Model Of Market Structure Research Articles

The speed of the invisible hand

Very little attention has been devoted to incorporating dynamic elements into empirical models of market structure and performance. Consequently, there has been little progress in settling the issue of whether the market structure-profits relationship is more than just a temporary phenomenon. In this study, an estimation equation is developed which allows for incomplete adjustment of past profits from expected future profits, where expected profits depends on present and expected future changes in market structure. The model is estimated pooling panel data across industries. The findings indicate that adjustment to abnormal profits is relatively quick, market share adjustments are non-instantaneous, and that inclusion of industry-specific effects is important. The results suggest that previous studies are susceptible to specification bias from omitted variables.

Hotelling Models: A General Equilibrium Approach

Economic models wherein consumers are spatially separated from production and distribution outlets have captivated the attention of economists at least since the seminal work of Harold [8]. Under standard assumptions of uniformity, there exist apparent tradeoffs between such variables as firm size, number of firms, and distance between firms, which must be resolved if the economy is to perform efficiently. That is, as the number of firms increase, the average transport distance decreases and transport costs must be balanced with scale effects in production. When analyzed in the context of standard models of market structure, allocative problems associated with monopolistic competition and conjectural variation seem to preclude an efficient equilibrium. This general conclusion may be drawn from models developed by Smithies [11], Losch [9], Greenhut and Ohta [4], Benson [1], and Ohta [10]. The specific features and conclusions of these works have been well summarized by Capozza and Van Order [2] and by Villegas [12]. Although these models differ with regard to behavioral assumptions attributed to individual firms, the imperfectly equilibria are invariably characterized by prices in excess of marginal cost, welfare losses, and excess capacity. For reasons discussed below, partial equilibrium analysis cannot adequately address this problem because land markets are fundamental to the functioning of a spatial economy. Therefore, the purpose of this paper is to reexamine the functioning of a Hotelling type spatial economy in the context of a general equilibrium model which addresses the interactive effects of a product market, a land market, and a factor market. The model includes a more general form of the firm's production function, as well as a general representation of transport costs. The major conclusions of the paper are: (1) the optimality conditions reveal that a two-part pricing structure must prevail if a decentralized economy is to allocate its resources efficiently; (2) a market equilibrium, that appears to be monopolistically competitive but is actually purely competitive, is consistent with Pareto optimality, even though firms have some control over prices and operate under increasing returns to scale in production.

Mobile Enterprises and Markets in Central Province, Kenya

HIS paper focuses on patterns of mobile enterprise activity and rural markets Tin the Kikuyu heartland of Central Province, an agricultural region of the Kenya highlands (Fig. 1). The objectives of the study are first to describe patterns of mobile enterprise activity in order to highlight differences between East and West African examples; second, to show that theoretical models of trader mobility and periodic market structure, based mostly on West African and non-African empirical analyses, do not satisfactorily account for all spatial aspects of enterprise mobility in Central Province; and third, to offer an alternative economic explanation that fills gaps in the existing theories based on either central place concepts or industrial location principles. The alternative explanation is based on different assumptions of economic behavior of market participants. The data for this study were collected as part of a survey of rural, nonfarm activities in Central Province. The survey, conducted in June to August, 1977, involved detailed interviews with 852 owners or managers of nonfarm enterprises in fifty-two small, rural market centers (Fig. 2).1 Centers classified as urban by the Kenyan Ministry of Lands and Settlement were excluded. To qualify for inclusion in this study, an enterprise must have functioned for one month or longer in the year prior to the survey. Only enterprises that usually operated from rural market centers were considered, because the relationship of enterprise activities to market patterns is a primary focus of this study. A potentially large class of nonfarm enterprises that operate from dispersed farmsteads was thus excluded. Markets were selected as interview sites by use of an area-sampling method that took into account the density of rural population.2 Slightly fewer than half of the sampled market centers are periodic in the sense that there are scheduled special market days, while almost all markets have a nucleus of permanent stores or dukas that operate each workday. In the periodic centers, two special market days per week are common, and one or three special market days also occur. On these days there is an influx of part-time or mobile enterprises that set up temporary stalls or occupy open space. Most of the market centers were developed during the British colonial era, as appears to have been the

Market structure and social organization in a Ghanaian marketing system

Models of market structure, borrowed from industrial organization economists, are employed to analyze the relationship between social organization and economic conditions in a Ghanaian marketing system. Comparative analysis of vegetable, fish, and yam marketing identifies three distinct modes of social organization—pure competition, ethnic monopolization, and associational monopolization — and explains differences in social patterns in terms of underlying supply and distribution structures.

Advertising and Profitability: A Reappraisal

Previous empirical studies of the relationship between profitability, market structure, and advertising intensity have consistently found a strong positive relationship between profit rates and advertising intensity. The profit rates used in these studies are based on treating advertising expenditures as a current expense. Much evidence exists that advertising has a long-lasting effect on sales, so that the treatment of advertising as a current expense is inappropriate. In this paper, corrected profit rates are calculated by treating advertising expenditures as an investment in a capital asset. The corrected profit rates are then used in a multivariate regression analysis of the relationship between profitability, market structure, and advertising intensity. No significant relationship between corrected profit rates and advertising intensity is found in the regressions. This finding suggests that the positive relationships between uncorrected profit rates and advertising intensity in previous studies are due solely to the inappropriate expensing of advertising.

The Determinants of Entry: A Study of the Canadian Manufacturing Industries

ENTRY plays a crucial role in microecoIJi nomic models of market structure and performance. However there has been very little direct empirical investigation of entry and its determinants over a broad cross section of industries. In this paper we construct and estimate a model which assumes entry is a function of the incentives to enter relative to the level of entry barriers. The subject of the analysis is the cross-section differences in entry between the three-digit industries of the Canadian manufacturing sector. Previous studies of entry have either concentrated on only several industries or have attempted to make conclusions about entry conditions by regressing profit rates on variables representing entry barriers. Bain (1956) examined 20 (mostly four-digit) United States manufacturing industries and concluded that the most significant barriers to entry were product differentiation, economies of scale in plant or firm and control of patents or scarce resources, respectively. Mann's study (1966), which was limited to 30 of the United States manufacturing industries, did not examine the relative importance of the various barriers to entry. Mansfield's (1962) sample was limited to four industries. Capital requirements was the only barrier he considered. Most econometric investigations of entry barriers have been indirect tests. They have regressed the profit rate, rather than entry, on those structural characteristics considered to be barriers to entry (Comanor and Wilson 1967, Miller 1969). Unfortunately this specification does not permit reliable conclusions regarding the effectiveness of these variables in deterring entry. There are theoretical reasons for questioning the often assumed strong positive relationship between entry barriers and the true profit rate. Additionally of course, there is the infamous gap between true and measured profits. This paper's treatment of entry barriers has several important advantages over previous work. Those variables considered to be entry barriers are introduced directly as determinants of entry rather than the profit rate. This is a direct rather than indirect test of the propensity of these factors to deter entrants. A most important result is that our conclusions are less sensitive to those unavoidable measurement errors in the profit rate. Our estimating equations consider a more extensive list of entry barriers over a larger (71) sample, covering all types of manufacturing.

Christian Ethics and Market Mechanisms of Profit: The Intersection of Scriptural Themes with Models of Market Structure

Using Scripture as a guide, Dr. Hoover demonstrates how Christian perspectives can be integrated into business, with special attention being given to the area of marketing.