Stanley S Reynolds

Interests

Research

Industrial Organization, Energy Economics, Environmental Economics, Experimental Economics

Teaching

Industrial Organization, Energy Economics, Competitive Strategy

Courses

Scholarly Contributions

Journals/Publications

• Reynolds, S. S., & Cullen, J. (2020). Market Dynamics and Investment in the Electricity Sector. International Journal of Industrial Organization, 89.
• Reynolds, S. S., & Genc, T. (2019). Who should own a renewable technology? Ownership theory and an application. International Journal of Industrial Organization, 63, 213-238.
• Reynolds, S. S., & Rietzke, D. (2018). Price Caps, Oligopoly, and Entry. Economic Theory, 66, 707-745.
• Reynolds, S. S., Gowrisankaran, G., & Samano, M. (2016). Intermittency and the Value of Renewable Energy. Journal of Political Economy, 124, 1187-1234.
• Brandts, J., Reynolds, S. S., & Schram, A. (2014). Pivotal Suppliers and Market Power in Experimental Supply Function Competition. Economic Journal, 124(579), 887-916.
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  Abstract: We use experiments to study market power with supply function competition, akin to the competition in electricity markets. Our treatments vary the distribution of demand levels as well as the amount and symmetry of the allocation of production capacity between different suppliers. We relate our results to a descriptive power index and to the predictions of two models: a supply function equilibrium (SFE) model and a multi-unit auction (MUA) model. Observed behaviour is consistent with the equilibria of the unrestricted SFE model and inconsistent with the unique equilibria of two refinements of the SFE model and of the MUA model. © 2013 The Author(s).
• Baker, E., Fowlie, M., Lemoine, D., & Reynolds, S. S. (2013). The economics of solar electricity. Annual Review of Resource Economics, 5, 387-426.
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  Abstract: The benefits and costs of increasing solar electricity generation depend on the scale of the increase and on the time frame over which it occurs. Short-run analyses focus on the cost-effectiveness of incremental increases in solar capacity, holding the rest of the power system fixed. Solar's variability adds value if its power occurs at high-demand times and displaces relatively carbon-intensive generation. Medium-run analyses consider the implications of nonincremental changes in solar capacity. The cost of each installation may fall through experience effects, but the cost of grid integration increases when solar requires ancillary services and fails to displace investment in other types of generation. Long-run analyses consider the role of solar in reaching twenty-first-century carbon targets. Solar's contribution depends on the representation of grid integration costs, on the availability of other low-carbon technologies, and on the potential for technological advances. By surveying analyses for different time horizons, this article begins to connect and integrate a fairly disjointed literature on the economics of solar energy. © 2013 by Annual Reviews.
• Genc, T. S., & Reynolds, S. S. (2011). Supply function equilibria with capacity constraints and pivotal suppliers. International Journal of Industrial Organization, 29(4), 432-442.
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  Abstract: The concept of a supply function equilibrium (SFE) has been widely used to model generators' bidding behavior and market power issues in wholesale electricity markets. Observers of electricity markets have noted how generation capacity constraints may contribute to market power of generation firms. If a generation firm's rivals are capacity constrained then the firm may be pivotal; that is, the firm could substantially raise the market price by unilaterally withholding output. However the SFE literature has not fully considered the impact of capacity constraints and pivotal firms on equilibrium predictions. We characterize the set of symmetric supply function equilibria for uniform-price auctions when firms are capacity constrained and show that this set is increasing as capacity per firm rises. We provide conditions under which asymmetric equilibria exist and characterize these equilibria. In addition, we compare results for uniform-price auctions to those for discriminatory auctions, and we compare our SFE predictions to equilibrium predictions of models in which bidders are constrained to bid on discrete units of output. © 2010 Elsevier B.V.All rights reserved.
• Reynolds, S. S., & Wooders, J. (2009). Auctions with a buy price. Economic Theory, 38(1), 9-39.
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  Abstract: eBay and Yahoo allow sellers to list their auctions with a buy price at which a bidder may purchase the item immediately. On eBay, the buy-now option disappears once a bid is placed, while on Yahoo the buy-now option remains in effect throughout the auction. We show that when bidders are risk averse, both types of auctions raise seller revenue for a wide range of buy prices. The Yahoo format raises more revenue than the eBay format when bidders have either CARA or DARA. Bidders with DARA prefer the eBay auction, while bidders with CARA are indifferent between the two. © 2006 Springer-Verlag.
• Genc, T. S., Reynolds, S. S., & Sen, S. (2007). Dynamic oligopolistic games under uncertainty: A stochastic programming approach. Journal of Economic Dynamics and Control, 31(1), 55-80.
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  Abstract: This paper studies several stochastic programming formulations of dynamic oligopolistic games under uncertainty. We argue that one of the models, namely games with probabilistic scenarios (GPS), provides an appropriate formulation. For such games, we show that symmetric players earn greater expected profits as demand volatility increases. This result suggests that even in an increasingly volatile market, players may have an incentive to participate in the market. The key to our approach is the so-called scenario formulation of stochastic programming. In addition to several modeling insights, we also discuss the application of GPS to the electricity market in Ontario, Canada. The examples presented in this paper illustrate that this approach can address dynamic games that are clearly out of reach for dynamic programming, a common approach in the literature on dynamic games. © 2006 Elsevier B.V. All rights reserved.
• Cason, T. N., & Reynolds, S. S. (2005). Bounded rationality in laboratory bargaining with asymmetric information. Economic Theory, 25(3), 553-574.
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  Abstract: This paper reports an experiment on two-player sequential bargaining with asymmetric information that features some forces present in multi-round monopoly pricing environments. Buyer-seller pairs play a series of bargaining games that last for either one or two rounds of offers. The treatment variable is the probability of continuing into a second round. Equilibrium predictions do a poor job of explaining levels of prices and treatment effects. As an alternative to the conventional equilibrium model, we consider models that allow for bounded rationality of subjects. The quantal response equilibrium model captures some of the important features of the results. © Springer-Verlag 2005.
• Wilson, B. J., & Reynolds, S. S. (2005). Market power and price movements over the business cycle. Journal of Industrial Economics, 53(2), 145-174.
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  Abstract: This paper develops and tests implications of an oligopoly-pricing model. The model predicts that during a demand expansion, the short run competitive price is a pure strategy Nash equilibrium but in a recession, firms set prices above the competitive price. Thus, price markups over the competitive price are countercyclical. Prices set during a recession are more variable than prices set in expansions because firms employ mixed strategy pricing in recessions. The empirical analysis utilizes Hamilton's time series switching regime filter to test the predictions of the model. Fourteen out of fifteen industries have fluctuations consistent with this oligopoly-pricing model. © Blackwell Publishing Ltd. 2005.
• Isaac, R., & Reynolds, S. S. (2002). Two or four firms: Does it matter?. Research in Experimental Economics, 9, 95-119.
• Reynolds, S. S. (2002). An experimental investigation of Coase's conjecture on durable-goods monopoly pricing. Research in Experimental Economics, 9, 139-163.
• Reynolds, S. S. (2001). Multi-period bargaining: Asymmetric information and risk aversion. Economics Letters, 72(3), 309-315.
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  Abstract: A two period bargaining model with asymmetric information is considered. An uninformed seller charges a uniform price to two buyers. A risk averse seller offers a larger price cut in period two when one buyer remains in the market than when two buyers remain. The price in period one is sensitive to the number of buyers and the seller's degree of risk aversion. The initial price charged to a single buyer may be higher or lower than the price charged to two buyers, depending on the degree of seller risk aversion. © Elsevier Science B.V.
• Rassenti, S., Reynolds, S. S., Smith, V. L., & Szidarovszky, F. (2000). Adaptation and convergence of behavior in repeated experimental Cournot games. Journal of Economic Behavior and Organization, 41(2), 117-146.
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  Abstract: This research examines results from laboratory experiments in which five human subjects participate as sellers in a Cournot oligopoly environment. The central issue is whether repeated play among a group of privately informed subjects will lead to convergence to a unique, static, noncooperative Nash equilibrium. The experiments were designed so that the implications of different hypotheses about adaptation and convergence, such as the best response dynamic and fictitious play, could be distinguished. The results provide, at best, only partial support for the hypothesis that behavior of privately informed subjects will converge to the static Nash equilibrium when play is repeated. Total output averaged over time periods and across experiments is greater than, but still close to, predicted equilibrium total output. However, observed intertemporal variation in total output and heterogeneity in individual choices are inconsistent with convergence to the static Nash equilibrium. © 2000 Elsevier Science B.V.
• Reynolds, S. S. (2000). Durable-goods monopoly: Laboratory market and bargaining experiments. RAND Journal of Economics, 31(2), 375-394.
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  Abstract: Results from single-period monopoly experiments (nondurable environment) are compared with results from multiperiod monopoly experiments that have features of a durable-goods environment. Average prices were below the static monopoly benchmark price in all settings. Observed initial prices were higher in multiperiod experiments than in single-period experiments, in contrast to equilibrium predictions. Prices in multiperiod experiments tended to fall over time; there was less price cutting in market experiments than in bargaining experiments. There was substantial demand withholding by buyers in multiperiod experiments. A version of bounded rationality is a promising candidate for explaining deviations from equilibrium predictions.
• Reynolds, S. S., & Wilson, B. J. (2000). Bertrand-Edgeworth Competition, Demand Uncertainty, and Asymmetric Outcomes. Journal of Economic Theory, 92(1), 122-141.
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  Abstract: We analyze investment and pricing incentives in a symmetric Bertrand- Edgeworth framework with uncertain demand. Firms choose production capacities before observing demand. Prices are chosen after demand is observed. If the extent of demand variation exceeds a threshold level then a symmetric equilibrium in pure strategies for capacities does not exist. A smaller firm has no incentive (ex ante) to expand its capacity because capacity expansion would reduce its expected revenue in the event that demand is lower than expected. Output prices are predicted to have positive variance when demand is low and zero variance when demand is high. Journal of Economic Literature Classification Numbers: D43, L13. © 2000 Academic Press.
• Rassenti, S. J., Reynolds, S. S., & Smit, V. L. (1994). Cotenancy and competition in an experimental auction market for natural gas pipeline networks. Economic Theory, 4(1), 41-65.
• Reynolds, S. S., & Dhaliwal, D. S. (1994). The Effect of the Default Risk on the Earnings Response Coefficient. The Accounting Review, 69, 412-419.
• Reynolds, S. S., Kruse, J. B., Rassenti, S., & Smith, V. L. (1994). Bertrand-Edgeworth Competition in Experimental Markets. Econometrica, 62(2), 343-371.
• Franciosi, R., Isaac, R., Pingry, D. E., & Reynolds, S. S. (1993). An Experimental Investigation of the Hahn-Noll Revenue Neutral Auction for Emissions Licenses. Journal of Environmental Economics and Management, 24(1), 1-24.
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  Abstract: This paper reports on three series of laboratory experiments designed to test the performance of the Hahn-Noll revenue neutral auction (RNA). An alternative institution, a no-rebate uniform price auction (UPA), is also examined as a benchmark. In these experiments, the RNA markets were little different from UPA markets in terms of either prices or market efficiencies. The two institutions did differ in terms of the distribution of the gains from exchange and of the propensity of bidders to engage in a certain type of overbidding. © 1993 Academic Press. All rights reserved.
• Isaac, R., & Reynolds, S. S. (1992). Schumpeterian competition in experimental markets. Journal of Economic Behavior and Organization, 17(1), 59-100.
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  Abstract: We report on a series of laboratory experiments that capture key elements of research and development (R&D) rivalry. The experimental environment has a small number of sellers who compete in terms of pricing and production decisions and in terms of cost-reducing R&D. Rewards for innovation depend on the profitability of product market competition. The experiments capture a kind of dynamic, Schumpeterian competition. There is a sharp contrast in experimental results between monopolies and four-seller (competitive) markets. Aggregate R&D is higher under competition than under monopoly and prices follow marginal cost reductions much more quickly under competition than under monopoly. The paper examines market performance in the experiments and the sources of market performance problems. © 1991.
• Reynolds, S. S., & Isaac, R. (1992). Stochastic innovation and product market organization. Economic Theory, 2(4), 525-545.
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  Abstract: This paper analyzes how different types of product market organization affect firms' R&D investments in a stochastic innovation framework. Product market competition determines payoffs to successful and unsuccessful firms. Restrictions on the research project success probability distribution are identified that yield an invariance result for expenditure per R&D project. The impact of the number of firms (n) on the amount of market R&D is shown to be sensitive to product market organization. For a major process innovation, firms undertake more R&D projects under Cournot product market competition than under Bertrand competition, for n sufficiently large. A numerical example is used to illustrate welfare tradeoffs. © 1992 Springer-Verlag.
• Reynolds, S. S. (1991). Dynamic oligopoly with capacity adjustment costs. Journal of Economic Dynamics and Control, 15(3), 491-514.
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  Abstract: The literature on strategic investment emphasized the case of completely irreversible investment. This paper considers an oligopoly model in which investment is reversible and capacity is subject to adjustment costs. An n-player, linear-quadratic differential game is analyzed. Existence and characterization results for perfect equilibrium feedback strategies are provided. Feedback strategies provide incentives for each player to invest strategically so as to preempt subsequent expansion by rivals. A larger set of perfect equilibria is constructed by using memory-dependent trigger strategies. Equilibria of this type are shown to support joint-value maximization (for some initial states) and asymmetric steady states. © 1991.
• Newcomb, R. T., Reynolds, S. S., & Masbruch, T. A. (1990). Changing patterns of investment decision making in world aluminum. Resources and Energy, 11(3), 261-297.
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  Abstract: A dynamic rational expectations model of production and investment under uncertainty reveals that conventional analysis of aluminum industry patterns of trade and investment may be based on industrial policy rather than competitive comparative advantages. When applied in a two-region model using data from 1952 to 1980, and projected forward from 1980 to 2000, new capacity investment occurs in North America, which exports the excess over domestic consumption to Europe. This result differs markedly from conventional forecasts which have predicted declines in North American investment. A five-region static model confirms that North American comparative advantages, largely Canadian, exist under free trade conditions, and capacities grow with demands in Latin America and the Pacific Basin, while Europe loses market share. This indicates that barriers to the free trade of product and subsidies may be distorting investment patterns, incorrectly implying that patterns in world aluminum investment will abandon developed areas, especially North America, for developing regions. © 1990.
• Reynolds, S. S. (1988). Plant closings and exit behaviour in declining industries. Economica, 55(220), 493-503.
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  Abstract: The plant closing and exit strategies of firms operating in a declining industry are examined. A dynamic, game-theoretic model is utilized. The perfectness criterion is used to restrict the set of Nash equilibria. There are two key equilibrium results. First, when firms have the same number of plants, high cost plants close before lower cost plants. Second, a larger firm (i.e. a firm operating more plants) begins closing plants before a smaller firm, as long as cost differences are not large. -Author
• Reynolds, S. S. (1987). Capacity Investment, Preemption and Commitment in an Infinite Horizon Model. International Economic Review, 28, 69-88.
• Reynolds, S. S. (1986). Strategic capital investment in the American aluminum industry.. Journal of Industrial Economics, 34(3), 225-245.
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  Abstract: A dominant firm equilibrium simulation is found to predict behavior of leading firms better than a Nash equilibrium. The remedy following Alcoa's monopolization conviction in 1945 is examined. Industry simulations involving a more competitive post-war market structure predict a small welfare gain.-from Author
• Chew, S. H., Mao, M. H., & Reynolds, S. S. (1984). Rotating credit collusion in repeated auctions with a single buyer and several sellers. Economics Letters, 16(1-2), 1-6.
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  Abstract: This note follows an earlier paper [Chew and Mao (1983)] which investigated the Nash equilibrium strategies in a repeated bidding institution called the rotating credit association. We study a parallel application of the rotating credit structure for tacit collusion among several sellers with a single agent buying an indivisible commodity from them at regular intervals via sealed-bid auctions. © 1984.
• Reynolds, S. (1982). Limit pricing, conjectural variation and entry. Economics Letters, 9(2), 195-199.
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  Abstract: The paper investigates the relationship of the degree of tacit collusion among existing sellers on industry price when a threat of entry exists. A general model is developed which allows comparison of two seemingly unrelated strands of the limit pricing literature. © 1982.