on the simple economics of advertising marketing and product design we propose a framework for analyzing transformations of demand such transformations frequently stem from changes in the dispersion of consumers valuations which lead to rotations of the demand curve in many settings profits are a u shaped function of dispersion high dispersion is complemented by niche production and low dispersion is complemented by mass market supply we investigate numerous applications including product design advertising marketing and sales advice and the construction of quality differentiated product lines we also suggest a new taxonomy of advertising distinguishing between hype which shifts demand and real information which rotates demand

estimating demand for local telephone service with asymmetric information and optional calling plans in this paper i study the theoretical and econometric implications of agents uncertainty concerning their future consumption when a monopolist offers them either a unique mandatory nonlinear tariff or a choice in advance from a menu of optional two part tariffs agents uncertainty is resolved through individual and privately known shocks to their types in such a situation the principal may screen agents according to their ex ante or ex post type by offering either a menu of optional tariffs or a standard nonlinear schedule the theoretical implications of the model are used to evaluate a tariff experiment run by south central bell in two cities in kentucky in 1986 the empirical approach explicitly accounts for the existence of informational asymmetries between local telephone users and the monopolist leading to different nested econometric specifications under symmetric and asymmetric information the empirical evidence suggests that there exists a significant asymmetry of information between consumers and the monopolist under both tariff regimes all expected welfare components failed to increase with the introduction of optional tariffs for the estimated value of the parameters copyright 2002 wiley blackwell

international business alliance under asymmetric information technology vis a vis information advantage author affiliation chifeng dai daic siu edusajal lahiri lahiri siu edu corresponding author acknowledgment we are grateful to two anonymous referees for extremely helpful comments and suggestions 1 introductioninternational inter firm business cooperation as a means to reach a foreign marketplace has been rapidly increasing in popularity and has been growing hand in hand with the overall process of globalization business collaborations in general take different forms licensing franchising and joint venture jv are two important forms of this collaboration the exact nature of the contract between firms can also take different forms involving one or more of the following up front licensing fees equity investments annual maintenance fees milestone payments and royalties 1 for example under the jv agreement between generex biotechnology canada and sejong capital korea sejong agrees to invest 25 million in the jv as a non refundable license fee paid to generex and to purchase 5 million of generex s equity under the jv agreement between cambridge biostability united kingdom and panacea biotec india panacea purchased 1 935 million of cambridge s equity up front and signed a long term licensing agreement that provides gross royalty income to cambridge over the agreement period 2apart from the contractual arrangements another important issue in international business cooperation is the question of transfer or adaptation of technology for the international alliance ia and this has received a lot of attention in the literature see for example katz rebentisch and allen 1996 it is generally agreed that the technology adaptation issue is a rather complicated engineering and economic issue and often requires significant efforts there are four broad research questions here first why do firms from developing and industrialized countries form an alliance miller et al 1997 studied 76 ias in six developing countries they found that more than 65 of the foreign companies chose domestic partners because of their knowledge of local politics government regulations local custom and local markets and more than 70 of the domestic firms in developing countries sought collaboration with multinationals based on their superior technology the second question involves why ias have diverse contractual arrangements the third question involves how each firm s advantage and disadvantage in technology and market information affect their profits in ias do firms in the alliance always prefer more market information and better technology the final question has to do with whether technology spillover hinders the formation of an ia 3in order to answer some of the research questions outlined above we consider a simple model consisting of two firms a multinational corporation mnc and a domestic firm the firms operate under uncertain market demand the mnc possesses a production technology that is superior to that of the domestic firm however the domestic firm has an information advantage in the sense that with costly and non contractable efforts it can predict demand conditions with some probability we start with the case in which the credit market is perfect and the technology adaptation in the ia is exogenous and costless we show that in the ia the mnc optimally charges the domestic firm a lump sum payment but offers it the entire profits of the ia under the contractual arrangement market uncertainty and the domestic firm s ability to gather information increase the domestic firm s profits but not the mnc s profits in ia however the mnc prefers duopoly competition to ia if the technology adaptation is imperfect and the domestic firm s production technology is exceedingly inferior we then deviate from the benchmark case in two different directions but one at a time

can transport infrastructure change regions economic fortunes some evidence from europe and china abstractcan transport infrastructure change regions economic fortunes some evidence from europe and china regional studies claims and counterclaims about the likely impact of new transport infrastructure on a region s economic performance have existed for centuries going back to the early days of canals and railways high speed rail hsr as a new type of infrastructure has just over 50 years of existence the persistent debate is questioning the power of hsr in reducing economic disparities between cities and effecting economic transformation the paper goes beyond macro modelling looking to more disaggregated approaches of the structural changes two regions one in europe and one in china are compared to gain insights for future research and practice

facilitating fit revelation in the competitive market this study examines firms strategic decisions in the competitive market regarding whether to engage in marketing activities to assist consumers in finding the fit between their personal tastes and products horizontal attributes we find that competitive firms strategies to facilitate fit revelation critically depend on the product qualities they offer in particular a firm offering a high quality product is more likely to facilitate fit revelation in the competitive market than it would as a market monopolist whereas a firm offering a low quality product is less likely to do so in addition the firm offering the high quality product implements fit revealing activities in a greater intensity than its rival that offers the low quality product if the quality difference between the two products is small and both products qualities are sufficiently high

private information and intertemporal job assignments this paper studies the assignment of people to projects over time in a model with private information the combination of risk neutrality with incomplete contracts that restrict the ability of an agent to report on interim states is a force for long term assignments more generally however rotating agents can be valuable because it conceals information from agents which mitigates incentive constraints with complete contracts that communicate interim states rotation allows for even more concealment possibilities and better targeted incentives furthermore it allows for the reporting of interim shocks at no cost to the principal properties of the production technology are also shown to matter substitutability of intertemporal effort is a force for long term assignments while coordination with nash equilibrium strategies is a force for job rotation copyright 2006 wiley blackwell

information and subsidies complements or substitutes abstract does providing information about a product influence the impact of price subsidies on purchases this question is particularly relevant for health products in developing countries where both informational campaigns and price subsidies are common policy instruments we conduct a field experiment in zambia and find that providing information about a new version of a product significantly increases the impact of price subsidies on take up taken alone the information manipulation has no significant impact on demand while the price subsidy substantially increases demand however the evaluation of either intervention in isolation fails to capture the significant complementarity between the two

pre sale information in markets as diverse as that for specialized industrial equipment or that for retail financial services sellers or intermediaries may earn profits both from the sale of products and from the provision of pre sale consultation services we study how a seller optimally chooses the costly quality of pre sale information next to the price of information and the product price and obtain clear cut predictions on when information is over and when it is underprovided even though we find that information quality does not satisfy a standard single crossing property buyers who are a priori more optimistic about their valuation end up paying a higher margin for information but a lower margin for the product when they subsequently exercise their option to purchase at a pre specified price

refunds and returns in a vertically differentiated industry abstract firms frequently offer refunds both when physical products are returned and when service contracts are terminated prematurely we show how refunds act as a metering device when consumers learn about their personal valuation while experimenting with the product or service our theory predicts that low quality firms offer inefficiently strict terms for refunds while high quality firms offer inefficiently generous terms this may help to explain the observed variety in contractual terms

dynamic adverse selection and the supply size in this paper we examine the problem of dynamic adverse selection in a stylized market where the quality of goods is a seller s private information while the realized distribution of qualities is public information we obtain that full trade occurs in every dynamic competitive equilibrium moreover we show that if prices can be conditioned on the supply size then a dynamic competitive equilibrium always exists while it fails to exist if prices cannot be conditioned on the supply size and the frequency of exchanges is high enough we conclude that the possibility to condition prices on the supply size allows us to reach efficiency in the limit for exchanges becoming more and more frequent while otherwise the welfare loss due to delays of exchanges remains bounded away from zero

search intensity job advertising and efficiency this paper demonstrates that if both firms and workers search the other side of the market for job matches the equilibrium rate of unemployment is likely to be too high both sides ignore a positive externality of their search when they establish a job match they remove from the market a job searcher so they save society his search costs i show that there is no feasible wage rate that can internalize this externality under fairly weak restrictions on the technology of search

price competition for an informed buyer abstract this paper investigates price competition with private information on the demand side two sellers each offer a different variety of a good to a buyer endowed with a private binary signal on their relative quality the model provides an informational foundation to differentiation in hotelling s price competition game equilibrium comparative statics is performed with respect to the prior belief and the precision of the private information competition is fierce when the prior strongly favors one seller and private signals are relatively uninformative sellers equilibrium profits may fall with the revelation of public information and are nonmonotonic in the prior belief journal of economic literature classification numbers c72 d43 d82 l15

the welfare performance of sequential pricing mechanisms consumers are commonly required to subscribe to particular tariff options before uncertainty regarding their future purchases gets resolved since the general comparison of welfare performance of different pricing mechanisms is ambiguous this article empirically evaluates the expected welfare associated with standard nonlinear pricing and optional tariffs by using information directly linked to the type of individual consumers results show that tariffs composed of nonlinear options do not necessarily outperform simpler pricing strategies in terms of expected profits furthermore evidence suggests that a menu of optional two part tariffs dominates any other pricing strategy from an expected welfare perspective

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

gathering information before signing a contract after being offered a contract an agent has the possibility to observe the state of nature this enables him to refuse the contract in unfavorable states but burdens him with an observation cost the authors show that the principal offers a contract in which the agent has no incentive to observe the state of nature and they explore its terms later they show that the principal finds it profitable to organize competition between several agents even though he has monopoly power and can push a single agent down to his reservation utility copyright 1992 by american economic association

the value of buyer s ignorance in monopoly abstract a non linear pricing monopolist always prefers to sell to buyers with no private information about their tastes for the product if the marginal production cost is smaller than the marginal utility of consumption for all buyers

information management in incentive problems we extend the standard procurement model to examine how an agent is optimally induced to acquire valuable planning information before he choose an unobservable level of cost reducing effort concer

supplying information to facilitate price discrimination the authors examine the incentive of a seller to allow potential buyers to acquire private information about their tastes for the seller s product improved private information for buyers enables the seller to segment the market and charge higher prices to high value buyers however improved information can also provide rents to buyers in a variety of settings this tradeoff is optimally resolved at one of two extremes either buyers are supplied with the best available knowledge of their tastes or no information is supplied by the seller copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

design and marketing of financial products marketing costs are introduced into the security design environment outlined in allen and gale 1988 it is shown that splitting the firm s cash flow between products enhances their investor appeal and reduces marketing costs we also explain how the extremal product design in allen and gale is thereby avoided and how in simple cases debt equity or warrants can be optimal furthermore we illustrate in general terms how the optimal solution employs portfolios of option type products and we give an example of two optimal products that share profits in seven of eight states article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

segmenting the market the monopolist s optimal product mix abstract in an industry producing products which differ in quality to consumers who vary in their willingness to pay it may happen that only a bounded number of producers can coexist at noncooperative price equilibrium in other words the industry is a natural oligopoly we are here concerned with a special example in which only one producer can survive our focus of interest in the present paper is to examine this monopolist s optimal product range depending on the dispersion of consumers willingness to pay income either i the monopolist will find it optimal to segment the market completely offering the maximum number of products permitted or ii the monopolist will offer only a single product the precise nature of this switch of policy which occurs at a certain critical distribution of consumer incomes willingness to pay is explored fully

waterfall versus sprinkler product launch strategy influencing the herd a seller decides the price and sequence in which a product of unknown value is introduced to consumers consumers inspect the product before consumption and observe past prices and sales consumption at a high price is informative for later consumers as it indicates that the product is likely to be of high value i show that on an average prices decrease over time however expected revenue on an average rises over time for a high enough discount factor i find that for extreme beliefs the firm introduces the product to all consumers but for intermediate values the product is introduced only to one consumer

information incentives and organizational mode we examine the choice of organizational mode for a two stage production process wherein cost realizations at each stage are observed only by the producing party when these costs are positively correlated the principal prefers to undertake second stage production herself when the correlation is negative and sufficiently small she will prefer that the agent who performs the first stage also perform the second for large negative correlation either mode might be preferred when costs are uncorrelated the principal is indifferent between modes

preventives versus treatments preventives are sold ex ante before disease status is realized while treatments are sold ex post even if the mean of the ex ante distribution of consumer values is the same as that ex post the shape of the distributions may differ generating a difference between the surplus each product can extract if for example consumers differ only in ex ante disease risk then a monopolist would have more difficulty extracting surplus with a preventive than with a treatment because treatment consumers having contracted the disease no longer differ in disease risk we show that the ratio of preventive to treatment producer surplus can be arbitrarily small in particular when the distribution of consumer values has a zipf shape and the disease is rare the firm s bias toward treatments can be reversed for example if the source of private information is disease severity learned ex post the difference between the producer surplus earned from the products can result in distorted rd the deadweight loss from this distortion can be as large as the entire producer surplus difference calibrations for hiv and heart attacks based on risk factors in the u s population suggest that the distribution of disease risk is sufficiently zipf similar to generate substantial differences between producer surplus from preventives and treatments empirically we find that proxies for the zipf similarity of the disease risk distribution are associated a significantly lower likelihood of vaccine development but not drug development jel codes o31 l11 i18 d42

the social value of hidden information in adverse selection economies abstract when agents possess imperfect hidden knowledge at the time contracts are negotiated the social value of agents having access to additional hidden knowledge before contracts are implemented is positive to the extent that incentive constrained agents are sorted more finely but is negative to the extent that incentive constraining agents impose more stringent signalling requirements on others hence the intuition developed by hirshleifer 1971 marshall 1974 and milgrom and stokey 1982 that privately acquired information has neither positive nor negative social value when agents possess no prior hidden knowledge does not apply when agents possess imperfect hidden knowledge during contractual negotiations

reverse price discrimination with bayesian buyers this paper studies price discrimination under the situation in which buyers prior valuations are initially observable by a seller but buyers receive further information about a product or service which remains private thereafter the buyers interpret new information via bayes rule we show that in this environment prices are not monotone in buyers prior valuations interestingly this results in the possibility that a seller intentionally offers a higher price to a low valuation buyer rather than a high valuation buyer reverse price discrimination we derive this result in both monopoly and duopoly markets

information control in the principal agent problem this paper compares the principal s payoff in agency models under different assumptions about the agent s access to information the agent may make decisions before is uninformed or after is informed learning the state of nature when there are two possible outcomes the principal typically prefers informed to uninformed agents whether the agent receives the information before or after contracting this result is false when there are more than two outcomes conditions under which a principal prefers one agent to another when the agents differ only in their disutility of effort are also given copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

too much information information provision and search costs a seller often needs to determine the amount of product information to provide to consumers we model costly consumer information search in the presence of limited information we derive the consumer s optimal stopping rule for the search process we find that in general there is an intermediate amount of information that maximizes the likelihood of purchase if too much information is provided some of it is not as useful for the purchase decision the average informativeness per search occasion is too low and consumers end up choosing not to purchase the product if too little information is provided consumers may end up not having sufficient information to decide to purchase the product the optimal amount of information increases with the consumer s ex ante valuation of the product because with greater ex ante valuation by the consumer the firm wants to offer sufficient information for the consumer to be less likely to run out of information to check one can also show that there is an intermedi

persuasive puffery sellers often make claims about product strengths without providing evidence even though such claims are mere puffery we show that they can be credible because talking up any one strength comes at the implicit trade off of not talking up another potential strength puffery pulls in some buyers who value product attributes that are talked up or emphasized while pushing away other buyers who infer that the attributes they value are relative weaknesses when the initial probability of making a sale is low there are more potential buyers to pull in than to push away so puffery is persuasive overall this persuasiveness requires that buyers have some privacy about their preferences so that the seller does not completely pander to them more generally the results show how comparative cheap talk by an expert to a decision maker can be credible and persuasive in standard discrete choice models used throughout marketing economics and other disciplines

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

learning from trades i study stationary cut off strategy equilibria of a dynamic market model where buyers sample sellers sequentially from an unknown distribution buyers learn about the distribution from the sampled sellers and a trade signal the trade signal reveals whether a randomly chosen seller traded yesterday observing a trade as opposed to no trade is good news about the distribution buyers who observe a trade use a higher cut off than buyers who observe no trade despite buyers learning from sampled sellers that puts a countervailing pressure on the cut offs the trade signal may reduce market efficiency while an appropriate exogenous signal increases efficiency