Market Power and Multimarket Contact: Some Evidence from the Spanish Hotel Industry

This paper analyses the effect of multimarket contact on firms’ behaviour. According to Bernheim and Whinston [1990], firms that meet in several markets for an infinite number of periods may find it profitable to redistribute market power among markets where they are operating. We present evidence supporting this prediction by using data from the Spanish hotel industry. Moreover, we also find that the omission of variables measuring multimarket contact creates a downward bias on the effect of concentration on prices. This result questions previous conclusions about the role of competition in industries where multimarket behaviour is expected.     

Pricing real options under the constant elasticity of variance diffusion

Much of the work on real options assumes that the underlying state variable follows a geometric Brownian motion with constant volatility. This paper uses a more general assumption for the state variable process that better captures the empirical regularities found in commodity markets. We use the constant elasticity of variance diffusion, where volatility is a function of underlying asset prices, and we provide analytic solutions for perpetual American options. We show that a firm that uses the standard lognormal assumption is exposed to significant errors of analysis, which may lead to nonoptimal investment and disinvestment decisions. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:230–250, 2011     

Rail access charges and the competitiveness of high speed trains

This paper examines rail access charges for high speed trains on new high speed lines in Europe and the impact these have on the market position of high speed rail. It examines the latest evidence on the marginal infrastructure and external costs of high speed rail, finding that the best evidence is that these are both not more than 2 €/train-km. However, current legislation states that environmental costs should not be charged for unless they are charged for on competing modes. Mark ups based on Ramsey pricing principles might reasonably raise prices by 100–200%, given that infrastructure charges are only a part of the final price of rail. The paper then examines the actual prices charged in the main European countries operating high speed trains and the impact these are likely to have on traffic levels and mode split. It is found that mark ups often exceed even the optimal Ramsey levels, with a significant impact on rail volumes and market share. It is concluded that, whilst it is not surprising that governments wish to recover some of the construction costs of new high speed rail lines from users, they should consider carefully whether the level of charges is actually significantly reducing traffic on and benefits from these lines.     

Interest Rate Derivatives in a Duffie and Kan Model with Stochastic Volatility: An Arrow-Debreu Pricing Approach

Simple analytical pricing formulae have been derived, by different authors and for several derivatives, under the Gaussian Langetieg (1980) model. The purpose of this paper is to use such exact Gaussian solutions in order to obtain approximate analytical pricing formulas under the most general stochastic volatility specification of the Duffie and Kan (1996) model. Using Gaussian Arrow-Debreu state prices, first order stochastic volatility approximate pricing solutions will be derived only involving one integral with respect to the time-to-maturity of the contingent claim under valuation. Such approximations will be shown to be much faster than the existing exact numerical solutions, as well as accurate.     

ENERGY EFFICIENCY: ECONOMICS AND POLICY

Abstract Energy efficiency and conservation are major factors in the reduction of the environmental impact of the energy sector, particularly with regard to climate change. Energy efficiency also contributes to reducing external dependence and vulnerabilities in the energy domain. In this paper, we discuss the factors that influence energy efficiency and conservation decisions, and the most appropriate policies for their promotion. Although not all public policies seem justified, we argue that specific policies for promoting energy conservation may be required, preferably based on economic instruments or on the provision of information to consumers.     

Wage and Price Rigidity in a Monetary Union

We extend irrelevance results of sticky prices and fixed exchange rates to environments with sticky wages. Provided payroll taxes can be used with the same flexibility as monetary policy, then sticky wages are irrelevant for both optimal allocations and policies in response to shocks. This is the case also under fixed exchange rates or in a monetary union.     

What matters and for which firms for corporate governance in emerging markets? Evidence from Brazil (and other BRIK countries)

A central issue in corporate governance research is the extent to which “good” governance practices are universal (one size mostly fits all) or instead depend on country and firm characteristics. We report evidence that supports the second view. We first conduct a case study of Brazil, in which we survey Brazilian firms' governance practices at year-end 2004, construct a corporate governance index, and show that the index, as well as subindices for ownership structure, board procedure, and minority shareholder rights, predicts higher lagged Tobin's q. In contrast to other studies, greater board independence predicts lower Tobin's q. Firm characteristics also matter: governance predicts market value for nonmanufacturing (but not manufacturing) firms, small (but not large) firms, and high-growth (but not low-growth) firms. We then extend prior studies of India, Korea, and Russia, and compare those countries to Brazil, to assess which aspects of governance matter in which countries, and for which types of firms. Our “multi-country” results suggest that country characteristics strongly influence both which aspects of governance predict firm market value, and at which firms that association is found. They support a flexible approach to governance, with ample room for firm choice.     

On a continuous time stock price model with regime switching,delay, and threshold

Motivated by the need to describe bear-bull market regime switching in stock prices, we introduce and study a stochastic process in continuous time with two regimes, threshold and delay, given by a stochastic differential equation. When the difference between the regimes is simply given by a different set of real valued parameters for the drift and diffusion coefficients, with changes between regimes depending only on these parameters, we show that if the delay is known there are consistent estimators for the threshold as long we know how to classify a given observation of the process as belonging to one of the two regimes. When the drift and diffusion coefficients are of geometric Brownian motion type we obtain a model with parameters that can be estimated in a satisfactory way, a model that allows differentiating regimes in some of the NYSE 21 stocks analyzed and also, that gives very satisfactory results when compared to the usual Black–Scholes model for pricing call options.     

Supplier Financing and Earnings Quality

In this paper we investigate the effect of earnings quality on supplier credit in a sample of small and medium‐sized firms. After controlling for other determinants of trade credit, we show that firms whose earnings present lower variability, higher smoothing and predictability, and higher accruals quality have access to more trade credit from suppliers. This association suggests that earnings attributes associated to lower volatility and higher precision with respect to cash flows facilitate access to trade credit.