sequential formation of coalitions in games with externalities and fixed payoff division this paper analyzes a sequential game of coalition formation when the division of the coalitional surplus is fixed and the payoffs are defined relative to the whole coalition structure gains from cooperation are represented by a valuation which maps coalition structures into payoff vectors i show that any core stable coalition structure can be attained as a stationary perfect equilibrium of the game if stationary perfect equilibria may fail to exist in general games a simple condition is provided under which they exist in symmetric games furthermore symmetric stationary perfect equilibria of symmetric games generate a coalition structure which is generically unique up to a permutation of the players a general method for the characterization of equilibria in symmetric games is proposed and applied to the formation of cartels in oligopolies and coalitions in symmetric majority games journal of economic literatureclassification numbers c78 c71 1996 academic press inc

contracts as a barrier to entry it is shown that an incumbent seller who faces a threat of entry into his or her market will sign long term contracts that prevent the entry of some lower cost producers even though they do not preclude entry completely moreover when a seller possesses superior information about the likelihood of entry it is shown that the length of the contract may act as a signal of the true probability of entry

endogenous formation of competing partnerships with moral hazard abstract we analyze the formation of competing partnerships as a sequential game with moral hazard within coalitions in a linear cournot model we show that when moral hazard is very severe no partnerships will form however when moral hazard is not too severe the coalition structure may be more concentrated than it is in the absence of moral hazard concerning industry profits in the absence of moral hazard too many coalitions are formed in equilibrium as compared to the efficient outcome but moral hazard may be responsible for an inefficiency of opposite sign

endogenous structures of association in oligopolies the formulation of associations of firms in an oligopoly with linear demand is analyzed as a two stage noncooperative game in the first stage firms form associations in order to decrease their costs and in the second stage they compete on the market examples of associations include r d joint ventures and groups of firms adopting common standards in equilibrium the associations formed exhibit two general features they are asymmetric and inefficient

a social coalitional equilibrium existence lemma the purpose of this paper is to construct an abstract model of a society in which each member can cooperate with others by forming a coalition but at the same time can be influenced by the members outside the coalition a new concept of equilibrium called here a social coalitional equilibrium is proposed and a sufficient condition for its existence provided the social coalitional equilibrium may be considered a synthesis of the nash equilibrium a noncooperative solution concept and the core a cooperative solution concept the paper provides a broadly applicable mathematical tool for proving existence of equilibrium for models of labor managed market economies the purpose of the present paper is to construct an abstract model of a society in which each member can cooperate with others by forming a coalition but at the same time can be influenced by the members outside the coalition a new concept of equilibrium called here a social coalitional equilibrium is proposed and a sufficient condition for its existence provided a coalition structure is endogenously determined in equilibrium when the model is suitably specified it describes noncooperative behavior of the members and the social coalitional equilibrium is reduced to the nash equilibrium given another extreme specification the model is reduced to a cooperative game without sidepayments in characteristic function form and the set of social coalitional equilibria corresponds precisely to the core the need for study of the present model arose originally out of the author s recent investigation of labor managed market economies both the socialistic version and the capitalistic version in 10 11 12 indeed the model and the concept of social coalitional equilibrium were obtained by abstracting and generalizing the formal aspect of those studies the socialistic labor managed market economy has long been the object of study of various authors see e g vanek 19 the capitalistic labor managed market economy seems to reflect the institutional aspect of the modern capitalistic society better than the economies formulated by other available general equilibrium models it differs for example from the standard private ownership economy of arrow and debreu 1 see also debreu 6 sec 5 5 in that i the ownership and control of a firm are separated ii no particular firm is given a priori but instead the list of potential firms is given as a primitive datum and iii the behavioral principle of the economic agents involves both noncooperative behavior and cooperative behavior because of the above feature ii any general equilibrium model of this economy has to formulate the economic mechanism that underlies the formation of firms in equilibrium as

a theory of endogenous coalition structures consider an environment with widespread externalities and suppose that bind ing agreements can be written we study coalition formation in such a setting our analysis proceeds by defining on a partition function an extensive form bargaining game we establish the existence of a stationary subgame perfect equilibrium for such a game our main results are concerned with the characterization of equilib rium coalition structures we develop an algorithm that generates under certain conditions an equilibrium coalition structure our characterization results are especially sharp for symmetric partition functions in particular we provide a uniqueness theorem and apply our results to a cournot oligopoly journal of economic literature classification numbers c71 c72 c78 d62 q 1999 academic press

nonlinear pricing and exclusion ii must stock products dominant firms often are unavoidable trading partners buyers may consider switching a fraction of their requirements to rival products but that fraction is highly uncertain in rapidly evolving industries nonlinear pricing serves to adjust the competitive pressure placed on rival firms depending on the joint distribution of the buyer willingness to pay for the rival s good and the share of contestable demand concave price quantity schedules erect barriers to entry convex parts in schedules introduce barriers to expansion dominant firms use all units discounts to create high entry barriers for rival firms with intermediate levels of contestable demand

mergers of producers of perfect complements competing in price abstract the endogenous merger model of kamien and zang qje 1990 is generalized to price competition with perfect complements and used to show that some socially desirable mergers will fail to occur we also clarify the link between this merger model and the exogenous merger literature

mergers and the importance of fitting well abstract this paper highlights the importance of partners fitting well for a stable merger to arise if all firms fit perfectly no stable merger can be performed on the contrary if not all firms are compatible a stable merger may arise

farsighted coalitional stability abstract i define the largest consistent set a solution concept which applies to situations in which coalitions freely form but cannot make binding contracts act publicly and are fully farsighted in that a coalition considers the possibility that once it acts another coalition might react a third coalition might in turn react and so on without limit i establish weak nonemptiness conditions and apply it to strategic and coalitional form games and majority rule voting i argue that it improves on the von neumann morgenstern stable set as it is usually defined but is consistent with a generalization of the stable set as in the theory of social situations journal of economic literature classification numbers c70 c71

the unilateral incentives for technology transfers predation and deterrence by proxy abstract joint production between rival firms often entails knowledge transfers without direct compensation leaving the question as to why more efficient firms would give their rivals such an advantage we find that such transfers are credible mechanisms to make the market more competitive so as to deter entry or force exit we determine that with free entry such transfers are profitable and further it may be optimal to predate or deter every firm possible so that a market with many firms can become a duopoly while consumers are harmed by such action production efficiency normally increases sufficiently so that welfare increases

tax disturbances and real economic activity in the postwar united states abstract this paper investigates the macroeconomic effects of cyclical fluctuations in marginal tax rates it finds that systematically including tax variables in a standard real business cycle model substantially improves the model s ability to reproduce basic facts about postwar u s business cycle fluctuations in particular modeling fluctuations in personal and corporate income tax rates increases the model s predicted relative variability of hours and decreases its predicted correlation between hours and average productivity fluctuations in tax rates produce large substitution effects that alter the leisure labor supply decision

by force of demand explaining cyclical fluctuations of international trade and government spending abstract this paper explores the role of demand shocks as an alternative to productivity shocks in driving both domestic and international business cycles within the international real business cycle irbc framework in addition to those well documented domestic business cycle fluctuations e g the volatility and cyclicality of output consumption investment labor hours and labor productivity and international business cycle properties e g the countercyclical net export and the comovement puzzle this paper focuses on two additional stylized facts in the industrialized countries the procyclical trade openness the gdp fraction of trade volume and the countercyclical government size the gdp fraction of government spending using a parsimonious dynamic stochastic general equilibrium model we show that the model s predictions under productivity shocks are not consistent with these facts instead a demand shock driven model replicates the above facts while matching other domestic and international business cycle properties an estimated version of the model confirms the quantitatively important impacts of demand shocks

discounts as a barrier to entry abstract to what extent can an incumbent manufacturer use discount contracts to foreclose efficient entry we show that off list price rebates that do not commit buyers to unconditional transfers like the rebates in eu commission v michelin ii for instance cannot be anticompetitive this is true even in the presence of cost uncertainty scale economies or intense downstream competition all three market settings where exclusion has been shown to emerge with exclusive dealing contracts the difference stems from the fact that unlike exclusive dealing provisions rebates do not contractually commit retailers to exclusivity when signing the contract jel d43 d86 k21 l13 l14 l42 l60

can fiscal spending stimulate private consumption abstract empirically government expenditure shocks seem to crowd in private consumption while neoclassical and new keynesian models predict crowding out we derive conditions under which a government in utility specification in a sticky price model helps to reconcile theory and evidence

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

equilibrium binding agreements abstract we study equilibrium binding agreements the coalition structures that form under such agreements and the efficiency of the outcomes that result we analyze such agreements in a context where the payoff to each player depends on the actions of all other players thus a game in strategic form is a natural starting point unlike the device of a characteristic function explicit attention is paid to the behavior of the complementary set of players when a coalition blocks a proposed agreement a solution concept and its applications are discussed journal of economic literature classification numbers c70 c71

multidivisional firms internal competition and the merger paradox traditional modelling of mergers has the merged firms insiders cooperate and maximize joint profits this approach has several unappealing results in quantity setting games for example mergers typically are not profitable for insiders but are profitable for non merging firms outsiders we take a different approach and allow for a parent company that can play each insider off one another in quantity setting games with our approach mergers are profitable for insiders unprofitable for outsiders socially beneficial and involve in a non monopolizing merger a small number of firms finally we find that the optimal strategy depends on whether firms compete in quantity or prices jel classification l000 entreprises multi divisionnelles concurrence interne et le paradoxe des fusions les modelisations conventionnelles des fusions suggerent que les entreprises fusionnees parties prenantes cooperent et maximisent leurs profits conjoints cette approche engendre plusieurs resultats contre intuitifs dans des jeux de concurrence par les quantites i e les fusions en general ne sont pas profitables pour les parties prenantes mais sont profitables pour des entreprises qui ne sont pas fusionnees les autres les auteurs adoptent une approche differente qui permet a l entreprise mere de jouer les parties prenantes l une contre l autre dans ce genre de jeu avec l approche adoptee les fusions sont profitables pour les parties prenantes non profitables pour les autres socialement benefiques et impliquent un petit nombre d entreprises dans une fusion qui ne cree pas un monopole finalement on trouve que la strategie optimale depend fondamentalement du fait que les entreprises se concurrencent par les prix ou par les quantites

time consistent optimal fiscal policy this article studies the properties of optimal fiscal policy in a stochastic growth model when the government cannot commit itself beyond the next period s capital income tax rate we find that the results contrast markedly with those under full commitment first capital income tax rates are very high 65 on average versus close to zero on average under full commitment second labor income taxes are rather low on average about 12 versus a value of around 31 under full commitment finally labor income taxes are quite volatile whereas under full commitment their standard deviation is essentially zero

the limits of monopolization through acquisition we address the question of whether competitive acquisition of firms by their rivals can result in complete or partial monopolization of a homogeneous product industry this question is modeled in terms of two distinct three stage noncoopera tive games analysis of subgame perfect pure strategy nash equilibria of these games discloses that under simplifying assumptions monopolization of an industry through acquisition is limited to industries with relatively few firms partial monopolization is either limited in scope or can be completely eliminated by prohibiting any owner from acquiring over 50 percent of the firms in the industry

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

endogenous formation of research coalitions with spillovers abstract we examine the endogenous formation of research coalitions with high spillovers among symmetric firms members of a research coalition set their r and d investments in order to maximize the aggregate profits of members of their coalition the exclusive membership rule supports a more concentrated coalition structure and thus leads to higher industry r and d investments for high spillovers than the open membership rule does however due to free riding problems the grand research coalition which is the socially efficient outcome is rarely an equilibrium outcome under either rule our results suggest that government subsidies to research consortia for basic research with high spillovers can improve social welfare by encouraging wider participation to a research consortium that is by alleviating free rider problems in coalition formation from a more theoretical viewpoint our results on stable coalition structures are applicable to a wide variety of economic coalitions with positive externalities

market participation in delegated and intrinsic common agency games we study how competition in nonlinear pricing between two principals sellers affects market participation by a privately informed agent consumer when participation is restricted to all or nothing intrinsic agency the agent must choose between both principals contracts and selecting her outside option when the agent is afforded the additional possibilities of choosing only one contract delegated agency competition is more intense the two games have distinct predictions for participation intrinsic agency always induces more distortion in participation relative to the monopoly outcome and equilibrium allocations are discontinuous for the marginal consumer under delegated agency relative to monopoly market participation increases respectively decreases when contracting variables are substitutes respectively complements on the intensive margin equilibrium allocations are continuous for the marginal consumer and the range of product offerings is identical to both the first best and the monopoly outcome

stable coalition structures with open membership and asymmetric firms i study games of coalition formation with open membership where firms form associations in order to decrease their costs before competing on the market according to previous analyses only the grand coalition forms at the nash equilibrium of such games i show that this result hinges on the assumption of symmetric firms i therefore introduce asymmetric firms in a game where only two associations can form i demonstrate that there exists a coalition proof nash equilibrium coalition structure in this game and that when the equilibrium involves two associations all the members of an association have a higher taste for this association than all nonmembers do journal of economic literature classification numbers c70 c72 l13

a consistent bargaining set abstract both the core and the bargaining set fail to satisfy a natural requirement of consistency in excluding imputations to which there exist objections the core does not assess the credibility of such objections the bargaining set goes a step further only objections which have no counterobjections are considered justified however the credibility of counterobjections is not similarly assessed we formulate a notion of a consistent bargaining set in which each objection in a chain of objections is tested in precisely the same way as its predecessor various properties of the consistent bargaining set are also analyzed

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

the antitrust implications of capacity reallocation by a dominant firm when a firm acquires rival firms in one market and moves their capacity to another market should antitrust authorities be concerned we address this question by studying a multi stage game a dominant firm has the opportunity to acquire fringe firms that operate in the same market then the dominant firm has the opportunity to move capacity from that market to a second market the model is motivated by a series of acquisitions in the specialized mobile radio industry aimed at establishing a new cellular carrier we derive necessary and sufficient conditions for the dominant firm to acquire too little capacity relative to the social optimum the results shed light on the consent decree negotiated in us v motorola inc and nextel communications inc 1994

optimal fiscal and monetary policy some recent results this paper studies the quantitative properties of fiscal and monetary policy in business cycle models in terms of fiscal policy optimal labor tax rates are virtually constant and optimal capital income tax rates are close to zero on average in terms of monetary policy the friedman rule is optimal nominal interest rates are zero and optimal monetary policy is activist in the sense that it responds to shocks to the economy

employment and hours over the business cycle abstract approximately one quarter of the adjustment in total hours of employment over the business cycle represents adjustments in hours while the remainder is explained by changes in employment real business cycle models characterize agents as either continuously adjusting their hours or making only labor force participation decisions about jobs with indivisible hours in this paper we extend the representative agent framework to allow for decisions on both participation and hours we calibrate and simulate a dynamic version of the model and show that it is better able to mimic some features of the aggregate data

time consistent control in non linear models abstract the paper shows how to use optimal control to compute optimal time consistent markovian government policies in nonlinear dynamic general equilibrium models it extends cohen and michel s 1988 results for the linear quadratic case the method involves replacing private agents costate variables with flexible functions of current state variables in the government s maximization problem the functions hold in equilibrium to an arbitrarily close approximation they can be found numerically by perturbation or projection methods a stochastic model of optimal public spending illustrates the technique

stable coalition structures with externalities this paper argues that the sign of external effects of coalition formation provides a useful organizing principle in examining economic coalitions in many interesting economic games coalition formation creates either negatie externalities or posi tie externalities for nonmembers examples of negative externalities are research coalitions and customs unions examples of positive externalities include output cartels and public goods coalitions i characterize and compare stable coalition structures under the following three rules of coalition formation the open

the macroeconomic effects of distortionary taxation abstract prescott 1986 estimates that technology shocks account for 75 of the fluctuations in the postwar u s economy this paper reestimates the contribution of technological change for a standard business cycle model that includes a public sector and fiscal disturbances i find that a significant fraction of the variance of aggregate consumption investment output capital stock and hours of work can be explained by disturbances in labor and capital tax rates and government consumption i also use the model to quantify the welfare costs of capital and labor taxation for both the time series and welfare calculations maximum likelihood estimates of taste technology and policy parameters are used

government spending and the international business cycle in this paper the author develops a stochastic general equilibrium model of the world economy it differs from previous multicountry models in the introduction of the government sector the author assumes that countries produce a nonspecialized traded good and that households derive utility from the consumption of private and public goods and services this simple modification has a potential explanation for the low cross country correlations in private consumption and output and the countercyclical trade balances that are observed empirically

anticipation learning and welfare the case of distortionary taxation we study the impact of anticipated fiscal policy changes in the ramsey economy when agents form expectations using adaptive learning we extend the existing framework by distortionary taxes as well as elastic labour supply which makes agents decisions non predetermined but more realistic we detect that the dynamic responses to anticipated tax changes under learning have oscillatory behaviour moreover we demonstrate that this behaviour can have important implications for the welfare consequences of fiscal reforms

the output employment and interest rate effects of government consumption abstract we study the impact on aggregate variables of changes in government consumption using the neoclassical stochastic growth model we show theoretically that the impact on output and employment of a persistent change in government consumption exceeds that of a temporary change we also show that in principle there can be an analog to the keynesian multiplier in the neoclassical growth model finally in an empirically plausible version of the model we show that the interest rate impact of a persistent government consumption shock exceeds that of a temporary one our results provide counterexamples to existing claims in the literature

contracting with externalities the paper studies inefficiencies arising in contracting between one principal and n agents when the utility of each agent depends on all agents trades with the principal when the principal commits to a set of publicly observable bilateral contract offers the arising inefficiency is due entirely to the externalities imposed on non signers in contrast when the principal s offers are privately observed the distortion is due to the externalities given agents equilibrium trades comparison of the two externalities determines the relative efficiency of the two contracting regimes in both cases we show that when n is large each agent can be treated as non pivotal provided that appropriate continuity assumptions are satisfied we also study the case in which the principal can condition each agent s trade on other agents messages we characterize the set of such mechanisms in which each agent s participation is voluntary when the principal can commit to any such mechanism she implements the first best outcome while threatening each deviator with the harshest possible punishment however in the presence of noise that goes to zero slower than n goes to infinity in the limit we obtain a generally inefficient outcome in which each agent feels non pivotal

stochastic depreciation and the business cycle the authors study a version of the neoclassical growth model in which shocks to both aggregate productivity and the depreciation of capital generate fluctuations around the steady state growth path depreciation shocks induce an inverse comovement between average labor productivity and hours worked when the model is calibrated to u s data it generates a correlation between productivity and hours which is significantly closer to the observed value than that of standard real business cycle models furthermore the addition of depreciation shocks does not cause a deterioration of the predictions of the model concerning other comovements copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

partnerships as insurance devices theory and evidence we model partnerships as mutual insurance associations in which individuals band together to insure themselves against idiosyncratic shocks to their human capital as with most forms of insurance this generates a tradeoff between efficiency and risk sharing since partners keep only a fraction of the profits they generate they will supply less than optimal effort we show that in equilibrium participants in larger partnerships keep a smaller share of their own proceeds we test and confirm this prediction using a sample of partners in law firms

endogenous formation of coalitions the formation of coalitions is a fundamental problem in game theory by a coalition is meant a group of players e g economic or political agents which decide to act together as one unit relative to the rest of the players this includes the instances of syndicates unions cartels blocks political parties parliamentary coalitions etc we would like to emphasize that forming a coalition does not eliminate the individual players as decision makers in all interactions with the other players coalition members act as one unit it may be useful to think of a representative agent taking their place 2 however this arrangement will continue only as long as each player finds it desirable to act this way further bargaining occurs among the members of each coalition on how to divide what they obtained together thus the existence of coalitions implies that the interactions among the players will be conducted on two levels first among the coalitions and second within each coalition most of the existing models in economics and game theory assume that the coalition structure is given exogenously instead we try here to obtain it as an endogenous outcome of our model namely we want to be able to predict which coalitions will in fact form in each given situation 3 our theory combines two kinds of game theoretic concepts value and stability the basic idea is first to evaluate the players prospects in the various coalition structures and then based on these values to find which ones are stable we will call this value coalition structure value or cs value for short the reason we are considering coalition structures i e partitions of the set of players into disjoint coalitions rather than just coalitions is that in general players may find it to their advantage to join forces in some situations and to act separately in others all depending on the way the other participants are organized this implies that both the value and the stability concepts should depend on the entire coalition structure the cs value we analyze in this paper was first developed by owen 7

divisionalization franchising and divestiture incentives in oligopoly a two stage game is used to model firms strategic incentives to divide production among autonomous competing units through divisionalization franchising or divestiture firms simultaneously choose their number of competing units which then engage in cournot competition while it is costly to form autonomous units each firm does so in equilibrium thus reducing firm profits and increasing social welfare relative to the case where firms cannot form competing units with linear demand and costs duopolists choose the socially optimal number of competing units oligopolies with larger numbers of firms choose too many the case of nonlinear demand is also examined copyright 1996 by american economic association

bargaining failures and merger policy in this paper we study the optimal ex ante merger policy in a model where merger proposals are the result of strategic bargaining among alternative candidates we allow for firm asymmetries and in particular we emphasize the fact that potential synergies generated by a merger may vary substantially depending on the identity of the participating firms the model demonstrates that under some circumstances relatively inefficient mergers may take place that is a particular merger may materialize despite the existence of an alternative merger capable of generating higher social surplus and even higher profits such bargaining failures have important implications for the ex ante optimal merger policy we show that a more stringent policy than the ex post optimal reduces the scope of these bargaining failures and raises expected social surplus we use a bargaining model that is flexible in the sense that its strategic structure does not place any exogenous restriction on the endogenous likelihood of feasible mergers

endogenous mergers and cost heterogeneity the objective of this article is to analyze the effect of firms heterogeneity on their incentives to merge to reach this target merger decisions are modelled as endogenous to simplify the analysis we focus on the extreme case where merger leads to monopolization kamien and zang 1990 1993 give monopolization conditions in static and dynamic acquisition games introducing cost heterogeneity in a n firm industry we provide more general monopolization conditions indeed we show that any industry can be monopolized if cost heterogeneity is large enough this result provides new information to competition authorities on concentration possibilities and allows them to focus particularly on some industries

confining the coase theorem contracting ownership and free riding if individuals own the right to take any action that they please and are free to contract about behaviour will outcomes be efficient in all situations that is does the coase theorem hold we study this classic question through the lens of a non cooperative model of contract negotiations considering both compulsory and voluntary participation in negotiations in either case we find that all consistent equilibria of the contracting game are efficient in the case of two players but if participation is voluntary and there are more than two players there are situations in which all consistent equilibria are inefficient specifically the provision of public goods tends to be inefficiently low due to strategic abstention from contracting free riding on others agreements can be avoided if individuals do not own all their actions when actions involve the use of assets efficient action ownership may correspond to collective rather than individual asset ownership

on the anti competitive effects of quantity discounts abstract we analyze the competitive effects of quantity discounts in an asymmetric duopoly we find that for a sizeable set of parameter values quantity discounts harm the smaller firm and reduce consumers surplus they can even decrease social welfare i e the sum of producers and consumers surpluses however the circumstances in which quantity discounts may decrease social welfare are limited and difficult to identify in practice

naked exclusion comment the ability of an incumbent firm to deter entry by writing exclusionary contracts with customers has been a subject of contention in the antitrust literature the courts concern with such exclusionary contracts has been challenged by those who argue that an incumbent faced with buyers whose interest is to promote entry and competition would have to pay buyers more for the inclusion of exclusionary provisions than it could possibly gain from exclusion in a provocative article eric b rasmusen et al 1991 henceforth rrw have argued that an incumbent may in fact be able to exclude rivals profitably using such contractual provisions because it can exploit buyers lack of coordination in essence if buyers expect other buyers to sign such provisions then they may see little reason not to do so themselves the rrw argument is potentially an important one because most alleged instances of entry deterrence through exclusionary contracts with customers occur in situations with multiple buyers unfortunately however rrw s two main results contain errors in this note we reconsider the rrw model providing correct characterizations of the likelihood and cost of exclusion for an incumbent firm our results indicate that while the intuition suggested by rrw is valid the equilibrium likelihood and cost of exclusion differ from what rrw derive moreover our analysis illuminates some further aspects of exclusionary contracting with multiple buyers among these issues we focus on how an incumbent can use discriminatory offers to exploit the externalities that exist among buyers in the provision of competition in section i we review the basic assumptions of the rrw model in sections ii and iii we then consider in turn the cases of simultaneous and sequential offers studied by rrw for the simultaneous model we distinguish between settings in which the incumbent can and cannot discriminate in its offers to different buyers this distinction is the source of the problem in rrw s analysis their simultaneous offer model assumes no discrimination but the proof of their proposition 2 assumes at times that discrimination is feasible we show that absent the ability to discriminate the incumbent can exclude profitably only when buyers fail to coordinate on their most preferred continuation equilibrium in contrast we show that when discrimination is possible the incumbent need not rely on a lack of buyer coordination to segal department of economics landau building stanford university stanford ca 94305 e mail ilya segal stanford edu whinston department of economics northwestern university 2003 sheridan road evanston il 60208 e mail mwhinston nwu edu we thank eric rasmusen john wiley and participants in the berkeley stanford iofest the university of copenhagen vertical restraints conference and a seminar at the antitrust division of the u s department of justice for helpful comments we thank federico echenique for excellent research assistance 1 for example a recent department of justice investigation concerned the use of exclusive contracts by the leading provider of computerized ticketing services ticketmaster most major cities have several large concert sports venues in many cities ticketmaster has exclusive contracts with a very large share of these venues 2 the other leading response to the argument that contracts with buyers cannot be a profitable method of exclusion is given in philippe aghion and patrick bolton 1987 section i one factor limiting the applicability of the aghion and bolton theory however is that it involves partial exclusion the contracts signed are not fully exclusionary they involve finite stipulated damages and the profitability of the strategy arises from extracting rents from an entrant when entry occurs indeed in the aghion and bolton model contracts that fully exclude offer no benefits over writing no contract at all in section iii of their paper aghion and bolton also discuss a two buyer version of their model in which externalities arise across buyers in contrast to the analysis here and in rrw they allow the incumbent to make an offer to a buyer i that is conditional on the acceptance decision of the other buyer 3 r innes and r j sexton 1994 also discuss the use of discriminatory offers in the context of a model in which buyers can form coalitions with the entrant

has fiscal policy helped stabilize the postwar u s economy abstract in this paper i consider whether postwar fiscal policy has helped stabilize the u s economy i do this by adding to the stochastic growth model fiscal policy feedback rules estimated from postwar data these rules allow fiscal policies to respond to current and lagged output and labor hours i use the estimated policy rules to see if postwar fiscal policy reduces output volatility and or lengthens expansions and shortens recessions i find that fiscal policy in general provides little stability on either count i also find that the endogenous feedback links by themselves can provide some stabilization

competition with exclusive contracts and market share discounts we analyze firms that compete by means of exclusive contracts and market share discounts conditional on the seller s share of customers total purchases with incomplete information about demand firms have a unilateral incentive to use these contractual arrangements to better extract buyers informational rents however exclusive contracts intensify competition thus reducing prices and profits and in all pareto undominated equilibria increasing welfare market share discounts by contrast produce a double marginalization effect that leads to higher prices and harms buyers we discuss the implications of these results for competition policy jel d43 d83 d86 k21 l14 l42 in this paper we study firms that compete by means of exclusive contracts or mar ket share discounts i e discounts that depend on the seller s share of a customer s total purchases these are common yet seldom studied forms of competition the literature has mainly focused on incumbents use of exclusive contracts or marketshare discounts to deter new entrants whilst paying less attention to competitors deploying similar pricing strategies we show that exclusive contracts intensify competition reducing equilibrium prices whereas market share discounts have a double marginalization effect and hence result in higher prices these findings have a bearing on the current lively policy debate 1 fueled by the fact that antitrust authorities view competition by means of exclusive contracts or marketshare discounts with some suspicion to say the least the authorities main concern appears to be that a dominant firm can use exclusivity or market share discounts to eliminate not only potential competitors but also existing ones a prime instance of this is the case of intel intel whose main competitor amd has been operating for years in the microchip sector offered electronics manufacturers discounts that depended on their buying a minimum share of their total purchases of microchips from intel some customers to qualify for the discount had to opt for an exclusive supply contract that

on the inefficiency of merger control abstract according to the merger guidelines the antitrust authority has to challenge an anticompetitive merger these guidelines however neglect the parties litigation costs during trial we analyze under which circumstances these costs are so high that the agency s intervention is inefficient

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

propagation mechanisms for government spending shocks a bayesian comparison the inability of a simple real business cycle model to predict a rise in consumption in response to increased government expenditures observed in many empirical studies has stimulated the development of alternative theories of government spending shocks using the bayesian approach we evaluate the quantitative performance of five extant models and find that neither of the considered transmission mechanisms for government spending helps improve the fit of the baseline model moreover we find that consumption decreases in all estimated models in response to a rise in government spending

can public spending boost private consumption this paper analyses the effects on private consumption from an increase in productive and unproductive public spending a new keynesian model incorporating price and wage rigidities monetary policy and various fiscal rules is developed and estimated using bayesian techniques to capture the key cyclical characteristics of the us economy we find that price and wage rigidities along with a positive shock to the part of public spending that is productive are suficient to boost private consumption moreover we show that this initial positive reaction of private consumption is adequate to create a positive present value consumption multiplier for more than five years finally we show that our main results remain robust to changes in the monetary rule and the various methods of deficit financing

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

a noncooperative view of coalition formation and the core a noncooperative implementation of the core is provided for games with transferable utility the implementation obtained here is meant to reflect the standard motivation for the core as closely as possible in the model proposed time is continuous this idealized treatment of time is most amenable for capturing an essential feature of the core there is always time to reject a noncore proposal before it is consumated

nonlinear pricing and exclusion i buyer opportunism we study the exclusionary properties of nonlinear price quantity schedules in an aghion bolton style model with elastic demand and product differentiation we distinguish three regimes depending on whether and how the price charged by the dominant firm depends on the quantity purchased from the rival firm we find that the supply of rival good is distorted downward moreover given the quantity supplied from the rival the buyer may opportunistically purchase inefficiently many units from the dominant firm to pocket quantity rebates we show that the possibility for the buyer to dispose of unconsumed units attenuates the opportunism problem and limits the exclusionary effects of nonlinear pricing

a noncooperative coalitional bargaining game with random proposers abstract we extend the stahl rubinstein s alternating offer model ton person coalitional bargaining the key feature of the model is the random selection of proposers at every round no delay of agreement occurs in equilibrium for a super additive game in contrast to the fixed order model of chatterjeeet al rev econ stud 60 1993 463 477 when the discount factor of future payoffs is sufficiently high the agreement on the grand coalition is reached if and only if it has the largest value per capita among all coalitions moreover in the limit as the discount factor goes to one all players divide equally the value of the grand coalition regardless of who makes a proposal journal of economic literatureclassification numbers c72 c73 c78

fiscal spending shocks endogenous government spending and real business cycles abstract we analyze a real business cycle model in which the government optimally chooses public investment and nonmilitary current expenditures to maximize the welfare of the representative private agent we characterize the optimal response of endogenous spending to shocks to technology and to military expenditures comovements between the components of government spending and other macroeconomic aggregates predicted by the model are compared with the corresponding comovements in the u s data the model captures the qualitative features of the relative volatilities of the components of government spending quite well but predicts too high correlations between the components of government spending and output

divisionalization and strategic managerial incentives in oligopoly under uncertainty abstract this paper argues that divisionalization and incentive contracting are complementary rent shifting tools in the presence of demand uncertainty the role for divisionalization arises if managers know the state of demand prior to making output decisions and if incentive contracts are linear and non state contingent in this context incentive contracts achieve expected stackelberg outcomes but have no impact on the firm s responsiveness to demand shocks divisionalization on the other hand has the strategically beneficial effect of making the firm more responsive to demand shocks

technical compatibility and the mode of foreign entry with network externalities we examine the preferences of a foreign firm and a local government over two modes of foreign direct investment de novo entry and acquisition of the domestic incumbent two crucial features of the model are network externalities and partial incompatibility between the domestic and the foreign technology the relative welfare impact of the two entry modes depends on the degree of market competition and the strength of the network externality the clash between the foreign firm s choice and the local government s ranking of the two entry modes can motivate limits on the degree of foreign ownership of the local firm ce texte examine les preferences d une firme etrangere et d un gouvernement du pays hote quant a deux modes d investissement direct de l etranger entree de novo de la firme etrangere versus acquisition d une firme domestique en place deux facteurs pris en compte sont la presence d externalites de reseau et d incompatibilite partielle entre la technologie locale et celle introduite par la firme etrangere l impact relatif des modes d entree sur le mieux etre local depend du degre de concurrence sur le marche et de l importance des externalites de reseau le conflit entre les preferences de l entreprise etrangere et les preferences du gouvernement local peuvent etre a la source de politiques qui limitent le degre de proprieteetrangere permis

moral hazard and risk spreading in partnerships partnerships provide a classic example of the tradeoff between risk spreading and moral hazard the degree to which firms choose to spread risk and sacrifice efficiency incentives depends upon risk preferences for which data are typically unavailable we use a unique dataset on medical group practice to investigate this tradeoff risk aversion leads to compensation arrangements which spread risk through greater sharing of revenues we find that compensation arrangements with greater degrees of revenue sharing significantly reduce physician effort the results imply that changing the method of physician payment from fee for service to capitation will dramatically reduce physician effort

entry deterrence and mergers under price competition in pharmaceutical markets after patent expirations in pharmaceutical markets brand name laboratories are threatened by generic firms entry to fill the gap in the theoretical literature on this topic we study brand name firms incentives either to deter entry or to merge with the entrant these strategies are considered along with the possibility of the brand name firm producing its own generic drug called a pseudo generic drug using a vertical differentiation model with bertrand stackelberg competition we show that each strategy merging and deterring entry may be nash equilibrium according to the generic firm s setup cost level and to the rate of discount

exclusive contracts and market dominance we propose a new theory of exclusive dealing the theory is based on the assumption that a dominant firm has a competitive advantage over its rivals and that the buyers willingness to pay for the product is private information in this setting the dominant firm can impose contractual restrictions on buyers without necessarily compensating them implying that exclusive dealing contracts can be both profitable and anticompetitive we discuss the general implications of the theory for competition policy and illustrate by examples its applicability to antitrust cases jel d21 d43 d82 d86 k21 l13 l40