Volume 16, Issue 3 -

This paper studies the welfare effects of third-degree price discrimination when competitive pressure varies across markets. In particular, we study the economic aspects of the Robinson–Patman Act associated with the “meeting competition defense.” Using equilibrium models, the main result we find is that this defense might be used successfully in cases of primary line injury precisely when it should not be used, namely when price discrimination reduces social welfare. This result obtains both when discrimination appears in the final good market and when it is used in the intermediate goods market. We also find that these results may maintain under secondary line injury.

We study the effects of the change in contract length on the agents’ incentives to invest and exert effort. We present an agent’s dynamic decision model that explicitly deals with two types of investments and directly allows for contract regime switching by varying the probability of contract renewal. The fact that the unobservable investment in human capital is complementary with the agent’s effort produces a result that increasing the probability of contract renewal increases investment and effort, with the consequent increase in production. We also show that there exists a specific level of investment in human capital, for which the investment in physical capital is profitable. We test these theoretical predictions using contract settlement data for the production of hatching eggs which covers the period when the contract changed from short-term to long-term. The obtained empirical results are largely supportive of the developed theory.

This study provides a comprehensive picture of experimental Kreps–Scheinkman markets with capacity choice in the first stage and subsequent price competition in the second. We conduct seven different treatments of such markets, varying the number of firms, demand rationing, subject matching, and subjects’ knowledge about the market mechanism. We find that only the number of firms has a persistent effect on capacity choices, whereas price choices are affected by both the number of firms and the rationing scheme. From the outset, subjects in the high-knowledge condition behave in the same way as subjects with low knowledge do in later periods after gaining experience. In all treatments, conduct is more competitive than the Cournot outcome, irrespective of the Nash equilibrium prediction. Nevertheless, the Cournot model does pack some predictive power. Under efficient demand rationing where the Cournot outcome is predicted, exact Cournot choices are more likely for both capacities and prices.

This paper investigates whether a downstream monopolist has an incentive to freely share its technology to potential entrants. With a linear demand, it is more profitable for the downstream monopolist to share its obsolete technology with the potential entrants even with no returns. In this context, technology sharing is a Pareto improvement. Moreover, the profit of the downstream monopolist via technology sharing increases with the number of new entrants, but the nexus between social welfare and the number of new entrants is non-monotonic.

According to economic theory, real income, i. e., nominal income adjusted for purchasing power, should be the relevant source of life satisfaction. Previous work, however, has studied the impact of inflation-adjusted nominal income and hardly taken into account regional differences in purchasing power. We use novel data to study how regional price levels affect life satisfaction. The data set comprises a price level for each of the 428 administrative districts in Germany. Controlling for district heterogeneity other than the price level, our results show that higher price levels significantly reduce life satisfaction.

There is a recent trend toward encouraging universities to merge. This policy is based on the idea that mergers create synergy gains that enhance the prestige of universities by increasing their international visibility. However, this process may reduce competition for both research funds and professors in national higher education markets. This paper analyzes whether mergers among universities are optimal from an excellence perspective. We find that as the heterogeneity between the initial reputations of potentially merging institutions increases, the amount of funds required for mergers to achieve higher excellence than competition also increases.

We evaluate the impact of patient cost sharing on the use of dentures and subjective chewing ability exploiting a sharp reduction in the coinsurance rate, the percentage of costs born by the user, from 30 % to 10 % at the age of 70 with a regression discontinuity design. Using data from the Japanese Study of Aging and Retirement (JSTAR), we find that the utilization rate of dentures increases from approximately 50 % to 63 % around the threshold, implying that the extensive margin elasticity of denture usage with respect to the coinsurance rate is about –0.41. In addition, we find this jump is almost entirely due to the change in the rate among women. On the other hand, we do not find a significant improvement in self-reported chewing ability, although chewing ability may not be the only social benefit from dentures. Our empirical findings are also confirmed by complementary analysis with randomization tests.

Investigating the impact of family instability is important as more and more children experience different family changes in many industrialized countries. In this paper we examine the dynamics of family structure, looking at the potential effect of yearly maternal partnership transitions on adolescents’ locus of control. We aim at combining research on family instability with research on non-cognitive skill formation. We use rich and nationwide German data to identify the relationship between family instability and adolescent locus of control. Combining entropy balancing with a novel econometric method to assess potential bias from omitted variables, we find that experiencing maternal partnership transitions is negatively associated with adolescents’ belief in self-determination and that internal locus of control is reduced by about a fifth of a standard deviation among those affected, even after conditioning on a large number of covariates. This is particularly true if the transitions take place during “middle childhood.”

Prior research argues that lottery consumers consider how funds are to be used in making lottery purchase decisions. Possible explanations for this behavior include altruism as well as the desire of low-income families to provide educational opportunities within their community. This paper uses a panel of lottery sales for U.S. states covering the period 1980–2000 to test hypotheses regarding the impact of educational earmarking on lottery purchases. Our estimates suggest that states earmarking all or part of their revenue to education experience an increase in lottery sales between 11 % and 25 %, depending on the specification of state trends. Whether the propensity for earmarking to increase sales is viewed positively or negatively depends largely on one’s ethical and moral views of lotteries.

What are the fiscal consequences of legislative term limits? To answer this question, we first develop a legislative bargaining model that describes negotiations over the allocation of distributive projects among legislators with different levels of seniority. Building on several predictions from the model, we develop two hypotheses for empirical testing. First, the adoption of term limits that results in a larger reduction in the variance of seniority within a legislature increases the amount of government spending. Second, legislatures that adopt stricter term limits increase the amount of government spending, while legislatures that adopt moderate term limits show no change in the amount. We provide evidence for these hypotheses using panel data for 49 US state legislatures between 1980 and 2010.

This paper considers a previously unexamined increase in excise taxes on gasoline and diesel fuel that were part of Washington State’s Nickel Funding Package of 2003. We fail to reject full pass-through of the amount of the tax increase to retail prices in both products. We find no significant sensitivity of retail pass-through to station locations relative to state borders or to retail competitive conditions as measured by local station density. The expansion of hypermarkets in Washington State during the period was a confounding factor in estimating tax pass-through effects.

Using the pseudo-panel structure of friendship links, this paper employs a control function approach to estimate the impact of the number of friends on one’s own educational achievement in linear models. Results show that having one additional reciprocal or out-degree friend increases about 2 % of a standard deviation in cognitive test scores.

Secrecy about investment in research and development (R&D) can promote greater technological change and higher social welfare in competitive industries. In a duopoly where each firm has private information about its actual production technology (or cost) and firms engage in cost-reducing R&D with uncertain outcomes prior to engaging in price competition, the equilibrium outcome when firms do not observe the R&D investment chosen by the rival (investment secrecy) yields higher investment, social welfare, and industry profit compared to the outcome when R&D investment levels of firms are publicly observable. Government intervention to secure disclosure of R&D investments may be counterproductive; trade secret laws that protect privacy of information related to R&D inputs or investment may be helpful.

During periods of peak demand, frequent markdowns present an empirical puzzle. Based on the idea that stores face capacity constraints in times of high shopping volume, we show that stores keep their off-season prices high in order to lure all consumers to shop around the same time. This relaxes competition and allows stores to raise prices. Due to binding capacity constraints, stores randomize their prices. Thus, our model offers a unified explanation for both the countercyclicality and the high frequency of price changes during periods of peak demand.

Panel-income changes tend to be equalising but existing approaches provide little insight on the nature of this equalising process. I present a new decomposition framework showing explicitly how the equalising effect of panel-income changes depends on the respective size and distribution of panel-income gains and losses. One of the new insights gained from the application to US data for the 1970/2009 period is that most of the equalising effect occurs through income gains rather than income losses even in times of recession.

In this paper, we study how input prices affect product differentiation in network industries. In particular, we study whether the principle of vertical differentiation (Choi and Shin 1992, “A Comment on a Model of Vertical Product Differentiation.” The Journal of Industrial Economics 40 (2):229–31; Wauthy 1996, “Quality Choice in Models of Vertical Differentiation.” The Journal of Industrial Economics 44 (3):345–53) remains valid when an entrant purchases an essential input from an incumbent at a regulated price. We find that the higher quality firm always chooses the best available quality, whereas the lower quality firm chooses an intermediate quality, which increases with the input price. If the higher quality firm is the incumbent, a cost-oriented input price maximizes welfare, but comes at the cost of a lower average quality, a higher degree of product differentiation, and therefore stronger downstream market power.