Foreign direct investment,tax competition and social expenditure

The aim of this paper is to make a first step towards studying the role of social expenditure and its interaction with corporate taxation in determining the destination of foreign direct investment (FDI) flows. Using panel data for 18 OECD countries and measuring the extent of social welfare policies by the (public social expenditure)/GDP ratio, we find strong support for the conjecture that redistributive social welfare state policies are valued by multinationals as, for instance, they may signal a government's commitment to social stability.     

Foreign market entry,upstream market power,and endogenous mode of downstream competition

In a differentiated duopoly model of trade and FDI featuring both horizontal and vertical product differentiation, we examine whether globalization and trade policy measures can generate welfare gains by leading firms to change their mode of competition. We show that when a high-quality foreign variety is manufactured under large frictions due to upstream monopoly power, a foreign firm can become a Bertrand competitor against a Cournot local rival in equilibrium, especially when the relative product quality of the foreign variety is sufficiently high and trade costs are sufficiently low (implying higher input price distortions due to double marginalization). Our results suggest that such strategic asymmetry is welfare improving and that the availability of FDI as an alternative to trade can make welfare-enhancing strategic asymmetry even more likely, especially when both input trade costs and fixed investment costs are sufficiently low and trade costs in final goods are sufficiently large.     

Price and quantity competition under free entry

This paper complements that of Cellini et al. (Cellini, R., Lambertini, L., Ottaviano, G. I. P., 2004. Welfare in a differentiated oligopoly with free entry: A cautionary note. Research in Economics, 58:125–33.), which shows that Cournot competition may generate higher welfare compared to Bertrand competition in an economy with free entry. Unlike them, we provide a more general proof for this result and show that Cournot competition generates higher welfare compared to Bertrand competition when the products are sufficiently differentiated. If the products are close substitutes, welfare is higher under Bertrand competition. We show that these qualitative results hold whether or not number of varieties increases market size. We also show when the active firms earn higher profits under Bertrand competition compared to Cournot competition.     

Electoral competition and endogenous barriers to entry

As institutions matter for political and economic outcomes, they are (at least partly) shaped by the interests of political agents acting under these limitations. However, empirical evidence documenting such endogenous change of institutions is scarce. We address the issue by examining the link between the degree of electoral competition and the design of ballot access restrictions in the United States. Exploiting exogenous variation in electoral competition at the state level induced by the federal Voting Rights Act of 1965, our main finding is that ballot access rules have been systematically tightened in response to stronger electoral competition.     

Foreign penetration and undesirable competition

This paper examines how the order of the firms' moves affects the social efficiency with foreign ownership and free entry in a mixed oligopoly market. We firstly show that when the foreign shareholding ratio is low, the entry of private followers will lead to a lower consumer welfare and higher social welfare, while the profit of the incumbent nationalized firm is higher under entry than under no entry. Further, we find that there always exists the problem of excessive entry under public leadership regardless of the degree of foreign ownership. Such result is generated by the complementary role played by the leading public firm and the strength of business-stealing effect. Our results thus have important implications for industrial and market-opening policies.     

Foreign bank entry,bank efficiency and market power in Central and Eastern European Countries1

This article analyses the implications of the recently observed sharp expansion of foreign banks in the Central and Eastern European Countries (CEECs) as measured by equity ownership. We show that the mode of foreign entry has a pivotal impact on the post‐entry performance of banks in CEECs. Foreign greenfield banks are characterized by superior cost efficiency, compared with domestic and foreign‐acquired banks. The efficiency of foreign‐acquired banks deteriorates in the initial year of acquisition, but improves thereafter. Banks acquired by foreigners have less market power relative to domestic and foreign greenfield banks. Overall, the CEEC banking sectors have benefited from the increased foreign bank participation, both in terms of higher efficiency and more competition.     

Corporate social responsibility and market entry

Is the decision of firms to pursue social interest and promote social progress philanthropic or motivated by strategic reasons? Using a simple Spence–Dixit entry model game with homogeneous goods, this paper studies the possible anticompetitive effect of the adoption of corporate social responsibility (CSR) in the form of “consumer friendliness” (i.e., firms’ attention to the welfare of consumers). It is shown that, when the market becomes contestable, the incumbent can select to adopt CSR to hamper to a greater extent the potential entrant, regardless of its choice to engage in CSR activities. In other words, CSR can become a strategic barrier to entry.     

On competition and endogenous firm efficiency

Summary. Conventional wisdom holds that product market competition disciplines firms into efficiency of operation. However, in a well known paper, Martin (1993) has shown that in a linear Cournot setting (with costs determined first and product market competition taking place in a second stage) the exact opposite obtains – a larger number of firms competing in the market implies lower firm efficiency. The note clarifies further the links between market structure and efficiency. Specifically, it argues why (and how) the result derived by Martin (1993) depends upon the assumptions made regarding the structure of demand and nature of conjectures held by firms as to their rivals' behavior. An illustrative counter-example (with Bertrand behavior and non-linear demand) in which entry increases efficiency is provided as well. Received: March 2, 2000; revised version: September 19, 2000     

A price competition game under free entry

This study builds a game of Bertrand-like price competition in a market with free entry. Under the assumption of a standard U-shaped average cost curve, it demonstrates that even if the number of sellers is small, a long-run competitive outcome can be supported as a Nash equilibrium. This game provides unifying treatments to the standard Bertrand equilibrium, the long-run competitive outcome, Demsetz’s equilibrium as well as other types of equilibria that have not been known in the existing literature.This paper is dedicated to Professor Mukul Majumdar to celebrate his sixtieth birthday. I am deeply indebted to Mukul for his generosity and kindness towards me throughout my career. I am also grateful to Tapan Mitra and anonymous referees for their very useful comments and suggestions in the revision and to Fumio Dei, Jim Friedman, Koji Ishibashi, Atsushi Kajii, Takashi Kamihigashi, Kunio Kawamata, Kei-ichi Koda, Takashi Negishi, Michihiro Ohyama, Santanu Roy, and Yoshimasa Shirai for useful conversations and correspondence and, in particular, Motonari Kurasawa, who drew to my attention Demsetz’s work.     

我国民航业竞争格局和运行效率研究

上个世纪80年代末至90年代初我国民航业进行了一次体制改革,形成了模拟竞争的航空运输市场。2002年10月中国民航对原有的航空及相关企业进行联合重组,成立了六大航空集团。本文以产业组织理论中经典的SCP范式为基本的分析思路,结合微观规制理论和新制度经济学等相关理论对我国民航业市场化改革以来的竞争格局、运行效率进行深入分析,并以此为基础提出优化行业结构、提高行业运行效率和竞争力的政策建议。     

Real business cycles with Cournot competition and endogenous entry

We introduce strategic interactions with quantity competition a` la Cournot and endogenous entry in an RBC model with homogenous goods. In the long run, the steady state mark up is decreasing in the capital share, in the discount factor and in the level of technology, while it is increasing in the rate of bankruptcy and in the entry cost. In the short run, a competition effect amplifies the propagation of the shocks and generates procyclical profits and countercyclical mark ups. We extend the model to different forms of competition (as imperfect collusion and Stackelberg competition). The analysis of technology and preference shocks and of the second moments suggests that the model outperforms the RBC in terms of variability of output, labor and, of course, profits and mark ups.     

Quality competition and entry: a media market case

In this paper, we study the optimal tax policy in a differential oligopoly game where the competing firms share the access to a productive renewable resource. We show that, in a Feedback Nash Equilibrium of the game, a linear Markov tax, imposed on the output, and specified as an affine function of the available resource stock, leads the competing firms to produce the socially optimal quantities over time, thus overcoming the dynamic interplay between the tragedy of the commons and the firms’ market power. The optimal tax turns out to be independent from the resource stock in a monopoly, and it cannot be defined in a duopoly.     

Imports, entry and competition law as market disciplines

Numerous countries have adopted or strengthened competition laws in the past two decades. At the same time, domestic industries in most countries are facing ever more intense pressure from imports. In this paper we study the impact of competition law on domestic competition for a large number of countries over time, controlling for the presence of imports and the number of domestic firms. We find that while industries that have higher import exposure or larger numbers of domestic firms tend to be more competitive, the direct effect of competition law on competition is insignificant. However, we also find that industries that operate under a competition law tend to have a larger number of domestic firms. This suggests that competition laws may have an indirect effect on domestic competition by promoting entry.     

Market competition and firms' social performance

This paper investigates whether market competition encourages firms to be more socially responsible. We find that firms in more competitive markets exhibit better overall social performance, as measured by doing well (“strength”) and doing badly (“concern”) in areas such as community, environment, human rights, and treatment of employees. To deal with endogeneity, we instrument market competition on entry barrier and observe that market competition only significantly reduces social concerns but not increases social strengths. Thus, firms are more reactive in reducing social concerns than proactive in augmenting their social strengths. Amongst these concerns, firms appear to be more active in reducing environmental concerns. The paper underscores the limitations in relying on the “invisible hand” of the market to deal with the multi-dimensional challenges of firms’ social performance.     

Private enforcement and social efficiency

This paper makes precise the distributional consequences and social efficiency of private enforcement of property rights. Properties of different values are subject to predation and owners choose between self-defense and private enforcement services. A distributional conflict of interest arises as private protection purchased by rich owners deflects predators on low value properties. The market structure of enforcement and development affect the distribution of property income through relative changes in the security of high and low values property. Moreover, because of the externality enforcers impose on poorer owners, the availability of private enforcement may constrain the policy of a benevolent State.     

加入WTO与中国出口竞争力的提升

改革开放以来,我国的国际竞争力有了很大的提高。我国的外贸出口1999年居世界第9位,进口居11位,属于世界贸易大国。但由于我国人口众多,人均出口水平低,所以虽然算得上世界贸易大国、出口大国,却算不上贸易强国、出口强国。据瑞士洛桑国际研究所2000年国际竞争力报告,1999年在参评的46个国家中,中国排名次序为第31位。这表明我国与发达国家和中等发达国家相比还有较大差距。我国即将加入WTO,在中国企业与外国同行在世界经济舞台上进行直面竞争之时,谋求我国经济的发展和参与国际分工的综合优势显得尤为紧要和迫切。本文仅从入世后对中国出口竞争力的影响作一些探讨。     

Firm entry deregulation,competition and returns to education and skill

This paper studies the effect of firm entry deregulation on the returns to skill and education. We exploit a comprehensive episode of entry deregulation, unique in the industrialized world, as a quasi-natural experiment. Using matched employer–employee data for the universe of workers and firms in Portugal, we show that increased product market competition, which resulted from deregulation, increased the returns to a university degree and the returns to skill. We verify that our results are not driven by changes in employment composition, and are unlikely to be driven by skill-biased technical change, or by workers who change skill levels after the deregulation.     

Optimal debt contracts and product market competition with exit and entry

We show how competition in oligopolies, with the possibility of failure and exit of a levered incumbent, affects the ex-ante design of optimal debt contracts. When a levered firm's profits are unobservable, a debt contract imposes the threat of nonrenewal to induce truthful revelation. Because nonrenewal impacts the future profitability of the surviving competitor, the contract influences the competitor's pricing strategy and the equilibrium profits of both firms. The optimal contract is quite different from a standard debt contract, and induces the competitor to be less aggressive, resulting in higher equilibrium prices and profits, and higher returns for investors.     

Price collusion with free entry: the parasitic competition

The market equilibrium that is generated in the presence of both price collusion and free entry is analyzed taking under consideration the case of a homogeneous product and the case of differentiated products. The outcomes of this market regime are compared with those of other regimes, including competition (or monopolistic competition), monopoly, fixed price with collusive entry limitation. Some welfare implications of the market regime of price collusion with free entry are examined, with respect to the maximum social welfare allocation and the allocations of other market regimes, so to highlight the inefficiency of price collusion with free entry. The number of producers results to be the maximum number of firms that can produce without incurring into losses. Therefore, social distress is caused by a displacement from the price collusion equilibrium with free entry. Its defence can thus be considered in reference to the desirability of social goals that are in contradiction with economic efficiency.     

Price competition,free entry,and welfare in congested markets

In this paper we study the problem of price competition and free entry in congested markets. In particular, we consider a network with multiple origins and a common destination node, where each link is owned by a firm that sets prices in order to maximize profits, whereas users want to minimize the total cost they face, which is given by the congestion cost plus the prices set by firms. In this environment, we introduce the notion of Markovian Traffic Equilibrium to establish the existence and uniqueness of a pure strategy price equilibrium, without assuming that the demand functions are concave nor imposing particular functional forms for the latency functions. We derive explicit conditions to guarantee existence and uniqueness of equilibria. Given this existence and uniqueness result, we apply our framework to study entry decisions and welfare, and establish that in congested markets with free entry, the number of firms exceeds the social optimum.