Walter Elberfeld

Market Size and Vertical Integration: Stigler's Hypothesis Reconsidered

According to Stigler (1951), vertical disintegration should be the typical development in growing industries, vertical integration in declining industries. The basic argument is that firms will spin off production stages subject to increasing returns to scale in response to market growth. This paper re-examines Stiglers hypothesis within an equilibrium model of industrial structure in which the organization of firms is endogenous. Stiglers hypothesis is confirmed when entry into markets is free and firms compete. However, when entry into the intermediate good market is restricted, or intermediate good producers collude, vertical integration increases with market size. Copyright 2002 by Blackwell Publishing Ltd

Market Size, Technology Choice, and Market Structure

Abstract We introduce technology choice into a model of monopolistic competition and analyze the structural effects of changes in market size. A larger market leads to the adoption of a large-scale technology. If a technology switch occurs, the number of firms decreases, and a rationalizing effect arises: individual and aggregate output increases; prices fall. This need not benefit consumers since a technology switch is associated with a decrease in product variety.

A note on technology choice, firm heterogeneity and welfare

Abstract In this note I extend the technology choice model of Mills and Smith [Int. J. Ind. Org. 14 (1996) 317–329] by analyzing an industry with more than two firms. I show that heterogeneous firms can arise, as in the duopoly case. However, the welfare implications are not robust. In particular, it is not necessarily the case that the market produces too much homogeneity. When more than two firms are active, the business stealing effect creates a bias towards overinvestment.

Incentive monotonicity and equilibrium selection in 2×2 matrix games

For the class of 2×2 matrix games with two strict Nash equilibria the paper introduces an equilibrium refinement called incentive monotonicity. It selects the risk-dominant equilibrium if interests are conflicting, while it remains silent in games with common interests. These results suggest that the equilibrium-selection problem might be more difficult in games with common interests, which is certainly the case if risk dominance and payoff dominance go in opposite directions.

Vertical Foreign Direct Investment, Welfare, and Employment

Abstract This paper shows that vertical foreign direct investment will reduce prices but the aggregate welfare effect is unambiguously positive only under free market entry. Using a standard model of imperfect competition, we develop this result by considering two different cases. In the first case, the total number of firms is fixed, and we show that national and multinational firms may coexist. In the second case, we allow for market entry, and we focus on situations in which either only national or only multinational firms are active. Furthermore, we discuss impact effects on labor demand. We show that a decline in foreign wages increases domestic employment.

The Subtraction Rule and its Effects on Pricing in the Electricity Industry

The paper deals with the subtraction rule, which has been proposed by the ?working group security of supply in service of the cartel offices of the federal republic and the states? as an instrument to identify improperly inflated network access charges in the electricity industry. We analyze firms? price responses and adaptations to this rule. The results suggest that the introduction of the subtraction rule would increase prices, regardless of whether network access charges are improperly inflated or not.

Vertical Foreign Direct Investment, Industry Structure and Welfare

This paper analyzes the effects of vertical foreign direct investment on industry structure, prices and welfare in two different scenarios. In the first case, the total number of firms is fixed, and we show that national and multinational firms may coexist. In the second case, market entry is allowed, and we demonstrate that either only national or only multinational firms will be active. Furthermore, we show that vertical foreign direct investment will always reduce prices whereas the aggregate welfare effect is unambiguously positive only under free market entry. Finally, we discuss impact effects on labor demand.