welfare properties of strategic r d investments in hotelling models abstract in linear city models if firms are allowed not allowed to locate outside the linear city they engage in excessive insufficient r d investments from the normative viewpoint this implies that the feasible set of locations drastically affects their investments

forward looking information in var models and the price puzzle abstract with a view to addressing the major disadvantage of the var model namely the inadequate description of the central bank reaction function we propose a var specification that proves successful in solving the price puzzle featuring in monetary vars for the us this specification consists in augmenting a standard var with two forward looking variables the federal funds futures rate or alternatively a money market forward rate reflecting monetary policy expectations and a composite leading indicator of economic activity these two variables appear to effectively control for the information set that the federal reserve may use in monetary policy decision making with this modification theory consistent responses to monetary policy shocks are obtained

monetary policy signaling and movements in the term structure of interest rates this paper examines how various monetary policy signals such as repo rate changes inflation reports speeches and minutes from monetary policy meetings affect the term structure of interest rates we find that unexpected movements in the short end of the yield curve are mainly driven by unexpected changes in the repo rate however published inflation reports and speeches also have some impact on short rates speeches are found to be a more important determinant for the longer end of the term structure our conclusion is that central bank communication is an essential part of the conduct of monetary policy

daily monetary policy shocks and new home sales abstract the conventional notion of a monetary policy shock as a surprise change in the fed funds rate is misspecified the primary news for market participants is not what the fed just did but is instead new information about the fed s future intentions revisions in these anticipations show up instantaneously in long term mortgage rates home sales do not respond until much later this paper attributes this delay and hence much of the hump shaped response of economic activity to monetary policy to cross sectional heterogeneity in search times this framework allows one in principle to measure policy impacts at the daily frequency

challenges of existing in a market as a small low quality producer this paper explores the strategy of a small firm entering a monopolist s market thereby creating a duopoly market the small firm avoids competing with the larger incumbent firm by producing a lower quality product at a lower price the model here establishes an equilibrium under a specific set of assumptions and examines how exogenous factors affect prices qualities and profits although the strategy might allow the firm to enter and earn a profit the market conditions may make this position much less desirable to that of the large firm for several reasons in the case explored here where tastes for the product are uniformly distributed the small firm s profit is about six percent of that of the larger firm the smaller firm is more severely threatened by the entrance of a third firm furthermore even if the smaller firm can cut costs its position is not well suited for exploiting such increases in efficiencies

price matching policy and the principle of minimum differentiation this paper shows that if duopolists are allowed to choose their product locations a price matching policy and their prices sequentially and independently both tacit collusion and minimum differentiation occur copyright 1995 by blackwell publishing ltd

the principle of minimum differentiation holds under sufficient heterogeneity the so called principle of minimum differentiation stated by hotelling has been challenged by many authors this paper restores the principle by showing that n firms locate at the center of the market and charge prices higher than the marginal cost of production when heterogeneity in consumers tastes is large enough

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

causes and effects of vertical intergration this paper sets out to define new measures of industry average forward and backward integration and incorporate them into an empirical stucture conduct performance model results suggest that integration is encouraged where there are relatively few firms in an industry and if sales are increasing forward integration occurs in reaction to large outgoing distribution margins backward integration acts to increase concentration at least in some parts of the manufacturing sector integratin has a complex and interactive effect on profitability serving sometimes to raise profitability and sometimes to lower it

nonminimal product differentiation as a bargaining outcome abstract it is well known that in a duopoly model of product choice with quadratic transportation cost the firms locate at the extreme endpoints of the market jehiel 1992 int j ind organ 10 633 641 has examined this model in an infinite horizon setting where in the initial period the firms choose location and in subsequent periods charge the nash bargaining solution prices then in the unique equilibrium both firms locate at the center of the market this paper examines the case when the firms instead charge the prices determined by either the egalitarian bargaining solution or the kalai smorodinski bargaining solution it is shown that central agglomeration is an equilibrium furthermore there is a continuum of symmetric equilibria in addition where the firms locate apart from each other so the products are not necessarily minimally differentiated thus different bargaining solutions provide quite different outcomes

market structure and import share a regional market analysis in this paper we analyze the relationship between domestic market structure and cement importation into the united states we do this by examining the impact of concentration technology scale costs and demand on imports into twenty independent united states regional cement markets for a number of years by looking at only one industry as opposed to importation across several diverse industries we hope to remove inter industry effects that may mask the relationship between import share and selected structural characteristics the use of time series data allows us to examine import response to variations in demand over the business cycle this paper is divided into six sections the next describes the united states portland cement industry including its geographically segmented nature production methods demand conditions and incentives for importation section iii contains a model that relates import shares to market structure the data to estimate this model are discussed in section iv section v contains

a rational expectations critique of merger policy analysis abstract a stricter merger control policy increases the expectation of future price competition in response firms increase product differentiation to sustain higher prices failing to account for such policy variant prices may lead to overestimation of the increase in consumer surplus due to the stricter merger policy rendering the policy analysis subject to the lucas critique

futures prices as risk adjusted forecasts of monetary policy many researchers have used federal funds futures rates as measures of financial markets expectations of future monetary policy however to the extent that federal funds futures reflect risk premia these measures require some adjustment in this paper we document that excess returns on federal funds futures have been positive on average and strongly countercyclical in particular excess returns are surprisingly well predicted by macroeconomic indicators such as employment growth and financial business cycle indicators such as treasury yield spreads and corporate bond spreads excess returns on eurodollar futures display similar patterns we document that simply ignoring these risk premia significantly biases forecasts of the future path of monetary policy we also show that risk premia matter for some futures based measures of monetary policy shocks used in the literature

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

new theories of trade among industrial countries most students of international trade have long had at least a sneaking suspicion that conventional models of comparative advantage do not give an adequate account of world trade this is especially true of trade in manufactured goods both at the macro level of aggregate trade flows and at the micro level of market structure and technology it is hard to reconcile what we see in manufactures trade with the assumptions of standard trade theory in particular much of the world s trade in manufactures is trade between industrial countries with similar relative factor endowments furthermore much of the trade between these countries involves two way exchanges of goods produced with similar factor proportions where is the source of comparative advantage furthermore most manufacturing industries are characterized by at least some degree of increasing returns especially if we include dynamic scale economies associated with rd the arguments of many observers that much trade among industrial countries is based on scale economies rather than comparative advantage and the common argument that a protected home market can promote exports until recently however none of these alternatives was presented in a form which economists would properly call a model that is a formal structure in which macro behavior is derived from micro motives this lack of formalization essentially barred alternatives to comparative advantage however plausible from the mainstream of international economics in the last five years or so however there has been a significant change a number of theorists have begun to apply methods drawn from the theory of industrial organization to international trade to produce a new genre of trade models these models offer a new way of looking at tradeand particularly at manufactures trade among the industrial countries a characteristic feature of the new models is that they often rely on very special assumptions this is probably inevitable given the inherent complexity of the world once the great simplifying device of constant returns is dropped only special assumptions will yield tractable analysis in spite of the specialness of individual models however the new literature on trade is starting to give rise to concepts which look more general than the particular models used to illustrate them the purpose of this paper is to sketch out two such concepts which i believe are important and more general in application than the particular models in which they have been expressed the first is the theory of intraindustry trade a view which incorporates scale economies as well as comparative advantage as major causes of trade and gains from trade the second is the less well developed theory of technological competition which may begin to shed some light on the dynamics of international competition in research intensive industries

firm size inequality and market power abstract in this paper we reexamine the relationship between firm size inequality fsi and market power in light of modern oligopoly theory using a model with capacity constraints and endogenous conduct we show that the market power fsi relationship is more complex than the positive link traditionally predicted we show that two separate effects are at work leading to a u shaped relationship between market power and fsi we also show that prices should be more unstable in markets where fsi is high we test these predictions on data for the u s airline industry and find results that support them

collusion agglomeration and heterogeneity of firms abstract jehiel 1992 and friedman and thisse 1993 show that spatial agglomeration appears in a standard two stage location price model if symmetric firms collude in prices we introduce a cost difference between two firms we show that agglomeration never appears in a collusive equilibrium even when the cost difference between firms is sufficiently small

the fed and interest rates a high frequency identification we measure monetary policy shocks as changes in the fed funds target rate that surprise bond markets in daily data these shock series avoid the omitted variable time varying parameter and orthogonalization problem of monthly vars and do not impose the expectations hypothesis we find surprisingly large and persistent responses of bond yields to these shocks 10 year rates rise as much as 8 10 of a percent to a one percent target shock the usual view that monetary policy only temporarily raises long term rates and influences inflation would lead one to predict a negative long rate response this abstract was borrowed from another version of this item

market structure and u s trade flows abstract using samples of input output table detailed industries we test the impact of various elements of market structure on u s trade flows at the industry level holding factor proportions constant industry demand characteristics and the extent of scale economies have significant impacts on trade flows labor intensity at the industry level has the effects on trade flows which are predicted by the factor proportions theory capital intensity increases both import and export flows this result together with certain others suggests the importance of trade among industrialized countries in producer goods

product differentiation and price collusion the paper analyzes the implications of price collusion with or without monetary transfers on the degree of horizontal product differentiation we find that the principle of minimum differentiation holds i e firms sell the same product when there is no possibility of monetary transfers on the contrary we find that the presence of monetary transfers may induce some product differentiation the reason is that when monetary transfers are possible it is not essential per se to be well located in terms of relative market shares the outcome is then shown to be driven by only two forces 1 choosing a product closer to the competitor s improves the bargaining power 2 choosing a product closer to the one maximizing the joint profit improves the global firm efficiency

daily changes in fed funds futures prices this paper explores the properties of daily changes in the prices for near term fed funds futures contracts the paper finds these contracts to be excellent predictors of the fed funds rate and shows that the claim of a nonzero term premium in the short horizon contracts is more sensitive to outliers than previous research appears to have recognized i find some statistically significant evidence of serial correlation in the daily changes but this accounts for only a tiny part of the 1 day movements and there is essentially zero predictability for horizons longer than 1 day settlement futures prices for each day appear to incorporate the information embodied in that day s term structure of longer horizon treasury securities previous employment growth makes a statistically significant contribution to predicting futures price changes though again this could only account for a tiny part of the daily variance the paper concludes that futures prices provide a very useful measure of the daily changes in the market s expectation of near term changes in fed policy

price competition non price competition and market structure theory and evidence from the uk this paper examines the impact of price competition on advertising r and d expenditure and market structure a general theoretical result is derived which restricts the space of possible outcomes regarding the behaviour of concentration and advertising r and d expenditure following an intensification of price competition the theory is tested using uk data on the evolution of competition concentration and advertising over 1954 77 the econometric results suggest that the introduction of restrictive practices legislation in the uk caused a rise in concentration in previously cartelized high advertising manufacturing industries and probably also a fall in advertising intensity

r d rivalry industrial policy and u s japanese trade the authors examine how the strategic aspect of japanese research and development expenditures and industrial policies affected u s japanese bilateral trade during the late 1970s and investigate which component of r d expenditures on process innovation product quality improvements new products and new technology or technology transfer proved to be most effective they find that while japanese r d expenditures have generally promoted japan s trade advantage certain components of r d have proved more effective than other the depreciation subsidy and special status with the ministry of international trade and industry is positively related to the japanese trade performance while legal cartelization status has not had any apparent effect copyright 1988 by mit press

identifying vars based on high frequency futures data abstract using the prices of federal funds futures contracts we measure the impact of the surprise component of federal reserve policy decisions on the expected future trajectory of interest rates we show how this information can be used to identify the effects of a monetary policy shock in a standard var this alternative approach to identification is quite different and we argue more plausible than the conventional identifying restrictions we find that a usual recursive identification of the model is rejected as is any identification that insists on a monetary policy shock having an exactly zero effect on prices contemporaneously we nevertheless agree with the conclusion of much of the var literature that only a small fraction of the variance of output can be attributed to monetary policy shocks

the determinants of exit in an open economy in this paper the determinants of exit are investigated for the manufacturing sector of the united states economy which has been subjected to growing international influences the analysis uses united states cross sectional data the results of the exit equation suggest that low profitability declining industry growth and displacement of incumbents by entrants foster exit international influences are also seen to have an impact on u s manufacturing exit specifically imports into an industry have a small effect on exit and protection has little influence in stemming exit

do measures of monetary policy in a var make sense a reply to christopher a sims using the estimated var system one can trace out how monetary policy innovations affect the economy as john cochrane 1996 p 1 notes this literature has at last produced impulse response functions that capture common views about monetary policy for example in finding that a positive innovation to monetary policy is followed by increases in output prices and money and by a decline in the short term nominal interest rate in addition despite ongoing debates about precisely how the policy innovation should be identified the estimated responses of key macroeconomic variables to a policy shock are reasonably similar across a variety of studies and suggest that monetary policy shocks can have significant and persistent real effects

market based measures of monetary policy expectations a number of recent articles have used different financial market instruments to measure near term expectations of the federal funds rate and the high frequency changes in these instruments around federal open market committee announcements to measure monetary policy shocks this article evaluates the empirical success of a variety of financial market instruments in predicting the future path of monetary policy all of the instruments we consider provide forecasts that are clearly superior to those of standard time series models at all of the horizons considered among financial market instruments we find that federal funds futures dominate all the other securities in forecasting monetary policy at horizons out to six months for longer horizons the predictive power of many of the instruments we consider is very similar in addition we present evidence that monetary policy shocks computed using the current month federal funds futures contract are influenced by changes in the timing of policy actions tha

do measures of monetary policy in a var make sense no in many vector autoregressions vars monetary policy shocks are identified with the least squares residuals from a regression of the federal funds rate on an assortment of variables such regressions appear to be structurally fragile and are at odds with other evidence on the nature of the u s federal reserve s reaction function furthermore the residuals from these regressions show little correlation across various vars or with funds rate shocks that are derived from forward looking financial markets my results provide a sharp critique of current monetary vars

mixed oligopoly and spatial agglomeration abstract we investigate a mixed market where a state owned welfare maximizing public firm competes against profit maximizing private firms we use a circular city model with quantity setting competition in contrast to a pure market case discussed by pal 1998a spatial agglomeration of private firms always appears in equilibrium all private firms locate at the same point and the public firm locates at the opposite side we also find that this equilibrium pattern of the location is second best provided that output of each private firm cannot be controlled by the social planner jel classification h42 l13 oligopole mixte et agglomeration spatiale les auteurs examinent un marche mixte ou une entreprise publique possedee par l etat et cherchant a maximiser le niveau de bien etre est en concurrence avec des entreprises privees qui cherchent a maximiser leurs profits on utilise un modele de cite circulaire ou la concurrence se fait en choisissant la quantite produite en contraste avec le cas du marche parfait discute par pal 1998a l agglomeration spatiale des entreprises privees parait etre en equilibre toutes les entreprises privees se localisent au meme point et l entreprise publique se localise du cote oppose il appert que ce pattern d equilibre de localisation est un equilibre de second ordre compte tenu du fait que la production de chaque entreprise privee ne peut etre controlee par le planificateur social