competition and cooperation in decentralized push and pull assembly systems in this paper we study a decentralized assembly system consisting of a single assembler who buys complementary components from independent suppliers under two contracting schemes push and pull in both schemes the component suppliers are allowed to freely form coalitions or alliances among themselves to better coordinate their pricing or production decisions we show that the sole driver of the inefficiency in a push system which is due to horizontal decentralization of suppliers is the number of alliances that were formed specifically it is shown that in a push system the assembler s profit the total profit of all suppliers and the consumers surplus are all decreasing in the number of coalitions and are thus maximized when the grand coalition is formed we further carry out a stability analysis of coalition structures to verify to what extent suppliers can reduce or eliminate the inefficiency due to their decentralization by forming alliances we show that in a push system with more than two

regulation and efficiency in transition the case of telecommunications in italy abstract in regulating the telecommunications industry the separation between network and retail functions which is designed to countervail the market power of incumbent operators is a relevant issue despite its importance little empirical research has addressed the effects of such a separation accordingly this paper provides insights into the consequences of the italian communications regulatory authority s agcom decision to impose this type of separation on the incumbent telecommunications operator telecom italia in particular the studied separation is between the firm s network related functions and those used for provision of its communication services the present research finds that the type of separation implemented by agcom allows a provider to maintain the advantages of operational scale in its network structure without dampening competition in the existing market for communications services the study also offers further empirical evidence on the advantages of a composite vs translog function in analyzing the multiproduct cost structure of a telecommunications operator

optimal investment in learning curve technologies we study optimal investment in technologies characterized by the learning curve there are two investment patterns depending on the shape of the learning curve if the learning process is slow firms invest relatively late and on a larger scale if the curve is steep firms invest earlier and on a smaller scale we further demonstrate that learning investment differs greatly from investment in technologies without learning effects learning investments generate substantial initial losses and are very sensitive to downside risk we show that the most susceptible to losses and risk are technologies with intermediate speed of learning

a test for subadditivity of the cost function with an application to the bell system stable url http links jstor org sici sici 0002 8282 28198409 2974 3a4 3c615 3aatfsot 3e2 0 co 3b2 rthe american economic review is currently published by american economic association your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals aea html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgmon jul 2 16 52 19 2007

designing supply contracts contract type and information asymmetry this paper studies the value to a supplier of obtaining better information about a buyer s cost structure and of being able to offer more general contracts we use the bilateral monopoly setting to analyze six scenarios three increasingly general contracts wholesale pricing schemes two part linear schemes and twopart nonlinear schemes each under full and incomplete information about the buyer s cost structure we allow both sides to refuse to trade by explicitly including reservation profit levels for both for the supplier this is implemented through a cutoff policy we derive the supplier s optimal contracts and profits for all six scenarios and examine the value of information and of more general contracts our key findings are as follows first the value of information is higher under two part contracts second the value of offering two part contracts is higher under full information and third the proportion of buyers the supplier will choose to exclude can be substantial

estimating demand for local telephone service with asymmetric information and optional calling plans in this paper i study the theoretical and econometric implications of agents uncertainty concerning their future consumption when a monopolist offers them either a unique mandatory nonlinear tariff or a choice in advance from a menu of optional two part tariffs agents uncertainty is resolved through individual and privately known shocks to their types in such a situation the principal may screen agents according to their ex ante or ex post type by offering either a menu of optional tariffs or a standard nonlinear schedule the theoretical implications of the model are used to evaluate a tariff experiment run by south central bell in two cities in kentucky in 1986 the empirical approach explicitly accounts for the existence of informational asymmetries between local telephone users and the monopolist leading to different nested econometric specifications under symmetric and asymmetric information the empirical evidence suggests that there exists a significant asymmetry of information between consumers and the monopolist under both tariff regimes all expected welfare components failed to increase with the introduction of optional tariffs for the estimated value of the parameters copyright 2002 wiley blackwell

optimal production with learning by doing abstract this paper characterizes optimal production over time when production cost is a decreasing function of past accumulated output when production exhibits learning by doing monopolistic competitive and socially optimal solutions are considered

contract complexity and performance under asymmetric demand information an experimental evaluation exploring the tension between theory and practice regarding complexity and performance in contract design is especially relevant the goal of this paper is to understand why simpler contracts may commonly be preferred in practice despite being theoretically suboptimal we study a two tier supply chain with a single supplier and a single buyer to characterize the impact of contract complexity and asymmetric information on performance and to compare theoretical predictions to actual behavior in human subject experiments in the experiments the computerized buyer faces a newsvendor setting and has better information on end consumer demand than the human supplier the supplier offers either a quantity discount contract with two or three price blocks or a price only contract contracts that are commonplace in practice yet different in complexity results show that contrary to theoretical predictions quantity discounts do not necessarily increase the supplier s profits we also observe a more equitable distribution of profits between the supplier and the buyer than what theory predicts these observations can be described with three decision biases the probabilistic choice bias the reinforcement bias and the memory bias and can be modeled using the experience weighted attraction learning model our results demonstrate that simpler contracts such as a price only contract or a quantity discount contract with a low number of price blocks are sufficient for a supplier designing contracts under asymmetric demand information this paper was accepted by christian terwiesch operations and supply chain management

competition and productivity growth the case of the u s telephone industry i introduction there are few empirical studies on the relative performance of firms in competitive and monopolistic markets this contrasts with the large body of literature that compares the performance of privately owned and governmental firms one reason for the scarcity of studies of the former type is that competitive and monopolistic firms rarely coexist in the same industry and country 1 this makes it difficult to distinguish between industry and market structure effects on the other hand relying on intercountry comparisons as for example caves christensen and swanson 1981 do for u s and canadian railroads renders the analysis potentially sensitive to country effects the telephone industry in the united states offers one of the best opportunities for empirical analysis of the consequences of competition and monopoly some new entry in the long distance telephone market was allowed by the early 1960s while entry and competition in the local telephone market had yet to materialize by the beginning of the 1990s hence it is appropriate to focus on differences in performance between at t long lines and the regional monopolies 2 since there may be differences in initial conditions between the local service and long distance markets comparisons of performance should control for such differences both markets however clearly employ very similar technology this holding other relevant conditions constant should lead to similar changes in productivity to sharpen the analysis we focus on differences in the annual rate of productivity growth and not the level while local exchange carriers lecs still largely maintain their monopolistic position rapid technological advance in telecommunications is changing the established market structure in the local telephone industry the recent u s telecommunications act of 1996 was aimed at eliminating legal barriers that have suppressed technically feasible local competition certainly some competition in local telephone markets is under way is such competition socially justified and an appropriate objective of public policy the effect of competition on productivity growth holds at least part of the answer we need to know whether competitive markets are likely to raise efficiency in assessing how much effort should go into reducing entry barriers and increasing competition in the local telephone markets still another policy issue on which our study has a bearing is the relation of firm scale to costs for example in the context of recent mergers of regional telecommunication companies are reductions in costs and increases in productivity a plausible expectation competitive effects in the telephone industry have been examined mainly through aggregate time series data thus oum 1990 using chessler s competition index for long distance service concludes there have been positive effects of competition on productivity whereas crandall 1991 using a time dummy finds the results inconclusive 3 at the firm level denny fuss and waverman 1981 and kiss 1983 decompose total factor productivity tfp growth for bell canada through estimated cost functions nadiri and prucha 1989 measure productivity growth for the u s bell system with several alternative cost models but none of these careful firm level studies focuses on competitive effects ying and shin 1993 on the other hand do examine the spillover effect of the at t divestiture on cost saving by the regional companies their interesting study which shows positive spillover effects does not however permit strong conclusions because of the shortness of the period examined 1976 87 ii the state of competition in the u s telephone industry before the divestiture of at t the u s telephone industry consisted of several vertically integrated common carriers at t accounted for about 80 of industry revenues through a group of 22 operating companies plus the at t long lines

access costs and entry in the local telecommunications network a case for de averaged rates abstract the telecommunications bill passed by congress in february 1996 means that the present method of covering the cost of customer access to the local telecommunications network through non cost based access charges cannot be sustained over the long run however there is a belief that cost based rates at the local level would be prohibitively high and would threaten universal service objectives major tasks facing the federal communications commission and state regulators will be determining what the terms and charges for interconnection should be and who will bear the costs associated with universal service this work estimates a generalized translog cost function of access costs at the local level in order to address these issues the results of this study are that there are economies of scale in the provision of access to the local network and that these costs differ by geographical location one of the important findings of this study is that contrary to popular belief cost based rates at the local level would not be prohibitively high and would not threaten universal service objectives however given the existence of economies of scale pro competitive regulatory controls will be required that will restrain dominant carriers from abusing their market power and network owners from squeezing out new entrants

call center outsourcing contract analysis and choice this paper considers a call center outsourcing contract analysis and choice problem faced by a contractor and a service provider the service provider receives an uncertain call volume over multiple periods and is considering outsourcing all or part of these calls to a contractor each call brings in a fixed revenue to the service provider answering calls requires having service capacity thus implicit in the outsourcing decision is a capacity decision insufficient capacity implies that calls cannot be answered which in turn means there will be a revenue loss faced with a choice between a volume based and a capacity based contract offered by a contractor that has pricing power the service provider determines optimal capacity levels the optimal price and capacity of the contractor together with the optimal capacity of the service provider determine optimal profits of each party under the two contracts being considered this paper characterizes optimal capacity levels and partially characterizes optimal pricing decisions under each contract the impact of demand variability and the economic parameters on contract choice are explored through numerical examples it is shown that no contract type is universally preferred and that operating environments as well as cost revenue structures have an important effect

modelling cost structure the bell system revisited this paper analyses a recent public policy decision and the crucial role played by the choice of the functional form the break up of the bell system is indeed a classic case of anti trust settlement and constitutes one of the most prominent and controversial applications of microeconomics to public policy it is argued that demanding multi output cost properties such as economies of scope for this is the considerable robustness problem displayed by the tranlog cost functional form the reason for this is the considerable able to robustness problem displayed by the translog cost function which is the source underlying many of the expert disagreements it is suggested that the non robustness is due to what ils termed the flip flop property and it is shown that the available empirical evidence from the pre divestiture bell system supports this argument to obtain robust results we propose that the analysis is constrained to the proper region of the cost function we propose that the analysis is con

strategic commitments for an optimal capacity decision under asymmetric forecast information we study the important problem of how to assure credible forecast information sharing between a supplier and a manufacturer the supplier is responsible for acquiring the necessary capacity before receiving an order from the manufacturer who possesses private forecast information for her end product we address how different contracts affect the supplier s capacity decision and hence the profitability of the supplier and the manufacturer we fully develop two contracts and provide explicit formulae to enable credible forecast information sharing the first is a nonlinear capacity reservation contract under which the manufacturer agrees to pay a fee to reserve capacity the second is an advance purchase contract under which the manufacturer is induced to place a firm order before the supplier secures the component capacity used to build the end product these contracts serve a strategic role in information sharing the capacity reservation contract enables the supplier to detect the manufacturer s private forecast information while the advance purchase contract enables the manufacturer to signal her forecast information we show that channel coordination is possible even under asymmetric forecast information by combining the advance purchase contract with an appropriate payback agreement through our structural and numerical results we also show that the degree of forecast information asymmetry and the risk adjusted profit margin are two important drivers that determine supply chain efficiency and which contract to adopt

price regulation of access to telecommunications networks abstract without access of networks to each other competition in the telecommunications sector would hardly have spread so quickly such mutual access is necessary for carriers to provide ubiquitous service and enable endusers to call and be called by anybody without subscribing to a system wide monopolist one way access concerns bottleneck inputs provided by an incumbent network to entrants while two way access concerns the interconnection between networks whereas one way access regulation is exclusively driven by containment of market power two way access is additionally affected by collusion possibilities among the numerous pricing rules discussed none clearly dominates this article provides a roadmap vis a vis the competing policy objectives for access price regulation

wright meets markowitz how standard portfolio theory changes when assets are technologies following experience curves abstract we consider how to optimally allocate investments in a portfolio of competing technologies using the standard mean variance framework of portfolio theory we assume that technologies follow the empirically observed relationship known as wright s law also called a learning curve or experience curve which postulates that costs drop as cumulative production increases this introduces a positive feedback between cost and investment that complicates the portfolio problem leading to multiple local optima and causing a trade off between concentrating investments in one project to spur rapid progress vs diversifying over many projects to hedge against failure we study the two technology case and characterize the optimal diversification in terms of progress rates variability initial costs initial experience risk aversion discount rate and total demand the efficient frontier framework is used to visualize technology portfolios and show how feedback results in nonlinear distortions of the feasible set for the two period case in which learning and uncertainty interact with discounting we compare different scenarios and find that the discount rate plays a critical role

the appropriateness of the poolability assumption for multiproduct technologies evidence from the english water and sewerage utilities abstract the empirical literature on the cost structure of multiproduct firms e g public utilities providing in combination gas water and electricity traditionally assumes a common technology across different products and stages of production letting the issue of poolability unexplored the appropriateness of this assumption is tested here by estimating a general cost function for samples of uk specialized and sewerage diversified water utilities the results show the existence of both aggregate scale economies and diseconomies of scope more interestingly the hypothesis that the two groups of water companies share the same technological parameters is rejected given the implications of this finding in terms of optimal industry configuration and possible restructuring policies e g mergers and or divestitures our test suggests caution in pooling samples when undertaking empirical studies on data which refer to multiproduct technologies

regulatory bias in the price structure of local telephone service this article combines a discrete choice model of demand for residential local telephone access and an optimal price regulation model to estimate the welfare weights that state regulators implicitly place on consumers with different incomes and locations i find no evidence of a bias towards rural consumers on average but the relative weight on low income consumers in a geographic area can vary as a function of the proportions of rural and poor population and the political characteristics of the regulator i also measure the welfare consequences of deviating from total consumer surplus maximization and disconnecting prices from costs

competition and allocative efficiency the case of the u s telephone industry this study investigates the effect of competition on the productive efficiency of the u s telephone industry taking into account the fact that the industry was subject to rate of return regulation it is shown that competition induces the incumbents to use capital inputs closer to the unconstrained optima thereby reducing the allocative inefficiency caused by the averch johnson effect this effect is in addition to the usual technical efficiency improvement induced by competition empirical results based on annual data for the u s telephone industry for the 1951 90 period suggested that competition improved the allocative efficiency of the incumbent firms which had been under a rate of return regulation until 1989 copyright 1995 by mit press

joint pricing production decisions in supply chains of complementary products with uncertain demand consider n manufacturers each producing a different product and selling it to a market either directly or through a common retailer the n products are perfectly complementary in the sense that they are always sold and consumed jointly or in sets of one unit of each demand for the products during a selling season is both price sensitive and uncertain each of the n manufacturers faces the problem of choosing a production quantity and a selling price for his product two settings are considered regarding the decision sequence of the n manufacturers they are either simultaneous or sequential the retailer when present employs a consignment sales contract with revenue sharing to bind her relationship with the manufacturers and to extract profit for herself using a multiplicative demand model in this paper we fully characterize individual firms decisions in equilibria under each of the two game settings and derive closed form performance measures both for the channel and for individual channel members these closed form solutions allow us to explore the effects of channel structure and parameters on firms decisions and performance that lead to conclusions of managerial interest

costly gains to breaking up lecs and the baby bells while the divestiture of at t was intended to produce benefits in the long distance market the evidence suggests it has created an unexpected side benefit in local telephone markets the authors results show that local exchange carriers have realized immediate cost savings in responding to competitive pressures since the breakup with the baby bells experiencing generally larger gains dynamically these productivity gains have increased over time at a relatively constant rate although gains of 3 5 percent of total cost are not that large the absolutely large costs of telephone companies imply significant cost savings of nearly 72 million for the representative firm copyright 1993 by mit press

nonparametric analysis of cost complementarities in the telecommunications industry the market structure of the telephone industry has been the focus of a large body of empirical research following the divestiture of at t in 1984 using data on local exchange carriers lecs i estimate the total cost function of lecs operating between 1988 and 1995 first i show that cost complementarities can be nonparametrically identi ed in many situations where economies of scope and subadditivity which were the focus of previous empirical research cannot be identi ed next i propose a feasible estimation model taking into account all the properties that a cost function needs to satisfy according to economic theory the telephone companies are treated as multi product rms producing two outputs local and toll calls the results support the assumption that cost complementarities exist in the production of these two outputs the amounts of complementarities are computed and shown to be bigger for small companies

the natural monopoly test reconsidered an engineering process based approach to empirical analysis in telecommunications this paper suggests an extension of the traditional natural monopoly cost subadditivity test as it has been implemented in telecommunications we explore two dimensions of generalization that we believe are important when evaluating the relative performance of monopoly versus duopoly first by using a flexible engineering process model of the local exchange network we are able to generate market structure specific cost data which are used to estimate various duopolistic firm cost functions second we combine these cost functions which correspond to specific entry strategies with appropriate models of firm behavior to calculate market equilibria this allows us to perform in addition to a standard strictly cost based natural monopoly test a comparison of monopoly and duopoly on the basis of aggregate social welfare achieved under those alternative market structures our application of the methodology to a stylized local exchange market directs attention to a possible conflict between these alternative testing criteria and highlights the crucial impact of the nature of competitive entry on the social welfare performance of deregulated markets

testing for subadditivity of vertically integrated electric utilities the public policy debate over electric utility deregulation has a long history and generated a considerable amount of research much of this research focused on estimating the degree of scale economies in generation with little attention given to the effect vertical integration may have on cost structure the vertical integration issue is important because most observers consider the transmission and distribution stages to be natural monopolies according to joskow and schmalensee economics of integration if any would link the production stages together possibly extending natural monopoly conditions from transmission distribution to generation even if the latter exhibited no economies of scale 27 refs 5 tabs

the public accounting industry production function abstract a translog function is specified to represent the relation between revenue and human resource inputs in public accounting firms estimation of the model using a balanced panel of annual data for 64 large cpa firms for the period 1995 1999 indicates that increasing returns to scale prevail in the public accounting industry justifying recent merger and acquisition activities among accounting firms average marginal revenue product of partners increased monotonically from 1995 to 1998 decreased slightly in 1999 and was about nine times that of other professionals during 1995 1999 the public accounting industry exhibited continuing improvement in productivity over the 5 years

two moment decision models and expected utility maximization two moment decision models are consistent with expected utility maximization only if the choice set or the agent s preferences are restricted this paper identifies a restriction which is sufficient to ensure this consistency and confirms that it holds in many economic models the implications for economic analysis are then derived two different approaches to representing an agent s preferences over strategies yielding random payoffs are in wide use under the mean standard deviation ms approach the agent is assumed to rank the alternatives according to the value of some function defined over the first two moments of the random payoff while the expected utility eu criterion assumes that the expected value of some utility function defined over payoffs is used instead the fact that there are these two competing approaches has generated a considerable literature some authors are concerned with the advantages and disadvantages of each while others deal with conditions under which the potentially different approaches would yield the same results or at least approximately so space does not

effect of network unbundling on retail prices evidence from the telecommunications act of 1996 abstractthis paper empirically examines the effects of network unbundling on retail prices in u s local telephone markets panel data for 7 604 wire centers in 43 states from 1996 to 2002 are used to estimate the price effects from the unbundling and entry promoting conditions of the telecommunications act results show that section 271 led to the rebalancing of prices between customer groups in which residential prices increased and the prices paid by small businesses decreased there is some rebalancing of prices between urban and rural regions with business prices decreasing by a larger amount in urban regions our results from all markets indicate that regulators responded rationally to competition by rebalancing prices to reduce cross subsidies

information distortion in a supply chain the bullwhip effect this article originally appeared in management science april 1997 volume 43 number 4 pp 546 558 published by the institute of management sciences consider a series of companies in a supply chain each of whom orders from its immediate upstream member in this setting inbound orders from a downstream member serve as a valuable informational input to upstream production and inventory decisions this paper claims that the information transferred in the form of orders tends to be distorted and can misguide upstream members in their inventory and production decisions in particular the variance of orders may be larger than that of sales and distortion tends to increase as one moves upstream a phenomenon termed bullwhip effect this paper analyzes four sources of the bullwhip effect demand signal processing rationing game order batching and price variations actions that can be taken to mitigate the detrimental impact of this distortion are also discussed

unnatural monopolies in local telephone we attempt to overcome the serious data problems of past telecommunications cost studies by focusing on local exchange carriers lecs with enough degrees offreedom to yield precise estimates our global subadditivity tests show that the cost function is definitely not subadditive the results suggest that the benefits to breaking up the monopoly outputs of existing lecs substantially outweigh the potential losses in efficiency they also support permitting entry and increasing competition in local exchange markets furthermore given the competitive nature of long distance service it is doubtful that the predivestiture bell system was a natural monopoly

pricing games and impact of private demand information in decentralized assembly systems this paper analyzes decentralized assembly systems under asymmetric demand information and sequential contracting we reveal new insights on the value of contract type price only versus complex demand information complete versus asymmetric and contract sequence first mover versus second mover to different players our results for the basic model show the following 1 complex contracts increase the suppliers aggregate profit however individual suppliers do not necessarily benefit from a complex contracting equilibrium we identify the conditions under which each supplier benefits from such an equilibrium 2 eliminating information asymmetry is not always beneficial for the suppliers because obtaining information might bring only marginal value and hence might not be realistically justified furthermore a downstream supplier might prefer information asymmetry to complete information especially when demand variability is moderate 3 unless there is a high demand risk the first mover advantage is prevalent when the assembler is a price taker we extend our basic model to analyze two additional scenarios first we study cases where the suppliers may offer contracts of different complexity beyond enriching our understanding of contract choice in decentralized assembly systems such variations enhance the analysis beyond the standard methodology of principal agent models and utilize solution techniques from optimal control second we analyze the situation where the suppliers may possess different levels of information on demand under complex contracts we show that an upstream supplier always benefits from a downstream supplier s superior information however the additional information might decrease the downstream supplier s profit especially when the forecast variability is low compared to the total demand variability in the system our results for the basic model and its extensions confirm that studying interactions between suppliers specifically under different contract types and information structures in assembly systems presents rich opportunities for future research

market rivalry and learning by doing abstract the failure to link learning by doing to its market effects and the complementary failure to consider market models in which competition extends to the search for cost efficiency can have unfortunate implications for economic policy this paper considers how the firm s equilibrium investment in learning arises in a two period oligopoly implications of these results for the manufacture of high technology products particularly by japanese semiconductor firms are developed

rejoinder natural monopoly and the bell system response to charnes cooper and sueyoshi our study of the bell system cost function shows that it is possible to reject the hypothesis that at t was a natural monopoly our study is based on a regression analysis of a translog cost function estimated on 1947 1977 data charnes cooper and sueyoshi charnes a w w cooper t sueyoshi 1988 a goal programming constrained regression review of the bell system breakup management sci 34 1 26 claim that they reverse our conclusion when they use goal programming estimators of a translog cost function estimated on exactly the same data that we use this claim is false there is no basis for comparing our estimates with their estimates because they in fact use different data than we use and estimate a different cost function than we estimate moreover when goal programming estimates and regression estimates based on the same data and similar cost function specifications are compared they yield similar estimates and produce the same inference about natural monopoly

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

a natural monopoly in natural gas transmission abstract in this article we test for subadditivity in the cost structure associated with transporting natural gas by trans canada pipelines ltd and measure for possible cost savings from increased competition that could be realized by removing the monopoly status granted by the national energy board in measuring subadditivity we apply both the baumol et al contestable markets and the theory of industry structure 1982 and the evans and heckman am econ rev 764 1984 613 procedures our results show evidence of subadditivity in the cost structure and consequently the possible benefits from increased competition resulting from splitting up the monopoly could be offset by the sacrifice of scale efficiencies

telecommunications deregulation and subadditive costs are local telephone monopolies unnatural abstract in early 1996 congress passed the telecommunications law providing the foundation for the opening of regulated local telephone monopolies to competition one important premise for introducing competition into local telephone markets is that these markets are not or are no longer natural monopolies this paper reexamines the natural monopoly issue using a cost function that controls for firm heterogeneity our subadditivity tests suggest that local exchange carriers lecs costs are subadditive when there are controls for unobserved heterogeneity suggesting that local telephone markets are natural monopoly markets

a goal programming constrained regression review of the bell system breakup the recently implemented court decision to break up bell american telephone telegraph co to accord with u s anti trust laws represents a highly significant policy decision which is proving to be influential in other countries as well as the u s the telecommunication industry is of such size and importance that even relatively small economies that might be lost with bell s breakup as a natural monopoly could involve substantial welfare losses to consumers and producers studies commissioned by the u s justice department that approached this topic by econometric methods reported that the evidence failed to support the contention that bell was a natural monopoly here a goal programming constrained regression as developed in the management science literature uses the same functional form and the same data but nevertheless reverses the main findings of the econometric studies in every one of the 20 years covered this kind of difference in results obtained by two different methods of analysis poi

regulatory restructuring and incumbent price dynamics the case of u s local telephone markets prior to the telecommunications act of 1996 many u s states restructured their regulatory framework by replacing rate of return regulation with competition in both the local exchange service and local long distance markets and adopting price regulation price caps and price freezes using a panel data set of incumbent firm prices for three services i investigate whether price regulation and differences in entry conditions affect incumbent operators rate structures i find that competition has prompted a significant amount of rate rebalancing by reducing the amount of cross subsidization present in local telephone markets in addition the added flexibility of price cap regulation speeds the rate rebalance effects of competition

labour and capital saving technical change in telecommunications the australian telecommunications sector is being improved and extended through substantial recent investment in intelligent technology such as digital switching fibre optics satellite and cellular transmission and the internet these technologies are being progressively integrated with technology from the broadcasting computer and electronics industries providing a unified information infrastructure for information transmission and processing technological progress embodied in new equipment has the effect of increasing the efficiency of the factors of production such efficiency increases can be biased towards a particular factor for instance the impact of labour augmenting technical change is a decline in the cost of labour per unit of production when such biases are apparent the relativity between the costs of labour and capital per unit of production is changed in the longer term technical change can impact on the rate of employment growth and also on the rate of capital accumulation in th

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

economies of scale and natural monopoly in the u s local telephone industry this paper shows that firm specific economies of scale or net overall economies are correlated with subadditivity both economies of scale and subadditivity are a decreasing function of firm size most firms are observed to be in the relatively flat portion of the long run average cost curve with pronounced economies of scale observable only at the low end of the scale economies of scope as reflected in cost complementarities do not appear to be a source of subadditivity the results are estimated using translog total cost functions and the fact that these cost functions include arguments for the quality of capital and of labor represents an innovation in methodology

the bell system divestiture deregulation and the efficiency of the operating companies abstract a variety of casual evidence has been offered in measurement of the efficiencies and inefficiencies thought to flow from the bell system divestiture and accompanying state regulatory reforms to address several questions in this regard we estimate a regulated cost function for local exchange services using panel data on the divested bell operating companies bocs divestiture and regulatory reform are found to have produced significant efficiencies as of 1993 saving about 20 percent in cost relative to what would have obtained in the absence of these events more specifically to 1993 the divestiture yielded savings of 115 4 billion and state level regulatory reform yielded a slightly smaller 96 7 billion in savings both measured in 1993 dollars output augmentation factor bias and allowed rate of return effects contribute in identified ways to these overall results