A well-known theory (Lazear, 1979) argues that wage patterns in which younger workers are underpaid relative to marginal revenue product and older workers are overpaid relative to marginal revenue product can be understood as an implicit contract designed to combat principal-agent problems in environments where worker monitoring is costly. In this paper I argue that a number of recent developments (most notably the legal ban on mandatory retirement) have caused the formation of these implicit contracts between firms and young workers to decline (or cease). I derive testable implications of...

Critical loss analysis is often used to argue that firms with large margins have more to lose from a reduction in sales and hence are less likely to increase prices. This argument ignores the fact that profit-maximizing competitors who do not coordinate their pricing only have large margins if their customers are not very price sensitive. In this paper, we explore the implications of critical loss analysis using an internally consistent model of oligopoly. We show that, under the assumptions made in the standard critical loss analysis, firms with larger pre-merger margins are more likely to...

With competition in telecommunications markets a carrier relies on competing networks to complete inter-network calls originated by its customers. Regulators typically require the calling party's network to pay a termination fee to the called party's network equal to the terminating network's "incremental cost" of completing the call. The payments for such "termination services" could affect retail prices and therefore consumption of telecommunications services. I show that when both parties to a call benefit from it, they should bear the costs of the call in proportion to the value that they...

Intellectual property protection affects the manner in which multinational enterprises facilitate technology transfer from the innovating North to the developing South. Firms with products that are complex or technologically sophisticated will tend to internalize production through foreign direct investment. Firms that face a lower risk of imitation, or are less technically advanced, will tend to license production to non-affiliated Southern firms. Changes in intellectual property protection affect the level and the composition of technology transfer, depending on the value of the firm's...

This book presents the findings of research on the relationship between price and quality in consumer service industries in the Washington, D.C. area. The book relies primarily upon consumer ratings of service provider quality and other data published in Washington Consumer's Checkbook Magazine. The data base includes nineteen service industries and, in virtually all cases, time series information for price and quality ratings over several ratings periods since the magazine's inception in 1976. The results provide interesting and frequently surprising information on basic price-quality...

This book analyzes the use of two important human resource practices (self-managed work teams and formal training programs) in U.S. manufacturing. These practices are often used in conjunction with each other and their use is associated with improved firm performance, thus the term "high performance work systems." The results of this book raise concerns about the interpretation of studies that show a relationship between the use of particular systems of practices and higher performance but do not account for selection of practices by the firm. The book uses a theoretical model to analyze the...

The past decade has witnessed remarkable developments in the quantitative analysis of horizontal mergers. Increases in computing power and the quantity and quality of data available have substantially reduced the costs of estimating demand systems using econometric methods. Good estimates of retail demand elasticities can make an important contribution to assessing the potential effects of a manufacturer merger on consumer prices. While estimates of demand relationships can make substantial contributions to merger analysis, it is much like every other area of empirical economics, in that...

This book examines the welfare effects of third degree price discrimination by an intermediate good monopolist selling to downstream firms with bargaining power. One of the downstream firms (the "chain store") may have a greater ability than rivals to integrate backward into the supply of the input. In addition to this outside option, the firms' relative bargaining powers depend on their disagreement profits, bargaining weights, and concession costs. If the chain's integration threat is not a credible outside option, and if downstream firms cannot coordinate their bargaining strategies, then...

The federal trade commission uses the experimental method to compare second-price auctions to "verifiable" multilateral negotiations in which the sole buyer can credibly reveal to sellers the best price offer it currently holds. The federal trade commission finds that transaction prices are lo the federal trade commission are in verifiable multilateral negotiations than in second-price auctions, despite the two institutions' seeming equivalence. The difference occurs because low-cost sellers in the negotiations tend to submit initial offers that are less than the second-lo the federal trade...

This book shows that an upstream monopolist that sells to competing downstream firms can profitably use exclusive contracts to deter entry even where scale economies are absent. By offering downstream firms a discount if they sign an exclusive contract covering later periods, the incumbent monopolist can often place each downstream firm in a prisoner's dilemma. Because a downstream firm that refuses to sign the exclusive contract loses profit to downstream firms that sign the exclusive contract, downstream firms will sign exclusive contracts even when, over the long-term, they would obtain...