minimum market share this paper analyzes a specific model of oligopolistic competition involving product differentiation marketing activities and economies of scale in production this model is consistent with sales response models which have been justified on theoretical and empirical bases it is shown that at a nash equilibrium each firm must have market share equal to zero or greater than a threshold value this result has implications for determination of minimum firm size the effectiveness of a low market share strategy entry barriers and the likelihood of concentration in an industry the paper explores these implications and relates them to various theories and hypotheses in industrial organization and strategic planning

estimating willingness to pay for housing characteristics an application of the ellickson bid rent model abstract the purpose of this paper is to estimate willingness to pay for housing characteristics using the discrete choice bid rent framework developed by b ellickson j urban econom 9 56 79 1981 and modified by s r lerman and c r kern j urban econom 13 358 363 1983 the paper provides an initial empirical test of the lerman and kern modifications using household level data from bogota colombia the results of the model are evaluated by comparing forecasted bid rents to actual rents and forecasted dwelling occupants to actual occupants by examining the demand prices which emerge from the analysis and by comparing the results to previous housing demand research which uses a hedonic type approach to analyze identical data the findings of the study show that the bid rent model works reasonably well in its predictions and in its estimates of the demand for attributes and in some ways it may perform better than a hedonic type model in forecasting the demand for housing attributes

the effects of learning by doing on product innovation by a durable good monopolist abstract we analyze a durable good monopolist s decision to adopt a new and more efficient technology that is readily available at very low or zero adoption cost after an initial period of learning by doing the new technology makes the good more attractive to consumers anticipating a better product consumers delay their current purchases which lowers today s profits but increases future profits since the monopolist can charge a higher price for the high quality good we show that the effect on overall profit depends on variables such as the degree of innovation for certain parameter values the monopolist adopts the innovation even when it is not first best to do so we also provide conditions under which the monopolist finds it optimal to continue using the inferior production technology even if the innovation is freely available the latter result provides a possible rationale for a firm to hold on to a sleeping patent when its use is socially desirable

a model of intraurban employment location an application to bogota colombia this report which examines the location behaviour of manufacturing firms in urban areas is part of a world bank urban study project a theoretical model of employment location is formulated and extended to an empirical specification in the multinomial logit framework a bid rent function is derived from the profit function and captures the firms locational equilibrium situations survey data from bogota colombia provides information on i attributes of the establishment such as plant space and ii attributes of the plant site such as access to markets the estimated model is capable of predicting the location choices of different types of firms separate regression results using the same data set indicate a strong relationship between the intensity of input use and land price supporting the hypothesis that the firms respond to the substitutability of land with respect to other inputs over space the patterns of employment location in bogota are by no means random they are quite similar to those observed for large cities in the united states

a dynamic model of entry deterrence it has been recognized in a number of recent studies on oligopoly and potential competition that a firm may deter entry by engaging in different types of irreversible investments this paper reports on an investigation of this issue in a dynamic setting the established firm is assumed to build up a stock of knowledge and goodwill by investing in r d and sales promotion and these stocks are assumed to erode over time the established firm then has to decide whether or not to deter entry and eventually when to permit a potential competitor to enter the market

the demand for industrial sites in a metropolitan area theory empirical evidence and policy implications abstract a model of urban manufacturing location is developed in order to explain the demand for industrial sites in a metropolitan area within the theory of qualitative choice behavior firms identified by a set of eight characteristics are viewed as selecting sites possessing two attributes of varying degrees of importance to different kinds of firms using a multinomial logit specification the model is estimated for the cincinnati smsa the results lend support to the firm specific nature of the site selection process information concerning the determination of the spatial distribution of the firm types in cincinnati is derived from the analysis implications for the possible effectiveness of a policy initiative designed to alter existing patterns of urban industrial location conclude the paper

the role of exclusive territories in producers competition reprinted in cartels stephen salant ed the international library of critical writings in economics edward elgar reference collections

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

excess capacity as a barrier to entry an empirical appraisal this paper examines excess capacity barriers to entry and investment dynamics in a sample of thirty eight chemical product industries logit and log linear models of investment behavior are estimated and specific case examples are considered the results show that incumbents rarely built excess capacity pre emptively in an effort to deter entry in general entrants and incumbents exhibited similar investment behavior

imperfect information monopolistic competition and public policy introduction ever since the pioneering work of george stigler 1961 and the provocative survey by michael rothschild 1973 economists have recognized that general equilibrium models yield competitive equilibria only by making strong assumptions about the information available to market participants in response to this difficulty theorists in recent years have developed a family of search equilibrium models that presuppose homogeneity and the absence of price discrimination and which also assume that information acquisition costs are positive for at least a subset of buyers on the basis of these and other assumptions the models attempt to show how price dispersion equilibria can arise solely as a result of the strategies that firms and consumers pursue one author summarized the results if information is costly each small firm obtains market power so that the relevant market structure with imperfect information is not per ect competition but rather monopolistic competition steven salop 1976 p 240

industrial location behaviour and regional restructuring within the fifth tiger economy evidence from the thai electronics industry the paper investigates the location behaviour of firms in the electronics industry in thailand our approach is to use a logit model in order to analyse how the characteristics of the firms and the regions are related to the location decisions of firms in these sectors the logit results throw some light on the question of the nature of agglomeration behaviour in a developing economy in which the national spatial industrial structure is dominated by a single primal city our conclusions provide tentative support for a product cycle argument of industrial concentration and dispersion

the economics of market dominance in this collection of essays industrial economists offer an in depth examination of dominant firms in competitive markets and the actions of authorities against such firms the volume opens with an essay by the editors which outlines the development of policy in different countries and gives an account of the main issues in the debate the contributors interpret recent policy developments in the united states britain and europe employ new aspects of oligopoly theory to challenge conventional wisdom about the detection of collusive pricing and defend profitability measurement as a useful tool for monopoly investigations other essays discuss the relevance of the new industrial economics and the persistence of monopoly firms

an empirical study of an auction with asymmetric information this paper examines federal auctions for drain age leases on the outer continental shelf from 1959 to 1969 these are leases that are adjacent to tracts on which a deposit has been discovered the authors find that the data strongly support the hypotheses that neighbor firms are better informed about the value of a lease than nonneighbor firms that neighbor firms coordinate their bidding decisions and that both types of firms bid strategically in accordance with the bayesian nash equilibrium model for first price sealed bid auctions with asymmetric information

growth entry and exit of firms a dynamic model of industry equilibrium is presented which shows how growth entry and exit of firms are interrelated by taking into account the fact that a firm s profitability is to some degree subject to random shocks the simultaneous occurrence of entry and exit can be explained formally in addition by also taking internal growth costs into account it is shown that excess profits can persist in long run equilibrium even in perfect competition and with constant returns to scale the model is consistent with the facts that industry growth comes mainly from existing firms and that most firms grow at rates which do not systematically depend on their scale of operations i introduction

what factors inspire the high entry flow in taiwan s manufacturing industries a count entry model approach why is the entry flow of the manufacturing sector extremely high in taiwan and does it contribute to the prevailing entrepreneurship this article aims to explore what factors inspire potential entrants to go into an industry based on a theoretical formulation of the poisson probability entry model a count data model is employed to investigate the determinants of entry flows the empirical results reveal that traditional entry barriers indeed lower the entry flow the entry incentives including price cost margin and industry growth play a lesser role at attracting new firms while alternatively the market size acts as a better proxy of an entry incentive in explaining entry flows incumbents responses to entry r d and advertising intensity are found to be associated with a significant negative impact on entry flows this article also finds that there is a higher bound of covariate of entry about 10 that can be attributed to the immeasurable personality of entrepreneurs entrepreneurship rather b

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 optimal timing of a foreign direct investment analyses of the optimal timing of foreign direct investment fdi decisions have been curiously lacking in the general literature on multinational enterprises cf buckley 1979a b although comparative static analyses exist comparing exporting to the host country with market servicing from a production unit sited in the host country horst 1971 hirsh 1976 the only attempt to predict the timing of the switch from exporting to foreign based production is that of aliber 1970 although vernon 1966 gives a cost based rationale for the switch this chapter attempts to fill this gap in the theory of fdi section 2 1 outlines and criticises previous attempts to deal with the problem sections 2 2 4 present a simple model which ignores set up costs and sections 2 5 and 2 6 give a more detailed analysis including such costs further extensions of the theory are considered in section 2 7 and the conclusions are summarised in section 2 8 the problem emerges as being more complex than had previously been appreciated

an alternative test of the hedonic theory of housing markets abstract in this paper the hedonic theory of housing markets is used to generate a multinomial logit model of household behavior in an urban housing market application of hedonic theory to housing markets is by now fairly familiar and a link to multinomial logit has also been established however by emphasizing more heavily the bid price interpretation of hedonic theory this paper develops a new connection to econometric estimation that essentially involves running the usual logit equations in reverse one advantage of this approach is that the link between the logit equations and hedonic theory involves bid price rather than utility functions and this in turn permits the empirical results to be given an extremely clear interpretation furthermore in contrast to the standard logit model the extreme value distribution required to justify the estimation technique emerges endogenously as part of the analysis

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

innovation threats and strategic responses in oligopoly markets this paper deals with the strategic reaction of firms to competitive threats stemming from newly developed products of actual competitors product innovation projects go through multiple time consuming stages with several continuation termination decisions hence competitors can react to the threat before the new product is introduced and thereby may prevent or facilitate the product s introduction we consider a duopoly model where firm 1 can start a two stage product innovation project for obtaining a horizontally and vertically differentiated product in between the two stages firm 2 can react by making an investment that improves the competitive position of the current product we find that under weak vertical differentiation firm 2 wants firm 1 to innovate horizontal differentiation softens competition and firm 2 over invests to induce firm 1 to launch the new product second under strong vertical differentiation firm 1 starts the product innovation project triggering under investment by firm 2 but never finishes it the under investment makes firm 2 a weaker competitor which induces firm 1 not to innovate third under very strong vertical differentiation firm 2 prevents a launch of the new product by over investing this results in a strong competitive position of firm 2 it therefore captures such a big market share that firm 1 will not introduce the new product the situation of firm 1 in the old market has worsened the option to complete the innovation created by initiating the first stage of the innovation project has a negative value for firm 1

incumbent positioning as a determinant of strategic response to entry existing research has identified different firm characteristics that determine an incumbent s reaction toward market entrants this study widens the perspective from a firm s absolute attributes to its relative positioning within its competitive environment the hypotheses for the empirical analysis are derived from game theoretic models with either vertical or horizontal product differentiation in each of the two theoretical models two incumbents initially choose very different quality and variety levels respectively and move closer to the center when faced by entry of a competitor from the vertical differentiation model we predict a stronger price reduction by high quality firms in our empirical analysis we are using a novel dataset of the high quality restaurant market in germany to test the theoretical findings while the hypotheses with respect to adjustments of prices and varieties are supported we do not find empirical evidence for the predicted quality adjustment

intra urban location of manufacturing employment in colombia this paper describes the spatial distribution of manufacturing employment in bogota and analyzes the changes in the location patterns over the 1970 1975 period using industrial directory data the analysis shows strong evidence of the spatial decentralization of manufacturing employment owing to a steady movement of firms outward from central areas new large firms with more than 100 employees tend to locate near the periphery while the births of small firms tend to take place near the center measures of concentration indicate an increasing dispersion of manufacturing establishments during the period this trend is similar to what has occurred in the u s during the past several decades due to changes in production technology and revolutions in transportation and communication these same factors might prevail in bogota

strategic entry deterrence in analyzing deterrence of large scale entry two classes of entry barriers may be distinguished an innocent entry barrier is unintentionally erected as a side effect of innocent profit maximization in contrast a strategic entry barrier is purposely erected to reduce the possibility of entry two types of innocent barriers may also be distinguished a postentry absolute advantage has the property that if entry did occur the established firm would be at a profit advantage over the entrant examples are superior technology or product design patents and lower input prices a preentry asymmetry advantage arises from the fundamental preentry asymmetry between established firm and potential entrant before the entrant makes his entry decision the established firm has already committed resources this prior existence gives first move advantages the preentry asymmetry is independent of symmetry or asymmetry in the rules the equilibrium concept of the postentry game that might ensue even if the postentry game will be played according to nash cournot or entrant as leader rules the preentry leadership

prices as signals of product quality this paper is concerned with the provision of quality in markets in which consumers have only imperfect information the analysis focuses on a market for a product that can be produced at different quality levels all consumers prefer higher to lower quality but they may differ in their willingness to pay for quality producers can produce any quality they like but higher qualities are more costly to produce the information in this market is imperfect in the sense that the exact quality chosen by a firm is known only to the firm itself some information about the quality of a firm s product will however reach its potential customers even if they do not make any special effort to acquire it within the framework suggested here two conclusions are drawn first prices may serve as signals which exactly differentiate the available quality levels that is there exists a fulfilledexpectations equilibrium at which each price signals a unique quality level second the pricesignals are not arbitrary each price signal exceeds the marginal cost of producing the quality it signals such a mark up depends on the nature of the product specific information received by consumers the poorer the information the higher the mark up

the emergence of cooperation among egoists this article investigates the conditions under which cooperation will emerge in a world of egoists without central authority this problem plays an important role in such diverse fields as political philosophy international politics and economic and social exchange the problem is formalized as an iterated prisoner s dilemma with pairwise interaction among a population of individuals results from three approaches are reported the tournament approach the ecological approach and the evolutionary approach the evolutionary approach is the most general since all possible strategies can be taken into account a series of theorems is presented which show 1 the conditions under which no strategy can do any better than the population average if the others are using the reciprocal cooperation strategy of tit for tat 2 the necessary and sufficient conditions for a strategy to be collectively stable and 3 how cooperation can emerge from a small cluster of discriminating individuals even when everyone else is using a strategy of unconditional defection

cournot competition in a differentiated oligopoly abstract this paper studies product quantity equilibria in an oligopoly products are interpreted as qualities and each firm chooses a quality quantity pair simultaneously it is well known that a pure strategy equilibrium in product price pairs does not exist in this model but a pure strategy equilibrium in product quantity pairs exists furthermore in an example widely studied in the literature the equilibrium has nice asymptotic properties

the role of potential competition in industrial organization potential competition has been recognized as a mechanism to control the exploitation of market power at least since the work of j b clark 1902 but it was not until 50 years later that economists most notably joe bain and paolo sylos labini refocused attention on the idea with inputs from the theories of imperfect competition optimal control and dynamic games their work evolved into ever more sophisticated models of the reactions of existing competitors to the threat of new competition although the most appropriate models of competitive interaction are those which begin with a specific industry a number of theories have been proposed which attempt to develop more general conclusions my purpose in this paper is to develop an understanding of the strengths and limitations of these alternative theories by examining the available theoretical empirical and institutional knowledge rather than attempt the sisyphean task of recounting every model which relates conditions of entry and market performance i have partitioned the analysis into four major schools of thought according to their most central propositions these are the traditional model of limit pricing dynamic limit pricing the theory of contestable markets and the market efficiency model traditional limit pricing models rest on the assumption that firms respond to entry but are able to earn persistent profits when the structural characteristics of markets make entry difficult dynamic limit pricing is similar but emphasizes that markets can only be temporarily protected from entry contestability theory in its pure form asserts that potential competition is as effective as actual competition in controlling market performance the efficient markets hypothesis broadly interpreted states that markets are workably competitive and that the market structure reflects differential efficiency not strategic behavior while one can construct many other hypotheses about potential competition these classifications

strategic behaviour of incumbent firms in the uk abstract the main purpose of this paper is to examine the incidence of strategic behaviour in the uk by means of a questionnaire study performed across three broad manufacturing industries food electrical engineering and chemicals of the strategies which have received substantial theoretical attention r d and advertising appear widely used patenting pricing and excess capacity much less so vertical instruments such as purchasing policy also stand out as important but possibly only a minority of firms in our sample actively pursue strategic instruments

noisy advertising and the predation rule in antitrust analysis can advertising by dominant firms pose a predatory threat theoretically the answer clearly is yes however empirical evidence indicating the importance of this theoretical finding is largely missing economists empirical studies of advertising which typically focus on the question of whether high levels of advertising are indicative of the presence of a barrier to entry or signal that advertising information can substitute for consumption experience usually employ average advertising levels that hide strategically focused price cuts or changes in short term advertising rates

preemptive patenting and the persistence of monopoly this article takes a different tack and inquires whether institutions such as the patent system create opportunities for firms with monopoly power to maintain their monopoly power the results apply to other situations such as brand identification spatial location and capacity expansion which share the characteristic that early or preemptive actions may lower the returns to potential competitors

oligopoly and welfare a unified presentation with applications to trade and development abstract we develop a unified sequence of models to examine the determinants of price output profitability and concentration for different kinds of oligopolistic market we relate various magnitudes of significance to judges of welfare and to policy makers such as consumer surplus profit or added benefits of employment or trade surplus to observable magnitudes such as the size and concentration of the market it emerges that various appropriately formulated herfindahl indices are useful in several of these relations we attempt to present results in a way that is useful for empirical investigations and pay particular attention to applications in trade and development

multiple regime bid rent function estimation abstract this paper reviews estimators for multiple regime selection models which include the standard urban bid rent model as a special case 4 probabilistic bid rent model imposes a restrictive selection process while existing two stage multiple regime estimators assume an error structure that is inconsistent with bid rent theory monte carlo experiments demonstrate that two stage estimators are accurate and robust to distributional misspecification the practical usefulness of the estimators is illustrated using data on 1920s chicago land values

the multinational firm with arm s length transfer price limits abstract a multinational firm faced with arm s length limitations on its transfer prices is examined where the limitations are determined by the firm s marginal cost and intracountry prices such a firm is shown to manipulate its production and sales in order to gain a more desirable transfer price comparative static results develop policy implications not found in simpler models which often assume the firm to be constrained by arm s length limits but to be unaware of the effects of its actions on the limits

sequential bargaining with incomplete information this paper describes a simple two person two period bargaining game and solves it using the concept of perfect bayesian equilibrium in which the actions of each player convey information which is used by his opponent the paper examines the effects of changes in bargaining costs the size of the contract zone and the length of the bargaining process on such aspects of the solution as the probability of impasse and the likelihood of concessions the combination of information transfer and the lack of pre commitment embodied in perfectness yields many surprising results common perceptions about the effects of parameter changes on bargaining processes are suspect and should be checked in the particular game being discussed

advertising and limit pricing we enrich milgrom and roberts 1982 limit pricing model to allow an incumbent to signal his costs with both price and advertisements our fundamental result is that a cost reducing distortion occurs in that the incumbent behaves as if there were complete information but his costs were lower than they are preentry price is therefore distorted downward and demand enhancing advertising is distorted upward as a consequence of signalling if advertising is a purely dissipative signal it is not used nor therefore distorted recent refinements of the sequential equilibrium concept are featured

pricing policies of multinational enterprises host country regulation and welfare abstract this paper examines host country price regulation policies towards a foreign subsidiary the analysis considers two prices namely the transfer prices charged to the subsidiary and the market price of the subsidiary s products it is shown that host countries should regulate both of these prices regulation of the transfer price alone may induce an increase in the subsidiary s market price and cause a loss of host country welfare regulation of both prices is more efficient for it enables the host country to attain a higher level of welfare and allows the foreign firm to earn the same level of profits as would regulation of only one of those prices