what drives deregulation economics and politics of the relaxation of bank branching restrictions this paper investigates private interest public interest and political institutional theories of regulatory change to analyze state level deregulation of bank branching restrictions using a hazard model we find that interest group factors related to the relative strength of potential winners large banks and small bank dependent firms and losers small banks and the rival insurance firms can explain the timing of branching deregulation across states during the last quarter century the same factors also explain congressional voting on interstate branching deregulation while we find some support for each theory the private interest approach provides the most compelling overall explanation of our results

the price of beer this paper is an empirical exploration into factors which are responsible for differences in the inter state price of beer though primarily a statistical exercise the current work has implications for policy decisions in particular the role of taxes and regulatory constraints on the relationships between brewer wholesaler and retailer are highlighted using an as yet untapped data source regression analysis indicates that a substantial proportion of the variance in the inter state price of beer can be explained by demand pressure transportation costs and the price of substitutes as well as taxes and the presence of legally mandated exclusive territories governing the wholesale distribution of beer

market definition market power abstract market definition and market power are central features of competition law and practice but pose serious challenges on one hand market definition suffers decisive logical infirmities that render it infeasible unnecessary and counterproductive and the practice of stating market power requirements as market share threshold tests is incoherent as a matter of empirics and policy on the other hand market power is often probative of the desirability of liability yet the typically assumed functional relationship is unexplored and often implausible these latter deficiencies are addressed through a ground up analysis of the channels by which market power can be relevant it is important to explicitly and simultaneously consider both anticompetitive and procompetitive explanations for challenged practices and to attend to the magnitudes of the social consequences of correct and mistaken imposition of liability in order to identify the various ways and senses in which market power bears on optimal decision making

political and economic determinants of the likelihood of privatizing argentine public banks abstract this paper discusses the political economy of bank privatization in argentina following institutional changes related to the implementation of the convertibility plan and to the tequila crisis the empirical results strongly support the hypothesis that political incentives affect the likelihood of privatization we find 1 poorly performing banks were more likely to be privatized 2 overstaffing tended to reduce the probability of privatization 3 large banks were less likely to be privatized and 4 higher levels of provincial unemployment and higher shares of public employees reduced the probability of privatization although the hypotheses were tested for a specific industry in a specific country which makes it possible to control for enterprise performance and institutional characteristics it seems reasonable that similar results might hold in other industries and countries

banking competition risk and regulation in a dynamic framework commercial banks compete for customers by setting acceptance criteria for granting loans while taking into account regulatory requirements by easing its acceptance criteria a bank faces a trade off between attracting more demand for loans thus making higher per period profits and deterioration in the quality of its loan portfolio thus tolerating a higher risk of failure our main results state that more stringent capital adequacy requirements lead banks to set stricter acceptance criteria and that increased competition in the banking industry leads to riskier bank behaviour it is shown that risk adjusted regulation is effective in an extension of our basic model we show that it may be beneficial for a bank to hold more equity than prescribed by the regulator even though issuing equity is more expensive than attracting deposits

ownership consolidation and product characteristics a study of the us daily newspaper market this paper develops a structural model of newspaper markets to analyze the effects of ownership consolidation taking into account not only firms price adjustments but also the adjustments in newspaper characteristics a new dataset on newspaper prices and characteristics is used to estimate the model the paper then simulates the effect of a merger in the minneapolis newspaper market and studies how welfare effects of mergers vary with market characteristics it finds that ignoring adjustments of product characteristics causes substantial differences in estimated effects of mergers jel g32 l13 l82 m37 do mergers affect product characteristics standard merger analyses typically study price effects only and ignore changes in product characteristics this paper endogenizes both it is likely that firms would adjust the features of their products after a merger ignoring this aspect of firm decisions in a merger analysis can lead to a bias in estimated welfare effects specifically i study how ownership consolidation affects product characteristics and welfare in the us daily newspaper market the newspaper market provides an ideal environment for analyzing the effect of mergers on product features for both econometric and economic reasons first of all individual newspapers often circulate in local markets there is substantial variation in demographics and ownership structure across these markets this variation is crucial for this study secondly the characteristics of newspapers are obviously important for welfare for example after an ownership consolidation do newspaper publishers improve or diminish the content quality do they enlarge or shrink the local news ratio do they increase or decrease content variety to address these questions i set up a structural model of the us daily newspaper

strategic pricing in a differentiated product oligopoly model fluid milk in boston in an imperfectly competitive industry differentiated products compete with each other with price rather than quantity as the strategic variable several previous studies have employed a generalized nash bertrand model liang 1989 cotterill 1994 cotterill et al 2000 and kinoshita et al 2002 however only liang has explored the theoretical foundations of that model this article generalizes the liang two good model to three goods a surprising and important result follows price conjectural variations do not exist in models with three or more goods price reaction functions however exist in multiple good models we estimate them jointly with a brand level demand system to evaluate the total impact of a brand manager s price change on own quantity in a differentiated product market this is a useful addition to a partial demand elasticity approach because a change in one brand s price typically engenders a price reaction by other brands that affects own quantity via substantial cross price elasticities among substitutes strategic pricing in the boston fluid milk market was also influenced by the existence of a raw milk price support program the northeast dairy compact we find that the advent of the compact was a focal point event that crystallized a shift away from nash bertrand to more cooperative pricing if the downstream market is not competitive one needs to consider strategic price reactions when designing and evaluating agricultural price programs

industry growth and capital allocation does having a market or bank based system matter are market based or bank based financial systems better at financing the expansion of industries that depend heavily on external finance facilitating the formation of new establishments and improving the efficiency of capital allocation across industries we find evidence for neither the market based nor the bank based hypothesis while legal system efficiency and overall financial development boost industry growth new establishment formation and efficient capital allocation having a bank based or market based system per se does not seem to matter much

towards a more ethically correct governance for economic sustainability in this paper we propose that economic sustainability is seen in terms of inter temporal and inter national value creation we claim that value appropriation or capture can become a constraint to economic sustainability we propose that for sustainable value creation to be fostered corporate governance needs to be aligned to public and supra national governance in order to achieve this a hierarchically layered set of agencies needs to be diagnosed and the issue of incentive alignment addressed enlightened self interest pluralism and diversity as well as a representative supra national organisation for world wide economic sustainability can serve as a new more ethically correct governance for economic sustainability but not a panacea

corporate governance provisions and firm ownership firm level evidence from eastern europe we study differences in the use of two corporate governance provisions e cumulative voting and proxy by mail voting e in a sample of about 220 firms located in four eastern european countries after controlling for other firm characteristics we find that firms that have a large minority blockholder are more likely to allow cumulative voting we do not find any significant relationship between the use of these corporate governance provisions and foreign ownership we conclude that the use of cumulative voting is associated with the presence of large minority shareholders 2006 published by elsevier ltd jel classification g34 p2

product differentiation cost reducing mergers and consumer welfare cost synergies are an explicitly recognized justification for a two firm merger and empirical techniques are now widely used to assess the impact of cost reducing mergers on prices and welfare in the post merger market we show that if the merger occurs in a vertically product differentiated market then the merger will lead to a reduction in product offerings that limits the usefulness of pre merger empirical estimates indeed we further show that in such markets two firm mergers will typically lead to higher prices regardless of the merger s cost savings jel classifica tion l10 l41 differentiation des produits fusions pour reduire les couts et bien etre du consommateur les synergies de couts sont une justification explicitement reconnue pour la fusion de deux firmes et il existe des techniques empiriques vastement utilisees pour mesurer l impact des fusions visant areduire les couts sur les prix et le niveau de bien etre dans le marcheapres la fusion on montre que si la fusion se produit dans un marchede produit differencieintegreverticalement alors la fusion reduit l even tail de produits ce qui limite l utilitedes estimations empiriques faites avant la fusion de plus on montre que dans de tels marches les fusions de deux firmes finissent par engendrer des prix plus eleves quelles que soient les reductions de couts auxquelles on en arrive

testing for employer monopsony in turn of the century coal mining isolated company towns are often cited as likely examples of labor monopsony this article tests for monopsony power by estimating inverse labor supply elasticities using a county level panel dataset on nonunion west virginia coal mining from 1897 to 1932 the model specification incorporates dynamics in such a way that an estimate of the gap between marginal revenue product and the wage can easily be computed as a weighted average of short and long run inverse elasticities modest estimated short run inverse elasticities and very small long run inverse elasticities imply that coal operators enjoyed little if any monopsony power over their workers

spatial differentiation and vertical mergers in retail markets for gasoline this paper studies an empirical model of spatial competition applied to gasoline markets the main feature is to specify commuting paths as the locations of consumers in a hotelling style model as a result spatial differentiation depends in an intuitive way on the structure of the road network and the direction of traffic flows the model is estimated using panel data on the quebec city gasoline market and used to evaluate the consequences of a recent vertical merger difference in difference and counterfactual simulation methods are compared and the results to a large extent validate the assumptions of the demand model jel g34 l13 l42 l81 q41 r41

do more competitive banks have less market power the evidence from central and eastern europe abstract studies that have explored the competitive behaviour of banks frequently arrive at divergent conclusions because they use different measures of competition this study first discusses these various measures of competition and their divergence from a theoretical perspective and then employs them to measure the competitiveness of central and eastern european banks and to investigate whether more competitive banks really have less market power we find that these banks increase their market power when there is low banking concentration and do not necessarily become less competitive moreover a more concentrated banking market does not enhance the market power of banks and does not make them less competitive and more competitive banks do not necessarily have less market power this latter outcome ensues because revenue and production reactions to cost evolution are either positively related or completely unrelated to the competitive behaviour of banks

the separation of ownership and control in the theory of the firm a reappraisal abstract managerialists argue that today s large corporations are either owner or manager controlled this classification is based upon an ex post analysis of shareholdings if no cohesive group of shareholders possesses more than a fixed percentage of shares the conclusion is that owners do not have control which is assumed to pass to managers this paper counters this approach arguing 1 causality runs from control to observed shareholdings and 2 the observed holdings generally suffice to give a subset of owners control in so doing the paper also confronts and rejects the neoclassical approach

foreign political connections liability of foreignness a firm s social and economic costs of operating in a foreign market is a major concern for multinational corporations and firms trying to enter new markets to reduce the liability of foreignness a firm may engage in strategic international political management via foreign political connections and thus lower barriers to entry faccio am econ rev 96 1 369 386 2006 suggests that political connections can be established by having large shareholders who are politicians or are politically connected this paper investigates the value of such foreign political connections for publicly listed firms we find that foreign political connections create large firm value and improve access to foreign markets one of the main channels of value creation is government contracts awarded to firms with direct foreign political connections our findings provide evidence of the effectiveness of having large and active foreign politically connected shareholders as part of a firm s international political corporate strategy

bank behavior based on internal credit ratings of borrowers abstract this study examines the relation of bank loan terms to borrower risk defined by the banks internal credit rating the analysis is not restricted to a static view it also incorporates rating transition and its implications on the relation money illusion and phenomena linked with relationship banking are discovered as important factors the results show that riskier borrowers pay higher loan rate premiums and rely more on bank finance housebanks obtain more collateral and provide more finance caused by money illusion in times of high market interest rates loan rate premiums are relatively small whereas in times of low market interest rates they are relatively high there was no evidence for an appropriate adjustment of loan terms to rating changes

mergers with differentiated products the case of the ready to eat cereal industry traditional merger analysis is difficult to implement when evaluating mergers in industries with differentiated products i discuss an alternative which consists of demand estimation and the use of a model of postmerger conduct to simulate the competitive effects of a merger i estimate a brand level demand system for ready to eat cereal using supermarket scanner data and use the estimates to 1 recover marginal costs 2 simulate postmerger price equilibria and 3 compute welfare effects under a variety of assumptions the methodology is applied to five mergers two of which occurred and for which i compare predicted to actual outcomes

the capital crunch neither a borrower nor a lender be the dramatic reduction in the growth rate of bank lending associated with the 1990 91 recession particularly in new england has evoked claims by many observers of a credit crunch however because of the difficulty in determining whether the observed slow credit growth is a demand or supply phenomenon convincing evidence of the practical importance of credit crunches for economic activity remains elusive we overcome this obstacle by examining a cross section of banks in new england that have experienced the same economic downturn effectively controlling for changes in demand we find empirical support for a capital crunch whereby poorly capitalized institutions shrink to satisfy capital requirements this alone is not a sufficient condition for a credit crunch however we find s6me additional evidence that the ca ital crunch may have limited credit availability in new england

evaluating the performance of merger simulation evidence from the u s airline industry abstract this paper uses merger simulations to predict postmerger prices for five airline mergers from the 1980s and compares these predictions with observed postmerger prices i find that standard simulation methods which measure the effect of the change in ownership on unilateral pricing incentives do not generally provide an accurate forecast by incorporating postmerger information into the model i measure the relative importance of other factors that also contributed to the observed price changes the results indicate that the unexplained component of the price change is largely accounted for by supply side effects i conclude that deviations from the assumed model of firm conduct play an important role in accounting for the differences between the predicted and observed price changes this conclusion suggests that the predictive performance of merger simulation would benefit if more flexible models of firm conduct were incorporated into the methodology

power in a theory of the firm transactions take place in the firm rather than in the market because the firm offers power to agents who make specific investments past literature emphasizes the allocation of ownership as the primary mechanism by which the firm does this within the contractibility assumptions of this literature we identify a potentially superior mechanism the regulation of access to critical resources access can be better than ownership because i the power agents get from access is more contingent on their making the right investment and ii ownership has adverse effects on the incentive to specialize the theory explains the importance of internal organization and third party ownership

developing a sustainability credit score system within the banking community the argument about sustainability and profitability tends to be inversely related our research suggests this does not need to be strictly the case we present a credit score system based on sustainability issues which is used as criteria to improve financial institutions lending policies the sustainability credit score system scss is based on the analytic hierarchy process methodology its first implementation is on the agricultural industry in brazil three different firm development paths are identified business as usual sustainable business and future sustainable business the following six dimensions are present in the scss economic growth environmental protection social progress socio economic development eco efficiency and socio environmental development the results suggest that sustainability is not inversely related to profit either from a short or long term perspective the scss is related to the equator principles but its application is not driven to project financing it also deals with short and long term risks and opportunities instead of short term sustainability impacts

bank privatization and performance empirical evidence from nigeria the authors assess the effect of privatization on performance in a panel of nigerian banks for the period 1990 2001 they find evidence of performance improvement in nine banks that were privatized which is remarkable given the inhospitable environment for true financial intermediation their results also suggest negative effects of the continuing minority government ownership on the performance of many nigerian banks the authors results complement aggregate indications of decreasing financial intermediation over the 1990s banks that focused on investment in government bonds and non lending activities enjoyed a relatively higher performance

divestiture requirements as a tool for competition policy a case from the swedish beer market we investigate the effect of divestitures on prices and welfare following the carlsberg pripps merger in the swedish beer market both difference in difference estimation and simulations using a random coefficients logit model suggest that divestitures are important for dampening price increases prices of divested brands fall by around 3 and the predicted price increase for carlsberg falls from 3 to 1 6 as a result of the divestitures to guide practice on divestitures we investigate the role of the recipient and the number and characteristics of the divested products by simulating post merger outcomes for all relevant cases we find that in this setting with large multiproduct firms the competition authority s most effective means to dampen adverse post merger outcomes are to aim for a small recipient firm and attain a large number of divested products enforcing larger divestitures in terms of market share and raising the average cross price elasticity between the merging parties divested and retained products strengthen the dampening effect further

banking deregulation and allocative efficiency in pakistan abstractthis article examines the impact of deregulation policies on allocative efficiency of banks in pakistan it investigates whether deregulation has impacted the pattern of allocative efficiency of banks and explores which bank ownership segment has been more responsive it uses data from 1991 to 2005 and explicitly models allocative inefficiency by using the translog shadow cost share system empirical results show that overregulation and imperfect market structure hampers the ability of banks to make competitive decisions we find evidence of allocative inefficiency leading to over utilization of labour and deposits vis a vis operating cost empirical results for time varying allocative efficiency show declining levels of allocative inefficiency for state owned and private banks in post reform period deregulation policies induce state owned banks to decrease over utilization of labour relative to deposits and operating cost while private banks succeed in using operating cost closer to optimal leve

mental health market power and governance this paper is concerned with the pricing behaviour of providers of residential care for people with mental health problems two aspects of pricing were considered first are there differences between providers market power and their actual mark up rates e g due to differences in motivation second do the different governance arrangements used in sectors of the industry such as unified public and non profit organisation and private bilateral contracting affect pricing behaviour a theoretical model was developed to underpin the empirical analysis of 496 residents in 112 mental health care facilities private bilateral organisation was found to be associated with comparatively lower potential price cost mark up but a greater propensity to use this power to make profits surpluses

imperfect competition risk taking and regulation in banking abstract we asses the welfare implications of banking competition under various deposit insurance regimes in a model of imperfect competition with social failure costs and where banks are subject to limited liability we study the links between competition for deposits and risk taking incentives and conclude that the welfare performance of the market and the appropriateness of alternative regulatory measures depend on the degree of rivalry and the deposit insurance regime specifically when competition is intense and the social failure costs high deposit rates are excessive both in a free market and with risk based insurance if insurance premiums are insensitive to risk then the same is true even if there is no social cost of failure we find also that in an uninsured market with nonobservable portfolio risk or with flat premium deposit insurance deposit regulation rate regulation or deposit limits and direct asset restrictions are complementary tools to improve welfare in an uninsured market with observable portfolio risk or with risk based insurance deposit regulation may be a sufficient instrument to improve welfare

mergers brand competition and the price of a pint abstract mergers in the uk brewing industry have reduced the number of national brewers from six to four the number of brands in contrast has remained relatively constant we analyze the effects of mergers on brand competition and pricing brand level demand equations are estimated from a panel of draft beers to model brand substitution possibilities we estimate the matrix of cross price elasticities semiparametrically our structural model is used to assess the strength of brand competition along various dimensions and to evaluate the mergers in particular we compute equilibria of pricing games with different numbers of players

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

de jure interstate banking why only now this paper tackles three tasks it reviews the history of restrictions on interstate banking it summarizes the provisions of the interstate banking and branching efficiency act of 1994 underscoring the opt in and opt out lobbying pressure this act assigns to state legislatures finally the paper develops a lobbying pressure model designed to explain statutory changes in the framework of financial regulation the model implies that de facto liberalization of a regulatory regime precedes its de jure liberalization once adopted statutory restrictions on banks remain in place until technology and competitive regulatory enforcement have fashioned loopholes wide enough to reverse the statute sponsoring balance of lobbying pressure copyright 1996 by ohio state university press

the gains from merger or collusion in product differentiated industries a merger in an industry with differentiated products increases the market power of the merging firms to the extent that their products are close substitutes and that other firms produce only more distant substitutes such a merger makes the residual demand curve of each partner steeper by shifting each in the direction of the industry demand curve 2 the extent of this increase in market power depends upon the own elasticity of demand for each merging firm s product as well as the cross elasticity of demand for each with all other firms products as a result evaluating the effect of a merger between two firms with n 2 other competitors would seem to require the estimation of at least n2 parameters all of the price elasticities of demand a formidable task that extremely difficult estimation task is unnecessary however the necessary information is contained in the slopes of the two single firm residual demand curves before the merger and the extent to which the merged firm will face a steeper demand curve for example suppose a merger between two u s brewing firms say pabst and anheuser busch were proposed it is not particularly important to determine whether it is competition from miller or competition from stroh or from heileman or which puts the most effective brake on anheuser busch s pricing only the total effect of these other firms and the particular effect of competition from pabst are of interest this paper proposes econometric procedures for estimating the demand system that merger partners will face based only on pre merger data the key to the procedures is that the effects of all other firms in the industry are summed together formally we start with a model of an n firm product differentiated industry manipulation of the model removes the prices and quantities of all but two firms this reduces the dimensionality of the problem to manageable size rather than an n firm demand system we estimate a two firm residual demand system in this way the technique extends our econometric method for

politicians and the ipo decision the impact of impending political promotions on ipo activity in china abstract this paper shows that incentives created by the impending turnover of local politicians can accelerate the pace of initial public offering ipo activity in certain politicized environments focusing on china we exploit a research setting where politicians are rewarded for capital market development firms rely on political connections for access to capital rent seeking behavior is rampant and the objectives of the state might not be to maximize capital market efficiency we find that the rate of exchange eligible firms engaging in an ipo temporarily increases in advance of impending political promotion events this effect holds for both state owned and non state owned entities for state owned firms the effect is strongest in those provinces where the politicians are more likely to be rewarded for market development activity for non state owned firms the temporary increase in ipo activity appears to be rationally opportunistic in nature with the effect stronger around events more likely to disrupt the firms political connections promotion period ipos underperform non promotion period ipos in terms of both future financial performance and long run stock returns have controlling shareholders who retain a larger fraction of the company and are more likely to divert proceeds away from their intended use after the offering

evidence on the accuracy of merger simulations this paper evaluates the efficacy of a structural model of oligopoly used for merger review using premerger data we estimate several demand systems and use a static bertrand model to simulate the price effects of two mergers using pre and postmerger data we directly estimate the price effects the direct estimates imply that one merger resulted in moderate price increases while the second left prices essentially unchanged while some simulations are similar to the directly estimated price effects overall simulations overstate the price effects in one case and understate them in the other explanations for the discrepancies are explored

bank regulation and the credit crunch abstract this study investigates the direct link between regulatory enforcement actions and the shrinkage of bank loans to sectors likely to be bank dependent we partition the shrinkage due to loan supply into the component due to explicit regulatory enforcement actions and that due to a voluntary response by bank management to low capital to asset ratios we find that banks with formal actions shrink at a significantly faster rate than those without even after controlling for differences in capital to asset ratios furthermore much of the reduced lending has been in categories containing primarily loans to bank dependent borrowers

measuring unilateral effects in partial horizontal acquisitions recent years have witnessed an increased interest by competition agencies in assessing the competitive effects of partial acquisitions we propose an empirical structural methodology to examine quantitatively the unilateral impact of partial horizontal acquisitions the acquisitions may be direct or indirect and may or may not correspond to control the proposed methodology simulates the effects on prices market shares firm profits and consumer welfare it can deal with differentiated product industries and nest full mergers as a special case we provide an empirical application to several acquisitions in the wet shaving industry

bank capital regulation with random audits we consider a model of optimal bank closure rules cum capital replenishment by banks with poisson distributed audits of the bank s asset value by the regulator with the goal of eliminating ameliorating the incentives of levered bank shareholders managers to take excessive risks in their choice of underlying assets the roles of tax or other subsidies on deposit interest payments by the bank and of the auditing frequency are examined c 2002 elsevier science b v all rights reserved

contestable markets an uprising in the theory of industry structure presents a transcript of the presidential address delivered at the 94th meeting of the american economic association on december 29 1981 discussion of developments in the theory of industry structure welfare attributes of contestable markets behavior characteristics of oligopoly equilibrium intertemporal vulnerability to inefficient entry ebsco

do lenders favor politically connected firms rent provision in an emerging financial market corruption by the politically connected is often blamed for economic ills particularly in less developed economies using a loan level data set of more than 90 000 rms that represents the universe of corporate lending in pakistan between 1996 and 2002 we investigate rents to politically connected rms in banking classifying a rm as political if its director participates in an election we examine the extent nature and economic costs of political rent provision we nd that political rms borrow 45 percent more and have 50 percent higher default rates such preferential treatment occurs exclusively in government banks private banks provide no

the outsourcing of r d through acquisitions in the pharmaceutical industry abstract we examine the performance of 160 pharmaceutical acquisitions from 1994 to 2001 and find evidence that on average acquirers realize significant positive returns these returns are positively correlated with prior acquirer access to information about the research and development activities at target firms and a superior negotiating position a unique desperation index is employed to determine the current status of a firm s internal productivity we find that firms experiencing declines in internal productivity or which are more desperate are more likely to engage in an outsourcing type acquisition in an effort to replenish their research pipelines

estimating the residual demand curve facing a single firm this paper presents an econometric technique for estimating the single firm residual demand curve that does not require the estimation of demand cross elasticities the technique is particularly suited for the estimation of firm market power in product differentiated industries where cross elasticities are notoriously difficult to measure one estimated parameter is directly related to a firm s markup of price over marginal cost when product differentiation is extensive when an industry consists of a dominant firm and a price taking fringe when a consistent conjectures equilibrium is the correct oligopoly solution concept when firms are stackelberg leaders relative to their environment or when firms are perfect competitors the estimates can indicate power over price in other circumstances an instrumental variables technique is employed using firm individuated factor prices to identify firm specific residual demand yet even when instruments are unavailable the technique produces elasticity estimates biased in the conservative direction of disproving market power this methodology is applied to estimate the market power of three firms in an industry characterized by product differentiation brewing over our 1962 82 sample period pabst and coors had similar national market shares and each had high shares in several states yet pabst was virtually a price taker while coors possessed substantial market power anheuser busch had market power in the early part of the sample but little after 1975 when miller brewing changed the competitive nature of the industry

post the washington consensus economic governance and industrial strategies for the twenty first century recent events in the global economy have led to a growing dissatisfaction with the neo liberal economic paradigm that has dominated economic policy over the last 30 years and the increasing concentration of and abuse of economic power within the corporate sector that has ensued however amidst calls for a new approach to economic management there is a danger that a new policy framework may overlook underlying economic governance structures that exist and may evolve within the economy such oversight has implications for development this paper seeks to demonstrate that the long run efficacy of industrial strategy depends upon designing appropriate economic governance structures that serve the wider public interest it does so by exploring past experiences of industrial strategy drawing lessons from the usa the uk japan the third italy and the emerging and transition economies we also offer some suggestions for ways forward

the effects of irreversible investment in durable capacity on the incentive for horizontal merger until recently the literature on horizontal merger had been almost exclusively concerned with two issues the first issue which has long historical roots is the timing of merger activity of particular interest has been to understand the causes of the great merger wave lamoreaux 5 represents the most recent addition to this literature and provides a very good review of past work the second issue is the welfare implications of horizontal merger of which williamson 12 is a case in point with the exception of stigler 8 what had generally not been at issue in this literature was the private incentives for horizontal merger this was true in spite of the insight provided by stigler that the non participants of a merger are typically made better off by a merger than are the participants since the firms which engage in merger reduce supply all firms benefit from the resulting higher price but the non merging firms benefit most because they receive a higher price without having had to reduce supply there is then the potential for a free rider effect in merger activity as each firm wishes it to be the other firms which merge the first suggestion that the private incentives for horizontal merger may not only be weak but that merger may be simply unprofitable arose in a numerical example by szidarovszky and yakowitz 9 in which they show in a three firm cournot model that a merger between two firms is unprofitable then a study by salant switzer and reynolds 7 hereafter s s r examined this issue in considerable detail and found very weak incentives for firms to merge together unless there are considerable savings in terms of fixed costs using the standard linear cournot model s s r show that only merger for monopoly or close to monopoly is privately optimal when there are zero fixed costs the basis for this surprising result is that when the merged firm reduces output below the combined level of its pre merger supply the non merged firms react by expanding output though price goes up in response to the merger the market share of the merged firm declines the latter effect can dominate so that the firms are made worse off by merging in response to this result perry and porter 6 argue that the standard cournot model is inappropriate for analyzing the incentive to merge as mergers are not well defined since firms do

price margins and capital adjustment canadian mill products and pulp and paper industries abstract the purpose of this paper is to estimate a model incorporating non competitive behaviour in product and factor markets in addition capital accumulation is subject to adjustment costs so that firms are not constrained to be in long run equilibrium the model is applied to two major canadian manufacturing industries pulp and paper and mill products the results show for both industries in each of three product markets and the wood input market that there is competitive behaviour in addition the industries are not in long run equilibrium as marginal adjustment costs cause marginal profit to exceed the rental rate on capital with the industries exhibiting short run competitive behaviour in product and factor markets new estimates are derived for scale economies and rates of technological change unlike the results from other studies both industries exhibit small scale economies and positive rates of technological change

free banking and information asymmetry a traditional argument against free banking is that it will collapse because of information externalities it is impossible for depositors to tell whether a high deposit rate offered by a bank is due to its high efficiency or risky lending strategy this paper shows that in a separating equilibrium a higher quality bank offers a lower deposit rate and holds a smaller proportion of risky loans than a lower quality bank to signal its underlying quality hence free banking is not inherently unstable the empirical results for the hong kong banking system during 1964 65 are consistent with the hypothesis of a separating equilibrium

large shareholders and the monitoring of managers the case of antitakeover charter amendments this paper examines the role of large shareholders in monitoring managers when they propose antitakeover charter amendments we attempt to distinguish between two competing hypotheses the active monitoring hypothesis and the passive voting hypothesis we find a statistically significant positive relation between institutional ownership and the stockholder wealth effects of various types of amendments after controlling for ownership concentration among institutions managerial ownership and firm size our empirical evidence lends support to the active monitoring hypothesis proposed by demsetz 1983 and shleifer and vishny 1986 that the existence of large shareholders leads to better monitoring of managers

political connections and firm value in china an event study on 19 october 2013 the chinese government issued the opinions on further regulation on party and political leaders and cadres working part time holding office in enterprises also known as the 18th decree to regulate government officials employment with businesses the 18th decree is widely perceived as having had a significant impact on the use of independent directors with political backgrounds by firms given the prevalence of this business practice this paper examines the market reaction to the 18th decree to ascertain the value effect of political connections in china we note a negative relationship between the political connections of independent directors and market reaction we also note that the negative relationship between political connections and market reaction is moderated by ownership type and state of regional development specifically we find that the negative relationship holds only for private firms in less developed regions these results support our prediction that political connections add value to chinese firms and that the value effect of political connection is contingent on institutional factors

player and referee roles held jointly the effect of state ownership on china s regulatory enforcement against fraud this article examines the impact of the prevailing state ownership in the chinese stock market on corporate governance and the financial regulatory system respectively as the internal and external monitoring mechanisms to deter corporate fraud and protect investors in line with the literature that state ownership exaggerates the agency problem we find that the retained state ownership in privatised firms increases the incidence of regulatory enforcements against fraud for the state owned enterprises soes however larger state ownership is associated with a lower incidence of enforcement actions this is attributed to the mutual political affiliation of the fraudulent soes and the regulatory commission a new regulation solutions for listed firm checks promulgated in march 2001 has mitigated this effect by empowering the regulatory commission to increase the severity of regulatory conditions our evidence confirms the improvement in the regulatory environment and investor protection in the chinese stock market brought about by the regulatory reform and development

rational expectations business cycles in search equilibrium we examine the rational expectations equilibrium paths of the model of search and barter in diamond s aggregate demand management in search equilibrium for some initial positions there are two equilibrium paths converging to different steady states with the high activity path pareto dominating the low activity path with some parameters there is also a continuum of equilibrium paths converging to another steady state moreover there can be cycles that are equilibrium paths even though the environment is stationary

a structural approach to market definition with an application to the hospital industry a structural approach to market definition market definition is essential to merger analysis because no standard approach to market definition exists opposing parties in antitrust cases often disagree about the extent of the market these differences have been particularly relevant in the hospital industry where the courts have denied seven of eight merger challenges since 1994 due largely to disagreements over geographic market definition we compare geographic markets produced using common ad hoc methodologies to a method that directly applies the ssnip test to hospitals in california using a structural model our results suggest that previously employed methods overstate hospital demand elasticities by a factor of 2 4 to 3 4 and define larger markets than would be implied by the merger guidelines s hypothetical monopolist test the use of these methods in differentiated product industries may lead to mistaken geographic market delineation and was likely a contributing factor to the permissive legal environment for hospital mergers

exploring the nexus between banking sector reform and performance evidence from newly acceded eu countries abstract the aim of this study is to examine the relationship between banking sector reform and bank performance measured in terms of efficiency total factor productivity growth and net interest margin accounting for the effects through competition and bank risk taking to this end we develop an empirical model of bank performance which is consistently estimated using recent econometric techniques the model is applied to bank panel data from ten newly acceded eu countries the results indicate that both banking sector reform and competition exert a positive impact on bank efficiency while the effect of reform on total factor productivity growth is significant only toward the end of the reform process finally the effect of capital and credit risk on bank performance is in most cases negative while it seems that higher liquid assets reduce the efficiency and productivity of banks

political connections and the process of going public evidence from china abstract we examine how political connections impact the process of going public specifically we test how political connections impact the pricing of the newly offered shares the magnitude of underpricing and the fixed cost of going public based on the experience of the newly public firms from chinese security markets and using multiple measures of political connections we find robust evidence that the issuing firms with political connections reap significant preferential benefits in the process of going public to be specific we find that firms irrespective of their ownership status with greater political connections have relatively higher offering price lower underpricing and lower fixed costs during the going public process

estimating market power in the presence of capacity constraints an application to high fructose corn sweetener abstract we develop a structural econometric model within which to measure market power in an industry that has capacity constraints we implement our empirical framework using quarterly data from the market for high fructose corn sweetener between 1980 1 and 2000 4 we demonstrate that ignoring the natural restrictions from the capacity constraints as well as the existence of a near perfect substitute sugar in this case can lead to inconsistent estimates this may cause researchers to overestimate the market power of firms these results have implications for anti trust litigation

institutional investors political connections and the incidence of regulatory enforcement against corporate fraud we investigate two under explored factors in mitigating the risk of corporate fraud and regulatory enforcement against fraud namely institutional investors and political connections the role of institutional investors in the effective monitoring of a firm s management is well established in the literature we further observe that firms that have a large proportion of their shares held by institutional investors have a lower incidence of enforcement actions against corporate fraud the importance of political connections for enterprises whether in a developed market such as the united states or an emerging market such as china has been established by previous studies however we find evidence of another positive effect of political connections they may reduce the incidence of enforcement action against corporate fraud we also find that political connections play a more significant role in reducing regulatory enforcement incidents against non state owned enterprises and firms in weaker legal environments whereas institutional ownership plays a more important role in reducing regulatory enforcement incidents against state owned enterprises

imperfect competition in multiproduct food industries with application to pear processing agricultural product markets often involve relatively few firms processing a farm product into multiple processed products this market structure prompts concern that processing firms may exercise both oligopsony and oligopoly power the present paper develops and applies a methodology to test simultaneously for market power in both the raw input market and multiple processed output markets application of the methodology to california pear processing indicates the industry has exerted power in both its farm input market and the markets for canned pears and fruit cocktail

assessing the competitive interaction between private labels and national brands in this article we employ the linear approximate almost ideal demand system la aids and specify price reaction equations derived under the la aids specification we perform intracategory analyses using data on six individual categories as well as a pooled analysis on a sample of 125 categories and 59 geographic markets we find that consumer response to price and promotion decisions demand and firm pricing behavior supply jointly determine observed market prices and market shares further estimates of residual demand elasticities suggest that examination of partial demand elasticities alone may provide an incomplete picture of the ability of brands to raise price copyright 2000 by university of chicago press

the politics of bank failures evidence from emerging markets this paper studies large private banks in 21 major emerging markets in the 1990s it first demonstrates that bank failures are very common in these countries about 25 percent of these banks failed during the seven year sample period the paper also shows that political concerns play a significant role in delaying government interventions to failing banks failing banks are much less likely to be taken over by the government or to lose their licenses before elections than after this result is robust to controlling for macroeconomic and bank specific factors a new party in power early elections outstanding loans from the imf as well as country specific time independent factors this finding implies that much of the within country clustering in emerging market bank failures is directly due to political concerns

market integration efficiency of arbitrage and imperfect competition methodology and application to u s celery this paper develops and applies a methodology to test for efficiency of interregional commodity arbitrage application of the methodology requires only time series data on prices for alternative cities regions countries or product forms yet the approach is capable of generating evidence on a number of market parameters including market integration arbitrage efficiency the magnitude of marketing margins product substitutability and competitiveness of markets estimation is based on a switching regression model with three regimes efficient arbitrage relative shortage and relative glut results from application of the model to u s celery marketing indicated significant departures from efficient arbitrage for both california and florida celery

a behavioral resource based view of the firm the synergy of cyert and march 1963 and penrose 1959 cyert and march s 1963 seminal behavioral theory is one of the two major economics based theories of the firm that goes inside the black box the firm the other being the contribution of edith penrose the two theories have differences but also similarities and substantial scope for cross fertilization that has gone unnoticed in the literature in this paper we try to integrate important ideas from both books paying particular attention to the issue of excess resources slack and intrafirm conflict we then build on the integrated framework by delving into the nature of intrafirm conflict and its relationship to the degree of intrafirm rivalry as they may impact the possible use of slack by firms we derive propositions common to the two theories and new ones of importance to our understanding of organizational growth and change

do announcements of wto dispute resolution cases matter evidence from the rare earth elements market abstract rare earth elements rees have gained increasing attention recently for several key reasons 1 they are vital to many strategic industries 2 they are relatively scarce 3 they frequently exhibit high price fluctuations 4 china holds a quasi monopoly on their mining and 5 china s ree policy which was overly restrictive and led to a formal complaint from the u s japan and the eu at the world trade organization wto in 2012 this paper investigates whether the announcement of a wto dispute resolution case has the power to fundamentally change market dynamics we find empirical support for this notion because ree prices exhibit a structural break around the announcement of the wto dispute and show lower variance ratios for all tested rees afterward this indicates a tendency toward efficiency although ree prices still do not follow a random walk similarly we find that stock price informativeness of companies in the ree industry increases after the announcement reflecting more firm specific than marketwide information and less governmental influence finally we show that model uncertainty for option pricing models decreases which we measure by the lower pricing differences among them

is free trade passe abstract if there were an economist s creed it would surely contain the affirmations i understand the principle of comparative advantage and i advocate free trade yet the case for free trade is currently more in doubt than at any time since the 1817 publication of ricardo s principles of political economy and this is due to changes that have recently taken place in the theory of international trade while new developments in international trade theory may not yet be familiar to the profession at large they have been substantial and radical in the last ten years the traditional constant returns perfect competition models of international trade have been supplemented and to some extent supplanted by a new breed of models that emphasizes increasing returns and imperfect competition these new models call into doubt the extent to which actual trade can be explained by comparative advantage they also open the possibility that government intervention in trade via import restrictions export subsidies

politicians and banks political influences on government owned banks in emerging markets abstract government ownership of banks is very common in countries other than the united states this paper provides cross country bank level empirical evidence about political influences on these banks it shows that government owned banks increase their lending in election years relative to private banks this effect is robust to controlling for country specific macroeconomic and institutional factors as well as bank specific factors the increase in lending is about 11 of a government owned bank s total loan portfolio or about 0 5 of the median country s gdp per election per government owned bank

thinking creatively about markets abstract the paper takes a broad view of how economists identify market boundaries three types of definition are distinguished trading markets anti trust markets and strategic markets the first is based on the familiar law of one price while the second follows us dij guidelines and is designed to identify positions of market power neither of these definitions suits the needs of one of the more recent and fastest growing users of economics namely those responsible for corporate strategy decisions inside firms the paper reviews why market definitions are a fundamental part of strategy decisions and identifies several ways that such users might define market boundaries