Standard policies to correct market power and selection can be misguided when these two forces co-exist. Using a calibrated model of employer-sponsored health insurance, we show that the risk adjustment commonly used by employers to offset adverse selection often reduces the amount of high-quality coverage and thus social surplus. Conversely, in a model of subprime auto lending calibrated to Ei...

We examine interaction between goods trade and market power in domestic trade and distribution sectors. Theory suggests a linkage between service-sector competition and goods trade, one supported by econometrics involving imports of 22 OECD countries vis-à-vis 69 exporters. This points to linkages between market access conditions for goods and the structure of the service sector. Competition in...

Substitutability and Competition in the Dixit-Stiglitz Model The effects of competition on growth are analyzed in the recent literature by comparing economies with the same market structure but different degrees of substitutability. In this note, we show that in a general equilibrium model with monopolistic competition à la DixitStiglitz the effect of substitutability on the allocation of resou...

The economic effects of environmental taxes depend on the market structure. Under imperfect competition with free entry and exit, environmental taxes have an impact on economies of scale by changing the number and size of firms. Whether economies of scale rise or fall in a particular industry depends on induced changes in the price elasticity of demand. Because export demand is more price elast...

Capacity and Product Market Competition: Measuring Market Power in a 'Puppy-Dog' Industry* In this paper we specify and estimate a structural model which accounts for competition in two variables: capacity and prices. The model has a two-stage setup. In the first stage firms make capacity decisions followed by a product-differentiated, price setting game in the second stage. Since costs are end...

This study examines the effect of earnings pressure on firms’ strategic behavior in output competition. We argue that firms facing earnings pressure will attempt to increase current profits to meet analysts’ forecasts by exploiting market power opportunities in their product markets, even at the risk of encouraging future entry and rival expansion. In commodity industries, this behavior will le...

We examine how asymmetric information and competition in the credit market affect voluntary information sharing between lenders. We study an experimental credit market in which information sharing can help lenders to distinguish good borrowers from bad ones, because borrowers may exogenously switch locations. Lenders, however, are also engaged in spatial competition, and lose market power by sh...

More than one hundred and thirty countries or jurisdictions now have laws that seek to safeguard and foster market competition. At a minimum, such competition laws prohibit agreements among supposed competitors to fix prices, divide markets, or in other ways avoid or undermine market competition. Often, these laws go much further. Many additionally seek to constrain the exercise of market power...