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

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

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

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

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.

Greenhouse policy architectures and institutions

Supported by the MIT Center for Energy and Environmental Policy Research

"On a Level with Dentists?" Reflections on the Evolution of Industrial Organization

This essay provides a brief overview of the evolution of the field of industrial organization from its emergence to the present, and it offers some observations about the present state of the field. While there has been considerable progress in industrial organization over time, its uphill path has not been straight