cartel stability and product differentiation abstract this paper employs a supergame theoretic model of collusion to analyze the effects of different levels of product differentiation on cartel stability in contrast to earlier work the ability of the parties to reach an agreement is assumed here the focus is on how greater product homogeneity increases both the gain to cheating on a collusive agreement and the magnitude of the punishments that follow a defection the total effect on the likelihood a cartel is stable is therefore unclear two particular differentiated products models are then used to demonstrate that contrary to the conventional view greater homogeneity can reduce cartel stability

cartel sustainability in retail markets evidence from a health service sector abstract this paper studies the role of cost asymmetries and product differentiation on cartel sustainability by drawing data from a failed retail cartel unlike the extensive theoretical literature little empirical evidence exists on these relationships first we analyze cartel compliance and find that players are more likely to comply when cost is symmetric and own cost is high next based on a structural model and counterfactual experiments we show that a cartel price that satisfies all cartel members does not exist this result indicates an inherent difficulty of sustaining collusion in retail markets with heterogeneous players we also show that firm heterogeneities especially product differentiation rather than cost asymmetries hinder collusion more finally we derive the level of patience or the discount factor required for cartel sustainability when firms split profits based on the shapley value

a study of cartel stability the joint executive committee 1880 1886 this article employs weekly time series data on the joint executive committee railroad cartel from 1880 to 1886 to test empirically the proposition that observed prices reflected switches from collusive to noncooperative behavior an equilibrium model of dynamic oligopoly with asymmetric firms together with explicit functional form assumptions about costs and demand determines the estimating equations and stochastic structure of the econometric model the hypothesis that no switch took place so that price and quantity movements were solely attributable to exogenous shifts in the demand and cost functions is then tested against this alternative and rejected

over the borderline how the characteristics of lines shape optimal tax policy using the example of geographic borders i demonstrate how the permeability of lines in the tax system and the ability of the tax authority to reduce tax evasion across lines are essential determinants of the optimal commodity tax policy

the process followed by ppp data on the properties of linearity tests recent research has reported the lack of correct size in stationarity test for ppp deviations within a linear framework however theoretically well motivated nonlinear models such as the estar appear to parsimoniously fit the ppp data and provide an explanation for the ppp puzzle employing monte carlo experiments we analyze the size and power of the nonlinear tests against a variety of nonstationary hypotheses we also fit the estar model to data from high inflation economies our results provide further support for estar specification

a study of the internal organization of a bidding cartel this paper examines bidding in over 1 700 knockout auctions used by a bidding cartel or ring of stamp dealers in the 1990s the knockout was conducted using a variant of the model studied by daniel graham robert marshall and jean francois richard 1990 following a reduced form examination of these data damages induced inefficiency and the ring s benefit from colluding are estimated using a structural model in the spirit of emmanuel guerre isabelle perrigne and quang vuong 2000 a notable finding is that nonring bidders suffered damages that were of the same order of magnitude as those of the sellers

differential payments within a bidder coalition and the shapley value bidder coalitions at english auctions frequently distribute collusive gains among members via a secondary auction or knockout when coalition members are sufficiently heterogeneous nested coalition structures are observed in which a knockout is conducted at each level of nesting the nested knockout s characteristics are investigated within many settings we find that the expected payments to coalition members via the nested knockout equal the shapley value incentive compatibility problems of the nested knockout are also analyzed

on the workings of a cartel evidence from the norwegian cement industry using the institutional set up of the norwegian cement industry in particular its sharing rule we are able to identify the workings of a cartel in some detail given data on prices production and exports we are able to identify marginal costs as well as the effectiveness of the cartel we compare our marginal cost estimates which are derived from an equilibrium condition to detailed cost accounting data and find that our estimate of marginal cost is very much in line with the data we then show that the cement cartel has been ineffective in the sense that the sharing rule induces overproduction and exporting below marginal costs in this sense it is consumers not firms that benefi tf rom the sharing rule we find that the ineffectiveness of the cartel is becoming so large that domestic welfare of a merger to monopoly would in fact be positive at around 1968 which is exactly when the merger actually took place however we also show that competition would have resulted in even higher welfare gains over the entire sample

mean reversion of real exchange rates in high inflation countries we test for mean reversion in real exchange rates using data from five countries four of which have experienced episodes of high inflation using monthly data for argentina brazil chile colombia and israel we find that a stochastic unit root model is typically appropriate brazil is the exception kalman filter estimates of the stochastic unit roots show sharp deviations from unity associated with high inflation episodes this suggests that stochastic unit root models are a more appropriate way to model mean reversion in real exchange rates for high inflation countries than models with fixed rates of mean reversion

what determines cartel success following george stigler 1964 many economists assume that incentive problems undermine attempts by firms to collude to raise prices and restrict output but the potential profits from collusion can create a powerful incentive as well theory cannot tell us a priori which effect will dominate whether or when cartels succeed is thus an empirical question we examine a wide variety of empirical studies of cartels to answer the following questions 1 can cartels succeed 2 if so for how long 3 what impact do cartels have 4 what causes cartels to break up we conclude that many cartels do survive and that the distribution of duration is bimodal while the average duration of cartels across a range of studies is about five years many cartels break up very quickly i e in less than a year but there are many others that last between five and ten years and some that last decades limited evidence suggests that cartels are able to increase prices and profits to varying degrees cartels can also affect other non price variables including advertising innovation investment barriers to entry and concentration cartels break up occasionally because of cheating or lack of effective monitoring but the biggest challenges cartels face are entry and adjustment of the collusive agreement in response to changing economic conditions cartels that develop organizational structures that allow them the flexibility to respond to these changing conditions are more likely to survive price wars that erupt are often the result of bargaining issues that arise in such circumstances sophisticated cartel organizations are also able to develop multipronged strategies to monitor one another to deter cheating and a variety of interventions to increase barriers to entry

minimum quality standards and collusion we model the introduction of a minimum quality standard in a vertically differentiated duopoly we extend the literature in determining the standard endogenously showing that the maximisation of social welfare entails an increase in the surplus accruing to consumers served by the low quality firm and a decrease in the surplus of the remaining consumers then we consider the effects of the standard on the stability of price collusion proving that the standard makes it more difficult for firms to collude if consumers are sufficiently rich

tests for unit root versus threshold specification with an application to the purchasing power parity relationship we consider modeling the real exchange rate by a stationary three regime self exciting threshold autoregressive setar model with possibly a unit root in the middle regime this representation is consistent with purchasing power parity in the presence of trading costs our main contribution is to provide statistical tools for testing unit root versus a setar first we show that a setar with a unit root in the middle regime is stationary and mixing under reasonable assumptions second we derive analytically the asymptotic distribution of our unit root test under the null using monthly real exchange rate data our test rejects the null of unit root against a threshold process for five european series

the political economy of regional integration projects at borders where poor and rich meet the role of cross border shopping and community sorting abstract at borders between poor and rich countries huge service price differentials could be exploited to mutual benefit offering better paid job opportunities to the poor as well as better shopping opportunities to the rich however cross border shopping is often limited by the substantial transaction costs of crossing the border moreover countries and regions frequently fail to cut these transaction costs even when they have the opportunity to do so we provide a politico economic analysis of cross border integration projects more specifically we show how the political outcome depends on i intra country mobility ii decision making and housing ownership regimes and iii federal grants and international border regulations our analysis builds on two key characteristics in which individuals differ interregional mobility and intercultural ability

price elasticity of gasoline smuggling a semi structural estimation approach abstract we estimate the price elasticity of the demand for gasoline smuggling in iran for this purpose we employ a detailed panel of monthly gasoline consumption data from 160 distribution hubs during the period 2005 2014 we apply two different approaches which are diff in diff and panel data estimations the results suggest that the foreign to home gasoline price ratios have a significant impact on the time varying elasticity of demand this finding supports the hypothesis that an increase in domestic gasoline prices will significantly reduce the demand for smuggling in addition as the distance of a region from its closest higher price neighboring country diminishes the price elasticity of demand for gasoline smuggling for that region declines as well finally we find that when the ratio of foreign to domestic prices is higher the gasoline demand sensitivities to price in neighboring countries go up our work offers new insights regarding the welfare impact of removing fuel subsidies and modifying fuel pricing policies

nonlinear mean reversion to purchasing power parity exponential smooth transition autoregressive models and stochastic unit root processes nonlinear exponential smooth transition autoregressive estar models are recently very popular in modelling the deviation from purchasing power parity this article shows that there is a close relation between the estar models estimated in taylor et al 2001 and stochastic unit root stur processes of granger and swanson 1997 and mccabe and tremayne 1995 also for a post bretton woods sample period the real exchange rates from four major countries are tested if they are better described as i 1 estar or stur processes

technology and tax systems abstract technological innovations facilitating e commerce have had major effects on consumer behavior and firm organization in the retail sector but the effects of these new transaction technologies on fiscal systems remain unknown we extend models of commodity tax competition to include multiple types of commodities trade and remote commerce assuming in accordance with current policy that e commerce is taxed at destination while cross border shopping is taxed at origin when the cost of online shopping falls we show that equilibrium tax rates and revenues decrease in large core jurisdictions but increase in small peripheral ones reducing tax differentials policy commentators warn that e commerce erodes tax revenue true enough for some governments but more accurately changing transaction costs can generate entirely new commercial and fiscal equilibria that ultimately redistribute tax revenues from jurisdictions with concentrations of traditional vendors toward others with some reinterpretation the model is also adapted to analyze profit tax competition when firms can respond to high taxes both through profit shifting and through relocation each dependent on transactions costs changes in technology may again redistribute tax revenues from high tax to low tax jurisdictions

a simple model of commodity taxation and cross border shopping this paper sets up a simple model in which two countries differing in geographical extent engage in commodity tax competition originating in opportunities for cross border shopping the non cooperative tax equilibrium and various coordination initiatives are examined in the benchmark model and in two model extensions incorporating i costs of transportation for goods and ii border inspection among the more surprising results are the following with i pure profits accrue to sellers near the border but subjecting them to tax may lower the country s total tax revenue with ii the volume of cross border shopping may well increase jel classification h20 h87 h26

tax compliance and fiscal externalities evidence from u s diesel taxation abstract fiscal externalities across jurisdictions can arise from tax evasion and avoidance while the tax competition literature has generally focused on base shifting and the resulting positive fiscal externalities we show theoretically and empirically that negative fiscal externalities can dominate when the tax base is apportioned across jurisdictions this can lead to a negative relationship between jurisdiction size and the desired tax rate interstate truckers in the united states owe state diesel taxes based on diesel consumption which is apportioned based on the miles driven in each state we find that own state diesel sales fall when the diesel tax rates of other states rise suggesting that tax base evasion is the predominant source of externalities we then estimate a tax reaction specification finding that the own state tax rate is negatively correlated with the tax rates set in other states and with state size both consistent with the sign of the estimated fiscal externality

unit tax versus ad valorem tax a tax competition model with cross border shopping abstract within the framework of spatial tax competition with cross border shopping we examine the choice of tax method between ad valorem tax and unit specific tax this study shows that governments endogenously choose the ad valorem tax method not because of a classic welfare reason but because it is a good strategy to compete for mobile consumers another key finding is that while governments are committed to the ad valorem tax method the choice leads to inferior outcome tax cutting competition becomes more serious when countries adopt ad valorem tax and competition in ad valorem tax results in smaller tax revenue than competition in unit tax

interstate commodity tax differentials and the distribution of residents abstract this paper considers the manner in which an unequal distribution of consumers affects the commodity tax policies of neighboring jurisdictions the paper uses a spatial model in which the residents of two states are distributed non uniformly and employs a variety of assumptions about the behavior of governments and firms throughout the paper shows that at a nash equilibrium in tax levels the sparsely populated state imposes a lower tax than does its densely populated neighbor the paper also demonstrates how equilibrium state taxes differ depending on whether firms employ marginal cost or profit maximizing pricing

collusive pricing in markets for vertically differentiated products abstract this paper examines the relationship between product differentiation and the sustainability of collusive pricing in markets for vertically differentiated products the main finding is that collusion is more easily sustained the more similar the products are exactly the opposite result may be obtained in models of horizontal differentiation consequently when products are differentiated both horizontally and vertically theory provides no clearcut prediction

prices taxes and automotive fuel cross border shopping abstract the aim of the present paper is to determine whether differences in automotive fuel prices among neighboring autonomous communities i e spanish political administrative regions affect the decisions taken by individuals regarding the region in which to purchase fuel in particular the intention is to discover if price increases in certain autonomous communities as a result of the application of the regional tranche of the hydrocarbon retail sales tax hrst has affected fuel purchases in neighboring communities in order to achieve the above mentioned objectives the monthly purchases of automotive diesel in aragon between january 2001 and march 2007 is estimated from the fuel price in aragon the relation between prices in each of the bordering communities and aragon weighted by density of traffic the number of vehicles registered in that community and three dummy variables representative of the implementation of the regional tranche of the hrst in madrid catalonia and valencia the paper finds empirical evidence to demonstrate a positive effect of the relative prices in the neighboring communities and vehicle registrations and also a negative effect of prices in aragon upon the acquisition of diesel in this region in the case of catalonia some evidence suggests that the price effect may have been strengthened following the introduction of the regional tranche of the hrst in august 2004

cross border shopping from small to large countries abstract contrary to predictions of theoretical models there are many examples in the real world of cross border shopping from small to large countries we demonstrate that a sufficient wedge between marginal costs of public funds in small and large countries can explain this phenomenon

in which industries is collusion more likely evidence from the uk i examine the factors facilitating or hindering collusion using a comprehensive data set on the incidence of price fixing across uk manufacturing industries in the 1950s the econometric results suggest that collusion is more likely the higher the degree of capital intensity and less likely in advertising intensive than in low advertising industries there is also some evidence of a non monotonic relationship between market growth and the likelihood of collusion there is no clear link between concentration and the incidence of collusion

the determination of price and output quotas in a heterogeneous cartel applying a selection criterion that uses both subgame perfection and the nash bargaining solution this paper investigates the relationship between firms cost functions and collusive behavior it is found that the optimal collusive price exceeds the price that the low cost firm would set if it was a monopolist comparative statics reveal that the optimal collusive price is increasing in the low cost firm s unit cost but is decreasing in the high cost firm s unit cost when the cost differential between firms is sufficiently large copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

jeux sans frontieres tax competition and tax coordination when countries differ in size closer international integration is putting increasing pressure on existing national tax structures this paper uses a simple two country model to address a range of consequent policy concerns focusing particularly on the role of country size differences in size exacerbate the inefficiency from noncooperative behavior harming both countries the smaller country loses from harmonization to any tax rate between those set in the noncooperative equilibrium but both countries gain from the imposition of a minimum tax anywhere in that range the fully optimal response to freer cross border trade however may be to do nothing jel h20 h77

the effects of product differentiation on collusive pricing abstract using the spatial competition framework of hotelling 1929 this paper explores the relationship between the degree of product differentiation and the ability of firms to collude with respect to price we show that the minimum discount factor required to support the joint profit maximum as an equilibrium outcome monotonically increases as products become better substitutes when the joint profit maximum cannot be supported the optimal collusive price is shown to decline as products become more substitutable these findings suggest that firms producing stronger substitutes tend to find it tougher to collude in terms of their product price

a price setting supergame between two heterogeneous firms when firms attempt to tacitly collude they inevitably face a market sharing problem this problem is further complicated when firms have asymmetries this paper studies a price setting supergame between two firms with different costs the paper investigates sustainability of tacit collusion and solves the market sharing problem under tacit collusion the resulting equilibrium from the supergame is used to study limit pricing government policies toward entrants and welfare change due to technological progress and a change in the time discount rate the paper shows that even costlessly achieved technological progress can decrease social welfare