Volume 16, Issue 3:

Economides, Nicholas

"The incentive for non-price discrimination by an input monopolist"

JEL codes: L1, D4
Keywords: monopoly, discrimination, vertical integration

Abstract: This paper considers the incentive for non-price discrimination of a monopolist in an input market who also sells in an oligopoly downstream market through a subsidiary. Such a monopolist can raise the costs of the rivals to its subsidiary through discriminatory quality degradation. We find that the monopolist always, even when it is cost-disadvantaged, has the incentive to raise the costs of the rivals to its subsidiary in a discriminatory fashion, but does not have the incentive to raise costs to the whole downstream industry including its subsidiary. Moreover, increasing rivals' costs nullifies the effects of traditional imputation floors, and prompts the creation of imputation floors that account for the artificial costs imposed on downstream rivals. The results of this paper raise concerns about the potentially anti-competitive effects of entry of local exchange carriers in long distance service.

Greenstein, Shane and Ramey, Garey

"Market structure, innovation and vertical product differentiation"

JEL codes:

Abstract: We reassess Arrow's (1962) results concerning the effect of market structure on the returns from process innovation. Here we consider product innovations that are vertically differentiated from older products, in the sense of Shaked and Sutton (1982, 1983). Competition and monopoly in the old product market provide identical returns to innovation when (I) the monopolist is protected from new product entry, and (ii) innovation is non-drastic, in the sense that the monopolist supplies positive quantities of both old and new products. If the monopolist can be threatened with entry, monopoly provides strictly greater incentives. Welfare may be greater under monopoly when innovation is valuable.

Aw, Bee-Yan and Batra, Geeta

"Firm size and the pattern of diversification"

JEL codes: O12, F14
Keywords: Product and market diversification; Firm size; Export market

Abstract: In this paper, the entry of firms into the foreign market is treated as a form of diversification that is an alternative to the more conventional form of product diversification. We develop a firm-level index of diversification which comprises of product-line and geographical diversities. Using semi-parametric regression techniques, we analyze the relationship between various forms of diversification and firm size in five major manufacturing industries in Taiwan. Our findings indicate that diversification need not be solely a large firm phenomenon as observed in developed countries. Among small and medium firms, the most common form of diversification consists of diversifying into a different geographical market. The positive relation between firm size and product diversification typically found in developed countries is limited to large exporting firms in Taiwan.

Caputo, Michael R.

"A dual vista of the Stackelberg duopoly reveals its fundamental qualitative structure"

JEL codes: C72, L13
Keywords: Stackelberg duopoly, comparative stratics, envelope theorems

Abstract: In a general setting, the envelope theorem and fundamental comparative statics curvature theorems for the Stackelberg leader and follower are proven in a simple and direct fashion using a dual method. The comparative statics theorems are unconventional from a primal point of view, which explains why they are heretofore undiscovered. The theorems are applied to a classical model of entry deterrence to elucidate their economic interpretation. The difference between the qualitative comparative statics properties of the leader and follower allows, in principle, an empirical test of the leader-follower role.

Lucifora, Claudio

"The impact of unions on labour turnover in Italy: Evidence from establishment level data"

JEL codes: J31, J51, J62
Keywords: labour turnover, wage determination, unions

Abstract: Empirical studies of labour turnover have an important role in explaining the functioning of labour markets, shedding light on the process of matching workers to firms and on the nature of the employment relationship. Turnover patterns have important implications for wage determination, work organisation, career prospects and the accumulation of firm-specific human capital. Less attention has been paid in the literature to the impact of unions on firms' accession-separation decisions. This paper attempts to explore union effects on turnover. After briefly discussing the main theoretical implications for the analysis of accessions and separations rates within the establishment, we highlight some institutional features of the Italian labour market. The empirical model is then specified and estimated using establishment level data for the Italian metal-mechanical engineering industry. In an attempt to ascertain the different routes through which union presence affects turnover rates, a different treatment of the various sources of separations (quits, separations with incentives, dismissals), is proposed. Empirical evidence suggests that Italian trade unions have succeeded in reducing turnover.

Majumdar, Sumit K.

"Slack in the state-owned enterprise: an evaluation of the impact of soft-budget constraints"

JEL codes: D24, H32, L32, P42
Keywords: Soft-budget constraints; State-owned interprises; Privatization; Indian industrial performance

Abstract: In this paper slack in resource utilization is estimated, using data envelopment analysis, for a sample of 67 Indian state-owned, 63 private sector and 27 foreign-owned enterprises on a comparative basis. The study is cross-sectional and carried out for the year 1991 to assess how far the operation of soft-budge constraints has had an impact on the economic performance of Indian firms, particularly operated as state-owned enterprises. Specifically, the presence of debt-capital, provided primarily by government-owned financial institutions, is strongly and negatively related to performance. The results show that if firms turn out to be all equally-efficient, then average materials costs, human capital usage costs, costs associated with other operating items and physical capital usage by each state-owned enterprise sampled can be reduced by Rs. 203 million, Rs. 201 million, Rs. 53 million and Rs. 255 million, respectively. If existing levels of inputs are used efficiently, then the average addition to the value of output by each state-owned enterprise can rise by Rs. 693 million. The analyses reveal significant slack inr3source utilization in Indian state-owned firms resulting from soft-budget constraints, and the implications of the existence of slack are discussed.