seller reputation from word of mouth to centralized feedback abstract reputation is one of the most important incentives for trade and cooperation using the complete selling history of 125 135 sellers on eachnet com an ebay equivalent in china we show that sellers with a longer successful selling record enjoyed more repeat business reached more buyer regions sold in more product categories and had a higher completion rate even before eachnet introduced a centralized feedback system since the centralized feedback system the difference between reputable and non reputable sellers has decreased in terms of repeat business but enlarged in terms of market expansion these findings suggest that while reputation can facilitate trade through buyer experience and word of mouth it is not as effective as centralized feedback our study also shows that although completion rate and transaction price are the two outcomes most often examined in the literature seller reputation is important for buyer clientele market reach business scope and market survival

signaling in an infinitely repeated cournot game with output restrictions abstract when the space of actions is restricted the conclusions of standard signaling models are softened i model an infinitely repeated cournot game with asymmetric costs and non negativity constraints on prices in equilibrium a price war of finite maximum duration occurs a firm of the low cost type always behaves aggressively while a firm of the high cost type randomizes between doing so and leaving the market an important theme is that of the equivalence between signaling models under such assumptions and reputation models of the type proposed by kreps and wilson 1982b and milgrom and roberts 1982b

reaganomics and reputation revisited this paper considers a reformulation of backus and driffill s model of credibility following a change in regime following tabellini we alter their model to better fit macroeconomic policymaking as it is formulated in the u s where monetary and fiscal policies are made by independent policymakers by assuming that policymakers of divergent views have recently entered office and so have no track record the game s equilibrium corresponds to the u s experience during the first years of the reagan administration

reputation in dynamic games abstract we analyze reputation in a game between a large player and a continuum of long lived small players in which state variables affect players payoffs the large player s type is private information we give conditions under which in every nash equilibrium a very patient large player will get almost the largest payoff consistent with the small players choosing a best response in a large finite truncation of the game while our results apply to the time inconsistency problem of optimal government policy we show that for the durable goods monopoly reputation may fail to improve the monopolist s payoff journal of economic literatureclassification numbers c72 c73

analyst reputation communication and information acquisition earlier studies have shown that reputational concerns tend to reduce agents opportunistic behavior however a recent study by morris argued that analysts experts reputational concerns may discourage truthful communication when they try to avoid being perceived as being misaligned with investors in this paper i examine the effect of reputational concerns on communication in a setting where analysts can choose their precision endogenously because both misaligned and aligned analysts want investors to trust their reports in the future both will aim to build a reputation for being aligned in equilibrium aligned analysts will acquire more information than misaligned analysts as a result investors may favorably update their beliefs about the analysts type when the report is proven to be accurate therefore both types of analysts will have reputational incentives to communicate truthfully the paper also derives conditions under which the analysts reputational concerns have a nonmonotonic impact on aligned analysts equilibrium precision choices and investors welfare

reputation and impermanent types i consider a version of the chain store game where the incumbent firm s type evolves according to a markov process with two states a tough type who always fights entry and a weak type who prefers to accommodate there exists a minimal level of persistence necessary for the incumbent to be able to sustain any reputation for being tough above that level as the number of markets t increases in equilibrium play alternates between intervals of entry by competitors and intervals of deterrence when t is infinite then regardless of the discount factor there exists a sequential equilibrium in which the incumbent s payoff is bounded below her stackelberg payoff both results are in contrast to the outcome when the incumbent s type is fixed one interpretation is that reputation is not permanent but must be renewed occasionally

defending against speculative attacks the policy maker s reputation abstract this paper studies how speculative attacks and regime change arise from the interaction between a policy maker s reputation for defending against speculative attacks and speculators learning of the policy maker s type if speculators receive conditionally independent and identically distributed private signals about the policy maker s type in every period then no matter how precise their per period private signals are there can be no equilibrium with attacks if the speculators receive private signals whose precision increases as a power function of the time with the power strictly greater than two there exist infinitely many equilibria with attacks but this equilibrium multiplicity arises from the timing of the attacks only in such a case the set of status quos surviving in any equilibrium is strictly larger than in the case of a short lived policy maker

the signaling effect of raising inflation abstract this paper argues that central bankers should temporarily raise inflation when anticipating liquidity traps to ensure the credibility of otherwise time inconsistent forward guidance policies as stable inflation in normal times either stems from central bankers desire to maintain credibility or from aversion to inflation the private sector is unable to infer the central banker s willingness to follow through on promises from observing stable inflation jeopardizing the efficiency of forward guidance policy we show that this signaling motive can justify temporary deviations of inflation from target well above 2 but also that the low inflation volatility during the great moderation was insufficient to ensure fully efficient forward guidance when needed

material interests moral reputation and crowding out species protection on private land we consider how the reputation of being socially responsible works as an effective source of motivation in protecting a public good such as endangered species this paper investigates the mechanism design for endangered species protection on private land under asymmetric information about reputation and land quality we examine optimal monetary transfer by designing an efficient mechanism which takes into account the crowding out effect of monetary rewards on socially responsible behavior we find landowners who have good reputation contribute more than the optimum level landowners with poor reputation sacrifices information rent rather they buy reputation

the emergence of iran in the world car industry an estimation of its export potential in the past 10 years iran has been emerging as a major car producer in the world however due to delays in economic reforms iranian car exports have not increased as much as production this paper presents a first estimation of the iranian export potential in the car industry based on new theoretical developments of the gravity equation an empirical bilateral trade model is proposed it includes sectoral variables car production import tariffs as well as other original variables such as expectations and hysteresis we then develop a dataset which includes the 40 major car exporting countries in the world 34 importing countries a 10 year time period as well as four car production groups the model is then estimated by using alternative panel data estimators such as those of hausman and taylor and dynamic estimators as well as transformed variables estimators export potential is finally calculated from the residuals of the model results show that iranian current car exports are about 100 times less than their fitted values this indicates that there is a significant export potential for iran especially toward india china russia as well as smaller neighbours turkey pakistan central asian countries as a result iran could become the major auto supplier in the middle east however this requires the completion and success of ongoing economic reforms

reputation and signaling in asset sales abstract static adverse selection models of security issuance show that informed issuers can perfectly reveal their private information by maintaining a costly stake in the securities they issue this paper shows that allowing an issuer to both signal current security quality via retention and build a reputation for honesty leads that issuer to misreport quality even when owning a positive stake that is the equilibrium is neither separating nor pooling an issuer retains less as reputation improves and prices are more sensitive to retention when the issuer has a worse reputation

street crime and street culture a model shows how reputation concerns can support widespread street crime a street culture where the direct incentives for such behavior are weak there are social benefits to street reputations but those benefits are dominated when reputation concerns draw into crime those who obtain no direct gain from it the model matches facts about violent crime that a standard model cannot easily explain including low monetary returns disproportionate victimization of the young and poor and high variance in rates across small distances the model generates novel implications for policy and social science including a negative effect of social capital

predation firm specific assets and diversification this study examines the relationship between diversification and predation focusing on the firm s investments in sunk cost assets unlike the single product firm the diversified firm may employ assets that are not sunk to a product the ability to transfer these assets among uses or locations may lower the costs of predation the long purse and multimarket reputation may be viewed as special cases of this phenomenon the likelihood of predation may be reduced when the diversified firm is the target since it may be able to transfer assets back into an industry when the predator raises the price copyright 1989 by blackwell publishing ltd

the breakdown of hierarchies in the soviet union and china a neoinstitutional perspective why did modest attempts to decentralize the centrally administered soviet system lead to its collapse while more far reaching decentralization in china left central political and administrative hierarchies intact this article analyzes the disintegration of centrally planned organizations in the context of a neoinstitutional model of the breakdown of authority within hierarchies an agency model of hierarchy is presented that incorporates the ambiguous property rights authority relations and risk sharing conditions that prevailed under central planning and then persist during postcommunist transitions this model suggests that decentralizing reforms could trigger an organizational bank run prompting local agents to seize organizational assets under their control the article also considers reputation preserving strategies that central authorities might use to avert disintegration as an application of this model the collapse of soviet political industrial and state fiscal hierarchies are considered and compared with the experience of analogous sectors in china reforms in both states transferred significant autonomy from the center to local field agents in the soviet case these agents appropriated organizational assets with little interference from the center in china by contrast the center preserved both its capacity for monitoring and its reputation for disciplining transgressions and the rise of hybrid ownership forms made expropriation of state and party assets far less attractive

first impressions matter signalling as a source of policy dynamics we provide the first direct empirical support for the importance of signalling in monetary policy by testing two key predictions from a novel structural model first all policymaker types should become less tough on inflation over time and secondly types that weigh output more should have a more pronounced shift voting data from the bank of england s monetary policy committee strongly support both predictions counterfactual results indicate signalling has a substantial impact on interest rates over the business cycle and improves the committee designer s welfare implications for committee design include allowing regular member turnover and transparency regarding publishing individual votes

an econometric view on the estimation of gravity models and the calculation of trade potentials this paper presents an ar 1 model in the spirit of hausman and taylor zero differences between actual and in sample predicted trade flows large systematic differences between observed and in sample predicted trade flows only indicate model misspecification and econometric problems out of sample predictions make sense if countries of interest are in an early stage of the transformation process the gravity model remains an interesting tool for the calculation of counterfactuals e g the impact of catching up in gdp per capita in the ceec or of the reduction of trade costs via infrastructure investments or tariffs on bilateral trade etc for this line of research the difference between short term and long term influences could provide interesting insights

the impact of the future in games with multiple equilibria this is an electronic author accepted copy of an article from economics letters copyright elsevier 2007 made available here with permission the original article is here http dx doi org 10 1016 j econlet 2006 12 027

intra national versus international trade in the european union why do national borders matter the first objective of this paper is to estimate border effects among european union countries in this context the specification of the gravity equation together with the choice of the distance measure are shown to be crucial for assessing the size of the border effect the second objective is to evaluate the determinants of the cross commodity variation in national border effects contrary to previous findings reported in the literature we show that trade barriers do provide an explanation in particular technical barriers to trade together with product specific information costs increase border effects whereas non tariff barriers are not significant our results further suggest that these barriers are not the only cause since the spatial clustering of firms is also found to matter

a theory of credibility this paper presents models in which one agent must decide whether to trust another whose motives are uncertain reliability can only be communicated through actions in this context it pays for people to build a reputation based on reliable behaviour someone becomes credible by consistently providing accurate and valuable information or by performing useful services the theory provides a justification for long term arrangements without binding contracts it also describes those situations where it pays an agent to cash in on his reputation many decisions depend on trusting someone consumers must decide whether to believe advertisements banks need to judge the reliability of loan applicants and employers must decide how much responsibility to delegate to their employees this paper attempts to model situations that arise when someone is uncertain about whether to trust the people he deals with in this context reputations for reliability are valuable an agent becomes credible by consistently providing accurate valuable information or by always acting responsibly i analyse a series of simple abstract models of information transmission in the basic model there are two agents the sender s and the receiver r who are to play the game a known finite number of times at each stage both players learn the value of a parameter measuring the importance of that period s play of the game that is the value of making a correct decision and s obtains payoff relevant information s then sends a signal to r who makes a decision that affects the welfare of both players after both players learn the consequences of r s decision the process repeats at each stage r must decide what action to take in order to do that he must assess the credibility of s the difficulty arises because r is uncertain about s s preferences when play begins i model this by assuming that with positive probability s has identical preferences to r s is a friend and with positive probability s has completely opposed preferences to r s is an enemy this uncertainty creates a trade off for enemy senders at each stage providing honest information enhances s s reputation but only at the expense of foregoing an opportunity for immediate gain by duping r the possibility that s is a friend lends credibility to what he says but this credibility may also be exploited by an enemy s the principal equilibrium has the following form in the basic model where s has no control over the importance of a given play s typically conveys accurate information for the first several periods r raises the probability he places on s being friendly after receiving accurate information if he believes that an enemy would have lied to him with positive probability the more important the information the more likely an enemy will attempt to deceive r an enemy will eventually take advantage of r by misleading him when this happens the sender loses all opportunities for deception in the future i

reputation and exogenous private learning abstract short run competitors in the chain store game receive noisy signals of the long run incumbent firm s type the history of signals which in the limit is fully revealing is observable to the competitors but possibly not to the incumbent as long as there is sufficient noise in the signals then in any equilibrium a patient weak incumbent obtains a payoff strictly higher than her minmax payoff

a strategic analysis of sinking fund bonds abstract unlike most securities the pricing of sinking fund bonds is influenced by the distribution of ownership which summarizes the extent to which the market is cornered the effect of the distribution of ownership on the pricing of sinking fund bonds is examined by an explicit game in which the price obtained for bonds sold can depend upon the size of the investor s position this framework is used to contrast the valuation of sinking fund bonds with the valuation of amortizing bonds and straight debt we show that it is generally incorrect to view sinking fund bonds as being equivalent to serial bonds

risky debt investment incentives and reputation in a sequential equilibrium the agency relationship of corporate insiders and bondholders is modeled as a dynamic game with asymmetric information the incentive effect of risky debt on the investment policy of a levered firm is studied in this context in a sequential equilibrium of the model a concept of reputation arises endogenously resulting in a partial resolution of the classic agency problem of underinvestment the incentive of the firm to underinvest is curtailed by anticipation of favorable rating of its bonds by the market this anticipated pricing of debt is consistent with rational expectations pricing by a competitive bond market and is realized in equilibrium some empirical implications of the model for bond rating debt covenants and bond price response to investment announcements are explored

towards a new trade policy between the usa and middle east countries estimating trade resistance and export potential at the time of the conclusion of free trade areas ftas between the usa and middle east and north african mena countries there is a lack of literature concerning the measurement of the current us export position with regards to these countries and the us export potential in this area from recent developments of gravity models this paper derives an estimable equation which includes various trade resistance variables notably border effects multilateral resistance as well as specific bilateral effects the model is tested in order to scrutinise the impact of these variables on us exports to mena countries as well as the us export potential in this area to that end a selection of panel data specifications is proposed mainly hausman and taylor models as well as arellano and bond dynamic models results unambiguously indicate that as compared to the other oecd countries the usa suffers from a substantial trade integration deficit with mena countries this is reflected by the strongly negative values of the us mena bilateral fixed effects as well as the high bilateral border effects in addition the estimated actual potential us export ratio to these countries is only 0 76 therefore implementing an fta between the usa and mena countries may allow the former to progressively improve its export position in this area this would also help mena countries diversify their supplying sources

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

persistent trade effects of large exchange rate shocks this paper presents a theoretical basis for the argument that large exchange rate shocks such as the 1980s dollar cycle may have persistent effects on trade flows and the equilibrium exchange rate itself we begin with a partial equilibrium model in which large exchange rate fluctuations lead to entry or exit decisions that are not reversed when the currency returns to its previous level then we develop a simple model of the feedback from hysteresis in trade to the exchange rate itself here we see that a large capital inflow which leads to an initial appreciation can result in a persistent reduction in the exchange rate consistent with trade balance

alternative hypotheses and the volume of trade the gravity equation and the extent of specialization we examine why the gravity equation works and the implications for its use first we demonstrate that the gravity equation as a statistical relationship can be generated from a model with incomplete specialization and trade costs second we analyse the predominance of zero bilateral trade values as a puzzle broadly inconsistent with the complete specialization models typically used to derive the gravity equation but consistent with the alternative hypothesis of incomplete specialization third we demonstrate that the explanation for why the gravity equation works has considerable relevance for how the gravity equation is interpreted and used and how we view bilateral trade diverses hypotheses et le volume du commerce l equation de gravite et le degre de specialisation les auteurs examinent comment fonctionne l equation de gravite et les implications de son usage on propose trois contributions d abord on montre que l equation de gravite en tant que relation statistique et non pas en tant que prediction specifique de commerce bilateral peut etre produite a partir d un modele avec specialisation incomplete et couts de transaction ensuite on analyse la predominance de valeurs zero dans les commerces bilateraux en tant qu enigme generalement incompatible avec les modeles de specialisation complete utilises habituellement pour deriver l equation de gravite mais compatible avec l hypothese de rechange de specialisation incomplete enfin on montre que les raisons pour lesquelles l equation de gravite fonctionne ont un impact sur la facon de l interpreter et de l utiliser et sur notre facon de concevoir le commerce bilateral

extracting rents with forward contracts abstract we consider a risk neutral final goods producer operating with a concave production function we show that when faced with the possibility of quantity rationing in the spot market for an input the producer will always pay a premium to purchase some units of that input in a forward market a monopolistic supplier of the input can therefore earn additional rents by offering to sell units in both a forward market and a spot market effectively price discriminating along a producer s demand curve for the input we thus provide a model of forward contracting in which prices are set sequentially there is no risk aversion and customers purchase positive quantities in both the forward and the spot market

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

on the rationality of buying from a price predator abstract by means of a simple example i demonstrate that it may be rational for consumers to purchase at predatory prices even though the exit of the intended victim and the consequent price increase are correctly anticipated

japan s different trade regime an analysis with particular reference to keiretsu many claim that although formal trade barriers have been removed at the border japanese markets remain unusually closed because of non tariff barriers after describing japan s development strategy and the debate over the sources of japanese growth we consider current trade barriers recent research has made some headway investigating the impact of one of the alleged invisible barriers in particular efforts have been made to test if the behavior of japanese corporate groups known as keiretsu creates a barrier to trade finally we consider whether private sector trade restrictions warrant a public response what if anything should be done about keiretsu

can green building councils serve as third party governance institutions an economic and institutional analysis abstract green building councils gbcs have been established in many different countries in recent years this paper discusses the role such organizations can play in the respective construction and real estate industry and under what circumstances a gbc can contribute positively to the development of a greener or more sustainable stock of buildings the paper investigates the main informational problem of the industry by looking at the relation between a developer and an investor from an economic point of view we argue that the investor s uncertainty about the true quality of a building and the corresponding incentive for the developer to cheat may lock them into a prisoners dilemma trap the corresponding barriers for a transition toward a greener buildings market are analyzed gbcs are described as institutions of economic governance that can assist the economy in overcoming these problems they can act as third party institutions in transactions between developers and investors by certifying the quality of a building they can reduce the risk for the investor to be cheated by the developer and also increase the incentive to develop good quality buildings for the developer this task however raises some severe management challenges for the gbcs

using game theory to model competition the article is an exposition of the basic concepts of noncooperative game theory and their application to advertising product and price competition

the importance of eu 15 borders for ceecs agri food exports the role of tariffs and non tariff measures in the pre accession period abstract this paper assesses the evolution of the eu 15 market access for the agri food products originating from ceecs a gravity model technique has been used to assess the overall trade resistance border effect and to weight its various components such as tariff and non tariff measures sanitary and phytosanitary standards other quality measures in the pre accession period 1999 2004 the findings reveal despite the undertaken integration and trade liberalisation processes a persisting and significant trade resistance for the ceecs agri food exports to the eu market even just prior their accession in 2004 still present difficulties in market access at the time are partially explained by tariff and non tariff measures while a large part of border effect remains in the domain of other presumably non trade policy related factors home bias consumer preferences etc these results indicate that despite the accession process customs union and adoption of the eu standards the trade integration of the enlarged eu market was not yet completed in 2004

bargaining with imperfect commitment abstract we study the effect of imperfect commitment in noncooperative two person bargaining games by establishing the reputation for being stubborn a player sometimes commits to her initial demand becoming unable to change her demands or to accept an inferior offer from her opponent when the probability of being stubborn is small the set of equilibria is shown to be small and agreement may be reached immediately despite the possibility of stubbornness a player has greater bargaining power when she is more patient and or is more likely to be stubborn journal of economic literature classification number c78

predation by public enterprises abstract this paper demonstrates that in addition to the usual niskanen type losses generated by excess production by public firms there is an unrecognized second type of loss in order to sell their excess production public firms have to price their output below the competitive price and thereby cause more efficient firms at the margin to be eliminated the discussion is then extended to include the case where public enterprises finance additional expansions of output by price discriminating against inframarginal customers but then face the threat of competition for these inframarginal customers from new potential entry public enterprises are further shown to provide more credible threats to potential entrants since unlike private firms they value the increased output associated with predation and not merely the higher future benefits produced by it

recent advances in oligopoly theory from a game theory perspective abstract this paper surveys the contribution that recent developments in game theory have made to the understanding of oligopoly theory it is argued that conventional models suffer from the problem that there are a number of solution concepts offered with little guidance as to which should be selected and this is related to the static nature of the models employed one important development in game theory has been the analysis of repeated games and when applied to oligopoly theory this suggests that outcomes may be more cooperative than conventional theory suggests related to this is the requirement that firms employ credible threats to punish cheating from cooperative outcomes and the paper examines the extent to which imperfect information may restrict the scope of firms to employ such punishments one way in which firms may seek to make threats credible is through strategic investments for example in production capacity and the paper explores how competition over price or output is integrated with competition over instruments for strategic investment

special interest groups and the allocation of public funds i propose a fully rational model of government contracting that explains differences in local government spending from grants and other income in this model violations of fungibility arise from dynamic interactions between politicians and interest groups with the ability to raise funds for the local government the predictions of the model are tested by exploiting unique features of windfalls received by states under a settlement with the tobacco industry although windfalls are legally unrestricted the median state increased spending on tobacco control programs from zero to 2 30 per capita upon receipt of funds the marginal propensity to spend on such programs is 0 20 from settlement revenue and zero from overall income states which were not involved in the settlement lawsuits spend less these results cannot be explained by existing models in the literature

the impact of industrial policy on japan s trade specialization recent research has demonstrated the possibility of welfare enhancing industrial policy this paper analyzes the impact of industrial policy on japan s trade pattern and explores the possibility that it has been welfare enhancing econometric results indicate that industrial policies have had an impact on japan s trade specialization these results are obtained contemporaneously and when the explanatory variables are lagged suggesting either that policymakers have been forward looking or that policy interventions have had persistent long lasting effects although some cases of successful targeting are uncovered welfare enhancing interventions appear to have been the exception not the rule copyright 1993 by mit press

gambling reputation repeated bargaining with outside options we study the role of incomplete information and outside options in determining bargaining postures and surplus division in repeated bargaining between a long run player and a sequence of short run players the outside option is not only a disagreement point but reveals information privately held by the long run player in equilibrium the uninformed short run players offers do not always respond to changes in reputation and the informed long run player s payoffs are discontinuous the long run player invokes inefficient random outside options repeatedly to build reputation to a level where the subsequent short run players succumb to his extraction of a larger payoff but he also runs the risk of losing reputation and relinquishing bargaining power we investigate equilibrium properties when the discount factor goes to 1 and when the informativeness of outside options diffuses in both cases bargaining outcomes become more inefficient and the limit reputation building probabilities are interior publication abstract

corporate compliance with debt covenants in this paper i present and test a model of corporate compliance with the debt covenant requiring payment of a current obligation this study adds to the empirical literature on forecasting financial distress by showing conditions under which debt default may be a rational economic decision by the firm s shareholders this analysis departs from empirical financial distress studies which are often not linked to an underlying economic theory the focus on covenant default also extends the literature which has modeled bankruptcy bulow and shoven 1978 and liquidation decisions titman 1984 but which has not considered a common first symptom of financial distress covenant default briefly the model examines the costs that influence shareholders decision to comply with or violate a particular debt covenant payment of a current obligation these costs include those associated with bondholders reaction to possible default the model predicts that shareholders will default when holding other factors constant i interest rates have declined relative to coupon rates stated in the debt issue ii the probability of paying future obligations is high and iii the cost of obtaining funds to pay the obligation is high the model also predicts when stockholders and bondholders will renegotiate the debt contract and the amount of wealth transferred in the renegotiation finally the

action characteristics as predictors of competitive responses a central question in competitive dynamics is whether a competitive response can be predicted this study links various characteristics of actions with the total number and the time lag of competitors responses the hypothesized relationships were tested with a sample of competitive moves among u s airlines the results suggested that responses are influenced by the characteristics of the actions that evoked them specifically the total number of competitors affected by an action and the importance to these competitors of the markets under attack by the action increase the number of competitive responses strategic as opposed to tactical actions or actions which require substantial implementation efforts reduce the number and delay the timing of rivals counteractions finally contrary to prediction competitors who have a high stake in the markets under attack by a competitive move react slowly

antitrust predation and the antitrust paradox abstractthe widely recognized influence that the chicago school of law and economics had on the institution of antitrust is nowhere more apparent than in predatory pricing law starting with aaron director this movement had many distinguished contributors but even in this company robert bork stands out for his part in persuading the judiciary to refocus antitrust law on the interests of consumers rather than on the interests of competing firms in the antitrust paradox and other writings bork advanced the chicago school insight that the kind of aggressive price cutting that at the time passed for predatory pricing is instead an essential and for consumers beneficial attribute of competition the resulting change in direction that antitrust has taken in predatory pricing cases culminated in the court s matsushita matsushita electric industrial co v zenith ratio corp 475 u s 574 1986 and brooke group brooke group ltd v brown williamson tobacco corp 509 u s 209 1993 opinions both

sacrifice tests for predation in a dynamic pricing model ordover and willig 1981 and cabral and riordan 1997 meet ericson and pakes 1995 abstract to detect the presence of predatory pricing antitrust authorities and courts routinely ask whether a firm sacrifices current profit in exchange for the expectation of higher future profit following the exit of its rival because predatory pricing is an inherently dynamic phenomenon we show in this paper how to construct sacrifice tests for predatory pricing in a modern industry dynamics framework along the lines of ericson and pakes 1995 in particular we adapt the definitions of predation due to ordover and willig 1981 and cabral and riordan 1997 to this setting and construct the corresponding sacrifice tests

uk competitiveness policy vs japanese industrial policy it is often claimed that japanese industrial policy targeted high growth or high productivity growth sectors see inter alia johnson i982 carliner i986 nester i99i tyson 1992 it is then argued that because both the targeted industries and the japanese economy have prospered it follows that japanese industrial policy must have been successful hence britain and other advanced nations either are justified in emulating or should hasten to follow the japanese example this raises the question of whether the united kingdom s competitiveness policy is the appropriate response or is a completely different animal the purpose of this paper is to explore the main areas in contention but before doing so it is important to be clear about what one means by industrial and competitiveness policies

measuring internal trade distances a new method applied to estimate provincial border effects in canada in this paper we suggest an improved methodology for comparing the intensity of trade across and within national and provincial boundaries earlier efforts to assess border effects for provinces or for countries without internal trade statistics made fairly arbitrary assumptions about average distances for internal trade flows we improve on earlier efforts by taking more complete account of the distribution of population within each province or country internal distance is estimated as a population weighted average of intra city and intercity distances as well as distances to and within rural areas we find higher estimates of internal distances and hence border effects than found in previous studies

reputation and the flow of information in repeated games this paper derives payoff bounds from reputation effects akin to those of fudenberg and levine 1992 for repeated moral hazard games in which a long run player interacts frequently with a population of short run players and the monitoring technology varies with the length of the period of interaction the bounds depend on the monitoring technology through the flow of information a measure of signal informativeness per unit of time based on the relative entropy examples are shown where under complete informatione the set of equilibrium payoffs of the long run player converges as the period length tends to zero to the set of static equilibrium payoffs whereas when the game is perturbed by a small ex ante probability on commitment types reputation effects remain powerful in the frequent interaction limit

reputation and turnover we consider a repeated duopoly game where each firm privately chooses its investment in quality and realized quality is a noisy indicator of the firm s investment we focus on turnover equilibria in which a low quality realization is penalized by lowering future demand of the firm that delivered this quality we determine when a turnover equilibrium that gives higher welfare than the static equilibrium exists and how this relates to market fundamentals we also derive comparative statics properties and we characterize a set of investment levels and hence payoffs that turnover equilibria sustain

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

games of perfect information predatory pricing and the chain store paradox the thesis of this paper is that finite noncooperative games possessing both complete and perfect information ought to be treated like one player decision problems that is players ought to assign at every move subjective probabilities to every subsequent choice in the game and ought to make decisions via backward induction this view is in contrast with the gametheoretic approach of nash equilibrium after expanding on this view for games in the abstract in sections 2 and 3 attention is turned in section 4 to an example due to reinhard selten called the chain store paradox which possesses the flavor of a situation involving a predatory pricing monopolist it is argued that for the chain store game the decision analytic approach leads under certain assumptions to more realistic outcomes than the standard nash equilibrium approach

is more information always better a case in credit markets this paper studies the impact of behavioral and non behavioral information contained in consumer credit reports on the credit market a repeated game of incomplete information between a borrower and a sequence of lenders is considered lenders beliefs regarding the borrower s type depend on the borrower s historical loan performance and other informative signals it is established that for low beliefs strategic defaults occur in equilibrium as the borrower defaults on his loans despite having the ability to repay them further as the ancillary signals become increasingly informative of the borrower s type the range of beliefs over which strategic defaults occur expands this increase in strategic defaults highlights an unintended negative effect of allowing informative signals to influence beliefs on the upside the informative signals allow lenders to learn the borrower s type more quickly

corporate and industry effects on business unit competitive position we partition the variances of market shares which we use as surrogates for competitive position of the business units of all public manufacturing companies available in the trinet data base into industry factors corporate parent specific factors and business unit specific factors our results differ somewhat from rumelt s 1991 which decomposed variances in profitability we find that corporate parent effects on market share are considerably greater than zero when lines of business are defined more narrowly when small business units are included and when firms are medium sized our results suggest that the relative importance of corporate industry and business unit effects depends on the types of criteria such as the level of industry aggregation whether small business units are included and firm size that are used to construct samples copyright 2000 john wiley sons ltd

collusion under financial constraints collusion or predation when the discount factor is near one abstract this paper considers the possibility of collusion between financially constrained firms it is found that they cannot collude when the discount factor is sufficiently close to one while collusion emerges at lower discount factors

fulfilled expectations of entry i develop a two period model of entry deterrence with endogenous market demands such that the consumer s expectation about the future market structure is fulfilled in equilibrium i find that both expectations duopoly and monopoly are fulfilled in the incumbent s price setting game while there is a unique equilibrium in the quantity setting game i also find that quantity is more entry deterring than price in the sense that the maximum value of the entry cost that allows entry in the price setting game is higher than or equal to that of the quantity setting game

a response to glazer and rosenthal we are most grateful to glazer and rosenthal for the attention they have paid to our work abreu and matsushima 1992a b c in the process of criticizing our mechanism they have provided an elegant exposition of it which usefully supplements our own efforts the criticisms themselves we feel are misplaced and based on a close reading but narrow interpretation of our results glazer and rosenthal seek to show that in our mechanisms the iterative removal of strictly dominated strategies is or indeed ought to be controversial in terms of conventional decision theory the iterative logic is impeccable when iterative deletion leads to a unique profile that profile is the unique rationalizable profile the unique nash equilibrium and so on of course the logic of iterative dominance entails common knowledge of rationality the theoretical coherence of this assumption has been questioned in the context of backward programming in extensive form games see luce and raiffa 1957 pp 80 81 rosenthal 1981 basu 1988 reny 1992a 1992b bonanno 1991 binmore 1987a 1987b and gul 1989 among others these paradoxes of common knowledge of rationality have been highlighted in stylized examples such as the finitely repeated prisoners dilemma and rosenthal s centipede game which in fact has been a seminal inspiration for this recent literature 2 but our mechanisms are simultaneous there is no opportunity to demonstrate irrationality strategic or otherwise and therefore no scope to rationalize iteratively dominated behavior from a decision theory perspective the glazer and rosenthal critique might therefore be viewed as an elaborate revival of the indefensible claim that players in a one short prisoners dilemma will choose not to confess because they are both better off doing so than by both playing their dominant strategies within the standard game theory paradigm there is really nothing more to be said before turning to issues of bounded rationality we note that the glazer and rosenthal critique is essentially premised on the existence of a countervailing focal point but what is a focal point the notion is notoriously vague and we are aware of no widely accepted definition 3 this is not to deny that in very simple and particular games certain behavior may be focal frequently focalness is identified with a pareto dominating equilibrium and this is the point of view glazer and rosenthal seem to adopt 4 this is implicit in their acknowledgement that when the social choice function does satisfy pareto optimality our objection loses much of its immediate

explaining the volume of north south trade much of the recent literature on scale economies has been motivated by the large volume of trade among the industrialized countries relative to north south trade this paper presents theoretical and empirical analyses of two alternative hypotheses one based on differences in north versus south gnp and one based on higher protection levels in the south counter factual experiments using a numerical general equilibrium model support the hypotheses that north south trade is relatively small because the south is poor and highly protected copyright 1990 by royal economic society

merging reputation and repeated games with incomplete information we relate and unify several results that appeared in the following domains merging of probabilities perturbed games and reputation phenomena and repeated games with incomplete information journal of economic literature classification numbers c72 d83

information acquisition and reputation dynamics we study dynamic incentives and behaviour in markets with costly discovery of past transactions in our model a sequence of short lived customers interact over time with a single long lived firm that privately knows its type good or opportunistic customers must pay to observe the firm s past behaviour we characterize the equilibrium structure that features accumulation consumption and restoration of reputation the opportunistic firm deliberately builds its reputation up to a point where the maximum periods of information acquired by customers do not reveal past opportunistic behaviour and exploits the customers who most trust the firm copyright 2011 oxford university press

national borders and international trade evidence from the european union in this paper the impact of national borders on international trade within the european union is considered using a gravity model i find that averaged over all eu countries intranational trade is about ten times as high as international trade with an eu partner country of similar size and distance this relatively strong home bias suggests that even within the european union national borders still have a decisive impact on trade patterns jel classification f02 f14 f15 o52 ce memoire examine l impact des frontieres nationales sur le commerce international a l interieur de l union europeenne on montre que en moyenne pour tous les pays de l union europeenne le commerce intranational est a peu pres dix fois plus important que le commerce international avec un pays partenaire de l union europeenne de meme taille et a meme distance ce degre relativement important de preference nationale suggere que meme dans le cadre de l union europeenne les frontieres nationales ont encore un impact determinant sur les patterns de commerce

financially constrained entry in a game with incomplete information in an earlier paper we presented an entry game with a monopolist and a potential entrant facing financial constraints in which the unique perfect equilibrium involved no entry here we consider a one sided incomplete information variant of the game in which the monopolist allows for the possibility that the entrant is committed to endure a price war to the limit of his capability we find a unique sequentially perfect equilibrium in which entry sometimes occurs when it does predatory price wars may result with the incumbent sometimes driving out the entrant but other times eventually abandoning the fight

social status entry and predation the case of british shipping cartels 1879 1929 the authors incorporate social status and regional affiliation two variables of central sociological interest into an economic analysis of entry and predation they build on scott morton s 1997 examination of entry and predation in the merchant shipping industry and examine whether the social status of an entrant owner impacts on the predation behavior of the incumbent cartels they find that high social status entrants are significantly less likely 40 to be preyed upon than the low social status entrants they discuss several interpretations of this result subsequent analysis supports the hypothesis that cartel members use social status as an indicator of an entrant s propensity to be a cooperative cartel participant

value of reputation in the chain store game with multiple incumbents abstract we extend the basic chain store game to the two incumbent case a highly stylized model is developed to analyze incentives of incumbent firms to maintain reputation for toughness entry deterrence has a public good property since maintaining reputation is costly each incumbent has an incentive to free ride on the entry deterring activities of its counterpart as a result of these incentives both incumbents accommodate when they both have a relatively high initial reputation for toughness this extreme form of underinvestment in entry deterrence becomes less likely as the number of markets with potential entry increases we also demonstrate that an incumbent s payoff is a decreasing function of its reputation over a large range of parameters this result stands in sharp contrast to the existing versions of the chain store game where high reputation for toughness always benefits a weak incumbent

collusion with persistent cost shocks we consider a dynamic bertrand game in which prices are publicly observed and each firm receives a privately observed cost shock in each period although cost shocks are independent across firms within a firm costs follow a first order markov process we analyze the set of collusive equilibria available to firms emphasizing the best collusive scheme for the firms at the start of the game in general there is a trade off between productive efficiency whereby the low cost firm serves the market in a given period and high prices we show that when costs are perfectly correlated over time within a firm if the distribution of costs is log concave and firms are sufficiently patient then the optimal collusive scheme entails price rigidity firms set the same price and share the market equally regardless of their respective costs when serial correlation of costs is imperfect partial productive efficiency is optimal for the case of two cost types first best collusion is possible if the firms are patient relative to the persistence of cost shocks but not otherwise we present numerical examples of first best collusive schemes

credit bureau policy and sustainable reputation effects in credit markets welfare increasing reputation effects arise in credit markets when adverse selection gives rise to borrower reputation formation incentives that mitigate moral hazard problems this paper shows that welfare stemming from reputation effects will diminish over time as the private information of borrowers is revealed to lenders in the form of lengthening credit histories aggregate borrower welfare may therefore decrease over time unless reputation effects can be sustained restricting a lender s access to a borrower s credit history via credit bureau policy is shown to be one method of sustaining reputation effects and preventing a decline in welfare copyright 1995 by the london school of economics and political science

caveat innovator strategic and structural characteristics of new product introductions abstract the assumptions underlying models of strategic behavior by incumbents are evaluated using a case study of a ground coffee product introduction the assumption underlying earlier strategic models that the entrant does not know the incumbent s payoffs after strategic have been tested does not appear to apply instead strategic behavior is observed to hinge on ex ante uncertainty about the structure of the payoff matrix and the incremental decision making which this uncertainty spawns in this environment strategies which create noise can slow learning and delay entry

continuous cross subsidies and quantity restrictions this article provides a model of loss leader pricing and quantity restrictions for a competitive multiproduct industry when individual consumers have continuous and independent demands for the set of available goods utilizing a generalization of the model proposed by bliss 1988 we demonstrate the importance of consumer heterogeneity for the existence of cross subsidies when there is complete information and individual consumers have smooth downward sloping demands continuous cross subsidies arising from consumer heterogeneity are also shown to exist in hotelling models our use of continuous rather than unit demands allows us to analyze issues related to welfare which in turn exposes a strong incentive for the firm to place binding quantity restrictions on consumers we also show how the presence of quantity restrictions can be used to distinguish between continuous cross subsidies arising from heterogeneous consumers versus those arising from classic demand complementarity with homogeneous agents

switching costs in the wholesale distribution of cigarettes recent theories of price wars triggered by entry assign a critical role to switching costs in explaining price and output changes earlier elzinga and mills 1998 showed that actual switching patterns following an episode of new entry in an industry are driven by the fact that buyers have different switching costs the current paper draws on transaction specific price and shipments data surrounding the 1984 1985 price war in generic cigarettes to explore the size and determinants of switching costs among wholesale cigarette distributors results show that switching costs vary across firms and are nontrivial in magnitude several implications of the findings are discussed

goliath s curse coercive threats and asymmetric power states typically issue compellent threats against considerably weaker adversaries yet their threats often fail why expanding on a standard model of inter national crisis bargaining i argue that a theory of reputation building can help shed light on this puzzle the model casts reputation as a strategic problem showing that challengers issuing compellent threats have incentives to anticipate the reputation costs that target states incur when appeasing aggressors if challengers can recognize these costs and offset them with side payments or smaller demands then even reputation conscious targets will acquiesce i argue however that military strength contributes to information problems that make challengers more likely to underesti mate their targets reputation costs and insufficiently compensate them in this way military power can undermine the effectiveness of compellent threats the logic is illustrated by the 1939 russo finnish crisis and the argument s implications for the study of coercive diplomacy are explored

repetition reputation and raiding i develop a multitarget takeover model with bid revisions in which bidders desire a reputation for having low valuations such a reputation increases the likelihood that future targets will accept low premium bids bidders develop reputation by using low take it or leave it offers consequently tender premiums bid revision rates and success rates are lower for continuing bidders than for those considering only a single target success rates vary within a series and reputation building is more likely with highly correlated target valuations i provide an exploratory empirical analysis consistent with lower premiums from continuing bidders and discuss some resulting implications regarding raiders conglomerates and resistance strategies article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the liability of good reputation a study of product recalls in the u s automobile industry in this paper we explore opposing theoretical claims about how organizational reputation affects market reactions to product defects on the one hand good reputation could be a disadvantage because expectations about product quality are more likely to be violated by defects in highly reputed products on the other hand a good reputation could be an advantage because of strong inertial effects on reputation orderings we empirically test these competing hypotheses using data on product recalls in the u s automobile industry from 1975 to 1999 our results support for the idea that reputation can be an organizational liability in that highly reputed firms suffer more market penalty as a result of their product recalls we also propose that the reputational effects are moderated by two important factors substitutability and generalism specialism our results show that having few substitutes with an equivalent level of reputation or a focused product identity stemming from specialism buffers the negative market reactions to product recalls we conclude with a discussion on the implications of these results for institutional reputation and status theories

lying for strategic advantage rational and boundedly rational misrepresentation of intentions starting from hendricks and mcafee s 2000 example of the allies decision to feint at calais and attack at normandy on d day this paper models misrepresentation of intentions to competitors or enemies allowing for the possibility of bounded strategic rationality and rational players responses to it yields a sensible account of lying via costless noiseless messages in many cases the model has generically unique pure strategy sequential equilibria in which rational players exploit boundedly rational players but are not themselves fooled in others the model has generically essentially unique mixed strategy sequential equilibria in which rational players strategies protect all players from exploitation