collusive pricing patterns in the us airline industry abstract we formulate two empirical tests for collusive behavior based on the theoretical insights of werden and froeb 1994 and athey bagwell and sanchirico 2004 the first predicts that colluding firms will reduce pair wise differences in prices within a market if demand satisfies certain properties the second predicts that colluding firms will sacrifice efficiency in production by increasing price rigidity to avoid informational costs using panel data from the us airline industry and fixed effects estimation we find that greater multimarket contact between carriers leads to pricing patterns consistent with both theoretical predictions while code share agreements are consistent with the second prediction

districting and government overspending theories of government spending driven by a common pool problem in the fiscal revenues pool predict that greater districting of a political jurisdiction raises the scale of government this paper presents evidence on this and related predictions from a cross section of city governments in the united states the main finding is that when other plausible determinants of government spending are controlled for greater districting leads to a considerably greater scale of government activity the results also show that at large electoral systems do not and forms of government that concentrate powers in the office of the executive do break this relationship

dynamics of dyadic competitive interaction in this study of firms entries into and exits from each other s markets we link research on multipoint competition to the emerging action oriented dyadic approach to interfirm rivalry by specifying market interdependencies between pairs of firms that condition their potential for rivalry over time our dynamic analysis of competitive interactions between pairs of commuter airlines in california reveals the idiosyncratic and asymmetric market microstructures that characterize dyadic competitive relationships and helps explain why firms grapple vigorously with some of their competitors while being passive toward others we show that there is an inverted u shaped relationship between firms rates of entry into and exit from each other s markets and the level of multimarket contact in competitor dyads we also show how this basic curvilinear effect varies from dyad to dyad as a function of relative levels of multimarket contact with competitors in other dyads and the relative sizes of competitors in a focal dyad copyright 1999 john wiley sons ltd

the effects of rent asymmetries in posted offer markets abstract we report the results of six posted offer market experiments designed to analyze the effects of asymmetric supply and demand configurations on the price convergence path to competitive equilibrium the posted offer experiments are compared with twelve double auction experiments reported by smith and williams 1982 results differ markedly across trading institutions unlike trading under double auction rules we cannot reject the proposition that contract price convergence paths are unaffected by the distribution of consumer and producer surplus posted offer contract prices tend to converge to the competitive equilibrium from above regardless of the distribution of the exchange surplus

does the per se rule deter vertical price fixing i introduction beginning with the wide scale introduction of branded goods in the late nineteenth century manufacturers have often tried to dictate minimum resale prices to the retail outlets carrying their products and since roughly the same time antitrust experts have debated why they would do so 1 less attention has focused on what manufacturers do when they can not impose minimum prices even though legal obstacles have forced them to look for alternatives so what do manufacturers do when they cannot legally set the prices their outlets charge 2 many antitrust officials believe they go right on setting prices either flaunting the law or finding some means to circumvent it barrett 1991 quotes former new york state antitrust chief lloyd constantine as saying that the practice is ubiquitous but based upon winks and nods rather than written agreements that could be used in court new york attorney general robert abrams 1991 argues that vertical price fixing is endemic claiming that antitrust officers can recount scores of tales of retailers calling our offices too scared to give their names telling of coercion and intimidation by manufacturers representatives and rival dealers because their prices were too low former ftc commissioner terry calvani argues that a manufacturer practicing resale price maintenance would have to have an i q two points lower than a carrot to get caught 3 the prospects for wink and nod resale price maintenance are not hard to appreciate for example suppose a manufacturer wants to impose a 500 sanction on any discount outlet if it cannot do so overtly it may instead impose a lump sum charge of 500 on all outlets and ex post reward non discount outlets with a 500 rebate given this scheme s transparency courts legislators and antitrust officials should not be fooled yet the rebates could be indirect and discreet they could be spread over several periods and parceled out in small quantities as compensation for point of sale services to defray overhead to pay for advertising or training and so forth hence it may be hard for outsiders to prove a link between what the manufacturer pays each retailer and that retailer s price moreover in some instances antitrust officials may want an excuse to loosen the legal restrictions on resale price maintenance and may themselves wink and nod at these practices finally antitrust officials cannot always and perhaps not often distinguish legitimate cost sharing arrangements from maneuvers to influence resale prices as such they must proceed carefully manufacturers can employ two other legal means to fix resale prices first manufacturers can coordinate retailers meet the competition guarantees antitrust experts have long believed that on occasion retailers can independently offer meet the competition guarantees to their customers to discourage price competition 4 here a manufacturer coordinates retailers efforts by financing some or all of the meet the competition related rebates they make so in equilibrium all retailers adopt the suggested price while previous models of meet the competition guarantees focus on tacit horizontal price fixing this paper examines explicit vertical price fixing second the manufacturer can persuade retailers to charge its suggested price by guaranteeing the margins of those victimized by price cutting rivals in equilibrium no outlet wants to cut price first so discounting does not occur at all manufacturers have various other means to influence their dealers resale prices in addition to such well known instruments as consignment sales and exclusive territories manufacturers can agree to buy back dealers unsold inventories or parcel out merchandise only as demand for it materializes they can also use devices such as markdown allowances to influence when and by how much dealers discount if demand turns out low presumably this list does not exhaust the possibilities for innovative manufacturers seeking to subsidize dealers that cooperate and to discriminate against those that do not

mutual forbearance under experimental conditions since corwin edwards first raised it 30 years ago 4 the question whether conglomerate mergers and diversification will affect competition within markets has remained unanswered diversification or conglomeration has no direct impact on entry conditions or market shares or concentration ratios aside from claims for advantages from size per se and not from conglomeration itself the most promising theoretical rationale to explain potential anticompetitive effects has been the mutual forbearance or spheres of influence theory by mutual forbearance we mean the possible tendency for firms meeting in more than one market to account for rivals reactions across market boundaries by adopting less competitive price and output strategies possibly because real world oligopolists have a large set of decision variables available to act on price output capacity advertising research and development etc the effects of interrelationships among firms such as mutual forbearance have been difficult to determine by subjecting industrial data to statistical testing on the other hand in a controlled laboratory setting the validity of particular behavioral assumptions can be examined with some precision sherman has discussed results of previous oligopoly experiments 19 which generally have supported cournot noncooperative solutions rather than cooperative collusive ones and plott has surveyed experiments related to antitrust and industrial organization issues 17 under various information and

most favored customer protection versus price discrimination over time how should a seller price capacity that has no salvage value to heterogeneous customers whose valuations are private information there are two periods and the seller cannot precommit to prices in the later period one option is price discrimination first price high then discount later if excess capacity remains by offering most favored customer protection the seller can charge more in advance but will leave capacity unsold with positive probability she favors the mfc protection when capacity is large and leans toward price discrimination when customers are more uncertain about the degree of excess demand in the first period

in search of predatory pricing can predatory pricing be reproduced in a laboratory environment we report research motivated by this objective we began with conditions that based on the literature appeared to combine the features this literature has suggested are favorable to the emergence of predation next we operationalized what was meant by predatory pricing in our design in order to compare prices with predictions from alternative theories of 10 experiments none evidenced predatory behavior most supported the dominant firm theory the second series of experiments addresses remedies for predation and finds that the effect is to increase prices and reduce efficiency

experimental evidence of a sunk cost paradox a study of pricing behavior in bertrand edgeworth duopoly a well known implication of microeconomic theory is that sunk costs should have no effect on decision making we test this hypothesis with a human subjects experiment students recruited from graduate business courses with an average of over six years of work experience played the role of firms in a repeated price setting duopoly game in which both firms had identical capacity constraints and costs including a sunk cost that varied across experimental sessions over six different values we find contrary to the prediction of microeconomic theory that subjects pricing decisions show sizable differences across treatments the effect of the sunk cost is non monotonic as it increases from low to medium levels average prices decrease but as it increases from medium to high levels average prices increase these effects are not apparent initially but develop quickly and persist throughout the game cachon and camerer s 1996 loss avoidance is consistent with both effects while cost based pricing predicts only the latter effect and is inconsistent with the former

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

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

most favored customer pricing product variety and welfare abstract most favored customer mfc clauses are usually seen as anticompetitive co ordination devices that firms adopt for the purpose of higher prices here i examine the welfare impact of mfc clauses under endogenous product variety product variety is relevant because prospective higher prices from mfc clauses can be anticipated by multi product firms in their provision of product lines under such circumstances i find that these clauses can be socially harmful but this is not always the case they tend to be socially neutral for relatively large fixed costs of product line assortment harmful for intermediate costs and beneficial for relatively small costs

optimal best price policy abstract a best price policy bp is a promise by a seller to give her customer a refund if she reduces her price after the customer has already purchased the product we characterize the optimal bp policy as when the seller can control both the policy length when the promise expires and the refund scale what portion of the price difference is refunded we explain why the policy length is finite and varies across industries in a setting where consumers valuations decline over time we show that a finite length bp allows the seller to commit to not lowering her price too soon while at the same time letting her capture some of the benefits of intertemporal price discrimination however because the decline in consumers valuations is uncertain a bp does not allow the monopolist to achieve the profit she could earn with a full commitment

the risk of contagion from multimarket contact abstract it is conventional wisdom that the strategic linkage of markets that is enabled by multimarket contact typically increases the profitability of cooperation among rivals we find to the contrary that a strong force against strategic linkage results from imperfect monitoring of adherence to cooperation with such imperfections strategically linking markets can lower payoffs by permitting the impact of adverse shocks in one market to spread to others consequently players of repeated games on more than one front may find it strictly advantageous to avoid linking strategies on a front with clear monitoring to outcomes on a front with error prone monitoring one implication is that antitrust competitive strategy and foreign policy analyses have presumed too broadly that multimarket contact fosters cooperation the game theoretic equilibria characterized here shed light on why players such as firms and nations sometimes strategically link fronts in their rivalry and sometimes take care to articulate that some fronts of particularly volatile conflicting interests will not trigger broader adverse moves against the rival

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 existence of predatory pricing an experimental study of reputation and entry deterrence in the chain store game a single monopolist plays a sequence of eight periods against a series of different entrants there are two types of monopolists weak monopolists whose single period best response is to acquiesce after entry and strong monopolists whose dominant strategy is to fight entry data show high levels of predatory pricing defined as weak monopolists fighting all entrants in early periods both with and without experimenter induced strong monopolists we reject a number of predictions of the asymmetric information sequential equilibrium model of kreps and wilson 1982 and find important deviations from more general sequential equilibrium models as well

does multimarket contact facilitate tacit collusion inference on conduct parameters in the airline industry we provide empirical evidence that multimarket contact facilitates tacit collusion among airlines using a flexible model of oligopolistic behavior where conduct parameters are modelled as functions of multimarket contact we find i carriers with little multimarket contact do not cooperate in setting fares whereas carriers serving many markets simultaneously sustain almost perfect coordination ii cross price elasticities play a crucial role in determining the impact of multimarket contact on equilibrium fares iii marginal changes in multimarket contact matter only at low or moderate levels of contact iv assuming firms behave as bertrand nash competitors leads to biased estimates of marginal costs

durable good monopoly and best price provisions best price provisions guarantee buyers that the prices they pay are the lowest available if the seller subsequently cuts price then each previous buyer is entitled to a refund a durable good monopolist who offers certain forms of these provisions can construct a consistent plan yielding the same profits as rental agreements and contracts with explicit quantity commitments the provisions require special circumstances to be practical but they are simple and effective and appear in a variety of economic settings three applications are discussed international commodity agreements markets for electric turbogenerators and markets for financial claims copyright 1990 by american economic association

on the detection of collusion and predation abstract this lecture not only shows how game theory can contribute to the detection of collusion and predation but also how experts for the defense can use game theoretic arguments to make such detection difficult a few important european anti trust cases are discussed to illustrate

the size and scope of government comparative politics with rational politicians we try to demonstrate how economists may engage in research on comparative politics relating the size and composition of government spending to the political system a downsian model of electoral competition and forward looking voting indicates that majoritarian as opposed to proportional elections increase competition between parties by focusing it into some key marginal districts this leads to less public goods less rents for politicians more redistribution and larger government a model of legislative bargaining and backward looking voting indicates that presidential as opposed to parliamentary regimes increase competition between both politicians and voters this leads to less public goods less rents for politicians less redistribution and smaller government we confront these predictions with cross country data from around 1990 controlling for economic and social determinants of government spending we nd strong and robust support for the prediction that the size of government is smaller under presidential regimes and weaker support for the prediction that majoritarian elections are associated with less public goods

tacit collusion in auctions and conditions for its facilitation and prevention equilibrium selection in laboratory experimental markets the paper studies bidder behavior in simultaneous continuous ascending price auctions we design and implement a collusion incubator environment based on a type of public symmetrically folded and item aligned preferences tacit collusion develops quickly and reliably within the environment once tacit collusion developed it proved remarkably robust to institutional changes that weakened it as an equilibrium of a game theoretic model the only successful remedy was a non public change in the preference of participants that destroyed the symmetrically folded and item aligned patterns of preferences creating head to head competition between two agents reminiscent of the concept of a maverick

predation by public enterprises abstract this paper demonstrates that in addition to the usual niskanen type losses generated by excess production by public firms there is an unrecognized second type of loss in order to sell their excess production public firms have to price their output below the competitive price and thereby cause more efficient firms at the margin to be eliminated the discussion is then extended to include the case where public enterprises finance additional expansions of output by price discriminating against inframarginal customers but then face the threat of competition for these inframarginal customers from new potential entry public enterprises are further shown to provide more credible threats to potential entrants since unlike private firms they value the increased output associated with predation and not merely the higher future benefits produced by it

hypercompetition in a multimarket environment the role of strategic similarity and multimarket contact in competitive de escalation the effect of intra industry heterogeneity on hypercompetitive escalation and de escalation in a multimarket environment is examined the authors study two critical dimensions of intra industry heterogeneity strategic similarity which captures similarity in competitive orientation and multimarket contact which captures the degree of overlap between rivals in the multiple markets of the industry theory predicts that both variables influence the intensity of rivalry and competitive disruption the predictions in the literature about the effect of strategic similarity on the intensity of rivalry are mixed while strategic group theory proposes that strategic similarity may lead to lower rivalry other theories focusing on product differentiation the resource based view of the firm and hypercompetitive escalation predict that strategic similarity may actually increase rivalry those diametrically opposed propositions are captured as alternative hypotheses of the effect of strategic similarity with r

dynamic duopoly with best price clauses this article investigates best price clauses as a strategic devise to facilitate collusion in a dynamic duopoly game best price clauses guarantee rebates on the purchase price if a customer finds a better price after his purchase two different price clauses are distinguished most favored customer and meet or release i examine the collusive potential of both clauses in a finite horizon duopoly model with homogeneous durable goods in each period new consumers enter the market i show that in this context meet or release clauses have a greater anticompetitive potential than most favored customer clauses

the hayek hypothesis in experimental auctions institutional effects and market power the hayek hypothesis in experimental auctions institutional effects and market power we report twelve market experiments utilizing a seller market power supply and demand structure where two of five sellers can unilaterally increase their profit by withholding supply the data indicate that both the double auction and posted offer institutions result in traders extracting the bulk of the potential gains from exchange in the market however prices generally occur above the competitive equilibrium prediction market power in the form of strategic supply withholding does not appear to be responsible for the supra competitive prices i introduction one important result arising from experimental market research is that the information flows and contracting rules which define the institutional structure of a market can exert a pronounced influence on market performance such institutional features may be more important than some traditional structural characteristics in determining whether market outcomes will correspond to the predictions of the competitive model in particular a large and growing body of experimental data suggests that markets can generate efficient outcomes even when there are a relatively small number of buyers and sellers with incomplete information on the underlying structure of the market based on evidence from a wide variety of experimental double auction markets vernon smith 1982 167 has expressed this more formally as the hayek hypothesis markets economize on information in the sense that strict privacy together with the public messages of the market are sufficient to produce efficient ce competitive equilibrium outcomes in this statement however the notion of an efficient ce outcome could be interpreted as 1 a simple efficiency claim that all exchange surplus will be extracted or 2 a price claim that all exchange surplus will be extracted via trades at the competitive equilibrium price a recent study by holt langan and villamil 1986 hereafter hlv examines the validity of the hayek hypothesis using the double auction institution and a market structure designed to provide a rather difficult test for the competitive model hlv s market power design provides a subset of sellers with an incentive to unilaterally generate a price increase via the strategic withholding of supply the resulting price deviation from the competitive equilibrium is substantial but results in a relatively small loss of market efficiency thus the price interpretation of the hayek hypothesis is violated in this design if holders of market power recognize their position and successfully affect prices to their advantage the efficiency interpretation however will still hold approximately even with the successful exercise of market power in fact the price interpretation of the hayek hypothesis tends to break down in hlv s markets but the efficiency interpretation tends to hold hlv report deviations from the competitive equilibrium price consistent with the exercise of market power in three of five seller market power experiments they also conjecture that deviations from the competitive equilibrium may increase as participants become more experienced with the trading institution this paper reports the results of twelve experiments that build on hlv s research our experiments compare market performance in hlv s seller market power smp design using both the double auction and posted offer trading institutions our purpose in conducting these experiments is twofold first we are interested in examining the effects of changes in trading institutions on deviations from the competitive equilibrium price in the smp design second to the extent that competitive equilibrium price deviations are observed we are interested in assessing whether the exercise of market power in the form of strategic withholding is the source of these deviations

multimarket contact and pricing evidence from the u s cement industry abstract we empirically examine the effect of multimarket contact on pricing in the u s cement industry a model of price and quantity formation is estimated for a panel of 25 regional cement markets over 16 years the results indicate that the divergence of price from marginal cost in a particular market is directly related to the extent of multimarket contact among firms in that market

a comparison of posted offer and double auction pricing institutions this paper presents an experimental study of a computerized posted offer pricing mechanism that captures many of the basic institutional features of retail exchange in the u s posted offer market performance is evaluated relative to double auction market performance using two supply and demand designs subject experience with the trading mechanism is explicitly considered as an experimental treatment variable the market data suggest that prices tend to be higher and efficiency lower under posted offer pricing relative to double auction however the institutional effect appears to interact with other design conditions when feasible the predictive power of competitive nash and limit price theoretic equilibria are empirically evaluated

the antitrust prohibition of excessive pricing abstract excessive pricing by a dominant firm is unlawful in many countries to assess whether it is excessive the dominant firm s price is often compared with price benchmarks we examine the competitive implications of two such benchmarks a retrospective benchmark where the price that prevails after a rival enters the market is used to assess whether the dominant firm s pre entry price was excessive and a contemporaneous benchmark where the dominant firm s price is compared with the price that the firm charges contemporaneously in another market we show that the two benchmarks restrain the dominant firm s behavior when it acts as a monopoly but soften competition when the dominant firm competes with a rival moreover a retrospective benchmark promotes entry but may lead to inefficient entry

wars of attrition in experimental duopoly markets oligopolists often bear large fixed costs these fixed costs can change for example through rising property rents increased taxes and renegotiated labor contracts in this paper we imagine oligopoly market structures that are identical except for the level of fixed costs does this level influence the strategic behavior of firms since marginal profits are unaffected by fixed costs one answer is that there should be no change in behavior alternatively firms may seek more cooperative outputs in order to maintain profits enough cooperation can even generate bigger profits but if fixed costs rise to a level where there are too many firms in the market for any seller to earn an adequate profit a price war could result attrition leaves more profits for the survivors and the higher fixed costs are an increased barrier to later entry thus it also can be argued that greater fixed costs engender less cooperation among rivals because agents are fighting over a smaller profit pie 1 through the use of experimental markets this paper shows that fixed costs do have an influence on the level of cooperation after they have reached a relatively high level in a duopoly market structure subjects as rivals engage in price wars outputs are kept large larger than the cournot level until a rival exits the market by contrast such behavior does not take place when fixed costs are relatively low this difference in behavior at low and high fixed cost levels

unilateral most favored customer pricing a comparison with stackelberg abstract if one firm in a price setting duopoly adopts a most favored customer pricing policy it can commit to a price which is higher than the bertrand price the equilibrium price however must be lower than the stackelberg leader price

comparative politics and public finance we propose a model with micropolitical foundations to contrast different political regimes compared to a parliamentary regime the institutions of a presidential congressional regime produce fewer incentives for legislative cohesion but more separation of powers these differences are reflected in the size and composition of government spending a parliamentary regime has redistribution toward a majority less underprovision of public goods and more rents to politicians a presidential congressional regime has redistribution toward powerful minorities more underprovision of public goods but less rents to politicians the size of government is smaller under a presidential regime this last prediction is consistent with cross country data

vertical price controls with uncertain demand a manufacturer distributes output before knowing demand and thus risks making more than its rivalrous independent retailers can sell at the monopoly price if demand is low retailers may therefore resell more than the joint profit maximizing output anticipating this they will not pay as much for the merchandise ex ante as they would if the manufacturer could commit to preventing rivalry the manufacturer has many options including vertical integration chain outlets restricted output buy backs just in time deliveries and minimum resale prices the article discusses each option s advantages and disadvantages and concludes that all roads lead to resale price maintenance the article closes with an alternative to the dealercartel hypothesis for minimum resale prices

non discrimination clauses in the retail energy sector the british energy regulator will soon review a non discrimination licence condition which it imposed to ensure that energy retailers charge the same mark up in different regions many consumers are loyal to incumbent firms necessitating heavy discounting by entrants to attract customers which had led to regional price discrimination matching characteristics of the energy market to models of discrimination we identify the necessary conditions for the licence condition to have a positive effect for consumers and explore whether the policy has helped potentially vulnerable consumers we conclude that the most likely effect of the licence condition is to reduce competition in the mainstream energy markets and welcome the regulator s latest review of the retail market

the choice of municipal government structure and public expenditures numerous empirical studies have attempted to measure the effect of varying government structures on public expenditures i argue that these prior may have produced biased estimates as they are predicated on the assumption that government structures are exogenous

what do facilitating practices facilitate an empirical investigation of most favored nation clauses in natural gas contracts long term contracts often include most favored nation clauses mfns which are nondiscrimination guarantees that obligate a buyer or seller to treat all trading partners symmetrically in pricing decisions recent theoretical work has shown that such clauses can facilitate tacit collusion by increasing the cost of selective price changes aimed at attracting new business an alternative view is that mfns serve to facilitate efficient price adjustment in extended exchange relationships we test these competing hypotheses using data from long term natural gas contracts many of which employ mfns our conclusion is that the pattern of mfn adoption in conjunction with the structure of the nondiscrimination regions and the parallels with other nonstrategic price escalation provisions lends strong support to the efficiency rationale

matching own prices rivals prices or both many retailers promise that they will not be undersold by rivals and extend their promise to include their own future prices that is many retailers combine elements of both price matching guarantees and retroactive most favored customer clauses this is puzzling because the extant literature has shown that each practice independently has the potential to facilitate supracompetitive prices and thus one might think the two practices are substitutes in this paper we show that price matching guarantees and most favored customer clauses complement each other when offered unilaterally by a single firm and can lead to higher prices than either one could have facilitated by itself

strategic entry deterrence recent developments in the economics of industry this paper reviews the recent developments in the economics of industry with respect to strategic entry deterrence starting from bain s 1956 classical analysis a simple two stage game between an incumbent firm and a potential entrant is used to present the general structure of the entry deterrence problem commitments credible threat and sub game perfection are illustrated in this context the various strategic variables that an incumbent firm can use to bar entry are discussed the issue of whether a group of incumbents can noncooperatively deter entry is taken up and some empirical evidence is reviewed copyright 1989 by blackwell publishers ltd

live and let live type behavior in a multi market setting with demand fluctuations abstract this paper formalizes a cooperative mode of behavior which captures essential elements of the live and let live philosophy and shows that adoption of such a policy tends to benefit firms in oligopolistic markets it is indicated that multiplicity of contacts and exposure to demand fluctuations may simplify coordination and enhance the potential and profitability of live and let live type behavior

bilateral most favored customer pricing and collusion in a two period differentiated products duopoly model most favored customer mfc pricing policies allow firms to commit to prices above the bertrand prices it is shown here however that unless a restrictive and unappealing assumption is made about demand there is no equilibrium in which both firms adopt mfc policies the restrictive assumption is that at least one firm s demand is more responsive to changes in its opponent s price than to changes in its own price otherwise firms have an incentive to deviate from a greater than bertrand price in the first period

sales at risk a test of the mutual forbearance theory of conglomerate behavior in seeking to understand the implications of the large amount of diversification and conglomeration that has occurred in the united states since the mid 1960s some economists have revived the mutual forbearance hypothesis first presented by edwards 1955 several papers have attempted to formalize or test this hypothesis which states that multimarket contacts mmcs among firms have the potential for facilitating collusion in one or more of the markets where these contacts occur using 1976 data from the federal trade commission s line of business study an earlier paper feinberg 1982 developed a framework for evaluating mmcs and inthis paper tests the mutual forbearance theory of conglomerate behavior at both company and industry levels using 1976 data from the federal trade commission s line of business program this theory states that companies meeting rivals in more than one market will be able to facilitate collusion in one or all of those markets at the company level the evidence supports the theory showing salesat risk a measure of the importance of multimarket contacts to increase price cost margins in the moderate range of concentration where collusion is feasible but difficult to achieve without mutual forbearance the industry level results are weaker casting some doubt on the hypothesis associate professor of economics pennsylvania state university this paper was begun while i was a consultant to the line of business program at the federal trade commission the manager of the line of business program has certified that he has reviewed and approved the disclosure avoidance procedures used by the staff of the line of business program to insure that the data included in this paper do not identify individual company line of business data views expressed here are my own and not necessarily those of the federal trade commission i would like to thank william long george pascoe david ravenscraft melvin reder and an anonymous referee for their help on this project 1 these studies often refer to terms other than mutual forbearance e g spheres of influence extended interdependence they include adams 1974 reynolds 1976 heggestad and rhoades 1978 areeda and turner 1979 strickland 1980 feinberg 1982 1984 scott 1982 and feinberg and sherman 1985

opportunism in multilateral vertical contracting nondiscrimination exclusivity and uniformity comment an input supplier selling to competing downstream firms would benefit from publicly committing at the outset to all contracts efficient commitment however would require complete contracts the authors study instead bilateral contracting without commitment regarding others terms each firm then fears that the supplier might opportunistically renegotiate another s contract to increase bilateral profit at the firm s expense the authors show that nondiscrimination clauses generally cannot curb such third party opportunism even with symmetric firms to reassure firms crude forms of commitment may be adopted this could explain the pervasiveness of exclusivity arrangements and the striking uniformity and intertemporal rigidity of franchise contracts copyright 1994 by american economic association

predation asymmetric information and strategic behavior in the classroom an experimental approach to the teaching of industrial organization abstract classroom market experiments can complement the theoretical orientation of standard industrial organization courses this paper describes various experiments designed for such courses and presents details of a multi market game with entry and exit in this experiment incumbents have a cost advantage in their home markets and mobile firms decide which market to enter after entry decisions are made firms choose prices and quantities to offer for sale predatory pricing is possible with this setup and the experiment can be used to motivate discussions of monopoly competition entry and efficiency other classroom experiments with an industrial organization focus are surveyed

predatory pricing in a multiple market experiment a note abstract isaac and smith 1985a b present a strong behavioral case that predatory pricing is not an observable laboratory phenomenon we propose several modifications of their design resulting in a multiple market experiment in which predatory pricing is present the primary modification involves conducting several markets concurrently providing an active escape opportunity for any prey and a potential reward to a reputation for predation these results provide a behavioral existence proof for the predatory pricing phenomenon they do not address the issue of the phenomenon s behavioral robustness

the structure of competition how competition between one s rivals influences imitative market entry this paper investigates how the pattern of encounters between a firm s competitors affects the firm s inclination to follow its competitors into a new market we theorize that direct encounters between a firm s rivals lead to a herding effect making imitative market entry more likely past mutual forbearance between a firm s competitors resulting from asymmetric multimarket competition further strengthens this herding effect by enhancing the firm s expectations of market attractiveness in contrast aggressive past rivalry between the competitors resulting from symmetric multimarket contact dampens these expectations producing a competition effect that makes herding less probable we test our idea in two distinct contexts the chinese pharmaceutical industry and the taiwanese computer hardware industry and find consistent support in both settings we discuss how our analysis of what we call the structure of competition can be extended to research on other forms of firm behavior

trends in aggregate concentration in the united states i assemble two rarely used data sets to measure aggregate concentration in the u s in the 1980s and 1990s despite the merger waves of those decades aggregate concentration declined in the 1980s and the early 1990s but rose modestly in the late 1990s the levels at the end of the decade were at or below the levels of the late 1980s or early 1990s the average size of firm and the relative importance of larger size classes of firms increased however gini coefficients for employment and payroll shares of companies showed moderate but steady increases from 1988 through 1999

city level analysis of the effect of political regimes on public good provision this paper uses u s city level data on five public expenditure categories to test empirically whether the form of local government affects the amount of public good provision this also serves as an empirical test of a theory of national politics that predicts higher provision of public good in parliamentary than in presidential regimes the robust results indicate that at the city level the mayor council form of government provides significantly more public good than the council manager form of government for two of the public expenditure categories and at the national level presidential regimes provide more public good than do parliamentary regimes

an experimental evaluation of strategic preemption abstract this paper reports the results of a series of two stage two person noncooperative games where one player can strategically preempt the other in one of our designs the subgame perfect equilibrium entails complete preemption in the other it entails partial preemption the data show that players tend to completely preempt when it is privately optimal however when partial preemption is privately optimal a non trivial fraction of players persist in choosing the non preemptive structure this may result because of occasional irrational behavior following preemptive play which induces some dominant agents to play less aggressively

imports as a threat to cartel stability abstract it is an old story that increased imports may have competitive effects on a domestic market the usual effect is felt through a reduction in demand for the products of the domestic industry what is more subtle is the effect that imports in particular an unexpected surge in imports from a new source country may have on the stability of a domestic cartel and more generally on the conduct of a domestic oligopoly implying a further competitive influence of international trade this paper discusses the issue in the context of several models and presents some relevant evidence from a recent case brought before the u s international trade commission

the determination of local public expenditures and the principal and agent relation a case study the principal and agent relationship is important in the public sector there elected or appointed representatives act on behalf of the citizens of their jurisdictions this paper examines the importance of the budget referendum which allows the principals to approve or disapprove the proposal of a set of agents in the context of local public expenditure decisions we test the null hypothesis that the institution of referendum when compared to a nonreferendum institution does not lead to significantly different expenditure behavior

can the survivor principle survive diversification the survivor principle holds that the competitive process weeds out inefficient firms so that hypotheses about efficient behavior can be tested by observing what firms actually do this principle underlies a large body of empirical work in strategy economics and management but do competitive markets really select for efficient behavior is the survivor principle reliable we evaluate the survivor principle in the context of corporate diversification asking if survivor based measures of interindustry relatedness are good predictors of firms decisions to exit particular lines of business controlling for other firm and industry characteristics that affect firms portfolio choices we find strong robust evidence that survivor based relatedness is an important determinant of exit this empirical regularity is consistent with an efficiency rationale for firm level diversification though we cannot rule out alternative explanations based on firms desire for legitimacy by imitation and attempts to temper

caveat innovator strategic and structural characteristics of new product introductions abstract the assumptions underlying models of strategic behavior by incumbents are evaluated using a case study of a ground coffee product introduction the assumption underlying earlier strategic models that the entrant does not know the incumbent s payoffs after strategic have been tested does not appear to apply instead strategic behavior is observed to hinge on ex ante uncertainty about the structure of the payoff matrix and the incremental decision making which this uncertainty spawns in this environment strategies which create noise can slow learning and delay entry

multimarket contact competition and pricing in banking abstract in this paper we assess the impact of multimarket contact of banks on their market power by means of a simultaneous equation model in which the divergence of price from marginal cost is a function of multimarket linkages the model is estimated using aggregate data from the italian regions for the years 1997 2009 our results show that multimarket contact is positively and significantly correlated to the market power index and is also connected to both home and non home market concentration the evidence is robust to changes in model specification and multimarket contact measures and supports the idea that firms which have a greater amount of contact are more likely to collude

the determinants of bank rates in local consumer lending markets comparing market and institution level results 1 introductionwith the exception of a few very recent studies the sizeable literature on the impact of market structure in banking markets1 has ignored the potential competitive role played by credit unions this is surprising since the continuing consolidation of the financial services industry in recent years has naturally raised concerns about competitive effects and credit unions would seem to be a likely source of market discipline 2 this paper explores these issues using both market and firm data using a variety of approaches economists have started paying some attention to the interaction between banks and credit unions emmons and schmid 2000 using county level data examine twoway intertemporal linkages between credit union participation rates and market concentration of the commercial banking sector to support the view that the two types of institutions compete in the market for consumer deposits similarly feinberg and rahman 2001 find that credit union and bank rates for two consumer loan products can each be shown to be influenced by the other tokle and tokle 2000 found a competitive influence of credit unions on bank certificate of deposit cd rates offered in idaho and montana while feinberg 2001 explored their impact on consumer loan rates in a broader sample of relatively small local markets3 over the 1992 1997 period the latter article found that both unsecured and new vehicle loan rates offered by banks in these markets were affected in a significant manner by the market share held by the two leading banks implying a competitive role for smaller financial institutions generally and for new vehicle loan rates alone by the share of credit unions in those markets whether these results would generalize to larger metropolitan areas is unclear and is the topic of what follows i focus on the same two loan products 24 month unsecured non credit card loans and 48 month new vehicle loans both of which seem likely to be provided in a local market and empirically explain the determinants of bank loan rates in a sample of 56 markets both large and small for the period 1992 1998 an innovative aspect of this paper is that i analyze both market level data and institution level data for 81 banks in those 56 markets and consider as well the role of multimarket linkages affecting these banks 2 theoretical frameworkvirtually all models of imperfect competition imply that increasing entry and supply from fringe suppliers will lower prices this clearly suggests that an increasing credit union presence should discipline prices in local financial services markets to formalize i employ a modified version of the dominant firm price leadership model the modification involves the notion that while credit unions may generally be thought of as fringe suppliers not all banks and savings and loans sl ii as cu increases the li declines iii as epsilon sub cu increases the li declines and not quite as obvious but easy to derive iv the declines in ii and iii are larger in absolute value as cr2 is larger

letting the market work for you an evolutionary perspective on product strategy managers must choose to allocate scarce resources either to the maintenance of a range of products tailored to heterogeneous consumer preferences or to the efficient production of a small number of products in addition managers must choose the degree to which they periodically cull the product line vigorous selection removes poor performers from the product line but this action simultaneously impairs the firm s ability to monitor changes in consumer preferences empirical evidence from the computer workstation industry reveals that the ideal choice of product variety depends on the competitive ecology of the industry product variety becomes less valuable as the total number of products on the market increases but it increases in value as uncertainty makes the accurate prediction of demand difficult copyright 2000 john wiley sons ltd

collusion at the extensive margin abstract we augment the multi market collusion model of bernheim and whinston 1990 by allowing for firm entry into and exit from individual markets we show that this gives rise to a new mechanism by which a cartel can sustain a collusive agreement collusion at the extensive margin whereby firms collude by avoiding entry into each other s markets or territories we characterise parameter values that sustain this type of collusion and identify the assumptions where this collusion is more likely to hold than its intensive margin counterpart specifically it is demonstrated that where duopoly competition is fierce collusion at the extensive margin is always sustainable finally we provide a theoretic foundation for the use of a proportional response enforcement mechanism

market structure and incomplete information price formation in a real world repeated english auction abstract this paper examines the effect of buyer size on price formation in an english auction of used state police cars while open auctions generally favor competitive pricing bikhchandani 1988 develops a model of a second price common value auction in which bidders can use strategic behavior based on repeated sales to develop an aggressive reputation and as a result pay lower prices in equilibrium the paper tests this hypothesis by examining sales of 340 used automobiles sold at 13 public auctions conditional on the volume of purchases made by the three largest buyers at the auctions the empirical results show that the number of buyers plays a stronger role in price formation than does buyer size

the impact of government structure on local public expenditures though the relationship between local government structure and expenditure has received considerable attention there is little consensus as to how the features of representative government affect local expenditure an exception is city council size which has consistently been found to be positively related to spending previous results rely on cross sectional estimation which may be subject to omitted variable bias this paper analyzes three components of municipal governments the form of government the size of the city council and the election method of city councilors once fixed effects estimation is employed the positive relationship between city council size and expenditure disappears

market power in oral double auctions this paper reports the results of a series of oral double auction experiments in which some traders possess market power a market is set up in which the configuration of the supply and demand curves leads to an asymmetry between buyers and sellers in their abilities to influence transactions prices this market structure does not always lead to convergence to the competitive equilibrium price despite the competitive nature of the oral double auction institution the nonconvergence occurs most frequently in the experiments involving experienced subjects

production effects of price and cost based anti dumping laws under flexible exchange rates this paper investigates the production response of an exporting firm when faced with the threat of an anti dumping ad action the firm s production decision is sensitive to market conditions at home and abroad as well as to the definition of dumping we examine the incentives facing the exporting firm under price based marginal cost based and average total cost based anti dumping laws depending on the nature of the anti dumping rules and market conditions a firm s production may rise fall or remain unchanged in response to ad legislation les effets de production des lois anti dumping fondees sur les prix et sur les couts dans un