“The Voracity Effect” and Climate Change: The Impact of Clean Technologies

We show that a technological breakthrough that reduces CO2 emissions per output can exacerbate the climate change problem: countries may respond by raising their emissions resulting in an increase of the stock of pollution that may reduce welfare. Using parameter values based on empirical evidence we obtain that any 'new technology' that reduces the emissions of CO2 per dollar of GDP by less than 76% from their current level is welfare reducing. Developing clean technologies as well as transferring “cleaner” technologies to developing countries make a global post-Kyoto agreement over the control of emissions all the more urgent.Transboundary Pollution, Renewable Resource, Climate Change, Clean Technologies, Differential Games

The East German Cement Cartel : An Inquiry into Comparable Markets, Industry Structure, and Antitrust Policy

Maintaining sufficient levels of competition ranks among the core interests of any national – and increasingly international – antitrust policy; however, the formal proof that a cartel really functioned economically and did not only exist in a legal sense is hard to deliver: market power is not identical to the existence of a legal cartel unless the monopolistic frontier is reached; the legal proof of a cartel does not imply that the market was harmed. From an economic point of view, focusing on legal proof of a cartel is fruitless unless collusion resulted in excess profits or excess revenues. This economic evidence, however, rests empirically on the proper definition of comparable markets, and a sound statistical methodology. When in spring 2003, the German Antitrust Agency (GAA) fined the German cement industry – € 661 million for having established quotas in each of the four market regions through the end of 2001, the legal issue seemed beyond doubt as, beside formal inquiries, two of the industry members had acted as key witnesses. However, the economic implications drawn by the GAA remain doubtful. In this paper, we use the quota agreement in the East German market, the region for which these allegations are undisputed by all major suppliers, as a reference case. We challenge the GAA’s computation of excess income of 10 €/ton on two grounds: (i), the comparative market period chosen, 2002, does not meet the requirements of a reference market, especially regarding a certain level of stability and converging prices; (ii) three parallel developments could have triggered the price decline: the openly announced end of the quota cartel, which generated general price-setting insecurity (ii-a), the price war triggered by one of the oligopolists, who desperately tried to improve poor utilization of capacity and squeeze out competitors (ii-b), and the general decline in construction activity (ii-c). Within the framework of an econometric model based on data of one German cement producer, we find that sufficient levels of competition prevailed throughout the cartel period. Furthermore, the demand structure did not change from 2001 to 2002 so as to suggest a fundamental change in competition. Finally, no excess income or profit can be computed. In fact, we show that the general demand regime estimated for the period 1995 to 2001, which is the period of alleged market power, equally well describes the market condition of 2002. Price war and a collapsing construction market lead suppliers to maintain levels of production and capacity utilization, thus sacrificing profits at the expense of the market shares of small and medium-sized suppliers independently from the cartel issue. This empirical finding of an agreed but ineffective cartel is supported by theoretical evidence on the conditions under which cartels can work effectively – which did not exist in the East: strong import competition, a high level of transparency limiting the effects of „cheap talk“ and spatial pricing that generates local market power in the absence of cartels. Furthermore, general supply-side conditions in the cement industry suggest that a considerable level of imperfect competition is structurally unavoidable; antitrust possibilities that in the short run enforce additional competition based on the wrong assessment of effective collusion may lead to exits and less competition in the long run. We conclude that the methodology described may be useful for antitrust policy as it offers a credible analytical tool to compute excess income and profit. --antitrust,cement,competition,collusion,Germany,econometrics,excess income,excess profit,quota agreement

An Experimental Examination of Competitor-Based Price Matching Guarantees

We use experimental methods to demonstrate the anti-competitive potential of price matching guarantees in both symmetric and asymmetric cost duopolies. Our findings establish that when costs are symmetric, price-matching guarantees significantly increase market prices. In markets with cost asymmetries, guaranteed prices remain high relative to prices without the use of guarantees, but the overall ability of price guarantees to act as a collusion facilitating device becomes contingent on the relative cost difference. Lesser use of guarantees, combined with lower average prices and slower convergence to the collusive level, suggest that the mere presence of cost asymmetries may curtail collusive behavior.Price Matching; Price Guarantees; Laboratory; Collusion

EXPORT CARTELS : A Developing Country Perspective

Export cartels are exempted from the competition laws of most countries. While some scholars and several WTO members have recently condemned such cartels, others have argued that they allow efficiency gains that actually promote competition and trade. This paper examines the various issues involved, with special reference to developing countries and to recent discussions on trade and competition policy. After summarising the contending views on export cartels, and also the scanty theoretical literature on the subject, it reviews the treatment of such cartels in various jurisdictions and the limited empirical evidence that is available on their prevalence, efficiency justifications, and effects on international trade. Insights from economic theory are then applied to the arguments for and against export cartels, suggesting criteria that could help to determine their validity and an importing country’s best response. The paper concludes that while importing countries should evaluate foreign export cartels under a “rule of reason”, most of them will be constrained by a lack of technical expertise and limited enforcement capacity. It suggests a novel approach, based on parallels with anti-dumping procedures, which would strengthen their hands.antitrust, competition policy, trade negotiations, WTO.

International price discrimination in the European car market: An econometric model of oligopoly behavior with product differentiation

Car Industry;Oligopoly;Product Differentiation;Econometric Models;Price Discrimination

Bounded Rationality, Heterogeneity and Learning

The dissertation deals with both a model in which agents with limited information conform to a learning rule, as well as boundedly rational consumers who follow simple rules of thumb. The first case is treated within a generic, illustrative model situation, the so-called Shower Temperature Problem, in which the agents possess either the same (homogeneous) or an individual (heterogeneous) action space. The latter case is treated for consumer markets and additionally requires the modeling of an appropriate, strategic pricing of firms. The analysis of the Shower Temperature Problem shows that action heterogeneity represents a robust solution for the agents with only few systematic deviations, but at the cost of a higher risk for the individual agent than in the homogeneous case. Regarding the market of boundedly rational consumers, interesting results are obtained how psychological and experimental results can be cast into a mathematical model with boundedly rational, habit-forming and imitative consumers; this consumer model is analyzed and consequences are investigated. From the firms' point of view, conditions under which firms operate profitably in the long-term are examined. Furthermore, it is shown that the considered market is in a sense well-behaved, since for a rising number of firms, the prices decrease, the prices of the weakest products converge against marginal costs, and the welfare rises. Additionally, it is proven for a monopoly that Nash equilibria are found in the strategy space of all time-constant price paths. Finally, advertising is shown to be an effective method to sustain demand

Difference games and policy evaluation: A conceptual framework

Economics

Misinformative advertising

This paper analyzes how advertising can be used to mislead rivals in an oligopoly environment with demand uncertainty. In particular, we examine a two-period game in which two firms each sell a differentiated product whose attractiveness vis-à-vis the competitor's product is unknown. In each period, a firm sets prices for its product and exerts an advertising effort that is imperfectly observed by the rival later on. Advertising is persuasive in that it enhances willingness to pay, but it can also be used to manipulate rivals' beliefs about initially unobservable differences in consumers' quality perceptions. In equilibrium, each firm uses advertising to persuade consumers and to interfere with the rival's learning about this unknown dimension of demand. This can be done because the effect of imperfectly observed advertising cannot be separated out of the effect of the unknown quality differential, which creates a signal extraction problem for the competitor. There always exists acontinuum of (symmetric) equilibria, but refining the equilibrium set selects out a unique one in which firms price in the first-period as in the static equilibrium, whereas the misinformative usage of advertising makes firms under advertise if and only if the marginal cost of advertising is high enough.Firms; Productivity; Catalonia; Innovation;