Liberalisation,competition and ownership in the presence of vertical relations

This contribution analyses a market with an upstream bottleneck monopoly and a downstream activity that may either be vertically integrated or separated. Separation always reduces the consumer surplus, and the total surplus unless there are large cost reductions. Downstream competition from a public or private network monopoly would crowd out other firms, also when public ownership is associated with more modest objectives than welfare-maximisation. A market is therefore less likely to remain a mixed oligopoly than without vertical relations. However, private firms would survive in a moderately welfare-improving mixed oligopoly with cross-subsidisation and access charges equal to marginal costs.

What Prevents Firms from Advancing in their Environmental Strategy?

The aim of this paper is to analyze the determinants of the strategic environmental behavior of firms and, more specifically, the external and internal barriers that limit and sometimes even prevent the environmental adaptation. The analysis focuses on a sample of industrial firms that have at least three workers and that are located in Aragón, a region situated in the northeast of Spain. In order to achieve this objective, first the theoretical literature on the topic is reviewed. Subsequently, from the firms which were sampled, the existence of an underlying structure among the totality of barriers is studied. Finally, this structure is analyzed in order to determine if it has any influence on the degree of proactivity of the firm’s environmental strategy.

Product variety and price strategy in the ski manufacturing industry

The present paper aims at examining the role of variety in the ski manufacturing industry and its relevance in firms’ price setting strategies. In particular, it intends to investigate and to empirically test three hypotheses concerning the relations between: product quality and prices; variety in technical characteristics and prices; variety in service characteristics and prices. Our empirical investigation finds that prices are positively affected by product quality and positively affected by variety in service characteristics. This means that a high degree of product variety allows firms to charge a premium price on consumers, who are able to find the product that best meets their needs and are therefore willing to pay a higher price. By contrast, variety in technical characteristics negatively impacts prices. In a context where a dominant design has emerged and new varieties are not radically different from each other, the gains in economies of scale and scope outweigh the costs of the increased flexibility in the equipment required to produce variety.

Firm behaviour under pollution ratio standards with non-compliance

This paper compares a firm’s short run optimal production and abatement rules under emission level standards and standards expressed in terms of emissions per unit of output (ratio standards). The models allow for non-compliance with standards, with expected penalties dependant on either level or relative violations of the standard in question. It is shown that ratio arguments make a difference to the optimal decision rules derived for a profit-maximising firm. For example, for a given level of emissions the firm both produces more, and abates more, under a ratio standard, so that ratio and level standards cannot be used interchangeably to achieve the same combination of emissions and output. The implications for the efficiency of pollution control are briefly discussed.

Information Disclosure Policies: When Do They Bring Environmental Improvements?

There has been a growing interest among policy makers on the use of information disclosure policies for pollution control. This paper theoretically assesses the consequences of information disclosure policies and identifies the conditions under which such policies are likely to bring environmental improvements. Based on a dynamic game framework, the paper shows that both eco-labeling and more general full information disclosure policies may not always result in pollution reduction. Full information disclosure policies are likely to be effective if the product is not heavily polluting and if the minimum quality standard is set quite low. The paper also identifies the conditions under which all consumers are strictly better off with information disclosure policies.

Asymmetric Behaviour of Spanish Regional House Prices

In connection with the housing market, which is presently raising a great deal of concern among the general public, this paper investigates regional housing prices in Spain using variable co-integration techniques. It analyzes the asymmetric behavior in real house prices among the Spanish regions focusing on the study of the long-term relationships over time. This paper raises an important question of the national averages masking important regional asymmetries. Results indicate evidence of co-integration, which suggests a broad grouping of regions based on physical proximity or similar economic characteristics.

The distributional effects of selection and capital accumulation on firm productivity under imperfect capital markets

In this evolutionary model, random shocks create differences in the rate of return on capital, while individual saving and investment behavior can reduce these differences over time. Firms with either low total factor productivity (TFP) or a low average return on capital are selected for exit, and new firms enter to take their place. As would be expected, a higher turnover rate improves TFP and reduces its variation. While we show that a higher turnover rate would result in a more positively skewed TFP distribution if exit selection is based directly upon TFP, we find that when we select firms for exit based on their average product of capital, the marginal impact of a higher turnover rate is to more negatively skew the TFP distribution. Overall, our simulations highlight the importance of considering the role selection may play in shaping the distribution of productivity when econometricians seek estimates of firm inefficiency.

Inflation adjustment in the open economy: an I(2) analysis of UK prices

This paper estimates a cointegrated vector autoregressive (VAR) model for UK data on consumer prices, unit labour costs, import prices and real consumption growth. The estimated VAR indicates that the nominal variables are characterised by I(2) trends, and that a linear combination of these processes cointegrate to I(1). This supports an analysis in which I(1) and I(2) restrictions are imposed. A key finding is that an increase in real import prices reduces productivity adjusted real wages, such that the change in domestic inflation is moderated. This may explain why the depreciation of sterling in 1992 left inflation unchanged.

Monetary policy as bad medicine: The volatile relationship between business cycles and asset prices

Austrian business cycle theory has become an important point of focus in controversial mainstream discussions regarding the role of asset prices in monetary policy. In this article, the relation between asset prices and the Austrian business cycle theory is examined. The analysis focuses on how central banking supports optimism, resulting in the redirection of entrepreneurial activity and knowledge via asset price bubbles. The crucial role of credit expansion for asset price booms is also analyzed. Following this analysis, the implications for monetary policy are deduced.

Special issue: imperfect competition and contemporary macroeconomics. Editor’s introduction

This paper introduces the special issue by tracing out the history of imperfect competition in macroeconomics, particularly since 1980. It argues that in the search for a micro-foundation for nominal rigidity it was necessary to abandon the assumption of competitive equilibrium where all agents are price-takers. This led to models where firms and other optimising agents set wages and prices which were part of the new Keynesian economics of the 1980s. When these were combined with quantitative dynamic equilibrium methods it gave rise to the new neoclassical synthesis models which dominate macroeconomics today. The assumption of imperfect competition provides an equilibrium with different properties to the competitive, and one particular focus is on the relationship between the markup and the fiscal multiplier.

An econometric analysis of the effects of market liberalization on price dynamics and price volatility

The paper investigates price dynamics under market liberalization, with a focus on the effects of lowering price floors. We analyze price dynamics by specifying and estimating a dynamic Tobit model under time-varying volatility, where the market price is censored by a government-set support price. The model is applied to the U.S. butter market over the last three decades. The econometric results show how the price support program affects both expected prices and the volatility of prices. It is found that the censoring effects of a price support program can be significant and large even if the price support is set relatively low.

Stylised features of consumer price setting behaviour in Portugal: 1992–2001

This paper identifies the empirical stylized features of consumer price setting behavior in Portugal using two micro-datasets underlying the consumer price index. The main conclusions are: one in every four prices change each month; there is a considerable degree of heterogeneity in price setting practices; prices of goods change more often than prices of services; price reductions are common, as they account to around 40% of total price changes; price changes are, in general, sizeable; finally, the price setting patterns seem to depend on the level of inflation as well as on the type of outlet.

Imperfect competition and the modelling of expectations in macroeconomics

We show that when a model of the macroeconomy is based on imperfect, rather than perfect, competition, this may increase the problem of how to model agents’ expectations. We provide a simple example using an overlapping-generations economy with the potential for unemployment. Under certain assumptions about how consumers migrate between locations between the first and second periods of their lives, this extra issue regarding expectations arises. Imperfect competition may increase agents’ forecasting difficulties because they have to forecast not only future equilibrium prices, but also future out-of-equilibrium prices, and by definition the latter are never actually observed.

Industry specific effects in investment performance and valuation of firms

A necessary criterion for a performance measure in corporate governance is the degree to which it mirrors how well the management succeeds in maximizing firm value. Such a performance measure is marginal q which links changes in firm value to the investments undertaken by the management. Empirical studies of investment and performance based on marginal q have demonstrated the usefulness of this measure. Most research however, has mainly focused on long-term performance. This paper takes a short-term perspective and, based on the marginal q-theory, considers how firms’ market values change in the extreme stock price cycle of a stock market bubble. Using a data set of listed Swedish corporations we find an anomaly in form of a new industry specific effect that, in addition to investment, explains changes in firm value.

Optimal dynamic environmental policies of a profit maximizing firm

In this paper we study the optimal environmental policy of the firm for different scenarios dependent on (costs of) production technologies, financing costs, and governmental policy. The governmental instruments to be considered are:

Price-setting behavior of Austrian firms

This paper explores nominal rigidities by investigating price-setting behavior of Austrian firms based on survey evidence. Distinguishing between two stages of price setting—first the price reviewing phase and second the price changing phase—our results suggest that the main obstacles to price flexibility lie on the second stage. Our main result is that firms postpone price adjustments, because they are afraid to antagonize customers with frequent price changes. Thus, customer relationships - especially those with consumers—are a major source of price stickiness in the Austrian economy.

The interaction of firing costs and firm training

By allowing firms to invest in their workers’ human capital, this paper extends the traditional analysis of firing costs with respect to two points, both of them positive in terms of welfare. On the one hand, firing restrictions reduce turnover, thereby enhancing incentives to provide training. On the other hand, training gives firms the opportunity to lower the costs of firing restrictions since well-trained workers are less likely to be fired. In this way the negative effects of firing costs on firm profitability and workers’ job-finding rates are reduced.

Intra-industry differences in vertical integration, heterogeneous costs and pricing: the case of web hosting

In many differentiated product industries, both traditional and “new economy” activities, vertically integrated firms also supply inputs to apparent rivals in the downstream business. This generates heterogeneity between low- and high-sunk cost suppliers with implications for entry and competitive conduct. The web hosting market is typical with primary suppliers operating alongside resellers who rent server space from them. We explore the impact of competition in US hosting using a unique dataset covering 15,000 packages offered by 3,500 firms. The results suggest price is sensitive to competitor clustering in quality space; an outcome consistent with easy entry for resellers with ultra-low fixed costs.

Further results on monopolistic competition,markup pricing and the business cycle in Switzerland

This paper investigates how firms’ market power affects the price level. Based on a small macro-model it is shown empirically that firms have structural markup pricing power and take advantage of favourable business cycle fluctuations. To this aim, a multivariate time series model with double integrated variables is estimated. Thereby a model-based business cycle indicator can be derived. Its information content is confronted with survey data giving rise to what is going to be called semantic cross validation approach.

Transaction tax and stock market behavior: evidence from an emerging market

This study examines the impact of a stamp tax rate increase on market behavior, using data from two stock exchanges in China. We find that when the tax rate increases from 0.3 to 0.5% (which implies that the transaction cost increases by about 1/3) trading volume decreases by 1/3. This implies an elasticity of turnover with respect to a stamp tax of −50% and an elasticity of turnover with respect to transaction cost of −100%. The markets’ volatility significantly increases after the increase in the tax rate. Furthermore, the change in the volatility structure indicates that the markets become less efficient in the sense that shocks are less quickly assimilated in the markets.

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