optimal dynamic marketing mix policies for frequently purchased products and services versus consumer durable goods a generalized analytic approach abstract this paper deals with the qualitative characterization of optimal pricing and advertising policies together with the optimal ratio of the advertising elasticity of demand to its price elasticity over time the problem is studied for frequently purchased products and services fps as well as consumer durable goods cdg in both monopolistic and duopolistic markets demand dynamics cost learning and discounting of future profits are taken into consideration in addition both the open loop and feedback methodologies are pursued to characterize and compare the derived optimal policies the paper uses an analytical approach to characterize the optimal dynamic policies in a general setting as is mathematically tractable followed by the analysis of more specific models to gain additional managerial insights while maintaining a certain degree of generality optimal fps marketing mix policies are shown to be different from their cdg counterparts for both monopolistic and duopolistic markets while the ratio of advertising elasticity to price elasticity appears to have been governed by similar set of rules for fps and cdg the direction of change of such ratio over time looks different from each other managerial implications and directions for future research are also discussed

consumption experience and sales promotion expenditure an economic theory of habit formation through consumption learning is developed to explain order differences in relative sales promotion expenditures among brands the theory applies to consumer brands in equilibrium markets where consumer information from sources other than advertising sales promotion and previous consumption experience is negligible three propositions are derived from the theory brands with more consumption experience 1 spend proportionately less on sales promotion as well as 2 on advertising and promotion combined and 3 place proportionately more emphasis on advertising relative to sales promotion these propositions are formulated as hypotheses and tested against empirical data from the pims project it is found that the data are generally consistent with the propositions in order to examine the robustness of the results the hypotheses are subjected to three different empirical tests each with different assumptions the findings are shown to be reasonably robust with re

a special case of dynamic pricing policy this article studies the implications of experience curves and brand loyalty for optimal dynamic pricing policy in a continuous time model we synthesize several results from the literature on open loop equilibria specifically we show that prices should decrease over time for high discount rates and steeper exogenous declines in variable costs conversely the prices should increase over time if experience curves affect fixed costs and if consumers are brand loyal

information sharing in dea a cooperative game theory approach abstract in this paper a cooperative dea game is proposed based on the idea that different organizations can gain if they share data on the input consumption and output production of their processing units a larger data sample allows a more complete description of the production possibility set and consequently of the efficient frontier however since not all organizations will benefit in the same way it is convenient to use cooperative game theory in order to share the benefits of the cooperation the proposed cooperative dea game is shown to be subadditive and balanced models for computing the value of the game and checking its stability taking into account the exponential number of coalitions that exist when the number of organizations is large are also presented the approach is illustrated with a dataset from the literature

how would the gas exporting countries forum influence gas trade the cleanest burning fossil fuel today is natural gas while many businesses have gone global it has remained an exception an impending challenge facing the industry however is the evolution of a cartel from the 5 year old gas exporting countries forum how would this new organization influence the trade of gas globally does its existence imply a threat to the development of gas trade the paper reviews this fairly new organization within the context of the above questions it is mainly a comparative study of the body in relation to opec s historical political and economic development subsequently the author proposes probable influence options available to the forum and the impending consequence of such actions on the market the outcome of this study calls for further analysis and research on new issues and questions of interest

a large scale linear complementarity model of the north american natural gas market abstract the north american natural gas market has seen significant changes recently due to deregulation and restructuring for example third party marketers can contract for transportation and purchase of gas to sell to end users while the intent was a more competitive market the potential for market power exists we analyze this market using a linear complementarity equilibrium model including producers storage and peak gas operators third party marketers and four end use sectors the marketers are depicted as nash cournot players determining supply to meet end use consumption all other players are in perfect competition results based on national petroleum council scenarios are presented

stochastic convenience yield and the pricing of oil contingent claims this paper develops and empirically tests a two factor model for pricing financial and real assets contingent on the price of oil the factors are the spot price of oil and the instantaneous convenience yield the parameters of the model are estimated using weekly oil futures contract prices from january 1984 to november 1988 and the model s performance is assessed out of sample by valuing futures contracts over the period november 1988 to may 1989 finally the model is applied to determine the present values of one barrel of oil deliverable in one to ten years time

trade in imperfectly competitive industries the role of market size and consumer preferences this study presents theoretical and empirical analyses of market size and consumer preference asymmetries to examine the implications of trade and trade policies for imperfectively competitive food manufacturing sectors the results show that the effects of trade reforms on imperfectly competitive product trade are counter intuitive if a significant portion of food trade is attributed to market size and preference asymmetries for example countries with smaller market gain relatively more from trade liberalization than countries with larger markets because export market opportunities are greater for small countries than for large countries

evaluating natural resource investments notwithstanding impressive advances in the theory of finance over the past 2 decades practical procedures for capital budgeting have evolved only slowly the standard technique which has remained unchanged in essentials since it was originally proposed see dean 1951 bierman and smidt 1960 derives from a simple adaptation of the fisher 1907 model of valuation under certainty under this technique expected cash flows from an investment project are discounted at a rate deemed appropriate to their risk and the resulting present value is compared with the cost of the project this standard textbook technique reflects modern theoretical developments only insofar as estimates of the discount rate may be obtained from crude application of single period asset pricing theory but see brennan 1973 bogue and roll 1974 turnbull 1977 constantinides 1978 the inadequacy of this approach to capital budgeting is widely acknowledged although not widely discussed its obvious deficiency is its the evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices it is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing managing and abandoning them the approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern

a note on the room mates problem and a related revenue allocation problem we introduce in this note the consistent organizational structure cos problem which can be viewed as a generalization of the college admission and room mates problems both the room mates problem and the cos problem may have no stable solution when side payments are allowed the cos problem but not the room mates problem always has a nonempty core we further study some nucleoli of the cos problem with side payments

strategic eurasian natural gas market model for energy security and policy analysis formulation and application to south stream abstract the mathematical formulation of a strategic eurasian natural gas market model is presented the model represents horizontal oligopolistic relationships among producers bilateral market power between producer russia and transit ukraine countries detailed transport constraints and operation decisions over a 20 year time horizon to demonstrate the model s capabilities a financial and market analysis of the proposed south stream gas pipeline from russia via the black sea to south europe is summarized insights obtained include the following first expectations of high demand growth in europe and or transit risks do not justify the construction of the south stream pipeline because under all demand and ukraine transit interruption scenarios the net benefits to the south stream participants are negative the npv ranges from 1 9 billion bn to 7 4 bn second ukraine s perception of high transit market power vis a vis russia may trigger the construction of the otherwise unprofitable south stream project thus under ukraine s high transit market power scenario the npv of south stream ranges between 2 4 bn and 24 5 bn third we find that the south stream investment increases the efficiency of the european gas market under the following conditions i when gas demand in europe grows 2 per year up to 2030 ii when ukraine poses high transit market power or iii under a combination of severe transit risks through ukraine and low demand scenarios in europe it should be noted that the value of south stream to both its project sponsors and the market as a whole is much higher when ukraine exercises transit market power than under the high demand scenario therefore whether ukraine is likely to wield market power is crucial to the success of the south stream project because that is the only scenario in which the project yields both a positive expected npv to its sponsors and the highest value to the market as a whole

optimal pricing policy in the presence of experience effects i introduction in this paper we analyze the problem of optimal intertemporal pricing for a monopolist when cur rent and past output affect future cost and or demand conditions through experience in production and or in consumption learning by doing the experience curve contagion habit formation bandwagon and snob effects are all examples of terminologies used to describe such situations we call these experience effects for convenience and explore profit maximizing pricing behavior when such effects exist in the traditional profit maximization model a firm chooses the price output combination so as to maximize short run i e current profits the familiar mc mr equality given that price is higher than average variable cost and a nonbind ing capacity constraint is a necessary condition for price takers as well as price makers this as sumes that the current pricing decision has no bearing on the future so that long run profit is maximized by a series of short run maximizing

an evaluation of alternative scenarios for the gazprom monopoly of russian gas exports in june 2006 russian federal law legalized the exclusive right of gazprom to export natural gas to europe and thus thwarted efforts by the european union to bring competition to the russian gas industry an understanding of the motivation of the russian government to support this export monopoly is important if europe wishes to reduce its dependence on gazprom the principal aim of this paper is to contribute to a better understanding of this important question our analysis employs a theoretical model and several numerical simulations of an alternative organization used for gas exports where independent gas producers in russia are permitted to export gas to europe we evaluate the effects of this alternative organization on consumer surplus industry profits and russian welfare the results demonstrate that while export by independent producers reduces gazprom s export profits it may also increase the total domestic and export profits earned by the russian gas industry however the results also suggest that russian gas consumers will not benefit if independent gas producers are able to supply both the domestic and international markets

central asian gas in eurasian power game abstract following the dissolution of the soviet union various gas pipeline projects have been proposed to diversify transit routes and export markets of the landlocked central asian states to evaluate the pipeline project s impact on the players bargaining power i apply the cooperate game theory to a quantitative model of the eurasian gas trade and quantify the bargaining power structure via the shapley value due to ample production capacities in central asia i observe little strategic interaction between the west and china thus demand competition with china is not necessarily a disadvantage for the west and the turkmenistan china pipeline does not affect the impact of the westbound projects aiming europe and turkey for turkmenistan i e the main supplier in the region a link via the caspian sea to turkey is the most beneficial westbound option although the projects carrying gas from azerbaijan and turkmenistan to europe enjoy the european commission s political support they yield marginal benefits to the european consumers thanks to its transit position turkey collects a large share of the benefits in the east west gas trade

properties and comparison of risk capital allocation methods abstract if a financial unit a bank an insurance company a portfolio the financial system of a country etc consists of subunits divisions subportfolios etc then the risk of the main unit should be allocated to the subunits using a risk capital allocation method in a fair way we analyze seven methods widely discussed in the literature or used in practice activity based beta incremental cost gap marginal risk contribution shapley and nucleolus in terms of ten reasonable fairness properties full domain core compatibility diversification strong monotonicity incentive compatibility efficiency equal treatment property riskless portfolio covariance and decomposition invariance we provide proofs or counterexamples for each method and the ten properties that we consider we also computed how often on average core compatibility is satisfied in randomly generated risk capital allocation situations up to nine subunits in 24 treatments for all methods that do not satisfy core compatibility we believe that through the descriptions of the examined methods our paper can serve as a useful guide for both practitioners and researchers

what can be learned from the free destination option in the lng imbroglio we examine the profitability of flexible routing by lng cargoes for a single supplier taking into account uncertainty in the medium term dynamics of gas markets first we model the trajectory of natural gas prices in asia northern america and europe using a threshold vector autoregression representation tvar in which the system s dynamics switches back and forth between high and low regimes of oil price volatility we then use the generalized impulse response functions girf obtained from the estimated threshold model to analyze the effects of volatility shocks on the regional gas markets dynamics lastly the valuation of destination flexibility in lng supplies is conducted using a real option approach we generate a sample of possible future regional price trajectories using monte carlo simulations of our empirical model and determine for each trajectory the optimal shipping decisions and their profitability our results portend a substantial source of profit for the industry and reveal future movements of vessels we discuss the conditional impact of destination flexibility on the globalization of natural gas markets

risk aversion in imperfect natural gas markets abstract this paper presents a natural gas market equilibrium model that considers uncertainty in shale gas reserve exploration risk aversion is modeled using a risk measure known as the average value at risk also referred to as the conditional value at risk in the context of the european natural gas market we show how risk aversion affects investment behavior of a polish and a ukrainian natural gas supplier as expected increased risk aversion leads generally to lower investment and a larger share of investments in the form of lower risk alternatives i e conventional resources however in our market setting where multiple risk averse agents each maximize their own profits we do observe some counter intuitive non monotonic results it is noteworthy that in a competitive market risk aversion leads to significantly lower reserve exploration which may be interpreted as a credible threat by a large dominating supplier such as russia a threat to flood natural gas markets could deter importing countries from extending their own reserve bases

predicting price spikes in electricity markets using a regime switching model with time varying parameters this paper shows that a stochastic regime switching model can represent the volatile behavior of wholesale electricity prices associated with price spikes effectively the structure of the model is very flexible because the mean prices in the two regimes and the two transition probabilities are functions of the load and or the implicit reserve margin using price data from the single settlement market in pjm may 1999 to may 2000 the results show that the estimated switching probability from the low to the high regime predicts price spikes well if the reserve margin is measured accurately

a complementarity model for the european natural gas market abstract in this paper we present a detailed and comprehensive complementarity model for computing market equilibrium values in the european natural gas system market players include producers and their marketing arms which we call traders pipeline and storage operators marketers lng liquefiers regasifiers tankers and three end use consumption sectors the economic behavior of producers traders pipeline and storage operators liquefiers and regasifiers is modeled via optimization problems whose karush kuhn tucker kkt optimality conditions in combination with market clearing conditions form the complementarity system the lng tankers marketers and consumption sectors are modeled implicitly via appropriate cost functions aggregate demand curves and ex post calculations respectively the model is run on several case studies that highlight its capabilities including a simulation of a disruption of russian supplies via ukraine

dynamic pricing and ordering decisions by a monopolist this paper considers the relationship between pricing and ordering decisions for a monopolistic retailer facing a known demand function where over the inventory cycle the product may exhibit i physical decay or deterioration of inventory called wastage and ii decrease in market value called value drop associated with each unit of inventory on hand the retailer is allowed to continuously vary the selling price of the product over the cycle we introduce a notion of instantaneous margin and use it to derive profit maximizing conditions for the retailer the model explains the markdown of retail goods subject to decay it also provides guidance in determining when price changes during the cycle are worthwhile due to product aging how often such changes should be made and how such changes affect ordering intervals and quantities

options on the minimum or the maximum of two risky assets analysis and applications this paper provides analytical formulas for european put and call options on the minimum or the maximum of two risky assets the properties of these formulas are discussed in detail options on the minimum or the maximum of two risky assets are useful to price a wide variety of contingent claims of interest to financial economists applications discussed in this paper include the valuation of foreign currency debt option bonds compensation plans risk sharing contracts secured debt and growth opportunities involving mutually exclusive investments

real options for risk management in petroleum development investments irreversible investments made with incomplete information are the mainstay of the petroleum industry sequential non repetitive investment decisions with alternative pathways associated with exploration through full field development are common we demonstrate a policy development approach that combines the bellman equation for dynamic programming with a real options valuation algorithm this represents the first demonstration of the mathematical union of the two techniques for branching decision pathways producing a generalized policy development framework that provides risk management of investments production expansion investment decisions for a central asian gas condensate field are analyzed using the framework

balancedness of infrastructure cost games abstract in this paper we study the class of infrastructure cost games a game in this class models the infrastructure costs both building and maintenance produced when a set of users of different types makes use of a certain infrastructure which may consist of several facilities special attention is paid to one facility infrastructure cost games such games are modeled as the sum of an airport game and a maintenance cost game it turns out that the core and nucleolus of these games are very closely related to the core and nucleolus of an associated generalized airport game furthermore we provide necessary and sufficient conditions under which an infrastructure cost game is balanced

short term variations and long term dynamics in commodity prices in this article we develop a two factor model of commodity prices that allows meanreversion in short term prices and uncertainty in the equilibrium level to which prices revert although these two factors are not directly observable they may be estimated from spot and futures prices intuitively movements in prices for long maturity futures contracts provide information about the equilibrium price level and differences between the prices for the short and long term contracts provide information about short term variations in prices we show that although this model does not explicitly consider changes in convenience yields over time this short term long term model is equivalent to the stochastic convenience yield model developed in gibson and schwartz 1990 we estimate the parameters of the model using prices for oil futures contracts and apply the model to some hypothetical oil linked assets to demonstrate its use and some of its advantages over the gibson schwartz model

cooperation among liquefied natural gas suppliers is rationalization the sole objective this paper examines the development of cooperative strategies between countries exporting liquefied natural gas lng and members of the gas exporting countries forum gecf this economic study focuses specifically on an often raised scenario the emergence of a cooperative approach designed with the sole aim of logistic rationalization and which would not have any effect on lng prices we first assess the annual gains that may result from this market power free cooperative approach using a simple static transportation model the numerical results obtained suggest that in the absence of a gain redistribution policy this cooperative strategy will probably not be adopted because cooperation would not be a rational move for some exporters the problem of gain sharing is then formulated using cooperative game theory concepts several gain sharing methods have been studied including the shapley value and various nucleolus inspired concepts our results suggest that the choice of a redistribution policy appears relatively restricted out of the methods studied only one per capita nucleolus satisfies two key requirements core belonging and monotonicity in the aggregate lastly we look at how cooperation may give rise to a coordination cost and try to determine the maximum amount of this cost in view of the low level of this amount and the relative complexity of the sharing method implemented we consider that the credibility of a logistic cooperation scenario exempt from market power should be reappraised

an assessment of optimal gas pricing in russia a cge approach domestic gas prices in russia are administratively regulated and they are substantially lower than export netback prices the administrative price regulation operates as an implicit subsidy on domestic gas consumption the russian government aims to liberalise domestic wholesale gas prices in the long term while the export netback parity is defined as a political objective it seems not to be a necessary target anymore the export netback parity is not economically rational for russia because the average export netback price of gas is higher than the marginal cost due to gazprom s market power in export gas markets an optimal domestic gas price is still not well defined this paper addresses this question by employing a comparative static single country multi sector computable generation equilibrium model cge the administrative regulation of domestic gas prices is explicitly modelled the main findings are as follows an increase in the domestic gas price provides economic efficiency gains the more elastic the export and domestic demand for gas the larger the welfare gains the optimal domestic gas price should be approximately 55 of the export netback price increasing the domestic gas price provides additional government revenues which can be used to reduce distortionary taxes on sectoral effects the structure of the russian economy shifts from energy toward non energy intensive sectors in response to an increase in the domestic gas price there is an increase in the export supply of gas furthermore an increase in the domestic gas price leads to a reduction in total co2 emissions

can lng increase competitiveness in the natural gas market the article develops an oligopoly model to analyze the potential role of lng in the liberalization of gas market the assumptions of the model and its results are then discussed using the forecasts of gas demand and production for the next two or three decades

network access and market power abstract we use cooperative game theory to study the impact of the liberalization of eu natural gas markets on the balance of power between local champions customers and outside producers such as russian gazprom we calibrate a model of the eurasian gas network and distinguish between two steps of the reform first the opening of access to transit pipes and second the opening of access to distribution systems hence customers using the shapley value as a power index we find a modest and rather heterogeneous impact from the first step the impact of the second step is much larger and yields a clear pattern all local champions lose while all customers and all outside players gain as one third of the losses of champions within eu leaks to players abroad current reforms might enhance the dominance of already powerful outside producers when network power is assessed with the nucleolus in contrast full liberalization of access to customers does not benefit outside producers at all

a fundamental analysis on the implementation and development of virtual natural gas hubs abstract the ongoing gas market liberalization in europe has brought up a new competitive environment in which shippers i e companies that are responsible for conveying gas from producers to consumers must adapt their behavior to the changing conditions the development of gas virtual hubs increases market interactions among shippers but the oligopolistic market structure may give room for strategic behavior the market is in addition segmented by type of costumer each shipper maximizes its profit by supplying gas to households businesses and industries conventional costumers participating in the electricity market trading in the global lng spot market and interacting with the rest of shippers in a virtual hub during the hub implementation and development the following questions arise how do shippers behave at the different levels of hub maturity and to what extent does the implementation of virtual hubs in entry exit systems diminish the barriers to entry of new market players provides more flexibility and fosters competition with this aim the decision making process of the different shippers is simulated under different market structures representing four stages of the market liberalization process at different levels of hub maturity first the proto liberalization case includes the global lng spot market which is represented as a perfectly competitive market the electricity market which is represented as an oligopoly and the conventional demand which is assumed to be captive i e monopolized second a hub is implemented which provides transparency and reduces information costs by revealing the gas price third switching rates are expected to grow as consumers have access to a transparent gas price hence the conventional demand is no longer considered as captive fourth wholesale procurement and retail activities are unbundled and a wholesale market is established where the retailers presumably buy gas from the shippers thereby wholesale and retail activities acquire importance and market transactions i e liquidity increase from the simulation and the analysis of the different market equilibria the following conclusions emerge first with the introduction of the virtual hub the marginal cost of all shippers reaches a unique value i e the transparent gas hub price second the aggregated profit of the shippers is increasing even when anticompetitive behavior is not explicitly represented due to the flexibility gained by shippers with the hub accordingly and third the hub is a necessary but not sufficient condition to increase competition the entry of new players is critical and discouraging market regulations or the anticompetitive behavior of a highly concentrated market may not facilitate it

the benefits of integrating european electricity markets this paper builds on and extends work under contract ener b1 491 1 2012 published as newbery et al 2013

an extension of the τ value to games with coalition structures abstract we introduce the coalitional value which is an extension of the value for tu games to games with a coalition structure we identify a class of tu games that satisfy the property that for every game in this class and every coalition structure on its player set it holds that the coalitional value can be defined for the corresponding game with a coalition structure we study properties of the coalitional value and provide an axiomatic characterization of this allocation rule we use the coalitional value to study bankruptcy problems and the determination of aircraft landing fees

examining market power in the european natural gas market in this paper we develop a mixed complementarity equilibrium model for the european natural gas market this model has producers as cournot players with conjectured supply functions relative to their rivals as such these producers can withhold production to increase downstream prices for greater profits the other players are taken to be perfectly competitive and are combined with extensive pipeline seasonal and other data reflecting the current state of the market four market scenarios are run to analyze the extent of market power by these producers as well as the importance of pipeline and storage capacity

security of supply and retail competition in the european gas market some model based insights in this paper we analyze the impact of uncertain disruptions in gas supply upon gas retailer contracting behavior and consequent price and welfare implications in a gas market characterized by long term gas contracts using a static cournot model in order to most realistically describe the economical situation our representation divides the market into two stages the upstream market that links by means of long term contracts producers in exporting countries russia algeria etc to local retailers who bring gas to the consuming countries to satisfy local demands in the downstream market disruption costs are modeled using short run demand functions first we mathematically develop a general model and write the associated kkt conditions then we propose some case studies under iso elasticity assumptions for the long short run inverse demand curves in order to predict qualitatively and quantitatively the impacts of supply disruptions on western european gas trade in the second part we study in detail the german gas market of the 1980s to explain the supply choices of the german retailer and we derive interesting conclusions and insights concerning the amounts and prices of natural gas brought to the market the last part of the paper is dedicated to a study of the bulgarian gas market which is greatly dependent on the russian gas supplies and hence very sensitive to interruption risks some interesting conclusions are derived concerning the necessity to economically regulate the market by means of gas amounts control if the disruption probability is high enough

what about coal interactions between climate policies and the global steam coal market until 2030 because of economic growth and a strong increase in global energy demand the demand for fossil fuels and therefore also greenhouse gas emissions are increasing although climate policy should lead to the opposite effect the coal market is of special relevance as coal is available in many countries and often the first choice to meet energy demand in this paper we assess possible interactions between climate policies and the global steam coal market possible market adjustments between demand regions through market effects are investigated with a numerical model of the global steam coal market the coalmod world model this equilibrium model computes future trade flows infrastructure investments and prices until 2030 we investigate three specific designs of climate policy a unilateral european climate policy an indonesian export limiting policy and a fast roll out of carbon capture and storage ccs in the broader context of climate policy and market constraints we find that market adjustment effects in the coal market can have significant positive and negative impacts on the effectiveness of climate policies

the perversity of preferences gsp and developing country trade policies 1976 2000 industrial countries maintain special tariff preferences namely the generalized system of preferences gsp for imports from developing countries critics have highlighted the underachieving nature of such preferences but developing countries continue to place the gsp at the heart of their agenda in multilateral negotiations what effect do such preferences have on a recipient s own trade policies the authors develop and test a simple theoretical model of a small country s trade policy choice using a dataset of 154 developing countries from 1976 through 2000 they find that countries removed from the gsp adopt more liberal trade policies than those remaining eligible the results corrected for endogeneity and robust to numerous alternative measures of trade policy suggest that developing countries may be best served by full integration into the reciprocity based world trade regime rather than continued gsp style special preferences

commodity convenience yield and risk premium determination the case of the u s natural gas market this paper contributes to the understanding of commodity pricing issues by measuring and modeling two of the most important concepts in the storable commodity markets the convenience yield and risk premium an emphasis is placed on the empirical determination of these factors in the u s natural gas market we find that the convenience yield and risk premium are measurable and economically significant while we find that the determination of the convenience yield is largely consistent with economic theories the evidence regarding the determination of the risk premium is mixed

the dynamics of prices and market shares over the product life cycle we analyze a duopoly through a differential game in which the players set prices as functions of time under reasonable assumptions we find that prices first decline then increase the market share of the biggest firm grows initially but decreases later it is demonstrated that a firm may growth maximize early but never late in the product life cycle finally we show that only the low price firm will pay for informative advertising whereas both firms will pay for persuasive advertising though less if their market shares are very different

modeling strategic investment decisions in spatial markets abstract markets for natural resources and commodities are often oligopolistic in these markets production capacities are key for strategic interaction between the oligopolists we analyze how different market structures influence oligopolistic capacity investments and thereby affect supply prices and rents in spatial natural resource markets using mathematical programming models the models comprise an investment stage and a supply stage in which players compete in quantities we compare three models a perfect competition and two cournot models in which the product is either traded through long term contracts or on spot markets in the supply stage tractability and practicality of the approach are demonstrated in an application to the international metallurgical coal market results may vary substantially between the different models the metallurgical coal market has recently made progress in moving away from long term contracts and more towards spot market based trade based on our results we conclude that this regime switch is likely to raise consumer rents but lower producer rents while the effect on total welfare is negligible

strategic behaviour in international metallurgical coal markets abstract this paper analyses whether prices and trade flows in the international market for metallurgical coals were subject to non competitive conduct in the period 2008 to 2010 to do so i develop mathematical programming models a stackelberg model two varieties of a cournot model and a perfect competition model for computing spatial equilibria in international resource markets results are analysed with various statistical measures to assess prediction accuracy of the models the results show that real market equilibria cannot be reproduced with a competitive model however real market outcomes can be accurately simulated with the non competitive models suggesting that market equilibria in the international metallurgical coal trade were subject to strategic behaviour of coal exporters

assessing market structures in resource markets an empirical analysis of the market for metallurgical coal using various equilibrium models abstract the prevalent market structures found in many resource markets consist of high concentration on the supply side and low demand elasticity market results are therefore frequently assumed to be an outcome of strategic interaction between producers common models to investigate the market outcomes and underlying market structures are games representing competitive markets strategic cournot competition and stackelberg structures that take into account a dominant player acting first followed by one or more players we add to the literature by expanding the application of mathematical models and applying an equilibrium problem with equilibrium constraints epec which is used to model multi leader follower games to a spatial market using our model we investigate the prevalent market setting in the international market for metallurgical coal between 2008 and 2010 whose market characteristics provide arguments for a wide variety of market structures using different statistical measures to compare model results with actual market outcomes we find that two previously neglected settings perform best first a setting in which the four largest metallurgical coal exporting firms compete against each other as stackelberg leaders while the remainders act as cournot followers second a setting with bhpb acting as sole stackelberg leader

joining the ccs club the economics of co2 pipeline projects this paper examines the conditions for a widespread adoption of carbon capture transport and storage ccs by a group of emitters that can be connected to a common co2 pipeline it details a modeling framework aimed at assessing the critical value in the charge for the co2 emissions required for each of the emitters to decide to implement capture capabilities this model can be used to analyze how the tariff structure imposed on the co2 pipeline operator modifies the overall cost of co2 abatement via ccs this framework is applied to the case of a real european co2 pipeline project we find that the obligation to use cross subsidy free pipeline tariffs has a minor impact on the minimum co2 price required to adopt the ccs in contrast the obligation to charge non discriminatory prices can either impede the adoption of ccs or significantly raise that price besides which we compared two alternative regulatory frameworks for co2 pipelines a common european organization as opposed to a collection of national regulations the results indicate that the institutional scope of that regulation has a limited impact on the adoption of ccs compared to the detailed design of the tariff structure imposed on pipeline operators

real option valuation of free destination in long term liquefied natural gas supplies this paper presents a real option model for the valuation of destination flexibility in long term lng supplies stochastic price dynamics in the different markets is modelled through geometric brownian motion processes mean reversion is considered as well as correlation between markets but instead of the usual correlation in return shocks a price convergence term is introduced representing the arbitrage streams between markets model parameters are estimated from market data on lng prices by maximum log likelihood the goodness of the fit for the proposed model is tested as well as for two alternative models confidence intervals for the parameters are given results for the model are calculated by monte carlo simulation frequency distributions for the main results are plotted the effect of the main parameters of the model is studied i e price volatilities price convergence initial prices in the markets mean reversion extra transportation costs number of alternative markets the value of destination flexibility is found to be an important share of the value of lng

product line selection production decisions and allocation of common fixed costs abstract product costs are determined in practice for the purpose of pricing make buy and product line decisions while many costs are directly assignable to individual products common costs have historically presented a difficult conundrum a variety of cost allocation methods are used in practice or have been suggested in the literature to attach these costs to individual products while such procedures are theoretically unsupported they may be able to mimic the correct decisions adequately in this paper we investigate the efficacy of certain cost allocation schemes in a competitive environment the schemes are evaluated with reference to a scenario in which there is a single fixed cost incurred in manufacturing any subset of a set of products under idealized conditions a cournot nash model is developed that describes the number of entering firms and the equilibrium price and production levels using this as a point of reference it is shown that by using gross contribution as an allocation basis optimal product line decisions are achieved without distorting the selection of production levels moreover competitive pressure sufficient to drive total net profits close to zero is sufficient to require that any allocation rule supporting optimal product line decisions yields allocations nearly proportional to gross contributions an analogy is drawn with the allocation of joint costs to coproducts in a competitive environment and the corresponding allocation in proportion to net realizable value

an empirical study on coalition formation and cost savings allocation abstract interest has been raised by the recent identification of potential savings through collaborative planning in logistics operations even though substantial savings can be realized two key questions exist i how should potential savings be divided among a group of collaborating companies and ii among potential collaborating companies how should collaborating group s be formed these two questions are studied in a specific context among potential collaborating companies a subset denoted the leading companies performs collaborative planning on behalf of the others and together they initiate formation of a collaborating group we use the concept of a business model to detail such context based on the literature on network formation where potential savings are modelled by a cooperative game four business models are explored in four different subsets of leading companies we propose a network model as a method to determine the stable collaborating group in each computation a case study including eight forest companies is described and analyzed results show that very different solution characteristics can be achieved depending on the business model selected

cartelization in gas markets studying the potential for a gas opec natural gas is increasingly important as a fuel for electric power generation as well as other uses due to its environmental advantage over other fossil fuels using the world gas model a large scale energy equilibrium system based on a complementarity formulation this paper analyzes possible future gas cartels and their effects on gas markets in a number of regions across the world in addition scenarios related to lower transport costs and decreased unconventional gas supply in the united states are considered

natural gas corridors between the eu and its main suppliers simulation results with the dynamic gastale model abstract growth in gas demand poses a challenge for european energy consumers and other gas importing countries in terms of an increasing dependency on gas imports and consequently also supply security this paper focuses on interactions among demand supply and investments in natural gas corridors namely pipeline transport lng and storage facilities affecting the european natural gas market over the period 2005 2030 a number of policy scenarios including a business as usual bau scenario are formulated to study the impact of demand uncertainty and delays in investment on the gas transport infrastructure required in the long run in europe the analyses indicate that substantial investments in gas transport corridors are needed to accommodate imports and seasonal demand variations analysis of scenarios of supply interruption in the form of suddenly reduced import capacity for particular pipeline routes indicates that portions of europe could experience price increases of up to 100 in the case of a year long interruption to accommodate import needs and to mitigate possible disruptions pipeline connections running from east to west need to be given special priority

game theory and cost allocation problems problems of allocating joint costs in a reasonable way arise in many practical situations where people decide to work together to save costs cost allocation methods based on game theoretical concepts take into account the strategic aspects of cost allocation situations we give a survey of cost allocation methods based on the nucleolus and the shapley value and introduce also a new one the so called cost gap allocation method which is based on the i value it is shown that for some large subclasses of cost allocation problems this new cost allocation method coincides with old separable cost methods proposed in the thirties by the tennessee valley authority and also with the separable costs remaining benefits scrb method properties of this cost gap allocation method are also treated

a strategic model of european gas supply gasmod abstract this paper presents a model of the european natural gas supply gasmod which is structured as a two stage game of successive natural gas exports to europe upstream market and wholesale trade within europe downstream market and which explicitly includes infrastructure capacities we compare three possible market scenarios cournot competition in both markets perfect competition in both markets and perfect competition in the downstream with cournot competition in the upstream market eu liberalization we find that cournot competition in both markets is the most accurate representation of today s european natural gas market where suppliers at both stages generate a mark up at the expense of the final customer double marginalization our results yield a diversified supply portfolio with newly emerging lng exporters gaining market shares enforcing competition in the european downstream market would lead to lower prices and higher quantities by avoiding the welfare reducing effects of double marginalization binding infrastructure capacity restrictions strongly influence the results and we identify bottlenecks mainly for intra european trade relations whereas transport capacity in the upstream market is globally sufficient in the cournot scenario

optimal pricing strategies for new products in dynamic oligopolies this paper deals with the determination of optimal pricing policies for firms in oligopolistic markets the problem is studied as a differential game and optimal pricing policies are established as nash open loop controls cost learning effects are assumed such that unit costs are decreasing with cumulative output discounting of future profits is also taken into consideration initially the problem is addressed in a general framework and we proceed to study some specific cases that are related to models presented in recent literature three basic classes of sales dynamics are analyzed competition with price effects only competition with price as well as adoption effects and competition with adoption effects only in some cases it turns out that results which hold for the monopoly case carry over to the multi firm case in the sense that the qualitative structure of optimal pricing strategies is the same in the monopoly and the oligopoly cases however due to competitive interdependencies differences certainly exist in the levels as well as the rates of change of optimal prices

a compound option model of production and intermediate inventories this article extends the option approach to valuing real assets by modeling the firm as a two stage process with bounded output rates in which the output of the first stage may be held as work in process in this setting the real asset becomes a compound option which if exercised gives the option to finish the work in process and sell the output as its final payoff the existence of intermediate inventories may arise as an optimal investment strategy for exploiting possible future price increases the framework allows us to analyze the effect of uncertainty on output rates and the effect of interest rates changes on inventory levels copyright 1993 by university of chicago press

non discriminatory discrimination special and differential treatment under the gatt for developing countries developing countries have long been strong supporters of a non discriminatory rule based multilateral system on the grounds that as economically small units they would otherwise be subject to bilateral pressure from larger powers at the same time they have equally been committed to special and differential s d treatment for themselves under gatt rules their approach has been to argue that trade problems of developing countries are special from those of developed countries balance of payments problems viewed by them as endemic to low income countries make liberalisation difficult and import substitution strategies suggest that liberalisation is anyway undesirable poor export prospects export pessimism imply they need different treatment from developed countries in order to grow that is trade preferences in developed country markets special and differential also became a bloc wide strategy jointly pursued reflecting the premise that developing countries are jointly and simultaneously special and differential in their trade problems this is however changing in the uruguay round developing countries have shown themselves remarkably adept at moving away from the earlier somewhat passive bloc wide s d approach in a surprising range of negotiating groups countries have actively pursued country over bloc wide interests and in an active way involving a willingness to take on new gatt disciplines while s d is far from having been abandoned as a principle of the trading system the approach seems to be one of protecting and preserving what is there rather than pushing for further enhancement the reasons for these changes are as always multi faceted strong growth performance in the more outward oriented developing countries korea and other nics has weakened the intellectual commitment to import substitution what exactly s d has yielded developing countries in concrete trade policy terms has also been queried and over the years the differences between developing countries large small middle income least developed industrialised commodity exports agricultural importers exporters and others have grown to the point that in the uruguay round a grand coalition of all developing countries does not exist in any active sense

international market integration for natural gas a cointegration analysis of prices in europe north america and japan this paper investigates the degree of integration of natural gas markets in europe north america and japan in the time period between the early 1990s and 2004 the relationship between international gas market prices and their relation to the oil price are explored through principal components analysis and johansen likelihood based cointegration procedure both of them show a high level of natural gas market integration within europe between the european and japanese markets as well as within the north american market at the same time the obtained results suggest that the european respectively japanese and the north american markets were not integrated

explaining experience curves for new energy technologies a case study of liquefied natural gas many new energy technologies seem to experience a fall in unit price as they mature in this paper we study the unit price of liquefying natural gas in order to make it transportable by ship to gas power installations all over the world our point of departure is the experience curve approach however unlike many other studies of new energy technologies we also seek to account for autonomous technological change scale effects and the effects of upstream competition among technology suppliers to our surprise we find that upstream competition is by far the most important factor contributing to the fall in unit price with respect to the natural gas business this may have implications for the future development in prices as the effect of increased upstream competition is temporary and likely to weaken a lot sooner than effects from learning and technological change another more general policy implication is that while promoting new energy technologies governments must not forget to pay attention to competition policy

a simulation approach for analysis of short term security of natural gas supply in colombia abstract achieving security of gas supply implies diversifying gas sources while having enough supply transportation and storage capacity to meet demand peaks and supply interruptions devising a strategy for securing gas supply is not straightforward because gas supply depends on complex interactions of production demand and infrastructure and it is exposed to economic regulatory political environmental and technical risks to address this complexity we propose a simulation approach that replicates the structure of the gas supply chain including transportation constraints and demand fluctuations we build and calibrate a computer model for the colombian gas sector and run the model to assess the impact of expanding transportation capacity and increasing market flexibility on the security of supply our analysis focuses on the operation and planned and proposed expansions of the transportation infrastructure because adequate regulation and development of this infrastructure can contribute to increase the security of supply in the gas sector we find that proposed import facilities specifically lng import terminals at buenaventura increase system s security under the current market structure

allocating the co2 emissions of an oil refinery with aumann shapley prices abstract linear programming is widely used by multiproduct oil refining firms which minimize a refinery s variable cost under a set of constraints in addition to operating costs this variable cost can include the cost associated with the refinery s co 2 emissions we suggest a quite general approach combining use of aumann shapley cost sharing method and breakdown of the objective function of the linear program this approach determines an appropriate rule for the allocation of the refinery s co 2 emissions or in general variable costs among the various finished products which can be used for purposes of life cycle assessment a numerical application to a simplified refining model is presented

brand loyalty and market equilibrium two concepts of brand loyalty are defined inertial brand loyalty resulting from time lags in awareness and cost based brand loyalty resulting from intertemporal utility effects their market level implications are formally derived in a continuous time model it is found that inertial brand loyalty leads to equilibria with price dispersion while cost based brand loyalty also may allow single price equilibria in all cases as brand loyalty vanishes so does the difference between the average trading price and the price which obtains with no brand loyalty consistent with empirical results the theory predicts that the relationship between market share and performance is positive in cross sectional studies but flat in time series studies the theory is also consistent with the view that market share is an asset in itself after developing the theory several strategic implications are drawn in the end some questions for further theoretical and empirical research are raised

mean reversion in equilibrium asset prices evidence from the futures term structure we use the term structure of futures prices to test whether investors anticipate mean reversion in spot asset prices the empirical results indicate mean reversion in each market we examine for agricultural commodities and crude oil the magnitude of the estimated mean reversion is large for example point estimates indicate that 44 percent of a typical spot oil price shock is expected to be reversed over the subsequent eight months for metals the degree of mean reversion is substantially less but still statistically significant we detect only weak evidence of mean reversion in financial asset prices in this study we provide evidence of mean reversion in the prices of several real and financial assets rather than examining evidence of ex post reversion using time series of asset prices we use price data from futures contracts with varying delivery horizons to test whether investors expect asset prices to revert this approach offers two advantages first since futures prices are readily available for many markets our procedure can be implemented for many assets including those for which reliable spot price data is elusive second there is little ambiguity as to the source of any mean reversion detected using our method subject only to the maintained assumption that the no arbitrage cost of carry condition holds our test detects mean reversion that is expected to occur in equilibrium but has no power to detect mean reversion resulting from noise or inefficiencies our methodology focuses on relations between price levels and the slope of the futures term structure defined as the change across delivery dates in the futures prices observed on a given trading date an inverse relation between prices and the futures term slope constitutes evidence that investors expect mean reversion in spot prices to illustrate initially assume there are no

cooperative game theory approach to allocating benefits of horizontal cooperation abstract logistics costs in general and transportation costs in particular represent a large fraction of the operating costs of many companies one way to try to reduce these costs is through horizontal cooperation among shippers thus when the transportation needs of two or more companies are merged their collective transportation requirements can be met at lower cost the attainable cost savings are due to economies of scale which translate into cheaper rates due to increased negotiation power use of larger vehicles and bundling of shipments in this paper a linear model is presented and used to study the cost savings that different companies may achieve when they merge their transportation requirements on the one hand solving this optimization model for different collaboration scenarios allows testing and quantifying the synergies among different potential partners thus identifying the most profitable collaboration opportunities on the other the problem of allocating the joint cost savings of the cooperation is tackled using cooperative game theory the proposed approach is illustrated with an example in which different cooperative game solution concepts are compared extensive numerical experiments have also been carried out to gain insight into the properties of the corresponding cost savings game and the behavior of the different solution concepts

consumers with differing reaction speeds scale advantages and industry structure abstract the development of an industry is seen as the outcome of a differential game in which market shares flow in response to price differences it is hypothesized that while all consumers eventually react to price differences some are slower than others if scale advantages have some influence on marginal costs around average market share then under reasonable conditions only skewed size distributions can be locally stable steady states in addition and contrary to common belief the largest firm need not eventually monopolize the industry

balance of payments and related issues in the uruguay round of trade negotiations little attention has been paid to the balance of payments provisions of the general agreement on tariffs trade gatt despite the fact that they directly influence the trade policies of the developing countries this article suggests that there is a need to reconsider these provisions in the context of the ongoing uruguay round of multilateral trade negotiations the article traces the historical evolution of gatt practices on trade restrictions for balance of payments purposes with the general introduction of more flexible exchange rate arrangements the original rationale for temporary barriers to safeguard a country s external financial position appears to have lost its force recent theoretical and empirical work has demonstrated that neutral or export promoting trade strategies are more effective for development than the import substitution frequently advocated by economists in the 1950s and 1960s the current debt problems of developing countries strengthen the argument for a relatively open trade and payments regime to attain balance of payments viability the article suggests that stronger international discipline over trade restrictions for balance of payments purposes would contribute to and presuppose other necessary improvements in the multilateral trading system which are already on the agenda of the uruguay round

optimal pricing and advertising policies for new product oligopoly models in this paper our previous work on monopoly and oligopoly new product models is extended by the addition of pricing as well as advertising control variables these models contain bass s demand growth model and the vidale wolfe and ozga advertising models as well as the production learning curve model and an exponential demand function the problem of characterizing an optimal pricing and advertising policy over time is an important question in the field of marketing as well as in the areas of business policy and competitive economics these questions are particularly important during the introductory period of a new product when the effects of the learning curve phenomenon and market saturation are most pronounced we consider first the monopoly case with linear advertising cost exponential demand and three different pricing rules the optimal variable pricing the instantaneous marginal pricing and the optimal constant pricing rules several theoretical results are established for these rules including the facts that the instantaneous marginal pricing rule is a myopic version of the optimal pricing rule and the optimal constant pricing rule is a weighted average over time of the instantaneous marginal pricing rule another surprising result is that after the market is at least half saturated a pulse of advertising must be preceded by a significant drop in price numerical solutions of a number of examples are discussed oligopolistic models are analyzed as nonzero sum differential games in the rest of the paper the state and adjoint equations are easy to write down but impossible to solve in closed form hence we describe how to reformulate these models as discrete differential games and give a numerical algorithm for finding open loop nash solutions the latter was used to solve three triopoly models in each case it was found that optimal prices and advertising rates start high and steadily decline

how should the cost of joint risk capital be allocated for performance measurement we consider the problem of allocating the cost of risk capital based on value at risk var for performance measurement in a decentralized organization with several divisions the focus of the analysis is on fair risk capital allocation schemes to this end we analyze several well known allocation schemes in the context of a model based on cooperative game theory using the core concept we provide theoretical evidence that two allocation schemes the beta method and the nucleolus method turn out to perform best in allocating the cost of risk capital a simulation study shows that another allocation method the cost gap method shows similar results however within an experiment we obtain empirical evidence that the core concept is of minor importance with respect to individually perceived fairness subjects tend to favor simple allocation rules such as the activity level method and the beta method in summary only the beta method can be considered to be fair both from a normative and a descriptive point of view

competition strategy and price dynamics a theoretical and empirical investigation the authors explore how competition affects dynamic pricing of new products dynamics of diffusion saturation and cost reduction due to experience are all considered with emphasis on the last t

gas and lng trading hubs hub indexation and destination flexibility in east asia abstract in the east asian gas markets issues like gas trading hubs hub indexed pricing and destination flexibility are being debated this paper examines the impact of a change in east asia s pricing benchmark and contract flexibility on the regional and global gas markets the paper uses the nexant world gas model a linear program with global cost minimization as the objective to our knowledge this study on hub competition price benchmark change and contract flexibility improvement in east asia will be the first in the literature and have real policy relevance the results show that both price benchmark change and contract flexibility improvements will create an overall benefit for the world and east asia importers but the impacts are different among exporters and importers however there is no evidence of competition among different benchmark hubs and no evidence that destination restrictions cause the asia premium it implies that removal of destination clauses has higher priority than the change to hub indexation for japan korea and chinese taipei but both should be treated equally in china the study also suggests that east asian importers should cooperate among themselves and with exporters to facilitate the hub creation and contract changes in east asia

two markets and a weak link abstract we characterise the relationship between two network based oligopoly markets when local players share the interconnection s ownership to that purpose we analyse the case of the bacton uk zeebrugge belgium natural gas pipeline using vector auto regressive representation techniques we conclude that there is a threshold of capacity deployment after which the two local markets split as a result the relationship between local price differentials and capacity utilisation is increasing and convex we also show that the local prices dynamic structure is characterised by convergence features

robust new product pricing we study the pricing decision for a monopolist launching a new innovation at the time of launch we assume that the monopolist has incomplete information about the true demand curve despite the lack of objective information the firm must set a retail price to maximize total profits to model this environment we develop a novel two period non bayesian framework where the monopolist sets the price in each period based only on a nonparametric set of all feasible demand curves optimal prices are dynamic as prices in any period allow the firm to learn about demand and improve future pricing decisions our main results show that the direction of dynamic introductory prices versus static prices depends on the type of heterogeneity in the market we find that 1 when consumers have homogeneous preferences introductory dynamic price is higher than the static price 2 when consumers have heterogeneous preferences and the monopolist has no ex ante information the introductory dynamic price is the same as

european ability to cope with a gas crisis comparison between 2009 and 2014 abstract regulation eu no 994 2010 concerning measures to safeguard security of gas supply was adopted following the 2009 commercial dispute between ukraine and russia which yield to a gas disruption since then new infrastructure and cooperation measures have being implemented in order to reinforce the european gas system to better cope with gas shortages joint research centre has developed gemflow a country based model of the european gas network to simulate gas disruptions of different duration and to estimate the survival time and gas non served per country in this paper an analysis and comparison of the improvements carried out in the european gas system between 2009 and 2014 is presented and gemflow model is used to evaluate the progress being made to strengthen the security of gas supply at european level

monopolist pricing with dynamic demand and production cost this paper deals with pricing of a new product over time by a monopolist who maximizes the discounted profit stream the interdependency of cost and demand on cumulative production makes the problem inherently dynamic cost is assumed to be declining with cumulative production learning curve effect while demand is a function of price and cumulative sales representing word of mouth and saturation effects the paper addresses this problem in a general framework that includes several previous results as special cases and provides new insights in other situations while the learning curve and word of mouth effect cause prices to be lower than the price that maximizes immediate revenues the saturation factor has the opposite effect the price path over time is affected by these factors and the interest rate we characterize the price path under several different situations and interpret the results for policy guidelines