advertising and prices as signals of quality in a regime of price rivalry abstract this paper addresses the issue of whether firms use price or advertising to signal quality and whether advertising has pro or anti competitive effects we show that when there is price rivalry advertising may be necessary to signal quality in contrast to single firm models signaling through price alone prevails for sufficient inter brand quality differentials joint price advertising signals prevail when the quality differential is small finally advertising in the form of variable rather than fixed costs is shown to increase the feasibility of signaling quality

interfering with secondary markets we present a model to address in a unified manner four ways in which a monopolist can interfere with secondary markets in the model consumers have heterogeneous valuations for quality so that used good markets play an allocative role our results are the following 1 in contrast to swan s famous independence result a monopolist does not provide socially optimal durability 2 allowing the monopolist to rent does not restore socially optimal durability and increases the monopolist s market power in the used market however forcing the monopolist to sell the goods may be a bad policy because it would lead to either lower output or lower durability 3 the manufacturer benefits from a well functioning used good market despite the fact that used goods provide competition for new goods 4 the monopolist prefers to restrict consumers abilities to maintain the good

a multivariate cointegrated modelling approach in testing temporal causality between energy consumption real income and prices with an application to two asian ldcs unlike previous studies on the casual relationship between energy consumption and economic growth this paper illustrates how the finding of cointegration i e long term equilibrium relationship between these variables may be used in testing granger causality based on the most recent johansen s multiple cointegration tests preceded by various unit root or nonstationarity tests we test for cointegration between total energy consumption real income and price level of two asian ldcs thailand and sri lanka nonrejection of cointegration between variables rules out granger noncausality and implies at least one way of granger causality either unidirectional or bidirectional secondly by using a dynamic vector error correction model we then analyse the direction of granger causation and hence the within sample grangerexogeneity or endogeneity of each of the variables thirdly the relative strength of the causality is gauged through the dynamic variance decomposition technique by decomposing the total

durable goods theory for real world markets the early 1970s witnessed three major advances in durable goods theory swan 1970 1971 and sieper and swan 1973 on optimal durability coase 1972 on time inconsistency and akerlof 1970 on adverse selection this paper surveys durable goods theory starting with these three contributions where much of the focus is on recent literature and on models that explain real world phenomena in addition to the ideas found in the contributions of swan coase and akerlof topics covered include why producers sometimes practice planned obsolescence the role of adverse selection in new car leasing and reasons for aftermarket monopolization

durable goods monopolists durable goods monopolists face special problems because the sale of their products creates a secondhand market not controlled by the monopolist to the extent the monopolist is able to rent his product rather than sell it or to make binding promises about his future production such problems are ameliorated given the inability to do the above the monopolist is led to producing goods less durable than those produced by either competitive firms or monopolist returns a reverse averch johnson result that monopolist sellers may invest less in fixed costs including plant modernization and research and development than would the renters is shown it is also shown that even though sellers have less monopoly power than renters and nondurable goods monopolists it is possible that the seller will cause a greater deadweight loss than the other types of monopolies

procurement auctions under quality manipulation corruption abstract in procurement quality manipulation corruption arises when the agent tasked with quality evaluation exaggerates the quality of a corrupt firm if an inefficient firm is favored by the agent the buyer can adjust the procurement mechanism such that the corruption rent of the inefficient firm erodes the technological rent of the efficient firm however doing so may require procuring the project at an undesirable quality level to resolve this trade off between corruption deterrence and quality distortion unlike standard results in the literature the buyer may overstate her preference for quality and the dominance of scoring auctions over minimum quality auctions disappears

pricing a network good to deter entry of a network good we show that the installed user base of a network good can serve a preemptive function similar to that of an investment in capacity if the entrant s good is incompatible with the incumbent s good and there are network externalities in demand consequently the threat of entry can lead the incumbent to set low prices we identify some factors that should be considered in thinking about the welfare eiects of entry deterrence in this and similar models i introduction both sides in us v microsoft seem to agree that microsoft s pricing of windows does not correspond to short run pro t maximization by a monopolist schmalensee s direct testimony argues that microsoft s low prices are due at least in part to its concern that higher prices would encourage other rms to develop competing operating systems while this idea may seem intuitive it has been seen as controversial by some commentators e g hall and hall 1999 because neither side has proposed a formal model where such limit pricing would make sense in response this paper develops a highly simpli ed model of complete information limit pricing based on the idea that the installed base of a network good can ll a preemptive role similar to that of investment in physical capacity to model the role of the incumbent s installed base we assume that there are overlapping generations of consumers each of whom lives for two periods and purchases only when young we also assume there are only two types of consumers and we further assume that the distribution of values is such that the incumbent s steady state pro t is highest when it

a comparison of buyer determined and price based multiattribute mechanisms reverse auctions are fast becoming the standard for many procurement activities in the past the majority of such auctions have been solely price based but increasingly attributes other than price affect the auction outcome specifically the buyer uses a scoring function to compare bids and the bid with the highest score wins we investigate two mechanisms commonly used for procurement in business to business markets in a setting in which buyers welfare is affected by exogenous nonprice attributes such as the quality service and past relationships under both mechanisms bidders bid based on price but in the buyer determined mechanism the buyer is free to select the bid that maximizes her surplus while in the price based mechanism the buyer commits to awarding the contract to the low price bidder we find both in theory and in the laboratory that the buyer determined mechanism increases the buyer s welfare only as long as enough suppliers compete if the number of suppliers is small and the correlation between cost and quality is low the buyer is better off with the price based mechanism these findings are intended to help procurement managers make better decisions in designing procurement mechanisms for a variety of settings

energy consumption and gdp causality relationship in g 7 countries and emerging markets abstract the causality relationship between energy consumption and income is a well studied topic in energy economics this paper studies the time series properties of energy consumption and gdp and reexamines the causality relationship between the two series in the top 10 emerging markets excluding china due to lack of data and g 7 countries we discover bi directional causality in argentina causality running from gdp to energy consumption in italy and korea and from energy consumption to gdp in turkey france germany and japan hence energy conservation may harm economic growth in the last four countries

the design of multidimensional auctions procurement auctions usually require the bid to specify several characteristics of the contract to be fulfilled in this article i study the design of such mechanisms allowing for a special case of correlation of the firm s costs i describe the properties of optimal mechanisms and study the design of multidimensional auctions contrary to the independent costs model to implement the optimal outcome the procurer will need to use a two stage auction in the first stage the procurer selects one firm in the second stage he bargains to readjust the level of quality to be provided

leasing lemons and buybacks in his seminal article of 1970 akerlof argued that the used car market is not efficient because adverse selection causes too little trade we construct a competitive model of the new and used car markets and investigate the relationship between new car leasing and adverse selection our analysis yields a number of interesting results including that new car leasing reduces the adverse selection problem and that buybacks also increase efficiency in the secondhand market we also discuss alternative explanations for new car leasing and an explanation for the growth in new car leasing during the last fifteen years copyright 2003 by the rand corporation

energy and national income in korea further evidence on the role of omitted variables abstract results of this paper indicate that the real oil price is a major determinant of real national income and energy consumption the combined effects of real money and real government expenditure on real income and energy consumption are also substantial a lack of causality or the causality between energy and real income in prior studies is due to the omitted variables results also confirm that the two oil price shocks combined adversely affected real national income

i m not a high quality firm but i play one on tv this article investigates the role of noise in a multidimensional signalling game a monopolist that offers a high or low quality product can signal its quality to consumers through its selection of price and advertising it is shown that when the advertising channel is noisy there is no separating equilibrium where the monopolist will simultaneously employ both signalling mechanisms advertising will take place only when price is uncorrelated to quality furthermore the noise complicates the process of consumer inference this enables a low quality firm to take advantage of consumer ignorance by partially mimicking the strategy of the high quality firm

prices and qualities in markets with costly information this paper extends the seminal work of akerlof and salop and stiglitz in two directions i the sellers can select both the selling prices and quality levels of their good and ii the buyers can acquire price quality information about individual sellers at a cost we observe multiple price quality combinations in equilibrium which depend upon the distribution of information costs of consumers and upon whether quality or price or both are costly observable welfare comparisons of equilibrium are considered we show that welfare will be greater when price advertising is permitted

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

high and declining prices signal product quality high and declining prices signal a high quality product high prices are the efficient means of signaling because the consequent loss of sales volume is most damaging for lower cost lower quality products as time passes and the number of informed consumers increases the signaling distortion lessens resulting in a declining price profile the prediction of high and declining prices is robust across a variety of dynamic models and is consistent with recent empirical findings copyright 1991 by american economic association

price and advertising as signals of quality when some consumers are informed abstract a monopoly produces a good of either high or low quality some consumers are informed about quality while others are uninformed and infer quality through the firm s marketing strategy the model is an extension of bagwell and riordan american economic review 81 1 1991 224 dissipative advertising combined with a high price is an efficient signal of quality when the marginal cost of production of high quality is low if the proportion of informed consumers is low quality is signaled only through a high price however if this proportion is intermediate quality is signaled by both advertising and price

configurable offers and winner determination in multi attribute auctions abstract the theory of procurement auctions traditionally assumes that the offered quantity and quality is fixed prior to source selection multi attribute reverse auctions allow negotiation over price and qualitative attributes such as color weight or delivery time they promise higher market efficiency through a more effective information exchange of buyer s preferences and supplier s offerings this paper focuses on a number of winner determination problems in multi attribute auctions previous work assumes that multi attribute bids are described as attribute value pairs and that the entire demand is purchased from a single supplier our contribution is twofold first we will analyze the winner determination problem in case of multiple sourcing second we will extend the concept of multi attribute auctions to allow for configurable offers configurable offers enable suppliers to specify multiple values and price markups for each attribute in addition suppliers can define configuration and discount rules in form of propositional logic statements these extensions provide suppliers with more flexibility in the specification of their bids and allow for an efficient information exchange among market participants we will present mip formulations for the resulting allocation problems and an implementation

oligopoly limit pricing we expand milgrom and roberts 1982 limit pricing model to allow for multiple incumbents each incumbent is informed as to the level of an industry cost parameter and selects a preentry price while a single entrant observes each incumbent s preentry price we find that incumbents are unable to coordinate deception which results in a separating equilibrium in which preentry prices are not distorted further introducing the refinement of unprejudiced beliefs we show that the no distortion equilibrium is the only refined separating equilibrium plausible pooling equilibria fail to exist or involve downward distortions in preentry prices

a binary conflict ascending price bicap mechanism for the decentralized allocation of the right to use railroad tracks the questions posed for study are motivated by controversies over how sweden might change from a centralized system of railroad management to a decentralized system the central rail administration banverket will retain ownership and maintenance responsibility of the tracks but will sell access to the tracks to private firms the questions are about the mechanism that might accomplish this task parties to the controversy have claimed that the technical aspects of networks will as a matter of principle preclude the operation of any decentralized method this paper explores the properties of a mechanism developed as a challenge to that claim the mechanism is examined in the context of a testbed experimental environment that contains many potential problem causing elements in the tests performed the mechanism operated to efficiently allocate access to the network and it did so for behavioral reasons that are understandable in terms of theory the paper closes with suggestions for further study of environments that might present additional challenges to a mechanism

electricity consumption and economic growth a time series experience for 17 african countries abstract while the availability of electricity by itself is not a panacea for the economic and social problems facing africa the supply of electricity is nevertheless believed to be a necessary requirement for africa s economic and social development this paper tests the long run and causal relationship between electricity consumption per capita and real gross domestic product gdp per capita for 17 african countries for the period 1971 2001 using a newly developed cointegration test proposed by pesaran et al 2001 and using a modified version of the granger causality test due to toda and yamamoto 1995 the advantage of using these two approaches is that they both avoid the pre testing bias associated with conventional unit root and cointegration tests the empirical evidence shows that there was a long run relationship between electricity consumption per capita and real gdp per capita for only 9 countries and granger causality for only 12 countries for 6 countries there was a positive uni directional causality running from real gdp per capita to electricity consumption per capita an opposite causality for 3 countries and bi directional causality for the remaining 3 countries the result should however be interpreted with care as electricity consumption accounts for less than 4 of total energy consumption in africa and only grid supplied electricity is taken into account

exploring the relationship between energy use and economic growth with bivariate models new evidence from g 7 countries abstract there is a rapidly growing literature on the interaction between energy use and economic development with many analysts drawing policy conclusions on the basis of granger causality tests that involve only an energy and an economic variable this paper attempts to demonstrate empirically that such studies although useful for certain applications may be of limited use for policy purposes after outlining theoretical and methodological issues associated with such approaches i apply bivariate energy economy causality tests for canada france germany italy japan the united kingdom and the united states using aggregate and sectoral data and three different modern econometric methods the results which are often contradictory or economically implausible illustrate explicitly that one should be cautious when drawing policy implications with the aid of bivariate causality tests on small samples i therefore underline the importance of utilizing as large sample sizes as possible and using multivariate models which are closer to economic theory accommodate several mechanisms and causality channels and provide a better representation of real world interactions between energy use and economic growth

5 information impact and allocation rules in auctions with affiliated private values a laboratory study in affiliated private value auctions each bidder has perfect information regarding his her own value for the object at auction but higher values of the item for one bidder make higher values for other bidders more likely we report on a series of experiments examining three key implications of these auctions i in a first price auction public information about rivals values increases expected revenue ii an english auction increases expected revenue compared to a first price auction and iii a second price auction is isomorphic to an english auction in examining these issues we compare predictions of some ad hoc bidding models with nash equilibrium predictions in the first price auction experiments nash equilibrium bidding theory organizes the data better than either of two ad hoc bidding models public information about others valuations does increase average revenue but the increase in revenue is smaller and less reliable than predicted under risk neutral nash equilibrium bidding lower average revenue might be attributed to risk aversion while the high variability is attributed to a sizable frequency of individual bidding errors relative to the theory bidding theory precisely organizes english auction outcomes after a brief initial learning period the dominant strategy equilibrium does not organize second price auctions nearly as well as market prices persistently exceed predicted prices the difference between english and second price outcomes is attributed to effects of different information flows inherent in the structure of the two institutions on eliminating bidding errors revenue impacts of these two institutions relative to a first price auction are examined in light of observed bidding patterns

design competition through multidimensional auctions this article studies design competition in government procurement by developing a model of two dimensional auctions wherefirms bid on both price and quality and bids are evaluated by a scoring rule designed by a buyer three auction schemes first score second score and second preferred offer are introduced and related to actual practices if the buyer can commit to a scoring rule in his best interest the resulting optimal scoring rule underrewards quality relative to the buyer s utility function and implements the optimal outcome for the buyer underfirst and second score auctions absent the commitment power the onlyfeasible scoring rule is the buyer s utility function under which 1 all three schemes yield the same expected utility to the buyer and 2 first and second score auctions induce the first best level of quality which turns out to be excessive from the buyer s point of view

causal relationship between energy consumption and gdp revisited the case of korea 1970 1999 abstract causal relationship between energy consumption and economic growth is investigated applying a multivariate model of capital labor energy and gdp usual btu energy aggregate is substituted with a divisia aggregate in an attempt to mitigate aggregation bias to test for granger causality in the presence of cointegration among the variables we employ a vector error correction model rather than a vector autoregressive model empirical results for korea over the period 1970 1999 suggest a long run bidirectional causal relationship between energy and gdp and short run unidirectional causality running from energy to gdp the source of causation in the long run is found to be the error correction terms in both directions

an economic theory of planned obsolescence planned obsolescence is the production of goods with uneconomically short useful lives so that customers will have to make repeat purchases however rational customers will pay for only the present value of the future services of a product therefore profit maximization seemingly implies producing any given flow of services as cheaply as possible with production involving efficient useful lives this paper shows why this analysis is incomplete and therefore incorrect monopolists are shown to desire uneconomically short useful lives for their goods oligopolists have the monopolist s incentive for short lives as well as a second incentive that may either increase or decrease their chosen durability however oligopolists can generally gain by colluding to reduce durability and increase rentals relative to sales some evidence is presented that appears to be generally consistent with the predictions of the theory

energy and economic growth in the usa a multivariate approach abstract this paper examines the causal relationship between gdp and energy use for the period 1947 90 in the usa the relationship between energy use and economic growth has been examined by both biophysical and neoclassical economists in particular several studies have tested for the presence of a causal relationship in the granger sense between energy use and economic growth however these tests do not allow a direct test of the relative explanatory powers of the neoclassical and biophysical models a multivariate adaptation of the test vector autoregression var does allow such a test a var of gdp energy use capital stock and employment is estimated and granger tests for causal relationships between the variables are carried out although there is no evidence that gross energy use granger causes gdp a measure of final energy use adjusted for changing fuel composition does granger cause gdp

electrical energy usage over the business cycle causality from macroeconomic conditions to electrical usage overall and in the residential commercial industrial and other sectors is examined the paper shows that changes in macroeconomic conditions cause significant changes in electrical usage in the commercial and industrial sectors and overall in addition the paper shows that causality occurs at business cycle frequencies and that there are asymmetries over the business cycle an implication is that forecasts used to assess the probability of exceeding capacity constraints should incorporate forecasts of macroeconomic conditions asymmetries over the cycle and how the commercial and industrial sectors will respond to such changes

the relationship between energy and gnp further results this paper reexamines the casuality between gnp and energy consumption by using updated us data for the period 1947 1979 as a secondary contribution we investigate the causal relationship between energy consumption and employment applying sims technique we find no causal relationship between gnp and energy consumption we find further that there is a slight unidirectional flow running from employment to energy consumption economic interpretations of the empirical results are also presented

autoregressive modelling and money income causality detection abstract a step wise procedure based on granger s concept of causality and abaike s final prediction error criterion is suggested as a practical means to identify the order of lags of each variable in a multivariate autoregressive process the model seems useful because it can serve as a reduced form formulation to avoid imposing often spurious or false restrictions of the model it also provides a reasonably powerful test of causality the idea is applied to u s postwar money and income data it is found that between m1 and gnp a bivariate feedback model fits the data best between m2 and gnp a one way causal model from money to income performs better diagnostic checks applied to our model seem to indicate the adequacy of our approach

a new perspective on planned obsolescence automobile manufacturers have long had a policy of introducing annual style changes into their new model cars textbook publishers have a policy of periodically bringing out revised editions of their popular books recently ibm changed the operating system used in its personal computers causing a reduction in the compatibility between its old and new machines if one were to ask the typical man in the street to explain what is happening in these markets he would not hesitate before giving the following answer in economists terminology he would say that for the above firms the incentive to introduce new products that make old units obsolete is too high i e the firms have an incentive to practice planned obsolescence of course just as is true for the man in the street economists have also long observed and commented on the speed with which new products are introduced for example galbraith 1958 suggests that the annual model changes of automobile manufacturers are socially wasteful while fisher griliches and kaysen 1962 provide empirical estimates of the costs of these changes there have also been numerous theoretical attempts to model the idea of planned obsolescence or the related idea of killing off the market for secondhand goods but most of these models have in fact considered the choice a monopolist faces concerning how much durability to build initially into his product rather than the monopolist s incentive to introduce new versions of his product over time 1 in this paper i consider planned obsolescence from the standpoint of a firm that can change the nature of what it sells and show that the man in the street is in fact correct in many settings the incentive for a durable goods monopolist to introduce new products that make old units obsolete will be above that which is socially optimal

incumbent positioning as a determinant of strategic response to entry existing research has identified different firm characteristics that determine an incumbent s reaction toward market entrants this study widens the perspective from a firm s absolute attributes to its relative positioning within its competitive environment the hypotheses for the empirical analysis are derived from game theoretic models with either vertical or horizontal product differentiation in each of the two theoretical models two incumbents initially choose very different quality and variety levels respectively and move closer to the center when faced by entry of a competitor from the vertical differentiation model we predict a stronger price reduction by high quality firms in our empirical analysis we are using a novel dataset of the high quality restaurant market in germany to test the theoretical findings while the hypotheses with respect to adjustments of prices and varieties are supported we do not find empirical evidence for the predicted quality adjustment

elasticities science or fiction abstract apart from discrepancies in statistical data series the most frequent source of inconsistencies among elasticity estimates is the model specification and the interpretation of empirical results this paper investigates this issue and in particular highlights the misconception that elasticities can scientifically and uniquely be determined by econometric techniques however it is common knowledge that econometric methods constitute a very good tool for analysing the past thus the main message of this exercise is that in the absence of complete specification there are important trends in the elasticities themselves such trends are very crucial and need to be interpreted if elasticities are to be used for forecasting purposes

oligopolistic entry deterrence under incomplete information recent work has investigated the effects of asymmetric information between an incumbent firm and a potential entrant this study extends the analysis to allow the initial market structure to be a noncooperative oligopoly we show that there is a bayesian nash equilibrium in which the incumbent firms although unable to collude strategically deter entry that would have occurred under complete information in contrast to the past limit pricing literature it is a high price that deters entry as it signals to the potential entrant that this is a high cost industry extending the model to allow for multiple potential entrants we find that increasing the degree of potential competition raises the preentry price and reduces the likelihood of entry

allocating uncertain and unresponsive resources an experimental approach we identify an important class of economic problems that arise naturally in several applications the allocation of multiple resources when there are uncertainties in demand or supply unresponsive supplies no inventories and fixed capacities and significant demand indivisibilities rigidities examples of such problems include scheduling job shops airports or supercomputers zero inventory planning and the allocation and pricing of nasa s planned space station using experimental methods we show that the two most common organizations used to deal with this problem markets and administrative procedures can perform at very low efficiencies 60 65 efficiency in a seemingly robust example thus there is a need to design new mechanisms that more efficiently allocate resources in these environments we develop and analyze two mechanisms that arise naturally from auctions used to allocate single dimensional goods these new mechanisms involve computer assisted coordination made possible by the existence of networked computers both mechanisms significantly improve on the performance of administrative and market procedures

planned obsolescence and the r d decision by investing in rd i e the r d choice that maximizes current profitability does not maximize overall profitability the result is that if output is sold rather than rented then in its r d decision the monopolist has an incentive to practice a type of planned obsolescence that lowers its own profitability

network externality compatibility choice and planned obsolescence this paper attempts to provide a formal theory of planned obsolescence based on incompatible technologies in the presence of network externalities the author explores how a monopolist s ability to make the new product incompatible with the old version of a product constrains the optimal dynamic behavior of the monopolist the social optimum and the market equilibrium are compared finally the possibility of quality distortion is considered as a commitment mechanism to the future compatibility choice copyright 1994 by blackwell publishing ltd

procurement when price and quality matter a buyer seeks to procure a good characterized by its price and its quality from suppliers who have private information about their cost structure xed cost and marginal cost of providing quality we characterize the buyer s optimal buying mechanism we then use the optimal mechanism as a theoretical and numerical benchmark to study simpler buying procedures such as scoring auctions and bargaining scoring auctions can extract a signifi cant proportion of the buyer s strategic surplus the difference between the expected utility from the optimal mechanism and the e cient auction bargaining does less well and often does worse than the e cient auction

a multivariate cointegration analysis of the role of energy in the us macroeconomy abstract this paper extends my previous analysis of the causal relationship of gdp and energy use in the usa in the post war period a majority of the relevant variables are integrated justifying a cointegration analysis the results show that cointegration does occur and that energy input cannot be excluded from the cointegration space the results are plausible in terms of macroeconomic dynamics the results are similar to my previous granger causality results and contradict claims in the literature based on bivariate models that there is no cointegration between energy and output

the causal relationship between electricity consumption and economic growth in the asean countries abstract this paper investigates the causal relationship between electricity consumption and economic growth among the association of south east asian nations asean 4 members namely indonesia malaysia singapore and thailand using modern time series techniques for the period 1971 2002 the results indicate that there is a bi directional causality between electricity consumption and economic growth in malaysia and singapore this means that an increase in electricity consumption directly affects economic growth and that economic growth also stimulates further electricity consumption in the two countries however uni directional causality runs from economic growth to electricity consumption in indonesia and thailand without any feedback effect thus electricity conservation policies can be initiated without deteriorating economic side effects in the two countries

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

pricing strategy quality signaling and entry deterrence abstract i investigate a pricing strategy that is aimed at deterring entry by applying a two period model of a durable goods monopolist there exists an incumbent that is of two types that is high and low quality types they differ in terms of their r d capabilities and the incumbent s type is assumed to be unknown to an entrant if the entrant decided to enter the market nash bertrand price competition ensues between the incumbent and the entrant i show that not only limit pricing but also prestige pricing signals the incumbent s quality type which serves to discourage entry in the prestige pricing the high quality type sells the products at an intentionally higher price i also show that although limit pricing is more desirable than prestige pricing from a social welfare viewpoint the incumbent can still choose prestige pricing

electricity consumption and economic growth evidence from turkey abstract this study investigates the causal relationship between electricity consumption and real gdp in turkey during the period of 1950 2000 both of the series were found to be a stationary process around a structural break by the zivot and andrews test thus two different methodologies have been employed to test the granger non causality the dolado lutkepohl test using the vars in levels and the standard granger causality test using the detrended data both tests have yielded a strong evidence for unidirectional causality running from the electricity consumption to the income this implies that the supply of electricity is vitally important to meet the growing electricity consumption hence to sustain the economic growth in turkey

models for iterative multiattribute procurement auctions multiattribute auctions extend traditional auction settings to allow negotiation over nonprice attributes such as weight color and terms of delivery in addition to price and promise to improve market efficiency in markets with configurable goods this paper provides an iterative auction design for an important special case of the multiattribute allocation problem with special preferential independent additive structure on the buyer value and seller costs auction additive discrete provides a refined design for a price based auction in which the price feedback decomposes to an additive part with a price for each attribute and an aggregate part that appears as a price discount for each supplier in addition this design also has excellent information revelation properties that are validated through computational experiments the auction terminates with an outcome of a modified vickrey clarke groves mechanism this paper also develops auction nonlinear discrete for the more general nonlinear case a particularly simple design that solves the general multiattribute allocation problem but requires that the auctioneer maintains prices on bundles of attribute levels

a theory of economic obsolescence a new generation of durable goods makes an old generation economically even if not physically obsolete economic obsolescence due to technological innovation requires the durable goods monopolist to implement price discrimination in two dimensions both between consumers with different valuations and between consumers with different purchase histories equilibrium in the game between the durable goods monopolist and consumers depends on the extent of economic obsolescence and the relative sizes of the consumer groups underinvestment in innovation may take place this contrasts with the standard literature on planned obsolescence where the durable goods monopolist overinvests in durability reducing technology

advertising and limit pricing we enrich milgrom and roberts 1982 limit pricing model to allow an incumbent to signal his costs with both price and advertisements our fundamental result is that a cost reducing distortion occurs in that the incumbent behaves as if there were complete information but his costs were lower than they are preentry price is therefore distorted downward and demand enhancing advertising is distorted upward as a consequence of signalling if advertising is a purely dissipative signal it is not used nor therefore distorted recent refinements of the sequential equilibrium concept are featured

contingent payment auction mechanism in multidimensional procurement auctions abstract this paper considers the auctioning of an indivisible project among several suppliers who hold private information about their own efficiency type both quality and price need to be determined different from scoring auctions we present a new method i e contingent payment auction mechanism cpam which can effectively deal with the optimal procurement strategy in multidimensional procurement auctions cpam can implement the optimal mechanism for the buyer and is thus optimal among all possible procurement strategies cpam implies that the buyer should first design and announce a contingent payment function that specifies a payment for each possible quality level before the bidding begins compared to scoring auctions cpam has some advantages it does not require a special form of scoring rule and can be generalized in a more broad auction formats furthermore it can help us to solve the ex post moral hazard problem we consider two kinds of cpam for the cpam i is sensitive to different auction formats we come up with cpam ii which can improve the performance of cpam i broadly speaking cpam integrates the idea of dimension reduction from scoring auction into that of incentive contract design from contract theory to solve the problem of ex post moral hazard

price and advertising signals of product quality we present a signaling model based on ideas of phillip nelson in which both the introductory price and the level of directly uninformative advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good repeat purchases play a crucial role in our model a second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with multiple potential signals

a new and improved design for multiobject iterative auctions in this paper we present a new improved design for multiobject auctions and report on the results of experimental tests of that design we merge the better features of two extant but very different auction processes the simultaneous multiple round smr design used by the fcc to auction the electromagnetic spectrum and the adaptive user selection mechanism ausm of banks et al 1989 allocating uncertain and unresponsive resources an experimental approach rand journal of economics vol 20 no 1 pp 1 25 then by adding one crucial new feature we are able to create a new design the resource allocation design rad auction process which performs better than both our experiments demonstrate that the rad auction achieves higher efficiencies lower bidder losses higher net revenues and faster times to completion without increasing the complexity of a bidder s problem

prices product qualities and asymmetric information the competitive case recent developments in the economics of information emphasize the informational content of prices we examine the degree to which prices convey information on product quality to uninformed agents under perfect competition we show that a rational expectations equilibrium may not exist when an equilibrium does exist the information on quality conveyed by prices depends on the shape of the average cost curves and the relative numbers of informed and uniformed agents

signalling strength limit pricing and predatory pricing this article merges two areas of strategic pricing theory a dynamic signalling game with two sided uncertainty is presented in which an incumbent is confronted with potential entry and chooses between limit pricing and predatory pricing as a means of achieving or maintaining monopoly profit initial distributions across player types are pivotal to this decision results show that when the incumbent is likely to be strong relative to the entrant predatory pricing is chosen when the incumbent is likely to be weak relative to the entrant limit pricing is chosen for intermediate cases a strong incumbent may choose a combination of these two signalling strategies

entry deterrence and innovation in durable goods monopoly this paper investigates the efficiency of innovation investments in a durable goods monopoly when a potential entrant threatens to innovate as well we show that the durability of the good endows the monopolist with the power to discourage rival innovation since current sales alter the demand for a new generation of the good the equilibrium is therefore determined not only by competitive pressure due to time inconsistency but also by the incumbent s concern for maintaining the technological leadership we demonstrate that entry deterrence followed by no innovation always implies underinvestment in innovation

adverse selection in durable goods markets we present a dynamic model of adverse selection to examine the interactions between new and used goods markets we find that the used market never shuts down the volume of trade can be large and distortions are lower than previously thought new cars prices can be higher under adverse selection than in its absence an extension to several brands that differ in reliability leads to testable predictions of the effects of adverse selection unreliable brands have steeper price declines and lower volumes of trade we contrast these predictions with those of a model where brands physically depreciate at different rates

price and quality discrimination in durable goods monopoly with resale trading abstract we examine a durable goods monopolist s optimal dynamic price and product quality strategy when buyers are rational and can trade used durables among themselves in contrast to the usual credibility problem of the durable goods monopolist intertemporal quality discrimination introduces a time inconsistency problem of not raising prices against high valuation consumers who delay purchase for quality upgrades resale trading ameliorates this time inconsistency problem and allows the monopolist to effectively price discriminate especially when the buyers are patient the monopolist s optimal price and quality offers in the new good market exhibit complex dynamic patterns and new good prices can fall as product quality improves even in the absence of entry threats or learning economies initial quality distortions are followed by steady state quality allocations that are always efficient for the high valuation buyers but sometimes also for the marginal consumer types both the resale trading frequency and the price discount for secondhand goods are driven by the pace of strategic quality obsolescence in the new good market

when does it pay to delay supplier qualification theory and experiments we study a procurement setting in which the buyer seeks a low price but will not allocate the contract to a supplier who has not passed qualification screening qualification screening is costly for the buyer involving product tests site visits and interviews in addition to a qualified incumbent supplier the buyer has an entrant of unknown qualification the buyer wishes to run a price only open descending reverse auction between the incumbent and the entrant and faces a strategic choice about whether to perform qualification screening on the entrant before or after the auction we analytically study the buyer s optimal strategy accounting for the fact that under postauction qualification the incumbent knows he could lose the auction but still win the contract in our analysis we derive the incumbent s optimal bidding strategy under postauction qualification and find that he follows a threshold structure in which high cost incumbents hold back on bidding or even boycott the auction to preserve their profit margin and only lower cost incumbents bid to win these results are strikingly different from the usual open descending auction analysis where all bidders are fully qualified and bidding to win is always a dominant strategy we test our analytical results in the laboratory with human subjects we find that qualitatively our theoretical predictions hold up quite well although incumbent suppliers bid somewhat more aggressively than the theory predicts making buyers more inclined to use postauction qualification this paper was accepted by martin lariviere operations management

structural break unit root and the causality between energy consumption and gdp in turkey abstract this paper tries to investigate a series of unit root and causality tests to detect causality between the gdp and energy consumption in turkey employing hsiao s version of granger causality method for the 1950 2000 period the conventional unit root tests indicate the series are i 1 whereas the endogenous break unit root tests proposed by zivot and andrews zivot e and andrews d w k 1992 further evidence on the great crash the oil price shock and the unit root hypothesis journal of business and economics statistics 10 251 270 and perron perron p 1997 further evidence on breaking trend functions in macroeconomic variables journal of econometrics 80 355 385 reveal that the series are trend stationary with a structural break therefore it is inappropriate to take the first difference of the data to achieve stationarity the main conclusion of this study is that there is no evidence of causality between energy consumption and gdp in turkey based on the detrended data

the relationship between energy consumption energy prices and economic growth time series evidence from asian developing countries this paper estimates the causal relationships between energy consumption and income for india indonesia the philippines and thailand using cointegration and error correction modelling techniques the results indicate that in the short run unidirectional granger causality runs from energy to income for india and indonesia while bidirectional granger causality runs from energy to income for thailand and the philippines in the case of thailand and the philippines energy income and prices are mutually causal the study results do not support the view that energy and income are neutral with respect to each other with the exception of indonesia and india where neutrality is observed in the short run c 2000 elsevier science b v all rights reserved jel classifications c22 q43 q48

strategic wholesale pricing in a supply chain with a potential entrant this paper develops an adverse selection model for a two stage supply chain with one supplier one retailer and a potential outside entrant supplier who makes a partially substitutable product the work is different from most research on entry deterrence that only considers a single stage model our main interest is to investigate how the incumbent supplier can strategically maximize her profit by a wholesale pricing policy when facing the potential entrant we focus on a model where the entrant supplier will sell her product through the same incumbent retailer we derive the optimal decisions for each player and study the comparative statics of the equilibrium to investigate how the supply chain structure may affect the deterrence strategy of the incumbent supplier we also consider three alternative models with different channel structures when both suppliers sell their products directly when the entrant has another independent retailer and when the entrant sells her product directly through the comparison we find that the existence of the common downstream retailer often enhances the deterring motivation of the incumbent supplier

product safety liability r d and signaling the authors develop a monopoly model of product design and safety signaling incorporating a parametric liability specification the firm first engages in rd injuries lead to losses which are allocated by the liability system the authors vary the liability system s allocation of losses and trace out the implications for r d investment and the price safety relationship copyright 1995 by american economic association

optimal multi object auctions this paper analyses optimal auctions of several objects in the first model bidders have a binary distribution over their valuations for each object in which case the optimal auction is efficient the optimal auction takes one of two formats either objects are sold in independent auctions or a degree of bundling is introduced in the sense that the probability a bidder wins one object is increasing in her value for the other the format of the optimal auction may depend upon the number of bidders in the second model the restriction to binary distributions is relaxed and the optimal auction is then inefficient

planned obsolescence and social welfare durable goods marketing has an obsolescence effect on older models i consider two cases commitment where the decision on how much to invest in marketing is made in the first period and noncommitment where the decision is made in the second period i focus on the fact that the introduction of a higher quality model lowers the utility of consumers using an older model i show that in both cases the equilibrium level of marketing rises above the socially optimal level the point is that a larger obsolescence effect promotes replacement demand driving the monopolist to spend more than is socially optimal

the neo luddite s lament excessive upgrades in the software industry we examine two reasons why a monopoly supplier of software may introduce more upgrades than is socially optimal when the upgrade is backward but not forward compatible so users who upgrade reduce others network benefits one explanation involves a commitment problem profits and social welfare may suffer because ex post the monopolist will want to sell the upgraded product to new consumers the second involves consumer heterogeneity here oversupply arises from the difference between the externality that upgrades impose on the marginal and average consumer and from the effect of upgrades on sales of the base good

energy use and output growth in canada a multivariate cointegration analysis using a neo classical one sector aggregate production technology where capital labor and energy are treated as separate inputs this paper develops a vector error correction vec model to test for the existence and direction of causality between output growth and energy use in canada using the johansen cointegration technique the empirical findings indicate that the long run movements of output labor capital and energy use in canada are related by two cointegrating vectors then using a vec specification the short run dynamics of the variables indicate that granger causality is running in both directions between output growth and energy use hence an important policy implication of the analysis is that energy can be considered as a limiting factor to output growth in canada

better faster cheaper an experimental analysis of a multiattribute reverse auction mechanism with restricted information feedback the majority of reverse auctions for procurement use a single attribute price format while providing constraints on nonprice attributes such as quality and lead time alternatively a buyer could choose to conduct a multiattribute auction where bidders can specify both a price and levels of nonprice attributes while such an auction may provide higher theoretical utility to the buyer it is not clear that this theoretical improvement will be realized given the increased complexity of the auction in this research we present an ascending auction mechanism for a buyer whose utility function is known and dependent on three attributes motivated by a supply chain procurement problem setting we consider quality and lead time for the two attributes in addition to price the auction mechanism provides the bidders with restricted feedback regarding the buyer s utility function we explore experimentally the performance of this multiattribute auction mechanism as compared to a price only auction mechanism compared with the price only auction we find that our mechanism design is effective in increasing both buyer utility and bidder supplier profits

energy diversity and development in economic systems an empirical analysis abstract as economic systems develop over time they tend to become more complex with more structure and greater throughputs assuming favorable conditions energy use increases as more economic sectors develop and more channels for flow are opened economic diversity as measured by the number of economic sectors using energy and the equatability of flows between them generally increases as diversity increases the efficiency of generating outputs with a given amount of energy also increases development capacity the product of system energy throughput and diversity of flows is a measure of the potential system output and is calculated for selected countries capacity changes over time are shown to relate to changes in economic output in selected countries two distinct development strategies become evident one which promotes energy use and one which emphasizes diversity and the sustainability of each is examined while most countries utilize a mix of the two developing countries generally rely more on increasing energy use to increase output while developed countries tend to become more diverse as a means of increasing outputs sustainability is enhanced by strategies which promote diversity and resource use efficiency in economic systems

multi attribute procurement contracts abstract we consider the design of multi attribute procurement contracts when the supplier possesses multi dimensional private information specifically we consider a buyer who must design a contract to procure a single product whose value is a function of two attributes the potential supplier s cost structure is two dimensional including one component for each attribute and is unknown to the buyer in contrast to the existing one dimensional models we find that in some cases the buyer can extract all of the channel profits without distorting the specifications of the final product and we identify conditions under which that will be the case in other words with more dimensions to leverage the buyer may be able to discern the supplier s type without paying any information rents thus reducing her procurement costs it is also possible that the buyer can extract all the channel profits by distorting the product specifications downward finally we demonstrate how our results can be extended to a setting with multiple customer classes where the valuation for the product attributes varies across the classes we find that greater differentiation in customer valuation leads to a setting in which the buyer is less likely to extract all of the channel profit without distortion