estimating markups and market conduct with multidimensional product attributes we demonstrate how to estimate a model of oligopoly pricing when products are multi dimensionally differentiated we provide an empirical counterpart to recent theoretical work on product differentiation using specifications informed by economic theory we estimate price cost margins for products differentiated in many dimensions

exchange rates and cash flows in differentiated product industries a simulation approach how do exchange rate changes impact firms cash flows we extend a simulation method developed in industrial organization to answer this question we use prices quantities and product characteristics for differentiated products coupled with a discrete choice framework and an assumption of price competition to estimate marginal costs for all producers using a monte carlo approach we generate counterfactual prices and profits for different levels of exchange rates we illustrate the method using the market for bottled water our results stress that even in a relatively simple market such as this one different brands face very different exchange rate risks consider a firm that produces a good in france using mainly local inputs and sells it abroad in locations that have a floating exchange rate vis a vis the euro profits and in turn the value of the firm are potentially exposed to exchange rate changes if the euro appreciates profits when measured in euros are likely to decrease how large is the decrease in profits similarly what is the impact of such an exchange rate change on the profits of an import competing firm these are the questions that a large literature on exchange rate exposure attempts to answer

voluntary export restraints on automobiles evaluating a trade policy the authors evaluate the voluntary export restraint that was initially placed on exports of automobiles from japan in 1981 they evaluate the impact this policy had on u s consumer welfare firm profits and foregone tariff revenue from its initiation through 1990

brands in motion how frictions shape multinational production following the 2016 leave vote in the referendum on uk membership in the eu and the election of donald trump trade agreements have entered a period of great instability to predict the impact of possible disruptions to existing arrangements requires counterfactual analysis that takes into account the complex set of factors influencing the production and marketing strategies of multinational corporations we estimate a model of multinational decision making in the car industry this model predicts the production reallocation and consumer surplus consequences of changes in tariffs and non tariff barriers induced by nafta termination brexit trans pacific and trans atlantic integration agreements

what s wrong with the fundamental existence and welfare theorems abstract the definition of walrasian competitive equilibrium on which the fundamental existence and welfare theorems rest assumes that all trading in decentralized exchange economies takes place at the final equilibrium prices which further implies that at equilibrium prices the value of each agent s equilibrium commodity bundle is equal to the value of her endowment and equal treatment of agents with the same preferences technology and endowment the logic of the theorems supports the conclusion that in competitive economies prices the allocation of commodities and the distribution of income and material welfare are determined by the preferences technology and endowments of the agents in real world markets however agents can discover equilibrium prices only by making mutually advantageous transactions at disequilibrium prices any sequence of such transactions leads stably to an exchange equilibrium at which the offer prices of all agents are close to each other and which exhausts all private opportunities to realize economic surpluses the exchange equilibrium set however is in general a continuum and the exact equilibrium reached depends on the path of transactions in general exchange equilibria do not treat agents with the same preferences and endowments equally and the exchange equilibrium allocation of commodities does not conserve the values of individual agent endowments existence and stability of exchange equilibrium are transparent consequences of the logic of voluntary exchange but because of transaction path dependence equilibrium prices allocations of commodities and the distribution of wealth and economic welfare are not determined by agents preferences and endowments

strategic trade policy when firms can invest abroad when are tariffs and quotas equivalent abstract this paper investigates the equivalence of tariffs and quotas when the market in question is imperfectly competitive and open to direct foreign investment the absence of a foreign supply response under a quota so critical to the analysis of the differential impact of tariffs and quotas under imperfect competition is called into question by the potential occurence of direct foreign investment the paper proves the equivalence of optimal tariffs and quotas when the markets are oligopolistic and open to direct foreign investment

why do oil prices jump or fall this paper discusses theories that can explain the zig zags of oil prices in general and in particular the recent jump more precisely the following explanations are discussed homo oeconomicus pure profit maximization if demand is dynamic and convex price reaction function price increases and respectively declines depend on capacity utilization cartelization contingent on output or revenues of which the latter can lead to backward bending supply segments and multiple equilibria statistical descriptions mean reversion homo politicus i e arguments for price hikes that are rational public choice despite the long run economic loss finally two approaches are presented that emphasize demand uncertainty one extending the above mentioned dynamic demand framework and the other considers a dynamic game of non competitive suppliers with lumpy investments summing up a demand shock seems to be the most suitable explanation of today s high prices indeed a shock given that international energy agency iea and department of energy doe were promising just a couple of years ago that we are going to have lots of oil at low prices while others and in particular politics have surprisingly little or no explanatory power

measuring the sensitivity of parameter estimates to estimation moments we propose a local measure of the relationship between parameter estimates and the moments of the data they depend on our measure can be computed at negligible cost even for complex structural models we argue that reporting this measure can increase the transparency of structural estimates making it easier for readers to predict the way violations of identifying assumptions would affect the results when the key assumptions are orthogonality between error terms and excluded instruments we show that our measure provides a natural extension of the omitted variables bias formula for nonlinear models we illustrate with applications to published articles in several fields of economics

trade restrictions as facilitating practices abstract the effect of quantitative restrictions in oligopolistic markets is shown to depend on whether imports are substitutes or complements for domestic products in the former case they have profound effects even when set at free trade levels because they impede the ability of the foreign firm to compete in the domestic market thereby acting to facilitate collusion and raise prices and profits for this reason tariffs and quotas are fundamentally non equivalent with substitute goods when goods are complements a voluntary export restriction ver at the free trade level has no effect and tariffs and quotas are equivalent

measuring the benefits of foreign product variety with an accurate variety set abstract recent studies have used import data to assess the impact of foreign varieties on domestic prices and welfare we employ a market based data set on the u s automobile market that allows us to define goods varieties at a more precise level as well as discern location of production and ownership of varieties our estimates of price and welfare changes from new varieties in the u s automobile sector are twice as large as standard estimates when using our detailed market based data we also show that new varieties introduced by foreign owned affiliates provided an additional 70 welfare gain during our sample

durable goods oligopoly with secondary markets the case of automobiles we study the effects of durability and secondary markets on equilibrium firm behavior in the car market we construct a dynamic oligopoly model of a differentiated product market to incorporate the equilibrium production dynamics that arise from the durability of the goods and their active trade in secondary markets we derive an econometric model and estimate its parameters using data from the automobile industry over a 20 year period our estimates are used to provide a measure of the competitive importance of the secondary market

estimation of random coefficient demand models two empiricists perspective we document the numerical challenges we experienced estimating random coefficient demand models as in berry levinsohn and pakes 1995 using two well known data sets and a thorough optimization design the optimization algorithms often converge at points where the first and second order optimality conditions fail there are also cases of convergence at local optima on convergence the variation in the values of the parameter estimates translates into variation in the models economic predictions price elasticities and changes in consumer and producer welfare following hypothetical merger exercises vary at least by a factor of 2 and up to a factor of 5

the effects of domestic merger on exports a case study of the 1998 korean automobile industry abstract this paper examines the economic consequences of a horizontal merger between korean automakers that took place in 1998 with a particular emphasis on export market behavior estimates of structural demand and supply reveal that the merger enhanced production efficiency of the merged party by 3 8 simulations based on these estimates indicate that while the merger increased domestic prices the export volume of the merged party was more than doubled moreover the effects of the merger are found to differ by auto model according to the model s pre merger export status it is shown that efficiency gains from the merger are likely to increase export volumes for models that were already exported prior to the merger and to offset domestic market power for those that were not exported even after the merger finally the paper compares the actual merger s effects to those of alternative counterfactual mergers finding that the actual merger brought greater benefits to producers and fewer to domestic consumers

are labels effective against child labor abstract in this paper we investigate the impact of introducing a label certifying the absence of child labor in the export production of the south when most eligible producers in the south can obtain the label its impact is considerably reduced by a displacement effect whereby adult workers replace children in the export sector while children replace adults in the domestic sector the label is then unable to create a price differential in the south between goods produced under the label and those produced without it when only a small fraction of eligible producers have access to the label the south exports both labeled and unlabeled goods to the north in this case labeled producers generally gain while those without a label generally loose from the introduction of the label ex ante welfare may fall in the south if the probability of getting a label when one qualifies is small the impact on child labor is in general ambiguous

trade policy and its impact on quality of imports this paper examines the role of trade policies in influencing a foreign monopolist s decision on price quantity and in particular the quality of its product we show that a specific tariff leads to higher quality whereas an ad valorem tariff usually does the opposite quotas and specific tariffs are shown to be equivalent and both dominate an ad valorem tariff in terms of welfare we also show that subjecting imports to minimum quality requirements hampers national welfare finally we present a comprehensive ranking of all the policy instruments considered in this paper

an empirical assessment of the welfare effects of reciprocal dumping abstract can two way trade in similar products lead to lower welfare than if such trade was banned theory answers yes to empirically investigate this proposition we examine swedish imports of bottled water assuming one shot bertrand and cournot competition we can use the estimates from a structural model of demand to uncover marginal costs we simulate the effect on consumer and producer surplus of banning imports we do not find convincing evidence that banning imports would increase overall welfare given our choice of market this suggests we should not be overly concerned with the welfare effects of two way trade in consumer goods that are close to homogenous

estimating housing demand with an application to explaining racial segregation in cities we present a three stage nonparametric estimation procedure to recover willingness to pay for housing attributes in the first stage we estimate a nonparametric hedonic home price function in the second stage we recover each consumer s taste parameters for product characteristics using first order conditions for utility maximization finally in the third stage we estimate the distribution of household tastes as a function of household demographics as an application of our methods we compare alternative explanations for why blacks choose to live in center cities while whites suburbanize

detection and impact of industrial subsidies the case of world shipbuilding this paper provides a model based empirical strategy to i detect the presence and gauge the magnitude of government subsidies and ii quantify their impact on production reallocation across countries industry prices costs and consumer surplus i construct and estimate an industry model that allows for dynamic agents in both demand and supply and apply my strategy to world shipbuilding a classic target of industrial policy i nd strong evidence consistent with china having intervened and reducing shipyard costs by 15 20 corresponding to 5 billion us dollars between 2006 and 2012 the subsidies led to substantial reallocation of ship production across the world with japan in particular losing signi cant market share they also misaligned costs and production while leading to minor surplus gains for shippers

tariffs versus quotas with endogenous quality this paper analyzes the effects and desirability of tariffs quotas and quality controls when the quality of the imported good is endogenous and the foreign producer is a monopolist a crucial determinant of the direction of these effects is shown to be the valuation of increments in quality by the marginal consumer relative to that of all consumers on average a way of comparing infinitesimal equivalent policies is developed and used to compare import equivalent policies

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

patents as options some estimates of the value of holding european patent stocks in many countries holders of patents must pay an annual renewal fee in order to keep their patents in force this paper uses data on the proportion of patents renewed and the renewal fees faced by post world war ii cohorts of patents in france the united kingdom and germany in conjunction with a model of patent holders renewal decisions to estimate the returns earned from holding patents in these countries since patents are often applied for at a nearly stage in the innovation process the model allows agents to be uncertain about the sequence of returns that will be earned if the patent is kept inforce formally then the paper presents and solves a discrete choice optimal stochastic control model derives the implications of the model on aggregate behaviour and then estimates the parameters of the model from aggregate data the estimates enable a detailed description of the evolution of the distribution of returns earned from holding patents over their life spans and calculations of both the annual returns earned from holding the patents still in force or the patent stocks in the alternative countries and the distribution of the discounted value of returns earned from holding the patents in a cohort this abstract was borrowed from another version of this item

regulation of pharmaceutical prices evidence from a reference price reform in denmark reference price systems for prescription drugs constitute widely adopted cost containment tools under these regimes patients co pay a fraction of the difference between a drug s pharmacy retail price and a reference price that is set by the government reference prices are either externally based on drug prices in other countries or internally based on domestic drug prices determined we study the effects of a change from external to internal reference pricing in denmark in 2005 we find that the reform led to substantial reductions in retail prices reference prices and patient co payments as well as to sizable decreases in overall producer revenues and health care expenditures the reform induced consumers to substitute away from branded drugs for which we estimate strong preferences the increase in consumer welfare due to the reform therefore depends on whether or not we take perceived quality differences into account in its calculation

the causes of unemployment in finland 1970 82 some further empirical evidence this study presents an aggregate labour market model of the finnish economy the model is consistent with the finnish institutional features wage determination by collective negotiations and the division of the economy into a supply oriented open sector and a demand oriented closed sector estimated labour market model suggests that the rise in the steady state unemployment rate can be accounted for by the following factors the rise in employer s tax rate the rise in the availability of benefits while out of work increased union strength increased labour force participation and import price shocks

tv advertising spillovers and demand for private labels the case of carbonated soft drinks the expansion of private labels or store brands has transformed consumer choice sets and competition in retail markets prompting manufacturers to fight back with renewed pricing and product and promotion strategies to forestall further private label expansion this article examines the spillover effects of television advertising on brand level consumer demand for carbonated soft drinks csds including private labels using a random coefficients logit model with household purchasing and advertising viewing nielsen data as in previous work we find that although brand spillover effects significantly increase demand for csd brands in the same company and undermine demand facing other manufacturers csd brands surprisingly there are positive spillover effects on the demand for private label brands this indicates that brand advertising is persuasive with respect to manufacturers brands but complementary with respect to private labels further results show that eliminating television advertising for c

quality based price discrimination and tax incidence the market for gasoline and diesel cars in europe the existing tax policies toward gasoline and diesel cars in european countries provide a unique opportunity to analyze quality based price discrimination and the implied tax incidence in my econometric framework consumers choose the type of engine based on their annual mileage prices are set by the manufacturers the relative pricing of gasoline and diesel cars appears to be consistent with monopolistic price discrimination effectively segmenting low mileage from high mileage consumers on average about 75 to 90 of the price differentials between gasoline and diesel cars can be explained by markup differences i draw implications for the effectiveness and the revenue effects of tax policy