Corporate taxation, incumbency advantage and entry

It is the purpose of this paper to show that corporation tax may affect industrial structure. Analyzing the effects of corporation tax, we demonstrate that it tends to favour incumbents over entrants. We further show that the effect of this advantage on an incumbent's output depends on his profit or loss history. An incumbent with a past profit is likely to produce a greater output, thereby partially or fully crowding out an entrant's output. In contrast, an incumbent with a past loss is more likely to produce a smaller output, making entry easier.     

Asymmetric access price regulation in telecommunications markets

In liberalized telecommunications markets, the incumbent typically enjoys several advantages over any entrant. Regulation in such asymmetric markets stimulates competition in the short and the long term if retail prices are low and the entrant's profits are high so that entry is encouraged. I show that asymmetric access price regulation with a cost-based access price for the incumbent and an access markup for the entrant is more successful than cost-based access price regulation applied to incumbent and entrant. This is a robust prediction with respect to the pricing strategies considered. Such asymmetric access price regulation is in accordance with European legislation.     

Information transmission and incentives not to price discriminate

This paper analyzes how the pricing policy of an incumbent may signal information not only on the demand level but also on the demand composition. A signalling game with two periods and two players (an established firm and a potential entrant) is considered. The potential entrant has incomplete information on market demand. There exist many sequential equilibria in which the uniform price policy acts as an entry deterrence device by hiding actual market profitability. We can interpret the uniform pricing policy as a rejection of the use of superior information on market demand composition in order to reduce the entrant's expected profits.     

Access pricing and investment: a real options approach

This paper examines a three-period model of an investment decision in a network industry characterized by demand uncertainty, economies of scale and sunk costs. In the absence of regulation we identify the market conditions under which a monopolist decides to invest early as well as the overall welfare generated by this decision. In a regulated environment, we consider a vertically integrated network provider that is required to provide access to downstream competitors and compare two distinct access pricing methodologies: the Efficient Component Pricing Rule (ECPR) and the Option to Delay Pricing Rule (ODPR). We identify the welfare-maximizing access prices using the unregulated market output as a benchmark and show that optimal access regulation depends on market conditions (that is, the nature of demand) with two possible outcomes: (i) access prices that provide a positive payoff to the incumbent, that is, provide a positive compensation to account for the option to delay; and (ii) access prices that yield a zero payoff to the incumbent. Moreover, unlike the earlier literature that argues in favor of an ECPR-type methodology to account for the interaction between irreversibility and demand uncertainty, we find that, except under very specific conditions, an access price that accounts for the option to delay value is welfare-superior to the ECPR.      

Are input prices irrelevant for make-or-buy decisions?

The 1996 Telecommunications Act requires incumbent providers to lease network inputs to rivals at cost-based prices in order to jump-start competition. Sappington (Sappington, D. (2005). American Economic Review, 95(5), 1631–1638) uses the Hotelling model to show that input prices are irrelevant for an entrant’s decision to make or buy an input required for downstream production. We show that this result depends upon the particular model of competition employed. Specifically, input prices are not necessarily irrelevant in the Bertrand vertical differentiation model and are not irrelevant in the Cournot model. It follows that departures from cost-based input prices may distort entrants’ make-or-buy decisions in settings of practical interest.      

Regulation and Access Pricing: Comparison of Regulated Regimes

The statutory duties of regulators of British utilities include both the encouragement of competition and protection of consumers (through price caps). Competition depends on the terms on which new entrants can gain access to the monopolist's network. Where the incumbent in the retail market also owns the network, the regulator may determine prices in the capped and access markets separately or may make the price cap explicitly dependent on entry in the uncapped market. Contrary to the received wisdom that access charges should be separately regulated we show that higher welfare can be obtained in some circumstances by allowing the incumbent to determine access charges. This is achieved by permitting the incumbent to choose from a menu of retail prices which the regulator makes conditional on the extent of entry in the retail market.     

Pricing Access to a Monopoly Input

What price should downstream entrants pay a vertically integrated incumbent monopoly for use of its assets? Courts, legislators, and regulators have at times mandated that incumbent monopolies lease assets required for the production of a retail service to entrants in efforts to increase the competitiveness of retail markets. This paper compares two rules for pricing such monopoly inputs: marginal cost pricing (MCP) and generalized efficient component pricing rule (GECPR). The GECPR is not a fixed price, but is a rule that determines the input price to be paid by the entrant from the entrant's retail price. Comparing the retail market equilibrium under MCP and GECPR, the GECPR leads to lower equilibrium retail prices. If the incumbent is less efficient than the entrant, the GECPR also leads to lower production costs than does the MCP rule. If the incumbent is more efficient than the entrant, however, conditions may exist in which MCP leads to lower production costs than does the GECPR. The analysis is carried out assuming either Bertrand competition, quantity competition, or monopolistic competition between the incumbent and entrant in the downstream market.     

UPSTREAM MARKET FORECLOSURE

This paper investigates how an incumbent monopolist can weaken potential rivals or deter entry in the output market by manipulating the access of these rivals in the input market. We analyse two polar cases. In the first one, the input market is assumed to be competitive with the input being supplied inelastically. We show that this situation opens the door to entry deterrence. Then, we assume that the input is supplied by a single seller who chooses the input price. In this case, we show that entry deterrence can be reached only through merger with the seller of the input.     

Entry Solicitation and Deterrence in R&D Competition with Spillovers

The purpose of this note is to examine incumbent behaviour and patterns of entry under R&D competition with spillovers. We find that, in addition to blockading, deterring and accommodating entry, the incumbent may also solicit entry. Entry solicitation occurs when the incumbent strategically alters its R&D commitment in order to take advantage of the spillover generated by the entrant's subsequent R&D investment. Although our results are placed in the context of R&D with spillovers, they are applicable to a wider class of models involving positive externalities, particularly network externalities.
JEL Classification Numbers: L12, O31.     

Vertical product differentiation and entry deterrence

I study how a potential entrant influences quality in a model of vertical product differentiation with quality-dependent production costs. With identical costs, the incumbent will always deter entry if possible, i.e., if fixed costs are high. Quality will be set at a level lower than or equal to the optimal quality under either duopoly or monopoly. Results are completely different when the entrant has substantially lower costs. They are explained by the relative location of the entrant's quality best response to the incumbent's optimal quality choice in monopoly. This sheds new light on the influence of industrial policy on market conduct.     

Price competition in the market for business telecommunications services

We estimate a two-step control-function model that relates incumbent prices for small-business telecommunications services to the number of facilities-based entrants, cost, demand, regulatory conditions, and a correction for endogenous market structure. Results show that the price effects from entry are understated in ordinary least squares regressions. When controlling for endogeneity, prices are negatively related to the number of entrants, indicating that markets without a competitive presence could exhibit market power. These findings should prove helpful to the Federal Communications Commission and other State regulators determining the conditions under which price and other forms of regulation may be relaxed.     

Imperfect legal unbundling of monopolistic bottlenecks

We study an industry with a monopolistic bottleneck supplying an essential input to several downstream firms. Under legal unbundling the bottleneck must be operated by a legally independent upstream firm, which may be partly or fully owned by an incumbent active in downstream markets. Access prices are regulated but the upstream firm can perform non-tariff discrimination. Under perfect legal unbundling the upstream firm maximizes only own profits; with imperfections it is biased and to some extent accounts also for the incumbent’s downstream profits. We show that increasing the incumbent’s ownership share increases total output if the upstream firm’s bias is sufficiently small, while otherwise effects are ambiguous. Stronger regulation that reduces the bias without changing ownership shares generally increases total output. We also endogenize the bias and show that it can depend non-monotonically on the ownership share.     

收入分布、破坏性创新与社会福利

通过构建破坏性创新企业与在位企业进行市场竞争的双寡头博弈模型,分析在具有不同收入分布特征市场中破坏性创新企业的市场绩效及社会福利。研究发现,在收入差距较大的市场中,破坏性创新企业获得更大的市场份额和利润,社会福利相对较小;相反,在收入水平较高且分布趋向同质的市场中,在位企业获得更大的市场份额和利润,并且,破坏性创新厂商的利润随着收入水平的提高而降低。同时,随着收入水平的提高,两企业的产品质量不断提高,但质量差距不断扩大,社会总福利也随之增加。最后,进一步阐释了破坏性创新更多地发生于贫富差距较大的新兴市场的微观机制,为企业根据不同市场的收入分布特征选择竞争战略提供理论依据,为相关国家基于收入分布特点制定限制或支持破坏性创新创业政策提供理论参考。     

Price–value deviations: further evidence from input–output data of Japan

This paper subjects to empirical testing the labour theory of value using input–output data from the economy of Japan for the years 1970, 1975, 1980, 1985 and 1990. The results of the analysis show that labour values and prices of production are extremely good approximations to market prices. In fact, the proximity of prices of production to market prices is closer than that of labour values, a result which suggests that prices of production constitute more concrete centres of gravitation for market prices. Furthermore, we find that prices of production change as a result of variations in income distribution more often than not in a monotonic way and that in fewer cases they display curvatures, which may even reverse the order between prices of production and values.     

Strategic pricing and entry deterrence under price-cap regulation

This paper shows that dynamic price-cap regulation allows the regulated firm to deter entry. Under dynamic price-cap regulation, the allowed prices in each period are an increasing function of the prices set in the previous period. By setting a low price before entry, the regulated firm can commit itself to charge a low price in the event of entry. If this price is sufficiently low with respect to the potential entrant's fixed cost, entry does not occur. Whether the regulated firm prefers to deter or accommodate entry depends on the level of the entry cost for the prospective entrant, on the tightness of the price-cap and on the degree of market power of the competing firms in case of entry.     

Optimal use of futures markets when input and output prices are uncertain

The purpose of this paper is to extend the analysis of the use of futures markets by a competitive firm facing an uncertain market price for its output to the case where both input and output prices are uncertain.     

Forward markets and the multiproduct,multifactor firm under price uncertainty

In this paper a competitive firm producing multiple outputs with multiple inputs is examined. All input and output prices are uncertain, and forward markets exist for all prices. The firm's optimal production and forward market strategies are analyzed.     

Factor Market Oligopsony and the Production Possibility Frontier

The authors consider a model with two final goods, one intermediate good, and two primary factors. One final good and the intermediate good are produced using primary factors, labor and capital. The other final good is produced using labor and the intermediate input. Producers of the second final good exert oligopsonistic market power on the intermediate input, which captures real world phenomena prevalent in the food processing and other manufacturing industries. If the capital/labor ratio in one final‐good sector is in between those of the intermediate‐input sector and the combined intermediate‐input and the other final‐product sectors, and if the oligopsony power is sufficiently large, the model generates results that are not adherent to the standard two‐sector Heckscher–Ohlin model. Results that deviate from the H–O model include the relationships between factor prices and commodity prices, the price–output effect, tangency between the price line and the PPF, and the curvature of the PPF.     

The welfare effects of entry: the role of the input market

In a successive Cournot oligopoly, we show the welfare effects of entry in the final goods market with no scale economies but with cost difference between the firms. If the input market is very concentrated, entry in the final goods market increases welfare. If the input market is not very concentrated, entry in the final goods market may reduce welfare if the entrant is moderately cost inefficient. Hence, entry in the final goods market is more desirable if (1) the input market is very concentrated or (2) the cost difference between the incumbents and the entrant is either very small or very large. It follows from our analysis that entry increases the profits of the incumbent final goods producers if their marginal costs are sufficiently lower than the entrant’s marginal cost.