crowding in of complementary contributions to public goods firm investment into open source software abstract we present a fairly general model in which firms are competitors in a commercial market segment and can invest into a complementary public good like open source software we show that contrary to standard predictions additional contribution to the public good by the government or a new market entrant can lead to higher investments of all incumbent firms that is a crowding in effect this result occurs if the investment cost function is superadditive we find that government contribution leads to larger crowding in effects than subsidizing market entry if the price elasticity of demand with respect to the private good is large relative to the one with respect to the public good our results are robust to extensions in the timing and the mode of competition

sunk costs and the natural resource extraction sector analytical models and historical examples of hysteresis and strategic behavior in the americas sunk costs play a significant role in shaping industry conduct and development outcomes associated with the resource extraction sector their role is explored here by 1 developing analytical models that show specifically how sunk costs influence investment behavior and outcomes and 2 considering the historical experience during major epochs of two important extractive industries the models demonstrate how sunk costs in conjunction with uncertainty or strategic behavior can severely distort efficiency and equity outcomes the amazon rubber boom and bust and the pan american aluminum industry illustrate the significance of sunk costs in the extractive sector and beyond

cost reduction competition and industry performance in many markets firms compete over time by expending resources with the purpose of reducing their costs sometimes the cost reducing investments operate directly on costs in many instances they take the form of developing new products that deliver what customers need more cheaply therefore product development can have the same ultimate effect as direct cost reduction in fact if one thinks of the product as the services it delivers to the customer in the way that lancaster pioneered then product development often is just cost reduction

emission taxes and optimal refunding schemes with endogenous market structure the purpose of this paper is to investigate optimal schemes for refunding the emission tax in a free entry market where the production process generates emissions we consider the regulation by a three part tax policy the government sets an emission tax a refunding scheme and an entry license tax in contrast to the case of the two part tax refund policy under no entry we show that even if it is impossible to obtain subsidies from outside the first best outcome is always attained further the government s budget constraint is binding under the optimal schemes our result implies that the tax refund system works effectively in a market with endogenous entry

existence of free entry equilibrium in aggregative games with asymmetric agents in this paper we examine a free entry aggregative game where agents can be asymmetric we show the existence of a pure strategy subgame perfect equilibrium of this game the proof is a constructive one and therefore we provide a method to derive a subgame perfect equilibrium within a reasonable time

semicollusion in the norwegian cement market abstract a model of semicollusion where firms collude on prices and compete on capacities is tailor made to the characteristics of the norwegian cement market and tested on this particular market for the period 1927 1982 the results indicate that the rapid increase in capacity and thereby in exports in the period 1956 1967 the late phase of the price cartel best can be explained by the market sharing agreement each firm overinvested in capacity to receive a large quota in the domestic market

trade restrictiveness indices in the presence of externalities an application to non tariff measures we extend the trade restrictiveness index approach to the case of market imperfections and domestic regulations addressing them we focus on standard like non tariff measures ntms affecting cost of production and potentially enhancing demand by reducing negative externalities we apply the framework to the database of kee et al 2009 and derive ad valorem equivalents aves for technical measures about 39 of the product lines affected by ntms exhibit negative aves indicating a net trade facilitating effect of these measures accounting for these effects significantly reduces previous measures of countries trade policy restrictiveness obtained while constraining these ntms to be trade reducing

disadvantageous collusion and government regulation abstract the semi collusion model indicates that when firms collude on outputs and compete on capacities cartel members may be worse off why do rational firms choose such kind of disadvantageous collusion in order to solve the puzzle this article uses taiwan s flour cartel case to investigate firms incentives and finds that government regulation seems to be the primary reason to create such a predicament

long run welfare effect of energy conservation regulation we investigate the long run effect of energy conservation regulation which forces firms to raise energy saving investment above the cost minimizing level if pigovian tax is imposed additional regulation always harms social welfare under perfect competition while it can improve welfare under imperfect competition our result under imperfect competition holds regardless of whether strategies are strategic substitutes or complements in contrast to direct entry regulation

economies of scale and barriers to entry dixit has recently presented a model in which established firms select capacity to discourage entry but cannot employ threats they would not rationally execute after entry entry deterrence in a slight modification of this model involves the classical limit price output under linear or concave demand however the capital cost of a firm of minimum efficient scale is an upper bound on the present value of the monopoly profit stream that can be shielded from entry it is argued that this suggests the general unimportance of entry barriers erected by scale economies

composition of household income and child nutrition outcomes evidence from uganda summary this study targets the empirical space between cross country analyses exploring links between income and nutrition without insights on micro level determinants and relevant microeconomic studies hindered by small sample size and or incomplete data we use the rural samples of the three waves of the uganda national panel survey and estimate panel regressions of child height for age z scores haz controlling for time invariant child level heterogeneity on the whole we find no impact of short term changes in total gross income on haz but document small positive correlations for younger children sector differentiated analyses indicate that compared to wage earnings only share of income from non farm self employment correlates positively with haz within agriculture shares of income from consumption of own crop production and from low protein crop production underlie the negative effect of share of income from crop production while we cannot claim causal relationships our findings suggest the possibility of stickiness of crop production to own consumption

industrial organization and public policy competition policy has been dominated by politics industrial organization can expect to exert an influence only insofar as it commands superior knowledge that is true with respect to the long run since economies of scale are limited to the short run competition is feasible in the long run therefore a trade off approach seeking to identify optimal market structures is misleading competition policy should instead be directed at prohibiting protective strategies of incumbents to deter entry competition being a process of creative destruction political viability of a competitive order requires competition policy to be supplemented by a social welfare policy

the role of free entry in an oligopolistic heckscher ohlin model retaining the basic properties of the heckscher ohlin trade model namely free entry and exit fully integrated international commodity markets and the same number of sectors with that of factors the authors develop a two country model with cournot oligopoly in this economy factor price equalization and the standard heckscher ohlin theorem on comparative advantage hold between two countries which are identical except for size however autarkic prices are different even though the level of trade is zero under the free trade regime nevertheless free trade reduces the oligopoly price and increases welfare copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

reducing child malnutrition how far does income growth take us how rapidly will child malnutrition respond to income growth this article explores that question using household survey data from 12 countries as well as data on malnutrition rates in a cross section of countries since the 1970s both forms of analysis yield similar results increases in income at the household and national levels imply similar rates of reduction in malnutrition using these estimates and better than historical income growth rates the article finds that the millennium development goal of halving the prevalence of underweight children by 2015 is unlikely to be met through income growth alone what is needed to accelerate reductions in malnutrition is a balanced strategy of income growth and investment in more direct interventions

sunk costs and strategic commitment a proposed three stage equilibrium dixit s i980 paper in this journal the role of investment in entry deterrence has attracted considerable interest from economists concerned with constructing a modern theory of strategic behaviour towards entry in fact the paper has spawned quite an industry of commitment models in which the equilibrium payoffs in some final period game can be influenced by strategic commitments made by the players in an earlier period for similar models with important insights into strategic entry deterrence see eaton and lipsey i980 i98i schmalensee i98i the purpose of this note is to argue that when the instrument of stragetic commitment takes the form of sunk costs which both entrant and incumbent have to bear as it does in dixit s paper and in many other examples a three stage model rather than the two stage model presented by dixit is required although the proposed equilibrium differs from dixit s its qualitative features are the same it may or may not be profitable to deter entry and if it is the first mover may still prefer to play an accommodation strategy and allow entry to take place following dixit we restrict our attention to the asymmetric case in which one firm the incumbent makes the first move the two stage game involves the first mover sinking part of its costs in advance so that in the second stage equilibrium it will have a current cost advantage over the entrant which must incur the full cost of producing any desired output level the second period cost asymmetry ensures the incumbent a lar ger share of the post entry market which may be sufficient to deter entry altogether the problem with the two stage game lies in the nature of sunk costs sunk costs by definition are committed before the production period takes place if they were expended as a flow simultaneously with production they would not be sunk the installation of capacity is the natural example employed by dixit and well illustrates the point if installed capacity is a sunk cost which it must be for the incumbent to acquire any strategic advantage at all then the entrant s installed capacity is equally sunk and must also be committed before the production period takes place given this observation the post entry final period equilibrium should not be modelled as if the entrant were simultaneously incurring both variable and sunk costs but the incumbent only incurs variable costs this implies too great an asymmetry in favour of the incumbent the final period equilibrium should involve both firms incurring only variable

multi market competition r d and welfare in oligopoly we investigate a multi market cournot model with strategic process research and development r d investments wherein a multi market firm meets new competitors that enter one of the markets we show that entry can enhance the total r d expenditures of the multi market firm moreover the incumbent s profit nonmonotonically changes as the number of entrants increases depending on the fixed entry costs and r d technologies both insufficient and excess entry can appear our results imply that diversification of their products can be a useful strategy for firms

how do competitive pressures affect incentives to innovate when there is a market for inventions competition and intellectual property ip protections are complements in stimulating innovation when ip is appropriable a market for inventions forms and competitive pressures increase incentives to innovate competition among producers the demand side of the market for inventions and competition among inventors the supply side of the market for inventions create incentives to innovate when ip is not fully appropriable markets for inventions are limited and competitive pressures can decrease incentives to innovate firms vertically integrate r d and production and share technology to appropriate the returns to ip this implies that antitrust policy and ip protections are complements

tariffs versus quotas with strategic investment the relative efficiency of tariffs versus quotas is analyzed in a cournot oligopoly with strategic investment introducing quota licence fees to neutralize the international distributional effect when such licence fees remove quota rents from foreign firms then for the case of constrained entry with a sufficiently large number of firms quotas frequently hold a welfare advantage since tariffs relatively aggravate the inefficiency from overinvestment in the case of free entry and exit however tariffs hold a welfare advantage since there is greater benefit of increasing returns to scale to the economy by avoidance of excessive entry of firms

inefficiency of subgame optimal entry regulation the literature on excess entry shows that the free entry equilibrium number of firms may be greater than is socially optimal and proposes government entry regulation as a remedy this article tries to show that such a policy recommendation is misleading a two period three person entry game model which explicitly includes second best government shows that entry regulation aimed at preventing excess entry actually induces the incumbent to behave strategically against the government and makes the final outcome socially suboptimal compared to cases in which there is no government intervention entry regulation is subgame optimal however it is globally suboptimal

how does state owned shares affect double externalities and industrial performance evidence from china s exhaustible resources industry abstract excessive entries of business into resource industries can cause allocation inefficiency and externality problems such as resource depletion and environmental pollution these problems have been existed in china s resources industry for many years after opening up to the world china has even begun to lose some critical strategic resources theoretical studies suggest that state owned shares as an indirect form of entry regulation could help the government reduce costs and control risk this paper first empirically analyzed the co integration relationship between double externalities and state owned shares using a seemingly unrelated regression based on china s coal ferrous metal and non ferrous metal resources panel data for 1999 to 2015 the results showed that state owned shares significantly reduced the intergenerational 0 760 and environmental externalities 0 265 however higher state owned shares might reduce industrial effectiveness thus this paper further tested the effect of state owned shares under different threshold degrees of externality the results showed that the effect of indirect regulation was the best when it was associated with a medium degree of intergenerational externality and high degree of environmental externality

implications of corporate capital structure theory for banking institutions the determination of an optimal capital structure for commercial banks has stimulated discussion and controversy among scholars bankers and regulators for many years while numerous studies e g 5 16 18 19 21 24 have explored this issue the underlying question remains unresolved at the same time the issue of optimal capital structure has seen a resurgence of interest in the corporate finance literature in recent years the effects on corporate capital structure of the tax system 15 agency costs 10 23 and bankruptcy costs 9 as well as the combined effects of these factors 2 6 have all come under scrutiny although several previous papers e g 3 5 8 24 have argued that banks are susceptible to corporate capital structure theory to our knowledge the full range of recent developments in this theory has not been brought to bear on the bank capital decision the purpose of this paper then is to draw implications from this theory for the determinants of bank capital structure over time and across banks of different size in section 1 below we briefly review recent work in corporate finance theory on the capital structure effects of taxes and agency costs in section 2 we discuss the effects of the interaction between the tax system and the production function for financial services on commercial bank capital structures in section 3 we analyze the nature of bankruptcy and agency costs in banking and their potential influence on bank capital finally in section 4 we summarize and draw conclusions from our analysis

socially excessive dissemination of patent licences compared with the social optimum a monopolist usually sells too little this result seemingly includes the case of a lab that licences its patented cost innovation katz and shapiro 1986 find conditions under which the lab will issue fewer than the socially optimal number of licences however i find instead that its incentives can be socially too high the monopoly seller may sell too much for example it can be profit maximizing to sell several licences while it is socially optimal that none is sold en comparaison avec l optimum social un monopoleur habituellement vend trop peu voila qui semble tenir pour le cas d un laboratoire qui vend des licences pour une innovation brevetee qui reduit les couts katz shapiro 1986 ont montre dans quelles conditions le laboratoire va emettre moins que le nombre optimal de licences cependant l auteur decouvre que les incitations peuvent plutot l amener a en emettre trop plus que l optimum social par exemple il se peut que la maximisation du profit amene a vendre plusieurs licences alors qu il serait socialement optimal de n en vendre aucune

taxation of interest income deregulation and the banking industry removing interest rate ceilings on bank deposits or reducing the tax rate applicable to the interest earned on such deposits are alternative means of increasing the after tax return to depositors these alternatives however have differing impacts on the structure of a competitive banking industry this paper develops a model which focuses on a bank s choice between paying an explicit interest rate on its deposits and paying a return in the form of services the model allows banks to differ in their production technologies and depositors in their marginal tax rates and preferences for services the effects of tax rate changes and a ceiling on the explicit deposit interest rate are analyzed coinciding with the rise in market interest rates to levels significantly above regulation ceiling rates on bank and savings and loan deposits has been a move to reduce the level of taxation on interest income general proposals to reduce the tax on interest income seem to have gained support as a means of increasing after tax rates of return in order to increase aggregate savings while proposals to allow banks and savings and loans to offer tax free savings certificates are supported as a means of reducing the cost of funds for such thrift institutions for example the tax exempt all savers certificates were designed to yield higher after tax rates of return for some individuals while simultaneously lowering the cost of funds to the issuing institutions as a means of providing a higher return to depositors an obvious alternative to reducing the tax on interest income would be to speed the removal of interest rate ceilings which apply to deposits at banks and savings and loans tax changes and deregulation would both affect the banking industry by leading to changes in the after tax interest rate on deposits the composition of deposit return between explicit taxable interest payments and the provision at below cost of nontaxable services might also be affected along with the optimum level of deposits for an individual bank and the size of the banking industry unfortunately none of these implications all of which are relevant for analyzing recent tax and deregulation proposals have been studied within the framework of a model of the banking industry this paper develops a model which focuses on the bank s choice between paying an explicit interest rate on its deposits and paying a return in the form of services previous models have often ignored this choice assuming that only the total return and not its composition mattered to the bank kareken 11 klein

the role of trade in structural transformation abstract low agriculture productivity is considered a key obstacle to economic development for many countries international trade in agricultural goods can help overcome this barrier and facilitate structural transformation because it allows countries to import part of their food needs this article quantifies the role of trade in this context through the examples of south korea during the last 50 years and great britain in the 19th century to do the analysis i calibrate and simulate a two sector neoclassical growth model to match the data and perform the policy experiments i find that agricultural imports played a crucial role in the early transformation of great britain while in south korea trade also had a positive impact on its structural transformation but it could have played a much larger role if the country had not introduced agricultural protection policies

dynamic analysis of discontinuous best response with innovation abstract starting from the static analysis in eckert et al 2017 we study a cournot duopoly where firms can decide to incur fixed costs in activities that improve their competitiveness i e product development or process innovation innovation costs generate discontinuities in the firms quantity best response functions and in turn a variety of equilibrium configurations including multiple equilibria we provide a dynamic global analysis of the equilibria and show the way in which firms initial expectations regarding the rivals level of output are crucial in defining the configuration of the long run equilibrium

food security and agricultural protection in south korea south korea has been pursuing food self sufficiency using high tariffs and high administrative prices in key agricultural and food markets using a dual approach to trade and trade restrictiveness indices we analyze the impact of these market distortions on welfare and trade volume then we compute second best distortions which minimize the welfare cost of meeting observed levels of self sufficiency and production we rationalize these second best distortions to what could be claimed as legitimate protection under a food security fs box in world trade organization wto negotiations fs box protection is sensitive to changes in the definition and the extent of the fs objectives we show that fs via production targets and reliance on imports would be more palatable to consumers and trade partners while preserving income transfer to the farm sector the republic of korea has supported its agricultural sector at a relatively high level compared to that of other member countries of the organisation for economic cooperation and development oecd public intervention mainly consists of high production prices supported by government purchases together with high tariffs that protect domestic producers from foreign competition and implicitly tax consumers trade liberalization recently took place in certain sectors and korea is now a major importer of oilseeds and coarse grains however korea only reluctantly exposed its agricultural sector to the provisions of the uruguay round agreement on agriculture uraa iatrc 1997 it has kept very high tariffs in the rice meat and dairy sectors high production subsidies in most other sectors and significant nontariff trade barriers on many commodities including administra

scale economies in banking a restructuring and reassessment the issue of scale economies in banking has a rich history most earlier studies report modest operating cost scale economies for small institutions those with less than about 50 million of deposits in 1968 dollars but are unclear where these economies might end if at all unfortunately these studies are limited in four important respects first those that were well specified did not measure the total cost of banking operations but concentrated on estimating scale economies for individual banking functions e g demand deposits separately from commercial loans second an average cost curve that could take a u shape over the full range of banks was not fitted either because larger banks were not included or because of the functional form used cobb douglas consequently the optimum or minimum cost size of a bank or office could not be determined third the variables measuring the costs of branching were misspecified fourth the branch

the calibration of incomplete demand systems in quantitative analysis an easily implemented and flexible calibration technique for partial demand systems is introduced combining recent developments in incomplete demand systems and a set of restrictions conditioned on the available elasticity estimates the technique accommodates various degrees of knowledge on cross price elasticities satisfies curvature restrictions and allows the recovery of an exact welfare measure for policy analysis the technique is illustrated with a partial demand system for food consumption in korea for different states of knowledge on cross price effects the consumer welfare impact of food and agricultural trade liberalization is measured

entry collusion and capacity constraints it is arguably true that no single topic has held more of a fascination for students of industrial organization than the issue of entry deterrence this issue has been analyzed from many perspectives including the role of advertising and imperfect information in deterring entry 1 14 18 19 incentives confronting a monopoly seller of durable goods 3 4 incentives in the context of sequential entry 2 9 dynamic aspects of entry deterrence 10 13 and the role of excess capacity in deterring entry 22 23 dixit 5 6 discussed the incentives for an incumbent firm to deter entry in the presence of sunk costs in his models a firm must sink some capital prior to entering the industry and this sunk cost creates an entry barrier any potential entrant must pay the sunk costs prior to entering and the incumbent can deter entry by reducing the stream of profits sufficiently so that the entrant s post entry profit flow cannot cover its sunk cost ware 24 adapted dixit s work by allowing for a three stage game following the incumbent s decision the entrant decides upon entry in stage two paying the sunk costs at that time in stage three if entry occurred the firms play a quantity choosing game formby and smith 7 argue that rather than deterring entry the incumbent firm often has an incentive to allow entry and then collude with the entrant in this context the post entry cartel is asymmetric with the incumbent producing the larger amount and realizing the higher profits

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

equilibrium number of firms and economic welfare in a spatial price discrimination model abstract we examine welfare implications of the equilibrium number of entering firms in a spatial price discrimination model in contrast to salop salop s 1979 monopolistic competition with outside goods bell journal of economics 10 141 156 the equilibrium number of firms can be either excessive or insufficient from the normative viewpoint

welfare losses under cournot competition abstract in a market for a homogeneous good where firms are identical compete in quantities and produce with constant returns the percentage of welfare losses pwl is small with as few as five competitors for a class of demand functions which includes linear and isoelastic cases we study markets with positive fixed costs and asymmetric firms we provide exact formulae of pwl and robust constructions of markets were pwl is close to one in these two cases we show that the market structure that maximizes pwl is either monopoly or dominant firm depending on demand finally we prove that pwl is minimized when all firms are identical a clear indication that the assumption of identical firms biases the estimation of pwl downwards

taxation and welfare in an oligopoly with strategic commitment this paper establishes comparative statics results for an oligopoly model with strategic commitment firms compete in two stages in the first stage firms decide on strategic cost reducing r d investment whereas they choose output in the second stage taking an excise tax subsidy as a shift parameter in the second stage game the short run as well as long run effects on output cost reducing r d investment and second best welfare will be examined the crucial role played by the strategic substitutability of outputs as well as cost reducing r d investments is clarified and a variant of the le chatelier samuelson principle in the authors game theoretic model is obtained copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a new data set measuring income inequality this article presents a new data set on inequality in the distribution of income the authors explain the criteria they applied in selecting data on gini coefficients and on individual quintile groups income shares comparison of the new data set with existing compilations reveals that the data assembled here represent an improvement in quality and a significant expansion in coverage although differences in the definition of the underlying data might still affect inter temporal and international comparability based on this new data set the authors do not find a systematic link between growth and changes in aggregate inequality they do find a strong positive relationship between growth and reduction of poverty

a theory of market structure with sequential entry this article sets out a theory of market structure with sequential entry we characterize the perfect nash equilibrium to the entry game in several propositions first equilibria never involve excess capacity second a sufficient statistic for the entry of any firm is that its profits are positive when computed myopically i e with no further entry third the equilibrium number of firms is the smallest number that can deter entry fourth aggregate output in equilibrium is no smaller than the limit output we calculate some explicit solutions to the model and examine comparative static properties

implications of trade reform for agricultural markets in northeast asia a korean example trade policy reform in the 1990s increased import access for agricultural products into japan south korea and other countries of asia one of the most significant developments concerns rice markets in this region because of political sensitivity japan and south korea were allowed to postpone tariffication on rice under the uruguay round ur gatt agreement 4 in return south korea provided more than the expected tariff reductions for some other commodities while japan agreed to accelerate quantitative access for rice in recent decades northeast asian markets have been comparatively open to wheat feed grains and cotton imports but mostly closed for rice with no

indirect taxation in vertical oligopoly this paper analyzes the effects of specific and ad valorem taxation in an industry with downstream and upstream oligopoly we find that in the short run i e when the number of firms in both markets is exogenous the results concerning tax incidence tend to be qualitatively similar to models where the upstream market is perfectly competitive however both over and undershifting are more pronounced potentially to a very large extent instead in the long run under endogenous entry and exit overshifting of both taxes is more likely to occur and is more pronounced under upstream oligopoly as a result of this a tax increase is more likely to be welfare reducing we also demonstrate that downstream and upstream taxation are equivalent in the short run while this is not true for the ad valorem tax in the long run we show that it is normally more efficient to tax downstream

oligopolistic competition and economic welfare a general equilibrium analysis of entry regulation and tax subsidy schemes abstract two contributions to the general equilibrium analysis of an oligopolistic economy with free entry are intended first we generalize the excess entry theorem to the effect that a marginal decrease in the number of oligopolistic firms from the free entry equilibrium level improves economic welfare second we explore the pareto improving tax subsidy schemes in an oligopolistic economy several self financing and pareto improving tax subsidy schemes will be identified in contrast with the preceding analysis by atkinson and stiglitz which focused on the long run incidence of corporate taxation we analyse the short run as well as long run welfare implications of various policies under generalized conditions

does child undernutrition persist despite poverty reduction in developing countries quantile regression results abstract the eradication of child undernutrition and extreme poverty are important objectives for most societies countries with higher national incomes usually improve in both dimensions but not always at the same rate using quantile regression we show that poverty rates tend to decline with increased income at a roughly constant elasticity in contrast while the prevalence of child wasting declines at that same elasticity where it is most widespread the elasticity becomes smaller as wasting becomes less prevalent this finding suggests a greater need for increasingly targeted interventions to achieve a given reduction in undernutrition as its prevalence declines

sequential entry industry structure and welfare in this paper we reexamine the relationship between potential competition industry structure and welfare in a market subject to a sequential entry threat where firms can make quantity commitments and have access to a constant returns technology it is shown that provided entry is not blockaded the incumbent s will either prevent entry or allow all the potential entrants in furthermore actual entry may decrease but social welfare never goes down with more potential entrants nevertheless with a finite number of potential entrants policies which lower the cost of entry need not be beneficial in welfare terms

how important is economic growth for reducing undernourishment in developing countries abstract there is intense debate in the literature about how important economic growth is for solving the problem of undernourishment this paper focuses on the rate of change in the prevalence of undernourishment and looks at whether higher economic growth speeds up reductions in undernutrition in developing countries the analysis uses panel data analysis on data spanning 22 years 1991 2012 and covering 27 developing countries results reveal that faster annual economic growth leads to larger annual improvements in undernourishment rates both annual and long term economic growth are relevant sustained economic growth has a greater positive impact on undernutrition than short term economic growth in addition to economic growth investments in health education and access to drinking water are also enabling factors for reducing undernourishment in conclusion increased income growth can hasten the effects of food policies aimed at reducing undernourishment but not to the extent that sustained growth and better access to health education and drinking water can

product line selection production decisions and allocation of common fixed costs abstract product costs are determined in practice for the purpose of pricing make buy and product line decisions while many costs are directly assignable to individual products common costs have historically presented a difficult conundrum a variety of cost allocation methods are used in practice or have been suggested in the literature to attach these costs to individual products while such procedures are theoretically unsupported they may be able to mimic the correct decisions adequately in this paper we investigate the efficacy of certain cost allocation schemes in a competitive environment the schemes are evaluated with reference to a scenario in which there is a single fixed cost incurred in manufacturing any subset of a set of products under idealized conditions a cournot nash model is developed that describes the number of entering firms and the equilibrium price and production levels using this as a point of reference it is shown that by using gross contribution as an allocation basis optimal product line decisions are achieved without distorting the selection of production levels moreover competitive pressure sufficient to drive total net profits close to zero is sufficient to require that any allocation rule supporting optimal product line decisions yields allocations nearly proportional to gross contributions an analogy is drawn with the allocation of joint costs to coproducts in a competitive environment and the corresponding allocation in proportion to net realizable value

contestable markets an uprising in the theory of industry structure presents a transcript of the presidential address delivered at the 94th meeting of the american economic association on december 29 1981 discussion of developments in the theory of industry structure welfare attributes of contestable markets behavior characteristics of oligopoly equilibrium intertemporal vulnerability to inefficient entry ebsco

the political economy of agricultural protection east asia in an international perspective kym anderson and yujiro hayami allen and unwin australia japan research centre australian national university london sydney boston 185 pp

judo economics reconsidered capacity limitation entry and collusion abstract the capacity investment by a new firm into an established market is explored in a repeated price game if the entrant expects collusion to prevail upon entry it may not practice judo economics but instead choose to install enough capacity to serve the entire market this occurs when collusion involves optimal punishment paths if instead collusion is based upon the static nash equilibrium punishment and the incumbent has excess capacity and the entrant is at a cost disadvantage the entrant will strategically limit its capacity so as to restrain the incumbent s price response to entry

the market selects the wrong firms in the long run we consider the effects of free entry on the market structure and social welfare of an asymmetric cournot oligopoly even if we allow for the existence of different types of firms initially only one type in almost all cases can survive in the long run free entry leads an economy to a symmetric equilibrium in which the excess entry theorem holds further we consider the socially optimal policy for this economy in cases of either i a concave demand which implies strategic substitutability or ii strategic complementarity which implies a convex demand the type of firms that should remain in the market to achieve social optimality does not necessarily coincide with the type of firms that will survive in the long run the market may select not only the wrong number of firms but also the wrong type of firms in the long run

consumer benefited cartels under strategic capital investment competition abstract the purpose of this paper is to refute the genrally accepted idea that a cartel raises producers surplus at the expense of consumers surplus if firms in an industry expect that a cartel in which the output is allocated on the bases of the capital equipment will be formed then each firm tries to make a larger capital investment than before which may lead to larger consumers surplus through this argument i shall present one of the reasons why heavy industries had excess capacity in postwar japan

human development in poor countries on the role of private incomes and public services development is often taken to mean rising incomes discussions of the goals of development now often emphasize the reduction of poverty rather than raising average incomes per se the role of social services particularly basic health and education has also received greater emphasis in the 1980s viewed mainly as instruments for raising the incomes of the poor but in all these approaches income growth of one sort or another is what development is all about a rather different view of the meaning of development has recently found expression in the 1990 human development report hrd produced by the united nations development programme a conceptual underpinning for this approach can be found in the work of amartya sen the essence of this view is that human development what people can actually do and be is the overriding purpose of economic development underdevelopment is viewed as the lack of certain basic capabilities rather than lack of income per se we do not aim here to advocate one of these approaches over the other but rather to explore their implications for development policy for instance what does the human development approach imply about the role of economic growth and in particular about reducing income poverty should development priorities shift toward the provision of public services in poor countries even if such a shift is at the expense of income growth

entry barriers and economic welfare the relationship between economic welfare and the number of firms in a quasi cournot market is examined in the first place we presuppose the existence of a strong first best government that can enforce the marginal cost principle to the firms along with regulating the number of firms it is shown that there exist excessive number of firms at the free entry quasicournot equilibrium vis a vis the first best welfare maximizing number of firms the thrust of this result essentially survives even if we replace a utopian first best government by a secondbest government that leaves the firms to pursue their respective profit maximization freely and engages solely in regulating the number of firms it can be shown that the excess entry prevails again in this second best world recent studies in the theoretical industrial organization literature have uncovered several instances which cast serious doubt on the reasonableness of a widespread belief that increasing competition will increase welfare stiglitz 1981 p 184 it has been shown that there are cases which are not altogether unreasonable where social welfare will be increased by strengthening rather than weakening the protection of incumbent firms from the threat of potential entry this is in sharp contrast with the traditional belief 2 what is not known however is how robust these pathologies in fact are we intend to settle this problem by proving two excess entry theorems in the quasi cournot parametric conjectural variations homogeneous oligopoly model seade 1980a b in the first place we presuppose the existence of a strong first best government that could costlessly enforce the marginal cost pricing principle by firms in an oligopolistic market and regulate entry in pursuit of first best social welfare optimization it is shown that the number of firms at the free entry equilibrium exceeds the first best welfare optimizing number of firms the result has already been noted by von weizsacker 1980a b and others in terms of numerical examples our theorem 1 asserts that this phenomenon always holds true for the family of quasi cournot models at hand an implication of this result is that the existence of entry barriers which protect incumbent firms from potential competitors is not necessarily welfare decreasing in sharp contrast with the traditional belief a problem remains with theorem 1 however in that an omnipotent first best government does not exist in reality and the first best ideal is unrealizable in the actual economy therefore even if the intervention by a first best government with a view to restricting the number of firms within an industry may be welfare improving it does

a note on the excess entry theorem in spatial markets abstract vickrey vickrey w s 1964 microstatics harcourt brace and world new york shows that the number of firms entering is excessive in his circle model of product differentiation we broaden his result to a large class of transport and production cost functions in particular convex transport and production costs always entail excessive entry as long as a price equilibrium exists we also provide an example of insufficient entry in equilibrium

the effects of irreversible investment in durable capacity on the incentive for horizontal merger until recently the literature on horizontal merger had been almost exclusively concerned with two issues the first issue which has long historical roots is the timing of merger activity of particular interest has been to understand the causes of the great merger wave lamoreaux 5 represents the most recent addition to this literature and provides a very good review of past work the second issue is the welfare implications of horizontal merger of which williamson 12 is a case in point with the exception of stigler 8 what had generally not been at issue in this literature was the private incentives for horizontal merger this was true in spite of the insight provided by stigler that the non participants of a merger are typically made better off by a merger than are the participants since the firms which engage in merger reduce supply all firms benefit from the resulting higher price but the non merging firms benefit most because they receive a higher price without having had to reduce supply there is then the potential for a free rider effect in merger activity as each firm wishes it to be the other firms which merge the first suggestion that the private incentives for horizontal merger may not only be weak but that merger may be simply unprofitable arose in a numerical example by szidarovszky and yakowitz 9 in which they show in a three firm cournot model that a merger between two firms is unprofitable then a study by salant switzer and reynolds 7 hereafter s s r examined this issue in considerable detail and found very weak incentives for firms to merge together unless there are considerable savings in terms of fixed costs using the standard linear cournot model s s r show that only merger for monopoly or close to monopoly is privately optimal when there are zero fixed costs the basis for this surprising result is that when the merged firm reduces output below the combined level of its pre merger supply the non merged firms react by expanding output though price goes up in response to the merger the market share of the merged firm declines the latter effect can dominate so that the firms are made worse off by merging in response to this result perry and porter 6 argue that the standard cournot model is inappropriate for analyzing the incentive to merge as mergers are not well defined since firms do

sunk capacity costs long run fixed costs and entry deterrence under complete and incomplete information this article considers a three stage extensive form game where capacity once installed is sunk but where fixed costs are not sunk we show that there may be multiple perfect equilibria of the complete information game when the entrant is incompletely informed about the incumbent s cost the entrant may use the incumbent s capacity choice as a signal of the incumbent s cost we present an example where the incumbent prefers a noninformative capacity signal since this has the effect of reducing the scale of entry we present a second example where the entrant is incompletely informed because the incumbent makes a choice over production technologies that is unobservable to the entrant

final and intermediate goods taxation in an oligopolistic economy with free entry abstract optimal tax rules are analyzed in an oligopolistic economy with free entry the initial market allocation has two types of distortion price is set above marginal cost by the oligopolistic behavior and the advantage of increasing returns to scale is left to be unexploited by excessive entry of oligopolists with production subsidy accompanied by a self financing lump sum franchise tax on oligopolistic firms pareto efficient allocation could be restored without a lump sum tax on oligopolists however the second best optimum requires taxing intermediate inputs used in the oligopolistic industry the optimal intermediate goods taxation follows the production side ramsey rule to encourage the use of intermediate inputs elastic to output level and vice versa

price and entry regulations with large fixed costs consider an industry with many potential firms each firm characterized by a cost structure with large fixed costs in determining the socially optimal resource allocation the number of firms is a crucial variable in this paper a relationship is established between pure profits with a fixed number of firms and the desirability of increasing or diminishing the number of firms in the industry both first best and nonnegative profit constrained second best cases are considered the results are related to price and entry regulation in such an industry

competition through capacity investment under asymmetric existing capacities and costs this paper discusses the way that different operational characteristics including existing capacity scale economies and production policy have an important influence on the capacity outcomes when firms compete in the market place we formulate a game theoretical model where each firm has an existing capacity and faces both fixed and variable costs in purchasing additional capacity specifically the firms simultaneously or sequentially make their expansion decisions and then simultaneously decide their production decisions with these outputs being capacity constrained we also compare our results with cases where production has to match capacity by characterizing the firms capacity and production choices in equilibrium our analysis shows that the operational factors play a crucial role in determining what happens the modeling and analysis in the paper gives insight into the way that the ability to use less production capacity than has been built will undermine the commitment value of existing capacity if a commitment to full production is not possible sinking operational costs can enable a firm to keep some preemptive advantage we also show that the existence of fixed costs can introduce cases where there are either no pure strategy equilibrium or multiple equilibria the managerial implications of our analysis are noted in the discussion our central contribution in this paper is the innovative integration of the strategic analysis of capacity expansion and well known s s policy in operations and supply chain theory

social efficiency of entry in a vertically related industry we provide a new perspective to the literature on social desirability of entry by showing that if the input supplier has market power social desirability of entry of the final goods producers depends on returns to scale entry in the final goods market can be socially insufficient under constant returns to scale technology but it can be socially excessive under decreasing returns to scale technologies if the cost of entry is low so that the final goods market is sufficiently competitive hence the anti competitive entry regulation policies are more justifiable if the final goods market is characterised by decreasing returns to scale technologies

profit sharing in cournot oligopoly it has been argued that even if there are macroeconomic benefits individual firms will not switch from a conventional wage system to profit sharing we show that while true for a monopolist it does not generally hold under cournot oligopoly

competitive interest payments on bank deposits and the long run demand for money reply this paper tests two assumptions made in previous demand for money studies the first assumption concerns the role assigned to the interest rate in the demand for money function common practice identifies the rate of interest with the opportunity cost of holding money in section i this formulation is shown to blur an important distinction between the price of money and the price of money substitutes and to implicitly assume that the relevant price variable is the difference between these two distinct prices a second assumption is that the current ban on interest payments on demand deposits is fully effective in section ii i operationally define these price variables and estimate perfectly competitive interest payments on commercial bank deposits this is done by crudely measuring commercial bank marginal costs and assuming that all excess profit is passed on to depositors in indirect ways section iii presents estimates of a more complete longrun demand for money relationship which explicitly includes an own price and a cross price as separate influences and assumes that the prohibition of the payment of interest on deposits is totally ineffective although no firm conclusion is reached concerning the proper functional specification of the demand function the results significantly improve upon previous demand for money estimates which assumed that the interest payment prohibition is totally effective in section iv the results are summarized and implications of the analysis for monetary theory are presented my competitive demand for money formulation leads to a reinterpretation of the existing evidence on what is generally referred to as the interest elasticity of demand for money this estimate is shown to be significantly biased downward it also implies that the demand for and supply of money are more interdependent than is usually assumed

preemptive investment with resalable capacity we study an entry game under perfect information with the salient feature that capacity is resalable we show that an inability to precommit to final output can help rather than hurt in contrast to other analyses of limited commitment e g maskin tirole 1988 which do not specify the sources of or reasons for limits to commitment we assume that such limits arise from the resalable nature of capacity and are led naturally to a consideration of additional strategic variables that can improve the incumbent s position in our model resalability increases the complexity of the incumbent s precommitment problem but it also furnishes her with an additional source of power in our model the price at which to resell capacity while a capacity resale market enables capacity to be shared and can help anticompetitive behavior the very existence of a resale market can generate an incentive for a much larger initial level of investment to the point where the overall equilibrium outcome can be more competitive

foreign direct investment and the relative wage in a developing economy abstract this paper examines the issue of the effect of foreign direct investment on the relative wage in the context of a developing economy recognizing that competing domestic entrepreneurs are potentially skilled workers foreign investment in skilled labor intensive sectors is shown to lower the relative wage moreover a general lump sum subsidy to foreign and domestic firms is shown to lower aggregate welfare whereas a discriminatory subsidy only to foreign firms may raise welfare

social efficiency of entry in a vertically related industry revisited abstract we revisit the social desirability of entry in a vertical structure by showing that if the input supplier has market power social desirability of entry of downstream producers depends on the asymmetric marginal costs among competing firms under constant returns to scale entry in the final goods market can be socially insufficient when entrants are inefficient but it can be socially excessive if the cost of entrants is sufficiently low compared to the incumbents

how potent is economic growth in reducing undernutrition what are the pathways of impact new cross country evidence this article uses panel data from 63 developing countries over the period 1970 96 to explore the relationship between income growth and child undernutrition rates it has two broad objectives the first is to determine how strong the relationship is whether it is causal and the magnitude of the contribution the income growth has made to reductions in child undernutrition over the past 25 years the second broad objective is to examine the specific pathways through which income growth affects undernutrition the article represents the first effort to merge child undernutrition rates by year for multiple years with the various determinants of child undernutrition it thus allows for estimations that take into account country specific characteristics also for the first time the study 1 tests for the endogeneity of potential determinants 2 calculates the historical contribution of longrun income growth to reductions in child undernutrition and 3 identifies the pathways through which income growth affects undernutrition section ii discusses the determinants of child nutritional status from a conceptual standpoint section iii describes the variables employed the data and the estimation strategy the results are presented in section iv and section v concludes with a discussion of the implications of the results for policies to reduce child undernutrition excerpt

innovation market structure and welfare many writers subscribe to joseph schumpeter s view that while perfectly competitive firms allocate resources efficiently in a static sense they perform poorly when it comes to innovation from this point of view the optimal form of market structure is unlikely to be perfect competition but some other type of dynamic competition which includes significant elements of monopoly recently considerable effort has been focused on modelling schumpeter s notion of competition perhaps best exemplified by the 1980 work of partha dasgupta and joseph stiglitz hereafter d s 2 this approach views free entry to the rd see nelson and winter 1977 3readers will recognize a similarity of this approach with the notion of contestable markets discussed most recently by william baumol 1982 and by baumnol john panzar and robert willig 1982 for an interesting comparison of the schumpeterian with the marxian notion of competition see john elliott 1980 4this was noted for example by robert wilson 1975 5in such industries the long term gains from dynamically efficient innovation become of paramount importance consequently the optimal market structure would consist of a small number of firms the driving force behind such a result is what scherer 1972 has called the lebensraum effect firms performing r d must at least break even they derive their profits from

consumer benefiting exclusive territories i investigate the effect of exclusive territories which are typical vertical controls imposed by upstream firms using shipping spatial models i consider an industry that consists of many independent local markets an upstream monopolist restricts competition between downstream firms using exclusive territories i find that exclusive territories reduce the prices of final products in all local markets in quantity setting competition in price setting competition they raise prices in half the local markets reduce them in other markets and also reduce the total consumer surplus jel classification l42 r32 a propos de territoires exclusifs qui profitent aux consommateurs l auteur analyse les effets de la regle des territoires exclusifs qui est souvent imposee comme controle vertical par les entreprises en amont a l aide de modeles spatiaux de livraison on considere le cas d une industrie composee de plusieurs marches locaux independants un monopoleur en amont reduit la concurrence entre entreprises en aval en imposant la regle des territoires exclusifs on decouvre que cette regle reduit les prix du produit final dans tous les marches locaux s il y a concurrence par les quantites s il y a concurrence par les prix la regle accroit les prix dans la moitie des marches locaux les reduit dans les autres et reduit aussi le surplus au consommateur

competition and regulation in vertically related markets in an industry where naturally monopolistic and competitive activities are vertically related should the natural monopolist be allowed also to operate in the deregulated competitive sector unlike much of the literature on vertical integration this paper assumes that monopoly pricing behaviour is regulated and therefore the effect of vertical integration on the task of regulation is central to the analysis in the model there is both imperfect information and imperfect competition when vertical integration by the monopolist is allowed the regulator s task is made harder insofar as the monopolist has anticompetitive incentives to raise rivals costs on the other hand integration may lead to there being fewer firms in the deregulated sector and hence less duplication of fixed costs the overall welfare comparison between separation and integration is ambiguous as two simple examples illustrate various extensions to the analysis are also considered one of the central questions in debates on regulatory reform is how to organize industries that contain both naturally monopolistic and potentially competitive activities electricity transmission and distribution are characterized by natural monopoly cost conditions but electricity generation is not in the gas industry pipeline services may be naturally monopolistic but supply to larger customers is not in telecommunications natural monopoly is more a feature of local network operations than of long distance operations and is not present in apparatus manufacture and supply or in the provision of value added services in railways while the infrastructure of track and stations is naturally monopolistic the supply of train services might not be policy developments notably those associated with privatization in britain and deregulation in the united states have sometimes led to radical structural reform in these industries at t for decades a vertically integrated monopolist was required under the 1982 settlement of its long running antitrust case against the u s government to divest itself of its local network operations the central electricity generating board cegb in england and wales was restructured both vertically transmission grid activities were separated from generation and horizontally before privatization in 1990 1991 by contrast british telecom was privatized as a vertically integrated dominant firm bt now faces competition from mercury and others especially in the long distance market but its dominance of local network operations might affect competition there and in other areas such as apparatus supply the local network monopoly would of course have to be regulated in any event but its link via ownership to vertically related and potentially competitive activities poses additional regulatory questions many of the efforts of the regulatory body oftel notably in relation to interconnection between bt s and rivals 1 for a general account of the theory and british experience of regulatory reform in the utility industries

helping minor firms reduces welfare the effect on national welfare of uneven technical progress and eli mination of a firm is analyzed under the existence of a cournot oligopolistic sector an increase in the share of an inefficient firm owing to its innovations results in a shift of production from more efficient firms to the inefficient firm causing a less efficie nt allocation of production it may decrease welfare even though the innovation itself is beneficial conversely policies keeping ineffic ient firms from innovations or eliminating them may increase welfare though they make the market structure more oligopolistic copyright 1988 by royal economic society

agricultural trade restrictiveness in the european union and the united states the article provides a summary measure of the uruguay round tariff reduction commitments in the european union and the united states using the mercantilistic trade restrictiveness index mtri as the tariff aggregator we compute the index for agricultural commodity aggregates assuming a specific constant elasticity of substitution functional form for import demand the levels of the mtri under the actual commitments of the uruguay round are computed and compared with two hypothetical cases a deeper cut in higher tariffs and a uniform reduction of each tariff both leading to the same average reduction as in the uruguay round this makes it possible to infer how reducing tariff dispersion will help improve market access in future trade agreements and provides some guidelines for aggregating detailed tariffs in trade models

capacity precommitment as an entry barrier for price setting firms abstract for a bertrand edgeworth framework this paper considers whether investmentin capacity may serve as a barrier to entry when firms are identical except for the first mover precommitment possibilities that the incumbent enjoys subgame perfect nash equilibria are examined for a three stage non cooperative game in which the incumbent sets a capacity level the potential entrant chooses its capacity and then firms set prices using mixed strategies for some parameter values entry is blockaded positive profits for the entrant are precluded for other parameter values the incumbent may increase its capacity to prevent entry and maintain non negative profits

developmental drivers of nutritional change a cross country analysis summary we utilize a rich cross country data set to understand within country changes in nutrition with a focus on the role of general developmental factors we find that economic growth is a strong predictor of nutritional performance as is growth in food production although only in more food insecure countries we find no evidence that infrastructure is directly important but greater asset ownership improved access to health services higher rates of female secondary education and lower fertility rates are all strong predictors of improvements in nutrition we show that national success stories are largely consistent with these findings