STRATEGIC EXCLUSION OF THE HIGHEST‐VALUED BIDDERS IN WHOLESALE AUTOMOBILE AUCTIONS

By restricting bidders to be qualified dealers, wholesale automobile auctions exclude the bidders who place the highest value on the vehicles: consumers. This article provides an explanation for this puzzling entry restriction by modeling the inventory‐management decisions of a firm. If an automobile dealer has more vehicles in inventory than is optimal, it cannot reduce its inventory by selling directly to consumers without impacting the demand for the automobiles that remain. However, if the dealer sells his/her excess inventory to a competitor, the demand for his/her remaining vehicles increases as the competitor responds by acquiring fewer additional vehicles. We demonstrate that for any market demand function and any cost of the competitor acquiring additional vehicles, a dealer with excess inventory does better by selling a subset of its vehicles to a competitor rather than directly to consumers. We discuss the market for wholesale automobiles in relation to other markets where goods are also auctioned but where entry is not restricted to qualified dealers. Doing so allows us to compare our inventory‐management explanation to common explanations provided by industry practitioners. We find that intuitive alternative stories do not consistently explain practices across markets. (JEL D44, L11, L62)     

HOW DOES ADVERTISING AFFECT MARKET PERFORMANCE? A NOTE ON GENERIC ADVERTISING

We propose a novel approach to estimating the effect of advertising on market performance that relies on the preferences of firms participating in generic advertising programs. Generic advertising campaigns provide a unique window to observe advertising effects on market performance, because rotations in market demand systematically redistribute advertising rents among firms according to observable characteristics on producer size. We examine producer attitudes towards generic advertising in the “Beef. It's What's for Dinner!” campaign of the U.S. Beef Checkoff program, the subject of the recent and controversial Supreme Court ruling on generic advertising as a form of government speech. We find the likelihood producers favor an expansion of the advertising program increases in their operating scale. This finding is consistent with an advertising campaign that has led to a counterclockwise rotation of market demand and a commensurate increase in market performance in the U.S. beef market. (JEL L1, M37, Q13)     

MOVING FORWARD BY LOOKING BACK: COMPARING LABORATORY RESULTS WITH EX ANTE MARKET DATA

We compare individual consumer response between ex ante market data collected by a water utility and ex post experimentally generated data. The experimentally generated data are matched to each participant's water bill history, which predates the experiment. This differentiates our research from prior efforts, which analyze market and experimental data with similar chronologies. For roughly 70% of the participants there is no statistical difference between water demand elasticities estimated using laboratory data and those estimated from market data. Our results provide initial support for the use of experimental procedures to generate missing data regarding hypothetical consumer response. (JEL C9, D12, Q25)     

THE HOME MARKET EFFECT IN INTERNATIONAL ARMS TRADE

I show that military spending contributes to international arms proliferation through a push effect: large demand encourages production growth in the domestic market if transport costs are non‐negligible. Under increasing returns to scale, the country can then supply weapons on the global market at low prices. This is a manifestation of the home market effect (HME), which states that countries with higher demand for a differentiated good will be net exporters of that good. I construct a monopolistic competition model of international trade that accounts for differences in demand across countries, and test its predictions using post‐Cold War data. (JEL F1, H5, R1)     

PRODUCT DIVERSITY,DEMAND STRUCTURES,AND OPTIMAL TAXATION

This article studies optimal taxation in a general equilibrium macroeconomic model with endogenous entry. We compare the constant elasticity of substitution (CES) model to three alternative demand structures: oligopolistic competition in prices, oligopolistic competition in quantities, and translog preferences. Our economy is characterized by two distortions: a labor distortion due to the misalignment of markups on goods and leisure, and an entry distortion due to the misalignment of the consumer surplus effect and the profit destruction effect of entry. The two distortions interact in determining the wedge between the market‐driven and optimal level of product diversity. We show how optimal labor and entry taxes depend on the prevailing demand structure, the nature and size of entry costs, and the degree of substitutability between goods. (JEL E22, E61, E62)     

APPLICATIONS BARRIER TO ENTRY AND EXCLUSIVE VERTICAL CONTRACTS IN PLATFORM MARKETS

Our study extends the empirical literature on whether vertical restraints are anticompetitive. We focus on exclusive contracting in platform markets, which feature indirect network effects and thus are susceptible to an applications barrier to entry. Exclusive contracts in vertical relationships between the platform provider and software supplier can heighten entry barriers. We test these theories in the home video game market. We find that indirect network effects from software on hardware demand are present, and that exclusivity takes market share from rivals, but only when most games are nonexclusive. The marginal exclusive game contributes virtually nothing to console demand. Thus, allowing exclusive vertical contracts in platform markets need not lead to domination by one system protected by a hedge of complementary software. Our investigation suggests that bargaining power enjoyed by the best software providers and the skewed distribution of game revenue prevents the foreclosure of rivals through exclusive contracting. (JEL L42, L63, D12)     

A THEORY OF BILATERAL OLIGOPOLY

In horizontal mergers, concentration is often measured with the Hirschman–Herfindahl Index (HHI). This index yields the price–cost margins in Cournot competition. In many modern merger cases, both buyers and sellers have market power, and indeed, the buyers and sellers may be the same set of firms. In such cases, the HHI is inapplicable. We develop an alternative theory that has similar data requirements as the HHI, applies to intermediate good industries with arbitrary numbers of firms on both sides, and specializes to the HHI when buyers have no market power. The more inelastic is the downstream demand, the more captive production and consumption (not traded in the intermediate market) affects price–cost margins. The analysis is applied to the merger of the gasoline refining and retail assets of Exxon and Mobil in the western United States. (JEL L13, L41)     

WOMEN PREFER LARGER GOVERNMENTS: GROWTH,STRUCTURAL TRANSFORMATION,AND GOVERNMENT SIZE

The increase in income per capita is accompanied, in virtually all countries, by two changes in economic structure: the increase in the share of government spending in gross domestic product (GDP), and the increase in female labor force participation. We argue that these two changes are causally related. We develop a growth model based on Galor and Weil (1996) where female participation in market activities, fertility, and government size, in addition to consumption and saving, is endogenously determined. Rising incomes lead to a rise in female labor force participation as the opportunity cost of staying at home and caring for the children increases. In our model, higher government spending decreases the cost of performing household chores, including, but not limited to, child rearing and child care, as in Rosen (1996) . We also use a wide cross‐section of data for developed and developing countries and show that higher market participation by women is positively and robustly associated with government size. We then investigate the causal link between participation and government size using a novel unique data set that allows the use of the relative price of productive home appliances as an instrumental variable. We find strong evidence of a causal link between female market participation and government size. This effect is robust to the country sample, time period, and a set of controls in the spirit of Rodrik (1998) . (JEL O4, E62, H11)     

DEMAND FOR DIFFERENTIATED DURABLE PRODUCTS: THE CASE OF THE U.S. COMPUTER PRINTER MARKET

This paper develops an estimation technique for analyzing the impact of technological change on the dynamics of consumer demand in a differentiated durable products industry. The paper presents a dynamic model of consumer demand for differentiated durable products that explicitly accounts for consumers' expectations of future product quality and consumers' outflow from the market that arises endogenously from their purchase decisions. The timing of consumers' purchases is formalized as an optimal stopping problem. A solution to that problem defines the hazard rate of product adoptions, while the nested discrete choice model determines the alternative‐specific purchase probabilities. Integrating individual decisions over the population distribution generates rich dynamics of aggregate and product‐level sales. The empirical part of the paper applies the model to data on the U.S. computer printer market for 1998–1999. The estimates support the hypothesis of consumers' forward‐looking behavior, allowing for better demand forecasts and improved measures of welfare gains from introducing new products. (JEL L11, C35, D91)     

INTERNATIONAL NARCOTICS TRADE,FOREIGN AID,AND ENFORCEMENT

Using a general equilibrium model of a developing narcotics‐producing and ‐exporting economy, we analyze the economic effects of policies designed to restrict the production and trade of narcotics: foreign aid tied to anti‐narcotics law enforcement activities, demand reduction policies, and alternative development policies. We characterize the problem as one of serious factor market distortions introduced by illicit production and enforcement. While aid to enforcement generally reduces the production and export of narcotics, it is less effective for economies with market power, and under plausible conditions may raise narcotics output and have negative welfare implications for the recipient. (JEL F1)     

THE EXTENT OF THE MARKET AND INTEGRATION THROUGH FACTOR MARKETS: EVIDENCE FROM WHOLESALE ELECTRICITY

We document the influence of factor markets in determining the extent of the market, appealing to the Mundell hypothesis that trade in goods and factor markets are substitutes. We confirm this influence using the U.S. wholesale market for electric power. Although the Eastern, Western, and Texas regions cannot trade electricity, inputs such as natural gas move freely across these regions. Through a set of price transmission ratios, and a supply model for natural gas, we find regional electricity shocks do propagate across regions. We conclude output markets institutionally in autarky achieve modest degrees of economic integration through factor markets. (JEL C32, L94, Q41)     

WHY DO U.S. PARENTS PREFER PRIVATE TO FOSTER CARE ADOPTIONS? THE ROLE OF ADOPTION SUBSIDIES,GENDER, RACE,AND SPECIAL NEEDS

We analyze the demand behavior of adoptive parents in the U.S.A. For the theory, we apply vertical product differentiation to characterize the demand for domestic private, foster care and international adoptions. Then, we use the 2007 U.S. National Survey of Adoptive Parents and apply the control-function approach to a mixed logit model. We find interesting insights into the relationship between adoption choices and an adoptive parent's preferences over gender, race, and special needs. The government needs to pay an additional $735 ($506) a month to make a parent feel indifferent between international (domestic private) and foster care adoptions. (JEL O12, D10, L13)     

PRODUCT COMPATIBILITY HINDERS PRE-EMPTIVE ADVERTISING

This paper considers competition in systems of complementary products and examines how compatibility affects the use of informative advertising by an incumbent to deter entry. Advertising increases demand for a product; customers become price sensitive and competition increases, pre-empting new market entrants. However, compatibility reduces competition, so incumbent advertising becomes less effective at deterring entry and additional, costly advertising would be required to induce deterrence. Moreover, compatibility increases advertising by a potential entrant; with efficient advertising technology, consumers are informed about all products and the incumbent cannot deter entry by using additional advertising. Therefore, product standardization policies that encourage compatibility can support new market entrants by discouraging pre-emptive advertising strategies. (JEL D21, D43, L13, L15)     

TO “VAPE” OR SMOKE? EXPERIMENTAL EVIDENCE ON ADULT SMOKERS

A growing share of the U.S. population uses e‐cigarettes but the optimal regulation of these controversial products remains an open question. We conduct a discrete choice experiment to investigate how adult tobacco cigarette smokers' demand for e‐cigarettes and tobacco cigarettes varies by four attributes: (1) whether e‐cigarettes are considered healthier than tobacco cigarettes, (2) the effectiveness of e‐cigarettes as a cessation device, (3) bans on use in public places, and (4) price. We find that adult smokers' demand for e‐cigarettes is motivated more by health concerns than by the desire to avoid smoking bans or higher prices. (JEL C35, I12, I18)     

Consumer racial discrimination: A reassessment of the market for baseball cards

Research on the presence of consumer racial discrimination in the baseball labor and memorabilia markets has produced contradictory empirical results. While studies of baseball salaries find no evidence of discrimination, Nardinelli and Simon (1990) and Andersen and La Croix (1991) use data from the baseball card market to show that the price that consumers pay for a card depends on the player’s race. In this paper, we reconsider the evidence of consumer discrimination in the baseball card market. Our study improves on previous research by applying more appropriate econometric methods and using a data set in which card supply is constant and incentives for speculative demand are weaker. In contradiction to the aforementioned studies, we find little evidence of racial discrimination. This result proves robust across variable specifications and econometric models. The authors thank Tyler Cowen, Kevin Grier, David Levy, Barb McKiernan, Don Palmer, Dan Sutler, and Bob Tollison for helpful suggestions on an earlier draft.     

LABOR'S SHARE,THE FIRM'S MARKET POWER,AND TOTAL FACTOR PRODUCTIVITY

We investigate the relationship between labor's share, firm's market power, and the elasticity of output with respect to labor input using an approach based on an unobserved components model. The approach yields time‐varying estimates of market power and the elasticity. Evidence on the market power of firms (which we find to be rising since 2000) gives a deeper understanding of movements in labor's share and the labor wedge. The generated values of the elasticity yield revised estimates of total factor productivity growth which is informative about the extent of the downward bias inherent in traditional estimates which use labor's share as a proxy for the elasticity. (JEL O47, C32, E25)     

Innovation, workers skills and industrial relations: Empirical evidence from firm-level Italian data

The shifting of labour demand toward relatively more skilled workers has been a hot issue in the economic field for many years. A consolidated explanation for the upskilling phenomenon is that technological–organisational changes have driven the labour demand with detrimental consequences for less skilled workers (skill-biased technological–organisational change). In order to upgrade the skill workforce the firm has at least two main channels at its disposal: the external labour market strategy, mainly based on hiring and firing mechanisms; the internal labour market strategies, which improve the skill base of the employees through training activities.The main objective of the present work is to verify the relations between innovative strategies and both the workforce composition and the training activities, within an integrated framework that also leads us to consider the role of specific aspects of the industrial relations system.The firm level analysis is based on original datasets which include data on manufacturing firms for two Italian local production systems, located in the Emilia-Romagna region.The results suggest that the firms use both the two channels to improve their skill base, which is actually related to the innovation activities, although there is weak supporting evidence of the use of external labour markets to upgrade the workforce skills: the upskilling phenomenon seems to be associated to specific innovative activities in the technological sphere, while specific organisational aspects emerge as detrimental for blue collars. On the side of internal labour market strategies the evidence supports the hypothesis that innovation intensity induces the firms to implement internal procedures in order to upskill the workforce, confirming the importance of internal labour market strategies. Moreover, we have recognized the important role of firm level industrial relations in determining the training activities for the blue collar workers.     

Demand for gambling: development and assessment of a gambling purchase task

Self-report purchase tasks are a novel approach examining the reinforcing value of addictive behaviour relative to increasing monetary costs required to access the addictive behaviour (i.e. demand). These measures reveal a positive relationship between the indices of demand and addiction problem severity and can elucidate factors associated with motivation for substance use. Gambling is an addictive behaviour that has not been examined using this paradigm. This study seeks to adapt and examine the purchase task for gambling behaviour. A gambling purchase task was devised that asked individuals how often per month they would gamble at various cover charges. Participants were 73 adults from the community with either gambling disorder (n = 28) or alcohol use disorder (n = 24) or were a healthy control (n = 21). Both the alcohol and gambling purchase tasks were administered. Results demonstrate discriminant validity of the gambling purchase task, as individuals with gambling disorder have significantly greater demand for accessing gambling than other groups. The alcohol purchase task also evidenced discriminant validity in that individuals with alcohol use disorder have significantly greater demand for alcohol than other groups. These findings support the use of the gambling purchase task to assess the demand for gambling.     

Shadow employment in post-transition—Is informal employment a matter of choice or no choice in Poland?

According to a dualistic view, shadow employment may follow from two main labour market failures: (i) official market labour taxation distortions make it ineffective for some agents to engage in registered employment due to a tax wedge; or (ii) for some workers regular employment may be unattainable do to some high access costs or demand constraints, which results in seeking earning opportunities beyond the boundaries of the official labour market. Whereas in the first case revenues from unofficial employment should be higher than the corresponding official ones (tax evasion hypothesis), in the alternative explanation labour market tightness seems to be an underlying reason (market segmentation hypothesis).We use a unique data set from a survey on undeclared employment from Poland. Using propensity score matching and decomposition techniques we demonstrate that workers of shadow economy are characterised by slightly higher endowments, while their revenues are considerably lower than among matched official economy counterparts. Although unobservable heterogeneity is considerable, results are robust. Although this is not direct evidence, we believe these results point to the labour market segmentation hypothesis and endangerment with social exclusion.