Antitrust and Vertical Integration in “New Economy” Industries with Application to Broadband Access

Whether the firms that supply Internet hardware and software should face restrictions on the use of their property is an important and controversial policy issue. Advocates of “net neutrality”—including President Obama and the current FCC majority—believe that owners of broadband distribution systems (hardware used to distribute Internet and video services) and producers of certain “must-have” video content should be subject to prophylactic regulation that transcends present-day antitrust law enforcement. In the economic terms that are used in debates on competition policy, the concern is with vertical integration that may give firms both the opportunity (through denial of access or price discrimination) and incentive (increased profit) to restrict competition. This paper’s central point is that virtually every production process in the economy is vertically integrated, and economics predicts changes in the extent of vertical integration—that is, changes in the boundaries of the firm—in response to changes in relative prices, technology, or institutions. Both vertical integration and changes in the extent of vertical integration are benign characteristics of efficient, dynamic, competitive markets. While there is no shortage of theoretical models in which vertical integration may be harmful, most such models have restrictive assumptions and ambiguous welfare predictions—even when market power is assumed to be present. Empirical evidence that vertical integration or vertical restraints are harmful is weak, compared to evidence that vertical integration is beneficial—again, even in cases where market power appears to be present. Thus, it is reasonable to conclude that prophylactic regulation is not necessary, and may well reduce welfare. Sound policy is to wait for ex post evidence of harm to justify interventions in specific cases. Net neutrality, recently enacted by the FCC but subject to judicial review, is an unfortunate idea.     

Positive feedback mechanisms in Adam Smith's theories of international trade

Smith understood and focused attention on dynamic growth explanations of trade patterns, and the gains from trade often ignored by subsequent theorists. This paper highlights the positive feedback mechanisms central to such an assessment of trade. The analysis invites a question that would appear out of place in a static gains from trade analysis: are rich countries afforded greater opportunities to gain from trade than poor countries? It is found that Smith's answer is yes. The gains from trade are systematically skewed toward rich countries in two ways. First, specialization according to a comparative advantage in a good characterized by limited increasing returns can result in a persistent state of slow growth or complete stagnation. Second, the gains available to the poor country from the transfer of technology are limited by the extent of the division of labor. Many technologies produced in rich countries cannot be utilized by poor countries without the technological expertise (which the division of labor creates) necessary to incorporate the technology into the productive structure of the poor country. Both of these results suggest that trade can help to perpetuate and even widen existing technology and productivity gaps between rich and poor countries.     

中国将迎来“商业地产时代”

你想过将来会发生什么吗?你思索过之后数年中国这片土地上会迎来什么?当我们将目光放在中国的收益型地产时,我发现,就如同在大部分情况下一样,历史的轮回即将上演.我可以预见,在中国接下来的几年或几十年里,机构将拥有大部分收益型地产. 收益型房地产对机构投资者的吸引力是缓缓升温的. 在上世纪四十年代到五十年代间,机构的投资工具仅限于长期债券——毕竟长期债券是安全的长期投资工具,也符合传统的投资理念. 到了六十年代初,投资理念开始转向可更长期持有的且回报率更高的"普通股",选择这种投资工具被认为是规避通胀的良策.     

The sources and aims of innovation in services: Variety between and within sectors

Services dominate economic activity, but remain under-researched by analysts of innovation and technological change. The early 'one size fits all' theories of innovation in services have in recent years given way to an appreciation that services are diverse, not least in their innovation activities. This paper draws on recent empirical evidence from large-scale surveys undertaken in 13 western European countries, to investigate the extent and the sources of innovation in five services sectors. The analysis includes the extent to which services innovate, and amongst innovators the extent to which they engage in R&D and collaborative arrangements for innovation. The analysis supports the recent literature which emphasises significant differences between sectors in their pattern of innovation behaviour, but also highlights significant intra-sectoral differences in innovation behaviour. This intra-sectoral variation deserves much fuller investigation in the future.     

Averaging estimators for autoregressions with a near unit root

This paper uses local-to-unity theory to evaluate the asymptotic mean-squared error (AMSE) and forecast expected squared error from least-squares estimation of an autoregressive model with a root close to unity. We investigate unconstrained estimation, estimation imposing the unit root constraint, pre-test estimation, model selection estimation, and model average estimation. We find that the asymptotic risk depends only on the local-to-unity parameter, facilitating simple graphical comparisons. Our results strongly caution against pre-testing. Strong evidence supports averaging based on Mallows weights. In particular, our Mallows averaging method has uniformly and substantially smaller risk than the conventional unconstrained estimator, and this holds for autoregressive roots far from unity. Our averaging estimator is a new approach to forecast combination.     

Can state tax policies be used to promote entrepreneurial activity?

Despite a recent flurry of empirical research on the effects of taxes on small business activity, state-level taxes faced by entrepreneurs have been overlooked by most of the existing literature. Using a 50-state panel of tax policy information spanning the years 1989 through 2002, our analysis reveals that state tax policies generally do not appear to have quantitatively important effects on entrepreneurial activity. When we find statistically important effects, we find that higher individual income tax rates, the existence of a state-level estate, inheritance or gift tax, and a higher weight on the sales factor in the state corporate income tax apportionment formula all slightly reduce a state’s share of the national entrepreneurial stock. Results also indicate that states with more progressive personal income tax structures and states that have more aggressive corporate income taxes through the imposition of a combined reporting requirement both tend to have slightly higher entrepreneurship rates. The composition of state tax portfolios is not found to be a significant determinant of state entrepreneurship.     

Time series econometrics for the 21st century

What topics should be taught to undergraduate students in econometric time series?