Competition and the relative productivity of large and small firms

Using a comprehensive dataset on the incidence of price-fixing across British manufacturing industries in the 1950s, I compare collusive and competitive industries and find evidence of a negative relationship between collusion and the labour productivity of larger firms relative to smaller firms. In particular, collusion is associated with a reduction or even a reversal of the productivity gap between larger and smaller firms. This result is robust to controlling for the potential endogeneity of collusion.

Comparing Cournot and Bertrand Equilibria in a Differentiated Duopoly with Product R&D

This paper compares Bertrand and Cournot equilibria in a differentiated duopoly with substitute goods and product R&D. I find that R&D expenditure, prices and firms� net profits are always higher under quantity competition than under price competition. Furthermore, output, consumer surplus and total welfare are higher in the Bertrand equilibrium than in the Cournot equilibrium if either R&D spillovers are weak or products are sufficiently differentiated. If R&D spillovers are strong and products are not too differentiated, then output, consumer surplus and total welfare are lower in the Bertrand case than in the Cournot case. Thus a key finding of the paper is that there are circumstances where quantity competition can be more beneficial than price competition both for consumers and for firms.

Price Competition, Innovation and Profitability: Theory and UK Evidence

This paper examines the effect of price competition on innovation, market structure and profitability in R&D-intensive industries. The theoretical predictions are tested using UK data on the evolution of competition, concentration, innovation counts and profitability over 1952-1977. The econometric results suggest that the introduction of restrictive practices legislation in the UK had no significant effect on the number of innovations commercialised in previously cartelised R&D-intensive manufacturing industries, while it caused a significant rise in concentration in these industries. In the short run profitability decreased, but in the long run it was restored through the rise in concentration.

Price Competition, Innovation and Profitability: Theory and UK Evidence

This paper examines the effect of price competition on innovation, market structure and profitability in R&D-intensive industries. The theoretical predictions are tested using UK data on the evolution of competition, concentration, innovation counts and profitability over 1952-1977. The econometric results suggest that the introduction of restrictive practices legislation in the UK had no significant effect on the number of innovations commercialised in previously cartelised R&D-intensive manufacturing industries, while it caused a significant rise in concentration in these industries. In the short run profitability decreased, but in the long run it was restored through the rise in concentration

Does the weather affect stock market volatility?

This paper investigates the empirical association between stock market volatility and investor mood-proxies related to the weather (cloudiness, temperature and precipitation) and the environment (nighttime length). Overall, our results suggest that cloudiness and length of nighttime are inversely related to historical, implied and realized measures of volatility. The strength of association seems to vary with the location of an exchange on Earth with respect to the equator. Weather deviations from seasonal norms and dummies representing extreme weather conditions do not offer additional explanatory power in our datasets.Stock market anomalies; Volatility; Sunshine effect; SAD effect; Behavioral Finance

The Effect of Competition on Wages and Productivity: Evidence from the UK

This paper examines the impact of competition on wages and productivity using a panel data set of UK manufacturing industries over 1954-1973. The introduction of cartel law in the UK in the late 1950s caused an intensification of price competition in previously cartelized manufacturing industries, but it did not affect those industries which were not cartelized. The econometric results from a comparison of the two groups of industries before and after the introduction of cartel law provide strong evidence of a negative effect of collusion on labour productivity growth. There is no evidence of any effect of collusion on wages. These results are robust to controlling for the potential endogeneity of collusion and are further strengthened by a comparison with US data.

Downstream merger and welfare in a bilateral oligopoly

I analyse the effects of a downstream merger in a differentiated oligopoly when there is bargaining between downstream firms and upstream agents (firms or unions). Bargaining outcomes can be observable or unobservable by rivals. When competition is in quantities, upstream agents are independent and bargaining is over a uniform input price, a merger between downstream firms may raise consumer surplus and overall welfare. However, when competition is in prices or the upstream agents are not independent or bargaining is over a two-part tariff or bargaining covers both the input price and the level of output, the standard welfare results are restored: a downstream merger always reduces consumer surplus and overall welfare.

Downstream Competition, Bargaining and Welfare

I analyse the effects of downstream competition when there is bargaining between downstream firms and upstream agents (firms or unions). When bargaining is over a uniform input price, a decrease in the intensity of competition (or a merger) between downstream firms may raise consumer surplus and overall welfare. When bargaining is over a two-part tariff, a decrease in the intensity of competition reduces downstream profits and upstream utility and raises consumer surplus and overall welfare. In both cases, standard welfare results of oligopoly theory can be reversed: less competition can be unprofitable for firms and/or beneficial for consumers and society as a whole.

Comparing Cournot and Bertrand Equilibria in a Differentiated Duopoly with Product R&D

This paper compares Bertrand and Cournot equilibria in a differentiated duopoly with substitute goods and product R&D. I find that R&D expenditure, prices and firms’ net profits are always higher under quantity competition than under price competition. Furthermore, output, consumer surplus and total welfare are higher in the Bertrand equilibrium than in the Cournot equilibrium if either R&D spillovers are weak or products are sufficiently differentiated. If R&D spillovers are strong and products are not too differentiated, then output, consumer surplus and total welfare are lower in the Bertrand case than in the Cournot case. Thus a key finding of the paper is that there are circumstances where quantity competition can be more beneficial than price competition both for consumers and for firms

Are cartel laws bad for business? Evidence from the UK

Abstract: This paper examines the impact of cartel policy on firms ’ profits using a panel data set of UK manufacturing industries over 1954-1973. The introduction of cartel laws in the UK in the late 1950s caused an intensification of price competition in previously cartelised manufacturing industries, but it did not affect those industries which were not cartelised. The econometric results from a comparison of the two groups of industries suggest that the UK cartel legislation had no significant impact on firms ’ profits, although it had a strong effect on market structure. These results are in line with theoretical models that endogenise market structure by means of a free-entry condition, such as Selten (1984) and Sutton (1991)