Separability test for the electricity supply industry

This paper examines the vertical integration issue of the electricity industry. This industry is typically vertically integrated and heavily regulated. The paper investigates the potential technological efficiency loss due to the vertical disintegration using the translog production function. Three separability hypotheses using the Allen-Uzawa elasticity of substitution are tested to examine the feasibility of various degrees of disintegration of the current industry structure. All three separability hypotheses are rejected, and the cost of disintegration is estimated. Further, estimates indicate that the electricity industry appears to have exhausted economies of scale. Unlike other deregulated industries, disintegration of the electricity industry will entail technological efficiency loss.     

Improving performance through vertical disintegration: evidence from UK manufacturing firms

Unlike previous work on the vertical integration–performance relationship, we investigate the performance consequences of vertical disintegration. We offer a theoretical justification for the disintegration decision and we condition the disintegration effect on performance on the initial degree of firm integration, the timing and the direction of disintegration. Using a sample of UK manufacturing firms and controlling for disintegration endogeneity, we find that disintegration eventually results in improved operating performance, particularly when disintegration occurs as a reaction to poor performance and in cases of forward between‐sector disintegration. However, being highly integrated does not guarantee gains from disintegration. The implications of these findings are discussed. Copyright © 2008 John Wiley & Sons, Ltd.     

企业集团的适度规模经济与聚集经济研究——一个基于国际垂直分工视野的分析框架

基于国际垂直分工的理论视野,界定了单体企业的适度规模经济和企业集团总体的最适规模经济等概念范畴的内涵与外延,并结合垂直范围经济和聚集经济等相关概念,从技术经济角度给出了企业集团适度规模经济的模型框架和测度方法,揭示了企业集团在地域上的合理规模即集聚程度与集聚效益之间的倒U字形钟形关系。利用该分析框架,提出了在国际垂直分工视野下,生物医药和专用设备制造等重点行业实现企业集团适度规模经济战略选择的关键在于利用企业集团的集聚经济优势和范围经济优势,并通过产品细分的差别化定位,实现大型企业集团对中小企业集群的策略性替代。     

Agglomeration Economies as Manifested in Technical Efficiency at the Firm Level

This paper makes an attempt to assess the significance of agglomeration economies in the case of two Indian industries, electrical machinery and cotton and cotton textiles. Using firm level data, an efficiency index based on a statistical stochastic frontier model is generated to examine its relationship with external scale variable(s). A positive association between technical efficiency and city size is evident although after a certain threshold level city size works more as diseconomies than economies of scale. Undue emphasis on industrial dispersal may, therefore, lead to suboptimal utilisation of resources.     

Market servicing by multinational manufacturing firms: Exporting versus foreign production

The foreign market servicing behaviour of multinational manufacturing firms evolves over time as a result of the firms' reaction to internal and external pressures. The interplay of immobile ‘location factors’ with internal ‘ownership factors’ under the control of individual enterprises exercises a powerful influence on the choice between exporting and foreign investment. Plant economies of scale encourage exporting, whilst firm level economies of scale, such as the internalization of the fruits of research, may predispose the firm towards foreign investment. Socio-political and cultural elements arising particularly from the nationality of ownership of the firm also influence market servicing strategy.     

Randal Heeb Innovation and Vertical Integration in Complementary Markets

This paper studies vertical integration by an essential-good monopolist into complementary markets. Unlike previous studies of complementary products, consumers are allowed to purchase some components of a complementary basket, but not others. Two different pricing strategies by the integrated firm may emerge. In mass-market equilibria, the price of the complement under integration is zero and it is given away with the essential good. Niche-market equilibria have more conventional pricing. This dichotomy is consistent with consumer software pricing. Integration enhances consumer and total surplus, unless it leads to exit by the higher-quality rival, in which case welfare is reduced. Exit is most likely when it is least damaging to consumer welfare. Integration reduces innovation by the rival firm. The effect on innovation by the integrated firm is ambiguous, but numerical computation of an extended model indicates that integration increases the innovation of the integrated firm and enhances welfare.     

Is the Competitor of my Competitor also my Competitor?

This paper presents several results on multimarket competition. First, whenever a firm faces multimarket competitors that sell goods in markets to which the firm itself has no access, the firm gains a strong incentive to expand production in its own market(s). In the capacity choice model, such a firm builds larger than Cournot capacity and pushes its competitors towards other markets. Consumers always benefit from multimarket competition. In asymmetric market structures, some firms may also benefit from multimarket arrangements, but in symmetric ones, all firms are necessarily harmed by it. Second, the intensification of indirect competition is not necessarily bad for the firm. It may be the case that, the more competitors its competitors have, the higher the firm’s profit. Finally, this model also has a multiproduct interpretation which suggests that a merger of single‐product firms may be beneficial or harmful from a social welfare perspective, depending on whether the new entity will compete with several single‐product firms or another multiproduct one.     

Privatisation and vertical integration under a mixed duopoly

This paper analyses the privatisation of public firms when private firms may be vertically integrated with their suppliers. We consider a mixed duopoly with a vertically integrated public firm. The private firm bargains the price of the input with its supplier if they are not vertically integrated. We find that for a given bargaining power of the private firm, it vertically integrates with its supplier if goods are weak substitutes. We also find that there is less vertical integration in the mixed duopoly than in the private duopoly. Finally, in general, the public firm is privatised when goods are close substitutes and the bargaining power of the private firm is low enough.     

The temporal behavior of scale economies within A banking firm

Examining the time path of the scale economies has not received much attention until recently. Moreover, the time path of scale economies for a given firm has not been studied in the banking literature at all. Examining scale economies, either from cross-sectional or panel data, based only on a single estimate ignores the dynamic behavior (both cost- and production-wise) of a banking firm as well as of the banking industry. We study the time-varying scale economies of commercial banking firms. We employ the Kalman-filter approach in estimating the translog cost function. The Kalman filter allows the parameters of the translog cost function and therefore the scale economies to be time dependent and varying. The estimation results indicate significant variation in inter- and within-firm scale economies over time for sample banks.     

Integration, Complementary Products, and Variety

This paper examines the incentives for integration when the market for consumer durables (hardware) is oligopolistic and the market for complementary services (software) is monopolistically competitive. We find that the equilibrium industry structure will depend on the magnitude of the fixed costs of software development. If the software development costs are relatively large, the equilibrium industry structure is unintegrated, that is, neither hardware firm integrates; if the software development costs are relatively small, the equilibrium industry structure is integrated, that is, both hardware firms integrate. Under the integrated industry structure, hardware profits are lower, less varieties are provided, and hardware prices are lower than under the unintegrated industry structure. The game has a prisoners' dilemma structure when the software development costs are relatively small because of a foreclosure effect. Strategically increasing the number of software varieties provides an avenue for an integrated hardware firm to increase its market share and profits by reducing the number of software varieties available for an unintegrated rival technology. Although consumer surplus is higher under an integrated industry structure, the total surplus associated with the unintegrated industry structure exceeds that of the integrated industry structure.     

Vertical disintegration and the life-cycle of firms and industries

T0he degree of vertical integration experienced by a firm is an important managerial decision variable. It is an issue where there is a distinct lack of unanimity in studies on the economics of organizations. Moreover, studies have tended to ignore the complementary feature of vertical disintegration. This study examines the basic Stigler hypothesis that vertical disintegration is the typical development in growing industries. Using UK data on divestments, the results initially indicated some positive relationship between industry growth and vertical divestment activity; however, when different categories of asset transfer were examined, the Stigler view was rejected in favour of a null hypothesis.     

A note on tax competition in the presence of agglomeration economies

This paper analyzes tax competition in the presence of agglomeration effects. The obtained results are then compared to the results of the traditional model, without agglomeration effects. As is well known, the presence of a fiscal externality affects the provision of the public good in the standard competitive model of tax competition. In the model with agglomeration effects, in addition to this externality, a new effect shows up. This effect reflects heightened government concern about capital flight, which depresses firm productivity by limiting external economies of scale. As a result, capital tax rates end up being lower than in the case where agglomeration effects are not present, worsening the underprovision of the public good. This conclusion holds in both the competitive and strategic versions of the model.     

Economies of scale in advertising

In this article a flexible quadratic model is used to generate sales elasticity estimates for own advertising, competitor advertising and media concentration. On the basis of these estimates, moderate and declining economies of scale in advertising are indicated for firms at the highest end of the advertising per firm distribution. No advertising economies, however, are obvious for the levels of advertising common across the broad spectrum of US industry. Thus, any competitive harm due to economies of scale in advertising would seem quite minor.     

Price and quality competition with quality positions

In this study, we investigate price and quality decisions in a duopoly in the presence of firms’ quality positions , which are determined by the quality levels of their existing core products. Into a standard model of vertical differentiation, we incorporate a “repositioning cost” that is proportional to the quality differences between firms’ current and new products. By varying the levels of quality positions, we analyze the impact of this cost on the equilibrium outcomes. Our results show that the presence of repositioning costs restricts firms’ abilities to improve profitability and differentiate themselves vertically. As a result, a high‐positioned firm does not necessarily have a competitive advantage over a low‐positioned firm, even if the former offers a superior new product in equilibrium. In addition, if a low‐positioned firm is significantly cost‐efficient compared with its rival with regard to repositioning, then that firm can earn higher profits than those of a high‐positioned firm by strategically offering its low‐end product. These results contrast sharply with those based on the standard vertical differentiation model.     

Economies of scale and scope in water supply

This study examines the multiproduct nature of water supply relative to economies of scale and scope. The water utility is viewed as a multiproduct firm providing residential and non- residential services with spatial variation. There are no significant economies of scale in the utility's overall operation. The utility, however, enjoys considerable economies for non- residential water supply but suffers from diseconomies in residential supply. The economies of scale achieved in water treatment are mostly lost in the distribution of water. The utility on the whole experiences economies of scope associated with joint production of the two services. Furthermore, water utilities have no perceptible tendency to behave as a natural monopoly.     

Mixed Duopoly with Subcontracting

Existing literature on mixed oligopoly focuses on competition among different types of firms but ignores their possible cooperation. We allow cooperation between a public firm and a private firm through subcontracting in a Hotelling mixed‐duopoly model. We find that when subcontracting is possible, the equilibrium without subcontracting is not socially optimal because subcontracting can lower total production costs. And if both firms engage in subcontracting, the existence of a public firm can guarantee the first best equilibrium, whether it is the low‐cost firm or not. But when a private firm is the low‐cost firm, it is more profitable for it to choose vertical foreclosure. And the consequent equilibrium is not socially desirable anymore. Copyright © 2014 John Wiley & Sons, Ltd.     

经济规模、技术创新与垂直专业化分工

借鉴Hummels等(2001)的垂直专业化分析框架,本文比较了中国大陆等32个经济体1995年、2000年以及2005年制造业出口的垂直专业化水平。在此基础上,本文利用中国大陆等32个经济体18个制造业行业数据,进一步探讨了影响垂直专业化水平的主要因素。经验观察和计量分析结果发现,经济规模越大、技术创新能力越强的经济体,垂直专业化水平越低;技术复杂度越高的行业,垂直专业化水平也越高;技术越复杂的行业在经济规模越大、技术创新能力越强的经济体内,垂直专业化水平相对更低。本文的研究结论为我们评估中国当前的经济发展方式和国际竞争力提供了一个思路。     

Wal-Mart and the geography of grocery retailing

This paper empirically examines the impact of entry by Wal-Mart on competition in the supermarket industry. Using a detailed panel dataset spanning 1994–2006, we estimate the impact of Wal-Mart on firm outcomes and market structure, controlling for persistent local trends and systematic differences across markets by exploiting the detailed spatial structure of our store-level census. We find that Wal-Mart’s impact is highly localized, affecting firms only within a tight, two-mile radius of its location. Within this radius, the bulk of the impact falls on declining firms and mostly on the intensive margin. Entry of new firms is essentially unaffected. Moreover, the stores most damaged by Wal-Mart’s entry are the outlets of larger chains. This suggests that Wal-Mart’s expansion into groceries is quite distinct from its earlier experience in the discount industry, where the primary casualties were small chains and sole proprietorships that were forced to exit the market. This contrast sheds light on the role density economies play in shaping both equilibrium market structure and economic geography. In the case of grocery competition, high travel costs and the perishable nature of groceries appear to impart horizontal differentiation between firms. This differentiation in demand appears to reduce impact of scale economies advantages that Wal-Mart exploited to the detriment of far-flung competitors in the discount store industry.     

Indirect taxation with shadow cost of public funds in mixed oligopoly

We adopt a mixed oligopoly model, where a state-owned welfare-maximizing public firm competes with a profit-maximizing private firm, to compare the welfare effects of the specific and ad valorem tax in the presence of the shadow cost of public funds. Following the assumption of most previous literature that total output is constant under specific and ad valorem taxation, we find that, when the shadow cost of public funds exists, the tax policy must be adjusted according to the privatization level of the public firm; if the privatization level is low (medium, high), the government needs to adopt ad valorem (specific, ad valorem) tax. Moreover, the private firm will earn a higher (lower) profit under ad valorem tax than under specific tax, if the public firm is not fully privatized and the shadow cost of public funds is high (low).     

Do firms choose overcapacity or undercapacity in a vertical structure?

This study investigates capacity choice in a vertical structure in which each downstream firm makes its capacity decision, then a monopolistic upstream firm proposes the input price or two-part tariff contract. Finally, each downstream firm chooses its output (or price). Contrary to the conventional wisdom that both firms hold excess capacity in an Cournot competition, we find that each downstream firm always chooses undercapacity regardless of both the nature of goods and the competition modes. Second, we also show that capacity efficiency is higher under Cournot competition than under Bertrand competition. Third, even though there are double marginalization distortion and rent-extracting effect, we can achieve the monopoly equilibrium of the vertically integrated firm though two-part tariff contract.