innate ability

the inheritance of inequality how level is the intergenerational playing field what are the causal mechanisms that underlie the intergenerational transmission of economic status are these mechanisms amenable to public policies in a way that would make the attainment of economic success more fair these are the questions we will try to answer

sustainable collusion in oligopoly with free entry we investigate the stability of collusion in a market where firms cannot prevent entry in a symmetric homogeneous oligopoly there are collusive long run equilibria under which the colluders obtain positive economic rents while they do not prevent entry of firms up to a maximum equal to the largest number of firms sustainable at a single shot equilibrium the collusion is not generous to new entrants their profits are a little better than those associated with the discounted single shot equilibrium eventually entrants obtain profits equal to the incumbent firms we extend the results to asymmetric differentiated oligopolies

do estate and gift taxes affect the timing of private transfers abstract proposals to alter the estate tax are contentious and have been considered largely in an empirical vacuum this paper examines time series and cross sectional variation to identify the effects of estate and gift taxation on the timing of private transfers the analysis is based on data from the 1989 1992 1995 1998 and 2001 surveys of consumer finances legislative activity during this period reduced the tax disadvantage of bequests relative to gifts moreover the magnitude of this reduction differed systematically across identifiable household categories we find that households experiencing larger declines in the expected tax disadvantages of bequests reduced inter vivos transfers relative to households experiencing small declines in the tax disadvantages of bequests this finding is consistent with the hypothesis that the timing of transfers is responsive to applicable gift and estate tax rates the results also provide evidence of a systematic bequest motive for high wealth households

why parents play favorites explanations for unequal bequests economists have invested a great deal of effort in trying to understand the motivation for family transfers yet recent empirical work testing the seemingly appealing models of altruism and exchange has led to decidedly mixed results a major stumbling block has been the lack of adequate data we take a fresh look at the issue using responses to an innovative survey question that directly asks mother about the planned division of their estates we find that both altruism and exchange are frequently offered as explanations of behavior and are of nearly equal importance furthermore the explanations are consistent with observable characteristics of the mother lending support to the validity of the question we also find that among step or adopted families genetic ties play an important role because motivating factors appear to differ across families the lack of a consensus among previous researchers about motives ought not to be surprising

wealth distribution and optimal inheritance taxation in life cycle economies with intergenerational transfers we introduce intergenerational transfers into a general equilihrium life cycle model in order to explain observed levels of wealth heterogeneity in our overlapping generations model heterogenous agents face uncertain lifetime and leave both accidental and voluntary bequests to their cinldren furthermore agents face stochastic employment opportunities the model is calibrated with regard to the characteristics of the us economy our resuits indicate that hequests onl account for a sniall proportion of ohserved wealth heterogeneitv the introduction of an inheritance tax increases both welfare are measured by the average value of the newborn and equality of the wealth distribution preliminary versions of this paper have been presented at conference on intergenerational transfers taxes and the distribution of wealth in uppsala 1999 and the econoinetric societv european meetirig in santiago dc compostela 1999 we would like to thank michael kaganovieli john laitner james smith frank stafford and carl cristian von weizsacker for comments on earlier versions of the paper all remaining errors are ours

optimal corporate leniency programs this study characterizes the corporate leniency policy that minimizes the frequency with which collusion occurs though it can be optimal to provide only partial leniency plausible sufficient conditions are provided whereby the antitrust authority should waive all penalties for the first firm to come forward it is also shown that restrictions should be placed on when amnesty is awarded though it can be optimal to award amnesty even when the antitrust authority is very likely to win the case without insider testimony