capacity management in decentralized networks bottleneck analysis is a useful tool in capacity planning for centrally controlled network systems however under a decentralized network where individual users are allowed to select their own routes straightforward application of bottleneck analysis does not necessarily yield an optimal performance it may even hurt the system performance an aspect of braess s paradox we investigate the capacity expansion problem for a decentralized system with general network topology to this end we first discuss the short run problem and show that the externality pricing solves the joint problem of demand and routing control we then study the capacity expansion reduction problem for decentralized systems that may or may not be optimally controlled in the short run

information and incentives in computing services supply the effect of limited system choices abstract every organization has only limited computing resources that need to be shared by members of the organization rationing mechanisms such as pricing usually are used to regulate the demands for such resources however to derive an effective mechanism for determining the usage or the scale of an organization s computing service is difficult since there are many informational and incentive problems that need to be overcome by incorporating these problems into a game theoretic model this study analyzes the effects of limited system choices on an organization s net value generated from computing service based on the mechanism design approach the optimal incentive compatible mechanism is derived and contrasted with the case where the is department is evaluated as a profit center the results show that limited system choices can have significant effects on the value generated by an organization s computing service also depending on whether the is department is governed by the optimal mechanism or is evaluated as a profit center the effects oflimited system choices can be different managerial implications derived from the study are provided

product and price competition in a duopoly this paper examines the role of consumer preferences costs and price competition in determining the competitive product strategy of a firm in the model studied here there are two identical firms competing on product quality and price they face consumers who prefer a higher quality product to a lower quality product but differ in how much they are willing to pay for quality the consumers can also choose a substitute if they don t like the product price offerings of the two firms for the firms a higher quality product costs more to produce than a lower quality product the paper shows that the equilibrium strategy for each firm should be to differentiate its product from its competitor with the firm choosing the higher quality choosing the higher margin as well this differentiation however is not efficient that is it is possible to choose two other products and offer them at prices that cover their marginal cost and still satisfy consumers needs better in the aggregate a monopolist by contrast would differentiate his product line efficiently this suggests that cannibalization has different effects on product strategy than competition the paper also shows that if one firm enters the market first then it can defend itself from later entrants and gain a first mover advantage by preempting the most desirable product position

cost allocation revisited an optimality result the resource manager of a firm is faced with capacity and pricing decisions with regard to a congestion prone system such as computer communication facilities difficulties arise since the manager is uninformed of the system demand when the capacity decision is to be made a game theoretic model is developed to analyze the effects of different accounting rules on the elicitation of relevant information and ex post efficiency in acquisition and allocation decisions the key result is that the cost allocation method aided by an anonymous reporting scheme is indeed as asserted by zimmerman zimmerman j 1979 the costs and benefits of cost allocations accounting rev 54 july 504 521 a full information efficient rule achieving optimality both in acquisition and allocation decisions discussions of the main assumptions underlying this result are provided

unequal pricing in the information economy implications for consumer welfare this article presents an economic analysis of information good pricing and consumer welfare and discusses the implications of price discrimination in the information economy it argues that network externalities coupled with information asymmetry enable a dominant marketer to price unequally extracting late adopters surplus to compensate for the loss from early adopters in the short term the minority early adopters benefit by paying less but in the long term the majority late adopters suffer by paying more considering that late adopters are likely to be at a disadvantage in resources this discriminatory pricing amounts to the poor subsidizing the rich based on this analysis implications for consumer welfare are discussed

self organising behaviour in the presence of negative externalities a conceptual model of commuter choice abstract we use a model with local interaction a one dimensional cellular automaton to study how commuters choose among alternative roads commuters have information about their neighbours most recent experience local interaction and they remember their own experiences memory we illustrate how a simple self organizing system based on local information and locally rational agents can in some cases outperform the nash equilibrium while the social optimum is unenforceable without a central planner due to the variations in individual travel times i e the social optimum is not individually rational variations across commuters in the steady state of our self organising system are at least equivalent to and mostly significantly larger than those required for the social equilibrium increasing the neighbourhood size illustrates that more information without co ordination leads to worse overall performance

a differentiated tolls system an effective transport policy tool for slovenia we provide an econometric model of passenger and freight transportation demand based on panel data for 10 sections of toll roads in slovenia transportation demand on slovenian motorways is price inelastic the price elasticity of transportation demand statistically varies among different parts of the toll sections so it would seem sensible to introduce a differentiated toll system that would allow the simultaneous achievement of multiple objectives such as increasing the internalization of the external costs of transport increasing transportation demand management on the basis of price and increasing cost recovery for the maintenance and development of toll roads in slovenia transportation demand is even more responsive to changes in fuel price than changes in tolls so transportation policy can manage transportation demand using differences in fuel prices based on estimates of demand models differentiated according to several geographical groups of road sections we also find that growth in the pri

monopolistic competition in the spirit of chamberlin a general model this paper develops a model of large group chamberlinian monopolistic competition in which 1 there are many firms producing differentiated commodities 2 each firm is negligible in that it can ignore its impact on and hence reactions from other firms 3 free entry leads to zero profit of operating firms but 4 each firm faces a downward sloping demand curve the existence of a monopolistically competitive equilibrium is established in a companion paper more particular questions such as whether the market provides too many or too few products are addressed for a special case of the model

practice prize report planning new tariffs at tele ring the application and impact of an integrated segmentation targeting and positioning tool tele ring is a mobile phone organization selling contracts and cell phones in the austrian market the market situation in 2005 was highly competitive and dynamic resulting in relatively short tariff life cycles excessively long lead times made tele ring s management feel dissatisfied with their new tariff development process furthermore a new competitor had entered the market posing a major threat and it was unclear how to effectively safeguard tele ring s position in the market in cooperation with the management we implemented and tested a new segmentation targeting and positioning tool which provides managers with information on their target markets customer preferences competitors strengths and customer segments it allows for the simultaneous visualization of these data on a single map and facilitates timely and accurate decision making in particular we report on the design and the implementation of a new pricing scheme formel 10 which became the most successful new tariff introduction in this competitive market tele ring s managers were very much impressed with our tool s ability to represent the market on a single map and with its capacity to allow for intuitive interpretation in addition the tool enhanced internal communication between its users and different stakeholders during the new tariff development process

learning by doing and the introduction of new goods a dynamic general equilibrium model is developed in which goods are valued according to the characteristics they contain the set of goods produced in any period is endogenously determined and learning by doing is the force behind sustained growth it is shown that the set of produced goods changes in a systematic way over time with goods of higher quality entering each period and those of lower quality dropping out the model is then used to study the effect of introducing a traditional sector in which there is no learning

information technology and time based competition in financial markets this paper studies time based competition in imperfect securities markets linking it investment decisions information processing delays and trading strategies at the it investment stage traders trade off the cost of it against their anticipated trading profits at the trading stage each trader devises a trading strategy based on his new information while taking into account the impact of both his own trades and those of other traders in the market our results illustrate how traders react to market imperfections due to trading costs and information processing delays and how superior traders convert a timeliness advantage into higher trading profits they also shed light on the relationship between the price adjustment process and traders information processing delays timeliness imposes an interesting structure on trader competition traders with longer information processing delays trade less frequently submit smaller orders and enjoy lower profits per trade our analysis of traders it investment decisions demonstrates how factors such as it costs number of traders and the frequency and nature of new information affect the level of it investments we further illustrate how improved it infrastructure translates into competitive advantage

execution risk in high frequency arbitrage in this paper we investigate the role of execution risk in high frequency trading through arbitrage strategies we show that if rational agents face uncertainty about completing their arbitrage portfolios then arbitrage is limited even in markets with perfect substitutes and convertibility using a simple model we demonstrate that this risk arises from the crowding effect of competing arbitrageurs entering the same trade and inflicting negative externalities on each other our empirical results provide evidence that support the relevance of execution risk in high frequency arbitrage this paper was accepted by wei xiong finance

a probabilistic choice model for market segmentation and elasticity structure marketing scholars commonly characterize market structure by studying the patterns of substitution implied by brand switching though the approach is useful it typically ignores the destabilizing

location models as models of product choice abstract markets in which firm choice of product is an economic decision are commonly analyzed using a variant of the location model pioneered by hotelling econ j 39 1929 41 57 this paper develops a framework for formalizing the idea that a set of consumers with preferences defined over an abstract set of commodities can be represented as if they behaved as is typically assumed in the goods as locations models with this framework in place we are able to derive the preference assumptions underlying the two most common versions of these models and also to uncover the foundations of the now well known principle of minimum differentiation

the principle of minimum differentiation holds under sufficient heterogeneity the so called principle of minimum differentiation stated by hotelling has been challenged by many authors this paper restores the principle by showing that n firms locate at the center of the market and charge prices higher than the marginal cost of production when heterogeneity in consumers tastes is large enough

product competition in microprocessors there have been some striking recent developments in the theory of spatial and product competition but relatively few empirical studies see however shaw 1982 a and b this paper is an attempt to assess the empirical usefulness of these developments drawing on the history of product competition in microprocessors over the period 1971 81 in particular our interest centres on attempts to introduce a role for what have been called agglomeration economies 1 that is mutual external economies accruing to two or more producers selling similar products in a recent survey graitson 1982 suggested that this particular development would provide theoretical models of special empirical relevance and the evidence presented here though by no means conclusive tends to support that view the paper is in five parts section i gives a brief review of some of the relevant developments in spatial and product competition theory section ii gives a brief account of how the wide variety of microprocessors will be classified for the purposes of this study section iii describes the history of developments in microprocessors over the period 1971 to 1981 and section iv assesses the theoretical developments in the light of this evidence finally section v summarises the main points of the paper

is individual environmental consciousness one of the determinants in transport mode choice this article models negative impact on the environment as one of the attributes of transport mode by this modelling we are able to examine whether individual environmental consciousness of this impact plays a significant role in his her choice of transport mode a survey data from saito and onohara area in northern osaka of japan is used to estimate the model with the heteroscedastic extreme value specification both of the estimated and simulated results imply that individual environmental consciousness does influence his her decision on transport mode choice in the sample furthermore the likelihood ratio tests indicate that both the utility and scale parameters are not equivalent across sub samples of university commuters research facility commuters and residents the results of the comparison across sub samples suggest that sometimes we may learn more from sub dividing a whole sample into several sub samples if we could distinguish them by their characteristics

location choice product proliferation and entry deterrence within a slightly modified version of hotelling s model we reconsider the claim that the threat of entry induces existing firms to produce a larger number of products than they would otherwise we show that entry deterrence although optimal need not be achieved through product proliferation in some cases the incumbent monopolist resorts to an entry deterring strategy based on location choice rather than product proliferation we also show that in some cases the number of products chosen by the incumbent facing the threat of entry is strictly greater than the minimum number required to deter entry

stability and chaos in input pricing for a service facility with adaptive customer response to congestion we consider the stability of the equilibrium arrival rate and equilibrium admission price at a service facility using a generalization of an input pricing model introduced by dewan and mendelson and further examined by stidham at the equilibrium the marginal value of service equals the admission price that is the sum of the admission fee and the expected delay cost stability means roughly that the system returns to the equilibrium after a perturbation assuming the customers base their join balk decisions on previous prices we extend the discrete time dynamic system pricing model of stidham to allow adaptive expectations in which customers predict the future price based on a convex combination of the current price and the previous prediction we show that this can lead to chaotic behavior when the equilibrium is unstable that is the price and arrival rate can follow aperiodic orbits which appear to be completely random our results suggest an alternative explanation for observed variations in the mean arrival rate to a queueing system which are often modeled by means of a random exogenous e g markovian environment process

defensive marketing strategies this paper analyzes how a firm should adjust its marketing expenditures and its price to defend its position in an existing market from attack by a competitive new product our focus is to provide usable managerial recommendations on the strategy of response in particular we show that if products can be represented by their position in a multiattribute space consumers are heterogeneous and maximize utility and awareness advertising and distribution can be summarized by response functions then for the profit maximizing firm it is optimal to decrease awareness advertising it is optimal to decrease the distribution budget unless the new product can be kept out of the market a price increase may be optimal and even under the optimal strategy profits decrease as a result of the competitive new product furthermore if the consumer tastes are uniformly distributed across the spectrum a price decrease increases defensive profits it is optimal at the margin to improve product quality in the direction of the defending product s strength and it is optimal at the margin to reposition by advertising in the same direction in addition we provide practical procedures to estimate 1 the distribution of consumer tastes and 2 the position of the new product in perceptual space from sales data and knowledge of the percent of consumers who are aware of the new product and find it available competitive diagnostics such as the angle of attack are introduced to help the defending manager this article was originally published in marketing science volume 2 issue 4 pages 319 360 in 1983

estimates of price elasticity of demand for urban freeway use with high frequency control variables the case of santiago chile estimates are presented of toll and fuel price elasticities of demand for urban freeway use in santiago chile high frequency toll and vehicle data were collected from four urban freeways for different route segments and times of day estimation was performed using log linear regression models whose explanatory variables were tolls fuel prices city traffic levels and sets of dichotomous variables to control for daily weekly and monthly seasonality city traffic is a high frequency control of the activity level of the city the elasticities to changes in tolls and fuel were all low in absolute value the toll elasticities were below 0 05 for two freeways and 0 16 for the third while for the fourth which had more alternative routes it was 0 47 the fuel price elasticities were also heterogeneous with values of approximately 0 45 for two freeways and 0 21 for the third whereas for the fourth which had the fewest alternatives it was 0 07

nonlinear pricing of information goods this paper analyzes optimal pricing for information goods under incomplete information when both unlimited usage fixed fee pricing and usage based pricing are feasible and administering usage based pricing may involve transaction costs it is shown that offering fixed fee pricing in addition to a nonlinear usage based pricing scheme is always profit improving in the presence of nonzero transaction costs and there may be markets in which a pure fixed fee is optimal this implies that the optimal pricing strategy for information goods is almost never fully revealing moreover it is proved that the optimal usage based pricing schedule is independent of the value of the fixed fee a result that simplifies the simultaneous design of pricing schedules considerably and provides a simple procedure for determining the optimal combination of fixed fee and nonlinear usage based pricing the introduction of fixed fee pricing is shown to increase both consumer surplus and total surplus the differential effects of setup costs fixed transaction costs and variable transaction costs on pricing policy are described these results suggest a number of managerial guidelines for designing pricing schedules for instance in nascent information markets firms may profit from low fixed fee penetration pricing but as these markets mature the optimal pricing mix should expand to include a wider range of usage based pricing options minimum fees quantity discounts and adoption levels across the different pricing schemes are characterized strategic pricing responses to changes in market characteristics are described and the implications of the paper s results for bundling and vertical differentiation of information goods are discussed

we will be right with you managing customer expectations with vague promises and cheap talk delay announcements informing customers about anticipated service delays are prevalent in service oriented systems how delay announcements can influence customers in service systems is a complex problem that depends on both the dynamics of the underlying queueing system and on the customers strategic behavior we examine this problem of information communication by considering a model in which both the firm and the customers act strategically the firm in choosing its delay announcement while anticipating customer response and the customers in interpreting these announcements and in making the decision about when to join the system and when to balk we characterize the equilibrium language that emerges between the service provider and her customers the analysis of the emerging equilibria provides new and interesting insights into customer firm information sharing we show that even though the information provided to customers is nonverifiable it improves the profits of the firm and the expected utility of the customers the robustness of the results is illustrated via various extensions of the model in particular studying models with incomplete information on the system parameters allows us also to highlight the role of information provision in managing customer expectations regarding the congestion in the system further the information could be as simple as high congestion low congestion announcements or it could be as detailed as the true state of the system we also show that firms may choose to shade some of the truth by using intentional vagueness to lure customers

revenue management model for on demand it services abstract this paper presents a model for applying revenue management to on demand it services the multinomial logit model is used to describe customer choice over multiple classes with different service level agreements slas a nonlinear programming model is provided to determine the optimal price or service level for each class through a numerical analysis we examine the impacts of system capacity and customer waiting incentives on the service provider s profit and pricing strategies

gasoline demand revisited an international meta analysis of elasticities meta analysis is used to determine if there are factors that systematically affect price and income elasticity estimates in studies of gasoline demand four econometric models are estimated using long run and short run price and income elasticity estimates from previous studies as the dependent variables explanatory variables include functional form lag structure time span national setting estimation technique and other features of the model structure elasticity estimates are found to be sensitive to the inclusion or exclusion of some measure of vehicle ownership static models appear to overestimate short run elasticities underestimate long run price elasticities but pick up the full long run income responsiveness there is variation in the elasticity of demand across countries especially in the short run and gasoline demand appears to be getting more price elastic and less income elastic over time

a note on measuring surplus attributable to differentiated products in a recent article in this journal f m scherer i presented a study both analytical and empirical of the welfare economics of brand proliferation in the ready to eat cereal industry comparing estimates of contributions to surplus for new products with launching costs scherer concluded that during the period i958 70 most new cereal products were introduced at a net cost to society scherer s measure of a product s contribution to surplus is the consumer s surplus portion of the area under what he calls a ceteris paribus demand function hereafter abbreviated as c p the demand function for a single product holding the availability and prices of other products constant explicitly ignored in the calculation was the effect of price increases that generally accompanied the introduction of new products since consumers surplus is reduced by an increase in price scherer felt that his estimates probably overstated new product benefits using a spatial model like the one employed by scherer in the analytical portion of his paper i show in section ii that while scherer s measure does ignore lost consumer surplus due to price increases and thus overstates the benefits to consumers also ignored in scherer s measure is an increase in producer surplus due to higher prices coupled with the appearance of new product variants the net effect of the two omissions is ambiguous leaving open the possibility that scherer s measure of surplus is actually biased downward instead of upward as he supposes an algebraic exercise reported in section iii shows that scherer s measure underestimates a product s contribution to surplus if individual demand functions are linear in price and a spatial measure of product differences possible uses of c p demand functions for estimating the marginal benefits of differentiated products are discussed in section iv

capacity and lead time management when demand for service is seasonal and lead time sensitive in today s competitive business environment quick service with minimal waiting time is an important factor for customers when choosing a service many service organizations guarantee a uniform lead time to all customers in order to gain competitive advantages in the market in selecting a lead time to quote the firm has to take into consideration not only how customers will react to the delivery time guarantee but also whether it has adequate capacity to fulfill the commitment a short lead time can bring both benefits and costs it can increase customer demand but might require a higher capacity level we present a mathematical model and a solution method for determining the optimal quoted lead time and capacity level for a profit maximizing firm with time varying and lead time sensitive demand the firm incurs convex capacity costs and pays lateness penalties whenever the actual lead time exceeds the quoted lead time a few studies have been conducted on the relationship between uniform lead time capacity demand and overall profitability however none of them takes the time variation of demand into account our work differs from previous research in that we explicitly model such a demand pattern

dynamic pricing for network service equilibrium and stability consider a data communication network owned and operated by a single organization the network has an infinite number of small users and is managed by a system manager sm whose objective is to maximize the net value of the system as a whole the objective of this paper is to study pricing mechanisms that induce the optimal arrival rates when the sm has no full knowledge of the demand in advance we investigate the system behavior under three alternative dynamic pricing rules and users expectations models and characterize the equilibrium and its stability conditions

competition and outsourcing with scale economies scale economies are commonplace in operations yet because of analytical challenges relatively little is known about how firms should compete in their presence this paper presents a model of competition between two firms that face scale economies i e each firm s cost per unit of demand is decreasing in demand a general framework is used which incorporates competition between two service providers with price and time sensitive demand a queuing game and competition between two retailers with fixed ordering costs and pricesensitive consumers an economic order quantity game reasonably general conditions are provided under which there exists at most one equilibrium with both firms participating in the market we demonstrate in the context of the queuing game that the lower cost firm in equilibrium may have a higher market share and a higher price an enviable situation we also allow each firm to outsource their production process to a supplier even if the supplier s technology is no better than the firms technology and the supplier is required to establish dedicated capacity so the supplier s scale can be no greater than either firm s scale we show that the firms strictly prefer to outsource we conclude that scale economies provide a strong motivation for outsourcing that has not previously been identified in the literature

the principle of minimum differentiation revisited abstract hotelling s model of differentiated products is examined and modified so that consumers have relatively low reservation prices for the differentiated products the problem of existence of a nash equilibrium in prices in a duopoly with given products is analysed when the reservation price is relatively low a nash equilibrium in prices exists for a larger range of products than when the reservation price is infinite next i examine product competition with instantaneous adjustment to the nash equilibrium prices of the previous game firms competing in a nash fashion have tendencies to move away from each other and try to achieve local monopolistic positions this is in sharp contrast with the acclaimed principle of minimum differentiation of the original model of hotelling of high reservation price where firms clustered in the product space

equilibrium with product differentiation tive consumer formulations is used to examine the properties of single and multiple price equilibria conditions under which decreases in the intensity of consumer preferences reduce price are given it is shown that with certain types of demand curves entry can eliminate price cost markups even given product differentiation if competition is localized it is demonstrated that entry does not affect the markup finally the effect of spurious product differentiation on price is examined

monopoly product differentiation and economic welfare abstract this paper discusses the pricing behavior of a monopolistic producer supplying several quality differentiated goods by using a model of a lancasterian characteristic approach with consumer s taste pattern dispersed it examines how finer product differentiation which is made by the producer by means of the introduction of a new good changes the price structure and consumer s welfare it will be establised that the entry of a new good imposes quite different impacts on the price of the goods of higher quality and on those of lower quality goods

innovative entry profit hidden beneath the zero the traditional models of free entry zero profit monopolistic competition equilibrium do not of course exclude the possibility that positive profits might still be made by intra marginal firms if the market is non uniform or that collusive actions plus barriers to further entry can almost always be used to convert a zero profit non cooperative equilibrium into a structure which is profitable for all existing firms this paper is concerned with situations giving rise to a local nash equilibrium no firm can improve by a marginal move which are zero profit across all firms but yet in which it is possible for a new firm to enter and make profits at least in the short run without collusive action entry in such situations will be referred to as innovative entry since it involves potential entrants looking behind the zero profit situation actually existing to a possible different structure in which profits are possible or in which a larger number of firms can be accommodated without losses this can be contrasted with passive entry in which firms simply enter industries where actual profits are positive and do not enter those in which actual profits are nonpositive we shall restrict ourselves to discussion of uniform cases in which all firms make identical profits at equilibrium so as to avoid any difficulty associated with the term zero profit the general context will be that of monopolistic competition in which product differentiation takes place by variation in the specifications combinations of characteristics of the goods produced the potential variations are considered as points in a space of characteristics with dimensionality determined by the number of characteristics actually relevant to consumer choice among the products the market structure arising within this context when there is free entry no collusive behavior frictionless change and complete information has been termed perfect monopolistic competition by the author and discussed fully at least for the case of two characteristics in lancaster 5 within this structure it will be shown that innovative entry is possible even when there is passive entry equilibrium because actual profits of all firms are zero in at least two cases

decomposing the determinants of road traffic demand this study presents a decomposition of the basic fundamental determinants of road traffic and fuel demand a general framework is proposed as a means of analysing the impacts of changes in prices and income on the demand for fuel and traffic volume the objective is to provide a general basis for comparing different road traffic elasticity estimates and for understanding how a variety of different factors work together to create overall road traffic and fuel demand responses the study emphasizes relationships between different price and income elasticity measures and uses estimates from the literature to evaluate the main determinants of demand including some previously unobserved effects

sensitivity of optimal prices to system parameters in a steady state service facility we consider the problem of maximizing the long run average reward in a service facility with dynamic pricing we investigate sensitivity of optimal pricing policies to the parameters of the service facility which is modelled as an m m s k queueing system arrival process to the facility is poisson with arrival rate a decreasing function of the price currently being charged by the facility we prove structural results on the optimal pricing policies when the parameters in the facility change namely we show that optimal prices decrease when the capacity of the facility or the number of servers in the facility increase under a reasonable assumption we also show that optimal prices increase as the overall demand for the service provided by the facility increases or when the service rate of the facility decreases we illustrate how these structural results simplify the required computational effort while finding the optimal policy

congestion and network externalities in the short run pricing of information system services transfer pricing provides management with an efficient tool for coordinating the use of information system services in practice these services if they are charged out to end users are priced via an allocation of historical costs based on individual usage or are assigned a price based on the fair market value of outside alternatives both approaches encourage suboptimal usage of information systems resources they ignore three constituents of optimal transfer prices 1 the reaction of other users to any change in a given user s consumption of service 2 the technical response to additional use of an information system service in the form of congestion and network externalities and 3 end user preferences for the information system service together these influences on demand contribute to an externality two types of externalities are significant in information systems congestion externalities decrease and network externalities increase the utility of services this research provides a complete model for computing optimal transfer price which corrects several existing problems in information system service valuation when full absorption cost allocations contain significant fixed precommitted or sunk cost components it is not possible to balance the budget direct costing improves on full absorption costing but misspecifies costs when demand is nonlinear to balance the budget with a minimum of disutility to end users management must resort to second best pricing inefficiency arises from two sources when externalities are ignored in transfer pricing end users cannot plan service usage and thus encounter unanticipated congestion which lowers morale and efficiency and increases costly expediting where congestion effects are highly nonlinear congestion may effectively shut down the system on the other hand incorrect transfer prices can motivate usage too low to take advantage of network benefits end users may confuse externality effects and intrinsic value of an information system service in these cases the price and performance of outside alternatives exert a complex and subtle influence on use and pricing of services where there exist identical outside and inside processing alternatives and transfer pricing does not reflect this there is a significant tendency to overprice and underutilize internal services in this case there may be a tendency to outsource when processing should be kept in house future markets for information systems will favor technologies which exhibit strong network externalities and pricing of these technologies will become increasingly complex because of the interrelationship of hardware software and data originated externalities the models provided in this research will allow management to take advantage of these opportunities

a note on dynamic monopoly pricing under consumption externalities we analyze dynamic monopoly pricing under consumption externalities focusing on pricing under negative externalities we also attempt to generalize models in the previous literature which encompass both negative and positive externalities by incorporating a consumer s discount factor for past sales as a parameter analyzing our model reveals oscillation as the optimal price path in the presence of negative externalities

market segmentation self selection and product line design the purpose of this paper is to develop a theory of market segmentation based on consumer self selection the extant theory is based on the third degree price discrimination model of pigou central assumptions of which are that the firm can directly address individual segments and isolate them by using consumer self selection i am relaxing these assumptions in the context of a monopolist designing a product line i show that this relaxation has significant implications for how the products and prices are chosen and what they look like in particular segments may be aggregated even though there are no economies of scale furthermore consumer self selection enables us to model cannibalization and competition among firms

externalities tangible externalities and queue disciplines externalities are the marginal costs that a user of a common resource imposes on others we introduce the efficient measure of tangible externalities that are the costs that a user imposes on others while being served then for a single server queueing system under various service disciplines we compute the expected externalities and the expected tangible externalities conditioning on the length of the service requirement

optimal internal pricing and capacity planning for service facility with finite buffer abstract an economic model is developed for exploring optimal internal pricing and capacity planning for service facility with finite buffer capacity because of the limited buffer capacity jobs finding the system full upon their arrival would be rejected such rejections create a gap between the value collectively perceived by users and the actual achievement of the organizational value this gap called a loss externality has never been studied before and plays an important role for designing optimal pricing scheme in general the underlying economic structure may involve multiple equilibria and it is unclear whether or not the system can be controlled through internal pricing in this regard a sufficient condition is given under which the system administrator can find two separate prices for accepted and rejected users at any demand level to be desired so that the desired demand level becomes the unique equilibrium of the system for a short run problem it is shown that the optimal pricing scheme can be expressed as the sum of the congestion and the loss externalities for a long run problem the optimal pricing scheme is expressed in a unified manner so that a structural relationship between the short run problem and the long run problem at optimality can be readily observed a necessary and sufficient condition is also given for the marginal capacity pricing to be optimal i e the optimal long run pricing consists of the marginal cost for processing capacity and the marginal cost for buffer capacity without involving any externality at all

stability and chaos in demand based pricing under social interactions abstract demand based pricing is often used to moderate demand fluctuations so as to level resource utilization and increase profitability however such pricing policies may not be effective when customers purchase decisions are influenced by social interactions this paper investigates the demand dynamics under a demand based pricing policy of a frequently purchased service when social interactions are at work customers are heterogeneous and adaptively forward looking existing customers re purchase decisions are based on adaptively formed price expectations and reservation prices potential customers are attracted through social interactions with existing customers the demand process is characterized by a two dimensional dynamical system it is shown that the equilibrium demand can be unstable for a given reservation price distribution we first analyze the stability of the equilibrium demand under various scenarios of social interactions and customers adaptively forward looking behavior and then characterize their dynamics using the bifurcation plots lyapunov exponents and return maps the results indicate that the demand process can be stable periodic or chaotic the study shows that the intended effect of a demand based pricing policy may be offset by customers adaptively forward looking behavior under the influence of social interactions in fact the interplay of these factors may even lead to chaotic demand dynamics the result highlights the complex dynamics produced by a simple demand price mechanism under social interactions for a demand based pricing strategy to be effective companies must take social interactions into account

price delivery time guarantees and capacity selection this paper studies the impact of using delivery time guarantees as a competitive strategy in service industries where demands are sensitive to both price and delivery time we assume that delivery reliability is crucial and investment in capacity expansion is plausible in order to maintain a high probability of delivering the time guarantee a mathematical framework is proposed to understand the interrelations among pricing delivery time guarantee and capacity expansion decisions specifically an optimization model is developed to determine the joint optimal selection of these three important decision variables with an objective of maximizing the average net profit we characterize the optimal decisions and study their qualitative behaviors as various parameters change we further present a numerical example to illustrate how the results of our model can be used to provide useful managerial insights for selecting the best competing strategies for firms with different operating characteristics our model and results are also applicable to a make to order manufacturing environment

user delay costs and internal pricing for a service facility this paper studies optimal pricing and capacity decisions for a service facility in an environment where users delay cost is important the model assumes a general nonlinear delay cost structure and incorporates the tradeoff between the delay cost and capacity cost we find necessary and sufficient conditions for the optimality of a pricing rule that charges out service resources at their marginal capacity cost we examine the issue of budgetary balance and find that net value maximization entails a budget deficit for the service facility that is the service facility should be evaluated as a deficit center the results provide guidelines under which the optimal magnitude of the deficit can be determined

pricing and capacity decisions for a service facility stability and multiple local optima we consider a model for optimal pricing and capacity for a service facility the problem is formulated as one of optimal design of a single server queueing system in which the design variables are the service rate and the arrival rate equivalently the price charged for admission the model is a variant of one introduced by dewan and mendelson we allow for an upper bound on the arrival rate and consider slightly more general user value functions we show that an optimal solution may not lie in the interior of the feasible region and thus may not be characterized by the first order differential conditions moreover the first order conditions typically have several solutions some of which may be relative minima and produce a negative value of the objective function customer value minus the sum of expected delay cost and capacity cost per unit time we also examine the stability of the equilibrium arrival rate and the convergence of a dynamic adaptive algorithm for finding the optimal service rate in the context of a model in which the distribution of customers value of service is uniform we show that the equilibrium arrival rate is stable if and only if the service rate is above a threshold value which depends on the price charged for admission and the parameters of the uniform distribution of value of service the dynamic adaptive algorithm always converges to a relative maximum of the objective function if the service rate can be adjusted every time the arrival rate changes otherwise the algorithm will start to diverge if and when the service rate ever falls below the threshold value associated with stability of the equilibrium arrival rate

product proliferation in characteristics space the uk fertiliser industry in recent years a number of theoretical papers have addressed both the positive and normative aspects of the problem of how competitive products may be located in characteristics space the major theoretical antecedents have been hotelling s analysis of spatial competition 6 chamberlin s analysis of product differentiation 1 2 and lancaster s goods characteristics theory of demand 7 unfortunately there has been little corresponding empirical analysis two approaches in the theoretical analysis seem to have predominated firstly the examination of the welfare implications of product variety offered in equilibrium conditions 2 and secondly the dynamics of product competition using the spatial competition analogy 3 this paper which adopts the second approach uses an adaptation of lancaster s goods characteristics framework it examines the process of product competition in the uk agricultural fertiliser market the first and second sections briefly outline the main features of the goods characteristics and spatial competition theories and the uk fertiliser market respectively the third section contains the empirical analysis

the economics of product variety a survey demand for variety may arise from a taste for diversity in individual consumption and or from diversity in tastes even when each consumer chooses a single variant the full degree of variety potentially demanded will not in general be supplied because scale economies even to a small degree mean that the potential welfare or revenue gain from greater variety must be balanced against the lower unit production costs with fewer variants the economics of product variety consists essentially in analysing the effect of this balance in different situations and comparing the degree of product variety for different market structures with each other and with the optimum the survey commences with the work on market structures with single product firms generalized monopolistic competition tracing modern developments in both the chamberlinian and hotelling traditions the latter has been particularly fruitful due to the expansion of the original locational ideas into virtual spaces in product characteristics the emphasis in recent work on product variety has been on multiproduct firms in both monopolistic and oligopolistic structures including strategic market preemption although most work has been in a full information context there have been advances in product variety under imperfect information either by consumers to properties of the firms products or firms as to consumers demands

allocating spending between advertising and information technology in electronic retailing this study examines coordination issues that occur in allocating spending between advertising and information technology it in electronic retailing electronic retailers run the risk of overspending on advertising to attract customers but underspending on it thus resulting in inadequate processing capacity at the firm s website in this paper we present a centralized joint marketing it model to optimally allocate spending between advertising and it and we discuss an uncoordinated case where marketing and it make suboptimal advertising and capacity decisions we show how these decisions can be coordinated either by reducing the value of a customer session or by designing an optimal processing contract between marketing and it both the coordination methods can be implemented with only local knowledge of the it function yet they generate a solution that almost matches the quality of the centralized solution we extend our basic model to consider demand uncertainty lagged advertising effects and uncertainties in the lead time to acquire it capacity with demand uncertainty electronic retailers should reduce spending on advertising and increase it capacity if there is potential for a demand upswing and the cost of it capacity is relatively low the value of a customer session should be further reduced when uncertainties exist this is required to share the risk of excess or inadequate it capacity

incentive compatible pricing for a service facility with joint production and congestion externalities this paper considers the pricing problem of a service facility when services are jointly produced by the customers and the facility building on the work of mendelson 1985 we model the facility as a gi gi 1 queue with customer chosen service rates and linear delay costs we show that the service rates chosen by the customers based on their self interest are always suboptimal for the facility due to congestion externalities we derive optimal incentive compatible pricing schemes that can achieve optimal arrival rates and induce customers to choose optimal service rates for the case of systemwide net value maximization we show that the optimal incentive compatible pricing scheme consists of a variable fee that is proportional to the actual service time and a fixed rebate that is equal to a customer1s expected delay cost in the queue for the case of profit maximization of the facility we show that the optimal pricing scheme again consists of a fixed fee and a variable fee one insight from our analysis is that it may be appropriate for a service facility to reimburse each customer for his actual delay cost in the queue

analysing gasoline demand elasticities a survey this paper is a survey of studies on gasoline demand although there are very many dxerent studies in this eld which sometimes appear to arrive at contradictory results we find that with proper stratification of studies by model and data type much of the contict turns to consensus in this survey we classtfy studies by data type and by ten d erent categories of model and with the exception of estimates on seasonal data which tend to be unstable and of certain inappropriate model formulations we find a fair degree of agreement concerning average short run and even long run income and price elasticities

capacity allocation using past sales when to turn and earn consider a supplier selling to multiple retailers demand varies across periods but the supplier s capacity and wholesale price are fixed if demand is high the retailers needs exceed capacity and the supplier must implement an allocation mechanism to dole out production we examine how the choice of mechanism impacts retailer actions and supply chain performance in particular we analyze turn and earn allocation a method commonly used in the automobile industry this scheme bases current allocations on past sales and thus enables retailers to influence their future allocations they compete for scarce capacity even if they do not compete for customers we show that turn and earn induces the retailers to increase their sales when demand is low and the supplier s capacity is otherwise underutilized supplier profits thus increase the impact on the supply chain depends on how restrictive capacity is with mildly tight capacity the retailers higher sales rate does not significantly lower their profits but does reduce the cost of idle capacity supply chain performance improves with extremely tight capacity the retailers intense competition dissipates more profits than the supplier gains and supply chain performance suffers consequently turn and earn does not generally coordinate the system it is best characterized as a means for the supplier to increase her profits at the expense of the retailers and potentially even the supply chain furthermore these results hold even if the retailers can hold inventory in anticipation of scarce capacity

cost allocation and opportunity costs one explanation for the widespread use of allocated fixed costs is that they can serve as a proxy for difficult to calculate opportunity costs this explanation is pursued by modeling a service department as an m m s s queueing system two main results are that the expected value of opportunity costs equals both the incremental productivity of capacity and the optimal transfer price when the cost of capacity is of the form cs as and is close to one we show that allocated fixed costs are a good proxy for average opportunity costs however if there are great economies of scale is close to zero then a method which charges users only for the variable costs of the service department is recommended finally the economic efficiency of transfer prices based on either variable cost or full cost is compared with optimal transfer pricing policies

modeling bounded rationality in capacity allocation games with the quantal response equilibrium we consider a supply chain with a single supplier and two retailers the retailers choose their orders strategically and if their orders exceed the supplier s capacity quantities are allocated proportionally to the orders we experimentally study the capacity allocation game using subjects motivated by financial incentives we find that the nash equilibrium which assumes that players are perfectly rational substantially exaggerates retailers tendency to strategically order more than they need we propose a model of bounded rationality based on the quantal response equilibrium in which players are not perfect optimizers and they face uncertainty in their opponents actions we structurally estimate model parameters using the maximum likelihood method our results confirm that retailers exhibit bounded rationality become more rational through repeated game play but may not converge to perfect rationality as assumed by the nash equilibrium finally we consider several alternative behavioral theories and show that they do not explain our experimental data as well as our bounded rationality model this paper was accepted by loana popescu guest editor operations management

demand fluctuation and chaotic behaviour by interaction between customers and suppliers this paper presents an investigation on simulation of interaction between customers and suppliers in a three tier supply chain system in the simulation customers respond to the price discount offer made by the supplier and the supplier makes adjusts the price according to stock held the simulation shows that the behaviour of such interaction exhibits deterministic chaos it is found that the attractors of the model move with the environment and the initial states thus the bifurcating points in such a system are unable to provide a guideline in system design to avoid chaos

observed and unobserved preference heterogeneity in brand choice models this paper extends the scanner based choice literature by explicitly incorporating individual level brand preference data we illustrate our model using a unique data set that combines survey and scanner data collected from the same individuals the addition of individual specific brand preference information significantly improves fit and prediction furthermore this observed heterogeneity better explains choice than does unobserved heterogeneity in the standard scanner model s parameters more importantly we find that the standard model underestimates the importance of consumers brand preferences and overestimates both brand loyalties and price sensitivities brand loyalty is overestimated because models without preference information confound state dependence heterogeneity and preference effects price sensitivities are inflated because the average preference based consumer is implicitly assumed to be more willing to switch from his preferred brand than is the real preference based consumer further standard models overestimate the heterogeneity in price and loyalty sensitivities and misidentify both price and loyalty sensitive consumers the managerial implications of our findings and the applicability of our methodology when survey data are collected infrequently and for only a subsample of consumers are pursued we demonstrate that even under these circumstances better populationwide pricing and promotion decisions are identified and more accurate targeting results

research note using basket composition data for intelligent supermarket pricing how can supermarkets use the vast data they have to design strategies to compete for large basket shoppers potentially their most profitable customers we say analyze the data to glean basket composition of heterogeneous consumers of theoretical and practical interest is the question will our suggestion improve supermarket profits and if so by what pricing strategies by answering this we can also answer the question do results of extant research on single product marketing that using such information intensifies competition and lowers profits generalize to multiproduct marketing by supermarkets that carry several products and whose patrons purchase multiple items we derive equilibrium data based intelligent pricing strategies that also produce increased supermarket profits what is more interesting is our result that data analysis is profitable whether or not a competitor undertakes data analysis if not too costly implementing data analysis is a dominant strategy moreover with comprehensive data analysis connecting basket information and household data stores can increase profits further by targeting rewards at individual households thereby segmenting the market more completely in contrast to past research findings we show that for supermarkets even under competition use of information on past purchases enables intelligent pricing better segmentation and higher profits

a contract and balancing mechanism for sharing capacity in a communication network we propose a method for determining how much to charge users of a communication network when they share bandwidth our approach can be employed either when a network owner wishes to sell bandwidth for a specified period of time to a number of different users or when users cooperate to build a network to be shared among themselves our proposed contract and balancing mechanism can mediate between rapidly fluctuating prices and the longer time scales over which bandwidth contracts may be traded an advantage of the process is that it avoids perverse incentives for a capacity provider to increase congestion

relevant costs congestion and stochasticity in production environments abstract conventional management accounting principles used to evaluate relevant costs have been developed under the assumption of deterministic manufacturing settings manufacturing operations however are complex and stochastic in this paper we examine the impact of stochasticity in the production process on relevant costs based on a dynamic assessment of capacity constraints we develop a model to analyze the behavior of relevant costs with respect to changes in the expected duration and variability in set ups and processing an implication of this analysis is that for profit maximization capacity will exceed expected demand if production rates or demand are stochastic

promised delivery time and capacity games in time based competition we investigate firms competitive behaviors in industries where customers are sensitive to both promised delivery time pdt and quality of service qos measured by the on time delivery rate to study the competition in pdt at the marketing level we construct an oligopoly game with an external qos requirement we show that there exists a unique nash equilibrium and the equilibrium qos exhibits a switching surface structure with respect to capacities to study the competition in capacity at the strategic level we construct a two stage game in which the firms compete in terms of their capacities in stage 1 and in terms of pdt in stage 2 we show the existence of two different types of pure strategy equilibria and characterize them this study provides the following insights an index of time based competitive advantage itca and the first mover advantage determine the positions of the firms in time based competition either the well known prisoner s dilemma or off equilibrium behaviors due to different preferences for equilibria when multiple equilibria exist may lead the firms to overinvest in capacity but no one may gain a competitive advantage a uniform improvement in internal efficiency i e a uniform capacity cost reduction may harm everyone quality differentiation i e going beyond the qos benchmark plays a dual role in time based competition either helping a firm with a larger itca to compete more effectively or helping a firm possibly with a smaller itca to preempt competitors and protect its market advantage this paper was accepted by paul h zipkin operations and supply chain management

practice prize article chan4cast a multichannel multiregion sales forecasting model and decision support system for consumer packaged goods we discuss the development and implementation of chan4cast a sales forecasting model by pack size category channel region customer account and a web based decision support system dss for consumer packaged goods in addition to capturing the effects of such variables as past sales trend own and competitor prices and promotional variables and seasonality the model accounts for the effects of temperature significant holidays new product introductions trading day corrections and adjustments to the wholesale level in general the model forecasts sales volume satisfactorily for a leading consumer packaged goods company the dss enables top and mid level executives in sales marketing strategic planning and finance to develop accurate forecasts of sales volume plan prices and promotional activities over a long time horizon to track sales response to marketing actions over time and to simulate forecast scenarios based on possible marketing decisions and other variables chan4cast is being rolled out for more users and more divisions in the company the key take aways are that successful development and implementation of a rigorous marketing science model require a strong internal champion a careful balance between modeling sophistication and practical relevance good diagnostic features regular validations and greater attention to the development of a fast and responsive dss

the spatial representation of market information to be used effectively market knowledge and information must be structured and represented in ways that are parsimonious and conducive to efficient managerial decision making this manuscript proposes a new latent structure spatial model for the representation of market information that meets this requirement when applied to a priori defined e g socioeconomic segments our proposed methodology provides a new way to display marketing data parsimoniously via dimension reduction through a factor analytic specification in post hoc studies we simultaneously derive market segments from the data and represent the structure of market information within each of the unobserved derived groups segments we summarize all relevant information concerning derived market segments via a series of maps that prove conducive to the quick and accurate dissemination of customer and competitor market information the associations between the variables are captured in a reduced space where each variable is represented by a vector that emanates from the origin and terminates on a hypersphere of unit the vector length is arbitrary radius e g a unit circle in a two dimensional space the angles between the variable vectors capture the correlation structure in the reduced space the method is very general and can be utilized to identify latent structures in a wide range of marketing applications we present an actual commercial marketing application involving the normalized prescription shares of specialists of ethical drugs to demonstrate the effectiveness of representing market information in this manner and to reveal the advantage of the proposed methodology over a more general finite mixture based method the proposed methodology derives three segments that tend to group specialists with respect to the stage of adoption of innovation in this therapeutic category the specialists in the first group appear to be laggards because they prescribe more of the older class of brands however they also have a higher than average preference for a newer and somewhat cheaper brand this suggests that some of the specialists belonging to this segment may be price sensitive while others may exhibit a slower adoption cycle replacing the older class with the newer brands and thus skip one stage in the cycle of innovation the specialists in the second segment are heavy users of the newer class of brands but are not particularly fast to adopt the latest brands finally the last segment clearly consists of innovators traditionally pharmaceutical marketers have viewed specialists in one of two extremes all specialists are the same i e the market has only one segment or all specialists are very different i e the market consists of 10 000 segments of one physician each not surprisingly this analysis suggests a more moderate perspective specialists adopt new products at different rates

investigating sensitivity and the impact of information on pricing decisions in an m m 1 queueing model we consider a model for optimal pricing for a job shop the problem is formulated as a single server queueing model where an arriving customer enters the system if his reward drawn from a stochastic variable exceeds the sum of the price charge of his job plus the expected waiting costs the optimal price is found with respect to profit optimization and welfare optimization two models are formulated the first model called ninf contains only steady state queue information the other model called ql contains more detailed information because here an arriving customer is informed about the number of customers already in the system the main interpretation of the models is how complex an information system should the job shop provide to its customers we show that for both criteria functions it pays off except for a special case to use the more detailed information system in the paper we also investigate how sensitive the pricing decision and its outcome on the criteria functions are on the variance of the reward distribution which in the paper is assumed to be uniformly distributed concerning welfare optimization we show that a decreased variance always results in a decreased welfare contribution while concerning profit optimization a decreased variance can result in both a decreased as well as an increased profit contribution

willingness to pay estimation with choice based conjoint analysis addressing extreme response behavior with individually adapted designs the increasing consideration of behavioral aspects in operations management models has prompted greater use of choice based conjoint cbc studies in operations research such studies can elicit consumers willingness to pay wtp a core input for many optimization models however optimization models can yield valid results only if consumers wtp is estimated accurately a simulation study and two field studies show that extreme response behavior in cbc studies such that consumers always or never choose the no purchase option harms the validity of wtp estimates reporting the share of consumers who always and never select the no purchase option allows for detecting extreme response behavior this study suggests an individually adapted design that avoids extreme response behavior and thus significantly improves wtp estimation accuracy

product line competition customization vs proliferation we study a market with customers who have heterogeneous preferences for product attributes we consider two types of firms that compete on price and product variety a traditional firm which chooses a limited set of product configurations and a customizing firm which can produce any configuration to order the traditional firm carries product inventories and experiences a lead time delay the customizing firm does not carry inventory and its customers incur waiting costs until they receive their orders we assume that the customizing firm has limited capacity in the short run e g when it does not outsource production to high volume manufacturers we derive the equilibrium for a duopoly competition between the customizing firm and the traditional firm study its characteristics and compare it to a monopoly we characterize conditions that favor customization under competition we find that the customizing firm s profit is not monotone in the market size and its ease of customization similarly a

demand and innovation in services the case of mobile communications abstract this paper aims to analyse the pricing strategies of mobile communications operators and examine the role of demand characteristics in the development of new tariff plans in so doing we depart from a traditional industrial organization approach to price discrimination and interpret new tariff plans as innovations in the spirit of schumpeter we look at competition in this sector as depending upon this form of innovation and we argue that given the specific features of the industry the development of new tariff plans is strongly related to the users characteristics and behaviour our main point is that in a context of uncertainty demand affects firms innovative strategies in two ways first by providing information on user behaviour and by increasing the capability of market segmentation and second by providing the incentives to innovate this argument is supported by an empirical analysis carried out on the basis of an original dataset which includes all the tariff plans on offer in the history of the italian market between 1992 and 2005 we find that both a firm s installed customer base and the level of market saturation play a role in shaping firms innovative pricing strategies in terms of the number and characteristics of the new tariff plans

mechanism design for free but no free disposal services the economics of personalization under privacy concerns online personalization services belong to a class of economic goods with a no free disposal nfd property where consumers do not always prefer more services to less because of the privacy concerns these concerns arise from the revelation of information necessary for the provision of personalization services we examine vendor strategies in a market where consumers have heterogeneous concerns about privacy in successive generalizations we allow the vendor to offer a fixed level of personalization variable levels of personalization and monetary transfers coupons to the consumers that depend on the level of personalization chosen we show that a vendor offering a fixed level of personalization does not offer a coupon unless his marginal value of information mvi is sufficiently high and even when personalization is costless the vendor does not cover the market under a fixed services offering the vendor serves the same market with or without couponing next we demonstrate that in the absence of couponing the vendor s optimal variable personalization services contract maximizes surplus for all heterogeneous consumers which is in contrast to standard results from monopolistic screening when the vendor can offer coupons that vary according to personalization levels the optimal contract is not fully revealing unless his mvi is high and he will not offer coupons when this mvi is low however a vendor with a moderate mvi between certain thresholds offers a bunched contract wherein consumers with low privacy concerns receive a variable services coupon contract those with moderate privacy concerns receive a fixed services coupon contract and those with high privacy concerns do not participate in the market the coupon value is decreasing in privacy sensitivity of consumers

learning mixed equilibria we study learning processes for finite strategic form games in which players use the history of past play to forecast play in the current period in a generalization of fictitious play we assume only that players asymptotically choose best responses to the historical frequencies of opponents past play this implies that if the stage game strategies converge the limit is a nash equilibrium in the basic model plays seems unlikely to converge to a mixed strategy equilibrium but such convergence is natural when the stage game is perturbed in the manner of harsanyi s purification theorem journal of economic literature classification number c72

two stage perfect equilibrium in hotelling s model hotelling i 929 suggests that his spatial competition model can be used to describe a wide range of differentiation problems he points to the selection of product variety within an industry as a potential application most of the subsequent work in his tradition has taken the equivalence of the two problems for granted in this note we look more closely at this equivalence we distinguish between two types of differentiated products according to the variety of preferences assumed with respect to those products building on this distinction we recognize that the demand faced by a firm locating on hotelling s line is analogous to the demand faced by a firm selecting a horizontally differentiated product it should be emphasized thus that the equivalence between the geographical and the product selection problem is by no means general and relies on specific assumptions about consumers preferences next we formulate a small model close to hotelling s one in which firms select a horizontally differentiated product within this model it will be shown that a pure strategy price equilibrium exists for every pair of products this statement is to be contrasted with the results of d aspremont et al i979 who have shown that in the original hotelling s setting an equilibrium fails to exist when firms are too close together 1 in addition we will examine the product selection problem faced by firms in a two stage game in the first stage each firm selects a product in the second stage the firm defines a price for its product we will seek the existence of a perfect equilibrium in this game a perfect equilibrium in this context can be viewed as a nash equilibrium in a game in which firms select a product aware of the non cooperative price equilibrium that will occur for each of their choices it will be shown that contrary to hotelling s principle the two firms will maximise their differentiation i e firms will locate at opposite ends of the market

monopolistic competition in the spirit of chamberlin special results the idea of large group monopolistic competition was first introduced by chamberlin in i 933 although a large literature has developed on this topic since that time it can be argued that few of the models which have been formulated really capture monopolistic competition in chamberlin s sense in a companion paper to this one hart i 983 a model was presented which it was claimed did satisfy the desiderata of large group monopolistic competition specifically the model had the property that i there were many firms producing differentiated commodities 2 each firm was negligible in the sense that it could ignore its impact on and hence reactions from other firms 3 free entry led to zero profit of operating firms but 4 each firm faced a downward sloping demand curve and hence equilibrium price exceeded marginal cost the model of hart i983 was quite general and only such issues as the existence and limiting properties of equilibrium were considered the purpose of the present paper is to analyse a special case of this model in greater detail and to consider in this context the old question of whether too few or too many brands are produced under monopolistic competition before embarking on the analysis however let me briefly indicate why i believe that there is a need for a new model of monopolistic competition further discussion of this may be found in hart i983 in the last few years a sizeable literature has developed on imperfect competition and product differentiation see for example dixit and stiglitz i977 lancaster i979 salop i979 and spence i976 in much of this literature see for example spence i976 markets of fixed finite size are considered where the entry of firms is limited by the existence of set up costs under these conditions only a finite number of firms can operate and hence firms will not be negligible in the sense of 2 in addition due to the integer problem operating firms will generally make strictly positive profits i e 3 is violated models of

product differentiation with imperfect information the paper employs a model of monopolistic competition and product differentiation with consumers who are not well informed about the specification of the offered brands welfare analysis of the degree of product differentiation in such a market concludes that the socially desirable product variety is limited due to consumers imperfect information consequently when the number of consumers is sufficiently large or economies to scale in production are sufficiently weak the market would offer excessive variety the literature on product differentiation is motivated by the observation that only some of the potential brands of a differentiated product are produced and sold it studies issues such as the role of the market structure in the determination of product diversity and the welfare performance of alternative markets in making this product selection for example see lancaster 1979 and salop 1979 in the spatial models tradition spence 1976 and dixit and stiglitz 1977 in the diversifying representative consumer tradition these studies model product selection as an equilibrium outcome of monopolistic competition the welfare analysis focuses on the tradeoff between consumer benefits which naturally increase with variety and production efficiency which owing to economies to scale decreases with variety they find no natural relation between the socially optimal variety and the market outcome the latter can be smaller or larger than the former depending on the parameters of the model although it is natural to expect that in some markets for differentiated products consumers are imperfectly informed about the available brands all these studies assume that consumers possess perfect information the present paper assumes that consumers are imperfectly informed and indeed obtains qualitatively different results first regardless of how significant are the production economies of scale the optimal variety is below a predetermined level that depends on the parameters of consumer utility and information second when consumer population is sufficiently large or economies to scale in production are sufficiently weak the market would offer excessive variety the explanation is that consumers imperfect information limits the extent to which they can exploit the variety offered in the market it is therefore a social waste to increase variety to a level that consumers cannot benefit from

reverse dumping a form of spatial price discrimination this paper generalizes joan robinson s analysis of dumping under a spatial price theory framework the dumping of goods is shown to be a natural form of spatial pricing rather than necessarily an act of predatory design viewed as such dumping neither requires predatory motives nor competition in markets where the goods are to be dumped a simple spatial monopoly model is used to derive the firm s optimal price policy on sales to nearby and to distant customers under different demand and cost conditions the paper then resolves the question of reverse dumping which may or may not benefit the nearby home country customers