Three essays on industrial economics

This dissertation is a contribution to the analysis of the firms' strategic behavior in an imperfectly competitive market. In particular, I address three issues: (1) how an importing country's countervailing duties are related to foreign export subsidies when switching costs are present; (2) how regulatory re-contracting affects vertically integrated firms' behavior and consumer welfare; and (3) how tighter price cap regulation affects pricing incentives of the regulated firm and welfare with different demand relationships.; The introduction presents an overview of the issues concerning the strategic behavior of firms under imperfect competition, and then discusses the objectives of the study. Essay I uses a switching cost approach to examine countervailing duties in reaction to export subsidies in a two-period model of international duopoly. It is shown that the amount of countervailing tariffs increases with switching costs. Thus, in a market with large switching costs, the optimal countervailing duties may exceed foreign subsidies. Essay II analyzes how regulatory re-contracting affects vertically integrated firms' behavior and consumer welfare. This essay uses a two-period dynamic model to examine how vertically integrated local exchange carriers (LECs) respond to the prospect of re-contracting on the part of the regulatory authority. The analysis suggests that under quite general conditions, the threat of re-contracting reduces the vertically-integrated firms' output and profit and increases their incentive to discriminate against their downstream market rivals, which, in turn, reduces consumer surplus and social welfare. Essay III introduces demand relationships to analyze welfare effects of tighter price cap regulation. This essay uses both theoretical and numerical methods to analyze how tighter price cap regulation affects the pricing incentives of the regulated firm, consumer surplus and total welfare. The analysis shows that the consequences of tighter price cap regulation depend crucially on the types of demand relationships and the degree of cross elasticities. The main conclusion is that tightening the price cap can make both firms and consumers worse off when demands are complementary. Hence, policy makers should not automatically assume that a tighter price cap constraint benefits consumers.