Thomas von Ungern-Sternberg

Countervailing power revisited

Abstract The paper uses the Nash bargaining concept to study the predictions of the theory of countervailing power within two theoretical models, a Cournot model and a model of perfect competition. Within the Cournot model a decrease in the number of retailers unambiguously leads to an increase in equilibrium consumer prices. In the model of perfect competition the reverse is true. One may thus conclude that countervailing power can have positive effects for the consumers only if competiton at the retail level is very fierce.

A model of regulation in the rental housing market

Abstract This paper develops a theoretical model to study the effects of regulation on the rental housing market. Our model emphasises the following specific features of the housing market: product heterogeneity and search costs play a central role, switching (moving) costs are substantial, and the possibilities to price discriminate are important. We show that with short-term rental contracts rents will increase at the time of renegotiation as a result of the ‘hold-up’ problem. Tenancy rent control which limits the owners’ possibilities to increase rents for a certain number of years leads to lower equilibrium rents and higher social welfare. Our model strongly suggests that a policy which consists of indexing rents may be socially preferable to short-term contracts.

Information Costs, Intermediation and Equilibrium Price

mainly for the sake of simplicity. More important is the realization that markets do indeed differ significantly in the ways consumers can obtain information. In some markets there are brokers, test magazines, leasing companies, etc., which serve to alleviate the information problem facing the buyers. In other markets word-of-mouth recommendations and advertising are the only sources of information available. It seems reasonable to suppose that the presence of informational intermediaries has some effect on market structure and performance. It is thus of interest to analyse the structural differences that are responsible for the fact that certain types of intermediaries can be observed in some markets but not in others. In this paper we develop a model that determines endogenously the type of information available to the consumers. The exercise is of interest because it constitutes an attempt to determine market structure endogenously as a function of more fundamental underlying factors. The exercise is also quite difficult, because it involves the comparison of different regimes: in this case, the comparison of situations with and without informational intermediaries. Comparisons of regimes are notoriously difficult to make in explicit models. We are able to do so here largely because we use a sufficiently simple model based on quite restrictive assumptions. We hope the resulting loss in terms of generality is more than compensated for by the gain in terms of computational ease.

The limits of competition: Housing insurance in Switzerland

Abstract In Switzerland there are seven cantons where the housing insurance market is competitive, while in the 19 others there are local state monopolies. This paper compares the price/performance relationship of these different market forms. It is shown that for a very similar product the state monopolies charge 70% lower prices, that they spend substantially more on fire prevention, and that they have much lower damage rates. One of the main reasons for the higher prices of the private insurance companies is the fact that they spend considerably more on sales and administrative costs. The housing insurance market is thus a classic example of a situation where state monopoly outperforms private sector competition.

RISK SELECTION IN NATURAL DISASTER INSURANCE

It is widely recognized that market failure prevents efficient risk sharing in natural disaster insurance, leading to several public-private partnership arrangements across the globe. We argue that risk selection, a situation where the public partner insures the majority of high risk agents, is potentially an important issue. To illustrate our concerns we build a simple model of reinsurance in a natural disaster insurance market. We show that risk selection is a likely equilibrium outcome and discuss the policy options available. The model is based on the French institutional setup and describes well the stylized facts. The policies implemented by the French government correspond to the ones we identify to alleviate risk selection. We also present two alternative public-private partnership setting that deal effectively with risk selection; hurricane insurance in Florida and catastrophe insurance in Spain.

Inflation and the Consumption Function

ConclusionNominal interest payments that come as a compensation for a fall in the real value of monetary assets can hardly be counted as income, if that variable is to have economic content. In spite of this obvious fact, and in a time when consumers are quite often modeled as being extremely rational, most econometric studies still use the disposable income data as if they were a good approximation of an economically meaningful variable even in times of inflation. Both theoretical and empirical work indicate that this is not the case. Perhaps the fact that the empirical work performed also has remarkably good prediction properties will help make econometricians think more carefully about the economic content of the data series they use.

Monopoly, product diversity and welfare☆

Abstract The more homogeneous its customers the easier it is for a monopolist to extract consumer surplus. Offering a range of product varieties (or spatial locations) sorts consumers into groups with similar preferences. The profit opportunities this yields may result in a monopoly providing more product choice than is socially optimal. Nevertheless, monopoly may be socially preferable to a free entry imperfectly competitive equilibrium.

Die Vorteile des Staatsmonopols in der Gebäudeversicherung: Erfahrungen aus Deutschland und der Schweiz

Abstract This paper compares the prices charged and the quality of service provided by state monopolies and private insurance companies on the property insurance market. Both the cross-section data from Switzerland and the time-series evidence from Germany strongly suggest that in this specific market the presence of state monopolies is very advantageous for the customers. This raises the question why German academic economists made practically no effort to defend their state insurance monopolies in the debate about the 3rd EU directive on property insurance. Is it possible that peer pressure prevents academic economists from standing up to defend state monopolies, even if these are clearly to the benefit of consumers?

Innovator protection and the rate of technical progress

Abstract This paper develops two simple models to study the relationship between innovator protection and the rate of technical progress. The first model shows that with an inelastic supply of R&D resources an increase in patent protection may lead to a reduction in the speed of technical progress. This is due to the fact that it now becomes relatively more profitable to invest resources into imitational R&D. The second model shows that with an R&D monopolist the rate of technical progress may be a first increasing and then decreasing function of the time it takes imitators to appear on the market. This is due to the fact that the innovator has little incentive to introduce a second cost reducing innovation, before the first one has been imitated.

Swiss Competition Policy in the Last Decade

This chapter on Swiss competition policy has been written on the occasion of the 10-years’ anniversary of the Studienzentrum Gerzensee. The center was founded at the time when a law on competition was adopted. Given its superb achievements, we can only wish that the center will further develop. But, as professional economists, we should also rejoice that the 1985 law on competition has recently been fundamentally revised. Rejoice and remain vigilant; as argued in this chapter, the new law has inherited from the previous framework a number of features and concepts which could, and should, be improved upon. The main purpose of this review, which draws on a wider study of Swiss competition policy, is thus to illustrate those areas where we see the greatest room for improvement.