optimal dynamic pricing of inventories with stochastic demand over finite horizons in many industries managers face the problem of selling a given stock of items by a deadline we investigate the problem of dynamically pricing such inventories when demand is price sensitive and stochastic and the firm s objective is to maximize expected revenues examples that fit this framework include retailers selling fashion and seasonal goods and the travel and leisure industry which markets space such as seats on airline flights cabins on vacation cruises and rooms in hotels that become worthless if not sold by a specific time we formulate this problem using intensity control and obtain structural monotonicity results for the optimal intensity resp price as a function of the stock level and the length of the horizon for a particular exponential family of demand functions we find the optimal pricing policy in closed form for general demand functions we find an upper bound on the expected revenue based on analyzing the deterministic version of the problem and use this bound to prove that simple fixed price policies are asymptotically optimal as the volume of expected sales tends to infinity finally we extend our results to the case where demand is compound poisson only a finite number of prices is allowed the demand rate is time varying holding costs are incurred and cash flows are discounted the initial stock is a decision variable and reordering overbooking and random cancellations are allowed

competition and corporate performance are people right to think that competition improves corporate performance my investigations indicate first that there are some theoretical reasons for believing this hypothesis to be correct but they are not overwhelming furthermore the existing empirical evidence on this question is weak however the results reported here based on an analysis of around 670 u k companies do provide some support for this view most important i present evidence that competition as measured by increased numbers of competitors or by lower levels of rents is associated with a significantly higher rate of total factor productivity growth

structural workshop paper discrete choice models of consumer demand in marketing marketing researchers have used models of consumer demand to forecast future sales to describe and test theories of behavior and to measure the response to marketing interventions the basic framework typically starts from microfoundations of expected utility theory to obtain an econometric system that describes consumers choices over available options and to thus characterize product demand the basic framework has been augmented significantly to account for quantity choices to accommodate purchases of several products on a single purchase occasion multiple discreteness and multicategory purchases and to allow for asymmetric switching between brands across different price tiers these extensions have enabled researchers to bring the analysis to bear on several related marketing phenomena of interest this paper has three main objectives the first objective is to articulate the main goals of demand analysis forecasting measurement and testing and to highlight several considerations associated with these goals our second objective is to describe the main building blocks of individual level demand models we discuss approaches built on direct and indirect utility specifications of demand systems and we review extensions that have appeared in the marketing literature the third objective is to explore a few emerging directions in demand analysis including considering demand side dynamics combining purchase data with primary information and using semiparametric and nonparametric approaches we hope researchers new to this literature will take away a broader perspective on these models and see the potential for new directions in future research

selling to overconfident consumers consumers may overestimate the precision of their demand forecasts this overconfidence creates an incentive for both monopolists and competitive firms to offer tariffs with included quantities at zero marginal cost followed by steep marginal charges this matches observed cellphone service pricing plans in the us and elsewhere an alternative explanation with common priors can be ruled out in favor of overconfidence based on observed customer usage patterns for a major us cellular phone service provider the model can be reinterpreted to explain the use of flat rates and late fees in rental markets and teaser rates on loans nevertheless firms may benefit from consumers losing their overconfidence

inflation costly price and quantity adjustments and time spent in the keynesian regime abstract this paper considers a menu cost firm under inflation due to costly quantity adjustments the firm is sometimes in a keynesian regime where sales are demand determined with a positive real interest rate the proportion of time in the keynesian regime is less than the inverse of the absolute value of the average elasticity of demand in that regime

estimating demand for local telephone service with asymmetric information and optional calling plans in this paper i study the theoretical and econometric implications of agents uncertainty concerning their future consumption when a monopolist offers them either a unique mandatory nonlinear tariff or a choice in advance from a menu of optional two part tariffs agents uncertainty is resolved through individual and privately known shocks to their types in such a situation the principal may screen agents according to their ex ante or ex post type by offering either a menu of optional tariffs or a standard nonlinear schedule the theoretical implications of the model are used to evaluate a tariff experiment run by south central bell in two cities in kentucky in 1986 the empirical approach explicitly accounts for the existence of informational asymmetries between local telephone users and the monopolist leading to different nested econometric specifications under symmetric and asymmetric information the empirical evidence suggests that there exists a significant asymmetry of information between consumers and the monopolist under both tariff regimes all expected welfare components failed to increase with the introduction of optional tariffs for the estimated value of the parameters copyright 2002 wiley blackwell

specifying the dynamics of industry concentration previous studies generally explain changes in concentration by its initial determinants or by changes in its determinants little attention is paid to the dynamic structure of the model this study provides a framework to sort out adjustment effects in a systematic manner the empirical model distinguishes long term from short term effects and estimates the rate of adjustment when concentration deviates from its long term equilibrium level considerable attention has focused on industry concentration as a key element of market structure while earlier empirical studies examined determinants of the level of industry concentration a more recent literature focuses on changes in concentration these more recent papers typically explain intertemporal changes in concentration by the past levels of industry growth concentration advertising intensity and minimum efficient plant size however the dynamic relationship between changes in concentration and the levels of the independent variables has not been explicitly specified caves and porter 1980 have argued that explaining changes in concentration by past levels of market structure variables is tantamount to assuming that the sampled industries are in the process of adjusting to a disequilibrium situation as an alternative they adopt a long term equilibrium approach whereby changes in concentration are explained by lagged changes in the relevant market conditions they find that this approach as a whole was unsuccessful exhibiting low levels of significance and a lack of robustness when the cross section regressions were shifted to different time periods

advertising learning and consumer choice in experience good markets an empirical examination this article empirically analyzes different effects of advertising in a nondurable experience good market a dynamic learning model of consumer behavior is presented in which i allow both informative effects of advertising and prestige or image effects of advertising this learning model is estimated using consumer level panel data tracking grocery purchases and advertising exposures over time empirical results suggest that in this market advertising s primary effect was that of informing consumers the estimates are used to quantify the value of this information to consumers and evaluate the welfare implications of an alternative advertising regulatory regime

paying too much and being happy about it existence causes and consequences of tariff choice biases abstract a common assumption underlying the analysis of consumers choices among optional tariffs is that consumers choose the tariff that maximizes their surplus and thus the tariff that leads to the lowest billing rate for a given amount of usage yet there is evidence that many users prefer a flat rate even though their billing rate would be lower with a pay per use tariff flat rate bias and some users prefer a pay per use tariff even though they would save money with a flat rate pay per use bias the authors conduct four empirical analyses based on three different data sets they show that the flat rate bias is more important and has a greater regularity and time persistence than the pay per use bias they classify potential causes of the flat rate bias as insurance effect taxi meter effect convenience effect and overestimation effect and show that the insurance the taxi meter and the overestimation effects lead to a flat rate bias they provide evidence that underestimation of usag

paying not to go to the gym how do consumers choose from a menu of contracts we analyze a novel dataset from three u s health clubs with information on both the contractual choice and the day to day attendance decisions of 7 752 members over three years the observed consumer behavior is difficult to reconcile with standard preferences and beliefs first members who choose a contract with a flat monthly fee of over 70 attend on average 4 3 times per month they pay a price per expected visit of more than 17 even though they could pay 10 per visit using a 10 visit pass on average these users forgo savings of 600 during their membership second consumers who choose a monthly contract are 17 percent more likely to stay enrolled beyond one year than users committing for a year this is surprising because monthly members pay higher fees for the option to cancel each month we also document cancellation delays and attendance expectations among other findings leading explanations for our findings are overconfidence about future self control or about future efficiency overconfident agents overestimate attendance as well as the cancellation probability of automatically renewed contracts our results suggest that making inferences from observed contract choice under the rational expectation hypothesis can lead to biases in the estimation of consumer preferences

dynamic pricing with loss averse consumers and peak end anchoring we study the dynamic pricing implications of a new behaviorally motivated reference price mechanism based on the peak end memory mode this model suggests that consumers anchor on a reference price that is a weighted average of the lowest and most recent prices loss averse consumers are more sensitive to perceived losses than gains relative to this reference price we find that a range of constant pricing policies is optimal for the corresponding dynamic pricing problem this range is wider the more consumers anchor on lowest prices and it persists when buyers are loss neutral in contrast with previous literature in a transient regime the optimal pricing policy is monotone and converges to a steady state price which is lower the more extreme and salient the low price anchor is our results suggest that behavioral regularities such as peak end anchoring and loss aversion limit the benefits of varying prices and caution that the adverse effects of deep discounts on the firm s optimal prices and profits might be more enduring than previous models predict

dynamic pricing of inventory capacity with infrequent price changes we consider a problem of dynamically pricing a single product sold by a monopolist over a short time period if demand characteristics change throughout the period it becomes attractive for the company to adjust price continuously to respond to such changes i e price discriminate intertemporally however in practice there is typically a limit on the number of times the price can be adjusted due to the high costs associated with frequent price changes if that is the case instead of a continuous pricing rule the company might want to establish a piece wise constant pricing policy in order to limit the number of price adjustments such a pricing policy which involves optimal choice of prices and timing of price changes is the focus of this paper we analyze the pricing problem with a limited number of price changes in a dynamic deterministic environment in which demand depends on the current price and time and there is a capacity inventory constraint that may be set optimally ahead of the selling season the arrival rate can evolve in time arbitrarily allowing us to model situations in which prices decrease increase or neither we consider several plausible scenarios where pricing and or timing of price changes are endogenized various notions of complementarity single crossing property supermodularity and total positivity are explored to derive structural results conditions sufficient for the uniqueness of the solution and the monotonicity of prices throughout the sales period furthermore we characterize the impact of the capacity constraint on the optimal prices and the timing of price changes and provide several other comparative statics results additional insights are obtained directly from the solutions of various special cases

integration of inventory and pricing decisions with costly price adjustments motivated by the widespread adoption of dynamic pricing in industry and the empirical evidence of costly price adjustments in this paper we consider a periodic review inventory model with price adjustment costs that consist of both fixed and variable components in each period demand is stochastic and price dependent the firm needs to coordinate the pricing and inventory replenishment decisions in each period to maximize its total discounted profit over a finite planning horizon we develop the general model and characterize the optimal policies for two special scenarios namely a model with inventory carryover and no fixed price change costs and a model with fixed price change costs and no inventory carryover finally we propose an intuitive heuristic policy to tackle the general system whose optimal policy is expected to be very complicated our numerical studies show that this heuristic policy performs well

decision making under uncertainty capturing dynamic brand choice processes in turbulent consumer goods markets we construct two models of the behavior of consumers in an environment where there is uncertainty about brand attributes in our models both usage experience and advertising exposure give consumers noisy signals about brand attributes consumers use these signals to update their expectations of brand attributes in a bayesian manner the two models are 1 a dynamic model with immediate utility maximization and 2 a dynamic forward looking model in which consumers maximize the expected present value of utility over a planning horizon given this theoretical framework we derive from the bayesian learning framework how brand choice probabilities depend on past usage experience and advertising exposures we then form likelihood functions for the models and estimate them on nielsen scanner data for detergent we find that the functional forms for experience and advertising effects that we derive from the bayesian learning framework fit the data very well relative to flexible ad hoc functional forms such as exponential smoothing and also perform better at out of sample prediction another finding is that in the context of consumer learning of product attributes although the forward looking model fits the data statistically better at conventional significance levels both models produce similar parameter estimates and policy implications our estimates indicate that consumers are risk averse with respect to variation in brand attributes which discourages them from buying unfamiliar brands using the estimated behavioral models we perform various scenario evaluations to find how changes in marketing strategy affect brand choice both in the short and long run a key finding obtained from the policy experiments is that advertising intensity has only weak short run effects but a strong cumulative effect in the long run the substantive content of the paper is potentially of interest to academics in marketing economics and decision sciences as well as product managers marketing research managers and analysts interested in studying the effectiveness of marketing mix strategies our paper will be of particular interest to those interested in the long run effects of advertising note that our estimation strategy requires us to specify explicit behavioral models of consumer choice behavior derive the implied relationships among choice probabilities past purchases and marketing mix variables and then estimate the behavioral parameters of each model such an estimation strategy is referred to as structural estimation and econometric models that are based explicitly on the consumer s maximization problem and whose parameters are parameters of the consumers utility functions or of their constraints are referred to as structural models a key benefit of the structural approach is its potential usefulness for policy evaluation the parameters of structural models are invariant to policy that is they do not change due to a change in the policy in contrast the parameters of reduced form brand choice models are in general functions of marketing strategy variables e g consumer response to price may depend on pricing policy as a result the predictions of reduced form models for the outcomes of policy experiments may be unreliable because in making the prediction one must assume that the model parameters are unaffected by the policy change since the agents in our models choose among many alternative brands their choice probabilities take the form of higher order integrals we employ monte carlo methods to approximate these integrals and estimate our models using simulated maximum likelihood estimation of the dynamic forward looking model also requires that a dynamic programming problem be solved in order to form the likelihood function for this we use a new approximation method based on simulation and interpolation techniques these estimation techniques may be of interest to researchers and policy makers in many fields where dynamic choice among discrete alternatives is important such as marketing decision sciences labor and health economics and industrial organization

why do previous choices matter for hospital demand decomposing switching costs from unobserved preferences abstract using data on women s choice of hospital for childbirth in florida we find that women return to the same hospital approximately 70 of the time we separate explanations of switching cost

revenue management with costly price adjustments we consider a novel variant of the perishable inventory profit management problem faced by a firm that sells a fixed inventory over a finite horizon in the presence of price adjustment costs in economics literature such price adjustment costs are widely studied and are typically assumed to include a fixed component e g advertising costs an inventory dependent component e g inventory relabeling costs as well as a component that depends on the magnitude of the price adjustment e g cognitive and coordination managerial costs we formulate the firm s profit management problem as a finite horizon dynamic program in which the state of the system is described by the inventory level as well as the current price level we derive first order properties of the optimal value function and give a complete characterization of optimal policies for the case of ample inventory through a set of examples we demonstrate the complex and counterintuitive nature of optimal price adjustment policies consequently we focus on developing easily computable and implementable heuristics with demonstrably good performance to this end we develop and solve a fluid model based on the original stochastic dynamics and propose three fluid based heuristic policies we derive expressions for the expected profit generated by each one of these heuristics when applied to the stochastic problem and derive sufficient conditions for the asymptotic optimality of the policies when the initial inventory levels and planning horizons are proportionally scaled up we test the performance of the heuristics in a numerical study and demonstrate a robust near optimal performance of one of the heuristics which we call the fluid time heuristic for a wide range of problem parameters finally we demonstrate the importance of proper accounting of price adjustment costs in several alternative business settings

a near rational model of the business cycle with wage and price inertia this paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects the individual loss to agents with inertial price wage behavior is second order in terms of the parameter describing the shock while the effect on real economic variables is first order thus significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses

advertising as signal jamming abstract this paper considers a model of informative advertising that allows firms to jam the consumers signals on product quality before choosing prices at a second stage we find that the price competition at the second stage may overrule the basic insights from the signal jamming approach in other areas of application as a consequence a firm may advertise more intensely the higher is the difference of the expected product qualities moreover a firm s optimal advertising intensity can decrease with quality uncertainty

turbulence in growing and declining industries turbulence over the industry life cycle is examined for the case of portugal using the lowest possible level of industry aggregation thus allowing for the use of panel data to study the evolution of product markets replacement of exiting firms by subsequent entrants plays a primary role in generating turbulence in high growth markets while displacement of incumbents by recent entrants is the main selection force in declining markets as the industry life cycle progresses trial and error entry and entry mistakes decrease and turbulence subsides

comparative analysis of firm demographics and survival evidence from micro level sources in oecd countries in this paper we present cross country evidence on firm size distribution firm demographic and post entry performance for 10 oecd countries we use harmonized firm level data drawn from business registers or social security records these data enable international comparisons and the identification of idiosyncratic country effects while average firm size differs across countries due to both sectoral specialization and within sector characteristics we find similar degrees of firm churning across countries in most of them about 20 of firms enter and exit most markets every year and about 20 40 of entering firms fail within the first 2 years of life however post entry growth of successful entrants is much higher in the usa than in europe which may be indicative of barriers to firm growth as opposed to barriers to entry

optimal starting times for end of season sales and optimal stopping times for promotional fares many industries face the problem of selling a fixed stock of items over a finite horizon these industries include airlines selling seats before planes depart hotels renting rooms before midnight theaters selling seats before curtain time and retailers selling seasonal goods such as air conditioners or winter coats before the end of the season given a fixed number of seats rooms or coats the objective for these industries is to maximize revenues in excess of salvage value when demand is price sensitive and stochastic pricing is an effective tool to maximize revenues in this paper we address the problem of deciding the optimal timing of a single price change from a given initial price to either a given lower or higher second price under mild conditions we show that it is optimal to decrease resp to increase the initial price as soon as the time to go falls below resp above a time threshold that depends on the number of yet unsold items

establishment exits in germany the role of size and age using comprehensive data for west germany this paper investigates the determinants of establishment exit we find that between 1975 and 2006 the average exit rate has risen considerably in order to test various liabilities of establishment survival identified in the literature we analyzed the impact of establishment size and put a special focus on differences between young and mature establishments our empirical analysis shows that the mortality risk falls with establishment size which confirms the liability of smallness the probability of exit is substantially higher for young establishments which are not more than 5 years old thus confirming the liability of newness there also exists a liability of aging since exit rates first decline over time reaching a minimum at ages 15 18 and then rise again somewhat the determinants of exit differ substantially between young and mature establishments suggesting that young establishments are more vulnerable in a number of ways

optimal pricing with costly adjustment evidence from retail grocery prices in many theoretical models it is assumed that there are costs associated with adjusting prices in this paper the existence type and magnitude of such costs are investigated empirically a discrete choice dynamic programming model that nests fixed and variable costs is developed and econometric estimates of the adjustment cost function are obtained the data used to implement the model consist of weekly retail prices and sales of three brands of saltine crackers sold by four chains of grocery stores in a small u s town the study has several distinguishing characteristics first the data are highly disaggregate at the level of brand and store second variables are sampled at weekly intervals third the model nests fixed and variable adjustment costs and can therefore determine their relative importance finally the discrete choice model is both structural and dynamic

the magnitude of menu costs direct evidence from large u s supermarket chains we use store level data to document the exact process of changing prices and to directly measure menu costs at five multistore supermarket chains we show that changing prices in these establishments is a complex process requiring dozens of steps and a nontrivial amount of resources the menu costs average 105 887 year per store comprising 0 70 percent of revenues 35 2 percent of net margins and 0 52 price change these menu costs may be forming a barrier to price changes specifically 1 a supermarket chain facing higher menu costs due to item pricing laws that require a separate price tag on each item changes prices two and one half times less frequently than the other four chains 2 within this chain the prices of products exempt from the law are changed over three times more frequently than the products subject to the law in principle fixed costs of changing prices can be observed and measured in practice such costs take disparate forms in different firms and we have no data on their magnitude so the theory can be tested at best indirectly at worst not at all alan blinder 1991 p 90

cellular service demand biased beliefs learning and bill shock by april 2013 the fcc s recent bill shock agreement with cellular carriers requires consumers be notied when exceeding usage allowances will the agreement help or hurt consumers to answer this question we estimate a model of consumer plan choice usage and learning using a panel of cellular bills our model predicts that the agreement will lower average consumer welfare by 2 per year because rms will respond by raising monthly fees our approach is based on novel evidence that consumers are inattentive to past usage meaning that bill shock alerts are informative and advances structural modeling of demand in situations where multipart taris induce marginal price uncertainty additionally our model estimates show that an

do customers learn from experience evidence from retail banking we study customers adoption and subsequent switching decisions with regard to a menu of three part tariff plans offered by a commercial bank using a rich panel data set covering 70 510 fee based checking accounts over 30 months before and after the introduction of the plans we find that most customers adopt non cost minimizing plans preferring plans with large monthly allowances and high fixed payments furthermore after adoption customers who exceed their allowances and consequently pay overage fees are more likely to switch to plans with larger allowances than customers who do not experience such fees notably after switching these overage paying customers pay higher monthly payments than before in contrast switching customers who did not pay overage payments before switching pay less after switching our findings unlike those of previous research on experience based learning suggest that the behavior of experienced customers does not converge to the predictions of neoclassical models we p

periodic pricing of seasonal products in retailing this paper studies intertemporal pricing policies when selling seasonal products in retail stores we first present a continuous time model where a seller faces a stochastic arrival of customers with different valuations of the product for this model we characterize the optimal pricing policies as functions of time and inventory we use this model as a benchmark against which we compare more realistic models that consider periodic pricing reviews we show that the structure of the optimal pricing policies in this case is consistent with the procedures observed in practice retail stores successively discount the product during the season and promote a liquidation sale at the end of the planning horizon we also show that the loss experienced when implementing periodic pricing reviews instead of continuous policies is small when the appropriate number of reviews is chosen several interesting economic insights emerge from our analysis for example uncertainty in the demand for new products leads to higher prices larger discounts and more unsold inventory finally we study the effect of announced discount policies on prices and profits we show that stores that have adopted this type of strategy usually set prices such that with high probability the merchandise is sold during the first periods and the largest discounts rarely take place

choosing the wrong calling plan ignorance and learning when a firm offers several tariff options to its customers the possibility arises that they will make an ex post mistake in tariff choice this occurs since consumers cannot commit to a certain purchase level at the time they subscribe to the service option and thus they might find out later that a different choice of tariff could have resulted in a lower payment for their actual level of consumption this is a common feature of increasingly important subscriptions markets in which buyers and sellers maintain long term nonanonymous relations and where learning induces interesting dynamics on the one hand buyers may learn their taste over time thus making the right choice as times goes by on the other hand the seller may design options to identify the type of each buyer and if possible to extract a higher proportion of their consumer surplus by offering tariff options that are better tailored to the profile of the consumer this paper focuses on the first type of learning in turn i document buyer behavior in a subscriptions market using data from a tariff experiment run by south central bell scb in kentucky during the second half of 1986 the most frequently studied case of subscriptions markets is the choice among optional calling plans ocps in the telephone industry this paper shows that contrary to the conven

the evolution of new industries and the determinants of market structure several empirical regularities concerning firm growth rates and industry firm size distributions have been developed by studying primarily mature industries the primary purpose of this article is to bring together and extend empirical regularities on the evolution of new industries and to use these regularities to gain further insight into the forces governing industry evolution to explain these regularities a model is constructed which emphasizes how factors governing the early evolution of industries may shape their market structure at maturity it stresses how chance events and exogenous factors that influence the number of potential entrants to the industry the growth rate of incumbents and the ease of imitation of industry leaders will influence the ultimate number and size distribution of firms in the industry

overconfidence and excess entry an experimental approach psychological studies show that most people are overconfident about their own relative abilities and unreasonably optimistic about their futures e g shelly e taylor and j d brown 1988 neil d weinstein 1980 when assessing their position in a distribution of peers on almost any positive trait like driving ability ola svenson 1981 income prospects or longevity a vast majority of people say they are above the average although of course only half can be if the trait is symmetrically distributed this paper explores whether optimistic biases could plausibly and predictably influence economic behavior in one particular setting entry into competitive games or markets many empirical studies show that most new businesses fail within a few years for example using plant level data from the u s census of manufacturers spanning 1963 1982 timothy dunne et al 1988 estimated that 61 5 percent of all entrants exited within five years and 79 6 percent exited within 10 years most of these exits are failures see also dunne et al 1989a 1989b d shapiro and r s khemani 1987

sticky prices in a dynamic oligopoly an investigation of s s thresholds abstract the strategic implications of costly price adjustment are investigated empirically i assume that managers are engaged in a state space game and ask if the dynamic considerations that arise when they condition their choices on the state cause prices to be more or less rigid than when players use more myopic pricing rules the answer to this question depends on a parametric specification of the problem that lends itself to empirical assessment the micro panel data used to investigate this issue consist of weekly prices sales costs and promotional activity for three brands of saltine crackers sold by four chains of grocery stores in a small us town i find that in this market strategic behavior exacerbates price rigidity the thresholds are wider and the time between changes is longer than would be observed in a more myopic setting

when talk is free the effect of tariff structure on usage under two and three part tariffs abstract in many service industries firms introduce three part tariffs to replace or complement existing two part tariffs in contrast with two part tariffs three part tariffs offer allowances or free units of the service behavioral research suggests that the attributes of a pricing plan may affect behavior beyond their direct cost implications evidence suggests that customers value free units above and beyond what might be expected from the change in their budget constraint nonlinear pricing research however has not considered such an effect the authors examine a market in which three part tariffs were introduced for the first time they analyze tariff choice and usage behavior for customers who switch from two part to three part tariffs the findings show that switchers significantly overuse in comparison with their prior two part tariff usage that is they attain a level of consumption that cannot be explained by a shift in the budget constraint the authors estimate a discrete continuous

the devolution of declining industries in declining industries capacity must be reduced in order to restore profitability who bears this burden where production is all or nothing there is a unique subgame perfect equilibrium the largest firms exit first ghemawat and nalebuff 1985 in this paper firms continuously adjust capacity again there is a unique subgame perfect equilibrium all else equal large firms reduce capacity first and continue to do so until they shrink to the size of their formerly smaller rivals intuitively bigger firms have lower marginal revenue and correspondingly greater incentives to reduce capacity this prediction is supported by empirical findings

is there a linear relationship between r d intensity and growth empirical evidence of non high tech vs high tech smes abstract to investigate whether there is a similar relationship between rd and ii financing restrictions are especially important in financing the growth of high tech smes compared with non high tech smes

the life cycle of a competitive industry firm numbers first rise then later fall as an industry evolves this nonmonotonicity is explained using a competitive model in which innovation opportunities fuel entry and relative failure to innovate prompts exit equilibrium time paths for price and quantity also share features of the data the model is estimated using data from the u s automobile tire industry a particularly dramatic example of the nonmonotonicity in firm numbers

adverse selection and inertia in health insurance markets when nudging hurts this paper investigates consumer inertia in health insurance markets where adverse selection is a potential concern we leverage a major change to insurance provision that occurred at a large firm to identify substantial inertia and develop and estimate a choice model that also quantifies risk preferences and ex ante health risk we use these estimates to study the impact of policies that nudge consumers toward better decisions by reducing inertia when aggregated these improved individual level choices substantially exacerbate adverse selection in our setting leading to an overall reduction in welfare that doubles the existing welfare loss from adverse selection jel d82 g22 i13 a number of potential impediments stand in the way of efficient health insur ance markets the most noted of these is adverse selection first studied by akerlof 1970 and rothschild and stiglitz 1976 in insurance markets prices reflect the expected risk costs of the insured pool whether the reason is price regulation or private information when insurers cannot price all risk characteristics riskier consumers choose more comprehensive health plans this causes the equilibrium prices of these plans to rise and healthier enrollees to select less comprehensive coverage than they would otherwise prefer

small menu costs and large business cycles a macroeconomic model of monopoly i introduction the conflict between modern neoclassical and traditional keynesian theories of the business cycle centers upon the pricing mechanism in neoclassical models prices are fully flexible they represent the continuous optimization of economic agents and the continuous intersection of supply and demand in keynesian models prices are often assumed to be sticky they do not necessarily equilibrate all markets at all times one of the reasons for the resurgence of the equilibrium approach to macroeconomics has been the absence of a theoretical underpinning for this keynesian price stickiness this note shows that sticky prices can be both privately efficient and socially inefficient the business cycle results from the suboptimal adjustment of prices in response to a demand shock to the extent that policy can stabilize aggregate demand it can mitigate the social loss due to this suboptimal adjustment in some keynesian models prices are simply exogenously fixed 2 in others agents must set their prices in advance of the transaction date the act of altering a posted price is certainly costly these costs include such items as printing new catalogs and informing salesmen of the new price yet these menu costs are small and therefore generally perceived as providing only a weak foundation for these fixed price models however this inference is flawed small menu costs can cause large welfare losses the claim that price adjustment costs are small does not rebut the claim that they are central to understanding economic fluctuations

the survival of new plants start up conditions and post entry evolution abstract this paper examines the longevity of entrants we find size to be an important determinant of the chances of survival this being particularly relevant to de novo entrants as compared with entry by established firms current size is also found to be a better predictor of failure than initial size moreover our findings indicate that after controlling for size differences past growth matters for survival suggesting a partial adjustment process for firm size in the post entry period finally new plants are more likely to live longer if they enter growing industries or industries with little entry activity

determining consumers discount rates with field studies abstract because utility profits state transitions and discount rates are confounded in dynamic models discount rates are typically fixed for the purpose of identification the authors propose a strategy of identifying discount rates the identification rests on imputing the utility profits using decisions made in a context in which the future is inconsequential the objective function is concave and the decision space is continuous they then use these utilities profits to identify discount rates in contexts in which dynamics become material the authors exemplify this strategy using a field study in which cell phone users transitioned from a linear to a three part tariff pricing plan they find that the estimated discount rate corresponds to a weekly discount factor 90 lower than the value typically assumed in empirical research 995 when using a standard 995 discount factor they find that the price coefficient is underestimated by 16 moreover the predicted intertemporal substitution pat

sunk costs firm size and firm growth for several decades the conventional wisdom has been that expected firm growth rates are independent of firm size a property known as gibrat s law however recent empirical work has found a negative relation between firm growth and firm size this paper provides a theoretical explanation for this negative relation in a model of new firm growth where capacity and technology choices involve some degree of sunkness additional empirical implications of the theory of sunk costs are also developed these relate to profit rates tobin s q exit rates degree of sunkness of capacity costs as well as size and growth rates copyright 1995 by blackwell publishing ltd

a model of mental accounting and reference price adaptation consumers possess a mental account that stores the worth of items purchased and yet to be consumed reference prices act as the book values of these items movements in the account the comparison between the reference price and the price paid at entry and the comparison between the benefit of consumption and the reference price at exit yield hedonic benefits the reference price is determined by a psychological process of adaptation to the price evoked by the trade the model is integrative in that it explains a wide array of observed anomalies such as sunk cost effects payment depreciation reluctance to trade preference for prepayment and the flat rate bias the model also generates new testable implications this paper was accepted by james smith decision analysis

dynamic pricing in the presence of inventory considerations research overview current practices and future directions the benefits of dynamic pricing methods have long been known in industries such as airlines hotels and electric utilities where the capacity is fixed in the short term and perishable in recent years there has been an increasing adoption of dynamic pricing policies in retail and other industries where the sellers have the ability to store inventory three factors contributed to this phenomenon 1 the increased availability of demand data 2 the ease of changing prices due to new technologies and 3 the availability of decision support tools for analyzing demand data and for dynamic pricing this paper constitutes a review of the literature and current practices in dynamic pricing given its applicability in most markets and its increasing adoption in practice our focus is on dynamic intertemporal pricing in the presence of inventory considerations

does uncertainty matter consumer behavior under three part tariffs in communication information and other industries three part tariffs are increasingly popular a three part tariff is defined by an access price an allowance and a marginal price for any usage in excess of the allowance empirical nonlinear pricing studies have focused on consumer choice under two part tariffs we show that consumer behavior differs under three part tariffs and assess how consumer demand uncertainty impacts tariff choice we develop a discrete continuous model of choice among three part tariffs and estimate it using consumer level data on internet usage our model extends prior work in accommodating consumer switching to competitors thereby capturing behavior in competitive industries more accurately our empirical work shows that demand uncertainty is a key driver of choice among three part tariffs consumers expected bill increases with the variation in their usage steering them toward tariffs with high allowances consequently demand uncertainty decreases consumer surplus and increases provider revenue a further analysis of consumers responsiveness to the different elements of a three part tariff under the provider s current pricing structure reveals that prices affect a consumer s tariff choice more than her usage quantity and that the allowance plays a strong role in consumer tariff choice based on our results we derive implications for pricing with three part tariffs

job matching and occupational choice this paper presents a model of job matching the generalizes the existing literature by allowing for different jobs types or occupations such differences affect the value of job specific experience inducing a career profile where certain types are sampled before others more specifically the analysis shows that it is optimal for the young and inexperienced to gravitate toward jobs exhibiting a certain kind of risk then after deriving the equilibrium job turnover rate for an economy in which people do not switch occupations panel data are used to estimate its underlying parameters the hypothesis that people do not switch occupations is rejected against the alternative that they do thus providing empirical support for the theoretical extension undertaken here

entry and exit from manufacturing industries symmetry turbulence and simultaneity some empirical evidence from greek manufacturing industries 1982 1988 the interdependence between entry and exit of firms into manufacturing industries is the focus of this research when both entry and exit equations are estimated separately the results support the existence of strong symmetry in their determinants when however entry and exit are estimated within a simultaneous equation framework the empirical evidence does not offer sufficient grounds to support the notion that entry and exit are simultaneously linked instead it seems that they are two contemporaneously related processes which respond in like fashion to the structural characteristics found in particular industries their linked response is also extended to factors unaccounted for by the individual entry and exit formulations and this expresses itself in significant contemporaneous correlation between the entry and exit equation residuals the change in the identities of firms operating implied by the positive correlation between entry and exit may then be attributed to industry turbulent condition

tariff choice with consumer learning and switching costs abstract consumers choosing flat rate contracts tend to have insufficient usage to warrant the cost particularly for new products we propose and estimate a bayesian learning model of tariff and usage choice that explains this flat rate bias without relying on behavioral misjudgments or tariff specific preferences for new products consumers are uncertain about both their utility relative to the population mean and the mean itself we show that this latter uncertainty inflates prior variances which leads consumers to weight their private signals more heavily when updating beliefs posteriors are unbiased across products for a given product however the unknown mean yields a winner s curse consumers with high posteriors tend to overestimate their utility these consumers choose fixed rate tariffs and lower their usage as they correct their beliefs the flat rate bias arises when switching costs deter them from changing tariffs using the estimated model the authors find that tariff menus are ineff