durable goods and product obsolescence the issue of product obsolescence is addressed by examining the optimal sales strategy of a monopolist firm that may introduce an improved version of its current product consumers expectations of a forthcoming product lowers the price that they are willing to pay for the current product because of its loss in value due to obsolescence the new product is characterized by consumers increased willingness to pay and by its competitive interaction with the old product these characteristics affect the tradeoff that the firm makes between the cost of waiting for new product sales versus the cost of cannibalizing these sales we analyze the effect of these characteristics of the new product on the firm s optimal sales strategy we consider the various policy measures available to the firm including limiting initial sales in order to lower cannibalization of the new product buying back the earlier version of the product in order to generate greater demand for the new product and announcements of future product introductions we find that for modest levels of product improvement the firm s optimal policy is to phase out sales of the old product while for large improvements a buy back policy is more profitable lastly we find that the firm is better off if it informs consumers whether a new product is forthcoming

testing for nonlinear dependence in daily foreign exchange rates the purpose of this article is to investigate whether daily changes in five major foreign exchange rates contain any nonlinearities although the data contain no linear correlation evidence indicates the presence of substantial nonlinearity in a multiplicative rather than additive form further examination reveals that a generalized autoregressive conditional heteroskedasticity model can explain a large part of the nonlinearities for all five exchange rates copyright 1989 by the university of chicago

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

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

innovation and the durable goods monopolist the optimality of frequent new version releases when an improvable durable good such as packaged software saturates the market the seller could be tempted to release new versions too frequently hurting her profit a novel contractual device which i term as a free new version rights warranty free nvr warranty can help the seller overcome this temptation in a two period game theoretic model involving a monopolist firm facing heterogeneous consumers i derive conditions under which a rational monopolist can act suboptimally she could face a commitment problem and offer the new version even if doing so lowers her overall profit profit is hurt because when consumers expect a new version a fewer consumers buy the initial version and b the monopolist is forced to charge a lower price for the initial version i show how the free nvr warranty which requires the monopolist to offer consumers the right to receive the new version for free for a limited period can solve her commitment problem this is a new surprising finding by bundling new version rights with the initial version the monopolist at first appears to be denying herself future revenue i derive conditions under which this apparently unprofitable action is optimal which is my main contribution when free nvr is offered consumer surplus decreases and social surplus increases this work extends prior literature on durable goods and the coase conjecture to innovative durable goods with network externalities the findings have important practical implications for firms selling new versions of innovative durable goods subject to network effects as well as for their consumers

does the per se rule deter vertical price fixing i introduction beginning with the wide scale introduction of branded goods in the late nineteenth century manufacturers have often tried to dictate minimum resale prices to the retail outlets carrying their products and since roughly the same time antitrust experts have debated why they would do so 1 less attention has focused on what manufacturers do when they can not impose minimum prices even though legal obstacles have forced them to look for alternatives so what do manufacturers do when they cannot legally set the prices their outlets charge 2 many antitrust officials believe they go right on setting prices either flaunting the law or finding some means to circumvent it barrett 1991 quotes former new york state antitrust chief lloyd constantine as saying that the practice is ubiquitous but based upon winks and nods rather than written agreements that could be used in court new york attorney general robert abrams 1991 argues that vertical price fixing is endemic claiming that antitrust officers can recount scores of tales of retailers calling our offices too scared to give their names telling of coercion and intimidation by manufacturers representatives and rival dealers because their prices were too low former ftc commissioner terry calvani argues that a manufacturer practicing resale price maintenance would have to have an i q two points lower than a carrot to get caught 3 the prospects for wink and nod resale price maintenance are not hard to appreciate for example suppose a manufacturer wants to impose a 500 sanction on any discount outlet if it cannot do so overtly it may instead impose a lump sum charge of 500 on all outlets and ex post reward non discount outlets with a 500 rebate given this scheme s transparency courts legislators and antitrust officials should not be fooled yet the rebates could be indirect and discreet they could be spread over several periods and parceled out in small quantities as compensation for point of sale services to defray overhead to pay for advertising or training and so forth hence it may be hard for outsiders to prove a link between what the manufacturer pays each retailer and that retailer s price moreover in some instances antitrust officials may want an excuse to loosen the legal restrictions on resale price maintenance and may themselves wink and nod at these practices finally antitrust officials cannot always and perhaps not often distinguish legitimate cost sharing arrangements from maneuvers to influence resale prices as such they must proceed carefully manufacturers can employ two other legal means to fix resale prices first manufacturers can coordinate retailers meet the competition guarantees antitrust experts have long believed that on occasion retailers can independently offer meet the competition guarantees to their customers to discourage price competition 4 here a manufacturer coordinates retailers efforts by financing some or all of the meet the competition related rebates they make so in equilibrium all retailers adopt the suggested price while previous models of meet the competition guarantees focus on tacit horizontal price fixing this paper examines explicit vertical price fixing second the manufacturer can persuade retailers to charge its suggested price by guaranteeing the margins of those victimized by price cutting rivals in equilibrium no outlet wants to cut price first so discounting does not occur at all manufacturers have various other means to influence their dealers resale prices in addition to such well known instruments as consignment sales and exclusive territories manufacturers can agree to buy back dealers unsold inventories or parcel out merchandise only as demand for it materializes they can also use devices such as markdown allowances to influence when and by how much dealers discount if demand turns out low presumably this list does not exhaust the possibilities for innovative manufacturers seeking to subsidize dealers that cooperate and to discriminate against those that do not

durable goods monopoly with varying demand this paper solves for the proflt maximising strategy of a durable goods monopolist when incoming demand varies over time each period additional consumers enter the market these consumers can then choose whether and when to purchase we flrst characterise the consumer s utility maximisation problem and under a monotonicity condition show the proflt maximising allocation can be solved through a myopic algorithm which has an intuitive marginal revenue interpretation consumers ability to delay creates an asymmetry in the optimal price path which exhibits fast increases and slow declines this asymmetry pushes the price level above that charged by a flrm facing the average level of demand applications of this framework include deterministic demand cycles one ofi shocks and iid demand draws the optimal policy outperforms renting and can be implemented by a time consistent best price provision

why would a durable good monopolist also produce a cost inefficient nondurable good abstract we develop both commitment and time consistent stationary policies for a monopolist who produces a mixture of goods distinguished by production costs and degree of durability under commitment only the cost efficient durable good is produced and the monopoly output is realized each period for the time consistent stationary case there is an interval for the degree of durability where only the durable good is produced and a higher non overlapping interval where both the cost efficient durable and the cost inefficient nondurable good are produced for any period length when the degree of durability is such that both durable and nondurable goods are provided combined output is less than the competitive output and decreases in the degree of durability approaching the single period monopoly output when both goods are produced the coase conjecture does not hold

conditional heteroscedasticity in time series of stock returns evidence and forecasts this article presents new evidence about the time series behavior of stock prices daily return series exhibit significant levels of second order dependence and they cannot be modeled as linear white noise processes a reasonable return generating process is empirically shown to be a first order autoregressive process with conditionally heteroskedastic innovations in particular generalized autoregressive conditional heteroskedastic garch 1 1 processes fit to data very satisfactorily various out of sample forecasts of monthly return variances are generated and compared statistically forecasts based on the garch model are found to be superior copyright 1989 by the university of chicago

foundations of dynamic monopoly and the coase conjecture subgame perfect equilibria are characterized for a market in which the seller quotes a price each period assume zero costs positive interest rate continuum of buyers and some technical conditions if buyers valuations are positive then equilibrium is unique buyers strategies are stationary and the price sequence is determinant along the equilibrium path but possibly randomized elsewhere otherwise a continuum of stationary equilibria can exist but at most one with analytic strategies coase s conjecture is verified for stationary strategies reducing the period length drives all prices to zero or the least valuation connections to bargaining models are described journal qf economic literature classification

competition in durable goods markets the strategic consequences of leasing and selling in marketing durable goods manufacturers use varying degrees of leasing and selling to consumers e g cars photo copiers personal computers airplanes etc the question that this raises is whether the distinction between leases and sales is simply one of price or whether the proportion of leases and sales effects a firm s ability to compete in the market in this paper we use two approaches to argue that leasing and selling create strategic consequences that extend beyond prices first we develop a stylized theoretical model that shows that the optimal proportion of leases and sales depends on the competitiveness of the market and on the inherent reliability of the firm s product and second we find support for the implications of our theoretical model with data from the automobile industry the u s automobile industry has seen a large increase in leasing over the last five years however the extent to which leasing has been embraced varies widely across manufacturers for example in 1993 the sport utility segment had the following lease percentages ford explorer 29 jeep grand cherokee 24 toyota 4 runner 11 and chevrolet blazer 9 in addition manufacturers often vary lease percentages across models for example in 1993 ford leased 22 of its crown victoria model 35 of its taurus model and 42 of its probe model a popular argument for why we see these differences is that higher priced cars are leased more often because leasing makes them more affordable however this rationale is not compelling in the face of our data for example the ford probe was priced significantly lower than the crown victoria and yet it was leased almost twice as often to develop a better understanding of why we observe differences in the proportion of leasing we develop a two period model of a duopoly in which each manufacturer chooses its optimal quantity and the fraction of units it wants to lease we find that in equilibrium neither firm leases all its units either they use a mix of leasing and selling or they use only selling our analysis suggests that the fraction of leased cars decreases as the manufacturers products become more similar and the competition between them increases the intuition for this result is that a higher fraction of leases puts the firm at a competitive disadvantage in the future this occurs because unlike firms that sell their product firms that lease are at a price disadvantage another important finding in this paper is that the extent of leasing chosen by a manufacturer depends on the reliability of its product in particular all else being equal the lower a product s reliability the lower its proportion of leases within the context of the automobile industry this suggests that more expensive cars may be leased more often because they are of higher quality and not necessarily because they are more expensive finally we test the implications of our theoretical model with data from the u s automobile market in particular for 1993 model year cars we develop a measure of reliability using data from consumer reports in addition we develop a measure of the extent of competition in each segment of the automobile market we support our hypotheses by finding that the extent to which a car model is leased depends strongly on its predicted reliability and on the competitive intensity within the segment

no lease is short enough to solve the time inconsistency problem the author provides a model of endogenous lease duration determination in the context of the durable goods monopolist problem he shows that infinitely many leases per finite unit of time are required to solve completely the time inconsistency problem thus suggesting that leasing may not provide a practical solution the author also provides a warning regarding the results that can be derived by exogenously setting lease durations equal to one period by resolving a paradoxical result in the literature copyright 1994 by blackwell publishing ltd

the intertemporal consequences of unauthorized reproduction of intellectual property in an intertemporal framework the harm to firms from unauthorized reproduction of their products may be significantly greater than that predicted by most static models copying by some consumers reduces the appropriable surplus from all consumers including those consumers lacking any propensity to copy somewhat paradoxically however the commitment value of copies may also imply that profits are higher with copying than without copying it is therefore suggested that firms may prefer differential copyright enforcement and that the commitment value of copies may offer a strategic explanation for free giveaways of abridged versions of intellectual property and vertical product differentiation more generally

some relations between volatility and serial correlations in stock market returns this article explores the relation between serial correlation and volatility for several different stock return series at daily and weekly frequencies it is found that serial correlations are changing over time and are related to stock return volatility an extension to the garch model is proposed and estimated revealing parameters consistent with other findings in this article copyright 1992 by university of chicago press

nonlinear dependence in finnish stock returns abstract past research into the evolution of finnish stock returns focuses on modeling linear and nonlinear dependence using various arima and garch formulations respectively this paper extends the extant work by using grassberger procaccia correlations dimensions to explore the nature of the nonlinear dynamics in daily finnish stock returns during the 1970s and 1980s nonlinear behavior in both periods is evident a simple garch model removes the nonlinearity in the first decade and dramatically reduces the nonlinearity in the second period this supports the notion that finnish stock returns exhibit nonlinear dependence but that the form of dependence is not chaotic

emissions taxation in durable goods oligopoly this paper examines the use of taxation to control external damage due to pollution when product durability is endogenously determined a special form of the emissions function is also examined which is equivalent to an excise tax on output the dynamic oligopoly model indicates that many conventional results in the durability and taxation literature need not hold when durability is endogenously determined in particular the analysis shows durability may not be independent of industry structure nor will firms minimize their manufacturing costs of providing service in addition the second best tax on imperfectly competitive firms is not necessarily less than the tax on a competitive firm when firms choose their product s durability

an examination of the robustness of the weekend effect this paper analyzes the robustness of the day of the week dow and weekend effects to alternative estimation and testing procedures the results show that sample size can distort the interpretation of classical test statistics unless the significance level is adjusted down ward specification tests reveal widespread departures from ols assumptions hypothe sis tests results are reported using robust econometric methods and a garch model the strength of the dow and weekend effect evidence appears to depend on the estimation and testing method both effects seem to have disappeared by 1975

learning by doing and product durability many durable goods industries are industries that have significant learning affects i examine a monopolist s and social planner s cost minimizing durability choice in both the short and the long run when learning effects are present the model indicates that the relationship between durability and learning depends crucially upon whether or not knowledge decays and on learning s impact on the marginal cost of durability in particular this model demonstrates that swan s 1970 1971 independence result will hold in the long run if knowledge does not decay but will not hold if knowledge does decay thus whether or not monopolists will manufacture products with the same durability or quality as a social planner depends to a large extent on the type of learning process in the industry and on whether or not quality and durability directly influence this learning process

durable good monopoly and best price provisions best price provisions guarantee buyers that the prices they pay are the lowest available if the seller subsequently cuts price then each previous buyer is entitled to a refund a durable good monopolist who offers certain forms of these provisions can construct a consistent plan yielding the same profits as rental agreements and contracts with explicit quantity commitments the provisions require special circumstances to be practical but they are simple and effective and appear in a variety of economic settings three applications are discussed international commodity agreements markets for electric turbogenerators and markets for financial claims copyright 1990 by american economic association

nonlinear dynamics and stock returns simple deterministic systems are capable of generating chaotic output that mimics the output of stochastic systems for this reason algorithms have been developed to distinguish between these two alternatives these algorithms and related statistical tests are also useful in detecting the presence of nonlinear dependence in time series in this article the authors apply these procedures to stock returns and find evidence that indicates the presence of nonlinear dependence on weekly returns from the center for research in security prices value weighted index copyright 1989 by the university of chicago

cheap talk and bogus network externalities in the emerging technology market many emerging technologies exhibit path dependent demands driven by positive network feedback such network effects profoundly impact marketing strategists thinking in today s network economy however the significant network externalities expected by many people often fail to materialize in the emerging technology market we analyze this phenomenon in the context of a technology distribution channel by studying cheap talk strategies under information asymmetry we show that incentive compatible contracts are essential for achieving credible information transmission in our model the better informed technology vendor has an incentive to inflate the retailer s ex ante belief of network externalities when a wholesale price contract is adopted when properly termed revenue sharing contracts are implemented there are information efficient cheap talk equilibria where truthful information transmission is mutually beneficial when the vendor s information is imperfect even revenue sharing contracts cannot guarantee credible information transmission if there is significant prior belief disparity between the vendor and the retailer this study demonstrates how information inefficient equilibria e g information blockage arise because of the conflict of interest or the conflict of opinion among channel members it also explores the role of cheap talk in facilitating channel coordination

chaos significance mechanism and economic applications imagine a bargaining model say involving diplomats negotiating tariff levels or a disarmament treaty in which each party has been instructed by higher headquarters to respond to each new offer by her opposite number with a counteroffer that is to be calculated from a simple reaction function provided in advance both negotiating parties are prohibited from revealing their own reaction functions to the other if the perfectly deterministic sequence of offers and counteroffers that must emerge from these simple rules were to begin to oscillate wildly and apparently at random the negotiations could easily break down as each party not understanding the source of the problem came to suspect the other side of duplicity and sabotage yet all that may be involved as we will see is the phenomenon referred to as chaos a case that is emphatically not pathological but in which a dynamic mechanism that is very simple and deterministic yields a time path so complicated that it will pass most standard tests of randomness chaos has become a subject of great interest to specialists and nonspecialists alike besides economics it has entered the literature of geometry physics ecology and meteorology it has been written about at length in the new york times magazine and scientific american as well as technical publications this article seeks to describe what it is how it works and what it means for economics

do neoliberal policies deter political corruption this article probes the relationship between neoliberal economic poli cies and political corruption focusing in particular on the impact of trade and invest ment policies regulatory policy and the overall size of the public sector on corruption using a large cross national data set from the mid to late 1990s we test the neolib eral hypotheses that market oriented economic policies are associated with lower lev els of political corruption and state intervention in the economy with higher levels consistent with the neoliberal argument we find that open trade and investment pol icies and low effective regulatory burdens do correlate with lower levels of political corruption however we find no consistent relationship between the aggregate size of the public sector and political corruption while the neoliberal hypothesis on polit ical corruption has initial empirical support its lessons cannot be applied wholesale market oriented states may be less corrupt but interventionist states as measured by public spending are not necessarily more corrupt

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

fair trade organic coffee rural livelihoods and the agrarian question southern mexican coffee families in transition summary we use a random sample of coffee producing households in southern mexico to compare opportunities associated with government subsidies and migration to the role of fair trade organic coffee in household livelihoods although land and labor returns among fair trade organic coffee growers are higher than for conventional growers differences in yields are more important than price premiums moreover investment in education and labor opportunities outside coffee dominate those in fair trade organic coffee the results highlight the value of an integrated approach to the agrarian question that improves productivity and prices and supports other pathways for improving incomes

dynamic duopoly with best price clauses this article investigates best price clauses as a strategic devise to facilitate collusion in a dynamic duopoly game best price clauses guarantee rebates on the purchase price if a customer finds a better price after his purchase two different price clauses are distinguished most favored customer and meet or release i examine the collusive potential of both clauses in a finite horizon duopoly model with homogeneous durable goods in each period new consumers enter the market i show that in this context meet or release clauses have a greater anticompetitive potential than most favored customer clauses

reputation in bargaining and durable goods monopoly this paper analyzes durable goods monopoly in an infinite horizon discrete time game we prove that as the time interval between successive offers approaches zero all seller payoffs between zero and static monopoly profits are supported by subgame perfect equilibria this reverses a well known conjecture of coase alternatively one can interpret the model as a sequential bargaining game with one sided incomplete information in which an uninformed seller makes all the offers our folk theorem for seller payoffs equally applies to the set of sequential equilibria of this bargaining game

estimating betas on daily data for a small stock market abstract this paper examines the properties of different market risk beta measures computed on daily data for a thin security market i e the helsinki stock exchange in finland in accordance with the results by dimson and marsh 1983 the paper shows that differences in trading frequency between different stocks produce a serious bias towards what appears to be stability in estimated betas furthermore the paper shows that when betas are computed the exclusive use of stock prices based on actual trades will not solve the problem of a thin trading bias in measured stability of these beta estimates in fact other methods proposed to cope with the thin trading problem seem to be at least as efficient as use of trade to trade returns finally betas corrected for differences in trading frequency are still shown to be statistically related for firm size

after neoliberalism the politics of reregulation in mexico neoliberal economic reforms rather than unleashing market forces can result in new institutions for market governance by vacating institutionalized policy domains neoliberal reforms can trigger two step reregulation processes as first political entrepreneurs launch projects to build support coalitions by reregulating markets and second societal groups respond to these projects by mobilizing to influence the terms of reregulation depending on the strengths and strategies of politicians and societal groups reregulation processes result in varied institutions for market governance the article develops this argument by analyzing how neoliberal reforms in mexico led to the construction of distinct institutions for market governance across four states chiapas guerrero oaxaca and puebla the findings from mexico highlight the importance of moving beyond the questions of why developing countries choose neoliberal policies and how they implement them students of the political economy of development should shift their attention instead to understanding the kinds of new institutions that replace those destroyed or displaced by neoliberal reforms

estimating and adjusting for the intervalling effect bias in beta the concept of beta as the measure of systematic risk has been widely accepted in the academic and financial community increasingly betas are being used to estimate the cost of capital for corporations despite this however biases are generally present in ordinary least squares ols estimates of beta in particular empirical estimates of beta are affected by friction in the trading process which delays the adjustment of a security s price to informational change and hence leads to an intervalling effect bias in this paper we present and empirically test two procedures for correcting this bias the first is to estimate the asymptotic value that ols beta approaches as the differencing interval is lengthened without bound the second procedure is to infer the value of beta by adjusting ols beta for cross sectional differences in the intervalling effect as a function of the depth of the market for a security as measured by its value of shares outstanding our results suggest that a substantial correction is needed to get true beta estimates from short differencing interval data

the design of durable goods the use of a durable good is limited by both its physical life and usable life for example an electric car battery can last for five years physical life or 100 000 miles usable life whichever comes first we propose a framework for examining how a profit maximizing firm might choose the usable life physical life and selling price of a durable good the proposed framework considers differences in usage rates and product valuations by consumers and allows for the effects of technological constraints and product obsolescence on a product s usable and physical lives our main result characterizes a relationship between optimal price cost elasticities and opportunity costs associated with relaxing upper bounds on usable and physical lives we describe conditions under which either usable life or physical life or both obtains its maximum possible values examine why a firm might devote effort to relaxing nonbinding constraints on usable life or physical life consider when price cuts might be accompanied with product improvements and examine how a firm might be able to cross subsidize product improvements

return intervals systematic risk estimates and firm size abstract prior empirical evidence indicates that the size effect in stock returns is sensitive to the return interval used in estimating systematic risk recently handa kothari and wasley 1989 showed that the size effect is decreased when return interval is lengthened on u s data in this paper we demonstrate that on a thin european security market i e in the finnish stock market the case is just the opposite

leasing lemons and moral hazard abstract a number of recent papers have analyzed leasing in the new car market as a response to the adverse selection problem in the used car market originally explored in the seminal 1970 paper by george akerlof in this paper we consider a model characterized by both adverse selection as in these earlier papers and moral hazard concerning the maintenance choices of new car drivers we show that this approach provides explanations for a number of empirical findings concerning real world new and used car markets including that leasing has become more popular over time very high income new car drivers lease more and used cars that were leased when new sell for more than used cars that were purchased when new we also compare and contrast our approach to new car leasing with alternative approaches

market serial correlation on a small security market a note this note reports on an empirical investigation into the relative importance of different explanations of market serial correlation market serial correlation taken as the first order serial correlation in the logarithmic differences of a market index may apparently be explained by the serial correlation of individual stock returns the other less apparent explanation advanced in the literature concerns nonsynchronous trading in individual stocks recently perry 9 and atchinson butler and simonds 1 1 have shown that there seems to be yet an additional unexplained component present that tends to induce serial correlation in portfolio returns at least in u s data in this paper the actual contribution of these explanations to the first order autocorrelation of changes in the value weighted market index on a markedly thin security market the helsinki stock exchange hese 2 in finland will be examined the hese is a specific case in the sense that its trading procedure may create additional first order market serial correlation we will show that the rules of the exchange produce additional intraday nonsynchroneity in stock returns and thus aggravate the problem of market serial correlation an attempt to assess the importance of this additional cause of market serial correlation will also be made in 1966 lawrence fisher 7 observed that an index return calculated on the basis of the latest recorded trading prices will tend to be serially correlated if share prices tend to react similarly to certain types of news this will be the case when some share prices react almost immediately whereas others simply because of an absence of trading will experience a reaction delay if nonsynchronous trading is taken to be the first cause of market serial correlation the second one is the serial correlation of individual stock returns cohen hawawini maier schwartz and whitcomb 6 review the literature on why individual stock returns especially in thin markets may be serially corre

integrated product architecture and pricing for managing sequential innovation science and technology advances drive firms to continually enhance their product s performance and launch sequentially improving offerings firms face challenges in marketing such improving products to well informed forward looking consumers who anticipate product improvements and seek to delay their purchase timing product design specifically a modular upgradable architecture in which improving and stable subsystems of a product are separated and selectively upgraded can be a valuable approach for marketers to alleviate consumer concerns about product obsolescence however such an architecture based approach can present new challenges as well and dealing with them requires carefully coordinated cross functional decision making by the firm in this paper we identify and formalize the notion of design inconsistency which refers to the monopolist firm s inability to commit to future product design architectures we find that firms experience design inconsistency even when they are able to commit to future prices and design inconsistency lowers firm profits as well as consumer surplus we then derive a joint product architecture and pricing approach to solve this problem this enables an innovating firm to optimally and in a time consistent manner launch modular upgradable products the modeling and analysis in the paper lends insight into types of markets and products for which modular upgradability is most appropriate and offers guidelines on making pricing and product design decisions jointly for managing sequential innovation this paper was accepted by preyas desai marketing

dynamic pricing competition with strategic customers under vertical product differentiation we consider dynamic pricing competition between two firms offering vertically differentiated products to strategic customers who are intertemporal utility maximizers we show that price skimming arises as the unique pure strategy markov perfect equilibrium in the game under a simple condition our results highlight the asymmetric effect of strategic customer behavior on quality differentiated firms even though the profit of either firm decreases as customers become more strategic the low quality firm suffers substantially more than the high quality firm furthermore we show that unilateral commitment to static pricing by either firm generally improves profits of both firms interestingly both firms enjoy higher profit lifts when the high quality firm commits rather than when the low quality firm commits this paper was accepted by yossi aviv operations management

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

economic crisis and policy choice the politics of adjustment in the third world the acute economic pressures of the 1980s have forced virtually all of latin america and africa and some countries in asia into painful austerity programs and difficult economic reforms scholars have intensively analyzed the economics of this situation but they have given much less attention to the political forces involved in this volume a number of eminent contributors analyze the politics of adjustment in thirteen countries and nineteen governments drawing comparisons not only across the full set of cases but also within clusters selected to clarify specific issues why do some governments respond promptly to signs of economic trouble while others muddle indecisively for years why do some confine their response to temporary macroeconomic measures while others adopt broader even sweeping programs of reform what leads some countries to experiment with heterodox approaches while most however reluctantly pursue orthodox courses why confronted with intense political protest have some governments persisted while others have altered or abandoned course the answers to these questions are political not economic and they are examined here by thomas m callaghy stephan haggard miles kahler robert r kauman joan m nelson and barbara stallings

durable goods monopolists rational consumers and improving products we consider the case of a monopolist supplying an improving durable product to a population that is heterogeneous in its valuation of product quality in a two period framework we show that if consumers expect the product to improve in present value terms then intertemporal discrimination might result in the first period marginal consumer being left with zero surplus and some higher end consumers postponing purchase the resulting trajectories for quality and price do not constitute a subgame perfect equilibrium one of our conclusions is that the logic of profit maximization in the context of rational consumer choice imposes a demand side constraint on the rate of product improvement we also emphasize the disequilibrium consequences of improving a product so rapidly that high end consumers are tempted to wait for a future new and improved version finally the formulation adopted in the paper may be useful to understand observed differences in product improvement rates in different markets

the relation between the return interval and betas abstract the size effect is sensitive to the length of the return interval used in estimating betas beta changes with the return interval because an asset s covariance with the market and the market s variance do not change proportionately as the return interval is changed we document beta sensitivity to the return interval evidence from cross sectional regressions of returns on monthly and annual betas is inconsistent with beta changes stemming only from the higher standard errors of the longer interval betas we provide evidence that the size effect becomes statistically insignificant when risk is measured by betas estimated using annual returns

competitive price matching guarantees equilibrium analysis of the availability verification clause under demand uncertainty price matching guarantees involve a retailer matching the lower price of a competitor for an identical product in reality retailers often make such guarantees contingent on the verification of product availability at the competitor s location and decline a price match request if the product is not available there this creates certain consternation on the part of customers in this paper we investigate the availability contingency strategy from the perspectives of both the retailers and the customers our analysis shows that availability contingency clauses intensify inventory competition between retailers and reinstitutes price competition which is otherwise eliminated by unconditional price matching guarantees consequently despite what customers may think about the availability verification it actually increases their surplus on the other hand such a clause reduces profits and hence is not the equilibrium strategy for retailers subsequently we discuss how a likely customer behaviour pattern may be a plausible explanation regarding the use of the clause by the retailers in practice this paper was accepted by yossi aviv operations management

the dynamic pricing of next generation consumer durables learning curve effects aspects of consumer demand models e g reservation price distributions intertemporal utility maximizing behavior and competitive activity are reasons which have been offered to explain why prices of new durables decline over time this paper presents an alternative rationale based on the buying behavior for products with overlapping replacement cycles i e next generation products a model for consumer sales of a new durable is developed by incorporating the replacement behavior of a previous generation product pricing strategies for two product generations are investigated analytically and with numerical methods results indicate that durable replacement behavior leads to a wider set of optimal pricing strategies than previously obtained several empirical illustrations of industry pricing practices for successive product generations are also shown to be consistent with the theoretical results finally various areas for future research are outlined

prudent margin levels in the finnish stock index futures market futures market officials are confronted with the difficult task of setting appropriate margin levels that must balance the costs of trader default and the benefits of increased market liquidity one way to guard against default is prudent margin setting practices designed to protect futures positions from extreme price movements the objective of this research is to extrapolate the probabilities of encountering extreme price movements by applying statistical extreme value theory to the finnish stock index futures market the extreme value technique is found to be appropriate since it generates theoretical margin violation probabilities that closely follow the empirical probability distribution the extrapolated results provide decision makers information on extreme events that have not yet occurred

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

evaluating probabilistic forecasts of stock prices in a developing stock market abstract recent literature on the accuracy of forecasting in financial markets reveals contradictory results these discrepancies can be attributed to the differences in forecasting environments as well as the differences in forecaster expertise that are employed by the researchers since the use of point and interval predictions by themselves do not aid in explaining the various aspects of forecaster performance probabilistic forecasting provides a better alternative that can be used to gain insight into forecasting accuracy in such settings this study aims to test the effects of forecaster expertise and forecasting environment on forecasting accuracy accordingly various aspects of forecasting performance are studied in a developing stock market framework

durability choice under demand uncertainty this paper examines the impact of demand uncertainty on a monopolist s durability choice within a simple two period framework the analysis shows that the firm will produce the socially optimal durability if its output is rented and demand uncertainty is small but that it may produce units with inefficiently short life spans if output is sold however the model reveals that this planned obsolescence may be reduced from certainty levels depending upon the impact of uncertainty on future demand thus uncertainty may actually increase the firm s product durability relative to certainty levels

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

dynamic monopoly with nondurable goods abstract a nondurable good monopolist who posts a single price will generally achieve an inefficient outcome but is it possible that the monopolist would achieve efficiency by repeatedly posting prices before delivery if buyers recognize the effect of current purchases on future prices then under complementary ideal conditions the answer is yes on the other hand traditional concerns about monopoly are viable if the seller bears a small cost per buyer of market reopening journal of economic literature classification numbers d42 l12

durable goods monopoly with limited choice of commitment strategy when should the monopolist precommit consider a firm a monopolist offering a unique product to a fixed number of potential customers suppose that no consumer desires more than one unit of the good within a given period or across periods that is there is no value to repeat purchases in addition suppose that customers vary with respect to their initial reservation prices which decline over time a natural interpretation is that the monopolist is selling a good that is durable alternatively the firm is providing an entertainment or fashion good consumers may place a premium on obtaining the product quickly before it becomes less useful less stylish or less novel coase 7 conjectured that this firm s ability to extract surplus is limited because the firm has to compete with itself across time periods high valuation customers would be unwilling to pay a high initial price because they would anticipate that over time the firm will be reducing the price in order to sell to lower valuation customers subsequent literature formalizes this as a time inconsistency problem faced by a monopolist unable to make intertemporal commitments a separate strand of the literature proceeds from the polar assumption that the monopolist can precommit to any multiperiod pricing strategy comparison to coase s monopolist is simple higher profits are obtainable under precommitment because more surplus is extracted from high valuation customers an important proposition due to stokey 22 is that it will be optimal for the monopolist to precommit to a declining intertemporal price schedule if consumers with higher initial valuations have a higher rate of time preference 2 otherwise the optimal strategy is to hold price constant at the static monopoly level and to sell no more than the static monopoly quantity 3

what do facilitating practices facilitate an empirical investigation of most favored nation clauses in natural gas contracts long term contracts often include most favored nation clauses mfns which are nondiscrimination guarantees that obligate a buyer or seller to treat all trading partners symmetrically in pricing decisions recent theoretical work has shown that such clauses can facilitate tacit collusion by increasing the cost of selective price changes aimed at attracting new business an alternative view is that mfns serve to facilitate efficient price adjustment in extended exchange relationships we test these competing hypotheses using data from long term natural gas contracts many of which employ mfns our conclusion is that the pattern of mfn adoption in conjunction with the structure of the nondiscrimination regions and the parallels with other nonstrategic price escalation provisions lends strong support to the efficiency rationale

replacement cycles income distribution and dynamic price discrimination this article analyses how income distribution intellectual property rights and other regulatory policies such as minimum quality standards determine pricing strategies in a dynamic context where a monopolist periodically introduces new generations or upgrades of a durable good discrimination through quality and screening in this article takes place in a context where consumers buy several versions of the durable good during their lifetime instead of a single version as in inderst s 2008 or koh s 2006 it also differs from glass 2001 in that an equilibrium may emerge in which different consumer types replace their durable generations with different frequencies our modelling is motivated by stylized facts from the last brazilian pof household budget survey

on the impact of infrequent trading on the apt systematic risk components evidence from a thin security market abstract the purpose of this note is to analyze the effects of infrequent trading on the apt systematic risk components using finnish data infrequent trading is reported to influence especially the first systematic risk component produced by factor analysis on stock returns

pricing information goods a strategic analysis of the selling and pay per use mechanisms we analyze two pricing mechanisms for information goods these mechanisms are selling where up front payment allows unrestricted use and pay per use where payments are tailored to use we analytically model a market where consumers differ in use frequency and where use on a pay per use basis invokes a psychological cost associated with the well known ticking meter effect we demonstrate that pay per use yields higher profits in a monopoly provided the associated psychological cost is low in a duopoly one firm uses selling and the other uses pay per use here in contrast to the monopoly selling yields higher profits than pay per use we demonstrate that surprisingly the profits of both duopolists can increase as the psychological cost associated with pay per use increases next we show that uncertainty in consumer use frequency does not affect pay per use in a monopoly but lowers profits from selling in a duopoly both the seller and the pay per use provider obtain lower profits when use frequency is uncertain we also analyze how pricing mechanism performance is affected if the firms cannot commit to prices if the pay per use provider offers a two part tariff and if consumers are risk averse

commentaries and rejoinder to measuring the impact of negative demand shocks on car dealer networks by paulo albuquerque and bart j bronnenberg this series of discussions presents commentaries and a rejoinder on strategic and managerial issues arising from albuquerque and bronnenberg albuquerque p b j bronnenberg 2012 measuring the impact of negative demand shocks on car dealer networks marketing sci 31 1 4 23

bilateral most favored customer pricing and collusion in a two period differentiated products duopoly model most favored customer mfc pricing policies allow firms to commit to prices above the bertrand prices it is shown here however that unless a restrictive and unappealing assumption is made about demand there is no equilibrium in which both firms adopt mfc policies the restrictive assumption is that at least one firm s demand is more responsive to changes in its opponent s price than to changes in its own price otherwise firms have an incentive to deviate from a greater than bertrand price in the first period

opportunism in multilateral vertical contracting nondiscrimination exclusivity and uniformity comment an input supplier selling to competing downstream firms would benefit from publicly committing at the outset to all contracts efficient commitment however would require complete contracts the authors study instead bilateral contracting without commitment regarding others terms each firm then fears that the supplier might opportunistically renegotiate another s contract to increase bilateral profit at the firm s expense the authors show that nondiscrimination clauses generally cannot curb such third party opportunism even with symmetric firms to reassure firms crude forms of commitment may be adopted this could explain the pervasiveness of exclusivity arrangements and the striking uniformity and intertemporal rigidity of franchise contracts copyright 1994 by american economic association

benefits of channel discord in the sale of durable goods minimizing strife through vertical integration is commonly seen as the holy grail for long term success in product distribution in this paper we take a different slant showing that sometimes a separated channel that embodies a degree of discord can be helpful particularly when a long term view is taken this result is shown in the context of durable goods manufacturing the quandary of durable goods production is that once demand for a certain time frame is met there is a subsequent temptation to flood the market with additional goods as such consumers are reluctant to buy immediately instead opting to wait for discounted prices this problem can be alleviated by a degree of channel discord high wholesale prices ensure future sales will slow to a trickle

electronic tickets smart cards and online prepayments when and how to advance sell advance selling occurs when sellers allow buyers to purchase at a time preceding consumption shugan and xie 2000 electronic tickets smart cards online prepayments and other technological advances make advance selling possible for many if not all service providers these technologies lower the cost of making complex transactions at a greater distance from the seller s site they also give sellers more control over advance selling by decreasing arbitrage as technology enhances the capability to advance sell more academic attention is vital this paper strives to exploit these technologies by developing advance selling strategies until recently advance selling research focused on the airline industry and specific characteristics of that industry these characteristics included the price insensitivity of late arrivals e g business travelers compared with early arrivals e g leisure travelers demand uncertainty across flights on the same day and capacity constraints recent findings by shugan and xie 2000 show that advance selling is a far more general marketing tool than previously thought it does not require these industry specific characteristics it only requires the existence of buyer uncertainty about future valuations moreover sellers without the ability to price discriminate can use advance selling to improve profits to the level of first degree price discrimination this finding is important because buyers are nearly always uncertain about their future valuations for most services e g the utility of next year s vacation or a future college education in this paper we take the next step from shugan and xie 2000 we show that advance selling profits do not come from buyer surplus but from more buyers being able to purchase we determine when and how to advance sell in a variety of situations including situations with limited capacity second period arrivals refunds buyer risk aversion exogenous credibility continuous preference distributions and premium pricing we determine when advance selling improves profits and when it does how to set advance prices we ask and answer seven questions first when should sellers advance sell second how much can advance selling improve profits compared with only spot selling third what factors impact the profitability of advance selling and how fourth should advance prices be higher or lower or the same as spot prices fifth how do capacity constraints impact advance selling strategies sixth should sellers limit the number of advance sales finally what is the possible impact of buyer risk aversion first we provide precise conditions when sellers should advance sell for example without capacity constraints we show that sellers should advance sell when marginal costs are sufficiently low to make it profitable to sell to buyers with low valuations and sufficiently high to convince buyers that the spot price will be higher than the advance price second we find that advance selling can almost double the profits from optimal spot selling to early arrivals we also show that advance selling has no impact on consumer surplus in markets with homogenous consumers and no capacity constraints therefore advance selling can increase social welfare because seller profits increase third we find that two very important factors impacting the profitability of advance selling are seller credibility and marginal costs buyers only advance buy when they expect an advantage from advance buying over spot buying without capacity constraints sellers must credibly convince buyers that the advance price is at a discount to the spot price we show that this condition is met under different circumstances for example large marginal costs can create credibility because buyers believe that these costs will lead to high spot prices fourth we find although optimal advance prices can be at a discount to the spot price that sometimes a premium is optimal premiums are optimal when capacity is large but limited and marginal costs are not too large buyers advance purchase at a premium to spot prices when capacity is limited and spot prices are low note that this is not a risk premium and risk aversion is not required no prior research has suggested this strategy because that research relies on the assumption that early arrivals are more price sensitive than later ones without that assumption premium advance pricing is sometimes optimal fifth we find that binding capacity constraints can impact the profitability of advance selling in opposite ways on one hand capacity constraints create seller credibility buyers believe that spot prices will be high when they know spot capacity is limited and perhaps more limited by advance sales on the other hand when capacity is limited the need to increase sales from discounted advance prices diminishes sixth consistent with desiraju and shugan 1999 we find that limiting advance sales can be profitable but only under restrictive conditions these conditions are 1 selling to all early arrivals would leave insufficient capacity in the spot period to sell to all second period arrivals with high valuations 2 the optimal spot price is high and 3 marginal costs are sufficiently small to make advance selling profitable finally we find that buyer risk aversion can sometimes increase the profitability of advance selling our findings provide precise guidelines for a large number of service providers that will have the technical capability to advance sell for those service providers advance selling provides a creative pricing strategy that can potentially provide substantial improvements in profits

the right of first offer abstract this paper examines the right of first offer which requires a seller to bargain with the contracted buyer before subsequent buyers arrive the contract also prevents the seller from selling his unique asset to subsequent buyers at a price below what he offers to the contracted buyer the right of first offer makes the seller less aggressive in bargaining with the contracted buyer who is privately informed about his valuation such a contract can reduce inter temporal misallocation in which a subsequent buyer gets the asset when the contracted buyer has higher valuation but it also may cause misallocation in which the contracted buyer gets the asset when subsequent buyers have higher valuations overall whether the right of first offer can increase the joint surplus for the seller and the contracted buyer as well as social welfare depends on the contracted buyer s renegotiation power and the distribution of the buyers valuations this paper also discusses the differences between the right of first offer and the most favored customer clause

market structure and innovation a survey economics we all recite deals with allocation of limited resources towards satisfaction of unlimited wants resources are typically identified as land labor and capital plus a technology that determines their transformation into consumer goods disparity between the available goods and services and the desired gives rise to scarcity and the question of what how and for whom to produce the focus then shifts to description and evaluation of alternative resource allocation mechanisms for making the choices the pareto criterion by which an allocation of resources is deemed efficient if any reallocation improving the position of some individual worsens the position of others is a commonly employed gauge of a mechanism s performance in the absence of externalities increasing returns to scale and uncertainty a perfectly competitive market system yields a pareto optimal allocation of resources this underlies the view that individual self interest is compatible with society s interest the further conclusion that pareto optimality may not be achieved via the market system in the presence of monopoly elements provides an economic rationale for antitrust laws the objective of a resource allocation mechanism appears to be according to the analysis described above to make the best of available resources the alternative objective of relaxing constraints through expanding the resource base or developing new technology seems to be beyond its scope thus until rather recently technical advance had been regarded in the mainstream of economic theory as unmotivated by the quest for profits and substantially unaffected by resource allocation instead as j schmookler observed technology had been viewed as a parameter like the weather affecting the outcome of resource allocations but itself unaffected by them 84 1965 evidence that technological progress has significantly contributed to growth in productivity together with a substantial increase in research and development activity largely financed by government and carried out by industry see f machlup 51 1962 may have spurred reconsideration of this view once technical advance is regarded as an economic variable it is natural to in

a method for strategic asset liability management with an application to the federal home loan bank of new york strategic asset liability management is a primary concern in today s banking environment in this paper we present a methodology to assist in the process of asset liability selection in a stochastic interest rate environment in our approach a quadratic optimizer is embedded in a simulation model and used to generate patterns of dividends market value and duration of capital for randomly generated interest rate scenarios this approach can be used to formulate test and refine asset liability strategies we present results of applying this methodology to data from the federal home loan bank of new york

durable goods monopoly increasing marginal cost and depreciation this paper combines increasing marginal cost and depreciation in a continuous time model of a durable goods monopolist in contrast to the case of increasing marginal cost but no depreciation analysed by kahn and the case of depreciation with constant marginal cost analysed by bond and samuelson steady state output in this model is less than in the competitive case a turnpike result shows that choice of a long enough time horizon can make the equilibrium path of output in a finite horizon game arbitrarily close to the path of the infinite horizon game

practical implications of game theoretic models of r and d the purpose of this paper is to survey recent game theoretic models of research and development and to ask whether they yield practical implications or testable hypotheses the papers i will be discussing have been written or published within the past five years they have a good deal in common relying upon similar assumptions and building upon each other because of this the literature surveyed here may seem narrow and some relevant work has probably been inadvertently omitted i apologize for these omissions for want of space i will not discuss the normative conclusions of this literature

durable good monopolies with rational expectations and replacement sales a monopoly producer of a durable good is examined under the previously uninvoked assumption that the good depreciates and hence that replacement sales must occur if a fixed stock of the good is to be maintained we find two ways in which the no depreciation result that the monopoly will always at least eventually produce a stock equal to that produced by a competitive market may not hold if the length of the trading period is nonzero the limiting stock produced by the firm will be lower than the competitive stock to ensure the profitability of future replacement sales if the firm is able to constrain its production capacity it may choose a constraint that always binds in the sense that it will be impossible for the firm to achieve a stock equal to the competitive stock

contracts as a barrier to entry in markets with nonpivotal buyers considering markets with nonpivotal buyers we analyze the anticompetitive effects of breakup fees used by an incumbent facing a more efficient entrant in the future buyers differ in their intrinsic switching costs breakup fees are profitably used to foreclose entry regardless of the entrant s efficiency advantage or level of switching costs banning breakup fees is beneficial to consumers the ban enhances the total welfare unless the entrant s efficiency is close to the incumbent s inefficient foreclosure arises not because of rent shifting from the entrant but because the incumbent uses a long term contract to manipulate consumers expected surplus from not signing it

systematic risk over various frequency bands an empirical analysis of returns on size ranked portfolios abstract this paper finds negative risk premia for market betas obtained from some of the high frequency components of portfolio returns and value weighted market returns the size effect is likely to be more pronounced for the high frequency components

agency and strategic contracts theory and evidence from r d agreements in the pharmaceutical industry we examine the use of strategic rights in research and development r d agreements between a client and an agent when an entrant may compete with the client for the license of non contracted discoveries developed by the agent the agent puts effort either in the contracted project or into other r d activities which can result in non contracted discoveries strategic rights help the client and the agent extract rent from the entrant and also motivate the agent to place effort into the contracted project accordingly firms are more likely to adopt strategic rights when the likelihood of entry is larger moreover strategic rights and termination rights are substitutes in mitigating agency problems by investigating r d agreements between pharmaceutical clients and bio tech agents we find consistent evidence of the positive impact of entry threat on the use of strategic rights as well as evidence of the substitution between strategic rights and termination rights

exploring the relationship between the markets for new and used durable goods the case of automobiles given that durable products are long lived there exists the possibility of secondary markets for used products as well as the potential for product obsolescence this is an important issue in markets where technology changes rapidly because the introduction of new versions of a product can make earlier versions obsolete more generally prices of older versions in the secondary market adjust in response to changes incorporated in new versions of the product thus another method of evaluating consumers response to a new product is by looking at the variation in market prices of the old product this paper develops a general model to explore the relationship between primary markets for new cars and secondary markets for used cars the results suggest that the depreciation of used cars is influenced strongly by the types of changes in new model cars

market research and innovation strategy in a duopoly we model a duopoly in which ex ante identical firms must decide where to direct their innovation efforts the firms face market uncertainty about consumers preferences for innovation on two product attributes and technology uncertainty about the success of their research and development r d investments firms can conduct costly market research before setting r d strategy we find that the value of market information to a firm depends on whether its rival is expected to obtain this information in equilibrium consequently one firm may forgo market research even though its rival conducts such research and learns the true state of demand we examine both vertical and horizontal demand structures with vertical preferences firms are a priori uncertain about which attribute all consumers will value more in this case a firm that conducts market research always attempts innovation on the attribute it discovers that consumers prefer and expends more on r d than a rival that has not conducted market research with horizontal preferences distinct segments exist each caring about innovation on only one attribute and firms are a priori uncertain how many consumers each segment contains in this case a firm that conducts market research may follow a niche strategy and attempt innovation to serve the smaller segment to avoid intense price competition for the larger segment a firm that conducts market research may therefore invest less in r d and earn lower postlaunch profits than a rival that has forgone such research

persistence in variance structural change and the garch model this article examines the persistence of the variance as measured by the generalized autoregressive conditional heteroskedasticity garch model in stock return data in particular we investigate the extent to which persistence in variance may be overstated because of the existence of and failure to take account of deterministic structural shifts in the model both an analysis of daily stock return data and a monte carlo simulation experiment confirm the hypothesis that garch measures of persistence in variance are sensitive to this type of model misspecification

imperfect durability and the coase conjecture this article considers a market served by a monopolist who sells a durable good that depreciates stochastically over time we show that there exist three types of stationary equilibria a coase conjecture equilibrium a monopoly equilibrium and a reputational equilibrium when the depreciation rate is low the coase conjecture equilibrium is the unique equilibrium for intermediate values of the depreciation rate all three equilibrium types coexist when the depreciation rate is high the monopoly equilibrium is the unique equilibrium consequently when selling a good of sufficiently low durability the monopolist does not lose any of her monopoly power furthermore the steady state output in the reputational equilibrium falls below the monopoly quantity hence in durable goods markets welfare losses due to monopoly power may be larger than in markets for perishables

eliminating the market for secondhand goods an alternative explanation for leasing there are a number of prominent specific instances in which a durable goods manufacturer with significant market power employed a lease only policy i united shoe in the market for shoe machinery ii ibm in the market for computers and iii xerox in the market for copiers the obvious question that arises is why would such a firm prefer leasing over selling in this article i argue that one role of the lease only policy was to eliminate the market for secondhand goods the article formally demonstrates the argument discusses the relationship between this article and earlier literature on secondhand markets and discusses the implications for antitrust policy

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

damaged durable goods i analyze a durable goods monopolist s incentives to introduce a damaged good a stripped down version of the original good in an infinite horizon framework the damaged good helps the monopolist to mitigate the coasian time inconsistency problem however it may lead to a welfare reduction low valuation buyers are induced to purchase the low quality damaged good early rather than buy the high quality original good later and when the players are patient the surplus loss from quality reduction outweighs the gain from earlier consumptions this welfare result contrasts with the previous literature based on a static framework

stock returns and volatility most asset pricing models postulate a positive relationship between a stock portfolio s expected returns and risk which is often modeled by the variance of the asset price this paper uses garch in mean models to examine the relationship between mean returns on a stock portfolio and its conditional variance or standard deviation after estimating a variety of models from daily and monthly portfolio return data we conclude that any relationship between mean returns and own variance or standard deviation is weak the results suggest that investors consider some other risk measure to be more important than the variance of portfolio returns