Domestic Regulation and International Trade

We consider the effects of a one-sided price regulation of one of two complementary inputs. The provider of the regulated input is a domestic firm, while the provider of the other input is a foreign firm. This describes the market structure for several digital information and communication services, where the regulated input is access while the non-regulated complementary input is content. We show that one-sided regulation may have negative welfare effects compared to a free market economy, unless the regulator has a first-mover advantage. In the latter case, regulation is welfare enhancing regardless of whether the foreign input provider uses linear or non-linear wholesale prices.     

I. Allgemeine Wirstchaftslehre

Ohne Zusammenfassung     

Dividend Covenants and Income Measurement

This paper constructs a theory of dividend restrictions in incomplete markets in an attempt to better understand the role of accounting constructions in optimal dividend restrictions. An entrepreneur, through his company, borrows money from a lender, and repays the debt from a stream of stochastic cash flows. Dividend restrictions are used to balance insolvency costs against the costs of accumulating surplus cash. Of particular concern is whether optimal dividend restrictions can be characterized as defining an accounting-earnings-based reservoir available for dividends, and whether earnings calculated for this purpose exhibit conservatism.     

Probabilities proportional to time-state prices

If probabilities and implicit prices of elementary state-contingent claims are proportional across states, any random income stream component is valued by discounting its expectation at the riskless rate. This lacking risk adjustment is explained by degeneracy in either market risk aversion or in randomness of aggregate consumption.     

Quantity and quality effects of advertising: a demand system approach

Quantity and quality effects of advertising are investigated in this article. A censored demand system is estimated for fish, beef, pork, and other meats using Norwegian household data. In the demand model, generic fish advertising and meat advertising is introduced as demand shifters, and at the same time unit values are treated as endogenous. The unit values capture the quality of the commodities. Empirical findings show that advertising can have both quantity and quality effects on household demand.     

Reductions in Real versus Tariff Barriers: The Impact on Industry Concentration

Economic integration has had ambiguous effects on industry concentration. The literature on the topic proposes various explanations for these empirical findings. This paper provides an additional theoretical argument. It shows that in a world of monopolistic competition, integration alone (modeled as a reduction of trade barriers) may exert opposing forces on industry concentration, depending on whether the barrier consists of real (frictional) or tariff costs. In particular, the Herfindahl index of industry concentration falls for a reduction in real costs, but rises for a reduction in tariff costs. The reason is that real barriers burn up resources, such that industry profitability is reduced, reducing entry, and resulting in fewer firms and a correspondingly higher concentration. Under a tariff barrier, the redistributed tariff revenue stabilizes industry profitability, resulting in more firms and a lower concentration.     

Demand-side Spillovers and Semi-collusion in the Mobile Communications Market

We analyze roaming policy in the market for mobile telecommunications. Firms undertake quality improving investments in network infrastructure in order to increase geographical coverage, capacity in a given area, or functionality. Prior to investments, roaming policy is determined. We show that under collusion at the investment stage, firms and a benevolent welfare maximizing regulators interests coincide, and no regulatory intervention is needed. When investments are undertaken non-cooperatively, firms and the regulators interests do not coincide. Contrary to what seems to be the regulators concern, firms would decide on a higher roaming quality than the regulator. The effects of allowing a virtual operator to enter are also examined. Furthermore, we discuss some implications for competition policy with regard to network infrastructure investment.