allocation of fixed transmission cost to wheeling transactions by cooperative game theory this paper describes a methodology to allocate the cost of transmission network facilities to wheeling transactions in decentralized power systems the authors propose that the responsibility placed on transmission facilities involved in each transaction be according to the transmission usage pattern their proposal incorporates the mw mile method and considers economies of scale of transmission network facilities they also incorporate a nucleolus scheme in the cooperative game theory to deal with matters of conflict the applicability of their method is demonstrated in a numerical example

why do suppliers charge larger buyers lower prices the phenomenon of input suppliers charging larger buyer firms relative to smaller buyer firms lower prices is commonly explained in terms of supplier economies of scale supplier competition for larger buyers and the larger bargaining power of larger buyers this paper provides an alternative explanation and shows that the observed direction of differential pricing can benefit the supplier by lowering the level of tacit collusion its buyers can sustain in their output market this result also provides a new mechanism through which a ban on price discrimination by input suppliers may lower consumer welfare

transmission cost allocation by cooperative games and coalition formation the allocation of costs of a transmission system to its users is still a pending problem in many electric sector market regulations this paper contributes with a new allocation method among the electric market participants both cooperation and competition are defined as the leading principles to fair solutions and efficient cost allocation the method is based mainly on the responsibility of the agents in the physical and economic use of the network their rational behavior the formation of coalitions and cooperative game theory resolution mechanisms the designed method is applicable to existing networks or to their expansion simulations are made with sample networks results conclude that adequate solutions are possible in a decentralized environment with open access to networks comparisons with traditional allocation systems are shown and cooperative game solutions compare better in economic and physical terms

large market asymptotics for differentiated product demand estimators with economic models of supply io economists often estimate demand for differentiated products using data sets with a small number of large markets by modeling demand as depending on a small number of product characteristics one might hope to obtain increasingly precise estimates of demand parameters as the number of products in a single market grows large in this paper i address the question of consistency and asymptotic distributions of iv estimates of demand in a small number of markets as the number of products increases in some commonly used demand models under conditions on economic primitives i show that under the common assumption of a bertrand nash equilibrium in prices product characteristics lose their identifying power as price instruments in the limit in many of these models giving inconsistent estimates in these cases i find that consistent estimates can still be obtained for many of the cases i consider but care must be taken in modeling demand and choosing instruments for cases where consistent estimates can be obtained i provide sufficient conditions for consistency and asymptotic normality of estimates of parameters and counterfactual outcomes a monte carlo study confirms that the asymptotic results provide an accurate description

comparing centralized and decentralized contract design enabling direct load control for reserves demand response could provide reserves to power systems and market designs should enable cost efficient exploitation of these resources in direct load control programs consumers provide demand response in exchange for incentive payments the success of such contracts is a function of level of information sharing consumer costs and power system constraints costs in this paper we compare three approaches to contract design each of which assumes different levels of consumer privacy our aim is to explore tradeoffs between privacy resource exploitation and the reward earned by the load aggregator the first approach assumes full and truthful information exchange between the consumer and the system operator we then develop a novel centralized approach in which an aggregator applies mechanism design to offer contracts to consumers who reveal partial cost information a novel decentralized approach is developed in which consumers act cooperatively to pool demand response reserves enabling them to keep individual cost information private through simulation studies we find that in the centralized approach resource exploitation rewards are highly sensitive to the accuracy of the load aggregator s consumer cost curves approximations we also find that in the decentralized approach rewards can be small especially if information exchange is costly

commitment and monopoly pricing in durable goods models this article investigates the issue of commitment by a durable goods monopolist two models of the interaction between durability recycling and market power are compared the two differ according to the ability f the seller to credibly commit to a given salec qtrn egy this article takes the standard durable goods monopoly model extends it to allow for depreciation and compares the monopoly markup with swan s predicted markup for a recycled good the difference between the two models is shown to reduce to a single parameter in the markup equation

coalition formation in transmission expansion planning the study of a decentralized coalition formation scheme in a specific power systems transmission expansion scenario is the purpose of this paper the authors define first who are the agents in the expansion game and provide a decentralized coalition scheme based on bilateral shapley values finally they allocate the total costs of expansion amongst the agents based on the coalition history and they compare their method with a centralized scheme

pricing and financial resources an analysis of the disk drive industry 1980 88 this paper empirically examines the long purse hypothesis formalized by patrick bolton and david scharfstein 1990 that incumbents may drive out entrants through aggressive pricing the author analyzes the pricing of 733 disk drives between 1980 and 1988 drives that are adjacent to those manufactured by thinly capitalized undiversified rivals are priced lower than other drives during the later years in the sample when little equity financing was available to these firms the results are robust to controls for alternative hypotheses and to other specifications of the hedonic regression copyright 1995 by mit press

a three level static milp model for generation and transmission expansion planning we present a three level equilibrium model for the expansion of an electric network the lower level model represents the equilibrium of a pool based market the intermediate level represents the nash equilibrium in generation capacity expansion taking into account the outcomes on the spot market and the upper level model represents the anticipation of transmission expansion planning to the investment in generation capacity and the pool based market equilibrium the demand has been considered as exogenous and locational marginal prices are obtained as endogenous variables of the model the three level model is formulated as a mixed integer linear programming milp problem the model is applied to a realistic power system in chile to illustrate the methodology and proper conclusions are reached

numerical solutions to nash cournot equilibria in coupled constraint electricity markets a numerical method based on a relaxation algorithm and the nikaido isoda function is presented for the calculation of nash cournot equilibria in electricity markets nash equilibrium is attained through a relaxation procedure applied to an objective function the nikaido isoda function which is derived from the existing profit maximization functions calculated by the generating companies we also show how to use the relaxation algorithm to compute and enforce a coupled constraint equilibrium which occurs if regulatory generation and distribution and more restrictions are placed on the companies and entire markets moreover we use the relaxation algorithm to compute players payoffs under several player configurations this is needed for the solution of our game under cooperative game theory concepts such as the bilateral shapley value and the kernel we show that the existence of both depends critically on demand price elasticity the numerical method converges to a unique solution under rather specific but plausible concavity conditions a case study from the ieee 30 bus system and a three bus bilateral market example with a dc model of the transmission line constraints are presented and discussed

allocation of unit start up costs using cooperative game theory this paper discusses a three part generation offer strategy that enables generators to put in unbundled variable operating costs and fixed start up no load costs we then propose methods based on cost sharing axioms to allocate fixed start up no load costs among electricity consumers load retailers that take into account equity and rationality considerations we focus on the single period cost allocation first we apply three well known game theoretic axioms the core the nucleolus and the shapley value we discuss the relative merits and demerits of each criterion and also explore certain theoretical conditions for the existence of the core and the shapley value lying inside the core finally the multiperiod start up cost allocation problem is studied allocations based on individual periods vis a spl grave vis composite allocation for all periods are compared and contrasted numerical examples are used to illustrate all theoretical concepts

valuing product innovation genetically engineered varieties in us corn and soybeans we develop a discrete choice model of differentiated products for us corn and soybean seed demand to study the welfare impact of genetically engineered ge crop varieties using a unique data set spanning the period 1996 2011 we find that the welfare impact of the ge innovation is significant in the last five years of the period analyzed our preferred counterfactual indicates that total surplus due to ge traits was 5 18 billion per year with seed manufacturers appropriating 56 of this surplus the seed industry obtained more surplus from ge corn whereas farmers received more surplus from ge soybeans

competition in durable goods markets the strategic consequences of leasing and selling in marketing durable goods manufacturers use varying degrees of leasing and selling to consumers e g cars photo copiers personal computers airplanes etc the question that this raises is whether the distinction between leases and sales is simply one of price or whether the proportion of leases and sales effects a firm s ability to compete in the market in this paper we use two approaches to argue that leasing and selling create strategic consequences that extend beyond prices first we develop a stylized theoretical model that shows that the optimal proportion of leases and sales depends on the competitiveness of the market and on the inherent reliability of the firm s product and second we find support for the implications of our theoretical model with data from the automobile industry the u s automobile industry has seen a large increase in leasing over the last five years however the extent to which leasing has been embraced varies widely across manufacturers for example in 1993 the sport utility segment had the following lease percentages ford explorer 29 jeep grand cherokee 24 toyota 4 runner 11 and chevrolet blazer 9 in addition manufacturers often vary lease percentages across models for example in 1993 ford leased 22 of its crown victoria model 35 of its taurus model and 42 of its probe model a popular argument for why we see these differences is that higher priced cars are leased more often because leasing makes them more affordable however this rationale is not compelling in the face of our data for example the ford probe was priced significantly lower than the crown victoria and yet it was leased almost twice as often to develop a better understanding of why we observe differences in the proportion of leasing we develop a two period model of a duopoly in which each manufacturer chooses its optimal quantity and the fraction of units it wants to lease we find that in equilibrium neither firm leases all its units either they use a mix of leasing and selling or they use only selling our analysis suggests that the fraction of leased cars decreases as the manufacturers products become more similar and the competition between them increases the intuition for this result is that a higher fraction of leases puts the firm at a competitive disadvantage in the future this occurs because unlike firms that sell their product firms that lease are at a price disadvantage another important finding in this paper is that the extent of leasing chosen by a manufacturer depends on the reliability of its product in particular all else being equal the lower a product s reliability the lower its proportion of leases within the context of the automobile industry this suggests that more expensive cars may be leased more often because they are of higher quality and not necessarily because they are more expensive finally we test the implications of our theoretical model with data from the u s automobile market in particular for 1993 model year cars we develop a measure of reliability using data from consumer reports in addition we develop a measure of the extent of competition in each segment of the automobile market we support our hypotheses by finding that the extent to which a car model is leased depends strongly on its predicted reliability and on the competitive intensity within the segment

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

resale and collusion in a dynamic market for semidurable goods the paper studies the incentives to form collusive agreements when goods can be traded in second hand markets it will be shown that such incentives crucially depend on the rate of depreciation of the durable good and on consumer heterogeneity the main contribution of the paper shows that an active second hand market may strengthen the incentives to collude as do policies that affect the functioning of the second hand market e g leasing policy and buy back it will also be argued that the oligopoly incentives to adopt strategies that strengthen collusion often differ from the monopoly incentives to increase profits

transmission expansion planning in electricity markets this paper presents a mixed integer linear programming lp formulation for the long term transmission expansion planning problem in a competitive pool based electricity market to achieve optimal expansion planning while modeling market functioning we define a number of scenarios based on the future demand in the system and we simulate the maximization of the aggregate social welfare investment and operating costs transmission losses and generator offers and demand bids are considered we propose to use a set of metrics to rate the effect of the expansion on the generators demands and the system as a whole the proposed model is applied to the garver six bus system and to the ieee 24 bus reliability test system simulation results can be interpreted in economic terms based on the values of the metrics obtained for different scenarios parameters and topologies

the effect of ownership structure on prices in geographically differentiated industries i analyze how ownership structure and market geography jointly influence fast food prices i estimate a model of demand and supply that accounts for the market geography and run counterfactual experiments that demonstrate how mergers affect prices i find that the impact of mergers can be large that this impact decreases as the merging outlets are farther apart that mergers among market leaders generally increase prices more than mergers among weaker firms and that mergers can increase prices even if the outlets are so far apart that neither outleti s presence affects prices at the other before the merger

shapley game for expansion planning of generating companies at many non coincident criteria liberalization of electric power systems eps considerably changes and sophisticates solution of the expansion problems and their contents akey problem here is to coordinate interests of the subjects involved in the eps expansion planning the interests may or may not be directly opposite very often the subjects can benefit by cooperation which affects the decisions on eps expansion the theory of cooperative games can be used to solve the problem of coordinating the interests most efficiently the approach is exemplified by one and two interacting power supply companies with several subjects each with their interests and different conditions for system expansion

retail price fixity as a facilitating mechanism previous theoretical explanations for retail price fixity show that fixed retail prices can be consistent with either competitive or imperfectly competitive behavior we develop a conceptual model of retail pricing wherein fixed price points are facilitating mechanisms for tacit collusion a non cooperative equilibrium in fixed retail prices is supported through credible threats to revert to nash pricing if cheating is suspected we test the implications of this model using a two stage ordered probit approach in weekly supermarket pricing data the results show that price fixity does support collusive equilibria among retailers but other factors may also explain retail price behavior

in pursuit of monopoly power recent quantitative work in industrial economics this paper reviews empirical work in industrial organization devoted to the question of inferring the existence of monopoly power from data on observed market outcomes like profits and prices the discussion covers inter industry work long conventional in the area newer developments in intra industry analysis and case studies and concludes with some remarks on a small but growing body of work assessing market dynamics the wide range of studies reviewed all generally reveal that market power exists in many industries

price discrimination in the context of vertical differentiation an application to canadian wheat exports this study examines the ability of the canadian wheat board cwb to price discriminate in bread wheat exports this study models wheat as a vertically differentiated intermediate good and modifies the model of vertical differentiation by mussa and rosen to the realities of wheat import demand the conceptual model isolates the bases of price discrimination and demonstrates that the cwb s ability to exploit cost differences in pricing depends on the extent of the differentiation between canadian and u s wheat this model is implemented using monthly confidential price data provided by the cwb for exports to japan the united kingdom and two markets aggregating remaining exports through canada s west and east coasts for 1982 1994 the data indicate that the cwb charges different prices to different countries for wheat of the same grade and protein content results from the model indicate that the price difference between any two markets is not completely explained by elements of perfect competition however the evidence is mixed regarding the ability of the cwb to utilize all the instruments available to price discriminate thus the cwb s pricing strategy may be more complex and dynamic than the prescription for static producer surplus maximization derived in this study

tiered co payments pricing and demand in reference price markets for pharmaceuticals health insurance companies curb price insensitive behavior and the moral hazard of insureds by means of cost sharing such as tiered co payments or reference pricing in drug markets this paper evaluates the effect of price limits below which drugs are exempt from co payments on prices and on demand first using a difference in differences estimation strategy we find that the new policy decreases prices by 5 percent for generics and increases prices by 4 percent for brand name drugs in the german reference price market second estimating a nested logit demand model we show that consumers appreciate co payment exempt drugs and calculate lower price elasticities for brand name drugs than for generics this explains the different price responses of brand name and generic drugs and shows that price related co payment tiers are an effective tool to steer demand to low priced drugs

quantifying the coordinated effects of partial horizontal acquisitions abstract recent years have witnessed an increased interest by competition agencies in assessing the competitive effects of partial acquisitions we propose an empirical structural methodology which can deal with settings involving all types of owners and ownership rights to quantify the coordinated effects of partial horizontal acquisitions on differentiated products industries by evaluating the impact of such acquisitions on the minimum discount factors for which coordination can be sustained we also provide an empirical application of the methodology to several acquisitions in the wet shaving industry that give rise to cross and common ownership structures the results are as follows i the incentives to coordinate of the firms that the acquiring party is pre acquisition able to influence are non decreasing with any acquisition ii the incentives to coordinate of the acquired firm are non decreasing with acquisitions involving full or partial both financial and corporate control rights but non increasing with acquisitions involving full or partial solely financial rights and iii the incentives to coordinate of the remaining firms in the industry are non increasing with any acquisition this implies that the coordinated effects of partial horizontal acquisitions are in general ambiguous which illustrates the importance of an empirical structural methodology

consumer and competitor reactions evidence from a field experiment abstract in response to a price change by a single seller it is common for the density of sellers in the market to influence both the quantity response of consumers and the price response of other sellers using field experiment data collected around a series of exogenously imposed price changes we find that an individual retailer with a larger number of competitors faces a more responsive demand this finding is fundamental to a predicted inverse relationship between market prices and the number of competitors we also examine the reaction of rival stations to exogenous price changes and find that the magnitude of a competitor s response is inversely related to the density of stations in the market

competition and collusion in the american automobile industry the 1955 price war movements in total quantity and in quality adjusted price suggest a supply side shock in the american automobile market in 1955 this paper tests the hypothesis that the shock was a transitory change in industry conduct a price war the key ingredients of the test are alternative equilibrium models of oligopoly under product differentiation in nonnested cox tests of hypotheses a collusive solution is sustained in 1954 and in 1956 while a competitive solution holds in 1955 the result does not appear to be an artifact since it is robust in tests against alternative specifications copyright 1987 by blackwell publishing ltd

transmission switching in expansion planning transmission switching ts is introduced to add flexibility to the transmission and generation capacity expansion planning problem ts could improve the performance of the capacity expansion planning model and reduce the total planning cost the capacity expansion planning problem is decomposed into a master problem and two subproblems the master problem utilizes the candidate set for additional generating unit and transmission capacity investments to find the optimal plan throughout the planning horizon the subproblems use the optimal plan apply transmission switching to relieve any transmission flow violations and calculate the optimal dispatch of generating units the transmission network contingencies are also considered in the subproblems the case studies exhibit the effectiveness of the proposed expansion planning approach

measuring consumerwelfareinthe cpu market anapplication of the pure characteristics demand model in this article i estimate demand for the personal computer central processing unit and measure consumer welfare using the pure characteristics demand model the model is based on a quasilinear utility function with multiplicative random variables and does not have the idiosyncratic logit error term so that consumer welfare directly reflects consumers valuation of product characteristics welfare calculations show that consumer surplus comprises approximately 90 of total social surplus and that large welfare gains have resulted from the introduction of new products

supermarket choice and supermarket competition in market equilibrium multi store firms are common in the retailing industry theory suggests that cross elasticities between stores of the same firm enhance market power to evaluate the importance of this effect in the u k supermarket industry we estimate a model of consumer choice and expenditure using three data sources profit margins for each chain a survey of consumer choices and a data set of store characteristics to permit plausible substitution patterns the utility model interacts consumer and store characteristics we measure market power by calculating the effect of merger and demerger on nash equilibrium prices demerger reduces the prices of the largest firms by between 2 and 3 8 depending on local concentration mergers between the largest firms lead to price increases up to 7 4

overlapping generations intermediation and the first welfare theorem abstract the first welfare theorem fails to hold for standard pure exchange overlapping generations economies because no agent exploits the profit opportunities which can arise from mediating intertemporal trade this paper modifies the standard economy by introducing an optimizing corporate intermediary which distributes net earnings back to consumer shareholders the pareto inefficient no trade state which is a stationary equilibrium for the standard economy cannot be an equilibrium for this modified brokerage economy because the intermediary perceives unbounded earnings opportunities if the intermediary seeks to maximize the minimum dividend per share distributed over time then there is a unique pareto efficient stationary equilibrium for the brokerage economy

package size and price discrimination in the paper towel market abstract estimates from a structural model of consumer behavior and firm conduct are used to decompose the extent to which quantity discounts for paper towels are consistent with second degree price discrimination as opposed to cost differences across sizes counterfactual exercises assuming that firms offer only one package size or charge uniform prices across sizes indicate that competition in the multi roll package size segment results in increased consumer surplus and lower prices for all consumers

collusion or competition interfirm relationships in the chinese auto industry the chinese passenger vehicle industry contains a large number of manufacturers some of them are members of big corporate groups centered around state owned enterprises these corporate relationships may facilitate collusion this paper applies the non nested hypothesis test methodology to data on passenger vehicles to identify whether price collusion exists within corporate groups or across groups our empirical results support the assumption of bertrand nash competition in the chinese passenger vehicle industry we find no evidence for within or cross group price collusion our policy experiments show that indigenous brands will gain market shares and profits if within group companies merge

estimating the residual demand curve facing a single firm this paper presents an econometric technique for estimating the single firm residual demand curve that does not require the estimation of demand cross elasticities the technique is particularly suited for the estimation of firm market power in product differentiated industries where cross elasticities are notoriously difficult to measure one estimated parameter is directly related to a firm s markup of price over marginal cost when product differentiation is extensive when an industry consists of a dominant firm and a price taking fringe when a consistent conjectures equilibrium is the correct oligopoly solution concept when firms are stackelberg leaders relative to their environment or when firms are perfect competitors the estimates can indicate power over price in other circumstances an instrumental variables technique is employed using firm individuated factor prices to identify firm specific residual demand yet even when instruments are unavailable the technique produces elasticity estimates biased in the conservative direction of disproving market power this methodology is applied to estimate the market power of three firms in an industry characterized by product differentiation brewing over our 1962 82 sample period pabst and coors had similar national market shares and each had high shares in several states yet pabst was virtually a price taker while coors possessed substantial market power anheuser busch had market power in the early part of the sample but little after 1975 when miller brewing changed the competitive nature of the industry

winners and losers in a major price war abstract although retail price wars have received much business press and some research attention it is unclear how they affect consumer purchase behavior this article studies an unprecedented price war in dutch grocery retailing that started in fall 2003 initiated by the market leader to halt its sliding market share the authors investigate the short and long term effects of the price war on store visits on spending and on the sensitivity of these decisions to weekly prices and price image they use a unique data set with consumer hand scan and perceptual data for a national panel of 1821 households covering two years before and two years after the price war started although the price war initially entailed more shopping around and increased spending spending per visit ultimately dropped because consumers redistributed their purchases across stores the price war made consumers more sensitive to weekly prices and price image which helped both the chain that showed an improvement in price image

an effective transmission network expansion cost allocation based on game theory the expansion of transmission systems impacts many entities in the market environment each entity may fare better or worse as a result of congestion relief in the presence of new investments negatively affected firms exert their influence to prevent the expansion from taking place the opposition of these firms and the lack of appropriate incentives results in insufficient investments in transmission assets the network is being frequently used at its maximum limits leading to economic inefficiencies and reduced reliability hence there is a need for effective incentive schemes for network expansion in this paper we propose a game theory based scheme for the allocation of transmission expansion costs among market entities the allocation takes into account both the physical and economic impacts of the new transmission assets and the influence of each firm on the expansion decision this is the first scheme designed to give all market participants explicit incentives to support the expansion the application of the allocation solution to the garver six bus system is presented to illustrate the capabilities of the proposed method

an energy brokerage system with emission trading and allocation of cost savings an energy brokerage system can achieve lower emission levels for interconnected electric utilities in a cost effective way the paper presents a linear programming formulation of an energy brokerage system in an operational planning framework emission trading among utilities is envisaged to achieve emission reduction targets the power and emission buy sell quotes for individual utilities are computed and communicated to a central broker the broker determines the power and emission interchange schedule which maximizes the power system savings for all participating utilities the shapley value criterion is proposed for allocation of cost savings among the utilities this criterion reflects the true marginal contribution of a utility to the aggregate system savings and hence is superior to the existing methods of cost savings allocation

definition of an efficient transmission system using cooperative games theory under a context of transmission open access a methodology to define a common transmission trunk system using economic and technical criteria is proposed a transmission trunk system is defined as a unique and common system constituted by electrical lines and substations that are economically efficient and necessary to allow the development of an electrical market and the supply of demand in the respective electrical system at a minimum cost and in an efficient manner the principles of cooperation and interaction between agents that are the base for the cooperative games theory are used simple games and the shapley value approach are used the proposal responds to the need to identify a common main system common to supply and demand agents needed in system open access schemes in electricity markets

cost assignment model for electrical transmission system expansion an approach through the kernel theory a cost assignment model is proposed for the expansion of electrical transmission systems based on the cooperation and interaction principles that are the foundation of the cooperative game theory a solution algorithm is proposed that considers the development of independent cooperative games for each expansion segment and whose final assignment can be obtained by any game theory solution method kernel nucleolus shapley value etc the kernel method was chosen because it has both equilibrium and transparency characteristics in the computation of final assignments the model accepts both the technical load nature generation levels etc and economic power station marginal costs etc variables that characterize the network to be analyzed cost assignment will depend both on the capacity economic use and the noncoincident maximum use of the expansion lines made by individual and group agents

a new strategy for transmission expansion in competitive electricity markets it will be important to develop a transmission network capable of handling future generation and load patterns in a deregulated unbundled and competitive electricity market a new strategy for transmission expansion under a competitive market environment is therefore presented in this paper in the proposed strategy a new transmission planning model is developed to consider a variety of market driven power flow patterns while a decision analysis scheme is incorporated to minimize the risk of the selected plan numerical examples are given to illustrate the potential of the proposed strategy to make a significant contribution to transmission planning in competitive markets

capacity and product market competition measuring market power in a puppy dog industry abstract in this paper we specify and estimate a structural model which accounts for competition in two variables capacity and prices the model has a two stage setup in the first stage firms make capacity decisions followed by a product differentiated price setting game in the second stage since costs are endogenized through the first stage this has important implications for the measurement of market power in the product market in particular simpler one stage specifications would result in a bias in the measurement of market power which can be linked to the taxonomy for two stage games given in fudenberg and tirole 1984 fudenberg d tirole j 1984 the fat cat effect the puppy dog ploy and the lean and hungry look american economic review paper and proceedings 74 361 366 we then estimate this model demand cost short and long run and conduct for the european airline industry using data for the period of 1976 1990 we perform a number of specification tests and reject a simple one stage specification in favor of our two stage set up in particular we find that some degree of market power in the product market exists however market conduct in the two stage set up is significantly less collusive than in the more widely employed one stage specification which is consistent with the direction of bias in puppy dog games this illustrates that collusiveness of firms market conduct in the product market is significantly overestimated whenever capacity competition is not accounted for

switching costs in the wholesale distribution of cigarettes recent theories of price wars triggered by entry assign a critical role to switching costs in explaining price and output changes earlier elzinga and mills 1998 showed that actual switching patterns following an episode of new entry in an industry are driven by the fact that buyers have different switching costs the current paper draws on transaction specific price and shipments data surrounding the 1984 1985 price war in generic cigarettes to explore the size and determinants of switching costs among wholesale cigarette distributors results show that switching costs vary across firms and are nontrivial in magnitude several implications of the findings are discussed

voluntary export restraints profits and quality adjustment this paper develops a model of vertical differentiation to assess the impact of output constraints on the profits and quality choices of firms subject to them a competitive environment is developed with the automobile industry in mind multiproduct oligopolists producing differentiated goods who behave as coumot competitors the results show that an output constraint will not induce constrained firms to upgrade their product line when their unconstrained competitors produce higher quality models it is also shown that an output constraint can raise the profits of constrained firms despite output increases by unconstrained firms