the effects of entry regulation on oligopolistic interaction the uruguayan banking sector this article develops a methodology to test alternative oligopoly models and to analyze the effects of entry restrictions on conduct this methodology is applied to the uruguayan banking sector whose legal entry barriers were significantly relaxed during the late 1970s the results are consistent with a von stackelberg type of industry where the degree of oligopolistic interaction among the leading firms is reduced as a consequence of the relaxation of the legal entry barriers

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

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

evaluating the robustness of lead time demand models abstract this paper examines the robustness of lead time demand models for the continuous review r q inventory policy a number of classic distributions e g normal lognormal gamma poisson and negative binomial as well as distribution selection rules are examined under a wide variety of demand conditions first the models are compared to each other by assuming a known demand process and evaluating the errors associated with using a different model then the models are examined using a large sample of simulated demand conditions approximation results of inventory performance measures ready rate expected number of backorders and on hand inventory levels are reported results indicate that distribution selection rules have great potential for modeling the lead time demand

supply chain coordination for the joint determination of order quantity and reorder point using credit option abstract decisions regarding order quantity and reorder point are two major challenges in supply chain inventory management in this paper a coordination model of the joint determination of these two decision variables is proposed a decentralized supply chain consisting of one buyer and one supplier in a multi period setting is investigated demand and lead times are uncertain in our model an incentive scheme based on credit option has been developed to encourage the buyer to participate in the coordination model in this model the downstream member has the option of using credit to purchase goods during the credit time subject to its commitment to a jointly agreed order quantity and reorder point the credit time is determined in such a way that the two parties have incentives to participate the proposed incentive scheme can share the benefits of coordination between the two members based on their bargaining power the proposed model shows that the coordination of the reorder point together with order quantity can increase the overall chain profitability as well as each member s profitability

imperfect information and dynamic conjectural variations this article analyzes oligopoly interaction in an environment where firms are imperfectly informed about the evolution of the market demand curve the analysis develops a two period cournot framework under the assumptions that demand shifts are positively serially correlated that firms never directly observe the demand curve and that firms never observe the previous quantity decisions of rivals firms do draw inferences about the position of the demand curve from past observations on prices consequently the current output of a firm will influence the current market price which will then influence rivals inferences about future demand the future output decisions of rivals will respond accordingly the theory predicts negative dynamic conjectural variations essentially a firm perceives that an increase in its output will lower the current market clearing price which will cause rival firms to think that the demand curve has shifted down and hence induce them to lower their outputs in the future

goodwill and market shares in oligopoly economic literature treats price as the traditional competition variable however schmalensee 1976 p 493 argued that prices change infrequently and that firms compete mainly through non price variables the most important non price competition variables are advertising and product variation although there are many works dealing with non price competition they have not devoted much attention to the multi period effect of these variables and the models have been mainly static or a sequence of static models further discussion of this argument can be found in kydland 1977 in which dynamic dominant player models are discussed in an earlier paper arrow and nerlove 1962 pointed out that advertising expenditure should be treated in the same way as investment in a durable good they assumed that there is a stock of goodwill that determines the current demand this stock of goodwill summarizes the advertising in the past and like capital stock depreciates over time arrow and nerlove analysed the optimal advertising strategy for the monopolistic firm in this paper we extend the arrow nerlove model to oligopolistic competition in which the firms compete among themselves via goodwill the game we describe takes place over time and discounted profit is used as a criterion the current advertising of any player affects future demand and therefore the model has an intertemporal dependence structure extending an assumption by schmalensee 1978 in section i we allow market shares to depend on the firm s goodwill and not merely on current advertising using this definition of market share we discuss in section ii the optimal advertising policy for a single firm in section iii we prove the existence of a unique stationary equilibrium point for oligopolistic competition since we allow firms to have different cost functions the equilibrium point is not a symmetric one i e different firms have different market shares and different goodwill at the equilibrium point in section iv we discuss this asymmetric solution by explaining the relation between production cost and market shares the impact of the number of firms on the advertising expenditure is discussed in section v we prove that the firms advertising expenses tend to decline as the number of firms increases however if one of the firms is a leading firm in the industry and has a market share above one half we show that this firm might increase its advertising as other firms enter into the industry as an example we discuss in section vi the duopoly case and offer an explicit statement of the market shares at the equilibrium point in section vii we analyse an industry consisting of identical firms and explore the influence of the interest rate and the depreciation rate on the firms goodwill and advertising policy

empirical analysis of competitive product line pricing decisions lead follow or move together researchers have recently developed models for determining which market conduct best describes observed data we apply these techniques from the new empirical industrial organization literature to the competitive product line pricing decision where a firm strategically prices its brands when determining the profit maximizing conduct in the market demand cost and market structure are estimated endogenously empirical results from analyzing price competition in the laundry detergent market between procter and gamble selling tide and eraplus and lever brothers offering wisk and surf indicate that each firm positions its strong brand as a stackelberg leader with the rival s minor brand being the follower

accurate lead time demand modeling and optimal inventory policies in continuous review systems abstract to construct an accurate probability density function for lead time demand in inventory management models a mixture of polynomials mops distributions is estimated using b spline functions from empirical data on demand per unit time this is accomplished by summarizing the empirical observations into separate datasets for each lead time value a mixture distribution approach is then applied to model lead time demand in a continuous review inventory system inventory policies can be determined without knowledge of the underlying demand and or lead time distributions an improvement to a mixture distribution approach that models the lead time demand distribution with a mixture of truncated exponentials mtes distribution is also presented and the mop and mte techniques are compared both methods provide reasonable accuracy but the mop approach requires lower computational time to determine optimal inventory policies the mixture distribution approach is also compared with solutions calculated using optimization through simulation and by compiling a discrete empirical lead time demand distribution

strategic investment and conjectural variations abstract this paper analyzes investment decisions under the alternative assumptions of competitive collusive open loop non cooperative and feedback non cooperative behavior steady state capital stocks prices and outputs are obtained and compared the paper shows that one of the linear feedback equilibrium decision rule coefficients is a dynamic version of a contemporaneous conjectural variation the same decision rule coefficients are shown to imply a particular value for the contemporaneous conjecture the implied conjecture embodies subgame perfection and approaches the competitive value as the number of firms in the industry increases

determining safety stock in the presence of stochastic lead time and demand we consider the problem of setting safety stock when both the demand in a period and the lead time are random variables there are two cases to consider in the first case the parameters of the demand and lead time distributions are known in the second case they are unknown and must be estimated for the case of known parameters a standard procedure is presented in the literature in this paper examples are used to show that this procedure can yield results that are far from the desired result a correct procedure is presented when the parameters are unknown it is assumed that a simple exponential smoothing model is used to generate estimates of demand in each period and that a discrete distribution of the lead time can be developed from historical data a correct procedure for setting safety stocks that is based on these two inputs is given for two popular demand models the approach is easily generalized to other models of demand safety stock calculation is simplified when certain normality assumptions are valid simulation results in the appendix indicate when these assumptions about normality are reasonable

sunk costs windows of profit opportunities and the dynamics of entry abstract this article adds two elements to a standard model of monopolistic competition first the number of potential entrants is limited in each period and increases only over time second the potential entrants differ with respect to the consumers valuation of the variant they could offer the resulting simple model exhibits a rich dynamic structure covering the product life cycle a path dependent equilibrium and the traditional textbook case of entry the welfare analysis confirms the view that there cannot be too much entry even entry of inefficient firms improves welfare

manufacturer retailer channel interactions and implications for channel power an empirical investigation of pricing in a local market the issue of power in the marketing channels for consumer products has received considerable attention in both academic and practitioner journals as well as in the popular press our objective in this paper is to provide an empirical method to measure the power of channel members and to understand the reasons demand factors cost factors nature of channel interactions for this power we confine our analysis to pricing power in channels we use methods from the game theory literature in marketing on channel interactions to obtain the theoretical framework for our empirical model this literature provides us a definition of power one that is based on the proportion or percentage of channel profits that accrue to each of the channel members there can be a variety of possible channel interactions between manufacturers and retailers in channels the theoretical literature has examined some of these games for example choi 1991 examines how channel profits for manufacturers and retailer vary if channel interactions are either vertical nash or if they are stackelberg leaderfollower with either the manufacturer or the retailer being the price leader each of these three channel interaction games has different implications for profits made by manufacturers and retailers and consequently for the relative power of the channel members in contrast to the previous literature that has focused largely on the above three channel interaction games our model extends the game theoretic literature by allowing for a continuum of possible channel interactions between manufacturers and a retailer furthermore for a given product market we empirically estimate from the data where the channel interactions lie in this continuum more critically we obtain measures of how channel profits are divided between manufacturers and the retailer in the product market where a higher share of channel profit is associated with higher channel power we then examine how channel power is related to demand conditions facing various brands and cost parameters of various manufacturers in going from game theory based theoretical models of channel interactions to empirical estimation we use the new empirical industrial organization framework bresnahan 1988 as part of this structural modeling framework we build retail level demand functions for the various brands manufacturer and private label in a given product category given these demand functions we obtain optimal pricing rules for manufacturers and the retailer in determining their optimal prices manufacturers and the retailer account for how all the players in the channel choose their optimal prices that is we account for dependencies in decision making across channel members these dependencies are characterized by a set of conduct parameters which are estimated from market data the conduct parameters enable us to identify the nature of channel interactions between manufacturers and the retailer along the continuum mentioned previously in addition to the demand and conduct parameters manufacturers marginal costs are also estimated in the model these marginal cost estimates along with the manufacturer prices and retail prices available in our dataset enable us to compute the division of channel profits among the channel members hence we are able to obtain insights into who has pricing power in the channel in the empirical application of the model we analyze a local market for two product categories refrigerated juice and tuna in both categories there are three major brands the difference between them is that the private label has an insignificant market share in the tuna category our main empirical results show that the usual games examined in the marketing literature do not hold for the given data we also nd that the retailer s market power is very significant in both these product categories and that the estimated demand and cost parameters are consistent with the estimated pattern of conduct between the manufacturers and the retailer given the evidence from the trade press of intense manufacturer competition in these categories as well as the commodity nature of these products the result of retailer power appears intuitive

non trivial subgame perfect duopoly equilibria can be supported by continuous reaction functions abstract this paper demonstrates that non trivial subgame perfect duopoly equilibria can be supported by continuous reaction functions when previous period actions of both firms are arguments of reaction functions continuity imposes essentially no restrictions on the set of equilibria

investigating dynamic multifirm market interactions in price and advertising diagnosing the nature and magnitu de of competitive interactions among firms is important for developing effective marketing strategies in this paper we formulate a game theoretic model of firm interaction to analyze the dynamic price and advertising competition among firms in a given p roduct market firm or brand level demand functions account for the contemporaneous and carry over effects of these marketing activities and also allow for the effects of competitor actions firms take into consideration the actions of their rivals as well as their own demand and cost functions both production and advertising when determining the profit maximizing price and advertising levels our formulation enables us to quantify not only the direction and magnitude of competitive reactions but also to identify the underlying form of market conduct that generates the particular pattern of interaction we specify and estimate a fully structural econometric model for three firms constituting a distinct sub market within a personal care product category we estimate the demand and competitive interaction parameters as well as the production and advertising cost functions for each firm we then derive implications for competitive interactions and market structure interestingly we find that while firms seem to compete on advertising they price cooperatively thereby enhancing their price cost margins

trade execution costs and market quality after decimalization this study assesses trade execution costs and market quality for nyse and nasdaq stocks before and after the 2001 change to decimal pricing several theoretical predictions are confirmed quoted bid ask spreads declined substantially on each market with the largest declines for heavily traded stocks the percentage of shares receiving price improvement increased on the nyse but not on nasdaq however those trades completed at prices within or outside the quotes were improved or disimproved by smaller amounts after decimalization and trades completed outside the quotes saw the largest reductions in trade execution costs as a class effective bid ask spreads as a percentage of share price arguably the most relevant measure of execution costs for smaller trades averaged 0 33 on a volume weighted basis after decimalization for both nyse and nasdaq stocks there is no evidence of systematic intraday reversals of quote changes on either market as would be expected if decimalization had damaged liquidity supply

testing oligopolistic behavior abstract this paper develops an empirical model of short run pricing behavior for firms in a homogeneous product oligopoly it is based on the variable profit function and related output supply and factor demand equations and is used to analyze the behavior of firms in the coffee roasting industry a parametric test of the dominant firm model is developed and applied the hypothesis of dominant firm behavior and cournot behavior are rejected the hypothesis of price taking behavior is rejected for the largest two firms in the industry but is not rejected for all other firms using the estimated pattern of firm behavior an index of overall industry performance is constructed

the inventory billboard effect on the lead time decision abstract this research brings together two important research streams lead time management and the inventory billboard effect while traditional inventory theory which assumes that demand is independent of the average on hand inventory recommends that lead time be reduced to the lowest level possible it is clearly not the case when inventory exhibits the billboard effect which refers to the demand stimulating effect of inventory we use analytical models to examine the firm s optimal lead time decision in the presence of the inventory billboard effect in two scenarios with and without inventory based competition we begin with the single firm scenario where a firm employs the base stock policy for the infinite horizon continuous review inventory problem with a deterministic lead time and inventory dependent demand the firm s decisions are to choose the optimal lead time and the corresponding base stock level to maximize its expected profit rate we find that the inventory billboard effect favors a long lead time because a long lead time results in a higher inventory level which in turn induces more demand we then consider the case where two firms compete on inventory for customer demand we completely characterize the unique nash equilibrium and provide closed form solutions which allow us to conclude that inventory based competition pressures both firms to increase the lead time our numerical studies show that the extent to which demand depends on inventory amplify the impact of competition on the optimal decisions and the associated profit our findings suggest that lead time reduction although widely advocated by popular production philosophies such as just in time has to be carefully evaluated when inventory exhibits billboard effect

advertising and aggregate consumption a bayesian dsge assessment aggregate data reveal that advertising in the u s absorbs approximately 2 of gdp and has a well defined pattern over the business cycle being strongly procyclical and highly volatile because the purpose of brand advertising is to foster sales we ask whether such spending has an appreciable effect on the pattern of aggregate consumption and through this avenue on economic activity this question is addressed by developing a dynamic general equilibrium model in which households preferences for differentiated goods depend on the intensity of brand advertising which is endogenously determined by profit maximizing firms once the model is estimated to match the u s economy it argues that the presence of advertising in the long run raises aggregate consumption and hours worked eventually fostering economic activity we also find that advertising has a relevant impact on fluctuations in consumption investment and markup over the business cycle all of the abovementioned effects are proven to epend crucially on the degree of competitiveness of advertising at the firm level

minimax distribution free procedure with backorder price discount abstract the inventory models analyzed in this paper explore the problem in which the lead time and ordering cost reductions are inter dependent in the continuous review inventory model with backorder price discount the objective is to minimize total related cost by simultaneously optimizing the order quantity reorder point lead time and backorder price discount moreover we assume that the mean and variance of the lead time demand are known but its probability distribution is unknown we apply a minimax distribution free procedure to find the optimal solution and three numerical examples are given to illustrate the results

an empirical analysis of dynamic nonprice competition in an oligopolistic industry this article develops a dynamic model of nonprice competition in an oligopolistic industry and uses it to analyze advertising competition in the u s cigarette industry the model generalizes existing studies by allowing advertising to affect both firm market shares and the total size of the market the model also allows dynamic conjectural variations to arise from the intertemporal links created by the durability of advertising we use these dynamic conjectural variations to distinguish alternative models of competitive interaction we estimate the complete model of firm production demand and advertising choice by using data for u s cigarette producers the results indicate that firm advertising primarily affects the level of market demand with a firm s effect on rival firms market shares arising through variations in the number of brands sold empirical results on firm behavior suggest that firms act as if their advertising choices will alter the future advertising choices of rival firms in both the high tar and low tar cigarette markets

competition in a duopoly with sticky price and advertising abstract this paper develops a differential duopolistic game where price is sticky and firms can invest in market enlarging promotional activities which have a public good nature one finding indicates that advertising and not output as in fershtman and kamien econometrica 55 1987 1151 1164 is responsible for the higher stationary price found in the open loop equilibrium relative to the linear feedback one that is free riding is more intense when firms play linear markov feedback strategies however the collusive outcome can be approximated and opportunism eliminated if firms can engage in preplay negotiations where they select a nonlinear markov perfect strategy for output and advertising achieving the collusive outcome requires as in the folk theorem for infinitely repeated games the discount rate to be sufficiently small

dynamics of retail advertising evidence from a field experiment we use a controlled field experiment to investigate the dynamic effects of retail advertising the experimental design overcomes limitations hindering previous investigations of this issue our study uncovers dynamic advertising effects that have not been considered in previous literature we find that current advertising does affect future sales but surprisingly the effect is not always positive for the firm s best customers the long run outcome may be negative this finding reflects two competing effects brand switching and intertemporal substitution we also find evidence of cross channel substitution with the firm s best customers switching demand to the ordering channel that corresponds to the advertising jel l2 l81 m3 a firm s current advertising is generally associated with an increase in its sales but this effect is generally short lived

firm behavior in a market with addiction the case of cigarettes abstract this paper investigates firm behavior when demand is linked over time among other things the theoretical section shows that if firms are forward looking anticipated future events can affect current consumption of an addictive good even when consumers are completely myopic the empirical part of the paper reports a simulation of the 1983 federal cigarette excise tax increase both myopic and rational models of consumer demand give roughly the same predictions for per capita consumption but neither model does very well predicting actual consumption the problem appears to lie in the prediction of price suggesting that supply considerations are important

using the inventory theoretic framework to determine cost minimizing supply strategies in a stochastic setting abstract in a stochastic supply link between a supplier and a receiver a crucial component of the total logistics costs is formed by the costs of safety stock held by the receiver to protect against stockouts the level of safety stock depends on among other things the statistical distribution of demand during lead time ddlt for practical reasons ddlt is often assumed to be normally distributed however previous research has indicated that this assumption is often invalid in real life situations and that it can have a significant impact on safety stocks or service levels this paper first presents an extensive review of previous research on stochastic inventory models with specific emphasis on the distributions used to model period demand lead time and or ddlt the paper also discusses a real life case study in which the total logistics costs are calculated for a number of different transport modes for a gamma demand gamma lead time setting

the strategic nature of advertising in segmented markets we develop a simple model in which firm specific advertising has cooperative and predatory effects our model is set in a static market where firms are naturally segmented into two distinct submarkets several large firms located in the core with small firms operating as a fringe we test the net effect of opposing market size cooperative and market share predatory effects of both fringe and core firm advertising on the advertising decisions of large firms in several us consumer industries empirically fringe firm advertising leads to an increase in advertising efforts by large firms implying strategic complementarity on the other hand increased advertising by core firms in an industry decreases advertising expenditures of other core firms indicating they are strategic substitutes our findings imply that equilibrium levels of advertising can be greater with asymmetric rather than symmetric strategic interactions

exchange rate pass through for strategic pricing and advertising abstract this paper builds a model in the new empirical industrial organization framework bresnahan t 1989 industries and market power in schmalensee r willig r eds handbook of industrial organization north holland amsterdam to estimate exchange rate pass through in price and advertising price cost margins market structure and firm conduct are estimated endogenously allowing for precise estimation of the degree of and reasons for incomplete pass through i demonstrate that price and advertising pass through are functions of demand cost and market conduct in the short run in the long run the market conduct and cost technologies are in turn determined by the exchange rate movements 1997 elsevier science b v

the impact of capital structure on advertising competition an empirical study this article examines the interaction between capital structure and advertising competition using a sample of firms that raise significant amounts of capital we find that firms whose financial leverage has decreased as a result of their new funding increase their advertising significantly more than firms whose leverage has increased we also find that these firms industry rivals respond less aggressively with their own advertising when they have more debt in their capital structure overall our results support the view that financial leverage has a dampening effect on the intensity with which a firm chooses to compete in the product market

profit rates and intangible capital a central question in industrial organization is why profit rates differ so dramatically across firms and industries one of the many explanations offered for this phenomenon is the failure of conventional accounting methods to adjust for intangible capital stocks i e it is argued that profit rates do not differ dramatically when capital stocks are correctly calculated to include intangible r d and advertising capital to test this hypothesis individual advertising capital stocks are calculated for firms in the toys distilled beverages cosmetics and pharmaceuticals industries and r d stocks are calculated for the pharmaceuticals firms the adjustments do not eliminate the wide dispersion in profit rates copyright 1991 by mit press

licensing radical product innovations to speed up the diffusion abstract we present a differential game to study how companies can simultaneously license their innovations to other firms when launching a new product the licensee may cannibalize licensor s sales albeit this can be compensated by gains from royalties nonetheless patent royalties are generally so low that licensing is not an attractive strategy in this paper we consider the role of licensing to speed up the product diffusion word of mouth by licensee s customers and licensee s advertising indirectly push forward sales of the licensing company accelerating new product diffusion we find evidence that licensing can be a potentially profitable strategy however we also find that a weak intellectual property right ipr protection can easily diminish the financial attractiveness of licensing

empirical analysis of closed loop duopoly advertising strategies closed loop perfect equilibria in a lanchester duopoly differential game of advertising competition are used as the basis for empirical investigation two systems of simultaneous nonlinear equations are formed one from a general lanchester model and one from a constrained model two empirical applications are conducted in one involving coca cola and pepsi cola a formal statistical testing procedure is used to detect whether closed loop equilibrium advertising strategies are used by the competitors rather than open loop strategies in the second application involving anheuser busch and miller the general model is estimated results indicate that closed loop equilibria better explain dynamic advertising competition than do open loop equilibria also closed loop equilibrium advertising strategies implied by model estimates show that competitive advertising levels may or may not be monotonic in market share

oligopolistic interdependence and the structure of production in banking an empirical evaluation the main purpose of this paper is to incorporate the oligopolistic nature of the banking industry into the conventional production model in order to contribute to the empirical literature on the structure conduct and performance in banking and to achieve unbiased measures of scale economies and efficiency depending on which of the models is accepted by the data this is done by appending behavioral equations specifying banks conjectures regarding the reactions of other banks to its output change this formulation enables us to test for the correct type of behavioral model and relate it to the resulting estimated technology if estimates of economies of scale and inefficiencies depend on the behavioral model adopted other studies which ignore product market behavior may well be subject to misspecification errors the paper also sheds light on the nature of the oligopolistic interdependence in the banking sector copyright 1994 by ohio state university press