Thomas Randolph Beard

Estimating Multiproduct Cost Functions Over Time Using a Mixture of Normals

This article proposes the use of finite mixtures of probability distributions to estimate cost functions. The mixture technique allows for the simultaneous existence and unobservability of multiple technologies of production. Technology switching by firms and conventional technical change can be studied directly. We illustrate the technique on a large sample of U.S. Savings and Loan companies, and find strong evidence of multiple technologies. We compare the mixture results to conventional stochastic cost frontier and thick frontier models, and highlight their differences.

Efficient versus "Popular" Tariffs for Regulated Monopolies

This article analyzes the effects of the popular election of a monopoly regulator on the structure of the resulting price system. Consumers are differentiated by income and vote on a regulator who implements a two-part tariff for all consumers. The structure of the winning tariff depends on the curvature properties of consumer Engel curves. When Engel curves are concave in wealth or income, the most popular tariff involves an excessive fixed charge and pricing below marginal cost. This result contributes to understanding observed anomalies in public utility pricing. Generalizations and extensions of the analysis are discussed. Copyright 1996 by University of Chicago Press.

Fear and Closed-End Fund discounts

Closed-End Fund (CEF) discounts have intrigued researchers for decades. Of the many explanations offered, the behavioural framework of Lee et al. (1991), which posits noise traders subject to sentiment, is the most discussed. In this article, we contribute some novel evidence to the evaluation of this theory by examining the role of implied market volatility (VIX, i.e., the ‘fear index’) in fund discounts using a Dynamic Conditional Correlation (DCC) approach. We find that VIX has almost no role in determining discounts except during periods of extreme market turbulence, providing strong but indirect evidence for the sentiment story.

Fragmented Duopoly: A Conceptual and Empirical Investigation

Where wireline distribution networks compete, each network typically has some customers over which it competes and others for which it is the sole provider. This paper conceptually and empirically assesses the effects of such competition on market prices, demand, and service quality for cable television service. The results suggest that the effectiveness of competition in lowering prices is contingent on the degree of system overlap. In particular, in equilibrium, an increase in overlap substantially reduces prices. The conceptual model of fragmented duopoly developed in the paper may be useful in analyzing emerging competition in other network distribution industries.

Small Firm Performance in Online Markets

Firms which enter the online marketplace do so for a variety of reasons. The effects of the motive for entry on the ultimate success of entry, for both online and ‘blended’ firms, are largely unknown. This study utilises a unique data set of small Australian firms and examines the relationship between the strategic motivation for entry and the actual results of entry. Utilising a trivariate probit model with exogenous ‘reason for entry’ dummy variables, estimates of aftermarket business performance are obtained. The study finds that the entry goal materially affects subsequent performance: firms entering to expand their market size ordinarily succeed, but those entering to reduce costs are often disappointed. Blended firms enjoy no strong advantages over pure online entrants.

Make or Buy? Unbundled Elements as Substitutes for Competitive Facilities in the Local Exchange Network

In this paper, we estimate demand curves for unbundled loops sold by incumbent local exchange telecommunications carriers to their retail rivals. Of primary interest are the cross-price effects between unbundled loops purchased with and without unbundled switching. As expected, we find downward-sloping demand curves for unbundled elements, with own-price elasticities in the elastic region of demand. Interestingly, however, we also find no evidence of positive cross-price elasticities between alternative modes of unbundled element entry.

On the (mis)use of cross-price effects to gauge the effectiveness of smokeless tobacco in smoking cessation

In a recent edition of this journal Mikael Bask and Maria Melkersson suggested that moist snuff, snus to the Swedes, is not an effective tool in cigarette smoking cessation. The sole basis for this conclusion is their empirical findings concerning the cross-price elasticity of demand between cigarettes and snus. Specifically, they find that, “The cross-price elasticities are negative, which indicates that snus contributes to increased smoking. Thus, even if snus taking is less harmful than cigarette smoking, it is not advisable to encourage its use in smoking cessation programs.” We find this conclusion to be unwarranted. It is based on a model estimated with inappropriate data; it is based on a misspecified model with questionable theoretical underpinnings; and no evidence is presented as to the statistical significance of the cross-price effects. Furthermore, even if we ignore these technical criticisms, their conclusions are unfounded because they are based on an inappropriate conceptual experiment. We first address some technical problems with the Bask and Melkersson analysis, and then we address the fundamental flaw in their reasoning

Pursuing Competition in Local Telephony: The Law and Economics of Unbundling and Impairment

This paper surveys the impairment standard of Section 251(d)(2)(B) of the Telecommunications Act of 1996 and its content as it has been interpreted by both the FCC and the Courts. The Congressional standard relating to unbundling clearly pointed to its impact on each CLECs output, and relevant Court decisions have repeatedly upheld this view. We develop a formal theoretical model of impairment that relates element Availability to CLEC output. This theoretical model is then subjected to empirical tests.

A Pedagogical Note on the Economic Theory of Regulation

While scores of papers have drawn on the basic insights of the early founders of the economic theory of regulation, the ability to cogently present the general form of the theory in a readily accessible graphical format has only recently emerged. While providing a promising approach for illustrating and analyzing regulatory (and deregulatory) outcomes, however, the analysis presented to this point appears to require the derivation of several different graphs. The result is that, while stemming from a single paradigmatic framework, the graphical approach fails thus far to offer a single unified basis for illustrating the general economic theory of regulation. In this paper, we seek to fill this lacuna by providing a simple, yet powerful, unifying graphical construct for presenting the myriad implications of that theory.

Reconsidering Copyright: A Spatial Model of Differentiated Competition and Infringement

In practice, copyright is treated by economists and analysts as a tradeoff between monopoly and the incentive to create new works. This tradeoff is between stark opposites – power and innovation. Yet, in reality, copyrighted works face numerous close substitutes. In this paper, we formally model copyright using an approach better suited to the nature of copyrighted works – a model of differentiated-goods competition. We discuss the consequences of improperly viewing copyright as monopoly. While theoretically formal, the paper is intended to inform public policy with respect to copyright and is thus presented in a way accessible to the non-economist.