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

irreversible choice of uncertain technologies with network externalities in this article i explore the problem of sequential and irreversible technology choice in the presence of network externalities when the technologies stochastically evolve over time early potential users are shown to adopt an irreversible technology too early compared to the social optimum the effect of increasing the uncertainty of the technologies on an early potential user s decision is analyzed i find that the sponsor of new emerging technology might choose a research strategy that is too safe i also study the consequences of allowing side payments between generations of consumers and demonstrate that an ex post optimal standardization policy can impair ex ante social welfare

on strategic community development this paper examines strategic behavior of developers who through offering different congested public good packages and revenue fiscal schemes compete for residents who are differentiated by income there is an endogenous determination of numbers and sizes of communities developers have an incentive to strongly differentiate their public good offerings in terms of pricing strategies developers exhibit sharply contrasting behaviors in low income communities housing consumption is subsidized once lots are priced in high income communities housing consumption is generally taxed

price setting supergames with capacity constraints this paper examines the role of industry capacity in enforcing collusion in the context of repeated games for a fixed capacity per firm it is shown that changes in the number of firms have a non monotone effect on the best enforceable cartel price this is due to the fact that while an additional firm lowers the share that each of the other firms enjoys at the collusive price it also increases the losses to each firm should the cartel fail

product introduction with network externalities the authors study the introduction of a new product in a market with network externalities there is a common presumption that such markets exhibit excess inertia i e that they are biased toward existing products in contrast the authors provide conditions under which equilibrium involves insufficient friction i e a tendency to rush into new incompatible technologies they also analyze the firms incentives to make their products compatible and they show that the firm introducing the new technology is biased against compatibility copyright 1992 by blackwell publishing ltd

installed base and compatibility innovation product preannouncements and predation a good is often more valuable to any user the more others use compatible goods the authors show that this effect may inhibit innovation if an installed base exists and transition to a new standard must be gradual early adopters bear a disproportionate share of transient incompatibility costs this can produce excess inertia the installed base however is stranded if the new standard is adopted this may create excess momentum these dynamic effects have strategic implications temporary price cutting can permanently prevent entry and product preannouncements can be critical in innovation these strategic actions have ambiguous welfare effects

tax incidence in a simple general equilibrium model with collusion and entry abstract we develop a two sector general equilibrium model in which oligopolistic firms collude non cooperative and earn positive economic profits even though there is free entry entry decisions involve balancing sunk costs with the present value of future profits the interest rate is determined in a capital market in which ownership of the capital stock and shares of firms are traded since the degrees of collusion and entry depend on future profits both are influenced by the interest rate we show how tax induced changes in the interest rate affect market structure in general entry and collusive pricing effects work in opposite directions

imperfect price discrimination and welfare we develop a model in which a monopolist uses differences across consumers in their valuation of time to imperfectly price discriminate though it is customary to analyse price discrimination problems by the calculus of variations after postulating a continuum of types we assume a finite number of types and exploit the geometry and duality of the contract set and the structure of the programming specification we analyse in detail the qualitative properties of the model s solution and show by construction that our results exhaust the implications of the model for equilibrium contract pairs we show that imperfect discrimination is not bounded in welfare terms between perfect discrimination and single price monopoly and that the deadweight loss consumer surplus and output comparisons between single price monopoly and imperfect discrimination are ambiguous

product variety and competitive discounts abstract a market with free entry monopolistic competition is studied nonlinear pricing is shown to be the bertrand nash equilibrium strategy for firms given small per capita fixed costs the nonlinear pricing equilibrium approaches the perfectly competitive equilibrium with marginal cost pricing nonlinear pricing is associated with greater product variety than linear pricing increased variety leads to efficient pricing

market structure and the timing of technology adoption with network externalities abstract the paper shows that in the presence of network externalities consumers adopt conventional technologies too early the waiting option for a newly emerging technology is not exercised enough this problem is aggravated when the new technology is provided by a single producer with market power because any positive value created via waiting by current consumers will be ex post appropriated by the monopolist therefore the monopolist s power to extract surplus operates against his own interests in this dynamic setting the paper also shows how the producer of a new technology can partially overcome the problem of too little waiting by using licensing as a commitment device

on two part tariff competition in a homogeneous product duopoly abstract we explore aspects of two part tariff competition between duopolists providing a homogeneous service when consumers differ with respect to their usage levels competition in only one price component the fee or the rate may allow both firms to enjoy positive profits if the other price component has been set at levels different enough between firms fixing one price component alters the nature of competition indirectly introducing an element of product differentiation endogenous market segmentation emerges with the heavier users choosing the lower rate firm and the lighter users choosing the lower fee firm when no price component can be negative competition becomes softer profits tend to be higher but there is also a disadvantage for the firm that starts with a higher fee than that of its rival

tacit collusion in the presence of cyclical demand and endogenous capacity levels abstract we analyze tacit collusion in an industry characterized by cyclical demand and long run scale decisions firms face deterministic demand cycles and choose capacity levels prior to competing in prices our focus is on the nature of prices we find that two types of price wars may exist in one collusion can involve periods of mixed strategy price wars in the other consistent with the rotemberg and saloner 1986 definition of price wars we show that collusive prices can also become counter cyclical we also establish pricing patterns with respect to the relative prices in booms and recessions if the marginal cost of capacity is high enough holding current demand constant prices in the boom are generally lower than the prices in the recession this reverses the results of haltiwanger and harrington 1991 in contrast if the marginal cost of capacity is low enough then prices in the boom are generally higher than the prices in the recession for costs in an intermediate range numerical examples are calculated to show specific pricing patterns

northwest coast indigenous institutions that supported resilience and sustainability abstract indians of the northwest coast of north america had cultural continuity for at least two millennia before contact with people from the old world this archeological fact suggests that their societies had achieved sustainability and resilience in relationships to their ecosystems and the salmon runs the governance principles used by northwest indians in managing fisheries and other resources provided resilience in addition to a land ethic these principles included exchange systems based on public reciprocity property rights were clear and trespass was a capital offense chiefs and titleholders had to be generous facilitators leadership authority over land was contingent upon adherence to ethical and generous behavior as well as good management these indigenous institutions were quite different from the rules currently governing the management of most ecosystems in critiquing current institutions many ideas similar to those in the indigenous systems have been proposed in isolation the example described in this paper suggests the importance of combining them

converting technology to mitigate environmental damage there are many situations where policy makers would like to induce firms to make a major discrete conversion in production technology to help the environment this paper examines how heterogeneity in the operating condition of firms plant and equipment which cannot be observed by policy makers can affect the choice between incentives to encourage conversion to a cleaner technology by relating different conditions of firms plant and equipment to production costs extent of environmental damage and cost of conversion to a cleaner technology we show when a perfectly discriminating incentive to encourage conversion is not feasible in addition we show that firms with plant and equipment in better condition will convert their technology to mitigate their environmental damage and firms with plant and equipment in poorer condition will not this and a series of additional results lead to conditions under which an administratively simple uniform lump sum incentive to switch to cleaner technology is preferable to one based on output these results and conditions extend to cases where there are network externalities in conversion and where there is strategic timing in firms choice of when to convert

on quota violations of opec members abstract over the last decades quota violations have become a norm for opec countries however the academic literature on opec focuses more on its production behavior than on analyzing the quota allocation process or characterizing quota violation patterns this paper offers a theoretical model with empirical evidence to explain opec members incentives for abiding or violating quotas we first offer a cartel model with a quota allocation rule and an endogenous capacity choice the model highlights the trade off between building spare capacity to bargain for a higher legitimate quota versus risking quota violation punishment using the quarterly data from 1995 to 2007 we empirically support the main results and intuitions for the model our empirical evidence is consistent with a theoretical framing in which capacity constraints work as an enforcement mechanism in good times and opec s quota system disciplining its members in bad times

horizontal mergers and collusive behavior abstract in the industrial organization literature it is generally felt that mergers hurt consumers not only because of the increased industrial concentration they effect but also because collusion becomes more likely in this paper we show that at least in one important case this intuition is misguided if a tacitly collusive agreement enforced by trigger strategies is not initially sustainable mergers will tend to reduce the chance that it becomes sustainable in the future this is so because the threat point implicit in the agreement becomes more favorable for outsiders

on the persistence of rationing following liberalization a theory for economies in transition abstract many economic theorists and policy makers argue that a rapid liberalization in which prices are allowed to equilibrate supply and demand is critical for a successful transition in the formerly socialist economies yet despite the advantages of market clearing prices many local governments in these economies have kept their prices for basic goods low and induced rationing in the state sector this paper develops a theory explaining why a local government chooses either a low state price that induces rationing or a higher price that clears the market the theory predicts that a necessary condition for a local government representing its constituents interests to set a market clearing price is that the private sector is monopolistic while a market clearing price in the state sector curtails private monopoly power it also implies that the state price is higher than in the rationing regime it is shown that a local government s marginal benefit of restraining private monopoly power is higher than the marginal costs of higher state prices when there is an increase in either state sector costs or private capacity this implies that a local government is more prone to set a market clearing price as its costs increase and as private capacity grows furthermore when there are at least two private firms and the private sector is monopolistic a local government that sets a market clearing price also stabilizes private sector pricing

pricing strategies in supergames with capacity constraints some evidence from the u s portland cement industry abstract theory demonstrates that demand variations can have nonmonotonic effects on pricing in supergames with capacity constraints furthermore this nonmonotonic relationship can be a function of capacity utilization rates time series data from 25 regional cement markets are used to examine this results empirically no statistically significant relationship is found between demand variations pricing and excess capacity

to commit or not to commit revisiting quantity vs price competition in a differentiated industry previous studies have shown that quantity commitment by all firms in an industry mitigates price competition this paper shows that when firms have a choice asymmetric outcomes can arise with some firms choosing to commit to a quantity and other firms choosing not to to study the commitment decision we analyze a multistage game within a duopoly of differentiated firms a la hotelling in the first stage of the game firms choose whether or not to commit to a quantity in the second stage each firm that chose to commit sets a quantity which represents an upper bound on how much it can sell to consumers in the third stage both firms set prices strategically regardless of whether or not they committed in the final stage demand is allocated as consumers maximize their utilities firm s that chose not to commit to a quantity in the first stage can fulfill any quantity that consumers demand at the equilibrium prices we find that if product differentiation is sufficiently low both firms choose to co

incorporating resilience in the assessment of inclusive wealth an example from south east australia this paper explores the consequences of changes in a system s resilience on the sustainability of resource allocation decisions as measured by inclusive wealth iw arrow et al in environ resour econ 26 647 685 2003 we incorporate an estimate of resilience in iw by taking account of known or suspected thresholds that can lead to irreversible or practically irreversible changes in the productivity and value of assets and hence social welfare these thresholds allow us to identify policies or projects that may be leading to an increased risk of decline in capital stocks the wealth of the region such risks are not reflected through usual measures of current system performance e g agricultural production we use the goulburn broken catchment in south eastern australia as a case study to explore the significance and practicality of including resilience in inclusive wealth estimates

bargaining and regulation with asymmetric information about demand and supply abstract rate regulation is studied as a bargaining process in which consumers and the firm negotiate output and payments under asymmetric information the feasible set of transactions given incentive compatibility and individual rationality constraints is characterized the set of interim incentive efficient mechanisms for the direct revelation game is also characterized sufficient conditions are given for efficient mechanisms to be full information efficient efficient mechanisms are identified which correspond to nonlinear monopoly pricing monosony compensation schedules and the baron myerson regulation model

moral hazard and nonmarket institutions dysfunctional crowding out or peer monitoring the authors examine a situation in which insurance is characterized by moral hazard when market insurance is provided supplementary mutual assistance between family and friends unobservable to market insurers will occur when nonmarket insurers have no better information than market insurers the mutual assistance not only crowds out market insurance but is also harmful and therefore dysfunctional alternatively when nonmarket insurers can observe each other s effort perfectly mutual assistance is beneficial these results point to the potential importance of peer monitoring mechanisms in mitigating moral hazard copyright 1991 by american economic association

the economics of regulatory tiering many regulations impose lighter requirements on smaller firms than on largerfirms such differential treatment is known as tiering this article presents a framework for analyzing tiering it assumes that regulators use taxes to reduce negative externalities that the collection of taxes imposes administrative costs on the taxedfirm and the regulatory agency and that firm heterogeneity arises because firms have differential access to a scarce factor the scarce factor is taken as managerial ability although this identity is not essential for any of the results obtained the article shows that when there are scale economies in regulatory compliance tiered regulations may be pareto superior to untiered regulations under certain circumstances it then compares existing tiering schemes with pareto efficient tiering schemes and suggests possible improvements in existing tiering schemes

group purchasing nonlinear tariffs and oligopoly abstract loyalty discounts are nonlinear tariffs that condition rebates or marginal prices on meeting aggregate purchase or market share targets these discounts are widespread and are often the impetus for consumers to form buying groups or group purchase organizations gpos this paper models the competitive effects of the introduction of a gpo into a market within which the preferences of the gpo s members are horizontally differentiated while nonlinear tariffs are an effective way for a monopolist to extract consumer surplus when two suppliers compete using such schedules the results are far more competitive in comparison to simple bertrand nash competition with linear tariffs this result holds when the product of each of the suppliers is attractive to a substantial portion of consumers in our model the nonlinear schedule puts all customers in play to a degree that contrasts sharply with the competition at the margin characteristic of constant per unit prices moreover competing in nonlinear tariffs removes allocative inefficiency that can result from single price competition

a solution to the problem of externalities when agents are well informed the author describes a class of simple two stage mechanisms that implement efficient allocations as subgame perfect equilibria for economic environments involving externalities these mechanisms known as compensation mechanisms solve a wide variety of externalities problems including implementation of lindahl allocations regulation of monopoly and efficient solutions to the prisoner s dilemma copyright 1994 by american economic association

ringleaders in larger number asymmetric cartels the concept of a cartel ringleader has specific legal meaning but has received relatively little attention in the economic literature of cartels this article draws on a sample of 89 european cartels to identify how often ringleaders exist who they are and what they do it argues that ringleaders are more likely where the traditional cartel problems are likely to be most acute i e with larger numbers of members exhibiting substantial size asymmetries this is confirmed for price fixing and bid rigging cartels and is especially pronounced where the ringleader displays aggressive as opposed to merely organisational behaviour

recent advances in oligopoly theory from a game theory perspective abstract this paper surveys the contribution that recent developments in game theory have made to the understanding of oligopoly theory it is argued that conventional models suffer from the problem that there are a number of solution concepts offered with little guidance as to which should be selected and this is related to the static nature of the models employed one important development in game theory has been the analysis of repeated games and when applied to oligopoly theory this suggests that outcomes may be more cooperative than conventional theory suggests related to this is the requirement that firms employ credible threats to punish cheating from cooperative outcomes and the paper examines the extent to which imperfect information may restrict the scope of firms to employ such punishments one way in which firms may seek to make threats credible is through strategic investments for example in production capacity and the paper explores how competition over price or output is integrated with competition over instruments for strategic investment

quantitative restrictions and tariffs with endogenous firm behavior abstract this paper considers a foreign oligopoly which dominates an importing country s market with its exports of differentiated products it constructs a model where firm behavior is endogenously determined in an infinitely repeated game and it analyzes the impact of trade policies on market conduct and welfare optimal tariffs optimal quotas and optimal tariff quotas are characterized and compared one result is that quotas can enhance competition and increase welfare another result is that quotas can be superior to tariffs finally optimal tariff quotas are welfare superior to either tariffs or quotas alone

a theory of dynamic oligopoly iii cournot competition abstract we study the markov perfect equilibrium mpe of an alternating move infinite horizon duopoly model where the strategic variable is quantity we exhibit a pair of difference differential equations that when they exist differentiable mpe strategies satisfy for quadratic payoff functions we solve these equations in closed form and demonstrate that the mpe corresponding to the solution is the limit of the finite horizon equilibrium as the horizon tends to infinity we conclude with a discussion of adjustment costs and endogenization of the timing

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

quality differentiation and conditional spatial price competition among hotels abstract it is generally accepted that location is the dominant product attribute for hotels accordingly studies on price competition have often utilized fixed geographic boundaries when defining competitive sets when travelers are willing to substitute location and quality however the spatial extent of competition can depend on the hotels quality therefore it can be hypothesized that geographic boundary of price competition among hotels is conditional on quality differentiation through an empirical analysis based on two stage least squares modified to test for spatial price competition the present study finds that hotels compete with more distant neighbors of similar quality than those who are quality differentiated in addition the results also suggest possibility of cooperation among neighboring hotels similar in quality implications and suggestions are presented along with the findings of the study which is expected to contribute to the literature by suggesting a new perspective on the relationship between quality differentiation and price competition among hotels

collusive pricing with capacity constraints in the presence of demand uncertainty we explore the response of collusive prices to changing demand conditions when firms operate under capacity constraints in the presence of demand uncertainty we find support for the conventional view that periods of low demand lead through the emergence of excess capacity to a breakdown of collusive pricing we also find that the nature of price wars depends on the degree of excess capacity in the industry while small amounts of excess capacity can lead firms to engage in mild price wars characterized by uniform price reductions and market share stability more severe price wars characterized by price undercutting and market share instability can emerge if excess capacity is sufficiently great finally our results lend support to the view that market share instability is a symptom of ineffective collusion

spatial monopoly and spatial monopolistic competition with two part pricing this paper develops a model of spatial price discrimination by two part pricing when bearing freight and nonlinear pricing are impossible the two part tariff comprises a membership fee and a price per visit when fixed costs per store are low a monopolist makes membership compulsory and builds stores too close together with higher fixed cost the monopolist offers consumers a choice between membership and nonmembership and builds stores too far apart nearby consumers become members more distant consumers nonmembers competition leads to closer spacing than monopoly and lower welfare except at high levels of fixed cost per store copyright 1988 by the london school of economics and political science

nonlinear pricing advertising and welfare advertising is generally provided by firms with market power that stand to gain from increased demand informative advertising has the characteristics of a public good and is usually provided by firms free of charge thus the monopoly power of firms and the public good nature of advertising may cause departures from the socially optimal level of advertising in this paper the social welfare consequences of advertising supplied by a nonlinear pricing monopolist are examined it is shown that price discrimination on the basis of quantity purchased may lessen the monopoly and public good distortions in the supply of advertsing given information about the distribution of consumer characteristics a monopolist may price discriminate through quantity dependent prices if advertising is complementary to the firm s product it will increase each consumer s marginal willingness to pay the share of each consumer s surplus captured by nonlinear pricing will affect the amount of advertising provided in turn the level of advertising will affect the firm s nonlinear price schedule

approximate bertrand equilibria in a replicated industry this paper considers the existence and properties of approximate bertrand equilibria in a replicated industry price setting firms produce a homogeneous product with weakly convex costs the main results are that a given e 0 an e equilibrium exists if the industry is large enough b if the e is small enough and the industry large enough any e equilibrium is approximately competitive these results depend on how contingent demand is specified

technology adoption in the presence of network externalities we analyze technology adoption in industries where network externalities are significant the pattern of adoption depends on whether technologies are sponsored a sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it key findings include the following 1 compatibility tends to be undersupplied by the market but excessive standardization can occur 2 in the absence of sponsors the technology superior today has a strategic advantage and is likely to dominate the market 3 when one of two rival technologies is sponsored that technology has a strategic advantage and may be adopted even if it is inferior 4 when two competing technologies both are sponsored the technology that will be superior tomorrow has a strategic advantage

pigouvian taxation with administrative costs abstract this paper examines how the optimal pigouvian tax should be adjusted to reflect adminisrative costs several cases are examined depending on whether the administrative costs are fixed per firm taxed or are a function of the amount of tax collected and on whether such costs are borne by the government or by the taxed firm in some cases the presence of administrative costs leads to an optimal tax greater than the external cost while in other cases it leads to a tax less than the external cost

the build up of local sustainable development politics a case study of company leaders in france abstract the purpose of this study is to examine business leaders perceptions on sustainable development and their expectations about local governments using a questionnaire on a cross section of 32 french business leaders we examine the following questions can issues related to sustainable development extend beyond questions of profit and future economic dynamism the modern global economic crisis in combination with the ongoing ecological one makes regional attractiveness more topical than ever if local governments invest in sustainable development policy it might satisfy not only citizens but also firms in the territory while attracting new ones as well to determine if firms are really interested in such a policy as well as understand their expectations this research undertook interviews with 32 business leaders we found that local governments should act with firms as partners to increase resilience and sustainability the expectations of business leaders and their sensitivity to sustainable development suggest that sustainable development policies could improve the attractiveness of a local economy especially in the context of the current environmental and economic crises

technology revolutions in the presence of network externalities abstract the purpose of this paper is to investigate the effect of varying consumer preferences over technology advance and network size on the timing and frequency of new technology adoption in the presence of installed bases resulting from network externalities the paper shows that the duration of each adopted technology and the frequency of technology adoptions depend on a whether in consumers perspectives the network size effect is a substitute for or a complement to the quality of the technologies b the degree of compatibility of new technologies with the old technology and c the technology growth rate and consumer population size

equilibrium vertical differentiation in a bertrand model with capacity precommitment both quality differentiation and capacity commitment have been shown to relax price competition however their joint influence on the outcome of price competition has not yet been assessed in this article we consider a three stage game in which firms choose quality then commit to capacity and finally compete in price when the cost of quality is negligible we show that firms do not differentiate their products in a subgame perfect equilibrium in other words capacity precommitment completely eliminates the incentive to differentiate by quality

the quality of managers in centralized versus decentralized organizations a central task of the leadership of any organization is the choice of its successors and subordinates corporate presidents spend a significant part of their time selecting upper management tenured faculty sometimes spends months deciding whether particular individuals should be admitted into their ranks the effort and contentiousness which often go into this process suggests that it has important consequences for the organization it is recognized that there are large differences in individuals abilities and that the abilities of those in leadership inevitably affect the performance and survival of the organization our objective here is to examine how the centralization or decentralization of decision making authority affects the quality of the managers who are actually selected this question is naturally dynamic because the quality of current managers is not only influenced by that of past managers but it in turn affects the quality of future managers we consider stylized economies consisting of an arbitrary number of hierarchies organizations of different sizes the size of a hierarchy is the number of managers within the hierarchy one of whom is the hierarch the boss and others are subordinates the current hierarch appoints his own successor and those of his subordinates but has no influence on any other hierarchy this assumption exaggerates somewhat the typical asymmetry of authority between the hierarch and the subordinates our definition of a more or less centralized economy is intuitive an economy is more centralized if it has a larger proportion of the total number of managers in larger hierarchies our main result is that there is a greater variability over time in the steady state quality of managers in a more centralized economy this is because highly capable decision makers have greater beneficial effects on the managerial choices in a more centralized economy by the same token highly incapable managers placed in the same positions have greater deleterious effects

judo economics reconsidered capacity limitation entry and collusion abstract the capacity investment by a new firm into an established market is explored in a repeated price game if the entrant expects collusion to prevail upon entry it may not practice judo economics but instead choose to install enough capacity to serve the entire market this occurs when collusion involves optimal punishment paths if instead collusion is based upon the static nash equilibrium punishment and the incumbent has excess capacity and the entrant is at a cost disadvantage the entrant will strategically limit its capacity so as to restrain the incumbent s price response to entry

lumpy capacity investment and disinvestment dynamics capacity addition and withdrawal decisions are among the most important strategic decisions made by firms in oligopolistic industries in this paper we develop and analyze a fully dynamic model of an oligopolistic industry with lumpy capacity and lumpy investment disinvestment we use our model to suggest answers to two questions first what economic factors facilitate preemption races second what economic factors facilitate capacity coordination with a series of examples we show that low product differentiation low investment sunkness and high depreciation tend to promote preemption races the same examples also show that low product differentiation and low investment sunkness tend to promote capacity coordination although depreciation removes capacity it might impede capacity coordination finally our examples show that multiple equilibria arise over at least some range of parameter values the distinct structures of these equilibria suggest that firms expectations play a key role in determining whether or not industry dynamics are characterized by preemption races and capacity coordination taken together our results suggest that preemption races and excess capacity in the short run often go hand in hand with capacity coordination in the long run

collusion or competition interfirm relationships in the chinese auto industry the chinese passenger vehicle industry contains a large number of manufacturers some of them are members of big corporate groups centered around state owned enterprises these corporate relationships may facilitate collusion this paper applies the non nested hypothesis test methodology to data on passenger vehicles to identify whether price collusion exists within corporate groups or across groups our empirical results support the assumption of bertrand nash competition in the chinese passenger vehicle industry we find no evidence for within or cross group price collusion our policy experiments show that indigenous brands will gain market shares and profits if within group companies merge

the existence of mixed strategy equilibria in a price setting oligopoly with convex costs this paper shows that a mixed strategy equilibrium will exist in an industry producing a homogeneous product with perfectly informed consumers if firms are identical and have weakly convex costs this generalises an earlier result by dasgupta and maskin

capital investments and price agreements in semicollusive markets we consider a semicollusive market where firms compete in a long run variable such as investment in capital or capacity and collude with respect to a short run variable such as price or market shares our concern is with the potential destabilizing effect of the long run competition on the short run collusion we show that under a certain refinement of the equilibrium the set of equilibria is reduced to include just the one in which the collusive agreement is stable we then lend some support to the phenomenon of an inverse association between advertising and competition by investigating the conditions under which overcapitalization occurs in the above equilibrium

nash equilibrium and buyer rationing rules experimental evidence i introduction this paper presents the results of laboratory experiments comparing the effect of two buyer rationing rules on capacity constrained duopoly markets bertrand edgeworth games this setting offers an excellent opportunity to compare the stage game nash prediction with other equilibria of a repeated game under otherwise identical conditions the rationing rule generates either a unique pure strategy equilibrium or a unique mixed strategy equilibrium of the stage game further collusive outcomes of the repeated game are supported by a wider range of discount factors for one rationing rule than the other this study presents evidence that the single stage nash equilibrium has predictive power for both rationing rules even in repeated settings this result appears to be robust whether the nash equilibrium is in pure strategies or exists only in mixed strategies in modeling capacity constrained price games the choice of rationing rule is possibly the most arbitrary decision a theorist makes in the literature of single shot bertrand edgeworth games we can find examples of nearly identical models which yield substantively different results due to differences in the rationing rule assumed examples are beckmann s 1965 model and levitan and shubik 1972 allen and hellwig 1986 and vives 1986 and kreps and scheinkman 1983 and davidson and deneckere 1986 laboratory experiments provide an interesting opportunity to examine the empirical consequences of alternative buyer rationing rules knowledge of the type of buyer rationing scheme involved with field data is usually unavailable to a researcher in laboratory experiments the researcher can control the type of buyer rationing rule to be used and compare the effects of alternative rules this study provides a first step toward an empirical understanding of the effects of rationing rules one of the rationing rules that i study the value queue 1 is mathematically more tractable than an alternative the random queue 2 hence the authors are able to generalize the value queue models in other dimensions however the value queue assumption reservation values that comprise demand are ordered from highest to lowest should be viewed as a serious restriction on the applicability of these models section ii relates laboratory and field experiments to single shot bertrand edgeworth nash equilibria section iii describes the development and recent contributions to bertrand edgeworth oligopoly theory and demonstrates the effect of rationing rule assumptions on theoretical predictions i describe the experimental design in section iv and identify the competitive monopoly joint profit maximum and single shot nash predictions additionally qualitative differences predicted by single shot and repeated game nash equilibria are discussed experimental results follow in section v with concluding remarks in section vi ii laboratory and field experiments and the nash equilibrium existing laboratory evidence for capacity constrained price games has been compared to the single shot nash equilibrium only ketchum smith and williams 1984 and kruse rassenti reynolds and smith 1993 provide initial results as to the predictive strength of the single stage nash equilibrium in a laboratory environment ketchum smith and williams compare the prices resulting from four seller plato computer assisted posted offer markets the comparison is between one treatment group in which the competitive equilibrium is also the single stage nash equilibrium and another treatment group in which the competitive equilibrium is not a nash equilibrium they find significantly different market outcomes between the two groups kruse rassenti reynolds and smith 1987 test a four seller constant marginal cost bertrand edgeworth model using a komogorov smirnoff test they reject the hypothesis that the actual price distribution matches the mixed strategy price distribution predicted by the theory

property rights regimes and natural resources a conceptual analysis the term common property resource is an example of a term repeatedly used to refer to property owned by a government or by no one it is also used for property owned by a community of resource users such usage leads to confusion in scientific study and policy analysis in this paper we develop a conceptual schema for arraying property rights regimes that distinguishes among diverse bundles of rights ranging from authorized user to claimant to proprietor and to owner we apply this conceptual schema to analyze findings from a variety of empirical settings including the maine lobster industry

price setting merchants in a simple trade model abstract in lieu of a fictitious walrasian auctioneer price determination in a simple two country two good trade model is explicitly modelled as the strategic price setting behavior of merchants the results depend on the order in which countries are visited and whether or not the supply is backward bending theorem 1 establishes sufficient conditions for the walrasian outcome to be the unique subgame perfect nash equilibrium spne theorem 2 shows when the unique spne is non walrasian

tacit collusion in repeated auctions uniform versus discriminatory within an infinitely repeated game i compare the level and conduct of collusion under uniform and discriminatory auctions for this purpose i characterize the optimal collusive schemes and sets of sustainable profits under these auction formats i show that uniform auctions facilitate collusion more than discriminatory auctions the optimal penal code is equally severe under the two formats but bidders deviation incentives are weaker in uniform auctions given that the payoff irrelevant bids can be used to relax the enforcement problem this discussion is particularly relevant after the recent reforms in the electricity industry in england wales and elsewhere

inefficient standard adoption inertia and momentum revisited i introduction since the establishment of the theory of network effects economists have been concerned with the question of whether a market with network effects will tend to settle on the socially optimal standard it has been postulated that markets may exhibit excess inertia once a technological standard is in place a new superior standard may not displace it because of installed base effects alternatively markets may exhibit excess momentum consumers may adopt a new standard too quickly ignoring the stranding effect they are having on previous users similar issues arise in the adoption of language and social norms the literature has investigated various conditions under which one of these inefficiencies arises such inefficiencies are of particular concern for open technologies such as the qwerty and dvorak keyboards 1 the situation is somewhat different when individual firms own standards in that case a simple argument seems to indicate that there is no possibility that an inefficient standard will persist if a new standard is superior in any objective sense there are gains to be made from switching to it once the standard has been adopted the firm can appropriate these gains therefore the firm has incentive to lower the initial price enough to induce adoption of the standard the preceding argument is made in liebowitz and margolis 1999 and repeated in spulber 2002 spulber expresses a general skepticism about the likelihood of inefficiencies when property rights are defined and markets exist critics might claim that previous models that imply inefficient standard adoption are unrealistic in some way and that if such models were modified slightly the inefficiency would disappear i reconsider the issue of inefficient standard adoption using a parsimonious yet compelling model assuming only that there are successive generations of finitely lived consumers that preferences are heterogeneous and that there are network effects among users adoption decisions can be inefficient this is true even if consumers can coordinate efficiently within a generation and a firm can act as a coordinating device across generations the model presented here generates some of the same results found in other papers collectively but in a more general setting and with more robust results if there is an established standard and a superior alternative emerges no single generation of consumers will be willing to switch to the new standard if the switching cost the loss of network benefit from breaking with past users is too high it may be that the benefits to future generations of consumers are large enough that from a social standpoint it would be efficient for one generation to adopt the new standard even if it is privately optimal for that generation to retain the old standard on the other hand the current generation considers only its own switching cost and not the cost it imposes on the previous generation leading to potential overadoption of new technology even for proprietary standards it is not clear that the incentive of the firm to induce adoption matches the social incentive in particular if consumer preferences are heterogeneous the firm will not be able to price in such a way to extract all of the additional surplus gained from the new standard on the other hand the firm will be able to appropriate some of the surplus generated by the network effect itself which is present for any standard and thus does not affect the social incentive to change standards it is not possible to address this issue with a two period model as in some of the previous literature see for example choi 1994 choi and thum 1998 katz and shapiro 1986 if a new technology is introduced in the second period but then the game ends the welfare of future generations of consumers is neglected 2 this article also differs from previous infinite horizon models of technology adoption

does the european natural gas market pass the competitive benchmark of the theory of storage indirect tests for three major trading points this paper presents the first comparative analysis of the relationship between natural gas storage utilization and price patterns at three major european trading points using two indirect tests developed by fama and french 1987 1988 that are applied in other commodity markets we impose the no arbitrage condition to model the efficiency of the natural gas market the results reveal that while operators of european storage facilities realize seasonal arbitrage profits substantial arbitrage potentials remain we suggest that the indirect approach is well suited to provide market insights for periods with limited data we find that overall market performance differs substantially from the competitive benchmark of the theory of storage

the investment behaviour of firms in an oligopolistic setting industrial organization theory has identified strategic investment in capacity as an important element in competition in oligopolistic markets in the paper we specify a model of oligopolistic investment behaviour and test it with panel data for 114 firms in 15 narrowly defined uk manufacturing industries in the 1970s and 1980s the industries are distinguished according to their market characteristics as fragmented dominant firm and dominant group sectors the results indicate behaviour which is noncooperative in fragmented sectors cooperative in dominant group sectors and competitive in dominant firm sectors

imperfect competition in agricultural markets evidence from ethiopia abstract drawing upon unique transaction level data from rural ethiopia this paper tests for general forms of imperfect competition among rural wholesale traders these are key to the grain distribution system as they purchase from farmers and perform interregional trade tests show that traders in a typical source market engage in imperfectly competitive behavior in purchasing from farmers driving down the price paid to farmers approximately 3 in contrast there is no conclusive evidence of imperfect competition among traders in the larger more centrally located market studied thus efficiency losses due to market structure are likely to be greatest in markets which also have poor road links and lesser volumes of marketed grain

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

collusion among asymmetric firms the case of different discount factors abstract this study investigates collusive behavior among asymmetric firms for this purpose we develop a selection criterion for deriving a unique collusive outcome and apply it to the case when firms have different discount factors our analysis reveals that for collusion to be self enforcing it is unnecessary that all firms have sufficiently high discount factors but rather only that firms on average have a sufficiently long run view the optimal collusive outcome entails a strict ordering of output quotas in which firms with relatively low discount factors receive a disproportionate share of market demand as found in the case of a common discount factor a fall in a firm s discount factor reduces the likelihood of successful collusion this effect reduces firm profits on the other hand in the event that firms can collude a lowering of a firm s discount factor increases its output quota so that its profits rise

hardware quality vs network size in the home video game industry abstract this paper analyzes competition between multiple proprietary and incompatible hardware systems when indirect network effects are present and software is provided competitively by third party developers a discrete choice demand structure is employed within a game theoretic setting to allow for a continuum of market share possibilities empirical evidence supports the claim that excess inertia is not a pervasive problem two data sets covering the life of the home video game industry yearly from 1976 to 2003 and monthly january 1995 to october 2007 yield three main results 1 market share is 11 4 times more sensitive to hardware quality than network size 2 the number of available games is 3 69 times more sensitive to hardware quality than network size and 3 hardware quality has a larger impact than network size on the probability of hardware success

in which industries is collusion more likely evidence from the uk i examine the factors facilitating or hindering collusion using a comprehensive data set on the incidence of price fixing across uk manufacturing industries in the 1950s the econometric results suggest that collusion is more likely the higher the degree of capital intensity and less likely in advertising intensive than in low advertising industries there is also some evidence of a non monotonic relationship between market growth and the likelihood of collusion there is no clear link between concentration and the incidence of collusion

the economics of attribute based regulation theory and evidence from fuel economy standards in many countries fuel economy standards mandate that vehicles meet a certain fuel economy but heavier or larger vehicles are allowed to meet a lower standard this has the perverse implication of allowing automakers to meet standards either by improving fuel economy or by increasing weight which lowers fuel economy and increases externalities related to accidents this is but one example of an attribute based regulation in which the regulation imposed on a product depends on both the externality it creates and some other attribute attribute basing potentially motivates rms and individuals to strategically alter the attribute thereby endogenously altering the stringency of the regulation this paper develops a theory of attribute basing to demonstrate the costs and benets of its use the paper then empirically examines the consequences of attribute based fuel economy standards in japan where fuel economy standards are a notched attribute based function of vehicle weight we use cross sectional and panel techniques to demonstrate that attribute based regulation has signicantly altered the distribution of vehicle weight in japan where 10 of vehicles bunch at weight notches for cars whose weight is altered in response to the policy we estimate that the alteration generates a welfare loss from the exacerbation of weight related externalities of 1 500 per unit sold which translates into a 700 million annual loss across the japanese auto market

the timing of product introduction and the credibility of compatibility decisions we analyze the compatibility choices of two firms which must also decide when to introduce their goods in a market characterized by network externalities we show that the firms incentives to achieve compatibility depend crucially on the time at which the degree of compatibility must be chosen this raises the possibility of time inconsistencies as a firm which initially favors compatibility might prefer incompatibility once one of the two goods has been introduced we also determine the socially optimal standardization policies both in a domestic and in an international context

the evolution of social norms in common property resource use the problem of extracting commonly owned renewable resources is examined within an evolutionary game theoretic framework it is shown that cooperative behavior guided by norms of restraint and punishment may be stable in a well defined sense against invasion by narrowly self interested behavior the resource stock dynamics are integrated with the evolutionary game dynamics effects of changes in prices technology and social cohesion on extraction behavior and the long run stock are analyzed when threshold values of the parameters are crossed social norms can break down leading generally to the lowering of the long run stock and possibly to its extinction copyright 1996 by american economic association

optimal penal codes in price setting supergames with capacity constraints this paper constructs optimal pure strategy penal codes for a broad class of symmetric bertrand supergames with capacity constraints the results should simplify the analysis of bertrand supergames because the punishments comprising the penal codes constructed below have a very simple form and the associated payoffs are often easy to calculate it is also shown that for a commonly employed subclass of the games considered the admission of mixed strategies does not allow severer punishments the analysis draws heavily on the pathbreaking work of abreu 1984 he demonstrated that in the search for optimal penal codes attention can be restricted to simple penal codes simple penal codes are characterized by a vector of outcome paths one for each player the ith outcome path is interpreted as the punishment to be imposed on the ith player if he deviates from the equilibrium path or from any punishment path section 2 explains the basic framework of analysis the class of bertrand games studied is very general no particular rationing rule is imposed some mild restrictions are placed on the firms sales functions instead the commonly used models of levitan and shubik 1972 and beckman 1965 are special cases of the games analysed below it is assumed throughout that there is a price firms can be induced to charge if the punishment for charging a different price gives the offending firm a payoff equal to its security level for the supergame thus either there must exist a static nash equilibrium in pure strategies or else the discount factor must not be too close to zero in section 3 optimal penal codes are constructed and it is established that the punishments comprising them always drive punished firms to their security levels the arguments employed make clear that optimal penal codes are not generally unique this issue is addressed in section 4 where it is also shown that the levitan shubik rationing rule exhibits more types of optimal penal codes than do other rules in particular if the levitan shubik rule is employed then punishments that are analogous to abreu s 1986 symmetric two phase punishments for cournot games can be used to construct optimal penal codes in bertrand games this property does not hold generally however