Capital Mobility and Asset Pricing

We present a model for the equilibrium movement of capital between asset markets that are distinguished only by the levels of capital invested in each. Investment in that market with the greatest amount of capital earns the lowest risk premium. Intermediaries optimally trade off the costs of intermediation against fees that depend on the gain they can offer to investors for moving their capital to the market with the higher mean return. Those fees also depend on the bargaining power of the investor, in light of potential alternative intermediaries. In equilibrium, the speeds of adjustment of mean returns and of capital between the two markets are increasing in the degree to which capital is imbalanced between the two markets.capital mobility, market frictions, financial intermediation, law of one price

Framework for a sustainable ERP license model in an increasingly competitive software market

A research report submitted to the Faculty of Engineering and the Built Environment, University of the Witwatersrand, in fulfilment of the requirements for the degree of Master of Science in Engineering, under the supervision of Prof. I. Botef. Johannesburg, July 2015Enterprise Resource Planning (ERP) systems have notoriously complex license models. Whilst the ERP market has been dominated since the 1980‟s by SAP AG and Oracle Corp., this picture is changing with these software giants slowly losing market share to the more than 100 proprietary ERP systems available today. Many of these new entrants wield simpler, more transparent licensing models. This research aims to understand how the current ERP license models behave under varying market conditions with the goal of developing a “framework for a sustainable ERP license model in an increasingly competitive software market”. The research issues are addressed by modelling an actual economic firm with the aid of a software simulation. The aim of this simulation is to model how closely ERP license models link the benefit of the ERP to the cost of the license model. Simpler license models (employed by the new ERP entrants) demonstrated a comparable level of cost/benefit. The research concludes with a proposed framework for a sustainable ERP license model. Potential future research includes investigating the use of gain-share or profit-share models for future software license models

Capital Mobility and Asset Pricing

We present a model for the equilibrium movement of capital between asset markets that are distinguished only by the levels of capital invested in each. Investment in that market with the greatest amount of capital earns the lowest risk premium. Intermediaries optimally trade off the costs of intermediation against fees that depend on the gain they can offer to investors for moving their capital to the market with the higher mean return. Those fees also depend on the bargaining power of the investor, in light of potential alternative intermediaries. In equilibrium, the speeds of adjustment of mean returns and of capital between the two markets are increasing in the degree to which capital is imbalanced between the two markets.

Tolling, Capacity Selection and Equilibrium Problems with Equilibrium Constraints

An Equilibrium problem with an equilibrium constraint is a mathematical construct that can be applied to private competition in highway networks. In this paper we consider the problem of finding a Nash Equilibrium regarding competition in toll pricing on a network utilising 2 alternative algorithms. In the first algorithm, we utilise a Gauss Siedel fixed point approach based on the cutting constraint algorithm for toll pricing. In the second algorithm, we extend an existing sequential linear complementarity approach for finding Nash equilibrium subject to Wardrop Equilibrium constraints. Finally we consider how the equilibrium may change between the Nash competitive equilibrium and a collusive equilibrium where the two players co-operate to form the equivalent of a monopoly operation

Aggressive Oil Extraction and Precautionary Saving: Coping with Volatility

The effects of stochastic oil demand on optimal oil extraction paths and tax, spending and government debt policies are analyzed when the oil demand schedule is linear and preferences quadratic. Without prudence, optimal oil extraction is governed by the Hotelling rule and optimal budgetary policies by the tax and consumption smoothing principle. Volatile oil demand brings forward oil extraction and induces a bigger government surplus. With prudence, the government depletes oil reserves even more aggressively and engages in additional precautionary saving financed by postponing spending and bringing taxes forward, especially if it has substantial monopoly power on the oil market, gives high priority to the public spending target, is very prudent, and future oil demand has high variance. Uncertain economic prospects induce even higher precautionary saving and, if non]oil revenue shocks and oil revenue shocks are positively correlated, even more aggressive oil extraction. In contrast, prudent governments deliberately underestimate oil reserves which induce less aggressive oil depletion and less government saving, but less so if uncertainty about reserves and oil demand are positively correlated.Hotelling rule, tax smoothing, prudence, vigorous oil extraction, precautionary saving, taxation and under-spending, oil price volatility, uncertain economic prospects and oil reserves

Spatial asymmetric duopoly with an application to Brussels’ airports

We study the problem of a city with access to two firms or subcentres (restaurants, airports) selling a differentiated product and/or offering a differentiated workplace. The first subcentre is easily congested (near city centre, access by road), the second less prone to congestion but further away. Both need to attract customers and employees and need to make profits to cover their fixed costs. This is an asymmetric duopoly game that can be solved for a Nash equilibrium in prices and wages. This solution involves excessive congestion for the nearby subcentre. Three stylised policies are studied to address this congestion. The first policy is to widen the congested road to the nearby subcentre. The second policy option is to add congestion pricing (or parking pricing etc.) for the congested subcentre. The third policy is to provide a direct subsidy to the remote subcentre so that it can reduce its price. We illustrate the theory using a numerical model applied to the two Brussels airports.duopoly, imperfect competition, congestion, general equilibrium, airport competition

Tolling, collusion and equilibrium problems with equilibrium constraints

An Equilibrium Problem with an Equilibrium Constraint (EPEC) is a mathematical construct that can be applied to private competition in highway networks. In this paper we consider the problem of finding a Nash Equilibrium in a situation of competition in toll pricing on a network utilising two alternative algorithms. In the first algorithm, we utilise a Gauss Seidel fixed point approach based on the cutting constraint algorithm for toll pricing. The second algorithm that we propose, a novel contribution of this paper, is the extension of an existing sequential linear complementarity programming approach for finding the competitive Nash equilibrium when there is a lower level equilibrium constraint. Finally we develop an intuitive approach to represent collusion between players and demonstrate that as the level of collusion goes from none to full collusion so the solution maps from the Nash to monopolistic solution. However we also show that there may be local solutions for the collusive monopoly which lie closer to the second best welfare toll solution than does the competitive Nash equilibrium

Performance of Zambian Commercial Banks in the Post-Liberalisation Period: Evidence on Cost Efficiency, Competition and Market Power

This study investigates three aspects important of performance for Zambia commercial banks. Specifically, the thesis addresses the aspect of cost efficiency and the factors that affect inefficiency performance. The study also empirically answers the policy question regarding the banks' exercise of market power and the low degree of competition. Using a richly assembled panel data set obtained from the Bank of Zambia on individual banks from 1998 to 2006, the thesis utilises theoretically sound methodologies in addressing these research questions. The results from the analysis reveal the following. Firstly, using stochastic frontier estimation approach, cost inefficiency was estimated to be 8 percent. This means that mismanagement of resources was an impediment to the efficiency performance. Nonetheless, we observed a reduction in cost inefficiency over time, with domestic private banks displaying remarkable improvement. A combination of bank-specific and exogenous factors deterred banks from attaining optimal cost efficiency. Notably, impaired loans, asset concentration and macroeconomic instability undermined the banks' ability to operate optimally. Regulatory factors did not exacerbate cost inefficiency. Secondly, Zambian banks operated in an oligopolistic set-up. Based on a methodology anchored in the New Empirical Industrial Organisation literature, the results of a competitive test showed that banks earned their revenue under conditions of monopolistic competition. This finding was buttressed by the estimated time varying Lerner Index, a measure of market power. The index showed that commercial banks set their prices above marginal cost by more than 50 percent. However, the degree of market power narrowed towards the end of the sample period. Market concentration, efficiency performance, diversity in revenue sources and regulatory intensity accounted for much of the banks' exercise of market power. On the other hand, the high proportion of interbank deposits, credit risk exposure and inflation dampened the banks' exercise of market power. To our knowledge, this study is the first of its kind in Zambia. Therefore, the results of the thesis have important policy implications. More significantly, since there is room for deepening the degree of competition and furthering efficiency gains, regulatory authorities should strengthen measures aimed at ameliorating risk problems in the banking industry in a bid to lower the banks' exercise of market power. The authorities should also accelerate should also accelerate efforts of reducing recourse to Treasury bills as a deficit financing tool in order to negate the banks' appetite for securities as a source of revenue. This can be done by placing more emphasis on the legal and institutional framework for resolving problem credit situations. This will intensify competition and propagate efficiency gains in the banking market. The authorities should also expeditiously tackle instability in the macroeconomic environment, particularly the high rate of inflation which hampered the banks' revenue performance and exacerbated the exercise of market powe