why barriers to entry are barriers to understanding this paper discusses and criticizes the usual definitions of barriers to entry the failure of the concept of barrier to entry to incorporate a time dimension means that it is a concept that is in need of additional embellishment in order to be useful in a practical problem or for antitrust or regulatory proceedings this abstract was borrowed from another version of this item

state alcohol policies teen drinking and traffic fatalities this empirical study evaluates the policy responsiveness of teen drinking in models that can condition on the unobserved state specific attributes that may have biased conventional evaluations the results demonstrate that cross state heterogeneity can be important and that beer taxes have relatively small and statistically insignificant effects on teen drinking models of youth traffic fatalities also indicate that the conventional beer tax elasticities are not robust to additional controls for omitted variables the importance of these omitted variables is illustrated by a counterfactual which compares models of nighttime fatalities to those that occur in the daytime when the rate of alcohol involvement is substantially lower

sunk costs financial markets and contestability abstract this paper analyzes the proposition that the theory or contestable markets will yield good predictions for markets in which sunk costs although present are unimportant two results are of interest 1 if costs are at all sunk incumbent firms will be able to engage in strategic behavior with respect to entrants 2 if no costs are sunk but firms finance investment by borrowing incumbent firms will be able to engage in strategic behavior with respect to entrants in these cases one must analyze strategic behavior of incumbent firms to analyze market performance

rebuilding trust ireland s csr plan in the light of caritas in veritate this paper seeks to contribute to the discussion on national corporate social responsibility csr plans from the perspectives of the three logics as articulated in caritas in veritate by using the irish national csr plan as an example good for business good for the community ireland s national plan on corporate social responsibility 2014 2016 maintains that csr activities can enable organisations to build relationships and trust with communities one of the consequences of the 2008 financial crisis was the decrease in trust in banking systems and in business more broadly it is well recognised that relationships of trust are essential to the life of the market the state and civil society pope emeritus benedict xvi s caritas in veritate contends that corresponding to the life of the market the state and civil society are three logics the logic of exchange i e giving to acquire the logic of public obligation i e giving through duty and the logic of gift i e giving due to solidarity this paper proposes that the normative framework of the three logics of caritas in veritate can be read into the irish national csr plan this paper argues that the examples of csr initiatives proffered by the plan could point organisations in the direction of the logic of gift and therefore enable the rebuilding of relationships of trust with citizens and communities

exhaustible resources non convex costs and contestability a reply in his comment on my paper geir asheim neatly disproves the arguments in my 1991 footnote 13 and the paragraph to which it refers trying to force the equilibrium into the mould of contestability i was unmindful of the possibility that there could be a period when all firms produced this possibility allows for asheim s interesting observations including that ramsey prices result when price taking can be assumed if all firms are active to begin i wish to stress the points which have been established in the two papers first equilibrium must satisfy two types of intertemporal arbitrage condition a marginal and an average one the novel condition is the latter the contribution of contestability theory satisfying it leaves no incentive to reallocate a discrete amount of production to another time period it helps give rise to what seems to be an unusual hybrid sort of rent that asheim identifies as the user cost when contestability holds sway it is price less average not marginal cost which rises at the rate of interest links to the more customary form of user cost however can be discerned in the marginal condition which is necessary to preclude incentives to reallocate production at the margin among time periods newbery 1981 calls this hotelling s arbitrage principle it appears in asheim s equation 2 since mr p under his assumptions of first competition and then contestability on the downward sloping part of ac however his equation

stackelberg and marshall this paper advocates a generalized n firm stackelberg model as a plausible testable alternative description of oligopoly a pure strategy equilibrium must exist for this model the main result is that efficiency obtains in the limit as the scale of each firm is shrunk relative to demand this is demonstrated for the case of u shaped average cost and also for that of natural monopoly copyright 1990 by american economic association

how individuals choose health insurance an experimental analysis an individual choosing a health insurance policy faces a complex decision environment where a large set of alternatives differ on a variety of dimensions there is uncertainty and the choice is repeated at least once a year we study decisions and decision strategies in a laboratory experiment where we create a controlled environment that closely mirrors this setting we use an electronic information board that allows to carefully monitor the individual s decision strategy the number of alternatives switching costs and the speed at which health deteriorates are varied across treatments we find that most subjects search is based more on attributes than on policies moreover we find that an increase in the number of alternatives increases decision making time makes subjects consider a lower fraction of the available information makes it more likely that subjects will switch and decreases the quality of their decisions the introduction of positive costs of switching makes people switch less often but improves the quality of their decisions finally if health deteriorates only gradually individuals tend to stick to their current policy too long

price changes supply elasticities industry organization and dairy output distribution long run price elasticities of milk supply are decomposed into price elasticities of yield herd size and farm population for northeastern u s dairy farms these elasticities are shown to vary with farm size because of size related differences in capital intensity specialization yield and herd size variability and rates of entry exit into dairy in the short run price responsiveness is shown to decrease with farm size in the long run large farms are shown to be most price responsive results suggest that lower milk prices could make revenue distribution less equal in both the short and long run by altering output and population distributions

who is behavioral cognitive ability and anomalous preferences in this paper we ask whether variation in preference anomalies is related to variation in cognitive ability evidence from a new laboratory study of chilean high school students with similar schooling backgrounds shows that small stakes risk aversion and short run discounting are less common among those with higher standardized test scores the relationship with test scores survives controls for parental education and wealth we find some evidence that elementary school gpa is predictive of preferences measured at the end of high school two laboratory interventions provide suggestive evidence of a possible causal impact of cognitive resources on expressed preferences jel j24 d14 c91

contestability in a resource market with non convex costs consider an intertemporal resource market with n identical firms each managing an exhaustible resource deposit the extraction from which is governed by a u shaped average cost curve eswaran lewis and heaps 1983 elh show that such a market cannot have a competitive equilibrium in their comments on elh kimmel 1984 and mumy 1984 point out however that the elh result is driven by there being a small number of firms which is inconsistent with price taking behavior this provides a motivation for analyzing the situation considered by elh under alternative assumptions of market behavior in general perfect contestability applies to circumstances where perfect competition is impossible because economies of scale are present see baumol et al 1982 since the non convexities in elh are not caused by once and for all setup or shut down costs rather the flow of costs is assumed to be a non convex function of the flow of extraction replacing the assumption of price taking behavior with an assumption of ultra free entry 2 provides a potential means of restoring a market equilibrium in the present case contestability theory holds that the threat of competition by potential entrants can discipline the pricing behavior of the active firms however as pointed out by cairns 1991 footnote 9 a non active firm can be the source of this kind of discipline in an exhaustible resource market only if its remaining reserves are positive caution should therefore be exercised in applying contestability theory to a resource market in this note existence of an equilibrium in such an exhaustible resource market is shown partly by relying on the possibility of ultra free entry we

the effectiveness of the public support policies for the european industry financing as a contribution to sustainable development in recent years the debate about the role of the public institutions in the fields of corporate social responsibility and sustainable development has gained momentum nevertheless the ambiguity of the latter concepts makes it difficult both to measure them and to estimate the impact that the different public initiatives may have on them in this sense the present research has the aim to design a fuzzy logic based methodology applied to the evaluation of the above mentioned processes in relation to the state aid policies for the european industry regarding the study contour the european union state aids seems not to have introduced important changes leading to socially responsible results and therefore favourable for the sustainable development generated by the european manufacturing industry

quality in contestable markets a historical problem the theory of contestable markets has made notable inroads into the traditional way of looking at markets with only a few producers but its relationship to the theory of monopolistic competition in general and the quality of goods in particular has not been explored in depth such a connection is suggested by a feature of contestable markets emphasized by william baumol in his presidential address baumol emphasizes the fact that an incumbent is always vulnerable to hit and run entry if he ever tries to exert his potential monopoly power 1

are risk aversion and impatience related to cognitive ability is the way that people make risky choices or tradeoffs over time related to cognitive ability this paper investigates whether there is a link between cognitive ability risk aversion and impatience using a representative sample of the population and incentive compatible measures we conduct choice experiments measuring risk aversion and impatience over an annual time horizon for a randomly drawn sample of roughly 1 000 german adults subjects also take part in two different tests of cognitive ability which correspond to sub modules of one of the most widely used iq tests interviews are conducted in subjects own homes we find that lower cognitive ability is associated with greater risk aversion and more pronounced impatience these relationships are significant and robust to controlling for personal characteristics educational attainment income and measures of credit constraints we perform a series of additional robustness checks which help rule out other possible confounds

on non convex costs and dynamic consistency in an exhaustible resource market noncooperative intertemporal equilibrium in an exhaustible resource market where firms extraction costs are u shaped is analyzed under the hypotheses of contestability theory if there are two or more firms each with an identical deposit then limitations on the total resource stock imply strategic interaction even where there is perfect contestability these results raise questions about the robustness of properties claimed for contestable markets as well as about the realism of expecting that equilibrium may be established in this type of market copyright 1991 by the editors of the scandinavian journal of economics

consistency of higher order risk preferences risk aversion a second order risk preference is a time proven concept in economic models of choice under risk more recently the higher order risk preferences of prudence third order and temperance fourth order also have been shown to be quite important while a majority of the population seems to exhibit both risk aversion and these higher order risk preferences a significant minority does not we show how both risk averse and risk loving behaviors might be generated by a simple type of basic lottery preference for either 1 combining good outcomes with bad ones or 2 combining good with good and bad with bad respectively we further show that this dichotomy is fairly robust at explaining higher order risk attitudes in the laboratory in addition to our own experimental evidence we take a second look at the extant laboratory experiments that measure higher order risk preferences and we find a fair amount of support for this dichotomy our own experiment also is the first to look beyond fourth order risk preferences and we examine risk attitudes at even higher orders

a dual self model of impulse control we propose that a simple dual self model gives a unified explanation for several empirical regularities including the apparent time inconsistency that has motivated models of quasi hyperbolic discounting and rabin s paradox of risk aversion in the large and small the model also implies that self control costs imply excess delay as in the o donoghue and rabin models of quasi hyperbolic utility and it explains experimental evidence that increased cognitive load makes temptations harder to resist the base version of our model is consistent with the gul pesendorfer axioms but we argue that these axioms must be relaxed to account for the effect of cognitive load

anchoring and cognitive ability abstract we find that the actual willingness to pay for various consumer goods can be manipulated by an uninformative anchor replicating ariely et al 2003 we furthermore demonstrate that the anchoring effect decreases but does not vanish with higher cognitive ability

contestable markets an uprising in the theory of industry structure presents a transcript of the presidential address delivered at the 94th meeting of the american economic association on december 29 1981 discussion of developments in the theory of industry structure welfare attributes of contestable markets behavior characteristics of oligopoly equilibrium intertemporal vulnerability to inefficient entry ebsco

the effect of cognitive load on economic decision making a survey and new experiments abstract psychologists and economists have examined the effect of cognitive load in a variety of situations from risk taking to snack choice we review previous experiments that have directly manipulated cognitive load and summarize their findings we report the results of two new experiments where participants engage in a digit memorization task while simultaneously performing a variety of economic tasks including 1 choices involving risk 2 choices involving intertemporal substitution 3 choices with anchoring effects 4 choices over healthy and unhealthy snacks and 5 math problems we find that higher cognitive load reduces numeracy as measured by performance in math problems moreover within subject analysis indicates that cognitive load leads to more risk averse behavior more impatience over money and nominally more likelihood to anchor we do not find any evidence that cognitive load increases impatience over consumption goods or unhealthy snack choices exploiting the panel nature of our data set we find that those individuals who are most sensitive to cognitive load as measured by a large drop in their own math performance across 1 and 8 digit memorization treatments are driving much of the effect

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

context dependent preferences the standard theory of choice based on value maximization associates with each option a real value such that given an offered set the decision maker chooses the option with the highest value despite its simplicity and intuitive appeal there is a growing body of data that is inconsistent with this theory in particular the relative attractiveness of x compared to y often depends on the presence or absence of a third option z and the market share of an option can actually be increased by enlarging the offered set we review recent empirical findings that are inconsistent with value maximization and present a context dependent model that expresses the value of each option as an additive combination of two components a contingent weighting process that captures the effect of the background context and a binary comparison process that describes the effect of the local context the model accounts for observed violations of the standard theory and provides a framework for analyzing context dependent p

structure and performance with profit measures based on stock market prices the theory that there is a causal relationship between industry structure conduct and performance is the fundamental premise in the field of industrial organization the most carefully researched component of that general theory is the hypothesis that increasing industrial concentration will give rise to increasing profits this traditional view is important not only because of its prominence in the academic analysis of industrial markets but also because of its implications for government policy especially antitrust policy the traditional view typically has been tested by treating an accounting based measure of industry profit as the dependent variable with concentration and other structural variables as independent variables within a cross section of manufacturing industries at a given point in time numerous papers have found that concentration has a positive impact on profits the methodology adopted in this paper is different the profit measures are based on stock market prices and are adjusted for risk this is an improvement because accounting methods are so poorly adapted to the measurement of economic profit and because risk may vary with concentration 2 39 another methodological innovation is the choice of time series over cross section analysis the question asked is whether the change over time in each industry s level of concentration had an impact on profits this minimizes the problem of omitted or inaccurately measured independent variables since there should be less change in basic structural characteristics over short time periods within an industry than between industries at a single point in time 2 a second important advantage is freedom from a basic assumption of crosssection studies the assumption that the relationship between concentration and profit is homogeneous across industries if the assumption is invalid empirical results are subject to bias two tests 7 26 have firmly rejected the homogeneity assumption 3

does self control depletion affect risk attitudes abstract a core prediction of recent dual self models is that risk attitudes depend on self control while these models have received a lot of attention empirical evidence regarding their predictions is lacking we derive hypotheses from three prominent models for choices between risky monetary payoffs under regular and reduced self control we test the hypotheses in a lab experiment using a well established ego depletion task to reduce self control and measuring risk attitudes via finely graduated choice lists manipulation checks document the effectiveness of the depletion task we find no systematic evidence in favor of the theoretical predictions in particular depletion does not increase risk aversion

minding our business what the united states government has done and can do to ensure that u s multinationals act responsibly in foreign markets the united states government does not mandate that us based firms follow us social and environmental law in foreign markets however because many developing countries do not have strong human rights labor and environmental laws many multinationals have adopted voluntary corporate responsibility initiatives to self regulate their overseas social and environmental practices this article argues that voluntary actions while important are insufficient to address the magnitude of problems companies confront as they operate in developing countries where governance is often inadequate the united states can do more to ensure that its multinationals act responsibly everywhere they operate first policymakers should define the social and environmental responsibilities of global companies they must consistently make their expectations for global business clear and underscore that this objective can often be accomplished without mandates second the us should closely examine the policies that undermine global corporate social responsibility csr and address the many conflicting signals sent by policymakers third the president should make the us government a csr model by examining how to use its purchasing power to promote human rights finally the us government should require pension funds to report on the social and environmental consequences of their investments in these ways americans can mind our business and thus make sure that us based firms do not undermine social and environmental progress when they operate in the developing world

the effects of alcohol use on economic decision making in a controlled laboratory experiment we study the causal effect of alcohol on economic decision making a treatment group was given a dose of alcohol designed to target a blood alcohol concentration bac of 0 08 while the bac of those in the control group remained 0 00 we investigate the behavior of control and treatment groups in the following types of tasks math uncertainty overconfidence strategic games food choice anchoring and altruism our results indicate that alcohol consumption has little systematic effect on economic behavior at least for the bac level considered further there is little evidence that alcohol differentially impacts the choices of male and female subjects

cognitive imprecision and small stakes risk aversion observed choices between risky lotteries are difficult to reconcile with expected utility maximization both because subjects appear to be too risk averse with regard to small gambles for this to be explained by diminishing marginal utility of wealth as stressed by rabin 2000 and because subjects responses involve a random element we propose a unified explanation for both anomalies similar to the explanation given for related phenomena in the case of perceptual judgments they result from judgments based on imprecise and noisy mental representations of the decision situation in this model risk aversion results from a sort of perceptual bias but one that represents an optimal decision rule given the limitations of the mental representation of the situation we propose a quantitative model of the noisy mental representation of simple lotteries based on other evidence regarding numerical cognition and test its ability to explain the choice frequencies that we observe in a laboratory experiment

contestability a revisionist view many claims have been made about the significance of the contribution of contestability theory to industrial organizat ion this paper concludes that contestability theory leaves unanswere d questions about the identity of entrants and the source of their re sources a modification to the theory is proposed rather than as a h indrance to potential entry sunk costs are viewed as being of key si gnificance for the disciplining of oligopolists through potential ent ry with the proposed modification the analysis of the costs of mult iproduct firms may be more easily integrated with recent developments in industrial organization copyright 1988 by the london school of economics and political science

the psychological lives of the poor abstract all individuals rely on a fundamental set of mental capacities and functions or bandwidth in their economic and non economic lives yet many factors associated with poverty such as mal

contestability vs competition analyzes the ultra free entry as normative contribution to industrial organization ultra free entry in context of the evolving field of industrial organization assessment of the conceptual validity of william baumol elizabeth bailey john panzar and robert willig s analysis in representing the nature of competition empirical issues in measuring and testing ultra free entry ebsco

choice inconsistencies among the elderly evidence from plan choice in the medicare part d program we evaluate the choices of elders across their insurance options under the medicare part d prescription drug plan using a unique data set of prescription drug claims matched to information on the characteristics of choice sets we document that elders place much more weight on plan premiums than on expected out of pocket costs value plan financial characteristics beyond any impacts on their own financial expenses or risk and place almost no value on variance reducing aspects of plans partial equilibrium welfare analysis implies that welfare would have been 27 higher if patients had all chosen rationally

contestable markets an uprising in the theory of industry structure comment a situation traditionally identified as conducive to imperfect competition is when average costs decline and the cheapest scale of production is large relative to the size of the market however some of the more recent literature on industrial organization has emphasized a supposed distinction between fixed costs of production and sunk costs of production a point frequently made is that while the possibility of sunk costs can create genuine barriers to entry pure fixed costs per se do not inhibit competitive market performance this approach finds its logical extreme in the norm or abstraction of perfect contestability perfect contestability is essentially a theory of the polar case of frictionless entry and exit as william baumol stated a contestable market is one into which entry is absolutely free and exit is absolutely costless p 3 certainly this is the most reasonable interpretation of a situation where potential entrants feel free to disregard an incumbent s price response suppose every potential and actual producer has access to the same technology in a perfectly contestable market there are no set up or shut down losses the main result is that even with declining average costs of production the incumbent firm does not dare to post a price higher than average cost price above cost invites being undercut by a hit and run shadow entrant capable of producing at the same flow rate and at identical unit cost during just the briefest instant of time i argue that this line of reasoning is misleading perfect contestability gets around the problem of increasing returns only by in effect assuming it away a hit and run technology makes the firm behave as if it is competitive in a market precisely because the convexity preconditions for competition are de facto being met in that market this comment shows that strictly speaking there is no such thing as a pure fixed cost unless there are sunk costs located somewhere in the relevant production technology all costs are variable as a matter of formal theory you cannot have a range of decreasing average cost without sunk costs presumably there is also an approximation theorem which states that when sunk costs are close to being negligible then average production costs are practically nondecreasing perfect contestability holds approximately in a market only to the extent that production costs for the market are approximately nondecreasing my discussion will be restricted to the familiar case of a single well defined homogeneous fully divisible commodity while more general approaches are possible for the sake of simplicity the following definition is used the average cost function a c y t describes say the minimum cost per unit of output produced at a uniform flow rate y throughout the time interval 0 t especially in applications to industrial organization theory it is essential to remember that cost functions are not generally timeless and that writing ac as a function of y alone can be dangerously vague behind the free entry and exit of a hitand run technology in a perfectly contestable market is the abstraction of no sunk costs investments are fully reversible because nothing is lost in setting up or shutting down production

decision environment effects on intertemporal financial choices how relevant are resource depletion models a large literature in psychology studies the effects of the immediate decision environment on behavior and conceptualizes both cognitive capacity and self control as scarce resources that can be depleted by recent use and replenished by factors like rest and nutrition we assess the relevance of resource depletion models for intertemporal financial decisions by estimating the effects of three interventions prior impulse controlling activity consumption of a sugared drink and consumption of a placebo sugar free drink on intertemporal monetary choices in a cash advance framework these manipulations have large impacts on the demand for advances but contrary to resource based models prior impulse controlling activity and placebo drink consumption increase patience to understand these effects we estimate treatment effects on the three parameters of a decision utility model for every subject in our sample all treatments reduce utility curvature and present bias and these movements are highly correlated together we argue that these patterns suggest that the treatments are acting not on subjects fundamental utility parameters but on subjects tendencies to frame financial decisions narrowly within the frame of the lab experiment versus broadly in the context of their other financial options thus while decision environments have large effects on intertemporal financial decisions both the direction and the mechanisms underlying these effects appear to be quite different from those suggested by resource depletion models

contestability vs competition once more baumol willig and other advocates of contestability theory continue to urge the idea not only for its insights but also as a clear basis for many antitrust and regulatory decisions yet the limits of the theory remain the three key assumptions are extremely strict and two of them are in mutual conflict the theory is not robust to imperfections in order to displace effective competition with contestability baumol must adopt a sequence of implausible propositions which unfortunately have little analytical or empirical basis

strategic rate making in the context of dynamic ramsey pricing as a result of the public utilitie regulatory policies act of 1978 purpa state public utility commissions have begun to implement cost based rate setting procedures in order to rationalize energy choices made by utilities and utility customers this rationalization had been necessary in view of the increased competition characterizing the eletric utility industry taking these regulatory and competitive change as a point of departure we develop and implement an electricity rate setting model which is cost based which explicitly accounts for static and dynamic competitive pressures and which is welfare maximizing the model extends standard ramsey methods to include bothshort run andlong run price responses in the inverse elasticity rule we use the estimated model to evalute and design alternative rates our analysis takes a distincly strategic approach explicitly addressing competition from other fuels and the possibility of competitive bypass