Frode Steen

Testing for Market Power Using a Dynamic OLigopoly Model

Abstract We propose a dynamic reformulation of the oligopoly model of Bresnahan (1982) and Lau (1982) in an error correcting framework. This reformulation addresses both statistical problems generated by short run dynamics in the data and incorporates important dynamic factors such as habit formation from the demand side and adjustment costs for the producer. We also propose a test for separability of the variables involved in the identification of the market power parameter. To illustrate the model, the French market for fresh salmon is analysed. The results suggest the salmon market to be competitive in the long run, but indicate that the largest producer, Norway, has some market power in the short run.

Market Delineation and Demand Structure

This paper addresses the relationship between the cointegration approach to market delineation and the more traditional approach of analyzing the demand structure among different products in terms of degree of substitutability. Cointegration tests for market delineation and estimation of a dynamic system of demand equations are undertaken utilizing the same data set. The data set consists of three high-quality seafood products in the European Union. The results are encouraging as the results from the two approaches are not only compatible, but are also complementary in the sense that they provide more information together than they do separately. Copyright 1997, Oxford University Press.

Semicollusion in the Norwegian cement market

A model of semicollusion, where firms collude on prices and compete on capacities, is tailor-made to the characteristics of the Norwegian cement market and tested empirically on this particular market for the period 1927-1982. The results indicate that the rapid increase in capacity and thereby in exports in the period 1956 to 1967, the late phase of the price cartel, best can be explained by the market sharing agreement : each firm overinvested in capacity to receive a large quota in the domestic market.

Self-Reinforcing Agglomerations? An Empirical Industry Study

We test for the existence of endogenous agglomeration forces, using structural econometric models. After showing generally how to establish the existence of agglomeration forces empirically, we undertake an industry study of the maritime industry in Norway. The results suggest that there are significant economies of scale in the maritime industry. These economies of scale are mainly found in sub-groups of a set of nine maritime industries. This indicates that the maritime industry consists of two self-reinforcing agglomerations, but that there are few mechanisms actually keeping the two together. Copyright 1999 by The editors of the Scandinavian Journal of Economics.

Anatomy of cartel contracts

We study cartel contracts using data on 18 contract clauses of 109 legal Finnish manufacturing cartels. One third of the clauses relate to raising profits; the others deal with instability through incentive compatibility, cartel organization, or external threats. Cartels use three main approaches to raise profits: Price, market allocation, and specialization. These appear to be substitutes. Choosing one has implications on how cartels deal with instability. Simplifying, we find that large cartels agree on prices, cartels in homogenous goods industries allocate markets, and small cartels avoid competition through specialization.

Gasoline Prices Jump up on Mondays: An Outcome of Aggressive Competition?

This paper examines Norwegian gasoline pump prices using daily station-specific observations from March 2003 to March 2006. Whereas studies that have analyzed similar price cycles in other countries find support for the Edgeworth cycle theory (Maskin and Tirole, 1988), we demonstrate that Norwegian gasoline price cycles involve a form of coordinated behavior. We also show that gasoline prices follow a fixed weekly pattern, with prices increasing significantly every Monday at noon, and that gasoline companies appear to use the recommended price as a coordination device with a fixed link between the retail and recommended prices. Moreover, the weekly pattern changed in April 2004; whereas Thursday had been the high-price day, Monday now became the high-price day. The price–cost margin also increased significantly after the weekly pattern changed in April 2004.

Vertical Control and Price Cycles in Gasoline Retailing

We examine Norwegian gasoline pump prices using daily station‐specific observations from 2003 to 2006. The four big gasoline companies use a vertical restraint that is adopted industry‐wide (labeled price support). This moves price control from the hands of independent retailers into the hands of the headquarters. Retail gasoline prices follow a fixed weekly pattern, where we observe de facto simultaneous decision‐making by the headquarters (without knowledge of their rivals’ prices) when every Monday around noon they decide to increase pump prices to the same level. The price level on Mondays corresponds to the recommended prices published by the headquarters of the gasoline companies.

Disadvantageous Semicollusion: Price Competition in the Norwegian Airline Industry

Motivated by observations in the Norwegian airline industry in the late 90s, we develop a semicollusive model with collusion on gross prices and competition on contracts for large customers (corporate contracts). The theoretical predictions are tested on detailed data on gross prices, large customer prices and quantities in the Norwegian airline industry in the period 1998-2001. We control for cost and demand factors as well as route specific heterogeneity, and find results in line with what our theory model predicts. An increase in the share of large customers and their rebates increase business - and leisure prices for passengers not travelling on these contracts, leading to a perverse price structure with an excessive high price for those consumers that are expected to be the most price sensitive ones. The effect is most pronounced in the business class. The effect is found to differ according to the quality (number of flights) the airline companies can offer.

Vertical Industry Linkages: Sources Of Productivity Gains And Cumulative Causation

In this paper we analyse how vertical industry linkages maywork as channels for externalities. We test for activity based externalities stemming from outputgrowth and output level in vertically linked industries. Moreover, by comparing resultson localised inter-industry externalities as well as significance of local sales linkages,we try to reveal the strength of self-reinforcing agglomeration forces. A number of Norwegianmaritime transport and services sectors are analysed. The results are promising inthe sense that the model allows us to distinguish empirically between different sources ofexternalities, and unveils the extent to which vertical industry linkages give rise to self-reinforcingagglomeration.

The SMS Bandwagon in Norway: What Made the Market?

Short Message Service (SMS) has been an overwhelming success in Europe, substantially larger than in the United States. Norway represents in relative terms one of the largest SMS markets in the world. The aim of this paper is to examine the relationship between economic theories of bandwagon effects, and the Norwegian mobile providers’ management of the SMS market. We narrow the focus on the problem of getting the SMS bandwagon rolling. We emphasise two features crucial to the SMS success. The first is low prices on text messaging relative to mobile phone call charges for low-end tariffs. This seams to have been particularly important in the price sensitive youth market. The second key feature is the high degree of interlinking with respect to functionality and pricing. Both these features differ between Europe and the United States, and we argue that this might explain the difference in market development. The development in the SMS market suggests that it is important that the regulator does not interfere in the early stage. In the SMS market the absence of regulations and ex ante superfluous functionality ended up ex post as major successful services. This suggests that the regulator should be very careful when designing regulation regimes in bandwagon markets to avoid reduced innovation.