Inducing Efficiency in Oligopolistic Markets with Increasing Returns to Scale

We consider a Cournot Oligopoly market of firms possessing increasing returns to scale technologies. It is shown that an external regulating agency can increase total social welfare without running a deficit. It offers to subsidize one firm an amount which depends on the output level of that firm. The firms bid for this contract and the regulator collects the highest bid and subsidizes the highest bidding firm. It is shown that there exists a subsidy schedule such that (i) The regulator breaks even (namely the winning bid equals the total subsidy) (ii) The winning firm obtains zero net profit and charges a price equal to its average cost (iii) Every other firm willingly exit the market and (iv) Market price decreases, consumers are better off and total welfare improves.Regulation, Oligopoly, Increasing Returns

Globalisation and Market Structure

This paper reviews some puzzling economic aspects of globalisation and argues that they cannot be satisfactorily addressed in perfectly or monopolistically competitive models. Drawing on recent work, a model of oligopoly in general equilibrium is sketched. The model ensures theoretical consistency by assuming that firms are large in their own markets but small in the economy as a whole, and ensures tractability by assuming quadratic preferences defined over a continuum of goods. Applications considered include the effects of trade liberalisation on industrial structure, on cross-border merger waves, and on the distribution of income between skilled and unskilled workers.Cross-border mergers; GOLE (General Oligopolistic Equilibrium); market integration; trade and wages; trade liberalisation

Strategic Action in the Liberalised German Electricity Market

Nowadays, a process can be observed in Germany where electricity producing and trading firms react to the electricity market liberalisation by merging market shares, since the year 2000, which reduces the number of suppliers and influences production and consumer prices. This paper discusses whether the liberalisation process will have positive or negative impacts on the environmental situation and whether this process together with a phase out of nuclear power can guarantee the intended improvement of environmental conditions without governmental regulation in Germany. This is done by modelling different strategic options of energy suppliers and their impacts on the economic and environmental situation in the liberalised German electricity market by a computational game theoretic model. Calculations with this model show that when German firms act strategically (e.g. a change in action of one firm affects the electricity price and, hence, the payoffs of other firms), the environment is better off at the cost of higher electricity prices. This result is robust to perturbations as shows by performing a sensitivity analysis.Electricity market liberalisation, game theoretic model, environmental effectiveness

The political economy of European anti-trust and industrial policy

This paper discusses alternative political economic perspectives on competition (antitrust) and industrial policies (IP), in theory and in practice, while critically assessing recent European IP in this context. It develops a new framework for IP, which emphasises the sustainability of value and wealth creation at the firm, meso and supranational levels, and explores its implications for IP in general and European IP in particular. It views current EU policies as a step in the right direction, but argues that they need to pay more attention to the issue of economic sustainability, the link between corporate, public and supranational governance, and the impact that different power structures and hierarchies of agencies have on industrial policies for sustainable value and wealth creation. The limitations of self-monitoring and diversity suggest the need for an accountable supranational competition and regulatory policy organisation with a strong focus on economic sustainability.European Industrial Policy, Market Failure, Resource Creation, Economic Sustainability

Monopolistic Competition, Second Best, and \u3cem\u3eThe Antitrust Paradox\u3c/em\u3e: A Review Article

A Review of The Antitrust Paradox: A Policy at War with Itself by Robert H. Bor

Free Trade Areas with Politically Active Oligopolies

I evaluate in this paper the effects of Free-Trade Areas (FTAs) on the incentives for further multilateral liberalization (ML) using a model that emphasizes the role of oligopolistic industries in creating both reasons for strategic trade policies and political pressures aimed to affect trade policy decisions. In this context, I find that FTAs are in general unable to undermine an otherwise feasible ML process. The primary reason regards an identified "tariff complementarity effect," which indicates that a FTA induces its members to reduce their remaining tariffs. This effect reflects mainly the reduction of the strategic reasons from protection under a FTA, and ensures a move toward "trade creation." The introduction of political pressures may revert that result. Nevertheless, this would happen only in the presence of coordination failures between the national oligopolies, and even in that case such undermining would be unlikely to occur.

Structural Separation versus Vertical Integration: Lessons for Telecommunications from Electricity Reforms

Structural separation between network and retail functions is increasingly being mandated in the telecommunications sector to countervail the market power of incumbent operators. Experience of separation in the electricity sector offers insights for telecommunications. Despite apparent competitive benefits the costs of contracting increase markedly when short-term focused electricity retail operations are separated from longer-term generation infrastructure investments (which require large up-front fixed and sunk cost components). The combination of mismatches in investment horizons entry barriers and risk preference and information asymmetries between generators and retailers leads to thin contract markets increased hold-up risk perverse wholesale risk management incentives and bankruptcies. Direct parallels in the telecommunications sector (e.g. separated retail and infrastructure functions) indicate exposure to similar complications intensifying many of the contractual risks arising from regulated access arrangements. In both sectors competition between vertically integrated providers appears more likely to efficiently and sustainably induce both investment and competition than separation

Regional agreements and trade services - policy issues

Every major regional trade agreement now has a services dimension. Is trade in services so different that there is need to modify the conclusions on preferential agreements pertaining to goods reached so far? The authors first examine the implications of unilateral policy choices in a particular services market. They then explore the economics of international cooperation and identify the circumstances in which a country is more likely to benefit from cooperation in a regional rather than multilateral forum.Health Economics&Finance,Environmental Economics&Policies,Decentralization,Economic Theory&Research,Payment Systems&Infrastructure,Economic Theory&Research,Environmental Economics&Policies,Trade and Services,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Trade and Regional Integration