Market-Share Contracts with Asymmetric Information

In this paper, a dominant firm and competitive fringe supply substitute goods to a retailer who has private information about demand. We show that it is profitable for the dominant firm to condition payment on how much the retailer buys from the fringe (market-share contracts). The dominant firm thereby creates countervailing incentives for the retailer and, in some cases, is able to obtain the full-information outcome (unlike in standard screening models, where the agent earns an information rent in the high-demand state and output is distorted in the low-demand state). Our results have implications for fidelity rebates, all-units discounts, and competition policy. Although some crowding out of the fringe may occur when demand is low, we show that market-share contracts need not be harmful for welfare.     

CROSS SUBSIDIZATION AND TELECOMMUNICATIONS SECTOR WAGES

ABSTRACT 1 : This study has examined wage determination in the presence of cross‐subsidization of firms in the telecommunications industry. How variations in cross subsidies received, via the separations mechanism used in the industry, influence some firms to pay a greater level of wages is assessed. The firms studied have been almost the entire population of local exchange carriers in the US telecommunications industry between 1995 and 2000. The analysis has established that firms which are able to obtain greater cross‐subsidies, on average, in fact pay higher wages and the elasticity of the relationship is quite high. The study is the first of its kind assessing the relationship between an important regulatory variable that measures a ubiquitous process, such as cross subsidization, and the impact on employee wages.     

Chaotic tatonnement

Summary Debreu's theorem on excess demand functions is used to demonstrate the possibilities of ergodic and topological chaos in a discrete-time tatonnement process with only two goods. The result is in sharp contrast with the well-known result of Arrow and Hurwicz on system stability in a continuous time model of price adjustment with two commodities.We would like to thank Professors Jess Benhabib, Richard Day, John Guckenheimer, Philip Holmes, Nicholas Kiefer and Tapan Mitra.     

The Impact of Size and Age on Firm-Level Performance: Some Evidence from India

Using contemporary data for an extensive sample of 1020 Indian firms, this paper investigates the impacts that size and age of firms have on firm-level productivity and profitability. In India older firms are found to be more productive and less profitable, whereas the larger firms are, conversely, found to be more profitable and less productive. These performance differences are explained as arising from the market-restricting industrial policies that have been followed in India over the past three decades.     

Corporate borrowing and profitability in India

This paper examines effects of different types of corporate borrowing on firm profitability in India. We show that in contrast to the conventional thinking on the importance of monitored debt in determining firm performance, what matters more is arm's‐length lending in the form of fixed deposits in influencing firm profitability. We argue that the strategic implications of fixed deposits can be mainly attributed to the fact that they are both unsecured and privately held, which make the creditors associated with this type of debt the most likely to monitor firms' performance. The results suggest that debt structure matters, and it is important to take into account institutional differences and the heterogeneity of debt in the analysis of capital structure on firm performance. Copyright © 2009 John Wiley & Sons, Ltd.     

PATTERNS OF TRADE AND GROWTH UNDER INCREASING RETURNS: ESCAPE FROM THE POVERTY TRAP*

We consider a two-sector model of intertemporal resource allocation in which the investment good sector exhibits an initial phase of increasing returns in production. The economy maximizes a discounted sum of one period utilities derived from the consumption good. If it is autarkic, it may face a poverty trap from which it cannot escape even if it follows an optimal policy. If it engages in trade with the outside world as a price taker, it may escape from the trap. The optimal patterns of production and trade are analysed for such an economy.     

Estimating the stationary distribution of a Markov chain

Summary. Let be a Markov chain with a unique stationary distribution . Let h be a bounded measurable function. Write and . This paper explores conditions for the consistency and asymptotic normality of the estimate of of assuming the existence of a solution to the Poisson equation . Our framework covers the case of nonirreducible Markov chains arising in many growth models in economics. Received: October 8, 2001; revised version: April 8, 2002 RID="*" ID="*" Thanks are due to Professors Rabi Bhattacharya, Nicholas Kiefer and Timothy Vogelsang on an earlier draft for helpful conversations, and a referee for insightful comments. Correspondence to: M.Majumdar