In the Bear’s Shadow? Russia’s International Image and Its Influence on Investments of Russian Companies in Post-Socialist Europe

The paper examines Russia’s international image and its influence on investment by Russian companies in post-socialist Europe. Findings are based on the cases of Gazprom’s South Stream Pipeline project, and Sberbank’s acquisition of Volksbank’s Central and Eastern European assets in Hungary and Serbia. The paper demonstrates that international positions and economic interests of two countries determinate decisions regarding investments of Russian companies, while Russia’s image to some extent accelerates these decisions in Serbia. The paper is based on the results of interviews with representatives of business communities conducted in Hungary and Serbia in 2012–2017, professional reports, and official documents.     

调控上网电价对稳定市场价格的政策效果实证研究

基于VAR模型和中介效应模型等定量分析手段,研究了我国上网电价波动对市场价格波动的影响效应,探索调控上网电价对稳定市场价格是否具有积极的政策效果。结果表明,上网电价的调整在滞后一期会对CPI和PPI产生负向冲击,从而抑制市场价格上涨,而随着滞后期不断增加,影响作用趋于减弱;同时,在上网电价波动影响市场价格波动的过程中,存在CPI和PPI之间相互中介效应,即存在上网电价→PPI→CPI、上网电价→CPI→PPI的影响途径。总体来看,我国调控上网电价,在一定程度上起到了稳定国内市场价格的积极作用。     

Access of Tunisian Fruits and Vegetables to the EU Market: Potential Impacts of the Revision of the Entry Price System

Agricultural trade flows worldwide continue to be subject to country restrictions of a tariff and non-tariff nature. This is more so in the case of fruits and vegetables in view of their multiplicity. This hinders the exports of these products, which is an important objective sought by the economy of Tunisia. This article simulates the potential consequences of a possible opening up of the European market borders on fruits and vegetables coming from Tunisia and the rest of the world (ROW), following alternative tariff reduction schemes of the entry price mechanism practiced by the EU, particularly in its ad-valorem duty. The analysis uses a partial equilibrium model that takes into consideration economic aspects related to the exports of these products, regardless of their interactions with other agricultural commodities. The model is composed of a series of behavioral equations describing excess demand and supply of fruits and vegetables of all trading partners and attempts to simulate “international” market equilibrium for these commodities. Tomatoes, oranges and peaches were selected for the analysis and three trading blocs were taken into consideration: The European Union, Tunisia and the ROW. Two policy scenarios were examined (a) reduction by one third of the ad-valorem tariff and (b) its total elimination. The results suggest that the impacts would be concentrated in specific periods, varying with products and regions. In addition to possible trade volumes, Tunisia and other countries may also gain in value from exports. A significant increase in the prices of peaches and tomatoes for Tunisia would result from the liberalization process of the EU market. Volumes and prices of EU domestic supplies would however exhibit moderate reductions.     

Exchange‐rate Misalignments in Duopoly: The Case of Airbus and Boeing

We examine the effect of exchange‐rate misalignments on competition in the market for large commercial aircraft. This market is a duopoly where players compete in dollar‐denominated prices while one of them, Airbus, incurs a large fraction of its costs in euro. We estimate price elasticities for big aircraft, and construct a simulation model to investigate how companies adjust their prices to deal with the effects of a temporary misalignment and how this affects profit margins and volumes. We conclude that, due to the duopolistic nature of the aircraft market, Airbus will pass only a small part of the exchange‐rate fluctuations on to customers. Moreover, due to features specific to the aircraft industry, such as customer switching costs and learning‐by‐doing, even a temporary departure of the exchange rate from its long‐run equilibrium level may have permanent effects on the industry.     

Development of the Regional Natural Gas Market in Southeast Europe

The high level of reliance on external energy supplies, mainly from Russia, is considered a major risk to the energy security in Southeast Europe. This dependency is being addressed by the European Union’s new contractual and institutional framework. The construction of new gas pipelines and related infrastructure is being undertaken in a timely manner to secure supplies from alternative energy sources and enhance their sustainability. Still, the EU’s policies have run up against Russia’s systematic and stubborn resistance as it struggles to preserve its dominance in Europe’s energy market and thwart the implementation of competing energy projects. Despite this, Southeast Europe’s energy markets will soon be able to ensure a higher level of diversification and secure its supplies.     

Optimal investment,derivative demand,and arbitrage under price impact

This paper studies the optimal investment problem with random endowment in an inventory‐based price impact model with competitive market makers. Our goal is to analyze how price impact affects optimal policies, as well as both pricing rules and demand schedules for contingent claims. For exponential market makers preferences, we establish two effects due to price impact: constrained trading and nonlinear hedging costs. To the former, wealth processes in the impact model are identified with those in a model without impact, but with constrained trading, where the (random) constraint set is generically neither closed nor convex. Regarding hedging, nonlinear hedging costs motivate the study of arbitrage free prices for the claim. We provide three such notions, which coincide in the frictionless case, but which dramatically differ in the presence of price impact. Additionally, we show arbitrage opportunities, should they arise from claim prices, can be exploited only for limited position sizes, and may be ignored if outweighed by hedging considerations. We also show that arbitrage‐inducing prices may arise endogenously in equilibrium, and that equilibrium positions are inversely proportional to the market makers' representative risk aversion. Therefore, large positions endogenously arise in the limit of either market maker risk neutrality, or a large number of market makers.     

From exploiting to investing: A survey of us firms doing business in russia

US companies have been accused by the Russian media of flooding the Russian markets with their exports, repatriating their revenues or using them to buy Russian resources cheaply, and, as a result, increasing Russia's unemployment and decreasing its standard of living. Russia, argue many Russian experts interviewed in the past several years, is being badly exploited and its culture cheapened with Western candy, which in 1994 took $5 billion from consumers in Russia. On the other hand, US companies, which have been entering the Russian market in increasing numbers, argue that exporting products and services to Russia enhances the satisfaction of Russian consumers and contributes to the country's economy. They further say that as they become more familiar and comfortable with the Russian market, they change their strategies and increase their investment in Russia. Are US companies exploiting Russia or investing in its economic expansion? In this study the author investigated the entry strategies to Russia of 87 large US companies starting in 1989. These were randomly selected corporations, including a cross-section of consumer goods, industrial goods, computers, oil and gas, fast food, and consulting companies. What emerged was a captivating, historical drama, which changes rapidly from making money through exporting to Russia, to commitment through investment in plants and employment. For example, while the most popular entry doors to Russia have been exportlimport and joint ventures, most strategy changes since 1989 have been to wholly-owned subsidiaries, which usually require substantial investment. Yesterday's Snickers Bars exporter, Mars Candy, created a wholly-owned subsidiary, Masterfoods, and spent $70 million to build a chocolate and pet food factory that employs many Russians. In addition, a greater number of US companies entered the Russian market after the 1992 Yeltsin economic shock therapy and had a much needed stabilizing effect on the Russian economy. So, what may have been perceived as a one-sided relationship has been evolving to growth and mutual commitment. And as the Russian economy continues to grow, these companies will grow and prosper, too. Executives who are interested in the Russian market are advised that this market is real, growing, and worth considering. To enter and grow in this market, however, executives are cautioned that business deals in Russia must be structured in unfamiliar ways, and that they must employ local workers and respect Russia's culture and history. © 1997 John Wiley & Sons, Inc.     

Housing wealth effect in emerging economies

In this paper I estimate the impact of changes in real and financial wealth on private consumption for a panel of 17 emerging economies from Asia and Central and Eastern Europe. Households' consumption, income and the two measures of real and financial wealth – proxied by house and stock market prices – are found to be difference-stationary and co-integrated; by means of recent econometric techniques for heterogeneous panels, i.e. the pooled mean group estimator, inference is drawn about the long- and short-run relationships between the variables of interest. The main result of the analysis shows that both real and financial wealth positively affect households' consumption in the long-run, with the elasticity of housing wealth being larger than that of stock market wealth. Moreover, there is also a significant short-run adjustment from income, stock prices and house prices on consumption, i.e. consumption adjusts to its long-run relationship with lags. When the model is run for the two groups of countries separately, the long-run impact of an increase (decrease) in house prices is generally higher in Central and Eastern European economies with respect to Asian ones, which make them more vulnerable to further adverse housing market developments.     

Russian Gas and Oil Giants Conquer Markets in the West

Abstract

Russian firms are not integrated to the global business world solely via investments from the West to the East but also through investments from Russia to other countries. This article proves that some significant Russian corporations have already taken root in Western economies, including the US market. The first wave of the Russian companies in the West increases the pressure to analyze them as potential partners or competitors. This article uses a REM model to describe the foreign operations of the two biggest Russian corporations, Gazprom and LUKoil. The fast-expanding activities of Russian firms abroad signify that a new era in international business has begun on the eve of this millennium.     

AGOA and Apparel: Who Captures the Tariff Rent in the Presence of Preferential Market Access?

The United States grants preferential (tariff‐ and quota‐free) market access to a list of products from eligible countries in sub‐Saharan Africa through the African Growth and Opportunity Act (AGOA). We analyse the increase in prices received by apparel exporters who benefited from AGOA preferences. In the presence of competitive markets, export prices should increase as much as the tariff which was previously collected by the US government. We refer to this price increase as the ‘tariff preference rent’ since exporters receive this income as the rent for their preferential status. The results show that exporters receive only one‐third of this rent and smaller exporters receive less than larger and established ones. We then provide evidence that suggests this may be due to the degree of market power enjoyed by US importers when facing African exporters.     

MODELING LIQUIDITY EFFECTS IN DISCRETE TIME

We study optimal portfolio choices for an agent with the aim of maximizing utility from terminal wealth within a market with liquidity costs. Under some mild conditions, we show the existence of optimal portfolios and that the marginal utility of the optimal terminal wealth serves as a change of measure to turn the marginal price process of the optimal strategy into a martingale. Finally, we illustrate our results numerically in a Cox–Ross–Rubinstein binomial model with liquidity costs and find the reservation ask prices for simple European put options.     

Response to price and production risk: The case of Australian wheat

A model of Australian wheat grower supply response was specified under the constrainsts of price and yield uncertainty, risk aversion, partial adjustment, and quadratic costs. The model was solved to obtain area planted. The results of estimation indicate that risk arising from prices and climate have had a significant influence on producer decision making. The coefficient of relative risk aversion and short‐run and long‐run elasticities of supply with respect to price were calculated. Wheat growers' risk premium, expected at the start of the season for exposed price and yield risk, was 2.8 percent of revenue or 10.4 percent of profit as measured by producer surplus. © 2000 John Wiley & Sons, Inc. Jrl Fut Mark 20: 345–359, 2000.     

European Union Market Access Conditions and Africa's Extensive Margin of Food Trade

This paper examines the impact of two European Union (EU) market access regulations in the food sector presumed to simultaneously affect firms’ decisions to export food products to the EU. We analysed EU pesticide standards on African exports alongside a complementary non‐tariff measure in the form of a minimum entry price regulation, which aims to protect EU growers of certain fruits and vegetables against international competition. Analysis was based on Africa's exports of tomatoes, oranges, and lime and lemon to the EU between 2008 and 2013, using the gravity model of trade. Our results show that EU market access conditions constitute significant barrier to the formation of new trade relation between the EU and Africa. In addition, initiation of trade relationships is contingent not only on market access conditions but also on domestic market constraints in Africa. These results imply that negotiating preferential entry prices duties and the removal of domestic market restraints as well as strengthening domestic capacity to comply with EU standards to enhance continuous market access for the continent could stimulate food trade along the extensive margin.     

Spatial Econometric Analysis of Foreign Direct Investment Determinants in Russian Regions

Using a spatial autoregressive model of cross‐sectional and panel data, we study the determinants and dominant strategies of foreign direct investment (FDI) inflows into Russia before and after the 1998 financial crisis. The important determinants of FDI inflows into Russian regions since the start of transition appear to be market size, the presence of large cities and sea ports, oil and gas availability, proximity to European market, and political and legislative risks. Since 1998, it appears the importance of big cities, the Sakhalin region, oil and gas resources, proximity to European markets, and legislation and political risks has increased. Our results also reveal a shift from horizontal FDI strategy to vertical FDI strategy in the post‐crisis period. Using a multiple spatial lags approach, we show that neighbouring port‐endowed regions tend to have emerged in the post‐crisis era as competitors for FDI.     

Price Discrimination and the Cruise Line Industry: Implications for Market Definition,Competition, and Consumer Welfare

This article extends the price discrimination literature and applies it to market definition and competitive effects analysis in recent mergers in the cruise line industry. In that industry, short run output is fixed. If firms want to increase price and restrict output to price‐insensitive customers, they have to increase the output and lower price to the price‐sensitive customers. We show that with fixed output (1) it is in firms’ interest to engage in price discrimination, (2) firms have increased ability to engage profitably in price discrimination as the intensity of competition decreases, and (3) the average price of price‐sensitive and ‐insensitive consumers increase with reduced competition. Unlike the economists at the Federal Trade Commission, our analysis suggests that cruise lines engage in third‐degree price discrimination. Moreover, the cruise industry could be a separate market and a reduction in the number of competitors might raise average prices.     

CRITICAL PRICE NEAR MATURITY FOR AN AMERICAN OPTION ON A DIVIDEND-PAYING STOCK IN A LOCAL VOLATILITY MODEL

We consider an American put option on a dividend-paying stock whose volatility is a function of the stock value. Near the maturity of this option, an expansion of the critical stock price is given. If the stock dividend rate is greater than the market interest rate, the payoff function is smooth near the limit of the critical price. We deduce an expansion of the critical price near maturity from an expansion of the value function of an optimal stopping problem. It turns out that the behavior of the critical price is parabolic. In the other case, we are in a less regular situation and an extra logarithmic factor appears. To prove this result, we show that the American and European critical prices have the same first-order behavior near maturity. Finally, in order to get an expansion of the European critical price, we use a parity formula for exchanging the strike price and the spot price in the value functions of European puts.     

Further analysis of the speed of response to large trades in interest rate futures

This study examines the adjustment process in the interest rate futures market following large block trades, by analyzing changes in the levels of quoted prices, bid‐ask spreads, and trading activity. Most of the adjustment in prices and spreads is complete within 12 quote revisions (approximately 70 seconds). Results suggest that block trades stimulate subsequent trading activity, as traders rush to express differences of opinion about the price implication of the block. The market response to block trades exhibits several features in common with the two‐phase response of the US treasury market to macroeconomic announcements described by Fleming, M. J. and Remolona, E. M. (1999). © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:705–724, 2010     

On the optimal mix of corporate hedging instruments: Linear versus nonlinear derivatives

We examine how corporations should choose their optimal mix of linear and nonlinear derivatives. We present a model in which a firm facing both quantity (output) and price (market) risk maximizes its expected profits when subjected to financial distress costs. The optimal hedging position generally is comprised of linear contracts, but as the levels of quantity and price‐risk increase, the use of linear contracts will decline due to the risks associated with overhedging. At the same time, a substitution effect occurs toward the use of nonlinear contracts. The degree of substitution will depend on the correlation between output levels and prices. Our model also allows us to provide insight into the relation between a firm's derivatives usage and its transaction‐cost structure. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:217–239, 2003     

Trade policy in a “super size me” world

When a foreign monopolist sets a single market clearing price for its product, the sign of the optimal tariff is determined by the extent of pass through (also known as the terms of trade effect). However, when a foreign monopolist employs a second degree price discrimination mechanism in the domestic market the calculus of welfare maximization is very different. While there are still terms of trade effects from the imposition of a tariff, the existence of such effects are neither necessary nor sufficient to determine the sign of the optimal tariff. Instead the distribution of valuations within the population is the key determinant of the nature of policy intervention. This result differs significantly from the uniform price case and is driven by the incentive compatibility constraint which places the distribution of types at the center of the analysis. If there is a relatively large fraction of high valuation types in the population, then domestic information rents may be increased by subsidizing imports thereby increasing the consumption of the low valuation types and moving the incentive constraint in favor of the high valuation types. However, if the share of high types in the population is relatively small then the increase in information rents will also be small but the fiscal implications of a subsidy will be large. Consequently, the optimal policy will be to impose a trade tax.     

Some implications of search and switching costs for the price dynamics of electronic markets

This article develops a model, based on switching costs and technological uncertainty, which explains some aspects of the price dynamics of e‐commerce. Switching costs and intertemporal cost correlation lock‐in consumers. Firms initially charge low prices to build a customer base. If firms fail to reduce costs, and reservation prices are low, firms exit the industry. Over time, prices increase if no exit occurs, and decrease if exit occurs. Prices may also decrease over time, if the proportion of low search cost consumers increases.