Sunk costs,contestability and airline monopoly power

This paper examines the effects of sunk costs and potential competition on pricing behavior in monopoly airline markets. We find little evidence to support the proposition from contestable markets theory that the level of sunk costs influences pricing by monopolists. Rather, the results support the view, consistent with numerous game theoretic oligopoly models, that the costs and the price-cutting reputation of potential entrants influence incumbent behavior. These results suggest that contestability theory may not be robust. Even in the markets characterized by increasing returns to scale, the perfectly contestable market may not be a useful welfare standard.I am grateful to Richard Levin, Merton J. Peck, Sharon Oster, Paul MacAvoy, Dan Kaplan, Michael Levine, David Sappington, Andrea Shepard, and Diana Strassman for their advice. Participants at numerous workshops also made useful comments. Steven Davis, Tadas Osmolshis, and Maeve O'Higgins provided help with the data and technical assistance. I acknowledge financial support from Yale University and the Eno Foundation for Transportation. The usual disclaimer, of course, applies.     

Strategic groups,asymmetrical mobility barriers and contestability

This paper examines the literature on strategic groups and extends it: first, by clarifying the distinction between two alternate approaches to forming groups, emphasizing that multivariate group analysis can be used to conserve information not only summarize it as bivariate grouping does; second, by focusing attention on the importance of asymmetrical mobility barriers and competitive advantage in the process of industry consolidation and concentration; and third, by linking groups and the concept of contestability in an effort to make some progress towards explaining the evolution of industry structure.     

Three problems in applying contestability to regulated markets

The theory of contestable markets emphasizes that the ease of entry rather than the number of existing firms forces incumbents to set prices at optimal levels. The policy implications of this work contrast sharply with past U.S. regulatory and antitrust policies, legitimizing increased industry concentration and decreased regulation. This paper explores three factors that influence the desirability of regulation or antitrust policy despite the apparent existence of a contestable market time lags, technological change, and cyclical macroeconomic fluctuations. Time lags enable incumbents to earnsupra-normal profits and take last-minute action to forestall entry. New technologies can create sunk costs that reduce the contestability of a market. Recessions can depress capital markets, raising the cost of exit, while expansion creates opportunities for entry without threatening monopolistic prices. These shortcomings limi the ability of contestability theory to provide guidelines for the regulation of actual industries.     

Towards a new theory of information

A new theory of information was presented by the author to Expert Systems 86, the Conference of the Specialist Group on Expert Systems of the British Computer Society at Brighton, 15–18 December. He envisions information to be a property of the universe, as real a property as matter and energy. This comment explains some of the thinking behind the paper.     

Insights into the contestability and sustainability of the U.S. petroleum refining industry

Contestable market theory has been advanced in recent years by several authors, the most thorough treatment being the book by Baumol, Panzar, and Willig (1982) (BPW). Although several applications of the theory have appeared in the literature, few (if any) follow the step-by-step procedure set forth in Chapter 16 of BPW. This paper represents one of the first attempts to follow the general procedure in investigating the contestability and sustainability of an industry. The long-run cost structure of petroleum refining is first estimated using a translog multiproduct cost function and company refining data from the Financial Reporting System maintained by the U.S. Energy Information Administration (EIA). The estimated cost function is then used to approximate the optimal (cost-minimizing) industry structure for petroleum refining. Given that the existing structure is significantly different than the optimal structure, the principles of contestable market theory are used in evaluating the contestability and sustainability of the industry in light of adjustments in industry structure and the performance of various classes of refining companies between 1981 and 1987.     

Distributional assumptions in the theory of oligopoly information exchange

We analyze the profitability of information sharing among Cournot oligopolists receiving private information about random demand. In this setting, previous authors showed information exchange to be unprofitable when firms' marginal costs are constant and outputs are perfect substitutes. We introduce a measure of the increase in the accuracy of firms' demand forecasts when information is shared. We provide two examples showing when this measure is large, information exchange is profitable, even though firms' marginal costs are constant and outputs are perfect substitutes. Moreover, we show that in the linear-conditional-expectations framework, which has been standard in the literature, this measure reveals these accuracy gains to be severely limited.     

Product Line Rivalry and Firm Asymmetry

We extend the Brander and Eaton (1984) model of product line rivalry to study the effects of asymmetry between firms on the equilibrium outcome. Our analysis shows that market interlacing can emerge as the equilibrium outcome even in situations where market segmentation would have been the only possible outcome had the firms been symmetric. We identify two strategic factors that lead to such an outcome.     

Asymmetric information and joint venture performance: theory and evidence for domestic and international joint ventures

The increased number of perspectives on joint ventures (JVs) raises important issues for theory development on interfirm collaboration. In this paper, we bring together two key theoretical perspectives on joint ventures—the asymmetric information perspective and the indigestibility view. On a theoretical level, we focus on the relationship between these two different explanations of joint ventures. We also present new evidence on the firm valuation effects of JVs in domestic and international investment contexts. The findings lend support to the asymmetric information perspective on resource combination through joint ventures. Copyright © 2000 John Wiley & Sons, Ltd.     

Asymmetry in capacity and the adoption of all-units discounts

In many abuse of dominance antitrust cases, the dominant firm adopts pricing schemes involving all-units discounts, whereas its smaller competitors often use simple linear pricing. We provide a game-theoretic justification for the observed asymmetry in pricing practices by studying a model in which a firm with full capacity faces a capacity-constrained rival. The asymmetry in capacity between the firms, which gives rise to the captive market, allows the dominant firm to take advantage of the quantity commitment through all-units discounts while the capacity-constrained rival is induced to offer simple linear pricing.     

Captive Financing Arrangements and Information Asymmetry: The Case of REITs

For the sample period of 1985 and 1986, captive real estate investments trusts (REITs) have a larger bid-ask spread than noncaptive REITs, after controlling for trading volume, price volatility, insider holdings, institutional holdings and firm size. Based on the bid-ask spread literature, the results suggest that captive firms are subject to a greater degree of information asymmetry. This implies a higher cost of capital for captive firms. The evidence here and the trend toward self-administered REITs imply that information asymmetry and conflicts of interests within REITs are priced.     

建筑工程项目业主与监理的信息不对称分析

运用委托——代理理论，对工程建设市场上业主与监理之间的信息不对称问题进行了分析，以完善建筑工程项目监理制度，在此基础上，提出了解决招投标阶段和合同履约阶段信息不对称问题的办法。     

创业投资家——创业企业家之间信任影响因素不对称性的跨案例研究

不同于组织内信任研究将信任视为互惠共享的观点,本文通过10对创业投资家—创业企业家(VC-E)案例,分析研究了VC-E之间信任影响因素的不对称性问题。文章揭示了VC对E信任与E对VC信任各自的影响因素,论述了导致双方信任影响因素不对称性的原因。研究表明VC-E之间力量不对等,双方面临不同风险、扮演不同角色等关系特征对双方合作过程产生了重要影响。本文的研究结论为银行与企业、供应链伙伴等组织间信任不对称性的研究提供了借鉴。     

农产品质量安全问题中的信息不对称及其对策研究

市场失灵是农产品质量安全问题产生的重要原因之一,而信息不对称是造成市场失灵的重要因素。文章分析了农产品质量安全问题中的信息不对称,并从建立合理的价格依存机制、政府规制等几个方面对此问题的解决作了探讨。     

Concerning trust and information

Communication and the associated information exchanges are key drivers of the development of relationships and of the trust embedded within them. This paper considers the development of business relationships in terms of the continuing co-evolution of trust and information exchange and the issues associated with researching these processes. The interconnections of trust and information exchange are examined in a survey of business relationships involving information exchange (n = 355). Analysis of variance shows few, if any, of the aspects of the standard conceptualizations of information exchange are associated with increased levels of trust. It is information exchange norms that have the greatest (positive) association with the level of trust. These norms emerge as part of the long term co-production of the relationship itself. This has important managerial implications. We conclude there are few managerial actions involving managing communication that can “manufacture” trust and improve or develop relationships in the short term. The paper concludes with a discussion of alternative ways of envisaging communication and relationship management and the nature and future of research into the evolution of business relationships.     

More theory,in theory

An important aspect of the milk and dairy industry in the European Community is the reaction of milk producers to milk prices. In theory farmers behave like the economic man of basic economic textbooks. In practice, farmers behave quite differently, ie they increase their production when prices fall. For policy makers in the field of dairy products it is essential to know the reaction of the farming industry. Surprisingly this information is not available in the EEC; there are various opinions and estimates but they are heavily disputed. However, we now have the results of a study which can settle the dispute.¹ It is interesting to see the results and to notice that there really is a fundamental problem involved, ie how to discriminate between economic models.     

Toward a contingent resource‐based theory: the impact of information asymmetry on the value of capabilities in veterinary medicine

The paper investigates the contingencies which define valuable resources in professional medical services. We identify activities with credence, experience, and search qualities in medical service industries in general, and in veterinary practices more specifically. We propose that different capabilities are needed to deliver different services and test whether the contingent combination of capabilities for particular services is linked to the performance of veterinary practices. For example, we expect that practice capabilities which help to retain clients are necessary for the successful delivery of services with experience qualities. We find evidence of performance benefits of client retention in a sample of 193 veterinary practices. We also find that in markets where competition from a new form of entrant is especially intense, an independent veterinarian’s credence activities combine with its experience and search activities to jointly improve practice profitability. Since the new entrants’ resources are mainly effective in the delivery of services with search qualities, the practice capabilities of the independent veterinarians that allow them to offer services with credence and experience qualities can be seen as a type of isolating mechanism. Copyright © 1999 John Wiley & Sons, Ltd.     

原油价格对经济影响的非对称性--文献综述

原油价格波动对经济影响是非对称性的,即油价的上涨与下跌对宏观经济影响的程度是不一样的,普遍认为油价上涨对经济影响的程度要大于油价下跌对经济的影响程度。为了解释这种非对称性,学术界分别提出了油价的“总量效应”和“分配效应”。“总量效应”主要从总需求和总供给的角度来解释油价波动对经济的影响,主要包括“实际余额效应”、“供给冲击假说”和“收入转移假说”。“分配效应”主要从资源的重新配置角度来解释油价波动对经济的影响,包括“部门转移论”、“调节成本论”和“未来油价不确定论”。两者结合可以从理论上解释油价对经济影响的非对称性。以往关于油价波动对宏观经济的影响方面的研究,基本上针对以美国、英国为代表的工业化国家,对发展中国家的研究甚少。笔者认为,由于世界产业结构的调整,制造业这个高度耗油的产业转移到发展中国家,研究油价波动对单位GDP能耗较高、原油进口依存度较大的发展中国家经济的影响意义更大。