A generalized index of market power

This paper analyses two approaches to measuring market power-the commonly used Lerner index and a range of exploitation measures-. Itis argued that the Lerner index is designed to quantify market power fromthe supply side and the exploitation measures are designed to quantify marketpower from the demand side, and that the two approaches do not always behavein a symmetric way, since they do not always have the same bounds. To sortout these potentially undesirable properties, this paper proposes a new generalindex to measure market power, which is symmetrical in the sense that it isbounded between zero and one, regardless of whether the market power comesfrom the supply or the demand side. The index proposed allows for the presenceof more than one firm and for the existence of conjectural variations.*******************************************************************************************************************Este documento analiza dos enfoques para medir poder de mercado-el frecuentemente utilizado índice de Lerner y un conjunto de medidas de explotación-. Se argumenta que el índice de Lerner está diseñado para cuantificarel poder de mercado por el lado de la oferta y que las medidas de explotaciónestán diseñadas para cuantificar el poder de mercado por el lado de la demanda,y que esos dos enfoques no siempre tienen los mismos límites. Paracorregir estas propiedades potencialmente no deseables, este documento proponeun nuevo índice general para medir poder de mercado, que es simétrico-estando restringido a valores entre cero y uno-, independientemente de si elpoder de mercado proviene del lado de la oferta o de la demanda. El índice propuestopermite la presencia de más de una firma y la existencia de variacionesconjeturales.market power, mark up, mark down, Lerner index, exploitation measures, industrial organization, conjectural variations

A FORMAL PROOF OF THE FACTOR PRICE EQUALIZATION THEOREM

This paper provides a formal proof of the Factor Price Equalization Theorem within the Heckscher Ohlin model derived by Ronald W. Jones in The Structure of Simple General Equilibrium Models" (1965), where formal proof is provided for the Heckscher Ohlin, Stolper Samuelson and Rybczynski Theorems."International Trade

A GENERALIZED INDEX OF MARKET POWER

This paper analyses two approaches to measuring market power -the commonly used Lerner index and a range of exploitation measures-. It is argued that the Lerner index is designed to quantify market power from the supply side, and the exploitation measures are designed to quantify market power from the demand side, and that those two approaches do not always behave in a symmetric way, since they do not always have the same bounds. To sort out these potentially undesirable properties, this paper proposes a new general index to measure market power, which is symmetrical in the sense that it is bounded between cero and one, regardless of whether the market power comes from the supply or the demand side. The index proposed allows for the presence of more than one firm and for the existence of conjectural variations.Market Power, Mark Up, Mark Down, Lerner Index, Exploitation Measures, Industrial Organization, Conjectural Variations

INTERNATIONAL TRADE, MIGRATION AND INVESTMENT WITH HORIZONTAL PRODUCT DIFFERENTIATION AND FREE ENTRY AND EXIT OF FIRMS

This paper builds on a circular road model of the world with horizontal product differentiation and free entry and exit of firms, to derive results that can be applied in industrial organization, international trade and political economy. The model shows that freer international trade increases welfare -with ideal variety preferences through the exploitation of economies of scale and better allocative efficiency; that all participating countries gain from trade, and that smaller countries have more to win from free trade than larger countries. The model also explains that there may be adjustment costs when liberalizing trade and thus, political resistance to trade liberalization. International migration can also be analyzed with the model, showing the possibility of suboptimal migration flows and political barriers to the exit of national citizens. The model suggests that foreign direct investment will be welfare improving for the source country in the short run, and for the receiving country in the long run. Finally, the model provides a micro foundation for the use of demand curves with constant and negative slopes.Monopolistic competition, horizontal product differentiation international trade, international migration and foreign direct investment

A THEORY OF NATURAL MARKET STRUCTURES: REGULATION, R&D, FDI, INTERNATIONAL TRADE AND A FEW CURIOSITIES

The theories of natural market structures have been well known in economics for a long time. In this paper, a framework for such natural market structures is developed, where natural monopoly, natural oligopoly, perfect competition and monopolistic competition are special cases. The paper explains why with increasing returns to scale at the level of the firm; a given market size; a continuum of firms; complete information and homogeneous goods, there is usually a margin for regulation -most notably when the number of firms in the market is low. The paper shows that R&D, FDI and trade liberalization can improve welfare, and that they can be complements or imperfect substitutes to the need for market regulation. It is argued that when markets are expected to grow, or technologies to change, avoiding policies that prevent entry of firms -such as licences- can reduce significantly the need for regulation while allowing for a more efficient allocation of resources. It is also argued that the need for market regulation can be better explained by the exploitation of economies of scale, than by the existence of economic rents. Finally, the paper shows that when there is a discrete number of firms, the level of profits and the regulatory margins, can be described by a saw""Economies of Scale, Natural Monopoly, Natural Oligopoly, Monopolistic Competition, Regulation, International Trade, Profit Saw, Regulation Saw

Inferring Agent Behavior and Economic Information, with Free Entry and Exit of Firms

This article proposes an identity regarding economic outcomes when producers maximize profits, with free entry and exit of firms. The identity links consumer and producer theory and leads to several results that contribute to understand what should -and should not- be expected under the assumptions made, from the behavior of firms and households, and from the technology of a firm. Given that unit prices are usually known, the identity also allows to infer the value of a range of economic variables, when reasonable information is available on the price elasticity of the residual demand, the marginal revenue associated to the residual demand, the marginal cost or the elasticity of scale.Price elasticity of demand, elasticity of scale, free entry and exit of firms, homogeneous production function.

A CHARACTERIZATION OF HOMOGENEOUS PRODUCTION FUNCTIONS

This paper states a theorem that characterizes homogeneous production functions in terms of the ratio of average to marginal costs. The theorem claims that a production function is homogeneous of degree k if and only if the ratio of average costs to marginal costs is constant and equal to k. In order to prove the theorem two lemmas -with theoretical value of their own- are demonstrated before hand: the first one establishes that a production function is homogeneous of degree k if and only if its elasticity of scale is k; the second one determines the conditions on the production function under which any input vector can be an optimum, for some choice of the price vector and the level of production.Elasticity of scale, homogeneous production functions, returns to scale, average costs, and marginal costs

Representations and Identities for homogeneous Technologies

Using up to nine different ways to represent a homogeneous technology, this paper proves explicit one to one identities between most of those different representations of a technology, outlining the homogeneity properties of each representation. These identities, which allow to shift from one representation of a technology to another -and which are summarized in a matrix of identities - can be useful since they provide a tool to obtain explicit functional forms forhomogeneous technologies. They can also be useful to simplify computational procedures when different representations of a technology are needed. Finally, the document also refers explicitly to some aspects of producer theory that are often neglected or treated in a marginal way in the literature, such as the inverse supply, the non conditional cost and the inverse input demandfunctions.Identities, homogeneous production functions and firm theory

EVOLUCIÓN RECIENTE DEL SISTEMA DE NOTAS DE PREGRADO EN LA UNIVERSIDAD DE LOS ANDES Y LA FACULTAD DE ECONOMÍA, CON UNA PROPUESTA PARA EL FUTURO

En este artículo se argumenta que en la Universidad de los Andes se aplica un sistema de notas absolutas -basado en la medición de logros-, y se explora la evolución reciente de las calificaciones de pregrado en diferentes facultades de esa Universidad, examinando algunas de las posibles consecuencias de dicho sistema. En el artículo también se examina el comportamiento de las notas otorgadas por los profesores de la Facultad de Economía en los últimos años, y sus posibles implicaciones. Finalmente, el artículo propone un mecanismo para mejorar el sistema existente.Notas absolutas

UNA PROPUESTA PARA LA ORIENTACIÓN DE LA POLITICA COMERCIAL COLOMBIANA EN UN CONTEXTO DE EFICIENCIA Y EQUIDAD

Este documento plantea que el objetivo principal y de largo plazo de la política comercial colombiana debe ser llegar al libre comercio internacional. Dado que Colombia es un país pequeño con poco poder para promover la liberalización multilateral del comercio, el camino para lograrlo puede ser el de los acuerdos preferenciales de comercio, siempre y cuando dichos acuerdos sirvan como base y no como obstáculo para llegar al libre comercio de bienes y servicios. En este caso, los esfuerzos se deben enfocar en consolidar ALCA y alcanzar un acuerdo preferencial de comercio con la Unión Europea, dado el potencial de comercio que estos pactos tienen para Colombia. Este documento también plantea que los efectos distributivos del libre comercio, al igual que los efectos distributivos de la mayor parte de las decisiones de los agentes privados y públicos, se deben tratar con una orientación más precisa y eficiente de la política fiscal. La evidencia muestra que en esta área Colombia puede mejorar.Política comercial