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

market power of local cable television franchises evidence from the effects of deregulation the 1989 cable act eliminated most price regulation of cable television operators including the right of municipalities to enforce price terms in franchise agreements deregulation was justified at least partially by the contention that competition from other entertainment media eliminated any market power of cable franchises we examine the value at sale of existing cable systems before and after deregulation assuming that this value represents the expected present value of future profits deregulation had the predicted negligible effect on profits in cities with significant broadcast competition however profits appear to have increased in areas where the competition from broadcast television was less severe we explore several explanations for this increase and conclude that significant market power is the most plausible explanation

on measuring competitive viability and monopoly power in cable an empirical cost approach this study provides empirical evidence concerning the economic feasibility of competition in the local market for video delivery services using responses from the fcc s 1995 cost survey we jointly estimate a translog cost function with factor share equations to evaluate subadditivity the fitted total cost of each firm is compared with the cost of two firms providing the same total output in eleven different market scenarios although costs were mildly superadditive in the vast majority of cases they were lower when one firm provided the output average cost savings with respect to a monopoly were fairly small ranging from 1 37 with a 10 market overlap to 5 05 with a complete overbuild we also calculated marginal cost from the fitted total cost equation and a price for cable services derived from the fcc survey data using these results and rubinovitz s price elasticity of 1 46 we estimated that reregulation had a regulatory effectiveness of 0 3251 and held prices to 40 5 of the monopoly level

why does household investment lead business investment over the business cycle household investment leads nonresidential business fixed investment over the u s business cycle because real business cycle theory has not been able to account for this observation it represents a potent challenge to the view that transitory productivity disturbances are the main source of aggregate fluctuations this paper reconciles rbc theory with the investment dynamics by extending the traditional home production model to make household capital complementary to business capital and labor in market production empirical evidence suggesting that household capital is a complementary input in market production is also presented

measuring the effects of regulation with stock price data this article examines the usefulness of stock returns in measuring the effects of regulation when the dates on which market expectations change are not known and standard sources e g the wall street journal are used to choose announcement dates twenty major changes in regulatory constraint since 1887 are considered tests using either monthly or daily data are found to have surprisingly little ability to detect the effects of regulation the evidence shows that formal regulatory announcements are generally anticipated in cases where it is unclear when expectations change

a macroeconomic model of price swings in the housing market this paper shows that a macro model with segmented financial markets can generate sizable movements in housing prices in response to changes in credit conditions we establish theoretically that reductions in mortgage rates always have a positive effect on prices whereas the relaxation of loan to value constraints has ambiguous effects a quantitative version of the model under perfect foresight accounts for about one half of the observed price increase in the united states in the 2000s when we include shocks to expectations about housing finance conditions the model s ability to match house values improves significantly the framework reconciles the observed disconnect between house prices and rents since in general equilibrium financial shocks can decrease rents and increase prices

the impact of the regulation of the cable television industry the effect on quality adjusted cable television prices between the mid 1980s and early 1990s cable television rates increased substantially simple price comparisons over the regulated and deregulated eras are difficult as the programming changed simultaneously using a modified hedonic framework to allow for the lack of competition on the supply side of the industry this paper imputes the price for regulation era cable packages using consumers estimated willingness to pay for individual satellite networks during the unregulated period then a quality adjusted price for the cable package offered in 1985 is estimated on average regulation benefited consumers by keeping prices below monopolist s profit maximizing price

cable franchise renewals do incumbent firms behave opportunistically systematic empirical evidence has heretofore been lacking on the extent to which supplier opportunism at the time of contract renewal is a fundamental problem associated with franchise bidding schemes at least for the case of local cable television distribution this article suggests several theoretical reasons why bad behavior by an incumbent supplier may be the exception rather than the rule and a simple test for supplier opportunism at the time of franchise renewal the simple test is employed to empirically analyze the terms of trade in a cross sectional sample of recent cable franchise renewal contracts

financial repression and firm self financing of investment empirical evidence from brazil analysis of 86 brazilian manufacturing firms operating during a period marked by some degree of financial repression demonstrates that investment spending influences the liquid asset holdings of firms this self finance motive is weaker than the transactions motive but in general remains statistically significant across a variety of model specifications small firms are more likely than large firms to finance investment spending through accumulation of liquid assets contrary to the complementarity hypothesis however there is some evidence that firms treat liquid assets and capital as substitutes specification tests comparing the shaw hypothesis with the mckinnon hypothesis weakly favour the complementarity model

interest rate restrictions and deposit opportunities for small savers in developing countries an analytical view this article argues that by forcing financial intermediaries fi to substitute implicit interest for monetary interest payments deposit rate ceilings may increase the cost of savings mobilisation especially from non wealthy households this mechanism may partially explain the lack of small savers deposit opportunities in developing countries a simple model is used to elucidate this mechanism as well as the effects of financial technology intensity of competition and external funding on an fi s savings mobilisation operations

shareholder wealth effects of legislative events the case of airline deregulation this paper presents empirical evidence about the impact on shareholder wealth of legislative events leading to the enactment of the airline deregulation act of 1978 in contrast to prior regulatory event studies this paper examines not only the final legislative enactment but also the congressional hearings that preceded it no significant effect on shareholder wealth is indicated when averaged across all airline firms and all legislative events impact of deregulation however was expected to be different for trunk airlines than for local airlines moreover market expectations likely changed with the change in the political climate during the course of deregulation deliberations from an industry financial health emphasis under a republican ford administration to a consumer welfare emphasis under a democratic carter administration we find that trunk airlines experienced significant positive abnormal returns during the ford administration but negative abnormal returns during the carter administration in contrast local airlines exhibited significant negative abnormal returns during both the ford and carter eras systematic risk of both trunk and local airlines also increased with the change in the political climate

demand pricing and regulation evidence from the cable tv industry subsequent to the nationwide deregulation of the cable tv industry a number of questions have been raised concerning the conduct of cable firms answers to these questions turn upon a fundamental set of issues regarding the economic relationships of demand pricing and regulation in this article we empirically examine these relationships for the period prior to deregulation a number of basic findings emerge among these we find that the demand for basic cable service ranges from being generally inelastic in rural areas to elastic in large urban markets the elasticity of demand for pay cable services is typically well in excess of unity also while regulation did not lead to economically efficient marginal cost prices for basic cable service it did act to keep prices below monopoly levels moreover our examination reveals some significant differences in the effectiveness of the various types of regulation practiced in the pre deregulation period

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

contract selection and performance in competitive bidding for electricity generation third parties bidding to supply utilities with electric generation facilities is a new and increasingly important practice six states have either establishes bidding programmes or are considering doing so the paper uses data from maine the first state to use electric generation bidding to examine which bids are awarded contracts and which contracts fail to fulfill their provisions results show that bid price plays a very small role if any in the selection process

financial assets inflation hedges and capital utilization in developing countries an extension of mckinnon s complementarity hypothesis in a highly influential book mckinnon 1973 proposed that interest rate liberalization and low inflation can promote capital accumulation and economic growth in developing countries an important aspect of mckinnon s work is his formal argument that money broadly defined to include both cash and bank deposits and physical capital are more likely to be complements than substitutes under conditions of financial repression where interest rate controls or high inflation reduce the real yield on money balances to low or even negative levels mckinnon chapter 6 mckinnon s formal analysis assumes that household firms and other small enterprises in financially repressed developing economies are faced with significant capital indivisibilities and have no access to credit so that they are forced to accumulate substantial amounts of noncapital assets before undertaking productive investments under financial repression accumulation of inflation hedges commodity inventories for example may be the least cost method of building up these noncapital asset balances required for lumpy investments in physical capital even inflation hedges may have negative returns e g due to high storage costs thereby further reducing potential capital accumulation in this situation an increased yield to money balances via interest rate liberalization or lower inflation can lower the cost of accumulating funds for physical capital purchases so that increased money balances may be associated with a more rapid rate of capital accumulation and hence economic growth mckinnon s complementarity hypothesis thus emphasizes the use of cash and deposit balances as a conduit for physical capital accumulation by credit constrained enterprises however as noted by drake 1980 p 66

non price concessions and the effect of franchise bidding schemes on cable company costs among the potentially important problems with franchise bidding schemes is the possibility that franchisers may extract non price concessions merit goods from competing bidders at the expense of lower prices for plain vanilla service the systematic evidence presented in this paper suggests that the pursuit of such non price concessions in the case of cable franchise competitions is substantial expenditures on non price concessions account for 26 of cable construction costs and 11 of operating costs the pursuit of non price concessions by local franchising authorities appears to have two negative economic efficiency consequences first expenditures on such concessions appear to provide only a limited amount of economic benefits second by raising costs spending on non price concessions inhibits the ultimate level to which prices can be held by franchise bidding schemes

the effects of market structure and ownership on prices and service offerings in the cable television industry this article provides empirical evidence on the effects of alternative market structures and ownership modes on prices and service offerings in the cable television industry we analyze the underlying characteristics and behavior of competing versus monopoly operators on the one hand and privately versus nonprivately owned operators on the other we find that competition and nonprivate ownership are associated with lower prices for basic cable television service we also find that cable television price and quality differentials vary with certain characteristics of competing operators and that market structure and ownership status influence changes in price and quality over time

market power and price increases for basic cable service since deregulation since the deregulation of rates for basic cable television service increases in price have outpaced the rate of inflation this article examines whether or not cable systems increased market power or their increased exercise of market power explains these price increases an estimated quasi supply function for cable systems before and after deregulation implies that real basic cable prices increased 18 since deregulation holding quality and other costs constant accounting for 43 of the total real price increase a demand equation is also estimated and the estimated demand elasticity of basic cable does not change after deregulation implying that this 18 real price increase is due to greater exercise of existing market power made possible by the elimination ofprice regulation rather than to an increase in market power caused by a change in the demand elasticity for cable

anticipated inflation and the capital stock in a cash in advance economy abstract an economy is constructed in which the steady state capital stock is inversely related to the rate of inflation as a result that is directly opposite the usual conclusion

sequential auctions of interdependent objects israeli cable television licenses in israel area cable television catv licenses were auctioned sequentially this paper provides evidence that i there were interdependencies among many of the franchises and that ii subscriber fees for the interdependent franchises decreased over time in this auction

firm behavior in franchise monopoly markets this article presents empirical evidence concerning the value offranchise bidding competition as a means of controlling natural monopoly behavior the analysis focuses on the cable television industry using data collected in a survey of local government officials in cabled communities throughout the continental united states one important potential problem raised by critics offranchise bidding is the ability offranchise winners to engage in ex post opportunistic behavior by reneging on the promises that they made in order to win the franchise contract the results of my analysis suggest that although franchise competition does leadfirms to engage in some degree of opportunistic behavior the extent of opportunism is not severe furthermore reputation effects appear to play a role in constraining firm behavior while rate regulation actually seems to exacerbate ex post behavioral problems

the effect of discretionary price control decisions on equity values abstract the macro literature presents conflicting evidence on the effects of price controls in this study the fact that the macro economic effect of wage and price controls is the aggregation of the micro economic effects is used to implement a different approach to measure the effects of price controls the effect of price controls is inferred from examining the impact of discretionary regulatory decisions on the equity values of individual firms during phase ii of nixon s economic stabilization program the empirical results indicate that violators of the regulations incurred significant abnormal losses that were unrelated to the explicit penalties this suggests that implicit penalties were imposed on offending firms the analysis of price increase decisions provides weak evidence that these price commission decisions had an impact on equity values

the incidence of regulatory rents in the motor carrier industry this article focuses on two questions in the debate over motor carrier regulation first did regulation create eliminate or have no effect on monopoly rents in the trucking industry second ifthere were rents what was their incidence were they received by owners oftrucking firms dissipated through higher costs or captured by the teamsters union data on share price responses to deregulation announcements reveal declines in expected profits of 8 19 of totalfirm value this suggests that regulation created monopoly profits and indicates that at least some of these rents accrued to owners of trucking firms firms responses to regulatory change are modelled as functions of company s operating characteristics and measures of unionization operating efficiency and service characteristics are shown to affect the impact of deregulation on share values

trade liberalization comparative advantage and scale economies stock market evidence from canada abstract the canada united states free trade agreement fta provides an excellent opportunity to analyze the impact of a comprehensive trade liberalization in this paper a stock market event study is employed to capture investors expectations about the consequences of this agreement for manufacturing firms in canada the primary question addressed is whether abnormal stock market returns corresponding to news about the fta are consistent with hypotheses based on comparative advantage and economies of scale the results indicate that both comparative advantage and scale economies played a role in determining investors perceptions of the impact of the fta