financial development convergence abstract we show that credit levels relative to gdp and other measures for financial development tend to converge across countries over time the results are obtained using a broad sample of countries over many years and controlling for the quality of country level institutions the efficiency of financial institutions and a range of macroeconomic variables while we find evidence for convergence in the broad sample we show that it levels off when countries reach a medium level of financial development at high levels of financial development convergence slows down even more and becomes negligible

cartel stability when costs are heterogeneous abstract this paper addresses a neglected question in the literature of cartel stability and the use of trigger strategies to maintain such stability we employ a model in which market demand is linear and involving n firms each operating subject to one of possibly n different cost functions we show that the stability of the cartel may depend crucially upon the relative efficiencies of the firms and argue that in such models explicit attention must be given to this possibility

price setting supergames with capacity constraints this paper examines the role of industry capacity in enforcing collusion in the context of repeated games for a fixed capacity per firm it is shown that changes in the number of firms have a non monotone effect on the best enforceable cartel price this is due to the fact that while an additional firm lowers the share that each of the other firms enjoys at the collusive price it also increases the losses to each firm should the cartel fail

capacity constraints mergers and collusion abstract the objective of this paper is two fold to contribute to the analysis of tacit collusion in bertrand supergames with asymmetric capacity constraints and from a more applied perspective to bring a new light on merger analysis and provide useful guidelines for competition policy taking into account dynamic aspects of competition it is well known that capacity constraints affect tacit collusion as they limit both incentives to deviate e g to undercut rivals and retaliation possibilities however most studies have so far focused on symmetric situations where all firms have the same capacity which leads to ambiguous and unintuitive results and also considerably limits the scope of application studying asymmetric situations makes it possible to analyse the impact of changes in the distribution of these capacities expansions but also mergers split offs transfers etc and to provide guidelines for competition policy and particularly for merger policy these guidelines which differ substantially from those inspired by more static analyses such as the herfindahl or other standard concentration tests are applied to a famous merger that took place in the french bottled water market the nestle perrier merger case

inflation financial markets and long run real activity abstract empirical evidence suggests that real activity the volume of bank lending activity and the volume of trading in equity markets are strongly positively correlated at the same time inflation and financial market activity are strongly negatively correlated in the long run as are inflation and the real rate of return on equity inflation and real activity are also negatively correlated in the long run particularly for economies with relatively high rates of inflation we present a monetary growth model in which banks and secondary capital markets play a crucial allocative function we show that at least under certain configurations of parameters the predictions of the model are consistent with these and several other observations about inflation finance and long run real activity

collusive behavior with heterogeneous firms in a repeated duopoly with heterogeneous firms i ask which enforceable collusive arrangement is likely to prevail i propose the equilibrium at which both firms are just indifferent between colluding and defecting for discount factors not exceeding a critical level i show this equilibrium is pareto optimal possibly even the unique pareto optimum i then apply bargaining theory and show that the proposed equilibrium is the likely outcome of explicit negotiations finally i argue that the proposed equilibrium is an obvious focal point on which firms may tacitly coordinate the proposed equilibrium promises to be useful for comparative statics analysis of collusive oligopoly

endogenous cartel formation with heterogeneous firms in the context of an infinitely repeated capacity constrained price game we endogenize the composition of a cartel when firms are heterogeneous in their capacities when firms are sufficiently patient there exists a stable cartel involving the largest firms a firm with sufficiently small capacity is not a member of any stable cartel when a cartel is not all inclusive colluding firms set a price that serves as an umbrella with non cartel members pricing below it and producing at capacity contrary to previous work our results suggest that the most severe coordinated effects may come from mergers involving moderate sized firms rather than the largest or smallest firms

endogenous mergers and collusion in asymmetric market structures recent empirical evidence shows that cartels are often asymmetric while cartel theory suggests that firm symmetry is conducive to collusion including an indivisible cost of cartelization we show that medium asymmetric market structures are more conducive to collusion since they balance the small firms incentives to stay in the cartel against the need to cover the cartel leaders indivisible cartelization cost using an endogenous merger model we also show that forbidding mergers leading to symmetric market structures can induce mergers leading to asymmetric market structures with a higher risk of collusion current antisymmetry merger policy can thus be counterproductive

cartel contract duration empirical evidence from inter war international cartels a formal cartel organization sets up a multilateral relationship between firms in a given industry while standard contracting literature has studied bilateral monopoly relationships in detail there are horizontal relationships like cartels that also have contractual aspects to shed light on how these contracts work this paper takes a sample of legal formal cartel contracts and examines their structure and durability borrowing from industrial organization theories and transaction cost theories the empirical model tests for the importance of demand uncertainty and cartel organizational characteristics in determining cartel contract duration the results show that the more uncertain the environment within which the cartel operates the shorter the expected cartel duration other industry structure characteristics and cartel organization variables included in the empirical model have a much weaker influence on duration copyright 2005 oxford university press

barometric price leadership abstract barometric price leadership refers to situations in which a price leader acts as a barometer of prevailing market conditions for other firms in the industry in this paper a model of price setting with costly information acquisition is analyzed it is shown that the unique equilibrium outcome is for one firm to acquire information and become a price leader while the other firm does not purchase information and becomes a follower in contrast to most previous work leadership in this model is due to the informational setting not the price setting mechanism as with symmetric information the unique outcome is the symmetric bertrand equilibrium

ringleaders in larger number asymmetric cartels the concept of a cartel ringleader has specific legal meaning but has received relatively little attention in the economic literature of cartels this article draws on a sample of 89 european cartels to identify how often ringleaders exist who they are and what they do it argues that ringleaders are more likely where the traditional cartel problems are likely to be most acute i e with larger numbers of members exhibiting substantial size asymmetries this is confirmed for price fixing and bid rigging cartels and is especially pronounced where the ringleader displays aggressive as opposed to merely organisational behaviour

endogenous cartel formation experimental evidence in a bertrand oligopoly experiment firms choose whether or not to engage in cartel like communication and if so they may get fined by a cartel authority we find that the four firm industries form cartels more often than the duopolies because they gain less from a hysteresis effect after cartel disruption

optimal consumption and the environment choosing between clean and dirty goods in this paper a model with heterogeneous consumption goods is presented consumers are assumed to choose between two different consumption goods characterized by a different impact on the environment this implies that in a decentralized economy government can sustain the social optimum by setting two pigouvian taxes one on production as a whole and the other on dirty consumption acting as an incentive in favour of clean consumption in accordance with the previous literature a trade off between a clean environment and economic activity evolves however this trade off is now mitigated by the additional taxation on polluting consumption which allows the control of pollution stock evolution through the substitution between clean and dirty commodities

fines and reputational sanctions the case of cartels abstract in this article we revive an old debate in the law and economics literature the relative role of public and reputational sanctions in deterring misconduct we propose an empirical framework which accounts for public sanctions in our case cartel fines and a more direct measure of reputational sanctions harnessing recent developments in opinion mining we use the intensity and the sentiment of media exposure of misconduct as a measure of reputational effect and thus approximation of the reputational sanction as a demonstration we combine an event study approach sentiment analysis and econometric techniques on a sample of 339 listed cartel member firms prosecuted by the european commission between 1992 and 2015 our results offer evidence that in the context of cartels public and reputational sanctions act as substitutes where there is a reputational penalty increasing this penalty reduces the effect of the public sanction one the other hand in the absence of a reputational punishment the effect of the cartel fine steps in

what determines cartel success following george stigler 1964 many economists assume that incentive problems undermine attempts by firms to collude to raise prices and restrict output but the potential profits from collusion can create a powerful incentive as well theory cannot tell us a priori which effect will dominate whether or when cartels succeed is thus an empirical question we examine a wide variety of empirical studies of cartels to answer the following questions 1 can cartels succeed 2 if so for how long 3 what impact do cartels have 4 what causes cartels to break up we conclude that many cartels do survive and that the distribution of duration is bimodal while the average duration of cartels across a range of studies is about five years many cartels break up very quickly i e in less than a year but there are many others that last between five and ten years and some that last decades limited evidence suggests that cartels are able to increase prices and profits to varying degrees cartels can also affect other non price variables including advertising innovation investment barriers to entry and concentration cartels break up occasionally because of cheating or lack of effective monitoring but the biggest challenges cartels face are entry and adjustment of the collusive agreement in response to changing economic conditions cartels that develop organizational structures that allow them the flexibility to respond to these changing conditions are more likely to survive price wars that erupt are often the result of bargaining issues that arise in such circumstances sophisticated cartel organizations are also able to develop multipronged strategies to monitor one another to deter cheating and a variety of interventions to increase barriers to entry

collusion under monitoring of sales collusion under imperfect monitoring is explored when firms prices are private information and their quantities are public information such an information structure is consistent with several recent price fixing cartels such as those in lysine and vitamins for a class of symmetric oligopoly games it is shown that symmetric equilibrium punishments cannot sustain any collusion an asymmetric punishment is characterized that does sustain collusion and it has firms whose sales exceed their quotas compensating those firms with sales below their quotas in practice cartels could have performed such transfers through sales among the cartel members

denying leniency to cartel instigators costs and benefits abstract a large number of countries have introduced successful leniency programs into their competition law enforcement to encourage colluding firms to come forward with evidence that will help detect cartels and punish price fixers this paper studies a feature of some of these programs that has received relatively little attention in the literature the inclusion of no immunity for instigators clauses niics these provisions deny leniency benefits to parties that instigate cartel behavior or function as cartel ringleaders our results show that niics can lead to increased or decreased levels of cartel conduct by removing the instigator s benefit from cooperating with the authorities a niic undoes some of the destabilizing benefit the leniency program was intended to generate and thereby furthers cartel stability on the other hand the instigator faces an asymmetrically severe punishment under a niic and this can reduce the incentive to instigate in the first place

some results on optimal penal codes in asymmetric bertrand supergames abstract optimal penal codes in asymmetric bertrand supergames exhibit security level punishments for the largest firm if no firm has sufficient capacity to service the market then collusion that is barely sustainable by optimal penal codes entails higher capacity utilization by the largest firm than by the other firms collusion supported by optimal penal codes in models with a large firm facing a competitive fringe can result in the large firm having low capacity utilization and thus providing a price umbrella for the fringe firms which have high capacity utilization journal of economic literature classification numbers c72 c73 l11 l13

collusion with persistent cost shocks we consider a dynamic bertrand game in which prices are publicly observed and each firm receives a privately observed cost shock in each period although cost shocks are independent across firms within a firm costs follow a first order markov process we analyze the set of collusive equilibria available to firms emphasizing the best collusive scheme for the firms at the start of the game in general there is a trade off between productive efficiency whereby the low cost firm serves the market in a given period and high prices we show that when costs are perfectly correlated over time within a firm if the distribution of costs is log concave and firms are sufficiently patient then the optimal collusive scheme entails price rigidity firms set the same price and share the market equally regardless of their respective costs when serial correlation of costs is imperfect partial productive efficiency is optimal for the case of two cost types first best collusion is possible if the firms are patient relative to the persistence of cost shocks but not otherwise we present numerical examples of first best collusive schemes

collusion among asymmetric firms the case of different discount factors abstract this study investigates collusive behavior among asymmetric firms for this purpose we develop a selection criterion for deriving a unique collusive outcome and apply it to the case when firms have different discount factors our analysis reveals that for collusion to be self enforcing it is unnecessary that all firms have sufficiently high discount factors but rather only that firms on average have a sufficiently long run view the optimal collusive outcome entails a strict ordering of output quotas in which firms with relatively low discount factors receive a disproportionate share of market demand as found in the case of a common discount factor a fall in a firm s discount factor reduces the likelihood of successful collusion this effect reduces firm profits on the other hand in the event that firms can collude a lowering of a firm s discount factor increases its output quota so that its profits rise

in which industries is collusion more likely evidence from the uk i examine the factors facilitating or hindering collusion using a comprehensive data set on the incidence of price fixing across uk manufacturing industries in the 1950s the econometric results suggest that collusion is more likely the higher the degree of capital intensity and less likely in advertising intensive than in low advertising industries there is also some evidence of a non monotonic relationship between market growth and the likelihood of collusion there is no clear link between concentration and the incidence of collusion

culture openness and finance abstract differences in culture proxied by differences in religion and language cannot be ignored when examining why investor protection differs across countries we show that a country s principal religion predicts the cross sectional variation in creditor rights better than a country s natural openness to international trade its language its income per capita or the origin of its legal system catholic countries protect the rights of creditors less well than protestant countries a country s natural openness to international trade mitigates the influence of religion on creditor rights culture proxies are also helpful in understanding how investor rights are enforced across countries

the determination of price and output quotas in a heterogeneous cartel applying a selection criterion that uses both subgame perfection and the nash bargaining solution this paper investigates the relationship between firms cost functions and collusive behavior it is found that the optimal collusive price exceeds the price that the low cost firm would set if it was a monopolist comparative statics reveal that the optimal collusive price is increasing in the low cost firm s unit cost but is decreasing in the high cost firm s unit cost when the cost differential between firms is sufficiently large copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

does one size fit all a reexamination of the finance and growth relationship abstract recent research has found a strong positive effect of a country s financial development on economic growth we propose that this relationship may vary according to the level of financial development divided in three regions in the low region countries with very low levels of financial development additional improvements in financial markets have an uncertain effect on growth in the intermediate region financial development has a large positive effect on growth finally in the high region the effect is positive but smaller we examine a panel of 74 countries using generalized method of moments gmm dynamic panel techniques and find support for the different regions

the effect of financial development on convergence theory and evidence we introduce imperfect creditor protection in a multicountry schumpeterian growth model the theory predicts that any country with more than some critical level of financial development will converge to the growth rate of the world technology frontier and that all other countries will have a strictly lower long run growth rate we present evidence supporting these and other implications in the form of a cross country growth regression with a significant and sizable negative coefficient on initial per capita gdp relative to the united states interacted with financial intermediation in addition we find that other variables representing schooling geography health policy politics and institutions do not affect the significance of the interaction between financial intermediation and initial per capita gdp and do not show any independent effect on convergence in the regressions our findings are robust to removal of outliers and to alternative conditioning sets estimation procedures and measures of financial development

collusion and leadership abstract the paper explores the role of price or quantity leadership in facilitating collusion it extends the standard analysis of tacit collusion by allowing firms to make their strategic choices either simultaneously or sequentially it is shown that price leadership indeed facilitates collusion by making it easier to punish deviations by the leader in case of pure bertrand competition price leadership restores the scope for perfect collusion in markets where collusion would not be sustainable otherwise when firms face asymmetric costs or offer differentiated products price leadership can also enhance the profitability of collusion in case of asymmetric costs the less efficient firm must act as the leader finally such leadership is less effective in case of cournot competition since following an aggressive deviation by the leader the follower would rather limit its own output making it more difficult to punish the deviation still quantity leadership may enhance collusion when it is already somewhat effective in a simultaneous move setting

finance and the sources of growth the authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources total factor productivity growth physical capital accumulation and private saving they use 1 a pure cross country instrumental variable estimator to extract the exogenous component of banking development and 2 a new panel technique that controls for country specific effects and endogeneity they find that banks do exert a large causal impact on total factor productivity growth which feeds through to overall gdp gross domestic product growth the long run links between banking development and both capital growth and private savings are more tenuous

quantifying the deterrent effect of anticartel enforcement this paper presents a rare attempt to quantify the deterrent effect of anti cartel policy it develops a conceptual framework which establishes the sort of information necessary for such quantification this is then illustrated and calibrated by drawing upon existing literatures and using evidence from legal cartels to approximate what would be observed absent policy measuring impact by the proportion of all potential harm that is deterred our best estimate is two thirds and even on conservative assumptions at least half of all harms or seven times the detected harm is deterred

dynamic relationship of oil price shocks and country risks abstract this study investigates the dynamic relationship between oil price shocks and country risks using a structural var framework for a sample of both net oil exporting and net oil importing countries over the period january 1994 december 2014 the results reveal that country risk is significantly affected by oil price shocks but the impacts are different unanticipated positive oil price shocks trigger a reduction addition in country risk for net oil exporting country net oil importing countries as to the responses of oil prices to country risk shock evidence show that country risk shocks have a delayed significantly positive impacts on oil price for oil exporting country with respect to the effects of subcomponents of country risk we find evidence that economic and political risk have a significant impact on supply side shocks in net oil exporting countries like canada while economic and political risk have a significant effect on supply side shocks and oil specific demand shocks in net oil importing countries like the us these results are particularly important to policy makers and government

collusive price leadership with capacity constraints abstract in this paper collusive price leadership in homogeneous good capacity constrained repeated price competition is examined in the stage game firms choose their timing of price setting although setting a price early is disadvantageous per se a large firm has an incentive to move early in order to demonstrate its commitment not to deviate if the discount factor is not too large this behavior raises the collusive price compared to that arising in collusion with simultaneous moves as a result all firms obtain strictly higher profits

a price setting supergame between two heterogeneous firms when firms attempt to tacitly collude they inevitably face a market sharing problem this problem is further complicated when firms have asymmetries this paper studies a price setting supergame between two firms with different costs the paper investigates sustainability of tacit collusion and solves the market sharing problem under tacit collusion the resulting equilibrium from the supergame is used to study limit pricing government policies toward entrants and welfare change due to technological progress and a change in the time discount rate the paper shows that even costlessly achieved technological progress can decrease social welfare