The quiet life of a monopolist: The efficiency losses of monopoly reconsidered

We study the efficiency losses of monopoly in a model where the firm’s total cost of production decreases with the manager’s effort to control cost. In contrast to the existing analyses of oligopolistic and monopolistically competitive markets that find an ambiguous relationship between competition intensity and managerial slack, we demonstrate that, under the same kind of cost condition, monopoly unambiguously reduces effort level and, in the case where ownership and control are separate, magnifies the effects of the moral hazard problem. Furthermore, under an alternative cost condition monopoly raises effort level rather than reducing it. In such a situation the separation of ownership and control may mitigate the productive inefficiency of monopoly.     

Monopoly,economic efficiency and unemployment

The objective of this paper is to analyze the efficiency consequences of monopoly from the perspective of an efficiency-wage model of unemployment based on Shapiro and Stiglitz (1984). An important feature of our model is that a firm can raise the probability that a shirking worker is detected by increasing its effort or investment in the monitoring of workers. Using this model we study how a monopolist's decision with regard to employment, output and monitoring is affected by exogenous variables such as job separation rate, technological advances, market size, and unemployment benefits. Furthermore, by comparing with the competitive equilibrium we find that monopoly is associated with higher unemployment rate, smaller output, and less monitoring. Surprisingly, however, monopoly does not necessarily lead to lower welfare level.     

Bottleneck co-ownership as a regulatory alternative

This paper proposes a regulatory mechanism for vertically related industries in which the upstream “bottleneck” segment faces significant returns to scale while other (downstream) segments may be more competitive. In the proposed mechanism, the ownership of the upstream firm is allocated to downstream firms in proportion to their shares of input purchases. This mechanism, while preserving downstream competition, partially internalizes the benefits of exploiting economies of scale resulting from an increase in downstream output. We show that this mechanism is more efficient than a disintegrated market structure in which the upstream natural monopoly bottleneck sets a price equal to average cost.     

Price Caps and Output Floors: A Comparison of Simple Regulatory Rules

We study in this paper a simple alternative to price cap regulation. The mechanism, which we label 'output floor' regulation, requires the regulated firm to supply a given level of output. This rule is as simple as price cap regulation, and performs identically when the regulated firm is a natural monopoly; however, we show that, in the presence of a competitive fringe, output floor regulation yields lower prices and stronger incentives for cost reduction. Its introduction, however, is likely to be resisted by the industry, since it lowers managerial utility and shareholders' profits.     

Is limit pricing evolutionarily stable?

We have analyzed the question whether or not limit-pricing behavior can be viewed as a strategy, which survives the replicator dynamics in a game in which firms change strategies through imitation. Our results show that, regardless of the proportion of low cost incumbents in the population, potential entrants that play the strategy "enter" when they observe limit output are wiped out. The unique ESS consists of all low cost incumbents playing the "limit output" strategy, and all high cost incumbents playing the "monopoly output". This ESS includes potential entrants playing "stay out" after observing the limit output, and playing "enter" if monopoly output is observed in the first stage. Hence, limit pricing survives the replicator dynamics and appears in the stable state of the population.JEL Classification: B25, C73, L11We would like to thank an anonymous referee for valuable comments on an earlier version of this paper. Correspondence to: U. Soytas     

国际外包影响因素的实证研究——基于测算方法的差异

运用3种方法测算了2002年和2007年中国35个工业行业整体及分类的物质外包率和服务外包率,比较不同类型工业行业的不同国际外包率指标的差异,并实证研究了中国工业行业国际外包的影响因素。研究结果表明:利用不同测算方法得出的国际外包率存在明显差异,但中国资本技术密集型工业行业的国际外包率远高于资源密集型、资本密集型和劳动密集型的工业行业;行业物质外包率受工资成本、市场竞争压力、外资比重和出口开放度的影响较大,行业物质外包率随着行业平均工资的提高、市场竞争压力的增加、外资比例的提高和出口开放度的提高而增大;行业服务外包水平会随着工资成本的增加、规模经济的增强而提高,随着垄断势力的增强和外资比重的提高而降低。     

基于技术存在形式的技术垄断研究

界定了技术垄断的概念并区分了市场垄断和技术产权。以技术存在形式视角分析了技术垄断的形成和结构,以及技术垄断的外在表现,并研究了在市场经济体制下影响技术市场垄断程度的因素。提出了技术的市场垄断程度的评价体系和计算方法,并将市场中技术垄断组织作为一个系统,分析技术创新投入和技术市场垄断程度之间的关系。分析了技术垄断的周期,并从中得出了技术垄断竞争力的构成,推出产业技术联盟的技术垄断竞争力内涵。     

Versioning of information goods under the threat of piracy

The present study investigates the effects of piracy on the quality decisions of a firm that produces two versions of an information good: that is, one version for a consumer with a high willingness to pay and a second version for a consumer with a low willingness to pay. On the assumption that there is no quality difference between the original and the illegal copy and that the cost of the copy is constant across users, we show that the presence of piracy induces the firm to choose a lower level of quality of the former and a higher level of quality of the latter relative to decisions made in the absence of piracy. We also discuss policy implications concerning the socially optimal level of copyright protection.     

The Cost Structure of Australian Telecommunications

Since 1991 Australian telecommunications has undergone substantial reform. To a large extent, the economic correctness of pro-competitive policy depends on the non-existence of natural monopoly technology. This paper provides estimates of the Australian telecommunications system cost structure, and tests for subadditivity from 1943 to 1991. Additivity of the cost function after 1945 rejects the natural monopoly hypothesis and supports recent government policy. Diminished natural monopoly characteristics suggest that co-ordination between firms through networking can achieve similar economies as internal co-ordination within a monopoly. This finding is important, given the trend towards network unbundling, and service provision through interconnection.     

How Costly is Modern Maritime Piracy to the International Community?

This paper focuses on the impact of maritime piracy on international trade. Piracy increases the cost of international maritime transport through an increase in insecurity regarding goods deliveries. Bilateral trade flows between the main European and Asian countries over the 1999 to 2008 period are used to estimate an augmented gravity model that includes various measures of piracy acts. We found robust evidence indicating that maritime piracy reduces the volume of trade; the effect of 10 additional vessels hijacked being associated to an 11% decrease in exports. Consequently, the current cost of piracy in terms of international trade destruction is estimated at 24.5 billion dollars.     

Price cap regulation of a dominant firm facing competition

Price cap regulation is typically applied to natural monopolies operating with subadditive costs. Price caps are known to provide superior incentives for the regulated monopoly to pursue cost reduction and, in a multiservice/product context, undertake welfare enhancing price discrimination. It is well known that capping a Laspeyres index of the firm’s prices induces the monopoly to charge socially optimal “Ramsey” prices in the long run. This paper examines the suitability of the Laspeyres form of regulation when the regulated firm faces competition in the market for one of its services (outputs). We present the appropriately modified Ramsey pricing rule for the regulated dominant firm and demonstrate that capping a Laspeyres index of the dominant firm’s prices leads to prices that satisfy this pricing rule in the long run.     

Strategic technology choice in regulated markets with demand uncertainty

This paper presents a simple model of a non-competitive market with demand uncertainty in which firms can choose their technology of production. Technology is characterised by two parameters: capacity and flexibility. The first has a strong commitment value while flexibility is needed to face uncertainty. Lack of competition requires active regulation to ensure that the price is not set at excessive level. When choosing their technology, firms take into account not only the effects of this choice on the opponent(s) but also the effect on the regulated price. In this framework, and because of regulation, firms have an incentive to strategically manipulate their cost (cost padding). This causes monopoly regulation aiming at improving allocative efficiency to be ineffective. In fact, by “tying its hand” to a low level of capacity, the monopolistic firm is able to get round the constraint imposed by the regulator. Increasing the number of firms in the market may restore regulation effectiveness. The reason is that if demand is sufficiently volatile, then firms strategically choose flexible techniques and this effect dominates over the incentive to manipulate costs in order to escape regulation. In this case, regulation is effective precisely because cost padding is hampered by firms’ non-cooperative behaviour.

Fiscal and monetary interactions when wage-setters are large: is there a role for corporatist policies?

This paper studies the macroeconomic consequences of alternative policy regimes in a closed economy where a central bank, a fiscal authority and a monopoly union interact via their effects on output and inflation. The analysis compares macroeconomic outcomes in a non-cooperative setting, where players may move sequentially or simultaneously, and in a regime of cooperation between the government and wage-setters. The cooperative regime captures a climate of accord among social parties that is finalised at common macroeconomic targets in the tradition of corporatism, as in the recent experience of “social pacts” in many European countries. The paper makes two main contributions. First, it shows that macroeconomic outcomes are suboptimal in the non-cooperative regime and may deliver extreme (undesirable) results even when all players share common ideal targets for output and inflation. All players would be better off with a less extreme value for output or inflation, yet they fail to reach a more advantageous allocation as long as there is an inherent conflict among their further objectives. Moreover, the result is robust to a change in the degree of central bank’s conservatism. Second, I find that cooperation between the government and the monopoly union towards common ideal targets for inflation, output and taxes enhances social welfare even in the absence of explicit coordination with the central bank.     

Incentive Regulation of Prices When Costs are Sunk

We present a model featuring irreversible investment, economies of scale, uncertain future demand and capital prices, and a regulator who sets the firm’s output price according to the cost structure of a hypothetical replacement firm. We show that a replacement firm has a fundamental cost advantage over the regulated firm: it can better exploit the economies of scale because it has not had to confront the historical uncertainties faced by the regulated firm. We show that setting prices so low that a replacement firm is just willing to participate is insufficient to allow the regulated firm to expect to break even whenever it has to invest. Thus, unless the regulator is willing to incur costly monitoring to ensure the firm invests, revenue must be allowed in excess of that required for a replacement firm to participate. This contrasts with much of the existing literature, which argues that the market value of a regulated firm should equal the cost of replacing its existing assets. We also obtain a closed-form solution for the regulated firm’s output price when this price is set at discrete intervals. In contrast to rate of return regulation, we find that resetting the regulated price more frequently can increase the risk faced by the firm’s owners, and that this is reflected in a higher output price and a higher weighted-average cost of capital.     

Copyright piracy as prey–predator behavior

The economic analysis of the piracy of copyright products has used a variety of modeling assumptions, the majority of which use typical industrial organization settings. The results of such models are manyfold, but in general they are ambiguous as to the optimal protection strategy, and the effects of protection on the welfare of copyright holders, and on the existence of piracy. Concretely, little has been said about which types of protection mechanisms are most adequate for controlling piracy. In the present paper, we propose a new theoretical framework by drawing an analogy between copyright piracy and prey–predator behavior. This analogy gives us a new perspective to approach copyright issues and it provides the economic theory of copyright piracy with a new set of mathematical models. We consider a very simple model that can be used to show that publicly instigated and financed policies designed to deter piracy can have the effect of increasing the amount of piracy, while privately financed strategies (e.g. DRM) will always decrease piracy.     

Monopoly and Oligopoly Provision of Addictive Goods

This article investigates monopoly and oligopoly provision of an addictive good. Consumer preferences are modeled as in Becker and Murphy (1988). Addictive goods have characteristics that create interesting strategic issues when suppliers are noncompetitive. We characterize the perfect Markov equilibrium of a market with noncompetitive supply of an addictive good and compare it with the efficient solution. Depending on particular parameter values, we find a wide variety of possible steady-state outcomes, including ones with output above the efficient level and price below marginal cost. We also find that market power can be disadvantageous.     

Does Tariff Induce Intellectual Property Right Protection and Reduce Incidence of Piracy?

We consider a model with North exporting a copyrighted product to South where there is IPR violation, and South exports a basic good to North. We examine the impact of North's imposition of import tariff on South's monitoring of IPR violation and the incidence of piracy. If South values IPR compliance “lowly”, then tariff imposition do not alter the pre‐tariff no monitoring equilibrium outcome but unambiguously raises the incidence of piracy. If IPR compliance is valued “highly” then tariff either switches the equilibrium outcome from not monitoring to monitoring or increases its rate. However, the incidence of piracy may increase.     

Piracy and limited liability

This paper analyzes the effects of end-user piracy on a monopolized software industry with network effects in which consumers have heterogeneous income and limited liability. Limited liability produces a piracy cost which increases with income. The monopolist thus may be able to exploit the network effect brought about by the piracy of low-income consumers to charge a higher price to high-income consumers thereby earn a higher profit, especially when the monopolist can prevent the network effect from spilling over to the high-income consumers. If intellectual property rights policies are severe enough, then the monopolist can avoid the spillover. Otherwise it may become a case where each high-income buyer benefits from the piracy but the monopolist is hurt. However, a severe policy may bring about a high piracy rate since it invites the monopolist to raise the price.      

FDI的技术外溢性与我国的可持续发展

可持续发展对科技创新提出了更高的要求,实证分析表明FDI为了保持技术上的垄断地位提高了新技术进入的成本,使我国的技术被锁定在了低水平的陷阱中。从产业分布可以看出,FDI对外输出的是高耗能、高污染的生产能力,阻碍了技术外溢。我国可持续发展所依存的技术条件必须通过自我有意识投资的提高来实现;同时,只有贯彻科学的发展观,提高利用FDI的质量和水平,优化其产业布局,才能最终实现发展的可持续性。     

碳排放约束下的发电技术选择——以PC发电和IGCC发电为例

以两种发电技术——PC发电和IGCC发电为例,研究了在碳排放约束下发电企业的技术选择问题。结果表明:当碳排放价格处于低位时,PC发电的投资价值仍优于IGCC发电;随着碳排放价格的提高,IGCC发电的投资价值将超过PC发电,因此投资PC发电极可能是短视的;当企业投资CCS技术后,投资IGCC发电可能使企业拥有氢能源转换期权,该期权能激励投资IGCC发电的企业更早投资CCS技术。最后,基于破坏性创新理论,进一步论证了投资PC发电可能是短视行为的原因。