competition in posted prices with stochastic discounts we study price competition between firms over public list or posted prices when a fraction of consumers can subsequently receive discounts with some probability such stochastic discounts are a feature of markets in which some consumers bargain explicitly and of markets in which sellers use the marketing practice of couponing even though bargainers receive reductions off the posted prices the potential to discount dampens competitive pressure in the market thus raising all prices and increasing profits welfare falls because of the stochastic nature of the discounts which generates some misallocation of products to consumers stochastic discounts facilitate collusion by reducing the market share that can be gained from a deviation

bilateral bargaining with externalities this paper provides an analysis of a non cooperative pairwise bargaining game between agents in a network we establish that there exists an equilibrium that generates a coalitional bargaining division of the reduced surplus that arises as a result of externalities between agents that is we provide a non cooperative justification for a cooperative division of a non cooperative surplus the resulting division is related to the myerson shapley value with properties that are particularly useful and tractable in applications we demonstrate this by examining buyer seller networks and vertical foreclosure

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

does the australian dollar real exchange rate display mean reversion abstract this paper examines the post bretton woods experience of the australian dollar in this period australia moved from a managed to a freely floating exchange rate environment parametric and non parametric techniques are applied to data from a trade weighted index to analyse the time series properties of australia s real exchange rate even allowing for structural breaks there is no evidence of the long run equilibrium relation between the exchange rate and relative prices predicted by the purchasing power parity hypothesis

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

exclusive contracts and protection of investments we consider the effect of a renegotiable exclusive contract restricting a buyer to purchase from only one seller on the levels of noncontractible investments undertaken in their relationship contrary to some informal claims in the literature we find that exclusivity has no effect when all investments are fully specific to the relationship i e are purely internal exclusivity does matter when investments affect the value of the buyer s trade with other sellers i e have external effects we examine the effects of exclusivity on investments and aggregate welfare and the private incentives of the buyer seller coalition to use it

labour chains analysing the role of labour contractors in global production networks abstract third party labour contractors are increasingly prevalent in global production networks gpns and can provide a channel for new forms of unfree labour review of case study evidence from south african and uk horticulture suggests this often emerges off site through labour intermediaries analytical approaches to labour in gpns and value chains are examined the article argues that labour contracting is driven by the commercial dynamics of global outsourcing a cascade system allows unscrupulous intermediaries to coerce vulnerable workers we examine strategies of civil society alliances and regulatory reform and argue for extending liability of all commercial actors across global boundaries

buyer supplier interaction asset specificity and product choice abstract firms often differentiate their products through the use of inputs that are differentiated or specialized the goal of this paper is to explore how the demand for specific investments may affect product variety in a bilateral duopolistic industry i develop a model where the degree of specificity of investments is endogenously determined through the product choices of both downstream buyers and upstream suppliers of inputs the existence of non contractible investments results in the emergence of a single supplier of a non specialized input however as the importance of having specific inputs increases fully specialized suppliers may emerge the buyers choose to increase their own competition by producing more similar products only in cases when the inputs are non specialized they do so to increase the investment incentives of the suppliers

real exchange rates between the wars abstract bilateral real exchange rates are analyzed for fifteen countries over the period 1925 1937 using a benchmark invariant principal components technique for the period 1925 1931 half of real exchange rate variation originates from countries on floating exchange rates and half from price level differences between countries on the gold standard for the period 1931 1937 real exchange rate movements between the sterling bloc the european gold bloc and the us and canada appear dominant within bloc variation is secondary and mostly due to competitive devaluations our results support earlier evidence that the nominal exchange rate regime to a large extent determines real exchange rate variation

mobile termination network externalities and consumer expectations we re examine the literature on mobile termination in the presence of network externalities externalities arise when firms discriminate between on and o net calls or when subscription demand is elastic this literature predicts that profit decreases and consumer surplus increases when termination charges increase this is puzzling since in reality regulators are pushing termination rates down while being opposed to do so by network operators this puzzle is resolved when consumers expectations are assumed passive but required to be fulfilled in equilibrium as defined by katz and shapiro aer 1985 instead of being responsive to non equilibrium prices as assumed until now

is trade good or bad for the environment sorting out the causality we seek to contribute to the debate over globalization and the environment by asking what is the effect of trade on a country s environment for a given level of gdp we take specific account of the endogeneity of trade using exogenous geographic determinants of trade as instrumental variables we find that trade tends to reduce three measures of air pollution statistical significance is high for concentrations of so2 moderate for no2 and lacking for particulate matter although results for other environmental measures are not as encouraging there is little evidence that trade has a detrimental effect on the environment

the response of exchange rates to permanent and transitory shocks under floating exchange rates abstract using the joint behavior of inflation and real exchange rates we develop an empirical model to uncover the sources of the fluctuations in the real dollar exchange rates of four major industrial countries under the current float this model allows us to construct two time series for each country pair one representing the permanent component of each real exchange rate and the other the purely transitory component over the period as a whole transitory shocks played a relatively small but statistically significant role real dollar exchange rates therefore did not simply evolve in response to permanent shocks instead there are instances in which temporary shocks made a substantial contribution we conclude that the random walk model though an approximate statistical description of real exchange rate behavior is a poor guide to model structure jel f31

racing to the bottom or climbing to the top economic globalization and collective labor rights this article explores the impact of economic globalization on workers rights in developing countries the authors hypothesize that the impact of globalization on labor rights depends not only on the overall level of economic openness but also on the precise ways in which a country participates in global production networks using a new data set on collective labor rights the authors test these expectations their analysis of the correlates of labor rights in 90 developing nations from 1986 to 2002 highlights globalization s mixed impact on labor rights as climb to the top accounts suggest foreign direct investment inflows are positively and significantly related to the rights of workers but at the same time trade competition generates downward race to the bottom pressures on collective labor rights the authors also find that domestic institutions and labor rights in neighboring countries are important correlates of workers rights

intra firm bargaining under non binding contracts we present a new methodology for studying the problem of intra firm bargaining based on the notion that contracts cannot commit the firm and its agents to wages and employment we develop and analyse a general non cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party equilibrium firm profits are characterizable as both a weighted average of a neo classical non bargaining firm s profits and a generalization of shapley value for a corresponding cooperative game furthermore the resulting payoffs induce economically significant distortions in the firm s input and organizational design decisions

surplus division and investment incentives in supply chains a biform game analysis abstract in this paper we use a biform game approach for analyzing the impact of surplus division in supply chains on investment incentives in the first stage of the game firms decide non cooperatively on investments in the second stage the surplus is shared according to the shapley value we find that all firms have inefficiently low investment incentives which however depend on their position in the supply chain cross subsidies for investment costs can mitigate but not eliminate the underinvestment problem vertical integration between at least some firms yields efficient investments but may nevertheless reduce the aggregated payoff of the firms we show how the size of our effects depends on the structure of the supply chain and the efficiency of the investment technology various extensions demonstrate that our results are qualitatively robust

revenue substitution how foreign aid inflows moderate the effect of bilateral trade pressures on labor rights summary this paper investigates how foreign aid inflows moderate bilateral trade based pressures on the exporting countries labor rights because aid provides additional resources to recipient governments it reduces the importance aid recipient governments attach to the preferences of their export partners consequently aid inadvertently moderates the leverage exercised by importing countries on the governments of exporting developing countries our analysis of a panel of 91 aid recipient countries for the period 1985 2002 lends support to the revenue substitution hypothesis when aid levels are low bilateral trade based pressures are associated with improved labor rights as aid levels rise however the effect loses significance

purchasing power parity and unit root tests using panel data abstract this paper reports the results of unit root tests for real exchange rates using a panel framework this panel approach provides greatly improved power compared to conventional univariate time series unit root tests we obtain evidence supporting ppp over the recent flexible exchange rate period for g 6 and oecd countries we show explicitly that failure to find such evidence in previous research was due to the low power of the tests

optional fixed fees in multilateral vertical relations abstract we examine vertical contracting in a perfect information environment in contrast to mcafee and schwartz mcafee r p schwartz m 1994 opportunism in multilateral vertical contracting nondiscrimination exclusivity and uniformity american economic review vol 84 pp 210 230 we demonstrate that outcomes are efficient if an upstream monopolist has the choice of requiring upfront fixed fee payments or making them optional

markets for ownership the prevailing economic theory of the firm based on a property rights perspective has demonstrated that ownership by dispensable outside parties is an inefficient outcome relative to ownership by productive agents in order to better understand observed patterns of ownership this paper considers the outcome of ma rkets for ownership that operate prior to production taking place the main result is that outside parties will often become the equilibrium asset owners this is precisely because but for ownership such parties would not earn rents in contrast productive agents earn rents even when they do not own assets given that their contribution is complementary with other productive agents their willingness to pay for ownership is less than that of an outside party this result is robust to the introduction of moderate levels of inefficiency arising from outside ownership and to a consideration of opportunities for re sale before production begins the main conclusion drawn is that the nature of the operation of markets for ownership stands alongside incentive effects as important predictors of firm boundaries journal of economic literature classification numbers d23 l22

vertical foreclosure with the choice of input specifications we develop an equilibrium model of vertical foreclosure with the choice of input specifications vertical foreclosure occurs as the upstream division of the integrated firm makes a specialized input for its sister downstream division while it would as an independent firm provide a generalized input the changes in incentives with vertical integration can be explained by the externalities the choice of a specialized input entails vertical integration allows the upstream firm to internalize the benefit of raising the rival firm s costs at the downstream level we derive conditions for equilibrium vertical foreclosure to occur and discuss its welfare consequences

segmented trends and non stationary time series since the influential work of charles r nelson and charles plosser 1982 many empirical studies have concluded that macroeconomic time series are difference stationary this paper proposes the segmented trend model as an alternative in which the series is the sum of a nonstationary trend and a stationary cycle and where the trend shows infrequent shifts the paper proposes tests between the difference stationary and segmented trends models and applies these to the data of nelson and plosser in general the results indicate that prices are difference stationary but quantities follow segmented trend processes copyright 1989 by royal economic society

firm survival and industry evolution in vertically related populations this paper examines how the density and governance of vertically related populations affect the life chances of organizations we integrate the literatures on organizational ecology and vertical integration to develop a theory of how 1 specialized upstream industries affect downstream survival rates 2 the prevalence of different governance forms among upstream and downstream organizations moderates this relationship and 3 different forms of governance exert differential competitive pressures on focal organizations we find evidence supporting our hypotheses in an empirical examination of the downstream laser printer industry and upstream laser engine industry this paper was accepted by jesper sorensen organizations

can vertical integration by a monopsonist harm consumer welfare abstract vertical integration by a monopsonist is generally believed not to harm consumers this paper demonstrates in a natural economic setting that this conventional wisdom may not hold we model one on one bargaining between a monopsonist and independent suppliers when the set of suppliers cannot be expanded easily ex post and show that a vertically separated monopolist is vulnerable to holdup without integration we demonstrate that a bottleneck monopsonist has an incentive to encourage more upstream entry than would arise in a pure neoclassical monopoly having more suppliers mitigates the holdup power of any one this however distorts the cost structure of the industry toward greater industry output and hence lowers final good prices vertical integration mitigates the hold up problem faced by the monopsonist it allows it to generate and appropriate a greater level of industry profits at the expense of consumers

trade based diffusion of labor rights a panel study 1986 2002 this article investigates the nature of the linkages between trade and labor rights in developing countries specifically we hypothesize that a california effect serves to transmit superior labor standards from importing to exporting countries in a manner similar to the transmission of environmental standards we maintain that all else being equal the labor standards of a given country are influenced not by its overall level of trade openness but by the labor standards of its trading partners we evaluate our hypothesis using a panel of 90 developing countries over the period 1986 2002 and we separately examine the extent to which the labor laws and the actual labor practices of the countries are influenced by those of their export destinations we find that strong legal protections of collective labor rights in a country s export destinations are associated with more stringent labor laws in the exporting country this california effect finding is however weaker in the context of labor rights practices highlighting the importance of distinguishing between formal legislation and actual implementation of labor rights

the purchasing power parity persistence paradigm abstract rogoff journal of economic literature 1996 34 647 668 describes the remarkable consensus of 3 5 year half lives of purchasing power parity deviations among studies using long horizon data these studies however focus on rejections of unit roots in real exchange rates and do not use appropriate techniques to measure persistence our half life estimates explicitly account for serial correlation sampling uncertainty and most importantly small sample bias calculating confidence intervals as well as point estimates for long horizon and post 1973 data we find that even though most of the point estimates lie within the 3 5 year range univariate methods provide virtually no information regarding the size of the half lives

renegotiation and information revelation over time the case of optimal labor contracts the paper analyzes the issue of commitment in grossman and hart s model of optimal labor contracts under asymmetric information about firm profitability we extend their framework by allowing employment to vary over time at equidistant intervals when both parties can precommit ex ante not to renegotiate the contract this replicates the grossman hart outcome each subperiod when precommitment is not possible information revealed through the contract can create pareto improving renegotiation opportunities and the issue of optimal information revelation arises the paper analyzes the impact of ex post pareto improving renegotiations on the optimal contract

was it real the exchange rate interest differential relation over the modern floating rate period in this paper we explore the relationship between real exchange rates and real interest rate differentials in the united states germany japan and the united kingdom contrary to theories based on the joint hypothesis that domestic prices are sticky and monetary disturbances are predominant we find little evidence of a stable relationship between real interest rates and real exchange rates we consider both in sample and out of sample tests one hypothesis that is consistent with our findings is that real disturbances such as productivity shocks may be a major source of exchange rate volatility this paper investigates the empirical relationship between major currency real exchange rates and real interest rates over the modern post march 1973 flexible rate experience the exchange rates examined here include the dollar mark dollar yen and dollar pound rates our two major findings are as follows first the data do not indicate a strong correspondence between real interest rate differentials short term or long term and real exchange rates this finding appears to conflict with the predictions of most monetary and portfolio balance models of exchange rate determination though the conflict can be substantially reconciled if aggregate disturbances are primarily real in nature i e changes in productivity tastes etc it is true that in many cases the sign of the estimated exchange rate interest rate differential relationship is consistent with the possible predominance of financial market disturbances but the relationship is not stable enough to be statistically significant second although one does find some evidence of a unit root in both real exchange rates and long term but not shortterm real interest differentials these two series do not appear to be linearly cointegrated hence the nonstationarity or near nonstationarity in the two series cannot be attributed to the same factor in section i we briefly describe a class of small scale monetary models of exchange rate determination the importance of this class of models for empirical work derives from its strong predictions about how the exchange rate will move

a theory of buyer seller networks this paper introduces a new model of exchange networks rather than markets of buyers and sellers it begins with the empirically motivated premise that a buyer and seller must have a relationship a link to exchange goods networks buyers sellers and the pattern of links connecting them are common exchange environments this paper develops a methodology to study network structures and explains why agents may form networks in a model that captures characteristics of a variety of industries the paper shows that buyers and sellers acting strategically in their own self interests can form the network structures that maximize overall welfare

successive oligopolies with differentiated firms and endogeneous entry we develop a model of successive oligopolies with endogenous entry allowing for varying degrees of product differentiation and entry costs in both markets we show that downstream conditions dominate the overall profitability of the two tier structure while upstream conditions mainly affect the distribution of profits we analyze how two part tariffs and resale price maintenance shape the endogenous market structure and study their welfare effects in contrast to previous literature we find that welfare under linear prices can be larger than under twopart tariffs although the latter avoids double marginalization this is because linear prices induce more downstream market entry

outsourcing vertical integration and price vs quantity competition abstract we show that standard conclusions about duopoly competition can be reversed when the production of key inputs is outsourced to a vertically integrated retail competitor with upstream market power under such outsourcing bertrand competition can produce higher prices higher industry profit lower consumer surplus and lower total surplus than cournot competition in addition to limiting the intensity of retail competition bertrand competition can limit the extent of wholesale competition by reducing the incentive of retail providers to produce key inputs themselves

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

foreign direct investment in vertically related markets we study an mne s choice of fdi mode in a vertically related market with local input sourcing we show how the market s vertical structure and trading features affect this choice an mne s incentives to expand through cross border acquisition rather than through greenfield investment are stronger in markets with higher upstream bargaining power upstream concentration and unobservable contract terms the opposite holds in markets in which wholesale price contracts instead of two part tariffs are used our welfare analysis suggests that the host country should not always welcome fdi and should discourage fdi through acquisition investissements exterieurs directs sur les marches verticaux dans cet article nous etudions le choix d une entreprise multinationale de proceder a un investissement exterieur direct dans un marche vertical avec sources d approvisionnement locales nous montrons la facon dont la structure verticale et les caracteristiques commerciales du marche ont une incidence sur une telle decision les mesures incitatives offertes aux entreprises multinationales pour se developper par l entremise d acquisitions transfrontalieres plutot que par l investissement dans de nouvelles installations sont plus fortes sur les marches dotes d un pouvoir de negociation et d une concentration en amont plus eleves ainsi que par des conditions contractuelles non observables l inverse s observe sur les marches ou les contrats a prix de gros sont utilises en lieu et place des tarifs binomes en termes de bien etre notre analyse suggere que le pays hote ne devrait pas toujours accueillir les investissements exterieurs directs et devrait decourager ces memes investissements realises par l entremise d acquisitions

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

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

equilibrium selection in sequential games with imperfect information abstract games with imperfect information often feature multiple equilibria which depend on beliefs off the equilibrium path standard selection criteria such as passive symmetric or wary beliefs rest on ad hoc restrictions on beliefs we propose a new selection criterion that imposes no restrictions on beliefs we select the action profile that is supported in equilibrium by the largest set of beliefs we conduct an experiment to compare the predictive power of the existing and our novel selection criteria in an application on vertical multi lateral contracting we find that our criterion outperforms the other selection criteria

the shanghai effect do exports to china affect labor practices in africa summary to investigate whether africa s exports to china influence labor practices in africa we reconsider the debate over trade s influence on regulatory standards in exporting countries the first generation of trade regulation scholars asked whether high levels of exports influenced regulatory standards of exporting countries with inconclusive results the second generation of scholarship focused not on how much a country exported but to whom it exported identifying a california effect by which firms and consumers in mostly developed importing countries projected their high regulatory standards on less developed export partners structural change especially the rise of china as a major importer poses a challenge to these optimistic findings drawing on insights from the analysis of compositional data this paper introduces a third generation of trade regulation research which suggests examining not only with whom a country trades but also how the composition of markets in a country s export basket reshuffles over time specifically we explore the possibility of a shanghai effect whereby african countries begin to reflect the lower labor standards of china which has emerged as a major destination for their exports we show that when a country increases exports to china the net effect on domestic labor standards depends critically on the labor practices of other export destinations compositionally displaced by china exports our analysis of a panel of 49 african countries for the period 1985 2010 produces a small continent wide estimate of china s negative influence on african labor practices in sample simulation at the country level uncovers a moderate shanghai effect for a handful of countries only

international evidence on persistence in output in the presence of an episodic change this paper uses some newly developed methods and techniques to examine the dynamic properties of international output in the presence of a structural break we provide statistical evidence to show that the unit root test results can in some cases be sensitive to whether a one time structural break in the data is modelled exogenously or endogenously however in most cases the unit root test results remain robust to specification of the structural break exogenously or endogenously moreover we find that the null hypothesis of a unit root in output can be rejected in favour of a flexible trend alternative for a number of countries such as canada denmark france and the united states

strategic spin offs of input divisions abstract when a downstream producer enters backward into the input market a helping the rivals effect exists such entry hurts the firm s downstream business as it increases upstream competition and thus benefits its rival downstream firms this negative externality prevents the newly created upstream unit from expanding a spin off enables the firm to credibly expand in the input market thereby forcing its upstream competitors to behave less aggressively spin offs occur in equilibrium if and only if the number of downstream firms exceeds a threshold level when there is more than one integrated firm a spin off by a firm can trigger spin offs by others that would not occur otherwise

an analysis of bundle pricing in horizontal and vertical markets the case of the u s cottonseed market the u s cottonseed market has seen the rapid development and adoption of seeds with differing bundles of genetically modified gm traits it has also seen an increase in vertical integration by biotechnology firms in this article we investigate the price impacts associated with structural changes in the u s cottonseed market from 2002 to 2007 we develop a structural model to examine the substitution complementarity relationships among cottonseeds sold with different genetic trait bundles and under different vertical arrangements we examine the price impacts emanating from product differentiation market concentration and market size the econometric investigation finds evidence of subadditive bundle pricing in patented biotech traits while higher own market concentrations are found to be associated with higher prices we also uncover evidence of cross product complementarity effects that lead to lower prices simulations are used to evaluate net price effects illustrating the usefulness o ft he approach in the analysis of changing market structures

searching for a break in gnp it has been suggested that existing estimates of the long run impact of a surprise move in income may have a substantial upward bias due to the presence of a trend break in postwar u s gross national product data this article shows that the statistical evidence does not warrant abandoning the no trend break null hypothesis a key part of the argument is that conventionally computed p values overstate the likelihood of the trend break alternative hypothesis this is because they do not take into account that in practice the date is chosen based on pretest examination of the data

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

downstream mergers and producer s capacity choice why bake a larger pie when getting a smaller slice in this article the effect of downstream horizontal mergers on the upstream producer s capacity choice was studied contrary to conventional wisdom i find a nonmonotonic relationship horizontal mergers induce a higher upstream capacity if the cost of capacity is low and a lower upstream capacity if this cost is high this result is explained by decomposing the total effect into two competing effects a change in holdup and a change in bargaining erosion

do economic problems at home undermine worker safety abroad a panel study 1980 2009 do economic downturns in the global north undermine worker safety in the global south literature suggests that bilateral trade linkages lead to the diffusion of good labor standards from importing countries of the global north to exporting countries of the global south the crucial mechanism is the ability and willingness of importing firms to deploy their market leverage and ask for improved labor standards from their overseas suppliers yet cost cutting pressures emanating from economic downturns might lead the same importing firms to give lower priority to worker safety in their overseas supply chains when importing firms demand price reductions overseas suppliers might respond by reducing wages ignoring safety regulations and working their labor force for longer hours the observable implication is that worker safety in the global south may deteriorate during economic downturns in their export markets located in the global north we evaluate our hypothesis using a panel of 83 developing countries for the period during 1980 2009 and find that economic downturns in developed country markets are associated with significant increases in non fatal occupational injury rates in developing countries the injury increasing effect is more pronounced in developing countries with weak workers rights protection

indirect versus direct constraints in markets with vertical integration for an assessment of market power on the wholesale or merchant market in the presence of vertically integrated firms we analyze the interaction of direct constraints arising from competition on the wholesale market and of indirect constraints arising from substitution on the retail market a vertically integrated firm that still participates in the merchant market exerts both direct and indirect constraints we analyze the factors that determine the importance of indirect constraints we find that in contrast to a common presumption indirect constraints are sometimes more powerful than direct constraints we furthermore analyze the incentives of integrated firms to still participate in the merchant market provided that this is technologically feasible

robust predictions for bilateral contracting with externalities the paper studies bilateral contracting between one principal and n agents when each agent s utility depends on the principal s unobservable contracts with other agents we show that allowing deviations to menu contracts from which the principal chooses bounds equilibrium outcomes in a wide class of bilateral contracting games without imposing ad hoc restrictions on the agents beliefs this bound yields for example competitive convergence as n in environments in which an appropriately defined notion of competitive equilibrium exists we also examine the additional restrictions arising in two common bilateral contracting games the offer game in which the principal makes simultaneous offers to the agents and the bidding game in which the agents make simultaneous offers to the principal

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

equilibrium vertical foreclosure the authors formulate a complete but analytically simple equilibrium model of vertical mergers to evaluate the logic of standard vertical foreclosure claims and the criticisms made of those claims the model includes incentives of the integrated firm and unintegrated input suppliers to exclude rivals and the potential holdout problem in this fully specified model vertical foreclosure can emerge in equilibrium copyright 1990 by american economic association

vertical integration in the presence of upstream competition we analyse vertical integration when there is upstream competition and compare outcomes to the case where upstream assets are owned by a single agent i e upstream monopoly in so doing we make two contributions to the modelling of strategic vertical integration first we base industry structure namely the ownership of assets firmly within the property rights approach to firm boundaries second we model the potential multilateral negotiations using a fully specified non cooperative bargaining model designed to easily compare outcomes achieved under upstream competition and monopoly given this we demonstrate that vertical integration can alter the joint payoffs of integrating parties in ex post bargaining however this bargaining effect is stronger for firms integrating under upstream competition than upstream monopoly we also consider the potential for integration to internalise competitive externalities in manner that cannot be achieved under non integration we demonstrate that ex post monopolization is more likely to occur when there is an upstream monopoly than when there is upstream competition our general conclusion is that the simple intuition that the presence of upstream competition can mitigate and reduce the incentives for socially undesirable vertical integration is misplaced and depending upon the strength of downstream competition i e product differentiation the opposite could easily be the case journal of economic literature classification number l42

the maturing of socially responsible investment a review of the developing link with corporate social responsibility this paper reviews the development of socially responsible investment sri over recent years and highlights the prospects for an increasingly strong connection with the practice of corporate social responsibility the paper argues that not only has sri grown significantly it has also matured in particular it has become an investment philosophy adopted by a growing proportion of large investment institutions this shift in sri from margin to mainstream and the position in which institutional investors find themselves is leading to a new form of sri shareholder pressure although this bears some resemblance to lobbying campaigns which might take advantage of shareholder rights we seek to distinguish it as an important phenomenon in its own right one to which corporate executives are likely to be paying increasing attention in the years to come we further argue that this approach potentially meets some of the earlier ethical criticisms of certain forms of sri but ironically probably owes its existence to those pioneering approaches we conclude with some suggestions for further research to inform discussion of the issues highlighted in the paper

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

reinforcing the state transnational and state labor regulation in indonesia research on global programs to regulate labor standards has emphasized interactions between transnational and state regulatory institutions if transnational initiatives can make state institutions more relevant they have the potential to reinforce rather than displace state labor regulation through a study of the indonesia based program of a leading initiative to improve working conditions in the garment industry better work this article identifies the conditions under which transnational regulations reinforce domestic ones drawing on two case studies comparing regulations governing fixed term contracts and minimum wage renegotiations in four indonesian districts the authors find that reinforcement is likely when two conditions jointly occur unions mobilize to activate state institutions and transnational regulators have support to resolve ambiguities in formal rules in ways that require firms to engage with constraining institutions the authors further test the findings through a quantitative

incomplete contracts vertical integration and supply assurance this paper extends the analysis of transactions cost models of vertical integration to multilateral settings its main focus is on supply assurance concerns which arise when several downstream firms are competing for inputs in limited supply integration reduces supply assurance concerns for an integrating firm but it may increase them for others therefore to explain the scope of any firm one must consider the overall network of production and distribution relations three fundamental questions are addressed 1 what are the effects of different integration structures 2 what are the determinants of the socially efficient integration structures 3 in what way do equilibrium integration structures differ from socially efficient structures

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

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

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

beyond asset ownership employment and assetless firms in the property rights theory of the firm abstract this paper enriches the celebrated grossman hart moore ghm property rights model with employment relationships by combining the ghm view of the firm as a bundle of asset ownerships with that of alchian and demsetz 1972 who viewed the firm as a nexus of contracts the model yields in some cases optimal asset ownership different from the implications of the ghm model we show that the nexus of contracts is a meaningful instrument to govern transactions even in the presence of asset ownership the optimal contractual network structure depends on the relationship specificity of investments unlike the ghm model where the asset ownership depends solely on the asset specificity of investments

exclusivity competition and the irrelevance of internal investment this paper considers the effect of exclusive contracts on investment decisions in a market with two upstream and two downstream firms segal and whinston s 2000 irrelevance result is generalized and it is shown that exclusive contracts have no effect on the equilibrium level of internal investment for the contracted parties when competition exists in both the upstream and downstream markets furthermore by considering a more competitive environment we are able to demonstrate that strongly internal investment by rival upstreamdownstream bargaining pairs is similarly unaffected by the presence of exclusive contracts

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

nash in nash bargaining a microfoundation for applied work a nash equilibrium in nash bargains has become the workhorse bargaining model in applied analyses of bilateral oligopoly this paper proposes a non cooperative foundation for nash in nash bargaining that extends the rubinstein 1982 model to multiple upstream and downstream rms assuming there exists gains from trade for each rm pair we prove that there exists an equilibrium with immediate agreement and negotiated prices that correspond to rubinstein prices if and only if the marginal contribution of a set of agreements is weakly greater than the sum of the agreements marginal contributions we provide stronger conditions under which equilibrium prices are unique

social desirability of free entry a bilateral oligopoly analysis abstract this paper explores the social desirability of free entry by analyzing a bilateral oligopoly model with bargaining that incorporates the entry process of firms we demonstrate that free entry in an industry producing a homogeneous final product leads to a socially insufficient number of firms when the suppliers of the intermediate products have sufficiently strong bargaining power this is in contrast to previous findings in the theoretical industrial organization literature which demonstrate that in homogeneous final product markets with cournot oligopoly and fixed set up costs level of entry in the free entry equilibrium is always socially excessive our analysis yields an important policy implication given that the standard excess entry result has often been used as a justification for apparently anti competitive entry regulations

globalization and the empowerment of women an analysis of spatial dependence via trade and foreign direct investment summary this article tests the hypothesis that higher women s economic and social rights in foreign countries with which a country is connected via trade and foreign direct investment fdi spill over into higher rights among the laggards a phenomenon known as spatial dependence analyzing women s rights over the period 1981 2007 in a global sample and samples of countries at different stages of economic development we find consistent evidence for spill over effects via trade links with the exception of a sample of low income countries we also find some evidence for similar effects via fdi but only for economic rights and only in middle income countries

globalization and the decline of the welfare state in less developed countries why have trends in government welfare spending in developing countries diverged from those in developed countries i address this question by investigating the effects of capital and trade flows on government welfare spending in fifty three developing countries using an original measure of labor power in developing countries i test the links between international markets labor s political strength and the welfare state i argue that labor s collective action problems caused by large populations of low skilled and surplus workers offset labor s potential political gains from globalization i show that when the proportion of low skilled workers in a nation is high globalization will lead to a decline in welfare spending most significantly the results suggest that in nations where labor market institutions are not yet well developed government social welfare spending is constrained by international market forces

an analysis of the pricing of traits in the u s corn seed market we investigate the pricing of traits in the u s corn seed market under imperfect competition in a multiproduct context we examine how substitution complementarity relationships among products can affect pricing this is used to motivate generalizations of the herfindahl hirschman index capturing cross market effects of imperfect competition on pricing the model is applied to pricing of u s conventional and biotech seeds from 2000 to 2007 we reject the standard component pricing in biotech traits in favor of subadditive bundle pricing the econometric estimates show how changes in market structure as measured by both own and cross herfindahl indexes affect u s corn seed prices

bilateral control with vertical contracts when a manufacturer contracts secretly with competing retailers he is subject to opportunism and linear or non linear tariffs may not allow the manufacturer to maintain monopoly prices to analyse the effects of rpm o brien shaffer 1992 use a concept of contract equilibrium which concentrates on pairwise deviations thereby questioning the robustness of the analysis this paper emphasises the distinction between the contract equilibrium and standard non cooperative concepts we advocate for some caution in the use of the former concept as if overlooks an inexistence problem we then confirm the intuition that rpm can help solve the manufacturer s commitment problem this confirms that o brien shaffer s insight is robust and validates the courts reluctance against rpm

buyer power and intrabrand coordination we analyze the competitive effects of vertical contracts in a contracting situation where rival retailers offer contracts to a manufacturer in contrast to bernheim and whinston 1998 who study the situation in which competing manufacturers offer contracts to a common retailer we find that two part tariffs even if contingent on exclusivity or not do not suffice to implement the monopolyoutcome richer arrangements including e g conditional fixed fees and upfront payments are thus required to internalize all contracting externalities the welfare implications are ambiguous on the one hand richer contracts ensure that no efficient retailer is excluded on the other hand they allow firms to maintain monopoly prices despite intrabrand competition simulations suggest that the latter effect may be more significant

price vs quantity competition in a vertically related market this paper demonstrates that the standard conclusions regarding the comparison of cournot and bertrand competition are reversed in a vertically related market with upstream monopoly and trading via two part tariffs in such a market downstream cournot competition yields higher output lower wholesale prices lower final prices higher consumers surplus and higher total welfare than bertrand competition

trade quotas and buyer power with an application to the e u natural gas market we consider a market in which domestic buyers negotiate contracts with foreign sellers and explore how trade quotas can help to increase the buyers countervailing power we use the shapley value to describe bargaining power and the distribution of the trade surplus in such a bilateral oligopoly by exploiting strategic externalities among the buyers bilateral trade quotas can improve the buyers bargaining positions in contrast aggregate trade restrictions on all buyers trade never improve buyer surplus minimum quotas on imports from fringe suppliers can benefit nonaffected buyers as these enjoy positive externalities we apply these insights to the e u market for natural gas and show that the effects of trade quotas on e u gas importers power can be significant

vertical integration and innovation abstract innovation is a driving force for most industries where it moreover affects many stages of the vertical chain we study the impact of vertical integration on innovation in an industry where firms need to undertake risky r d investments at both production and distribution stages vertical integration brings better coordination within the integrated firm which boosts its investment incentive at both upstream and downstream levels however it is only mutually beneficial for firms to integrate when both upstream and downstream innovations are important when innovation is irrelevant at one level firms favor instead vertical separation the analysis provides insights for the wave of mergers and r d outsourcing observed in the pharmaceutical industry and other vertically related industries