spatial competition monopolistic competition and optimum product diversity abstract this is a republication of a passage from william vickrey s 1964 book microstatics which presents important results in spatial competition and monopolistic competition

cooperative and noncooperative r d in duopoly with spillovers contrary to the usual assumption made in most oligopoly models relations among firms are seldom of a wholly cooperative or noncooperative type in many situations they compete in some fields while they cooperate in others an important example is the case of cooperative research efforts bringing fierce competitors together two types of agreement are observed first r d cooperation can take place at the so called precompetitive stage companies share basic information and efforts in the r d stage but remain rivals in the market place 1 a second type of agreement involves an extended collusion between partners creating common policies at the product level the usual justifications of this extension are the difficulties of protecting intellectual property the idea is then to allow partners who have achieved inventions together to also control together the processes and products which embody the results of their collaboration in order to recuperate jointly their r d investments 2 what could be expected from these types of agreement is a reduction in r d expenditures because of less wasteful duplication and a reduction of total production because of more reprinted from the american economic review 78 5 1133 1137 1988 center for operations research econometrics 1348 louvain la neuve belgium we are grateful to jean

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

dynamic interaction between markets for leasing and selling automobiles we develop a model of dynamic interactions between price variations in leasing and selling markets for automobiles our framework assumes a differential game between multiple bertrand type competing firms which offer differentiated products to forward looking agents empirical analysis of our model using monthly us data from 2002 to 2011 shows that variations in selling cash market prices lead rapidly dissipating changes of leasing market prices in the opposite direction we discuss the practical implications of these results by augmenting a standard leasing valuation formula the additional terms represent the leased asset value changes that can be expected on the basis of past variations in automobile selling market prices

on the effects of downstream entry we study the effects of entry in a downstream market where firms e g compaq and ibm cvs and safeway buy an input e g microprocessor grocery items from an upstream supplier e g intel procter gamble and sell their output to consumers we show demand conditions where contrary to conventional wisdom entry of a new downstream firm lowers the downstream market output and increases the consumer price thus consumers may be better off with fewer sellers in such markets we also show that this entry may cause the profit of each incumbent downstream firm to i remain unchanged ii decrease or iii even increase also for a class of widely used demand conditions the supplier s optimal price is shown invariant to the entry exit of its downstream buyer firms we classify all possible effects of downstream entry in terms of fundamental market demand conditions

a model of the used car market with lemons and leasing this article extends kim s 1985 model of the used car market with asymmetric information to examine the possible impacts of leasing and certified pre owned cpo programs on the average quality of traded used cars in the market the author assumed that a consumer can buy or lease a new car or he she can buy a used or a cpo car while like kim 1985 the author assumed that the quality of a car depends on the maintenance level the maintenance level in this model is chosen when a car is still a new car i e after the warranty ends the model implied that the average quality of traded used cars can be either higher or lower than the average quality of nontraded used cars the study also found that leasing and cpo have substantially improved the information mechanism between buyers and sellers of used cars which in turn has helped reduce adverse selection and improved the average quality of traded used cars in the market

the role and growth of new car leasing theory and evidence abstractthere has been substantial growth in rates of new car leasing over the last few decades building on recent theoretical research we construct a model of the leasing decision in which leasing mitigates adverse selection and reduces transaction costs but moral hazard limits its use in our model the prevalence of leasing is related to new car reliability which suggests that the recent growth in leasing is at least partly due to improvements in new car reliability we use this model to derive testable implications and then conduct an empirical analysis to investigate whether the operation of the new and used car markets is consistent with the predictions of this theoretical approach our empirical results support the theoretical predictions of our model in particular we provide direct evidence that leasing mitigates adverse selection and that an important factor in the growth in new car leasing rates has indeed been the growth of new car reliability

privatization public offerings and political objectives this paper empirically analyses the political and economic objectives underlying privatization on the stock market particularly the factors of sips underpricing are explained and the study analyses whether the change of political parties in government play a role on the issue the paper has two main findings first larger initial returns occurred in the early stages of privatization second the change of government from left wing to right wing did not lead to significantly higher levels of underpricing the results show that governments are quite pragmatic with respect to underpricing maximizing proceeds from sips shows to be more important than ideological differences between parties in government

multimarket competition theory and evidence the multimarket perspective identifies potential entrants as existing firms in related markets the paper uses this new framework to analyze entry strategies and entry deterrence successful entry permitting and entry deterring strategies require understanding of the feedbacks from the entry market to the home market and vice versa the multimarket perspective integrates literature on industrial organization and strategic management

one for all and all for one privatization and universal service provision in the postal sector universal service provision has a special role for the public utilities sector in many organization for economic co operation and development oecd countries these public utilities have largely been subject to privatization during the last 3 decades efficiency effects of privatization are widely documented while the impacts on the quality and accessibility of the universal service are not much examined by using a unique dataset on privatization for 21 countries over the period 1980 2007 for the postal sector we are able to show that privatization in particular formal privatization has led to a decrease in the quality of the universal service

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

leasing lemons and buybacks in his seminal article of 1970 akerlof argued that the used car market is not efficient because adverse selection causes too little trade we construct a competitive model of the new and used car markets and investigate the relationship between new car leasing and adverse selection our analysis yields a number of interesting results including that new car leasing reduces the adverse selection problem and that buybacks also increase efficiency in the secondhand market we also discuss alternative explanations for new car leasing and an explanation for the growth in new car leasing during the last fifteen years copyright 2003 by the rand corporation

dynamic adverse selection and the supply size in this paper we examine the problem of dynamic adverse selection in a stylized market where the quality of goods is a seller s private information while the realized distribution of qualities is public information we obtain that full trade occurs in every dynamic competitive equilibrium moreover we show that if prices can be conditioned on the supply size then a dynamic competitive equilibrium always exists while it fails to exist if prices cannot be conditioned on the supply size and the frequency of exchanges is high enough we conclude that the possibility to condition prices on the supply size allows us to reach efficiency in the limit for exchanges becoming more and more frequent while otherwise the welfare loss due to delays of exchanges remains bounded away from zero

bank lending in transition economies bank privatization and tighter credit enforcement are believed indispensable to facilitate the eastern european transition process we analyze lending by value maximizing banks the only source of capital in the transition faced by non performing loans to the state owned sector we show that banks have a perverse incentive to fund former debtors although less efficient and more risky than private firms because they gain the potential repayment of previous debts this leads to a lower productivity of investment and a greater concentration of risk the expansion of more efficient private firms is delayed leading to a slower recovery and a greater risk of financial crisis

resale and collusion in a dynamic market for semidurable goods the paper studies the incentives to form collusive agreements when goods can be traded in second hand markets it will be shown that such incentives crucially depend on the rate of depreciation of the durable good and on consumer heterogeneity the main contribution of the paper shows that an active second hand market may strengthen the incentives to collude as do policies that affect the functioning of the second hand market e g leasing policy and buy back it will also be argued that the oligopoly incentives to adopt strategies that strengthen collusion often differ from the monopoly incentives to increase profits

price and variety in the spokes model the spokes model of nonlocalized spatial competition provides a new analytical tool for dierentiated oligopoly and a representation of spatial monopolistic competition an increase in the number of rms leads to lower equilibrium prices when consumers have relatively high product valuations but surprisingly to higher equilibrium prices for in termediate consumer valuations new entry alters consumer and social welfare through price market expansion and matching eects with free entry the market may pro vide too many or too few varieties from a social welfare perspective and the equilibrium price remains above marginal cost even when the number of rms is arbitrarily large

profit raising entry common wisdom suggests that entry reduces profits of incumbent firms on the contrary we demonstrate that if the incumbents differ in marginal costs and the entrants behave like stackelberg followers then entry may benefit the cost efficient incumbents while hurting the cost inefficient ones and the total outputs of all incumbents may be higher under entry

the importance of incomplete information in explaining the existence of costly bankruptcy the standard theory of capital structure argues that firms trade off the tax advantage of debt against ba nkruptcy costs r a haugen and l w senbet 1978 pointed out that there is a problem with this theory if bankruptcy involves deadweig ht costs shareholders and bondholders have an incentive to renegotia te before it occurs since in this way bankruptcy and its costs can be avoided this implies costly bankruptcy will not occur and casts d oubt on the validity of the standard theory this paper uses noncoope rative bargaining theory to formally model this idea it then shows t hat if there is incomplete information costly bankruptcy can occur copyright 1987 by the review of economic studies limited

optimal financial instruments debt and equity are developed as optimal financial instruments in a model where cash flows and control rights are allocated to investors endogenously when investment decisions must be made by a single party the debtholder s cash flows are fixed in order to provide the equityholder with efficient incentives for investment ownership of control may be transferred to the debtholder to attenuate the impact of asymmetric information concerning the investment opportunity on the efficiency of the decision making since the classic article by modigliani and miller 1958 a great deal of attention has been focused on the problem of determining the optimal capital structure of the firm spanning taxes and or transaction cost agency cost and signalling arguments have been offered as explanations for why a firm s cash flows might be split between debt and equity claimants in a particular way here we address the more basic question of the optimal design of the securities that firms issue the majority of the existing literature takes the form of the allowable financial instruments as given in defense of this approach it may be noted that to a first approximation firms have used two standard financial instruments debt and equity we argue here however that the characterization of the standard instruments used in much of the literature has been incomplete and that the incentives of decision makers within the firm cannot be completely understood until the problem is addressed from a more basic level than is typically done by concentrating on the cash flow characteristics of these instruments the equally important issue of the way the standard instruments distribute the control rights of the firm has been ignored as a consequence the objectives in corporate decision making have been assumed rather than developed endogenously we consider the allocation of cash flows and the distribution of control rights to optimal financial instruments in a security design problem by considering the design of securities in this way we are able to consider the

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

financial liberalisation and growth in china s economic reform this paper summarises china s financial liberalisation experience and examines the contributions of financial resources on economic growth during the post reform period financial liberalisation has resulted in the reallocation of the four sources of total investment in fixed assets state budget appropriation national bank loans self raised funds and foreign investment we find that the growth of gdp and industrial production are positively related to the growth of self raised funds and foreign investment we conclude that the use of foreign investment and funds raised by the enterprises themselves are more efficient than the government s appropriation and provision of bank loans

cooperative and noncooperative r d in an oligopoly with spillovers this paper examines the positive and normative effects of cooperative r d whereby member firms commit themselves to the joint profit maximizing level of r d in a precompetitive stage but remain fierce competitors in the product market vis a vis noncooperative r d socially first best r d and socially second best r d in the presence of sufficiently large r d spillovers neither noncooperative nor cooperative equilibria achieve even second best r d levels in the absence of spillover effects however while the cooperative r d level remains socially insufficient the noncooperative level may overshoot first and second best levels of r d copyright 1992 by american economic association

understanding the role of trade ins in durable goods markets theory and evidence the act of trading in a used car as partial payment for a new car resonates with practically all consumers such transactions are prevalent in many other durable goods markets ranging from golf clubs to ct scanners what roles do trade ins play in these markets what motivates the seller to set up a channel to facilitate trade ins intuitively accepting a trade in would appear to stimulate demand for the producer s product but facilitating the resale of these used goods that substitute for new goods might also increase cannibalization although such transactions involve billions of dollars we know relatively little about this practice from the extant research literature this paper develops an analytical model that incorporates key features of real world durable goods markets i coexistence of new and used goods markets ii consumer heterogeneity with respect to quality sensitivity iii firms that anticipate the cannibalization problem arising from the coexistence of new and used goods and iv lemon problems in resale markets whereby sellers of used goods are better informed than buyers about the quality of their particular item in our analysis a trade in policy amounts to an intervention by the firm in the used goods market which reduces inefficiencies arising from the lemon problem it motivates owners to purchase new goods and reduces their proclivity to hold on to purchased goods because of the low price the latter would fetch in a lemon market we also show that trade in programs are more valuable for less reliable products as well as for products that deteriorate more slowly our analysis shows that producers in durable goods markets should consider trade in programs as a matter of routine despite cannibalization concerns arising from a more active resale market a producer s profits will inevitably rise from introducing trade ins given pervasive lemon problems we test the key predictions of the model about price and volume of trade by assembling a data set of transactions of u s automobile consumers and find broad support for our model

free entry and social efficiency under vertical oligopoly we analyze a successive vertical oligopoly model that incorporates vertical relationships between industries and demonstrate that free entry in an industry that produces a homogeneous product can lead to a socially insufficient number of firms this is in contrast with the proevious findings that under cournot oligopoloy with fixed set up costs level of entry in the free entry equilibrium is socially excessive it has often been argued that this result can provide a justification for apparently anticompetitive entry regulations our finding yields an important policy implication that such a justification is not necessarily valid when vertical relationships ar taken into account

are lemons really hot potatoes abstract we model the hazard rate for car ownership spells our model allows us to distinguish among different types of adverse selection effects by observing the type of unobserved heterogeneity across owners of the same car our empirical results strongly suggest that there is a lemons effect because there is significant unobserved heterogeneity however they also suggest that the lemons effect is caused by the first owner rather than the manufacturer had the manufacturer created the lemon the unobserved heterogeneity would be positively correlated over all owners of a given car instead we observe a negative correlation between the unobserved heterogeneity term for the first owner and the unobserved heterogeneity term for subsequent owners

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

sales talk cancellation terms and the role of consumer protection this paper analyses contract cancellation and product return policies in mar kets in which sellers advise customers about the suitability of their oering when customers are fully rational it is optimal for sellers to oer the right to cancel or return on favorable terms a generous return policy makes the seller s cheap talk at the point of sale credible this observation provides a possible explanation for the excess refund puzzle and also has implications for the management of customer reviews when customers are credulous instead sellers have an incentive to set unfavorable terms to exploit the in ated beliefs they induce in their customers the imposition of a minimum statutory standard even if it is not binding can improve welfare and consumer surplus when at least some customers are credulous in con trast competition policy reduces contractual ine ciencies with rational customers but it is not eective with credulous customers

market competition r d and firm profits in asymmetric oligopoly we investigate a cournot model with strategic r d investments wherein efficient low cost firms compete against less efficient high cost firms we findthat an increase in the number of high cost firms can stimulate r d by the low cost firms while it always reduces r d by the high cost firms more importantly this force can be strong enough to compensate for the loss that arises from more intense market competition the low cost firms profits may indeed increase with the number of high cost firms an implication of this result is far reaching as it gives low cost firms an incentive to help rather than harm high cost competitors we relate this implication to a practice known as open knowledge disclosure especially ford s strategy of disclosing its know how publicly and extensively at the beginning of the 20th century

organizational isomorphism and corruption in financial institutions empirical research in emerging countries the globalizations of capital markets in the last 20 years has led to a historic degree of financial integration in the world it is clear however that globalization is not conducive to a complete homogeneity of financial markets and institutions among others one element of diversity is the importance of the impact of corruption in emerging countries corruption decreases the credibility of financial institutions and markets scandals and unethical behavior in financial institutions erode confidence in such firms relying on neoinstitutional literature this article focuses on the link between corruption and organizational isomorphism in financial institutions in emerging countries therefore our aim is to examine the institutional reasons for corruption in financial institutions in emerging countries our structural equation model is based on empirical research in financial institutions in emerging countries a questionnaire was administrated to 70 top executives of financial institutions in 18 different emerging countries

innovation threats and strategic responses in oligopoly markets this paper deals with the strategic reaction of firms to competitive threats stemming from newly developed products of actual competitors product innovation projects go through multiple time consuming stages with several continuation termination decisions hence competitors can react to the threat before the new product is introduced and thereby may prevent or facilitate the product s introduction we consider a duopoly model where firm 1 can start a two stage product innovation project for obtaining a horizontally and vertically differentiated product in between the two stages firm 2 can react by making an investment that improves the competitive position of the current product we find that under weak vertical differentiation firm 2 wants firm 1 to innovate horizontal differentiation softens competition and firm 2 over invests to induce firm 1 to launch the new product second under strong vertical differentiation firm 1 starts the product innovation project triggering under investment by firm 2 but never finishes it the under investment makes firm 2 a weaker competitor which induces firm 1 not to innovate third under very strong vertical differentiation firm 2 prevents a launch of the new product by over investing this results in a strong competitive position of firm 2 it therefore captures such a big market share that firm 1 will not introduce the new product the situation of firm 1 in the old market has worsened the option to complete the innovation created by initiating the first stage of the innovation project has a negative value for firm 1

privatization risk taking and the communist firm this paper studies alternative methods of privatizing a formerly communist firm in the presence of imperfect risk markets the methods include cash sales a give away scheme and a participation contract where the government retains a sleeping fractional ownership in the firm it is shown that with competitive bidding the participation contract dominates cash sales because it generates both more private restructuring investment and a higher expected present value of revenue for the government under weak conditions the participation contract will induce more investment than the give away scheme and it may even share the cash sales virtue of incentive compatibility

leasing lemons and moral hazard abstract a number of recent papers have analyzed leasing in the new car market as a response to the adverse selection problem in the used car market originally explored in the seminal 1970 paper by george akerlof in this paper we consider a model characterized by both adverse selection as in these earlier papers and moral hazard concerning the maintenance choices of new car drivers we show that this approach provides explanations for a number of empirical findings concerning real world new and used car markets including that leasing has become more popular over time very high income new car drivers lease more and used cars that were leased when new sell for more than used cars that were purchased when new we also compare and contrast our approach to new car leasing with alternative approaches

the existence of low end firms may help high end firms two models of competition between high end and low end products benefiting the high end firms are presented one is a quantity competition model and the other is a price competition model with product differentiation the key factor is the existence of two heterogeneous consumer groups those who demand only high end name brand products and those who care little whether products are high or low end we show that under certain conditions the profits of firms in the high end market are larger when there are firms producing low end products than when there are not the existence of price sensitive consumers who care little about product quality intensifies competition among the high end firms the existence of low end firms functions as a credible threat which induces the high end firms not to overproduce because price sensitive consumers buy products from the low end firms the result provides a new theoretical mechanism concerning the profitability and pricing of national brand firms after the entry of private labels it has an implication for pricing and marketing strategies established firms should not decrease their prices after the entry of nonestablished firms

adverse selection in the used car market evidence from purchase and repair patterns in the consumer expenditure survey we analyze adverse selection in the used car market using a new approach that considers a car as an assemblage of parts some with symmetric information and others with asymmetric information using data from the consumer expenditure survey and consumer reports we examine turnover and repair patterns we find evidence of adverse selection due to the conditions of the transmission engine and during colder months air conditioning and sorting due to the conditions of the vehicle body and during warmer months air conditioning our quantification exercises indicate that adverse selection may have a meaningful effect on trade volume and quality in the secondhand market

financial structure and reforms in central and eastern europe in the 1980s abstract the paper analyzes the evolution of the financial structure of the countries of central and eastern europe during the 1980s in these countries the financial system is assigned a limited and mostly passive function this needs to be seen in the context of the allocative system of centrally planned economies where the transfer of financial resources between sectors is largely performed directly by the state through the price system taxes and subsidies the analysis focuses specifically on hungary poland and czechoslovakia the development of their financial structure is assessed through a number of quantitative indicators we find that the partial economic and financial reforms introduced in hungary and poland before 1989 did not substantially modify the role and performance of the financial system whose size in relation to the real economy remained modest at the same time however the reforms exacerbated some of the distortions of the planned system and generated larger macroeconomic imbalances the effects of which tend to cloud the interpretation of financial indicators at the end of 1980 the banking systems of hungary and poland although formally decentralized continued to allocate credit mostly according to automatic criteria and had virtually no experience in assessing and monitoring borrowers and investment projects in this respect they differed little from that of czechoslovakia which remained based on the classic model of a single state bank

pricing strategy quality signaling and entry deterrence abstract i investigate a pricing strategy that is aimed at deterring entry by applying a two period model of a durable goods monopolist there exists an incumbent that is of two types that is high and low quality types they differ in terms of their r d capabilities and the incumbent s type is assumed to be unknown to an entrant if the entrant decided to enter the market nash bertrand price competition ensues between the incumbent and the entrant i show that not only limit pricing but also prestige pricing signals the incumbent s quality type which serves to discourage entry in the prestige pricing the high quality type sells the products at an intentionally higher price i also show that although limit pricing is more desirable than prestige pricing from a social welfare viewpoint the incumbent can still choose prestige pricing

characteristics of buyers and renters of cultural goods the case of movies this article identifies the characteristics of consumers of movies watched on videotapes in their homes models of the frequency of movie video buying and renting by individuals are estimated using data from the spanish cultural consumption habits survey encuesta sobre habitos de consumo cultural this survey featured information about videotapes rented and bought in spain throughout 1998 applying a multinomial probit modelling framework this study analyses whether there are two different video markets renting and buying and any discernible socio economic characteristics for their respective consumers the influence of film genres on the renting of movie videotapes is also considered

market structure scrappage and moral hazard abstract in the presence of moral hazard the optimal contract for a durable goods monopolist is a lease with an option to buy this contract is optimal regardless of the monopolist s ability to commit and creates inefficient scrappage

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

a theory of privatisation public enterprises around the world have proved to be highly inefficient primarily because they pursue strategies such as excess employment that satisfy the political objectives of politicians who control them privatization of public enterprises can raise the cost to politicians of influencing them since subsidies to private firms necessary to force them to remain inefficient are politically harder to sustain than wasted profits of the state firms in this way privatization leads to efficient restructuring of firms moreover privatization is more effective when combined with a tight monetary policy and when the new owners of firms are profit maximizing investors rather than their employees or even managers copyright 1996 by royal economic society

top management compensation and capital structure the interrelationship between top management compensation and the design and mix of external claims issued by a firm is studied the optimal managerial compensation structures depend on not only the agency relationship between shareholders and management but also the conflicts of interests which arise in the other contracting relationships for which the firm serves as a nexus we analyze in detail the optimal management compensation for the cases when the external claims are 1 equity and risky debt and 2 equity and convertible debt in addition to the role of aligning managerial incentives with shareholder interests managerial compensation in a levered firm also serves as a precommitment device to minimize the agency costs of debt the optimal management compensation derived has low pay performance sensitivity with convertible debt instead of straight debt the corresponding optimal managerial compensation has high pay to performance sensitivity a negative relationship between pay performance sensitivity and leverage is derived our results provide a reconciliation of the puzzling evidence of jensen and murphy 1990 with agency theory other testable implications include 1 a relationship between the risk premium in corporate bond yields and top management compensation structures and 2 the announcement effect of adoption of executive stock option plans on bond prices the model yields implications for management compensation in banks and federal deposit insurance reform our results explain the dynamics of top management compensation in firms going through financial distress and reorganization

welfare in differentiated oligopolies with more than two firms abstract excessive differentiation in the quality or location dimension in order to soften price competition is a well established conclusion concerning duopolistic markets this has inspired authors to discuss policy measures that may improve welfare in a differentiated market in the present paper a general welfare analysis is conducted for a varying number of firms it is shown that outcomes are almost optimal when three or more competitors are in the market in light of this a laissez faire policy should be adopted for a range of entry costs market outcomes entail insufficient entry therefore a subsidy to entry may improve welfare

privatization under incomplete information and bankruptcy risk abstract we study privatization under moral hazard and adverse selection we show that if the fraction of efficient investors is either insignificant or productivity differences between efficient and inefficient investors are negligible the government would offer a pooling contract and sell the same fraction of equity to both types of investors the lower the productivity difference the greater the equity stake offered to investors on the other hand if the fraction of efficient investors is significant or productivity differentials are large the optimal policy consists of a dual method of privatization in which it offers two methods of privatization to outside investors the first method consists of a sale of 100 equity together with a subsidy and charges higher price under the second option the investor pays a smaller price but buys less than 100 equity without any subsidy efficient investors opt for the first method while inefficient investors prefer the second the dual privatization method screens investors and provides them with maximum incentives to invest while minimizing the risk of post privatization bankruptcy

the capabilities of new firms and the evolution of the us automobile industry firms that diversify into new and existing industries typically outperform de novo entrants but in some new industries diversifying firms are displaced by later entering de novo firms little is known about when and how new firms can overcome the advantages of diversifying firms this is investigated for one industry automobiles where new firms had considerable success all the entrants into the industry from its inception in 1895 through 1966 are identified the heritage of every entrant into the industry is traced including the founders of de novo entrants to explore how time of entry and pre entry experience affected firm survival while diversifying firms on average outperformed de novo entrants de novo entrants founded by individuals that worked for the leading automobile firms outperformed all firms and dominated the industry this is attributed to the novel organizational challenges faced by automobile firms which made the leading firms ideal training grounds for new entrants the implications of these findings for firm capabilities industry competition and regional economic development are discussed copyright 2002 oxford university press

moral hazard in leasing contracts evidence from the new york city taxi industry abstractin this study i investigate the effects of moral hazard in leasing contracts by examining the driving outcomes of all long term lessees and owner operators of new york city taxis i find that moral hazard explains a sizable fraction of lessees accidents driving violations and vehicle inspection failures to address the possibility of endogenous contract choice i conduct an instrumental variables analysis of the cross section of all drivers and a panel data analysis of a subset of drivers who switched from leasing to owning

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

imperfect durability and the coase conjecture this article considers a market served by a monopolist who sells a durable good that depreciates stochastically over time we show that there exist three types of stationary equilibria a coase conjecture equilibrium a monopoly equilibrium and a reputational equilibrium when the depreciation rate is low the coase conjecture equilibrium is the unique equilibrium for intermediate values of the depreciation rate all three equilibrium types coexist when the depreciation rate is high the monopoly equilibrium is the unique equilibrium consequently when selling a good of sufficiently low durability the monopolist does not lose any of her monopoly power furthermore the steady state output in the reputational equilibrium falls below the monopoly quantity hence in durable goods markets welfare losses due to monopoly power may be larger than in markets for perishables

banking sector and restructuring in eastern europe abstract the paper seeks to achieve a number of objectives first to analyze the underlying causes of east european commercial banks illiquidity problems second to examine the case for public versus private informal approaches to bankruptcy and bank restructurings as general approaches to these problems third to evaluate the different models of restructuring banks in particular eight alternative models are identified fourth to briefly describe the models that have been chosen by a number of east european countries finally to layout the criteria for policymakers choice of a particular restructuring model

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