In recent years, the "leverage theory" of tied good sales has faced heavy and influential criticism. In an important sense, though, the models used by its critics are actually incapable of addressing the leverage theory's central concerns. Here I reconsider the leverage hypothesis and argue that tying can indeed serve as a mechanism for leveraging market power. The mechanism through which this leverage occurs, its profitability, and its welfare implications are discussed in detail.
The randomly assigned risk of induction generated by the draft lottery is used to construct estimates of the effect of veteran status on civilian earnings. These estimates are not biased by the fact that certain types of men are more likely than others to service in the military. Social Security administrative records indicate that, in the early 1980s, long after their service in Vietnam had ended, the earnings of white veterans were approximately 15 percent less than the earnings of comparable nonveterans.
In On the Basing-Point System, Bruce Benson, Melvin Greenhut, and George Norman (1990)1 properly correct a misunderstanding by Jacques Thisse and Xavier Vives (1988)2 concerning my 1982 paper on basing-point prices. But BGN then take exception with several of the conclusions I had reached, or that they thought I had reached. Although I have insufficient space to deal with all the points they raise, I will address the most important ones. In 1981 most economists believed that a model of profit-maximizing basing-point pricing would have to assume collusion. My model, as BGN seem to agree, showed that it need not; atomistic competition at one production site accompanied by local monpolies elsewhere may lead to basing-point pricing and freight absorption without collusion.3 Conversely, TV showed that the practice as observed empirically will not arise if all production sites contain noncooperative local monopolies. BGN establish yet another important theoretical result-noncooperative oligopoly at one site could generate the f.o.b. prices (or f.o.b. plus transport) that, in my model, led local monopolies elsewhere to adopt freight-absorbing basing-point prices. The three models would seem to be complements. I. A Paradox
The value of the dollar appears to move in one direction for long periods of time. We develop a new statistical model of exchange rate dynamics as a sequence of stochastic, segmented time trends. We reject the null hypothesis that exchange rates follow a random walk in favor of our model of long swings. Our model also generates better forecasts than a random walk. The specification is a natural framework for assessing the importance of the "peso problem" for the dollar. We nonetheless reject uncovered interest parity.