Upload
wolfgang-schiller
View
107
Download
1
Embed Size (px)
Citation preview
Theorie und Politik der Europäischen Integration
Timo BaasProf. Dr. Herbert Brücker
Lecture 6
Market Size and Scale Effects
Theory and Politics of European Integration
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Last Lecture
• Preferential Trade Liberalisation· The PTA Diagram
– Free Trade Equilibrium– MFN Tariff Equilbrium– Unilateral Trade Discrimination– Supply Switches– Welfare Effects
· Empiry: Is Trade Diversion an Issue?· Welfare Effects of a Customs Union· Customs Union vs. Free Trade Area· WTO Rules and Customs Union/Free Trade Areas
– Art. 24 WTO
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Today's Lecture - Overview
• Market Size and Scale Effects
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Today's Reading
• Market Size and Scale Effects· Baldwin & Wyplosz (2006) “The Economics of European
Integration”, McGraw-Hill, Ch 6.
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Market Size Matters
• European leaders always viewed integration as compensating small size of European nations.• Implicit assumption: market size good for economic
performance.
• Facts: integration associated with mergers, acquisitions, etc.• In Europe and more generally, ‘globalisation.’
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Facts
• M&A activity is high in EU.• much M&A is mergers within one member state
• about 55% ‘domestic’;• remaining 45% split between:
· one is non-EU firm (24%), · one firm was located in another EU nation (15%),· counterparty’s nationality was not identified (6%).
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Facts
Distribution of M&A quite varied:• Big 4: share M&As much lower than share of the EU GDP.• I, F, D 36% of the M&As, 59% GDP.
· Except UK.• Small members have disproportionate share of M&A.
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Facts
M&A activity by nation, 1991-2002
B, 2.8%
DK, 2.6%
EL, 1.1%
E, 5.0%F, 13.5%
IRL, 1.7%
I, 6.2%
L, 0.5%NL, 6.5%
A, 2.1%
P, 1.2%
FIN, 3.9%
S, 5.3%
UK, 31.4%
D, 16.3%
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Facts
• Why M&A mostly within EU?• Why UK’s share so large?• Non harmonised takeovers rules.
· some members have very restrictive takeover practices, makes M&As very difficult.
· others, UK, very liberal rules.
• Lack of harmonisation means restructuring effects very impact by member states.
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Sketch of economic logic
• liberalisation • de-fragmentation • pro-competitive effect • industrial restructuring (M&A, etc.) • RESULT: fewer, bigger, more efficient firms
facing more effective competition from each other.
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Sketch of economic logic
• liberalisation • de-fragmentation • pro-competitive effect • industrial restructuring (M&A, etc.) • RESULT: fewer, bigger, more efficient firms
facing more effective competition from each other.
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Economic logic (background): Monopoly case
Sales
Price
MarginalCost
Marginal RevenueCurve
DemandCurve
Sales
Price
Q’+1
P”
MarginalCost Curve
C E
D
DemandCurve
A
B
Q*Q’
P*
P’
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Duopoly case, example of non-equilbrium
Residual Demand Curve firm 2 (RD2)
Firm 2’s expectation of sales by firm 1, Q1
DemandCurve (D)
MC
Residual Marginal Revenue Curve firm 2 (RMR2)
x2’
p2’
Firm 2 sales
Residual Demand Curve firm 1 (RD1)
Firm 1’s expectation of sales by firm 2, Q2
DemandCurve (D)
price
MC
Residual Marginal Revenue Curve firm 1 (RMR1)
x1’
p1’
Firm 1 sales
A1 A2
price
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Duopoly and oligopoly case, equilbrium outcome
RD’
D
MC
x**
p**
sales
A
price
RMR’
3x**Oligopoly
RD
Typical firm’s expectation of the other firm’s sales
D
MC
x*
p*
sales
A
price
RMR
2x*
Duopoly
Typical firm’s expectation of other the other firms’ sales
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Breakeven-Competion (BE-COMP) Diagram
Mark-up ()
COMPcurve
BE (break-even) curve
’
n’
mono
duo
n=1 n=2 Number of firms
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Details of COMP curve
Marginal cost curve
Typical firm’s sales
price
p"
Monopoly mark-up
Duopoly mark-up
D
R-D (duopoly)
xmonoxduo
MR (monopoly)R-MR
MC
p'
AB
A’
B’
COMPcurve
n=1 n=2
mono
duo
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Details of BE curve
Sales per firm
AC
price
Totalsales
Co
Demand curve
Mark-up (i.e., p-MC)
o
xo= Co/no
MC
euros
BE
no
poo+MC
x’= Co/n’ x”= Co/n”
A
B
B Apo
ACo=po
n” n’
Home market
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
No-trade-to-free-trade integration
Sales per firm
AC
price
Totalsales
Demand curve
Mark-upeuros
x’
BE
2n’
x”
n” n’
E’
E”
C’ C”
E’
A
1
E”
A
MC
p”
p’
pA
'
A
p”
p’
Home market only
E”
E’
C
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Economic logic
• Integration: no-trade-to-free-trade: BE curve shifts out (to point 1).
• Defragmentation:• PRE typical firm has 100% sales at home, 0% abroad;
POST: 50-50 ,• Can’t see in diagram.
• Pro-competitive effect: • Equilibrium moves from E’ to A: Firms losing money (below BE).• Pro-competitive effect = markup falls.• short-run price impact p’ to pA.
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Economic logic (cont.)
Industrial Restructuring:
• A to E”,• number of firms, 2n’ to n”. • firms enlarge market shares and output, • More efficient firms, AC falls from p’ to p”, • mark-up rises, • profitability is restored.
Result:
• bigger, fewer, more efficient firms facing more effective competition.
Welfare: gain is “C”.
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
Competition and subsidies
Two immediate questions:
• “As the number of firms falls, isn’t there a tendency for the remaining firms to collude in order to keep prices high?”
• “Since industrial restructuring can be politically painful, isn’t there a danger that governments will try to keep money-losing firms in business via subsidies and other policies?”
The answer to both questions is “Yes”. • See Chapter 11, 2nd Edition.
Theory and Politics of European Integration Lecture 5 Preferential Trade Liberalisation
Prof. Dr. Herbert BrückerLehrstuhl für Volkswirtschaftslehre, insbesondere Integration Europäischer ArbeitsmärkteUniversität Bamberg | [email protected] | www.uni-bamberg.de/sowi/bruecker
NEXT LECTURE
• November 27