laboratory tests of equilibrium predictions with disequilibrium data we examine a common practice used within previous studies of laboratory markets testing equilibrium models using some data from markets that have not reached an equilibrium we examine the effect of this practice when it is applied to some laboratory markets where an appreciable number of them eventually satisfied an operational definition of an equilibrium our data suggest that for our markets significantly different equilibrium test results would be obtained when using all data available in market periods analysed in previous studies rather than using only equilibrium data for our markets choices made in disequilibrium are quite different from those in equilibrium this paper is primarily concerned with examining one common practice used in previous studies of laboratory markets this practice is testing equilibrium models using some data from markets that have not reached an equilibrium the data set used typically consists of all available laboratory data from the last period an average of the last few periods an average of all periods or from the nth period for some fixed n i know of no attempt at least formally to assure all data were from markets in equilibrium markets where market choices have stabilized recently some laboratory markets were run where an appreciable number of them eventually satisfied an operational definition of an equilibrium could the use of disequilibrium data significantly affect the results of tests we might make of some equilibrium models for these laboratory markets this practice would be desirable if the disequilibrium data provided a useful estimate of the behaviour that would have been observed if an equilibrium had been obtained on the other hand if some disequilibrium behaviour is qualitatively different from the behaviour that would be observed in an equilibrium this practice could produce misleading results within this paper we examine the effect of this practice when it is used on our laboratory data

financial integration in europe through the lens of composite indicators abstract this paper develops price and quantity based composite indicators of financial integration for the euro area we develop a novel method that homogenises information from different market segments and benchmarks them to a state of perfect integration the time series development of both indicators shows that the global financial crisis and the ensuing sovereign debt crisis in the euro area led to considerable financial fragmentation from which the monetary union has not yet fully recovered in a set of panel regressions for 19 member states we find a significant positive association between financial integration and economic growth

does the bond market predict bankruptcy settlements this study shows the extent to which deviations from the absolute priority rule increase or decrease the bankruptcy emergence payoff to traded i e usually junior claimants bondholders the data indicate that on average bondholders benefit albeit slightly from absolute priority rule apr violations this paper also examines the degree to which the bond market in the bankruptcy filing month anticipates departures from the apr and other influences on the payoff to bondholders in other words we investigate the informational efficiency of the market for bankrupt bonds overall despite the complex and lengthy nature of bankruptcy proceedings the results support efficiency the finance literature has traditionally assumed that when a firm enters bankruptcy the creditors become the owners and the value of the firm is distributed according to the absolute priority rule apr the apr states that senior creditors should be fully compensated before junior creditors receive any portion of the bankrupt firm s value and junior creditors should receive full payment before shareholders receive any compensation in practice formal bankruptcy proceedings are complex processes that often violate the apr brown 1989 captures some of the intricacies of this process in a game theoretic model showing that the solution to the bargaining process in bankruptcy can involve deviations from the apr although the solution

buyer power with atomistic upstream entry can downstream consolidation increase production and welfare abstract this paper investigates the effects of buyer power on entry into an atomistic upstream market and economic welfare under reasonable market conditions we show that industries with a few buyers induce more upstream entry than industries with a larger number of firms in particular monopsony can be more conducive to entry and lead to higher social welfare than more fragmented industry structures this seeming paradox arises because a single buyer better internalizes the positive effects of entry on later periods supply conditions than a collection of firms this result is relevant in a number of market settings including markets for specialized labor and processing markets for agricultural products

duopolistic vertical restraints abstract in an industry where competition exists at the wholesale level vertical restraints are not necessarily desirable from the standpoint of the manufacturers when vertical restraints are employed it is never in the form of retail price maintenance but rather in the form of franchise fee pricing when the products produced by the manufacturers are only slightly differentiated the producers may benefit from the double marginalization that arises with linear pricing such double marginalization results in higher retail prices which relieve competitive pressures

downstream merger and welfare in a bilateral oligopoly i analyse the effects of a downstream merger in a differentiated oligopoly when there is bargaining between downstream firms and upstream agents firms or unions bargaining outcomes can be observable or unobservable by rivals when competition is in quantities upstream agents are independent and bargaining is over a uniform input price a merger between downstream firms may raise consumer surplus and overall welfare however when competition is in prices or the upstream agents are not independent or bargaining is over a two part tariff or bargaining covers both the input price and the level of output the standard welfare results are restored a downstream merger always reduces consumer surplus and overall welfare

precommitment in competing vertical chains the design of distribution channels is an important marketing decision since a revision implies costly reorganization hence it makes sense to study strategic motives of alternative distribution devices a precommitment is a strategic move that affects the other players expectations on how oneself will behave and thus induces them to choose in one s own favor schelling 1960 how these tactics can be used by firms to favorably influence competition between vertical chains is the topic of the literature reviewed in this survey jel classification l22 l42 l81

competing vertical structures precommitment and renegotiation we consider a model where two agents privately informed about their own characteristics play a normal form game on behalf of two uninformed principals we analyze the existence of precommitment effects through public announcements of contracts in a model where agency contracts designed ex ante can always be secretly renegotiated at the ex ante and interim stages we show that the existence of precommitment effects depends both on the strategic complementarity of the agents actions and on the direct effect of the opponents actions on each principal s welfare in our model the possibility of renegotiation is crucial for the existence of precommitment effects the results are introduced through an example of cournot and bertrand competition between firms viewed as vertical structures

countervailing power and price transparency we investigate whether improved transparency about prices may increase the countervailing power exercised by buyers of an intermediate good in a model with an informed manufacturer that sells to both informed and uninformed firms we show that full transparency cannot be part of equilibrium due to the strategic effect of the resulting informational spillover transparency policies introduce a distortion for informed segments and are unsuccessful in completely removing the distortion from the uninformed segment welfare effects are hence ambiguous and depend on the weight assigned to uninformed markets our results thus cast further doubt on the value of transparency

manufacturers and retailers in the global economy we develop a general equilibrium model to capture key features of the retailing and of the manufacturing industry in order to understand how these two industries interact and how labor is allocated between them we show that the observed shift in employment from manufacturing to retailing the rise in retailer product assortment and the emergence of slotting allowances in many retail markets are consistent with the global integration of product markets while higher retail market concentration is best explained by technological change in retailing we also identify a novel benefit from market integration consisting of efficiency gains in the vertical distribution chain

multifirm unions and the incentive to adopt pattern bargaining in oligopoly abstract this paper develops a model of wage bargaining between an industry wide trade union and firms in an oligopoly and considers the circumstances under which the union prefers pattern bargaining that is negotiating contracts in a sequential manner to simultaneous bargaining with the firms the paper goes on to consider the importance of the bargaining order in pattern bargaining when the firms are asymmetric the analysis shows that the union gains by first targeting a firm which is in a relatively weak bargaining position i e impatient to settle or a firm with relatively large profits

market regulation and multimarket rivalry multimarket contact between duopolists in an x and y market is modelled with a trigger strategy we show that mildly restrictive price cap regulation in the x market decreases y market quantities but restrictive caps in the x market have a positive impact on y market outputs behavior in laboratory markets confirms these propositions regulation that lowers x market prices by a small amount results in a statistically significant reduction in y outputs when the regulated x market price is reduced to the cournot nash level y market outputs rise to a point statistically indistinguishable from the unregulated quantities

a framework to analyze the performance of thinly traded agricultural commodity markets thinly traded agricultural commodity markets are a concern for farmers and policy markers due to the belief that prices in these settings will be highly volatile subject to manipulation and incapable of efficiently allocating resources analysis of thin agricultural markets has to date been impeded by lack of an appropriate analytical framework from which to study their behavior in this paper we propose the modern agricultural markets mam framework as an appropriate paradigm through which to view and evaluate thin markets we argue that thinly traded markets that meet key conditions required for a mam will generate maximum economic surplus and enable farmers to earn at least a competitive return on their investments in the absence of these conditions however the concerns known as the thin market problem have validity we set forth the mam framework interpret it in a thin market context and conduct several brief case studies of thin markets to illustrate use of the approach and draw some key inferences about these markets behavior the analysis indicates that appropriate government policies directed to thin markets are those that facilitate their convergence to mam status but in reality key policies under recent consideration would have the opposite effect

an experimental examination of vertical control and cost predation abstract in recent years there has been renewed interest in and concern about firms use of vertical control as a way to exert market power such behavior could be used to gain a competitive advantage over rivals in input and or output markets this paper uses laboratory experimental methods to examine three questions i is anti competitive behavior by a dominant firm in input markets an observable behavior ii is cost predation an observable laboratory phenomenon and iii if such behaviors are observed what are the efficiency consequences results of this dominant firm experiment indicate that all three questions can be answered in the affirmative and the negative efficiency consequences can be profound

countervailing power revisited abstract the paper uses the nash bargaining concept to study the predictions of the theory of countervailing power within two theoretical models a cournot model and a model of perfect competition within the cournot model a decrease in the number of retailers unambiguously leads to an increase in equilibrium consumer prices in the model of perfect competition the reverse is true one may thus conclude that countervailing power can have positive effects for the consumers only if competiton at the retail level is very fierce

mutual forbearance in experimental conglomerate markets we conduct economic experiments to gauge the level of cooperation between conglomerate rivals first we run control experiments to observe cooperation between subjects acting as duopolists in one of two markets in the control experiments subject pairs choose a quantity xi or yi from a payoff matrix in a repeated game relatively less cooperation is observed in the y market than in the x market a second series of experiments then combines the two payoff matrices to create a conglomerate setting facing each other in two markets opponents now choose an xi yi pair each period we find that conglomeration encourages more coperation in the y market but less cooperation in the x market time series analysis of our conglomerate subjects choices strongly supports the recent game theoretic propositions in bernheim and whinston 1990

on the dampening of competition effect of exclusive dealing the authors compare and contrast the profit and welfare effects of exclusive dealing sales through a common retailer and vertical integration as did y j lin 1990 the authors find that imperfectly competitive manufacturers prefer to impose exclusive dealing on their retailers unlike lin the authors find that welfare is higher under exclusive dealing than when products are sold through a common retailer this finding suggests a new interpretation of the standard stations v united states 1949 antitrust case copyright 1993 by blackwell publishing ltd

limited knowledge of demand and oligopoly equilibria abstract in a standard model of oligopoly with differentiated products the existence of an equilibrium at which the first order conditions for profit maximisation are simultaneously satisfied for all firms is proved and this is done without imposing any restrictions on the demand functions this is an equilibrium in the following sense although some firms may not necessarily be maximising their profits nevertheless if each firm s knowledge of demand is limited to the linear approximation of its own demand curve then it will believe that it is indeed maximising its profits

hedonic regressions mis specification and neural networks there is an emerging literature in the field of hedonic regressions which successfully applies flexible functional forms in contrast numerous authors report hedonic regressions with relatively simple functions often with little or no attempt to consider interaction terms and higher level powers such simple functions perform relatively well in spite of good a priori grounds for quite complex interaction effects indeed the studies are characterised by a general indifference to testing these more flexible models even when degrees of freedom permit using detailed scanner data hedonic functions for the uk tv market are estimated and tested for interaction effects for a case study of the market higher level interaction effects are tested for and compare the results with those from a neural network with its property of universal approximation the use of neural networks is particularly novel in this context and some general findings on their suitability emerge

global growth opportunities and market integration we propose an exogenous measure of a country s growth opportunities by interacting the country s local industry mix with global price to earnings pe ratios we find that these exogenous growth opportunities predict future changes in real gdp and investment in a large panel of countries this relation is strongest in countries that have liberalized their capital accounts equity markets and banking systems we also find that financial development external finance dependence and investor protection measures are much less important in aligning growth opportunities with growth than is capital market openness finally we formulate new tests of market integration and segmentation by linking local and global pe ratios to relative economic growth in a perfectly integrated world economy capital should be invested where it

observable contracts strategic delegation and cooperation the role of commitments in noncooperative games is well acknowledged and documented one way to achieve commitments is by letting delegates represent the players of a game in this paper the authors study a delegation game in which the players can use agents strategically to play on their behalf and the contracts they sign with them are common knowledge they show that in such cases every pareto optimal outcome of the game can become the unique subgame perfect nash equilibrium of the delegation game the authors demonstrate this result by discussing the cournot type duopolistic game copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the paradox of vertical integration antitrust policy and commentary include a persistent suspicion that vertical integration may increase market power in the integrated industries the facet of this suspicion that economists have analyzed most is conveyed as follows suppose that a pure monopoly sells an intermediate good to the firms in a final product industry and that the monopolist acquires all of those firms since the firms in the final product industry have been combined vertical integration has extended monopoly to a second industry the integration does not improve production technologies or product traits in either industry nor reduce transaction costs thus abstracting from any economies of integration this paper concerns the paradox that economic models usually show vertical integration increasing economic welfare in spite of the extension of monopoly and even in the absence of any economies since economies would also enhance welfare these models contradict the suspicion that vertical integration is harmful in a recent survey of these models blair and kaserman have commented that o n the basis of these results the economics profession generally argued that the appropriate antitrust policy regarding vertical integration was conciliation at best or neutrality at worst 2 2 the only contrary result is in models where inputs are substitutable in final production sometimes vertical integration reduces welfare however in order to focus sharply on the paradoxical welfare result this paper assumes fixed input proportions and ignores any economies of integration section i has a summary model that sets the stage for the succeeding analysis the principal discovery of this paper is that the paradox is not in general valid even for a simplified model this discovery appears when the assumption of pure input monopoly which is universal in the existing literature is relaxed in section ii the new model includes situations in which integration reduces welfare contrary to the usual result these contradictory situations have strong implications for antitrust policy because the analysis also shows that they ate the only kinds of situations that antitrust enforcers are likely to confront

vertical integration and vertical restraints this paper surveys the field of vertical integration and vertical restraints with particular reference to implications for competition policy it outlines the existing legal framework then discusses some particular u k examples involving vertical restraints the theoretical discussion includes analyses of technological economies transactions costs contractual rights monopoly effects verticle restraints as externalities interbrand versus intrabrand competition the strategic effects of vertical separation and agency issues some policy implications are drawn amongst these being the points that vertical linkages can have strong anticompetitive effects that there is little support for separate treatment of resale price maintenance that policy should focus on economic effects rather than legal form that the case for the block exemption of franchising in the ec is unclear and that the law has failed to take the implications of the vertical separation literature into account copyright 1993 by oxford university press

do slotting allowances harm retail competition slotting allowances are fees paid by manufacturers to get access to retailers shelf space both in the usa and europe the use of slotting allowances has attracted attention in the general press as well as among policy makers and economists one school of thought claims that slotting allowances are efficiency enhancing while another school of thought maintains that slotting allowances are used in an anti competitive manner in this paper we argue that this controversy is partially caused by inadequate assumptions of how the retail market is structured and organized using a formal model we show that there are good reasons to expect anti competitive effects of slotting allowances we further point out that competi tion authorities tend to use an unsatisfactory basis for comparison when analyzing welfare consequences of slotting allowances

corporate credit risk dynamics the lack of widely available and comprehensive data of default activity on the corporate level has encouraged the advance of theories of corporate credit risk far beyond related empirical work this article addresses this deficit by examining a unique data set corporate bond defaults and credit ratings compiled by moody s investors service since 1920 the article investigates the time inhomogeneity of company default risk that is the pattern in which the risk of default for a company changes over time the empirical analysis addresses company default risk within a regression framework of competing risks or hazards the analysis identifies and quantifies variations in default risk with macroeconomic conditions with industries and through time an important characterization for many approaches to measuring and managing credit risk

firm heterogeneity internal finance and credit rationing this paper assesses the role of internal net worth holding constant investment opportunities in the allocation of credit in the presence of asymmetric information in the capital market the authors consider an economy in which both symmetric information and information intensive entrepreneurs seek funds from the capital market and they develop a simple general equilibrium model of credit allocation their emphasis is on shocks to borrower net worth depending on levels of net worth the symmetric information allocation a credit collapse or intermediate allocations are possible the model yields predictions corresponding to accelerator effects on investment and output as well as real effects of collateral redistributions copyright 1990 by royal economic society

original issue high yield bonds aging analyses of defaults exchanges and calls this paper presents an aging analysis of 741 high yield bonds and finds default exchange and call percentages substantially higher than reported in earlier studies by december 31 1988 cumulative defaults are 34 percent for bonds issued in 1977 and 1978 and range from 19 to 27 percent for issue years 1979 1983 and from 3 to 9 percent for issue years 1984 1986 exchanges are also a significant factor although they often are followed by default moreover a significant percentage of high yield debt 26 47 percent for 1977 1982 has been called by december 31 1988 approximately one third of the bonds issued in 1977 1982 has defaulted or been exchanged and an additional one third had been called on average only 28 percent of these issues are still outstanding there is no evidence that early results for more recent issue years differ markedly from issue years 1977 to 1982

divesting ownership in a rival we examine the consumer welfare effect of a firm s partial ownership of a competitor and compare the implications of alternative forms of divestiture we identify conditions under which turning voting shares into non voting shares is preferable to selling the shares to the firm s current shareholders an option frequently chosen we also show that selling the voting shares to a large independent shareholder is preferable to selling them to small shareholders we provide additional theoretical results and apply them to the divestiture of portugal telecom s holdings in ptm

do fast food chains price discriminate on the race and income characteristics of an area this article reports tests for differences in prices charged by fast food restaurants that serve markets with customers of widely divergent incomes and ethnic backgrounds the data contain detailed prices on items sold at over 400 burger king wendy s kfc and roy rogers restaurants in new jersey and pennsylvania locations i find significant differences in price based on the race and income characteristics of a zip code region when income and cost differences are taken into account meal prices rise approximately 5 for a 50 rise in the black population

vertical cross shareholding theory and experimental evidence abstract this paper analyzes vertical cross shareholding that is the mutual holding of a minority of shares between vertically related firms first we explore the issue in a game theoretic model and show that cross shareholding is sufficient to obtain efficient outcomes we then test the model s predictions in an experiment theory predicts the seller decisions accurately but the buyer decisions only to a small extent buyers are more likely to agree on cross shareholding than sellers in an attempt to avoid the winner s curse cross shareholding occurs more frequently than predicted and it increases the likelihood of trade

buyers miscoordination entry and downstream competition this article shows that buyers coordination failures might prevent entry in an industry with an incumbent firm and a more efficient potential entrant if there were a single buyer or if all buyers formed a central purchasing agency coordination failures would be avoided and efficient entry would always occur more generally exclusion is less likely the lower the number of buyers for any given number of buyers exclusion is less likely the more fiercely buyers compete in the downstream market first intense competition may prevent miscoordination equilibria from arising second in cases where miscoordination equilibria still exist it lowers the maximum price that the incumbent can sustain at such exclusionary equilibria buyers have experienced increased concentration in many sectors in particular grocery retailing 1 2 this trend has triggered a wide debate on the effects of buyer power 3 we contribute to this debate by studying how concentration and competition among buyers affect the possibility of entry by a new upstream supplier in an industry characterised by scale economies in our model buyers fragmentation may lead to a situation where a new upstream firm does not manage to enter a market although endowed with lower marginal costs than an incumbent firm when several buyers decide independently from which supplier to purchase miscoordination equilibria may arise where all buyers buy from the incumbent even if the entrant sets a lower price if all buyers address the incumbent none of them has an incentive to deviate that is to switch to the entrant anticipating that a single order would not allow the

regulation and market power in the spanish liquefied petroleum gas industry progress or failure this paper presents a detailed study of the structure market power and competition in the distribution sector for liquefied petroleum gas lpg within spain it is a segment of energy consumption and supply that is not often given serious attention despite the fact that lpg is a crucial source of energy to many households in many countries in europe and in the rest of the world despite formally being an open and liberalized sector the spanish lpg market is characterized by high concentration within the industry repsol butano the dominant operator practically controls the entire value chain these structural characteristics probably justify state intervention in the form of price fixing in order to guarantee accessible prices for final consumers nevertheless applying this tool has had negative effects on the opening and liberalization process on the one hand it fails to encourage entry or an increase in the participation of new operators on the other it has considerably deteriorated the economic and financial performance of the distribution agents that are subjected to two strong forces first the dominant operator looks after its own interests and its income and second the government tries to defend the interests of final consumers by fixing prices that inadequately remunerate the activity this shows the contradictory regulatory actions that try to promote competition and then establish mechanisms to regulate activity by fixing prices that act as price limits these government set prices discourage new competitors from entering

multilateral bargaining and downstream competition we examine multilateral bargaining in vertical supply relationships that involve an upstream manufacturer who sells through two competing retailers in these relationships the negotiations are interdependent and bargaining externality may arise across the retailers in addition the timing by which the manufacturer negotiates with the retailers becomes important in simultaneous bargaining the retailers negotiate without knowing if an agreement has been reached in the other retail channel whereas in sequential bargaining the retailer in the second negotiation is able to observe whether an agreement was reached in the first negotiation we show that simultaneous bargaining is optimal for the manufacturer when the retail prices and profitability are similar and sequential bargaining is preferred when the dispersion in the retail prices is sufficiently large as a result of ex post renegotiations the manufacturer may strategically stock out the less profitable retailer who charged a relatively low retail price and exclusively supply only the retailer who charged a relatively high retail price and maintained high channel profitability moreover ex post multilateral bargaining can buffer downstream competition and thus lead to positive retail profits even in markets that are close to perfect competition

upstream horizontal mergers vertical contracts and bargaining abstract we study horizontal mergers in the upstream sectors of vertically related industries when bargaining is present and contract types are endogenous we demonstrate that the contract types used can have significant implications for the equilibrium market structure and vice versa when trading takes place through two part tariff contracts merger incentives are absent however when the downstream firms are powerful merger incentives are restored since the merger leads then either to the exclusive or to the partial use of wholesale price contracts finally we show that whenever a merger occurs it is welfare detrimental

bilateral oligopoly the efficiency of intermediate goods markets abstract we show that intermediate goods markets may be efficient despite the presence of commonly accepted signs of market failure such as high concentration both among sellers and buyers sparse trading networks price dispersion and externalities the results are derived in an extensive form model of bilateral bargaining with multiple buyers and multiple sellers and with externalities between the negotiations we also characterize the structure of the endogenous trading network i e how firms choose trading partners prices are dispersed and depend on both the concentration of capital and the concentration of sales consistent with some stylized facts on buyer power

commitment through renegotiation proof contracts with third parties the paper analyzes contracts as means of strategic commitment that is commitment against outside parties to the agreement it considers the example of an incumbent firm which enters a contractual relationship with its workers in order to deter entry it assumes away the possibility for the parties to precommit not to make pareto improving renegotiations of the agreement once entry has taken place under symmetric information the contract is thus found to be useless for entry deterrence if the incumbent firm or workers possess some private information excessive post entry production levels can however be sustained ex post since output reductions may not be incentive compatible while information asymmetries are usually welfare decreasing when the goal is optimal risk sharing they can thus be welfare improving for the contracting parties when commitment against outsiders is the goal of the contract the role of the renegotiation process as a constraint on sustainable agreements is stressed in the paper and the general relevance of strategic contractual commitment is discussed

mergers in the food retailing sector an empirical investigation abstract we address the problem of merger evaluation for competition policy purposes in the retailing sector the likely effects of a possible merger are analysed ex ante the novelty of the paper lies in the inclusion of downstream and upstream market power effects on the retailers also it provides an empirical application to the portuguese food retailing market the effects of additional concentration on prices are estimated as well as the price reduction insiders are likely to obtain via an improved bargaining position the final effect on prices depends on how these cost reductions are reflected in insiders prices i e on the pass through rate for realistic values of this rate we find that the merger in question will most likely increase consumer prices and therefore should not be allowed on an antitrust legislation basis

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

bilateral monopolies and incentives for merger the paper presents a model of duopoly in which firms acquire inputs through bilateral monopoly relations with suppliers it combines a bargaining model with a duopoly model to examine how input pri

multimarket contact and collusive behavior traditional analyses of industrial behavior typically link the exercise of market power in an industry to internalfeatures such as demand conditions concentration and barriers to entry nevertheless some economists have remained concerned that external factors such as contact across markets may also play a significant role in determining the level of competitiveness in any particular industry in this article we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition we isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarketfirms

growth volatility and financial liberalization we examine the effects of both equity market liberalization and capital account openness on real consumption growth variability we show that financial liberalization is mostly associated with lower consumption growth volatility our results are robust surviving controls for business cycle effects economic and financial development the quality of institutions and other variables countries that have more open capital accounts experience a greater reduction in consumption growth volatility after equity market openings we also find that financial liberalizations are associated with declines in the ratio of consumption growth volatility to gdp growth volatility suggesting improved risk sharing our results are weaker for liberalizing emerging markets but we never observe a significant increase in real volatility moreover we demonstrate significant differences in the volatility response depending on the size of the banking and government sectors and certain institutional factors

retailer power recent developments and policy implications retailing is big business ranking firms by revenue retailing includes belgium s largest company delhaize le lion tesco and j sainsbury from the uk top ten the giant metro group in germany and wal mart stores number four in the usa and the eighth largest company in the world with 119 billion turnover and 825 000 employees fortune 3 8 98 retailing is getting more concentrated over time the top ten grocers in europe were 28 of the market in 1992 but 36 by 1997 1 the behaviour of retailers matters for consumers cross country studies of pricing for near identical products e g cars televisions compact discs branded sportswear groceries find big differences between prices across european countries and between europe and the usa 2 the european commission is to start examining why europeans pay substantially more on average than us consumers

bargining bundling and clout the portfolio effects of horizontal mergers we examine the output and profit effects of horizontal mergers between differentiated upstream firms in an intermediate goods market served by a downstream monopolist if the merged firm can bundle transfer pricing is efficient before and after the merger absent cost efficiencies consumer and total welfare do not change if the merged firm cannot bundle and its bargaining power is sufficiently high transfer pricing is inefficient after the merger absent cost efficiencies welfare typically falls we evaluate the profit effects of mergers for the case of two part tariff contracts rival firms gain lose from mergers that raise lower downstream prices contrary to conventional wisdom a merger that harms the retailer may increase welfare

an industry equilibrium analysis of downstream vertical integration this paper investigates the effect of product substitutability on nash equilibrium distribution structures in a duopoly where each manufacturer distributes its goods through a single exclusive retailer which may be either a franchised outlet or a factory store static linear demand and cost functions are assumed and a number of rules about players expectations of competitors behavior are examined it is found that for most specifications product substitutability does influence the equilibrium distribution structure for low degrees of substitutability each manufacturer will distribute its product through a company store for more highly competitive goods manufacturers will be more likely to use a decentralized distribution system this article was originally published in marketing science volume 2 issue 2 pages 161 191 in 1983

retail contracting theory and practice we summarize a number of regularities that arise in the empirical literature on contractual relationships between manufacturers and their exclusive resellers we do this using studies of traditional and business format franchise relationships as well as studies of salesforce integration decisions some of the patterns that we uncover are consistent with a standard incentive cum insurance theory of organization while others are not we brie y review some theoretical extensions that seem promising in terms of reconciling seeming con icts between theory and practice i introduction manufacturers of retail products must decide whether to sell their products to consumers themselves vertical integration or to sell via independent retailers vertical separation when manufacturers do not perform the sales function internally but want exclusive retailers they usually choose some form of franchising 1 many theories attempt to explain the choice of retail organizational form moreover a considerable body of empirical evidence concerning this choice is accumulating we attempt to evaluate this econometric evidence and relate it to the theories to accomplish this task we assess studies of franchising arrangements as well as studies of sales force organization in industrial settings the paper is organized as follows in the next section we highlight a number of regularities that arise in the empirical literature on retail contracting in particular we nd that i risk is positively related to the use of high powered incentives vertical separation ii the importance of the agent s eiort in production is positively related to the use of high powered incentives

the nash bargaining solution in vertical relations with linear input prices abstract we re examine the nash bargaining solution when an upstream and n downstream firms bargain over a linear input price with unobservable contracts we show that the profit sharing rule is given by a simple and instructive formula which depends on the parties disagreement payoffs the profit weights in the nash product and the elasticity of derived demand a downstream firm s profit share increases in the equilibrium derived demand elasticity which in turn depends on the final goods demand elasticity

market power and rents in global supply chains market power and competition policy in food supply chains has emerged as an important economic issue in economics and a highly sensitive item on the policy agenda consolidation is taking place in the food industry both in high income countries and in emerging economies but the impact of concentration in global food chains on efficiency and rent distribution is more nuanced and complex than often claimed we review the literature and extend it by developing a model which explicitly takes into account market imperfections and contract enforcement problems in supply chains increased competition benefits farms by improving contract conditions but contract enforcement becomes more complicated

dynamic price competition with capacity constraints and a strategic buyer we analyze a simple dynamic durable good model two incumbent sellers and potential entrants choose their capacities at the start of the game we solve for equilibrium capacity choices and the necessarily mixed pricing strategies in equilibrium the buyer splits the order with positive probability to preserve competition making it possible that a high and low price seller both have sales sellers command a rent above the value of unmet demand by the other seller a buyer benefits from either a commitment not to make future purchases or by hiring an agent to always buy from the lowest priced seller

countervailing power and consumer prices this paper considers the importance of countervailing power manifested as the effects of increased retail concentration on consumer prices and welfare within a market setting where imperfectly competitive retailers negotiate intermediate prices with a monopoly supplier only when retailer services are regarded as very close substitutes do final prices fall following a reduction in the number of retailers even in these circumstances the social benefits of countervailing power may not be realised as the supplier may seek to protect its profits by using a refusal to supply restraint to engage in exclusive trading

multiunit bargaining in oligopolistic industries a model of wage determination in unionized oligopolistic industries is developed and used to compare the outcome of collective bargaining under two different bargaining structures one in which the workers of each firm are represented by separate and independent unions local bargaining and one in which a national union represents all workers in the industry in both cases the bargaining problem has a unique outcome with industrywide bargaining resulting in higher wages in addition industrywide unions are inherently stable in that there are no incentives for independent unions to attempt to cheat on the collusive agreement

credible regulatory threats abstract as competition emerges in parts of utility industries and utility regulation policy is reviewed it is useful to examine alternative forms of regulation that may be implemented when hit and run entry is believed to be a non credible threat potential entry may not constrain incumbent firms pricing and production decisions this paper proposes that the credible threat of intervention by a regulator may impact upon incumbent firms decisions empirical evidence from the english and welsh electricity pool market is investigated to discover whether the threat of regulator intervention may have influenced the pricing strategies of the dominant firms in this market

buyer power from joint listing decision we consider a model of vertically related markets in which an upstream firm faces a competitive fringe of less efficient suppliers and negotiates with customers that compete in a downstream market we allow downstream firms to form a buyer group which selects suppliers on behalf of its members we show that transforming individual listing decisions into a joint listing decision makes delisting less harmful for a group member which in turn enhances the group members bargaining position at the expense of the upstream firm we also discuss the implication for upstream investment incentives

communication in vertical markets experimental evidence abstract an upstream monopolist supplying competing downstream firms may fail to monopolize the market because it is unable to commit not to behave opportunistically we build on previous experimental studies of this well known commitment problem by introducing communication allowing the upstream firm to chat privately with each downstream firm reduces total offered quantity from near the cournot level observed in the absence of communication halfway toward the monopoly level allowing all firms to chat together openly results in complete monopolization downstream firms obtain such a bargaining advantage from open communication that all of the gains from monopolizing the market accrue to them a simple structural model of nash in nash bargaining fits the pattern of shifting surpluses well using third party coders unsupervised text mining among other approaches we uncover features of the rich chat data that are correlated with market outcomes we conclude with a discussion of the antitrust implications of open communication in vertical markets

the regulation of privatized monopolies in the united kingdom this article examines the experience in the united kingdom with the regulation of privatized monopolies its conclusions are 1 that there are significant differences between rpi x or price cap and u s rate of return regulation which provides greater scope for bargaining in the former system 2 that u k regulators have taken seriously their duty to promote competition but that the existing economic literature is of limited help in this task 3 that price regulation is likely to be more effective where technology is changing slowly and or where technology is changing rapidly and 4 that the case for rpi x price cap rather than rate of return regulation is strongest in telecommunications gas supply and electricity supply and least strong in gas and electricity transmission grids

buying power and strategic interactions this paper shows that buying power at the retail level can lead to a rise in wholesale price as a result retailers without buying power may increase their retail price nevertheless total surplus is non decreasing in the degree of buying power possessed by the dominant retailer jel classification l13 pouvoir d achat et interactions strategiques ce memoire montre que le pouvoir d achat au niveau du commerce de detail peut mener a un accroissement dans les prix de gros en consequence les detaillants qui n ont pas de pouvoir d achat peuvent accroitre leurs prix au detail neanmoins le surplus total ne decroit pas a mesure que le degre de pouvoir d achat du detaillant s accroit

countervailing power and dynamic efficiency this paper studies the impact of buyer power on dynamic efficiency we consider a bargaining model in which buyer power arises endogenously from size and may impact on a supplier s incentives to invest in lower marginal cost we challenge the view frequently expressed in policy circles that the exercise of buyer power stifles suppliers incentives instead we find that the presence of larger buyers keeps a supplier more on his toes and induces him to improve the competitiveness of his offering in terms of both price and quality relative to buyers alternative options

an economic theory of vertical restraints vertical restraints imposed by manufacturers on the prices locations and sales of retail firms represent a puzzling departure from the simple price mediated exchange of conventional markets in this article we analyze the theoretical basis for these restraints in a setting where retailers inform consumers and are imperfectly competitive and where a manufacturer has some monopoly power we identify three potential externalities affecting retailers decisions these externalities lead to the failure of simple uniform price contracts to coordinate the incentives of retailers with the objective of maximizing combined manufacturer and retailer profits we identify the packages of vertical restraints that are minimally sufficient under various conditions to neutralize the externalities and to achieve the joint profit maximum

the competition effects of industry wide vertical price fixing in bilateral oligopoly this paper examines the competition and welfare effects of vertical price fixing through industry wide resale price maintenance rpm arrangements such as those benefiting from exemption from a general prohibition against rpm a bilateral oligopoly framework is employed incorporating differentiation between manufacturer products and between retailer services transactions between the stages involve prices being determined through bargaining we do not find rpm to be universally undesirable however where retailer power is strong the social effects of rpm are likely to be adverse since the practice can assist in coordinating final price levels and prevent socially desirable countervailing power arising

vertical bargaining and retail competition what drives countervailing power this article investigates the effects of changes in market concentration on the equilibrium prices in a supply chain results are derived from a theoretical model of bilateral bargaining between upstream and downstream firms which allows for general forms of demand and retail competition whether countervailing buyer power arises in the form of lower input prices following greater concentration downstream depends on the pass through rate of input prices to retail prices countervailing buyer power generally does not translate into lower retail prices because of heightened market power at the retail level

benefits and costs of international financial integration theory and facts the author provides a selective review of the recent analytical and empirical literature on the benefits and costs of international financial integration he discusses the impact of financial openness on consumption investment and growth and the impact of foreign bank entry on the domestic financial system consistent with some recent studies the author argues that financial integration must be carefully prepared and managed to ensure that the benefits outweigh the short run risks prudent macroeconomic management adequate supervision and prudential regulation of the financial system greater transparency and improved capacity to manage risk in the private sector are important requirements for coping with potentially abrupt reversals in pro cyclical short term capital flows the author adopts a more skeptical view than some assessments in two areas however first only foreign direct investment appears to provide dynamic gains and improved prospects for growth the evidence on the benefits of other types of capital flows remains weak second empirical research on the net benefits associated with foreign bank penetration is far from conclusive in particular the possibility that such penetration may lead to adverse changes in the allocation of credit among domestic firms cannot be dismissed on the basis of the existing evidence

the welfare effects of upstream mergers in the presence of downstream entry barriers we examine the incentives for upstream firms to consolidate horizontally and the impact of this process on industry performance when there are downstream entry barriers and firms negotiate bilaterally in the short run consumers are not worse off with upstream mergers since consolidation only results in a redistribution of industry rents in the long run consumers are better off after upstream mergers since they induce more entry into that segment when social welfare is evaluated a limit on upstream consolidation may prevent excessive entry but upstream entry can be sometimes insufficient if the retailers intrinsic bargaining power is excessive

upfront payments and exclusion in downstream markets although upfront payments are often observed in contracts between manufacturers and retailers little is known about their competitive effects or the role retailers play in securing them in this article we consider a model in which two competing retailers make take it or leave it offers to a common manufacturer we find that upfront payments are a feature of equilibrium contracts and in all equilibria only one retailer buys from the manufacturer these findings support the claims of small manufacturers who argue that they are often unable to obtain widespread distribution for their products because of upfront payments copyright 2007 rand

vertical integration and collusive incentives an experimental analysis abstract we consider vertically related industries with multiple downstream markets firms make simultaneous output choices in a repeated game upstream duopolists merge with producers in one of the downstream markets that also is a duopoly experimental duopoly markets are constructed to assess the effects of vertical integration upon outputs and profits we find that integration raises outputs in both downstream and upstream markets although only the upstream effect is statistically significant integrated profits are lower and consumer welfare is higher the integrated markets tend to equilibrate more quickly

the economic theory of vertical restraints the types of contracts arising in a typical vertical manufacturer retailer relationship are more sophisticated than a simple uniform price in addition to setting per unit prices manufacturers and retailers also revert to non linear pricing and non price instruments these instruments or contracts are referred to as vertical restraints and can take the form of franchise fees resale price maintenance exclusive dealing exclusive territories and slotting allowances the use and the effects of one type of instrument versus another depend crucially on specific market assumptions upstream and downstream and on the division of bargaining power between manufacturers and retailers this paper surveys the industrial organization literature on retail pricing and shows that vertical restraint instruments have important effects on producer and consumer prices market structure efficiency and welfare

the dampening of competition effect of exclusive dealing using the dampening of competition approach to understanding vertical relationships this paper shows that in the absence of intrabrand retailer competition firms earn greater profits using exclusive dealing the paper explains the frequent simultaneous appearance of exclusive dealing and exclusive territoriality the results are used to analyze the famous 1949 standard stations case the author concludes that the 1949 court did the right thing for a wrong reason copyright 1990 by blackwell publishing ltd

upstream merger in a successive oligopoly who pays the price abstract this study applies a successive oligopoly model with an unobservable non linear tariff between upstream and downstream firms to analyze the possible anti competitive effects of an upstream merger in the norwegian food sector specifically the market for eggs the theoretical predictions are that an upstream merger may lead to higher average prices paid by downstream firms and at the same time no changes in the prices paid by consumers consistent with the theoretical predictions it is found that the merger had no effect on consumer prices but led to higher average prices paid by the downstream firms to the merged firm

the assessment introducing competition into regulated industries the introduction of competition into utilities is currently being pursued in the many countries including the uk competition can take various forms such as competition for outputs inputs franchises and outright takeovers attention is currently focused on output competition whereby customers are being given a choice of final supplier in many industries we consider the implications of the introduction of such competition including the effects on industrial structure and contracts cross subsidies and distributional concerns and uncertainty and stranded contracts we also analyze the transitional problems encountered as competition is introduced and suggest that the uk regulators and government have in some key respects failed to define a clear and consistent policy

buyer power in international markets this paper investigates the implications for international markets of the existence of retailers wholesalers with market power two main results are shown first in the presence of buyer power trade liberalization may lead to retail market concentration due to this concentration retail prices may be higher and welfare may be lower in free trade than in autarky thus reversing the standard effects of trade liberalization second the pro competitive effects of trade liberalization are weaker under buyer power than under seller power