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Creator: Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 260 Palabra clave: Nominal wages, Trade, Monetary payments, and Contract Tema: L14 - Transactional Relationships; Contracts and Reputation; Networks and J33 - Compensation Packages; Payment Methods
Creator: Atkeson, Andrew, Eisfeldt, Andrea L., and Weill, Pierre-Olivier Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 479 Abstract:
We develop a model of equilibrium entry, trade, and price formation in over-the-counter (OTC) markets. Banks trade derivatives to share an aggregate risk subject to two trading frictions: they must pay a fixed entry cost, and they must limit the size of the positions taken by their traders because of risk-management concerns. Although all banks in our model are endowed with access to the same trading technology, some large banks endogenously arise as “dealers,” trading mainly to provide intermediation services, while medium sized banks endogenously participate as “customers” mainly to share risks. We use the model to address positive questions regarding the growth in OTC markets as trading frictions decline, and normative questions of how regulation of entry impacts welfare.
Palabra clave: Asset pricing, Welfare, Trading limits, Bargaining, Entry, and Networks Tema: G28 - Financial Institutions and Services: Government Policy and Regulation, L14 - Transactional Relationships; Contracts and Reputation; Networks, G20 - Financial Institutions and Services: General, and G23 - Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
Creator: Holmes, Thomas J., Levine, David K., and Schmitz, James Andrew Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 402 Abstract:
Arrow (1962) argued that since a monopoly restricts output relative to a competitive industry, it would be less willing to pay a fixed cost to adopt a new technology. Arrow’s idea has been challenged and critiques have shown that under different assumptions, increases in competition lead to less innovation. We develop a new theory of why a monopolistic industry innovates less than a competitive industry. The key is that firms often face major problems in integrating new technologies. In some cases, upon adoption of technology, firms must temporarily reduce output. We call such problems switchover disruptions. If firms face switchover disruptions, then a cost of adoption is the forgone rents on the sales of lost or delayed production, and these opportunity costs are larger the higher the price on those lost units. In particular, with greater monopoly power, the greater the forgone rents. This idea has significant consequences since if we add switchover disruptions to standard models, then the critiques of Arrow lose their force: competition again leads to greater adoption. In addition, we show that our model helps explain the accumulating evidence that competition leads to greater adoption (whereas the standard models cannot).
Tema: O32 - Management of Technological Innovation and R&D, O33 - Technological Change: Choices and Consequences; Diffusion Processes, L14 - Transactional Relationships; Contracts and Reputation; Networks, D21 - Firm Behavior: Theory, L12 - Monopoly; Monopolization Strategies, and D42 - Market Structure, Pricing, and Design: Monopoly