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on Industrial Competition |
| By: | Aviv, Yossi; Bazhanov, Andrei; Levin, Yuri; Nediak, Mikhail |
| Abstract: | Legal studies usually treat a policy of a manufacturer or retailer as socially harmful if it reduces product output and increases the price. We consider a two-period model where the first-period price is fixed by resale price maintenance (RPM) and resellers endogenously decide to use another "collusion suspect," meet-the-competition clause with a most-favored-customer clause (MFC), to counteract strategic customer behavior. As a result of MFC, second-period (reduced) price increases, and resellers' inventories decrease. However, customer surplus may increase and aggregate welfare increases in the majority of market situations. MFC can not only decrease the losses in welfare and resellers' profits due to strategic customers but, under reseller competition, may even lead to higher levels of these values than with myopic customers, i.e., to gains from increased strategic behavior. MFC may create "MFC-traps" for resellers, where one of possible market outcomes yields a gain from increased strategic behavior while another results in a reseller profit less than the worst profit in any stable outcome without MFC. With growing competition, benefits or losses from MFC can be higher than losses from strategic customer behavior. |
| Keywords: | most favored customer, strategic customer behavior, quantity competition, limited-lifetime product |
| JEL: | D9 L13 L41 L42 |
| Date: | 2016–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:72011&r=com |
| By: | Luca Lambertini (Department of Economics, University of Bologna, Italy; The Rimini Centre for Economic Analysis, Italy); Luigi Marattin (Department of Economics, University of Bologna, Italy) |
| Abstract: | We revisit the discussion about the relationship between price's cyclical features, implicit collusion and the demand level in an oligopoly supergame where a positive shock may hit demand and disrupt collusion. The novel feature of our model consists in characterising the post-shock noncooperative price and comparing it against the cartel price played in the last period of the collusive path, to single out the conditions for procyclicality to arise both in the short and in the long-run. |
| Keywords: | demand shocks, cyclical pricing, implicit collusion |
| JEL: | C73 E60 L13 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:16-17&r=com |
| By: | Bogdan Genchev; Julie Holland Mortimer |
| Abstract: | Conditional pricing practices allow the terms of sale between a producer and a downstream distributor to vary based on the ability of the downstream firm to meet a set of conditions put forward by the producer. The conditions may require a downstream firm to accept minimum quantities or multiple products, to adhere to minimum market-share requirements, or even to deal exclusively with one producer. The form of payment from the producer to the downstream firm may take the form of a rebate, marketing support, or simply the willingness to supply inventory. The use of conditional pricing practices is widespread throughout many industries, and the variety of contractual forms used in these arrangements is nearly as extensive as the number of contracts. This paper reviews empirical evidence on these arrangements. |
| JEL: | K0 K2 K20 K21 L0 L4 L42 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22313&r=com |
| By: | Andrew B. Bernard; Andreas Moxnes; Yukiko U. Saito |
| Abstract: | This paper examines the importance of buyer-supplier relationships, geography and the structure of the production network in firm performance. We develop a simple model where firms can outsource tasks and search for suppliers in different locations. Low search and outsourcing costs lead firms to search more and find better suppliers. This in turn drives down the firm's marginal production costs. We test the theory by exploiting the opening of a high-speed (Shinkansen) train line in Japan which lowered the cost of passenger travel but left shipping costs unchanged. Using an exhaustive dataset on firms' buyer-seller linkages, we find significant improvements in firm performance as well as creation of new buyer-seller links, consistent with the model. |
| Keywords: | production networks, trade, productivity, infrastructure |
| JEL: | F14 D22 D85 L10 L14 R12 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1435&r=com |
| By: | F. Delbono; L. Lambertini |
| Abstract: | We investigate an extended game with observable delay under duopolistic competition in affine supply functions. Firms use the intercepts of supply functions as their strategic variables. Best replies are downward (upward) sloping if the common slope of supply functions is sufficiently low (high). Accordingly, simultaneous (sequential) play is selected at the subgame perfect equilibrium when best replies are negatively (positively) sloped. There exists a unique value of the slope at which best replies are orthogonal and the choice between simultaneous and sequential play is immaterial. |
| JEL: | D43 L13 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:bol:bodewp:wp1069&r=com |
| By: | Pedro Bento (Texas A&M University, Department of Economics) |
| Abstract: | I look at manufacturing firms across countries and over time, and find that barriers to competition actually increase the number of firms. This finding contradicts a central feature of all current models of endogenous markups and free entry, that higher barriers should reduce competition and firm entry, thereby increasing markups. To rationalize this finding, I extend a standard model in two ways. First, I allow for multi-product firms. Second, I model barriers as increasing the cost of entering a product market, rather than the cost of forming a firm. Higher barriers to competition reduce the number of products per firm and per market, but increase markups and the total number of firms. Calibrating the model to U.S. data, I estimate cross-country differences in consumption as large as 3-fold due to observed differences in barriers to competition. In addition, increasing barriers generates either a negative or inverted-U relationship between firm-level innovation and markups. While higher markups encourage product-level innovation through the usual Schumpeterian mechanism, firm-level innovation (at least eventually) drops as firms reduce their number of products. I provide new evidence supporting these two novel implications of the model - that product-level innovation increases with barriers to competition, while the number of products per firm decreases. |
| Keywords: | product market regulation, entry costs, firm size, productivity, innovation, markups, competition, multi-product firms |
| JEL: | L1 L5 O1 O3 O4 |
| Date: | 2016–06–08 |
| URL: | http://d.repec.org/n?u=RePEc:txm:wpaper:20160608-001&r=com |
| By: | Fudenberg, Drew |
| Abstract: | Jean Tirole was awarded the 2014 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for his analysis of market power and regulation. This paper provides an overview of some of that work, and of his related contributions to game theory. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:hrv:faseco:27303657&r=com |
| By: | Hiroaki Ino (School of Economics, Kwansei Gakuin University); Akira Miyaoka (Graduate School of Economics, Kansai University) |
| Abstract: | We investigate the welfare effects of the strategic regulation that induces a collusive leadership of the organized domestic incumbents under free entry of foreign firms. We formulate such a strategic regulation in the quantity-setting competition where the domestic firms can collusively make their production decision before the entry of foreign firms, and demonstrate how strongly the regulation works in terms of domestic social welfare by comparing to the welfare-maximizing import tariff policy. We show that when the products of firms are homogeneous, that strategic regulation always yields higher welfare than the import tariff does even if the regulator perfectly engages in the domestic-industry protection and ignores consumer surplus. We also consider the differentiated products and demonstrate that the similar result holds when the degree of differentiation is relatively small, but the converse holds when the degree of differentiation is relatively large even if the regulator is perfectly benevolent. |
| Keywords: | Protectionism, Non-tariff barriers, Import tariff, Endogenous entry, Developmental state, Transition economy, Public enterprise, Trade association, Self-regulation |
| JEL: | F12 F13 L11 |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:kgu:wpaper:142&r=com |
| By: | Casey B. Mulligan; Kevin K. Tsui |
| Abstract: | A version of the Becker-Lancaster characteristics model featuring quality-quantity tradeoffs reveals a number of surprising market behaviors that can result from price regulations that are imposed on competitive markets for products that have adjustable non-price attributes. Quality need not clear a competitive market in the same way that prices do, because quality can reduce the willingness to pay for quantity. Producers can benefit from price ceilings, at the expense of consumers. Price ceilings can result in quality-degradation “death spirals” that would not occur under quality regulation or excise taxation. The features of tastes and technology that lead to such outcomes are summarized with pairwise comparisons of (not necessarily constant) elasticities. |
| JEL: | K2 L15 L51 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22305&r=com |
| By: | Henze, B. (Tilburg University, School of Economics and Management) |
| Abstract: | The main objective of this thesis is to use economic laboratory experiments in order to evaluate the performance of regulatory schemes and market designs in addressing challenges encountered in the regulation of European network industries. Chapter 2 assesses whether regulatory holidays and Long Term Financial Transportation Rights (LTFTR) can provide a network operator with incentives for optimal network expansion. However, in the studied environment which captures essential features of gas transportation networks, neither of the two schemes generates improvements over a baseline of price cap regulation. Chapter 3 investigates whether auctions can be used to successfully implement two-part tariff Incremental Surplus Subsidy (ISS) schemes under aggregate demand uncertainty. Depending on the method used for determining the network users’ individual contributions to the subsidy, multi-unit Vickrey auctions yield promising results. Chapter 4 finally studies the effects of providing varying degrees of transparency in a duopolistic market for experience goods. Under full transparency, the two sellers are found not to maximally differentiate the quality of their products as theory would predict but to rather engage in fierce price competition at high quality levels. Moreover, even intermediate levels of transparency result in significantly higher consumer surplus and total welfare when compared to a situation without any transparency |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutis:b18fcfca-2b95-4b01-91e2-049839e9817b&r=com |
| By: | Mike Nyawo and Neil Rankin |
| Abstract: | This paper documents the price setting behaviour, and the change in this behaviour, amongst retail firms after the introduction of the new currency system in Zimbabwe. We use sample data which covers 291 products to investigate whether prices became more flexible (rigid) and to track the adjustment process as Zimbabwe moved further away from the date the new currency system was introduced. We find evidence that prices became more flexible with time although this change is relatively small compared to the variation in the frequency of price changes between months. Compared to Lesotho and Sierra Leone, prices in Zimbabwe are stickier with more than 75 percent of products in the dataset not changing prices from the previous period. Over half of all absolute price changes are greater than 5 percent indicating that when price changes do occur, they are relatively large. Overall, the findings of the paper fit with the ‘stylised facts’ emerging about the micro aspects of price adjustment. |
| Keywords: | Pricing conduct, multicurrency, pricing heterogeneity, price rigidity |
| JEL: | E30 E31 D40 D21 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:609&r=com |
| By: | Ilin, Cornelia; Shi, Guanming |
| Abstract: | This study examines the effect of competition on price dispersion and argues that the effect is contingent on the ability of firms to meet market demand. Our comparative static results show that competition among symmetrically capacity-constrained firms leads to a price decrease in the lower tail of the price distribution and a price increase in the upper tail. In contrast, competition among symmetrically capacity-unconstrained firms, or among firms with asymmetric capacities leads to an overall price increase along the distribution function. To investigate these findings empirically, we use a novel data set from the U.S. corn seed industry with farm-firm-level sales information for conventional and genetically modified corn seeds between 2004 - 2009. We estimate the empirical model using the IV Quantile Regression, and found evidence consistent with the above mentioned comparative static results. The analysis also shows that capacity-unconstrained seed firms charge a price premium, confirming the positive relationship between product availability and pricing found in our theoretical model. |
| Keywords: | Market Structure, Capacity Constraints, Consumer Loyalty, Price Dispersion., Demand and Price Analysis, Industrial Organization, L11, L13, L66, |
| Date: | 2016–06–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea16:236532&r=com |
| By: | Dubois, Pierre; Griffith, Rachel; O'Connell, Martin |
| Abstract: | There are growing calls to restrict advertising of junk foods. Whether such a move will improve diet quality will depend on how advertising shifts consumer demands and how firms respond. We study an important and typical junk food market -- the potato chips market. We exploit consumer level exposure to adverts to estimate demand, allowing advertising to potentially shift the weight consumers place on product healthiness, tilt demand curves, have dynamic effects and spillover effects across brands. We simulate the impact of a ban and show that the potential health benefits are partially offset by firms lowering prices and by consumer switching to other junk foods. |
| Keywords: | advertising; Demand estimation; dynamic oligopoly; welfare |
| JEL: | L13 M37 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11316&r=com |
| By: | Brown, David P. (University of Alberta, Department of Economics); Eckert, Andrew (University of Alberta, Department of Economics) |
| Abstract: | We analyze the effects of electricity market mergers in an environment where firms endogenously choose their level of forward contracts prior to competing in the wholesale market. We apply our model to Alberta's wholesale electricity market. Firms have an incentive to reduce their forward contract coverage in the more concentrated post-merger equilibrium. We demonstrate that endogenous forward contracting magnifies the price increasing impacts of mergers, resulting in larger reductions in consumer surplus. Current market screening procedures used to analyze electricity mergers consider firms' pre-existing forward commitments. We illustrate that ignoring the endogenous nature of firms' forward commitments can yield biased conclusions regarding the impacts of market structure changes such as mergers. In particular, we show that the price effects of mergers can be largely underestimated when forward contract quantities are held at pre-merger levels. Whether the profits of the merged firm are greater with fixed or endogenous forward quantities is ambiguous. |
| Keywords: | Electricity; Mergers; Forward Contracts; Market Power; Regulation |
| JEL: | D43 L40 L51 L94 Q40 |
| Date: | 2016–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2016_006&r=com |
| By: | Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Olsson, Martin (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We analyze how the Bosman ruling affected the market for star players and talent development in the European football market. We develop a model with sports competition and endogenous ownership of star players in which we show how the stiffer bidding competition over star players after the Bosman ruling has spurred talent development foremost in EU nations lacking established top clubs. This has a positive impact on their national teams’ performance. However, the stiffer bidding competition has also lead to less competition in the Champions League, as non-established clubs prefer to sell their star players instead of challenging the top clubs. We provide empirical evidence consistent with these findings. |
| Keywords: | Sports industry; Star players; Champions League; Bosman ruling |
| JEL: | J44 L50 L83 |
| Date: | 2016–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1126&r=com |
| By: | Lange, Mirjam R. J.; Saric, Amela |
| Abstract: | Developments in the EU telecommunications markets require a recurrent redesign of the regulatory framework for telecommunications services. In this regard, the analysis of the substitution effects between different types of telephony is the cornerstone of market definition and therefore of effective regulation. This paper explores the access substitution between fixed-lines, mobiles, and managed VoIP in a unified EU cross-country framework. We employ a half-yearly dataset for 20 EU countries for the 2008-2011 period and apply dynamic panel data methods. Our analysis demonstrates strong access substitution between fixed-lines and mobiles and provides indicative evidence on the substitution between fixed-lines and VoIP. Overall, we find evidence in favor of access substitution and therefore of joint market definition. Regulatory obligations imposed on the market for access to fixed telephone networks might therefore be redundant. |
| Keywords: | Fixed-mobile-VoIP substitution,Telecommunications markets,(De)regulation,Market definition,Dynamic panel data analysis |
| JEL: | C23 L43 L51 L96 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:221&r=com |
| By: | OECD |
| Abstract: | The digital convergence anticipated during the 2008 Seoul Ministerial has become a reality. Historically, communication services were delivered via single-purpose dedicated networks (e.g. telephone, television). Many OECD countries now function with converged networks, facilitated by the Internet Protocol (IP) in which “bits” are the building blocks for transmission of all content and service – all “applications.” This process of convergence is steadily deepening as technology evolves and more and more activity shifts online. In particular, technological, service and business innovations both at the core and at the edge of the network are significantly affecting competitors, investors and consumers. This report identifies trends in convergence, the opportunities and challenges arising from these changes and suggests policies to meet them. |
| Date: | 2016–06–07 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stiaab:251-en&r=com |
| By: | Demet Yilmazkuday (Department of Economics, Florida International University); Hakan Yilmazkuday (Department of Economics, Florida International University) |
| Abstract: | This paper models and estimates the gasoline price dispersion across time and space by using a unique data set at the gas-station level within the U.S.. Nationwide effects (measured by time Â…fixed effects or crude oil prices) explain up to about 51% of the gasoline price dispersion across stations. RefiÂ…nery-specific costs, which have been ignored in the literature due to using local data sets within the U.S., contribute up to another 33% to the price dispersion. While state taxes explain about 12% of the price dispersion, spatial factors such as local agglomeration externalities, land prices, distribution costs of gasoline explain up to about 4%. The contribution of brand-specifiÂ…c factors is relatively minor. |
| Keywords: | Gasoline Prices, Gas-Station Level Analysis, Nighttime Lights, Land Prices, the United States |
| JEL: | L11 L81 R32 R41 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:fiu:wpaper:1602&r=com |
| By: | Ines Wilms; Luca Barbaglia; Christophe Croux |
| Abstract: | Retailers use the Vector AutoRegressive (VAR) model as a standard tool to estimate the effects of prices, promotions and sales in one product category on the sales of another product category. Besides, these price, promotion and sales data are available for not just one store, but a whole chain of stores. We propose to study cross-category effects using a multi-class VAR model: we jointly estimate cross-category effects for several distinct but related VAR models, one for each store. Our methodology encourages effects to be similar across stores, while still allowing for small differences between stores to account for store heterogeneity. Moreover, our estimator is sparse: unimportant effects are estimated as exactly zero, which facilitates the interpretation of the results. A simulation study shows that the proposed multi-class estimator improves estimation accuracy by borrowing strength across classes. Finally, we provide three visual tools showing (i) the clustering of stores on identical cross-category effects, (ii) the networks of product categories and (iii) the similarity matrices of shared cross-category effects across stores. |
| Keywords: | Fused Lasso, Multi-class estimation, Multi-store sales application, Sparse estimation, Vector AutoRegressive model |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:ete:kbiper:540947&r=com |
| By: | Sofía Bauducco; Alexandre Janiak |
| Abstract: | We build a model of bank concentration. Banks and entrepreneurs meet in a credit market characterized by search frictions and negotiate repayment rates à la Nash. Banks are large in the sense that they allocate credit to more than one entrepreneur through branches and there is bank heterogeneity in terms of their cost structure. Banks have incentives to overlend, generating a scale inefficiency and overconcentration of banks. We find that this friction also generates too much concentration on the goods market, lowering aggregate output and welfare. We calibrate the model with data on the distribution of branches across banks in the US and available estimates on X-efficiency in the banking sector to assess the quantitative importance of this effect. We find that aggregate output would increase by 2.4% had the scale inefficiency been absent, while loan rates would decrease by 1.2%. JEL classiffications: E44; G21; G28. Key words: Keywords: Bank concentration; Bargaining; Search; Scale inefficiency; X-efficiency. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:edj:ceauch:321&r=com |
| By: | Barbara Annicchiarico (DEF and CEIS, Università di Roma "Tor Vergata"); Luca Correani (Dipartimento di Economia e Impresa, Università degli Studi della Tuscia); Fabio Di Dio (Sogei S.p.a. - IT Economia) |
| Abstract: | This paper presents a simple dynamic general equilibrium model with supply-side strategic interactions to study the economic effects of mitigating greenhouse gas emissions in an economy with an emission cap and oligopolistic firms competing on prices. With such endogenous market structure a gradual decarbonization policy is likely to induce higher markups, while the number of active firms displays a U-shaped behavior, first decreasing and then increasing. In the long run more firms are active, but they transfer a part of the compliance cost to households by charging a higher markup. The negative effects on the level of economic activity of this anti-competitive outcome are strongly mitigated by recycling policies. |
| Keywords: | Environmental Policy, Dynamic General Equilibrium Model, Endogenous Market Structure. |
| JEL: | E32 Q54 Q58 |
| Date: | 2016–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:384&r=com |
| By: | Zack Cooper; Stephen Gibbons; Matthew Skellern |
| Abstract: | This paper examines the impact of competition from government-facilitated entry of private, specialty surgical centres on the efficiency and case mix of incumbent public hospitals within the English NHS. We exploit the fact that the government chose the location of these surgical centres (Independent Sector Treatment Centres or ISTCs) based on nearby public hospitals' waiting times - not length of stay or clinical quality - to construct treatment and control groups that are comparable with respect to key outcome variables of interest. Using a difference-in-difference estimation strategy, we find that ISTC entry led to greater efficiency - measured by pre-surgery length of stay for hip and knee replacements - at nearby public hospitals. However, these new entrants took on healthier patients and left incumbent hospitals treating patients who were sicker, and who stayed in hospital longer after surgery. |
| Keywords: | Hospital Competition, Public-Private Competition, Market Entry, Market Structure, Outsourcing, Hospital Efficiency, Risk Selection, Cherry Picking |
| JEL: | C23 H57 I11 L1 L33 R12 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1434&r=com |
| By: | Haiyan Liu (Department of Economics, University of South Florida) |
| Abstract: | This paper empirically studies how social learning among consumers shapes ?firms' ?optimal strategies of using advertising to signal product quality. I present an equilibrium model that describes both consumers? and fi?rms' ?learning and decision-making under quality uncertainty. My model allows me to distinguish between two roles of informative advertising ?reaching consumers and signaling product quality. I apply the model to the U.S. motion picture theatrical market where advertising and social learning are two main factors for a new movie?'s success. The structural estimates imply that movie studios? signaling advertising only helps to reduce consumers'? uncertainty by less than 10 percent. Word-of-mouth is a much more efficient learning channel for consumers, reducing their uncertainty by more than 90 percent. I also ?find that around 27 percent of advertising spending for movies in my sample is used for signaling product quality, while 73 percent is used for reaching consumers. Studios? tendency to advertise more during the pre-release rather than the post-release weeks is explained to a large extent by the signaling purpose. |
| Keywords: | Advertising, Signaling, Social Learning, Information, Motion Picture Industry |
| JEL: | D22 D82 D83 L15 L82 M37 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:usf:wpaper:0216&r=com |
| By: | Suyunchev, O.O. (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Mozgovaya, Oxanaàíà Olegovna (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Agafonov, D.V. (Russian Presidential Academy of National Economy and Public Administration (RANEPA)) |
| Abstract: | The research provides the survey of railway infrastructure regulation according to attracting investments for sector development. The research analyses the modern railway infrastructure of the Russian Federation and railway infrastructure services. The impact of railway infrastructure services tariffs on the service fees of railway transport operators (freight and passenger) was studied. The analysis of railway infrastructure government regulation practices and the applied mechanisms to attract and retain investments in the infrastructure sector was carried out. |
| Keywords: | railway infrastructure, regulation, Russian Federation |
| Date: | 2016–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:wpaper:2545&r=com |
| By: | Sendstad, Lars Hegnes (Dept. of Business and Management Science, Norwegian School of Economics); Chronopoulos, Michail (School of Computing, Engineering and Mathematics, University of Brighton) |
| Abstract: | Investment in emerging technologies is particularly challenging, since, apart from uncertainty in revenue streams, firms must also take into account both policy uncertainty and the random arrival of innovations. We assume that the former is reflected in the sudden provision and retraction of a support scheme, which takes the form of a fixed premium on top of the output price. Thus, we develop an analytical framework for sequential investment in order to determine how price, technological, and policy uncertainty interact to affect the decision to invest sequentially in successively improved versions of an emerging technology. We show that greater likelihood of subsidy retraction lowers the incentive to invest, whereas greater likelihood of subsidy provision facilitates investment. However, embedded options to invest in improved technology versions raise the value of the investment opportunity, thereby mitigating the impact of subsidy retraction and making the impact of subsidy provision more pronounced. Additionally, by allowing for sequential policy interventions, we find that the impact of policy uncertainty becomes less pronounced as the number of policy interventions increases. |
| Keywords: | Investment analysis; real options; policy uncertainty; technological uncertainty |
| JEL: | G00 G11 |
| Date: | 2016–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2016_010&r=com |
| By: | Matthew Doyle (Division of Economics and Business, Colorado School of Mines); Ian Lange (Division of Economics and Business, Colorado School of Mines) |
| Abstract: | Natural gas power plants can further specify their procurement contracts with pipeline distributors using a firm contract option that guarantees delivery at an additional cost. Using transaction level data from 2008-2012 we empirically test what characteristics lead to use of firm contracts and how the premium for firm contracts changes with these characteristics. Using variation in power plants technology type (combined vs. simple cycle) and electricity market structure (restructured vs. regulated), we generally find support for transaction cost theory in the data. Smaller plants, plants located in states with more variance in electricity demand, and plants in states with more inflow pipeline capacity are statistically less likely to use a firm contract. Firm contracts are on average 2.5% (14 cents per Mcf) more expensive and this premium increases as the weather is colder and the state a plant is located in has less inflow capacity. |
| Keywords: | Natural Gas, Procurement Contracts, Pipelines, Electricity |
| JEL: | Q40 L94 L95 L14 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:mns:wpaper:wp201605&r=com |
| By: | Dafano, Alessandro |
| Abstract: | This paper aims to highlight a newsworthy initiative built up by the Italian Industrial Association which tried to give the Italian economy a forerunner “competition law”; however, in the Seventies Italy proved incapable of tying itself with rules of conduct, which were substituted, empowering an “external constraint”. We will firstly provide an economic and historical-institutional framework of that period; we will then describe the making and the contents of the “Statute of the Firm”, together with a critical analysis on it; finally, we will report some critics around the debate on this proposal, and why the Statute was rejected by entrepreneurs themselves. |
| Keywords: | competition, Guido Carli, Confindustria, role of the firm, pluralism, innovation, regulation, economic planning. |
| JEL: | B21 N44 N84 P11 P12 |
| Date: | 2016–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:71689&r=com |