Topics in Industrial Organization

NBER Reporter, Fall 1989 | Go to article overview
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Topics in Industrial Organization


Topics in Industrial Organization

The NBER held a conference on "Topics in Industrial Organization" in Cambridge on July 31 and August 1. NBER researchers Paul L. Joskow and Nancy L. Rose, both of MIT, organized the following program:

Severin Borenstein, University of Michigan, "Price

Discrimination in Retail Gasoline Markets"

Discussant: Andrea L. Shepard, MIT

Ann F. Friedlaender, MIT, "Efficient Rail Rates and

Deregulation"

Discussant: John R. Meyer, Harvard University

Michael A. Salinger, Columbia University, "A Test of

Successive Monopoly and Foreclosure Effects:

Vertical Integration between Cable Systems and

Pay Service"

Discussant: Paul L. Joskow

Scott E. Masten and Edward A. Snyder, University of

Michigan, and James W. Meehan, Jr., Colby

College, "The Cost of Organization"

Discussant: Ingo Volgelsang, Boston University

Randal R. Rucker, North Carolina State University,

and Keith B. Leffler, University of Washington,

"Transaction Costs and Efficient Organization of

Production: A Study of Timber Harvesting"

Discussant: R. Glenn Hubbard, NBER and Columbia

University

William P. Rogerson, Northwestern University,

"Profit Regulation of Defense Contractors and Prizes

for Innovation" (This paper is summarized in

"Studies of Firms and Industries" in this issue.)

Discussant: Michael D. Whinston, NBER and Harvard

University

James Blumstein, Vanderbilt University; Randall

Bovbjerg, Urban Institute; and Frank A. Sloan,

NBER and Vanderbilt University, "Valuing Life and

Limb in Tort: A Common Law of Damages and

Insurance Contracts for Future Services"

Discussant: Joseph P. Newhouse, Harvard University

Michael Moore and W. Kip Viscusi, Duke University,

"The Effect of Product Liability on Innovation"

Discussant: Roger G. Noll, Stanford University

Ralph Winter, University of Toronto, "The Dynamics

of Competitive Insurance Markets"

Discussant: J. David Cummins, University of

Pennsylvania

Why is the retail margin on regular unleaded gasoline consistently higher than the retail margin on regular leaded gasoline? The average difference grew from less than one cent in 1979 to more than five cents in 1986 but since has fallen to about two-and-a-half cents in 1989. Borenstein finds that cost-based explanations --focusing on differences in inventory costs, average size of purchases, or use of credit cards--explain little, if any, of the levels or changes in margin differences. Using a panel of gasoline prices in 57 SMSAs from 1984 to 1989, Borenstein finds price discrimination based on heterogeneity in buyers' costs of switching sellers. As the average income of buyers of leaded gas has fallen relative to the average income of buyers of unleaded gas, the margin difference has widened. After 1986, many stations stopped selling leaded gas--increasing the relative switching costs of buyers of leaded gas--and the margin on leaded gas has risen relative to the margin on unleaded gas. Changes in relative incomes explain a small proportion of the changes in margin differences. But the decline in the availability of leaded gasoline explains between one-quater and one-half of the change in margin of differences since 1986.

Are "fair" rates to captive shippers compatible with "fair" rates of return for the railroads in the period of quasi-deregulation since 1980? To answer this, Friedlaender develops a model in which a public utility faces a breakeven constraint while selling in two sectors: a competitive one, in which price equals marginal cost, and a captive one, which has to bear the entire revenue burden.

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