Ralph M. Bradburd

The empirical determinants of vertical integration

Abstract Theoretical models of vertical integration are tested using a new measure based on the proportion of companies operating in customer and supplier industries that are vertically integrated. We confirm the roles of contractual and transaction-cost factors – small-numbers bargaining, lock-in effects, and the need for industries to share intangible assets. The role of (unobserved) persistent arms-length contracts (alternative to vertical integration) is supported. Risk-aversion is not a significant motive.

Organizational Costs, "Sticky Equilibria," and Critical Levels of Concentration

JN the thirty years since Joe Bains seminal I study (1951), many economists have attempted to determine whether or not there exists a critical level of market concentration at which a discontinuity occurs in the relation between industry concentration and profitability. In this paper we develop and test a more general model, based on organizational costs, which posits the existence of two critical levels of market concentration: one at which an existing cooperative equilibrium will break down as concentration declines, and one at which a cooperative equilibrium will become attainable as concentration increases. We show that the standard model of the critical level of concentration can be regarded as a special case of our more general model, and also that the more general model attains a statistically superior fit. In section II we briefly review some of the previous literature in this area. We develop our model in section III and specify and estimate it in sections IV and V. In sections VI and VII we summarize and interpret our results and present some policy implications of our findings.

Can Small Firms Find and Defend Strategic Niches? A Test of the Porter Hypothesis

A number of studies have found a positive relation between market share and profitability. Michael Porter argues that this need not hold when small firms find strategic niches protected by mobility barriers. This paper examines that hypothesis by comparing the profitability of large and small lines of business when the activities of the two groups (proxied by the allocation of sales across submarkets) differ on average. The authors find that, in heterogeneous product mix industries, profits of large lines of business are no longer significantly greater than profits of smaller rivals, except that market leaders maintain their advantage regardless of product mix. Copyright 1989 by MIT Press.

Privatization of natural monopoly public enterprises: The regulation issue

The paper presents a simple model that calculates — as a percentage of industry revenues — the welfare gains or losses that might ensue when a public enterprise natural monopoly is replaced by a profit maximizing private monopoly. The model incorporates both the pre-privatization demand elasticity and production efficiency changes subsequent to privatization. The magnitude of the welfare changes suggests that allocative efficiency improvements do not provide a compelling rationale for post-privatization regulation. Greater consideration must be given to other regulatory objectives including distributional concerns and the need to create an institutional environment that encourages investment.

THE IMPACT OF RENT CONTROLS IN NON-WALRASIAN MARKETS: AN AGENT-BASED MODELING APPROACH

We use agent-based models to consider rent ceilings in non-Walrasian housing markets, where bargaining between landlord and tenant leads to exchange at a range of prices. In the non-Walrasian setting agents who would be extramarginal in the Walrasian setting frequently are successful in renting, and actually account for a significant share of the units rented. This has several implications. First, rent ceilings above the Walrasian equilibrium price (WEP) can affect the market outcome. Second, rent ceilings that reduce the number of units rented do not necessarily reduce total market surplus. Finally, the distributional impact of rent controls differs from the Walrasian setting.

The Notion of a Critical Region of Concentration: Theory and Evidence

In the thirty years since Joe Bain’s seminal study (1951), many economists have attempted to determine whether or not there exists a critical level of market concentration at which a discontinuity occurs in the relation between industry concentration and profitability. In this chapter we develop and test a more general model, based on organization costs, that posits the existence of two critical levels of market concentration: one at which an existing cooperative equilibrium will break down, and one at which a cooperative equilibrium will be attainable for the first time in a previously competitive industry. We show that the standard critical-level-of-concentration model can be regarded as a special case of our more general model, and also that there is a statistically significant difference in fit, in favor of the more general model.