Louis Phlips

On the Detection of Collusion and Predation

Abstract This lecture not only shows how game theory can contribute to the detection of collusion and predation, but also how experts for the defense can use game-theoretic arguments to make such detection difficult. A few important European anti-trust cases are discussed to illustrate.

Exchange rates and oligopoly

Abstract The purpose of this paper is to explain empirical observations concerning the impact of exchange rate changes on industrial prices. As exchange rates change the pass-through into industrial prices is often incomplete and sometimes it goes into the `wrong direction, i.e. the prices in the depreciating country decrease while those in the appreciating country increase. The latter is called `perverse pass-through. The usual context for such observations is one of segmented markets and imperfect competition. We consider the simplest model with these characteristics: Two duopolistic firms which both operate in two countries. The markets of the two countries are separate and each of the firms produces its good in one of these countries. We study the effect of an exchange rate change on the prices in each country and on the level of sales and of profits of each of the firms. When strong restrictions such as constant marginal costs are imposed, prices move in the `right direction in response to an exchange rate change. However, with general cost and demand structures, even in this simple model, it is possible for prices in both countries to move in `perverse directions.

Interaction between Resource Extraction and Futures Markets: A Game-Theoretic Analysis

This paper is an attempt to model three salient features of futures markets for exhaustible resources: oligopolistic control of the market for the basic commodity, the purely speculative nature of most of futures trading and apparent availability of unlimited funds to the traders.

La Pleiade and Exchange Rate Pass - Through

We examine the effects of a change in the exchange rate on sales and prices in the framework of a two - country, two - commodity duopoly model with joint production. We distinguish two kinds of reaction. When the firm located in the country whose currency depreciates (appreciates) increases (decreases) sales in both countries, we call it the firm-specific effect. If all sales in the country which appreciates (depreciates) its currency increase (decrease), we call it the country - specific effect. Strategic substitutability, economies of joint production and/or economies of scale lead to the firm - specific effect. Strategic complementarity, diseconomies of joint production and/or diseconomies of scale lead to the country - specific effect.

Futures Market Contracting When You Don't Know Who the Optimists Are

We have built models of speculative futures trading based upon inconsistent priors, analyzing games of inconsistent incomplete information. These models have assumed that the inconsistent priors are themselves common knowledge. In this paper, we explore the game-theoretic implications of treating doubly inconsistent incomplete information, in that inconsistent priors are private information, and traders attach inconsistent assessments to the probability that a trader will be an optimist.

Product Differentiation, Market Structure and Exchange Rate Passthrough

The impact of changes in the number of foreign/domestic firms, in the extent of product differentiation, and of use of price-setting versus quantity-setting behavior on the passthrough of exchange rate fluctuations is examined for trade between oligopolistic markets with and without economies of scale.

Aggregation, consumption and trade : essays in honor of H.S. Houthakker

Introduction. The Fitness maximized by the Classical Canonical Economy: a Theme from Houthakker and R.A.Fisher P.A. Samuelson. Income and Price Sensitivity in Consumer Demand Analysis A.B. Barten. Cross-Section Engel Curves, Expenditure Distributions and the Law of Demand B. Grodal, W. Hildenbrand. Tests of Dynamic Specification and Homogeneity in a Demand System J. Muellbauer, P. Pashardes. Specification and Estimation of Dynamic Demand Systems R.A. Pollak, T.J. Wales. Remarks on the Power of Non-Parametric Tests of Consumer-Theory Hypotheses R.R. Russell. Brain Structure and Consumption Dynamics L.D. Taylor. Corners in Organized Futures Markets L.C. Telser. Oil Futures and Strategic Stocks at Sea P. Mollgaard, L. Phlips. The Effect of Income and Prices on Protection and Rent Seeking in the U.S., 1950-1986 S.P. Magee. Introduction: Four Unpublished Papers by Hendrik S. Houthakker: Are there Laws of Consumption? H.S. Houthakker. The Dynamics of Total Consumption and Savings H.S. Houthakker, S.D. Tendulkar. On a Class of Dynamic Demand Functions H.S. Houthakker. Proposed Technique for Estimating Demand Functions for Time Series H.S. Houthakker. Publications of Hendrik S. Houthakker.

On Models for Product Markets

The first lecture I ever gave was, inevitably, on the theory of the firm. The immediate consequence was rather unexpected: my dean called me into his office and explained to me in so many words that I should refrain from teaching such material, since it was reserved for my colleagues from the business school. My answer was immediate: But then, Sir, I am also a business economist. Since that day I have always, perhaps naively, tried to think as a business economist would. By definition, it seems, business economics is about the study of what business men actually do. ( I avoid the word managers on purpose). By definition, microeconomics is also about what business men actually do. Unfortunately, the second statement is not a correct description of the current state of affairs. My point is that it should be, in the sense that microeconomists should rationalise observed behaviour in particular markets in the same way as botanists should explain why certain flowers are blue and other flowers are yellow. I can see one area of research where business economists and microeconomists can meet: the construction of game theoretic models of particular product markets. That we should all be or become applied game theorists cannot come as a surprise. But to use these skills for the analysis of a particular product may seem a waste of time. Indeed, during a recent rather thorough search for empirical studies of particular product markets, I found only a few-very few-published in refereed journals. The current flow of publications on duopoly models, comparing one-shot and repeated game equilibria, or Cournot and Bertrand strategies, or pure and mixed strategies, and so on, are of general interest. But isnt the market for such papers getting saturated? Shouldnt we try to find out under which institutional circumstances a particular type of equilibrium is relevant? Is generality really more important than relevance? Is a science on a sound footing when a paper is rejected because its assumptions correspond to existing contractual and institutional arrangements and are, therefore, too specific to warrant publication? T o continue in a more positive mode, I do expect market models, inspired by a particular case study, to provide insights that are of general interest. (This is not to say-as the pre-war experience has shown-that an accumulation of booklength industry studies would lead to theoretical generalisations!). In fact, such models have already inspired interesting theoretical developments.

Empirical Studies of Product Markets

In their introduction to the Journal of Industrial Economics’ special issue on ‘The Empirical Renaissance in Industrial Economics’, Bresnahan and Schmalensee (1987) recall that industrial economics started as a distinct field of economics with a series of book-length case studies of particular industries under the impulse of Edward Chamberlin and Edward Mason. The idea was that the profession would learn about imperfectly competitive markets by induction from an accumulation of detailed studies of particular product markets. Knowledge of the facts would lead to theoretical hypotheses. These hopes did not materialize.

Four Unpublished Papers and Notes of H.S. Houthakker

This section includes four paper that were written by Henk in the 1960s which have never been published. Three of the papers relate to Houthakker and Taylor -- indeed, two of these relate to the very origins of the basic Houhakker-Taylor model -- while the fourth was Henk’s presidential address to the Econometric Society in 1967. The first paper, “On a Class of Dynamic Demand Functions,” was given at the U.S. winter meetings of the Econometric Society in New York City in December 1961.1 In that paper, Henk presented for the first time the basic ideas underlying the dynamics of state and stock adjustment and habit formation and showed how such dynamics can be integrated into utility maximization. The quadratic utility function discussed by Henk was subsequently applied to data for the U.S. and Canada in Chapter 5 of the 1970 edition of H & T. The second paper, “A Technique for Estimating Demand Functions from Time Series,” is a short note describing the procedure for eliminating the unobservable state variables from the empirical demand functions. With minor modifications this procedure underlay estimation of all of the state-and flow-adjustment models in both editions of H & T.