Separation versus Affiliation with Partial Vertical Ownership in Network Industries

Abstract

The separation of integrated monopolies and new market entrants has changed vertical interactions between suppliers and dealers. Firms have substituted full integration with vertical restraints, leading to collusive behaviour harmful to competition. We examine how a partial vertical ownership (an affiliation) of one of the competing downstream retailers by the upstream monopoly could help internalise the production decision after a complete divestiture. Our results in a Cournot framework confirm the positive role of partial integration on firms’ profits and consumer surplus in increasing social welfare. These results are consistent with empirical studies of economies after vertical separation in network industries.     

Exploring cost dominance in crop farming systems between high and low pesticide use

The purpose of this paper is to assess cost dominance in direct inputs between arable crop-based systems using low or high pesticide levels per hectare. Our investigation departs from a traditional efficiency analysis and aims at comparing two minimal direct cost functions excluding pesticide expenses. This means that we evaluate the gap between two efficient frontiers instead of focusing on individual farm inefficiency scores. Our only objective is to compare two optimal cost benchmarks for systems respectively defined with high or low pesticide levels per hectare by varying their scale and output mix. A robust approach frontier is introduced to control the influence of potential outliers and unobserved heterogeneity. Based on 707 French crop farms observed in 2008, our simulations show that agricultural practices using less pesticide per hectare are unambiguously more cost-competitive in terms of direct inputs while inducing no other substitution costs. This cost dominance is a robust phenomenon regardless of the size and scope of crop activities, which supports more ecofriendly practices.     

A Note on Imitation-Based Competition in Common-Pool Resources

The Tragedy of the Commons refers to the dissipation of common ressources when several appropriators have access to it. The Nash equilibrium in common-pool resource games describes such an overexploitation phenomena. However, some empirical facts and experimental results suggest that the degradation may exceed the Nash equilibrium prediction. Rapid exhaustion of resources can then be explained by learning processes based on imitation behavior. Indeed, when the number of players is limited, the evolutionary outcome implies a higher level of dissipation than the Nash equilibrium.     

Biases in Calculating Dumping Margins: The Case of Cyclical Products

A dumping investigation involves comparing export prices with a "normal value" loosely defined as the price in the exporter's domestic market observed in the course of normal trade. However, domestic sales with prices below production costs are excluded from the computation of a normal value. The paper illustrates how price cycles affect the magnitude of estimated dumping margins. The empirical analysis focuses on Canadian hog exports to the United States and U.S. potato exports to Canada. The estimated period and amplitude of each price cycles result in average dumping margins for Canadian hogs and U.S. potato exports of 11.5% and 5.9%, respectively. Biases in dumping margins depend on the nature of the cycle, the period of investigation, and the average production cost estimate.     

On the Demand for Information Services: An Application to Lowbush Blueberry Producers in Eastern Canada

Information needs have rapidly evolved in agricultural markets but little is known about how information is transmitted to agricultural producers. Producers must collect information to better manage their production, marketing and financial decisions. Using survey data obtained from a questionnaire distributed to lowbush blueberry producers in eastern Canada, we analyze how producers' individual characteristics impact their demand for different information services. Minimum distance estimation of the structural ordered probit equations indicates that:

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  Confidence in the information service is a central determinant of the frequency at which a producer refers to a specific service.

       

Land relations under unbearable stress: Rwanda caught in the Malthusian trap

This paper describes how the distribution of land access rights and the prevailing social fabric have evolved in a Rwandan village in the face of extreme land pressure. The study was conducted to gain a better understanding of the equity impact of land tenure individualization and the rising incidence of market transactions in such a context. The densely populated area studied during 1988-93 was in northwest Rwanda and belongs to the commune of Kanama in Gisenyi prefecture. Acute competition for land in a context characterized by too slow expansion of non-agricultural income opportunities has led to increasingly unequal land distribution and rapid processes of land dispossession through the functioning of the illegal land market and evolution of indigenous tenure arrangements. Also, the many land disputes and the threat of landlessness have led to rising tensions in social relations and even within the core of family life, paving the way for more overt expressions of discontentment and violence. A connection between those conditions and the civil war which erupted in 1994 is established.     

Of songs and men: a model for multiple choice with herding

We propose a generic model for multiple choice situations in the presence of herding and compare it with recent empirical results from a Web-based music market experiment. The model predicts a phase transition between a weak imitation phase and a strong imitation, ‘fashion’ phase, where choices are driven by peer pressure and the ranking of individual preferences is strongly distorted at the aggregate level. The model can be calibrated to reproduce the main experimental results of Salganik et al. (Science, 311, 854–856 (2006)); we show in particular that the value of the social influence parameter can be estimated from the data. In one of the experimental situation, this value is found to be close to the critical value of the model.     

A joint test of market power, menu costs, and currency invoicing

This article investigates exchange rate pass-through (ERPT) and currency invoicing decisions of Canadian pork exporters in the presence of menu costs. It is shown that when export prices are negotiated in the exporter's currency, menu costs cause threshold effects in the sense that there are bounds within (outside of) which price adjustments are not (are) observed. Conversely, the pass-through is not interrupted by menu costs when export prices are denominated in the importer's currency. The empirical model focuses on pork meat exports from two Canadian provinces to the U.S. and Japan. Hansen's (2000) threshold estimation procedure is used to jointly test for currency invoicing and incomplete pass-through in the presence of menu costs. Inference is conducted using the bootstrap with pre-pivoting methods to deal with nuisance parameters. The existence of menu cost is supported by the data in three of the four cases. It also appears that Quebec pork exporters have some market power and invoice in Japanese yen their exports to Japan. Manitoba exporters also seem to follow the same invoicing strategy, but their ability to increase their profit margin in response to large enough own-currency devaluations is questionable. Our currency invoicing results for sales to the U.S. are consistent with subsets of Canadian firms using either the Canadian or U.S. currency.     

Developing Economic Indexes for the Quebec Hog/Pork Industry

The Quebec hog/pork industry has grown significantly over the last 25 years. Explanations of this growth in the literature have centered on government policies, expansion of profitable market opportunities, and reforms in marketing institutions. A coincident index model that trends with total hog slaughters in Quebec is estimated using a dynamic factor model. It implicitly defines a variable that measures the overall state of economic activity in the Quebec hog/pork industry. The results show that reforms in hog marketing institutions are strongly correlated with the economic expansion of the industry. A leading economic index also forecasts the growth of the coincident index using leading variables. The overall statistical performance of the leading coincident index is disappointing, but the growth in American inventories of frozen pork meat is shown to have useful predictive value.     

Developing Hedging Strategies for Québec Hog Producers under Revenue Insurance

The paper investigates the optimal hedging strategies of Québec hog producers when they participate in a publicly funded revenue insurance program known as ASRA (Régime d'assurance-stabilisation des revenus agricoles). A forecast model of local cash and futures prices is built and Monte Carlo methods are used to derive the optimal futures and option positions of Québec hog producers. The positive correlation between forecasts of futures and cash spot prices induces positive sales of futures and put options to hedge price risk. ASRA provides put options to hog producers at actuarially advantageous terms. Producers can increase the expected utility of profits by selling back a portion of these put options using financial markets. Options are attractive to manage price risk given the nonlinearity in the profit function induced by the revenue insurance scheme. Speculative incentives to use futures and options are also discussed in the context of ASRA.