Joseph Shaanan

Dynamic Competition and Price Adjustments

The link between price rigidity and market structure has long been a topic of interest to researchers in both macroeconomics and industrial organization. Research on this subject, with its antecedents in the widely debated topic of administered inflation, has gone through several stages. In recent years the focus of research has been on explaining the speed of price adjustment [8; 7; 11; 4; 2; 3]. A parallel line of research has been on the role of entry in disciplining the price behavior of incumbent firms [15; 14; 5]. The current study extends previous work on price adjustment in several important ways. Most importantly, we introduce dynamic elements of competition as measured by several disaggregated measures of domestic and import entry. We are able to evaluate the extent to which price effects of entry into U.S. manufacturing are due to changes in desired prices or to changes in the speed of adjustment to desired prices. We depart from previous studies in that we use pooled data to estimate, by nonlinear regression methods, both the desired (target) price change and the speed of adjustment across industries.

The relative price discipline of domestic versus foreign entry

In this paper we combine data on industry entry, imports, and producer price indexes for 46 4-digit SIC industries over the 1972 to 1987 period to determine the impact of entry on industry pricing. Domestic entrys restraining influence is weak and occurs only at high levels of concentration while import changes exhibit a procompetitive influence for lower levels of concentration that include nearly all industries in the sample. In addition, the threat of foreign entry plays a role in disciplining domestic pricing; the impact of nontariff barriers on price changes seems to increase with concentration levels.

Idle sunk cost capacity, entry, and profitability: An empirical study

Abstract The study examines a key prediction of credible commitment models—whether idle sunk cost capacity can be used to augment long-run profitability. The uniqueness of this study lies in its focus on the sunk cost component of excess capacity rather than excess capacity. An estimate of industry specific capital cost is used as a proxy for sunk costs in tangible capital. A two-equation recursive model is used with pooled data for 49 U.S. manufacturing industries. The primary finding is that lagged idle sunk cost capacity increases profitability while current excess capacity has a negative impact on profitability.

Disaggregated Domestic and Foreign Entry into U.S. Manufacturing Industries: Patterns and Price Effects

While there has been much recent empirical work related to the determinants and effects of entry, little of this work has distinguished among different modes of entry (other than simply between the two broad categories, domestic and foreign entry). While some work has dealt with the determinants of entry disaggregated by type, few studies have linked the various modes of entry to industry performance. That is the focus of this article.

Sunk costs and resource mobility: An empirical study

While the concept of sunk costs has become increasingly important in theoretical work, relatively few empirical studies have examined sunk costs. The present study focuses on the relationship between tangible sunk costs and entry. An estimate of industry specific capital, derived from engineering-statistical cost estimates, is employed as a proxy for tangible sunk costs. With this measure we can test directly the relationship between irreversible investments and entry in a sample consisting of 40 U.S. manufacturing industries. The primary finding is that tangible sunk costs have a deterrent effect on entry.

Myth 2: A Great Wall Separates Politics and the Economy

Myth: There are clearly delineated boundaries between the economic and political sectors. The two sectors restrain each other’s power and political freedom is complemented with economic freedom.

Myth 8: Free Markets Protect Democracy

Myth: The invisible hand of the market provides greater choice and more freedom than representative government. It is the ultimate in democracy with tens of millions of consumers voting daily in the marketplace. To protect democracy (and free markets) we should weaken government, cut its spending power and its ability to reward donors then corporations will not seek to influence it.

Myth 13: The Bailouts’ Purpose Was to Save the Free Market Economy

Myth: The government could not allow liquidity to dry up, credit markets to stop functioning and giant banks to fail. Government had to act. The bailouts were a justifiable response to market failure and systemic risk. They were successful because the economy did not collapse and the financial sector remained viable without the dreaded government takeover. Bailouts were necessary to save the free market economy.

Myth 12: The Government Caused the Crash of 2007–08

Myth: The devastating crash of 2007–08 was caused by government, not the financial industry. Most of the blame should be assigned to government agencies Fannie Mae and Freddie Mac. Wishing to promote home ownership they practically gave away money to people who would not be able to pay their mortgage. Home owners’ erroneous investment decisions also played a part; so why blame the banks?

Myth 11: A Free Market Nation Does Not Need a Society

Myth: It is individuals who are responsible for the nation’s achievements and not society. The term “society” serves as an excuse to deprive Americans of their individual freedom and not to improve the lives of the poor and middle class. The purpose is to promote liberal “do-good” projects that always fail miserably. The market should be allowed to prevail in more areas.