convergence to the law of one price without trade barriers or currency fluctuations using a panel of 51 prices from 48 cities in the united states we provide an upper bound estimate of the rate of convergence to purchasing power parity we find convergence rates substantially higher than typically found in cross country data we investigate some potentially serious biases induced by i i d measurement errors in the data and find our estimates to be robust to these potential biases we also present evidence that convergence occurs faster for larger price differences finally we find that rates of convergence are slower for cities farther apart however our estimates suggest that distance alone can only account for a small portion of the much slower convergence rates across national borders

bank consolidation and the dynamics of consumer loan interest rates this paper analyzes interest rates quoted by individual banks for personal and automobile loans in 10 cities personal loan rates are higher in concentrated markets and banks involved in mergers reduce personal rates relative to their competitors prior to the merger s completion this is consistent with mergers changing the size structure of personal loan markets and merger participants desire to gain regulatory approval auto rates are unaffected by local concentration and mergers suggesting that their market is nationwide rates for both loan types respond asymmetrically to changes in treasury rates being more sensitive to a rise than a fall

parity reversion in real exchange rates during the post bretton woods period abstract a common view among recent studies on purchasing power parity is that the post bretton woods period is far too short to reveal any significant parity reversion in individual series of real exchange rates is this really so the answer this study shows depends very much on the statistical test being used two efficient univariate unit root tests are applied to uncover parity reversion these tests require much shorter sample sizes than conventional tests to attain the same statistical power empirical results show that parity reversion can be unveiled over the modern float if an efficient unit root test is applied

national price levels purchasing power parity and cointegration a test of four high inflation economies abstract the time series properties of exchange rates and wholesale prices from four high inflation countries show some evidence in support of purchasing power parity tests for stationarity of real exchange rates and cointegration among price and exchange rate variables are presented for argentina brazil chile and israel during the 1970s and 1980s error correction models describe the mechanism of adjustment to long run equilibrium

hedging price volatility using fast transport abstract purchasing goods from distant locations introduces a significant lag between when a product is shipped and when it arrives these transit lags are trade barriers for firms facing volatile demand who must place orders before knowing the resolution of demand uncertainty we provide a model in which airplanes bring producers and consumers together in time fast transport allows firms to respond quickly to favorable demand realizations and to limit the risk of unprofitably large quantities during low demand periods the model predicts that the likelihood and extent to which firms employ air shipments is increasing in the volatility of demand they face decreasing in the air premium they must pay and increasing in the contemporaneous realization of demand we confirm all three conjectures using detailed us import data fast transport thus provides firms with a real option to smooth demand volatility on international markets and we provide simple calculations of that option value this enables us to identify how the option value relates to goods characteristics and to changes in air transport premia associated with technological and policy change including the introduction of jet engines and liberalization of trade in air services

bank mergers and crime the real and social effects of credit market competition using a unique sample of commercial loans and mergers between large banks we provide micro level within county evidence linking credit conditions to economic development and find a spillover effect on crime neighborhoods that experience more bank mergers are subject to higher interest rates diminished local construction lower prices an influx of poorer households and higher property crime in subsequent years the elasticity of property crime with respect to merger induced banking concentration is 0 18 we show that these results are not likely due to reverse causation and confirm the central findings using state branching deregulation to instrument for bank competition we examine the real and social impact of local credit competition by documenting a link between the competitiveness of the local banking market credit conditions urban development and crime several recent studies peek and rosengren 2000 cetorelli and gambera 2001 klein peek and rosengren 2002 and burgess and pande 2003 tie credit market imperfections to diminished real economic activity and growth other studies connect the economic environment to property crime freeman 1999 levitt 2001 raphael and winter ebmer 2001 and nilsson 2004 it is reasonable to hypothesize therefore that reductions in bank competition may lead to economic decline and subsequently increases in property crime we empirically investigate the effects of bank consolidation and increased market power on credit availability and real activity using a unique sample of commercial loans and mergers between large banks in the 1990s we provide micro level evidence that garmaise is from the ucla anderson school and moskowitz is from the graduate school of business university of chicago and nber we have benefited from the suggestions and comments of tony bernardo marianne bertrand phillip bond doug diamond mark duggan eugene fama

real exchange rates in the short medium and long run abstract this paper uses long horizon autocorrelations and variance ratio statistics to test for long term mean reversion in real exchange rates unlike most previous tests of this hypothesis the tests do reject a random walk for monthly data in the post bretton woods era however the statistics indicate that positively correlated innovations rather than mean reversion are the source of the rejection tests using annual data for the twentieth century also reject the random walk in this case however the rejection can be attributed to mean reversion and confirms that ppp is a long term phenomenon

international evidence on tradables and nontradables inflation abstract using 1970 1985 sectoral data for the oecd we find that inflation in nontradable goods exceeds inflation in tradables we identify a demand shift towards nontradables and faster growth of total factor productivity in the tradable goods sector as the prime causes of the differential inflation in addition disinflation attempts and the exchange rate regime appear to have exerted significant influence on the relative inflation rate

second sourcing as a commitment monopoly incentives to attract competition we show that a new product monopolist may benefit from delayed competition if consumers incur setup costs setup costs create a dynamic consistency problem the monopolist cannot guarantee low future prices once customers have incurred those costs we show that if customers anticipate this problem the monopolist s profits can be improved through ex ante commitment to competition in the post adoption market if setup costs are large if setup costs are small the monopolist can typically achieve the same level of profits without price commitment as with

are real exchange rates nonstationary evidence from a panel data test it is well documented that real exchange rates between the united states and many industrialized countries in the post bretton woods period are integrated this result implies that purchasing power parity ppp does not hold even as a long run relationship this paper demonstrates that the failure to reject the unit root hypothesis may result from the low power of existing univariate test procedures i test for unit roots in real exchange rates by employing a more powerful panel based procedure using both cpi and wpi real dollar exchange rate data i strongly reject the null hypothesis of a unit root my results provide overwhelming support for the long run ppp under the current float copyright 1996 by ohio state university press

long memory in foreign exchange rates using the geweke porter hudak test we find evidence of long memory in exchange rate data this implies that the empirical evidence of unit roots in exchange rates may not be robust to long memory alternatives fractionally integrated autoregressive moving average arfima models are estimated by both the time domain exact maximum likelihood ml method and the frequency domain approximate ml method impulse response functions and forecasts based on these estimated arfima models are evaluated to gain insight into the long memory characteristics of exchange rates some tentative explanations of the long memory found in the exchange rates are discussed

purchasing power parity and country characteristics evidence from panel data tests abstract we examine long run purchasing power parity ppp using panel data methods to test for unit roots in us dollar real exchange rates of 84 countries we find stronger evidence of ppp in countries more open to trade closer to the united states with lower inflation and moderate nominal exchange rate volatility and with similar economic growth rates as the united states we also show that ppp holds for panels of european and latin american countries but not for african and asian countries our findings demonstrate that country characteristics can help explain both adherence to and deviations from long run ppp

monitoring loan renegotiability and firm value the role of lending syndicates abstract the positive response in capital markets to announcements of private financings is well documented and typically rationalized as a reflection of valuable monitoring and screening services provided by banks and other private lenders this paper investigates the hypothesis that the capacity to renegotiate private debt contracts relatively inexpensively complements monitoring as a source of value to borrowers the context for our study is lending by syndicates of private lenders as the number of lenders increases contracting costs increase and the value associated with the capacity to renegotiate should decline our evidence supports this hypothesis we conduct additional tests to determine whether our results are robust to alternative interpretations such as information leakage or the prospect that syndicate size proxies for information related variables syndicate size remains related to the scale of the market s reaction after taking various borrower and loan characteristics into account

real exchange rate adjustment in european transition countries abstract in single equation tests real exchange rates show mean reversion for nine of 10 central and eastern european transition countries for the period january 1993 to december 2005 because of the shift from controlled to market economies and accompanying crises failed policy regimes and changes in exchange rate regimes unit root tests for transition countries often require allowance for structural changes accounting for structural breaks gives substantially faster mean reversion speeds than those found for major industrialized countries these fast adjustment speeds are plausible transition countries had perhaps 10 years to make unprecedented adjustments required for accession to the european union a number of papers have applied non linear models to the central and eastern european countries this paper investigates four non linear models and compares them with piece wise linear break models the break models appear superior in detecting mean reversion for the central and eastern european transition countries

sectoral adjustment costs and real exchange rate dynamics in a two sector dependent economy abstract this paper develops a two sector model in which intersectoral capital movements involve adjustment costs expressed as capital lost in the transformation process these costs have important consequences for the dynamics of capital accumulation and particularly for real exchange rate dynamics persistent deviations of the real exchange rate from its equilibrium are derived and for plausible values of the adjustment cost parameters are consistent with the observed degree of real exchange rate persistence for low adjustment costs the dynamics are qualitatively similar to those of the standard heckscher ohlin technology for high adjustment costs the model converges to the specific factors model thus our framework includes these two standard models as polar extremes

real exchange rate behavior the recent float from the perspective of the past two centuries using annual data spanning two centuries for dollar sterling and franc sterling real exchange rates we find strong evidence of mean reverting real exchange rate behavior using simple stationary autoregressive models estimated on prefloat data we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float such stationary univariate equations explain 60 80 percent of the in sample variation in real exchange rates although the degree of short run persistence may be high the econometric estimates imply a half life of shocks to the real exchange rate of about 6 years for dollar sterling and a little under 3 years for franc sterling

on cross country differences in the persistence of real exchange rates abstract previous findings of long run purchasing power parity come mainly from data for industrial countries raising the issue of whether the results suffer sample selection bias and exaggerate the general relevance of parity reversion this study uncovers substantial cross country heterogeneity in the persistence of deviations from parity the results show that it is more likely rather than less likely to find parity reversion for developing countries than industrial countries although some persistence variations may partly reflect country differences in structural characteristics such as inflation experience and government spending a considerable portion of those variations seems unaccounted for

competition by choice the effect of consumer search on firm location decisions this paper relates firm location choice and consumer search firms that cluster together attract consumers by facilitating price comparison but clustering increases the intensity of local competition the author constructs a simple model which shows that firms may choose head on competition by locating together under reasonable conditions this is the only equilibrium outcome copyright 1990 by american economic association

do substantial horizontal mergers generate significant price effects evidence from the banking industry this study examines the price effects of recent us bank mergers that substantially increased local market concentration using the deposit interest rates that banks offer their customers as our price measure we find that over the 1991 94 time period deposit rates offered by participants in substantial horizontal mergers and their local market rivals declined by a greater percentage than did deposit rates offered by banks not operating in markets in which such mergers took place we interpret our results as evidence that these mergers led to increased market power

export sensitivity to time delays and the pattern of international trade a growing body of literature in the field of international trade highlights the increasing importance of the time delays associated with transporting goods over long distances and the differing eff

invention under uncertainty and the threat of ex post entry abstract this article proposes a theoretical framework for studying the invention of new products when demand is uncertain in this framework under general conditions the threat of ex post entry by a competitor can deter invention ex ante asymmetric market power in the ex post market exacerbates the problem the implications of these general results are examined in a series of examples that represent important markets in the computer industry the first is a model that shows how an operating system monopolist by its mere presence can deter the invention of complements to its own detriment as well as that of society the implications of policies such as patent protection price regulation and mandatory divestiture are considered three additional examples consider the ability of a monopolist in one market to commit to bundling an unrelated product a pair of horizontally differentiated firms that can add a new feature to their products and a platform leader that can be challenged in its base market by the supplier of a complementary product

purchasing power parity in developing countries multi period evidence under the current float abstract using panel unit root tests we examine purchasing power parity ppp for us dollar real exchange rates of developing countries during the current floating rate period since evidence of ppp may vary from period to period we examine the data for moving 10 year periods from 1976 85 up to 1990 99 we organize panels based on country characteristics influencing the validity of ppp those characteristics include openness inflation and the level and growth rate of per capita gdp although we find stronger evidence of ppp after 1980 our examination of panel data over 15 10 year periods yields only limited support for ppp

are syndicated loans truly less expensive abstract in this paper we empirically examine the spreads of syndicated and non syndicated loans we compare the spreads from tranches belonging to both types of contracts across deals of similar sizes our study of large corporate loans in the us market for the period from 1990 to 2013 shows that the differential between syndicated and non syndicated spreads is on average 19 23 basis points moreover for small and medium loans the differences are 39 3 and 21 89 basis points respectively we use different methodologies and time periods and address endogeneity concerns on the decision of syndication to provide robust empirical evidence that contrary to some previous studies syndicated loans are not less expensive than non syndicated loans and in most cases are significantly more expensive particularly for small loans

dissecting the ppp puzzle the unconventional roles of nominal exchange rate and price adjustments the conventional view as expounded by sticky price models is that price adjustment determines the ppp reversion rate this study examines the mechanism by which ppp deviations are corrected nominal exchange rate adjustment not price adjustment is shown to be the key engine governing the speed of ppp convergence moreover nominal exchange rates are found to converge much more slowly than prices with the reversion being driven primarily by nominal exchange rates real exchange rates also revert at a slower rate than prices as identified by the ppp puzzle j econ lit 34 1996 647 c 2003 elsevier b v all rights reserved

are output fluctuations transitory according to the conventional view of the business cycle fluctuations in output represent temporary deviations from trend the purpose of this paper is to question this conventional view if fluctuations in output are dominated by temporary deviations from the natural rate of output then an unexpected change in output today should not substantially change one s forecast of output in say five or ten years our examination of quarterly postwar united states data leads us to be skeptical about this implication the data suggest that an unexpected change in real gnp of 1 percent should change one s forecast by over 1 percent over a long horizon

a fractional cointegration analysis of purchasing power parity a generalized notion of cointegration called fractional cointegration is introduced to examine the long run purchasing power parity ppp hypothesis by allowing deviations from equilibrium to follow a fractionally integrated process the fractional cointegration analysis can capture a wider range of mean reversion behavior than standard cointegration analyses this gain is flexibility in modeling subtle mean reverting dynamics is found to be important for a proper evaluation of long run ppp empirical results based on historical data for the 1914 1989 period show that ppp reversion exists and can be characterized by a fractionally integrated process in three out of five countries studied the results support ppp as a long run phenomenon though significant short run deviations from ppp can exist

demand changes and real exchange rate dynamics in a finite horizon model with sectoral adjustment costs author affiliation hung ju chen department of economics national taiwan university 21 hsu chow road taipei 100 taiwan e mail hjc ntu edu tw corresponding author chen min hsu department of economics national taiwan university 21 hsu chow road taipei 100 taiwan e mail chenmin ntu edu tw acknowledgment we would like to acknowledge the financial support provided by the program for globalization studies at the institute for advanced studies in humanities national taiwan university grant 95r0064 ah03 03 we wish to express our sincere appreciation for helpful comments and suggestions provided by two anonymous referees the editor of the journal joshua aizenman been lon chen ming chia li tsunao okumura and elias sanidas as well as participants at the 2007 annual conference of the asia pacific economic association and the 2007 conference of korea and the world economy we also thank ke shaw lian for his assistance any errors within the work are our responsibility 1 introductionalthough the traditional macroeconomic models tend to explain economic fluctuations by focusing solely on supply shocks given that equilibrium is determined by both demand and supply it would seem obvious that changes in demand may also have important effects in terms of their contribution to economic oscillations changes in demand can easily occur particularly for those small open economies for example small open economies can be easily disturbed by external shocks such as terms of trade shocks through international trade 1 another example is the reduction in the mortality rate as a result of higher health investment both public and private and better healthcare during the economic development 2 for export orientated growth economies in particular such as those of hong kong and taiwan changes in either the terms of trade or the mortality rate can significantly influence economic performance impacting the real exchange rate investment output savings and the current account the phenomenon that life expectancy is steadily lengthening for most developing countries has led to the emergence of a growing number of studies on the impact of population aging 3 since an increase in life expectancy will change the expectation of lifetime utility it will directly affect households inter temporal decisions with regard to consumption and savings however previous studies tend to analyze the impact of mortality decline in a closed economy or in a small open economy with exogenous and constant factor prices 4in order to study the impact of mortality rate changes on the economic performance in an open economy we use the overlapping generations model with uncertain lifetime developed by yaari 1965 and blanchard 1985 to examine household savings behavior within this model agents live with a finite lifetime such that different types of agents simultaneously live in the economy 5 furthermore we extend the blanchard type model to a three good open economy composed of exportable importable and non traded goods to allow us to consider the dynamics of the real exchange rate when demand changes capital production and accumulation are also incorporated into the framework to facilitate an examination of the investment behavior of firms we assume that the economy uses both capital and labor to produce exportable goods and non traded goods while importable goods are imported from abroad capital is produced by the non traded sector and installation costs are incurred when capital is transported to the exportable sector 6 as indicated by morshed and turnovsky 2004 the inclusion of the sectoral adjustment costs of capital can generate persistent deviations from the long run equilibrium by the real exchange rate in response to demand changes 7 because the real exchange rate is playing a dual role of a non traded goods price and a capital price we are able to study the impact of population aging and terms of trade shocks on international capital flows in a small open economy with endogenous factor prices

do real exchange rates follow a nonlinear mean reverting process in developing countries in an effort to fight relatively high inflation many developing countries try to manage their nominal exchange rates through official intervention in addition developing countries tend to have high transportation costs tariffs and nontariff barriers these factors are among the sources of generating nonlinearity in real exchange rates and hence some nonlinear adjustment toward purchasing power parity ppp in developing countries in this paper we employ monthly real effective exchange rate reer data of 88 developing countries and test the null of nonstationarity versus an alternative of linear stationarity by the means of a conventional unit root test and compare the results with those obtained from a new test in which the null is the same but the alternative hypothesis is nonlinear stationarity the latter test supports the ppp theory in more developing countries compared with the former test suggesting that nonlinear adjustment toward ppp in developing countries is an important phenomenon reported country characterizations indicate that reversion in reer occurs more often for high inflation countries and for countries with high flexibility in their exchange rates

parallel imports and repair services abstract this study explores the welfare effects of parallel imports when the producer may refuse to provide repair services for parallel imported units which reduces the degree of price convergence between countries if the probability of the product s breakdown is endogenously determined by the producer permitting parallel imports could increase the probability because a higher probability leads to a larger price gap as a result it is possible that prices increase and welfare deteriorates in both countries this negative welfare effect is more likely to emerge as the liberalization of trade in goods proceeds the prohibition of service discrimination recovers the positive welfare effect

robert bork s contributions to antitrust perspectives on tying behavior abstractrobert bork was one of the key proponents of the traditional chicago school view of tying and antitrust which is that tying can never be used to extend or leverage market power from one market to another so it should also never be an antitrust violation in this paper we review the traditional chicago school perspective and in particular bork s arguments on the topic and then discuss how these arguments relate to the more recent theoretical literature on the subject which takes a game theoretic approach we then discuss bork s later views on tying concerning the microsoft case we include a discussion of whether these later views of tying and antitrust were different from his earlier views or instead whether it was the nature of the cases that had changed

real exchange rates under the gold standard purchasing power parity is one of the most important equilibrium conditions in international macroeconomics empirically it is also one of the most hotly contested numerous recent studies for example have sought to determine the validity of purchasing power parity using data from the post bretton woods float and have reached different conclusions we assert that most such studies are flawed for two reasons first the post 1973 data contain by definition only a very limited amount of the low frequency information relevant for examination of long run parity second the dynamic econometric techniques used to model deviations from parity are typically quite crude with respect to admissible low frequency dynamics both deficiencies are rectified in the present paper with dramatic results we construct a new data set of 16 real exchange rates covering more than a century of the classic gold standard period and we study deviations from parity using long memory models that allow for subtle forms of mean

panel stationarity tests for purchasing power parity with cross sectional dependence we investigate the purchasing power parity ppp hypothesis for a group of 17 countries using a new panel based test of stationarity that allows for arbitrary cross sectional dependence we treat the short run time series dynamics nonparametrically and thus avoid the need to fit separate and potentially misspecified models for the individual series the statistic is simple to compute and uses standard normal critical values even in the presence of a wide range of different deterministic components we also evaluate the behavior of the test using a factor model to approximate cross sectional dependence and find that it generally improves finite sample performance taken together these features provide a widely applicable solution to the problem of testing for stationarity versus unit roots in macro panel data the test finds significant evidence against the ppp null hypothesis being true even when allowance is made for structural breaks

a panel project on purchasing power parity mean reversion within and between countries abstract previous time series studies have shown evidence of mean reversion in real exchange rates deviations from purchasing power parity ppp appear to have half lives of approximately four years however the long samples required for statistical significance are unavailable for most currencies and are potentially inappropriate because of regime changes in this study we re examine deviations from ppp using a panel of 150 countries and 45 annual post wwii observations our panel shows strong evidence of mean reversion that is similar to that from long time series ppp deviations are eroded at a rate of approximately 15 annually i e their half life is around four years such findings can be masked in time series data but are relatively easy to find in cross sections

goods prices and exchange rates what have we learned import prices typically change by a smaller proportion than the exchange rate between the exporting and importing country recent research indicates that common currency relative prices for similar goods exported to different markets are highly correlated with exchange rates between those markets this evidence suggests that incomplete pass through is a consequence of third degree price discrimination while distance matters for market segmentation borders have independent effects the source of the border effect has not been clearly identified furthermore there is little evidence yet to suggest substantial market power is implied by the observed price discrimination

refusals to deal and orders to supply in competitive markets abstract a number of recent antitrust cases in north america and europe have involved allegations that manufacturers of durable products have refused to supply parts to independent service organizations apparently to monopolize the market for repairs of their products this paper analyzes such refusals in a competitive market and connected aftermarket in this model the refusals help to support higher prices for high intensity high value users however these higher charges permit the recovery of higher costs incurred during an initial warranty period since full prices equal full marginal costs in equilibrium the refusals permit the attainment of a first best outcome and an attempt by antitrust authorities to force supply will be welfare reducing

transportation costs and international trade in the second era of globalization while the precise causes of postwar trade growth are not well understood declines in transport costs top the lists of usual suspects however there is remarkably little systematic evidence documenting the decline this paper brings to bear an eclectic mix of data in order to provide a detailed accounting of the time series pattern of shipping costs the ad valorem impact of ocean shipping costs is not much lower today than in the 1950s with technological advances largely trumped by adverse cost shocks in contrast air shipping costs have dropped an order of magnitude and airborne trade has grown rapidly as a result as a result international trade has also experienced a significant rise in speed

real exchange rates under the gold standard can they be explained by the trend break model abstract we investigate whether real exchange rates under the gold standard can be modeled as stationary around a broken trend using both conventional unit root and sequential trend break tests we clearly reject the unit root null for 14 of the 16 exchange rates studied by diebold husted and rush journal of political economy 1991 99 and provide some evidence against a unit root for another we interpret our results as being complementary to the evidence for fractional integration found by diebold husted and rush in both cases the unit root null can be decisively rejected if the alternative is more flexible than a deterministic trend without breaks

the determinants of contract terms in bank revolving credit agreements the paper examines the determinants of contract terms on bank revolving credit agree ments revolvers of medium large publicly traded companies we model the duration maturity secured status and pricing decisions within a simultaneous decision frame work thereby overcoming the biased and inconsistent estimates in prior single equation studies of debt contract terms we find strong interrelationships between contract terms with significant bi directional relationships between duration and secured status and be tween the all in spread and commitment fees and a unidirectional relationship from both duration and secured status to all in spread we also illustrate how several single equa tion studies of contract terms draw incorrect conclusions because of their inappropriate assumption that other contract terms and leverage were exogenous finally our results sup port the hypothesis that the setting of contract terms plays an important role in alleviating contracting problems

real effects of information frictions when the states and the kingdom became united abstract this paper exploits a unique historical experiment to estimate how information frictions distort international trade the establishment of the transatlantic telegraph in 1866 i use newly collected data on cotton prices trade and information flows from historical newspapers and find that the average and volatility of the transatlantic price difference fell after the telegraph while average trade flows increased and became more volatile using a trade model in which exporters use the latest news about a foreign market to forecast expected prices i estimate the efficiency gains of the telegraph to be equivalent to 8 percent of export value jel d83 f12 f14 l96 n71 n73

accounting for u s real exchange rate changes this study measures the proportion of u s real exchange rate movements that can be accounted for by movements in the relative prices of nontraded goods the decomposition is done at all possible h

independent service organizations and economic efficiency david e mills i introduction many manufacturers of capital equipment provide maintenance service to their equipment users sometimes equipment and service are sold separately and at other times they are bundled for example through leases and rental agreements numerous recent antitrust cases revolve around allegedly anti competitive practices used by some manufacturers to deter independent service organizations isos from servicing the manufacturer s equipment indeed the volume of cases brought by isos in the past decade exceeds litigation in more conventional antitrust areas like antimerger disputes and cases under the robinson patman act 1 the controversial practices in these cases include tying sales of equipment and service tying sales of service and other aftermerket products refusals to sell replacement parts to isos and refusals to license operating or diagnostic software to isos the pivotal issue in these cases is whether practices that deter isos injure competition in the service aftermarket 2 manufacturers claim their customers shop for equipment and service simultaneously that is customers choose a proprietary system comprised of equipment service and other components instead of merely choosing a brand of equipment this line of reasoning holds that interbrand competition for systems disciplines the pricing of every component in tile system and therefore is sufficient to protect equipment users welfare if one manufacturer s equipment is priced above rivals the high priced equipment manufacturer must supply service at a lower price than its rivals to remain competitive on a total cost of ownership tco basis 3 brand specific intrabrand competition in the service aftermarket is not necessary to maximize equipment users welfare because systems competition is sufficient manufacturer practices that deter isos or discourage intrabrand service competition canno t injure competition isos claim that systems competition does not adequately discipline manufacturers service pricing once customers acquire a piece of durable equipment they cannot replace it with another brand without incurring switching costs thus as salop argues such customers become locked in to the manufacturer for maintenance service and are left vulnerable to opportunistic service pricing throughout the useful life of the equipment 1993 the only protection customers enjoy from exploitation by manufacturers in the service aftermarket is the protection afforded by isos in the much cited kodak decision 4 the supreme court rejected the notion that inter brand competition in systems or equipment is always sufficient to prevent the exercise of monopoly power in the service aftermarket the court was influenced by recent economic research that highlights theoretical opportunities for equipment manufacturers to exploit their locked in customers these theoretical opportunities stem from information costs faced by customers and incomplete contracts between manufacturers and their customers 5 carl shapiro recounted the available theories of antitrust injury 1995 485 that apply to these circumstances these theories include i incomplete information where customers who are poorly informed about the tco of competing brands of equipment are exploited by manufacturers once they become locked in ii opportunistic pricing where manufacturers break trust with their locked in customers and sacrifice their reputations by implementing unanticipated increases in service pricing iii inability to commit where higher than competitive service pricing and lower than competitive equipment pricing arise because manufacturers cannot provide contractual assurances about future service prices 6 and iv better opportunities for price discrimination afforded by the absence of independent maintenance providers the price discrimination theory of lock in exploitation differs from the previous three in that price discrimination often improves rather than impairs market performance

testing purchasing power parity under the null hypothesis of co integration this paper analyzes monthly data on the exchange rates and price indices of the eleven major industrial countries over the modern period of floating exchange rates it presents tests that are based upon the null hypothesis of cointegration the paper finds evidence that most country pairs not involving north american currencies have exchange rates and price indices that are cointegrated it estimates the error correction representation for the series that are cointegrated and it shows that the dynamic adjustment of the relationship between exchange rates and prices is accomplished almost entirely in the market for foreign exchange copyright 1991 by royal economic society

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

real exchange rates and productivity evidence from asia this paper examines a productivity based explanation of the long run real exchange rate movements of six asian economies using industry level data we construct total factor productivities tfps for the tradable and nontradable sectors we find that a within each country the relative price of nontradable goods is cointegrated with the sectoral tfp differential and b the real exchange rates are cointegrated with the home and foreign sectoral tfp differentials using the predicted real exchange rate as a measure of the long run equilibrium we find that most asian economies real exchange rates are overvalued before the asian financial crisis

international comparisons of pricing to market behavior this paper measures the degree of price discrimination across export destinations that is associated with exchange rate changes using u s u k german and japanese industry level data given the industries sampled more price discrimination across destinations is observed in the u k german and japanese data for industries that match across source countries however behavior is very similar across source countries furthermore destination specific price adjustment on exports to the united states from germany and japan is similar to price adjustment observed on shipments to other destinations most variation in the data appears to be related to industry copyright 1993 by american economic association

searching for stationarity purchasing power parity under the current float abstract using panel data methods we investigate long run purchasing power parity by testing for unit roots in real exchange rates of industrial countries under the current float the evidence against the unit root hypothesis is stronger for larger than for smaller panels for monthly than for quarterly data and when the german mark rather than the united states dollar is used as the base currency while we find that accounting for serial correlation considerably weakens the evidence against the unit root null the results as a whole are consistent with long run purchasing power parity

primary market and aftermarket competition in the bicycle component industry this study examines the bicycle component industry this industry is characterized by one dominant firm shimano inc and four or five smaller players firms in the component industry produce components for sale in two related markets the market for original equipment manufacturers oem and the component aftermarket a unique data set containing information on aftermarket prices and oem market shares is used to determine whether or not market power in the aftermarket is a function of oem market power the results indicate that concentration in the oem market is positively related to aftermarket price while an individual firm s oem market share is inversely related to aftermarket price

licensing to enhance demand for new technologies this article presents a model in which licensing competitors expands demand for a new proprietary product and therefore may be a profit maximizing strategy for the licensor even when licensing increases industry cost in the model buyers care about price and quality sellers can contract on price but not on quality and a single supplier has monopoly power licensing induces quality competition and allows the supplying firms to make a quality commitment that would not be credible for a single firm as a result licensing increases industry demand and may generate an increase in industry revenue sufficient to offset any increase in industry cost some of the characteristics of the model are informed by observations in the semiconductor industry

endogenous pricing to market and financing costs abstract this paper explains why relative ppp should hold more tightly in emerging markets and why pricing to market would be observed more frequently in the oecd countries it studies the endogenous determination of pricing to market in a real option model with time dependent transportation costs where the future terms of trade are random allowing time dependent transportation costs adds a dimension of investment to the pre buying of imports implying that financial considerations determine the frequency of pricing to market and the deviations from relative ppp if the expected discounted cost of last minute delivery is higher than pre buying one exercises the option of spot market imports if the realized terms of trade are favorable enough pricing to market is observed in countries characterized by low terms of trade volatility and low financing costs in these circumstances imports are pre bought and the spot market for imports is inactive in countries where the financing costs and the terms of trade volatility are high few imports are pre bought the price of imports is determined by the realized real exchange rate and a version of relative ppp holds with an intermediate level of terms of trade volatility and of financing costs a mixed regime is observed if the realized real exchange rate is weak pricing to market would prevail increasing consumers welfare by shielding them from the adverse purchasing power consequences of weak terms of trade if the realized real exchange rate is favorable enough more imports are purchased in the spot market and the relative ppp would hold higher financing costs increase the cost of pre buying imports reducing thereby the frequency of pricing to market increasing the expected relative price of imports reducing the expected deviations from relative ppp and reducing welfare

orders to supply as substitutes for commitments to aftermarkets a number of recent antitrust cases in canada and other countries have involved durable goods manufacturers refusing to supply proprietary parts to independent service or ganizations earlier work suggested that the inability of manufacturers to commit to low aftermarket prices creates an inefficiency that might be removed by a judicial order to supply this paper examines this view critically with a specific model of repairs and demonstrates that under plausible conditions there is no welfare loss due to the inability to commit it goes on to show that an order to supply can create its own distortion and welfare loss if it encourages

testing long run purchasing power parity under exchange rate targeting abstract the present paper exploits the idea that empirical estimates of the long run ppp relationship may compound two distinct influences coming from the behavior of market participants and policy makers when the latter are targeting the exchange rate this tends to bias tests of long run ppp against its acceptance the validity of the theoretical arguments is assessed by drawing on the experience of two european union countries greece and france for the post bretton woods period estimation biases due to the omission of policy effects are found to be significant only in the case of greece for france our test results provide evidence bearing on the effectiveness of the competitive disinflation strategy pursued by the french authorities

the overvaluation of purchasing power parity abstract recent panel studies of purchasing power parity have reported strong evidence of mean reversion in real exchange rates however these studies fail to control for cross sectional dependence in the data this failure has dramatic consequences raising the significance level of tests with a nominal size of 5 percent to as much as 50 percent it is shown in this paper that controlling for cross sectional dependence no evidence against the random walk null can be found in panels of up to 64 real exchange rates this finding cannot be attributed to low power as there is ample power in panels of this size to reject the unit root null