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Richard E. Just and Gordon C. Rausser
The lens used by the courts and much of the antitrust literature on predatory selling and/or buying is based on partial equilibrium methodology. We demonstrate that such…
Abstract
The lens used by the courts and much of the antitrust literature on predatory selling and/or buying is based on partial equilibrium methodology. We demonstrate that such methodology is unreliable for assessments of predatory monopoly or monopsony conduct. In contrast to the typical two-stage dynamic analysis involving a predation period followed by a recoupment period, we advance a general equilibrium analysis that demonstrates the critical role of related industries and markets. Substitutability versus complementarity of both inputs and outputs is critical. With either monopolistic or monopsonistic market power (but not both), neither predatory overselling nor predatory overbuying is profitably sustainable. Two-stage predation/recoupment is profitable only with irreversibility in production and cost functions, unlike typical estimated forms from the production economic literature. However, when the market structure admits both monopolistic and monopsonistic behavior, predatory overbuying can be profitably sustainable while overselling cannot. Useful distinctions are drawn between contract versus non-contract markets for input markets.
Camille Cornand and Frank Heinemann
In this article, we survey experiments that are directly related to monetary policy and central banking. We argue that experiments can also be used as a tool for central bankers…
Abstract
In this article, we survey experiments that are directly related to monetary policy and central banking. We argue that experiments can also be used as a tool for central bankers for bench testing policy measures or rules. We distinguish experiments that analyze the reasons for non-neutrality of monetary policy, experiments in which subjects play the role of central bankers, experiments that analyze the role of central bank communication and its implications, experiments on the optimal implementation of monetary policy, and experiments relevant for monetary policy responses to financial crises. Finally, we mention open issues and raise new avenues for future research.
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We compare allocation rules in uniform price divisible-good auctions. Theoretically, a “standard allocation rule (STANDARD)” and a “uniform allocation rule (UNIFORM)” admit…
Abstract
Purpose
We compare allocation rules in uniform price divisible-good auctions. Theoretically, a “standard allocation rule (STANDARD)” and a “uniform allocation rule (UNIFORM)” admit different types of low-price equilibria, which are eliminated by a “hybrid allocation rule (HYBRID).” We use a controlled laboratory experiment to compare the empirical performances of these allocation rules.
Design/methodology/approach
We conduct three-bidder uniform price divisible-good auctions varying the different allocation rules (standard, uniform, or hybrid) and whether or not explicit communication between bidders is allowed. For the case where explicit communication is allowed we also study six-bidder auctions.
Findings
We find that prices are similar across allocation rules. Under all three allocation rules, prices are competitive when bidders cannot explicitly communicate. With explicit communication, prices are collusive, and we observe collusive prices even when collusive agreements are broken. Collusive agreements are particularly fragile when the gain from a unilateral deviation is larger, and an implication of this is that collusive agreements are more robust under STANDARD.
Research limitations/implications
We do not find conclusive evidence of differences in performance among allocation rules. However, there is suggestive evidence that STANDARD may be more vulnerable to collusion.
Originality/value
Divisible-good uniform price auctions are used in financial markets, but it is not possible to use naturally occurring data to test how alternatives to the standard format would perform. Using laboratory methods we provide an initial test of alternative allocation rules.
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Didier Laussel and Raymond Riezman
We develop a simple two-country model of international trade that assumes that there is a fixed cost of doing international trade. We show that this leads to multiple equilibria…
Abstract
We develop a simple two-country model of international trade that assumes that there is a fixed cost of doing international trade. We show that this leads to multiple equilibria that can be Pareto-ranked. We examine the stability properties of these equilibria.
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John Duffy and Daniela Puzzello
We study a microfounded search model of exchange in the laboratory. Using a within-subjects design, we consider exchange behavior with and without an intrinsically worthless token…
Abstract
We study a microfounded search model of exchange in the laboratory. Using a within-subjects design, we consider exchange behavior with and without an intrinsically worthless token object. While these tokens have no redemption value, like fiat money they may foster greater exchange and welfare via the coordinating role of having prices of goods in terms of tokens. We find that welfare is indeed improved by the presence of tokens provided that the economy starts out with a supply of such tokens. In economies that operate for some time without tokens, the later surprise introduction of tokens does not serve to improve welfare. We also explore the impact of announced changes in the economy-wide stock of tokens (fiat money) on prices. Consistent with the quantity theory of money, we find that increases in the stock of money (tokens) have no real effects and mainly result in proportionate changes to prices. However, the same finding does not hold for decreases in the stock of money.
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The concept of “neutral money” has a long history in monetary theory and macroeconomics. Like a number of other macro concepts, its meaning has been subject to a variety of…
Abstract
The concept of “neutral money” has a long history in monetary theory and macroeconomics. Like a number of other macro concepts, its meaning has been subject to a variety of interpretations over the decades. I explore the way in which Hayek used this term in his monetary writings in the 1930s and argue that “neutrality” for Hayek was best understood as the idea that monetary institutions were ideal if money, and changes in its supply, did not independently affect the process of price formation and thereby create false signals leading to economic discoordination, and especially of the intertemporal variety. This view was rooted in his work on money and the trade cycle in the late 1920s and early 1930s and also bound up with his understanding of “equilibrium theory.” The importance of his concept of neutrality was that it served as a benchmark for judging the comparative effectiveness of different monetary regimes and policies. That use is still relevant today.
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