investment and coordination in oligopolistic industries we examine investment by firms in 24 chemical product industries to determine whether firms invest preemptively to achieve persistent increases in market share or whether there is evidence of behavior to maintain market share the data indicate that investment reduces the probability that rival firms will expand capacity but the effect is temporary large firms tend to maintain market share while smaller firms tend to invest simultaneously with rivals the role of preemptive investment is limited to that of permitting a firm to invest with a lower probability of redundant investment by rivals preemption does not allow a persistent increase in market share but instead acts as a means by which firms may coordinate capacity investment to help avoid episodes of industry overcapacity

the 1985 86 oil price collapse and afterwards what does game theory add this paper focuses on the strategies used by opec to generate cartel profits over the period 1983 90 the evidence supports the hypothesis that opec adopted a swing producer strategy from 1983 to 1985 but when saudi arabia s profits fell below the level of coumot profits in the summer of 1985 it abandoned the role of swing producer driving prices to the cournot level subsequently saudi arabia appears to have adopted a tit for tat strategy designed to punish excessive cheating by other opec members based on these findings the strengths and limitations of game theory are assessed

punishment strategies in repeated games evidence from experimental markets abstract an experiment is designed to provide a snapshot of the strategies used by players in a repeated price competition game with a random continuation rule one hundred pairs of subjects played the game over the internet with subjects having a few days to make their decisions in each round occasionally subjects are asked to enter one period ahead pricing strategies instead of prices according to the elicited strategies between 90 and 95 of subjects punish less harshly in their initial response to a deviation than implied by the grim trigger strategy and do so in a way that depends on the size of the other subject s deviation future earnings are highest for subjects adopting the tit for tat strategy even after controlling for a subject s past earnings punishment strategies are generally softer and more graduated than implied by a grim trigger strategy and do better as a result

inferring market power under the threat of entry the case of the brazilian cement industry consider a setting where threatened rather than actual import competition restrains a domestic oligopoly s prices i show that not modelling the entry threat may underestimate the true degree of market power as incumbents blunted price responses to demand shocks resemble perfectly competitive behavior evidence from brazilian cement markets points to an important role for imports in determining domestic cement prices despite the near absence of imports on assuming autarky models with market power are rejected in favor of competition among incumbents however allowing a role for imports rejects the autarky assumption and precludes one from rejecting the presence of market power

informational asymmetries strategic behavior and industrial organization one of the most active and exciting areas of economic research over the last several years has been the use of noncooperative games of incomplete information to model industrial competition this work has yielded not only a remarkable number of papers but also several new insights on and explanations of fundamentally important issues the purpose of this paper is to attempt an appreciation and evaluation of this work because most of our individual and joint work since about 1979 has been in this mode it will come as no surprise that we are proponents of this line of research however there are several questions and potential problems that we see as arising in connection with this methodology and we will attempt to address these first a disclaimer we are not attempting a survey of the applications of asymmetric information games aig to industrial organization although we will refer in a highly selective fashion to a number of prominent strands in this literature in particular where any references are provided at all they are typically only to the earliest contributions to a subject even more we do not deal with work in which informational asymmetries are important but the analysis is not game theoretic for example search and price dispersion or the early work on the lemons problem and on moral hazard and adverse selection in insurance markets or with game theoretic treatments that assume complete information i aig methods and applications

measuring market power in bilateral oligopoly the wholesale market for beef econometric methods for assessing the degree of market power typically rely on a maintained hypothesis of price taking behavior on one side of the market or the other in the analysis of bilateral oligopoly however one would like to leave open the question of whether buyers or sellers or both behave competitively while allowing for the possible exercise of market power on either side in this paper we address the problem of measuring market power in bilateral oligopoly this requires that we first distinguish among three candidate equilibrium concepts bilateral price taking seller price taking and buyer price taking choosing among them comes down to a test of nonnested nonlinear simultaneous equation models our application to the u s wholesale market for beef characterized by high degrees of concentration among both sellers beef packers and buyers primarily retail grocery chains reveals seller price taking among the three candidates to be the most consistent with the data in particular the hypothesis of price taking conduct on both sides of the market can be rejected this is a conclusion that would not have been reached had we considered monopoly conduct by sellers as the only alternative to perfect competition

price wars and price collusion in china s airline markets in the absence of an effective antitrust law both fare wars and price collusion have been pervasive in china s airline markets causing concern for both airlines and consumers a study of monthly airfare data from 2002 to 2004 confirms that fare wars occur periodically as well as price collusion both tend to be short lived the fact that collusion is more likely to occur in january and april when demand is high as revealed by china eastern s and china southern s price war and collusion models has been confirmed by interview information obtained from the airlines sales managers however there is also evidence in these models suggesting that collusion can be more easily formed when demand is low high airport concentration measured by the hhi may facilitate collusion in certain circumstances but it may also lead to more price wars under other conditions concentration in both airports and routes does not appear to systematically affect the occurrence of fare wars and collusion in all the models estimated we also reject the possibility that mutual forbearance due to multimarket contact plays any important anti competitive role in china s airline markets

switching regression models with imperfect sample separation information with an application on cartel stability an exogenous switching regression model with imperfect reginme classificationi information is specified and applied to a study of cartel stability an efficient estimation method is proposed which takes this imperfect information into account the consequences of misclassification are analyzed the direction of the least squares bias is derived an optimal regime classification rule is obtained and compared theoretically and empirically with other classification rules we then examine the joint executive committee a railroad cartel in the 1880 s the econometric evidence indicates that reversions to noncooperative behavior did occur for the firms in our sample and these reversions involve a significant decrease in market price this article is concerned with the possibility of estimating a switching regression model and its application to a study on cartel stability the switching regression model is the exogenous switching model proposed by quandt 24 which generalized a problem of mixture distributions day 4 the sample in this model is generated from distinct regression equations or regimes for each time period if the investigator has a priori information on how the sample is partitioned into the underlying regimes it is a switching regression model with known sample separation otherwise it is a model with unknown sample separation estimation of these latter models has been considered by quandt 24 goldfeld and quandt 8 and kiefer 14 16 among others a switching regression model is appropriate for the study of cartel behavior when there are price wars as firms will revert from cooperative to noncooperative behavior and so the industry supply function shifts occasionally this model will allow us to exploit the fact that there will be periodic stochastic switches or reversions between cooperative and noncooperative conduct in order to identify collusive episodes

the cyclical behavior of the department of justice s antitrust enforcement activity abstract we study the cyclical behavior of antitrust enforcement as measured by the number of cases initiated by the us department of justice the key result is that antitrust case activity is countercyclical this finding is robust across alternate indicators of economic activity which include stock prices corporate profits and business cycles and across different types of cases the finding of countercyclical case activity does not appear to lend support to interest group theories that predict greater regulatory protection towards producers during economic contractions one interpretation of our result would be that antitrust violations tend to increase during economic downturns leading to an increase in the number of cases initiated the broad implication being that the antitrust division primarily acts as an antitrust law enforcement agency our results show that politics as measured by the party of the president and the republican versus democrat composition of the house and senate does not have a clear impact on case activity finally the number of cases initiated are significantly affected by the extent of funding

a model of the crude oil market in which market conduct varies this paper describes a model which first identifies in an estimatable manner parameters which describe the conduct each decision maker in an oligopoly expects from it s rivals and then allows them to vary in a systematic fashion across rivals and over time the model is applied to ten producing countries in the crude oil market 1966i to 1981iii a fully dynamic demand system is estimated together with equations describing price choice and variations in conduct and the null hypothesis of constant conduct is rejected against the more general alternative proposed here copyright 1987 by royal economic society

a defense of the fomc we defend the forecasting performance of the fomc from the recent criticism of christina and david romer our argument is that the fomc forecasts a worst case scenario that it uses to design decisions that will work well enough are robust despite possible misspecification of its model because these fomc forecasts are not predictions of what the fomc expects to occur under its model it is inappropriate to compare their performance in a horse race against other forecasts our interpretation of the fomc as a robust policymaker can explain all thefindings of the romers and rationalises differences between fomc forecasts and forecasts published in the greenbook by the staff of the federal reserve system

regulation and the theory of legislative choice the interstate commerce act of 1887 this article concerns the economic incidence of the interstate commerce act of 1887 ica our focus is the short haul pricing constraint a provision of the ica that prohibited railroads from charging higher rates to isolated primarily agrarian shippers than it charged to intercity shippers of similar commodities utilizing the event study methodology we find that the impending passage of the ica generated a distribution of abnormal returns to railroads and shipping firms that is consistent with the theoretical implications of our analysis of the short haul pricing constraint shpc however early interpretations of the shpc by the interstate commerce commission reduced some of the abnormal returns to railroads in a manner that is inconsistent with the hypothesis that the short haul pricing constraint was an important mechanism of early railroad regulation the analysis does support a multiple interest interpretation of the interstate commerce act and has implications for the positive theory of regulation

a study of cartel stability the joint executive committee 1880 1886 this article employs weekly time series data on the joint executive committee railroad cartel from 1880 to 1886 to test empirically the proposition that observed prices reflected switches from collusive to noncooperative behavior an equilibrium model of dynamic oligopoly with asymmetric firms together with explicit functional form assumptions about costs and demand determines the estimating equations and stochastic structure of the econometric model the hypothesis that no switch took place so that price and quantity movements were solely attributable to exogenous shifts in the demand and cost functions is then tested against this alternative and rejected

cartel sustainability in retail markets evidence from a health service sector abstract this paper studies the role of cost asymmetries and product differentiation on cartel sustainability by drawing data from a failed retail cartel unlike the extensive theoretical literature little empirical evidence exists on these relationships first we analyze cartel compliance and find that players are more likely to comply when cost is symmetric and own cost is high next based on a structural model and counterfactual experiments we show that a cartel price that satisfies all cartel members does not exist this result indicates an inherent difficulty of sustaining collusion in retail markets with heterogeneous players we also show that firm heterogeneities especially product differentiation rather than cost asymmetries hinder collusion more finally we derive the level of patience or the discount factor required for cartel sustainability when firms split profits based on the shapley value

theories of cartel stability and the joint executive committee this article reexamines the experience of the joint executive committee an 1880s railroad cartel to assess the applicability of the green and porter 1984 and rotemberg and saloner 1986 theories of price wars after discussing necessary modifications to the theories i estimate a number of dynamic models to explore the causes of price wars the cyclical nature of pricing and the possibility that secret price cuts may have been given the estimates provide some support for the predictions of the first theory

the monetary policy response to uncertain inflation persistence abstract we consider the implications of uncertainty regarding the persistence of inflation for the conduct of monetary policy in the context of a stylized new keynesian model under the governance of a taylor type rule both bayesian and robust or ambiguity averse approaches are employed the result one might have expected based on the seminal paper of brainard 1967 which implies attenuation in policy responses does not hold for the case of uncertain inflation persistence in either the bayesian or robust cases

price controls and market structure evidence from gasoline retail markets in this paper we study the effect of price floor regulations on the organization and performance of markets the standard interpretation of the effects of these policies is concerned with short run market distortions associated with excess supply since price controls prevent markets from clearing they lead to higher prices while this analysis may be correct in the short run it does not consider the dynamic equilibrium consequences of price controls we demonstrate that price floor regulations can have important long run effects on the the structure of markets by crowding them and creating endogenous barriers to entry for low cost retailers moreover we show that these factors can indirectly lower productivity and possibly even prices we test this in the context of an actual regulation imposed in the retail gasoline market in the canadian province of quebec and show that the policy led to more competition between smaller less efficient stations this resulted in lowered sales and despite the reduction in efficiency did not increase prices

retail price cycles and response asymmetry weekly retail gasoline prices in windsor ontario from 1989 to 1994 appear to respond faster to wholesale price increases than to decreases but exhibit a cyclic pattern inconsistent with a common explanation of response asymmetry i reconcile these observations through a model of price cycles prices on the downward portion of the cycle appear insensitive to costs compared with price increases supporting the theory that price decreases result from battles over market share this pattern resembles a faster response to cost increases than to decreases and the conclusion that asymmetry indicates a role for competition policy may be inappropriate jel classification l13 l71 cycles des prix de detail et reponse asymetrique les prix de detail hebdomadaires de la gazoline a windsor ont entre 1989 et 1994 semblent reagir plus vite aux accroissements qu aux chutes des prix de gros mais suivent un pattern cyclique qui ne semble pas consistant avec l explication traditionnelle en termes de reponse asymetrique l auteur reconcilie ces observations a l aide d un modele de cycle de prix les prix dans la portion descendante du cycle semblent insensibles aux variations de couts par comparaison avec les accroissements de prix ce qui supporte la theorie que les chutes de prix resultent de luttes pour les parts de marche le pattern ressemble a celui declenche par une reponse plus rapide aux augmentations qu aux chutes de couts et la conclusion qui voudrait qu on puisse attribuer le tout a l asymetrie des reponses et que donc une intervention de la politique de la concurrence s impose peut etre inappropriee

time varying competition normative models typically suggest that prices rise in periods of high demand and cost however in many markets prices fall when demand or costs rise this inconsistency occurs because the normative models assume that competitive intensity does not change with demand and cost conditions over time we therefore introduce the notion of time varying competition by suggesting that it is important not only to account for the direct effect of demand and cost on prices e g higher demand means higher prices but also the indirect effect of demand and cost changes on competition e g higher demand could cause more competition and hence lower prices we develop a general unified framework to empirically model the direct and indirect effects of demand and cost shifts on pricing in differentiated product markets our approach allows us to measure the indirect effect of multiple demand and cost drivers on competitive intensity and test predictions from alternative theories of repeated games the empirical application is to the u s photographic film industry where there are two main players kodak and fuji we find that the indirect effects are highly significant and comparable in magnitude to the direct effects competitive intensity is greater in periods of high demand and lower cost and is moderated by whether demand or costs are expected to grow or decline interestingly we find asymmetries in the competitive responses of kodak and fuji while kodak is sensitive to demand factors fuji is sensitive to costs our results suggest that market characteristics such as observability of competitor prices can be an important determinant of how competitive intensity is affected by demand and cost conditions

commodity market dynamics and the joint executive committee 1880 1886 using weekly spot and future commodity prices in chicago and new york we construct expected transportation rates for grain between these two cities expected inventory levels in new york and realized errors in the expectations of such variables we incorporate these exogenous commodity market dynamics into porter s 1983 structural modeling of the joint executive committee railroad cartel as in porter we model marginal cost as a parametric function of instrumented output among other factors unlike porter we model pricing over marginal cost as a nonparametric function of a set of variables which include expectations of deterministic demand cycles and cartel stability we estimate the pricing and demand equation simultaneously and semiparametrically our estimated weekly markups during periods of cartel stability are shown to reflect optimal collusive pricing over deterministic business cycles as modeled in haltiwanger and harrington 1991 periods of cartel instability are proven to be trigger

competition policy collusion and tacit collusion in this paper i pursue three goals the first is to model collusion in a way that is distinct from noncooperative collusion the second and third are to develop a particular specification of a standard model of noncooperative collusion that permits explicit solution for equilibrium outputs and reversion thresholds and to extend this analysis to allow for a deterrence based competition policy that investigates conduct based on observed high prices investigation thresholds

optimal cartel trigger price strategies abstract a dynamical model of industry equilibrium is described in which a cartel deters deviations from collusive output levels by threatening to produce at cournot quantities for a period of fixed duration whenever the market price falls below some trigger price in this model firms can observe only their own production level and a common market price the market demand curve is assumed to have a stochastic component so that an unexpectedly low price may signal either deviations from collusive output levels or a downward demand shock

distribution access pricing application of the oftel rule to a yardstick competition scheme the paper formulates an access pricing model applied to electricity distribution based on the uk office of telecommunications oftel model originally structured to price telecommunications monopolistic essential facilities the aim is to achieve an optimal access price charge in an environment where a distribution network monopoly serves both regulated and nonregulated customers the nonregulated market faces competition so that the competitors must use the network to reach their customers a usage based hybrid model is proposed to couple with a tariff scheme for regulated customers that uses yardstick competition a way to set appropriated opportunity costs by the use of the oftel model is introduced finally the paper focuses on properly recognizing both regulated distribution and competitive supply costs the scheme is assessed within the chilean regulatory scheme proposing a way to establish marginal and fixed distribution costs for distribution companies

testing static oligopoly models conduct and cost in the sugar industry 1890 1914 we explore the widespread methodology of using demand information to infer market conduct and unobserved cost components under the hypothesis of static oligopoly behavior direct measures of marginal cost and conduct indicating small market power serve as benchmarks the more competitive models yield better cost estimates the best cost estimates occur when conduct is estimated as a free parameter which in turn only slightly underestimates our direct measure it also tracks the decline in market power accompanying the industry s structural changes the methodology is largely validated although partial cost information can improve its predictive power conclusions are robust to demand function

using game theory to model competition the article is an exposition of the basic concepts of noncooperative game theory and their application to advertising product and price competition

the effects of horizontal mergers on competition the case of the northern securities company several recent articles have studied the competitive effects of horizontal mergers by examining rival firms stock price reactions to the merger announcement and subsequent antitrust challenge these articles have consistently failed to find any evidence of anticompetitive effects this article considers two alternative explanations for the previous findings and it sheds some new light on the issue by presenting a case study of the merger that resulted in the formation of the northern securities company in 1901

dynamic pricing in retail gasoline markets supergame models of tacit collusion show that supportable price cost margins increase with expected future collusive profits ceteris paribus as a result collusive margins will be larger when demand is expected to increase or marginal costs are expected to decline using panel data on sales volume and gasoline prices in 43 cities over 72 months we find behavior consistent with tacit collusion in retail gasoline markets controlling for current demand and cost current margins increase with expected next month demand and decrease with expected next month cost the results are not consistent with intertemporal l inkages due to inventory behavior or customer loyalty

fossil fuel producers under threat oil and gas producers face three threats prolonged low oil and gas prices tightening of climate policy and a tough budget on cumulative carbon emissions and technological innovation producing cheap substitutes for oil and gas these threats pose real risks of putting oil and gas producers out of business they lead to the problem of stranded assets and a significant downward valuation of oil and gas producers this calls for divesting from and shorting coal oil and gas the economies of oil and gas rich countries are typically in a deplorable state since they did not use their past windfalls to build up buffers and invest in a diversified economy more rapacious depletion of their oil and gas reserves will not help after the crash in oil and gas prices these countries are facing serious problems and it is difficult to see how they will cope with the outlined threats

an empirical model of mark ups in a quality differentiated export market abstract this paper develops an empirical model to allow for imperfect competition in the market for traded goods a simultaneous equation model incorporating the demand for and supply of taiwanese footwear exports to the united states is specified and estimated the model allows the identification of two separate sources of mark ups in export prices the first comes from the u s imposed quantitative restriction on these exports the second comes from imperfect competition in the international market for these exports the results suggest competitive behavior by taiwanese footwear exporters the quantitative restriction resulted in a 16 9 percent mark up of prices over marginal cost

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

discussion of distribution access pricing application of the oftel rule to a yardstick competition scheme for original article see ibid vol 17 no 4 p 1001 7 nov 2002 the authors thank drs jamasb pollitt rivier and giaconi for their valuable discussions see ibid vol 19 no 4 p 2113 5 nov 2004 as well as for their suggestions for improvement when the paper was being finalized their discussions allow us to clarify ideas concepts and restrictions of the developed model and its applications that are not clear enough or may be misunderstood they deal with each discussion separately although they have some common questions

price behavior in a dynamic oligopsony washington processing potatoes punishment strategies are necessary to sustain a collusive oligopsony in a repeated game context when demand is uncertain and only market variables are observable this article proposes a test for tacit collusion among potato processors in washington state using a dynamic regime switching model estimated with a finite mixture method the results support the existence of punishment and collusive regimes and show the welfare losses due to anti competitive behavior on the part of processors to be significant processors oligopsony power is enhanced by higher domestic production imports and existing stocks but it is ameliorated by high capacity utilization rates and exports copyright 2001 oxford university press

the shift in global crude oil market structure a model based analysis of the period 2013 2017 abstract this paper analyzes the recent developments in the global oil market investigating how the 2014 2016 price collapse and the following opec agreement affected the crude oil market structure and the behavior of major suppliers to this end we develop a partial equilibrium model with a spatial structure for the global crude oil market and simulate the market for the period between 2013 and 2017 under different market structure setups the simulation results reveal that although the oligopolistic market structures fit overall well to the realized market outcomes they are not successful at explaining the low prices during 2015 and 2016 which instead are closer to estimated competitive levels we further suggest that from 2014 onward the market power potential of major suppliers has shrunk considerably supporting the view that the market has become more competitive we also analyze the saudi arabia and russia led opec agreement and find that planned production cuts in 2017 particularly of saudi arabia and russia were below the levels of estimated non competitive market structure setups

optimal monetary policy with an uncertain cost channel the cost channel of monetary transmission describes a supply side effect of interest rates on firms costs previous research has found this effect to vary both over time and across countries moreover the cyclical nature of financial frictions is likely to amplify the cost channel this paper derives optimal monetary policy in the presence of uncertainty about the true size of the cost channel in a min max approach the central bank derives an optimal policy plan to be implemented by a taylor rule it is shown that uncertainty about the cost channel leads to an attenuated interest rate setting behavior in this respect the brainard 1967 principle of cautious policy in the face of uncertainty continues to hold in both a bayesian and a min max framework

learning and price volatility in duopoly models of resource depletion the aim of this paper is to provide a theoretical model that can account for price fluctuations in depletable resource markets we do so by introducing learning into a hotelling style duopoly model of optimal resource depletion before the depletable resource becomes scarce the self confirming equilibrium of the model mirrors noncooperative rational expectations equilibrium in that supply is high and price is low although learning does induce occasional upward price spikes that are followed by a long period of falling price once the depletable resource becomes scarce the dynamics of the market change significantly with the self confirming equilibrium mirroring the cooperative rather than noncooperative rational expectations equilibrium supply is low and price is high price spikes still occur but against a background of increasing prices when scarcity is sufficient then the market is permanently in a self confirming equilibrium that is equivalent to cooperative rational expectations equilibrium

retail price fixity as a facilitating mechanism previous theoretical explanations for retail price fixity show that fixed retail prices can be consistent with either competitive or imperfectly competitive behavior we develop a conceptual model of retail pricing wherein fixed price points are facilitating mechanisms for tacit collusion a non cooperative equilibrium in fixed retail prices is supported through credible threats to revert to nash pricing if cheating is suspected we test the implications of this model using a two stage ordered probit approach in weekly supermarket pricing data the results show that price fixity does support collusive equilibria among retailers but other factors may also explain retail price behavior

in pursuit of monopoly power recent quantitative work in industrial economics this paper reviews empirical work in industrial organization devoted to the question of inferring the existence of monopoly power from data on observed market outcomes like profits and prices the discussion covers inter industry work long conventional in the area newer developments in intra industry analysis and case studies and concludes with some remarks on a small but growing body of work assessing market dynamics the wide range of studies reviewed all generally reveal that market power exists in many industries

sunk costs and cartel formation theory and application to the dyestuff industry we first develop a simple model of entry showing that cartels are more likely to emerge during periods of downturns and in industries with significant sunk costs cartel formation is also accompanied by a decline in profits we then use the framework to investigate the emergence of the swiss dyestuff export cartel during the inter war period and find empirical evidence that supports the main predictions of the model the analysis indicates that sunk costs and entry may be important determinants of cartel formation and are complementary to the traditional cartel stability conditions

using stock price data to measure the effects of regulation the interstate commerce act and the railroad industry this article usesjinancial data to measure the effects of the passage of the interstate commerce act of 1887 and subsequent legislative and judicial developments on firms in the railroad industry the results indicate that the interstate commerce act had a significant positive impact on railroad stock prices and that court decisions in the 1890s which severely restricted the powers of the interstate commerce commission caused negative stock price reactions thesefindings offer support for the revisionist view of regulatory history according to which the railroads welcomed regulation as a means offacilitating the enforcement of cartel like agreements

sics as delineators of economic markets the standard industrial classification sic is often used to divide firms into homogeneous markets firms classified into the same n 1 digit sic are thought to be more homogeneous than firms sharing only the same n digit sic this study measures how well the sic succeeds at combining firms into homogeneous economic markets assuming that firms in more similar economic markets should display more similar sales changes profit rates or stock price changes than firms in less similar economic markets the author finds that the sic is not successful at identifying firms with such similar characteristic variables copyright 1989 by the university of chicago

supermarket choice and supermarket competition in market equilibrium multi store firms are common in the retailing industry theory suggests that cross elasticities between stores of the same firm enhance market power to evaluate the importance of this effect in the u k supermarket industry we estimate a model of consumer choice and expenditure using three data sources profit margins for each chain a survey of consumer choices and a data set of store characteristics to permit plausible substitution patterns the utility model interacts consumer and store characteristics we measure market power by calculating the effect of merger and demerger on nash equilibrium prices demerger reduces the prices of the largest firms by between 2 and 3 8 depending on local concentration mergers between the largest firms lead to price increases up to 7 4

investigating dynamic multifirm market interactions in price and advertising diagnosing the nature and magnitu de of competitive interactions among firms is important for developing effective marketing strategies in this paper we formulate a game theoretic model of firm interaction to analyze the dynamic price and advertising competition among firms in a given p roduct market firm or brand level demand functions account for the contemporaneous and carry over effects of these marketing activities and also allow for the effects of competitor actions firms take into consideration the actions of their rivals as well as their own demand and cost functions both production and advertising when determining the profit maximizing price and advertising levels our formulation enables us to quantify not only the direction and magnitude of competitive reactions but also to identify the underlying form of market conduct that generates the particular pattern of interaction we specify and estimate a fully structural econometric model for three firms constituting a distinct sub market within a personal care product category we estimate the demand and competitive interaction parameters as well as the production and advertising cost functions for each firm we then derive implications for competitive interactions and market structure interestingly we find that while firms seem to compete on advertising they price cooperatively thereby enhancing their price cost margins

four types of ignorance abstract this paper studies alternative ways of representing uncertainty about a law of motion in a version of a classic macroeconomic targetting problem of milton friedman 1953 we study both unstructured uncertainty ignorance of the conditional distribution of the target next period as a function of states and controls and more structured uncertainty ignorance of the probability distribution of a response coefficient in an otherwise fully trusted specification of the conditional distribution of next period s target we study whether and how different uncertainties affect friedman s advice to be cautious in using a quantitative model to fine tune macroeconomic outcomes

collusive conduct in duopolies multimarket contact and cross ownership in the mobile telephone industry the deregulation of the telecommunications industry has resulted in a variety of industry structures which have been created in hopes of increasing competition one example is the licensing of cellular telephone services in the united states where the fcc created duopolies in which two firms were granted licenses to compete in strictly defined product and geographic markets taking advantage of the unique regulatory environment we test to what degree duopolistic competition leads to competitive market outcomes we find that cross ownership and multimarket contact are important factors in explaining non competitive prices

the emperor has no clothes the limits of opec in the global oil market most scholars and policymakers believe opec can and does influence the price of oil by acting as a cartel this paper argues that most of the conventional wisdom about opec is wrong opec rarely if ever influences the oil production rate in its member states further opec has almost no lasting impact on world prices except under rare conditions there was one occasion on which opec did have a significant impact on world oil prices namely the 1973 oil crisis but opec s role in the event has been greatly misunderstood the circumstances of the crisis were highly exceptional making it unlikely that the organization could ever have a similar impact on world oil prices again this paper seeks to correct the misunderstanding about opec s role and replace it with a better understanding of the organization i argue that opec is dysfunctional as a cartel as it has little or no causal impact on its members choices about production levels or investment in production capacity opec s role is obscured in part by the complexity of the world oil market and in part by misdirection by policymakers especially within opec many scholars especially economists have argued that opec should be understood as a cartel designed to solve a prisoner s dilemma pd coordination game yet opec s persistence is better understood as a widespread failure to update beliefs about the organization a failure that is driven by information asymmetry and politics the fact that such a widespread belief about the world s most important commodity market could be wrong can help us better understand international regimes

opec saudi arabia and the shale revolution insights from equilibrium modelling and oil politics why did opec not cut oil production in the wake of 2014 s price fall this study aims at aiding the mostly qualitative discussion with quantitative evidence from computing quarterly partial market equilibria q4 2011 q4 2015 under present short term profit maximisation and different competition setups although the model performs reasonably well in explaining pre 2014 prices all setups fail to capture low prices which fall even beyond perfect competition outcomes this result is robust with respect to large variations in cost parameters rejecting present short term profit maximisation as well as a qualitative discussion of saudi arabian politics and the shale oil revolution lead to the conclusion that the price drop of 2014 16 was most plausibly the result of an attempt to defend market shares and to test for shale oil resilience besides being fuelled by other factors such as rising competitiveness of alternative technologies although shale oil might have increased competition permanently as supported by model results the agreement of december 2016 should not be misunderstood as an opec defeat

opec vs us shale analyzing the shift to a market share strategy abstract in november 2014 opec announced a new strategy geared towards improving its market share oil market analysts interpreted this as an attempt to squeeze higher cost producers notably us shale oil out of the market over the next year crude oil prices crashed with large repercussions for the global economy we present a simple equilibrium model that explains the fundamental market factors that can rationalize such a regime switch by opec i the growth of us shale oil production ii the slowdown of global oil demand iii reduced cohesiveness of the opec cartel and iv production ramp ups in other non opec countries while v reductions in us shale costs act against these factors we show that these qualitative predictions are broadly consistent with oil market developments during 2014 2015 the model is calibrated to oil market data it predicts accommodation up to 2014 and a market share strategy thereafter and explains large oil price swings as well as realistically high levels of opec output

the future of fossil fuels is it the end contrary to the assumptions underlying many of current energy and climate policies the prices of fossil fuels have fallen and may remain at the new normal levels in the medium term iran and iraq have considerable potential to increase their outputs and the new shale technologies will gradually globalize longer term new technologies in electricity generation storage and smart demand side technologies together with electric cars and the shift towards digitalization and new electricity based technologies in manufacturing will increase demand for electricity but not fossil fuels these new and emerging technologies rather than international agreements and the promotion of current generation renewables will probably bring fossil fuel dominance to a gradual close to facilitate decarbonization energy policy should be directed at enhancing r d and next generation renewables instead of supporting existing ones

testing for the cartel in opec non cooperative collusion or just non cooperative this paper extends the framework of green and porter 1984 and porter 1983a to encompass the case of a cartel opec faced by a competitive fringe non opec oil producers estimation of a simultaneous equation switching regression model allows us to examine which market structure better characterizes the world oil market during the 1974 2004 period and to test whether switches between collusive and non cooperative behaviour occurred the null hypothesis that no switch occurred is rejected in favour of the alternative that both cooperative and non cooperative behaviour was observed we find that although there were periods in which oil prices were measurably higher owing to collusion among opec members overall opec has not been effective in systematically raising prices above cournot competition levels our results suggest that on average over the period of study opec s behaviour is best described as cournot competition in the face of a competitive fringe constituted by non opec producers

competition in the swedish coffee market 1978 2002 abstract are multinationals exploiting their market power in national coffee markets by keeping consumer prices too high and thereby limiting demand for imports of coffee beans the purpose of this study is to address this issue by testing if there is market power in the swedish market for roasted coffee the market structure is typical of many consumer markets for coffee with four very large roasting companies two of which are multinationals plus many small ones to analyze the degree of market power an oligopoly model is estimated using market time series data the econometric approach is to first test for long run relationships between the variables with cointegration analysis and then to estimate a system of equations for demand and pricing behavior our key finding is that there is evidence of some market power in the short run but none in the long run

a dynamic network analysis of the world oil market analysis of opec and non opec members abstract we characterize the dynamic network structure of major oil producing countries we examine the oil production coordination of 13 organization of the petroleum exporting countries opec and 17 non opec members we construct the dynamic network structure using the network connectedness measure of diebold and yilmaz 2009 we investigate the structural changes in connectedness of opec and non opec members additionally we study how the influence of opec members non opec countries and major oil producers evolve we find that the network structure of major oil producing countries changes significantly over time specifically the impact of changes in oil production of all opec members on global oil production declines whereas the impact of non opec on global oil production increases opec s increase decisions have a significant and positive impact on opec and non opec coordination however cut decisions do not affect coordination we find that opec countries and developing countries have significantly higher levels of connectedness additionally countries with high oil production levels have significantly more influence the empirical results provide intuition about the recent developments in global oil production

testing oligopolistic behavior abstract this paper develops an empirical model of short run pricing behavior for firms in a homogeneous product oligopoly it is based on the variable profit function and related output supply and factor demand equations and is used to analyze the behavior of firms in the coffee roasting industry a parametric test of the dominant firm model is developed and applied the hypothesis of dominant firm behavior and cournot behavior are rejected the hypothesis of price taking behavior is rejected for the largest two firms in the industry but is not rejected for all other firms using the estimated pattern of firm behavior an index of overall industry performance is constructed

vancouver s gasoline price wars an empirical exercise in uncovering supergame strategies this paper uses a unique data set to determine which dynamic model of tacit collusion best describes behaviour in a particular industry the area investigated is a region of the vancouver british columbia retail gasoline market players are service station managers who compete daily firms choose price in each period using strategies that depend on prices chosen in the previous period periodically unanticipated demand shocks precipitate price wars when shocks occur the firms in the market must determine the new demand conditions and adjust their strategies from an econometric point of view slopes of intertemporal reaction functions are latent variables the resulting system of equations with time varying parameters is estimated via the kalman filter different repeated game oligopoly models correspond to different transition matrices for the latent variables the models can thus be assessed in terms of their power to explain firm behaviour in this market

the impact of collusion on price behavior empirical results from two recent cases abstract we use extended arch and garch models to examine the differences in the behavior of the first two moments of the price distribution during collusive and competitive phases of two recently discovered conspiracies citric acid and lysine according to our results the conspirators managed to raise prices by 9 and 25 cents per pound in the short run relative to non collusive periods also the variance of prices during the lysine conspiracy was lower and the variance of prices during the citric acid conspiracy was higher than during more competitive periods the proposed methodology may be used for antitrust screening and prosecution purposes

the impact of leniency and whistle blowing programs on cartels antitrust authorities have set up leniency programs for cartel members that denounce their collusive agreements these programs help prosecute participants and can thereby deter collusion we compare the impact of reduced fines and positive rewards and argue that rewarding individuals including firm employees can deter collusion in a more effective way we discuss possible adverse effects of whistle blowing programs on firms behavior and particularly on turnover incentives to innovate and cooperation we also explore explanations for the puzzling fact that managers keep incriminating evidence and argue reward programs actually provide additional incentives for keeping such evidence

robust collusion with private information the game theoretic literature on collusion has been hard pressed to explain why a cartel should engage in price wars without resorting to either impatience symmetry restrictions inability to communicate or failure to optimize this paper introduces a new explanation that relies on none of these assumptions if the cartel s member firms have private information about their costs price wars can be optimal in the face of complexity specifically equilibria that are robust to pay off irrelevant disruptions of the information environment generically cannot attain or approximate efficiency an optimal robust equilibrium must allocate market shares inefficiently and may call for price wars under certain conditions for a two firm cartel cost interdependence is a sufficient condition for price wars to arise in an optimal robust equilibrium that optimal equilibria are inefficient generically applies not only to collusion games but also to the entire separable pay off environment a class that includes most typical economic models copyright 2012 oxford university press

reply on comment to small firms and the merger mania research on performance differences between small and large firms is booming it emerges relatively separated from the mainstream industrial organization literature inspired by levy s comment on an earlier paper we try to bridge the gap between the two areas especially we screen non cooperative game theoretical models for predictions on performance differences most of them forecast higher profits for larger firms but there exist also some models which predict the opposite for very specific circumstances

tacit collusion with imperfect monitoring in the canadian manufacturing industry an empirical study this article undertakes a cross sectoral analysis of a salient empirical implication of the model of tacit collusion advanced by abreu pearce and stachetti 1986 specifically we assess the prevalence of a first order markovian process for alternating between price wars and collusive periods through nonparametric tests the analysis focuses on 30 different industries in canada the evidence provides weak support for optimal collusion in one industry which is consistent with the idea that such kind of collusive arrangements is unusual or if collusion is all too common that price wars as deviations from collusion are rare

price wars and the stability of collusion a study of the pre world war i bromine industry between 1885 and 1914 us bromine producers colluded to raise prices and pro ts this collusion was disrupted by price wars bromine price wars are compared with the green porter and abreu pearce stacchetti models some price wars resulted from the imperfect monitoring problems which motivate these models several empirical implications of the aps model are borne out but the bromine industry s price wars were generally milder than contemplated by aps more severe price wars were part of a bargaining process in which rms tried to force renegotiation to a new collusive equilibrium with a diierent distribution of rents

monetary policy with uncertain parameters this thesis contains four chapters each of which examines different aspects of the uncertainty facing monetary policymakers monetary policy and market interest rates investigates how interest rates set on financial markets respond to policy actions taken by the monetary authorities the reaction of market rates is shown to depend crucially on market participants interpretation of the factors underlying the policy move these theoretical predictions find support in an empirical analysis of the u s financial markets predicting monetary policy using federal funds futures prices examines how prices of federal funds futures contracts can be used to predict policy moves by the federal reserve although the futures prices exhibit systematic variation across trading days and calendar months they are shown to be fairly successful in predicting the federal funds rate target that will prevailafter the next meeting of the federal open market committee from 1994 to 1998 monetary policy with uncertain parameters examines the effects of parameter uncertainty on the optimal monetary policy strategy under certain parameter configurations increasing uncertainty is shown to lead to more aggressive policy in contrast to the accepted wisdom should central banks be more aggressive examines why a certain class of monetary policy models leads to more aggressive policy prescriptions than what is observed in reality these counterfactual results are shown to be due to model restrictions rather than central banks being too cautious in their policy behavior an unrestricted model taking the dynamics of the economy and multiplicative parameter uncertainty into account leads to optimal policy prescriptions which are very close to observed federal reserve behavior

the dynamics of the revenue maximization market share trade off saudi arabia s oil policy in the 2014 15 price fall given its highly undiversified economic base maximizing revenues will always rank highly in saudi arabia s output decision however this objective needs to be balanced against another maintaining its share in key markets and maximizing long term revenue given the massive size of saudi arabia s reserves the trade off between these two objectives tends to change over time depending on market conditions the nature of the shock and the behaviour of other producers saudi arabia s oil policy is hence not constant we argue that the advent of us shale has made the calculus of the trade off more uncertain complicating saudi arabia s output decision using a simple game we show that under uncertainty it is always safer for the kingdom to assume that the shale oil supply is highly elastic and thus decide not to cut output but as saudi arabia learns more about this new source of supply its policy could adapt accordingly the fact that saudi arabia s oil policy could change as the trade off between revenue maximization and market share evolves and as new information to the market arrives will keep the market second guessing and will continue to shape market expectations and to influence market outcomes jel q48 government policy d43 oligopoly and other forms of market imperfection q41 demand and supply prices d81 criteria for decision making under risk and uncertainty q02 commodity markets

the dynamics of a stable cartel the railroad express 1851 1913 i introduction the economic literature contains ample theoretical justification for the possibility of stable cartels for example osborne 1976 and porter 1983a but little in the way of empirical evidence about how stable cartels actually behave there is of course good reason for this shortcoming few stable cartels have ever existed cartel members find it too attractive to violate agreements in order to capture market share in eckbo s 1976 study of fifty one formal cartels the median lifetime of a cartel was only five years the mean was hardly better at 6 6 1 in general the dearth of stable cartels creates a problem for application of cartel theory 2 this paper however examines the exception to the rule what was probably the most successful cartel in u s business history the railroad express cartel the express cartel persisted for more than half a century by one reckoning from 1851 to 1913 during that time the five firms of the cartel agreed on prices territory and governance procedures and maintained a relatively stable environment within the industry moreover all five firms earned profits in virtually every year of the cartel s existence even during periods when the economy as a whole slipped into depression 3 periods of stress were present in the cartel but they tended to be short lived and contracts while subject to revision and dispute were never wholly abandoned aspects of the success of this cartel can be illuminated by various models in the industrial organization literature including some that explicitly treat cartel stability yet most of the literature on stability is deficient in that it typically examines only one kind of strategic interaction as this case shows long run success involves many strategies and other factors including the institutional framework the structure of costs the nature of internal transactions and the character of the technology the cartel s stability also was a dynamic process in which the organization acted continually to maintain conditions favorable to survival this paper will focus on two key elements in the success of the express cartel elements that would seem necessary for long run stability in any cartel 1 proficiency at deterring or at least limiting entry from outside and 2 ability to prevent defection among the members in fact deterrence and control are linked in the case of the express and the linkage was crucial to this industry s success the key feature was the creation and management of a joint distribution network this network it will be shown was the source both of the cartel s market power and of its internal stability after a brief historical overview the paper will examine the effects of the cartel s distribution system how it promoted a stable cartel ii overview the origin and history of the express cartel the railroad express industry controlled the parcel post service in the united states from 1839 until 1913 during that time the express provided the only established way of transmitting a parcel in the united states the industry also obtained economies of scope by combining parcel service with financial courier operations the express offered direct delivery of consignments and promised a full warranty on the contents in its first decade local express firms sprang up along key rail and steamship routes once established many express franchises were contested by new entrants at this time fixed costs were small encouraging entry efforts but incumbents often fought newcomers with price wars that drove out the entrant led to the bankruptcy of the incumbent or resulted in a merger 4 by 1850 two large regional firms the adams and american express companies had developed despite their histories of price warfare against potential competitors the two firms decided against conflict and in 1851 signed their first cartel agreement

an anatomy of cartel contracts we study cartel contracts using data on 18 contract clauses of 109 legal finnish manufacturing cartels one third of the clauses relate to raising profits the others deal with instability through incentive compatibility cartel organization or external threats cartels use three main approaches to raise profits price market allocation and specialization these appear to be substitutes choosing one has implications on how cartels deal with instability simplifying we find that large cartels agree on prices cartels in homogenous goods industries allocate markets and small cartels avoid competition through specialization

price cost margins exports and productivity growth with an application to canadian industries a model is estimated for oligopolistic industries producing multiple outputs in short run equilibrium outputs are sold domestically and exported while capital is treated as a quasi fixed factor the model is applied to the canadian non electrical machinery electrical products and chemical products industries the results show that there is significant oligopoly power in each of the industries and that the degree of this power differs between the domestic and export markets total factor productivity is decomposed price cost margins exert little influence but the rate of technological change returns to scale and the rate of capital adjustment determine productivity growth

market structure competition and pricing in united states international telephone service markets several national governments argue international telephone prices are high because of asymmetric competition and inefficiencies in the accounting arrangements that govern the telecommunications services trade this paper develops a model of u s international telephone pricing that allows for the accounting rate system and contains market structure variables for both the u s and foreign ends of bilateral markets model estimation is on 39 bilateral telephone markets from 1991 through 1994 parameter estimates reveal that settlement rates market concentration competition at either end of the bilateral market and ownership are significant determinants of prices these findings support initiatives promoting accounting rate reductions and increased competition

margins concentration unions and the business cycle theory and evidence for britain abstract a number of recent studies have examined the cyclical relationship between price cost margins concentration and unions u s data has concluded that unions reduce margins margins vary over the cycle and concentration unionisation and the cycle interact in their effect on margins however there is almost no theory to account for these results we propose a simple theory that assumes only that there is overhead labour present at the firm this produces theoretical predictions that can explain these results and discriminate between existing theories we present results of our own using u k panel data and show similar findings to the u s

discussion of distribution pricing based on yardstick regulation the authors discuss the original paper distribution pricing based on yardstick regulation j w marangon lima et al see ibid vol 17 p 198 204 2002 covering the following subject areas incremental and marginal costs distribution expansion planning tariff design information asymmetries open access distribution pricing and wire and commercialization business

sustainable collusion in oligopoly with free entry we investigate the stability of collusion in a market where firms cannot prevent entry in a symmetric homogeneous oligopoly there are collusive long run equilibria under which the colluders obtain positive economic rents while they do not prevent entry of firms up to a maximum equal to the largest number of firms sustainable at a single shot equilibrium the collusion is not generous to new entrants their profits are a little better than those associated with the discounted single shot equilibrium eventually entrants obtain profits equal to the incumbent firms we extend the results to asymmetric differentiated oligopolies

the impact of cyclical demand movements on collusive behavior recent work by rotemberg and saloner 1986 investigates the effect of the business cycle on optimal collusive pricing by specifying that demand is subject to i i d shocks an implication of the i i d assumption is that firms expectations on future demand are unrelated to the current level of demand we put forth a model that allows for both the level of current demand and firms expectations on future demand to change over time thus it captures two important properties of the business cycle our analysis reveals that while the gain to deviating from a collusive agreement is greatest during booms firms find it most difficult to collude during recessions as the forgone profits from inducing a price war are relatively low an implication of this effect for pricing behavior is that at the same level of demand price is lower when demand is declining than when demand is rising consistent with previous theoretical work we find that firms price countercyclically for a range of values for the discount factor however numerical simulations reveal a greater tendency for firms to price countercyclically during recessions than during booms

do alternative marketing arrangements increase pork packers market power in this article we use structural econometrics to formally test whether the use of the alternative marketing arrangements amas by pork packers is the source of their market power on the spot cash market for live hogs we specify the pork packers conjectures of the change in the industry total market procurement of live hogs through the spot market with respect to their amas stocks the test is carried out using the mandatory price reporting data our results show that pork packers have statistically significant market power on the spot market for live hogs but the source of that market power cannot be narrowed down to the existence of amas stocks copyright 2009 oxford university press

advertising price and welfare evidence from the u s brewing industry the welfare effect of advertising has been a subject of controversy among economists for some time one obvious concern is simply the cost of advertising in 1990 for example americans spent 130 1 billion on advertising to put this figure into perspective this amounted to 523 per capita 2 35 percent of gross national product and roughly 80 percent of the national deficit 1 much of the early debate regarding the social desirability of advertising stems from different preconceptions regarding its purpose 13 14 8 49 for example according to the kaldor 29 hypothesis advertising is primarily persuasive or deceptive in nature it changes consumer preferences creates brand loyalty and persuades consumers to favor commodities that they did not previously desire an opinion survey by bauer and greyser 5 indicates that consumers believe that much of advertising is persuasive and greyser and reece 27 158 find that 85 percent of the over 2 700 harvard business review subscribers surveyed believe that advertising persuades people to buy things they do not need if advertising is purely deceptive then it can be classified as a bad and reduces welfare

between russia as producer and ukraine as a transit country eu dilemma of interdependence and energy security abstract between 2014 and 2015 the eu started a new energy policy in order to address among other issues the problematic character of energy interdependence with russia and thus improve its energy security the aim of this article is to determine how this policy considered interdependence with russia in the light of diversification alternatives energy security is seen through short term and long term dimensions which can be equated to the concepts of vulnerability and sensitivity interdependence as the article shows the alternative of lng is limited by production and consumption patterns in both europe and other world markets it also shows that maintaining interdependence with russia and reducing the role of transit countries such as ukraine would yield benefits both in vulnerability and sensitivity interdependence however while the eu has strongly based its rhetoric on the promise of lng it has ignored alternatives that would maintain interdependence with russia eventually the eu s energy strategy has acknowledged the limitations of lng even though it has not changed its stance towards russia in that respect it seems fair to conclude the eu has not rigorously analysed the transit dimension in its interdependence with russia and the implications for its energy security