Fuel subsidies versus market power : is there a countervailing second-best optimum?

Fuel subsidies distort end-use prices below cost, resulting in overconsumption and huge environmental cost. On the other hand, the mark-up over cost due to the exercise of market power results in the social loss of consumer surplus. We open a new line of inquiry into the potential for a market-based solution from these two countervailing forces: can the two offsetting distortions conceivably achieve a second- best optimum? Relying on dynamic panel techniques and gasoline market data for 68 developing countries, we uncover an excessive second-best subsidy offset to market power mark-up on the order of 4.5. Our results indicate that the potential for policy failure strongly exceeds the potential for market failure in our model, and gasoline prices across our sample may not be aligned with vigorous anti-climate change policy

Market Power and Technological Bias: The Case of Electricity Generation

It is difficult to elminated all market power in electricity markets and it is therefore frequently suggested that some market power should be tolerated: extra revenues contribute to fixed cost recovery,facilitate investment and increase security of supply. This suggestion implicitly assumes all generation technologiesbenefit equally from market power. We assess a mixture of conventional and intermittent generation, eg coal plants and wind power. If all output is sold in the spot market, then intermittent generation benefits less frommarket power than conventional generation. Forward contracts or option contracts reduce the levelof market power but bias against intermittent generators persists

Exhuming Q: market power capital market imperfections

Evidence of the statistical significance of profits in Q regressions remains one of the principal findings in the empirical investment literature. This result is frequently taken to support the view that capital market imperfections are an important element for understanding investment. This paper challenges that conclusion. We argue that allowing the profit function at the firm level to be strictly concave, reflecting, for example, market power, is sufficient to replicate the Q theory based regression results in which profits are a significant factor determining investment. To be clear, our ability to replicate the existing results does not require the specification of any capital market imperfections. Thus the friction that explains the statistical significance of profits could be market power by sellers rather than capital market imperfections.Capital investments ; Corporate profits ; Regression analysis

Commercial publishing - a quiet life? Market power and performance on the Dutch market for consumer magazines

The study analyses the Dutch market for consumer magazines. Magazines share a number of characteristics with other information goods: they are experience goods, non-rival, have high fixed and low marginal cost, and content can be subsidised or sponsored by advertising. We develop a simple theoretical model to show that, if readers value content, it is profit maximising for publishers to use pricing power in the advertising market to subsidise the price charged from readers. The empirical analysis is based on a panel data set of 71 Dutch magazines over the period 1990 - 1998. The regression results suggest that magazines with a higher circulation are indeed sold at lower newsstand prices, while ad rates tend to be higher for these magazines. The analysis of the market indicates that policy makers should be on the look-out for anti-competitive actions taking place in upstream or downstream markets.

Market Power and Inflation

Market power exercised by firms has become central to macroeconomics. Recent theoretical work highlights the importance of the relation between market power and inflation. We examine this relation for individual firms in eleven U.S. industries. Our econometric framework exploits restrictions from dynamic theory and information from financial markets to generate quantitative evidence on the responsiveness of market power to inflation. We find that inflation usually has a positive effect on market power. This relation is heterogeneous across the eleven industries, and statistically significant positive relations are concentrated in industries with little market power.

Market power in the Victorian retail energy market

According to the Australian Energy Market Commission (AEMC), the objectives of energy retail market competition are to give customers the opportunity to choose among competing retailers and to deliver efficient prices and services.1 In neoclassical economic theory, effective competition is desirable because it allocates resources efficiently and maintains pressure on market participants to deliver efficient prices to consumers. The Victorian retail energy market is designed to work competitively with the informed choices of consumers placing competitive constraints on price and restricting inefficient market outcomes. Unlike other Australian retail energy markets, Victorian retail prices are not subject to a regulated price cap

Estimating the Degree of Buyers' Market Power: Evidence from the Ukrainian Meat Processing Industry

This study develops a structural market model for the econometric analysis of buyers’ market power in the Ukrainian meat processing industry, because there is some evidence that suggests that meat processors may excise market power in the agricultural market of slaughtered livestock. The estimation results did not produce any evidence suggesting the existence of buyers’ market power. Contrary to many other NEIO-studies, we extended the market structure market model by the three subsequent models. Using endogenously determined values for market power parameter, we found that meat processors concerning the buyers’ market for slaughtered livestock behave consistently with Cournot conjectures.Cournot competition, market power, meat processing industry, new empirical industrial organisation (NEIO), Ukraine, Livestock Production/Industries, Marketing,