A Technological and Organisational Explanation for the Size Distribution of Firms

This paper combines insights from the literature on the economics of organisation with traditional models of market structure to construct a theory of equilibrium firm size heterogeneity under the assumption of a homogenous product industry. It is possible that configurations consisting entirely of small firms (run by entrepreneurs with limited attention) and with larger firms (using managerial techniques to substitute away these limits to allow increasing returns technologies to become profitable) can arise in equilibrium. However, there also exist equilibrium configurations with the co-existence of large and small firms. The efficiency properties of these respective equilibria are discussed. Finally, the implications of an expanding market size are considered.     

Exit Deterrence

This paper is the first to provide a general context whereby potential entry can lead incumbent firms to permanently reduce the intensity of competition in a market. All previous results found that potential entry would lead to lower prices and greater competition. Examining markets where entry occurs by the acquisition of access rights from an existing incumbent, we demonstrate that, where competitive choices are strategic complements, a more efficient entrant may be unable to acquire those rights from a less efficient incumbent due to the unilateral accommodating behavior of the efficient incumbent. Similarly, such accommodating behavior may deter efficient investment by an incumbent. These results have implications as to how economists view potential entry and its benefits.     

Carbon Offset Provision with Guilt‐Ridden Consumers

Carbon offsets allow consumers to mitigate their guilt associated with their carbon footprint. On the one hand, when offsets are purchased in an industry unrelated to the consumption activity, offsets are complements to consumption and the introduction of an offset market causes consumption to rise. On the other hand, when offsets are purchased in a related industry, consumption and offsets are substitutes and consumption falls. In general, however, net emissions decline. We find two exceptions to this rule. First, when offsets are purchased in an unrelated market, if there is no latent demand for offsets in their absence, the introduction of offsets can potentially cause a rise in net emissions when producers of “dirty” consumption goods have market power. Second, when offsets are purchased to fund green energy, emissions can rise if “dirty” producers can engage in pre‐emptive strategic commitments and the price of offsets is chosen endogenously.     

Bilateral Bargaining with Externalities

This paper provides an analysis of a non‐cooperative pairwise bargaining game between agents in a network. We establish that there exists an equilibrium that generates a coalitional bargaining division of the reduced surplus that arises as a result of externalities between agents. That is, we provide a non‐cooperative justification for a cooperative division of a non‐cooperative surplus. The resulting division is related to the Myerson‐Shapley value with properties that are particularly useful and tractable in applications. We demonstrate this by examining buyer‐seller networks and vertical foreclosure.     

Competitive Neutrality in Access Pricing

This article examines the notion of competitive neutrality when setting access prices for vertically integrated bottleneck networks. In contrast to the claims of regulated firms (for example, Telstra), it is not possible to argue that access charges that involve unit prices in excess of short‐run marginal cost reflect competitive neutrality. That is, we demonstrate that in general models of downstream oligopoly, upstream prices that differ from marginal cost are not competitively neutral in the sense of placing integrated and non‐integrated firms on an equal basis.     

A bargaining perspective on strategic outsourcing and supply competition

This article considers the outsourcing choice of a downstream firm with its own upstream production resources or assets. The novelty of the approach is to consider the outsourced function as involving resources consistent with the resource‐based view of the firm. From a bargaining perspective, we characterize a downstream firm's decision whether to outsource to an independent or to an established upstream firm. In so doing, the downstream firm faces a trade‐off between lower input costs afforded by independent competition, and higher resource value associated with those who can consolidate upstream capabilities. We show that this trade‐off is resolved in favor of outsourcing to an established firm. Copyright © 2008 John Wiley & Sons, Ltd.     

A theory of multihoming in rideshare competition

We examine competition among ridesharing platforms, where firms compete on both price and the wait time induced with idled drivers. We show that when consumers are the only agents who multihome, idleness is lower in duopoly than when consumers face a monopoly ridesharing platform. When drivers and consumers multihome, idleness further falls to zero as it involves costs for each platform that are appropriated, in part, by their rival. Interestingly, socially superior outcomes may involve monopoly or competition under various multihoming regimes, depending on the density of the city, and the relative costs of idleness versus consumer disutility of waiting.     

Options for Electricity Transmission Regulation in Australia

The pricing of access to electricity transmission networks in Australia is currently under review. Several options have been proposed including those based on nodal pricing and the assignment of transmission rights contracts. As most of the marginal costs of transmission are recovered through wholesale electricity prices we focus on the key issue of regulation and investment incentives. We find that current options are unlikely to be adequate in terms of encouraging socially optimal levels and timing of new transmission investment. As an alternative, we propose a regulatory scheme, based on a related idea by Sappington and Sibley that can overcome this problem. Our scheme can potentially generate first best results and is readily applicable given the current institutional structure of electricity markets in Australia.