information and quality when motivation is intrinsic evidence from surgeon report cards abstract if profit maximization is the objective of a firm new information about quality should affect firm behavior only through its effects on market demand i consider an alternate model in which suppliers are motivated by a desire to perform well in addition to profit the introduction of quality report cards for cardiac surgery in pennsylvania provides an empirical setting to isolate the relative role of extrinsic and intrinsic incentives in determining surgeon response information on performance that was new to surgeons and unrelated to patient demand led to an intrinsic response four times larger than surgeon response to profit incentives jel d83 i11 l15

on the patterns and wealth effects of vertical mergers we use industry commodity flows information to measure vertical relations in completed mergers from 1962 to 1996 almost one third of the mergers display vertical relatedness vertical merger activity is more intensive in the 1980s and 1990s and less so in the 1960s and the 1970s vertical mergers generate positive wealth effects that are significantly larger than those for diversifying mergers the wealth effects in vertical mergers are comparable to those in pure horizontal mergers

competition and the number of firms in a market are duopolies more competitive than atomistic markets this paper uses a variant of the standard search model to examine market equilibrium and the consequences for market equilibrium of an increase in the number of firms if marginal search costs increase with the number of searches then the demand curve facing any firm will be kinked with the elasticity of demand with respect to price decreases being less than with respect to price increases prices may not change in response to changes in marginal costs as the number of firms increases the maximum price that is consistent with equilibrium increases to the monopoly price but the minimum price decreases on the other hand if marginal search costs decrease with the number of searches equilibrium if it exists is characterized by a

manufacturers channel structures when selling asymmetric competing products abstract manufacturers often face the fundamental channel structure decision namely whether to sell their products directly to consumers or indirectly through an intermediary to address this issue extensive research has analyzed equilibrium channel structures for competing equally substitutable products however in reality many competing products are asymmetric in both substitutability and brand equity in this paper we study how these two asymmetric characteristics affect the equilibrium channel structures of manufacturers selling competing products following some recent studies we adopt a refined consumer demand model derived from the representative consumer utility function based on this model we examine three possible types of competition between the two supply chains cournot quantity competition bertrand price competition and bertrand cournot competition we find that brand equity substitutability as well as the type of competition all play important roles in determining the equilibrium channel structures specifically in equilibrium a manufacturer always sells directly when its rival competes on quantity moreover when there is sufficient asymmetry in either brand equity or substitutability manufacturers tend to sell directly our results demonstrate that the benefits of selling indirectly shown in previous studies depend critically on the assumptions of equally substitutable products and bertrand competition

prices and qualities a search model recently there has been substantial interest in the study of price and or quality dispersion in markets with costly information many of these studies focus on the problem of price dispersion assuming that the quality is fixed i e homogeneous good the most distinct feature of these models is the way information is gathered information can either be obtained through the purchase of a newspaper at some cost information purchase models or through costly sequential or nonsequential search search models each of these models identifies the conditions under which a rational expectation price dispersion equilibrium will exist in particular using an information purchase model with two classes of consumers with differential information costs salop stiglitz 15 show that equilibrium may be characterized by a high and a low price for a homogeneous good on the other hand wildeschwartz 18 show that there can be price dispersion if consumers have different propensities to search they assume that one class of consumers will shop only once and the other class will shop an exogenously determined number of times before purchasing in their model only certain price distributions are sustainable in equilibrium the salop stiglitz and wilde schwartz results are due to the ex ante heterogeneity of consumer types in an interesting paper burdett judd 3 have established that price dispersion can exist even when consumers are identical due to ex post heterogeneity in information while the price dispersion models are illuminating in explaining the differential prices in the markets they are limited by their abstraction from the quality uncertainty goods of heterogeneous qualities can be and are offered in a recent paper 6 using an information purchase model with two classes of consumers we have analyzed the price and quality equilibria by examining three different environments involving costly information i quality information costly price information costless ii price information costly

price advertising and the deterioration of product quality arguments in favour of self enforced bans on advertising by professionals often rely on the stylized fact that advertising can communicate information about price but not about quality this being the case it is argued that allowing professionals to advertise runs the risk that firms will compete vigorously over price at the expense of the quality of their product this paper shows that even if price can communicate no information directly about quality it can do so indirectly because price will be a signal of quality because of this allowing advertising is shown to improve consumer welfare

strategic transfer pricing most research into cost systems has focused on their motivational implications this paper takes a different approach by developing a model where two oligopolistic firms strategically select their cost based transfer prices duopoly models frequently assume that firms game on their choice of prices product prices however are ultimately based on the firms transfer prices that communicate manufacturing costs to marketing departments it is for this reason that transfer prices will have a strategic component to them we derive implications for cost system choice and transfer pricing including showing that firms may cross subsidize their products a result consistent with the empirical evidence

imperfect information monopolistic competition and public policy introduction ever since the pioneering work of george stigler 1961 and the provocative survey by michael rothschild 1973 economists have recognized that general equilibrium models yield competitive equilibria only by making strong assumptions about the information available to market participants in response to this difficulty theorists in recent years have developed a family of search equilibrium models that presuppose homogeneity and the absence of price discrimination and which also assume that information acquisition costs are positive for at least a subset of buyers on the basis of these and other assumptions the models attempt to show how price dispersion equilibria can arise solely as a result of the strategies that firms and consumers pursue one author summarized the results if information is costly each small firm obtains market power so that the relevant market structure with imperfect information is not per ect competition but rather monopolistic competition steven salop 1976 p 240

prices and qualities in markets with costly information this paper extends the seminal work of akerlof and salop and stiglitz in two directions i the sellers can select both the selling prices and quality levels of their good and ii the buyers can acquire price quality information about individual sellers at a cost we observe multiple price quality combinations in equilibrium which depend upon the distribution of information costs of consumers and upon whether quality or price or both are costly observable welfare comparisons of equilibrium are considered we show that welfare will be greater when price advertising is permitted

monopolistic competition when price and quality are imperfectly observable consider the symmetric equilibrium of a monopolistically competitive industry in which manufacturers select price and quality to maximize expected profit and consumers maximize utility by conducting costly search among sellers using an optimal sequential search rule consumers search among sellers because i each consumer idiosyncratically evaluates each seller s quality and ii a retailing sector generates variation in the prices consumers pay consumers are handicapped in their search because their observations of firms price and quality levels are noisy an improvement in price information is represented by an increase in the precision with which consumers observe sellers prices similarly an improvement in quality information is represented by an increase in precision with which consumers observe sellers quality levels an improvement of either type of information may increase or decrease welfare the perverse case in which improved price information decreases welfare occurs when price competition among firms becomes so intense relative to quality competition that firms select severely suboptimal levels of quality a consumer searching among monopolistically competitive sellers may have difficulty accurately observing the price and quality of each seller s product he must infer from his prior beliefs and noisy observations the true values of the product s price and quality attributes we show that increasing the precision with which consumers observe an attribute of a product makes the inference problem easier and causes the demand the seller faces with respect to that attribute to become more elastic the equilibrium level of that attribute changes accordingly and since the equilibrium levels of price and quality interact the equilibrium level of the other attribute changes as well these equilibrium effects can be perverse in two ways first if the precision of quality observation is fixed then improvement in the precision of price observation can reduce welfare the chain of causation is this increasing the precision of price observation causes price to fall the resulting smaller price cost margin induces sellers to reduce quality de

the arm s length principle and tacit collusion the arm s length principle states that the transfer price between two associated enterprises should be the price that would be paid for similar goods in similar circumstances by unrelated parties dealing at arm s length with each other this paper examines the effect of the arm s length principle on dynamic competition in two alternative models of vertical market structure it is shown that the arm s length principle renders tacit collusion more stable and can reduce welfare when collusion targets the maximum collusive profit achievable in each environment

agency conflicts in public and negotiated transfers of corporate control we analyze control transfers in firms with a dominant minority blockholder and otherwise dispersed owners and show that the transaction mode is important negotiated block trades preserve a low level of ownership concentration inducing more inefficient extraction of private benefits in contrast public acquisitions increase ownership concentration resulting in fewer private benefits and higher firm value within our model the incumbent and new controlling party prefer to trade the block because of the dispersed shareholders free riding behavior we also explore the regulatory implications of this agency problem and its impact on the terms of block trades

collars and renegotiation in mergers and acquisitions i examine the motivation for and effect of including a collar in a merger agreement the most important cross sectional determinants of the bid structure cash vs stock and whether to include a collar are the market related stock return standard deviations for the bidder and target this evidence supports the hypothesis that the method of payment is dependent on the sensitivities of the bidder and target to market related risk because either has the incentive to demand renegotiation of the merger terms if the value of the bidder s offer changes materially relative to the value of the target during the bid period an important decision made during merger or takeover negotiations is the method of payment to be offered to target shareholders takeover bids can be made in cash and or some combination of securities issued by the bidding firm a considerable number of papers in the finance literature provide empirical evidence on the determinants of the choice between stock and cash as the method of payment including carleton et al 1983 niden 1986 crawford 1987 auerbach and reishus 1988 amihud lev and travlos 1990 chaney lovata and philipich 1991 and martin 1996 however this literature typically ignores the increasing fraction 20 in recent years of stock merger bids that contain a collar while an ordinary stock merger bid specifies the number of bidder shares offered as consideration for each target share the exchange ratio a collar bid provides for certain changes in the exchange ratio conditional on the level of the bidder s stock price around the effective date of the merger often insulating target stockholders from volatility in the bidder s stock price and promising a cash like payoff at the end of the bid period collar bids come in two basic forms the first which i call fixed exchange fex specifies a constant exchange ratio over a range of bidder stock prices with adjustment to the ratio outside those bounds an example of this type of transaction is the merger agreement announced on january 17 1994 between

effects of spatial density on veterinarian income where are all of the veterinarians with increased numbers of veterinarians in the market it is critical to understand how this increased competition affects income potential at multiple levels this study presents an empirical appr

information gathering externalities for a multi attribute good most goods and services vary in numerous dimensions customers choose to acquire information to assess some characteristics and not others their choices affect firms incentives to invest in quality and so lead to indirect externalities in consumers choices we characterize a model in which a monopolist invests in the quality of a product with two characteristics and consumers are heterogeneous ex ante consumers do not internalize their influence on the firm s investment incentives when choosing which information to acquire cheaper information affects consumers information gathering and thereby firm investment this can paradoxically reduce consumer surplus profits and welfare

the role of hospital competition on treatment expenditure and outcome evidence from stroke and cardiac treatment in taiwan this article examines whether market competition affects treatment expenditure and health outcomes of stroke and cardiac treatment in taiwan our measure of treatment expenditure is the hospital expenditure paid at the index admission short term and the sum of inpatient and outpatient expenditures paid in the subsequent year long term our measure of health outcome is the probability of death in 1 and 12 months after the hospital s discharge our measure of competition follows the method developed by kessler and mcclellan that calculates the herfindal index based on the predicted patient flows using exogenous variables e g traveling distance to hospitals using data of patients hospitalized for new stroke and cardiac treatment between 1997 and 2001 in taiwan we find that an increase of market competition results in an insignificant impact on a patient s mortality in terms of treatment expenditure our results indicate that hospitals facing more competition incur higher expenditures either the short or long term expenditure finally we find evidence showing that an increase of treatment expenditure at admission is due to a raise of length of stay and treatment intensity per day as well as the usage of expensive equipment jel i11 l13 l41

how do mergers create value a comparison of taxes market power and efficiency improvements as explanations for synergies there is little evidence in the literature on the relative importance of the underlying sources of merger gains prior literature suggests that synergies could arise due to taxes market power or efficiency improvements based on value line forecasts we estimate the average synergy gains in a broad sample of 264 large mergers to be 10 03 of the combined equity value of the merging firms the detailed data in value line projections allow for the decomposition of these gains into underlying operating and financial synergies we estimate that tax savings contribute only 1 64 in additional value while operating synergies account for the remaining 8 38 operating synergies are higher in focused mergers while tax savings constitute a large fraction of the gains in diversifying mergers the operating synergies are generated primarily by cutbacks in investment expenditures rather than by increased operating profits overall the evidence suggests that mergers generate gains by improving resource allocation rather than by reducing tax payments or increasing the market power of the combined firm

holdups standard breach remedies and optimal investment in bilateral trading problems the parties may be hesitant to make relationship specific investments without adequate contractual protection we postulate that the parties can sign noncontingent contracts prior to investing and can freely renegotiate them after information about the desirability of trade is revealed we find that such contracts can induce one party to invest efficiently when courts impose either a breach remedy of specific performance or expectation damages moreover specific performance can induce both parties to invest efficiently if a separability condition holds expectation damages on the other hand is poorly suited to solve bilateral investment problems forthcoming the american economic review please contact the program in law and economics at boalt hall school of law uc berkeley berkeley ca 94720 for a copy of this paper

competition in nhs quasi markets recent reforms of the national health service have focused attention on contracts for health services and competition amongst the providers of those services as means of ensuring that quality is maintained at an acceptable standard whilst costs are contained this paper considers the particular roles that competition may be expected to play in both health authority and gp fundholder quasi markets copyright 1996 by oxford university press

organizational structure of a global supply chain in the presence of a gray market information asymmetry and valuation difference we consider a global supply chain of a multinational firm mnf with domestic and foreign markets in the presence of a gray marketer in particular we investigate the organizational structure of the mnf for pricing centralization vs decentralization when the foreign division of the mnf competes with the gray marketer the foreign division has a private information on the market potential and customers have a valuation difference between the products sold by the foreign division and the gray marketer in this situation while centralized pricing may control the gray marketer s activities decentralized pricing may take advantage of a local manager s private information especially when a significant valuation difference of customers exists due to product or service differentiation we analyze the trade offs in the choice of organizational structure for pricing and the impact of information asymmetry and valuation difference on this choice also we show that decentralization can be further improved by an incentive adjustment of profits between divisions which has a potential to increase all divisions and mnf s total profits over centralization

cross market discounts firms in several markets attract consumers by offering discounts in other unrelated markets this promotion strategy which we call cross market discounts has been successfully adopted in the last few years by many grocery retailers in partnership with gasoline retailers across north america europe and australia in this paper we use an analytical model to investigate the major forces driving the profitability of this novel promotion strategy we consider a generalized scenario in which purchases in a source market lead to price discounts redeemable in a target market our analysis shows that this strategy can be a revenue driver by simultaneously increasing prices as well as sales in the source market even though we assume the demand curve to be downward sloping in price moreover it distributes additional consumption motivated by the discount in two markets and under diminishing marginal returns from consumption this can simultaneously increase firm profits and consumer welfare more effectively than traditional nonlinear pricing strategies our study provides many other interesting insights as well and our key results are in accordance with anecdotal evidence obtained from managers and industry publications

hospital competition and quality with regulated prices we analyse the effect of competition on quality in hospital markets with regulated prices considering the effect of both introducing competition monopoly versus competition and increasing competition through either lower transportation costs increased substitutability or a higher number of hospitals with semi altruistic providers and a fairly general cost structure we show that the relationship between competition and quality is generally ambiguous in contrast to the received body of theoretical literature this is consistent with and potentially explains the mixed empirical evidence

strategic incentives when supplying to rivals with an application to vertical firm structure abstract we consider a vertically integrated input monopolist supplying to a differentiated downstream rival with linear input pricing at the margin the firm unambiguously wants the rival to expand unlike standard oligopoly with no supply relationship for either cournot or bertrand competition with a two part tariff for the input the same result holds if downstream choices are strategic complements but is reversed for cournot with strategic substitutes we analyze vertical delegation as one mechanism for inducing expansion or contraction by the rival customer

physician market power evidence from the allocation of malpractice premiums norman k thurston based on evidence from variations in malpractice premiums physicians have local market power at least in some dimensions it is observed that higher cost physicians pass on a significant portion of idiosyncratic costs to patients as higher prices i test two hypothesized sources of this market power barriers to entry from specialization and relatively inelastic firm level demand for certain services examining the relationship of physician specific malpractice premiums to fees i find no observable difference in the ability of surgeons and nonsurgeons to pass on these costs however both types of physicians pass them on more to surgical than to nonsurgical patients jel l11 i11 i introduction two of the most interesting unanswered questions with regard to markets for physician services are whether physicians enjoy market power that affects their price setting behaviors and if so what the source of such market power might be one frequent hypothesis is that asymmetric information regarding quality gives physicians market power that varies depending on the type of services sought by patients markets for common services office visits are thought to be more competitive than less frequently sought services surgeries another possibility is that supply restrictions in medical education coupled with the specialization and certification process creates barriers to entry giving specialists a greater degree of market power than generalists i perform tests of these hypotheses by looking at how physicians allocate fixed costs to prices economic theory suggests that the ability to pass on higher than average fixed costs to customers in the form of higher prices is directly related to the existence of local market power for physicians malpractice premiums provide a unique opportunity to examine this problem i utilize individual specific variation in malpractice premiums to test whether this market power is observable due to either specialization or patient type i find empirical evidence of market power based on patient heterogeneity but not based on specialization malpractice insurance premiums represent a substantial portion of physicians costs 1 malpractice insurance protects doctors from liability settlements arising out of patients claims that they failed to follow acceptable procedures tort law requires physicians to use skills commensurate with their class of practitioner u s house of representatives 1990 89 because collected premiums must cover insurers costs rising malpractice premiums are simply reflections of the rising costs of providing this service premiums are set by the insurer subject to approval by state insurance regulatory agencies a base fee is set for the physician s geographical location usually the state then adjustments are made to account for specific geographic areas such as major metropolitan areas versus rural areas 2 the riskiness of the type of practice is also assessed specialty classes are assigned multipliers yielding the approximate annual premium which is fairly constant within markets and specialty classes one of the most striking features of the structure of malpractice premiums is that after controlling for important factors that determine base premiums for physician risk categories there is still substantial variation in premiums paid the choice of coverage that a policy will carry the maximum amounts payable for one case and total payment is an important consideration other adjustments are made if a physician performs high risk procedures or if the insurer has responded to claims against the physician in the past u s house of representatives 1990 31 41 however formal experience rating is not common given the nature of the institutions a small set of information describing a practice s structure history and location is sufficient to separate the malpractice premium into the common base fee and the individual specific component

a model of physician behaviour with demand inducement we present a model of the physician patient relationship extending on the model by farley farley p j 1986 theories of the price and quantity of physician services journal of health economics 5 315 333 of supplier induced demand sid first we make a case for the way this model specifies professional ethics physician competition and sid itself second we derive predictions from this model and confront them with the neoclassical model finally we stress the importance of considering how sid affects patient welfare in providing an example where physicians ability to induce makes patients better off to evaluate patient welfare we derive approximations of the patients welfare loss due to physician market power in both the neoclassical model and the inducement model

the impact of health care reform on hospital and preventive care evidence from massachusetts in april 2006 massachusetts passed legislation aimed at achieving near universal health insurance coverage the key features of this legislation were a model for national health reform passed in march 2010 the reform gives us a novel opportunity to examine the impact of expansion to near universal coverage state wide among hospital discharges in massachusetts we find that the reform decreased uninsurance by 36 relative to its initial level and to other states reform affected utilization by decreasing length of stay the number of inpatient admissions originating from the emergency room and preventable admissions at the same time hospital cost growth did not increase

does hospital competition save lives evidence from the english nhs patient choice reforms recent substantive reforms to the english national health service expanded patient choice and encouraged hospitals to compete within a market with fixed prices this study investigates whether these reforms led to improvements in hospital quality we use a difference in difference style estimator to test whether hospital quality measured using mortality from acute myocardial infarction improved more quickly in more competitive markets after these reforms came into force in 2006 we find that after the reforms were implemented mortality fell i e quality improved for patients living in more competitive markets our results suggest that hospital competition can lead to improvements in hospital quality

is hospital competition socially wasteful we study the consequences of hospital competition for medicare beneficiaries heart attack care from 1985 to 1994 we examine how relatively exogenous determinants of hospital choice such as travel distances influence the competitiveness of hospital markets and how hospital competition interacts with the influence of managed care organizations to affect the key determinants of social welfare expenditures on treatment and patient health outcomes in the 1980s the welfare effects of competition were ambiguous but in the 1990s competition unambiguously improves social welfare increasing hmo enrollment over the sample period partially explains the dramatic change in the impact of hospital competition

the strategic choice of managerial incentives do firms with separate owners and managers maximize profits we address this question for an oligopoly where managers compete in quantities or prices as in the cournot or bertrand models and owners choose their managers incentives we find that there is a strategic aspect in the problem of selecting incentives and that profit maximizing behavior does not result in particular in the oligopoly we study the behavior of firms competing in quantity price more closely resembles perfectly competitive collusive behavior than cournot bertrand behavior

executive overconfidence and compensation structure we examine the impact of overconfidence on compensation structure our findings support the exploitation hypothesis firms offer incentive heavy compensation contracts to overconfident chief executive officers ceos to exploit their positively biased views of firm prospects overconfident ceos receive more option intensive compensation and this relation increases with ceo bargaining power exogenous shocks sarbanes oxley act of 2002 sox and financial accounting standard fas 123r provide additional support for the findings overconfident non ceo executives also receive more incentive based pay independent of ceo overconfidence buttressing the notion that firms tailor compensation contracts to individual behavioral traits such as overconfidence

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

physician induced demand for childbirths a controversial technique for testing the hypothesis that physicians induce demand involves two stage least squares tsls regression analysis of cross section data on physician supply and utilization this paper tests the power of tsls by applying it where there is at most only a trivial amount of demand inducement the demand for childbirths we find evidence of inducement of childbirths calling into question the validity of the tsls approach this unlikely finding may be traced to at least two factors the first stage regression is not identified and the second stage regression does not adequately address border crossing

quality uncertainty and price in monopoly markets this paper examines a monopoly firm s pricing strategy in a market in which consumers have varying and imprecise estimates of the quality of the firm s product it is shown that the firm s price declines in response to an increase in the level of consumer uncertainty about quality when consumer tastes for the product are sufficiently similar and their uncertainty about quality is sufficiently small when one or both of these conditions fails to hold however it is shown that the monopoly firm s price is positively related to the level of consumer uncertainty about quality copyright 1996 by blackwell publishing ltd

inefficiencies and externalities from opportunistic acquirers abstract if opportunistic acquirers can buy targets using overvalued shares then there is an inefficiency in the merger and acquisition m a market the most overvalued rather than the highest synergy bidder may buy the target we quantify this inefficiency using a structural estimation approach we find that the m a market allocates resources efficiently on average opportunistic bidders crowd out high synergy bidders in only 7 of transactions resulting in an average synergy loss equal to 9 of the target s value in these inefficient deals the implied average loss across all deals is 0 63 although the inefficiency is small on average it is large for certain deals and it is larger when misvaluation is more likely even when opportunistic bidders lose the contest they drive up prices imposing a large negative externality on the winning synergistic bidders

third degree price discrimination in input markets output and welfare if price discrimination is realized the economy shifts from one equilibrium to another it clearly involves welfare effects the price discriminator clearly gains some consumers may also gain from the price cut but others may lose faced with higher prices etc traditionally the change in social welfare is known to be closely related to the change in total output in the case of third degree price discrimination it is well known that an increase in total output is a necessary condition for welfare improvement richard schmalensee 1981 proves this fact in a model in which the monopolist with constant marginal cost can perfectly separate markets further hal r varian 1985 extends this result to the case of interdependent markets permnitting increasing marginal cost of the monopolist and finally the assumption of nondecreasing marginal cost is eliminated by marius schwartz 1990 roughly speaking this proposition says that if there is a welfare gain from price discrimination there has to be some gain to offset the distortion involved on the other hand the vast majority of legal and other policy disputes over the price discrimination concern input markets not final good markets thus it seems important to investigate the situation in which a discriminating monopolist is not a final good supplier but an input supplier and the buyers of the input are downstream producers of a final good as is assumed in this paper if the downstream firms have different technologies their input demand functions will be different and thus the monopolist has an incentive to price discriminate in this scenario michael l katz 1987 and patrick degraba 1990 study the effect of inputmarket price discrimination and show that price discrimination always lowers welfare because it involves the distortion that a lower cost downstream firm is assigned a higher price unfortunately in their simple settings on the technology of downstream industry price discrimination can never change total output of the input or of the final good 1 thus we must say that welfare effect of input market price discrimination remains open to question if it has some effect on total output in particular we are curious as to whether we can obtain some close relationship between the changes in welfare and total output as we have obtained in the final good market settings with this motivation we will construct a model which involves change in total output of the final good in the next section the model and assumptions are provided in section ii after we extend the result of katz 1987 and degraba 1990 we find a relationship between the changes in welfare and total output strikingly it states that an increase in the total output of the final good is a sufficient condition for welfare deterioration this result contrasts with that obtained by schmalensee 1981 varian 1985 and schwartz 1990 from usual models of price discrimination in a final good market section iii concludes the analysis

friction in related party trade when a rival is also a customer there are many circumstances in which manufacturers provide inputs to wholesale customers only to subsequently compete with these wholesale customers in the retail realm such dual distribution arrangements commonly suffer from excessive encroachment in that the manufacturer s ex post retail aggression is harmful ex ante because it undercuts potential wholesale profits this paper demonstrates that with dual distribution a manufacturer can benefit from decentralized control and the use of transfer prices above marginal cost although these arrangements often create coordination concerns a moderate presence of such concerns permits the manufacturer to credibly convey to its wholesale customer that it will not excessively encroach on its retail territory this in turn permits the manufacturer to reap greater wholesale profits we also note that this force can point to a silver lining in arm s length parity requirements on transfer pricing in that they can solidify commitments to a particular retail posture

market structure and the role of consumer information in the physician services industry an empirical test abstract this paper applies panzar and rosse s 1987 econometric test of market structure to examine two long debated issues what is the market structure for physician services do more physicians in a market area raise the search cost of obtaining consumer information and increase prices satterthwaite 1979 1985 for primary care and general and family practice physicians the monopolistically competitive model prevailed over the competing hypotheses monopoly perfect competition and monopolistic competition characterized by consumer informational confusion although less conclusive there is some evidence to support the monopolistically competitive model for surgeons and the consumer informational confusion model for internal medicine physicians

offshoring and outsourcing in a global supply chain impact of the arm s length regulation on transfer pricing abstract we consider the structure of a global supply chain for operational decisions in a multinational firm mnf with tax considerations the mnf consists of two divisions one for production and the other for retailing while the retail division of the mnf and the market for its product is located in a domestic country the production division may be located in either the domestic high tax country or a foreign low tax country when the two divisions of a mnf are co located in the domestic country the firm enjoys the benefit of a centralized operational decision on the order quantity to maximize its total profit although there is no tax saving opportunity on the other hand a mnf can enjoy a tax saving benefit when offshoring its production division to a low tax country although its operational decision on the order quantity is decentralized which is harmful to the supply chain profit due to double marginalization the mnf may further pursue the low procurement cost of its retail division by allowing the retail division to search for an outsourcing opportunity from an outside supplier however outsourcing can hurt the profit of the mnf from the loss of the production division due to competition with outside suppliers we analyze the trade offs in the mnf s optimal choice of supply chain structure in addition we incorporate a regulation on the mnf s internal transaction by tax authorities which is commonly called the arm s length regulation we study how the mnf s choice of the operational structure of its supply chain changes in consideration of this regulation our results suggest that tax considerations deserve attention from managers when designing the supply chain structure

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an empirical analysis of territorial encroachment within franchised and company owned branded chains franchisees within large branded chains loudly complain of a form of channel conflict known as encroachment or impact encroachment occurs when franchisors add new units of their brand proximately to their franchisees existing units franchisees claim that their revenues have substantially decreased as a result of encroaching same brand entry the topic of encroachment has not only dominated franchisee association agendas and trade journal headlines but has also become a hot topic for politicians and policymakers yet until now evidence of encroachment has been strictly anecdotal this paper provides the first systematic evidence of encroachment using revenue data from the texas lodging industry in the 1990s i find that when franchisors approve new same brand units in the vicinity of incumbent units these new units cannibalize the incumbents revenues in contrast to the result for franchisors the addition of a new unit by company owned brands in the vicinity of same brand units is associated with an increase in the incumbents revenues this contrast suggests that encroaching behavior is caused by incentives that result from the governance form of franchising and is not simply an outcome that accompanies all expansion this finding informs theory on governance forms and exclusive territories implications for practitioners and policy are also discussed