Essays in applied economics
This dissertation is made up of three studies that answer economic questions from industrial organization, macroeconomic trade, and natural resources. The first study analyzes the single monopoly profit theory, which states that, a monopolist of one good cannot leverage its monopoly power into a competitive complementary market by tying the sale of goods from the two markets. The first chapter introduces a scenario in which all assumptions of the single monopoly profit theory hold, but the monopolist is still able to increase profits and harm consumers by tying sales of the two goods. This study has major implications for antitrust law, as courts have trended toward the assumption that the single monopoly profit theory holds in most cases. This has led to a rule of reason assumption, in which the defendant (monopolist) is assumed to have no reason to tie sales of goods outside of potential cost efficiencies. Therefore, the burden of proof is on the plaintiff to show that there is substantial foreclosure in the tied good (competitive) market in order for the tie to be considered anticompetitive. However, the first study shows that tying can be anticompetitive even when there is no substantial foreclosure in the tied good market. The implications of the study are 1) that this rule of reason approach to tying cases should be reconsidered by courts considering the new evidence highlighted in this study, and 2) that the single monopoly profit theory should be adapted to include an additional assumption. Namely, that the monopolist cannot gain the ability to price discriminate by through the tied good market. The second study uses the macroeconomic open economy IS-LM model to analyze the effects of the US-China trade war on the US economy. The study is the first (to best of my knowledge) to incorporate tariffs into the open economy IS-LM (also known as the IS-LM-BP). The IS-LM-BP was chosen for three reasons. First, to stray from the prevailing norm of previous studies which have used computable general equilibrium models to analyze the effects of the US-China trade war. Second, to use the intuitive structural form of the IS-LM-BP model to follow the macroeconomic effects (both direct and indirect) of the US-China trade dispute. Third, to provide evidence for or against the belief that the IS-LM has become antiquated in terms of empirical analysis. The theoretical model developed for this study shows that a free floating exchange rate will adjust to perfectly offset an ad valorem tariff, which will leave domestic GDP and interest rate unchanged. However, this is only possible because theoretical model treats the foreign sector as one country. In the empirical analysis the exchange rate cannot be assumed to be free floating because the foreign sector is made up of many countries, and the value of the US dollar cannot adjust to offset trade barriers imposed by just one country within the foreign sector. In other words, an increase in tariffs from only one of these countries (China) would not be offset by an adjustment in the exchange rate. The study uses the two-stage least squares method of instrumental variable analysis to conduct the limited information estimation of the simultaneous equation IS-LM-BP model. The results find that, ceteris paribus, the US-China trade war reduced US GDP by 0.175%. This drop is roughly 10% of the total US GDP loss during the 2007/8 recession. The final study determines the socially optimal resource allocation of the Amazon rain forest using a dynamic optimization renewable resource model. The study includes the benefits and costs of harvesting the Amazon, as well as the the social value of the Amazon, i.e., climate change mitigation, biodiversity, water retention, and future medicinal benefits. The study includes a baseline model that does not include the social value of the Amazon to determine the optimal harvest policy when the social value is not considered. The study includes three additional models, all of which include the social value of the Amazon, but with differing functional forms for the social value function and the growth function. The baseline model found that the steady state equilibrium harvest rate ranged from 816,502.96 to 4,731,950.00 hectares, and the steady state equilibrium stock level ranged from 25,967,594.53 to 283,081,950.00 hectares, depending on the discount rate and annual regrowth. The remaining three models each found that the social value of the Amazon exceeds the harvest value, and that the optimal policy is to cease harvesting and replenish the stock of Amazon rain forest to the maximum capacity. However, each of the final three models required restrictive assumptions that may be the cause of this result. Consequently, the true optimal is likely a stock level and harvest rate somewhere between the results of the first model and the final three models.Embargo status: Restricted until 06/2023. To request the author grant access, click on the PDF link to the left.