Despite the important role played by GATT in the world economy, economists have not developed a unified theoretical framework that interprets and evaluates the principles that form the foundation of GATT. Our purpose here is to propose such a framework. Working within a general equilibrium trade model, we represent government preferences with a very general formulation that includes the traditional case in which governments maximize national income as well as the possibility emphasized in leading political-economy models that governments are concerned with the distributional implications of their tariff choices. Using this general framework we establish that GATT's principles of reciprocity and nondiscrimination (MFN) can be viewed as simple rules that assist governments in their effort to implement efficient trade agreements. From this perspective, we argue that preferential agreements undermine GATT's ability to deliver efficient multilateral outcomes. 1 For an early formal analysi...

Our research empirically analyzes consumer behavior at Internet shopbots — sites that allow consumers to make “one-click ” price comparisons for product offerings from multiple retailers. By allowing researchers to observe exactly what information the consumer is shown and their search behavior in response to this information, shopbot data has unique strengths for analyzing consumer behavior. Furthermore, the method in which the data is displayed to consumers lends itself to a utility-based evaluation process, consistent with econometric analysis techniques. While price is an important determinant of customer choice, we find that, even among shopbot consumers, branded retailers and retailers a consumer visited previously hold significant price advantages in head-to-head price comparisons. Further, customers are very sensitive to how the total price is allocated among the item price, the shipping cost, and tax, and are also quite sensitive to the ordinal ranking of retailer offerings with respect to price. We also find that consumers use brand as a proxy for a retailer’s credibility with regard to non-contractible aspects of the product bundle such as shipping time. In each case our models accurately predict consumer behavior out of sample, suggesting

This chapter explains the logic of structural econometric models and compares them to other types of econometric models. We provide a framework researchers can use to develop and evaluate structural econometric models. This framework pays particular attention to describing different sources of unobservables in structural models. We use our framework to evaluate several literatures in industrial organization economics, including the literatures dealing with market power, product differentiation, auctions, regulation and entry.

provided very helpful comments on previous drafts. Partial financial support for this research was provided This paper presents several techniques for recovering cost function estimates for electricity generation from a model of optimal bidding behavior in a competitive electricity market. Two techniques are developed based on different models of the price-setting process in a competitive electricity market. The first assumes that the firm chooses the price that maximizes its realized profits given the bids of its competitors and the realization of market demand. This procedure is straightforward to apply, but does not impose all of the market rules on the assumed price-setting process. The second procedure uses the assumption that the firm bids in accordance with the market rules to maximize its expected profits. This procedure is considerably more complex, but yields more insights about the nature of the firm’s variable costs, because it allows the researcher to recover generation unit-level variable cost functions. These techniques are applied to bid, market outcomes and financial hedge contract data obtained from the first three months of operation of the National Electricity Market (NEM1) in Australia. The empirical analysis illustrates the usefulness of these techniques in measuring actual market power and the ability to exercise market power possessed by generation unit owners in competitive electricity markets

This paper tests different models of vertical contracting between manufacturers and retailers in the supermarket industry. I estimate demand and use the estimates to compute price-cost margins for retailers and manufacturers under different supply models without observing wholesale prices. I then test which set of margins seems to be compatible with the margins obtained from direct estimates of cost and select the best among the non-nested competing models. The models considered are: (1) a double marginalization pricing model; (2) a vertically integrated model; and (3) a variety of alternative (strategic) supply scenarios, allowing for collusion, non-linear pricing and strategic behavior with respect to private label products. Using data on yogurt sold at several stores in a large urban area of the United States, I find that wholesale prices are close to marginal cost and that retailers have pricing power in the vertical chain. This is consistent with non-linear pricing by the manufacturers or with high bargaining power of the retailers.

We study the effects of durability and secondary markets on equilibrium firm behavior in the car market. We construct a dynamic oligopoly model of a differentiated product market to incorporate the equilibrium production dynamics that arise from the durability of the goods and their active trade in secondary markets. We derive an econometric model and estimate its parameters using data from the automobile industry over a 20-year period. Our estimates are used to provide a measure of the competitive importance of the secondary market.

This paper specifies and estimates a dynamic model of consumer preferences for new durable goods with persistent heterogeneous consumer tastes, rational expectations about future products and repeat purchases over time. Most new consumer durable goods, particularly consumer electronics, are characterized by relatively high initial prices followed by rapid declines in prices and improvements in quality. The evolving nature of product attributes suggests the importance of modeling dynamics in estimating consumer preferences. We estimate the model on the digital camcorder industry using a panel data set on prices, sales and characteristics. We find that dynamics are a very important determinant of consumer preferences and that estimated coefficients are more plausible than with traditional static models. We use the estimates to investigate the value of new consumer goods and intertemporal elasticities of demand.

The purpose of this paper is to present a framework for the empirical analysis of price and quality choice by a multiproduct monopolist. We do so by demonstrating that well-known techniques from the optimal screening literature used in the theoretical analysis of nonlinear pricing map naturally to the empirical analysis of differentiated product markets. We then apply a generalized one-dimensional screening model recently developed by Rochet and Stole (2001) to analyze price and quality choice for Basic cable television services. Consistent with the theory, our preliminary results suggest significant degradation in product quality relative to first-best levels. Furthermore, our results provide strong support for the nonlinear pricing model with random participation of Rochet and Stole (2001) over the classical model of monopoly quality choice of Mussa and Rosen (1978).

We study the relationship between market structure and innovation in the global automobile industry for the 1982-2004 period. We use the dynamic industry framework of Ericson and Pakes [1995] and estimate the parameters of the model using a two-step procedure proposed by Bajari et al. [2007]. Since the industry has seen a lot of consolidation since 1982, mergers are an important ingredient of our model. After estimating the parameters of the model, we simulate the industry forward and study how changing market structure (mainly due to mergers) affects innovative activity at the firm as well as at the industry level. Our findings are the following: (1) The effect of market structure on innovation in the global auto industry depends on the initial state. If the industry is not very concentrated, as it was in 1982, some consolidation may increase the innovative activity. However, if the industry is already concentrated, as in 2004, further consolidation may reduce the incentives to innovate. (2) Mergers reduce the value of merging firms though they may increase the aggregate value of the industry.

this paper, I present a simple theoretical model of the effect of leasing contracts on the household's decision to enter the automobile market. I use the observation that lease contracts are shorter loans with better collateral protection in order to incorporate credit constraints into the model. This model generates several intuitively appealing results. I test two of these results, as well as the assumption that credit constraints matter in the leasing decision. I find that lessees appear more credit constrained and acquire more expensive automobiles than households that purchase do. In other ways, they resemble new car purchasers. Section II below discusses some of the features of leasing contracts that may justify the use of a model of credit constraints. Section III presents the theoretical model and its conclusions. Section IV presents the empirical model, provides evidence that credit constraints do matter and tests some of the theoretical model's conclusions. Section V concludes the paper. #