strengthening the influence of advertised reference prices through information priming the use of advertised reference price promotions such as regularly 119 99 sale price 39 99 is ubiquitous in the marketplace thirty years of research supports the conclusion that advertised reference prices e g 119 99 exert an influence on consumers responses to offer prices e g 39 99 via their assimilative influence on consumers internal reference prices the present research provides an enriched account of this assimilation process specifically three studies show that increasing the overlap in information made accessible by the advertised reference price and information made accessible by the offer price increases the influence of the information primed by the advertised reference price on the construction of the internal reference price consequently the offer price is considered more attractive the identification of this process provides insight into additional variables that moderate the influence of advertised reference prices on downstream deal evaluations implications for theory practice and public policy are discussed

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

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

competition and the number of firms in a market are duopolies more competitive than atomistic markets this paper uses a variant of the standard search model to examine market equilibrium and the consequences for market equilibrium of an increase in the number of firms if marginal search costs increase with the number of searches then the demand curve facing any firm will be kinked with the elasticity of demand with respect to price decreases being less than with respect to price increases prices may not change in response to changes in marginal costs as the number of firms increases the maximum price that is consistent with equilibrium increases to the monopoly price but the minimum price decreases on the other hand if marginal search costs decrease with the number of searches equilibrium if it exists is characterized by a

the consumption function and intertemporal spillover effects the fact that consumers save more or consume less as long as they expect pessimistically that labor supply constraint will be binding in the future is speculated all the time however no theoretical works are developed satisfactorily without taking the intertemporal spillover effects into account in this paper an explicit solution to the consumer s intertemporal optimization problem is derived by taking account of the intertemporal spillover effects in addition it is shown that the extrinsic uncertainty of labor supply rationing induces people to save more money thus this model is an extension of clower s and barro grossman s models

cost of being poor retail price and consumer price search differences across inner city and suburban neighborhoods this research undertakes a carefully designed and detailed empirical study to gain insights into 1 the extent of price differentials between wealthy and poor neighborhoods 2 what induces such differentials especially the nature and intensity of competitive environments including mass merchandisers like wal mart and 3 their relative impacts it finds a price differential of about 10 15 for everyday items even after controlling for store size and competition prices are found to be 2 5 higher in poor areas it also finds that it is not the poverty level per se but access to cars that acts as a key determinant of consumers price search patterns

integration of discrepant sales forecasts the influence of plausibility inferences based on an evoked range abstract the authors hypothesize that when managers integrate two projections to form a sales estimate they evoke and use a sales range to judge inappropriately the plausibility of each projection this judged plausibility as well as the margin of error based on the market research company s typical accuracy is used to assign weights to each projection five experiments find strong evidence for this process and demonstrate a resulting bias

strategic price complexity in retail financial markets abstract there is mounting empirical evidence to suggest that the law of one price is violated in retail financial markets there is significant price dispersion even when products are homogeneous also despite the large number of firms in the market prices remain above marginal cost and may even rise as more firms enter in a non cooperative oligopoly pricing model i show that these anomalies arise when firms add complexity to their price structures complexity increases the market power of the firms because it prevents some consumers from becoming knowledgeable about prices in the market in the model as competition increases firms tend to add more complexity to their prices as a best response rather than make their disclosures more transparent because this may substantially decrease consumer surplus in these markets such practices have important welfare implications

storable good monopoly the role of commitment we study dynamic monopoly pricing of storable goods in an environment where demand changes over time the literature on durables has focused on incentives to delay purchases our analysis focuses on a different intertemporal demand incentive for consumers the key force on the consumer side is advance purchases or stockpiling this stockpiling motive can be present in the case of standard durables as well in environments unmodeled in the prior literature we show that if the monopolist cannot commit then prices are higher in all periods and social welfare is lower than in the case in which the monopolist can commit this is in contrast with the durable goods analysis in the literature on the coase conjecture

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

contextual influences on perceptions of merchant supplied reference prices two contextual variables that have theoretical roots in information processing attribution and social judgment theories were manipulated along with three levels of merchant supplied reference price in a 2 2 3 analysis of variance design results support the hypothesized effects of consistency and distinctiveness as contextual variables that influence internal price standards and purchase evaluations the three price levels resulted in a curvilinear pattern of results for the purchase evaluation and source credibility dependent variables as hypothesized however contrary to assimilation contrast theory the impact of the merchant supplied reference price on estimates of normal and fair prices was monotonic

stimulus context and the formation of consumer ideals when a choice set consists of a distribution of alternatives with correlated benefits and costs consumers often exhibit single peaked preferences they prefer an alternative having moderate costs and benefits theories disagree about how adding additional lower benefit lower cost or higher benefit higher cost alternatives to this choice set will affect relative preferences for the initial set of alternatives prototype theory predicts that adding alternatives should produce assimilation whereas multiattribute range frequency theory predicts that it creates contrast we reconcile these two theories by assuming that single peaked preferences reflect a composition of underlying benefit and cost valuations moreover we claim that the correlational structure of the benefit and cost dimensions in the contextual stimuli determines whether these stimuli will exert an assimilation or contrast effect we show that when benefits and costs are correlated uncorrelated adding alternatives that extend the range of offerings produces assimilation contrast for preference judgments we propose a cost benefit trade off model that incorporates elements of single peaked preference theory and range frequency theory to explain the complex fashion in which contextual stimuli affect consumer ideals

consumer normal price estimation market versus personal standards in reference price models internal reference price is typically estimated from actual market prices given the generally poor price knowledge consumers have exhibited in prior research the question is whether it is reasonable to use actual market prices to estimate consumers internal reference price standards the initial answer provided in this research surprisingly is yes although internal reference prices are measurable and do affect consumer price perception the gains in measuring and using those standards in predicting brand choice for frequently purchased products may not be worth the costs reasons why the surrogate price measure may work and implications for the measurement of internal reference price standards are considered

learning from mixed feedback anticipation of the future reduces appreciation of the present consumers can evaluate their past choices by comparing their obtained outcome to other possible outcomes we demonstrate that how people process this comparative feedback depends on whether they use it to prepare for future decisions in particular the anticipation of similar future choices increases consumers sensitivity to comparisons with better alternatives and reduces their liking of the chosen option our findings indicate that forward looking consumers selectively test the hypothesis that their current choice can be improved on and as a result disproportionately attend to the unfavorable comparisons and fail to appreciate the value of their current choice

how do banks respond to shocks a dynamic model of deposit taking institutions abstract this paper proposes a dynamic model of the optimal choices of a bank that benefits from market power and takes into account the impact of the deposit generation process interbank lending borrowing emerges as a buffer that assists the bank in smoothing intertemporal adjustments in interdependent loan and deposit choices the bank smooths the impact of interest rates shocks on its customers to minimize the adjustments over time of the stocks of deposits and loans it does not however provide insurance against negative shocks of real origin that increase its expected default costs the predictions of the model help to shed light on the available empirical evidence and to analyze some recent developments of the banking industry

price dispersion over the business cycle evidence from the airline industry this study provides empirical evidence documenting how price dispersion moves with the business cycle in the airline industry performing a fixed effects panel analysis on seventeen years of data covering two business cycles we find that price dispersion is highly pro cyclical this effect is especially pronounced for legacy carriers relative to low cost carriers we show that our empirical result is consistent with firms implementing second degree price discrimination tactics

search unemployment in an overlapping generations setting this paper constructs an overlapping generations model in which the steady state equilibrium is characterized by the existence of search unemployment this dynamic general equilibrium model captures the possible existence of search unemployment in the long run despite the absence of exogenous shocks furthermore it allows for the wage offers distribution to be determined endogenously the effect of partial revelation of information on the existence of search unemployment in the long run is examined it is shown that search unemployment may be eliminated in the long run despite the persistence of the state of imperfect information this paper develops an overlapping generations model in which the steady state equilibrium is characterized by search unemployment 2 unemployment is created via a rational rejection of available wage offers in favor of further search for potentially more attractive offers the proposed dynamic general equilibrium model allows for the existence of long run search unemployment despite the absence of exogenous shocks and permits the presence of an endogenously determined nondegenerate wage offer distribution 3 the paper analyzes the trade off between revelation of information and the level of search unemployment in the long run in the absence of external disturbances the level of search unemployment would be expected to decrease as information becomes available in particular if information is fully revealed search unemployment is naturally eliminated exploring the likelihood of the existence of long run search unemployment in a deterministic world this study provides an example of partial revelation of information which eliminates search unemployment in the long run despite the persistence of the state of imperfect information 4 the proposed model presents a discrete infinite time horizon world where economic activity is conducted under imperfect information in every period a single homogeneous good is produced using two factors capital and labor in the production process the aggregate endowment of labor is exogenously given in

coupon value a signal for price in this article the author proposes that consumers use the value of a coupon to estimate price study 1 shows that the higher the percentage discount the higher the perceived price study 2 demon

demand uncertainty and sales a study of fashion and markdown pricing the theory of clearance sales is expanded and applied to explain why markups markdowns and the frequency of sales of merchandise sold by department stores have increased dramatically in recent years and why they differ across merchandise groups tha major theme of the paper is that the growing role of fashion and product variety is an important reason for these increases and for the differences between merchandise groups the growing importance of fashion is illustrated by documenting the declining use of whites and the increasing use of colors and prints estimates of the effects of imports and technological and demographic changes on markups and markdowns are presented copyright 1988 by american economic association

consumer evaluations of multiple versus single price change this article examines how consumer evaluations of multiple price changes differ from the evaluation of a single price change of an equal amount consistent with r thaler s theory about segregation versus integration of gains and losses we find that multiple price decreases are evaluated more favorably than a single price decrease and multiple price increases are evaluated more unfavorably than a single price increase however these effects are moderated by consumer price uncertainty and relative magnitude of the prices being evaluated because price uncertain consumers consider higher ranges of prices acceptable they are less unfavorable to multiple price increases and more favorable to multiple price decreases than certain consumers moreover when the magnitude of one price is very small relative to other prices consumers preference for multiple price decreases relative to a single price decrease is reduced however this effect is not found when there are price increases

the formation of expected future price a reference price for forward looking consumers among numerous possible reference prices expected future price is important a consumer s expectation of the future price of a brand plays a crucial role in the decision to buy now or later failure to characterize reference price as a forward looking concept a common practice in the reference pricing literature violates premises of neoclassical economic theory and leads to questionable modeling applications explicit measures of future price expectations were obtained and used to test various models of expectations formation providing insight into the effect of expected future price on consumers responses to price promotions and brand choice decisions

measuring the effects of search costs on equilibrium prices and profits abstract this paper assesses the effects of search costs on equilibrium prices and profits using an estimated model of demand and costs in a laundry detergent market i find that some firms profits initially rise and then fall with search costs overall the magnitude and direction of the search costs effects on prices and profits are heterogeneous this is because search costs create conflicting incentives for a firm to reduce prices to attract the attention of searching consumers yet also raise prices to harvest profit from consumers who are unaware of competing products these effects can vary with the relationship between the firms actual prices and the consumers pre search beliefs about prices

intertemporal pricing and consumer stockpiling we study a dynamic pricing problem for a class of products with stable consumption patterns e g household items staple foods consumers may stock up the product at current prices for future consumption but they incur inventory holding costs we model this situation as a dynamic game over an infinite time horizon in each period the seller sets a price and each consumer chooses how many units to buy we develop a solution methodology based on rational expectations by endowing each player with beliefs we decouple the dynamic game into individual dynamic programs for each player we solve for the rational expectations equilibrium where all players make optimal dynamic decisions given correct beliefs about others behavior in equilibrium the seller may either charge a constant fixed price or offer periodic price promotions at predictable time intervals we show that promotions are useful when frequent shoppers are willing to pay more for the product than are occasional shoppers we also develop several model extensions to study the impact of consumer stockpiling on the seller s inventory production and rationing strategies

sales and consumer lock in this paper examines the dynamically consistent price path for a new product monopolist unable to commit to future prices when consumers must incur setup costs of adopting the product the authors find that setup costs give rise to a price path with introductory sales along the path periods of high prices during which only locked in or captive customers buy the product alternate with sales low price periods during which new customers adopt the product as the stock of captive customers increases over time sales become less frequent after the customer base reaches some critical level no further sales take place they show that the monopolist may hold a sleeping patient in which initial sales of the product are postponed to avoid locking into a high pricing strategy that ignores new customers copyright 1989 by the london school of economics and political science

rethinking macroeconomics what failed and how to repair it the standard macroeconomic models have failed by all the most important tests of scientific theory they did not predict that the financial crisis would happen and when it did they understated its effects monetary authorities allowed bubbles to grow and focused on keeping inflation low partly because the standard models suggested that low inflation was necessary and almost sufficient for efficiency and growth after the crisis broke policymakers relying on the models floundered notwithstanding the diversity of macroeconomics the sum of these failures points to the need for a fundamental re examination of the models and a reassertion of the lessons of modern general equilibrium theory that were seemingly forgotten in the years leading up to the crisis this paper first describes the failures of the standard models in broad terms and then develops the economics of deep downturns and shows that such downturns are endogenous further the paper argues that there have been systemic changes to the structure of the economy that made the economy more vulnerable to crisis contrary to what the standard models argued finally the paper contrasts the policy implications of our framework with those of the standard models

sales and monetary policy this paper analyses the efiect of monetary policy in a model where sales occur in equilibrium some consumers are loyal to a particular brand of a good others are bargain hunters as a result producers flnd it optimal to sell their goods at a normal price through some retailers and at a sale price through others the margin of adjusting the amount sold on sale is potentially very important if producers can adjust the fraction sold on sale with sticky prices and wages money is approximately neutral if we ignore the reasons behind sales but that result changes dramatically when we consider that producers optimally choose to sell some of their goods on sale owing to strategic substitutabilities in the sales decision money has strong procyclical efiects

peak load pricing in competitive markets the paper offers an explanation for temporal price dispersion temporal price dispersion in the model is due neither to exogenous shifts in demand nor to price discrimination motives as shown in other papers in this paper the explanation relies on peak load pricing in the model presented consumers decide to purchase a given product in a certain time period according to the satisfaction they derive from the product at that time and to the prices and number of customers they expect at each firm and period the demand in each period is controlled by sellers through prices by offering different prices in different periods sellers motivate consumers to spread themselves across periods in a profitable way therefore the demand and price in each time period is determined endogeneously

dynamics of a retail market with search processes in spite of the existence of many stimulating publications the study of market dynamics still lacks rigour and coherence the paper develops a family of models in which i buyers and sellers have initially no information on the conditions prevailing on the market but acquire progressively this information out of their own observations ii buyers look for retailers in order to buy at the lowest possible price iii every seller chooses at the beginning of a period the quantity he will put on sale and at which price the interest of the paper is to give precise conditions under which the market converges towards a stable state and to show that depending on some assumptions these stable states exhibit very different properties since they may be multiple or unique and characterized by a price dispersion or by a single price this price being the monopoly price the perfect competition price or a price in between

price dispersion in an automobile insurance market from automobile insurance data for alberta over the period 1974 81 we find thatpremiums are highly correlated across driver classes in a given year but that premiums for a given driver class are not correlated over a period of more than 5 years firms relative market shares among drivers over age 25 and married males under 25 are inversely related to their deviations from the mean premiums in these driver classes the variance of real premiums decreases with the numberof firms in the market and increases with the real loss cost per car insured and the number of cars insured from these results we conclude that the price dispersion in automobile insurance in alberta is based on costly consumer search

a theory of clearance sales clearance sales are widely used by firms as an intertemporal selling policy in particular in markets where firms face demand uncertainty and need to choose capacity in advance clearance sales consist in charging a high price initially but then lowering the price in the sales period high valuation consumers purchase the good at the high initial price so as to avoid rationing at the low price while low valuation consumers wait for the price to drop we develop a simple model of intertemporal monopoly pricing under demand uncertainty and show that clearance sales may be the optimal intertemporal selling policy

the contributions of the economics of information to twentieth century economics in the e eld of economics perhaps the most important break with the past one that leaves open huge areas for future work lies in the economics of information it is now recognized that information is imperfect obtaining information can be costly there are important asymmetries of information and the extent of information asymmetries is affected by actions of e rms and individuals this recognition deeply affects the understanding of wisdom inherited from the past such as the fundamental welfare theorem and some of the basic characterization of a market economy and provides explanations of economic and social phenomena that otherwise would be hard to understand i introduction the century coming to a close has seen vast changes in economics in both ideas and methodology upon ree ection it is remarkable however how many of the seeds of advances in this century were sowed in the previous i would argue that perhaps the most important break with the past one that leaves open huge areas for future work lies in the economics of information the recognition that information is imperfect that obtaining information can be costly that there are important asymmetries of information and that the extent of information asymmetries is affected by actions of e rms and individuals has had profound implications for the wisdom inherited from the past and has provided explanations of economic and social phenomena that otherwise would be hard to understand in this essay i wish to argue that information economics has had directly and indirectly a profound effect on how we think about economics today eighteenth and nineteenth century antecedents to be sure marshall and other nineteenth century economists talked about problems of imperfect information but with one exception discussions of information were obiter dicta caveats at the end of the analysis they were never at the center

reexamining latitude of price acceptability and price thresholds predicting basic consumer reaction to price behavioral pricing research has shown consumers to have lower and upper price thresholds represented by an inverted u shaped price acceptability function we propose another basic reaction to price namely lower price is better represented by a decreasing acceptability function without a lower price threshold a set of variables is hypothesized to predict consumer reaction to price price consciousness price quality relation and product involvement are shown to influence the shape of the price acceptability function a procedure and model to scale price acceptability and obtain acceptability functions are introduced and applied the cumulative results suggest reliable acceptability scales along with evidence for convergent and construct validity

coupons and everyday low prices price competition with multiple instruments abstract a simple two stage game is examined where firms compete in prices by chosen pricing instruments those considered include a simple uniform pricing technology and a promotional pricing technology like an advertised discount coupon consumers are separated by types informed and uninformed therefore a motive for price competition exists for the purpose of separating the two types of consumers it is shown that the sustainability of an asymmetric choice of pricing instrument between the two firms will prevail in a duopoly market in equilibrium consequently the coexistence of two different pricing schemes is viable even when firms are otherwise symmetric jel classification l1 l13 coupons et bas prix tous les jours concurrence par les prix a l aide de multiples instruments ce memoire examine un simple jeu a deux etapes dans lequel des entreprises se concurrencent par les prix a l aide d un instrument particulier les instruments consideres incluent une simple technologie de prix uniforme et une technologie de prix de promotion sous la forme de l annonce d un coupon d escompte on divise les consommateurs en deux groupes ceux qui sont informes et ceux qui ne le sont pas un des motifs pour ce genre de concurrence est de separer les deux types de consommateurs on montre qu on peut soutenir un choix asymetrique d instrument de tarification entre les deux entreprises dans un marche de duopole en equilibre en consequence la coexistence de deux strategies de prix differentes est viable quand les entreprises sont symetriques sous tous les autres rapports

an empirical analysis of latitude of price acceptance in consumer package goods scanner panel data analyses for sweetened and unsweetened drink categories with four brands in each support the presence of a region of price insensitivity around a reference price the analyses also suggest that consumers with higher average reference price have a wider latitude of price acceptance consumers with a higher frequency of purchase i e shorter average interpurchase time interval are found to have a narrower latitude of price acceptance because they are more aware of the range of price distributions finally consumers with a higher average brand loyalty have a wider latitude of price acceptance demonstrating greater tolerance of price fluctuations

the effect of discount frequency and depth on consumer price judgments the intensity of price discounting by retailers and manufacturers raises important questions about consumer price judgments in the extreme discounting can take the form of frequent but shallow discounts or deep but infrequent discounts the research reported here explores the effects of these strategies on consumer estimation of price levels for competing stores and brands in an initial experiment in which subjects made brand choices over time a depth effect was observed that contrasted with the frequency effect found in previous research subsequent experiments identified the conditions under which depth vs frequency characteristics of price data dominate consumers price estimation judgments frequency information is more influential when sets of interstore or interbrand comparative prices exhibit complex and overlapping distributions hence creating processing difficulty in contrast a depth bias occurs when prices have a simpler dichotomous distribution these results place pragmatically meaningful limitations on the influence of frequency information and illustrate the importance of context in determining consumer price judgments in a promotional environment

decentralized dispersed exchange without an auctioneer abstract we stimulate exchange among geographically dispersed agents who face real costs of communication along with bounds to rationality and calculation exchange is entirely decentralized it is initiated by individual agents who broadcast costly messages indicating their interest in trade it is accomplished by bilateral bargaining between pairs of agents agents use the information gained from previous attempts at local trade to calculate their search strategies for succeeding rounds this decentralized mechanism can achieve a substantial improvement in the allocation of resources and the average welfare of agents in comparison with a randomized initial endowment but in comparison with walrasian equilibrium agents who begin with endowments of equal value end up with substantially unequal wealth although the initial inequality of utility is reduced

price dispersion in the grocery market this paper provides an exploratory study of price dispersion in the grocery market and checks for the consistency of the evidence on this price dispersion with the existing theories of price dispersion due to costly consumer search competition and consumer heterogeneity in the context of the grocery market three dimensions of price dispersion are studied price dispersion for a certain brand across stores price dispersion within a category in a store across brands and price dispersion over time for a certain brand the results show that the standardized price dispersion is positively correlated with consumer search costs competition and consumer heterogeneity

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

a simple model of price dispersion abstract this article considers a simple stock flow matching model with fully informed market participants unlike the standard matching literature prices are assumed to be set ex ante when sellers pre commit themselves to sell their products at an advertised price the unique equilibrium is characterized by price dispersion due to the idiosyncratic match payoffs in a marketplace with full information this provides new insights into the price dispersion literature which instead commonly assumes that buyers are not perfectly informed and engage in a costly search

general equilibrium wage and price distributions this paper extends models of search market equilibrium to incorporate general equilibrium considerations the model we treat is one with a single product market and a single labor market an equilibrium distribution of prices and wages is the result of optimal price and wage setting behavior by firms in conjunction with optimal search by individuals we prove the existence of a degenerate equilibrium and of a two point dispersion equilibrium

the effect of semantic cues on consumer perceptions of reference price ads this article examines the differential effects of two types of semantic cues 1 cues connoting that an advertised price discount exhibits low consistency over time and 2 cues connoting that an advertised discount is highly distinctive vis a vis competitors results suggest that for manipulations of external reference prices with offering price held constant semantic cues that connote high distinctiveness are more effective in influencing consumers price related evaluations when the external reference price is otherwise implausibly high than are semantic cues that connote low consistency for manipulations of offering prices with external reference price held constant however semantic cues connoting high distinctiveness exert more relative influence on price related cognitions when offering prices are high

word of mouth model of sales in this paper i develop a model of the dynamic pricing of a monopolist while information about its product is diffusing through word of mouth individuals who purchase the product engage in word of mouth with their friends the main result establishes that prices optimally fluctuate over time a monopolist sets prices over time to balance extracting profits in the short term with increasing information diffusion through word of mouth and thereby the population of potential consumers in the future the key state variable for determining this tradeoff is the distribution of valuations of the individuals on the edge of the diffusion this distribution of valuations is determined by the history of prices and changes over time our analysis reveals that prices must move up and down infinitely often

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

reference prices and deception in newspaper advertising consumers were exposed to newspaper advertisements for four products and one of five different price representations regular price alone sale price alone regular price with manufacturer s suggested list price mslp sale price with regular price or sale price with mslp perceptions of the ordinary prices of the products were not affected by the presence or type of reference price but the subjects did have lower estimates of ordinary prices in the sale context the accuracy of consumer perceptions of ordinary prices was not related to the recency of subject shopping experience for the products as measured in the study

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

collusion with intertemporal price dispersion we develop a theory of optimal collusive intertemporal price dispersion dispersion clouds consumer price awareness encouraging firms to coordinate on dispersed prices our theory generates a collusive rationale for price cycles and sales patient firms can support optimal collusion at the monopoly price for less patient firms monopoly prices must be punctuated with fleeting sales the most robust structure involves price cycles that resemble edgeworth cycles low consumer attentiveness enhances the effectiveness of price dispersion by reducing the payoff to deviations involving price reductions however for sufficiently low attentiveness price rises are also a concern

intertemporal substitution and storable products storable products allow consumers to time their purchases to exploit price fluctuations it has been documented that during promotions consumers buy more the additional purchases are potentially intended not only for current use but to be stockpiled for future consumption this paper discusses the predictions of a consumer inventory model and reviews the available evidence we then discuss the implications for demand estimation and present estimates of jel lo l4 dl d4 the economic magnitude of the dynamic effect of storability jel lo l4 dl d4 jel lo l4 dl d4

the impact of collusion on price behavior empirical results from two recent cases abstract we use extended arch and garch models to examine the differences in the behavior of the first two moments of the price distribution during collusive and competitive phases of two recently discovered conspiracies citric acid and lysine according to our results the conspirators managed to raise prices by 9 and 25 cents per pound in the short run relative to non collusive periods also the variance of prices during the lysine conspiracy was lower and the variance of prices during the citric acid conspiracy was higher than during more competitive periods the proposed methodology may be used for antitrust screening and prosecution purposes

the timing of sales this paper presents a model of intertemporal price discrimination a fixed number of sellers produce a homogeneous good consumers with different preferences enter the market in each period and leave when they make a purchase the sellers typically vary their prices over time charging a high price in most periods but occasionally cutting the price to sell to a large group of customers with a low reservation price in some equilibria all stores lower their price at the same time and to the same level

an empirical analysis of internal and external reference prices using scanner data single source yogurt data are used to examine whether both internal and external reference prices affect purchase decisions internal reference prices are memory resident prices based on actual fair or other price concepts external reference prices are observed stimuli such as regular prices that stores may display along with a sale price for comparability discrete choice models with variables representing the two types of reference prices are estimated and both types of variables are found to have significant effects on purchase probabilities this suggests that consumers may use multiple reference points in evaluating price in purchase decisions in addition a model using an indicator of a sale price discount explains purchase probabilities as well as one that models the actual discount which suggests that consumers may be reacting to the indication of savings rather than to the amount of the discount

loss leader pricing and rain check policy loss leader pricing and rain check policies are common in retail markets yet research on these topics is surprisingly scarce in this paper we study the effects of leader pricing and rain check policy on stores profits and market outcomes suppose stores can accurately predict demand might they still run out of stock we investigate whether such a result is plausible when stores can offer rain checks the paper also helps resolve an issue that has recently attracted much attention should the ftc repeal its rule prohibiting stock outs of advertised sale items

wine retail price dispersion in the united states searching for expensive wines similar to other markets in which deviations from jevons law of one price is the norm rather than the exception the retail wine market in the united states is characterized by large price dispersions drawing on a large sample of retail prices from wine searcher com we find an average per wine coefficient of variation of 23 percent some of this is due to differential market conditions especially state regulations our evidence suggests that dispersion also depends positively on price levels after controlling for consumer market and state heterogeneity

a laboratory study of duopoly price competition with patient buyers i introduction two extreme forms of pricing behavior sometimes called the bertrand paradox and the diamond paradox emerge from a single distinguishing assumption bertrand 1883 assumes that a buyer knows ex ante the prices of all sellers and notes that with homogeneous goods a single competitive price emerges even among a small number of sellers because at any slightly higher price at least one seller can increase his profit by engaging in undercutting in diamond s 1971 model on the other hand a buyer first chooses a seller and then receives the price quote ex post even with infinitesimal search cost in equilibrium a buyer searches only one seller and all sellers charge the monopoly price the only difference between the two formulations is whether sellers price ex ante or ex post 1 intuitively however there is no strong rationale for preferring either assumption for when price information is acquired this is especially so since the law of one price is known to fail and persistent price dispersion is widely observed even in essentially homogenous goods markets e g baye morgan and scholten 2004 brynjolfsson and smith 2000 sorensen 2000 most of the theoretical literature that models price dispersion has employed costly buyer search e g salop and stiglitz 1977 1982 stahl 1989 1996 stigler 1961 or costly seller advertising butters 1977 robert and stahl 1993 to generate dispersed prices 2 gale 1988 on the other hand models price dispersion in a rather stark form using only two sellers and one buyer this can provide a modeling foundation for some types of multilateral bargaining such as in concentrated intermediate goods markets sellers are uncertain whether the buyer is receiving price offers from both ex ante pricing or one ex post pricing of them at any given time if the buyer s sample contains both offers with a positive but not certain probability gamma a unique dispersed price equilibrium exists that shifts systematically with gamma extending this static model to multiround pricing with time discounting gale examines the impact of greater buyer patience modeled as a higher discount factor on the equilibrium price level and price dispersion this is intended to approximate market conditions with many buyers where trade continues over time as can occur also in durable goods settings as buyers become more patient sellers must compete not only with the other seller but also with their own future price offers consequently the equilibrium price distribution becomes concentrated at lower prices this article presents the first laboratory experiment that studies the interaction of buyer patience and search with multiround pricing by competing sellers specifically we focus on prices posted by competing sellers in a noisy search environment where buyers can wait for more price offers this enables us to explore how the timing of buyer s purchase decisions influences sellers pricing strategy which is not captured by the stationary equilibrium of the theoretical model the experiment includes both a static treatment where agents have only one opportunity to trade each period and a dynamic treatment where trading opportunities may continue for future rounds of price offers with a positive and known probability 3 one interpretation of these single round trading and multiple round trading treatments is that the former refers to a disposable goods and the latter to a durable goods environment the model s predictions that prices decrease if the buyer is more patient or is more likely to receive both price offers are intuitive but the available evidence from previous durable goods and bargaining experiments provides only weak support for theory furthermore implications of multiple price offers from competing sellers have never been studied previously in experiments with durable goods and multiple round trading which have focused on single seller environments

chapter 11 pricing models in marketing publisher summary this chapter brings together a set of diverse efforts in the recent literature on the modeling of price decisions and related questions in marketing there has been an impressive growth in the array of topics investigated in the literature various trends in the development of pricing models are evident from the foregoing review first one trend has been to develop theoretical models to describe observed pricing strategies in the marketplace and to derive conditions under which certain strategies are optimal this trend is clearly evident when one considers the area of dynamic pricing models another trend is an attempt to develop pricing models in which certain aspects of consumer behavior e g asymmetric response to price increases versus price decreases are incorporated this development is quite recent and does offer a large potential a third dominant direction is the use of game theoretic models for developing equilibrium pricing strategies

consumer stockpiling and competitive promotional strategies an examination of brand prices in several categories reveals that the distribution of prices is multimodal with firms offering shallow and deep discounts another interesting feature of these distributions is that they may have holes in the interior of the support these pricing distributions do not occur in extant theoretical models of price promotions we develop a dynamic model of competition in which some price sensitive consumers stockpile during periods of deep discounts a game theoretic analysis of our model generates a multimodal pricing distribution with a hole in the interior of the support consumer stockpiling in our model also gives rise to negative serial correlation in prices this is consistent with our empirical observation of the pricing distribution of several brands across multiple categories in the iri marketing data set we generate several interesting insights into firms optimal promotional strategies and their interplay with the clientele mix market structure and other market factors we find that in equilibrium stockpiling by price sensitive consumers neither harms nor benefits firms when they adopt equilibrium strategies interestingly when price sensitive consumers stockpile even increased consumption as a result of stockpiling does not lead to higher profits for firms

sales and consumer inventory temporary price reductions sales are common for many goods and naturally result in a large increase in the quantity sold we explore whether the data support the hypothesis that these increases are at least partly due to demand anticipation at low prices consumers store for future consumption this effect if present has broad economic implications we test the predictions of an inventory model using scanner data with two years of household purchases the results are consistent with an inventory model and suggest that static demand estimates may overestimate price sensitivity

effects of seller supplied prices on buyers product evaluations reference prices in an internet auction context a field experiment investigated the impact of two external reference points under the seller s control on the final price of an auction when an item s seller specified a high external reference price a reserve price the final bid was greater than when the seller specified a low external reference price a minimum bid when the seller provided both high and low reference prices the reserve influenced the final bid more the low reference price led to a lower outcome compared to when the seller did not communicate any reference price the number of bidders influenced outcomes in the absence of seller supplied reference prices

anchoring effects on consumers willingness to pay and willingness to accept we examine the susceptibility of consumers willingness to pay wtp and willingness to accept wta judgments to influence by arbitrary anchors the results of four studies suggest that although circumstantial differences between buying and selling decisions can lead to systematic differences in susceptibility to anchoring effects the principles governing the impact of anchoring on wtp and wta judgments are essentially the same in particular robust anchoring effects are observed when the anchor relates to the focal source of uncertainty further wtp and wta judgments are most susceptible to anchoring and endowment effects under uncertainty about the desire to trade the implications of this research for our understanding of anchoring and endowment effects are discussed

how buyers perceive savings in a bundle price an examination of a bundle s transaction value although bundling the selling of two or more products and or services at a single price has a history of economic research marketing oriented investigations have appeared only recently this pap

distortion of price discount perceptions the right digit effect we use four experiments to examine consumers processing of comparative regular and sale price information in advertisements consistent with our hypothesized right digit effect we find that when consumers view regular and sale prices with identical left digits they perceive larger price discounts when the right digits are small i e less than 5 than when they are large i e greater than 5 as a result they may attribute greater value and increased purchase likelihood to higher priced lower discounted items we examine alternate processing explanations for this right digit effect as well as the moderating impact of price presentation format

what cause the decline of energy intensity in china s cities a comprehensive panel data analysis abstract china s progress in energy efficiency has contributed significantly to the reduction in global energy intensity ei but the descending speed of per unit gdp energy consumption in china has been decreasing during recent years the present study aims to investigate the core driving forces of ei from 2005 to 2016 in 289 chinese cities based on granger casualty test and regression analysis for this purpose the study employs panel data analysis with both fixed coefficient and time varying coefficient which are suitable for examining the effects of influence factors on ei and their change trend the granger casualty test investigates that there supposed to be a bidirectional causality between air pollutant emission and energy consumption in china however due to china s weak environmental regulations the negative effect of emission on ei is not significant further regression analysis shows that a percentage increase in electricity price decreases ei by 0 722 in long term but this adjustment takes time furthermore analysis of short term relationship reveals that optimizing energy structure may be the best way for china to reduce ei in short run finally the time varying coefficients of panel data model indicate that inhibitory effect of promoting electricity consumption on ei will keep improving with expansion of electricity use

price competition under stockpiling and flexible consumption abstract conventional wisdom suggests that the main effect of price promotion is on brand switching i e secondary demand however some recent studies demonstrate that the primary demand expansion effect can be considerably larger than previously believed a significant driver of this primary demand effect is consumer stockpiling in response to price promotions indeed experimental studies have shown that additional inventory on hand can lead to an endogenous increase in consumption the authors develop a model of price competition between firms in response to the stockpiling and subsequent consumption dynamics of consumers in this setting the flexible consumption effect causes more intense price competition deeper promotions and an increase in the frequency of promotions the authors use two years of scanner panel data from eight product categories and 4313 stockkeeping units to test three implications of the theoretical model they find strong support for each

conscious and nonconscious comparisons with price anchors effects on willingness to pay for related and unrelated products abstract exposing consumers to extreme prices can influence the price they are willing to pay for both related and unrelated products drawing on previous theories of anchoring and adjustment and selective accessibility of judgment relevant knowledge the authors provide an account of both asymmetries in the impact of price anchors across product categories and contingencies in the occurrence of these asymmetries four studies show the deliberate consideration of price anchors that can play a key role in whether the effect of the anchors will generalize across product categories specifically an explicit comparison of a product to a price anchor increases the accessibility of features that represent a product available at this price in turn these thoughts influence the price that consumers are willing to pay for these products in the absence of this deliberation however anchors influence both related and unrelated products provided no other cognitive activity occurs in the interim

the effect of plausible and exaggerated reference prices on consumer perceptions and price search this article examines whether advertisers regular price claims affect consumer perceptions and price search behavior experiments involving simulated shopping via personal computers indicate that compared to an ad with no reference price an ad with a plausible reference price raised subjects estimates of the advertiser s regular price and the perceived offer value an exaggerated reference price had generally the same positive effects on perception as a plausible reference price even for the more skeptical subjects further when subjects were presented with an advertised sale price above the lowest expected price the exaggerated reference price increased the percentage of subjects who purchased the product from the advertiser without checking other stores prices

a consumer perspective on price matching refund policies effect on price perceptions and search behavior although price matching refund policies are common in many retail environments the impact of such policies on consumers has largely been ignored this article reports the results of three studies that examine price matching policies from a consumer perspective study 1 shows that consumers perceive price matching policies as signals of low store prices and that the presence of a refund increases the likelihood of discontinuing price search contrary to the predictions based on signaling theory in information economics studies 2 and 3 show that when search costs are low the number of stores searched increases in the presence versus absence of a price matching policy when search costs are high consumers appear to accept the price matching signal at face value and search less in the presence of a refund the article concludes by discussing the theoretical implications of the findings and suggesting directions for future research

reframing the discount as a comparison against the sale price does it make the discount more attractive abstractsales induced through price promotions depend heavily on discount depth so firms create mechanisms to influence perceptions of discount depth typically consumers compute discount depth as the difference between the sale price and the original price with this difference compared against the original price but thus far no research has examined the effect of reframing this difference by comparing the discount depth against the sale price multiple studies including a field study across four grocery stores show that framing the discount depth by comparing it against the sale price increases consumers discount depth perceptions and thus increases purchase intentions as evidence of the underlying process the authors identify boundary conditions related to both individual differences numeracy and managerially relevant factors discount depth size in addition to contributing to research on price promotions behavioral pricing and numeric processing the article offers implications for both