Retrospectives: Animal Spirits

By Roger Koppl

Journal of Economic Perspectives, Summer 1991

John Maynard Keynes argued that when the conditions for rational action are not present, people are driven by "animal spirits." This article briefly considers Keynes' argument, and the history of the term.

The Welfare Effects of Use-or-Lose Provisions in Markets with Dominant Firms

By Ian Gale and Daniel P. O'Brien

American Economic Journal: Microeconomics, February 2013

A use-or-lose provision requires that firms employ a certain minimum fraction of their productive capacity. Variants have been used by regulators in the airline and wireless communications industries, among others. A typical stated objective is to limi...

Merger Policy with Merger Choice

By Volker Nocke and Michael D. Whinston

American Economic Review, April 2013

We analyze the optimal policy of an antitrust authority towards horizontal mergers when merger proposals are endogenous and firms choose among alternative mergers. In our model, the optimal policy of an antitrust authority that seeks to maximize expected ...

Competition with Exclusive Contracts and Market-Share Discounts

By Giacomo Calzolari and Vincenzo Denicolò

American Economic Review, October 2013

We analyze firms that compete by means of exclusive contracts and market-share discounts (conditional on the seller's share of customers' total purchases). With incomplete information about demand, firms have a unilateral incentive to use these contrac...

The First-Order Approach to Merger Analysis

By Sonia Jaffe and E. Glen Weyl

American Economic Journal: Microeconomics, November 2013

Using information local to the premerger equilibrium, we derive approximations of the expected changes in prices and welfare generated by a merger. We extend the pricing pressure approach of recent work to allow for non-Bertrand conduct, adjusting the ...

Pooling with Essential and Nonessential Patents

By Daniel Quint

American Economic Journal: Microeconomics, February 2014

Several recent technological standards were accompanied by patent pools—arrangements to license relevant intellectual property as a package. A key distinction made by regulators—between patents essential to a standard and patents with substitutes—ha...

Outside Options and the Failure of the Coase Conjecture

By Simon Board and Marek Pycia

American Economic Review, February 2014

A buyer wishes to purchase a good from a seller who chooses a sequence of prices over time. Each period the buyer can also exercise an outside option, abandoning their search or moving on to another seller. We show there is a unique equilibrium in whic...

The Economics of Predation: What Drives Pricing When There Is Learning-by-Doing?

By David Besanko, Ulrich Doraszelski, and Yaroslav Kryukov

American Economic Review, March 2014

We formally characterize predatory pricing in a modern industry-dynamics framework that endogenizes competitive advantage and industry structure. As an illustrative example we focus on learning-by-doing. To disentangle predatory pricing from mere compet...

Together at Last: Trade Costs, Demand Structure, and Welfare

By Monika Mrázová and J. Peter Neary

American Economic Review, May 2014

We show that relaxing the assumption of CES preferences in monopolistic competition has surprising implications when trade is restricted. Integrated and segmented markets behave differently, the latter typically exhibiting reciprocal dumping. Globalizatio...

Monopolistic Competition and Optimum Product Selection

By Antonella Nocco, Gianmarco I. P. Ottaviano, and Matteo Salto

American Economic Review, May 2014

We provide novel insights on the decentralization of optimal outcomes under monopolistic competition with nonseparable utility, variable demand elasticity, and endogenous firm heterogeneity. Relative to the unconstrained optimum, equilibrium firm selectio...

Welfare and Trade without Pareto

By Keith Head, Thierry Mayer, and Mathias Thoenig

American Economic Review, May 2014

Quantifications of gains from trade in heterogeneous firm models assume that productivity is Pareto distributed. Replacing this assumption with log-normal heterogeneity retains some useful Pareto features, while providing a substantially better fit to sal...

Competitive Framing

By Ran Spiegler

American Economic Journal: Microeconomics, August 2014

I present a simple framework for modeling two-firm market competition when consumer choice is "frame-dependent", and firms use costless "marketing messages" to influence the consumer's frame. This framework embeds several recent models in the "behavioral ...

Vertical Bargaining and Countervailing Power

By Alberto Iozzi and Tommaso Valletti

American Economic Journal: Microeconomics, August 2014

We study a set of bilateral Nash bargaining problems between an upstream input supplier and several differentiated but competing retailers. If one bilateral bargain fails, the supplier can sell to the other retailers. We show that, in a disagreement, the ...

Multiproduct Search and the Joint Search Effect

By Jidong Zhou

American Economic Review, September 2014

This paper presents a sequential search model where consumers look for several products from multiproduct firms. Multiproduct search can significantly influence firms' pricing decisions. For example, it can make market prices decrease with search costs. P...

The Power of Communication

By David Rahman

American Economic Review, November 2014

In this paper, I offer two ways in which firms can collude: secret monitoring and infrequent coordination. Such collusion is enforceable with intuitive communication protocols. I make my case in the context of a repeated Cournotoligopoly with flexible pr...

Searching for a Bargain: Power of Strategic Commitment

By Selçuk Özyurt

American Economic Journal: Microeconomics, February 2015

This paper shows that in a multilateral bargaining setting where the sellers compete á la Bertrand, a range of prices that includes the monopoly price and 0 are compatible with equilibrium, even in the limit where the reputational concerns and frictions ...

Understanding Markups in the Open Economy

By Beatriz de Blas and Katheryn N. Russ

American Economic Journal: Macroeconomics, April 2015

This paper presents a new model of Bertrand competition between heterogeneous firms in the open economy where the macroeconomic distribution of markups responds to the degree of trade openness and the underlying level of technology in each trading partner...

Collusion and the Organization of the Firm

By Alfredo Burlando and Alberto Motta

American Economic Journal: Microeconomics, August 2015

This paper shows that the threat of collusion between a productive agent and the auditor in charge of monitoring production can influence a number of organizational dimensions of the firm, including outsourcing decisions and the allocation of productio...

Net Neutrality, Business Models, and Internet Interconnection

By Jay Pil Choi, Doh-Shin Jeon, and Byung-Cheol Kim

American Economic Journal: Microeconomics, August 2015

We analyze the effect of net neutrality regulation in a two-sided market framework when content is heterogeneous in its sensitivity to delivery quality. We characterize the equilibrium in a neutral network constrained to offer the same quality vis-à-vis ...

Antitrust Leniency with Multiproduct Colluders

By Leslie M. Marx, Claudio Mezzetti, and Robert C. Marshall

American Economic Journal: Microeconomics, August 2015

We use a global games approach to model alternative implementations of an antitrust leniency program as applied to multiproduct colluders. We derive several policy design lessons; e.g., we show that it is possible that linking leniency across products inc...