Benan Zeki Orbay

Exchange rates, market structure and price-cost margins: evidence from a developing country

This paper analyses the sensitivity of firm performance to exchange rate fluctuations. In a two-country world, consisting of a developing domestic country and a developed foreign country, we show that this sensitivity is closely related with market structure and the share of imported inputs in total cost. When the share of imported inputs is low, depreciation leads to an increase in price cost margin. This increase intensifies in more competitive industries. When the imported input share is high, the price cost margin may decrease as a result of depreciation, and this effect becomes pronounced in more competitive industries. The empirical test where we used 3-digit Turkish Manufacturing industry data support most of the findings of our model.

Kalai-Smorodinsky and Maschler-Perles Solutions under Pre-donation

This paper examines Kalai-Smorodinsky and Maschler-Perles solutions under pre-donation for a two-person bargaining problem with a linear utility possibility frontier and an arbitrary threat point. At the pre-donation stage “Lucky Bargainer”, i.e., the bargainer with the higher ideal payoff, donates a portion of her would-be payoff to her opponent before they bargain. Results show that, under both solutions, there is always an incentive for pre-donation except in one special case where Unlucky Bargainer’s threat payoff is zero and the ideal payoff of Lucky Bargainer is sufficiently low. Efficient division requires sufficiently high threat payoff for Unlucky Bargainer. Collusion in an asymmetric duopoly is presented as an example, where the threat outcomes are assumed to be those of Cournot, Bertrand or Stackelberg equilibria. For these specific bargaining problems, there is always an incentive for pre-donation.

The trade paradox persists under excise taxes

Abstract Brander and Krugman (1983) and Sertel (1988) followed by Krugman (1989), showed two sides of a ‘trade paradox’: The paradox in competition, viz. that opening trade (or increasing competition) may cause welfare to decline, and the paradox in efficiency, viz. that an increase in unit transport cost may increase welfare. In this paper, we consider the situation in an environment where interventionist trade policies are not permitted but each country is sovereign to impose an excise tax (or subsidy). The paradoxes persist under equilibrium excise taxes, reckoned both at the non-cooperative (Nash or dominant strategy) equilibrium and at the cooperative solution among tax-imposing authorities maximizing welfare. We also see that the paradoxes persist in a taxless environment where market equilibrium is Stackelberg rather than Cournot.

A Note on Export Subsidies and Exchange Rate Uncertainty

This note investigates effects of exchange rate uncertainty on optimal trade policies and market prices within a standard export subsidy model. As exchange rate changes, relative efficiencies of firms in different countries change. In accordance with the conventional result, we show that changes in expected exchange rate effects optimal subsidies through relative costs. In particular, increase in expected depreciation of own currency increases subsidy levels when marginal cost is constant. Introducing import dependency, however, violates this uniform relation, and subsidy levels may decrease with increasing depreciation. Subsidy levels always decrease in import dependency when depreciation is expected. We also show that market price is less sensitive to exchange rates, compared to the free trade case (no subsidies).

Talmudic division as a cartel rule

Abstract This paper relates the problem of collusion in an oligopoly with the 2000-year-old Talmudic division rule. It is shown that the cartel agreement with sidepayments based on the Talmudic division rule induces truth-telling behavior in an oligopoly where firms produce a homogeneous good with constant marginal costs and the costs are private information. The Talmudic cartel agreement is implementable and efficient. Furthermore, it is ex post individually rational if there are more than two firms.

Protectionism versus non-protectionism under cost uncertainty in Cournot and Stackelberg markets

This paper compares optimal protectionist trade policies with optimal non-protectionist policies in an environment where governments have private information about the marginal costs of the domestic firms. A country with an efficient firm is always better off not protecting its firm and subsidizing both domestic and foreign firms compared to being protectionist by taxing imports. However, under some circumstances, a country with an inefficient firm does better being protectionist and taxing imports.