combining the endogenous choice of price quantity and timing abstract this paper builds a theory of endogenous role distribution leader follower and nash player and of endogenous choice for the type of competition strategy price and quantity in a product differentiated duopoly model we examine an extended game by adding a pre play stage in which duopoly firms simultaneously decide whether to select a price contract or a quantity contract and also whether to move in the first period or in the second period before market competition we demonstrate that the unique equilibrium outcome is simultaneous quantity competition if the goods are substitutes and simultaneous price competition if the goods are complements

optimal retail contracts with asymmetric information and moral hazard constrained joint profit maximizing retail contracts are derived when the dealer is privately informed about demand conditions before contracting with the manufacturer demand is increased by dealer promotion which is unobservable by the manufacturer consequently the manufacturer does not know whether to attribute a low level of sales to a decline in demand or to a lack of promotion we show that in general the optimal contract exhibits some form of resale price maintenance and quantity fixing the type of resale price maintenance and quantity fixing depends on how price and quantity affect the link between sales and promotion

capital labor substitution and competitive nonlinear endogenous business cycles abstract we develop simple geometrical methods to study local indeterminacy bifurcations and stochastic sunspot equilibria near a steady state in nonlinear two dimensional economic models we present in particular a simple constructive geometrical characterization of the support of stochastic sunspot equilibria not only arbitrarily near a steady state but also along local bifurcations these methods are applied to a simple aggregative model to study in particular the influence of capital labor substitution and of the aggregate labor supply wage elasticity on the occurrence of competitive endogenous deterministic or stochastic fluctuations journal of economic literature classification numbers e32 c62

duopolistic vertical restraints abstract in an industry where competition exists at the wholesale level vertical restraints are not necessarily desirable from the standpoint of the manufacturers when vertical restraints are employed it is never in the form of retail price maintenance but rather in the form of franchise fee pricing when the products produced by the manufacturers are only slightly differentiated the producers may benefit from the double marginalization that arises with linear pricing such double marginalization results in higher retail prices which relieve competitive pressures

a common agency with incomplete information in the present article i demonstrate that forming a common agency by oligopolistic firms may not be to their advantage if agents have access to private information about their costs bernheim and whinston 1985 1986 pointed out that a common agency allows the firms to sustain the collusive outcome by giving them a vehicle to internalize the externality generated by their pricing or output decisions if agents have access to private information the advantage pointed out by bernheim and whinston may be more than outweighed by the possible existence of an informational disadvantage specifically if the unit costs of different potential agents are correlated the firm may be more successful in extracting the informational rents of its agent if it contracts with an independent agent and not with the same agent as its rival firm when oligopolistic firms contract with independent agents the revenues of one firm reveal implicit information about the unit costs of agents serving competing firms in the same industry however if the unit costs of different agents are correlated revenues also reflect information about the unit cost of the firm s own agent this additional information transmitted by revenues cannot be controlled by the agent s reporting behavior as a result if the firm conditions its agent s payoff upon revenues it can limit the informational rents that this agent can secure due to the existence of private information this possibility of limiting its agent s informational rents is eliminated if the firm contracts with the same agent as its rivals with a common agency the agent can manipulate the reports delivered to all the firms thus reducing the options available to each of them various patterns of agency relationship exist in markets where oligopolistic producers

balanced budget rules and aggregate instability the role of endogenous capital utilization schmitt grohe and uribe 1997 demonstrate that a balanced budget fiscal policy can induce aggregate instability unrelated to economic fundamentals the empirical relevance of this result has been challenged by subsequent studies in this paper we show both analytically and numerically that such extrinsic instability is an empirically robust plausibility associated with a balanced budget rule once endogenous capital utilization is taken into consideration this suggests that the design or operation of a balanced budget fiscal policy must recognize that it may constitute a practical source of self fulfilling prophecies and belief driven fluctuations

sectoral composition of government spending and macroeconomic in stability this article examines the quantitative interrelations between sectoral composition of public spending and equilibrium in determinacy in a two sector real business cycle model with positive productive externalities in investment when government purchases of consumption and investment goods are set as constant fractions of their respective sectoral output we show that the public consumption share plays no role in the model s local dynamics and that a sufficiently high public investment share can stabilize the economy against endogenous belief driven cyclical fluctuations when each type of government spending is postulated as a constant proportion of the economy s total output we find that there exists a trade off between public consumption versus investment expenditures to yield saddle path stability and equilibrium uniqueness 2014 western economic association international

asymmetric information as a commitment in oligopoly abstract in this paper we show that in an oligopolistic industry that consists of identical firms a subset of firms may find it optimal to commit to face asymmetric information about their agents operations therefore some firms may choose to incur informational agency costs even though information is available at no cost the commitment to face asymmetric information is also a commitment on the part of the firm not to extract the entire agent s surplus and so agents have incentive to make a specific investment that increases firms expected profits the level of this investment increases with the proportion of firms that are not informed

the competitive effects of partial equity interests and joint ventures abstract antitrust authorities should consider the trade off between enhanced efficiency and reduced competition in cases of partial ownership this paper examines the competitive effects side of that trade off in the context of a modified cournot model we show that in markets where entry is difficult partial ownership arrangements could result in less output and higher prices than otherwise even if the ownership shares are relatively small these effects arise solely because these arrangements link the fortunes of actual or potential competitors producing a positive correlation among their profits in this sense the effects are purely structural they arise not because of increased opportunities for collusion or changes in the concentration of control but because the linking of profits reduces each firm s incentive to compete since these links internalize free rider problems associated with policing collusion and investing in entry deterrence however they could also enhance cartel stability and profitability

basing point pricing and production concentration basing point pricing is a delivered price system in which the price quoted for delivery of a commodity is the sum of the price quoted at a predetermined basing point plus the cost of transportation from the basing point to the point of delivery whether or not the commodity is actually shipped from the basing point thus a seller who is not located at the base site absorbs freight for shipments toward the base point and charges phantom freight on shipments away from the base point basing point pricing has been widely practiced throughout the world for example testimony of the federal trade commission before the tnec i 94 i p 33 alleged that industries in the united states which then or previously followed basing point pricing included lumber iron and steel pig iron cement lime brick asphalt shingles and roofing window glass white lead metal lath building tile floor tile gypsum plaster bolts nuts and rivets cast iron soil pipe range boilers valves and fittings sewer pipes paper and paper products salt sugar corn derivatives industrial alcohol linseed oil fertilisers chemicals transportation equipment and power cable almost from its inception economists have generally considered basingpoint pricing to reflect a cartel or price leadership arrangement hoover i937 stigler i949 machlup i949 and such practices have been attacked under antitrust statutes for example aetna portland cement co vs ftc i 57 f 2nd 533 i946 triangle conduit cable co vs ftc i68 f 2nd i 75 7th cir i 948 cement institute vs ftc i57 f 2nd 533 i948 nonetheless basing point pricing remains prevalent particularly outside the united states opec has used a gulf based price plus transport costs to determine the delivered prices of crude oil to most places in the world haddock i982 p 290 the pricing of cement in great britain and steel in europe can be characterised as multibase point systems greenhut i987 recent attempts by for example haddock i982 to return to the theme that the basing point system could be competitive and desirable have been challenged by thisse and vives i988 and benson et al i990 on the basis of recent advances in the analysis of pricing policy given then that we assume basing point pricing to be a collusive device adopted by incumbent firms to impose some kind of price discipline on potential entrants the price leadership point referred to above important strategic and locational issues arise in particular a major concern of the early analysis of basing point pricing was the effect such a pricing policy would have on location choice of entrant firms

research note quantity discounts in differentiated consumer product markets in this paper we extend the standard hotelling model of product differentiation to incorporate a second dimension of consumer heterogeneity that relates to the quantity of the product consumers wish to buy this extension allows us to derive optimal nonlinear pricing rules chosen by competing sellers when offering differentiated products in the marketplace it also permits us to assess whether sellers find it optimal to offer quantity discounts in such a setting and the implications of such discounts on their profitability we find that offering quantity discounts corresponds indeed to equilibrium behavior the extent of discounting declines the less differentiated the products surprisingly when sellers offer to consumers a choice between two different sized packages their profits are at most as high as when such a choice is unavailable moreover when utilizing nonlinear pricing rules is not feasible the profits of the sellers actually decline when they offer consumers a choice between different sized packages a limited empirical investigation supports the comparative statics we derive in our theoretical model

market distortions and local indeterminacy a general approach we provide a methodology to study the role of market distortions on the emergence of indeterminacy and bifurcations it consists in introducing general specifications for the elasticities of the crucial functions defining the aggregate equilibrium dynamics of the model this allows us to study how market distortions influence the range of values for the elasticity of input substitution under which local indeterminacy and bifurcations occur highlighting the main channels and classes of distortions responsible for indeterminacy most of the specific market imperfections considered in the related literature are particular cases of our framework comparing them we obtain several equivalence results in terms of local dynamic properties applying this methodology to the woodford 30 framework we find that distortions in the capital market per se do not play a major role we further show that for empirically plausible values of elasticity of substitution between inputs indeterminacy requires a minimal degree of distortions this degree seems to be high under output market distortions while with labor market distortions the required degree is empirically plausible

the impact of provincial marketing boards on price relations and pricing dynamics in the north american slaughter hog market canadian provincial hog marketing boards act as sales agents for hog producers the hypothesis that the introduction of marketing boards in alberta manitoba and saskatchewan between 1969 and 1972 created seller side market power is tested and supported their hog prices rose to levels comparable to ontario where a marketing board had been in place organized sellers can also influence pricing dynamics because of the linked spatial oligopsonistic nature of the hog packing industry cointegration tests and variance decompositions indicate that establishing boards in the surplus producing western provinces made them relatively less isolated from pricing innovations in deficit producing eastern canada

the role of exclusive territories in producers competition reprinted in cartels stephen salant ed the international library of critical writings in economics edward elgar reference collections

stationary sunspot equilibria in a finance constrained economy abstract stationary sunspot equilibria are shown to exist in a production economy with infinite lived agents when it is not possible to borrow against future wage income equilibrium fluctuations exhibit persistence over time scales of the same order of magnitude as observed business cycles an active fiscal policy that stabilizes aggregate money expenditures can prevent such fluctuations

poverty traps the money growth rule and the stage of financial development abstract this paper investigates how monetary policy influences the emergence of local indeterminacy local bifurcations and multiple steady states depending upon the degree of the commitment parameter that defines financial market imperfection using diamond s overlapping generations model with credit market frictions the analytical results will show that poverty traps happen as an inevitable outcome under a wider range of money growth rates because financial markets are less developed put differently we derive analytically the positive link between financial development and per capita income

resale price maintenance under asymmetric information we study resale price maintenance rpm and quantity fixing arrangements qf in a framework with successive monopolies under both adverse selection and moral hazard the analysis compares the private and the welfare properties of both contractual modes under asymmetric information both kinds of vertical contracts entail a double marginalization driven by the information rents distributed to a privately informed downstream retailer this forces the upstream producer to sell above his marginal costs the upstream producer always prefers rpm to qf but the impact of rpm on consumers surplus is ambiguous whenever rpm is the preferred contracting mode for the vertical structure from an ex ante viewpoint it also raises consumers surplus thereby producing a pareto improvement relative to qf contracts

imperfect competition and basing point pricing i introduction basing point pricing occurs when firms that are geographically differentiated use a common location to formulate the transportation costs and thus delivered prices charged to consumers consumers are not generally permitted to purchase the commodity at free on board mill prices since such prices exist only for firms located at the basing point basing point pricing is sometimes associated with other seemingly unusual practices such as cross hauling the systematic transshipment of apparently identical commodities freight absorption the shipment of identical commodities longer distances at delivered prices that do not reflect additional transportation charges and phantom freight the assessment of fictitious transportation charges basing point pricing has a rich history in the united states and more recently was widely practiced by firms in the softwood plywood industry 1 economists have long been interested in the determinants of basing point pricing 2 their inquires have generally led them to conclude that basing point pricing is adopted to facilitate collusion 3 this view is articulated by stigler 1949 who combined two important branches of the literature to formulate a theory of how basing point pricing and more generally any delivered pricing system can solve the problems of cartel instability confronting firms that are geographically differentiated and face stochastic demand 4 examining the case of multiple production centers with limited numbers of firms serving geographically uncertain demand stigler 1949 1148 argued that the unpremeditable flexibility of mill prices would make it extremely difficult to maintain collusion among firms at the production center and even more difficult to maintain collusion between firms at different production centers the systematic freight absorption associated with any delivered pricing system provides a solution to these problems with a delivered pricing system there is a single price at each point in the market if transportation charges are agreed upon so price rivalry is eliminated one production center can sell in the natural territories of other production centers when this is necessary to obtain its share of the industry s sales these distant sales involve freight absorption moreover and are therefore partly self limiting the various prices need not change often so collusion is possible given the unstable geographical pattern of demand and the antitrust laws systematic freight absorption permitted efficient collusion stigler also provided some evidence such as the general magnitude of demand variability in those industries characterized by basing point pricing to support his hypothesis that delivered prices and basing point pricing facilitate collusion building upon stigler s theory mcgee 1954 argued that cross hauling is a symptom of the collusion facilitated by basing point pricing in a recent paper haddock 1982 challenged this view and argued that basing point pricing can arise if a firm at other than the base site takes the delivered price of the basing point product as given when formulating its production decision given this behavior a non base site firm faces a kinked marginal revenue schedule that supports basing point pricing for a wide range of marginal production and transportation cost schedules the non base firm earns a markup on its product in a particular market equal to the difference between the delivered price charged by base site firms and the non base site firm s costs of production and delivery the behavior and markups earned by firms located at the base point are not restricted in haddock s model and presumably can include bertrand behavior and competitive markups the behavior of non base site firms is explicitly monopolistic haddock also provided some non collusive rationales for cross hauling in contrast to the view that basing point pricing is adopted to facilitate collusion among all firms in the industry haddock s argument is that basing point pricing can have little to do with pervasive collusion and may at most be associated with positive markups and phantom freight charges by firms on the periphery of production

coexistence of strategic vertical separation and integration abstract this paper gives conditions under which vertical separation is chosen by some upstream firms while vertical integration is chosen by others in the equilibrium of a symmetric model a vertically separating firm trades off fixed contracting costs against the strategic benefit of writing a two part tariff exclusive dealing contract with its retailer coexistence emerges when more than two vertical cournot oligopolists supply close substitutes when vertical integration and separation coexist welfare could be improved by reducing the number of vertically separating firms the scope for coexistence diminishes when assumptions on contract observability and commitment are relaxed

an analytic history of delivered price litigation do courts properly distinguish rivalrous from collusive instances the federal judiciary s present cautious approach to delivered pricing is appropriate using court records and recent contributions to the economic literature this article evaluates the antitrust history of those practices delivered pricing can replace mill pricing naturally in some rivalrous settings but under special circumstances could be collusive thus delivered pricing has sometimes been adjudged a sherman act violation but only given other evidence of collusion for a time however the legal system threatened to treat delivered pricing as a per se violation of the clayton and federal trade commission acts that reflected poor economic understanding delivered pricing litigation seems to be a pure statutory phenomena our investigation has unearthed no cases under the common law of restraint of trade 1 since the advent of federal antitrust legislation however plaintiffs have relied on several distinct acts of congress to bring delivered pricing practices before the courts the earliest of those statutes the sherman act of 1890 forbad conspiracies in restraint of trade but courts typically have required explicit evidence before they will find a collusive conspiracy the mere use of a novel and poorly understood delivered pricing technique has not been enough relying on the clayton and federal trade commission acts of 1914 however lawyers formulated various claims that purported to draw an inference of collusion from the mere use of a particular delivered pricing schedule under those arguments no evidence of collusion was to be required several important precedents were set in reliance on such claims that we argue below is a leap of logic inconsistent with present economic understanding because the courts sometimes have accepted such theories but at other times have not the predictability of the law has been eroded to the cost of defendants and ultimately to the cost of consumers i the dawn of delivered pricing as an antitrust problem the history a number of industrial practices that became evident during the decades following the civil war were soon followed by statutory antitrust law which largely supplanted the common law antitrust precedents that had developed over the preceding centuries the speed and distance over which commercial orders could conveniently be placed and deliveries made steadily increased as local and regional transportation and communication networks expanded to form national systems that evolution enabled aggressive entrepreneurs to expand local markets into regional ones regional markets into national ones and national markets into world wide markets 2 in industries where technical scale economies were important the market expansion ultimately led to large scale production centers arising at particularly favorable transport hubs resource nodes or buyer concentrations concomitantly firms at less favorable sites either failed in the face of the stiffening long distance competition or found ways to thread themselves into small niches that had been left poorly served by the large scale production centers in the absence of significant differentiation of the physical product modern economic theory implies that it would be difficult for more than one firm to survive in a single small market away from the advantaged production centers in a predominantly large scale industry 3 so with no local competitors such remote enterprises as did survive would be able to price discriminate among nearby customers in that sense the surviving small remote firms would resemble the norm from an earlier day when markets were more commonly characterized by small dispersed spatial monopolies but the manufacturing costs of firms in the new highly competitive production centers coupled with the transport costs required for them to reach various points in a market determined the delivered prices that were available from the production center

legal unbundling can be a golden mean between vertical integration and ownership separation abstract we study an industry in which an upstream monopolist supplies an essential input at a regulated price to several downstream firms legal unbundling means in our model that a downstream firm owns the upstream firm but this upstream firm is legally independent and maximizes its own upstream profits we allow for non tariff discrimination by the upstream firm and show that under quite general conditions legal unbundling never yields lower quantities in the downstream market than ownership separation and integration therefore typically consumer surplus will be largest under legal unbundling outcomes under legal unbundling are still advantageous when we allow for discriminatory capacity investments investments into marginal cost reduction and investments into network reliability if access prices are unregulated however legal unbundling may be quite undesirable

multiple steady states and endogenous fluctuations with increasing returns to scale in production abstract the purpose of this paper is to study the influence of the elasticity of capital labor substitution and of the labor supply elasticity on the existence of multiple pareto ranked stationary equilibria local indeterminacy bifurcations and expectations driven fluctuations in economies with external and internal increasing returns to scale in production this is done through general geometrical methods that do not depend upon particular specifications for preferences and technology for the sake of concreteness the analysis focuses on the model with heterogeneous agents and financial constraints presented in woodford j econ theory 40 1986 128 137 and extended by grandmont pintus and de vilder capital labor substitution and competitive nonlinear endogenous business cycles crest working paper 9728 1997 to account for capital labor substitution increasing returns to scale are incorporated in two different market structures an economy with aggregate production externalities and perfectly competitive markets an economy with increasing returns internal to the firm and imperfect competition in the product s market s only journal of economic literature classification numbers c61 e32

duopoly delivered pricing and horizontal mergers federal merger guidelines recognize that when sellers are spatially dispersed the closeness of competitors can be crucial in evaluating the welfare consequences of a merger 1 this recognition makes it surprising that more research has not focused on the issue of horizontal mergers in spatial models the spatial setting is particularly interesting since the fact that a merger might occur in the future can alter the location decision made by firms we analyze a spatial duopoly with price discrimination in the first stage firms choose locations noncooperatively along a linear market with the foresight that a merger may occur in a later stage in the second stage firms decide whether to merge delivered price schedules are announced in stage three within this structure we study the effects of simultaneous and sequential entry and conclude that the possibility of merger generally leads to inefficient location choices and higher transport costs levy and reitzes examine the anticompetitive effects of mergers in salop s circular model 9 12 in this model firms are evenly spread around a circle and then a bertrand nash game is played in prices they conclude that if two adjoining firms merge the merged firm will increase prices at both its locations and prices will rise although to a lesser extent at all other locations in related work mcafee simons and williams study a cournot nash model of horizontal mergers between firms that engage in spatial price discrimination 10 their work also yields an estimate of the increases in equilibrium post merger delivered price yet both of these studies treat firm locations as fixed this rules out any influence of future possible merger on the location choices of firms we will show that this influence can be substantial

competitive price discrimination we model firms as supplying utility directly to consumers the equilibrium outcome of competition in utility space depends on the relationship u between profit and average utility per consumer public policy constraints on the deals firms may offer affect equilibrium outcomes via their effect on u f rom this perspective we examine the profit utility and welfare implications of price discrimination policies in an oligopolistic framework we also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two part tariffs

bargaining bonding and partial ownership this article provides a theory of interfirm partial ownership we consider a setting in which an upstream firm can make two alternative types of invest ment either specific investment that only a particular downstream firm can use or general investment that any downstream firm is capable of using when the benefits from specific and general investments are both stochastic equity partic ipation by the downstream firm in the upstream firm can lead to more efficient outcomes than take or pay contracts the optimal ownership stake of the down stream firm is less than 50 percent under a natural assumption about relative bargaining power

dynamic effects of government expenditure in a finance constrained economy abstract this paper introduces constant government expenditure in woodford s finance constrained model j econ theory 1986 with capital labor substitution as presented in grandmont pintus and de vilder j econ theory 1998 and investigates how government expenditure influences local dynamics near multiple steady states depending upon the elasticity of substitution between capital and labor in production

delivered versus mill nonlinear pricing with endogenous market structure abstract this paper discusses a model where consumers differ according to one unobservable preference for quality and one observable characteristic location with nonlinear prices arising in equilibrium the main question addressed is whether firms should be allowed to practice different nonlinear prices at each location delivered nonlinear pricing or should be forced to set a unique nonlinear contract mill nonlinear pricing assuming that firms can costless relocate we show that the free entry long run number of firms may be smaller equal or higher under delivered nonlinear pricing moreover delivered nonlinear pricing yields higher long run welfare when i fixed costs are low and when ii fixed costs are intermediate and consumer types are not very similar

vertical integration and firm boundaries the evidence since ronald h coase s 1937 seminal paper a rich set of theories has been developed that deal with firm boundaries in vertical or input output structures in the last twenty five years empirical evidence that can shed light on those theories also has been accumulating we review the findings of empirical studies that have addressed two main interrelated questions first what types of transactions are best brought within the firm and second what are the consequences of vertical integration decisions for economic outcomes such as prices quantities investment and profits throughout we highlight areas of potential cross fertilization and promising areas for future work

on credible delegation by oligopolists a discussion of distribution channel management several papers in the recent marketing literature have suggested that delegation in distribution e g the use of independent middlemen helps manufacturers to precommit strategically to profit enhancing competitive actions further the literature suggests that the profitability of such actions depends on market structure we challenge these conclusions here this is done in two steps first we perform an analysis of the entire class of models which have been used in the literature using internally consistent assumptions about market structure and contracting the only subgame perfect equilibrium is one in which all distribution channels have infinitely many levels of delegation obviously this is not what we see in the real world next we relax a key hidden assumption namely that all intra channel agreements are observable to competitors without this assumption the usual results unravel unless channel members can offer credible guarantees that unobservable agreements do not exist the strategic effects of delegation disappear since these guarantees are virtually impossible to maintain credibly we would expect to reject the hypothesis in the earlier literature relating channel structure to competition in an empirical study controlling for observability we conclude that mechanisms other than strategic ones must be responsible for the existence of delegated channels and make some suggestions about promising avenues for future theory research in channel structure

introduction to market psychology and nonlinear endogenous business cycles abstract the purpose of this symposium is to present geometric methods that are useful to study multiple equilibria and endogenous fluctuations in simple two dimensional macroeconomic models with a single predetermined variable characterizing the support of a sunspot equilibrium by its invariance properties in the underlying deterministic dynamics generates a complete description of stochastic endogenous fluctuations near a stationary state and along local bifurcations graphical methods to perform sensitivity analysis of local indeterminacy and bifurcations with respect to variations of uncertain economic parameters are also presented these methods are applied to specific macroeconomic models with constant returns to scale with external increasing returns and with imperfect competition journal of economic literatureclassification numbers e32 c62

endogenous residual claimancy by vertical hierarchies in this note we study a model of vertical hierarchies where the allocation of residual claimancy is endogenous and is determined jointly with production and contractual decisions we show that the equilibrium allocation of residual claimancy may be affected by production externalities across hierarchies in a non trivial manner specifically although revenue sharing contracts foster agents non contractible surplus enhancing effort we show that principals dealing with exclusive and privately informed agents might still prefer to retain a share of the surplus from production when dealing with inefficient high cost types this is because reducing the surplus share of those types reduces the information rent given up to efficient low cost types by means of a generalized competing contracts effect

on the efficiency of location decisions under discriminatory pricing abstract the paper analyzes the question of whether delivered pricing policies give rise to an inefficient location of firms and in particular to a geographical distribution of capacity which is overly concentrated the analysis adds to the literature on spatial pricing and location decisions the element of uncertainty over the timely delivery of products and therefore the possibility that risk averse consumers may be willing to pay a higher delivered price for products if they can hedge and divide their orders among two suppliers the results are in strong contradiction to the common belief that identical delivered pricing systems produce a highly inefficient distribution and that fob would yield the optimal location however it is shown that in markets with coordination problems the concern about excessive concentration of productive capacity may be legitimate

balanced budget rules distortionary taxes and aggregate instability a traditional argument against a balanced budget fiscal policy rule is that it amplifies business cycles by stimulating aggregate demand during booms via tax cuts and higher public expenditures and by reducing demand during recessions through a corresponding fiscal contraction this paper suggests an additional source of instability that may arise from this type of fiscal policy rule it shows that within the standard neoclassical growth model a balanced budget rule can make expectations of higher tax rates self fulfilling if the fiscal authority relies heavily on changes in labor income taxes to eliminate short run fiscal imbalances calibrated versions of the model show that indeterminacy occurs for income tax rates that are empirically plausible for the u s economy and other group of seven countries

product differentiation and collusion sustainability when collusion is costly a widely debated question in recent years by both strategy theorists and antitrust practitioners is what role product differentiation between firms plays in their ability to sustain a collusive agreement in order to reduce the strength of competition and gain higher profits this paper addresses the following question what happens to the product differentiation collusion sustainability relationship when setting up and maintaining an agreement is costly we show that introducing collusion costs into the discussion has relevant implications indeed sufficiently high collusion costs modify the underlying market structure thus altering the product differentiation collusion sustainability relationship with respect to the case where collusion costs are absent or low in particular if the gains from collusion are increasing decreasing with the degree of product differentiation the relationship between product differentiation and collusion sustainability is always positive negative whereas if the gains from collusion are inverted u shaped the relationship is inverted u shaped too these results stress the importance of considering those markets where the coordination between firms is sufficiently costly as structurally different from those markets where coordination has no costs for firms

sunspots and the business cycle in a finance constrained economy abstract this paper examines the cyclical properties of a finance constrained economy populated by two classes of households with heterogeneous preferences and featuring social increasing returns to scale the model exhibits indeterminacy for externalities mild enough so that the labor demand curve is downward sloping furthermore simulation results show that endogenous fluctuations driven by expectations are quantitatively relevant in opposition to standard real business cycles and sunspot models with single type of households our finance constrained economy reveals to be able to mimic both an acyclical pattern of the real wage and strong procyclical movements of aggregate consumption journal of economic literature classification numbers e2 e32

spatial pricing with differentiated products this paper generalizes analysis of spatial pricing policies to cases in which oligopolists produce differentiated products it is shown that spatial price discrimination through freight absorption is affected by the number of competitive firms the extent to which their products are substitutes and by the locations such firms adopt in the market it is further shown however that spatial price discrimination may be the consequence of collusive agreements or of attempts to anticipate competitors actions the simple spaceless foundations of current policies on spatial pricing need to be reexamined but this reexamination must take into account interconnections between producers the extent to which their products are differentiated and their locations

vertical restraints and producers competition this paper examines the rationale for vertical restraints it shows that there are important circumstances under which these restrictions have significant anti competitive effects the paper focuses on the consequences of exclusive territorial arrangements among the retailers of two products which are imperfect substitutes such arrangements are shown to increase consumer prices under plausible conditions the increase in consumer prices is sufficiently large to more than offset the deleterious effects from double marginalization resulting from reduced competition among retailers the imposition of exclusivity provisions is may be part of a nash equilibrium among producers these results hold whether there are or are not franchise fees this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

indeterminacy and increasing returns abstract we investigate properties of the one sector growth model with increasing returns under two organizational structures capable of reconciling the existence of aggregate increasing returns with competitive behavior by firms the first involves input externalities the second involves monopolistic competition we show for parameters in close accord with recent literature on real business cycles that the model displays an indeterminate steady state that can be exploited to generate a model of business fluctuations driven by self fulfilling beliefs in our first class of models growth is generated by exogenous increases in factor productivity in the second class the marginal product of capital is large enough for endogenous growth journal of economic literature classification numbers e00 e3 o40

information sharing between vertical hierarchies abstract when do principals independently choose to share the information obtained from their privately informed agents information sharing affects contracting within competing organizations and induces agents strategies to be correlated through the distortions imposed by principals to obtain information we show that the incentives to share information depend on the nature of upstream externalities between principals and the correlation of agents information with small externalities principals share information when externalities and correlation have opposite signs and do not share information when externalities and correlation have the same sign in this second case principals face a prisoners dilemma since they obtain higher profits by sharing information

complicated endogenous business cycles under gross substitutability abstract in this paper we investigate the global behaviour of the output equilibrium time paths in a two dimensional overlapping generations model with productive investment and capital accumulation where agents behave rationally and markets are competitive we show that equilibrium time paths can converge to complicated chaotic attractors as well as periodic attractors when the substitution effect dominates the income effect everywhere the occurrence of complicated equilibrium paths is guaranteed by homoclinic intersections of the stable and unstable manifolds of the autarkic steady state journal of economic literature classificiation number e32

product customization and price competition on the internet the internet provides an unprecedented capability for sellers to learn about their customers and offer custom products at special prices in addition customization is more feasible today because of advances in manufacturing technologies that have improved sellers manufacturing flexibility we first develop a model of product customization and flexible pricing to incorporate the salient roles of the internet and flexible manufacturing technologies in reducing the costs of designing and producing tailored consumer goods we show how a monopoly seller may earn the highest profits by producing both standard and custom products and can raise prices for both types of products as customization and information collection technologies improve simultaneous adoption of customization in a duopoly reduces the differentiation between their standard products but does not intensify price competition compared with a two facility monopolist the duopoly may underinvest in customization consumer surplus improves after sellers adopt customization but does not monotonically increase as customization technologies advance when firms face a fixed entry cost and adopt customization sequentially the first entrant always achieves an advantage and may be able to deter subsequent entry by choosing its customization scope strategically

fighting collusion by permitting price discrimination we investigate the effect of a ban on third degree price discrimination on the sustainability of collusion we build a model with two firms that may be able to discriminate between two consumer groups two cases are analyzed i best response symmetries so that profits in the static nash equilibrium are higher if price discrimination is allowed ii best response asymmetries so that profits in the static nash equilibrium are lower if price discrimination is allowed in both price discrimination scenarios firms discount factor has to be higher in order to sustain collusion in grim trigger strategies than under uniform pricing

the strategic value of partial vertical integration we investigate the strategic incentives for partial vertical integration namely partial ownership agreements between manufacturers and retailers when retailers privately know their costs and engage in price competition with differentiated goods the partial misalignment between the profit objectives within a partially integrated manufacturer retailer hierarchy implies a higher retail price than under full integration this information vertical effect translates into a competition horizontal effect the partially integrated hierarchy s commitment to a higher price induces the competitor to increase its price which strategically relaxes competition our analysis provides implications for vertical merger policy and theoretical support for the recently documented empirical evidence on partial vertical acquisitions

privacy and personal data collection with information externalities abstract we provide a theoretical model of privacy in which data collection requires consumers consent and consumers are fully aware of the consequences of such consent nonetheless excessive collection of personal information arises in the monopoly market equilibrium which results in excessive loss of privacy compared to the social optimum the main mechanism for this result is information externalities and users coordination failure in which some users decision to share their personal information may allow the data controller to infer more information about non users we also show that the emergence of data brokerage industry can facilitate the collection and monetization of users personal data even in a fragmented market where no individual website has incentives to do so independently due to scale economies in data analytics we discuss policy implications of our analysis in light of the recent eu general data protection regulation gdpr

nonlinear pricing with random participation the canonical selection contracting programme takes the agent s participation decision as deterministic and finds the optimal contract typically satisfying this constraint for the worst type upon weakening this assumption of known reservation values by introducing independent randomness into the agents outside options we find that some of the received wisdom from mechanism design and nonlinear pricing is not robust and the richer model which allows for stochastic participation affords a more general empirical specification we develop a multidimensional methodology for addressing this class of problems providing two important applications to nonlinear pricing first with nonlinear pricing by a monopolist the familiar nodistortion at the top result persists but in tandem with the surprising conclusion that there is either no distortion at the bottom or bunching second in a simple model of product differentiated duopolists competing with nonlinear pricing we show that generally the duopoly outcome is qualitatively similar to the monopoly outcome however when marginal costs are symmetric and competition is sufficiently intense distortions disappear and the equilibrium outcome takes a remarkably simple form efficient quality allocations with cost plus fee pricing

the value of ignorance this article provides a new perspective on the information structure of an agent in a standard model of adverse selection before the contracting takes place the agent has the opportunity to gather private information on a relevant parameter that affects final payoffs i allow for the possibility that the agent remains uninformed with some probability the agent s optimal choice of information structure is derived and it is shown that in the case of two states of nature the possibility of remaining ignorant has a positive strategic value for the agent since a poor information structure generates strategic benefits there will be no equilibrium in which the agent is perfectly informed even if additional information is costless at the margin

delivered pricing and merger with demand constraints i introduction studies of merger activity in models of spatial price discrimination conventionally assume that pricing by firms is not constrained by demand instead the only constraints on the discriminatory prices charged are the cost structures of the adjacent rivals the issue of demand constraints has received attention by wang and yang 1999 in related literature but not in examining the consequences of a spatial merger we demonstrate that when discriminatory prices are constrained by willingness to pay demand the conclusions of existing models must be substantially modified first although introducing a demand constraint does not alter firm locations in the absence of merger it does alter firm locations in the presence of merger second the demand constraint results in equilibrium locations that depend on transport cost which is not the case in previous models transport cost plays an important role in spatial models and its absence to date from models of spatial merger is unrealistic moreover the dependence of location on transport costs invites the possibility that a tax on transport costs can change locations in an efficient fashion third introducing a demand constraint reverses previous results relating to the merger paradox in particular in the absence of a demand constraint models of spatial price discrimination provide instances in which the parties to a merger gain profit and the excluded firms lose profits there are no such instances in the presence of demand constraints in what follows the second section places our work within the literature and highlights the issue of demand constraints the third section presents the model contrasting it with earlier models the fourth section identifies the equilibrium locations that arise when there is the prospect of merger and contrasts these locations with those that arise in the absence of demand constraints the section also demonstrates that when demand is constrained the model of spatial price discrimination yields no cases that resolve the merger paradox a result contrasting with that offered by the model in which demand constraints are absent the fifth section demonstrates that a tax on transport can increase welfare indeed the optimal tax often completely eliminates spatial price competition by creating local monopolies the sixth section considers the full range of cases in which some but not all firms may face constrained demand and also proves that in the fully constrained case considered earlier the entire market will be served a seventh section considers a partially constrained case and the eighth section concludes ii spatial price discrimination and constrained demand spatial models have proven especially useful in capturing aspects of competition in horizontally differentiated markets as emphasized by tirole 1988 in particular they provide a general method for examining markets in which an ordered product characteristic differentiates output 1 among the more popular models is that of discriminatory pricing in which the price a firm is able to charge depends upon how close it is to its rivals thisse and vives 1988 show that such pricing is the preferred alternative when firms are able to adopt it lederer and hurter 1986 demonstrate that under such pricing rivals locate symmetrically along a linear market thus minimizing total transport costs early studies of merger in a model of spatial discrimination assumed that location choices do not anticipate the merger reitzes and levy 1995 show that such a merger increases the prices and profits of the participants but leaves those of all other firms unchanged gupta et al 1997 show that an anticipated horizontal merger alters the locations of spatially discriminating duopolists and increases transport cost thereby reducing efficiency rothschild et al 2000 confirm this finding in the case of two firms merging in a three firm market and also examine the effects of merger on the excluded rival

the revelation and delegation principles in common agency games in the context of common agency adverse selection games we illustrate that the revelation principle cannot be applied to study equilibria of the multi principal games we then demonstrate that an extension of the taxation principle what we term the delegation principle can be used to characterize the set of all common agency equilibria this abstract was borrowed from another version of this item

bundling and international market segmentation the paper shows how firms by bundling their products with nontradables may contribute to the segmentation of international oligopoly markets we develop a simple example with two products one that is homogeneous across markets and one that is bundled with a nontradable e g local services integration of the markets for the homogeneous product yields the expected price equalization across markets however integration of the markets for bundled products leaves the economy entirely unaffected hence the standard methodology of comparing a segmented and an integrated equilibrium would exaggerate the effects of integration in this economy

retail contracting theory and practice we summarize a number of regularities that arise in the empirical literature on contractual relationships between manufacturers and their exclusive resellers we do this using studies of traditional and business format franchise relationships as well as studies of salesforce integration decisions some of the patterns that we uncover are consistent with a standard incentive cum insurance theory of organization while others are not we brie y review some theoretical extensions that seem promising in terms of reconciling seeming con icts between theory and practice i introduction manufacturers of retail products must decide whether to sell their products to consumers themselves vertical integration or to sell via independent retailers vertical separation when manufacturers do not perform the sales function internally but want exclusive retailers they usually choose some form of franchising 1 many theories attempt to explain the choice of retail organizational form moreover a considerable body of empirical evidence concerning this choice is accumulating we attempt to evaluate this econometric evidence and relate it to the theories to accomplish this task we assess studies of franchising arrangements as well as studies of sales force organization in industrial settings the paper is organized as follows in the next section we highlight a number of regularities that arise in the empirical literature on retail contracting in particular we nd that i risk is positively related to the use of high powered incentives vertical separation ii the importance of the agent s eiort in production is positively related to the use of high powered incentives

on the transition from local regular to global irregular fluctuations abstract we present a general framework for understanding the transition from local regular to global irregular chaotic behaviour of nonlinear dynamical models in discrete time the fundamental mechanism is the unfolding of quadratic tangencies between the stable and the unstable manifolds of periodic saddle points to illustrate the relevance of the presented methods for analysing globally a class of dynamic economic models we apply them to the infinite horizon model of woodford 1988 j economic theory 40 128 137 amended by grandmont et al 1998 j economic theory 80 to account for capital labour substitution so as to explain the appearance of irregular fluctuations through homoclinic bifurcations when parameter values are far away from local bifurcation points

bundling and competition for slots we consider competition between sellers selling multiple distinct products to a buyer having k slots under independent pricing a pure strategy equilibrium often does not exist and equilibrium in mixed strategy is never efficient when bundling is allowed each seller has an incentive to bundle his products and an efficient technology renting equilibrium always exists furthermore in the case of digital goods or when sales below marginal cost are banned all equilibria are efficient comparing the mixed strategy equilibrium with the technology renting equilibrium reveals that bundling often increases the buyer s surplus finally we derive clear cut policy

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

partial vertical ownership abstract a backward ownership interest held by a downstream firm yields a partial rebate of the upstream margin input demand increases with backward ownership and the upstream firm optimally responds by raising price with symmetric costs every downstream firm s equilibrium input output choice is invariant across a class of ownership profiles including uniform ownership moreover equity trading results in uniform holdings so partial vertical ownership may have no real effects with asymmetric costs ex ante equity trading amplifies the asymmetries and shifts output toward lower cost firms with homogeneous goods this improves producer and total surplus with differentiated goods it may harm consumers

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

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

multiproduct pricing in oligopoly abstract this paper proposes a two good model of price competition where some consumers visit all shops and others visit only one we find that information frictions lead to price dispersion when the two goods are complements their prices will tend to be negatively correlated so if one is priced high the other will be discounted this finding is supported by some empirical evidence which suggests that simultaneous price discounts of complements are infrequent if the goods are substitutes their prices will be uncorrelated potentially rationalizing the lack of evidence on their co pricing when selling complements retailers earn higher profits than in the one good model through taxing captive consumers with a high overall price tag and attracting shoppers by pricing one of the goods aggressively bundling practices are thus shown to be detrimental to retailers profits

competition advertising and meeting competition clauses abstract pricing according to meeting competition clauses mcc s is often argued to enforce collusive agreements our analysis incorporates uncertainty and advertising we show within a spatial model that mcc s permit price discrimination but at the expense of lower profits

basing point pricing competition versus collusion we consider the implications of game theoretic models for the competitive or collusive nature of basing point pricing bpp in one shot games equilibrium price schedules do not generally conform to bpp with unrestricted price competition nevertheless bpp can emerge in dynamic contexts define modified fob price policy as using fob in one s natural market and matching the rival s delivered price whenever profitable a configuration where both firms do this is a subgame perfect equilibrium of a two stage game where firms choose first price policies and then compete in the marketplace further with repeated competition bpp can be used as punishment device

spatial price discrimination with heterogeneous products product heterogeneity is introduced into the context of spatial price discrimination many of the strong properties of the standard homogeneous goods case which are attained as a limit case here are shown to be no longer valid in particular the social optimum is no longer sustainable as a market equilibrium unless products are either identical or else very different

balanced budget income taxes and aggregate stability in a small open economy abstract in a closed economy a balanced budget fiscal policy rule with endogenous income tax rates can generate aggregate instability due to self fulfilling expectations e g schmitt grohe and uribe 1997 this paper shows both analytically and numerically that beliefs driven aggregate instability associated with such a balanced budget rule is less of a problem in a small open economy integrated in the world asset and goods markets this is because cross border capital flows and endogenous international price adjustments produce income effects that reduce the likelihood of sunspot equilibria from a policy perspective our results relieve possible concerns that balanced budget rules and reliance on income taxes to achieve budget objective could have destabilizing effects on the economy

aggregate instability under balanced budget consumption taxes a re examination we re examine the destabilizing role of balanced budget fiscal policy rules based on consumption taxation using a one sector model with infinitely lived households we consider a specification of preferences derived from jaimovich 2008 14 and jaimovich and rebelo 2009 15 which is flexible enough to encompass varying degrees of income effect when the income effect is not too large we show that there exists a laffer curve which explains the multiplicity of steady states and that non linear consumption taxation may destabilize the economy promoting expectation driven fluctuations if the elasticity of intertemporal substitution in consumption is sufficiently larger than one and the tax rate is counter cyclical with respect to consumption numerical illustrations also show that consumption taxation may be a source of instability for most oecd countries for a wide range of structural parameters configurations we finally prove the robustness of our conclusions if we consider a discrete time setup

liberalizing a distribution system the european car market we quantify the competitive effects of liberalizing the selective and exclusive distribution system in the european car market based on a model of oligopoly pricing with differentiated products we consider two possible competitive effects from liberalization i the creation of international intrabrand competition cross border trade which will result in a reduction of international price discrimination and ii a possible cumulative effect arising from a strengthening of national intrabrand competition which would result in reduced double marginalization we find that the reduction in international price discrimination mainly redistributes consumer gains across countries it has a positive but modest effect on total welfare if liberalization also has the cumulative effect of reducing double marginalization the welfare effects are much higher finally we find that the effects of liberalization on the manufacturers profits are either small or positive this finding implies that international price discrimination and softening competition through a double marginalization mechanism should not be interpreted as main profit motives for the previous distribution system but only as unintended side effects hence the industry rationale for maintaining the previous distribution system should be sought in other areas jel f15 l42

price discrimination and equilibrium in monopolistic competition modern theories of monopolistic competition have borrowed extensively from techniques developed in location theory and the theory of spatial pricing the monopolistically competitive firm is assumed to choose a location and price for its product a subject that has been of increasing concern in this corpus of theory is that there exists no free entry price location equilibrium in this paper we demonstrate that free entry price location equilibrium exists provided only that producers are allowed to price discriminate among customers in a reasonable manner equilibrium is modelled as a two stage game using the selten concept of subgame perfect nash equilibrium it is shown that the equilibrium discriminatory price system is one initially identified by hoover in addition we show that equilibrium is not unique the precise nature of equilibrium in a particular market will be dependent upon the history of that market

product line competition customization vs proliferation we study a market with customers who have heterogeneous preferences for product attributes we consider two types of firms that compete on price and product variety a traditional firm which chooses a limited set of product configurations and a customizing firm which can produce any configuration to order the traditional firm carries product inventories and experiences a lead time delay the customizing firm does not carry inventory and its customers incur waiting costs until they receive their orders we assume that the customizing firm has limited capacity in the short run e g when it does not outsource production to high volume manufacturers we derive the equilibrium for a duopoly competition between the customizing firm and the traditional firm study its characteristics and compare it to a monopoly we characterize conditions that favor customization under competition we find that the customizing firm s profit is not monotone in the market size and its ease of customization similarly a

personalized pricing and quality differentiation we develop an analytical framework to investigate the competitive implications of personalized pricing pp whereby firms charge different prices to different consumers based on their willingness to pay we embed pp in a model of vertical product differentiation and show how it affects firms choices over quality we show that firms optimal pricing strategies with pp may be nonmonotonic in consumer valuations when the pp firm has high quality both firms raise their qualities relative to the uniform pricing case conversely when the pp firm has low quality both firms lower their qualities although many firms are trying to implement such pricing policies we find that a higher quality firm can actually be worse off with pp while it is optimal for the firm adopting pp to increase product differentiation the non pp firm seeks to reduce differentiation by moving in closer in the quality space while pp results in a wider market coverage it also leads to aggravated price competition between firms because this entails a change in equilibrium qualities the nature of the cost function determines whether firms gain or lose by implementing such pp policies despite the threat of first degree price discrimination we find that pp with competing firms can lead to an overall increase in consumer welfare

on the basing point system reply david d haddock s 1990 contention is really that the jacques f thisse and xavier vives 1988 and the bruce l benson melvin l greenhut and george norman 1990 papers do not provide a collusive model that yields base point pricing bpp he apparently believes his paper 1982 established competitive bpp and suggests in 1990 that the collusive model and hard empirical work alone remain however no collusive model is required since it has already been well demonstrated in the literature on plant location and spatial price theory that firms at feasible distance locations from a production center would accept bpp only because they fear that to do otherwise would subject them to retaliatory actions by the larger more powerful firms at the production center moreover the paper by thisse vives 1988 henceforth tv and benson greenhut norman 1990 henceforth bgn indicated sufficiently that other systems would arise than haddock s competitive bpp especially since the restrictive conditions necessary for the latter militate against its use haddock in fact appears to accept these conditions in his references to arthur r burns proposals 1936 of nearbase point pricing nbpp hard empirical analysis would indeed be in order in determining the extent of nbpp not competitive bpp this paper responds to the above noted issues in three main sections section i briefly provides some historical data on the collusive uses of bpp for any future researcher who seeks empirically to uncover a

product differentiation with consumer arbitrage abstract we determine the equilibrium to a game where two firms set delivered price schedules and consumers simultaneously declare where they want to take delivery of the product equilibrium pricing policies provide incentives for consumers not to demand their preferred varieties but rather to purchase more standard varieties this behavior may decrease market diversity the demanded varieties tend to agglomerate around the market center we also show that it is efficient for the cost of adapting the product to consumers to be shared through arbitrage but oligopoly gives rise to an inefficient level of personal arbitrage

vertical restraints with incomplete information when a firm contracts with a privately informed retailer vertical restraints may be insufficient to eliminate distortions arising from having to induce truthful reporting with franchise fee contracts which are equivalent to any other quantity forcing contract two distortions arise the first is the need to transfer surplus to the retailer and the second is a reduction in the marginal return to production with rpm contracts the first best outcome of vertical integration is obtainable if the retailer observes private information only about the state of demand if the retailer observes also private information about retailing costs both distortions persist in an earlier paper rey and tirole 1986 r t compare various forms of vertical restraints in a stochastic environment where retailers have superior private information than the firm about the uncertain state of the world they demonstrate that with asymmetric information vertical restraints may be insufficient in order to reproduce the first best outcome of vertical integration in r t contingencies are not feasible in the contracts since there are multiple retailers who can arbitrage in particular the wholesale price and the franchise fee under franchise fee contracting ff or the retail price imposed upon the retailer under retail price maintenance rpm cannot be selected contingent upon any future communication with the retailers in contrast in the present paper we assume that the firm is served by a single retailer which then facilitates consideration of contingent contracts the reason we make this different assumption is in order to investigate whether more sophisticated contracts can resolve the agency problem we still obtain similar negative results to the ones obtained by r t specifically vertical integration cannot generally be reproduced by appropriate contracting if retailers can observe private information about demand or retailing costs there is another characteristic of the class of contracts considered in r t that we modify in the present analysis while in r t the agent agrees to serve the firm as long as its ex ante expected payoff is nonnegative in the present paper we require that the ex post profits of the agent are nonnegative irrespective of how unfavorable is the realization of the state of nature this

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

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

alternative government financing and aggregate fluctuations driven by self fulfilling expectations abstract using woodford s finance constrained model woodford m 1986 stationary sunspot equilibria in a finance constrained economy journal of economic theory 40 128 137 with external effects in production as in barinci and cheron 2001 sunspots and business cycle in a finance constrained economy journal of economic theory 97 30 49 this paper investigates the effects of alternative government financing methods on the range of values of increasing returns leading to an indeterminate steady state it will be shown that indeterminacy may easily arise at a wide range of values of increasing returns if constant government expenditure is financed through labor income taxes and with difficulty if constant government expenditure is financed by taxes on capital in addition we explore how the consequences of endogenous income taxes are changed if tax rates on labor and capital income are kept constant and government expenditure is endogenously adjusted to satisfy the budget constraint

vertical integration or separation of the sales function as implied by competitive forces abstract in the present paper we link the decisions concerning the sales strategies that are made by competing firms we demonstrate that when the demand schedules facing competing firms are moderately correlated asymmetric equilibria may arise where only one firm decides to establish its own sales force while its competitor sells its product through an independent sales agency when demand schedules are highly correlated however only symmetric equilibria can arise since firms derive greater benefits from imitating rather than contradicting their rivals choices we demonstrate that vertical separation of its sales function is more likely than vertical integration when firms produce products that are highly substitutable