In this paper the effects of advertising restrictions in an industry producing an undifferentiated product are analyzed. When the product is undifferentiated, advertising conveys information about price. The standard intuition suggests that such prohibitions will raise buyer search costs, making demand less elastic. This raises price and profits in an industry. Advertising restrictions provide an indirect means of coordinating pricing strategies in this framework. Here we consider the cost side of the same argument. The efficiency of firms in an industry is allowed to vary and information about costs is private. In this environment efficient firms are hurt by advertising restrictions, since lower advertised prices constitute their most effective competitive weapon. We show that when the number of buyers and sellers is finite, there is a nonzero probability that advertising restrictions will reduce every firm's price. This occurs when all firms are more efficient than their competitors expect them to be. Further, when the number of buyers and sellers is infinite, it is possible that average price charged in an industry can fall after a ban on advertising.

A competitive economy is studied in which sellers offer alternative direct mechanisms to buyers who have correlated private information about their valuations. In contrast to the monopoly case where sellers charge entry fees and extract all buyers' surplus, it is shown that in the unique symmetric equilibrium with competition, sellers hold second price auctions with reserve prices set equal to their cost. Most important, it is a best reply for sellers not to charge entry fees of the kind normally used to extract surplus, even though it is feasible for them to do so.

In this paper a competitive distribution of auctions is described for an economy consisting of an infinite number of buyers and sellers, all of whom differ according to their valuation for the single indivisible object being traded. A competitive distribution of auctions is such that no seller can improve his profits by deviating to any alternative direct mechanism. It is shown that the competitive distribution of auctions will have the property that each buyer and seller's best reply is independent of his beliefs about the tastes of other buyers and sellers on the market.

This paper explores two models of an economy in which contracts are exchanged. In the first model contracts are exchanged on a competitive market in which traders expectations concerning conditions that prevail within specific markets adjust until markets "clear" In the second model contract designers compete directly against one another by offering alternate contracts. It is shown that Walrasian allocations correspond with the equilibrium allocations in the model with direct competition when the number of traders is made large. Furthermore, the expectational assumptions that drive the Walrasian analysis coincide with off the equilibrium path conjectures in the problem with direct competition.

A model is studied where firms advertise prices and buyers play a noncooperative search game in an attempt to secure output from firms at the advertised prices. Firms face rising marginal costs and may not be willing to supply everything demanded at their price if they wind up with many buyers. It is shown that rationing will occur in equilibrium no matter how averse buyers are to this possibility. The result is specialised to a case where rationing occurs with probability one. The equilibrium price and outputs are characterised for this case.

Virtually all theories of economic growth predict a positive relationship between population size and productivity. In this paper, I study a particular historical episode to provide direct evidence for the empirical relevance of such scale effects. In the aftermath of the Second World War, 8 million ethnic Germans were expelled from their domiciles in Eastern Europe and transferred to West Germany. This inflow increased the German population by almost 20%. Using variation across counties, I show that the settlement of refugees had large and persistent effects on the size of the local population, manufacturing employment, and income per capita. These findings are quantitatively consistent with an idea‐based model of spatial growth if population mobility is subject to frictions and productivity spillovers occur locally. The estimated model implies that the refugee settlement increased aggregate income per capita by about 12% after 25 years and triggered a process of industrialization in rural areas.

Markups vary systematically across firms and are a source of misallocation. This paper develops a tractable model of firm dynamics where firms' market power is endogenous and the distribution of markups emerges as an equilibrium outcome. Monopoly power is the result of a process of forward‐looking, risky accumulation: firms invest in productivity growth to increase markups in their existing products but are stochastically replaced by more efficient competitors. Creative destruction therefore has pro‐competitive effects because faster churn gives firms less time to accumulate market power. In an application to firm‐level data from Indonesia, the model predicts that, relative to the United States, misallocation is more severe and firms are substantially smaller. To explain these patterns, the model suggests an important role for frictions that prevent existing firms from entering new markets. Differences in entry costs for new firms are less important.

This paper provides a directed search model designed to explain the residual part of wage variation left over after the impact of education and other observable worker characteristics have been removed. Workers have private information about their characteristics at the time they apply for jobs. Firms value these characteristics differently and can observe them once workers apply. They hire the worker they most prefer. However, the characteristics are not contractible, so firms cannot condition their wages on them. This paper shows how to extend arguments from directed search to handle this, allowing for arbitrary distributions of worker and firm types. The model is used to provide a functional relationship that ties together the wage distribution and the wage–duration function. This relationship provides a testable implication of the model. This relationship suggests a common property of wage distributions that guarantees that workers who leave unemployment at the highest wages also have the shortest unemployment duration. This is in strict contrast to the usual (and somewhat implausible) directed search story in which high wages are always accompanied by higher probability of unemployment.

In the common agency problem multiple mechanism designers simultaneously attempt to control the behavior of a single privately informed agent.The paper shows that the allocations associated with equilibria relative to any ad hoc set of feasible mechanisms can be reproduced as equilibria relative to (some subset of) the set of menus.Furthermore, equilibria relative to the set of menus are weakly robust in the sense that it is possible to ¯nd continuation equilibria so that the equilibrium allocations persist even when the set of feasible mechanisms is enlarged.

A matching problem is considered in which sellers can publicly commit to a trading price that differs from the price at which buyers expect to trade elsewhere in the market. When demand and supply are nearly equal, the equilibrium ex ante price offer lies below the price associated with the Nash bargaining split. This relationship reverses when the level of excess demand is large. Sellers always have an incentive to make ex ante offers when prices elsewhere are determined by Nash bargaining. This can be interpreted to mean that Nash bargaining is an unstable pricing institution. Copyright 1991 by The Econometric Society.