multinational firms exclusivity and backward linkages abstract how does the nature of contractual relationships between a multinational and its local suppliers affect backward linkages and welfare in the local industry we address this question in a two tier oligopoly model where a multinational transfers technology to its suppliers if they accept an exclusive contract that precludes them from serving its local rivals invited suppliers balance the benefits of gaining access to new technology and the derived demand of the multinational against the opportunity of selling to other local firms exclusivity reduces competition among local suppliers and can lower backward linkages and local welfare relative to autarky

the macroeconomics of fiscal consolidations in euro area countries we simulate a currency union dynamic general equilibrium model to assess the macroeconomic implications of permanently reducing the public debt to gross domestic product gdp ratio in euro area countries we obtain the following results first tax distortions are quantitatively significant second the best fiscal consolidation strategy is to permanently reduce both expenditures and tax rates third under such a consolidation strategy the transition is generally not costly as the gdp and investment would grow while private consumption would not fall finally spillovers to the rest of the euro area are generally expansionary

effects of cost changes on oligopolists profits this paper considers cost changes affecting all firms in a constantreturns to scale cournot oligopoly cost increases may paradoxically benefit some or even all firms whether a firm benefits or is harmed depends only on whether its market share exceeds a threshold level s on whether industry costs increase or decrease on the number of firms and on the elasticity of the demand curve s slope or equivalently the fraction of cost changes that are passed on conditions where industry structure alone determines the effect of cost changes on firms profits and conditions where cost increases necessarily harm some firms are developed this paper considers the effects of a change in cost on outputs and profits in an industry composed of firms with constant returns to scale these effects are easy to see in the extreme cases of monopoly and perfect competition but

trade and protection in vertically related markets abstract we consider home country tariff and subsidy policies in a setting where a home firm is partially dependent on a foreign vertically integrated firm for supplies of a key input the firms are cournot competitors in the home market for the final product we show that a tariff on final product imports may cause the foreign vertically integrated firm to reduce the price charged for the input under circumstances where a simple monopoly supplier of the input would increase its price supply conditions for the input significantly affect whether imports of the input should be taxed or subsidized

the assessment competition policy the paper advances four propositions concerning the objectives content and institutions of competition policy first the role of policy should be to advance economic efficiency rather than competition for its own sake or some wider definition of the public interest second economic analysis is generally ambiguous a priori about the efficiency effects of particular market structures and conduct third the design of policy and institutions needs to reflect this ambiguity policy rules are essential but there should be scope for parties to argue countervailing efficiency benefits a policy institution should be empowered to identify investigate and propose remedies for failures of competition subject to review by an independent competition tribunal fourth international harmonization of competition policies is essential current policies in the u k and ec and relationships between the two are evaluated and the case made for a radical reform of u k policy copyright 1993 by oxford university press

vertical antitrust policy as a problem of inference the legality of nonprice vertical practices in the u s is determined by their likely competitive effects an optimal enforcement rule combines evidence with theory to update prior beliefs and specifies a decision that minimizes the expected loss because the welfare effects of vertical practices are theoretically ambiguous optimal decisions depend heavily on prior beliefs which should be guided by empirical evidence empirically vertical restraints appear to reduce price and or increase output thus absent a good natural experiment to evaluate a particular restraint s effect an optimal policy places a heavy burden on plaintiffs to show that a restraint is anticompetitive

a consumer as an entrant in the norwegian cement market this paper sheds light on the strategy of two entrants in the norwegian cement market where both started importing cement one entrant was an initial consumer of the incumbent s product and thus imported for own consumption the author demonstrates that this type of entrant will undertake a sunk investment to have access to a second supplier in cases where other types of entrants are deterred both types of entrants must accept a high import price if the incumbent can purchase the exclusive right to import from foreign suppliers the author finds that the two observed entry attempts are consistent with the model s predictions copyright 1993 by blackwell publishing ltd

international migration and income distribution in the philippines the author uses data on remittances from migrants to determine the effects of migration on household income and its distribution in the philippines i briefly describe the evolution of household income distribution using fies the family income and expenditure survey and the characteristics of households that receive income from migrants and those that do not i discuss the analytical framework that is used and outline the changes in incomes and inequality that emigration causes excerpt

a positive theory of environmental quality regulation this paper demonstrates that environmental quality regulation may enhance producer wealth while simultaneously reducing an externality problem by restricting access to common property regulation not only corrects a resource misallocation but it creates a scarcity rent as well in the recent history of environmental quality the common access problem has been addressed by federal and state agencies through a standards based approach rather than through the enforcement of tradable property rights as a consequence rents from the right to use these assets have accrued to producers the data are convincing that there is a strong interplay between producers consumers and the victims of pollution each party has some influence on the outcome and one sided analysis neglects many important aspects of regulation environmental quality regulation is complicated but many of the observed perplexities are consistent with a rent seeking self interest theory of government 46 references 1 figure 7 tables

a policy to prevent rational test market predation this article models the problem of designing predation policy as one of structuring incentives so that firms choose not to practice predation but to engage in nonpredatory competition the government decides how intensively to search for possible predatory incidents how thoroughly to investigate each incident and how much to penalize convicted predators we consider test market bluffing predation in which incumbents with high costs can deter entry into a national market by pretending to have low costs if fines are merely transfers the optimal fine is the largest one that is feasible furthermore the government should avoid injunctions against continued predatory pricing

an experimental examination of vertical control and cost predation abstract in recent years there has been renewed interest in and concern about firms use of vertical control as a way to exert market power such behavior could be used to gain a competitive advantage over rivals in input and or output markets this paper uses laboratory experimental methods to examine three questions i is anti competitive behavior by a dominant firm in input markets an observable behavior ii is cost predation an observable laboratory phenomenon and iii if such behaviors are observed what are the efficiency consequences results of this dominant firm experiment indicate that all three questions can be answered in the affirmative and the negative efficiency consequences can be profound

an equilibrium selection theory of monopolization we develop a duopoly model in which firms compete for the market e g investing in process innovation or product development as well as in the market e g setting quantities or prices competition for the market generates multiple equilibria that differ in the firms investment levels relative size and profitability we show that monopolization that affects competition in the market can act as an equilibrium selection device in competition for the market in particular it eliminates equilibria that are undesirable for the monopolizing firm while not generating new equilibria this result complicates the task of determining whether a firm s dominance in a given market is the result of fair competition or unlawful monopolization we discuss a number of implications for antitrust policy and litigation and illustrate these by means of two well known antitrust cases

cost raising strategies advantage rivals by raising their costs in this paper we show that strategies designed to raise rivals costs have a number of advantages over predatory pricing they are credible do not necessarily require the victim to exit and do not necessarily require the existence of classical market power the paper sets up a general model proves a number of general results and then applies the model to specific strategies involving overbuying inputs and vertical integration

strategic outsourcing revisited this paper analyzes a sequential game where firms decide about outsourcing the production of a non specific input good to an imperfectly competitive input market we apply the taxonomy of business strategies introduced by fudenberg and tirole 1984 to characterize the different equilibria and find that outsourcing generally softens competition in the final product market if firms anticipate the impact of their outsourcing decisions on input prices there may be equilibria where firms outsource so as to collude or to raise rivals costs we illustrate our analysis using a linear cournot model

vertical mergers and product differentiation this paper presents an equilibrium theory of vertical mergers that incorporates strategic behaviors in the hotelling type location model this enables one to consider the relationship between downstream firms strategies for product differentiation and vertical integration i show that vertical integration enhances the degree of product differentiation of the integrated firm under some conditions partial integration arises in equilibrium which may increase the profit of the nonintegrated downstream firm the paper also discusses the welfare implications of vertical integration

an empirical investigation of private label supply by national label producers private labels pls are ubiquitous in several categories including groceries apparel and appliances however existing empirical work has not examined the differential impact of various upstream supply arrangements for pl products or the strategic motives for pl supply to do so requires one to model the interaction between private and national label nl products both upstream and downstream while accounting for strategic behavior on the part of manufacturers and retailers and retaining essential differences between nl and pl products we build a model that satisfies these requirements and lets us answer our two research questions first can an nl firm profit from being an outsourced pl supplier second what are the upstream and downstream impacts of different pl supply arrangements we answer these questions by modeling private labels as homogenous products at wholesale but as differentiated products at retail in contrast national label products are differentiated at both wholesale and retail levels using structural model estimates for fluid milk in a major metropolitan area we conduct three counterfactual experiments we find that both nl producers and retailers profit from adding private labels we also find that a vertically integrated supply of pl leads to lower prices for end consumers

strategic entry deterrence in analyzing deterrence of large scale entry two classes of entry barriers may be distinguished an innocent entry barrier is unintentionally erected as a side effect of innocent profit maximization in contrast a strategic entry barrier is purposely erected to reduce the possibility of entry two types of innocent barriers may also be distinguished a postentry absolute advantage has the property that if entry did occur the established firm would be at a profit advantage over the entrant examples are superior technology or product design patents and lower input prices a preentry asymmetry advantage arises from the fundamental preentry asymmetry between established firm and potential entrant before the entrant makes his entry decision the established firm has already committed resources this prior existence gives first move advantages the preentry asymmetry is independent of symmetry or asymmetry in the rules the equilibrium concept of the postentry game that might ensue even if the postentry game will be played according to nash cournot or entrant as leader rules the preentry leadership

multinational firms and technology transfer the authors construct an oligopoly model in which a multinational firm has a technology superior to those of local firms in the host country workers employed by the multinational acquire knowledge of the superior technology and can spread their knowledge to local firms by switching employers the multinational chooses to pay a wage premium to prevent local firms from hiring away its workers if the local firms are sufficiently disadvantaged or if there are enough local firms diffusion of the superior technology benefits local firms at the expense of workers whose wages suffer the host government might have an incentive to attract foreign direct investment even when technology transfer will not result because of the wage premium local employees of the multinational firm earn also foreign direct investment with technology transfer may reduce the total economic rent the host country earns

antitrust predation and the antitrust paradox abstractthe widely recognized influence that the chicago school of law and economics had on the institution of antitrust is nowhere more apparent than in predatory pricing law starting with aaron director this movement had many distinguished contributors but even in this company robert bork stands out for his part in persuading the judiciary to refocus antitrust law on the interests of consumers rather than on the interests of competing firms in the antitrust paradox and other writings bork advanced the chicago school insight that the kind of aggressive price cutting that at the time passed for predatory pricing is instead an essential and for consumers beneficial attribute of competition the resulting change in direction that antitrust has taken in predatory pricing cases culminated in the court s matsushita matsushita electric industrial co v zenith ratio corp 475 u s 574 1986 and brooke group brooke group ltd v brown williamson tobacco corp 509 u s 209 1993 opinions both

access to bottleneck inputs under oligopoly a prisoners dilemma we analyze the incentives of vertically integrated oligopolists to concede access to their bottleneck inputs to an entrant in the downstream market first two vertically integrated incumbents make access price offers to an entrant that chooses which one to accept if any second firms compete on salop s circle the firms may be asymmetrically located on the circle to reflect differences in consumer shares for some levels of asymmetry the incumbents face a prisoners dilemma with respect to conceding access to their bottleneck inputs entry by a downstream firm may lead to lower retail prices however entry may also lead to higher retail prices for the access provider and for the entrant we also consider the cases where there are several incumbents and where the entrant makes the access price offers

exclusionary manipulation of markets for pollution rights abstract strategic price manipulation can affect the distribution of transferable pollution rights across polluters and the efficiency of pollution control efforts prior research has concentrated on market manipulation by firms seeking only to minimize the sum of pollution rights costs and pollution abatement costs in this paper we explore the potential for the exclusionary manipulation of pollution permit markets intended to drive up the costs of one s rivals and we distinguish between the resource allocation effects of exclusionary manipulation and cost minimizing manipulation we find that exclusionary manipulation can sometimes worsen and sometimes ameliorate the abatement inefficiency which occurs under cost minimizing manipulation and that an overbuying rule can obviate or at least limit damages from this form of strategic behavior

the new industrial organization and small business the small business sector is an important part of the american economic landscape in both absolute and relative terms despite its absolute growth however the sector accounts for a diminishing share of private sector activity but its importance and changes in importance vary across industrial sectors of the economy drawing on the theoretical and empirical insights developed in recent books by john sutton we suggest that the presence or absence of endogenous strategic behaviors of the larger firms with respect to advertising promotion research and development and other sunk cost expenditures may well play an important role in explaining the differing levels of small business importance both cross sectionally and over time we conclude the paper with suggestions for research directions that could shed further light on these ideas copyright 2001 by kluwer academic publishers

discouraging rivals managerial rent seeking and economic inefficiencies we argue here for a broader view of the biases in managers decisions in general managerial rent seeking affects not only the level of investment but also the form our basic hypothesis is simple given the now well established scope for managerial discretion managers have an incentive to exercise that discretion to enhance their income any managerial contract is subject to renegotiation and a manager s pay is the outcome of an often bewildering bargaining process between management the board of directors and rival management teams or takeover artists this abstract was borrowed from another version of this item

frontrunners and laggards the strategy of environmental regulation under uncertainty the extant literature on the political economy of environmental regulation does not provide a unified theoretical explanation for three salient stylized facts first companies voluntarily invest to reduce the environmental burden that they cause under threat of regulation second ex ante estimates of the compliance cost tend to be systematically higher than ex post estimates finally regulators use limited information provided by the industry i construct a game theoretic model of environmental regulation under uncertainty with a benevolent regulator in equilibrium companies undertake voluntary action to induce regulation that raises barriers to entry this profit driven behavior is not always socially detrimental however as the regulator obtains a credible commitment to production and a more accurate estimate of the compliance cost additionally the results provide a selection explanation for the mismatch between ex ante and ex post cost estimates if companies condition compliance on the installation cost only low cost companies install in equilibrium the analysis combines regulatory capture with social welfare maximization to explain the curious combination of voluntary action and low ex post compliance cost without serious information collection by the regulator

strategic aspects of vertical delegation abstract this paper offers an overview of the strategic aspects of situations where either institutionally or contractually a firm delegates some of its decisions to another firm a subsidiary an internal division etc delegation may have several kinds of strategic benefits in the short term it may improve the competitive position of the firm or induce a more lenient behavior from its competitors in the long run it may be used to deter the entry of potential competitors to foreclose market access or to induce actual competitors to exit the paper analyzes the trade off between these possible benefits and the agency costs of delegation and emphasizes the key issues of credibility and commitment

endogenous protection foreign direct investment and protection building trade abstract we introduce the possibility of foreign direct investment fdi in a strategic oligopolistic setting with endogenous protection and find that a number of unique subgame perfect equilibria may arise including a new result we call protection building trade this phenomenon occurs in our model when foreign firms locating production in the home country try to increase protectionist pressures in the home country through increased exports to provide larger barriers against other foreign competitors in future periods we discuss how the foreign firm behavior surrounding significant u s protectionist actions including the vers on japanese automobiles may be consistent with protection building trade behavior

vertical mergers and market foreclosure ythe model in this paper illustrates three effects of vertical mergers when both stages are oligopolistic and vertically integrated and unintegrated producers coexist first the merging firm increases its final good output second the resulting backward shift in the residual demand curve facing unintegrated final good producers ylowers their demand for the intermediate good third the merged firm withdraws from the intermediate good market the increased concentration pushes the intermediate good price upward which effect dominates depends on market structure under some conditions a vertical merger causes the price of the final good to increase

selective contracts foreclosure and the chicago school view abstract i examine a mechanism by which exclusive supply contracts may inefficiently deter entry into the market in the model the incumbent supplier selectively offers contracts only to some buyers and convinces them to consent by guaranteeing them low prices the contracts strengthen the monopoly position of the incumbent supplier and allow it to extract rents from the remaining buyers that were not offered contracts aside from the favorable contract terms buyers have another reason to consent to the exclusivity scheme the latter raises the input costs of rival buyers that were not offered contracts the model has potential applications to the recent microsoft antitrust case 1994 i define exclusive supply contract as an agreement under which an upstream firm becomes the exclusive supplier of a downstream firm the downstream firm is prohibited from buying from other suppliers

anti competitive conduct in house r d and growth abstract incumbent firms have two basic possibilities to improve their competitive position in the product market investment in r d and the creation of entry barriers to the disadvantage of potential rivals e g through lobbying activities campaign contributions bribes or the adoption of incompatible technologies this paper proposes a simple oligopoly model which raises the possibility that such anti competitive conduct and r d investment are complementary activities for incumbents consequently an institutional framework or technological possibilities which encourage anti competitive conduct although impeding entry of potential rivals and accentuating standard oligopoly distortions may foster r d based growth and welfare however this outcome is less likely if entrants exert technological spillover effects e g through foreign direct investment stronger protection of intellectual property rights although triggering anti competitive conduct and thereby impeding market entry as well is more likely to foster economic growth

on strategic vertical foreign investment we investigate the strategic incentives for vertical foreign direct investment by oligopolistic firms under exchange rate uncertainty domestic final good firms meet their input requirements either by investing abroad and producing directly through a subsidiary intra firm trade or by buying from an oligopolistic market abroad inter firm trade firms undertaking vertical investment can bid up the input price faced by their rivals through strategic purchase we demonstrate the possibility of vertical foreclosure multiple equilibria complementarity and bunching of investment decisions increase in the variability of exchange rate has positive effects on foreign direct investment and trade in the intermediate good an appreciation of investor s currency has similar effects

upgrades switching costs and the leverage theory of tying this article investigates the role of product upgrades and consumer switching costs in the tying of complementary products previous analyses have found that a monopolist of one product will not increase its profits and reduce social welfare by tying and leveraging its monopoly position into a complementary market if the initial monopolised product is essential where essential means that all uses of the complementary good require the initial monopolised product we show that this is not true in settings characterised by product upgrades and consumer switching costs we also discuss various extensions including the role of the reversibility of tying

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

the impact of standards and regulation on innovation in uncertain markets abstract this study analyses the impact of formal standards and regulation on firms innovation efficiency considering different levels of market uncertainty we argue that formal standards and regulation have different effects depending on the extent of market uncertainty derived from theoretical considerations about information asymmetry and regulatory capture our empirical analysis is based on the german community innovation survey cis the results show that formal standards lead to lower innovation efficiency in markets with low uncertainty while regulations have the opposite effect in cases of high market uncertainty we observe that regulation leads to lower innovation efficiency while formal standards have the reverse effect our results have important implications for the future application of both instruments showing that their benefits heavily depend on the market environment

the strategic use of innovation to influence regulatory standards this paper investigates the welfare consequences of strategic behavior by firms to affect the amount of environmental regulation they face environmental regulation often attempts to force an industry to develop cleaner technology but the regulator may have no means to commit to a specific standard this lack of regulatory commitment induces firms to choose innovation strategically it is well known that firms have incentives to suppress innovation to induce the regulator to ratchet down the standard and this strategic behavior lowers welfare this paper explores a countervailing incentive in oligopoly settings firms have heightened incentives to innovate so as to increase regulation and raise rivals costs in equilibrium the incentive to raise rivals cost can mitigate the welfare loss arising from no regulatory commitment also a regulator who is unable to commit ex ante to the stringency of a regulatory standard can induce more clean technology than a regulator with a commitment mechanism

entry deterrence by non horizontal merger we study when and how pure non horizontal mergers whether cross product or vertical can deter new entry organizational mergers implicitly commit firms to more aggressive price competition because heightened competition deters entry mergers can occur in equilibrium even when absent entry considerations they do not we show that in order to prevent a flood of entrants mergers arise even when a marginal merger costs incumbent firms more than does a marginal entrant