information transmission cournot and bertrand equilibria we examine how incentives for two duopolists to honestly share information change depending upon the nature of competition cournot or bertrand and the nature of the information structure while in earlier papers uncertainty is about an unknown common demand intercept in the present paper uncertainty is about unknown private costs the different information structure reverses the incentives to share information while with unknown common demand sharing is a dominant strategy with bertrand competition and concealing is a dominant strategy with cournot competition with unknown private costs sharing is a dominant strategy with cournot competition and concealing is a dominant strategy with bertrand competition

referenda under oath herein we explore whether a solemn oath can eliminate hypothetical bias in a voting referenda a popular elicitation mechanism promoted in non market valuation exercises for its incentive compatibility properties first we reject the null hypothesis that a hypothetical bias does not exist second we observe that people who sign an oath are significantly less likely to vote for the public good in a hypothetical referenda we complement this evidence with a self reported measure of honesty which confirms that the oath increases truthfulness in answers this result opens interesting avenues for improving the elicitation of preferences in the lab and beyond

induced value tests of the referendum voting mechanism abstract an induced value laboratory experiment is conducted testing the incentive compatibility of the referendum voting mechanism for eliciting willingness to pay for public goods although errors were observed at the individual level aggregate results suggest incentive compatibility in both hypothetical and real referenda

the economics of takings and compensation when land and its public use value are in private hands before governments can take private property property owners can often alter the public use value this article models this capability and studies its implicationsf or takings compensation tying compensation to private land values generally does not prompt efficient land use practices tying compensation to land s public use value prompts efficient landowner behavior but at a high budgetary cost to the government when there are deadweight costs of government funds efficient regimes deliver land use incentives at minimum budgetary cost negligence compensation does so by affording landowners positive compensation only if they act efficiently to protect their property s public use value

bridging the gap between the field and the lab environmental goods policy maker input and consequentiality abstract this paper explores the criterion validity of stated preference methods through experimental referenda that capture key characteristics of a stated preference survey for a proposed environmental program in particular we investigate whether advisory referenda where participant votes have either known or unknown weight in the policy decision can elicit values comparable to that of a standard incentive compatible referendum when participants regard their votes as consequential our results suggest there is no elicitation bias with advisory referenda for advisory referenda where participants view their votes as inconsequential and for purely hypothetical referenda we observe elicitation bias

of birds and books more on hypothetical referenda recently cummings et al 1997 have reported a test of whether a hypothetical referendum using a majority rule is incentive compatible motivated in part by the national oceanic and atmospheric administration s noaa initially proposed rules for using contingent valuation in natural resource damage assessments these authors conclude that results from our experiments which involve a relatively simple good that is valued in a simple and controlled setting suggest that this hypothesis the incentive compatibility of a hypothetical referendum using majority rule be rejected p 619 this note questions the relevance of the authors results for the recommendations in the noaa rules and in the process identifies the general difficulties posed in measuring the amount of a public good 1 the noaa rules for contingent valuation were proposed by a distinguished panel of social scientists including two nobel laureates in economics kenneth arrow and robert solow arrow et al 1993 the guidelines were intended to enhance the reliability of contingent valuation estimates of willingness to pay for restoring injured natural resources as part of damage assessments required by the comprehensive environmental response compensation and

capital budgets borrowing rules and state capital spending abstract this paper compares the level and composition of government spending in u s states that maintain separate budgets for capital and operating expenditures with that in states that employ unified budgets it also investigates the effects of pay as you go financing rules for capital projects the empirical findings suggest that states with separate capital budgets spend more on public capital projects than comparable states with unified budgets there is no evidence that the presence or absence of a capital budget affects the level of non capital spending pay as you go requirements for financing capital projects are associated with lower levels of both capital and non capital spending

pricing and the news vendor problem a review with extensions in the newsvendor problem a decision maker facing random demand for a perishable product decides how much of it to stock for a single selling period this simple problem with its intuitively appealing solution is a crucial building block of stochastic inventory theory which comprises a vast literature focusing on operational efficiency typically in this literature market parameters such as demand and selling price are exogenous however incorporating these factors into the mode l can provide an excellent vehicle for examining how operational problems interact with marketing issues to influence decision making at the firm level in this paper we examine an extension of the newsvendor problem in which stocking quantity and selling price are set simultaneously we provide a comprehensive review that synthesizes existing results for the single period problem and develop additional results to enrich the existing knowledge base we also review and develop insight into a dynamic inventory extension of this problem and motivate the applicability of such models

government policy and the firm s capital structure abstract the purpose of this paper is to examine the effects of commonly observed forms of government intervention on the firm s capital structure we show that since market claims against the firm are always properly priced the firm is forced to take market claimants interests into account on the other hand since government claims are usually not adjusted for risk the firm can take advantage of the government it does so by choosing strategies that extract maximum value minimum cost from these policies in particular the firm uses its capital capital structure to maximize the value of the policy thus leading to a determinate capital strucure

economic development institutional change and the political economy of agricultural protection an econometric study of belgium since the 19th century this empirical study uses 100 years of annual data on 11 agricultural commodities from belgium to measure the impact of structural changes coinciding with economic development and changes in political institutions on agricultural protection the analysis shows that changes in agricultural protection are caused by a combination of factors governments have increased protection and support to farmers when world market prices for their commodities fell and vice versa offsetting market effects on producer incomes other economic determinants were the share of the commodities in total consumer expenditures negative effect and in total output of the economy positive effect with belgium a small economy there was no impact of the trade position changes in political institutions have affected agricultural protection democratic reforms which induced a significant shift in the political balance towards agricultural interests such as the introduction of the one man one vote system led to an increase in agricultural protection the integration of belgian agricultural policies in the common agricultural policy in 1968 coincided with an increase in protection ceteris paribus both institutional factors related to changes in access to and information about the decision making at the eu level and structural changes in the agricultural and food economy may explain this effect

the strategic peril of information sharing in a vertical nash supply chain a note abstract conventional wisdom suggests that information sharing benefits at least one of the participants however we find that information sharing can be strategically detrimental to both members in a vertical nash supply chain comparative statics show that each supply chain member s beneficial areas are smaller when its information source becomes more variable and larger as its signal is less accurate furthermore the pareto inferior areas in which both supply chain members get worse are non monotonic in exogenous parameters

a learning design for reducing hypothetical bias in the contingent valuation method over the last few years a great deal of research has focussed on hypothetical bias in value estimates obtained with the contingent valuation cv method and on means for ameliorating if not eliminating such bias to date efforts to eliminate hypothetical bias have relied on calibration techniques or on word smithing of one kind or another to induce subjects to provide responses to hypothetical questions that mimic responses made by subjects facing actual payments in the valuation experiment this paper introduces a different approach for eliminating hypothetical bias a design for a cv survey format is presented which provides subjects with the opportunity to learn how the cv institution works sequential referenda are conducted where respondents gain experience in cv settings by participating in both hypothetical and real referenda the logic of this learning design is a straightforward application of the trials process used in experimental economics we demonstrate that the learning design is effective in eliminating hypothetical bias in surveys concerning donations to two different public goods

dollar vs percentage markup pricing schemes under a dominant retailer abstract we investigate two very common pricing schemes for a stackelberg dominant retailer percentage markup and dollar markup we show that when a dominant retailer switches from dollar to percentage markup the channel s overall pie and the retailer s pie piece are both enlarged in contrast the manufacturer will be forced to levy a lower wholesale price thus receiving a smaller pie piece despite the larger pie the preceding statements hold regardless of whether the demand is deterministic or stochastic however the effects of switching to percentage markup on the retail price and sales volume will depend not only on whether the demand is stochastic but also on the assumed demand curve shape and on whether demand stochasticity is additive or multiplicative besides presenting a comprehensive set of answers on the comparative performance of dollar and percentagemarkups our results also highlight the often overlooked importance of choosing between i dollar and percentage markup and ii the formats of the assumed stochasticity and demand curves

managing channel profits a channel of distribution consists of different channel members each having his own decision variables however each channel member s decisions do affect the other channel members profits and as a consequence actions a lack of coordination of these decisions can lead to undesirable consequences for example in the simple manufacturer retailer consumer channel uncoordinated and independent channel members decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated in addition the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer this paper explores the problems inherent in channel coordination we address the following questions what is the effect of channel coordination what causes a lack of coordination in the channel how difficult is it to achieve channel coordination what mechanisms exist which can achieve channel coordination what are the strengths and weaknesses of these mechanism what is the role of nonprice variables e g manufacturer advertising retailer shelf space in coordination does the lack of coordination affect normative implications from in store experimentation can quantity discounts be a coordination mechanism are some marketing practices actually disguised quantity discounts we review the literature and present a simple formulation illustrating the roots of the coordination problem we then derive the form of the quantity discount schedule that results in optimum channel profits this article was originally published in marketing science volume 2 issue 3 pages 239 272 in 1983

the effects of information transparency on suppliers manufacturers and consumers in online markets this paper looks into the effects of information transparency on market participants in an online trading environment we study these effects in business to business electronic markets with firms competing in both upstream and downstream industries the prior literature generally assumes that either the downstream firm buyer or the upstream firm seller is a monopoly it is not clear whether information transparency would still create value if both buyers and sellers face oligopolistic competition where the benefits of information transparency could be competed away to answer this question we first develop a simple two echelon e market model and then extend the model to more general settings we find that information transparency can create value for the overall e market yet it affects buyers and sellers very differently one side will be hurt depending on the competition mode cournot or bertrand in the downstream this suggests that a manufacturer owned a supplier owned and a neutral e market will have different preferences for information transparency finally we find that information transparency can hurt consumers when the downstream industry engages in bertrand competition this is a surprising result given the expectation that online markets create substantial value for consumers

asymmetric wholesale pricing theory and evidence asymmetric pricing or asymmetric price adjustment is the phenomenon where prices rise more readily than they fall we offer and provide empirical support for a new theory of asymmetric pricing in wholesale prices wholesale prices may adjust asymmetrically in the small but symmetrically in the large when retailers face cost of price adjustment such retailers will not adjust prices for small changes in their costs manufacturers then see a region of inelastic demand where small wholesale price changes do not translate into commensurate retail price changes the implication is asymmetrica small wholesale price increase is more profitable because manufacturers will not lose customers from higher retail prices yet a small decrease is less profitable because it will not lower retail prices hence there is no extra revenue from greater sales for larger changes this asymmetry in the behavior of wholesale price vanishes as the price adjustment cost is compensated by the increase in retailers revenue resulting from correspondingly large retail price changes we present a formal economic model of a channel with forward looking retailers and cost of price adjustment test the derived propositions on the behavior of manufacturer prices using a large supermarket scanner data set and find that the results are consistent with the predictions of our theory we then discuss the implications for asymmetric pricing channels and cost of price adjustment literatures as well as public policy

the taking of land when should compensation be paid the analysis focuses on the question of whether the payment of compensation for land taken by eminent domain is efficient when the taking decision is independent of land use zero compensation is efficient but full compensation is not when the project decision is no longer independent of land use and can be affected by investor decisions neither compensation rule is generally efficient because of the moral hazard problem with risk averse consumers and risk neutral firms the previous conclusions remain essentially unchanged however when the project decision rule involves a budgetary fiscal illusion additional compensation may be necessary to correct the incentives facing the project decision maker

cheap talk and bogus network externalities in the emerging technology market many emerging technologies exhibit path dependent demands driven by positive network feedback such network effects profoundly impact marketing strategists thinking in today s network economy however the significant network externalities expected by many people often fail to materialize in the emerging technology market we analyze this phenomenon in the context of a technology distribution channel by studying cheap talk strategies under information asymmetry we show that incentive compatible contracts are essential for achieving credible information transmission in our model the better informed technology vendor has an incentive to inflate the retailer s ex ante belief of network externalities when a wholesale price contract is adopted when properly termed revenue sharing contracts are implemented there are information efficient cheap talk equilibria where truthful information transmission is mutually beneficial when the vendor s information is imperfect even revenue sharing contracts cannot guarantee credible information transmission if there is significant prior belief disparity between the vendor and the retailer this study demonstrates how information inefficient equilibria e g information blockage arise because of the conflict of interest or the conflict of opinion among channel members it also explores the role of cheap talk in facilitating channel coordination

what experimental protocol influence disparities between actual and hypothetical stated values preferences elicited in hypothetical settings have recently come underscrutiny causing estimates from the contingent valuation method to bechallenged due to perceived hypothetical bias given that the receivedliterature derives value estimates using heterogeneous experimentaltechniques understanding the effects of important design parameters onthe magnitude of hypothetical bias is invaluable in this paper we addressthis issue statistically by using a meta analysis to examine data from 29experimental studies our empirical findings suggest that on averagesubjects overstate their preferences by a factor of about 3 in hypotheticalsettings and that the degree of over revelation is influenced by thedistinction between willingness to pay and willingness to accept publicversus private goods and several elicitation methods

improving channel coordination through franchising in this paper we explore the role of franchising arrangements in improving coordination between channel members in particular we focus on two elements of the franchising contract namely the royalty structure and the monitoring technology we begin with a simple analysis where a manufacturer distributes its product through a retailer and the retail demand is affected by the retail price and the service provided by the retailer in this context we show that neither royalty payments nor monitoring are needed for full coordination we then extend the model to allow for free riding by franchisees and show that although monitoring helps affect the behavior of the franchisees royalty payments are still unnecessary to coordinate the activities of the franchisor and the franchisees finally we show that in environments where factors affecting retail sales are controlled by both the franchisor and the franchisee royalty payments provide the necessary incentives for the franchisor while monitoring systems are used to ensure that franchisees also behave in the best interest of the channel our general results are found to be consistent with those in brickley and dark 1987 and norton 1988 who conclude that franchising is affected by principal agent problems our theory finds special support in the work of lafontaine 1988 where it is concluded that the incidence of franchising is related to cost of monitoring and the importance of franchisor investments

a bargaining theory of distribution channels abstract a critical factor in channel relationships between manufacturers and retailers is the relative bargaining power of both parties in this article the authors develop a framework to examine bargaining between channel members and demonstrate that the bargaining process actually affects the degree of coordination and that two part tariffs will not be part of the market contract even in a simple one manufacturer one retailer channel to establish the institutional and theoretical bases for these results the authors relax the conventional assumption that the product being exchanged is completely specifiable in a contract they show that the institution of bargaining has force and it affects channel coordination when the complexity of nonspecifiability of the product exchange is present the authors find that greater retailer power promotes channel coordination thus there are conditions in which the presence of a powerful retailer might actually be beneficial to all channel members the authors rec

pricing and regulating affect environmental ethics effluent charges and tradeable permits are economically efficient but rarely used a new explanation for this discrepancy is offered pricing may crowd out environmental ethics in the pricing and via spillovers also in non pricing sectors pricing may therefore increase pollution providing a reason why decision makers tend to reject environmental pricing five propositions showing the conditions for counterproductive effects are advanced they are consistent with available empirical evidence regulation by setting standards and subsidies damage environmental ethics less than pricing because pollution is condoned damaging environmental ethics may prevent political action in favor of the environment

ideological conviction and persuasion in the rent seeking society abstract the paper develops a model of rent seeking in a democratic political context where voting as well as rent seeking matters in this context the paper demonstrates that voter ideology is a constraint on the rent seeking game as well as a possible avenue of rent seeking in a setting where there are both rent seeking and ideological interest groups rent seekers can free ride on the efforts of ideologues which tends to reduce rent seeking effort in a setting where complementary economic and ideological interest groups coordinate their efforts both rent seeking and ideological conflict tend to increase

voting and paying for public goods an application of the theory of the core abstract let any coalition with a majority of all voters have the power to choose the quantities of public goods under rule i a majority coalition bears a cost of its decision that is proportional to its size under rule ii it must bear the whole cost of its decision thus rule i imposes costs on minorities although they have no power to choose the quantities of public goods while rule ii allows goods to have some attributes of semiprivate goods it is shown that a nonempty core under rule i implies a nonempty core under rule ii but not conversely necessary and sufficient conditions in terms of the properties of the von neumann morgenstern characteristic function are given

information distortion in a supply chain the bullwhip effect this article originally appeared in management science april 1997 volume 43 number 4 pp 546 558 published by the institute of management sciences consider a series of companies in a supply chain each of whom orders from its immediate upstream member in this setting inbound orders from a downstream member serve as a valuable informational input to upstream production and inventory decisions this paper claims that the information transferred in the form of orders tends to be distorted and can misguide upstream members in their inventory and production decisions in particular the variance of orders may be larger than that of sales and distortion tends to increase as one moves upstream a phenomenon termed bullwhip effect this paper analyzes four sources of the bullwhip effect demand signal processing rationing game order batching and price variations actions that can be taken to mitigate the detrimental impact of this distortion are also discussed

the bias in favor of pro tariff lobbies abstract we show that the probability of success of the pro tariff lobby defined as a decreasing function of the ratio of consumer loss to producer gain rent generated by the tariff rises with the tariff under very general conditions this appears as an exception to becker s view that less distortionary measures tend to be adopted over their more distortionary counterparts we then provide a micro foundation for our probability definition using the imperfectly discriminating lobbying framework

research note vertical information sharing in a volatile market when demand is uncertain manufacturers and retailers often have private information on future demand and such information asymmetry impacts strategic interaction in distribution channels in this paper we investigate a channel consisting of a manufacturer and a downstream retailer facing a product market characterized by short product life uncertain demand and price rigidity assuming the firms have asymmetric information about the demand volatility we examine the potential benefits of sharing information and contracts that facilitate such cooperation we conclude that under a wholesale price regime information sharing might not improve channel profits when the retailer underestimates the demand volatility but the manufacturer does not although information sharing is always beneficial under a two part tariff regime it is in general not sufficient to achieve sharing and additional contractual arrangements are necessary the contract types we consider to facilitate sharing are profit sharing and buyback contracts

endangered species and timber harvesting the case of red cockaded woodpeckers i introduction the issue of differentiating legitimate public regulation of private property from regulatory takings has become important and controversial in the united states the endangered species act esa probably the most powerful environmental regulation ever enacted in the united states is in the center of this controversy the modern version of the esa was enacted in 1973 and it has been amended several times since the esa is intended to protect species from becoming extinct the esa creates two main processes the designation of species and their critical habitats through listing and protection souder 1995 shows that listing is important because it triggers the four major provisions of the esa which are to conserve listed species avoid jeopardizing them avoid destruction of critical habitat and avoid taking them under the esa no person may take endangered or threatened species in the esa the term take means to harass harm pursue hunt shoot wound kill trap capture collect or attempt to engage in any such conduct 16 usc section 1532 19 furthermore the u s department of the interior has defined the statutory term harm as an act which actually kills or injures wildlife including significant habitat modification or degradation where it actually kills or injures wildlife by significantly impairing essential behavioral patterns including breeding feeding or sheltering 50 cfr section 17 3 1995 this regulatory definition has been upheld by the u s supreme court sweet home v babbitt ii s ct 714 1995 and it is the fulcrum on which the government levers regulation of private land because habitat modification may be a take flick et al 1996 indicate that the normal forestry activities of landowners fall within the purview of the u s fish and wildlife service on lands with endangered or threatened species u s government accounting office 1995 shows that more than 80 of listed endangered species have some habitat on private lands that are mostly used for forestry or agricultural purposes furthermore the list of endangered or threatened species is growing continually with no limit in sight because the esa prescribes behavior and extracts use rights from the bundle purchased or inherited by private landowners its potential reach over private land is very large yet uncertain few publicly provided incentive programs have been offered to private landowners for protection and enhancement of endangered species until very recently 1 because of this stick approach to public policy regarding endangered species the usual presumption is that other things being equal landowners will avoid management activities that might attract endangered species onto their lands and possibly develop their lands early 2 this belief continues to produce advocates for protection of private property rights not only from private landowner organizations but also from public agencies and some environmental groups recently the u s fish and wildlife service with the support of the environmental defense fund designed and implemented the safe harbor program no surprise policy and no take regulation as noted by zhang 1999 these policies were in part designed to mitigate the existing incentives to manage against endangered species on private lands on the other hand individuals and groups who want to stop development construction or logging may latch onto the esa as a tool to do so with little or no concern in fact for listed species not in my back yard and other motives are served well by the strong esa as currently formulated as such these individuals and groups who can be labeled as bootleggers are no doubt supportive of the current esa 3 however with the exception of lueck and michael 2003 there is little empirical evidence in support of the view that weakness in the current endangered species related regulations impedes good management and stewardship of forest resources

manufacturer s return policies and retail competition manufacturers returns policies are a common feature in the distribution of many products the obvious rationale for returns policies is insurance practitioners not surprisingly have a different perspective and view returns as a cost of doing business in this paper we study the strategic effect of returns policies on retail competition and highlight its profitability implications for a manufacturer the setting for our research is the distribution of products with uncertain demand limited shelf lives and retail competition our objective is to provide a better understanding of when manufacturers should adopt returns policies the insights are obtained with a model based on the economics of strategy and decision making under uncertainty we show that when retailing is competitive and there is no uncertainty in demand a returns policy subtly induces retailers to compete more intensely the provision of a returns policy reduces retail prices without affecting wholesale prices thereby reducing retailer margins and improving manufacturer profitability the intuition is that with a returns policy cournot like levels of retail stocks cannot be sustained each retailer will order stocks so that it will not be constrained by stocks and so intensifying retail competition when however demand is uncertain and there is a single retailer a returns policy encourages the retailer to over stock and so decreases upstream manufacturer profits while the provision of a returns policy leads to lower retail margins the optimality of returns policy depends on the overall uncertainty and marginal cost a returns policy reduces the dispersion in retail prices between the high and low states of demand and the range of retail prices in the returns case is contained within the range of retail prices for the no returns case in the general setting when there are competing retailers and demand is uncertain there is a trade off for the manufacturer between the benefits more intense retail competition and the costs excessive stocking of a returns policy we find that a manufacturer should accept returns when the marginal production cost is sufficiently low and demand uncertainty is not too great to validate the results of our theory we conduct an empirical test with data from a major u s retailer the tests confirm our prediction that a returns policy intensifies retail competition and reduces retailer margins our theory and empirical test should interest practitioners and researchers in distribution especially those concerned with managing retail competition

structural analysis of manufacturer pricing in the presence of a strategic retailer consumer goods manufacturers usually sell their brands to consumers through common independent retailers theoretical research on such channel structures has analyzed the optimal behavior of channel members under alternative assumptions of manufacturer retailer interaction vertical strategic interaction research in empirical industrial organization has focused on analyzing the competitive interactions between manufacturers horizontal strategic interaction decision support systems have made various assumptions about retailer pricing rules e g constant markup category profit maximization the appropriateness of such assumptions about strategic behavior for any specific market however is an empirical question this paper therefore empirically infers 1 the vertical strategic interaction vsi between manufacturers and retailer 2 the horizontal strategic interaction hsi between manufacturers simultaneously with the vsi and 3 the pricing rule used by a retailer the approach is particularly appealing because it can be used with widely available scanner data where there is no information on wholesale prices researchers usually have no access to wholesale prices even manufacturers who have access to their own wholesale prices usually have limited information on competitors wholesale prices in the absence of wholesale prices we derive formulae for wholesale prices using game theoretic solution techniques under the specific assumptions of vertical and horizontal strategic interaction and retailer pricing rules we then embed the formulae for wholesale prices into the estimation equations while our empirical illustration is using scanner data without wholesale prices the model itself can be applied when wholesale prices are available early research on the inference of hsi among manufacturers in setting wholesale prices using scanner data e g kadiyali et al 1996 1999 made the simplifying assumption that retailers charge a constant margin this assumption enabled them to infer wholesale prices and analyze competitive interactions between manufacturers in this paper we show that this model is econometrically identical to a model that measures retail price coordination across brands hence the inferred cooperation among manufacturers could be exaggerated by the coordinated pricing category management done by the retailer we find empirical support for this argument this highlights the need to properly model and infer vsi simultaneously to accurately estimate the hsi when using data at the retail level functional forms of demand have been evaluated in terms of the fit of the model to sales data but recent theoretical research on channels lee and staelin 1997 tyagi 1999 has shown that the functional form has serious implications for strategic behavior such as retail passthrough while the logit and linear model implies equilibrium passthrough of less than 100 lee and staelin call this vertical strategic substitute vss the multiplicative model implies optimal passthrough of greater than 100 vertical strategic complement vsc because passthrough rates on promotions have been found to be below or above 100 chevalier and curhan 1976 armstrong 1991 we empirically test the appropriateness of the logit vss and the multiplicative vsc functional form for the data we perform our analysis in the yogurt and peanut butter categories for the two biggest stores in a local market we found that the vss implications of the logit fit the data better than the multiplicative model we also find that for both categories the best fitting model is one in which 1 the retailer maximizes category profits 2 the vsi is manufacturer stackelberg and 3 manufacturer pricing hsi is tacitly collusive the fact that the retailer maximizes category profits is consistent with theoretical expectations the inference that the vsi is manufacturer stackelberg reflects the institutional reality of the timing of the game retailers set their retail prices after manufacturers set their wholesale prices note that in the stores and product categories that we analyze the two manufacturers own the dominant brands with combined market shares of about 82 in the yogurt market and 65 in the peanut butter market the result is also consistent with a balance of power argument in the literature the finding that manufacturer pricing is tacitly collusive is consistent with the argument that firms involved in long term competition in concentrated markets can achieve tacit collusion managers use decision support systems for promotion planning that routinely make assumptions about vsi hsi and the functional form the results from our analysis are of substantive import in judging the appropriateness of assumptions made in such decision support systems

optimal reverse channel structure for consumer product returns consumers often return a product to a retailer because they learn after purchase that the product does not match as well with preferences as had been expected this is a costly issue for retailers and manufacturers in fact it is estimated that the u s electronics industry alone spent 13 8 billion dollars in 2007 to restock returned products lawton c 2008 the war on returns wall street journal may 8 d1 the bulk of these returns were nondefective items that simply were not what the consumer wanted to eliminate returns and to recoup the cost of handling returns many retailers are adopting the practice of charging restocking fees to consumers as a penalty for making returns this paper employs an analytical model of a bilateral monopoly to examine the impact of reverse channel structure on the equilibrium return policy and profit more specifically we examine how the return penalty is affected by whether returns are salvaged by the manufacturer or by the retailer interestingly we find that the return penalty may be more severe when returns are salvaged by a channel member who derives greater value from a returned unit also the manufacturer may earn greater profit by accepting returns even if the retailer has a more efficient outlet for salvaging units

duopoly information equilibrium cournot and bertrand abstract in a duopoly model where firms have private information about an uncertain linear demand it is shown that if the goods are substitutes not to share information is a dominant strategy for each firm in bertrand cournot competition if the goods are complements the result is reversed furthermore the following welfare results are obtained 1 i with substitutes in cournot competition the market outcome is never optimal with respect to information sharing but it may be optimal in bertrand competition if the products are good substitutes with complements the market outcome is always optimal 2 ii bertrand competition is more efficient than cournot competition 3 iii the private value of information to the firms is always positive but the social value of information is positive in cournot and negative in bertrand competition

compensation payments for habitat heterogeneity existence efficiency and fairness considerations abstract compensation payments for voluntary conservation measures have become an important tool for biodiversity conservation worldwide each year substantial financial resources are spent on such measures particularly in the context of agri environmental schemes in europe a debate has started on whether this money is spent effectively in response to this debate it has been suggested that a portfolio of measures leading to habitat heterogeneity be implemented although payments for heterogeneous conservation measures have been analysed in the literature it has never been questioned that payments can be designed in a way that encourages enough land users to carry out each conservation measure within a portfolio of measures the purpose of this paper is to demonstrate that such payments do not always exist moreover in cases where payments for habitat heterogeneity exist the payment scheme may require overcompensation of the land users posing a limit to both efficiency and fairness considerations

rent seeking market structure and growth we study the role of productive and unproductive entrepreneurship in economic growth in a setting where firms compete in both economic and political markets specifically firms compete for market share through cost reducing technological innovation and they vie for influence over government transfer policy through rent seeking activities we find that rent seeking affects growth in two ways it allows firms to ignore economic competition leading to less innovation and it alters the number of firms that are supported in equilibrium the former effect is negative while the latter is ambiguous we show how these effects depend on various characteristics of economic and political markets

incentive compatibility tests of choice experiment value elicitation questions abstract this paper uses laboratory experiments with induced values to address fundamental issues related to the incentive compatibility of choice experiment value elicitation questions in particular we compare two versus three option choice sets and the effect of using alternative provision rules including one where the outcome is influenced by both participant and regulator votes we find the overall proportion of choices that are inconsistent with induced preferences is rather low however there are more deviations from induced preferences for two option choice sets and for alternatives to a simple plurality vote implementation rule a multinomial probit analysis of choices in tandem with a mixed logit welfare analysis suggests there is a statistically significant but modest degree of bias towards selecting the status quo option

an industry equilibrium analysis of downstream vertical integration this paper investigates the effect of product substitutability on nash equilibrium distribution structures in a duopoly where each manufacturer distributes its goods through a single exclusive retailer which may be either a franchised outlet or a factory store static linear demand and cost functions are assumed and a number of rules about players expectations of competitors behavior are examined it is found that for most specifications product substitutability does influence the equilibrium distribution structure for low degrees of substitutability each manufacturer will distribute its product through a company store for more highly competitive goods manufacturers will be more likely to use a decentralized distribution system this article was originally published in marketing science volume 2 issue 2 pages 161 191 in 1983

transaction costs institutional design and the separation of powers abstract the internal organization of the government can be used as a constraint on the capture of political decision makers in a setting where multiple interest groups try to influence policy outcomes centralization i e the choice of a single agency dealing with all interest groups is costly because it induces a better coordination of their influences the choice of specialized agencies is better because it increases the overall transaction costs of capture making agencies more immune to capture by interest groups more generally we discuss how an institutional design relying on separation of powers among specialized agencies may improve policy outcomes

the economics of special interest politics the case of the tariff this paper investigates the interaction of politicians and special interest lobbies the goal is to model the equilibrium levels of redistributive policies such as taxes subsidies tariffs and regulatory decisions the model is applied throughout to the setting of tariffs by contributing to political campaigns special interest lobbies generate economic returns higher tariffs generate revenue for import competing industries through higher product prices higher milk support prices raise dairy farm income and so forth the lobby invests to maximize these net economic returns in evaluating their chances of election politicians weigh the favorable effects of special interest money against the unfavorable association with the lobby and the social cost of the redistributive policy section i explores the lobby s problem it describes a formalization of mancur olson s discussion of the voluntary provision of public goods and optimal contributions by lobbies to political campaigns section ii describes determination of the equilibrium tariff positions of each politician in a political campaign

takings compensation and equal treatment for owners of developed and undeveloped property this article constructs an economic model of government takings in which some property owners develop their land earlier than others because it is efficient for the government to take undeveloped land before developed land uncompensated takings will give landowners an incentive to develop their property early in order to reduce the risk of government appropriation this overdevelopment incentive can be countered and efficiency thereby restored if landowners are appropriately compensated when their property is taken or if equal treatment is afforded to owners of developed and undeveloped land however when the government responds to political pressure a judicial compensation requirement will often lead to less government land use regulation than is efficient in contrast a judicial equal treatment requirement can elicit efficient development and regulatory decisions

vertical strategic interaction implications for channel pricing strategy this paper examines two strategic pricing decisions within channels using foresight i e price leadership and considering category implications i e product line pricing are price leadership and product line pricing always the best pricing strategies for a channel member if not when does this occur and why by investigating these questions we address some major concerns of both marketing practitioners and scholars interested in channel management issues in addition this study provides an indepth discussion on why previous analytic studies produced answers to these questions that depend upon the choice of the form of demand functions as such this study should significantly resolve the debate among analytic marketing modelers about the right demand specification at the core of our discussion lies the concept of vertical strategic interaction which is defined in terms of the direction of a channel member s reaction to the actions of its channel partner within a given demand structure specifically if a channel member s best reaction is to reduce its margin when its channel partner increases its margin the type of vertical strategic interaction is referred to as vertical strategic substitutability vss if the best reaction is to increase the margin the environment is referred to as vertical strategic complementarity vsc if the best reaction is no margin change it is referred to as vertical strategic independence vsi using a game theoretic approach we demonstrate that these three types of vertical strategic interactions represent a key driving force for optimal decisions on channel price leadership and product line pricing our investigation involves mathematical analyses of an industry model composed of two manufacturers selling competing products both carried by two competing retailers as such the model allows for retailer product line pricing as well as manufacturer and retailer level competition in addition this general model can be used to analyze three more restrictive industry settings often found in the channels literature i e a bilateral monopoly jeuland and shugan jeuland abel steven m shugan 1983 managing channel profits marketing sci 2summer 239 72 two competing manufacturers selling through competing franchised retailers mcguire and staelin mcguire timothy w richard staelin 1983 an industry equilibrium analysis of downstream vertical integration marketing sci 2spring 161 92 and two competing manufacturers selling through one common retailer using product line pricing choi choi s chan 1991 price competition in a channel structure with a common retailer marketing sci 10fall 271 96 unlike many other channel studies most of our analyses are performed without assuming particular functional forms of demand curves thus this paper provides greater assurance that the insights from this stream of research are broadly applicable not only across industry structures but also across demand conditions the paper starts out by defining three different rules for how prices are set the manufacturer uses foresight the retailer uses foresight and neither channel member uses foresight we then show a one to one mapping between the type of vertical strategic interaction and the optimality of channel price leadership specifically a channel member finds it profitable to be a price leader for vss but prefers to be a follower for vsc for vsi channel members are indifferent to the channel price leadership issue as it has no effect on channel member profits we also show that there exist conditions under which a retailer might see a reduction in profits when it changes its policy from non product line pricing to product line pricing such conditions arise when the retailer is not a price leader and the environment is characterized by vss or vsc at a more general level this study suggests not only the value but also the cost to a firm for using superior knowledge i e foresight and or product line pricing in making strategic marketing decisions in this way ignorance can be bliss we also explore the link between demand characteristics and the three types of vertical strategic interaction we show that the type of vertical strategic interaction present in a given environment is closely related with the convexity of the demand curve and the level of demand for a given price interestingly we find that linearity of demand is not a necessary condition for any of the three types of vertical strategic demand function consequently in evaluating the robustness of analytic analyses it may be more important to determine the type of vertical strategic interaction assumed instead of whether the demand is linear or nonlinear finally our results are limited to situations where the channels are not coordinated and the retailer s precommitment to particular pricing policy and decision is credible although such situations still capture a significant portion of reality we acknowledge that the insights from this study might not be applicable in all situations

price discrimination in competitive markets we present models in which price discrimination in the context of a two part price can occur in some competitive markets purchases take place in groups which choose which firms to patronize while firms are perfectly competitive with respect to groups they have some market power over individual consumers who are constrained by their groups choices we find that firms will charge an entry fee that is below marginal cost and the second part of the price is marked up above marginal cost the markup not only is positive but increases with the quality of the product

sleeping with the enemy should competitors share the same advertising agency the possibility of account conflicts is generally regarded as a very serious problem in the advertising industry the problem is that once an advertising agency works for a firm it learns private information which it can use strategically i e make available to the firm s competitors but in oligopolistic situations knowing more about a competitor may not necessarily be beneficial because the competitor may react to this knowledge similarly allowing the competitor to have more information may not necessarily be detrimental in fact the decision of whether to share the same agency depends on three effects which are identified here 1 the decision making framework effect 2 the strategic effect and 3 the uncertainty effect the first effect always favors sharing the same gency the direction of the latter two effects is ambiguous this ambiguity is resolved against the sharing of agencies when 1 the competitor s reaction to the firm s situation is especially harmful in that particular situation strategic effect and 2 the competitor s actions are increasingly harmful uncertainty effect

resolving questions about bias in real and hypothetical referenda despite 10 years of research on behavior in hypothetical referenda conflict remains in the literature on whether or not the mechanism generates biased responses compared to real referenda and the nature and source of any such bias almost all previous inquiry in respect of this issue has concentrated on bias at the aggregate level this paper reports a series of three experiments which focuses on bias at the individual level and how this can translate to bias at the aggregate level the authors argue that only an individual approach to hypothetical bias is consistent with the concept of incentive compatibility the results of these experiments reflect these previous conflicting findings but go on to show that individual hypothetical bias is a robust result driven by the differing influence of pure self interest and other regarding preferences in real and hypothetical situations rather than by a single behavioral theory such as free riding in a hypothetical situation these preferences cause yea saying and non demand revealing voting this suggests that investigation of individual respondents in other hypothetical one shot binary choices may also provide us with insights into aggregate behavior in these situations

decoy effects in choice experiments and contingent valuation asymmetric dominance while a dominated choice involves a situation in which one option clearly dominates another on all relevant dimensions an asymmetrically dominated choice typically arises where at least two options do not dominate each other and one but not both of those options does dominate a third option we demonstrate that the introduction of such an asymmetrically dominated option can have a significant impact upon choices between non dominated options within the same choice set for non market goods furthermore we show that this effect can then translate into significant impacts upon subsequent valuations for those non dominated options

explaining price policy bias in agriculture the calculus of support maximizing politicians a model is developed to explain observed patterns of policy intervention in agriculture we analyze the interaction between political support seeking politicians and supportsupplying citizens society consists of a rural and urban group we determine the effects on transfers of relative group size disparities in income endowments between groups and the deadweight loss of redistribution the framework advanced is an alternative to that of the interest group model and is used to explain for example why the export sectors in developing countries are taxed more and why the united kingdom is less adamant for higher price supports than germany

further tests of entreaties to avoid hypothetical bias in referendum contingent valuation abstract over estimation of willingness to pay in contingent markets has been attributed largely to hypothetical bias one promising approach for avoiding hypothetical bias is to tell respondents enough about such bias that they self correct for it a script designed for this purpose by cummings and taylor was used in hypothetical referenda that differed in payment amount in comparisons with behavior observed in otherwise identical real payment referenda the script worked remarkably well at higher payment levels dropping the likelihood of a yes vote to the level obtained in separate sample real referenda but less well at a lower payment level the repeated success of the script at higher payment amounts is a clear sign that additional research is warranted research that will bring us a more complete understanding of how the entreaty works this research may need to explore its workings at the individual respondent level

learning design contingent valuation ldcv noaa guidelines preference learning and coherent arbitrariness we extend the contingent valuation cv method to test three differing conceptions of individuals preferences as either i a priori well formed or readily divined and revealed through a single dichotomous choice question as per the noaa cv guidelines k arrow r solow p r portney e e leamer r radner h schuman report of the noaa panel on contingent valuation fed reg 58 1993 4601 4614 ii learned or discovered through a process of repetition and experience j a list does market experience eliminate market anomalies q j econ 2003 41 72 c r plott rational individual behaviour in markets and social choice processes the discovered preference hypothesis in k arrow e colombatto m perleman c schmidt eds rational foundations of economic behaviour macmillan london st martin s new york 1996 pp 225 250 iii internally coherent but strongly influenced by some initial arbitrary anchor d ariely g loewenstein d prelec coherent arbitrariness stable demand curves without stable preferences q j econ 118 1 2003 73 105 findings reject both the first and last of these conceptions in favour of a model in which preferences converge towards standard expectations through a process of repetition and learning in doing so we show that such a learning design cv method overturns the stylised facts of bias and anchoring within the double bound dichotomous choice elicitation format

a theory of competition among pressure groups for political influence this paper presents a theory of competition among pressure groups for political influence political equilibrium depends on the efficiency of each group in producing pressure the effect of additional pressure on their influence the number of persons in different groups and the deadweight cost of taxes and subsidies an increase in deadweight costs discourages pressure by subsidized groups and encourages pressure by taxpayers this analysis unifies the view that governments correct market failures with the view that they favor the politically powerful both are produced by the competition for political favors

studying the role of political competition in the evolution of government size over long horizons here we argue for the use of cointegration and error correction analysis to combine economic factors that are nonstationary with political factors that are stationary into an empirical model of the evolution of public policy over long periods the approach is applied to disentangle the contributions of economics and politics to the evolution of public expenditure by the government of canada over 130 years political competition emerges as the primary political factor affecting government size

compensation for regulatory takings with a redistributive government richard epstein has argued that governments should pay compensation for regulatory actions that impose costs on a subset of society i develop a model in which there are two groups one of whom benefits from a regulation and one of whom bears the costs a potentially biased government sets the level of the regulation and also redistributes income across the two social groups via the tax system when taxes are nondistortionary the government chooses the efficient level of the regulation to maximize wealth and then uses the tax system to distribute this wealth according to its preferences if the government is forced to pay compensation for the costs of the regulation it simply undoes this via the tax and transfer system when taxes are distortionary societal wealth is monotonically decreasing in the degree of compensation to be paid so that the optimal level of compensation is zero

note the role of returns policies in pricing and inventory decisions for catalogue goods manufacturers often use returns policies to encourage retailers to stock and price items more aggressively we focus on the effect that such policies have on both a retailer s and a manufacturer s profits when the retailer must commit prior to the selling season to both a stocking quantity and a price at which to sell an item such a commitment is often necessary for retailers who sell primarily through catalogues

reference dependence in multilocation newsvendor models a structural analysis we propose a behavioral theory to predict actual ordering behavior in multilocation inventory systems the theory rests on a well known stylized fact of human behavior people s preferences are reference dependent we incorporate reference dependence into the newsvendor framework by assuming that there are psychological costs of leftovers and stockouts we also hypothesize that the psychological aversion to leftovers is greater than the disutility for stockouts we then experimentally test the proposed theory in both the centralized and decentralized inventory structures using subjects motivated by substantial financial incentives consistent with the proposed theory actual orders exhibit the so called pull to center bias and the degree of bias is greater in the high profit margin than in the low profit margin condition these systematic biases are shown to eliminate the risk pooling benefit when the demands across store locations are strongly correlated because the proposed model nests the standard inventory and ex post inventory error minimization theories as special cases one can systematically evaluate the predictive power of each alternative using the generalized likelihood principle we structurally estimate all three theories using the experimental data and the estimation results strongly suggest that the proposed behavioral theory captures actual orders and profits better we also conduct two experiments to validate the behavioral model by manipulating the relative salience of the psychological costs of leftovers versus that of stockouts to alleviate the pull to center bias

voluntary conservation of endangered species when does no regulatory assurance mean no conservation abstract voluntary conservation agreements are becoming increasingly important in implementing the endangered species act on private land we analyze when such agreements arise and what level of conservation they generate in the presence of uncertainty about future conservation benefits and irreversibility of habitat loss and species extinction our results suggest that the likelihood of an agreement and the resulting conservation levels depend on the background threat of regulation the cost advantage offered by voluntary agreements and the availability of assurances regarding future regulation under conditions likely to hold in practice conservation agreements that offer assurances may generate higher levels of conservation and higher net social benefits than agreements that do not offer assurances however the resulting level of conservation will not be optimal and may be lower than that attainable under regulation

competition and cooperation in marketing channel choice theory and application this paper discusses the problem of choosing a vertical marketing channel in a product differentiated duopolistic market firms choose product price and the form of the marketing channel to maximize profits it is shown that integration of the marketing function results in greater price competition and lower prices than does the use of independent marketing middlemen the profitability of reducing price competition by using such middlemen is investigated two hypotheses that integration is negatively associated with the products substitutability and that symmetric channel structures are stable are tested in a preliminary way and supported with survey data from the international semiconductor industry

spatially uniform versus spatially heterogeneous compensation payments for biodiversity enhancing land use measures the importance of compensation payments for biodiversity enhancing land use measures has grown over the past decade particularly in connection with agri environmental policy given that both the costs and the benefits of biodiversity enhancing land use measures are subject to spatial variation the criterion of cost effectiveness calls for spatially heterogeneous compensation payments however when deciding whether to implement uniform or heterogeneous compensation payments the regulator has to compare the disadvantage of uniform payments in terms of cost effectiveness with the disadvantages of spatially heterogeneous payments to help resolve this issue this paper provides a simple ecological economic model that allows the reduced cost effectiveness associated with uniform payments for biodiversity enhancing land use measures to be assessed for different types of benefit and cost functions

optimal quality and quantity provisions for centralized vs decentralized distribution market size uncertainty effects abstract we provide insights on how market size uncertainty affects the optimal quality quantity provision in distribution channels when consumers are heterogeneous in their willingness to pay for product quality in this context we denote the difference between the manufacturer s optimal quality quantity provision for a centralized channel and its optimal analog for a decentralized channel as the quality quantity differential we find that market size uncertainty creates or increases the quantity differential but it does not affect the differential s polarity in contrast market size uncertainty decreases the quality differential and it does so to the extent that depending on the level of consumer heterogeneity it reverses the differential s polarity moreover we find that the higher the inherent uncertainty level the more pronounced are the effects we likewise find that the effects of market size uncertainty are amplified if the notion of consumer heterogeneity is replaced with retail level competition

the political economy of farmland ownership regulations and land prices one of the most ubiquitous forms of agricultural regulation is a restriction on farmland ownership one canadian example of a farmland ownership restriction is the saskatchewan farm security act fsa passed in 1974 the purpose of this article is to explain using a political economy framework why the fsa was implemented and to estimate the effect of the fsa on saskatchewan farmland values a present value pv model is used to estimate the relationship between land values rents and the regulation the hausman endogeneity test reveals that the regulation variable is endogenous with the land price the sign of the regulation variable is negative which fits with the theory i e the more stringent the regulation the lower the land value we estimate that the regulation lowered saskatchewan farmland prices by an average of 4 to 34 us acre depending on whether ordinary least squares ols or two stage least squares tsls is employed in the estimation over the period of 1974 2001