Creator: Schmitz, James Andrew Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 468 Abstract:
Fifty-eight years ago, Harberger (1954) estimated that the costs of monopoly, which resulted from misallocation of resources across industries, were trivial. Others showed the same was true for tariffs. This research soon led to the consensus that monopoly costs are of little significance—a consensus that persists to this day.
This paper reports on a new literature that takes a different approach to the costs of monopoly. It examines the costs of monopoly and tariffs within industries. In particular, it examines the histories of industries in which a monopoly is destroyed (or tariffs greatly reduced) and the industry transitions quickly from monopoly to competition. If there are costs to monopoly and high tariffs within industries, we should be able to see these costs whittled away as the monopoly is destroyed.
In contrast to the prevailing consensus, this new research has identified significant costs of monopoly. Monopoly (and high tariffs) is shown to significantly lower productivity within establishments. It also leads to misallocation within industry: resources are transferred from high to low productivity establishments.
From these histories a common theme (or theory) emerges as to why monopoly is costly. When a monopoly is created, “rents” are created. Conflict emerges among shareholders, managers, and employees of the monopoly as they negotiate how to divide these rents. Mechanisms are set up to split the rents. These mechanisms are often means to reduce competition among members of the monopoly. Although the mechanisms divide rents, they also destroy them (by leading to low productivity and misallocation).
Stichwort: X-inefficiency, Competition, Monopoly, and Rent seeking Fach: F10 - Trade: General, D20 - Production and Organizations: General, and L00 - Industrial Organization: General
Creator: Betts, Caroline M. and Kehoe, Timothy Jerome, 1953- Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 415 Abstract:
We study the quarterly bilateral real exchange rate and the relative price of non-traded to traded goods for 1225 country pairs over 1980–2005. We show that the two variables are positively correlated, but that movements in the relative price measure are smaller than those in the real exchange rate. The relation between the two variables is stronger when there is an intense trade relationship between two countries and when the variance of the real exchange rate between them is small. The relation does not change for rich/poor country bilateral pairs or for high inflation/low inflation country pairs. We identify an anomaly: The relation between the real exchange rate and relative price of non-traded goods for US/EU bilateral trade partners is unusually weak.
Stichwort: Relative Prices, Trade Relationships, Real Exchange Rates, and Non-Traded Goods Fach: F30 - International Finance: General, F14 - Empirical Studies of Trade, F10 - Trade: General, and F41 - Open Economy Macroeconomics
Creator: Holmes, Thomas J. and Mitchell, Matt Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 325 Abstract:
In this paper we develop a theory of how factors interact at the plant level. The theory has implications for (1) the micro foundations for capital-skill complementarity, (2) the relationship between factor allocation and plant size, and (3) the effects of trade and growth on the skill premium. The theory is consistent with certain facts about factor allocation and factor price changes in the 19th and 20th centuries.
Fach: L20 - Firm Objectives, Organization, and Behavior: General, F10 - Trade: General, and J30 - Wages, Compensation, and Labor Costs: General
Creator: Kehoe, Timothy Jerome, 1953- and Ruhl, Kim J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 324 Abstract:
We propose a methodology for studying changes in bilateral commodity trade due to goods not exported previously or exported only in small quantities. Using a panel of 1,900 country pairs, we find that increased trade of these “least-traded goods” is an important factor in trade growth. This extensive margin accounts for 10 percent of the growth in trade for NAFTA country pairs, for example, and 26 percent in trade between the United States and Chile, China, and Korea. Looking at country pairs with no major trade policy change or structural change, however, we find little change in the extensive margin.
Stichwort: NAFTA , Trade liberalization, Structural change, Extensive margin, and International trade Fach: F13 - Trade Policy; International Trade Organizations, F10 - Trade: General, F44 - International Business Cycles, and O14 - Industrialization; Manufacturing and Service Industries; Choice of Technology
Creator: Fitzgerald, Doireann, Haller, Stefanie, and Yedid-Levi, Yaniv Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 524 Abstract:
We document how export quantities and prices evolve after entry to a market. Controlling for marginal cost, and taking account of selection on idiosyncratic demand, there are economically and statistically significant dynamics of quantities, but no dynamics of prices. To match these facts, we estimate a model where firms invest in customer base through non-price actions (e.g. marketing and advertising), and learn gradually about their idiosyncratic demand. The model matches quantity, price and exit moments. Parameter estimates imply costs of adjusting investment in customer base, and slow learning about demand, both of which generate sluggish responses of sales to shocks.
Stichwort: Customer base, Firm dynamics, and Exporter dynamics Fach: E20 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data), F10 - Trade: General, and L10 - Market Structure, Firm Strategy, and Market Performance: General
Creator: Holmes, Thomas J. and Schmitz, James Andrew Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 245 Abstract:
There is an old wisdom that reductions in tariffs force changes on producers that lead to costless, or nearly so, increases in productivity. We construct a technology-ladder model that captures this wisdom. As in other technology-ladder models, time spent in research helps propel an industry up a technology-ladder. In contrast to the literature, we include another activity that plays a role in determining an industry's position on the technology-ladder: attempts to obstruct the research program of rivals (through regulations, for example). In this world, reductions in tariffs between countries lead producers to spend more time in research and less in obstruction of rivals.
Stichwort: Technology-ladder models, Gains from trade, and Effects of protection Fach: O30 - Innovation; Research and Development; Technological Change; Intellectual Property Rights: General, F10 - Trade: General, and O40 - Economic Growth and Aggregate Productivity: General