Using social and economic incentives to discourage Chinese suppliers from product adulteration

The American public raised serious concerns about product safety in 2007, when the number of product recalls broke a new record. Following a temporary drop in 2008, both the number and retail value of recalled units have been increasing, despite various efforts exerted by government agencies and private companies to combat this trend. Currently, many countries—including China itself—are expressing serious concern over adulterated or unsafe food made or sold in China. What are the underlying reasons for some Chinese suppliers to adulterate product? When law enforcement is still weak in China, what can western manufacturers do to reduce the risk of product adulteration? To develop effective deterrence mechanisms, we first identify four underlying factors that create incentives for some Chinese suppliers to produce unsafe products. Then we propose ideas to discourage Chinese suppliers from producing adulterated products based on two underlying strategies: (1) creating economic incentives through contingent payments, and (2) creating a social incentive by threatening public exposure through the power of the Internet and social networking sites.     

Reputation,search cost,and airfares

As cost of search for consumers decreases with the spread of the internet; researchers question whether this trend will lead to lower price or higher product differentiation. This paper examines a sample of offered fares to see if an airline choosing not to distribute its tickets via a channel where competitors' offers are directly observable may attempt taking advantage of potential customers. We find this to be the case. Our study suggests that the US airline industry appears to be evolving toward more product differentiation in the internet age.     

Cyberprotest in contemporary Russia: The cases of Ingushetiya.ru and Bakhmina.ru

We explore the possibilities of the Internet as a tool for supplying information necessary for the organization and mobilization of successful opposition movements, especially under non-democratic regimes. Examples of the roles the Internet plays in the political processes in Russia are discussed in detail. In particular, the recent cyberprotest cases of the Ingushetiya.ru website and the movement to release political prisoner Svetlana Bakhmina are investigated. Besides showing the Internet's significant role in organizing modern protests, these cases also demonstrate that in environments where practically all traditional mass-media are under the authorities' control, the Internet becomes the major source of alternative information. Our paper offers a look at how deploying technologies can bring about social change, even in some of the most difficult political environments.     

Airline consolidation and the distribution of traffic between primary and secondary hubs

Several airline consolidation events have recently been completed both in Europe and in the United States. The model we develop considers two airlines operating hub-and-spoke networks, using different hubs to connect the same spoke airports. We assume the airlines to be vertically differentiated, which allows us to distinguish between primary and secondary hubs. We conclude that this differentiation in air services becomes more accentuated after consolidation, with an increased number of flights being channeled through the primary hub. However, congestion can act as a brake on the concentration of flight frequency in the primary hub following consolidation. Our empirical application involves an analysis of Delta's network following its merger with Northwest. We find evidence consistent with an increase in the importance of Delta's primary hubs at the expense of its secondary airports. We also find some evidence suggesting that the carrier chooses to divert traffic away from those hub airports that were more prone to delays prior to the merger, in particular New York's JFK airport.     

Are Matched Partner Trade Statistics a Usable Measure of Transportation Costs?*

Data on transportation costs are difficult to obtain. In the absence of good data, many researchers have turned to indirect measures of transportation costs constructed using matched partner c.i.f./f.o.b. ratios from IMF and UN data. We investigate whether these data are usable, by comparing their levels and variation to directly measured transport costs for the US and New Zealand. We find that IMF c.i.f./f.o.b. ratios are badly error‐ridden in levels, and contain no useful information for time‐series or cross‐commodity variation. However, the IMF data do appear to reveal some meaningful cross‐exporter variation that might be usefully exploited by researchers.     

PRICE FLOORS AND QUALITY CHOICE

This paper studies effects of price floors in a simple model of vertical product differentiation. We find that even non‐binding price floor (i.e., minimum price set below the lowest Nash equilibrium price in the baseline model) can increase quality on the market, if the cost of quality is sufficiently low. Where a binding price floor does not increase the equilibrium quality, it makes consumers worse off. There is also a possibility of over‐investment into quality as a result of the binding minimum price.     

Multimarket Contact and Intensity of Competition: Evidence from an Airline Merger

This paper examines the relationship between multimarket contact (MMC) and the intensity of competition. We take advantage of a recent merger, which altered the extent of MMC throughout the US airline industry, to understand the nature of MMC’s impact on the airlines’ frequency of service. Evidence that non-price effects of MMC are a part of the longer-term industry equilibrium is not robust. However, we observe that following the merger the market players started taking the degree of MMC into account in making their frequency decisions in line with the ‘mutual forbearance’ hypothesis; however, the effect showed signs of diminishing over time. Our results have implications for merger evaluation in industries where consolidation may lead to a higher extent of multimarket contact.     

Quality coordination and complementary products

This article models the choice of price and quality, where products are complementary; and components can be provided by either one or two monopolists. The firms have to choose price and quality simultaneously, but can coordinate in the latter dimension. We consider two specifications for the quality of the composite good: ‘bottleneck’ and additive set-ups. In both cases, a single monopolist may produce lower quality as compared to dual ownership, if the latter is modelled as a single-stage quality-and-price setting game. When separate markets for components of the composite good are added to the model, we provide an example where dual ownership leading to higher quality also yields higher consumer surplus (but not total welfare) than a single monopolist.     

The trade reducing effects of market power in international shipping

Developing countries pay substantially higher transportation costs than developed nations, which leads to less trade and perhaps lower incomes. This paper investigates price discrimination in the shipping industry and the role it plays in determining transportation costs. In the presence of market power, shipping prices depend on the demand characteristics of goods being traded. We show theoretically and estimate empirically that ocean cargo carriers charge higher prices when transporting goods with higher product prices, lower import demand elasticities, and higher tariffs, and when facing fewer competitors on a trade route. These characteristics explain more variation in shipping prices than do conventional proxies such as distance, and significantly contribute to the higher shipping prices facing the developing world. A simple back of the envelope calculation suggests that eliminating market power in shipping would boost trade volumes by 5.9% (for the US) to 15.2% (for Latin America). Our findings are also important for evaluating the impact of tariff liberalization. Cargo carriers decrease shipping prices by 1–2% for every 1% reduction in tariffs.