Frequency competition and environmental costs: An application to European air transport liberalization

In this paper, we analyze symmetric frequency equilibria in airline markets; these equilibria are derived as multiproduct oligopoly solutions in a spatial competition model. Competitive equilibria are compared with a regulated equilibrium; in order to assess the welfare implications of European air transport liberalization, we compute numerical solutions using data for 21 regulated European interstate routes in 1990. We conclude that, following the introduction of competition in these markets, consumer welfare is significantly higher due to frequency increases and fare decreases. Profits decrease and, as a result of higher departure frequencies, environmental costs increase. However, the gains in consumer welfare more than compensate the decrease in profits and the rise in environmental costs.     

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.     

The no-arbitrage condition and financial markets with heterogeneous information

This paper examines the role of the no-arbitrage condition in financial markets with heterogeneous expectations. We consider a single-period, state-contingent claims model, withM risky securities andS states. There exist two types of heterogeneously informed investors, where the information heterogeneity is defined with respect to either the security payoff matrix, the state probability vector, or state partitions. When the information heterogeneity is defined with respect to either the security payoff matrix or state partitions, the no-arbitrage condition imposes a constraint on the dispersion of information between informed and uninformed investors. Further, the no-arbitrage condition is useful in ascertaining the patterns of heterogeneity among investors that are consistent with equilibrium. However, when the information heterogeneity is defined with respect to state probabilities, the role of the no-arbitrage condition is severely restricted. Finally, the no-arbitrage condition may have important implications for the (necessary and sufficient) conditions for the existence of an equilibrium price vector in financial markets with heterogeneous expectations.     

Oligopsony/oligopoly power and factor market performance

This paper is concerned with the economic performance of factor markets in an oligopsony/ oligopoly setting. Firm arid industry indexes are developed to measure factor market price distortions caused by exerted oligopsony/oligopoly power. These measures indicate that the elasticity of output demand, the elasticity of input supply, and the input and output conjectural elasticities determine the degree of non-competitive performance in factor markets. It is also shown that under special conditions the firm index equals the Lerner index and the industry index equals the Herfindahl-Hirschman index.     

Robust row-column designs for complete diallel cross experiments

This paper investigates the robustness of variance-balanced row-column designs for complete diallel cross experiments for estimating the comparisons among the general combining ability parameters against the loss of observations. A necessary and sufficient condition of robustness as per connectedness criterion is obtained. The robustness of optimal row-column designs of Gupta and Choi (1998) has been investigated for the loss of any m(≥1) observations in a column and for the loss of any two observations in the design. The study of robustness has also been conducted as per A-efficiency criterion.     

Oligopolistic and competitive behavior of spatially separated markets

We examine the connection between Cournot oligopoly and perfect competition by showing that a fairly general oligopoly model with spatially separated markets generates a general spatial price equilibrium model as an extreme, limiting case. Our analysis depends crucially on the fact that the governing equilibrium conditions of both the oligopoly and the spatial price equilibrium problem can be formulated as variational inequalities.     

A topological invariant for competitive markets

This paper summarizes the concepts of global cones and limited arbitrage introduced in Chichilnisky (Economic Theory, 1995, 5, 79–108), and the corresponding results establishing that limited arbitrage is necessary and sufficient for the existence of a competitive equilibrium and for the compactness of Pareto frontier (announced in Chichilnisky (American Economic Review, 1992, 84, 427–434, and Chichilnisky (Bulletin of the American Mathematical Society, 1993, 29, 189–207). Using the same global cones I extend my earlier results to encompass ‘mixed economies’ based on Chichilnisky (CORE Discussion Paper No. 9527, 1995). I introduce a topological invariant for competitive markets which deepens the concept of limited arbitrage. This invariant encodes exact information on the equilibria and on the social diversity of the economy and all its subeconomies, and predicts a failure of effective demand.     

Spatial Competition in Variety and Number of Stores

We propose location-then-variety competition for a multiproduct and multi-store oligopoly, in which the number of firms, the number of stores and their location, and the number of varieties are endogenously determined. We show that as compared to price-then-variety and quantity-then-variety competition, location-then-variety competition with multistores yields a much richer set of equilibrium outcomes, such as market segmentation, interlacing, sandwich, and enclosure.     

On the profitability of collusion in location games

In this note we take a first step towards the analysis of collusion in markets with spatial competition, focusing on the case of pure location choices. We find that collusion can only be profitable if a coalition contains more than half of all players. This result holds for location games played in k-dimensional Euclidean space as long as consumers are distributed via atomless density functions. For competition on the unit interval, unit circle, and unit square we also derive sufficient conditions for collusion to be profitable. The results have immediate implications for mergers in spatial markets.     

Core equivalence with differentiated commodities

This paper presents improved core equivalence results for atomless economies with differentiated commodities in the framework of Ostroy and Zame (1994). Commodity bundles are elements of the space $M\left(K\right)$ of signed Borel measures on a compact space $K$ of commodity characteristics. Ostroy and Zame provide two sufficient conditions for core equivalence: It is sufficient that markets are “physically thick”, so that there are many suppliers of every commodity, or that markets are “economically thick”, so that consumers are sufficiently willing to substitute commodities with a similar composition for each other. The sufficient conditions in Ostroy and Zame (1994) all imply that there are “many more agents than commodities”, an idea of Aumann that was formalized and discussed in Tourky and Yannelis (2001) and Greinecker and Podczeck (2016). We generalize the framework in Ostroy and Zame (1994) and weaken their sufficient conditions to not imply the presence of “many more agents than commodities”. In particular, we drop the requirement that $K$ is metrizable from the basic model, the requirement of an uniform bound on endowments from the condition of “physically thick markets”, and the requirement that preferences are weak${}^1$-continuous from the condition of “economically thick markets”. Core equivalence still holds, showing that “many more agents than commodities” are not needed for core equivalence in models of commodity differentiation.     

Separability of stochastic production decisions from producer risk preferences in the presence of financial markets

Separation results, as they are usually understood, refer to conditions under which a firm’s production decisions are independent of its risk attitudes. Well-understood situations where separation occurs typically include those where technically feasible production opportunities are replicable in financial markets. This paper gives necessary and sufficient conditions for separation that go beyond these well-understood spanning conditions. To do so, we present a unified treatment of the production and financial decisions available to a firm facing frictionless financial markets and a stochastic production technology under minimal assumptions about the firm’s technology and objective function.     

Markets with heterogeneous beliefs: A necessary and sufficient condition for a trader to vanish

What does it take to survive in the market? Previous literature has proposed sufficient conditions for a trader to vanish, which depend on pairwise comparisons of traders’ discounted beliefs. We propose a novel condition that focuses on the ratio of traders’ discounted beliefs and (approximate) equilibrium prices. Unlike existing conditions, ours is both necessary and sufficient for a trader to vanish and delivers the exact rate at which vanishing traders lose their consumption shares. As an application, we analyze the performance of two intuitive behavioral strategies: the “Follow the Leader Strategy” that prescribes mimicking the beliefs of the most successful trader, and the “Follow the Market Strategy” that prescribes to use beliefs which coincide with the state price density. Further, we show that the relative performance of vanishing traders cannot be studied in isolation. Our analysis highlights an intuitive point obscured by the existing conditions: trading in financial markets is qualitatively different from bilateral trading.     

Departures from marginal-cost pricing in the American automobile industry: Estimates for 1977–1978

How are prices set in the American automobile oligopoly? This paper seeks empirical estimates of the extent of departure from marginal-cost pricing and of the effects of foreign competition. The model estimated has product differentiation, multiproduct firms, and heterogeneity in consumer tastes. The estimation presumes that product type (proxied by engineering specifications) is exogenous to the price/quantity market equilibrium. Cross-section results for the 1977 and 1978 model years yield price-cost margins around 10%. Import competition has the effect of lowering equilibrium margins for compact and subcompact models.     

Decision making in the multiproduct firm: Adaptability and firm organization

This study presents an explicit model of the choice process by which decision makers within a multiproduct firm would optimally allocate their firm-specific inputs. The first-order conditions of the model indicate the kind of information required for efficient transfer of these inputs. Transfer within the firm can be more efficiently accomplished than contracting over markets. Consequently, one may demonstrate the superior efficiency of the multiproduct firm over a comparable group of single-product firms independent of any production externalities. Further, this superior efficiency results only if the central administration of the firm controls the exchange of these inputs.     

Cointegration and joint efficiency of international commodity markets

This paper investigates the semi-strong efficiency hypothesis in the international commodity markets of four industrialized countries, using vector autoregression (VAR) and cointegration techniques. Efficiency in these markets requires the corresponding real exchange rates to be martingales with respect to any information set available in the public domain. In the context of a VAR consisting only of real exchange rates, we show that necessary and sufficient conditions for joint efficiency of all the markets under consideration amount to the VAR being of order one (Markovness) and non-cointegrated. On the contrary, in a VAR extended by other potentially “relevant” variables, such as the corresponding real interest rates, non-cointegration and Markovness are only sufficient conditions for the same commodity markets to be characterized as jointly efficient. We also suggest methods for efficiency testing in each individual market within a cointegrated VAR and, finally, we discuss possible long-run linkages among the real exchange rates and real interest rates in association with efficiency in the commodity markets. JEL Classification Number: F31     

Constitutional implementation

We consider the problem of implementing a social choice correspondence H in Nash equilibrium when the constitution of the society is given by an effectivity function E. It is assumed that the effectivity function of , is a sub-correspondence of E. We found necessary and efficient conditions for a game form to implement H (in Nash equilibria), and to satisfy, at the same time, that , the effectivity function of , is a sub-correspondence of (which guarantees that is compatible with E). We also find sufficient conditions for the coincidence of the set of winning coalitions of and , and for . All our results are sharp as is shown by suitable examples. Received: 15 December 2000 / Accepted: 3 September 2001     

Arbitrage pricing theory and risk-neutral measures

Abstract We consider a market with countably many risky assets and finite factor structure, as in the “arbitrage pricing theory” of Ross (1976). We prove necessary and sufficient conditions in terms of parameters for the existence of an equivalent risk-neutral measure, i.e., a measure under which each asset return has zero expected value. We relate these conditions to a certain absence of arbitrage property of the model. Mathematics Subject Classification (2000): 91B24, 91B28 Journal of Economic Literature Classification: G10, G12     

Spatial oligopoly: price-location interdependence and social cost in a discrete market space

Spatial oligopoly theory has been restricted in largest part to the analysis of duopoly. Although ingenious, the work has led to results of limited applicability. The present paper generalizes the analysis to n firms but is restricted to the use of specified functions, in the belief that more general results are not to be obtained. Use is made of a nonlinear programming and a Weber-point algorithm in tandem to derive a number of interesting propositions for specific examples. Location patterns and social costs of oligopoly are derived, and an attempt is made to tie the results to previous parameters used by Smithies and to extend his analysis.     

Arbitrage in stationary markets

We analyse questions of arbitrage in financial markets in which asset prices change in time as stationary stochastic processes. The main focus of the paper is on a model where the price vectors are independent and identically distributed. In the framework of this model, we find conditions that are necessary and sufficient for the absence of arbitrage opportunities. We discuss the relations between the results obtained and the phenomenon of “volatility-induced growth” in stationary markets. Financial support by the Swiss National Center of Competence in Research “Financial Valuation and Risk Management” (NCCR FINRISK) is gratefully acknowledged.     

Local identification of ARMAX structures subject to nonlinear constraints

Summary We obtain necessary and sufficient conditions for the local identification of a simultaneous ARMAX structure whose parameters are subject to nonlinear constraints. A global identification condition is also obtained. The results generalize theWegge [1965] andRothenberg [1971] identification criteria for a classical simultaneous equations model.This paper is preliminary and confidential. Please do not quote its contents without the written permission of the author.