Model Of Imperfect Competition Research Articles

Search theory of imperfect competition with decreasing returns to scale

I study a version of the search-theoretic model of imperfect competition by Burdett and Judd (1983) in which sellers operate a production technology with decreasing rather than constant returns to scale. Equilibrium exists and is unique, and its structure depends on the extent of search frictions. If search frictions are large enough, the price distribution is non-degenerate and atomless. If search frictions are neither too large nor too small, the price distribution is non-degenerate with an atom at the lowest price. If search frictions are small enough, the price distribution is degenerate. Equilibrium is efficient if and only if the price distribution is degenerate. Generically, neither the structure nor the welfare properties of equilibrium are the same as in Burdett and Judd (1983). As in Burdett and Judd (1983), however, equilibrium outcomes span the spectrum from pure monopoly to perfect competition as search frictions decline.

Do retail businesses have efficient incentives to invest in public charging stations for electric vehicles?

Many public charging stations for electric vehicles in the United States are chargers installed at the premises of pre-existing businesses such as grocery stores or restaurants. This paper investigates the incentives of these retail businesses to install and operate charging stations. First, we note that observed pricing schedules for charging stations significantly depart from both first-best and monopoly pricing. We argue that a possible explanation is that many hosting facilities may install a charging station primarily as a strategy to attract more customers to their core business. Second, we use an imperfect competition model to study retail businesses’ incentives to invest in charging stations. We show that hosting facilities may be trapped in a prisoner’s dilemma where investing in a charging station decreases their profit in the long run. However, the equilibrium level of investments in public charging stations need not differ from the socially optimal outcome.

ВЛИЯНИЕ ОТРАСЛЕВОЙ НЕСОВЕРШЕННОЙ КОНКУРЕНЦИИ НА ПЕРЕДАЧУ ЭКОНОМИЧЕСКИХ ШОКОВ СО СТОРОНЫ СПРОСА В КОММЕРЧЕСКИХ ВЗАИМОДЕЙСТВИЯХ «ЗАТРАТЫ – ВЫПУСК»

The article considers the model of imperfect competition, which allows to reveal the impact of economic shocks on commercial companies interconnected by the flows of manufactured products according to the “input – output” model. A theoretical model of the relationship between two types of companies in two industries with hierarchical relationships has been developed. Theoretically and experimentally, the relationship between the price index, the number of companies in the industry and the demand function with the elasticity of demand, the number of companies’ products, the exchange rate of the domestic currency against foreign currency is presented. The impact of an economic shock in the form of a sharp and unexpected exchange rate of the domestic currency on the elasticity of demand, the number of companies in the industry, and the volume of output by companies is presented. Empirical results support the theoretical model.

Identifying market power of retailers and processors: Evidence from coffee supply chain in India

This paper deals with the dynamics of market power with processors and retailers in the coffee supply chain in India. We develop an imperfect competition model that allows for the potential oligopoly and/or oligopsony power of retailers and processors with respect to adjacent stakeholders in the supply chain. We also empirically determine the presence/absence of market power among processors and retailers in the coffee supply chain in India. This paper highlights the existence of market power with processors in the coffee industry that plays an important role in the imperfect price transmission and should not be ignored when developing regulatory policies.

Fragmentation and Strategic Market-Making

AbstractHow does trading in one venue affect the quoting strategies of market makers in other venues? We develop a two-venue imperfect competition model in which market makers face quadratic costs when absorbing shocks. Nonconstant marginal costs imply that absorbing a shock in one venue simultaneously changes marginal costs in all other venues. Moreover, market makers strategically choose which shock(s) to absorb. These two forces may intensify competition, leading to enhanced liquidity. Using Euronext proprietary data, we track individual best bid and ask quotes of intermediaries in each venue. We uncover evidence of strategic cross-venue market-making behavior which is uniquely predicted by our model.

Did OPEC change its behaviour after the November 2014 meeting?

We analyse the behaviour of OPEC as a group by formulating a theoretical model that encompasses the perfect competition model and various forms of the imperfect competition model. By confronting the theoretical model with quarterly data for the period from 1992 to 2013 within the context of a cointegrated vector autoregressive (CVAR) model, we find support for the imperfect competition hypothesis regarding the output decisions of OPEC. We also find that a dynamic equilibrium correction model with imperfect competition is stable in-sample. However, a forecasting exercise for the period from 2014 to 2018 reveals that the model breaks down following the November 2014 meeting at which OPEC decided to keep its supply unchanged despite the huge oil price drop in advance. The model systematically underpredicts OPEC production over the forecast period and by as much as 2.5 million barrels per day at the end of 2016. During 2018, however, the model forecasts OPEC production quite well. Our findings suggest that the behaviour of OPEC did indeed change significantly after the November 2014 meeting.

Developing the Conceptual Model of Imperfect Competition Impact on Labour Reproduction and the System of Measures Aimed at its State Regulation

Social and labour relations on today’s home labour market are accompanied by adverse social and economic phenomena, such as poverty of working population, inequality in profit distribution, discrimination in remuneration, shadow forms of employment and pay, illegal and interregional migration, labour exploitation, staff deficit and excess, which results in imperfect nature of competition on home labour market. These adverse phenomena are caused, on the one hand, by imperfect indications of competitive behavior of labour market entities, which shows the imperfect type of social and labour relations where parties’ interests are deprived of mutually beneficial basis of their satisfaction and, on the other hand, by imperfect competitive conditions of labour market entities’ functioning, which is manifested in requirements to labour quality. The article studies the key aspects of imperfect competition on home labour market and shows dynamics of its principles statistics. By analyzing and summarizing the dynamics of competitive situations investigated in the regional aspect the authors gained a conceptual model of imperfect competition taking into account its behavioral and institutional aspects. The key social and economic aspects of imperfect competition impact on labour reproduction were researched. On the basis of the provided conclusions the authors put forward certain measures of state regulation of imperfect competition, which could increase workers’ competitiveness and therefore improve the quality of labour reproduction.

Confidence bias and advertising in imperfectly competitive markets

The purpose of this paper is to investigate whether an owner can enhance corporate profit by delegating responsibility to a chief executive officer who has a biased view of his or her marketing ability. We develop a model of imperfect competition where firms compete in advertising and output. Before competition takes place, each owner makes a strategic decision whether to hire a manager who is overconfident, underconfident, or rationally confident in their marketing ability. In a strategic setting, the results reveal that it is never optimal for owners to hire managers who are rationally confident. Owners will hire managers who are either overconfident or underconfident, depending upon whether advertising is constructive or combative.

Imperfect Competition in Markets with Selection

This paper proposes a spatial model of imperfect competition in markets with selection to investigate whether imperfect competition exacerbates or offsets inefficiencies caused by selection. We find that no degree of imperfect competition achieves the first-best efficient allocation. This holds in markets with adverse selection and even in markets with advantageous selection, where perfect competition results in inefficient overprovision. Overprovision induced by advantageous selection and underprovision caused by market power do not cancel out perfectly. Instead, they co-exist for different consumers. The exact allocation depends on whether firms use uniform prices or price discriminate. However, we show that the efficient allocation can be reached through a combination of a corrective tax and tough competition policy. Overall, our results caution against viewing imperfect competition as a solution to the inefficiencies introduced by selection.

Trading in Fragmented Markets

AbstractWe study fragmentation of equity trading using a model of imperfect competition among exchanges. In the model, increased competition drives down trading fees. However, additional arbitrage opportunities arise in fragmented markets, intensifying adverse selection. Due to these opposing forces, the effects of fragmentation are context dependent. To empirically investigate the ambiguity in a single context, we estimate key parameters of the model with order-level data for an Australian security. According to the estimates, the benefits of increased competition are outweighed by the costs of multi-venue arbitrage. Compared with the prevailing duopoly, we predict the counterfactual monopoly spread to be 23% lower.

Imperfect competition models in economic market structure with q-rung picture fuzzy information

The imperfect competition models are equipped by fuzzy set theory with direct assessments of uncertainty. An appropriate point of departure for origination of a system with potentially broader coverage can be provided in view of fuzzy sets. In this w

Does oligopsony power matter in price support policy design? Empirical evidence from the Thai Jasmine rice market

AbstractIn the oligopsony market, farmers may receive low prices and policy analysis assuming perfect competition can yield serious bias results. In this paper, we estimate oligopsony power between processors and farmers and evaluate the welfare impact of the paddy pledging program (PPP), a generous price support program in the Thai Jasmine rice market, with an imperfect competition model. We develop a model that consists of rice supply equation and derived demand equation. We then simultaneously estimate these equations using system estimation methods to recover oligopsony power parameters. Finally, we use these parameters to assess the welfare impact of the price support program. Using annual panel data running from crop marketing year 2001/2002–2015/2016 and exploiting the institutional feature of the PPP, we find strong evidence of some oligopsony power, a moderate level of oligopsony price distortion, and a negative relationship between price support and oligopsony power. We also find that the PPP is inefficient but effective in income redistribution. Moreover, the program benefits both farmers and consumers. With better policymaking decisions, the PPP can be efficient by setting a suitable support price. Therefore, our results show that in the case of the Thai Jasmine rice market, the generally accepted “wisdom” about agricultural price support policy does not necessarily hold, and price support can be designed to improve the efficiency of the market.

Plant Behavior & Equal Pay: The Effect on Female Employment, Capital Investments, & Productivity — A Difference-in-Discontinuities Design

This paper studies Chile's 2009 Equal Pay for Equal Work law and its impact on manufacturing plant behavior. Using the difference-in-discontinuities design to exploit the law's quasi-experimental properties, I find that large plants with disclosure requirements and substantially higher penalties increase female employment across occupations compared to the control group. However, the female percentage increases only for executives and white-collar workers. This finding is consistent with imperfect competition models in the female labor market that predict that occupations with wider gender pay gaps would see the most improvements in relative female employment under equal pay. Plant average compensation package and new capital investments in new machinery increase, but plant productivity measures show no significant differences from those of the control group.

The (Unobservable) Value of Central Bank's Refinancing Operations

We quantify the impact that central bank refinancing operations and funding facilities had at reducing the banking sector’s intrinsic fragility in the euro area in 2014-2019. We do so by constructing, estimating and calibrating a micro-structural model of imperfect competition in the banking sector that allows for runs in the form of multiple equilibria, in the spirit of Diamond & Dybvig (1983), banks’ default and contagion, and central bank funding. Our framework incorporates demand and supply for insured and uninsured deposits, and for loans to firms and households, as well as borrowers’ default. The estimation and the calibration are based on confidential granular data for the euro area banking sector, including information on the amount of deposits covered by the deposit guarantee scheme and the borrowing from the European Central Bank (ECB). We document that the quantitative relevance of non-fundamental risk is potentially large in the euro area banking sector, as witnessed by the presence of alternative equilibria with run-type features, but also that central bank interventions exerted a crucial role in containing fundamental as well as non-fundamental risk. Our counterfactuals show that 1 percentage point reduction (increase) in the ECB lending rate of its refinancing operations reduces (increases) the median of banks’ default risk across equilibria by around 50%, with substantial heterogeneity of this pass-through across time, banks and countries.

“Infant” economies in South-Eastern Europe

Transition economies have responded quite differently to similar procedures and foreign economic and sociopolitical interventions. This is partly because of the exogenous (from the economic perspective) features of each country. In the present paper we focus on the economic explanation. Following an introductory discussion of the stylized facts of the deepening segregation within the Central and Eastern European transition economies, we proceed with a general equilibrium model of imperfect competition (a la Dixit-Stiglitz). We introduce (1) more than one imperfectly competitive manufacturing sectors and (2) capital as the ?pseudo? production factor that provokes economies of scale. Based on the abstract theoretical model, we argue that the supposed automatic, selfbalancing process for closing cross-country disparities may not appear, even if the noneconomic factors are neutralized. This is because there is a possibility of experiencing a virtuous cycle of endogenously reinforced attraction of foreign accumulated capital. Economies that do not have the necessary features for this to happen because they start from a comparatively inferior level of development and/or due to a lack of preexisting strong manufacturing - ?infant economies? according to our proposed terminology - will experience an endogenously justified, flatter path of development and may not find it easy to catch up with others.

Increasing Returns and Economic Geography with Solow-Uzawa, Dixit-Stiglitz, and Krugman Unified

The purpose of this study is to study interdependence between growth and economic geography. We build a two-regional growth model of endogenous wealth under perfect and imperfect competition by integrating the three basic models – the Solow-Uzawa growth model, the Krugman two-region model, and the Dixit-Stiglitz imperfect competition model – in economic theory. The economy in our approach is composed of three sectors – the capital goods sector as in the Solow one sector, the consumer goods sector as in the Uzawa model, and the intermediates sector as in the Dixit-Stiglitz model. The economy is composed of two regions as in the Krugman two-region model with intermediates produced in the two regions under imperfect competition. The household behavior is modelling by synthesizing Zhang’s concept of disposable income and utility function and the Dixit-Stiglitz concept of composite good and utility function. We build and simulate the model. We identify existence of equilibrium. We examine effects of changes in some parameters on economic geography. We examined the effects of changes in some parameters on economic geography. For instance, we showed that as the transportation cost falls, the population is more concentrated on one region, the numbers of varieties of intermediates are reduced, the output level of each firm in the intermediate sector is increased, the household consumes more each intermediate good, and prices of all intermediate goods are reduced

Framing the Chicago School of Antitrust Analysis

The Chicago School of antitrust has benefitted from a great deal of law office history, written by admiring advocates rather than more dispassionate observers. This essay attempts a more neutral stance, looking at the ideology, political impulses, and economics that produced the Chicago School of antitrust policy and that account for its durability. The origins of the Chicago School lie in a strong commitment to libertarianism and nonintervention. Economic models of perfect competition best suited these goals. The early strength of the Chicago School of antitrust was that it provided simple, convincing answers to everything that was wrong with antitrust policy in the 1960s, when antitrust was characterized by over-enforcement, poor quality economics or none at all, and many internal contradictions. The Chicago School’s greatest weakness is that it did not keep up. Its leading advocates either spurned or ignored important developments in economics that gave a better accounting of an economy that was increasingly characterized by significant product differentiation, rapid innovation, networking, and strategic behavior. The Chicago School’s initial claim was that newer models of the economy lacked testability. That argument lost its credibility, however, as industrial economics experienced an empirical renaissance, nearly all of it based on various models of imperfect competition. Students getting PhDs in economics increasingly abandoned perfect competition as a useful starting point. What kept Chicago alive was the financial support of firms and others who stood to profit from less intervention. Properly designed antitrust enforcement is a public good. Its beneficiaries — consumers — are individually small, numerous, scattered, and diverse. Those who stand to profit from nonintervention were fewer in number, individually much more powerful, and much more united in their message. As a result, the Chicago School went from being a model of enlightened economic policy to a powerful tool of regulatory capture.

Pass-through of the policy-induced E85 subsidy: Insights from Hotelling's model

We build a structural model of imperfect competition for a retail market that supplies both low-ethanol (E10) and high-ethanol (E85) gasoline blends. The model permits us to study some impacts of the E85 subsidy induced by the U.S. Renewable Fuel Standard, specifically how the pass-through of this subsidy to retail prices is affected by market power. The model is rooted in Hotelling's horizontal differentiation framework, which is extended to also represent the imperfect substitutability between E10 and E85 (a vertical product differentiation attribute). The model naturally captures two sources of imperfect competition in the fuel market—refueling stations' market power arising from their spatial location, and limited availability of E85 stations. We derive both analytical and numerical solutions for Nash equilibrium outcomes under various scenarios. In our baseline parameterization, when the penetration of E85 stations is incomplete, we find that the pass-through rate is about 0.7. Complete penetration of E85 stations leads to near complete pass-through, notwithstanding the market power enjoyed by stations because of their spatial location. With monopolistic market power (e.g., collusion), however, with full penetration of E85 stations the pass-through rate is lower. Moreover, when market power only arises from location differentiation (duopoly model with full penetration of E85), the pass-through rate converges to one as the subsidy gets large, whereas it converges to zero if a station has exclusivity in selling E85 (partial penetration of E85) or there is collusion/monopoly power from collusion.

Optimal Reciprocal Dumping in a Managed Trade Regime

The purpose of this article is to examine the strategic relationship between trade policy in a managed protection regime and commercial exchange at prices below normal value. It presents a three-stage model of imperfect competition that incorporates the possibility for the government authority to influence the production decisions of companies through a credible threat, by means of a specific tariff. This methodology—in a context of segmented markets, Cournot conjectures, and the application of an optimal tariff—generates a mechanism of incentives (which are not sufficient from a social welfare perspective) for domestic and foreign companies to practice reciprocal dumping. A general conclusion is that a free trade policy would be counterproductive, since it would eliminate the incentives that domestic and foreign companies would have to carry out the commercial exchange that would diminish the loss of welfare associated with the existence of monopolies in both markets.

Stock price impact of diversity in investor beliefs

ABSTRACTI re-examine the association between diverse investor beliefs and stock prices within the context of an imperfect competition model. The relationship is ambiguous because of several different effects of a change in diversity in investor beliefs. This has implications for empirical design and explains why 40 years of evidence on this association is inconclusive.