John Vickers

Racing with Uncertainty

The paper presents two models of races in which there is both technological uncertainty and strategic interaction between competitors as the race unfolds. Most of the existing literature examines one or other of these features, but not the two combined. Our aim is to see how the efforts of competitors in a race vary with the intensity of rivalry between them. In our principal model, whch is of a one-dimensional race, it is shown that the leader in the race makes greater efforts than the follower, and efforts increase as the gap between competitors decreases. Under certain conditions the same results hold in our second, related model, which is of a two-dimensional race.

Perfect Equilibrium in a Model of a Race

This paper investigates perfect equilibrium in a model of a race in which two players are competing for an indivisible prize. The winner is the first player to reach the finishing line. It is shown that the behaviour of the winner of the race is often exactly as if he were the only player: the rival makes no difference. Even if competition does affect the winners behaviour, it does so only in the first stage of the race and not thereafter. It is shown how several factors combine to determine which player will win: relative valuations of the prize, discount rates, efficiency at making progress and initial distances from the finishing line. Insofar as the model applies to patent races, it suggests that the potential competition faced by one firm in a patent race (e.g. an incumbent monopolist) may be of little or no consequence.

Regulatory reform in Britain

Regulatory reform in Britain John Kay and John Vickers Major sectors of the British economy are currently undergoing far-reaching regulatory reform. Deregulation (removal of barriers to competition) and the introduction of new methods of regulation are occurring, notably in financial services, some of the professions, and in utility industries, such as telecommunications, gas and electricity. This paper gives an economic assessment of these developments. The authors examine the root causes of market failure that call for regulation–externalities, monopoly, and information problems – and the pros and cons of various regulatory responses. A broad distinction is drawn between structural regulation – the determination of which firms or types of firms can engage in which activities – and conduct regulation – the control of how firms behave in their chosen activities. Recent examples of deregulation plus re-regulation in Britain are seen in part as a shift from structural to conduct regulation. The relative merits of the two modes of regulation are complex to assess, but it is argued that some recent regulatory reforms are placing undue reliance on conduct regulation. As well as assessing individual industries, the authors draw general conclusions about the desirability of regulatory solutions that make full use of market forces.

The nature of costs and the number of firms at cournot equilibrium

Abstract The paper analyzes the perfect equilibria of a two-stage entry/production game in a simple model with constant marginal costs, a fixed cost per firm, and Cournot behaviour at the production stage. If fixed costs are not sunk, the range of equilibrium values for N, the number of firms, can be quite large. That range becomes smaller - with the lower values of N being eliminated - the more that fixed costs are sunk. Thus there is a sense in which sunk costs can rule out some less competitive equilibria, to the benefit of consumers and potential entrants, by enhancing the credibility of entry.

Privatization: An Economic Analysis

The process of selling assests and enterprises to the private sector raises questions about natural monopolies, the efficiency and equity of state-owned versus privately owned enterprises, and industrial policy. This comprehensive analysis of the British privatization program explores these questions both theoretically and empirically.