complexity in structured finance we study complexity in the market for securitized products a market at the heart of the financial crisis of 2007 9 the complexity of these products rose substantially in the years preceding the financial crisis we find that securities in more complex deals default more and have lower realized returns the worse performance is economically meaningful a one standard deviation increase in complexity represents an 18 increase in default on aaa securities however yields of more complex securities are not higher indicating that investors did not perceive them as riskier our results are consistent with complexity obfuscating security quality

a spatial model of international conflict 1 he model presented here assumes that nations initiate conflict to change the international status quo across one or more issues to an outcome they prefer their preferences for different issue outcomes are represented by a classical spatial utility function international coalitions are formed both to enhance the chance of a successful challenge and to counter existing challenges disputes are modeled as periods of competition between two coalitions through the recruitment of additional members erosion of support for the opposing coalition and escalation of the crisis the two nation model is analyzed in detail and the existence of the core for the resulting game is proved the two main conclusions of the two nation model are that nations have a general incentive to exaggerate their issue positions in disputes and that the possibility of issue trades enhances the likelihood of compromise because scientific understanding arises from theories the explication of theories is essential for the development of scientific understanding to understand international conflictthat is the resolution of disputes between nations by coercion or the threat of coercion a theory that can explain such conflict is needed this paper will present a model drawn from rational choice theory specifically game theory that explains national actions in conflicts as strategic choices made in order to gain preferred resolutions of the international issues in dispute compared to existing game theory models of international conflict the model presented here provides an explicit description of how each nation s evaluation of the issues in dispute affects its desire to pursue compromise or conflict a more detailed sequence of escalation allowing for the detailed study of escalation strategies and a framework that can explain the timing and extent of third party interventions into ongoing crises

multilateral negotiations a spatial analysis of the arab israeli dispute a model for forecasting political choices and for explaining the perceptual conditions that lead to those choices is delineated the model based on the median voter theorem and on the axioms of expected utility maximization is applied to the prospects for a multilateral peace conference in the middle east the analysis helps provide insights into the motivations behind recent actions by leaders in the soviet union the united states jordan the palestine liberation organization and israel

deforestation in the brazilian amazon comparing the impacts of macroeconomic shocks land tenure and technological change the paper examines the current relevance of the set of variables reported in the literature as driving deforestation in the brazilian amazon the analysis uses a computable general equilibrium cge model adapted to capture regional economic structures and the environmental processes specific to tropical areas the paper compares the impact on deforestation in the brazilian amazon of changes in real exchange rate modifications in agricultural tax and support policies reductions in transportation costs arising from investment in infrastructure in the amazon changes in land tenure regimes and technological change in agriculture affecting productivity and agronomic sustainability

issue linkages in international crisis bargaining students of international relations have long been concerned with questions regarding the impact of issue linkages on bargaining outcomes unfortunately the body of theory attempting to provide a systematic and rigorous analysis of issue linkages is woefully underdeveloped in this study i contribute to the development of this theory with a particular emphasis on accounting for cases in which issue linkage fails in international crisis bargaining the spatial model of crisis bargaining which is a formal model constituting a synthesis of the spatial theory of voting and traditional utility based bargaining theory is used to develop a theory of issue linkages and to address a number of points regarding linkage strategy that are found in the literature after demonstrating how linking issues can affect the outcome of an international crisis i argue that existing explanations for linkage failure are inadequate the majority of the paper is devoted to determining what characteristics of the issues involved and of the disputants determine the likelihood that a linkage attempt will be successful i conclude with a brief discussion relating these results to the literature on crisis management

competition and price variation when consumers are loss averse we modify the salop 1979 model of price competition with differentiated products by assuming that consumers are loss averse relative to a reference point given by their recent expectations about the purchase consumers sensitivity to losses in money increases the price responsiveness of demand and hence the intensity of competition at higher relative to lower market prices reducing or eliminating price variation both within and between products when firms face common stochastic costs in any symmetric equilibrium the markup is strictly decreasing in cost even when firms face different cost distributions we identify conditions under which a focal price equilibrium where firms always charge the same focal price exists and conditions under which any equilibrium is focal

brand specific tastes for quality this paper develops a model of nonlinear pricing with competition the novel ele ment is that each consumer s willingness to pay for quality is private information and is allowed to dier across brands the consumer s preferences are represented by a multidimensional type containing the marginal value of quality for dierent products buyers with high willingness to pay for quality also display strong preferences for par ticular brands and require higher discounts in order to switch away from their favorite product therefore competition is ercer for buyers with lower tastes for quality and hence more elastic demands this is in sharp contrast to earlier models in which com petition is ercer for higher taste more valuable buyers in equilibrium rms either compete intensively for the entire market providing strictly positive rents to all con sumers or shut down the least pro table segment of the market quality levels are distorted downwards for all buyers except for those with the highest type the number of competing rms and the degree of correlation across brand preferences enhance the e ciency of the allocation

economic and ecological perspectives on agriculture in the eastern amazon abstract there are more than five million people that depend on subsistence agriculture for livelihood in the brazilian amazon using a case study approach we show that intensive approaches to agriculture can offer advantages over extensive style shifting cultivation and ranching in terms of productivity net returns and job and tax generation we then use our data to illustrate how the availability of land labor and capital affects the adoption of intensive agricultural practices in the eastern amazon

price discrimination in free entry markets using a spatial model of monopolistic competition we investigate price discrimination in free entry zero profit markets we show that when brands are heterogeneous competition does not prevent discrimination the power to earn economic profits is not necessary for a firm to maintain discriminatory prices our model treats formally the fact that consumers difer not only in the utility they derive from a good but also in how strongly they prefer one brand over all others in markets where firms are very competitive sorting consumers on the strength on brand preference produces larger price differentials between groups than sorting on the basis of consumers reservation prices for the good when firms sort customers on the basis of strength of brand preference however we find that the output and welfare effects are generally less favorable than when sorting is more closely related to consumers reservation prices

brazilian policies that encourage deforestation in the amazon this paper shows that general tax policies special tax incentives the rules of land allocation and the agricultural credit system all accelerate deforestation in the amazon these policies increase the size of land holdings and reduce the chances of the poor to become farmers the following are the key provisions i the virtual exemption of agricultural income from income taxation makes agriculture a tax shelter ii rules of public land allocation provide incentives for deforestation because the rules used in determining the security of a claim and its land area encourage land clearing iii the progressive land tax contains provisions that encourage the conversion of forest to crop land or pasture iv the tax credit scheme aimed toward corporate livestock ranches subsidizes inefficient ranches established on cleared forest land and v subsidized credit is available for sudam approved ranches

shrouded attributes and information suppression evidence from the field we use eld and natural experiments in online auctions to study the revenue eect of varying the level and disclosure of shipping charges our main ndings are 1 disclosure aects revenues for low shipping charges a seller is better odisclosing 2 increasing shipping charges boosts revenues particularly when these charges are hidden and 3 the level and disclosure of the shipping charge have little eect on the number of bidders attracted to an auction

competitive price discrimination we model firms as supplying utility directly to consumers the equilibrium outcome of competition in utility space depends on the relationship u between profit and average utility per consumer public policy constraints on the deals firms may offer affect equilibrium outcomes via their effect on u f rom this perspective we examine the profit utility and welfare implications of price discrimination policies in an oligopolistic framework we also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two part tariffs

can bait and switch benefit consumers we present a model that leads to an equilibrium with characteristics similar to the following stylized facts observed in retail markets a retailers advertise only selected brands b often low priced advertised brands are understocked c in store promotions are biased towards more expensive substitute brands together these practices constitute illegal bait and switch is this phenomenon necessarily harmful to consumers and to the economy we show that bait and switch can benefit consumers because utility is created through in store promotions and price competition is enhanced this suggests that the ftc investigate further its ban on bait and switch

unplanned purchases and retail competition i propose a framework in which consumers have biased beliefs about their future purchase probabilities leading them to make unplanned purchases us ing this framework i examine the phenomenon of below cost pricing and the welfare eects of banning it when the market is covered a ban on below cost pricing raises social surplus although consumers need not gain they are only guaranteed to ben et if the market is perfectly competitive when the market is not covered a ban always hurts at least some consumers also there is a pro competitive justica tion for the observation that larger rms sometimes charge below cost on the core product lines of smaller rms consumer bias is crucial for this justication multi product retailers sometimes sell certain products beneath cost with the hope of at tracting additional customers who will also buy other higher margin items this practice often referred to as loss leading is controversial with below cost pricing having been banned in a number of countries including belgium germany france and ireland and in approximately half of all us states 1 many us cities also have such prohibitions in this article i examine the welfare consequences of prohibitions on below cost pricing in a market where multi product retailers compete for boundedly rational consumers who practice one stop shopping that is visit at most one store when rivals are symmetric and the market is covered so that all consumers shop a ban on loss leading raises social surplus but when the market is not covered a ban presents a social welfare tradeo fewer consumers choose to shop although those who do generate higher levels of social surplus perhaps surprisingly for those consumers who shop both before and after a ban a ban is guaranteed to make them better o if the market is perfectly competitive but otherwise may harm them taken together these results indicate that it is simplistic to argue that by limiting the scope of competition below cost pricing bans must hurt consumers and society but i also assess below cost pricing laws in the presence of asymmetric competition as when a large rm with a full product line competes against a small rm with a limited product

collusion and price rigidity we consider an in nitely repeated bertrand game in which prices are publicly observed and each rm receives a privately observed i i d cost shock in each period we focus on symmetric perfect public equilibria sppe wherein any punishments are borne equally by all rms we identify a tradeoff that is associated with collusive pricing schemes in which the price to be charged by each rm is strictly increasing in its cost level such fully sorting schemes offer efficiency bene ts as they ensure that the lowest cost rm makes the current sale but they also imply an informational cost distorted pricing and or equilibrium path price wars since a higher cost rm must be deterred from mimicking a lower cost rm by charging a lower price a rigid pricing scheme where a rm s collusive price is independent of its current cost position sacri ces efficiency bene ts but also diminishes the informational cost for a wide range of settings the optimal symmetric collusive scheme requires i the absence of equilibrium path price wars and ii a rigid price if rms are sufficiently impatient however the rigid pricing scheme cannot be enforced and the collusive price of lower cost rms may be distorted downward in order to diminish the incentive to cheat when the model is modi ed to include i i d public demand shocks the downward pricing distortion that accompanies a rm s lower cost realization may occur only when current demand is high

who benefits when the government pays more pass through in the medicare advantage program abstract governments contract with private firms to provide a wide range of services while a large body of previous work has estimated the effects of that contracting surprisingly little has investigated how those effects vary with the generosity of the contract in this paper we examine this issue in the medicare advantage ma program through which the federal government contracts with private insurers to coordinate and finance health care for 17 million medicare recipients to do this we exploit a substantial policy induced increase in ma reimbursement in metropolitan areas with a population of 250 000 or more relative to msas below this threshold our results demonstrate that the additional reimbursement leads more private firms to enter this market and to an increase in the share of medicare recipients enrolled in ma plans our findings also reveal that about one eighth of the additional reimbursement is passed through to consumers in the form of better coverage a somewhat larger share accrues to private insurers in the form of higher profits and we find suggestive evidence of a large impact on advertising expenditures our results have implications for a key feature of the affordable care act that will reduce reimbursement to ma plans by 156 billion from 2013 to 2022

the determinants of reforestation in brazil this article analyses the main determinants of reforestation in brazil during the 1980s and 1990s in the year 2000 brazil had the sixth largest planted forests area in the world the planted forests in brazil saw a huge increase from 1960 to 1985 since then however that stock has decreased but the demand for roundwood continues to increase that situation will result in a scarcity of roundwood from reforestation in brazil in few years the expected roundwood scarcity motivates an econometric study to compare market forces and economic policies in stimulating the reforestation in brazil considering the main firms reforesting in brazil it can be pointed out that small and medium farmers have been planting forests while private or public programmes are present otherwise large wood based firms consider factors other than prices such as their future demand for roundwood to be more important in their planting decisions those results cast doubts about the efficiency of the market price system in solv

product line rivalry and firm asymmetry we extend the brander and eaton 1984 model of product line rivalry to study the effects of asymmetry between firms on the equilibrium outcome our analysis shows that market interlacing can emerge as the equilibrium outcome even in situations where market segmentation would have been the only possible outcome had the firms been symmetric we identify two strategic factors that lead to such an outcome

product line rivalry and market segmentation with an application to automobile optional engine pricing this paper addresses the questions whether and when the pricing practices on base products may differ from those of premium products sold with options or add ons various alternative models are considered a monopoly model a model of brand rivalry with full consumer information and a model of rivalry in which consumers are only well informed about base product prices only the brand rivalry model with limited consumer information predicts that premium products have larger percentage markups than base products provided that brand rivalry is sufficiently intense empirical evidence on base and premium product pricing in the automobile market is consistent with the limited information model and inconsistent with the other two models

property rights and deforestation in the brazilian amazon this paper focuses on the impact of property rights insecurity on deforestation in the brazilian legal amazon deforestation is considered as a risk management strategy property rights insecurity reduces the present value of forests and fosters forest conversion into agricultural and pasture lands moreover deforestation is the consequence of strategic interactions between landowners and squatters landowners clear the forest preventively in order to assert the productive use of land and to reduce the expropriation risk squatters invade land plots clear the forest and may afterwards gain official recognition with formal property titles a particular attention is paid to the measure of land property rights insecurity in the brazilian context it is assumed that property rights insecurity has a multidimensional character taken into account by the number of homicides related to land conflicts and expropriation procedures principal component analysis allows synthesising such information an econometric model of deforestation is estimated on a panel dataset on the 1988 2000 period and the nine states of the brazilian legal amazon the hypothesis that insecure land property rights contribute to higher rates of deforestation is not rejected when the simultaneity bias between insecure property rights and deforestation is addressed this result questions the modality of the brazilian land reform that considers forested areas as unproductive and thus open for expropriation procedures

the war trap revisited a revised expected utility model the expected utility framework developed in the war trap is revised to correct several deficiencies risk taking orientations are now treated as an integral part of the model by introducing concavity or convexity into the utility functions the zero sum properties of the theory are largely eliminated and the tendency toward interpersonal comparisons of utility is removed several earlier results are replicated with the new model and with annual capabilities data new propositions are deduced that identify important limitations on conflict initiation and relationships resulting from differences in perceptions are tested support is found for the contention that the revised version of the theory of which the original model is a special case is a powerful tool for integrating many extant hypotheses about conflict and for explaining a substantial portion of the tendency for some threats to escalate to violence or warfare and for others to be resolved peacefully

nonlinear pricing with random participation the canonical selection contracting programme takes the agent s participation decision as deterministic and finds the optimal contract typically satisfying this constraint for the worst type upon weakening this assumption of known reservation values by introducing independent randomness into the agents outside options we find that some of the received wisdom from mechanism design and nonlinear pricing is not robust and the richer model which allows for stochastic participation affords a more general empirical specification we develop a multidimensional methodology for addressing this class of problems providing two important applications to nonlinear pricing first with nonlinear pricing by a monopolist the familiar nodistortion at the top result persists but in tandem with the surprising conclusion that there is either no distortion at the bottom or bunching second in a simple model of product differentiated duopolists competing with nonlinear pricing we show that generally the duopoly outcome is qualitatively similar to the monopoly outcome however when marginal costs are symmetric and competition is sufficiently intense distortions disappear and the equilibrium outcome takes a remarkably simple form efficient quality allocations with cost plus fee pricing

convergence of least squares learning in environments with hidden state variables and private information we study the convergence of recursive least squares learning schemes in economic environments in which there is private information the presence of private information leads to the presence of hidden state variables from the viewpoint of particular agents by applying theorems of ljung we extend some of our earlier results to characterize conditions under which a system governed by leastsquares learning will eventually converge to a rational expectations equilibrium we apply insights from the learning results to formulate and compute the equilibrium of a version of townsend s model

third degree price discrimination in oligopoly all out competition and strategic commitment price discrimination by imperfectly competitive firms may intensify competition leading to lower prices for all consumers the tradeoff of consumer groups welfare that is characteristic of monopolistic discrimination need not arise this escalation of competition may make firms worse off and as a result firms may wish to avoid the discriminatory outcome under conditions similar to those in which unambiguous price and welfare effects may arise unilateral commitments not to price discriminate including the adoption of everyday low pricing or no haggle policies may raise firm profits by softening price competition

price competition in multimarket duopolies in this article we analyze the pricing strategies offirms that compete for the demand of an assortment of goods in a complete information static framework in particular we model the competition between two symmetric firms in a market that consists of two types of consumers each of which may buy one unit of both goods sold by the two firms we show that all nash equilibria are such that neither firm charges the same price for both goods interestingly under certain conditions thefirms jointly price discriminate between the two types of consumers and may even achieve the same level of profits as if they maximized joint profits for another set of conditions the unique equilibrium is such that the price for one of the goods and the price for the bundle are the same as the price of the good in a standard hotelling model with one good finally we show that if these equilibria exist both firms prefer to sell both goods rather than specialize in either one of them these results are a direct consequence of the interplay between the multimarket rivalry and the existence of more than one market segment as modelled in this article

a pecuniary reason for income mixing abstract empirical studies have found a high degree of income mixing in american neighborhoods we give a new explanation of this phenomenon that is based on consumer search a low price for a given good benefits high valuation buyers more than low valuation buyers but with search the probability of obtaining a low price is increasing in the proportion of low valuation buyers this gives high valuation buyers an incentive to live near low valuation buyers with many goods a buyer has an incentive to live near neighbors whose valuations are uncorrelated with hers

product design in selection markets insurers choose plan characteristics to sort for profitable consumers in a model with multidimensional types this sorting incentive is proportional to the covariance among marginal consumers between marginal willingness to pay and cost to the insurer standard forms of cost sharing successfully repel costly consumers but reducing plan comprehensiveness instead alienates the risk averse in a perfectly competitive equilibrium the sorting incentive must vanish market power increases insurance quality and welfare nonetheless a competitive equilibrium with positive insurance is possible when insurance value is suciently negatively correlated with cost however in a calibration to handel hendel and whinston 2013 s data equilibrium still fails to exist

competitive screening under heterogeneous information we study the interplay between informational frictions and second degree price discrimination our theory recognizes that consumers differ in their tastes for quality as well as in the information they possess about available offers which leads to dispersion over price quality menus in equilibrium while firms are ex ante identical we show that their menus are ordered so that more generous menus leave more surplus to consumers of all valuations we explore the cross section of equilibrium menus and variations in market conditions to generate empirical predictions on prices qualities and markups across firms and within a firm s product line for instance more competition may raise prices for low quality goods yet consumers are better off as the qualities they receive also increase the predictions of our model illuminate empirical findings in many markets such as those for cell phone plans yellow pages advertising cable tv and air travel

empirical analysis of metering price discrimination evidence from concession sales at movie theaters prices for goods such as blades for razors ink for printers and concessions at movies are often set well above cost theory has shown that this could yield a profitable price discrimination strategy often termed metering the idea is that a customer s intensity of demand for aftermarket goods e g the concessions provides a meter of how much the customer is willing to pay for the primary good e g admission if this correlation in tastes for the two goods is positive a high price on the aftermarket good allows firms to extract a greater total price admissions plus concessions from higher type customers this paper develops a simple aggregate model of discrete continuous demand to motivate how this correlation can be tested using simple regression techniques and readily available firm data model simulations illustrate that the regressions can be used to predict whether aftermarket prices should be above below or equal to their marginal cost we then apply the approach to box office and concession data from a chain of spanish theaters and find that high priced concessions do extract more surplus from customers with a greater willingness to pay for the admission ticket

capabilities uncertainty and resolve a limited information model of crisis bargaining this paper presents and solves a crisis bargaining game under limited information the sides alternate offers from three possible offers with war and its costs starting if the target s counteroffer is rejected the equilibrium of the model falls into four different cases these four cases are analyzed to determine how the sides communicate through their offers and how the costs of war initial beliefs misperceptions and distribution of capabilities drive the probabilities of a crisis and war the model demonstrates a joint selection bias misspecification problem in empirical studies of crises arising from the unobservable nature of beliefs several empirical studies of crisis bargaining are discussed in the light of this methodological problem new patterns of evidence are found that support the presence of the selection problem and their conclusions are reexamined

limited attention and the residential energy efficiency gap abstract inattention may be an important contributor to the energy efficiency gap and may be particularly acute in residential buildings where many different features will determine a home s energy

loss leader pricing and rain check policy loss leader pricing and rain check policies are common in retail markets yet research on these topics is surprisingly scarce in this paper we study the effects of leader pricing and rain check policy on stores profits and market outcomes suppose stores can accurately predict demand might they still run out of stock we investigate whether such a result is plausible when stores can offer rain checks the paper also helps resolve an issue that has recently attracted much attention should the ftc repeal its rule prohibiting stock outs of advertised sale items

can more consumers lead to lower profits a model of multi product competition abstract the article analyzes the optimal pricing strategy of duopoly retailers who sell two goods to three consumer segments two segments that are interested in one good and one that wants to buy both goods the analysis suggests that the markup on one of the goods might be negative and that the existence of consumers who buy both goods can either increase or decrease markups surprisingly the addition of the consumers who buy both goods unchanging the number of the other consumers might decrease profits and increasing the number of consumers who buy one good might also reduce profits this suggests that firms should consider carefully how additional customers might affect the competitive environment and the equilibrium before attempting to attract them to the market

reason and war a new specification of the expected utility model of international conflict places expected utilities within a polar coordinate system treats thirdparty choices in a manner more consistent with classical forms estimates the expected utilities derived from not challenging existing policies more fully represents the expected costs of conflict and normalizes expected utilities regardless of system size by assuming that the probability of escalation of a dispute increases monotonically with leaders expectations of gain we derive continuous functions for the probabilities of war intervention violence and peace the revised theory significantly improves our ability to discriminate between violent and nonviolent disputes and between violent disputes that escalated to warfare and those that did not in europe between 1816 and 1970 in this essay

the effects of third degree price discrimination in oligopoly retail firms and restaurants commonly offer senior citizen discounts i suspect this practice is not motivated by altruism rather the behavior can be better explained as profit maximizing price discrimination these firms are setting a low price in a market which probably has high elasticity of demand but why should the demand of senior citizens be more elastic than average one possibility is that elderly people have below average income and they would not eat out if restaurant prices were high perhaps a more plausible explanation is that retired people simply have more time on their hands to spend commuting across town to take advantage of discounts the purpose of these discounts may then be to lure senior citizens away from other restaurants rather than to get them out of the house the analysis of third degree price discrimination has a long history a c pigou 1920 joan robinson 1933 and two articles on the subject have recently appeared in this review richard schmalensee 1981 hal varian 1985 the industry structure in these analyses is monopoly but an explicit model of some form of competition is obviously needed to study discriminatory discounts meant to attract customers from rival firms and even discounts meant to get people out of the house may have an oligopoly analysis which is qualitatively different from their monopoly anlysis in this paper i present a simple duopoly model of a differentiated products industry i show that a firm s price elasticity of demand in a market can be expressed as the sum of two parts the industry demand elasticity and the cross price elasticity the first measures the tendency of consumers in a market to stay home when the price goes up the second the tendency to switch suppliers in the monopoly case in which the crossprice elasticity is zero and the collusive case in which the cross price elasticity is irrelevant discrimination between markets is due to differences in industry demand elasticity in the noncooperative oligopoly case equilibrium price differentials can be accounted for both by differences in cross price elasticity as well as differences in industry demand elasticity total industry output when the firms can discriminate between two markets is compared to what it would be if discrimination were impossible which regime has larger output depends on the sum of the adjustedconcavity condition and the elasticity ratio condition the first predominates when the rival products are poor substitutes and the firms have approximate monopoly power while the second predominates at the other extreme where the products are close substitutes and the firms have almost no market power the adjusted concavity condition compares the relative curvature of demands in the two markets and was originally discovered by robinson 1933 in her analysis of monopoly price discrimination the elasticity ratio condition compares the relative difference in industry demand elasticity between the two markets with the relative difference in cross price elasticity according to the elasticity ratio condition a discriminatory discount due to high industry elasticity of demand would be more likely to increase total output than one due to high cross price elasticity the effect of discrimination on profit is also discussed the distinction made here department of economics university of wisconsin madison madison wi 53706 this paper is a revision of part of my doctoral dissertation i am grateful to steve matthews ken judd and john panzar for guidance in this research i also thank seminar participants at wisconsin the justice department and the 1986 econometric society meetings in new orleans and the discussant martin perry the excellent comments of the referees improved the exposition of the paper

lechatelier samuelson principle in games and pass through of shocks abstract the lechatelier samuelson principle states that as a reaction to a shock an agent s short run adjustment of an affected action is smaller than its long run adjustment when the agent can also adjust other related actions we extend the principle to strategic environments where the long run adjustment also accounts for other players adjusting their strategies we show that the principle holds for supermodular games strategic complements satisfying monotone comparative statics and provide sufficient conditions for the principle to hold in games of strategic substitutes heterogeneity we discuss the principle s implications for cost pass through of multiproduct firms

add on pricing by asymmetric firms this paper uses an analytical model to examine the consequences of add on pricing when firms are both horizontally and vertically differentiated and there is a segment of boundedly rational consumers who are unaware of the add on fees at the time of initial purchase we find that consumers who know the add on fees can be penalized and increasingly so by the existence of boundedly rational consumers our consideration of quality asymmetries on base goods and add ons plus the inclusion of boundedly rational consumers leads to several novel findings regarding firm profits when quality asymmetry is on base goods only and with boundedly rational consumers add on pricing can diminish profit for a qualitatively superior firm and increase profit for an inferior firm i e a lose win result compared to when add on pricing is prohibited or infeasible when quality asymmetries exist on both base goods and add ons and without boundedly rational consumers the opposite win lose result prevails when quality asymmetries exist on both base goods and add ons and with boundedly rational consumers the result can be win win win lose or lose win depending on the magnitude of quality differentiation on add ons this paper was accepted by j miguel villas boas marketing

crisis bargaining escalation and mad although incomplete information is recognized to be an essential feature of crises game theoretic formulations have not generally modeled this explicitly this paper models a mutually assured destruction mad crisis as a game of sequential bargaining with incomplete information sufficiently simple that its equibria may be found these provide better game theoretic foundations for the notions of resolve and critical risk and their role in crises and also make it possible to compare the bargaining dynamics of this model with those of descriptively richer but incompletely specified models revealing several inconsistencies several analyses of mad conclude that the state with the greatest resolve in this contest of resolve will prevail many models based on critical risks suggest that a state is less likely to escalate the greater its adversary s resolve in our model however the state with the weakest resolve sometimes prevails and some states prove more likely to escalate if their adversaries resolve is greater

a model of add on pricing this paper examines competitive price discrimination with horizontal and vertical taste differences consumers with higher valuations for quality are assumed to have stronger brand preferences two models are considered a standard competitive price discrimination model in which consumers observe all prices and an add on pricing game in which add on prices are naturally unobserved and firms may advertise a base good at a low price in hopes of selling add ons at high unadvertised prices in the standard game price discrimination is self reinforcing the model sometimes has both equilibria in which the firms practice price discrimination and equilibria in which they do not the analysis of the add on pricing game focuses on the chicago school argument that profits earned on add ons will be competed away via lower prices for advertised goods a conclusion is that add on practices can raise equilibrium profits by creating an adverse selection problem that makes price cutting unappealing although profitable when jointly adopted using add on pricing is not individually rational in a simple extension with endogenous advertising practices and costless advertising several models that could account for add on pricing are discussed

continuous cross subsidies and quantity restrictions this article provides a model of loss leader pricing and quantity restrictions for a competitive multiproduct industry when individual consumers have continuous and independent demands for the set of available goods utilizing a generalization of the model proposed by bliss 1988 we demonstrate the importance of consumer heterogeneity for the existence of cross subsidies when there is complete information and individual consumers have smooth downward sloping demands continuous cross subsidies arising from consumer heterogeneity are also shown to exist in hotelling models our use of continuous rather than unit demands allows us to analyze issues related to welfare which in turn exposes a strong incentive for the firm to place binding quantity restrictions on consumers we also show how the presence of quantity restrictions can be used to distinguish between continuous cross subsidies arising from heterogeneous consumers versus those arising from classic demand complementarity with homogeneous agents

reputation and hegemonic stability a game theoretic analysis we develop and explicate a game theoretic model in which repeated play incomplete information and reputation are major elements a significant advance of this model is the way it represents cooperation under incomplete information among rational actors of different sizes the model is used to formalize certain aspects of the theory of hegemonic stability it shows that the dilemma or limits of hegemonic stability look like natural attributes of games where reputation is involved unifying both benevolent and coercive strands of hegemony theory an example drawn from recent developments in the organization of petroleum exporting countries shows how our model of reputation guides the study of hegemonic regime construction we conclude by comparing the nature of cooperative behavior under conditions of complete and incomplete information

natural resource management and economywide policies in costa rica a computable general equilibrium cge modeling approach a computable general equilibrium cge model is used to trace the effects of government policies on costa rican forests in the presence of incomplete markets the results indicate that correcting the market failure would as expected reduce deforestation more interestingly in the presence of the market failure lowering the tax on unskilled labor reduces deforestation because people gain employment in other parts of the economy taxation of other produced goods changes the incentives for deforestation for example a tax on agricultural products elevates the relative price of capital and shifts resources away from the capital intensive industrial sector toward the agricultural and forest sectors as a result such a tax increases deforestation

a structural equations analysis of the impact of price promotions on store performance guided by past research conventional wisdom in the retailing area and microeconomic theory the authors develop a series of hypotheses about the effects of loss leaders in store price specials