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

strategic buyers and exclusionary contracts this paper characterizes equilibrium exclusionary contracts between buyers an incumbent firm and a potential entrant when buyers can either vertically integrate or contract with the outside entrant in this setting exclusionary contracts are generally shown to be efficient and to deter inefficient entry that would otherwise occur with multiple unorganized buyers equilibrium contracts are shown to take a divide and conquer form and in some cases to deter some efficient entry in such cases efficient contracting can be restored by a policy that prohibits price discrimination and gives agents free reign to sign exclusionary agreements copyright 1994 by american economic association

monetary policy and uncertainty in an empirical small open economy model this paper explores optimal policy design in an estimated model of three small open economies australia canada and new zealand within a class of generalized taylor rules we show that to stabilize a weighted objective of output consumer price in ation and nominal interest variation optimal policy does not respond to the nominal exchange this is despite the presence of local currency pricing and due in large part to observed exchange rate disconnect in these economies optimal policies that account for the uncertainty of model estimates as captured by the parameters posterior distrbution similarly exhibit a lack of exchange rate response in contrast to brainard 1967 the presence of parameter uncertainty can lead to more or less aggressive policy responses depending on the model at hand

the competitive effects of vertical agreements for many years there were few distinctions drawn between horizontal and vertical agreements both were considered anticompetitive and subject to per se condemnation under the antitrust laws recently however this approach has come under attack and what was once the conventional wisdom is no longer so indeed there is growing acceptance of the view that vertical agreements can rarely have anticompetitive consequences per se legality would then be the appropriate standard in this paper we investigate the competitive implications of a particular vertical agreement the imposition of exclusive dealing requirements by a manufacturer on his distributors however to maintain the focus of the analysis we do not consider ultimate welfare gains or losses in an early application of economic analysis to this practice aaron director and edward levi 1956 suggest that exclusive dealing would be anticompetitive if it raised entry costs for rivals our object following this conjecture see their p 293 is to examine the market conditions under which exclusive dealing impedes entry howard marvel 1982 dealt with the practice of exclusive dealing he provides an efficiency rationale for exclusive dealing ignores the prospect that anticompetitive effects may follow and concludes that exclusive dealing ought therefore to be treated as legal per se p 25 this paper examines the possible anticompetitive effects neglected by marvel i market conditions for exclusive dealing

a brain gain with a brain drain abstract we study human capital depletion and formation in an economy open to out migration as opposed to an economy which is closed under the assumption of asymmetric information the enlarged opportunities and the associated different structure of incentives can give rise to a brain gain in conjunction with a brain drain migration by high skill members of its workforce notwithstanding the home country can end up with a higher average level of human capital per worker

how important is selection experimental vs non experimental measures of the income gains from migration measuring the gain in income from migration is complicated by non random selection of migrants from the general population making it difficult to obtain an appropriate comparison group of non migrants this paper uses a migrant lottery to overcome this problem providing an experimental measure of the income gains from migration new zealand allows a quota of tongans to immigrate each year with a lottery to choose among the excess number of applicants a unique survey conducted by the authors in these two countries allows experimental estimates of the income gains from migration by comparing the incomes of migrants to those who applied to migrate but whose names were not drawn in the lottery after allowing for the effect of non compliance among some of those whose names were drawn the authors also conducted a survey of individuals who did not apply for the lottery comparing this non applicant group with the migrants enables assessment of the degree to which non experimental methods can provide an unbiased estimate of the income gains from migration they find evidence of migrants being positively selected in terms of both observed and unobserved skills as a result non experimental methods are found to overstate the gains from migration by 9 to 82 percent a good instrumental variable works best while difference in differences and bias adjusted propensity score matching also perform comparatively well

time to build and aggregate fluctuations some new evidence this paper presents maximum likelihood estimates and tests of a model similar to one kydland and prescott 1982 suggested for this purpose it derives equilibrium laws of motion for a set of aggregate variables as functions of the model s parameters and the innovation to the technology shock the paper shows that a single unobservable index can explain the variability in the observed series but identifying the single index with the innovation to the technology shock implies that per capita hours is not well explained it also shows that time separable preferences with respect to leisure are consistent with the data copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

variable capital utilization and international business cycles this paper develops a two country international business cycle model with variable capital utilization using a standard depreciation in use technology variable capital utilization significantly reduces the required size of productivity shocks needed to replicate observed output volatility by 20 40 further the model generates positive comovement across countries in wages hours and investment while preserving empirically accurate predictions regarding the relative cross country correlations of output and consumption and the countercyclical behavior of net exports finally accounting for variable capital utilization reduces cross country correlation of true productivity shocks relative to that of the standard solow residual

monetary policy and exchange rate volatility in a small open economy we lay out a small open economy version of the calvo sticky price model and show how the equilibrium dynamics can be reduced to a simple representation in domestic inflation and the output gap we use the resulting framework to analyse the macroeconomic implications of three alternative rulebased policy regimes for the small open economy domestic inflation and cpi based taylor rules and an exchange rate peg we show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail we also discuss a special case for which domestic inflation targeting constitutes the optimal policy and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with the suboptimal rules

risk premium and market power in credit markets abstract the use of credit risk adjusted marginal opportunity cost of funds in the computation of the lerner index for bank loans opens new directions to properly evaluate market power of banks in credit markets beyond disputed concentration measures

a panel data analysis of the fungibility of foreign aid the donor community has been increasingly concerned that development assistance intended for crucial social and economic sectors might be used directly or indirectly to fund unproductive military and other expenditures the link between foreign aid and public spending is not straightforward because some aid may be fungible this article empirically examines the impact of foreign aid on the recipient s public expenditures using cross country samples of annual observations for 1971 90 for the base sample of 14 developing countries it finds that aid is not fungible at the aggregate level and there is no associated tax relief increasing the number of countries however makes aid fungible moreover results based on the main sample indicate that aid is fungible in three out of five sectors examined developing country governments receiving earmarked concessionary loans for agriculture education and energy reduce their own resources going to these sectors and use them elsewhere only loans to the transport and communication sector are fully spent on the purposes intended by donors because most aid appears to be fungible the rate of return on a specific donor funded project tells little about the impact of that assistance a better approach may be to tie foreign aid to an overall public expenditure program that provides adequate resources to crucial sectors

a method for taking models to the data abstract this paper develops a method for combining the power of a dynamic stochastic general equilibrium model with the flexibility of a vector autoregressive time series model to obtain a hybrid that can be taken directly to the data it estimates this hybrid model via maximum likelihood and uses the results to address a number of issues concerning the ability of a prototypical real business cycle model to explain movements in aggregate output and employment in the postwar us economy the stability of the real business cycle model s structural parameters and the performance of the hybrid model s out of sample forecasts

comparing new keynesian models of the business cycle a bayesian approach abstract the baseline new keynesian model cannot replicate the observed persistence in inflation output and real wages for sensible parameter values as a result several extensions have been suggested to improve its fit to the data we use a bayesian approach to estimate and compare the baseline sticky price model of calvo s 1983 staggered prices in a utility maximizing framework journal of monetary economics 12 383 398 and three extensions our empirical results are as follows first we find that adding price indexation improves the fit of calvo s 1983 staggered prices in a utility maximizing framework journal of monetary economics 12 383 398 model second models with both staggered price and wage setting dominate models with only price rigidities third introducing wage indexation does not significantly improve the fit fourth all model estimates suggest a high degree of price stickiness fifth the estimates of labor supply elasticity are higher in models with both staggered price and wage contracts finally the estimated inflation parameters of the taylor rule are stable across models

market structure and the nature of price rigidity evidence from the market for consumer deposits panel data on consumer bank deposit interest rates reveal asymmetric impacts of market concentration on the dynamic adjustment of prices to shocks banks in concentrated markets are slower to raise interest rates on deposits in response to rising market interest rates but are faster to reduce them in response to declining market interest rates thus banks with market power skim off surplus on movements in both directions since deposit interest rates are inversely related to the price charged by banks for deposits the results suggest that downward price rigidity and upward price flexibility are a consequence of market concentration

the competitive effects of vertical agreements comment recent economic analyses of vertical restraints and integration emphasize the circumstances under which these arrangements are socially efficient efficiency claims have proven contentious however for exclusive dealing a vertical restraint that prohibits any outlet carrying a manufacturer s product from stocking substitute brands this paper analyzes the impact of exclusive dealing on competition and allocative efficiency opinions expressed on the impact of exclusive dealing range from the extreme view that it is invariably anticompetitive to the view that it is always procompetitive the u s supreme court has concluded that in hundreds if not thousands of communities where there is a single retailer for a product

the competitive effects of vertical agreements comment in a recent paper comanor and frech 1985 cf claim that a manufacturer enjoying a product differentiation advantage could impose exclusive dealing on distributors while also raising its wholesale price the two consumer groups in the model would then pay higher prices than under nonexclusive dealing cf also suggest that exclusive dealing is more likely to emerge when product differentiation is relatively strong cf s analysis does not carefully incorporate the constraints imposed by dealer rationality doing so within cf s model i reach opposite conclusions exclusive dealing will be accepted only if the manufacturer reduces its wholesale price to dealers relative to nonexclusive dealing price rises to one group of consumers but falls to the other moreover exclusive dealing is more likely to emerge when product differentiation is relatively weak

collusion and price rigidity we consider an in nitely repeated bertrand game in which prices are publicly observed and each rm receives a privately observed i i d cost shock in each period we focus on symmetric perfect public equilibria sppe wherein any punishments are borne equally by all rms we identify a tradeoff that is associated with collusive pricing schemes in which the price to be charged by each rm is strictly increasing in its cost level such fully sorting schemes offer efficiency bene ts as they ensure that the lowest cost rm makes the current sale but they also imply an informational cost distorted pricing and or equilibrium path price wars since a higher cost rm must be deterred from mimicking a lower cost rm by charging a lower price a rigid pricing scheme where a rm s collusive price is independent of its current cost position sacri ces efficiency bene ts but also diminishes the informational cost for a wide range of settings the optimal symmetric collusive scheme requires i the absence of equilibrium path price wars and ii a rigid price if rms are sufficiently impatient however the rigid pricing scheme cannot be enforced and the collusive price of lower cost rms may be distorted downward in order to diminish the incentive to cheat when the model is modi ed to include i i d public demand shocks the downward pricing distortion that accompanies a rm s lower cost realization may occur only when current demand is high

lending relationships and labor market dynamics abstract motivated by a negative link between credit spreads and labor force participation lfp and a positive link between these spreads and unemployment over the business cycle we study the role of lfp as an amplification mechanism of financial shocks in a labor search model with endogenous lfp lending relationships and credit market disruptions amid aggregate productivity and financial shocks that replicate the empirical volatility of lfp and credit spreads the model produces highly volatile unemployment and vacancies countercyclical credit spreads and unemployment and procyclical lfp when we quantitatively match the cyclical behavior of credit spreads the interaction between endogenous lfp and financial shocks gives rise to much sharper vacancy fluctuations and plays a key role in generating quantitatively factual cyclical labor market dynamics

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

an asymmetry generator for error coorection mechanisms with application to bank mortgage rate dynamics empirical evidence supports asymmetries in the adjustment of prices interest rates and other economic variables the asymmetry hypothesis however is often procedurally difficult to set up and test this article shows that a wide variety of such mechanisms can be nested within an asymmetry generator which represents the interactions between the disequilibrium term of an error correction mechanism and an ancillary driver process the asymmetry hypothesis can then be tested in a straightforward extension of linear statistical methods the methods are applied to 10 years of monthly new zealand mortgage rate data

deposit spreads and the welfare cost of inflation abstract high nominal interest rates are associated with high deposit spreads which is consistent with a model where banks have monopoly power and currency and deposits are substitutes therefore higher interest rates raise the implicit price of banking services increase bank profits and attract entry into the banking sector taking these effects into account a one percentage point increase in inflation has a welfare cost of 0 083 of gdp 6 7 times higher than traditional estimates

financial frictions and policy cooperation a case with monopolistic banking and staggered loan contracts abstract do financial frictions call for cross border policy cooperation this paper investigates the implications of financial frictions in the form of staggered loan contracts supplied by monopolistic banks for monetary policy using the linear quadratic lq framework we show that policy cooperation yields long run gains in addition to gains from stabilizing inefficient fluctuations over the business cycle as usually found in models with price rigidities the ramsey optimal steady states differ between cooperation and noncooperation such gains from cooperation arise irrespective of capital account liberalization

rebates as incentives to exclusivity we show how rebates or fidelity discounts that take the form of lump sum payments made to retailers can be used by an incumbent manufacturer to achieve exclusivity and to deter the entry of a more efficient rival the results which hold whatever the degree of differentiation between retailers and whatever the cost advantage of the entrant are found despite minimizing asymmetries that may favour the incumbent as such there is no need to introduce buyers disorganization discriminatory offers economies of scale non coincident markets or liquidated damages to find that exclusivity can lead to anti competitive effects

business cycles and monetary regimes in emerging economies a role for a monopolistic banking sector abstract this study shows that the presence of imperfect competition in the banking system propagates external shocks and amplifies the business cycle strategic limit pricing aimed at protecting retail niches from potential competitors generates countercyclical bank markups markup increments during recessions directly increase borrowing costs for firms and indirectly damage the financial position of firms balance sheets increasing the risk perception of lenders i use bayesian techniques and data from argentina to show that the inclusion of monopolistic banking improves the fit of the new keynesian small open economy model

cost raising strategies advantage rivals by raising their costs in this paper we show that strategies designed to raise rivals costs have a number of advantages over predatory pricing they are credible do not necessarily require the victim to exit and do not necessarily require the existence of classical market power the paper sets up a general model proves a number of general results and then applies the model to specific strategies involving overbuying inputs and vertical integration

downstream vertical foreclosure and upstream innovation i examine a link between downstream foreclosure and upstream innovation the crucial ingredient of the model is the presence of dynamic economies of scale upstream in the form of competition in r d the reason an upstream supplier has a captive buyer is to force rival suppliers to incur the disadvantages of low scale production and discourage them from innovating the downstream buyer is offered favorable terms and is convinced to sign an exclusive supply contract and accept captivity in this context downstream foreclosure may reduce consumer welfare

exclusive dealing and entry when buyers compete rasmusen et al 1991 and segal and whinston 2000 show that an incumbent monopolist might prevent entry of a more efficient competitor by exploiting externalities among buyers we show that their results hold only when downstream competition among buyers is weak under fierce downstream competition if entry took place a free buyer would become more competitive and increase its output and profits at the expense of buyers that sign an exclusive deal with the incumbent anticipating that orders from a single buyer would trigger entry no buyer will sign the exclusive deal and entry will occur this result is robust across different specifications of the game jel k21 l12 l42

skill development and regional mobility lessons from the australia pacific technical college abstractdeveloping countries can lose part of their investment in training skilled workers who later emigrate one innovative response is for migrants destination countries to help finance skilled emigrants training ex ante linking skill creation and skill mobility we describe one such project the australia pacific technical college aptc which has financed vocational training in five pacific island developing countries for employment both at home and abroad including employment in australia the aptc has attained its goal of skill creation but not its goal of skill mobility we offer explanations for this result and lessons for future policy innovation

can a brain drain be good for growth in the source economy this paper analyzes the interaction between income distribution human capital accumulation and migration it shows that when migration is not a certainty a brain drain may increase average productivity and equality in the source economy even though average productivity is a positive function of past average levels of human capital in an economy it is also shown how the temporary possibility of emigration may permanently increase the average level of productivity of an economy

accounting for selectivity and duration dependent heterogeneity when estimating the impact of emigration on incomes and poverty in sending areas the impacts of international emigration and remittances on incomes and poverty in sending areas are increasingly studied with household survey data but comparing households with and without emigrants is complicated by a triple selectivity problem first households self select into emigration second in some emigrant households everyone moves while others leave members behind and third some emigrants choose to return to the origin country allowing for duration dependent heterogeneity introduces a fourth form of selectivity one must now worry not just about whether households migrate but also when they do so this paper clearly sets out these selectivity issues and their implications for existing migration studies and then addresses them by using survey data designed specifically to take advantage of a randomized lottery that determines which applicants to the over subscribed samoan quota may immigrate to new zealand the analysis compares incomes and poverty rates among left behind members in households in samoa that sent samoan quota emigrants with those for members of similar households that were unsuccessful in the lottery policy rules control who can accompany the principal migrant providing an instrument to address the second selectivity problem while differences among migrants in which year their ballot was selected allow for estimation of duration effects the authors find that migration reduced poverty among former household members but they also find suggestive evidence that this effect may be short lived as both remittances and agricultural income are negatively related to the duration that the migrant has been abroad

exclusive dealing and entry when buyers compete comment in this paper fm s equilibrium analysis is shown to contain some errors fixing these errors changes their conclusions for some of the cases they consider exclusive deals written between an incumbent and competitive downstream buyers will still often arise in equilibrium thereby block ing efficient entry inefficient exclusion arises to protect industry profits from competition the issue centers on how competition works when upstream firms sell to consumers through two com peting downstream buyers in the case upstream firms can offer downstream buyers two part tariffs the analysis of competition in this setting turns out to be surprisingly subtle and the analysis here should be of more general interest to those modeling competition in vertical settings the particular model fm consider is based on the cost specification in segal and whinston 2000 sect iv in which the incumbent faces a potential entrant that has a lower cost of production but faces some fixed cost of entry two identical downstream buyers compete in prices for final consum ers exclusive deals involve the incumbent offering buyers a fixed compensation for agreeing not to purchase from the entrant fm derive their results under two different assumptions on wholesale pricing upstream firms are required to set linear wholesale prices section i and upstream firms are allowed to offer two part tariff contracts section ii since restricting upstream firms to charge linear wholesale prices to buyers seems inconsistent with assuming the incumbent can offer exclu sive contracts with a fixed compensation in the initial stage and since linear wholesale prices can lead to double marginalization problems the focus in this paper is on the less restrictive case consid ered by fm where upstream firms are allowed to offer downstream buyers two part tariffs 1 in this setting correcting fm s analysis shows that entry arises only when scale economies are not too important and the entrant s efficiency advantage is sufficiently large when either

the economic consequences of brain drain of the best and brightest microeconomic evidence from five countries this article presents results of innovative surveys that tracked academic high achievers from five countries to wherever they moved in the world to directly measure at the micro level the channels through which high skilled emigration affects sending countries there are high levels of emigration and of return and the income gains to the best and brightest from migrating are an order of magnitude greater than any other effect most high skilled migrants from poorer countries remit but involvement in trade and foreign direct investment is rare fiscal costs vary widely but are much less than the benefits to the migrants themselves two narratives drive discussions of the development impact of high skilled migration the first is the idea of a brain drain whereby the departure of doctors teachers engineers scientists and other highly skilled workers decimates the human capital and fiscal revenues of sending countries bhagwati and hamada 1974 such fears lead to calls for policies to restrict the flow of highly skilled workers such as demands that developed countries stop recruiting doctors from developing nations and efforts by developing nations to restrict the ease of their highly skilled individuals migrating 1 contrasting with this is the view of a highly educated diaspora as a potent force for developing the local economy through remittances trade foreign direct investment fdi and knowledge transfers with the experience of india and china in setting up technology firms as a result of diaspora working in silicon valley a prominent example saxenian 2002 economists have also emphasised that the possibility of migrating may spur human capital accumulation potentially leading to a net increase in the education levels of those in the home country 2

tying foreclosure and exclusion in recent years the leverage theory of tied good sales has faced heavy and influential criticism in an important sense though the models used by its critics are actually incapable of addressing the leverage theory s central concerns here the author reconsiders the leverage hypothesis and argues that tying can indeed serve as a mechanism for leveraging market power the mechanism through which this leverage occurs its profitability and its welfare implications are discussed in detail copyright 1990 by american economic association

capital market imperfections and countercyclical markups theory and evidence during recessions output prices seem to rise relative to wages and raw material prices one explanation is that imperfectly competitive firms compete less aggressively during recessions that is markups of price over marginal cost are countercyclical the authors present a model of countercyclical markups based on capital market imperfections during recessions liquidity constrained firms boost short run profits by raising prices to cut their investments in market share the authors provide evidence from the supermarket industry in support of this theory during regional and macroeconomic recessions more financially constrained supermarket chains raise their prices relative to less financially constrained chains copyright 1996 by american economic association

optimal monetary policy and imperfect financial markets a case for negative nominal interest rates this article studies optimal monetary policy in a model with credit frictions and money demand we show that augmenting a standard new keynesian model with money demand and financial frictions generates a mechanism that in equilibrium gives rise to optimal negative nominal interest rates in addition we find that the tighter credit markets are the lower the optimal nominal policy interest rate and the more likely it is to be negative quantitatively when credit constraints are binding a standard calibration of the model generates an optimal nominal policy interest rate that is roughly 4 annually jel e31 e41 e43 e44 e52 e58

the deposits channel of monetary policy we propose and test a new channel for the transmission of monetary policy we show that when the fed funds rate increases banks widen the interest spreads they charge on deposits and deposits ow out of the banking system we present a model in which imperfect competition among banks gives rise to these relationships an increase in the nominal interest rate increases banks market power inducing them to increase deposit spreads and hence restrict deposit supply households respond to the increase in deposit prices by substituting from deposits into less liquid but higheryielding assets consequently changes in the nominal interest rate aect banks cost of capital and lending using branch level data on the universe of u s banks we show that following an increase in the fed funds rate deposit spreads increase by more and supply falls more in areas with less deposit competition we control for changes in banks lending opportunities by comparing branches of the same bank we control for changes in macroeconomic conditions by showing that deposit spreads widen immediately after a rate change and even if this change is fully anticipated our results imply that monetary policy has a signicant impact on how the nancial system is funded on the quantity of safe and liquid assets it produces and on its provision of loans to the real economy

real exchange rate dynamics revisited a case with financial market imperfections abstract in this paper we investigate the relationship between real exchange rate dynamics and financial market imperfections for this purpose we first construct a new open economy macroeconomics noem model that incorporates staggered loan contracts as a simple form of the financial market imperfections our model with such a financial market friction replicates persistent volatile and realistic hump shaped responses of real exchange rates which have been thought very difficult to materialize in standard noem models remarkably these realistic responses can materialize even with both supply and demand shocks such as cost push loan rate and monetary policy shocks this implies that the financial market development is a key element for understanding real exchange rate dynamics

migration intentions in the u k which households want to migrate and which succeed the authors extend their earlier study of the impact of the council housing system on migration in the united kingdom in particular they examine the hypothesis that individuals differ in various unobserved ways and that personal characteristics that result in individuals becoming tenants may also discourage migration data are from the general household survey for 1973 and 1974 and pertain to both migration intentions and past migration the extent to which house tenure and other household characteristics affect the probability that a household embarking on a housing search will be successful in realizing its migration intentions is explored in addition the importance of both individual and aggregate local unemployment in determining migration intentions is discussed

credit cronyism and control evidence from the americas abstract i examine the effects of corruption and government control of the banking system for 18 western hemisphere countries on the sensitivity of commercial lending rates to changes in international financial conditions and find that most countries lending rates are insensitive to these conditions only the least corrupt nations exhibit a significant positive relation between lending rates and international financial conditions the responsiveness of these lending rates is nonlinearly related to corruption and government control of the banking sector the findings suggest that both corruption and government control of banks need to be considered when analyzing international credit markets

exclusionary contracts and competition for large buyers abstract this paper reconsiders the analysis of the competitive effects of buyer contracts in contrast to the previous literature we do not impose ex ante asymmetry on the contracting opportunities of firms rather we consider a market composed of two segments involving small anonymous and large non anonymous buyers while the large buyers can contract with each other and any firm in the market it is assumed that no such opportunities exist for the small buyers that is neither the large buyers nor firms can make contractual commitments with small buyers firms must supply these buyers based on arms length single price oligopolistic competition in this environment we demonstrate that large buyers will have an incentive to form a coalition with a single firm so as to extract rents from the small customer segment market dominance results the outcome is socially suboptimal as either production takes place at a higher cost than is otherwise possible or there is a monopoly for small buyers with an associated allocative loss

fairly priced deposit insurance and bank charter policy the thrust of current deposit insurance reform risk based insurance premiums and capital requirements is an effort to price deposit insurance more fairly fairly pricing deposit insurance eliminates inequitable wealth transfers but it does not lead to an efficient equilibrium this paper shows that an alternative charter policy results in an efflcient separating equilibrium this article analyzes the effect of alternative charter policies when deposit insurance is fairly priced the thrust of current deposit insurance reformrisk based capital requirements 1988 and risk based insurance premiums 1994 is an effort to price deposit insurance more fairly chan greenbaum and thakor s 1992 seminal paper dramatically illustrated that fairly pricing deposit insurance is not enough to solve the deposit insurance problem in their model when banks hold nontraded private information assets no equilibrium exists with fairly priced deposit insurance unless banks earn rent or are subsidized fairly pricing deposit insurance eliminates inequitable transfers of wealth but it does not lead to an efficient equilibrium this paper shows that an alternative charter policy gives an efficient separating equilibrium the separating equilibrium segregates the market for insured transactions deposits from private information financial intermediation the analysis in this article provides support for the deposit insurance reform proposal in the recent 1993 national commission on financial institution reform recovery and enforcement ncfirre report to the president and congress and for merton and bodie s 1993 proposal both proposals impose a separating equilibrium that isolates insured transactions accounts and the public information traded assets that secure them from private information assets in the bank s portfolio the formal model developed here is designed to demonstrate the effect of charter policy on the efficiency of market equilibrium in an uncomplicated setting but the main result that a separating equilibrium is more efficient is extremely robust with respect to the model specification the model has two types of financial intermediaries intermediaries that hold nontraded private

selective contracts foreclosure and the chicago school view abstract i examine a mechanism by which exclusive supply contracts may inefficiently deter entry into the market in the model the incumbent supplier selectively offers contracts only to some buyers and convinces them to consent by guaranteeing them low prices the contracts strengthen the monopoly position of the incumbent supplier and allow it to extract rents from the remaining buyers that were not offered contracts aside from the favorable contract terms buyers have another reason to consent to the exclusivity scheme the latter raises the input costs of rival buyers that were not offered contracts the model has potential applications to the recent microsoft antitrust case 1994 i define exclusive supply contract as an agreement under which an upstream firm becomes the exclusive supplier of a downstream firm the downstream firm is prohibited from buying from other suppliers

competition and pricing in the credit card market many credit card issuers charge fixed rates that remain the same for three to five years while the rest charge variable rates that are indexed to market rates the presence of these two distinct rate types forces prices at firms selling an otherwise identical product to move asynchronously variable rates move one for one with the index while fixed rates stay constant empirical and theoretical analysis shows that this pricing structure provides an explanation for the simultaneous yet seemingly contradictory existence of high rate cost margins and aggressive non price competition for new customers a phenomenon that existed in the credit card market in the early 1990s

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

optimum pricing policy under stochastic inflation we describe aggregate inflation as a stochastic process in which the rate of change of the price level can be positive or zero where the times spent in each state are of random duration this class of processes includes two state markov chains and renewal processes as special cases it is shown that the optimal pricing policy of a monopolistic firm with non convex costs of price adjustment is s s in its real price i e its nominal price relative to the price level a basic certainty equivalence result is proved i e the firm behaves as if it faces a certain and fixed rate of inflation higher than the actual expected rate the difference between the two rates being a risk premium which depends on the real interest rate and the parameters of the stochastic process one can thus apply previous results from the case of certainty sheshinski and weiss review of economic studies 1977 to obtain comparative static results in particular one finds that an increase in the variance of expected inflation leads firms to choose a pricing policy with larger amplitude in real price the paper also addresses the question of consistency in firms expectations when the price level is determined by the firms actions in this paper we consider pricing policies of individual firms in an inflationary environment each firm expects the general price level to increase and must determine the rate of increase of its own price it is assumed that the firm incurs an adjustment cost when it changes its nominal price consequently firms choose to change prices occasionally rather than continuously

lending relationships and monetary policy financial intermediation and bank spreads are important elements in the analysis of business cycle transmission and monetary policy we present a simple framework that introduces lending relationships a relevant feature of financial intermediation that has been so far neglected in the monetary economics literature into a dynamic stochastic general equilibrium model with staggered prices and cost channels our main findings are i banking spreads move countercyclically generating amplified output responses ii spread movements are important for monetary policy making even when a standard taylor rule is employed iii modifying the policy rule to include a banking spread adjustment improves stabilization of shocks and increases welfare when compared to rules that only respond to output gap and inflation and finally iv the presence of strong lending relationships in the banking sector can lead to indeterminacy of equilibrium forcing the central bank to react to spread movements

multimarket contact competition and pricing in banking abstract in this paper we assess the impact of multimarket contact of banks on their market power by means of a simultaneous equation model in which the divergence of price from marginal cost is a function of multimarket linkages the model is estimated using aggregate data from the italian regions for the years 1997 2009 our results show that multimarket contact is positively and significantly correlated to the market power index and is also connected to both home and non home market concentration the evidence is robust to changes in model specification and multimarket contact measures and supports the idea that firms which have a greater amount of contact are more likely to collude

big banks and macroeconomic outcomes theory and cross country evidence of granularity does the mere presence of big banks affect macroeconomic outcomes we develop a theory of granularity for the banking sector by modeling heterogeneous banks charging variable markups using data for a large set of countries we show that the banking sector is indeed granular as the right tail of the bank size distribution follows a power law we demonstrate empirically that the presence of big banks measured by a high degree of market concentration is associated with a positive and significant relationship between bank level credit growth and aggregate growth of credit or gdp

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

the cyclicality of price cost margins in banking an empirical analysis of its determinants i introduction in this paper we study the cyclical behavior of price cost margins in banking calculated as the difference between the interest rate on loans and deposits using time series quarterly data for the period 1979 2005 in the united states this cyclical behavior of banks price cost margins a key fact about business fluctuations has received little attention before dueker and thornton 1997 find evidence that in cyclical downturns banks opt for a relatively high price cost margin however they focus exclusively on the markup of the bank prime lending rate over the marginal cost of funds for banks mandelman 2006 presents evidence on the cyclicality of margins for a large sample of countries and uses foreign bank penetration to explain the behavior of margins 1 in olivero 2005 aliaga diaz 2006 and aliaga diaz and olivero 2010a we document the countercyclicality of banks price cost margins in the united states in that paper we do so using an atheoretical methodology based on var forecast errors to measure comovement between variables 2 in this paper we build on this atheoretical evidence and take a step further by constructing an empirical model of the determinants of the cyclical behavior of margins here we take a theory based approach to decide on the inclusion of the relevant regressors that belong to this model doing so allows us to contribute to the literature by providing potential explanations for the previously documented countercyclical nature of margins monetary policy and credit risk could be suggested as the main and potentially the only determinants of the cyclical behavior of margins on the one hand the bank lending channel of monetary transmission predicts that the federal funds rate as a monetary policy indicator and margins are directly related therefore if policy rates exhibit a particular cyclical behavior not controlling for monetary policy could bias the estimations on the cyclical behavior of margins on the other hand credit risk is expected to be countercyclical and to raise margins so that default should help explain the countercyclicality of the latter based on these two observations our empirical methodology consists of two steps in a first step we test whether the negative and significant contemporaneous sample correlations between margins and a business cycle indicator are robust to the inclusion of controls related to monetary policy default risk and banking regulation results show it is so that there seems to be other channels through which fluctuations in the economy give rise to the observed countercyclicality of margins in a second step we look for these channels and offer several potential explanations for the observed behavior interest rate risk the economy s financial depth banks liquidity and capitalization and the share of total assets held by large banks all exert a significant impact on the behavior of margins over the business cycle these conclusions are consistent across alternative definitions of the margins and the business cycle indicator our work is linked to two strands of research in macroeconomics first our countercyclicality results are linked to the large literature on countercyclical markups in goods markets and its effects on aggregate demand started by rotemberg and saloner 1986 and rotemberg and woodford 1992 second price cost margins that vary endogenously and countercyclically in response to the state of the economy are a necessary condition for the existence of a financial accelerator as an amplifier of business fluctuations see for example bernanke and gertler 1989 and bernanke gertler and gilchrist 1998 therefore the countercyclical nature of price cost margins that we study here provides empirical support to the large body of literature in macroeconomic theory on this financial accelerator with price cost margins in the market for credit being countercyclical credit becomes more expensive in bad times firms may delay investment and production as a result and recessions may be exacerbated

foreign aid and the question of fungibility this paper analyzes whether the foreign assistance provided for specific categories of expenditure is shifted among them contrary to the wishes of donors it also considers whether aid reduces the tax effort of recipient governments econometric results are presented for the dominican republic that show that the fungibility of aid has resulted in a thwarting of the intentions of donors an attempt is made to account for the observed differences in behavior of individual countries in altering expenditures copyright 1993 by mit press

the price concentration relationship in banking the commonly observed positive correlation between market concentration and profitability may be explained by noncompetitive pricing behavior as argued by the structure performance hypothesis or by the greater efficiency of firms with dominant market shares as argued by the efficient structure hypothesis by examining the price concentration relationship instead of the profit concentration relationship this paper tests the structure performance hypothesis in a manner that excludes the efficient structure hypothesis as an alternative explanation of the results the results strongly support the structure performance hypothesis and are robust with respect to model specification measurement of concentration and econometric technique copyright 1989 by mit press

the fungibility of u s military and non military assistance and the impacts on expenditures of major aid recipients abstract this paper examines the impact of u s military and non military assistance on the allocation of public and private sector spending for eight major recipients over the 1972 1987 period the model assumes that an aid recipient s effective post assistance budget constraint is a priori unknown and must be estimated two versions of the model are tested in version a the data is converted into real u s dollars using official exchange rates in version b the data is converted using purchasing power parity exchange rates provided by summers and heston 1991 major findings are the same for both versions u s aid is highly fungible with a significant portion channeled to the private sector where it finances current consumption relatively more than investment