Robert T. Masson

Excess Capacity and Limit Pricing: An Empirical Test

Entry may be inhibited by expectations that incumbents have lower marginal costs. Incumbents may be able to use limit pricing or excess capacity to further this expectation. We construct an empirical model of oligopoly capacity and pricing decisions and of entrant responses. The results support the hypothesis that both lower prices and greater excess capacity inhibit entry. They further support limit pricing, but provide no evidence that oligopolies deliberately install excess capacity to deter entry. The results suggest, however, that limit pricing firms may exploit the entry-inhibiting effects of unintended excess capacity by raising their limit prices.

Dynamic market models in industrial organization

Abstract This paper surveys empirical work done on dynamic models of market performance. These fall into one of two categories: structural models which model how market structure and performance change in response to entry, and reduced form models which describe change regardless of how it is brought about. A typical example of each type of model is chosen from the literature, and simulations are used to draw out the implications of the estimated coefficients. Both models depict the competitive process in the US economy as being extremely slow.

The dynamics of market structure

Abstract In this paper, changes in market concentration are modelled in terms of long-run steady-state levels, and the adjustment towards them. Both the speed of adjustment and the long-run levels of concentration are allowed to vary across industries. Non-linear three-stage least squares estimates for allowing for the endogeneity of profits and advertising for 184 U.S. industries, 1963–1967, suggest that both the speed of adjustment and the levels of concentration in the long run are largely determined by minimum efficient scale.

What do not-for-profit hospitals maximize?

Abstract Massive structural change is occurring in health care provision in the United States, significantly reducing the number of not-for-profit suppliers. This trend is fueled in part by government policies. To evaluate these policies one must know about the motives of not-for-profit health care providers. The theory of not-for-profit hospitals suggests buyers may prefer dealing with sellers who are not acting out of avarice. Yet, this theory does not imply the absence of rent seeking motives. We formulate a test of not-for-profit hospitals’ goals and apply it to hospitals in Virginia. Modeling average revenues as a function of caseload (private, Medicare, Medicaid, charity), we identify prices as latent variables. By analyzing the response of the estimated private price to exogenous differences in Medicare, Medicaid and charity caseload, we reject the hypothesis that not-for-profit hospitals maximize profits (i.e. maximize rents for a set of agents who ‘control’ the hospital). We also reject pure welfare (output) maximization. These results, combined with other evidence we discuss, are consistent with the hypothesis that these hospitals consider both profits and output as objectives. Current US government policies treat all not-for-profit hospitals as if they were profit maximizers. These policies appear to be biased towards reenforcing the trend towards less health care provision from not-for-profits, and our results suggest that this may not be entirely beneficial to consumers.

Mergers in Symmetric and Asymmetric Noncooperative Auction Markets: The Effects on Prices and Efficiency

Abstract United States antitrust merger analysis has recently focused on simulating the unilateral effects of mergers. We develop a model to simulate the unilateral price increase from a merger in an auction market. We illustrate our results in the context of hospital mergers in the U.S., and calibrate our simulations to known market parameters. We compare the price increases in our model to those suggested by analytically simpler models. The simulation results suggest that the unilateral price increases predicted by our model are modest in general. We also simulate the merger cost savings that are needed to offset the price effects.

Market Structure, Entry, And Performance In Korea

This paper applies a recursive model of structure-entry-performance with structural feedbacks to sixty-two Korean manufacturing industries for 1976-81. The results strongly support the market power hypothesis. The results also indicate that, despite active government intervention, the invisible hand is working: structure is evolving as expected with high profits leading to entry and consequently lower profits. However, there is little support for limit pricing hypotheses in this explosively growing economy. Copyright 1990 by MIT Press.

Capacity signals and entry deterrence

Abstract If potential entrant firms are well informed they will generally not believe incumbents threats to expand output when experiencing entry. But this expectation underlies most excess capacity models. We demonstrate an asymmetric information equilibrium in which potential entrants rationally fear output expansion by oligopolists with excess capacity. Less effective collusive oligopolies may be destabilized (expanding output) upon entry. One symptom of less effective collusion is excess capacity. Hence excess capacity becomes a signal of the potential for output expansion. In a rational expectations equilibrium this signal may also be mimicked by oligopolies which would not otherwise carry excess capacity.

Welfare Impacts of Milk Orders and the Antitrust Immunities for Cooperatives

Many agricultural programs are being seriously reconsidered, including the Capper-Volstead partial antitrust exemption for cooperatives and the Federal Marketing Orders. We focus on the dairy industry, concentrating on the interface between monopoly, the Capper-Volstead Act, and the Orders. Using social cost-benefit analysis, we estimate that in the 1970s cooperative milk monopolies cost society more than

Insider Trading And The Value Of The Firm

70 million a year, and that the Orders are partially responsible for these monopolies. These monopolies could have been avoided, and, once eliminated, could be avoided in the future with small changes in the Capper-Volstead exemption.

Cooperation for Monopolization? An Empirical Analysis of Cartelization

Previous studies of insider trading have examined the profitability to executives of their stock trading with a view to evaluating the informational efficiency of securities markets. The authors examine empirically whether insider trading raises or lowers firm value. To correctly identify the effects on firm value at the margin, they correct for the simultaneity of earnings, insider holdings, and the amount of insider trading. The authors explicitly deal with simultaneity by using a two-part testing procedure. Their results suggest that insider trading lowers the value of the firm at the margin, but that greater executive stock ownership raises the value. Copyright 1991 by Blackwell Publishing Ltd.