R. Andrew Butters

The Extent of the Market and Integration Through Factor Markets: Evidence from Wholesale Electricity

We document the influence of factor markets in determining the extent of the market, by appealing to the Mundell Hypothesis that trade in goods markets and factor markets are substitutes. We confirm this influence using the U.S. wholesale market for electric power. Although the Eastern, Western, and Texas regions cannot trade electricity, inputs such as natural gas move freely across these regions. Through both a set of price transmission ratios, and a supply model for natural gas, we find regional electricity shocks do propagate across regions. We conclude output markets institutionally in autarky are economically integrated through factor markets.

Demand Volatility, Adjustment Costs, and Productivity: An Examination of Capacity Utilization in Hotels and Airlines

Measures of productivity reveal large differences across producers even within narrowly defined industries. Traditional measures of productivity, however, will associate differences in demand volatility to differences in productivity when adjusting factors of production is costly. I document this effect by comparing the influence of demand volatility on capacity utilization in a high (hotels) and low (airlines) adjustment cost industry. Differences in annual demand volatility explain a large share of the variation in occupancy rates of hotels at the metro area-segment-year level. In contrast, differences in annual demand volatility have no effect on load factors of airlines at the destination-airline-year level.