Upstream and downstream pollution taxations in vertically related markets with imperfect competition

When two markets are vertically related, the government can control pollution at the upstream as well as the downstream market levels. This paper employs the stylized model of input price discrimination and compares the effectiveness of upstream and downstream pollution taxations. We consider the situation in which downstream firms have heterogeneous abatement technologies and an upstream monopolist performs input price discrimination against them. In order to mitigate pollution, the government imposes input tax on the intermediate inputs and emission tax on the pollutant. We show that the degree of input price discrimination decreases with a rise in the input tax and increases with a rise in the emission tax. We further examine the effect of a green tax reform in which the government changes the source of taxation from input tax to emission tax. We argue that although this green tax reform may reduce the tax revenue of the government, it will certainly increase social welfare.      

Ramsey pricing and competition: The consequences of myopic regulation

This paper addresses the welfare consequences of applying the Ramsey rule when the regulated firm is not a monopolist in all of its markets. The partially regulated optimum and the outcome of myopic regulation, the Short-Sighted Ramsey Equilibrium (SSRE), are examined in a differentiated duopoly model. In the optimum, the markup of competitive substitute goods is relatively high. In the SSRE, the regulator is likely to set the price of competitive substitute goods lower than optimal, and complementary goods higher than optimal. Strategic reactions by a competitor may reverse the result.I thank Kenneth Train, Michael Crew (the editor), seminar participants at the University of California, Berkeley, and an anonymous referee for comments and suggestions. The usual disclaimer applies.     

The welfare cost of imperfect competition and distortionary taxation

The welfare cost of imperfect competition in the product and labor markets in the United States is quantified in a dynamic general equilibrium model. We find that the welfare cost of imperfect competition in the product market is 3.62 percent while it is 0.58 percent in the labor market, taking the transition path from the distorted to the optimal steady state into account. If we also take into account that the US economy is characterized by distortionary taxation, the welfare cost of the product market distortion increases to 13.51 percent and the labor market distortion to 4.35 percent.     

Prices versus quantities: environmental regulation and imperfect competition

By exercising market power, a firm will distort the production, and therefore the emissions decisions, of all firms in the market. This paper examines how the welfare implications of strategic behavior depend on how pollution is regulated. Under an emissions tax, aggregate emissions do not affect the marginal cost of polluting. In contrast, the price of tradable permits is endogenous. I show when this feedback effect increases strategic firms’ output. Relative to a tax, tradable permits may improve welfare in a market with imperfect competition. As an application, I model strategic and competitive behavior of wholesalers in a Mid-Atlantic electricity market. Simulations suggest that exercising market power decreased emissions locally, thereby substantially reducing the regional tradable permit price. Furthermore, I find that had regulators opted to use a tax instead of permits, the deadweight loss from imperfect competition would have been even greater.     

The objective of a privately owned firm under imperfect competition

This paper proposes a model of imperfect competition among privately owned firms that act in the best interest of their shareholders. The existence of a solution for the model is proved under weaker conditions than the ones generally used in the literature. In particular, the results did not require the existence of a continuous equilibrium price selection or concavity assumptions on the profit function.      

Efficiency versus social optimality: The case of telecommunications pricing

Standard arguments for efficiency-based pricing policies break down once it is admitted that no lump-sum transfers and taxes are available. In this paper, it is argued that the appropriate solution is to equate the marginal welfare cost of redistributing income through pricing policies that deviate from marginal cost with the marginal cost of redistribution through the tax and welfare systems. For telecommunications pricing, this solution may be implemented by charging usage prices for long-distance services in excess of marginal cost and making corresponding reductions in fixed access charges. An illustrative example, based on data for Australia, is presented.     

The price normalization problem in imperfect competition and the objective of the firm

Summary. General equilibrium models of oligopolistic competition give rise to relative prices only without determining the price level. It is well known that the choice of a numéraire or, more generally, of a normalization rule converting relative prices into absolute prices entails drastic consequences for the resulting set of Nash equilibria when firms are assumed to maximize profits. This is due to the fact that changing the price normalization amounts to altering the objective functions of the firms. Clearly, the objective of a firm must not be based on price normalization rules void of any economic content. In this paper we propose a definition of the objective of a firm, called maximization of shareholders' real wealth, which takes shareholders' demand explicitly into account. This objective depends on relative prices only. Real wealth maxima are shown to exist under certain conditions. Moreover, we consider an oligopolistic market and prove the existence of a Nash equilibrium in which each firm maximizes the real wealth of its shareholders. Received: July 10, 1997; revised version: July 27, 1998     

Commodity taxation and imperfect competition : A note on the effects of entry

This paper looks at the effects of allowing the number of firms to vary in Seade's model of oligopoly and taxation. We show that the normative and positive consequences of a specific commodity tax are affected by entry in significant ways.     

Cost savings in unit-based pricing of household waste: The case of The Netherlands

We estimate the effects of four unit-based pricing systems on waste collected in Dutch municipalities. Unit-based pricing is shown to be effective in reducing unsorted and compostable waste and in stimulating recyclable waste. If the estimations are corrected for differences in environmental activism between municipalities the effects are still large but significantly lower. The bag- and weight-based systems perform equally and far better compared with the frequency- and volume-based systems. This is interesting, as administrative costs are significantly lower for the bag-based system. Finally, unit-based pricing has no effect on the amounts of waste collected in surrounding municipalities.     

(Monopolistic) resource extraction and limit pricing: The market penetration of competitively produced synfuels

This paper analyzes the market penetration of a competitively produced synfuel, e.g., solar energy, in a market that is initially dominated by a resource extracting monopoly. The availability of the renewable substitute depends not only on the price/cost ratio but also on the installed capacities, which reflect historical investments. As a consequence, the resource monopoly faces a discontinuous residual demand schedule. The dynamic interactions between the resource cartel and the synfuel industry are modelled as a differential game; the (open loop) Nash equilibrium is applied to this game. It will be shown that the commodity price will exceed the production costs of the backstop and that the transition from the periods of resource dependence to the backstop technology will be gradual.     

Environment,imperfect competition,and trade: Insights for optimal policy in general equilibrium

I build a two-country general oligopolistic equilibrium model, in which sectors differ in emissions and technologies, and pollution can be transboundary. I derive the optimal bilateral environmental policy for the economy as a whole, for the cases in which the environmental damage either linearly or quadratically increases in total pollution. The analysis highlights that the optimal emission tax can even be negative, and bilateral trade liberalization should be matched with either a rise or a fall in the optimal emission tax. The moments of the emission distribution and technology distribution across sectors are fundamental to implement optimal environmental policies.     

Exploiting old customers and attracting new ones: The case of bank deposit pricing

Recent theoretical contributions suggest that deposit interest rates should be higher in geographic areas characterized by greater in-migration and lower for depositors at banks with greater shares of existing (or so-called “locked-in”) depositors. These hypotheses are tested using a rich data set obtained for the Spanish banking industry. Results confirm that, all else equal, banks offer higher deposit rates in territories characterized by greater in-migration, and also that they tend to offer lower rates, the larger the number of their locked-in depositors. These findings confirm the existence of the trade-off between exploiting old customers and attracting new ones.     

项目追踪:国际工程承包市场开拓的上佳策略

自改革开放至今,我国承包工程和劳务合作业务已经走过了二十多年的历程.从早期突出劳动力成本优势的竞争,转变到现在以专业化优势和资本优势的竞争为主;从早期的中东、非洲市场,转变到今天以亚太市场为主全球多元化的开拓,国际工程承包市场发生了一系列变化.我国企业在开拓国际工程承包市场方面,曾先后提出并实践过如"借船出海"、"援外先行"、"劳务合作和贸易带动"、"合理选择代理商"等一系列市场开拓策略,尝试过在国外设立办事处,主动组织出国考察,积极参与国外招投标等活动.市场在变,竞争的方式在变,参与市场竞争的企业和队伍也发生着变化,而如何有效开拓国际工程承包市场,扩大市场份额,仍然是许多工程承包企业思考的问题.     

A factor endowment theory of international trade under imperfect competition and increasing returns

Abstract.  Constructing a two‐good (competitive and imperfectly‐competitive goods), two‐primary factor (capital and labor) and two‐country model of international trade where the imperfectly‐competitive sector is subject to increasing returns to scale, we establish an oligopolistic version of the Heckscher‐Ohlin theorem. JEL classification: F10, F12     

Sequential peak-load pricing: the case of airports and airlines

Abstract.  We investigate airport peak-load pricing using a vertical structure of airport and airlines. We find that a profit-maximizing airport would charge higher peak and off-peak runway prices and a higher peak/off-peak price differential than a public airport. Consequently, airport privatization would lead to both fewer total passengers and fewer passengers in the peak period. Although peak-travelling passengers benefit from fewer delays, this low level of peak congestion is not efficient, suggesting that airport privatization cannot be judged based on its effect on congestion alone. We also examine pricing behaviour of a public airport constrained to charge a time independent price.     

Nonuniqueness of solutions in applied general equilibrium models with scale economies and imperfect competition

Summary Since the publication of Harris (1984), applied general equilibrium models with imperfect competition and economies of scale have been extensively used for analyzing international trade and development policy issues. Their attractiveness comes from their offering a natural framework for testing the empirical relevance of numerous propositions from the industrial organization and new trade theoretical literature. Their role in the recent debates on the North American Free Trade Agreement demonstrates their potential importance in policy analysis. This paper warns model builders and users that considerable caution is however needed in interpreting the results and in deriving strong policy conclusion from these models: it is shown that in this generation of applied general equilibrium models, nonuniqueness of equilibria is not a theoretical curiosum, but a potentially serious problem. Disregarding this may lead to dramatically wrong policy appraisals.I am particularly indebted to Tim Kehoe both for his comments and for pinpointing a flaw in a previous version of the paper. I also thank for comments, discussions and/or encouragements Irma Adelman, Len Dudley, Robert Gary-Bobo, Rick Harris, Ed Prescott, Jacques Robert, Herb Scarf, T. N. Srinivasan, and an anonymous referee. Financial support from the FCAR of the Government of Québec and from the SSHRC of the Government of Canada and hospitality from the Federal Reserve Bank of Minneapolis are gratefully acknowledged.     

A ‘technically level playing-field’ profit efficiency analysis of enforced competition between publicly funded institutions

The study demonstrates how recent advances in the data envelopment analysis (DEA) of profit efficiency, and in combining DEA and stochastic frontier analysis (SFA) to measure producer performance, can be used to obtain a ‘technically level playing-field’ profit efficiency performance measure. A three-stage analysis is used to provide an empirical investigation of public-sector universities facing regulatory pressures to attain both profit efficiency and output quality. Stage one employs directional distance function analysis to decompose DEA profit efficiency measures into technical and allocative components. As these performance measures incorporate the impacts of managerial inefficiency, the operating environment and luck (statistical noise), stage two applies SFA to total (radial and non-radial) slacks to obtain a degree of disentanglement from the latter two impacts. The stage-two results are used to define a common environment and common luck scenario, thus permitting university producers’ inputs to be adjusted so as to reflect operation within this more level playing-field scenario. Stage three recomputes the first-stage DEA for this scenario, to yield an (input-focused) ‘technically level playing-field’ measure of profit efficiency that unifies the regulatory financial audit and output-quality indicators in a single, best-practice-benchmarked, performance measure.     

Institutions,quality competition and public service provision: The case of public education

This paper contributes to the literature on integovernmental competition in two ways. First, the institutional setting within which public services are delivered is analyzed with respect to the impact on the quality of services provided. Previous studies have measured competition only in terms of governmental structure, ignoring the issue of service quality and the potential for differentiating local governmental jurisdictions along quality dimensions. Second, the outcome of competition is defined in terms of service quality. Previous studies generally have measured the outcome of competition by examining the fiscal effects of fragmentation and accountability through service costs or tax revenue impacts. School districts were used to empirically test quality competition. Student academic performance was modeled as a function of control variables and the degree of competition from neighboring school districts. Academic performance in public schools was positively associated with the performance of neighboring districts, although the effect was small. These findings, however, suggest that strategies to strengthen interjurisdictional competition may be useful in enhancing public service quality.