2,315 research outputs found
Cartel and Oligopoly Pricing of Nonreplenishable Natural Resources
This essay is concerned with the implications of these structures
in markets for nonrenewable natural resources. Following Hotelling
(1931) and numerous subsequent authors, we assume that the total
reserves of the resource in the hands of each producer cannot be
increased and are reduced by production. Demand and cost conditions,
including the relevant rate of interest, are constant over time. In
such a world, producers must rationally consider price or output paths
over time, so that both models outlined above become non-zero sum differential games. In what follows, we examine solutions to the
games implied by various assumptions
The economics of interchange fees and their regulation : an overview
Debit cards ; Credit cards
Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries
Competition in many important industries centers on investment in intellectual property. Firms engage in dynamic, Schumpeterian competition for the market, through sequential winner-take-all races to produce drastic innovations, rather than through static price/output competition in the market. Sound antitrust economic analysis of such industries requires explicit consideration of dynamic competition. Most leading firms in these dynamically competitive industries have considerable short-run market power, for instance, but ignoring their vulnerability to drastic innovation may yield misleading conclusions. Similarly, conventional tests for predation cannot discriminate between practices that increase or decrease consumer welfare in winner-take-all industries. Finally, innovation in dynamically competitive industries often involves enhancing feature sets; there is no sound economic basis for treating such enhancements as per se illegal ties.
The Economics of Interchange Fees and Their Regulation: An Overview
This essay surveys the economic literature on interchange fees and the debate over whether interchange should be regulated and, if so, how. We consider, first, the operation of unitary payment systems, like American Express, in the context of the recent economic literature on two-sided markets, in which businesses cater to two interdependent groups of customers. The main focus is on the determination of price structure. We then discuss the basic economics of multi-party payment systems and the role of interchange in the operation of such systems under some standard, though unrealistic, simplifying assumptions. The key point of this discussion is that the interchange fee is not an ordinary price; its most direct effect is on price structure, not price level. We then examine the implications for privately determined interchange fees of some of the relevant market imperfections that have been discussed in the economic literature. While some studies suggest that privately determined interchange fees are inefficiently high, others point to fees being inefficiently low. Moreover, there is a consensus among economists that, as a matter of theory, it is not possible to arrive, except by happenstance, at the socially optimal interchange fee through any regulatory system that considers only costs. This distinguishes the market imperfections at issue here for multi-party systems from the more familiar area of public utility regulation, where setting price equal to marginal cost is theoretically ideal. Next, we consider the issues facing policy makers. Since there is so much uncertainty about the relation between privately and socially optimal interchange fees, the outcome of a policy debate can depend critically on who bears the burden of proof under whatever set of institutions and laws the deliberation takes place. There is no apparent basis in today's economics - at a theoretical or empirical level - for concluding that it is generally possible to improve social welfare by a noticeable reduction in privately set interchange fees. Thus, if antitrust or other regulators had to show that such intervention would improve welfare, they could not do so. This, again, is quite unlike public utility regulation or many areas of antitrust including, in particular, ordinary cartels. By the same token, there is no basis in economics for concluding that the privately set interchange fee is just right. Thus, if card associations had to bear the burden of proof - for example, to obtain a comfort or clearance letter from authorities for engaging in presumptively illegal coordinated behavior - it would be difficult for them to demonstrate that they set socially optimal fees. We take a pragmatic approach by suggesting two fact-based inquiries that we believe policymakers should undertake before intervening to affect interchange. First, policymakers should establish that there is a significant market failure that needs to be addressed. Second, policymakers should establish that it is possible to correct a serious market imperfection, assuming one exists, by whatever intervention they are considering (such as cost-based regulation of interchange fee levels) and thereby to increase social welfare significantly after taking into account other distortions that the intervention may create. We illustrate both of these points by examining the recent Australian experience.Technology and Industry, Regulatory Reform
Jeffrey Rohlfs' 1974 Model of Facebook: An Introduction
This short essay, forthcoming in Competition Policy International, summarizes and
evaluates Jeffrey Rohlfs’ 1974 Bell Journal paper, “A Theory of Interdependent
Demand for a Telecommunications Service.” Rohlfs’ work helped create a large
literature on markets with network externalities in which demand decisions have
long-lasting consequences, a literature that has informed competition policy. But
Rohlfs assumed that demand-side decisions did not have long-lasting consequences.
Social networking and Internet-based markets of this sort are increasingly important
but have not been extensively studied. While they may pose interesting antitrust
challenges, they are almost certainly not the challenges to which the post-Rohlfs
literature pointed
Evaluating Policies to Increase the Generation of Electricity from Renewable Energy
Focusing on the U.S. and the E.U., this essay seeks to advance four main propositions. First, the incidence of the short-run costs of programs to subsidize the generation of electricity from renewable sources varies with the organization of the electric power industry, and this variation is may be a significant contributor to their political attractiveness in U.S. states. Second, despite the greater popularity of feed-in-tariff schemes worldwide, renewable portfolio standard (RPS) programs may involve less long-run social risk under plausible conditions. Third, in contrast to the E.U.’s approach to reducing carbon dioxide emissions, its renewables program is almost certain not to minimize the cost of achieving its goals. Fourth, the array of state RPS programs in the U.S. are also almost certain to cost more than necessary, even though most employ market mechanisms. To support this last point I provide a fairly detailed description of actual markets for renewable energy credits (RECs) and their shortcomings.Massachusetts Institute of Technology. Center for Energy and Environmental Policy Researc
Why Is Platform Pricing Generally Highly Skewed?
Bolt and Tieman (2008) suggested the prevalence of profit function non-concavity may account for the widespread use of skewed pricing by two-sided platform businesses. In both the Rochet-Tirole (2003) and Armstrong (2006) models, however, skewed pricing may simply reflect substantial differences between side-specific demand functions; non-concavity is not necessary. In the Rochet-Tirole (2003) model, ubiquitous high pass-through rates, which seem implausible, are required for non-concavity to be prevalent. In the Armstrong (2006) model, non-concavity is not sufficient for skewed pricing. In both models, non-concavity is associated with strong indirect network effects; in the Armstrong (2006) model, such effects are also associated with dynamic instability
Greenhouse policy architectures and institutions
Supported by the MIT Center for Energy and Environmental Policy Research
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