THE DEMAND TO REGULATE FRANCHISE MONOPOLY: EVIDENCE FROM CATV RATE DEREGULATION IN CALIFORNIA

The motivation to price control a franchise monopoly is examined in the context of three distinct economic views of regulatory behavior. These views are tested against data from the California cable television market, over the years 1980–85, during which a subset of monopoly firms converted from regulated to unregulated pricing for basic cable service. As the price constraints of regulation appear to be insignificant in a welfare analysis, the demand for such controls by municipalities is derived from their utility in enforcing vote-maximizing transfer schemes–a Peltzmanian political outcome with a Stiglerian economic welfare result.     

Political culture and monopoly price determination

In this paper we study the endogenous determination of monopoly price. Our proposed game of endogenous monopoly-price setting extends the literature on monopoly-price, monopoly rent-seeking contests and monopoly rent-seeking rent-avoidance contests by (i) determining the monopoly price such that it maximizes a composite utility function that depends on two components: expected social welfare and lobbying efforts. The welfare component has a positive or no effect on the utility while the lobbying efforts have a positive, negative or no effect on the utility (ii) introducing the political culture of the government and clarifying its role in the endogenous determination of monopoly price. In the proposed model the single parameter representing political culture is the weight assigned to the enhancement of social welfare. Our main concern is with the study of the relationship between this parameter and the proposed monopoly price and, in turn, the rent-seeking rent-avoidance efforts of the potential monopoly and the consumers and their aggregate expected benefit. We are grateful to the referees for their constructive and helpful comments.     

CONSUMER SEARCH COSTS AND MARKET PERFORMANCE

We conduct laboratory markets to evaluate the effects of consumer search costs on market performance. The primary research goal is to assess the behavioral relevance of Diamond's [1971] paradoxical conclusion that the injection of a small consumer search cost alters the equilibrium price prediction from competitive to monopoly levels. Although monopoly prices are not consistently observed, we find that search costs do tend to raise prices. Additional experimentation indicates that below-monopoly prices are not explained by buyer avoidance of high-pricing sellers, but that prices increase as search costs are raised.     

THE INCENTIVES FOR RESALE PRICE MAINTENANCE UNDER IMPERFECT INFORMATION

This paper considers both the incentives for and the welfare effects of resale price maintenance (RPM) in retail markets characterized by imperfect consumer information. In markets where point-of-sale information on the product is essential for sales and information on prices is costly, RPM permits manufacturers with some monopoly power to resolve two incentive conflicts with retailers. First, because retailers with price-setting powers do not appropriate the gains in profit to an upstream manufacturer from actions taken to increase demand, their incentives to inform consumers of the product and to set low prices are inadequate. This purely vertical externality results in the classic "double mark-up" of final prices. Second, when consumers' costs of price search vary, stores offering low prices and no information can exist in the market equilibrium. These discount houses free-ride on the informational services of high-price informing retail outlets — a horizontal externality. In the imperfect information setting of this paper, (1) administered pricing improves monopolists' profits by resolving the incentive conflict; (2) the profitable use of a price floor reduces the maximum retail price charged and may reduce the average retail price; (3) price floors or administered prices can be Pareto-improving and more likely welfare (surplus)-improving; (4) price floors are welfare-improving.     

MIXED OLIGOPOLY, SEQUENTIAL ENTRY, AND SPATIAL PRICE DISCRIMINATION

This paper is the first to examine the welfare consequences of a public firm in a traditional model of spatial price discrimination. It demonstrates that when a private firm acts as a Stackelberg location leader, the presence of a public firm always improves welfare. Moreover, when three firms locate sequentially, the presence of a public firm improves social welfare unless it locates last. Thus, despite examining a variety of location timings, including simultaneous location, privatization never improves welfare and usually harms welfare. This conclusion differs from several currently in the literature in which privatization often improves welfare. ( JEL L13, L32, L33, L52)     

QUALITY DIFFERENCES,THIRD‐DEGREE PRICE DISCRIMINATION,AND WELFARE

We propose a model with two markets to analyze the welfare implications of price discrimination with quality differences. In each market a local firm that operates in that market only competes against a global firm that operates in both markets. Local firms produce higher‐quality goods than the global firm. If the quality levels of the local firms' products are the same, price discrimination is never welfare‐decreasing. If they differ, discrimination is welfare‐increasing if quantity increases. Because of a positive allocation effect of price discrimination, there are parameter values such that welfare increases while total output decreases with price discrimination. (JEL D43, D60)     

CREDIBLE SIGNALS OF THE RELEASE OF NEW VERSIONS

Prices can credibly signal whether a durable‐goods monopolist will offer an improved good in the future. When the future release of a new version is private information, a monopoly seller will reveal a failure to develop and market a new version with a lower price than he or she would charge in full information. A firm would be willing to pay more to innovate when consumers are uncertain than if they are informed ex ante because a failure to innovate is punished by a low equilibrium price. Consumers' uncertainty about innovation intensifies an unsuccessful innovator's Coasian problem and increases consumer welfare. (JEL D82, L12, L15)     

THE WELFARE EFFECTS OF THIRD‐DEGREE PRICE DISCRIMINATION IN A DIFFERENTIATED OLIGOPOLY

This article examines the welfare effects of third‐degree price discrimination under oligopolistic competition with horizontal product differentiation. We derive a necessary and sufficient condition for price discrimination to improve social welfare: the degree of substitution must be sufficiently greater in the “strong” market (where the discriminatory price is higher than the uniform price) than in the “weak” market (where it is lower). It is verified, however, that consumer surplus is never improved; social welfare improves solely owing to an increase in the firms' profits in the case of linear demands. (JEL D43, L11, L13)     

THE AMBIGUOUS CONSEQUENCES OF ANTI-DUMPING LAWS

The anti-dumping law is most often applied in oligopolistic industries, while most analyses focus on the monopoly model. I analyze a duopoly model where a foreign firm engages in price-based dumping. Under Cournot behavior, the anti-dumping law has ambiguous price and welfare effects. When the home firm is a Stackleberg leader, two disquieting effects emerge. First, the home firm can use the anti-dumping law to curtail competition even when the foreign firm does not initially engage in dumping. Second, the anti-dumping law can increase profits of both firms at the expense of domestic consumers.     

COMPOUND PRICING

Compound pricing makes the price or availability of some goods conditional on the purchase (or non-purchase) of other goods. Tie-ins and requirements contracts, two well-known examples, are analyzed here.
Contrary to some opinion, such practices need not be innocuous or benign. This analysis shows that compound pricing can produce price, output, profit, and welfare results that are practically indistinguishable from those got when a firm increases its monopoly power in more obvious and direct ways. By some standards, the requirements and exclusive dealing contracts analyzed here are predatory.     

Bargaining power and equilibrium consumption

We examine how a shift of bargaining power within households operating in a competitive market environment affects equilibrium allocation and welfare. If price effects are sufficiently small, then typically an individual benefits from an increase of bargaining power, necessarily to the detriment of others. If price effects are drastic, the welfare of all household members moves in the same direction when bargaining power shifts, at the expense (or for the benefit) of outside consumers. Typically a shift of bargaining power within a set of households also impacts upon other households. We show that each individual of a sociological group tends to benefit, if he can increase his bargaining power, but suffers if others in his group do the same.     

ASYMMETRIES IN THE RESPONSES OF REGIONAL JOB FLOWS TO OIL PRICE SHOCKS

This paper studies the effect of oil price innovations on manufacturing job flows across U.S. states. First, I estimate a nonlinear structural equation model and compute impulse response functions by Monte Carlo integration. I find asymmetries in the responses of job flows to positive and negative oil price innovations. Yet, these asymmetries do not pass a test of symmetry on the impulse responses, especially after accounting for data mining. Third, I use a test for the absence of job reallocation to evaluate whether an unexpected increase in the real price of oil price triggers an important change in job reallocation. I find that oil price shocks have limited regional allocative effects. (JEL E24, E32, Q43)     

COMPARING MONOPOLY AND COMPETITION: THE INCREASING-COST CASE

When an increasing-cost competitive industry becomes monopolized, the monopoly will possess some monopsony power in input markets. This paper presents a simple analysis comparing the performance of monopoly and competition in this case. It first assumes fixed input proportions, and then turns to the general case of variable input proportions. With variable proportions, it is shown that the monopoly's marginal cost curve lies above the competitive supply curve but the monopoly's average cost curve lies below it. The welfare cost of monopoly is not identified by the area between the monopoly's marginal cost curve and the demand curve in either case.     

Message and price components of Family Caps: experimental evidence from New Jersey

In this paper, we examine the relative efficacy of two mechanisms--price consideration and the message of social responsibility--in accounting for Family Cap effects on fertility behavior. The Family Cap is a component of welfare reform policy that denies additional cash benefits to children born 10 or more months after a woman entered the welfare rolls. We use data from the New Jersey Family Development Program (FDP) evaluation that employed a classical experimental design. We find that fertility behaviors are influenced by both Family Cap price and message mechanisms but that these effects are conditioned by welfare recipients' time on welfare and race. Black women who have longer stays on welfare are more likely to be influenced by price while women with shorter stays are influenced by both price and the social message. We believe our results have implications not only for future public welfare policy initiatives but for any social policies that attempt to influence behavior directly, through individual rewards and punishments, and indirectly through the activation of social or community pressures.     

INDUSTRIAL STRUCTURE AND MONOPOLY POWER IN THE FEDERAL BUREAUCRACY: AN EMPIRICAL ANALYSIS

Predictions of various models of public sector supply rely on the assumption of bureau monopoly power. This assumption is tested first by measuring industrial structure of the federal public sector using the concentration ratio and Herfindahl index, and second by examining the relationship between the resulting estimates and bureau monopoly power. The findings indicate that monopoly structure of the federal bureaucracy is more limited than is generally assumed. Interpretations on the basis of traditional industrial organization theory and contestable market theory suggest that bureau monopoly power is questionable and may not be the source of observed inefficiencies in bureau supply.     

SPATIAL COMPETITION AND THE PRICE OF COLLEGE

This article provides the first evidence that universities compete directly on price, and that the market for students depends on the proximity of competitors. Exploiting detailed data from private U.S. universities, price competition is tested by introducing geographic proximity into a spatial-autoregressive tuition model. Standard spatial models show that list and net tuition are inversely related to distance between institutions, consistent with price competition in higher education. An extension to the spatial-econometrics literature relaxes a constraint that estimated spatial relationships are common across all observations, implying that spatial effects differ across qualitative classes of institutions . ( JEL C21, I2, L11)     

LABOR MARKETS, INDUSTRIAL MONOPOLIZATION, WELFARE, AND IMPRISONMENT:

Various theorists posit that the rate of unemployment is linked to the rates of both welfare and imprisonment. This assumes a competitive labor market tied to specific controls of surplus populations. This article argues that contemporary labor markets lie on a continuum between competitive (secondary) and relatively non-competitive (primary) structures which creates a pattern of labor market segmentation. Such segmentation is linked with specific policies of incarceration or welfare, depending on the competitiveness of the labor market. Data from a cross-section of urban, industrial U.S. counties test the relationship between labor market segmentation, monopolization of industries, and the rates of welfare and imprisonment, controlling for a variety of other relevant variables. Regression analyses results suggest that as labor market structures become less competitive (i.e., move from predominantly secondary toward predominantly primary labor market characteristics), rates of welfare recipients and welfare benefits rise and rates of imprisonment fall. They also suggest that increasing industrial monopolization raises rates of imprisonment and lowers rates of welfare benefits. These findings indicate that the two major dimensions of economic segmentation (industrial competition and labor market competition) oppositely affect levels of welfare benefits and rates of imprisonment.     

DYNAMIC GAINS AND STATIC LOSSES IN OLIGOPOLY: EVIDENCE FROM THE BEER INDUSTRY

The paper provides a new perspective on the estimate of the welfare losses due to oligopoly. I argue that the conventional analysis of monopoly/oligopoly welfare losses can be misleading. If causation runs from investment in new technology to increased concentration, dynamic gains from innovation should be taken into account for a fuller analysis of welfare losses. I use beer-industry data to demonstrate that technological changes Granger-cause beer prices, and beer prices Granger-cause the Herfindahl index. I then estimate the dynamic gains to consumers in the beer industry and find these gains to be impressive relative to conventional static losses. ( JEL L10, L13)     

DEMOGRAPHICS, PRODUCTIVITY GROWTH AND THE MACROECONOMIC EQUILIBRIUM

This paper investigates the economic effects of demographics and productivity growth in an intertemporal optimizing model with age-based heterogeneity and induced retirement. Our analysis reveals that the projected "population aging" is likely to increase the growth rate of output and to improve the welfare of the economy, especially if there are no distortional policies which prevent retirement decisions from adjusting endogenously to the demographic changes. The economy also displays different patterns of dynamic adjustment in the quantity and price variables depending upon whether retirement is endogenous.     

ECONOMIC WELFARE, PRICE AND PROFIT: THE DETERRENT EFFECT OF ALTERNATIVE ANTITRUST REGIMES

This paper critically examines the deterrent effect of price-fixing statutes under alternative antitrust regimes. A regime is defined by the litigation strategy which the antitrust agency employs in detecting cartels and in determining whether prosecution is warranted and by the basis upon which courts estimate damages. The results of the analysis suggest that antitrust policy may actually induce cartels to further restrict output, increasing welfare loss above the level imposed by an unthreatened, perfect monopoly. Litigation strategy and damages should be founded upon consideration of welfare loss measures to avoid this possibility.