Competition, Consumer Welfare, and the Social Cost of Monopoly

Conventional deadweight loss measures of the social cost of monopoly ignore, among other things, the social cost of inducing competition and thus cannot accurately capture the loss in social welfare. In this Article, we suggest an alternative method of measuring the social cost of monopoly. Using elements of general equilibrium theory, we propose a social cost metric where the benchmark is the Pareto optimal state of the economy that uses the least amount of resources, consistent with consumers' utility levels in the monopolized state. If the primary goal of antitrust policy is the enhancement of consumer welfare, then the proper benchmark is Pareto optimality, not simply competitive markets. We discuss the implications of our approach for antitrust law as well as how our methodology can be used in practice for allegations of monopoly power given a history of price-demand observations.Monopoly power, Antitrust economics, Applied general equilibrium

Microeconometric Models of Rationing, Imperfect Markets, and Non-Negativity Constraints

This paper provides a theoretically consistent approach to estimating demand relationships in which kink points occur either in the interior or on the vertices of the budget set. There are important classes of problems in developing countries which demonstrate such kinked budget sets including binding non-negativity constraints. This paper also extends these methods to the estimation of production structures. As an application a translog cost function for three energy inputs is estimated from cross-sections of individual Indonesian firms.Political Economy,

Energy and labor aware production scheduling for industrial demand response using adaptive multi-objective memetic algorithm

Price-based demand response stimulates factories to adapt their power consumption patterns to time-sensitive electricity prices to reduce cost. This paper introduces a multi-objective optimization model which schedules job processing, machine idle modes, and human workers under real-time electricity pricing. Beyond existing models, labor is considered due to the trade-off between energy and labor costs. An adaptive multi-objective memetic algorithm is proposed to leverage feedback of cross-dominance and stagnation in a search and a prioritized grouping strategy. Thus, adaptive balance remains between exploration of the NSGA-II and exploitation of two mutually complementary local search operators. A case study of an extrusion blow molding process in a plastic bottle manufacturer demonstrate the effectiveness and efficiency of the algorithm. The proposed scheduling method enables intelligent production systems, where production loads and human workers are mutually matched and jointly adapted to real-time electricity pricing for cost-efficient production

Competition, Consumer Welfare, and the Social Cost of Monopoly

Conventional deadweight loss measures of the social cost of monopoly ignore, among other things, the social cost of inducing competition and thus cannot accurately capture the loss in social welfare. In this Article, we suggest an alternative method of measuring the social cost of monopoly. Using elements of general equilibrium theory, we propose a social cost metric where the benchmark is the Pareto optimal state of the economy that uses the least amount of resources, consistent with consumers’ utility levels in the monopolized state. If the primary goal of antitrust policy is the enhancement of consumer welfare, then the proper benchmark is Pareto optimality, not simply competitive markets. We discuss the implications of our approach for antitrust law as well as how our methodology can be used in practice for allegations of monopoly power given a history of price-demand observations

Why manufacturing firms produce some electricity internally

Many manufacturers in developing countries produce their own electricity because the public supply is unavailable or unreliable. The authors develop a model of the firm in which electricity is produced internally, with scale economies. The model explains the observed behavior (prevalent in Nigeria, common in Indonesia, and rare in Thailand) that firms supplement their purchases of publicly produced electricity with electricity produced internally. To prepare an econometric estimate, they specify a translog model. In Nigeria, where firms exhibit excess capacity, generators are treated as a fixed input, whereas in Indonesia, where firms are expanding, they are variable. They confirm strong scale economies in internal power production in both Nigeria and Indonesia. Shadow price analysis for both countries shows that smaller firms would pay much more for public power than larger firms would. Instead of giving quantity discounts, public monopolies should charge the larger firms more and the smaller firms less than they presently charge. In Nigeria, the large firms would make intensive use of their idle generating capacity, while in Indonesia their would expand their facilities. In both countries, small users would realize savings by having to rely less on expensive endogenous power.Public Sector Economics&Finance,Environmental Economics&Policies,Economic Theory&Research,Energy Technology&Transmission,Markets and Market Access,Energy Technology&Transmission,Public Sector Economics&Finance,Carbon Policy and Trading,Environmental Economics&Policies,Economic Theory&Research

Electricity Sector Reform: Sourcing and Cost Management of Electricity for Steel Manufacturing in Nigeria

In 2014, Lazard levelized cost of energy analysis model priced diesel powered systems at $0.225 –$0.404/KWh and a range of $0.165 –$0.242/KWh for gas-powered systems. The model gave a range of $0.28 –$0.33/kWh for diesel and a range of $0.14/kWh –$0.16/kW for gas fired. Nigeria has an abundance of gas reserves, but heavy gas flaring by oil companies perpetuates power failure across Nigeria. What has resulted is an unreliable electricity infrastructure and a high cost of alternative energy. The Electricity Power Sector Reform Act of 2005 started the reform process. Guided by decision theory, the purpose of this multiple case study was to understand the perceptions of business leaders at the steel manufacturing businesses on how the use of multiple supply sources of electricity might lead to survival, growth, and profitability. The study’s population consisted of 10 steel manufacturing companies in the Southwest region of Nigeria. The data were collected via semistructured interviews with the leaders who source energy, a review of archival records, and observations of company officials placing orders from multiple sources. The van Kaam method of data analysis generated 5 themes: cost of generating electricity and the investment in alternative sources of energy, erratic power supply and its impact on the steel production industry, quality of power supply relative to the capacity and its impact on profits, electricity factor in the steel production process, and use of multiple sources. These findings may contribute to social change by increasing employment opportunities for members of the local community, who will have an enhanced understanding about steel and seize entrepreneurial opportunities

Commercial energy efficiency and the environment

The production and use of energy create serious, extensive environmental affects at every level, in every country, argue the authors. That impact may be more serious in developing than in developed countries as developing countries depend more on natural resources and lack the economic strength to withstand environmental consequences. At the same time, a reliable energy supply is vital to economic growth and development. Energy consumption and economic growth have been somewhat delinked at high income levels, but increased energy consumption (especially of electricity) is inevitable with higher GDP. Greater energy efficiency in developing countries and Eastern Europe is a high-priority way to mitigate the harm to the environment of growing energy consumption, say the authors. They outline four advantages of greater energy efficiency. It requires measures that are in the economic self-interest of those regions. Political obstacles make these measures difficult, but there are well-established techniques for addressing concerns about low-income consumers (such as direct income support or life-line rates). It will help conserve the world supply of nonrenewable (especially fossil) fuels. It will encourage appropriate fuel switching. It addresses every level of concern, up to the global effects of global warming. Any strategy to make energy use and production more efficient must rely more extensively than before on markets that are allowed to function with less government interference. The crucial components of such a straetegy (also crucial to economic development generally) are: more domestic and external competition; the gradual elimination of energy pricing distortions; the reduction of macroeconomic and sectoral distortions (for example, in foreign exchange and credit markets); the reform of energy supply enterprises - reducing state interference, providing more financial autonomy and a greater role for the private sector; consumer incentives to select more efficient lights, space heating, and so on. The authors are not convinced of the need for nonmarket approaches beyond those geared to correct externalities, provide essential information, support basic research and development, and possibly promote pilot projects. They also conclude that a government is far more likely to take action to reduce an environmental externality if it captures benefits within its own national boundaries that exceed the cost of the action. Reducing the large difference between energy prices and economic costs in developing countries and Eastern Europe is a more immediate issue than carbon taxes. The developed countries, say the authors, have an indispensable role to play in improving energy efficiency in the developing countries and Eastern Europe. They can encourage the flow of efficient technology, they can increase conventional aid, and they must accept a greater share of the burden of protecting the global commonalities.Energy and Environment,Environmental Economics&Policies,Energy Demand,Transport and Environment,Power&Energy Conversion