how should control theory be used to calculate a time consistent government policy we study different solutions to a simple one dimensional linear quadratic game with a large number of private agents and a government a time consistent solution is defined as a solution to the hamilton jacobi bellman equation i e as a policy for which the government has noprecommitment capability this solution is compared to a policy where the government has an instantaneous pre commitment i e an equilibrium in which the government has a period by period leadership in both cases we show how control theory should be applied to calculate the equilibrium and how to relate these equilibria to the differential game literature

measuring and assessing capacity utilization in the manufacturing sectors of nine oecd countries following a tradition established by cassels klein and hickman we employ the economic theory of cost and production and define economic capacity output as that output at which short and long run average total cost curves are tangent to one another capacity utilization cu rates are then computed as the ratio of actual to capacity output we implement this framework empirically by specifying and estimating a translog variable cost function for the manufacturing sectors of nine oecd countries we find that by the end of the historical sample the early 1980s pervasive and chronic excess capacity exists while the average cost consequence of excess capacity was relatively modest in the 1960s the burden increased considerably after opec i and after opec ii the premium was as large as 15 of average total costs we also find that electricity and fuel price increases had small impacts on capacity output relative to that from labor or capital finally we adjust conventional measures of multifactor productivity growth for changes in cu and find that the adjusted growth is larger after 1973 than that based on traditional procedures

informative advertising with differentiated products in this paper we study the role of promotional expenditures by sellers in a model of product differentiation advertising conveys full and accurate information about the characteristics of products heterogeneous consumers who have no source of information other than advertisements seek to purchase the products that best fit their needs despite the roles played by advertising in improving the matching of products and consumers and in increasing the elasticity of demand faced by each firm we find that the market determined levels of advertising are excessive given the extent of diversity in the market we derive a promotional equilibrium based on a specific information transmission technology paying explicit attention to the structure of consumer information and its impact on firms demand curves this allows us to study the effects of changes in the advertising technology including an increased ability to target messages to specific groups of consumers on the equilibrium in the product market we find that decreased advertising costs may reduce profits by increasing the severity of price competition

is perfect price discrimination really efficient an analysis of free entry we analyze models of product differentiation with perfect price discrimination and free entry with a fixed number of firms and in the absence of coordination failures perfect price discrimination provides incentives for firms to choose product characteristics in a socially optimal way however with free entry the number of firms is always excessive our results apply to a large class of models of product differentiation they also apply to models of common agency or lobbying with free entry and imply that one has excessive entry into the ranks of the principals

quasi fixed inputs in u s and japanese manufacturing a generalized leontief restricted cost function approach in this paper a generalized leontief variable cost function is develope d which permits analytical derivation of steady state levels of quasi fixed inputs and capacity output and does not require specification of a numeraire input this framework is then used to evaluate the fa ctor demand patterns of japanese and u s manufacturing based on bot h one quasi fixed capital input and two quasi fixed capital and la bor input specifications and both static and dynamic optimization t he findings provide evidence of considerable flexibility of demand re sponses in japan which may have contributed to japan s relatively st rong economic performance in the volatile 1970s copyright 1988 by mit press

railway de regulation a european efficiency comparison many european countries have sought to increase the efficiency of national railroad companies through a range of reforms including the separation of infrastructure and operations the creation of independent regulatory institutions and the provision of access to the network to third parties this document reports on a study undertaken to investigate a new world bank panel dataset that covers many european union eu countries over a period of 20 years the authors used this dataset to estimate the effects of reforms on railroad efficiency they compare the passenger traffic efficiency of national railroad companies by means of a production frontier model and then evaluate the effects of reforms on efficiency the data showed that reforms have efficiency increasing effects but the effect of reforms depends on sequencing the introduction of multiple reforms in a package has at best neutral effects but sequential reforms improve efficiency the authors also describe how they used the lisrel technique to test their data and show that their results are robust against potential problems of endogeneity

airline deregulation the cost pieces of the puzzle this paper analyzes cost changes in the u s airline industry in the pre and postderegulation era using a panel data set of airlines specifically it seeks to disentangle cost changes attributable to technical change economies of scale and density and input prices the authors estimate a purely general index of industry technical change and in turn analyze its determinants despite the slowing of productivity growth in the 1980s deregulation does appear to have stimulated technical change due to more efficient route structures copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the economics of quality this paper develops a model of quality determination where the usual competitive equilibrium conditions hold the explicit form of quality considered is the wait required to obtain the product the analysis however is much more general being valid for products that have a characteristic z such that 1 demand is a function of price and a measure defined on z 2 costs are a function of output and the measure on z and 3 z is a function of output and capacity expected profit maximizing firms in equilibrium look like monopolistic competitors once constant quality is imposed however the perfect competitive results obtain

competitive price discrimination strategies in a vertical channel using aggregate retail data we explore opportunities for targeted pricing for a retailer that only tracks weekly store level aggregate sales and marketing mix information we show that it is possible using these data to recover essential features of the underlying distribution of consumer willingness to pay knowledge of this distribution may enable the retailer to generate additional profits from targeting by using choice information at the checkout counter in estimating demand we incorporate a supply side model of the distribution channel that captures important features of competitive price setting behavior of firms this latter aspect helps us control for the potential endogeneity generated by unmeasured product characteristics in aggregate data the channel controls for competitive aspects both between manufacturers and between manufacturers and a retailer despite this competition we find that targeted pricing need not generate the prisoner s dilemma in our data this contrasts with the findings of theoretical models due to the flexibility of the empirical model of demand the demand system we estimate captures richer forms of product differentiation both vertical and horizontal as well as a more flexible distribution of consumer heterogeneity

imperfect price discrimination market structure and efficiency we introduce a flexible third degree price discrimination framework by modeling the information firms possess about consumers locations preferences on the salop circle as a partition higher information quality is translated into a partition refinement in the limit we obtain the perfect price discrimination paradigm we show that the free entry equilibrium number of firms exhibits a u shape as a function of the quality of information this implies that imperfect price discrimination generates the most efficient free entry outcome jel classification d43 l11 l43 discrimination imparfaite par les prix structure de marche et efficacite les auteurs produisent un cadre d analyse flexible de la discrimination par les prix au troisieme degre en modelisant l information que les firmes possedent a propos de la localisation preferences comme base de decoupage dans un cercle de salop une plus grande qualite d information se traduit par un decoupage plus fin a la limite on obtient le paradigme parfait de discrimination par les prix on montre que le nombre de firmes en equilibre quand l entree est libre est une fonction en forme de u dans son rapport avec la qualite de l information cela implique que la discrimination imparfaite par les prix engendre le resultat le plus efficace quand l entree est libre

central bank independence and macroeconomic performance some comparative evidence this note uses information on a sample of sixteen oecd countries to assess the relationship between central bank independence and macroeconomic performance as previous work suggests politically controlled central banks are more likely to pursue policies that lead to high and variable inflation however the authors find little evidence that political control of central bank policy has any impact on measures of the level or variability of growth unemployment or the ex ante real interest rate copyright 1993 by ohio state university press

excess capacity a permanent characteristic of us airlines this paper examines the permanence of excess capacity in the us airline industry to avoid the problems with the standard engineering measure of capacity utilization load factor we define and measure capacity as an economic concept two measures of economic capacity utilization are then computed one a demand based measure and the other an output based measure of capacity utilization both measures share little in common with the standard engineering measure load factor and reveal some interesting attributes of airline travel demand this paper also provides interesting new insights into the role of deregulation and the costs of excess capacity during regulation specifically it is found that deregulation with the concomitant rationalization of route structures enabled airlines to move closer to their optimal levels of capacity and facilitated substantial improvements in capacity utilization and cost reductions over the period considered 1998 john wiley sons ltd

factor substitution and procurement competition for forest resources in sweden the utilisation of forest resources in the energy sector has been increasing partly caused by economic policies introduced to reduce the emission of greenhouse gases this in turn has led to an in

market segmentation and collusive behavior abstract the recent literature on oligopolistic third degree price discrimination has been primarily concerned with rival firms incentives to acquire customer specific information and the consequences of such information on firm profitability and welfare this literature has taken mostly a static view of the interaction between competing firms in contrast in this paper we investigate the impact of customer specific information on the likelihood of tacit collusion in a dynamic game of repeated interaction this issue is very important because competitive price discrimination usually leads to a cutthroat price competition prisoners dilemma among firms firms therefore may seek ways to soften competition and sustain higher prices our main result is that collusion becomes more difficult as the firms ability to segment consumers improves

monopolistic competition price discrimination and welfare abstract this paper studies third degree price discrimination in a monopolistically competitive market when the number of firms is fixed price discrimination raises firm profit and reduces consumer welfare relative to uniform pricing when entry is endogenized the equilibrium product variety under price discrimination is always excessive compared with the social optimum whereas under uniform pricing variety may be too much or too little except when entry is far below the welfare optimum under uniform pricing a ban on price discrimination leads to enhanced consumer and social welfare

price discrimination and equilibrium in monopolistic competition modern theories of monopolistic competition have borrowed extensively from techniques developed in location theory and the theory of spatial pricing the monopolistically competitive firm is assumed to choose a location and price for its product a subject that has been of increasing concern in this corpus of theory is that there exists no free entry price location equilibrium in this paper we demonstrate that free entry price location equilibrium exists provided only that producers are allowed to price discriminate among customers in a reasonable manner equilibrium is modelled as a two stage game using the selten concept of subgame perfect nash equilibrium it is shown that the equilibrium discriminatory price system is one initially identified by hoover in addition we show that equilibrium is not unique the precise nature of equilibrium in a particular market will be dependent upon the history of that market

the value of purchase history data in target marketing an important aspect of marketing practice is the targeting of consumer segments for differential promotional activity the premise of this activity is that there exist distinct segments of homogeneous consumers who can be identified by readily available demographic information the increased availability of individual consumer panel data open the possibility of direct targeting of individual households the goal of this paper is to assess the information content of various information sets available for direct marketing purposes information on the consumer is obtained from the current and past purchase history as well as demographic characteristics we consider the situation in which the marketer may have access to a reasonably long purchase history which includes both the products purchased and information on the causal environment short of this complete purchase history we also consider more limited information sets which consist of only the current purchase occasion or only information on past product choice without causal variables proper evaluation of this information requires a flexible model of heterogeneity which can accommodate observable and unobservable heterogeneity as well as produce household level inferences for targeting purposes we develop new econometric methods to implement a random coefficient choice model in which the heterogeneity distribution is related to observable demographics we couple this approach to modeling heterogeneity with a target couponing problem in which coupons are customized to specific households on the basis of various information sets the couponing problem allows us to place a monetary value on the information sets our results indicate there exists a tremendous potential for improving the profitability of direct marketing efforts by more fully utilizing household purchase histories even rather short purchase histories can produce a net gain in revenue from target couponing which is 2 5 times the gain from blanket couponing the most popular current electronic couponing trigger strategy uses only one observation to customize the delivery of coupons surprisingly even the information contained in observing one purchase occasion boasts net couponing revenue by 50 more than that which would be gained by the blanket strategy this result coupled with increased competitive pressures will force targeted marketing strategies to become much more prevalent in the future than they are today

on stabilization plans and central bank independence we argue that the benefits of appointing an independent central banker may go beyond low inflation rates within a government debt stabilization framework and with a decentralized policy making where the government acts as a stackelberg leader delegating monetary policy to an indepenent authority monetary policy to an independent authority turns out to be a discipline for the government and overall this leads to better results

competition of firms discriminatory pricing and location1 two costlessly mobile firms are to be located in a market region a subset of the plane the firms compete by setting locations and delivered price schedules to study this competitive stiuation an appropriate extensive form game is defined along with an appropri ate noncooperative solution concept existence and general properties of the equilibrium are demonstrated among the results are each firm increases its profit by locating so as to decrease total cost to both firms of serving the market firms will never locate coinciden tally if they have identical production costs and transport cost rates or if these are different and the firms are located in a circular market region having a uniform demand distribution this paper studies competition between two profit maximizing firms in space who are costlessly mobile and may discriminate in price we will allow the firms to set locations and delivered price schedules and we will be concerned with the existence and properties of equilibria in location and price starting with hotelling 9 the spatial competition literature has focused on location on bounded linear markets by two or more firms hotelling assumed identical firms that produced a single good with constant cost of production and considered consumers to be uniformly distributed and to have inelastic demand he also assumed that the consumers pay transport cost and purchase the good from the cheapest source hotelling claimed that a nash equilibrium in locations for the two firm market existed and yielded back to back locations at the center of the market many authors most recently d aspremont gabszewicz and thisse 2 have noted that an equilbrium in prices and location does not exist for hotelling s model however if the firms employ identical exogeneously specified prices hotelling s conclusions hold subsequent work by smithies 14 hartwick and hartwick 7 and eaton 3 claimed to show that a nash equi librium in f o b prices and locations can exist in markets with a uniform distribu tion of consumers each of whom have identical elastic demand functions for the two and three firm problems the work of d aspremont et al casts doubt on these conclusions without the adoption of restrictive conditions our work contrasts with these works and related research which has dealt with linear markets with uniform distributions of customers and with identical firms our work will involve markets that are subsets of the plane having nonuniform distributions of customers our firms will be allowed to be different that is have differences in production and transport costs however the fundamental difference in our approach is that our firms will set discriminatory prices and not price f o b in many ways our work will represent the discriminatory pricing

credibility and stabilization the paper deals with stabilization as a one shot problem to ask what credibility means in a world where programs will succeed with probability one a model is spelled out where the equilibrium program has some ex ante probability of failure the model draws attention to the factors that raise or lower the probability of success of a stabilization program and thus offers a positive theory of stabilization reputation that emerges as a central element in repeated games has no role in this model