edgeworth price cycles cost based pricing and sticky pricing in retail gasoline markets abstract this paper examines dynamic pricing behavior in canadian retail gasoline markets i find three distinct pricing patterns cost based pricing sticky pricing and sharp asymmetric retail price cycles that resemble the edgeworth cycles of maskin and tirole 1988 i use a markov switching regression to estimate the prevalence of the regimes and the structural characteristics of the cycles themselves i find cycles are more prevalent when there are more small firms and are accelerated and amplified with very many small firms in markets with few small firms sticky pricing dominates the findings are consistent with the theory of edgeworth cycles

frictionless commerce a comparison of internet and conventional retailers there have been many claims that the internet represents a new nearly frictionless market our research empirically analyzes the characteristics of the internet as a channel for two categories of homogeneous products books and cds using a data set of over 8 500 price observations collected over a period of 15 months we compare pricing behavior at 41 internet and conventional retail outlets we find that prices on the internet are 9 16 lower than prices in conventional outlets depending on whether taxes shipping and shopping costs are included in the price additionally we find that internet retailers price adjustments over time are up to 100 times smaller than conventional retailers price adjustments presumably reflecting lower menu costs in internet channels we also find that levels of price dispersion depend importantly on the measures employed when we compare the prices posted by different internet retailers we find substantial dispersion internet retailer prices differ by an average of 33 for books and 25 for cds however when we weight these prices by proxies for market share we find dispersion is lower in internet channels than in conventional channels reflecting the dominance of certain heavily branded retailers we conclude that while there is lower friction in many dimensions of internet competition branding awareness and trust remain important sources of heterogeneity among internet retailers

price dispersion and seller heterogeneity in retail food markets price dispersion i e a homogeneous product being sold at different prices by different sellers is among the most replicated findings in empirical economics the paper assesses the extent and determinants of spatial price dispersion for 14 perfectly homogeneous food products in more than 400 retailers in a market characterized by the persistence of a large number of relatively small traditional food stores alongside large supermarkets the extent of observed price dispersion is quite high when prices in an urban area where the spatial concentration of sellers is higher are compared with those in smaller towns and rural areas differences in search costs and the potentially higher degree of competition do not yield lower prices other counteracting factors including differences in seller costs and consumer incomes make prices on average higher in the urban area for 11 of the 14 products considered for many but not all the products supermarkets proved to be less expensive than traditional retailers although average savings from food shopping at supermarkets were extremely low finally the results of the study provide evidence that retailers have different pricing strategies and these differences also emerge for supermarkets belonging to the same chain the results presented in the paper suggest that a variety of factors play a role in explaining price dispersion in addition to differences in seller costs the contemporaneous heterogeneity of retailers in terms of services provided and consumers in terms of search costs and preferences makes the emergence of monopolistic competition possible as well as allowing small traditional food retailers to remain in business

switching regression models with imperfect sample separation information with an application on cartel stability an exogenous switching regression model with imperfect reginme classificationi information is specified and applied to a study of cartel stability an efficient estimation method is proposed which takes this imperfect information into account the consequences of misclassification are analyzed the direction of the least squares bias is derived an optimal regime classification rule is obtained and compared theoretically and empirically with other classification rules we then examine the joint executive committee a railroad cartel in the 1880 s the econometric evidence indicates that reversions to noncooperative behavior did occur for the firms in our sample and these reversions involve a significant decrease in market price this article is concerned with the possibility of estimating a switching regression model and its application to a study on cartel stability the switching regression model is the exogenous switching model proposed by quandt 24 which generalized a problem of mixture distributions day 4 the sample in this model is generated from distinct regression equations or regimes for each time period if the investigator has a priori information on how the sample is partitioned into the underlying regimes it is a switching regression model with known sample separation otherwise it is a model with unknown sample separation estimation of these latter models has been considered by quandt 24 goldfeld and quandt 8 and kiefer 14 16 among others a switching regression model is appropriate for the study of cartel behavior when there are price wars as firms will revert from cooperative to noncooperative behavior and so the industry supply function shifts occasionally this model will allow us to exploit the fact that there will be periodic stochastic switches or reversions between cooperative and noncooperative conduct in order to identify collusive episodes

skill biased technological change and rising wage inequality some problems and puzzles the recent rise in wage inequality is usually attributed to skill biased technical change sbtc associated with new computer technologies we review the evidence for this hypothesis focusing on the implications of sbtc for overall wage inequality and for changes in wage differentials between groups a key problem for the sbtc hypothesis is that wage inequality stabilized in the 1990s despite continuing advances in computer technology sbtc also fails to explain the evolution of other dimensions of wage inequality including the gender and racial wage gaps and the age gradient in the return to education

discrete equilibrium price dispersion an explicit solution of an equilibrium model with price setting firms and searching customers makes possible a number of comparativestatics predictions about how cost differences among firms search costs of customers and taxes will affect the mean and variance of the distribution of market prices another implication of the model is that a firm s demand depends on the difference between its price and the average price in the market

a study of cartel stability the joint executive committee 1880 1886 this article employs weekly time series data on the joint executive committee railroad cartel from 1880 to 1886 to test empirically the proposition that observed prices reflected switches from collusive to noncooperative behavior an equilibrium model of dynamic oligopoly with asymmetric firms together with explicit functional form assumptions about costs and demand determines the estimating equations and stochastic structure of the econometric model the hypothesis that no switch took place so that price and quantity movements were solely attributable to exogenous shifts in the demand and cost functions is then tested against this alternative and rejected

consumer search and dynamic price dispersion an application to gasoline markets this article studies the role of imperfect information in explaining price dispersion we use a new panel data set on the u s retail gasoline industry and propose a new test of temporal price dispersion to establish the importance of consumer search we show that price rankings vary significantly over time however they are more stable among stations at the same street intersection weestablishtheequilibriumrelationshipsbetweenpricedispersionandkeyvariables from consumer search models price dispersion increases with the number of firms in the market decreases with the production cost and increases with search costs

internet advertising and the generalized second price auction selling billions of dollars worth of keywords we investigate the generalized second price gsp auction a new mechanism used by search engines to sell online advertising although gsp looks similar to the vickrey clarke groves vcg mechanism its properties are very different unlike the vcg mechanism gsp generally does not have an equilibrium in dominant strategies and truth telling is not an equilibrium of gsp to analyze the properties of gsp we describe the generalized english auction that corresponds to gsp and show that it has a unique equilibrium this is an ex post equilibrium with the same payoffs to all players as the dominant strategy equilibrium of vcg

empirical studies of gasoline retailing a guide to the literature abstract this paper surveys the empirical literature on gasoline retailing which has been growing rapidly over the last three decades possibly in response to antitrust and regulatory concerns and increased availability of pricing data studies of both pricing and non price decision variables are considered in general it is found that crude oil prices are the primary driver of national price movements over time however market structure has been identified as playing a role in price dynamics equilibrium selection and price differentials across markets and stations the economic literature emphasizes the importance of heterogeneity across stations and coordination problems faced by retailers several directions for future work are suggested including the development of theory and demand estimation using high frequency station level data

the dynamics pattern of price dispersion in retail fuel markets abstract this paper empirically investigates the dynamics of price dispersion in retail fuel markets as a response to the corresponding wholesale price changes for this purpose we take advantage of a daily dataset of prices fixed by gas stations in two spanish regions it is consistently found that retail price dispersion is temporarily enlarged as a consequence of wholesale price increases while it is reduced due to decreases the presence of asymmetries in the short run dynamics is also revealed the impact of positive changes in the wholesale price is in the first days of adjustment clearly greater the dynamics pattern could be explained at least in part by the faster response of prices in the stations associated with the two vertically integrated companies that have the largest market share i e repsol and cepsa

theories of cartel stability and the joint executive committee this article reexamines the experience of the joint executive committee an 1880s railroad cartel to assess the applicability of the green and porter 1984 and rotemberg and saloner 1986 theories of price wars after discussing necessary modifications to the theories i estimate a number of dynamic models to explore the causes of price wars the cyclical nature of pricing and the possibility that secret price cuts may have been given the estimates provide some support for the predictions of the first theory

search costs and equilibrium price dispersion in auctions a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool 1 we thank aaron bodoh creed greg lewis steve tadelis and various seminar participants for helpful comments nate woody for programming assistance and the cornell university institute for social sciences for financial support the views expressed herein are solely those of the authors and do not necessarily reflect those of the u s department of justice 1

can the mortensen pissarides model with productivity changes explain u s wage inequality this article examines whether the mortensen pissarides matching model with productivity changes can explain the time pattern of wage inequality the main finding is that the model produces counterfactual results the main source of failure seems to be the exogenous matching function and or the exogenous surplus share neither of which allows firms to use wage policies to direct workers searches

analyzing the relationship between organic and sponsored search advertising positive negative or zero interdependence the phenomenon of paid search advertising has now become the most predominant form of online advertising in the marketing world however we have little understanding of the impact of search engine advertising on consumers responses in the presence of organic listings of the same firms in this paper we model and estimate the interrelationship between organic search listings and paid search advertisements we use a unique panel data set based on aggregate consumer response to several hundred keywords over a three month period collected from a major nationwide retailer store chain that advertises on google in particular we focus on understanding whether the presence of organic listings on a search engine is associated with a positive a negative or no effect on the click through rates of paid search advertisements and vice versa for a given firm we first build an integrated model to estimate the relationship between different metrics such as search volume click through rates conversion rates cost per click and keyword ranks a hierarchical bayesian modeling framework is used and the model is estimated using markov chain monte carlo methods our empirical findings suggest that click throughs on organic listings have a positive interdependence with click throughs on paid listings and vice versa we also find that this positive interdependence is asymmetric such that the impact of organic clicks on increases in utility from paid clicks is 3 5 times stronger than the impact of paid clicks on increases in utility from organic clicks using counterfactual experiments we show that on an average this positive interdependence leads to an increase in expected profits for the firm ranging from 4 2 to 6 15 when compared to profits in the absence of this interdependence to further validate our empirical results we also conduct and present the results from a controlled field experiment this experiment shows that total click through rates conversions rates and revenues in the presence of both paid and organic search listings are significantly higher than those in the absence of paid search advertisements the results predicted by the econometric model are also corroborated in this field experiment which suggests a causal interpretation to the positive interdependence between paid and organic search listings given the increased spending on search engine based advertising our analysis provides critical insights to managers in both traditional and internet firms

price dispersion in the small and in the large evidence from an internet price comparison site this paper examines four million daily price observations for more than 1 000 consumer electronics products on the price comparison site http shopper com we find little support for the notion that prices on the internet are converging to the law of one price in addition observed levels of price dispersion vary systematically with the number of firms listing prices the difference between the two lowest prices the gap averages 23 per cent when two firms list prices and falls to 3 5 per cent in markets where 17 firms list prices these empirical results are an implication of a general clearinghouse model of equilibrium price dispersion

spatial differentiation and vertical mergers in retail markets for gasoline this paper studies an empirical model of spatial competition applied to gasoline markets the main feature is to specify commuting paths as the locations of consumers in a hotelling style model as a result spatial differentiation depends in an intuitive way on the structure of the road network and the direction of traffic flows the model is estimated using panel data on the quebec city gasoline market and used to evaluate the consequences of a recent vertical merger difference in difference and counterfactual simulation methods are compared and the results to a large extent validate the assumptions of the demand model jel g34 l13 l42 l81 q41 r41

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

vertical relationships and competition in retail gasoline markets empirical evidence from contract changes in southern california comment this study examines how much if any of the differences in retail gasoline prices between markets is attributable to differences in the composition of vertical contract types at gasoline stations in each market the purchase of the independent retail gasoline chain thrifty by arco provides a unique opportunity to examine the effects of changes in different vertical contract types on local retail prices this event caused sharp changes in the market share of i fully vertically integrated stations and ii independent stations differentially affecting local markets in the los angeles and san diego metropolitan areas using unique and detailed station level data this study examines how these sharp changes affected local retail prices the detailed data and the research design based on the thrifty station conversions allow for credible estimation of the effects of the market share of independent retailers and vertically integrated retailers on local market prices controlling for any omitted factors at the station level and the city level over time results for the los angeles and san diego metropolitan areas indicate that a decrease in the market share of independent stations has a significant positive impact on local retail price however a change in the market share of refiner owned and operated branded stations does not have a significant impact on local market price these results have important implications as policy makers consider the regulation of vertical contracts as a means to increase competition in gasoline markets the research design and detailed data also allow for inference on the underlying nature of retail gasoline competition

the digital provide information technology market performance and welfare in the south indian fisheries sector when information is limited or costly agents are unable to engage in optimal arbitrage excess price dispersion across markets can arise and goods may not be allocated efficiently in this setting information technologies may improve market performance and increase welfare between 1997 and 2001 mobile phone service was introduced throughout kerala a state in india with a large fishing industry using microlevel survey data we show that the adoption of mobile phones by fishermen and wholesalers was associated with a dramatic reduction in price dispersion the complete elimination of waste and near perfect adherence to the law of one price both consumer and producer welfare increased

on fruitful and futile tests of the relationship between search and price dispersion we exploit cross sectional and temporal differences in search intensity in order to examine the relationship between search costs and price dispersion using a hand collected panel data set from jerusalem s shuk mahane yehuda outdoor market we present empirical evidence that price dispersion increases with the cost of search using several different measures of price dispersion however our interpretation of this finding is sensitive to the search proxy in question we also address several acute difficulties facing empiricists seeking to test theoretical price dispersion models in which consumers are heterogeneous in their search behavior jel l11 l13

number of sellers average prices and price dispersion abstract a variety of models provide differing predictions regarding the effect of an increase in the number of competitors in a market seller density on prices and price dispersion we review different approaches to generating equilibrium price dispersion and then empirically estimate the relationship between seller density average product price and price dispersion in the retail gasoline industry using four unique gasoline price data sets controlling for station level characteristics we find that an increase in station density consistently decreases both price levels and price dispersion across four geographical areas

existence and persistence of price dispersion an empirical analysis the hebrew university of jerusalem and nber using a unique data set on store level monthly prices of four homogenous products sold in israel i study the existence and characteristics of the dispersion of prices across stores as well as its persistence over time i find that price dispersion prevails even after controlling for observed and unobserved product heterogeneity moreover intra distribution mobility is significant stores move up and down the cross sectional price distribution thus consumers cannot learn about stores that consistently post low prices as a consequence price dispersion does not disappear and persists over time as predicted by varian s 1980 model of sales

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

high frequency quoting short term volatility in bids and offers at subsecond horizons bids and offers in u s equity markets are more volatile than what would be implied by long term fundamentals to assess costs and consequences this paper suggests that traders random delays latencies interact with quote volatility to generate execution price risk and relative latency costs analysis of the behavior of quote setters suggests that this volatility is more likely to arise from recurrent cycles of undercutting similar to the edgeworth cycles found in product markets rather than mixed strategies of limit order placement

declining job security this article defines and analyzes job security in the context of implicit contracts designed to overcome incentive problems in the employment relationship contracts of this nature generate predictions concerning the relationship between job security parameters such as worker seniority and sectoral economic conditions and the probability of separations to test these predictions i estimate binomial and multinomial models of job separations using panel study of income dynamics psid data for the years 1976 93 the results are consistent with a decline over time in the incentives to maintain existing employment relationships for male workers and for skilled white collar women

unemployment vs mismatch of talents reconsidering unemployment benefits we develop an equilibrium search matching model with risk neutral agents and two sided ex ante heterogeneity unemployment insurance has the standard effect of reducing employment but also helps workers to get a suitable job we show through calibrations how the mere difference on unemployment insurance when countries experience a common skilled biased technological shock may result in differences in unemployment productivity growth and wage inequality these results are consistent with the contrasting performance of the labour market in europe and the united states in the last twenty five years the model is used to address some political economy issues

selection on observed and unobserved variables assessing the effectiveness of catholic schools in this paper we measure the effect of catholic high school attendance on educational attainment and test scores because we do not have a good instrumental variable for catholic school attendance we develop new estimation methods based on the idea that the amount of selection on the observed explanatory variables in a model provides a guide to the amount of selection on the unobservables we also propose an informal way to assess selectivity bias based on measuring the ratio of selection on unobservables to selection on observables that would be required if one is to attribute the entire effect of catholic school attendance to selection bias we use our methods to estimate the effect of attending a catholic high school on a variety of outcomes our main conclusion is that catholic high schools substantially increase the probability of graduating from high school and more tentatively attending college we find little evidence of an effect on test scores

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

relationship between spatial agglomeration and hotel prices evidence from business and tourism consumers abstract in this paper we examine the relationship between number of local competitors and both the average and the dispersion of retail prices in urban hotels using a dataset from the metropolitan area of madrid spain by controlling for hotel characteristics and spatial factors we obtained results for each of the days in one week in line with predictions derived from the traditional monopolistic approach empirical results consistently indicate that a greater density of competitors implies a lower average and less dispersion of local prices moreover we found evidence which supports the idea that the effect of local agglomeration on average prices is particularly weaker at weekends this in turn indirectly suggests that within the metropolitan area there is a greater degree of substitution in hotel locations for tourism consumers than for business consumers

misinformed speculators and mispricing in the housing market this paper examines the contribution of out of town second house buyers to mispricing in the housing market we show that demand from out of town second house buyers during the mid 2000s predicted not only house price appreciation rates but also implied to actual rent ratio appreciation rates a proxy for mispricing we then apply a novel identification strategy to address the issue of reverse causality we give supporting evidence that out of town second house buyers behaved like misinformed speculators earning lower capital gains misinformed and consuming smaller dividends speculators

taxes cost and demand shifters as determinants in the regional gasoline price formation process evidence from spain abstract this paper examines the pass through of regional tax changes and spot price variations to regional gasoline prices in spain it also analyzes the impact of all major cost and demand shifters that contribute to regional gasoline price formation to address these research issues a reduced form price equation using monthly time series cross sectional tscs data from january 2004 through december 2008 is estimated strong and consistent evidence of full shifting of regional tax changes to regional gasoline prices is found gasoline spot price changes are more than proportionally passed through to retail prices in addition the empirical evidence shows on the one hand that regional gasoline price differences before taxes continue to be quite narrow and on the other hand that there is still a margin for larger gasoline price differences among regions this suggest that traditional practices from the monopoly era i e relatively uniform regional gasoline prices persist after the market has been liberalized which may have been facilitated by the strong and uniform presence of the major spanish based refining companies in the retail sector over the whole country

gasoline price dispersion and consumer search evidence from a natural experiment the vast majority of empirical studies examining the link between consumer search and price dispersion focus on how changes in consumer search impact price dispersion this article does the reverse it examines how a shock to price dispersion impacts consumer search a direct measure of search is used and an exogenous shock to price dispersion is found in a refinery fire that caused decades old retail gasoline price cycles and the nonlinear high frequency price dispersion pattern generated by them to stop identifying effects from this shock the results show a substantial response of consumer search to changes in price dispersion

nonsequential search equilibrium with search cost heterogeneity we generalize the model of burdett and judd 1983 to the case where an arbitrary finite number of firms sells a homogeneous good to buyers who have heterogeneous search costs we show that a price dispersed symmetric nash equilibrium always exists numerical results show that the behavior of prices and consumer surplus with respect to the number of firms hinges upon the nature of search cost dispersion when search costs are relatively concentrated entry of firms leads to lower average prices and greater consumer surplus however for relatively dispersed search costs the mean price goes up and consumer surplus may decrease with the number of firms

when do consumers search this paper provides empirical evidence relating search to price movements we measure consumer search directly from traffic statistics for web sites that report gasoline prices we show empirically that consumers search more as prices rise than they do when prices fall asymmetric search patterns have consequences for price behavior our findings indicate that retail margins are squeezed by increased search in addition we show that there is more price dispersion when prices are falling than when prices are either stable or rising our results provide a search based explanation for the rockets and feathers phenomenon of asymmetric price adjustment

unemployment responses to skill biased technology shocks the role of labour market policy do skill biased shocks that increase the spread of labour productivities interacting with different policy regimes explain the rise in unemployment in europe relative to the united states in the 1980s and 1990s the hypothesis is an implication of a version of the mortensen and pissarides 1994 model of equilibrium unemployment which allows for worker heterogeneity a calibrated version of the model implies that a similar unemployment increase would have occurred in the united states over this period given changes in relative productivity by education implied by observed wage changes had unemployment compensation and employment protection policies been at european levels

are all the good men married uncovering the sources of the marital wage premium a longstanding and yet unsettled question in labor economics is does marriage cause men s wages to rise cross sectional wage studies consistently find that married men earn significantly higher wages than do men who are not currently married however it is well known that inferring causal relationships from crosssectional analysis is inappropriate because of the biases introduced by unobserved heterogeneity as a means of circumventing this problem this paper uses data on identical twins to control for unobserved heterogeneity our estimates suggest that marriage increases men s wages by as much as 27 and that little if any of the cross sectional relationship between marriage and wages is due to selection in addition we find little evidence that the marital wage premium is a consequence of household specialization

a matching model with endogenous skill requirements we consider a labor market in which workers differ in their abilities and jobs differ in their skill requirements the distribution of worker abilities is exogenous but we model the choice of skill requirements by firms high skill jobs produce more output than low skill jobs but high skill jobs require high skill workers and thus are more difficult to fill we use a matching model together with a nash bargaining approach to wage setting to determine the equilibrium mix of job types along with the equilibrium relationship between worker and job characteristics wages and unemployment

semi nonparametric estimation of consumer search costs this paper studies the estimation of the distribution of non sequential search costs we show that the search cost distribution is identified by combining data from multiple markets with common search technology but varying consumer valuations firms costs and numbers of competitors to exploit such data optimally we provide a new method based on semi nonparametric estimation we apply our method to a dataset of online prices for memory chips and find that the search cost density is essentially bimodal such that a large fraction of consumers searches very little whereas a smaller fraction searches a relatively large number of stores copyright c 2012 john wiley sons ltd

information and economic analysis a perspective ten years ago i delivered a paper before this group with the title information and economic analysis i chose the title deliberately i did not call the subject on which i was speaking the economics of information because to do so would have been to suggest that my topic like the economics of agriculture or the economics of industry or the economics of labour represented another branch of specialisation within economics i wanted to suggest that informational considerations were in fact central to the analysis of a wide variety of phenomena that they constituted a central part of the foundations of economic analysis at the time though economists had long paid lip service to the importance of information there was little formal literature the last decade has seen a burgeoning of the literature it has become to the late 7o s and early 8o s what growth theory was to the early 6o s and it has been greeted with some of the same scepticism there seems to be a myriad ofspecial cases and few general principles the little examples are often contrasted unfavourably with the generality of general equilibrium theory what have we learned have diminishing returns set in are there fruitful directions for future research and if so what are they these are the questions which i wish to address here the work of the past decade has made i think a fundamental and lasting contribution to economic analysis the contributions have been both negative and positive we have learned that much of what we believed before is of only limited validity that the traditional competitive equilibrium analysis though having the superficial appearance of generality in terms of superscripts and subscripts is indeed not very general the theory is not robust to slight alterations in the informational assumptions it is but a special and not very plausible example among the possible set of informational assumptions which can be employed to characterise an economy at the same time the theory has been able to provide insights into phenomena about which the traditional model had nothing to say or which seemed inconsistent or inexplicable within the competitive paradigm it has provided some of the micro foundations for macro economics it has provided the basis of a new theory of the firm of a new new welfare economics and of a theory of economic organisation including a comparison of economic

skill bias and employment frictions in the u s labor market 1970 1990 this article studies simultaneous changes in four labor market variables the unemployment rates for college and high school graduates the education wage premium and the level of college participation it develops an equilibrium search and matching model of the labor market where education is endogenously determined then the model is used to investigate quantitatively whether the change in the above labor market variables from 1970 to 1990 in the united states can be traced to changes in the environment a skill biased change in technology together with an increase in employment frictions can explain much of the observed variation in these variables

estimating bargaining power in the market for existing homes although bargaining is common in markets for heterogeneous goods it has largely been ignored in the hedonic literature in a break from that tradition we establish sufficient conditions that permit one to identify the effect of buyer and seller bargaining on hedonic models our model is estimated using a previously overlooked feature of the american housing survey that permits us to observe characteristics of both buyers and sellers results suggest that household wealth gender and other demographic traits influence bargaining power in addition variation in bargaining power arising from the presence of school age children accounts for anomalous seasonal patterns reported in various widely cited indices of quality adjusted house prices

price dispersion and competition with differentiated sellers i measure price dispersion among differentiated retail gasoline sellers and study the relationship between dispersion and the local competitive environment significant price dispersion exists even after controlling for differences in station characteristics and price differences between sellers change frequently the extent of price dispersion is related to the density of local competition but this relationship varies significantly depending on the type of seller and the composition of its competitors these findings are consistent with interactions between seller and consumer heterogeneity that are not well understood in the existing price dispersion literature

equilibrium price dispersion in retail markets for prescription drugs this study seeks to establish the empirical importance of price dispersion due to costly consumer search by examining retail prices for prescription drugs posted prices in two geographically distinct markets are shown to vary considerably across pharmacies within the same market even after one controls for variation due to pharmacy differences pharmacy heterogeneity accounts for at most one third of the observed price dispersion the empirical analysis hinges on the observation that consumers incentives to price shop depend on characteristics of the drug therapy cross sectional patterns in price distributions across drugs are consistent with the predictions of a search model prices for repeatedly purchased prescriptions for which the expected benefits of search are highest exhibit significant reductions in both dispersion and price cost margins

an empirical model of search with vertically differentiated products this paper presents a nonsequential search model that allows for vertical product dierentiation in the unique symmetric equilibrium firms with dierent characteristics draw utilities from a common utility distribution because the firms dier in their characteristics this leads to dierent price distributions the model therefore provides a theoretical rationale for explaining price dispersion as a result of quality dierences and search behavior of consumers together using the equilibrium conditions derived from the model it is shown how to estimate search costs by maximum likelihood using only price data a data set on prices from dutch supermarkets reveals that the amount of search has decreased over the sampling period moreover ignoring vertical product dierentiation results in an overestimation of search costs

strategic pricing consumer search and the number of firms discover prices there are three distinct price dispersed equilibria characterized by low moderate and high search intensity the effects of an increase in the number of firms on search behaviour expected prices price dispersion and welfare are sensitive i to the equilibrium consumers search intensity and ii to the status quo number of firms for instance when consumers search with low intensity an increase in the number of firms reduces search does not affect expected price leads to greater price dispersion and reduces welfare in contrast when consumers search with high intensity increased competition results in more search and lower prices when the number of competitors in the market is low to begin with but in less search and higher prices when the number of competitors is large duopoly yields identical expected price and price dispersion but higher welfare than an infinite number of firms a question that has received much attention in economic theory is how the number of competitors and market outcomes are related despite the existence of work showing the contrary see e g satterthwaite 1979 rosenthal 1980 the prediction that emerges from a market where firms interact in a cournot fashion has come to dominate economic thought namely that an increase in the number of competitors leads to larger aggregate production lower market price and improved market performance measured in terms of some social welfare criterion ruffin 1971 this paper challenges the generality of this belief by presenting an oligopoly model with consumer search where the equilibrium expected price may be constant increasing or nonmonotonic in the number of firms we present an economy with two types of consumers consumers who search for prices at no cost fully informed and consumers who must pay a fixed search cost for each price quotation they observe less informed 1 all buyers have the same willingness to pay for the good and buy either a single unit or nothing at all on the supply side of the market there are n firms producing a homogeneous good at constant marginal cost we analyse a one shot simultaneous move game firms set prices and consumers decide how many prices to search for at the same moment in time our model is essentially an oligopolistic version of burdett and judd 1983 where some consumers search costlessly in this model consumers search using a fixed sample size search strategy i e they choose the number of prices to observe before receiving any offer nonsequential search is appealing when consumers find it more advantageous to gather price information quickly morgan and manning 1985 this occurs when the search outcome is observed with delay and delay is costly for instance an mba graduate looking for a job 1 the presence in the model of consumers who search costlessly captures the fact that some people have a

housing price bubbles new supply and within city dynamics abstract although there is broad recognition that cities differ in their tendency to experience house price bubbles most studies assume away any possibility of within city heterogeneity in response to a bubble we develop a model that suggests that this assumption may be appropriate when markets are rising but can be far from reality on the bust side of a bubble during a housing boom new construction and related supply adjustments by developers ensure stable relative prices between low and high quality segments of the housing market on the bust side of a bubble however reduced housing starts allow demand side forces and mortgage default to create pressure for relative prices to diverge across market segments absent a change in technology as markets recover and new construction rebounds relative prices should revert back to pre crash levels evidence based on 2000 2013 single family home sales in phoenix arizona supports this modeling framework additional evidence also suggests that high rates of mortgage default contributed to divergence in relative prices when markets crashed

are the unemployed unemployable abstract this paper develops a matching model of the labor market under wage rigidity when hiring decisions are irreversible there are two types of workers the skilled and the unskilled the model is used to analyze whether technological advances may have increased unemployment it is shown that it is likely to be so if they are associated with an increase in the productivity and or the supply of skilled workers relative to unskilled workers these effects are stronger when hiring decisions are more irreversible

the role of information in retail gasoline price dispersion abstract collecting information on prices is a costly endeavor the cost depends on the relative ease with which those prices can be collected and in many retail gasoline markets there is a substantial divide in the ease of collecting information with regular grade gasoline on one side of the divide and midgrade and premium grade gasoline on the other regular grade prices are prominently displayed on large signboards in front of gasoline stations while the prices of higher octane grades except where required by law are rarely displayed in this article the effects of differential by grade price information on search and gasoline price dispersion are examined a rank reversal test is used to test whether the observed grade specific price dispersion is consistent with search or non search related causes and finding the former a series of tests are presented to test for the effect of price information and other leading hypotheses a significantly concave curvature in the price dispersion coefficients across the three grades supports a price information hypothesis detailed socioeconomic data on consumers spatially matched to the stations they are most likely to patronize shows that income is a secondary factor implications for policy are discussed

search costs and equilibrium price dispersion in auction markets abstract a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool

truly costly sequential search and oligopolistic pricing we modify the paper of stahl 1989 stahl d o 1989 oligopolistic pricing with sequential consumer search american economic review 79 700 12 by relaxing the assumption that consumers obtain the first price quotation for free when all price quotations are costly to obtain the unique symmetric equilibrium need not involve full consumer participation the region of parameters for which non shoppers do not fully participate in the market becomes larger as the number of shoppers decreases and or the number of firms increases the comparative statics properties of this new type of equilibrium are interesting in particular expected price increases as search cost decreases and is constant in the number of shoppers and in the number of firms welfare falls as firms enter the market we show that monopoly pricing never obtains with truly costly search d 2005 elsevier b v all rights reserved

improved information shock and price dispersion a natural experiment in the housing market abstract this study employs data from a natural experiment to assess the effect of an improved price information shock on subsequent real estate transaction price dispersion while transaction data in the israeli real estate market had not previously been available to the public in 2010 an israeli court ordered the israel tax authority to post all real estate transaction data on its website we employ all housing transactions in the period prior and subsequent to this event to assess its effect on housing price dispersion results provide evidence of significant decrease in the dispersion of quality adjusted prices further we find evidence that the information shock effect on price dispersion varies with household and market characteristics

collusion with persistent cost shocks we consider a dynamic bertrand game in which prices are publicly observed and each firm receives a privately observed cost shock in each period although cost shocks are independent across firms within a firm costs follow a first order markov process we analyze the set of collusive equilibria available to firms emphasizing the best collusive scheme for the firms at the start of the game in general there is a trade off between productive efficiency whereby the low cost firm serves the market in a given period and high prices we show that when costs are perfectly correlated over time within a firm if the distribution of costs is log concave and firms are sufficiently patient then the optimal collusive scheme entails price rigidity firms set the same price and share the market equally regardless of their respective costs when serial correlation of costs is imperfect partial productive efficiency is optimal for the case of two cost types first best collusion is possible if the firms are patient relative to the persistence of cost shocks but not otherwise we present numerical examples of first best collusive schemes

the law of one price in 1901 i introduction the law of one price states that absent search information costs a particular good is sold at the same price by all sellers in the same market as first pointed out by stigler 1961 however search costs can cause an equilibrium characterized by price dispersion it is no longer optimum for consumers to search until the lowest price is found as stigler observes price dispersion is a manifestation and indeed it is the measure of ignorance in the market p 214 various studies over the past four decades report evidence that price dispersion is ubiquitous and that its magnitude is affected by the costs and benefits of search for example relative dispersion the coefficient of variation is less for more expensive and frequently purchased goods where the benefits of search are greater some recent works have examined the issue in the context of internet markets e g automobiles books and cds testing the presumption that lower online search costs lead to lower price dispersion and also price levels perhaps surprisingly these studies find that dispersion in internet markets differs little from their conventional counterparts 1 the present study extends the record on price dispersion in local markets back more than a half century before the earliest modern studies circa 1960 2 this is possible because of a unique u s government survey conducted and published in 1901 the survey yields retail prices of four products at more than 1500 stores nationwide three of these are still sold today allowing comparisons based on modern survey data the intervening century saw the introduction of search cost reducing technology at least as dramatic as the internet in both transportation e g the automobile and communication e g telephone radio and television 3 also the general migration of people from the farm to cities during the early twentieth century produced a broadening of markets although not as dramatic as that created by the internet was price dispersion in 1901 more than that observed today the answer is that if anything dispersion was less in 1901 the article is organized as follows section i describes the data used in the present study section ii reports price dispersion for the four 1901 products section iii presents the modern data and makes comparisons section iv provides a summary and conclusions ii the 1901 survey in 1901 the u s industrial commission usic conducted an investigation of the local differences in prices of articles produced by certain industrial combinations usic 1901 773 the motivating concern was what is today called predatory pricing which was alleged to occur in local or regional geographic markets 4 the investigation consisted of a national survey to gather information on the prices of certain products the usic sent questionnaires to 5 000 retail dealers from whom 1 578 replies were received representing every state in the union at that time 773 74 six products were included illuminating oil kerosene granulated sugar three grades of salt and royal baking powder a specific brand the usic stated that these were chosen primarily because of the fairly uniform quality of the product which it was believed would make it possible to compare accurately the prices in different localities 773 individual dealer responses anonymous for four of these products excluding two salt grades were published in tabular form by state and city and constitute the data source for the present study 5 the issue at hand is price dispersion in a given local market the usic identifies dealers by their city of residence only and so that is the basis for market definition 6 to measure dispersion deviations from the mean there must be at least two dealers per city the first column of table 1 summarizes the number of cities markets with multiple dealers by product

geographical dispersion of consumer search behaviour abstractthis article investigates whether consumer search behaviour differs across zip codes within the u s as an application daily gasoline price data covering virtually all gas stations within the u s are employed to estimate the distribution of search costs in each zip code the results show that there are significant differences across zip codes regarding the expected number of searches achieved before consumers purchase gasoline in order to have a systematic explanation such differences are further connected to geographic demographic and economic conditions of the zip codes in a secondary analysis the corresponding results imply several strategies for gas stations in order to maximize profits markups suggestions follow for policy makers and regulators to reduce redistributive effects of information barriers across locations

cyclical bid adjustments in search engine advertising keyword advertising or sponsored search is one of the most successful advertising models on the internet one distinctive feature of keyword auctions is that they enable advertisers to adjust their bids and rankings dynamically and the payoffs are realized in real time we capture this unique feature with a dynamic model and identify an equilibrium bidding strategy we find that under certain conditions advertisers may engage in cyclical bid adjustments and equilibrium bidding prices may follow a cyclical pattern price escalating phases interrupted by price collapsing phases similar to an edgeworth cycle in the context of dynamic price competitions such cyclical bidding patterns can take place in both first and second price auctions we obtain two data sets containing detailed bidding records of all advertisers for a sample of keywords in two leading search engines our empirical framework based on a markov switching regression model suggests the existence of such cyclical bidding strategies the cyclical bid updating behavior we find cannot be easily explained with static models this paper emphasizes the importance of adopting a dynamic perspective in studying equilibrium outcomes of keyword auctions this paper was accepted by pradeep chintagunta and preyas desai special issue editors this paper was accepted by pradeep chintagunta and preyas desai special issue editors

price dispersion and differentiation in online travel an empirical investigation previous research has examined whether price dispersion exists in theoretically highly efficient internet markets however much of the previous work has been focused on industries with low cost and undifferentiated products in this paper we examine the presence of price dispersion and product differentiation using data on the airline ticket offerings of online travel agents otas we find that different otas offer tickets with substantially different prices and characteristics when given the same customer request some of this variation appears to be due to product differentiation different otas specialize by systematically offering different trade offs between ticket price and ticket quality minimizing the number of connections matching requested departure and return time however even after accounting for differences in ticket quality ticket prices vary by as much as 18 across otas in addition otas return tickets that are strictly inferior to the ticket offered by another ota for the same request between 2 2 and 28 of the time overall this suggests the presence of both price dispersion and product differentiation in the online travel market

centrality and pricing in spatially differentiated markets the case of gasoline we highlight the importance of centrality for pricing firms characterized by a more central position in a spatial network are more powerful in terms of having a stronger impact on their competitors prices and on equilibrium prices these propositions are derived from a simple theoretical model and investigated empirically for the retail gasoline market of vienna austria we compute a measure of network centrality based on the locations of gasoline stations in the road network results from a spatial autoregressive model show that prices of gasoline stations are more strongly correlated with prices of central competitors

factor proportions and relative wages the supply side determinants of wage inequality supply side factors may contribute to rising wage inequality first certain changes in the supply of skills allegedly exacerbate wage inequality women s increased labor force participation and increased immigration are the leading candidates both allegedly reduce the wages of less skilled men however immigration s impact on wage inequality has been minor and the effects of women s participation is inconclusive second in evaluating the likelihood that human capital investment will mitigate future inequality evidence suggests that rising returns to education have increased the proportion of young people attending college limiting the growth of inequality among high wage workers

edgeworth price cycles evidence from the toronto retail gasoline market i exploit a new station level twelve hourly price dataset to examine the strong retail price cycles in the toronto gasoline market the cycles appear similar to theoretical edgeworth cycles strongly asymmetric tall rapid and highly synchronous across stations i test a series of predictions made by the theory about how firm behaviors would differentially evolve over the path of a cycle the evidence is consistent with the existence of edgeworth cycles and inconsistent with competing hypotheses while the cycles are an interesting phenomenon for study in their own right the evidence has important policy and welfare implications

information gatekeepers on the internet and the competitiveness of homogeneous product markets we examine the equilibrium interaction between a market for price information controlled by a gatekeeper and the homogenous product market it serves the gatekeeper charges fees to firms that advertise prices on its internet site and to consumers who access the list of advertised prices gatekeeper profits are maximized in an equilibrium where a the product market exhibits price dispersion b access fees are sufficiently low that all consumers subscribe c advertising fees exceed socially optimal levels thus inducing partial firm participation and d advertised prices are below unadvertised prices introducing the market for information has ambiguous social welfare effects

changing consequences of job separation in the united states using the panel study of income dynamics the author examines the consequences of job loss between the periods 1976 81 and 1986 91 he finds stability in the overall incidence of job separation but a statistically significant increase in the incidence of involuntary job loss relative to quits for older workers he also finds that the consequences of involuntary job loss worsened the reemployment rate of workers who experienced involuntary job loss dropped from 67 in 1976 81 to 62 in 1986 91 and among those who found new jobs the odds of receiving a large wage cut rose from 9 in 1976 81 to 17 in 1986 91