Two stages of uniform delivered pricing and a monopolistic network in competitive electricity markets

In this contribution we assess the impact of spatial and non-spatial pricing techniques on market outcomes in deregulated electricity supply. Our analytical framework is a combination of the theory of spatial pricing and the theory of vertically related markets. A model of the traditional regional monopolies with vertical integration serves as a point of reference. The deregulated setting is characterized by a monopolistic transmission-network (upstream) and competitive production (downstream). The monoplistic network remains vertically integrated to one of the competitive producers, and serves at the same time as an essential input-facility to all producers, including the downstream-newcomers. The treatment of transport as a distinct market stage with endogenously determinded transmission- or access-rates sets this study apart from common analysis on spatial oligopolies. Specifically, we design two microeconomic models to compare two alternative pricing-arrangements: Uniform delivered pricing downstream and spatial pricing upstream on the one hand versus uniform delivered pricing downstream as well as upstream on the other hand. These options are both being practiced in different countries after deregulation and are subject to an ongoing political debate with little reference being made to theoretical foundations. The findings are threefold: Firstly, the strategic pricing behaviour on both, the monopolistic and the competitive stage is made visible. We show that in either arrangements there is no incentive on the side of the unregulated network-monopolist for complete vertical foreclosure, i.e. to set the network prices in such a way that all competition is excluded from his traditional market area. Secondly, we find that the preferences of consumers and of both types of firms vis-a-vis the spatial or non-spatial pricing policies deviate from those intuitively assumed by a number of authors. Thirdly, and most importantly, it can be shown that the total neglect of spatial components in network-pricing is accompanied by short run-welfare losses. Thus, if the simplification of network-pricing schemes by the abolishment of location- or distance-specific components induces intensified competition and - as the popular argument goes - enhanced productivity in suit, these gains will have to be weighed against the negative welfare effects caused by the disregard of spatial aspects. Too little attention is being paid to the latter side of the named trade-off.

Overview and classification of coordination contracts within forward and reverse supply chains

Among coordination mechanisms, contracts are valuable tools used in both theory and practice to coordinate various supply chains. The focus of this paper is to present an overview of contracts and a classification of coordination contracts and contracting literature in the form of classification schemes. The two criteria used for contract classification, as resulted from contracting literature, are transfer payment contractual incentives and inventory risk sharing. The overview classification of the existing literature has as criteria the level of detail used in designing the coordination models with applicability on the forward and reverse supply chains.Coordination contracts; forward supply chain; reverse supply chain

Governance arrangements for state owned enterprises

The aim of this paper is to shed new light on key challenges in governance arrangements for state owned enterprises in infrastructure sectors. The paper provides guidelines on how to classify the fuzzy and sometimes conflicting development goals of infrastructure and the governance arrangements needed to reach such goals. Three policy recommendations emerge. First, some of the structures implied by internationally adopted principles of corporate governance for state owned enterprises favoring a centralized ownership function versus a decentralized or dual structure have not yet been sufficiently"tested"in practice and may not suit all developing countries. Second, general corporate governance guidelines (and policy recommendations) need to be carefully adapted to infrastructure sectors, particularly in the natural monopoly segments. Because the market structure and regulatory arrangements in which state owned enterprises operate matters, governments may want to distinguish the state owned enterprises operating in potentially competitive sectors from the ones under a natural monopoly structure. Competition provides not only formidable benefits, but also unique opportunities for benchmarking, increasing transparency and accountability. Third, governments may want to avoid partial fixes, by tackling both the internal and external governance factors. Focusing only on one of the governance dimensions is unlikely to improve SOE performance in a sustainable way.National Governance,Banks&Banking Reform,Public Sector Economics&Finance,Debt Markets,Public Sector Expenditure Analysis&Management

Perfect Information vs Random Investigation: Safety Guidelines for a Consumer in the Jungle of Product Differentiation

We present a graph-theoretic model of consumer choice, where final decisions are shown to be influenced by information and knowledge, in the form of individual awareness, discriminating ability, and perception of market structure. Building upon the distance-based Hotelling's differentiation idea, we describe the behavioral experience of several prototypes of consumers, who walk a hypothetical cognitive path in an attempt to maximize their satisfaction. Our simulations show that even consumers endowed with a small amount of information and knowledge may reach a very high level of utility. On the other hand, complete ignorance negatively affects the whole consumption process. In addition, rather unexpectedly, a random walk on the graph reveals to be a winning strategy, below a minimal threshold of information and knowledge.Comment: 27 pages, 12 figure

The Apple E-Book Agreement and Ruinous Competition: Are E-Goods Different for Antitrust Purposes?

Publishers have spent the last decade and a half struggling against falling prices for digital goods. The recent antitrust case against Apple and the major publishers highlights collusive price fixing as a potential method for resisting depreciation. This Article examines the myriad ways in which digital distribution puts downward pressure on prices, and seeks to determine whether or not collusive price fixing would serve as an appropriate response to such pressure given the goals of the copyright grant. Considering retailer bargaining power, increased access to substitutes, the loss of traditional price discrimination methods, the effects of vertical integration in digital publishing, and the increasing competitiveness of the public domain, I conclude that the resultant downward price pressure might in fact significantly hamper the commodity distribution of digital goods. I remain unconvinced, however, that price fixing is an appropriate solution. The copyright grant affords rights holders commercial opportunities beyond simple commodity distribution. These other methods for commercializing e-goods suggest to me that current pricing trends are not indicative of market failure, but rather of a changing marketplace

Quality economics in total quality control.

The purpose of this research is to develop a general approach to quality economics in Total Quality Control. Based on microeconomics theory and the development of prevailing quality control approaches, the research develops a set of economic quality concepts which provide a solid theoretical base for economic design and evaluation in quality control. A number of quality economics modeling procedures are established in the phases of both the consumer\u27s and the producer\u27s decision makings on product quality as well as their interactions. In the context of a total quality control approach, the research first analyzes consumer behavior under quality discrimination and derives expected quality value, consumer quality loss function, consumer quality surplus, and the consumer quality decision model. Results will provide a useful means for measurement of quality loss and its effect on consumer welfare as well as information on consumer assessment of product quality. This research also analyzes the producer\u27s behavior under quality risk in an increasingly competitive market and provides both general and approximate forms of the production loss function. Conventional approaches to the analysis of the producer\u27s optimal behavior may not be adequate to illustrate product quality setting and producer behavior in quality competition. A consumer-based approach is established and employed to implement multi-competitive advantages in higher quality setting, lower cost and better consumer satisfaction. The effects of producers\u27 production/market quality strategies, with which the producer affects consumers\u27 quality decisions, is studied and modeled. This research provides theoretical guidance for quality activity in an environment of increased competition. It also offers a set of simplified and computable functions to be applied in quality control practices

Can Domestication of Wildlife Lead to Conservation? The Economics of Tiger Farming in China

Tigers are a threatened species that might soon disappear in the wild. Not only are tigers threatened by deteriorating and declining habitat, but poachers continue to kill tigers for traditional medicine, decoration pieces and so on. Although international trade in tiger products has been banned since 1987 and domestic trade within China since 1993, tigers continue to be poached and Chinese entrepreneurs have established tiger farms in anticipation of their demise. While China desires to permit sale of tiger products from captive-bred tigers, this is opposed on the grounds that it likely encourages illegal killing. Instead, wildlife conservationists lobby for more spending on anti-poaching and trade-ban enforcement. In this study, a mathematical bioeconomic model is used to investigate the issue. Simulation results indicate that, unless range states are characterized by institutions (rule of law, low corruption) similar to those found in the richest countries, reliance on enforcement alone is insufficient to guarantee survival of wild tigers. Likewise, even though conservation payments could protect wild tigers, the inability to enforce contracts militates against this. Our model indicates that wild tigers can be protected by permitting sale of products from tiger farms, although this likely requires the granting of an exclusive license to sellers. Finally, it is possible to tradeoff enforcement effort and sale of products from captive-bred animals, but such tradeoffs are worsened by deteriorating tiger habitat.endangered species, extinction, wildlife farming and bioeconomics