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

the economic role of jumps and recovery rates in the market for corporate default risk using an extensive cross section of u s corporate credit default swaps cdss this paper offers an economic understanding of implied loss given default lgd and jumps in default risk we formulate and underpin empirical stylized facts about cds spreads which are then reproduced in our affine intensity based jump diffusion model implied lgd is well identified with obligors possessing substantial tangible assets expected to recover more sudden increases in the default risk of investment grade obligors are higher relative to speculative grade the probability of structural migration to default is low for investment grade and heavily regulated obligors because investors fear distress rather through rare but devastating events

private v public antitrust enforcement a strategic analysis we compare private and public enforcement of the antitrust laws in a simple strategic model of antitrust violation and lawsuit the model highlights the tradeoff that private firms are initially more likely than the government to be informed about antitrust violations but are also more likely to use the antitrust laws strategically to the disadvantage of consumers assuming coupled private damages if the court is sufficiently accurate adding private enforcement to public enforcement always increases social welfare while if the court is less accurate it increases welfare only if the government is sufficiently inefficient in litigation pure private enforcement is never strictly optimal public enforcement can achieve the social optimum with a fee for public lawsuit that induces efficient information revelation private enforcement can also achieve the social optimum with private damages that are efficiently multiplied and decoupled

can unspanned stochastic volatility models explain the cross section of bond volatilities in fixed income markets volatility is unspanned if volatility risk cannot be hedged with bonds we first show that all affine term structure models with state space m n m can be drift normalized and show when the standard variance normalization can be obtained using this normalization we find conditions for a wide class of affine term structure models to exhibit unspanned stochastic volatility usv we show that the usv conditions restrict both the mean reversions of risk factors and the cross section of conditional yield volatilities the restrictions imply that previously studied affine usv models are unlikely to be able to generate the observed cross section of yield volatilities however more general usv models can match the cross section of bond volatilities this paper was accepted by wei xiong finance

credible spatial preemption it is often argued that incumbent firms may deter entry by preemptive investment in new goods we show that these conclusions are reversed when multiproduct incumbentfirms may exit in response to entry once entrants are in an industry an incumbent will often want to withdraw some goods to prevent competition with the entrant from reducing profits on other goods such a reaction makes entry more attractive to a potential entrant the equilibrium industry structure is less likely to be monopolistic as the goods are better substitutes as exit costs are low and as the competition between producers of the same good is more intense

idiosyncratic variation of treasury bill yields i document a dramatic increase in the importance of two types of variation in treasury bill yields beginning in the early 1980s the first is idiosyncratic variation in individual short maturity less than three months bill yields the second is a common component in treasury bill yields that is not shared by yields on other instruments such as short maturity privately issued instruments or longer maturity treasury notes and bonds some evidence suggests the first type reflects increased market segmentation these results have important implications for the calibration and testing of no arbitrage term structure models and interpreting tests of the expectations hypothesis united states treasury bill yields play a central role in economists efforts to understand the behavior of financial markets the focus on treasury bills is driven by the belief that bill yields can be viewed as benchmarks from which yields on other debt instruments are derived for example in no arbitrage models of the default free term structure the stochastic properties of the hypothetical instantaneous interest rate determine bond prices researchers often construct and evaluate these models using short maturity bill yields as proxies for instantaneous interest rates similarly bill yields are frequently used to test the expectations hypothesis of the term structure 2 economists standard pricing models for default risky securities also view treasury yields as building blocks in such models yields on default risky securities depend at least in part on the yields of default free securities and the underlying stochastic default process therefore yields on treasury bills have been used in studies of the effects of monetary policy on the business cycle not because bills are intrinsically critical to the economy but because

welfare reductions from small cost reductions in differentiated oligopoly abstract this paper compares the welfare effects of cost reductions in differentiated bertrand and cournot oligopolies using a linear demand system the paper provides the critical levels of output shares below which a small cost reduction by a bertrand or cournot firm reduces welfare it then shows that the critical value is larger under bertrand competition than cournot competition

interest rate volatility and the term structure a two factor general equilibrium model we develop a two factor general equilibrium model of the term structure the factors are the short term interest rate and the volatility of the short term interest rate we derive closed form expressions for discount bonds and study the properties of the term structure implied by the model the dependence of yields on volatility allows the model to capture many observed properties of the term structure we also derive closed form expressions for discount bond options we use hansen s generalized method of moments framework to test the cross sectional restrictions imposed by the model the tests support the two factor model there are essentially two approaches to the modeling of the term structure of interest rates in continuous time the equilibrium approach pioneered by

antitrust and technological innovation in the us ideas institutions decisions and impacts 1890 2000 abstract the history of antitrust policy in the us as it relates to technological innovation exhibits major swings every few decades between favoring concentration and favoring deconcentration this paper sketches for each period the contending ideas that frame antitrust technology policy debates the salience of these ideas in the larger antitrust policy process the institutions for agenda setting and decision making in this area the policy decisions themselves and more speculatively the impacts of these decisions on technological innovation and industrial development the paper concludes with a preliminary attempt to identify the cyclical secular and static processes that have shaped the history of this policy area and to use this analysis to inform future policy makers

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

emissions trading with profit neutral permit allocations this paper examines the impact of an emissions trading scheme ets on equilibrium emissions output price market concentration and profits in a generalized cournot model we develop formulae for the number of emissions permits that have to be freely allocated to firms to neutralize the profit impact of the ets we show that its profit impact is usually limited in a cournot oligopoly with constant marginal costs total industry profits are preserved so long as freely allocated permits cover a fraction of initial emissions that does not exceed the industry s herfindahl index

home or overseas an analysis of sourcing strategies under competition motivated by the recent backshoring trend this paper studies a sourcing game where competing firms may choose between efficient sourcing e g sourcing from overseas and responsive sourcing e g sourcing from a home country efficient sourcing usually provides a cost advantage whereas responsive sourcing allows a firm to obtain more accurate demand information when making procurement decisions by characterizing the equilibrium outcome we find some interesting results driven by the strategic interaction between the firms first a firm may still use efficient sourcing in equilibrium even when the cost advantage associated with efficient sourcing does not exist this is because the firm can dampen competition by reducing the correlation between its own demand information and the competitor s second a cost hike in efficient sourcing e g the rising labor cost in asia may benefit all the firms in the industry the reason is that the cost hike may alleviate competition by inducing a new equilibrium sourcing structure this paper also sheds some light on the recent backshoring trend first our analysis indicates that more firms will shift from efficient sourcing to responsive sourcing in equilibrium i e backshore if the market size shrinks the demand becomes more volatile or the sourcing costs rise simultaneously second a firm s backshoring behavior reduces the competition on the cost dimension but it also has an ambiguous informational impact on the other firms in the market in particular some firms may benefit from increased correlation of their demand information under cournot competition with substitutable products overall the backshoring behavior can be beneficial to all the firms sticking to their original sourcing strategies under certain conditions this paper was accepted by martin lariviere operations management

optimal licensing of uncertain patents in the shadow of litigation this paper investigates the choice of a licensing mechanism by the holder of a patent whose validity is uncertain we provide sufficient conditions of a general nature under which the licensor prefers to use a per unit royalty contract in particular we show that this is the case for the holders of weak patents if the strategic effect of an increase in a potential licensee s unit cost on the equilibrium industry profit is positive the latter condition is shown to hold in a cournot resp bertrand oligopoly with homogeneous resp differentiated products under general assumptions on the demands faced by firms as a byproduct of our analysis we contribute to the literature on the cost paradox in oligopoly by offering some new insights of independent interest regarding the effects of cost variations on cournot and bertrand equilibria

windfall profits under pollution permits and output based allocation this paper analyzes the implementation of pollution permits it focuses on the distributional impacts linked with the stringency of output based allocation when two sectors are covered by the market for permits and the total cap is held constant a new type of profit increase in sectors that are not exposed to international competition when energy intensive trade exposed eite sectors are granted output based allocations is demonstrated theoretically the paper also illustrates a profit increase in the electricity sector in a possible fourth phase of the european union emission trading scheme in which output based allocation will be granted to eite sectors compared with the case in which all permits are auctioned

a note on credible spatial entry deterrence abstract this note revisits the question of spatial entry deterrence to investigate the credibility of pre emption by crowding in a differentiated market judd rand j econ 16 1985 153 argues that pre emption by crowding is not a credible entry barrier because an incumbent monopolist has an ex post incentive to withdraw products in response to entry we demonstrate that pre emption by crowding may be a credible entry barrier if multiple potential entrants choose the timing of entry endogenously

the influence of economics on antitrust law economists today play prominent roles in formulating antitrust policy and litigating antitrust cases this paper explains why economics influences antitrust law and describes how economic theories enter and shape the antitrust system antitrust policy and doctrine change over time in response to developments in economic theory and the decentralization of the antitrust adjudication system and the wide latitude accorded judges in interpreting antitrust statutes ensure that legal rules will reflect advances in the economic literature concerning the appropriate content of standards governing business conduct i introduction twenty five years ago george stigler 1976 asked whether economists matter in the formulation of public policy a century of experience with the federal antitrust laws indicates that they do whereas assessments of their impact vary most observers regard economists as important participants in the antitrust system eisner 1991 emphasizes the modern imprint of chicago school economic perspectives upon antitrust enforcement and litigation rowe 1984 and hovenkamp 1989 show that economists and economic theory have influenced antitrust doctrine and policy throughout the period since the passage of the sherman act as a rough contemporary market test one can simply note the expanding number of economic consulting firms for whom antitrust counselling and litigation are staples of the practice 1 this allocation of society s resources is a reliable sign that economic analysis is significant in the prosecution and adjudication of antitrust cases this paper suggests why economists and economic learning matter to antitrust policy and describes how the work of economists affects antitrust litigation the discussion is divided into four parts the first identifies features of the antitrust system that permit or require economic ideas to be taken seriously the second part considers how antitrust relevant economic ideas are generated and absorbed into the antitrust system the third part examines factors that determine how deeply economic ideas influence antitrust adjudication the paper concludes by discussing how economics will influence the antitrust system in the sherman act s second century ii the openness of the antitrust system to economic ideas economic analysis influences antitrust litigation because the federal antitrust system is unusually permeable this permeability is the result of three important features of the antitrust system the first is the wide range of analytical criteria that courts are permitted to consider in resolving antitrust disputes federal judges play a central role in determining the content of the antitrust statutes outcomes under the sherman act depend crucially upon the construction of ambiguous terms such as conspiracy in restraint of trade and monopolize as salop and white 1988 37 point out the decision to cast the statutes in general terms has given judges substantial discretion to determine litigation outcomes by defining the content of the statutes operative terms in conferring this interpretive role upon the federal courts congress has allowed judges to devise standards of conduct at least in part by reference to the likely economic effects of various forms of business behavior despite sharp disagreement over the weight congress meant to accord productive and allocative efficiency as judicial decision making criteria 2 few scholars seriously argue that congress intended that courts treat such concerns as irrelevant economists would play a far less important part in antitrust adjudication if congress had precluded judicial consideration of efficiency in implementing statutory commands the open ended language and indeterminate goals of the antitrust statutes allow economists to affect adjudication and rule formulation to a degree unattainable under most other federal regulatory schemes

spatial pricing in the united states west germany and japan this paper investigates the spatial pricing policies of a sample of firms in the united states west germany and japan we begin in section i by providing general results for the three countries these suggest that f o b pricing is the exception rather than the rule furthermore there appear to be significant differences between the countries in the degree of spatial price discrimination the remainder of the paper examines whether the inter country differences in spatial discrimination can be explained by a theory of spatial pricing section ii uses the theory of spatial pricing proposed in greenhut and greenhut 1975 to derive an operational model in section iii the parameters of this model are estimated from the individual country data and the results are discussed section iv presents the conclusions the data used in this study were obtained from a survey of firms in the three countries in each country target regions were selected with a similar urban rural proportions as restricted by b existing acquaintanceships with professors in or near these urban rural centres survey constraint b was imposed after a mailed questionnaire pilot study in the united states had indicated a likely need for follow up mailings phone calls and even interviews before a sufficient number of responses from a particular place e g a particular state in the united states could be expected after selecting our comparable survey areas firms were picked at random from industrial lists of business establishments in each country and questionnaires were mailed to them the questionnaire is reproduced in the appendix the firms that returned questionnaires were compared to non responding firms no distinction in size of firm industry type or location was apparent for any country or sub region studied among the respondents we dropped from the sample all firms that were not subject to a significant freight cost defined to be a 5 per cent minimum freight cost to delivered cost ratio on sales to at least one distant market point our findings on pricing strategies are summarized in table 1 firms in the united states tend to price discriminatorily of 174 sampled firms less than one third priced non discriminatorily f o b the spokesmen for the remaining firms 67 per cent admitted that they did not add full freight cost to their mill price on all of their distant sales these firms therefore priced discriminatorily the tendency to price discriminatorily is even greater in west germany and japan with the percentage of discriminating firms approximately

the impact of collateralization on swap rates interest rate swap pricing theory traditionally views swaps as a portfolio of forward contracts with net swap payments discounted at libor rates in practice the use of marking to market and collateralization questions this view as they introduce intermediate cash flows and alter credit characteristics we provide a swap valuation theory under marking to market and costly collateral and examine the theory s empirical implications we find evidence consistent with costly collateral using two different approaches the first uses single factor models and eurodollar futures prices and the second uses a formal term structure model and treasury swap data the traditional approach to interest rate swap valuation sundaresan 1991a and duffie and singleton 1997 treats a swap as a portfolio of forward contracts on the underlying floating interest rate under specific assumptions regarding the nature of default and the credit risk of the counterparties duffie and singleton 1997 prove that swap rates are par bond rates of an issuer who remains at libor quality throughout the life of the contract this result is extremely useful for extracting zero coupon bond prices pricing swap derivatives and testing spot rate models despite the popularity of the traditional view market practice brings into question some of the underlying assumptions of this approach as the swap market rapidly grew in the late 1980s and early 1990s an increasingly diverse group of counterparties entered the market to mitigate their exposure to counterparty credit risk market participants began using a number of credit enhancements to improve the credit quality of swap contracts without question the most important credit enhancement is the posting of collateral in the amount of the current mark to market value of the swap contract isda 1999 due to these credit enhancements market participants commonly view interest rate swaps as free of counterparty default risk see e g tuckman 2002 this implies that in contrast to the traditional approach swap rates should be discounted not at default risky libor rates but rather at default free rates johannes and sundaresan are with the columbia business school we thank seminar partici

evaluating an alternative risk preference in affine term structure models dai and singleton 2002 and duffee 2002 show that there is a tension in affine term structure models between matching the mean and the volatility of interest rates this article examines whether this tension can be solved by an alternative parametrization of the price of risk the empirical evidence suggests that first the examined parametrization is not sufficient to solve the mean volatility tension second the usual result in the estimation of affine models indicating that some of the state variables are extremely persistent may have been caused by the lack of flexibility in the parametrization of the price of risk term structure models have several uses including pricing fixed income derivatives managing the risk of fixed income portfolios and detecting relationships between the term structure of interest rates and macrovariables such as inflation and consumption to perform well in these tasks term structure models must be numerically and econometrically tractable while matching the empirical properties of the term structure movements at least two empirical properties of the term structure of interest rates have been well established by financial economists over the years see dai and singleton 2003 for a survey first the term premium or the expected excess return of treasury bonds has a high time variability second the volatility of interest rates is time varying these two properties are so prominent in the data that they will be referred to as stylized facts while these two stylized facts are very well established in the empirical literature affine term structure models are thoroughly discussed in the theoretical literature affine models are those in which the yield of zero coupon bonds are affine functions of the model state variables classic

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

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

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

can interest rate volatility be extracted from the cross section of bond yields most affine models of the term structure with stochastic volatility predict that the variance of the short rate should play a dual role in that it should also equal a linear combination of yields however we find that estimation of a standard affine three factor model results in a variance state variable that while instrumental in explaining the shape of the yield curve is essentially unrelated to garch estimates of the quadratic variation of the spot rate process or to implied variances from options we then investigate four factor affine models of the models tested only the model that exhibits unspanned stochastic volatility usv generates both realistic short rate volatility estimates and a good cross sectional fit our findings suggest that short rate volatility cannot be extracted from the cross section of bond prices in particular short rate volatility and convexity are only weakly correlated c 2009 elsevier b v all rights reserved

interest rate volatility the yield curve and the macroeconomy abstract this paper provides theory and evidence that a low dimensional term structure model can simultaneously price bonds and related options it shows that a component of volatility risk largely unrelated to the shape of the yield curve is a determinant of expected excess returns for holding long maturity bonds it also finds evidence for this return relationship both in the model and directly in the data through regression analysis the paper also identifies a link between corporate earnings performance and interest rate volatility providing a channel driving interest rate volatility the structure of risk in the model that gives rise to these features of volatility is distinct from that inherent in recent models with unspanned stochastic volatility

further analysis of the theory of economic regulation the case of the 1969 coal mine health and sfnety act scott m fuess jr and mark a loewenstein how does government regulation influence the structure of industries in the coal mining industry increased safety can be provided with personal protection devices or with engineering controls but the type of safety standard imposed is important because larger producers have a comparative advantage complying with engineering controls time series evidence indicates that the 1969 coal mine health and safely act by imposing engineering controls drove out smaller less safe mines thereby shifting production toward larger mines many of the proposals made in the name of safety have little to do with the safety of the individual miner but a great deal to do with the vested interests of the most powerful forces in the coal industry the large operators and the union mr robert holcomb pike county coal operators association house hearings on coal mine health and safety 4 march 1969 556 7 i introduction the theory of compensating wage differentials predicts that a worker will demand greater compensation if he is to bear a higher risk of injury on the job higher wages are paid for jobs where the probability of a fatal accident is greater although it is not clear this wage differential is paid for other unpleasant job characteristics despite this compensation for job accidents the federal government heavily regulates workplace safety federal job safety standards generally do not specify injury rate standards to be met rather regulations typically require producers to use particular types of equipment and workplace designs focusing on particular safety standards the economic report of the president 1987 199 200 notes in the case of the cotton dust standard for example the risk of lung disease could be reduced by allowing the use of disposable masks osha s occupational safety and health administration preference for engineering controls is particularly costly in the case of noise control the theory of economic regulation initiated by stigler 1971 1975 and peltzman 1976 suggests that government regulations benefit certain interest groups at the expense of others maloney and mccormick 1982 105 argue that if the most efficient firms in an industry have a comparative advantage in complying with regulation then price will increase more than costs for some firms the rents of marginal firms will decline and some will exit as they face higher costs pashigian 1984 notes that if there are economies of scale in compliance then regulation can increase the market share of the larger producers according to bartel and thomas 1985 osha regulations do not appear to have led to lower injury rates but the differential cost effects of occupational safety legislation may have benefited large producers and unions few studies notably marvel 1977 and linneman 1980 have examined specific acts of legislation to determine how government regulation redistributes rents among producers in an industry pashigian 1986 201 calls the study of regulation s intraindustry effects an infant industry this paper contributes to this infant industry by modeling the effects of safety regulation to study the impact of the 1969 coal mine health and safety act on underground bituminous coal mining previous empirical studies indicate that federal mine safety regulation has had important indirect effects on the coal mining industry central to our analysis of these effects is miller s 1984 observation that safety can be produced with clearly defined alternatives either labor specific personal protection devices or capital specific engineering controls and workplace designs since larger producers enjoy a comparative advantage complying with engineering controls and smaller producers have a comparative advantage complying with personal safety standards the type of safety standard decreed will favor one group of producers over the other

optimal antitrust enforcement competitor suits entry and post entry competition abstract we consider the effect of competitor suits in a model in which an incumbent can take an action that deters the entry of a rival the option to sue the incumbent can provide a subsidy for entry which can maintain competition even when the incumbent takes this action liability for the entrant s lost profits however can soften post entry competition if the incumbent s action is potentially efficient taking market structure as given e g it reduces her costs then competitor suits can generate some post entry competition without deterring this efficient cost reduction if the incumbent s action is inefficient e g it increases the rival s costs but does not reduce the incumbent s costs then competitor suits even with maximal antitrust liability cannot deter the incumbent from increasing the rival s costs by at least a small amount thus the paper suggests that while competitor suits have advantages for efficient actions that deter efficient entry they do not work well for inefficient actions that deter entry

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

do bonds span the fixed income markets theory and evidence for unspanned stochastic volatility most term structure models assume bond markets are complete that is that all fixed income derivatives can be perfectly replicated using solely bonds however we find that in practice swap rates have limited explanatory power for returns on at the money straddles portfolios mainly exposed to volatility risk we term this empirical feature unspanned stochastic volatility usv while usv can be captured within an hjm framework we demonstrate that bivariate models cannot exhibit usv we determine necessary and sufficient conditions for trivariate markov affine systems to exhibit usv for such usv models bonds alone may not be sufficient to identify all parameters rather derivatives are needed

licensing weak patents in this paper we revisit the issue of licensing weak patents under the shadow of litigation departing from the seminal paper by farrell and shapiro 2008 we consider innovations of any size and not only small innovations and we allow the number of licensees to be less than the number of firms in the downstream industry it is shown that the optimal two part tariff license from the patent holder s perspective may either deter or trigger litigation and conditions under which each case arises are provided we also reexamine the claim that the licensing revenues from weak patents overcompensate the patent holder relative to what a natural benchmark would command finally we suggest two policy levers that may alleviate the harm raised by the licensing of weak patents

on monopolistic competition and optimal product diversity workers rents also matter in the dixit stiglitz model of monopolistic competition entry of firms is socially too small other authors have shown that excess entry is also a possibility with other preferences for diversity we sow that workers rents also contribute to explain excess entry through a general equilibrium mechanism larger wages indeed raises the aggregate earnings and firms sales and profits which entices too many firms to enter we discuss the possibility of over provision of varieties by comparing the equilibrium to unconstrained and constrained social optima and to other regulatory frameworks where wages are not controlled

idiosyncratic shocks in an asymmetric cournot oligopoly abstract several authors have studied the impact of a marginal cost variation in the cournot model on consumers surplus firms profits and social welfare we unify and extend the results when all marginal costs change simultaneously hence we bring together two strands of literature respectively on mean preserving and subgroup common shocks the effect of any shock is decomposed into two parts an average impact ai and a heterogeneity effect he the former improves welfare if the inverse demand function is concave enough and the market is concentrated enough the latter when the diffusion of the shock is negatively correlated with the market share distribution finally we apply our decomposition to various special cases

rational conjectures in the theory of oligopoly abstract the paper employs the notion of rational conjectural equilibrium to remove the arbitrary nature of conjectures about rivals reactions which characterises the traditional non cooperative theory of oligopoly a general definition of these equilibria is given and the concept is then applied to a simple duopoly model the standard models of perfect competition monopoly limit price dominant firms are shown to emerge as special cases of rational conjectural equilibria

consistent conjectures in monopolistic competition abstract models of monopolistic competition such as dixit and stiglitz and spence typically assume firms take market variables as parametric this conjectural variation corresponds to chamberlin s large group approximation although these models need not have a large number of firms the present note following perry shows that consistent conjectures about the size and number of rivals can provide a more satisfactory basis for this assumption

excess entry vertical integration and welfare this article provides a systematic analysis of the welfare effects of vertical integration by a monopolist input supplier into a monopolistically competitive downstream industry we give sufficient conditions on consumer preferences that lead to pareto improving vertical integration and demonstrate a close relationship between assumptions on preference for variety excess entry in monopolistically competitive markets and the welfare effects of vertical integration excess entry in downstream markets tends to give rise to pareto improving vertical integration we extend the analysis to vertical oligopoly and access price regulation

green tax reform in an oligopolistic industry oecd countries reduce or eliminate certain taxes when they introduce new environmental taxes the purpose of this paper is to analyze the incidence of such green tax reform in an oligopolistic industry the paper shows that a rise in taxes could result in the expansion of the aggregate pollution in the presence of a large technology gap the paper further shows that the government loses tax revenue as a result of the green tax reform if it continues to apply the same environmental standard this implies that the government needs to raise environmental standards to keep the existing level of public spending after a green tax reform

pass through in a concentrated industry empirical evidence and regulatory implications we estimate pass through with thirty years of data from a concentrated industry the empirical model accounts for oligopoly interactions yet facilitates estimation with aggregate price data robust statistical evidence supports that industry wide cost changes are more than completely transmitted downstream and that this industry pass through is largely unaected by competitive conditions the industry in question portland cement is a major focus of environmental and antitrust regulators we use our pass through estimates to i evaluate the welfare consequences of marketbased co2 regulation ii predict the magnitude and location of price eects due to a merger under review by antitrust authorities and iii corroborate the simulation based analysis of the epa regarding its impending regulation of local pollutants

weak entrants are welcome abstract this paper investigates the decision problem of an incumbent firm confronted by both a weak and strong entrant in a differentiated market suppose that the incumbent can deter entry of the weak firm but cannot deter entry of the strong firm by itself then the incumbent may allow entry of the weak firm and use it to alter the strong firm s entry decision the present paper formalizes this idea and it sheds new light on the fact that domestic firms are sometimes able to block strong foreign firms after trade liberalization the idea also explains why a dominant firm lets fringe firms be in the market

demand shifts and market structure in free entry oligopoly equilibria abstract this papers examines the structural implications of demand shifts in free entry oligopoly equilibria the model generalizes the conjectural variations framework to consider asymmetric firm conjectures allows for the possibility of cost differences across firms and endogenizes conditions of entry and exit in the industry in non competitive environments changes in incumbent output and industry profitability are inversely related to changes in the equilibrium price following a demand shift in response to rotations of demand through the equilibrium point changes in profitability are positively related to changes in industry concentration and when marginal costs are non decreasing inversely related to changes in market power

core and crust consumer prices and the term structure of interest rates we propose a model for nominal and real term structures of interest rates that includes dynamics for the three main components of total inflation core food and energy these dynamics combine together to produce a measure of expected total inflation that investors use to price nominal treasuries this framework captures different frequencies in inflation fluctuations shocks to core are more persistent and less volatile than shocks to food and especially energy the crust we find that a common structure of latent factors determines and predicts the term structure of yields and inflation our model outperforms popular benchmarks e g arma var and random walk specifications and it is at par with the survey of professional forecasters in forecasting inflation moreover we estimate real rates that agree with inflationindexed bond yields after adjusting for the liquidity premium in these bonds finally inflation and real rate risk premia show a declining pattern consistent with the changing nature of inflation and real rate risks

the economics of eco labeling standards costs and prices abstract the existing eco label landscape is fragmented because of the presence of numerous labels with different standards and is a pre competitive environment for firms to play in with many unanswered questions different standards eco labels are built around have different effects on credibility and legitimacy costs and benefits and ability to achieve sustainability goals of eco labeling focusing on eco label standards and using a hotelling type horizontal differentiation model we identify standards specific issues for and characterize primary barriers to eco labeling some of the major findings are as follows 1 more rigorous environmental standards enforced by higher integrity labels do not necessarily translate into higher selling prices 2 higher prices commanded by labeled products do not guarantee that a firm will derive higher profits from eco labeling 3 auditing fees paid per product unit being inspected for ensuring compliance with an eco label standard rather than participation fees paid up front is the primary de facto barrier to business involvement in eco labeling and 4 customers willingness to pay price premiums for eco labeled products is not a sufficient condition to generate a premium in the market

conjectures rationality and duopoly theory abstract the main results of this paper are twofold first we show that any sustainable pair of production programs can be obtained as a locally rational conjectural equilibrium for appropriately chosen linear conjectural functions for the duopolists then we show that constant conjectural variations duopoly models could in a sense be made rational if the value of the conjectural variation is considered not as a constant but rather as a specific value taken at the equilibrium

price discrimination and efficient distribution this paper focuses on third degree price discrimination by an upstream firm with some degree of monopoly power downstream firms fall into two categories efficient and inefficient according to their relative costs of transforming a unit of the upstream good into a unit of final product under ordinary static conditions price discrimination favors the inefficient firms which have more elastic demands we consider however the possibility that discrimination in the opposite direction can alter the downstream market structure toward greater efficiency discriminatory pricing then involves charging a higher price to the less efficient firms such pricing is shown to be both potentially profitable for the upstream firm and welfare improving as average consumer prices fall

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

product variety and welfare under tough and soft pricing regimes we re examine the economic justification for the regulation of firms price policies existing analysis of the relative benefits of alternative pricing policies by treating market structure as exogenous loses an important trade off price deregulation leading to for example discriminatory pricing on the one hand enhances competition between incumbents but on the other acts as a strong deterrent against entry we illustrate this trade off by analysing the familiar address model of product differentiation and show that product variety is determined by the degree of spatial contestability of the market the ability of entrants to make binding location commitments and by whether firms are free to price discriminate copyright 1996 by royal economic society

how strong are weak patents economists usually conceive of patents as property rights that prevent others from practicing the patenting technology unless they first obtain a license from the patent holder even for ironclad patents i e for patents that are certain to be valid the existing literature has shown that the analysis of equilibrium licensing contracts is surprising subtle and complex 1 for example the analysis is quite different depending upon whether one firm s licensing contract is observable to the other firms likewise equilibrium outcomes are quite different if royalties must be linear than in the case where two part tariffs and other non linear royalties are permitted in that literature a downstream firm that refuses to sign a contract with the upstream supplier either exits the industry in the case that the upstream supplier controls an essential input or must rely on more costly inputs in the case of a non essential input in other words the downstream firm s threat point is to use some backstop technology in practice however patents are issued after a brief examination by the patent office to see if they meet the statutory requirements for novelty and non obviousness mounting evidence indicates that many weak patents i e patents unlikely to be found valid if challenged in court are issued by the u s patent and trademark office uspto 2 some observers view this with great alarm arguing that uspto is handing out undeserved monopolies others by contrast have suggested that these weak patents are of little concern because they will have little commercial impact because they will be licensed at commensurately low royalty rates or not enforced at all we study the commercial impact of weak patents more precisely we define a patent s strength as the probability that it will be found valid if challenged in court and we examine the relationship between a patent s strength and the royalties that it can command the distinctive

short term market risks implied by weekly options we study short maturity weekly s p 500 index options which provide a direct way to analyze volatility and jump risks unlike longer dated options they are largely insensitive to the risk of intertemporal shifts in the economic environment adopting a novel seminonparametric approach we uncover variation in the negative jump tail risk which is not spanned by market volatility and helps predict future equity returns as such our approach allows for easy identification of periods of heightened concerns about negative tail events that are not always signaled by the level of market volatility and elude standard asset pricing models

a characterization for the negative welfare effects of cost reduction in cournot oligopoly abstract this paper characterizes the welfare effects of cost reductions in a cournot model with linear costs under linear demand a small reduction in a firm s marginal cost reduces welfare if and only if its market share is less than 1 2n 2 or equivalently its marginal cost exceeds a critical level determined by the market a large cost reduction by the firm increases welfare if and only if its magnitude is at least twice the difference between the current marginal cost and its critical value the paper also extends the results to non linear demand but the characterizations become less tractable

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

the behavior of interest rates implied by the term structure of eurodollar futures this paper considers an equilibrium model of the term structure that is determined by two stochastic factors a short term interest rate and a target level to which the short rate is expected to revert a kalman filter technique that uses a time series cross section of eurodollar futures prices is developed to estimate the parameters of the model the term structures of spot libor and eurodollar futures volatility are compared to that predicted by the model the empirical results indicate that the two factor specification represents a significant improvement over its one factor version copyright 1996 by ohio state university press

monopoly a game economists love to play badly giving this presidential address to the southern economics association is more of a privilege than a duty of office i suspect that i am more honored to give this talk than most past presidents of the association given my current academic post in california i may be far removed from my southern heritage in space but not in orientation my heart remains tied to the south i am very pleased that the sea board and members did not consider my current california connection as a disqualification for president of the association

price mean reversion seasonality and options markets options on agricultural commodities with maturities exceeding one year seldom trade one possible reason to explain this lack of trading is that we do not have an accurate option pricing model for products where mean reversion in spot price levels can be expected standard option pricing models assume proportionality between price variance and time to maturity this proportionality is not a valid assumption for commodities whose supply response brings prices back to production costs the model proposed here incorporates mean reversion in spot price levels and includes a correction for seasonality mean reversion and seasonality are both observed in the soybean market the empirical analysis lends strong support to the model

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

expectation puzzles time varying risk premia and dynamic models of the term structure abstract linear projections of returns on the slope of the yield curve have contradicted the implications of the traditional expectations theory this paper shows that these findings are not puzzling relative to a large class of richer dynamic term structure models specifically we match all the key empirical findings reported by fama and bliss 1987 american economic review 77 4 680 692 and campbell and shiller 1991 review of economic studies 58 495 514 among others within large subclasses of affine and quadratic gaussian term structure models additionally we show that certain risk premium adjusted projections of changes in yields on the slope of the yield curve recover the coefficients of unity predicted by the models key to this matching are parameterizations of the market prices of risk that let the risk factors affect the market prices of risk directly and not only through factor volatilities the risk premiums have a simple form consistent with fama s findings on the predictability of forward rates and are also shown to be consistent with interest rate feedback rules used by a monetary authority in setting monetary policy

private interest support for efficiency enhancing antitrust policies recent discussions of antitrust based on the private interest theory of government conclude that the real as opposed to the stated purpose of antitrust legislation is to protect politically influential industries against competition yet several prominent antitrust scholars who accept the private interest theory of government in general see antitrust legislation serving the public interest by increasing competition we argue that the private interest theory of government is consistent with the view that antitrust legislation promotes competition indeed antitrust legislation may be supported by organized interest groups because such legislation increases the competition they face i introduction the traditional justification for the enactment and enforcement of antitrust legislation is that it serves the public interest by preventing businesses from engaging in practices that reduce competition over the last decade some economists have become skeptical of this justification a small but growing number of economists see the public interest justification for antitrust enforcement as a pretense for using government to promote the private interests of politically organized groups 1 within the private interest theory of government model it is natural to see antitrust activity as motivated by the desire to reduce rather than increase competition certainly a private interest is better served by obtaining an anticompetitive increase in the price of the product being sold than by obtaining a competitive reduction in the price of one of the many products being bought yet major contributors to and strong supporters of the private interest theory of government are reluctant to embrace the private interest explanation of at least the origins of antitrust policy george stigler for example has said so far as i can tell it s the sherman act a public interest law i like the sherman act 2 bork 1978 61 has argued that the legislative history of the sherman act displays the clear and exclusive policy intention of promoting consumers welfare and according to posner 1976 23 the framers of the sherman act appear to have been concerned mainly with the price and output consequences of monopolies and cartels with the view prevalent even among those sympathetic with the private interest theory of government that antitrust legislation owes much to the desire for a more competitive economy it is not surprising that antitrust policy has been resistant to private interest explanations 3 our purpose is to weaken this resistance by arguing that the private interest theory of government is not necessarily inconsistent with the view that support for antitrust activity is motivated by the desire to increase the competitive efficiency of the general economy indeed we shall argue that the private interest theory of government suggests that organized interests may favor antitrust actions as a means of limiting their own anticompetitive practices it should be emphasized at the outset that we will not attempt to establish that antitrust enforcement does increase economic efficiency our more modest objective is to reconcile the seemingly inconsistent views of those who both accept a private interest theory of government and believe that economic efficiency is served by antitrust policy the difficulty of addressing the issue of the effect antitrust enforcement has on the overall efficiency of the economy is reflected in stigler s 1982 44 admission it would be gratifying to me if i could report that our profession s changing view toward support of antitrust policy was based upon the systematic study by economists of the effects of the policy in short that hard evidence carried the day unfortunately there have been no persuasive studies of the effects of the sherman and clayton acts throughout this century 4 in the next section we present a simple model of a coalition of industries each of which is interested in achieving its own protection in political competition with other industries

on the inefficiency of merger control abstract according to the merger guidelines the antitrust authority has to challenge an anticompetitive merger these guidelines however neglect the parties litigation costs during trial we analyze under which circumstances these costs are so high that the agency s intervention is inefficient

research joint ventures and the cost paradox abstract we consider the impact of the cost paradox on the likelihood of cooperative firms to use a cost reducing research joint venture rjv to increase research levels when spillovers are large the cost paradox cp occurs whenever industry wide cost reductions would lead to such intense competition that profits would fall we give a restriction on cost reducing research which guarantees that an rjv will prefer marginal reductions in research to the noncooperative levels whenever cp would arise and spillovers are less than perfect in such cases firms use an rjv to lessen competition rather than to lower costs

the effect of private antitrust litigation on the stock market valuation of the firm the authors study the implications for shareholder wealth of interfirm antitrust litigation and how the costs of the dispute affect the propensity to settle upon filing defendants experience significant wealth losses that are ten million dollars larger than the wealth gains of plaintiffs financial distress behavioral constraints and follow on suits are sources of wealth leakage and influence settlement behavior since the threat of a monetary transfer has little power to explain either wealth effects or the likelihood of settlement the central concern of defendants may be the potential prohibition of profitable business practices copyright 1995 by american economic association

optimal tariffs in consistent conjectural variations equilibrium abstract this paper analyzes the determination of the optimal tariff under the assumption of consistent conjectural variations ccv a general characterization of the ccv equilibrium is given we show that i there are in general a multiplicity of each equilibria and ii under certain restrictions the cournot equilibrium which is based on the assumption of no retaliation can also be a ccv equilibrium by contrast free trade is never a ccv equilibrium finally the ccv equilibrium is solved explicitly in a simple example

shape factors and cross sectional risk abstract galluccio and roncoroni 2006 empirically demonstrate that cross sectional data provide relevant information when assessing dynamic risk in fixed income markets we put forward a theoretical framework supporting that finding based on the notion of shape factors we devise an econometric procedure to identify shape factors propose a dynamic model for the yield curve develop a corresponding arbitrage pricing theory derive interest rate pricing formulae and study the analytical properties exhibited by a finite factor restriction of rate dynamics that is cross sectionally consistent with a family of exponentially weighed polynomials we also conduct an empirical analysis of cross sectional risk affecting us swap euro bond and oil markets results support the conclusion whereby shape factors outperform the classical yield resp price factors i e level slope and convexity in explaining the underlying fixed income resp commodity market risk the methodology can in principle be used for understanding the intertemporal dynamics of any cross sectional data

the legislative history of the sherman act re examined according to robert bork s influential analysis the sherman act was expressly instituted by the 51st congress to advance consumer welfare but has often been misinterpreted by federal courts handing down anticonsumer decisions this paper suggests that the political coalition backing the 1890 antitrust statute sought multiple social ends and did not faithfully seek to impose economic efficiency the key evidence includes historical economic trends congressional debate the legislative agenda of senator john sherman and the political conflict generated by the most contentious and most electorally important issue of the 51st congress the highly protectionist mckinley tariff act i the consumer welfare hypothesis economists have singled out the sherman antitrust act as a uniquely proconsumer piece of legislation while the general economic analysis of political processes has proceeded from george stigler s presumption that a s a rule regulation is acquired by the industry and is designed and operated primarily in its benefit stigler 1971 114 no similar cynicism has enveloped the nation s preeminent antitrust statute strong evidence that the federal trade commission act of 1914 was shaped by the protectionist vision of louis brandeis mccraw 1981 or even a solid economic consensus as to the anticompetitive sentiment behind the 1936 antitrust law the robinson patman act see sowell 1980 210 ross 1984 243 schwartz 1986 has failed to cloud the sherman act s good name as stigler himself has concluded i like the sherman act so far as i can tell it s a public interest law in the same sense in which i think having private property enforcement of contracts and suppression of crime are public interest phenomena stigler 1984 46 see also stigler 1985 1 this proconsumer view of antitrust is all the more ironic in light of recent dissatisfaction with anticonsumer consequences of antitrust policy generally see goldschmid et al 1974 demsetz 1978 baxter 1980 brozen 1982 armentano 1982 johnson 1983 baumol and ordover 1985 hazlett 1986 bittlingmayer 1992 there is widespread concern that antitrust law has been employed against competitive market rivalry moreover the central paradox of an 1890 antimonopoly law remains why should an economy rapidly expanding outputs in virtually all major industrial sectors move to quash restrictions of output baxter 1980 dilorenzo 1985 particularly when such output increases were intrinsically tied to the emergence of large corporate forms chandler 1977 it is also troubling that the interstate commerce act of 1887 generally rejected as a proefficiency measure occurred under such close and similar political auspices hilton 1966 indeed a recent re examination of the commerce act has nicely revealed a multiple interest group demand for legislation gilligan et al 1989 perhaps the consumer welfare model differs sharply from the popular notions of monopoly that the sherman act sought to discourage in law yet this would tend to jeopardize the notion that the act was wholly proconsumer and american economists of the sherman act era in typically viewing competition as a dynamic market phenomenon largely rejected the antitrust approach as failing to advance the consumer s long run interests dilorenzo and high 1988 the proconsumer view of the sherman act has been most thoroughly elaborated by robert bork who writes the legislative history of the sherman act displays the clear and exclusive policy intention of promoting consumer welfare 1978 61 while competing motivations for antitrust legislation were admittedly advanced with only trivial exceptions it is impossible to find even colorable language suggesting most of the other broad social or political purposes that have occasionally been suggested as relevant to the application of the sherman act bork 1966 42

the term structure of inflation expectations we use information in the term structure of survey based forecasts of inflation to estimate a factor hidden in the nominal yield curve we construct a model that accommodates forecasts over multiple horizons from multiple surveys and treasury real and nominal yields by allowing for differences between risk neutral subjective and objective probability measures we establish that model based inflation expectations are driven by inflation output and one latent factor we find that this factor affects inflation expectations at all horizons but has almost no effect on the nominal yields that is the latent factor is hidden we show that this hidden factor is not related to either current and past inflation or the standard set of macro variables studied in the literature consistent with the theoretical property of a hidden factor our model outperforms a standard macro finance model in its forecasting of inflation and yields

contestability vs competition once more baumol willig and other advocates of contestability theory continue to urge the idea not only for its insights but also as a clear basis for many antitrust and regulatory decisions yet the limits of the theory remain the three key assumptions are extremely strict and two of them are in mutual conflict the theory is not robust to imperfections in order to displace effective competition with contestability baumol must adopt a sequence of implausible propositions which unfortunately have little analytical or empirical basis

identification of maximal affine term structure models building on duffie and kan 1996 we propose a new representation of affine models in which the state vector comprises infinitesimal maturity yields and their quadratic covariations because these variables possess unambiguous economic interpretations they generate a representation that is globally identifiable further this representation has more identifiable parameters than the maximal model of dai and singleton 2000 we implement this new representation for select three factor models and find that model independent estimates for the state vector can be estimated directly from yield curve data which present advantages for the estimation and interpretation of multifactor models

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

an international examination of affine term structure models and the expectations hypothesis we examine the yield curve behavior and the relative performance of affine term structure models atsms using government bond yield data from canada germany japan the u k and the u s we find strong predictability of forward rates for excess bond returns and reject the expectations hypothesis in all five countries a three factor model is sufficient to capture movements in the yield curve of canada japan the u k and the u s but may not be enough for germany an exhaustive comparison among atsms with no more than three factors reveals that the three factor essential affine model a 1 3 e with only one factor affecting the volatility of the short rate but with all three factors affecting the price of risk performs best in all five countries simulations provide inconclusive evidence on whether this best affine model can successfully generate the rich yield curve behavior observed in the data

relying on the information of interested parties we investigate the conventional wisdom that competition among interested parties attempting to influence a decisionmaker by providing verifiable information elicits all relevant information we find that if the decisionmaker is strategically sophisticated and well informed about the relevant variables and about the preferences of the interested party or parties competition may be unnecessary to achieve this result if the decisionmaker is unsophisticated or not well informed competition is not generally sufficient if the interested parties interests are sufficiently opposed however or if the decisionmaker is seeking to advance the parties welfare then competition can reduce or even eliminate the decisionmaker s need for prior knowledge about the relevant variables and for strategic sophistication in other settings only the combination of competition among information providers and a sophisticated skepticism is sufficient to allow effective decisionmaking

public choice theory and antitrust policy we survey the pioneering contributions of robert tollison to the theory and practice of antitrust law enforcement inspired by his period of service during ronald reagan s first administration as director of the federal trade commission s bureau of economics tollison was the first scholar to apply public choice reasoning to the question why antitrust frequently fails to achieve its stated goal of protecting consumers against unwarranted exercises of market power in supplying evidence that the outcomes of antitrust processes are shaped more by special interests than by the public s interest he was instrumental in launching a wholly new research program

on strategic cost increases in a duopoly abstract this study determines whether duopolists can profit from imposed cost increases even if both firms are affected equally implicit in any analysis of strategic behavior is the assumption that firms are sufficiently sophisticated to anticipate the new industry equilibrium requiring each duopolist to have consistent conjectures abouts its rival s behavior we show that if the firms marginal cost curves are sufficiently flat increasing the slopes of these curves can raise profits the steeper marginal cost curves encourage regulatory coordination that is the rivals move closer to the joint profit maximizing outcome

imperfect competition law enforcement competition policy is a subject of often heated debate competition authorities seeking to prevent or battle anticompetitive acts in complex cases to the best of their abilities regularly find themselves advised by rival economic theories and disputed empirical analyses as a consequence there is a real possibility that they may occasionally err missing true violations of competition law or finding firms liable that actually had no other intentions than good competition in this paper possible consequences of such imperfect competition law enforcement on firm strategies are considered in a simple model of collusion it is found that the incidence of anti competitive behavior increases in both types of enforcement errors type ii errors decrease expected fines while type i errors encourage industries to collude precautionary when they face the risk of a false conviction hence fallible antitrust enforcement may stifle genuine competition thus stimulating the very behavior competition policy is meant to deter when enforcement errors are non negligible competition authorities run the risk of being over zealous in the sense that welfare is best served by an authority that is selective and conscientious in its targeting of alleged anticompetitive acts

on the strategic choice of spatial price policy the strategic incentives with respect to the choice of price policy in spatial competition are analyzed in a duopoly model price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage nevertheless profits may be h igher with uniform pricing the authors models are applied to analyz e some common business practices that arise in geographical pricing like the basing point system and in the pricing of varieties or opti ons from a base product in a product differentiation context copyright 1988 by american economic association

competition of firms discriminatory pricing and location1 two costlessly mobile firms are to be located in a market region a subset of the plane the firms compete by setting locations and delivered price schedules to study this competitive stiuation an appropriate extensive form game is defined along with an appropri ate noncooperative solution concept existence and general properties of the equilibrium are demonstrated among the results are each firm increases its profit by locating so as to decrease total cost to both firms of serving the market firms will never locate coinciden tally if they have identical production costs and transport cost rates or if these are different and the firms are located in a circular market region having a uniform demand distribution this paper studies competition between two profit maximizing firms in space who are costlessly mobile and may discriminate in price we will allow the firms to set locations and delivered price schedules and we will be concerned with the existence and properties of equilibria in location and price starting with hotelling 9 the spatial competition literature has focused on location on bounded linear markets by two or more firms hotelling assumed identical firms that produced a single good with constant cost of production and considered consumers to be uniformly distributed and to have inelastic demand he also assumed that the consumers pay transport cost and purchase the good from the cheapest source hotelling claimed that a nash equilibrium in locations for the two firm market existed and yielded back to back locations at the center of the market many authors most recently d aspremont gabszewicz and thisse 2 have noted that an equilbrium in prices and location does not exist for hotelling s model however if the firms employ identical exogeneously specified prices hotelling s conclusions hold subsequent work by smithies 14 hartwick and hartwick 7 and eaton 3 claimed to show that a nash equi librium in f o b prices and locations can exist in markets with a uniform distribu tion of consumers each of whom have identical elastic demand functions for the two and three firm problems the work of d aspremont et al casts doubt on these conclusions without the adoption of restrictive conditions our work contrasts with these works and related research which has dealt with linear markets with uniform distributions of customers and with identical firms our work will involve markets that are subsets of the plane having nonuniform distributions of customers our firms will be allowed to be different that is have differences in production and transport costs however the fundamental difference in our approach is that our firms will set discriminatory prices and not price f o b in many ways our work will represent the discriminatory pricing

a note on the excess entry theorem in spatial models with elastic demand abstract this paper revisits the excess entry theorem in spatial models according to vickrey vickrey w s 1964 microstatics harcourt brace and world new york and salop salop s 1979 monopolistic competition with outside goods bell journal of economics 10 141 156 while relaxing the assumption of inelastic demand using a demand function with a constant demand elasticity we show that the number of firms that enter a market decreases with the degree of demand elasticity we find that the excess entry theorem does only hold when the demand elasticity is sufficiently small otherwise there is insufficient entry in the limiting case of unit elastic demand the market is monopolized we broaden our results with a more general transportation cost function