Stephen W. Salant

Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium

The consequences of a horizontal merger are typically studied by treating the merger as an exogenous change in market structure that displaces the initial Cournot equilibrium. In the new equilibrium the merged firm is assumed to behave like a multiplant Cournot player engaged in a noncooperative game against other sellers. The purpose of this article is to evaluate an unnoticed comparative-static implication of this approach: some exogenous mergers may reduce the endogenous joint profits of the firms that are assumed to collude. Cournots original example is used to illustrate this and other bizarre results that can occur in the Cournot framework if the market structure is treated as exogenous.

Market Anticipations of Government Policies and the Price of Gold

This paper is an analysis of the effects of anticipations of government sales policies on the real price of gold. Although the risk of a future government gold auction depresses the price, it also causes the price to rise in percentage terms faster than the real rate of interest and at an increasing rate. Even risk-neutral investors require this rate of return as inducement to hold gold in the face of the asymmetric risk of a price collapse. Announcements making a government auction more probable cause a sudden drop in the price. Government attempts to peg the price or to defend a price ceiling with sales from its stockpile must result eventually in a sudden attack by speculators.

Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market

The theory of exhaustible resources is modified to take account of the industrial organization of the world oil market. The cartel is viewed as a unified enterprise which dominates other extractors because of its larger reserves. Equilibrium price and sales paths are derived giving neither the dominant extractor nor the competitive fringe any incentive to change its intertemporal behavior. Under standard but simplified cost assumptions, it is shown that a disproportionate share of the increased profits results from the formation of the cartel goes to non-members and that the cartels restriction on sales eventually leaves it the sole supplier of oil.

Search Theory and Duration Data: A Theory of Sorts

I. An introduction to sampling from length-biased populations, 39.—II. The pure sorting model implied by job-search theory, 44.—III. Empirical estimation of the pure sorting model, 48.—IV. Determining the underlying process—a possible experiment, 53.—Appendix, 56.(This abstract was borrowed from another version of this item.)

Durable-Goods Monopoly with Discrete Demand

We analyze a dynamic game between consumers and the sole seller of a durable good. Unlike previous analyses, we assume that there exists a finite collection of buyers rather than a continuum. None of the main conclusions of the literature on durable-goods monopoly survives this change in assumption. Coases conjecture that a durable-goods monopolist cannot earn supracompetitive profits in the continuous-time limit, Bulows proposition that renting a durable is always more profitable than selling it, and Stokeys proposition that precommitting to a time path of prices is always optimal are all false when the set of buyers is finite. Thus the assumption of a continuum of consumers--so innocuous and useful a simplification in other contexts--has proved misleading in the context of durable-goods monopoly.

The Vulnerability of Price Stabilization Schemes to Speculative Attack

This paper examines the effects of government attempts to stabilize the prices of commodities by use of buffer stocks. Agricultural goods subject to supply uncertainty as well as depletable resources are considered. In each case, it is shown that the resulting rational expectations competitive equilibrium contains a speculative attack--a situation where the entire government stock is suddenly purchased by previously inactive speculators. The analysis is applied to the historical attempt to peg the gold price, which caused the attack of 1968. The insights gained and the methodology developed also apply to the various international agreements to impose bans on commodity prices which have been proposed by the United Nations Conference on Trade and Development.

Uniqueness of Cournot Equilibrium: New Results From Old Methods

This paper provides sufficient conditions for the existence of a unique Cournot equilibrium. Previous uniqueness results have depended on an assumption of non-degeneracy of equilibrium. As we illustrate, this assumption often fails in multi-stage games with proper Cournot subgames. Since our uniqueness results do not depend on this assumption, they are more widely applicable. (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of t (This abstract was borrowed from another version of this item.)

For sale by owner: When to use a broker and how to price the house

By using a broker, the owner of a house can speed up his search for buyers but must pay a percentage of the sale price as a commission. Nonstationarities inherent in the housing market may make it optimal to market a house “by-owner” at the outset and to retain a broker only if the house remains on the market later in the selling season. This article investigates the optimal sequence of asking prices within the by-owner phase, within the broker phase, and at the transition between the two phases. The asking price declines within each phase but may jump up at the transition to cover part of the commission. The model implicity determines the demand for broker services as a function of the commission rate. When estimated, it may be useful in investigations of price fixing among brokers.

THE ECONOMICS OF MUTUALISMS: OPTIMAL UTILIZATION OF MYCORRHIZAL MUTUALISTIC PARTNERS BY PLANTS

Can choice of mutualistic partners and the degree of their utilization determine (1) mutualistic partner coexistence, (2) relative abundance of mutualistic partners, and (3) environment-dependent changes in relative abundance? We investigate these questions in the context of the plant-mycorrhizal fungal mutualism by building a biological market model potentially applicable to other mutualisms as well. We examine the situation where a single plant selectively utilizes member(s) of a group of ectomycorrhizal potential trading partners. Under biologically realistic circumstances, the plant may simultaneously utilize multiple partners, its degree of utilization determining the community structure of the fungi. If utilization of multiple partners is optimal, the marginal cost of acquiring additional nitrogen from every trading partner must be equal while the marginal cost of acquiring it from any unutilized partner must be larger. Because the plants nitrogen demand is light dependent, the composition of the fungal species among its trading partners changes along light-availability gradients. We discuss the design of an experiment to test the key prediction of our model, the equalization of marginal cost.

Mergers of producers of perfect complements competing in price

Abstract The endogenous merger model of Kamien and Zang (QJE, 1990) is generalized to price competition with perfect complements and used to show that some socially desirable mergers will fail to occur. We also clarify the link between this merger model and the ‘exogenous merger’ literature.