Monopoly Behavior Research Articles

Are Mega-Mergers Anticompetitive? Evidence from the First Great Merger Wave

In the first time-event analysis of the great merger wave of 1897-1903, we find that the consolidations created value for merger participants of 12% to 18%. We next find that the competitors suffered significant value losses inconsistent with conventional monopoly behavior (i.e., trust-induced output reductions and price increases). This result might be explained by apprehensions of trust predation rather than expected efficiency, but further analysis suggests that this is unlikely. Revelation of trust membership or prior stock market mispricing are also unlikely alternative explanations. On balance, therefore, the evidence indicates that these mergers were generally motivated by more efficient operations, rather than monopoly power.

The Effects of Imperfect Competition on the Size and Distribution of Research Benefits

AbstractStudies of agricultural research benefits usually assume perfectly competitive markets. Studies that have allowed for market power of agribusiness firms have generally assumed unrealistic pure monopsony or monopoly behavior. This paper allows for processing firms to exhibit a range of degrees of oligopsony power in buying raw farm products and oligopoly power in selling processed farm products. The results indicate that different types of research‐induced technical change can exacerbate or ameliorate distortions from the exercise of market power by agribusiness firms, which affects the size and especially the distribution of research benefits.

Consumer resistance and monopoly behavior under franchise contestability

The probability of a deregulation under anti-monopoly consumer lobby is generated at the Cournot-Nash equilibrium of a lobbying game which depends on the monopoly rent and the deadweight loss. This probability is increasing and convex in monopoly price. When the deregulation probability constraint is binding, the monopolist's price rises with the number of consumers, the competitive price and the given ceiling probability. The social cost of a monopoly under franchise contestability differs from the Posner measure.

Telecommunications and computer services in the Canada-US Free Trade Agreement (FTA)

The paper examines, from a telecommunications policy perspective, the main features of the provisions of the recent Canada–US Free Trade Agreement (FTA) dealing with enhanced telecommunications and computer services, and seeks to draw conclusions that may be relevant to efforts in the current GATT round to develop new trade rules for services. It reviews the key features of the Canada–US agreement, including the approach taken to definitions, market access and national treatment, monopoly behaviour and access to information issues. The paper notes that although the FTA has limitations as a model for future trade in telecommunications, many of the same issues will have to be dealt within the GATT negotiations. Based on the Canadian experience in negotiating the telecommunications provisions in the FTA, the author concludes that concerns expressed by some telecommunications policy–makers that liberalized trade rules may make it difficult to continue to pursue their own national policy objectives are unfounded.

An empirical test of monopoly behaviour: an application to the Hardwood case: a comment

A recent article in this journal, Alexander (1988), tests whether the exchange of price information in the 1921 Hardwood case was a means of fixing prices or a way of coping with costly information. Alexander makes two serious errors. Both errors involve the incorrect use of a technique used to measure price-cost margins to determine the extent to which an industry is monopolistic, competitive, or somewhere in between. I reestimate Alexander's model correcting his two errors. In addition, I improve his data set. Alexander's conclusion that the price association was pro-competitive, although drawn incorrectly, is shown to be correct.

Firm Behavior in Franchise Monopoly Markets

This article presents empirical evidence concerning the value offranchise bidding competition as a means of controlling natural monopoly behavior. The analysis focuses on the cable television industry, using data collected in a survey of local government officials in cabled communities throughout the continental United States. One important potential problem raised by critics offranchise bidding is the ability offranchise winners to engage in ex post opportunistic behavior by reneging on the promises that they made in order to win the franchise contract. The results of my analysis suggest that although franchise competition does leadfirms to engage in some degree of opportunistic behavior, the extent of opportunism is not severe. Furthermore, reputation effects appear to play a role in constraining firm behavior, while rate regulation actually seems to exacerbate ex post behavioral problems.

An empirical test of monopoly behaviour: an application to the Hardwood case

(1988). An empirical test of monopoly behaviour: an application to the Hardwood case. Applied Economics: Vol. 20, No. 8, pp. 1115-1127.

Dynamic Duopoly: Prices and Quantities

We study a dynamic model of duopoly in which firms choose both prices and quantities. If quantity (capacity) choices are relatively inflexible, firms generally carry excess (idle) capacity in equilibrium. Because of this enforcement cost, firms are unable to achieve monopoly levels. This contrasts with models in which which firms compete in either prices or quantities alone. On the other hand, if capacities are flexible firms may be able to sustain monopoly behaviour.

Estimating Monopoly Behavior with Competitive Recycling: An Application to Alcoa

This article develops a structural model of the aluminum industry during the period between World War I and World War II. It takes into account both the intertemporal nature of Alcoa's cost minimization problem and the competitive recycling sector. The model enables estimation of Alcoa's degree of market power, while allowing for the effect of competition from recycled aluminum. Previous work has emphasized Alcoa's control over the size of the secondary sector in the long run as a source of market power for Alcoa. The results here indicate that Alcoa could exert little influence in this regard, but nonetheless had substantial market power.

Testing Hypotheses about Firm Behavior in the Cigarette Industry

Data on the effects of excise taxes are used to investigate the level of competition in the cigarette industry. A lower bound on the numbers equivalent of firms in the context of the conjectural variations model is derived and estimated. Results point to at least a moderately high level of competition and, in particular, allow for the rejection of the perfect cartel model. This paper relies on comparative statics results and hence circumvents recent criticisms of a study of monopoly behavior in the cigarette industry.

Impacts on Agriculture of Deregulating the Transportation System: Discussion

I concur with the general conclusions of Johnson's paper. Transportation deregulation was long overdue. Regulation was ineffective and, in some instances, counterproductive to agriculture, rural communities, and the regulated carrier. There will be individual losers as adjustments are made to less regulation, but the total result for agriculture will be positive. However, I have several reservations about the overall thrust of rail deregulation. Johnson states two justifications for regulation of the transport industry. One is the need for the cross-subsidization of services that the transport firm could not or would not otherwise supply. The other is the argument that the state must protect the public from the market power of the industry. Two examples that the opponents of deregulation use to show that agriculture and rural communities require transportation regulation are then discussed. These are (a) that market barriers to entry will leave rural communities without adequate truck service, and (b) that insufficient competition exists to protect agriculture from railroad monopoly behavior. With regard to truck service to small communities, he concludes, and I fully concur, that free entry and the removal of specific authority restrictions on commodities, routes, and service points will tend to lower rates, improve service, and enhance capacity utilization. The barriers to entry for trucking came more from the regulatory requirements than from market barriers. The Motor Carrier Act of 1980 removed many of these restrictions. The act will have little impact on agriculture and rural communities, and the impact that it does have will be positive. That is also true for airline and intercity bus deregulation. The airways and highways are publicly owned, and freedom to enter a market can provide competition. Rail is different. The roadbed is privately owned. That provides monopoly power. Will sufficient competition exist to protect agriculture from railroad monopoly behavior? Johnson concludes that although there may be some harm, there is no strong evidence to maintain transportation regulation for agriculture. He cites a number of studies to back his conclusions, but each addresses specific issues and not the total deregulation package. That package went much further than thought possible two years ago. Consequently, rail deregulation may have gone too far. I agree with the rail abandonment studies that conclude that the maximum abandonment case is most efficient considering the economic variables studied. However, I am not convinced that the distribution of the economic returns will be equitable. How much of the savings will stay in the rural areas? What will happen to land values 40 miles or more from a subterminal? Will subterminal ownership become controlled by the limited number of regional or national firms that have the access to the capital required to build trainloading facilities and the market power to negotiate favorable contract rates? Do these studies adequately account for the cost of maintaining our road network as grain is moved longer distances to subterminals and the vehicle mix and routes traveled change? The Staggers Act did not leave the ICC and the states enough discretion on abandonments. There still is no master plan with hard decisions on abandonment versus the rehabilitation of marginal lines. The last branchline in an area frequently will have operating profits after competing branches are abandoned if it is rehabilitated at railroad or public expense, but the ICC cannot force a sensible rationalization of the rail system. Some of the studies center on interrailroad competition holding down rates. But, will we really have effective interrailroad competition in 1990 with only six or eight major rail systems? Mergers as a method of rationalization are encouraged by the Staggers Act, but we Jerry E. Fruin is an assistant professor, Department of Agricultural and Applied Economics, University of Minnesota.

Measurement of Monopoly Behavior: An Application to the Cigarette Industry

A simple scheme is proposed to measure monopoly pricing behavior. The coefficient of the tax rate term in a price equation identifies the ratio of price to marginal cost. No direct measurement of costs is required, so a major problem for other empirical studies of monopoly is avoided. Empirical results for cross-section time-series data support rejection of atomistic competition but also provide evidence against the operation of an effective cartel in the cigarette industry. The model represents an alternative interpretation of related results in a recent paper by Barzel. Application of the methodology to other markets is feasible.

Modeling OPEC behavior: economic and political alternatives

The predominant approach to modeling OPEC behavior depends upon the assumption that economic self-interest provides the best predictor of the cartel's price and production strategy. With rational monopoly behavior, the exogenous characteristics of the oil market determine an optimal price path for the group. But OPEC members have diverse economic as well as political goals. And uncertainty about oil market responses provides substantial leeway to argue about what is optimal. An examination of the five key OPEC price decisions since 1973 shows that an operational code of advancing political priorities on Arab-Israeli issues while deflecting security challenges better explains Saudi Arabia's decision-making than the economic optimizing approach. Moreover, no economic formula alone is consistent with Saudi behavior. The balance of internal and external forces of a political or security character on Saudi leadership suggests more of a tilt toward price hawkishness than pure considerations of economic self-interest would indicate. This tilt is reinforced by a systematic weakness on the part of the U.S. government to exercise a sustained countervailing influence on the Kingdom on behalf of moderation.

Monopoly in the Labor Market: The “Bummarees” of London's Wholesale Meat Market

Describes the circumstances at Smithfield Market, the main wholesale meat market in London, England and the nature and consequences of the bummaree monopoly. Labor market monopoly of the self-employed porters of meat; Grounds on which monopoly behavior is defended. (Abstract copyright EBSCO.)