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Browsing by Author "Porter, Robert H."

Now showing 1 - 6 of 6
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    Noncooperative Collusion Under Imperfect Price Information
    (Center for Economic Research, Department of Economics, University of Minnesota, 1981-02) Green, Edward J.; Porter, Robert H.
    Recent work in game theory has shown that, in principle, it may be possible for firms in an industry to form a self-policing cartel to maximize their joint profits. This paper studies the applicability of that work to empirical industrial organization. A parametric model of a noncooperatively supported cartel is presented, and the aspects of industry structure which would make such a cartel viable are discussed. The model is shown to be estimable my means of a multiple-equation switching-regression technique. Thus it may be possible to subject a particular industry to a direct test of collusive conduct. Such a test would complement the reduced-form cross-industry regressions by which hypotheses about collusion (in particular, Stigler's theory of oligopoly) have previously been tested.
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    Oligopoly and the Incentive for Horizontal Merger
    (Center for Economic Research, Department of Economics, University of Minnesota, 1983-11) Perry, Martin K.; Porter, Robert H.
    In order to talk about merger, one needs some notion of assets or capital which can be combined, and one must allow for asymmetry in the equilibrium to reflect such. Using a simple notion of capital with linear marginal cost and linear demand, we show in two types of models when there is and when there is not an incentive to merge. Merger results in an increase in the equilibrium price to the benefit of all firms. However, this price increase arises primarily because the output of the merged firm is lower after the merger than the combined output of its partners prior to merger. We show how the profitability of merger depends upon both the structural and behavioral parameters of the model.
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    Optimal Cartel Trigger Price Strategies
    (Center for Economic Research, Department of Economics, University of Minnesota, 1981-02) Porter, Robert H.
    This paper describes a dynamic model of industry equilibrium in which a cartel deters deviations from collusive output levels by threatening to produce at Cournot quantities for a period of fixed duration whenever the market price falls below some trigger price. In this model firms can observe only their own production level and a common market price. The market demand curve is assumed to have a stochastic component, so that an unexpectedly low price may signal either deviations from collusive output levels or a "downward" demand shock. This paper characterizes the optimality properties of this model, from the standpoint of the firms which participate in the cartel. In particular, the implications for the equilibrium quantity vector, of setting the trigger price and punishment period length at their optimal values, are assessed. It is demonstrated that, in general, the optimal quantity will exceed that which would maximize expected joint net returns in any single period. The optimal aggregate quantity is shown to be a nondecreasing function of the number of firms, equaling the aggregate Cournot level in the limit, and a nondecreasing function of the variance of the stochastic demand component.
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    A Study of Cartel Stability: The Joint Economic Committee 1880 - 1886
    (Center for Economic Research, Department of Economics, University of Minnesota, 1982-02) Porter, Robert H.
    This paper employs weekly time series data on the Joint Economic Committee railroad cartel from 1880 to 1886 to empirically test the proposition that observed price wars represented a switch from collusive to noncooperative behavior. An equilibrium model of dynamic oligopoly with assymetric firms, together with explicit functional form assumptions about costs and demand, determines the estimating equations and stochastic structure of the econometric model. This hypothesis is tested against the alternative that no switch took place, so that price and quantity movements were solely attributable to exogenous shifts in the demand and cost functions.
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    Switching Regression Models with Imperfect Sample Separation Information - With an Application on Cartel Stability
    (Center for Economic Research, Department of Economics, University of Minnesota, 1982-08) Lee, Lung-Fei; Porter, Robert H.
    An exogenous switching regression model with imperfect regime classification information is specified and applied to a study of cartel stability. An efficient estimation method is proposed which takes this imperfect information into account. The consequences of misclassification are analyzed.' The direction of the least squares bias is derived. An optimal regime classification rule is obtained and compared theoretically and empirically with other classification rules. We then examine the Joint Executive Committee, a railroad cartel in the l880s. The econometric evidence indicates that reversions to noncooperative behavior did occur for the firms in our sample, and these reversions involve a significant decrease in market price.
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    Tariff Policies in a Small Open Spatial Economy
    (Center for Economic Research, Department of Economics, University of Minnesota, 1982-02) Porter, Robert H.
    This paper considers tariff policies in a small open economy in which consumers are spatially distributed. The production technology of the manufacturing sector is assumed to exhibit increasing returns to scale, and its product incurs costs in transportation. Examples are constructed which demonstrate that imposition of an import tariff on this sector can lead to an improvement in welfare, despite the fact that a monopoly position is created for some firm in the protected industry, and even though it incurs higher production costs than do importers.