Simple Competition Model Research Articles

COLLUSION ON PRIVATE HEALTH INSURANCE COVERAGE IN CHILE

In September 2005, the Chilean Competition Authority filed a lawsuit against five private health insurance providers for violation of antitrust laws. They were accused of colluding to reduce the coverage levels of their plans. Between March 2002 and March 2003, they reduced the coverage offered from 100 percent for hospitalization and 80 percent for ambulatory care to 90 percent and 70 percent, respectively. These facts were undisputed, but, logically, the mere observation of parallel conduct is not enough to infer collusion. In this article, we analyze the merits of the accusation and find strong support for it. We first present evidence on the definition of the relevant market (that excludes the public insurer) and the presence of entry barriers. We then present a simple model of imperfect competition that gives some testable predictions to separate the hypotheses that insurers colluded to reduce coverage and the one—argued during the trial by the insurers—that the coverage reduction was a competitive reaction to a cost shock. We then present econometric evidence consistent only with the hypothesis of collusion: The accused insurers reduced sales efforts and marketing expenses relative to the non-accused insurers, the monthly transfer rates of insurees among accused insurers decreased during the period of the alleged agreement relative to the rate of the non-accused insurers, and profits of both accused and non-accused insurers increased after the coverage reduction.

Search Engine Competition with Network Externalities

The market for Internet search is not only economically and socially important, it is also highly concentrated. Is this a problem? We study the question whether competition is only a free click away. We argue that the market for Internet search is characterized by indirect network externalities and construct a simple model of search engine competition, which produces a market share development that fits the empirically observed development since 2003 well. We find that there is a strong tendency towards market tipping and, subsequently, monopolization, with negative consequences on economic welfare. Therefore, we propose to require search engines to share their data on previous searches. We compare the resulting oligopoly market structure with the less competitive current situation and show that our proposal would spur innovation, search quality, consumer surplus, and total welfare. We also discuss the practical feasibility of our policy proposal and sketch the legal issues involved.

Heterogeneous Firms, Trade, and Economic Policy: Insights from a Simple Two-Sector Model

The robust empirical finding that exporting firms are systematically different from firms that merely serve domestic consumers has inspired the development of a new brand of trade theory, the theory of heterogeneous firms and trade. The establishment of a canonical model due to Melitz (2003) has induced a recent wave of research which explores various policy issues and policy instruments. This paper uses a simple tractable two-sector model of monopolistic competition as unifying framework to bring out key lessons of this recent research. We address the gains from trade, country asymmetries involving technology potentials, market sizes, trade openness and various business conditions as well as the international repercussions that emerge when countries non-cooperatively choose entry subsidies and their levels of basic research. We also reinvestigate the process of market exit.

Biological Evolution: Entropy, Complexity and Stability

In the present paper we have made an attempt to investigate the importance of the concepts of dynamical stability and complexity along with their interelationship in an evolving biological systems described by a system of kinetic (both deterministic and chaotic) equations. The key to the investigation lies in the expres-sion of a time-dependent Boltzmann-like entropy function derived from the dynamical model of the system. A significant result is the determination of the expression of Boltzmann - entropy production rate of the evolving system leading to the well-known Pesin-type identity which provides an elegant and simple meas-ure of dynamical complexity in terms of positive Lyapunov exponents. The expression of dynamical com-plexity has been found to be very suitable in the study of the increase of dynamical complexity with the suc-cessive instabilities resulting from the appearance of new polymer species (or ecological species) into the original system. The increase of the dynamical complexity with the evolutionary process has been explained with a simple competitive model system leading to the “principle of natural selection”.

Does Tort Law Reform Help or Hurt Consumers?*

Legal limits on insurance damage claims have been introduced in Australia, the United States and other jurisdictions. In this article, I construct a simple competitive model to analyse the effect of tort law reforms on consumers. The model shows that reforms to limit non‐economic losses make consumers unambiguously worse off ex ante. Although insurance premiums fall and these reductions are passed on to consumers in full, this gain is more than offset by the increased risk that consumers are forced to bear. In contrast, reforms for income‐related (i.e. economic) losses lead to ambiguous outcomes. The potential benefits from limits to economic loss arise due to the inability of insurers to price discriminate on the basis of income or expected loss. Because of this, there is an implicit cross subsidy from low‐ to high‐income consumers that is embedded in the insurance premium and relevant product price. Tort law reforms partially unwind this cross subsidy. The results presented in this article show that tort law reforms may achieve their stated goal, such as lowering monetary prices, but can still make consumers worse off by introducing an uninsurable risk. There is also an important difference between reforms that limit claims for economic and non‐economic losses. Insurance for economic loss will generally include an implicit cross subsidy and, as a consequence, reforms can alter the ex ante utility for different groups of consumers in different ways.

The Effect of Minimum Wages on Labour Market Outcomes: County‐Level Estimates from the Restaurant‐and‐Bar Sector

AbstractWe use US county‐level data on employment and earnings in the restaurant‐and‐bar sector to evaluate the impact of minimum‐wage changes in low‐wage labour markets. Our estimated models are consistent with a simple competitive model in which supply‐and‐demand factors affect both the equilibrium outcome and the probability of the minimum wage being binding. Our evidence does not suggest that minimum wages reduce employment once controls for trends in county‐level sectoral employment are incorporated. Rather, employment appears to exhibit an independent downward trend in states that have increased their minimum wages relative to states that have not, thereby predisposing estimates towards reporting negative outcomes.

Species pool size and realized species richness affect productivity differently: A modeling study

Current and expected decline in biodiversity have motivated a number of experiments studying how biodiversity affects ecosystem functioning. The positive relationship is usually found in experiments where species pool is manipulated; the relationship between productivity and realized species richness does not show any single trend. We constructed a simple competition model for a plant community based on the classical Lotka–Volterra equations, with randomly generated parameters. We varied the species pool size and intensity of competition (range of competition coefficients). Then, we compared two measures of diversity used as predictors of productivity: (1) the size of the species pool and (2) the realized species richness, i.e. the number of species that remained in the system after competitive exclusion. Simulation results showed that productivity was always positively affected by the size of the species pool. With increasing species pool, both the selection effect and complementarity increase. The relationship between realized species richness and productivity was extremely weak within a set of simulations with a fixed species pool (i.e. where the diversity gradient was caused only by differences in the randomly generated parameters). The relationship between realized species richness and productivity was slightly positive for small species pool sizes and slightly negative for larger species pools. A species with high carrying capacity within the generated set of species usually decreases the chance of other species to survive but increases the productivity of the mixture, leading to negative diversity productivity relationship. On the contrary, presence of highly complementary species (i.e. species with low mutual competition coefficients) increases both, the realized species richness and productivity, leading to positive diversity productivity relationship. These two effects mostly counterbalance each other. These trends are not affected by the competition intensity.

Probing chaos and biodiversity in a simple competition model

Recent theoretical work has reported that chaos facilitates biodiversity. In this paper, we study the lowest-dimensional Lotka–Volterra competition model that exhibits chaotic trajectories, a model with four species. We observe that interaction and growth parameters leading respectively to extinction of three species, or coexistence of two, three or four species, are for the most part arranged in large regions with clear boundaries. Small islands of parameters that lead to chaos are also found. These regions where chaos occurs are, in the three cases presented here, situated at the interface between a non-chaotic four-species region and a region where extinction occurs. This implies a high sensitivity of biodiversity with respect to parameter variations in the chaotic regions. Additionally, in regions where extinction occurs which are adjacent to chaotic regions, the computation of local Lyapunov exponents reveals that a possible cause of extinction is the overly strong fluctuations in species abundances induced by local chaos at the beginning of the interval of study. For this model, we conclude that biodiversity is a necessary condition for chaos rather than a consequence of chaos, which can be seen as a signal of a high extinction risk.

High‐affinity binding of phosphatidylinositol 4‐phosphate by Legionella pneumophila DrrA

The DrrA protein of Legionella pneumophila is involved in mistargeting of endoplasmic reticulum-derived vesicles to Legionella-containing vacuoles through recruitment of the small GTPase Rab1. To this effect, DrrA binds specifically to phosphatidylinositol 4-phosphate (PtdIns(4)P) lipids on the cytosolic surface of the phagosomal membrane shortly after infection. In this study, we present the atomic structure of the PtdIns(4)P-binding domain of a protein (DrrA) from a human pathogen. A detailed kinetic investigation of its interaction with PtdIns(4)P reveals that DrrA binds to this phospholipid with, as yet unprecedented, high affinity, suggesting that DrrA can sense a very low abundance of the lipid.

Dancing with the devil: Country size and the incentive to tolerate money laundering

The incidence of money laundering, and the zeal with which international anti-money laundering (AML) policy is pursued, varies significantly from country to country, region to region. There are, however, quite substantial social costs associated with a policy of toleration, and this begs the question as to why such a variance should exist. In this paper we claim that, due to the globalisation of crime, if a single country should break the “chain of accountability”, then it will provide a safe haven for criminals and attract the total financial proceeds of crime. Because smaller economies are best able to insulate themselves from the costs of crime, we argue that smaller countries bear only a tiny share of the total costs relative to the potential benefits of investment that money laundering offers, and so have a higher incentive to tolerate the practice compared to their larger neighbours. As such, we claim that the existence of a money laundering market is due to a policy of AML ‘defection’, and that the degree of ‘defection’ depends largely on the size of the country. We present a simple model of policy competition which formalises this intuition, and conclude by exploring a number of policy recommendations which flow from this.

Auctioning the Right to Choose When Competition Persists

Several papers compare auctioning heterogeneous assets sequentially with sequentially selling the right to choose among assets not yet taken. Typically motivated by auctions of condos for owner occupation, these papers have assumed that each winning bidder exits, so each successive auction has less competition. In many heterogeneous-asset-sale situations, a winning bidder may still be interested in acquiring further assets. We build a simple model of persistent competition, in which the distribution of equilibrium revenue from separate sales is shown to be a mean-preserving spread of the distribution of revenue from selling rights to choose. Persistent competition reveals that a high bidder does not always select his most preferred asset, and that one asset being slightly more likely to be a favored asset discontinuously affects equilibrium bidding.

Voter Mobilization and the Rise of Black Political Power

During 1970-2000, U.S. cities underwent a rapid increase in black political representation. Many argue that African-Americans’ responsiveness to registration and get-out-the-vote campaigns facilitated this transition. This paper develops a simple model of group-based electoral competition when one group has a greater capacity to mobilize voters to the polls. Mayoral election results are consistent with the model in the South, where African-Americans historically faced political exclusion, but not in the North. In Southern cities, close black victories were more likely than close black losses, involved higher turnout than close black losses, and were more likely to be followed by subsequent black victories.

Choosing between Service Fees and Budget Funding to Pay for Local Services: Empirical Evidence from Spain

In this paper we investigate how local governments finance public services, and their choice between budget funding and flat service fees. On the basis of a simple model of electoral competition we predict that the tax policy will be extreme (either progressive or conservative) only if both the voting majority's economic interests and the valence point to the same ideological side. If ideological and economic interests diverge, then the equilibrium policy will be a moderate one. From our empirical analysis we find that progressive mayors in progressive constituencies use budget funding to a greater degree, whereas conservative mayors in conservative constituencies prefer flat service fees. When the political affiliation of the mayor and the ideological bias of the constituency diverge, more moderate policies are chosen. We find also that service-specific deficits are lower in cities with private production of solid waste service. Thus policy makers may have used privatization as a means to reduce the political cost of increasing service-specific taxes.

What is the mechanism for persistent coexistence of drug-susceptible and drug-resistant strains of Streptococcus pneumoniae?

The rise of antimicrobial resistance in many pathogens presents a major challenge to the treatment and control of infectious diseases. Furthermore, the observation that drug-resistant strains have risen to substantial prevalence but have not replaced drug-susceptible strains despite continuing (and even growing) selective pressure by antimicrobial use presents an important problem for those who study the dynamics of infectious diseases. While simple competition models predict the exclusion of one strain in favour of whichever is ‘fitter’, or has a higher reproduction number, we argue that in the case of Streptococcus pneumoniae there has been persistent coexistence of drug-sensitive and drug-resistant strains, with neither approaching 100 per cent prevalence. We have previously proposed that models seeking to understand the origins of coexistence should not incorporate implicit mechanisms that build in stable coexistence ‘for free’. Here, we construct a series of such ‘structurally neutral’ models that incorporate various features of bacterial spread and host heterogeneity that have been proposed as mechanisms that may promote coexistence. We ask to what extent coexistence is a typical outcome in each. We find that while coexistence is possible in each of the models we consider, it is relatively rare, with two exceptions: (i) allowing simultaneous dual transmission of sensitive and resistant strains lets coexistence become a typical outcome, as does (ii) modelling each strain as competing more strongly with itself than with the other strain, i.e. self-immunity greater than cross-immunity. We conclude that while treatment and contact heterogeneity can promote coexistence to some extent, the in-host interactions between strains, particularly the interplay between coinfection, multiple infection and immunity, play a crucial role in the long-term population dynamics of pathogens with drug resistance.

Ageing municipalities, gerontocracy and fiscal competition

We develop a simple model of fiscal competition among ageing municipalities. When ageing advances, gerontocracies and social planners gradually substitute publicly provided goods aimed at the mobile young population for publicly provided goods for the elderly. This substitution process does not only depend on the ageing itself but also on crowding effects and on the regional distribution of the elderly population. We show that fiscal competition prevents the exploitation of the young. When the share of the elderly is sufficiently large, the utility of the young is even higher in gerontocracies than in welfare maximizing societies. Due to fiscal competition, the gerontocracies will provide even more of the publicly provided good for the young than the social planner.

Legal or illegal? Preferences on immigration

The political debate about regularisation programmes for undocumented migrants is a very controversial issue. The main goal of this article is to explain why governments decide to grant amnesties to illegal immigrants as a part of their immigration policy. We propose a simple political competition model in which we first derive the voters' preferences over a menu of regularisation programmes. Labour market conditions make skilled workers more pro‐regularisation than unskilled workers. We find that, in general, the policy implemented at the political equilibrium is a partial amnesty programme, which is what happens in the majority of the countries in this study.

Redox and ATP control of photosynthetic cyclic electron flow in Chlamydomonas reinhardtii (I) aerobic conditions

Assimilation of atmospheric CO 2 by photosynthetic organisms such as plants, cyanobacteria and green algae, requires the production of ATP and NADPH in a ratio of 3:2. The oxygenic photosynthetic chain can function following two different modes: the linear electron flow which produces reducing power and ATP, and the cyclic electron flow which only produces ATP. Some regulation between the linear and cyclic flows is required for adjusting the stoichiometric production of high-energy bonds and reducing power. Here we explore, in the green alga Chlamydomonas reinhardtii, the onset of the cyclic electron flow during a continuous illumination under aerobic conditions. In mutants devoid of Rubisco or ATPase, where the reducing power cannot be used for carbon fixation, we observed a stimulation of the cyclic electron flow. The present data show that the cyclic electron flow can operate under aerobic conditions and support a simple competition model where the excess reducing power is recycled to match the demand for ATP.

Does Tort Law Reform Help or Hurt Consumers?

Legal limits on insurance damage claims have been introduced in Australia, the United States and other jurisdictions. In this article, I construct a simple competitive model to analyse the effect of tort law reforms on consumers. The model shows that reforms to limit non-economic losses make consumers unambiguously worse off ex ante. Although insurance premiums fall and these reductions are passed on to consumers in full, this gain is more than offset by the increased risk that consumers are forced to bear. In contrast, reforms for income-related (i.e. economic) losses lead to ambiguous outcomes. The potential benefits from limits to economic loss arise due to the inability of insurers to price discriminate on the basis of income or expected loss. Because of this, there is an implicit cross subsidy from low- to high-income consumers that is embedded in the insurance premium and relevant product price. Tort law reforms partially unwind this cross subsidy. The results presented in this article show that tort law reforms may achieve their stated goal, such as lowering monetary prices, but can still make consumers worse off by introducing an uninsurable risk. There is also an important difference between reforms that limit claims for economic and non-economic losses. Insurance for economic loss will generally include an implicit cross subsidy and, as a consequence, reforms can alter the ex ante utility for different groups of consumers in different ways.

Definition and calculation of uncertainty in ecological process models

We present a method of multi-criteria assessment for the analysis of process model uncertainty that combines analysis of model structure, parameters and data requirements. There are three components in calculation and definition of uncertainty.(1)Assessment criteria: Uncertainty in a process model is reduced as the model can simultaneously simulate an increased number of assessment criteria selected to test specific aspects of the theory being investigated, and within acceptable limits set for those criteria. This reduces incomplete specification of the model—the characteristic that a model may explain some, but not all, of the observed features of a phenomenon. The calculation required is computation of the Pareto set which provides the list of simultaneously achieved criteria within specified ranges.(2)Parameter values: Uncertainty in a process model is reduced as the distribution of values for parameters simulating multiple assessment criteria within their acceptable limits becomes unimodal and with reduced range. This reduces non-uniqueness in the model—the characteristic that there may be alternative representations and no a priori way of deciding between them. The calculation required is analysis of parameter values within each group of the Pareto set, for their distributions and possible correlations which contributes to a definition of non-uniqueness in terms of whether multiple modes in parameter values are equally plausible.(3)Data and information: Uncertainty in a process model is reduced as the acceptable limits for assessment criteria are defined with increasing precision. The calculations required are to define acceptability ranges for the assessment criteria either through empirical investigations or through inference from related theories. This provides a definition of the relationship of the model to empirical and theoretical construction thought to be important.Three types of criteria should be used in assessment of uncertainty: (i) Tests of the quantitative domains of the model outputs. (ii) Examination of features explicitly predicted by the theory that the model describes. (iii) Tests between alternative structures in model formulation. The ability of a model to satisfy these criteria simultaneously is calculated using evolutionary computation and results are presented as a Pareto optimal set. Deficiencies in the model are revealed by manipulating acceptable limits around the assessment criteria, inclusion and exclusion of different criteria, and examining the distribution of model parameter values as non-dominated groups achieving different combinations of assessment criteria form in the Pareto optimal set. We illustrate this procedure through application to a simple model of competition between plants in single species even-aged populations. We use six assessment criteria and test an alternative to the model.

Specialized Feeding Modes Promote Coexistence of Competing Herbivores: Insights From a Metabolic Pool Model

Competition theory suggests that a single resource should support one consumer species. However, competitive exclusion may be relaxed by periodic disturbances, temporal or spatial segregation of consumers, or fine-scale resource partitioning. This last mechanism may be especially common for competing phytophagous insects. Unlike many predators, herbivores rarely consume their entire prey item and often have specialized feeding modes on specific plant parts. Thus, different herbivore guilds may "avoid" each other, thereby facilitating their coexistence. I analyzed a simplified metabolic pool model that includes two herbivore types: a "leaf chewer" and a "phloem feeder." Phytophagous insects with the same feeding mode never coexisted, but different guilds may coexist stably-depending on productivity of the carbohydrate pool, allocation to vegetative biomass, and defoliation rate. Differences in herbivore feeding mode are equivalent to fine scale resource partitioning, potentially within the individual plant. Thus, the addition of physiological detail changes the predictions of simple competition models and is relevant to weed biocontrol by informing decisions on which guilds of biocontrol agents to introduce.