Volume 17, Issue 1:

Yi, Sang-Seung

"Entry, licensing and research joint ventures"

JEL codes: L12, L13
Keywords: ex-ante licensing, ex-post licensing, research joint ventures

Abstract: Theoretical research shows that one of the more important determinants of entry is the anticipated response of incumbent firms. Incumbents can use price, advertising, or new products to limit or deter entry. Most empirical research however finds little support for these models. Using data from the ready to eat cereal industry I find weak evidence that incumbents lower their prices in response to entry. I find much stronger evidence that they respond to entry by raising the advertising investment and introducing new products. I also find that incumbents are more likely to respond when the scale of entry is greater.

Pazo, M. Consuelo and Jaumandreu, Jordi

"An empirical oligopoly model of a regulated market"

JEL codes: L13; L51; L65
Keywords: Oligopoly; Price regulation; Market-sharing arrangements; Cournot; Stackelberg

Abstract: We model a three firm oligopoly (the Spanish fertilizer industry from 1976 to 1988) which was subject to price regulation in the form of price ceilings. A theoretical and econometric model is developed in order to identify simultaneously the behaviour of the firms and the degree to which regulation constrained the price. The collusive market-sharing arrangements, involving asymmetric firms, and the less collusive outcomes of Cournot and Stackelberg, together with their constrained counterparts, are considered as particular behavioural hypotheses. The estimation of an aggregated and a disaggregated version of the model, by General Method of Moments techniques, leads us to identify the regulation-constrained Stackelberg equilibrium as the most likely outcome given the observed data.

Grant, Darren

"Recycling and market power: a more general model and re-evaluation of the evidence"

JEL codes: L12, L41, L61

Abstract: This paper presents a more general model of the recycling problem and uses it to re-examine the Alcoa antitrust case of 1945. There are three primary empirical results: 1) in the Alcoa scenario, the recycling problem had been in a steady state since the early 1920s, 2) the primary source of Alcoa's market power, in contrast to previous work, was that most of the aluminum sold by Alcoa was used in goods that were not economical to recycle, and 3) the existing, competitive secondary market was welfare-reducing, relative to a monopoly in all aluminum production.

Yun, Mikyung

"Subcontracting relations in the Korean automotive industry: risk sharing and technological capability"

JEL codes: D23; D82; D83
Keywords: Subcontracting; Technological capability; Relational contracting; Automotive industry; Organizational behaviour

Abstract: This paper employs a simple principal-agent framework to examine subcontracting relations in the Korean automotive industry. The primary objective is to understand how technological capabilities of small component suppliers affect the nature of contracts and in turn, are affected by the buyer-supplier relationship. Kinds of contracts or subcontracting relations are categorized on the basis of the degree of risk sharing. The risk sharing parameter is estimated and the determinants of risk sharing such as supplier's attitude towards risk, cost variability and technological capability are explored.

Dasgupta, Sudipto and Shin, Jhinyoung

"Information sharing, information free-riding and capital structure in oligopolies"

JEL codes:

Abstract: We study the effect of capital structure decisions on the incentives for firms in a duopoly to share information through a trade association. Focusing on the case of Cournot competition with demand uncertainty through a trade association. Focusing on the case of Cournot competition with demand uncertainty, we find that the standard result for all-equity firms that information will not be shared may be reversed. When one firm has better access to information than the other, leverage may be a way for the latter firm to free-ride on the former firm's information. With ex ante symmetric firms, a trade association will be formed even if information sharing does not occur.

Willner, Johan

"Policy objectives and performance in a mixed market with bargaining"

JEL codes:
Keywords: Public ownership, mixed olibopoly, bargaining

Abstract: We analyse a mixed oligopoly in which wages and salaries are determined by Nash bargaining and where the public firm's unit costs depend on its objectives. Because of constant returns to scale, welfare maximisation without restriction would eliminate or significantly weakent he private firm. Therefore, we focus on constrained welfare maximisation, in which unit costs are normally higher in the public firm. On the other hand, the private firm may even earn more than in a monopoly if the public firm maximises profits or if the constraint offers too much protection.