Niche firms,mass markets,and income across countries: Accounting for the impact of entry costs

I develop a model of monopolistic competition in which I distinguish between niche markets and mass markets, in the spirit of Holmes and Stevens, 2014. Firms choose between entering a small niche market with high markups or a large mass market with low markups. Entry costs and other distortions have a much greater impact on output in the niche market as the gains to specialization are high, relative to the mass market where varieties are highly substitutable. Calibrated to match data from U.S. manufacturing, the model generates an elasticity of total factor productivity with respect to entry costs almost twice that in a model that abstracts from heterogeneous markets. I use data on entry costs across countries to show entry costs alone can account for 23 percent of the cross-country variation in income per worker.     

The industrial demand for energy

This paper uses a constant elasticity of substitution production function to examine the extent of factor substitutability in the production of industrial goods. Subsequently, the degree of interfuel substitution is estimated and it is demonstrated that all energy sources are substitutable. Finally, the stability of the demand for various energy sources is empirically tested for and it is concluded that over the period of investigation the demand has in fact remained unaltered.     

Product Market Competition,Monetary Policy Regimes and Inflation Dynamics: Evidence from a Panel of OECD Countries

We empirically analyze the impact of product market competition on the responsiveness of inflation to macroeconomic imbalances. If competition is high the response of inflation to lagged inflation, unemployment and import prices is reduced, while inflation is more responsive to changes in productivity growth in countries in which competition is above the OECD average. Given the (‘good luck’) macroeconomic trajectories of the 1990s–2000s, the structural reforms that made goods markets more competitive improved the ability of OECD economies to smooth (dis)inflationary shocks, while changes in the monetary policy framework had a modest role in taming inflation during the Great Moderation.     

PARTIAL PRIVATIZATION UNDER ASYMMETRIC MULTI‐MARKET COMPETITION

Under the assumption that a public firm provides goods or services to two markets and that a private firm provides goods or services to one market only, this study examines whether public firms should be privatized. It also investigates how the production quantity of a private firm changes when its degree of privatization increases. We find that when the market share of a duopoly market is large (small), partial privatization (nationalization) is socially preferable. We also find that the quantity produced by the private firm does not always increase along with the degree of privatization.     

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.     

Stable many-to-many matchings with contracts

We consider several notions of setwise stability for many-to-many matching markets with contracts and provide an analysis of the relations between the resulting sets of stable allocations for general, substitutable, and strongly substitutable preferences. Apart from obtaining “set inclusion results” on all three domains, we introduce weak setwise stability as a new stability concept and prove that for substitutable preferences the set of pairwise stable matchings is nonempty and coincides with the set of weakly setwise stable matchings. For strongly substitutable preferences the set of pairwise stable matchings coincides with the set of setwise stable matchings.     

Endogenous mergers under multi-market competition

This paper examines a simple model of strategic interactions among firms that face at least some of the same rivals in two related markets (for goods 1 and 2). It shows that when firms compete in quantity, market prices increase as the degree of multi-market contact increases. However, the welfare consequences of multi-market contact are more complex and depend on how two fundamental forces play out. The first is the selection effect, which acts to increase welfare, as shutting down the relatively more inefficient firm is beneficial. The second opposing effect is the internalisation of the Cournot externality effect; reducing the production of good 2 allows firms to sustain a higher price for good 1. This works to increase prices and, therefore, decrease consumer surplus (but increase producer surplus). These two effects are influenced by the degree of asymmetry between markets 1 and 2 and the degree of substitutability between goods 1 and 2.     

The Interactive Effect of Product Differentiation and Cost Variability on Profit

It is generally believed that industries with greater product differentiation have higher rates of return. This paper shows that this effect breaks down in the presence of firm-specific cost shocks. Greater substitutability in products generates two opposing effects: (1) it allows a larger increase in demand when a firm has a favorable cost shock, which more than compensates for the reduction in demand when it has an unfavorable cost shock, and (2) it results in more intense price competition. These two countervailing forces result in industry profit being highest in markets with a moderate degree of product differentiation.     

Interregional tax competition and intraregional political competition: The optimal provision of public goods under representative democracy

This paper explores the implications of the interaction between interregional tax competition and intraregional political competition for the optimal provision of public goods under representative democracy à la (Osborne and Slivinski, 1996) and (Besley and Coate, 1997). As an extension of Hoyt’s (1991) finding that intensified tax competition is always harmful and aggravates the extent to which public goods are undersupplied in a region, we show that intensified tax competition can be beneficial if political as well as tax competition is considered. In particular, we identify plausible conditions under which (i) there is an optimal intensity of tax competition such that the interaction between interregional tax competition and intraregional political competition will result in the optimal provision of public goods and (ii) intensified tax competition will be beneficial if and only if the degree of tax competition is less than this optimal intensity.     

Interregional tax competition and intraregional political competition: The optimal provision of public goods under representative democracy

This paper explores the implications of the interaction between interregional tax competition and intraregional political competition for the optimal provision of public goods under representative democracy à la Osborne and Slivinski, 1996, Besley and Coate, 1997. As an extension of Hoyt’s (1991) finding that intensified tax competition is always harmful and aggravates the extent to which public goods are undersupplied in a region, we show that intensified tax competition can be beneficial if political as well as tax competition is considered. In particular, we identify plausible conditions under which (i) there is an optimal intensity of tax competition such that the interaction between interregional tax competition and intraregional political competition will result in the optimal provision of public goods and (ii) intensified tax competition will be beneficial if and only if the degree of tax competition is less than this optimal intensity.     

Chamberlinian Spatial Computable General Equilibrium Modelling: A Theoretical Framework

In this paper, a multi-regional multi-sectoral computable general equilibrium model is developed by bringing together different strands of theoretical reasoning. These are as follows: input–output analysis, gravity modelling, the theory of intra-industry trade and the theory of general equilibrium under conditions of monopolistic competition. The innovation in this approach is the assumption that, within each sector, a large number of different brands of output are produced. Households like diversity of consumption and diversity of inputs is a productive factor for firms. The number of brands produced in each sector and region is endogenous. A certain amount of fixed costs per brand imposes an upper bound on the number of available brands. Factor markets are perfectly competitive, while monopolistic competition prevails on goods markets. The equilibrium solution of the model closely resembles models which have been applied on an ad hoc basis in regional science before, but it is well founded in modern economic theory now. In particular, trade flows obey a gravity law in equilibrium.     

Play It Again,Sam? Versioning in the Market for Second‐hand Video Game Software

Information goods are characterised by high fixed costs and low marginal costs of production. A potentially effective strategy that can be adopted by firms operating in such markets is versioning, whereby various features are added or subtracted from a number of distinct versions of the good. This effectively serves as a means of second‐degree price discrimination designed to extract prices closer to the maximum willingness to pay from different groups of consumers. This study tests the effectiveness of versioning as a means of exploiting differences in willingness to pay in second‐hand markets for information goods by undertaking the first hedonic price analysis of video gaming software. The empirical evidence presented in this paper is based on the analysis of an extensive cross‐sectional dataset consisting of over 5000 observations of pre‐owned video game prices in the USA. Controls are introduced for a variety of other observable characteristics, including the quality of the game‐play experience, the publisher, genre and theme of the game. The results are consistent with theoretical expectations and demonstrate that significant variations in willingness to pay can be exploited through the strategic use of versioning. The practice is therefore argued to represent an effective means by which firms in these markets can enhance revenues. Copyright © 2016 John Wiley & Sons, Ltd.     

The Organization,Operation, and Outcomes of Actually Existing Markets: A Suggested Approach for Empirical Analysis

Public policies have become embedded with market‐based mechanisms to radically transform essential goods and services markets. This article proposes a framework for empirical analysis of these markets. Key theoretical propositions are distilled to 12 distinctive properties of markets. These properties foreshadow a set of questions to interrogate a market's structure, operation, participants, behaviors, rules, and price setting to generate a substantive, realistic picture of outcomes. This “analytical grid” of questions is applied to four Australian essential goods and services markets. The findings unequivocally demonstrate a very different picture of markets from that promulgated by mainstream neoclassical economics and public policies.     

Certification and socially responsible production

In many markets, consumers are unable to distinguish between goods that are produced in a socially responsible way and goods that are not. In such situations, socially responsible production is not a profit-maximizing strategy, even if the premium that consumers are willing to pay exceeds the costs. Only firms that are genuinely motivated by social responsibility would then produce in this way, and there would be too little socially responsible production. Improved opportunities for voluntary certification could potentially reduce this problem by allowing firms to signal their type. We examine how the possibility of certification affects the share of socially responsible production. Our main result is that increased certification may reduce the share of socially responsible production by reducing prices in the market for uncertified products and thus crowd out socially responsible producers who do not certify. This provide a mechanism through which certification might have adverse effects on socially responsible production, even when the certification process is perfect and when there is perfect competition among the producers.     

基于项目的组织与复杂产品系统——企业能力理论视角的分析

国际学术界关于"复杂产品系统"和"基于项目的组织"的研究,对我国大型企业进行产业升级和实施"走出去"战略具有重要意义.我国企业在大规模生产的消费品领域具有很强的竞争力,在国际市场上占据了很大份额,但国际高端资本品(即复杂产品系统)在市场上的竞争力则与西方先进国家存在巨大差距.本文从企业能力理论视角分析复杂产品系统和基于项目的企业的特征,说明基于项目的组织的经济性主要来自重复经济,而要实现重复经济,就要建立起能够利用重复经济的组织架构,进行相应的能力建设.     

Coasian equilibrium

We consider a general equilibrium economy with public goods and externalities. Following Boyd and Conley (1997), we treat externality markets directly instead of indirectly through Arrovian commodities. Because such direct externality markets are not subject to the nonconvexities that Starrett [Starrett, D., 1972. Fundamental nonconvexities in the theory of externalities. Journal of Economic Theory 4, 180–199] shows are fundamental to Arrow’s externality markets, this new approach admits the use of largely standard methods to prove welfare and existence theorems in an economy with externalities. We extend the Boyd and Conley model to allow firms to benefit from public goods and be damaged by externalities, and to allow consumers to produce externalities. We state a first welfare theorem and prove the existence of a competitive equilibrium. Taken together, this can be viewed as a type of general equilibrium Coase theorem. Considered as a special case, these theorems also represent a significant generalization of existing results for pure public goods economies.     

Investment Incentives and Electricity Spot Market Competition

In this paper we analyze investment decisions of strategic firms that anticipate competition on many consecutive spot markets with fluctuating (and possibly uncertain) demand. We study how the degree of spot market competition affects investment incentives and welfare and provide an application of the model to electricity market data. We show that more competitive spot market prices strictly decrease investment incentives of strategic firms. The effect can be severe enough to even offset the beneficial impact of more competitive spot markets on social welfare. Our results obtain with and without free entry. The analysis demonstrates that investment incentives necessarily have to be taken into account for a serious assessment of electricity spot market design.     

Neighborhood amenities: An economic analysis

A spatial model of household and firm demand and supply of market goods is developed. Housing and neighborhood amenity markets are explicitly considered in deriving market equilibrium. The equilibrium relationships are empirically investigated, yielding important insights into the functioning of the urban economy. Attention is focused on externalities involved in neighborhood markets and the simultaneous determination of housing and amenity market equilibrium. The effect of neighborhood amenities on household equilibrium is of a major magnitude and effects of “externality” variables on both housing and amenity equilibrium are substantiated. The degree of neighborhood homogeneity and the extent of government programs aimed at neighborhood development are found to have significant impacts on housing and amenity markets.     

Strategic Product Choiceand Niche Markets

This paper presents a model of strategic product choice when consumer preferences combine features of both horizontal and vertical product differentiation. Consumers disagree on what amount of a "special" characteristic makes for a better product, but those who prefer more of this attribute are willing to pay more for it. Within this demand structure, I examine the advantages of first-mover firms. I find that such firms typically do best in markets where the maximum degree of product differentiation is limited by preferences rather than technology. These are "niche markets". Follower firms do better in markets in which the range of preferences is broad relative to the span of feasible goods.     

Mobile Labor, Multiple Tax Instruments, and Tax Competition

The tax competition literature shows that local governments keep property tax rates inefficiently low to prevent capital outflows, thereby underproviding local public goods. This paper adds mobile labor and an alternative tax instrument to the model. Jurisdictions have access to a property tax levied on land and capital, plus either a head tax or a labor tax. Scale economies in public good provision create incentives to use the property tax, but these incentives are not accompanied by increased incentives to underprovide public goods. In contrast, underprovision is associated with the use of a distortionary labor tax.