OPTIMAL POLICY FOR PRODUCT R&D WITH ENDOGENOUS QUALITY ORDERING: ASYMMETRIC DUOPOLY*

We examine the optimal R&D subsidy/tax policy under a vertically differentiated duopoly. In a significant departure from the existing work, we consider the case of asymmetric costs of product R&D where there is a small technology gap between firms. In our analysis, the endogeneity of quality ordering is explicitly taken into account. We demonstrate the possible anti‐leapfrogging effect of R&D subsidy/tax policy. By committing to a firm‐specific subsidy schedule contingent on firms’ quality choices, the government can not only correct distortions in product quality but also select the socially preferred equilibrium. The latter role is fulfilled by preventing the technologically inferior firm from becoming a quality leader in the industry. Both Bertrand and Cournot cases are analysed.     

QUANTITY AND PRICE EFFECTS IN AN ANALYSIS OF WORLD TRADE BASED ON AN ACCOUNTING MATRIX*

This paper describes the construction of an accounting matrix for the world economy in 1977, cast along similar lines to SNA National Accounts, but one in which trade flows replace inter-industry flows as intermediate demand. The matrix distinguishes ten regions. Institutional accounts are presented for three of these, the European Community, North America and Japan. This matrix is used to provide the basis of a linear model in which average propensities to import and consume are replaced by estimated marginal propensities. Use is made of standard estimates of the income effects of terms of trade changes in order to distinguish substitution from income effects in the model, and a means is suggested for separating the full as well as the impact effects of a terms of trade change into income and substitution effects. The estimated import equations are used to derive estimates of regional growth rates compatible with external balance in each region. Multiplier matrices are calculated from the model showing regional interdependence of the world economy reflecting the pattern of trade which is identified in the marginal propensities to import. The effects of various aid policies are calculated using the model. It is shown that the cost of aid to any region is radically altered by taking into account the feedback effects of changes in demand. A policy of tied aid pursued by EEC, North America and Japan can actually lead to an improvement in Japan's balance of payments position. Finally the effects of movements in relative prices are illustrated by means of two examples.     

FACTOR PRICE EQUALIZATION IN JAPANESE REGIONS*

This paper tests factor price equalization (FPE) in Japanese regions. I found that FPE is strongly rejected, even when unobserved cross‐regional differences in factor quality and productivity are considered. The wage tends to be low in labour‐abundant regions specializing in labour‐intensive industries. The cross‐regional gap in absolute wage levels remains large, while convergence is observed during the 1990s, a period of wage declines that appeared to be related to deep import penetration. This finding of FPE violation is to be expected, given the restricted interregional labour mobility and distinctive difference in specialization patterns across regions in Japan.     

NONLINEAR PRICING IN ASYMMETRIC DUOPOLY

We characterise, for both separate and interdependent markets, the local pure-strategies Nash equilibrium of a spatial duopoly game, where consumers are horizontally and vertically heterogeneous, and firms have different cost structures and ranges of product lines. We show that standard results which emerged in the monopoly context can not be generalised to strategic contexts where firms retain market power and there is sufficient competitive pressure. We prove that in the asymmetric duopoly case, when markets are interdependent, the incentive compatibility constraints are slack, and there is no quality distortion.     

THE MEASUREMENT OF CONSTANT PRICE AGGREGATES IN CANADA*

This paper is in part directed towards a partial examination of Canadian concepts and methods used in the deflation of constant price estimates of gross domestic product from both an expenditure and industry-of-origin point of view, and in part toward certain problems arising in the development of a conceptually balancing set of accounts in real terms. It also provides reference material to allow the reader to pursue the detailed methodology and data underlying the Canadian constant price accounts.     

UPWARD-SLOPING REACTION FUNCTIONS UNDER QUANTITY COMPETITION IN MIXED OLIGOPOLIES*

It is shown that in a mixed duopoly under quantity competition, the public firm's reaction function may be upward-sloping. This is the case with a concave demand function when the public firm attaches to private profits a smaller weight than to its own profits.     

STRATEGIC INVESTMENT IN A LABOUR‐MANAGED DUOPOLY

Developing a Cournot two‐stage game model with strategic capital interaction, we compare two different kinds of equilibrium in a labour‐managed (LM) duopoly. An LM firm's reaction function is negatively sloped when capital and output are simultaneously determined, while the slope of its reaction function in the second stage changes in sign depending on the magnitude of its labour‐expansion elasticity. Hence, whether the LM firms employ more capital and produce greater output at the equilibria in the two‐stage game model than at the equilibria resulting from the simultaneous selection of capital and output depends on the magnitude of their labour‐expansion elasticity.     

DUOPOLY IN THE JAPANESE AIRLINE MARKET: BAYESIAN ESTIMATION FOR THE ENTRY GAME*

This paper provides an econometric analysis of a duopoly game in the Japanese domestic airline market. We establish a novel Bayesian estimation approach for the entry game, which allows the incorporation of flexible inference techniques. We find asymmetric strategic interactions between Japanese firms. This result implies that competition is still influenced by the former regulation regime. Furthermore, our prediction analysis indicates that the new Shizuoka airport will suffer from a lack of demand in the future.     

INCREASING COSTS IN PRODUCT DIVERSIFICATION AND GAINS FROM TRADE*

The purpose of this paper is to extend a monopolistically competitive trade model with symmetric costs to one with asymmetric costs in product diversification. Both the trade pattern and the effects of the opening of trade on welfare are examined. It is shown that: (1)the larger country will be a net importer of differentiated products, which contradicts the result of Krugman (1980); (2)the greater the size of the country, the smaller is the share of the intra-industry trade, and (3)the larger the trading partner of a country, the larger are the gains from trade of the country. Some of these results duplicate those from recent studies. However, our results are based on asymmetric costs. In particular, (3) suggests that the presence of increasing-returns-to-scale technology does not always imply that the large country gains from its large market.     

MARKET‐DEMAND BOOSTING AND PRIVATIZATION IN A MIXED DUOPOLY

This study incorporates demand‐boosting strategies into a mixed duopoly model in order to consider the endogenous determination of market demand. The results indicate equilibrium characteristics that differ from those found under an exogenous demand setting. As consumers become more sensitive to the demand‐boosting strategies of firms, the government must choose a lower level of privatization. This suggests that the responsiveness of consumer demand to the demand‐boosting strategies of firms constitutes a limiting factor for privatization.     

WELFARE IN THE NASH EQUILIBRIUM IN EXPORT TAXES UNDER BERTRAND DUOPOLY

In the Eaton and Grossman Quarterly Journal of Economics, 101 (1986), pp. 383–406 model of export taxes under Bertrand duopoly, it is shown that welfare in the Nash equilibrium in export taxes is always higher than welfare under free trade for both countries.     

EXPANDING IMPUTED VALUES IN THE NATIONAL INCOME AND PRODUCT ACCOUNTS*

After defining economic activity the author lists the chief types of non–market economic activities for which he has prepared estimates for the United States 1929–1973, and briefly describes his methodology and data sources. Some major findings are: (1) As of 1973 GNP adjusted to include the additional imputations was 63.5 percent larger than the official estimate. (2) At least since 1929 imputed values have grown faster than official GNP, especially when both are measured in terms of real factor costs. (3) The personal sector comprises a far larger portion of the national economy-almost one-third—when account is taken of imputed labor and property compensation, and its relative importance has grown. (4) Gross government product is more than 60 percent higher when the imputed rental value of public property is added to the compensation of general government employees. (5) Reflecting the relative growth of non-business wealth, imputed property income has risen much faster than monetized property income. This has mitigated the decline in the property share of expanded gross national income compared with its share in the official estimates.     

THE PRICE LEVEL, THE QUANTITY THEORY OF MONEY, AND THE FISCAL THEORY OF THE PRICE LEVEL

This paper examines price‐level determination from the perspective of portfolio choice. Arbitrages among money balances, bonds, and investment goods determine their relative demands. Returns to real balance holdings and after‐tax returns to investment goods determine the relative values of nominal and real assets. Because expectations of government policies ultimately determine the expected returns to both nominal and real assets, the price level depends on interactions among current and expected future monetary and fiscal policies. The quantity theory and the fiscal theory emerge as special cases produced by restricting both the margins and the policies considered.