Robert D. Willig

Contestable markets and the theory of industry structure

Objectives and Orientation. Industry Structure and Performance in Perfectly Contestable Markets: The Single Product Case. Ray Behavior and Multiproduct Returns to Scale. Cost Concepts Applicable to Multiproduct Cases. The Cost-Minimizing Industry Structure. Input-Price Changes, Cost Functions, And Efficient Industry Structure. Natural Monopoly: Sufficient Conditions for Subaddivity. Monopoly Equilibrium. Equilibrium in the Multiproduct Competitive Industry. Fixed Costs, Sunk Costs, Entry Barriers, Public Goods, And Sustainability of Monopoly. Sustainable Industry Configurations: General Industry Structures in Contestable Markets. Powers of the Market Mechanism. Intertemporal Sustainability. Intertemporal Unsustainability. Toward Empirical Analysis. Toward Application of the Theory. Developments Since the Book. Bibliography. Index.

Economies of Scale in Multi-Output Production

I. Introduction, 481.—II. Counterexamples, 482.—III. Economies of scale, 484.—IV. Technological regularity conditions, 487.—V. The profitability of marginal cost pricing, 488.—VI. Concluding remarks, 492.

Fixed Costs, Sunk Costs, Entry Barriers, and Sustainability of Monopoly

This paper shows that (i) fixed costs of sufficient magnitude assure the existence of a vector of sustainable prices for the products of a natural monopolist—prices making him invulnerable against entry; (ii) nevertheless, fixed costs do not constitute barriers to entry; that is, they need not have undesirable welfare consequences; (iii) indeed, in market forms that we call perfectly contestable large fixed costs are completely compatible with many desirable attributes of competitive equilibrium; (iv) sunk costs do, however, constitute barriers to entry; and (v) finally, the profit and welfare consequences of entry barriers are described formally.

Free Entry and the Sustainability of Natural Monopoly

Contrary to conventional wisdom, a regulated natural monopoly may be vulnerable to entry by uninnovative competitors even if it is producing and pricing efficiently and earning zero economic profits. The causes and consequences of this unsustainability are theoretically examined in an idealized regulatory environment. In particular, strong demand substitution effects and product-specific scale economies work against sustainability. If natural monopoly is unsustainable, no regulated market structure which provides the entire product set can be sustainable.

Antitrust for High-Technology Industries: Assessing Research Joint Ventures and Mergers

The purpose of this paper is to analyze if and how the standard methodology of antitrust analysis should be modified to reflect the importance of R and D and innovation as competitive forces and engines of economic progress. Focus is on such R and D - intensive business combinations as research joint ventures (RJVs) and horizontal mergers in high-technology industries. The authors do not propose a complete set of guidelines for the assessment of such combinations. They present an economic model of RJVs and high-technology mergers that might serve as an analytical underpinning for such guidelines. One conclusion of the analysis is that RJVs ought to be accorded special treatment under the antitrust laws. This special treatment should entail an explicit recognition that RJVs will be scrutinized under the rule of reason, according to guidelines specific to this purpose.

Transfer principles in income redistribution

Abstract Daltons principle of transfer for income redistribution says that society will be better off when a unit of income in transferred from a richer to a poorer individual. This paper investigates the conjunction of a natural extension of Daltons principle — which says that any combination of a socially desirable transfer with its inverse at uniformly higher levels of income will have positive social benefit — and a traditional utilitarian-egalitarian formulation of social welfare. The transfer principles involved in the extension of Daltons rule correspond to stochastic dominance relations between income distributions with a common mean, and lead to the conclusion that, when ƒ and g are income distributions, the social welfare of ƒ is larger than that of g if Σe -ax ƒ(x) -ax g(x) for all positive a . This conclusion is intimately connected with a measure of income inequality studied by Kolm.

Entrepreneurship, access policy and economic development: Lessons from industrial organization

Abstract This paper explores some relationships between promotion of competition and economic development that arise from the impacts of entrepreneurial firms. In this respect, two sets of policies are critical for furthering economic development. First, to arrest the diversion of entrepreneurial talent towards non-productive activities, an increased emphasis on preserving rewards from productive innovation is needed – through the protection of commercial freedom, property rights and contracts. Second, given that essential local inputs are vulnerable to monopolization and foreclosure, fostering opportunities for grass-roots entrepreneurship becomes paramount – through a more activist supply-side competition policy emphasizing access to essential business services and other required local inputs. A key message is that the conventional sensitivity of policy concerns about the social welfare effects of foreclosure should be extended to a domain beyond the usual essential facilities of public utilities. It should include access to many other elements of the business infrastructure that are taken for granted in mature market economies, but that pose real barriers to productive entrepreneurship at the grass-roots level in the context of development. Additions to the incipient empirical work in this area could yield substantial policy dividends.

Pricing Issues in the Deregulation of Railroad Rates

This chapter is addressed to the central pricing issues involved in partial deregulation of railroad rates. It enunciates principles to guide regulatory oversight of the rate setting of unsubsidized railroads — principles that are consistent with economic analysis and that are essential for protection of the public interest. The paper is largely motivated by the Staggers Rail Act, recently passed by the Congress of the United States, which mandates both an end to periodic Federal subsidies to railroads and continuing regulatory oversight of railroad rates. Nevertheless, the principles espoused here are equally germane wherever partial deregulation of railroads, or other utilities, is at issue.

Economywide and sectoral impacts on workers of Brazil’s internet rollout

Abstract We study the effect of Brazil’s staggered Internet rollout between 2000 and 2014 on municipality employment and wages. We use a new annual data-set on Internet availability from the Brazil school census, with the assumption that the share of schools that have Internet access in each municipality reflects general accessibility of Internet connections. We combine these data with Brazil’s rich matched employer–employee survey (RAIS), which contains annual occupation and wage earnings information for all formally employed workers in Brazil across all sectors, including primary, secondary, and tertiary industry groups. We consider both contemporaneous and lagged effects. We find that increased Internet access has no statistically significant net effect on aggregate employment and has a negative effect on average wages, with a reduction in measures of wage dispersion. Brazil’s Internet rollout results in employment shifts from sectors with more limited expansion opportunities (wholesale and retail trade, public administration and largely publicly owned utilities, that jointly comprise almost half of the formal workforce in 2010) to sectors with more output expansion opportunities. Employment effects are positive and most pronounced in manufacturing, transport and storage, finance and insurance, and hospitality industry groups. In the manufacturing sector, Internet access induces positive employment and wage effects in both medium- and high-skill occupations.

Comment on Joseph Farrell, David J. Balan, Keith Brand, Brett W. Wendling (2011), 'Economics at the FTC: Hospital Mergers, Authorized Generic Drugs, and Consumer Credit Markets'

In a review of “Economics at the FTC,” Farrell et al. (2011) discuss empirical methods FTC economists use to assess the potential price effects of prospective hospital mergers. The primary method is a framework based on proxies for the bargaining power of hospitals that are calculated from the estimated parameters of a model of patient hospital choice. The effect of these proxies for bargaining power on the reimbursement rates obtained by hospitals in negotiations with payors is then estimated using a reduced form specification. We discuss the limitations of this framework, and provide a few examples in which it may fail to predict the price effects of hospital mergers reliably, especially in the presence of restricted insurance networks.