The relationship between industry structure and product variety is of interest to economists, in large measure due to the explorations of Edward Chamberlin (1933), who developed the pioneering theory of monopolistic competition. Continued interest in the relationship between industry structure and product variety has lead to other notable contributions from Lancaster (1979), Spence (1976), Scherer (1979), Eaton and Lipsey (1975), Schmalensee (1978), Dixit and Stiglitz (1977), and Koenker and Perry (1981) among others. Despite the progress that has been made in this general theoretical development, important theoretical gaps remain. For example, Lancaster (1987) notes that, "If the market structure is that of a single multi-product firm, the degree of variety offered will always be less than it would be under monopolistic competition. No clear results are available for an industry composed of a few multiproduct firms, although this is a very important real case" (p. 989). As Lancaster implies, studies of industries composed of a few multi-product firms may yield some useful insights into the relationship between market structure and product variety.
In this paper, I explore the effects of oligopolistic industry structure on product diversity and variety, taking the music recording industry as a case study. A central focus of the paper is to explore how the product release behavior of multi-product, oligopolistic firms affects the aggregate number of new products issued.i Oligopoly models are the appropriate focus, since a small handful of firms dominates the music recording industry. In Section Four of this paper, I develop a simple Cournot-type quantity model (where quantity is the number of new releases) to show that the aggregate number of new products issued in the industry is in part contingent on whether the firms act independently with respect to release behavior, or apportion the market among themselves in some fashion.
Financial liberalization allows market forces to determine the allocation of capital. Models of perfect markets suggest that domestic financial liberalization and international financial liberalization have welfare and efficiency enhancing effects. Thus, prior to the East Asian financial crisis, economists broadly concurred that financial liberalization is desirable. However, the collapse of the “miracle” economies in Thailand, Indonesia and South Korea during the 1997 East Asian financial crisis motivated policymakers and academic scholars to question the indiscriminate advocacy of financial liberalization. During the 1997 crisis, the liberalized economies in Thailand, Indonesia and South Korea experienced sharp recessions and sudden withdrawals of international capital flows, while both China and India, with protected financial economies, emerged unscathed. The crisis raised somber questions on the benefits of financial liberalization and compelled economists to be more circumspect and modify their stance.
Some now argue that a significant cause of financial crises such as the East Asian crisis is the unprecedented emergence of financial liberalization among many developing countries since the 1980s (Tornell, Westermann, Martinez, 2004). Financial liberalization creates scope for innovation and enhances the mobility of risk, but the increasing complexity of financial instruments and risk transfers have also made it more challenging for market participants, supervisors and policy makers to track the development of risks within the financial system and over time. In addition, capital account liberalization may be welfare-enhancing only when there are no serious imperfections in the information and contracting environment (Eichengreen, 2001). As a consequence, some prominent economists such as Rodrik (1998), Krugman (1999) and Stiglitz (2003) have advocated limits on capital flows to moderate irrationally exuberant investors and the erratic boom-bust patterns in financial markets. Yet, while economists continue to caution against rash, premature financial liberalization, they maintain that financial liberalization is advantageous for long term economic growth. However, they recommend that countries develop a sound regulatory structure, legal system and social safety net, prior to financial liberalization.
According to the traditional theory, an exchange rate depreciation usually implies a real currency depreciation which increases the volume of exports. At least four conditions have to be verified for this effect to be observed: (1) The depreciation is not transmitted to domestic prices, (2) export prices are set in the exporter’s currency, (3) the foreign demand is sufficiently elastic (Marshall-Lerner condition), and (4) exporter’s supply is sufficiently elastic too.
This paper does not study the existence of those conditions, since previous studies have shown that they are likely to be observed. Nevertheless, several recent papers have underlined the non systematic character of the existence of J-Curve or competitiveness effect. Duttagupta and Spilimbergo (2004) study the Asian 1997-1998 currency crises and show that exports did not increase during this period. More generally, recent crises events (Argentina and Uruguay, 2002, Brazil 1999) underline this lack of reaction of exports to exchange rate shocks. Our study attempts to explain these stylized facts by studying the existing interactions between financial imperfections, exchange rate movements and the volume of exports. We show that, even if the four previous conditions are verified, a depreciation will have a less positive - or even a negative impact on exports, if financial market imperfections are present in the economy. Moreover, we also show that countries’ specialization and the depreciation’s magnitude may have to be taken into account to explain why the traditional competitiveness effect is not always observed.
