Wallace P. Mullin

Testing Static Oligopoly Models: Conduct and Cost in the Sugar Industry, 1890-1914

We explore the widespread methodology of using demand information to infer market conduct and unobserved cost components under the hypothesis of static oligopoly behavior. Direct measures of marginal cost and conduct, indicating small market power, serve as benchmarks. The more competitive models yield better cost estimates. The best cost estimates occur when conduct is estimated as a free parameter, which in turn only slightly underestimates our direct measure. It also tracks the decline in market power accompanying the industrys structural changes. The methodology is largely validated, although partial cost information can improve its predictive power. Conclusions are robust to demand function.

The Competitive Effects of Mergers: Stock Market Evidence from the U.S. Steel Dissolution Suit

We apply and extend the Eckbo-Stillman event-study methodology to investigate the competitive effects of the U.S. Steel consolidation. In contrast to previous event studies, we examine the stock market reactions of downstream firms, thereby enabling us to estimate the net effect of a merger or antitrust action on product market prices. Specifically, we examine the stock market reactions of U.S. Steel, major steel industry rivals, and downstream customers to events from the unsuccessful dissolution suits begun in 1911 and decided in 1920. The pattern of reactions implies that the dissolution of U.S. Steel would have lowered steel prices and raised output.

Gradual Incorporation of Information: Pharmaceutical Stocks and the Evolution of President Clinton’s Health Care Reform*

We examine the effect of the evolution of President Clintons health care reform proposal over January 1992–October 1993 on pharmaceutical stock prices. We identify a 52.3 percent decline in market‐adjusted prices, which we then associate with health care reform. Applying a new technique, isotonic regression, we find most of the decline occurred gradually. Much of the decline occurred as the Clinton plan adopted strategies to contain health care costs, including “managed competition” and implicit regulation. Indirect evidence suggests that the wealth lost by pharmaceutical companies may have been largely an anticipated transfer. Our results are relevant to understanding the likely effects of the Clinton plan and more recent proposals. Many other policy changes are marked by gradual public revelation of information, which may not be completely observable by a researcher. Our approach may uncover information about the anticipated effects of policies unavailable from a traditional event study.

ECONOMICS AND POLITICS: THE CASE OF SUGAR TARIFF REFORM*

We study Congressional voting on sugar tariff reform in 1912 to investigate theories of constituent influence on trade policy. In this setting, consumer interests enjoyed substantial political efficacy. Moreover, since a variety of producer interests competed in the political marketplace, we can evaluate which producer interests were most effective. We explore these issues by integrating two techniques drawn from economics and political science, overcoming some common problems encountered in political economy research. We first conduct an event study to ascertain the relative incidence and importance of legislative events. We then conduct a roll call regression on congressional votes to determine legislator responsiveness to different interest groups. We find that wealthy and concentrated groups, especially shareholders, were not influential. Large, unconcentrated groups, in particular beet sugar laborers and sugar beet and sugarcane farmers, were the most influential producer groups. Strikingly, these latter groups were created by prior protective tariffs.

Revealed Growth: A Method for Bounding the Elasticity of Demand with an Application to Assessing the Antitrust Remedy in the Du Pont Decision

We propose a method for bounding the demand elasticity in growing, homogeneous-product markets that requires only minimal data—market price and quantity over a time span as short as two periods. Reminiscent of revealed-preference arguments using choices over time to bound the shape of indifference curves, we use shifts in the equilibrium over time to bound the shape of the demand curve under the assumption that growing demand curves do not cross. We apply the method to assess the effectiveness of the antitrust remedy in the 1952 Du Pont decision, ordering the incumbent manufacturers to license their patents for commercial plastics. Commentators have suggested that the incumbents may have preserved the monopoly outcome by gaming the licensing contracts. The upper bounds on demand elasticities that we compute are significantly less than 1 in many post-remedy years. Such inelastic demand is inconsistent with monopoly, suggesting the remedy may have been effective. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.