Labour unions and multi‐product firms in closed and open economies

Abstract This paper sets up a general oligopolistic equilibrium model with multi‐product firms and union wage setting. In this model, we conduct two policy experiments. First, we show that deunionization induces a general decline in firm scale and scope, the respective reduction being more pronounced in non‐unionized industries. Second, we study the consequences of trade liberalization, and show that access to foreign markets lowers firm scope in all industries as well as the scope differential between unionized and non‐unionized firms. Adjustments in firm scale turn out to be less clear‐cut and, inter alia, depend on the degree of product differentiation.     

Entry Deterrence and Entry Accommodation Strategies of a Multiproduct Firm Regulated with Dynamic Price Cap

In this paper we study the way a multiproduct firm, regulated through a dynamic price cap, can develop a price strategy that uses the regulatory policy to deter entry. We consider a firm that initially operates as a monopolist in two markets but faces potential entry in one of the markets. We conclude that the regulated firm can have the incentive to block the entry. This strategy leads to the reduction of the price in both markets. However, the final effect of the entry deterrence strategy on total consumer surplus is not always positive.     

HORIZONTAL MERGERS IN A DIFFERENTIATED COURNOT OLIGOPOLY

Using a standard differentiated goods quantity competition setting, we show three facts about horizontal two‐firm mergers that are not true for a homogeneous goods Cournot market. First, merger of two firms is profitable for the merging firms provided that goods are sufficiently distant substitutes. Second, merging of two firms can lead to more two‐firm mergers. Third, an initially non‐profitable two‐firm merger can occur in anticipation of subsequent mergers. These facts imply that mergers are more likely to occur in differentiated goods markets than in homogeneous goods markets.     

How Applicable is the Dominant Firm Model of Price Leadership?

In this paper, we examine the usefulness of the dominant firm model of price leadership to serve as a benchmark for organizing behavior in laboratory markets. This well established model, whose origins can be traced back over a hundred years, has been recently applied to such landmark antitrust cases as Standard Oil and Alcoa and more recently to the analysis of deregulated markets for electric power. Our results indicate that in posted offer markets the dominant firm quite often produces more than the model's benchmark and sometimes at much greater prices. With sealed offer auction rules and a low elasticity of fringe supply, the dominant firm produces the theoretical output at a price greater than the prediction. However, with a high elasticity of fringe supply, the dominant firm produces more output over a wide range of prices that includes the predicted price.     

On intrabrand and interbrand competition: The strategic role of fees and royalties

We examine oligopolistic markets with both intrabrand and interbrand competition. We characterize equilibrium contracts involving a royalty (or wholesale price) and a fee when each upstream firm contracts with multiple downstream firms. Royalties control competition between own downstream firms at the expense of making them passive against rivals. When the number of downstream firms is endogenous, each upstream firm chooses to have only one downstream firm. This result is in sharp contrast to previous literature where competitors benefit by having a larger number of independent downstream firms under only fixed fee payments. We discuss why allowing upstream firms to charge per-unit payments in addition to fixed fees dramatically alters their strategic incentives.     

Market Power in Emission Permit Markets: Theory and Evidence from the EU ETS

A well-known result about market power in emission permit markets is that efficiency can be achieved by full free allocation to the dominant firm. I show that this result breaks down when taking the interaction between input and output markets into account, even if the dominant firm perceives market power in the permit market alone. I then examine the empirical evidence for price manipulation by the ten largest electricity firms during phase I of the EU ETS. I find that some firms’ excess allowance holdings are consistent with strategic price manipulation, and that they cannot be explained by price speculation or by precautionary purchases to insure against uncertain future emissions. My results suggest that market power is likely to be an empirically relevant concern during the early years of emission permit markets.     

Market power and compliance with output quotas

This paper examines the compliance behaviour of a dominant firm in an output quota market when the firm is able to exercise market power in both the quota and the output markets. Provided the firm has an initial quota endowment which is strictly positive, under some circumstances the firm may find it profitable to comply or even over-comply in its quota demand, even in the absence of enforcement. The results are compared to those found in the pollution permit literature for a firm with market dominance only in the permit market, to which some additional observations are also added concerning efficiency outcomes under non-compliance.     

Codification,Abstraction, and Firm Differences: A Cognitive Information-based Perspective

Synopsis The resource-based view shares with population ecology, organizational systematics, organizational cladistics, and institutional theory a concern with why firms differ and with what keeps them different. These two questions only have meaning if – as has been the case in the eoclassical theory of the firm – similarities between firms are taken as the default assumption. This paper distinguishes between ontological heterogeneity – differences in the world – and epistemic heterogeneity – differences in the way that the world is construed. Focusing on the latter, it puts forward an argument for taking epistemic heterogeneity between firms as the default assumption. It starts with a general analysis of how living systems make sense of the world. It then goes on to identify the cognitive activities of codification and abstraction as key sources of epistemic heterogeneity. The findings are applied to those systems called firms where a dominant logic allows epistemic heterogeneity to persist. In some case this leads to competitive advantage, in others to a debilitating inertia. The implications for a knowledge-based theory of the firm are briefly explored.     

Firm growth and productivity in Belarus: New empirical evidence from the machine building industry

Using a unique dataset comprising information for (up to) 153 firms in the machine building sector in Belarus, we investigate the determinants of firm growth for an economy where state ownership of enterprises is widespread. We use panel data models based on generalizations of Gibrat’s law, total factor productivity estimates and matching methods to assess the differences in firm growth between private and state-controlled firms. Our results indicate that labor hoarding and soft budget constraints play a particularly important role in explaining differences in performance between these two groups of firms.     

Location choice,competition, and welfare in non-tradable service FDI

We investigate whether non-tradable service FDI is efficient from a welfare point of view. A fixed number of firms strategically decide which markets to locate in and then compete in quasi-Cournot fashion. Considering firm location in two symmetric markets, non-tradable service FDI may or may not be efficient for the source country, depending on the total number of firms, competition in markets and the curvature of the demand function. In contrast, non-tradable service FDI is always efficient for the host country and the overall economy. This implies that any policy that affects firm location between two symmetric markets will not be beneficial from a welfare viewpoint.     

A theory of return‐seeking firms

We introduce a theory of return‐seeking firms to study the differences between this and profit‐maximising models. A return‐seeking objective takes into account the opportunity cost of each additional resource input to a firm's production as being a potential capital input choice in an alternative project. We find that firm supply curves cease to exist in perfectly competitive markets, that supply curves may slope up as well as down, that economies of scale are necessary for any production to occur and that firms always produce on a decreasing portion of their cost curve.     

Portfolio effects in conglomerate mergers: the empirical evidence of leverage effects in Korean liquor market

In the article, we implement an empirical test on the portfolio effects of conglomerate mergers, using the data of Korean liquor market during the period 1990–2008 in which there have been several important conglomerate mergers between beer and soju companies. We find that the combined company could take the advantage of regional market dominance in the beer market in expanding regional market shares in the soju market. Such leverage effects are differentiated from the efficiency-enhancing portfolio effects that result in the combined company’s expanding shares over all regional soju markets regardless of the presence of dominance in the beer market. The common distribution channels of liquor wholesalers seem to play a pivotal role in the combined firm’s expansion of dominance in one market into another. Furthermore, we implement separate empirical tests for two subsamples of regionally dominant and nondominant soju companies in order to differentiate the leverage effects of foreclosure from those of toehold. The empirical results show the evidence of leverage effects only for a sample of nondominant soju companies. This implies that the leverage effects of conglomerate mergers between beer and soju companies in Korea had pro-competitive effects in that the combined firm could compete more effectively with regionally dominant companies with the leverage of dominance in the beer market as toehold.     

Do women react differently to incentives? Evidence from experimental data and payroll records

We consider the response to incentives as an explanation for observed productivity differences within a firm that paid its workers piece rates. We provide a framework within which the observed productivity differences can be decomposed into two parts: One due to differences in ability and the other due to differences in the response to incentives. We apply this decomposition to male and female workers from a tree-planting firm in British Columbia, Canada. Our evidence (both experimental and nonexperimental) suggests that there was no difference in the reaction to incentives between male and female planters. The productivity differential male planters enjoyed arose because of differences in ability, interpreted as strength in our application.     

Vertical distribution, parallel trade, and price divergence in integrated markets

We develop a model of vertical pricing in which an original manufacturer sets wholesale prices in two markets that are integrated at the distributor level by parallel imports (PI). The manufacturing firm needs to set these two prices to balance three competing interests: restricting competition in the PI-recipient market, avoiding resource wastes due to actual trade, and reducing the double-markup problem in the PI-source nation. These tradeoffs imply the counterintuitive result that retail prices could diverge as a result of declining trading costs, even as the volume of PI increases. Thus, in some circumstances it may be misleading to think that permitting PI is an unambiguous force for price integration.     

International Trade and Income Inequality*

We propose a simple theory that shows a mechanism through which international trade entails wage and job polarization. We consider two countries in which individuals with different abilities work either as knowledge workers, who develop differentiated products, or as production workers, who engage in production. In equilibrium, ex ante symmetric firms attract knowledge workers with different abilities, and this creates firm heterogeneity in product quality. Market integration disproportionately benefits firms that produce high-quality products. This winner-take-all trend of product markets causes a war for talents, which exacerbates income inequality within the countries and leads to labor-market polarization.     

International trade, flexible manufacturing, and outsourcing

Abstract .  This study analyzes the impact of opening up markets on the diffusion of flexible manufacturing in a general equilibrium framework. With flexible manufacturing, suppliers can service a range of downstream industries and do not have to be concerned about being held up. Instead, the vertical structure is determined by the trade-off between economies of scale in flexible manufacturing and product specificity of in-house production. The analysis derives a number of testable predictions with regard to firm size and productivity measures and shows that globalization can lead to a consolidation in upstream markets, lower real wages, and reduce welfare.     

TO REGULATE OR TO DEREGULATE? THE ROLE OF DOWNSTREAM COMPETITION IN UPSTREAM MONOPOLY VERTICALLY LINKED MARKETS

This paper attempts to cast light to the effect of monopoly regulation in Cournot markets compared to its effect in Bertrand markets. To this purpose, we use a simple model of a vertically linked market, where an upstream regulated natural monopoly is trading via two‐part tariff contracts with a downstream duopoly. Combining our results to those of the existing literature on deregulated markets, we argue that when the downstream competition is in prices, efficiency dictates regulating the monopoly with a marginal cost based pricing scheme. However, this type of regulation leads to significant welfare loss, when the downstream market is characterized by Cournot competition.     

COMPETITION, PARALLEL IMPORTS AND COST-REDUCING INNOVATION

Incorporating parallel imports (PI), we develop a two‐country two‐firm model which relates to the incentives for cost‐reducing innovation. We show that PI may facilitate or inhibit the manufacturers' incentives to innovate. In particular, PI could encourage both firms' innovations. The difference between the manufacturer's profits under successful innovation and failed innovation is either a U‐shaped curve or an inverted U‐shaped curve in terms of the cost of engaging in PI. As these differences reflect the manufacturers' incentive to innovate, the variations in R&D investment depend on transportation cost, and firms' marginal costs before and after successful innovations.     

跨国公司的兼并收购成本

跨国公司的并购活动不但规模日益增大,而且通过利用资本市场并购活动能更顺利地进行。这种国际间资本流动需要考虑成本,跨国公司的并购成本可以从并购过程所涉及的各项进行分析,包括对目标公司的评估成本、协商确认并购活动、并购进行过程。评估目标公司成本常采用现金流折现法,也可采用基于古诺模型的公司评估方法,更多地考虑市场因素,多角度分析目标公司的可能价格。     

Industry dynamics: Foundations for models with an infinite number of firms

This paper explores the connection between three important threads of economic research offering different approaches to studying the dynamics of an industry with heterogeneous firms. Finite models of the form pioneered by Ericson and Pakes (1995) capture the dynamics of a finite number of heterogeneous firms as they compete in an industry, and are typically analyzed using the concept of Markov perfect equilibrium (MPE). Infinite models of the form pioneered by Hopenhayn (1992), on the other hand, consider an infinite number of infinitesimal firms, and are typically analyzed using the concept of stationary equilibrium (SE). A third approach uses oblivious equilibrium (OE), which maintains the simplifying benefits of an infinite model but within the more realistic setting of a finite model. The paper relates these three approaches. The main result of the paper provides conditions under which SE of infinite models approximate MPE of finite models arbitrarily well in asymptotically large markets. Our conditions require that the distribution of firm states in SE obeys a certain “light-tail” condition. In a second set of results, we show that the set of OE of a finite model approaches the set of SE of the infinite model in large markets under a similar light-tail condition.