perishable inventory theory a review this paper reviews the relevant literature on the problem of determining suitable ordering policies for both fixed life perishable inventory and inventory subject to continuous exponential decay we consider both deterministic and stochastic demand for single and multiple products both optimal and sub optimal order policies are discussed in addition a brief review of the application of these models to blood bank management is included the review concludes with a discussion of some of the interesting open research questions in the area

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 response information and asymmetry of price dispersion abstractin this study we examine how differently gasoline prices in 25 regions of seoul korea respond to asymmetric information between retailers and consumers we estimate the region specific li

any non welfarist method of policy assessment violates the pareto principle reply the public at large many policymakers and a number of economists hold views of social welfare that are non welfarist that is they attach some importance to factors other than the effects of policies on individuals utilities we show however that any non welfarist method of policy assessment violates the pareto principle

rockets and feathers understanding asymmetric pricing prices rise like rockets but fall like feathers this stylized fact of most markets is con rmed by many empirical studies in this paper i develop a model with competitive rms and rational partially informed consumers where such asymmetric response to costs by rms emerges naturally in contrast to public opinion and past work collusion is not necessary to explain such result using a rich dataset of retail gasoline prices i nd the observed price dispersion pattern to be consistent with the model s prediction

efficient methods of measuring welfare change and compensated income in terms of ordinary demand functions a utility maximizing consumer with a completely known system of ordinary demand functions q h p c is considered let p qo and p q be two arbitrary equilibrium situations the problem is to evaluate in which of the situations the utility is higher without knowing the utility function revealed preference theory tells that the ordinary demand functions which are in principle observable contain enough information to solve the problem remaining difficulties are therefore mainly computational we present how the compensated income c i c p qo and the compensated demand h p cl1 are calculated with arbitrary accuracy using only the ordinary demand system our two efficient algorithms also have interesting interpretations in terms of index numbers and consumer surplus measures

contracts as a barrier to entry it is shown that an incumbent seller who faces a threat of entry into his or her market will sign long term contracts that prevent the entry of some lower cost producers even though they do not preclude entry completely moreover when a seller possesses superior information about the likelihood of entry it is shown that the length of the contract may act as a signal of the true probability of entry

resale price maintenance and collusion the article revisits the conventional wisdom according to which vertical restrictions on retail prices help upstream firms to collude we analyze the scope for collusion with and without resale price maintenance rpm when retailers observe local shocks on demand or retail costs in the absence of rpm retail prices react to retailers information and deviations from collusive behavior are thus difficult to detect by eliminating retail price flexibility rpm facilitates the detection of deviations but reduces profits and thus increases the short run gains from a deviation overall rpm can facilitate collusion and reduce total welfare when firms adopt it

search with learning understanding asymmetric price adjustments in many retail markets prices rise faster than they fall we develop a model of search with learning to explain this phenomenon of asymmetric price adjustments by extending our static game analysis to the dynamic setting we demonstrate that asymmetric price adjustments arise naturally when a positive cost shock occurs all the searchers immediately learn the true state the search intensity and hence the prices fully adjust in the next period when a negative cost shock occurs it takes longer for nonsearchers to learn the true state and the search intensity increases gradually leading to slow falling of prices

the dynamics pattern of price dispersion in retail fuel markets abstract this paper empirically investigates the dynamics of price dispersion in retail fuel markets as a response to the corresponding wholesale price changes for this purpose we take advantage of a daily dataset of prices fixed by gas stations in two spanish regions it is consistently found that retail price dispersion is temporarily enlarged as a consequence of wholesale price increases while it is reduced due to decreases the presence of asymmetries in the short run dynamics is also revealed the impact of positive changes in the wholesale price is in the first days of adjustment clearly greater the dynamics pattern could be explained at least in part by the faster response of prices in the stations associated with the two vertically integrated companies that have the largest market share i e repsol and cepsa

consumer search and dynamic price dispersion an application to gasoline markets this article studies the role of imperfect information in explaining price dispersion we use a new panel data set on the u s retail gasoline industry and propose a new test of temporal price dispersion to establish the importance of consumer search we show that price rankings vary significantly over time however they are more stable among stations at the same street intersection weestablishtheequilibriumrelationshipsbetweenpricedispersionandkeyvariables from consumer search models price dispersion increases with the number of firms in the market decreases with the production cost and increases with search costs

inventories and interest rates a critique of the buffer stock model economists generally test for the effect of interest rates on inventories by including some measure of the real interest rate in a standard flexible accelerator buffer stock model this paper presentsseveral reasons for concluding that this approach is incorrect and demonstrates how interest rate effects can be introduced into decisionrules derived under the assumption of optimizing behavior by firms decision rules for finished good inventories output and price are estimated using monthly observations on the food and kindred product industry the results generally conform to the predictions of the theory copyright 1986 by american economic association

simulation study of the price differentiation effect in a stochastic deteriorating inventory with heterogeneous consumers freshness sensitivity a fixed price policy regardless of expiration date may result in unsold inventory and sales loss price reduction over time as the expiration date approaches motivates customers to purchase all items including the ones that are left with only a short interval until their expiration we conduct a discrete event simulation that captures the main characteristics of this phenomenon results show that a moderate differentiation of price increases profits by 6 a larger differentiation reduces profits profits are the highest for freshness oriented customers a fixed price policy is preferred in an environment of large variance and expected near term expirations

estimating the precision of welfare measures abstract three methods for constructing standard deviation and or confidence intervals for welfare estimates have been employed in the recreation demand literature a taylor s series approximation the bootstrap and a method proposed by krinsky and robb this paper presents the results of two sets of simulation experiments designed to examine the accuracy of these methods the first simulation examines the methods accuracy in estimating the standard deviation of welfare estimates the second simulation examines the accuracy of the methods in constructing confidence intervals

rockets and feathers the asymmetric speed of adjustment of uk retail gasoline prices to cost changes abstract the paper develops a quadratic quantity adjustment model to test the hypothesis put forward in the recent monopolies and mergers commission report that the speed of adjustment of uk retail gasoline prices to cost changes is more rapid when costs rise than when they fall and that the adjustment path is more concentrated around the mean value on the upswing using data from 1982 to 1989 evidence of faster and more concentrated responses to cost increases were found

what causes rockets and feathers an experimental investigation prices usually adjust much faster when costs increase than when costs decrease in spite of the many empirical studies confirming this rockets and feathers phenomenon for different industries the mechanism driving it is not well understood we use simple experimental markets with and without search frictions and either privately or publicly observed cost shocks to study how sensitive the rockets and feathers phenomenon is to changes in search costs and information conditions in contrast to standard theoretical predictions we observe price dispersion and spontaneous asymmetric price adjustments in all treatments neither search costs nor private information on cost shocks are indispensable for prices to adjust asymmetrically in the short term the initial asymmetry quickly disappears if the direction of the cost shocks are publicly known while it persists in both treatments with private information

on measuring the benefits of lower transport costs despite large amounts invested in rural roads in developing countries little is known about their benefits this paper derives an expression for the willingness to pay for a reduction in transport costs from the canonical agricultural household model and uses it to estimate the benefits of a hypothetical road project estimation is based on novel cross sectional data collected in a small region of madagascar with enormous yet plausibly exogenous variation in transport cost a road that essentially eliminated transport costs in the study area would boost the incomes of the remotest households those facing transport costs of about usd 75 ton by nearly half mostly by raising non farm earnings this benefit estimate is contrasted to one based on a hedonic approach

contract duration and relationship specific investments empirical evidence from coal markets this paper examines the importance of specific relationship investments in determining the duration of coal contracts negotiated between coal suppliers and electric utilities data for 277 coal contracts are used to perform the analysis the results provide strong support for the view that buyers and sellers make longer commitments to the terms of future trade at the contract execution stage and rely less on repeated bargaining when relationship specific investments are more important

the welfare effects of environmental taxation on a green market where consumers emit a pollutant this paper examines the welfare impact of emission taxes and subsidies in a green market where consumers emit a pollutant through their usage of products produced by duopolists for this purpose we employ a discrete continuous model including both consumer choice and usage of an environmentally differentiated product in a utility consistent framework the findings indicate that an emission tax is always welfare dominant over a subsidy on consumer purchases of the clean product because of its contribution to a reduction in environmental damage it does this by both inducing firms to improve the environmental qualities of their products and by constraining consumer usage of these products

the competitive effects of vertical agreements comment recent economic analyses of vertical restraints and integration emphasize the circumstances under which these arrangements are socially efficient efficiency claims have proven contentious however for exclusive dealing a vertical restraint that prohibits any outlet carrying a manufacturer s product from stocking substitute brands this paper analyzes the impact of exclusive dealing on competition and allocative efficiency opinions expressed on the impact of exclusive dealing range from the extreme view that it is invariably anticompetitive to the view that it is always procompetitive the u s supreme court has concluded that in hundreds if not thousands of communities where there is a single retailer for a product

regional welfare loss meaures of the 1973 oil embargo a numerical methods approach 1987 regional welfare loss meaures of the 1973 oil embargo a numerical methods approach applied economics vol 19 no 10 pp 1317 1327

prices rise faster than they fall output prices tend to respond faster to input increases than to decreases this tendency is found in more than two of every three markets examined it is found as frequently in producer goods markets as in consumer goods markets in both kinds of markets the asymmetric response to cost shocks is substantial and durable on average the immediate response to a positive cost shock is at least twice the response to a negative shock and that difference is sustained for at least five to eight months unlike past studies which documented similar asymmetries in selected markets gasoline agricultural products etc this one uses large samples of diverse products 77 consumer and 165 producer goods accordingly the results suggest a gap in an essential part of economic theory as a start on filling this gap the study finds no asymmetry in the resonse of an individual decision maker a supermarket chain to its costs but it finds above average asymmetry where a cost shock is filtered through a fragmented w

presidential address antitrust restrictions on single firm strategies this article offers an overview of selected developments in the law and economics of antitrust regulation of single firm strategies the strategy generating the most cases historically is resale price maintenance here the law has moved sharply in both canada and the u s towards more solid economic foundations yet a gap between the law and economics remains the economics of resale price maintenance is reviewed within a framework that is much simpler and more general than the existing literature the law on a second strategy predatory pricing represents in my view a success story for the influence of economic theory in spite of the absence of a single accepted theory of predatory pricing the remaining single firm strategies are concerned largely with the exclusion by a dominant firm of rivals from a market i review with application to cases the two most basic questions concerning exclusionary strategies are exclusionary anticompetitive contracts ever entered into voluntarily by market participants on the other hand is complete or substantial foreclosure of a market through exclusionary strategies necessarily anticompetitive cette allocution presidentielle a l association canadienne d economique presente une vue d ensemble des developpements dans le droit et l economie de la reglementation antitrust sur les strategies d une firme unique la loi sur la strategie qui genere historiquement le plus de cas le maintien du prix de revente a change dramatiquement au canada et aux etats unis et derive vers une politique qui a des assises economiques solides mais il reste un ecart entre le droit et l economie on reexamine l economie du maintien du prix de revente a l aide d un cadre d analyse qui est a la fois plus simple et plus general que ce qui existe dans la litterature specialisee la loi pour ce qui est d une seconde strategie prix d eviction est a mon avis une grande reussite pour la science economique malgre l absence d une seule theorie du prix d eviction generalement acceptee un troisieme ensemble de strategies concerne l exclusion de ses rivaux d un marche par la firme dominante l auteur reexamine avec un recours extensif aux cas les deux questions de base pour ce qui est des strategies d exclusion est ce que les participants sur un marche entrent jamais volontairement dans un arrangement contractuel qui exclut et est anticoncurrentiel d autre part est ce que la saisie complete ou substantielle d un marche par des man uvres d exclusion est necessairement anticoncurrentielle

blood inventory management an overview of theory and practice blood inventory management has attracted significant interest from the operations research profession during the last 15 years a number of methodological contributions have been made in the areas of inventory theory and combinatoric optimization that can be of use to other products or systems these contributions include the development of exact and approximate ordering and issuing policies for an inventory system the analysis of lifo or multi product systems and various forms of distribution scheduling in addition many of these results have been implemented either as decision rules for efficient blood management in a hospital or as decision support systems for hierarchical planning in a regional blood center in this paper we attempt a review of the recent operations research contributions to blood inventory management theory and practice whereas many problems have been solved others remain open and new ones keep being created with advances in medical technology and practices our approach is not to present an exhaustive review of all the literature in the field but rather to address several important issues from a unified perspective of theory and practice and point out new areas for further research

retail gasoline price dynamics and local market power using monthly data from the 48 contiguous states except nevada for the 1988 2002 period it is shown that retail gasoline prices respond faster to wholesale price increases than to equivalent wholesale price decreases moreover markets with high average retail wholesale margins experience a slower adjustment and a more asymmetric response since gasoline is the only variable input average margins in a state likely reflect the degree of retail market power this suggests that sticky prices and response asymmetries in the gasoline market are at least partially a consequence of retail market power

vertical control and price versus nonprice competition this paper considers a manufacturer distributing a product through retailers who compete in price and service which reduces the time it takes to purchase a good the mix of these instruments that maximizes collective profit is determined by the tastes of consumers on the product margin whereas decentralized retailers consider as well the tastes of consumers on the interretailer margins given search or travel costs consumers with low time costs are overrepresented on the interretailer margins in considering customers on the wrong margin retailers are therefore biased toward price competition this distortion that can be corrected with vertical restraints

existence and persistence of price dispersion an empirical analysis the hebrew university of jerusalem and nber using a unique data set on store level monthly prices of four homogenous products sold in israel i study the existence and characteristics of the dispersion of prices across stores as well as its persistence over time i find that price dispersion prevails even after controlling for observed and unobserved product heterogeneity moreover intra distribution mobility is significant stores move up and down the cross sectional price distribution thus consumers cannot learn about stores that consistently post low prices as a consequence price dispersion does not disappear and persists over time as predicted by varian s 1980 model of sales

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

demand uncertainty inventories and resale price maintenance we show that a manufacturer facing uncertain demand and selling through a competitive retail market may wish to support adequate retail inventories by preventing the emergence of discount retailers in our model discounters offer low prices made possible by low probability of being saddled with unsold inventories in the event of slack demand full price retailers are compensated for a higher probability of unsold inventories by a higher retail price when they sell we show that preventing discounting increases the manufacturer s wholesale demand and profits and we delineate demand conditions under which equilibrium inventory holding and consumer welfare increase

asymmetric search and prospect theory choice experiment on consumer willingness to search in the gasoline retail market we use an internet survey conducted among a representative random sample of drivers in the state of ohio consisting of a choice experiment designed to examine the mechanism driving asymmetric search the internet survey affords us the opportunity to overcome endogeneity difficulties by imposing exogenous price changes on gasoline consumers to examine the decision making process behind intended search decisions we randomly assigned participants to one of five price treatments either 2 5 or 5 above or below their reported expected price or no change we provide a simple empirical model to derive testable implications under prospect theory and use the internet survey to test them results indicate that among the respondents who faced prices below their expected price only 12 chose to search whereas 45 searched when prices were above further we find results consistent with asymmetric search being driven by prospect theory the change in consumers willingness to search is twice as large when prices

the application of queueing theory to continuous perishable inventory systems this paper develops two distinct models for studying inventory systems with continuous production and perishable items the perishable items have a deterministic usable life after which they must be outdated for each of the models analytical expressions derived from queueing theory are found for the steady state distribution of system inventory knowledge of this steady state behavior may be used for evaluation of system performance and for consideration of alternatives for improving system performance both models assume that inventory is replenished by a continuous production process the first model assuming continuous inventory units has poisson demand requests with the size of each request distributed as an exponential random variable the second model has poisson demand requests with all demands being for a single unit the analysis for both models exploits the similarity of the inventory system with a single server queueing system

do gasoline prices respond asymmetrically to crude oil price changes the authors test and confirm that retail gasoline prices respond more quickly to increases than to decreases in crude oil prices among the possible sources of this asymmetry are production inventory adjustment lags and market power of some sellers by analyzing price transmission at different points in the distribution chain the authors attempt to shed light on these theories spot prices for generic gasoline show asymmetry in responding to crude oil price changes which may reflect inventory adjustment effects asymmetry also appears in the response of retail prices to wholesale price changes possibly indicating short run market power among retailers

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

welfare measurement in the household production framework the household production approach to consumer behavior developed from the work of gary becker william gorman and kelvin lancaster has considerable descriptive appeal in modelling the decisions of households the approach derives from the observation that households frequently purchase market goods that do not yield utility directly but are combined to produce commodity service flows which the household values thus observed behavior is determined by household production technology as well as by tastes the advantage of this distinction is that we can pose reasonable hypotheses about characteristics of technology though we rarely possess useful a priori information regarding tastes the putative advantages of the household production approach are questioned on empirical and conceptual grounds by robert pollak and michael wachter 1975 they show that jointness in production or nonconstant returns to scale cause implicit commodity prices to depend on both tastes and technology raising serious econometric difficulties in the estimation of commodity demand functions in addition since commodity prices become functions of the commodity bundle consumed the analogy to traditional demand theory breaks down joint production occurs when a good enters several production processes simultaneously or equivalently when a good in one production process also enters directly into the individual s utility function the most common example is time which provides the context for all production processes and is often associated with the production of several commodities simultaneously since joint production in the household is likely to be pervasive the critique by pollak and wachter cannot be ignored in response to the comment by william barnett pollak and wachter 1977 suggest dispensing with the notion of commodity prices and treating the demand for commodities as a function of goods prices this approach confounds tastes and technology but it eliminates the troublesome concept of commodity prices as parameters when in fact they are likely to be endogenous in this paper we show that results from positive analysis such as the critique by pollak and wachter have implications for the use of the household production framework for welfare analysis the household production function approach has had considerable appeal for measuring welfare effects of public actions in the environmental and natural resource areas gardner brown john charbonneau and michael hay elizabeth wilman yet traditional approaches to welfare measurement are frequently inapplicable we argue that welfare measurement in this framework is complicated by the difficulties of unravelling tastes and technology we extend pollak and wachter s results by demonstrating that marshallian demand functions for commodities cannot be uniquely defined thus marshallian functions cannot be used to derive exact compensated functions in the manner of jerry hausman and of george mckenzie and i f pearce nor can compensating and equivalent variation measures be bounded by marshallian consumer s surplus estimates following robert willig in fact duality results that normally allow us to move between marshallian and hicksian functions are not assistant and associate professors respectively department of agricultural and resource economics university of maryland college park md 20742 this paper is scientific article no a3404 contribution no 6476 of the maryland agricultural experiment station we wish to thank darrell hueth james opaluch v kerry smith and elizabeth wilman for comments on an earlier draft

what s the use welfare estimates from revealed preference models when weak complementarity does not hold abstract in this paper we consider the theoretical and empirical ramifications of welfare measurement in revealed preference models when weak complementarity does not hold in the context of a kuhn tucker model of recreation demand we show that while it is possible to estimate preferences that do not appear to exhibit weak complementarity the calculation of welfare measurements from these models requires a cardinal interpretation of preferences that cannot be tested furthermore we reiterate the under appreciated fact that even traditional use value estimates require a cardinal restriction on preferences that while often intuitive also cannot be tested we demonstrate empirically that the choice of restrictions can have significant ramifications as use value estimates can vary based on the assumed preference structure

evaluating the performance of alternative municipal water tariff designs quantifying the tradeoffs between equity economic efficiency and cost recovery the design of municipal water tariffs requires balancing multiple criteria such as financial self sufficiency for the service provider equity among customers and economic efficiency for society a modeling framework is developed for analyzing how alternative municipal water tariff designs affect these three criteria it is then applied to a hypothetical community in which a municipal water utility provides metered piped water and wastewater services to 5 000 households we analyze how the shift from a uniform volumetric tariff to different increasing block tariff ibt designs affects households water use and water bills and how these changes in turn affect measures of equity and economic efficiency for two different financial self sufficiency targets we calculate how changes in assumptions about 1 the correlation between household income and water use and 2 households response to average or marginal prices affect the tariffs performance in terms of these three criteria the results show that ibts perform poorly in terms of targeting subsidies to low income households regardless of the magnitude of financial subsidies that a utility receives from high level government when cost recovery is low the distribution of subsidies under ibts is even worse if the correlation between water use and household income is high ibts introduce price distortions that induce economic efficiency losses but we show that these welfare losses are relatively small especially when households respond to average prices

gasoline price dispersion and consumer search evidence from a natural experiment the vast majority of empirical studies examining the link between consumer search and price dispersion focus on how changes in consumer search impact price dispersion this article does the reverse it examines how a shock to price dispersion impacts consumer search a direct measure of search is used and an exogenous shock to price dispersion is found in a refinery fire that caused decades old retail gasoline price cycles and the nonlinear high frequency price dispersion pattern generated by them to stop identifying effects from this shock the results show a substantial response of consumer search to changes in price dispersion

retail gasoline pricing what do we know abstract we use a data set consisting of a three year panel of prices from a sample of gasoline stations located in suburban washington dc and a corresponding census of the region s stations to develop three new empirical findings about retail gasoline pricing first while average retail margins vary substantially over time by more than 50 over the three years we analyze the shape of the margin distribution remains relatively constant second there is substantial heterogeneity in pricing behavior stations charging very low or very high prices are more likely to maintain their pricing position than stations charging prices near the mean third retail gasoline pricing is dynamic despite the heterogeneity in station pricing behavior stations frequently change their relative pricing position in this distribution sometimes dramatically we then relate these three findings to relevant theories of retail pricing while many models of retail pricing are consistent with some of our findings we find that all have serious shortcomings

axiomatic foundations of hicksian measures of welfare change abstract the aggregate hicksian measures i ev i and i cv i are characterized by three simple properties one property concerns the ranking of two states the measures are paretian a second property expresses the postulate that welfare changes are to be evaluated in money the third one deals with redistributions of incomes distributional considerations are taken into account by employing variable distributional weights i

asymmetric price adjustments in us gasoline markets impacts of spatial dependence on the rockets and feathers hypothesis gasoline retail prices show sometimes wild asymmetric fluctuations over time we explore the impact of spatial dependence on gasoline retail price formation by using for the first time an asymmetr

the benefits of in kind government programs abstract in this paper i present a methodology to calculate the benefits of in kind programs such as public housing which restrict consumption of some goods to the levels offered by the government most previous studies begin with an a priori specification of the direct utility function i begin with the ordinary demand function and then integrate demand to recover the indirect utility function and the expenditure function i argue that this approach gives additional flexibility in choosing a functional form which best describes the data i then use this methodology to estimate the benefits of the u s government s section 8 housing program

when do consumers search this paper provides empirical evidence relating search to price movements we measure consumer search directly from traffic statistics for web sites that report gasoline prices we show empirically that consumers search more as prices rise than they do when prices fall asymmetric search patterns have consequences for price behavior our findings indicate that retail margins are squeezed by increased search in addition we show that there is more price dispersion when prices are falling than when prices are either stable or rising our results provide a search based explanation for the rockets and feathers phenomenon of asymmetric price adjustment

markets and the measurement of value consumer s surplus and the hicksian measures of compensating and equivalent variation have a long history in empirical economic analysis however at both the theoretical and the empirical level economists psychologists and public choice theorists have not been able to reach a significant consensus regarding the usefulness of these measures economic theorists have only recently dissected the differences which exist between alternative welfare measures in a systematic and transparent fashion in willig 1976 hausman 1981 and takayama 1984 the role of income in determining the correct theoretical measurements of compensating and equivalent variations was exposed during this same period of time theoretical results obtained by the psychologists kahneman and tversky 1979 indicated that the fundamental structure of preferences upon which the theoretical economic results are based is flawed the so called prospect theory of decision developed by these authors indicated that measured of welfare based upon payment will differ from measures of welfare based upon compensation because of the fact that individuals will value losses at a greater marginal rate than gains this difference was then predicted to dominate any income effect important in the economist s model finally this period recorded the emergence of many demand revealing processes which provide individuals with appropriate incentives to accurately reveal their preferences as summarized in coursey and schulze 1986 one interpretation of the literature on incentive compatibility suggests a set of well defined guidelines for improving both the accuracy and validity of compensating and equivalent variation measures these differences in professional preferences regarding what is important in improving the accuracy of economic welfare measurements led john

welfare losses due to market power hicksian versus marshallian measurement this paper warns against the use of marshallian welfare loss in applied analysis of market power we show how to compute the hicksian deadweight loss from an ordinary demand then from an experiment using real data on twenty one sectors of the french food industry we find that the marshallian deadweight loss poorly approximates the exact hicksian measure hence it is advisable to use the latter in applied welfare analysis copyright 2001 oxford university press

what do consumers believe about future gasoline prices a full understanding of how gasoline prices affect consumer behavior frequently requires information on how consumers forecast future gasoline prices we provide the first evidence on the nature of these forecasts by analyzing two decades of data on gasoline price expectations from the michigan survey of consumers we find that average consumer beliefs are typically indistinguishable from a no change forecast justifying an assumption commonly made in the literature on consumer valuation of energy efficiency we also provide evidence on circumstances in which consumer forecasts are likely to deviate from no change and on significant cross consumer forecast heterogeneity

do edgeworth price cycles lead to higher or lower prices abstract a recent literature seeks to understand the causes of the high frequency asymmetric retail price cycles observed in many retail gasoline markets however much less attention has been given to the effects of the cycles in particular whether the cycles lead to higher or lower prices and margins the leading theory for the underlying cause of the price cycles edgeworth price cycles is silent on the issue the challenge in addressing this most important question has been the difficulty in isolating cycle effects from other confounding factors especially market structure in this article i exploit a unique natural experiment to isolate the effect of cycles a refinery fire that in a matter of days halted cycles that had previously persisted for decades i find that edgeworth price cycles lead to lower prices and lower margins i conclude with implications for competition policy

price dispersion and competition with differentiated sellers i measure price dispersion among differentiated retail gasoline sellers and study the relationship between dispersion and the local competitive environment significant price dispersion exists even after controlling for differences in station characteristics and price differences between sellers change frequently the extent of price dispersion is related to the density of local competition but this relationship varies significantly depending on the type of seller and the composition of its competitors these findings are consistent with interactions between seller and consumer heterogeneity that are not well understood in the existing price dispersion literature

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

the role of information in retail gasoline price dispersion abstract collecting information on prices is a costly endeavor the cost depends on the relative ease with which those prices can be collected and in many retail gasoline markets there is a substantial divide in the ease of collecting information with regular grade gasoline on one side of the divide and midgrade and premium grade gasoline on the other regular grade prices are prominently displayed on large signboards in front of gasoline stations while the prices of higher octane grades except where required by law are rarely displayed in this article the effects of differential by grade price information on search and gasoline price dispersion are examined a rank reversal test is used to test whether the observed grade specific price dispersion is consistent with search or non search related causes and finding the former a series of tests are presented to test for the effect of price information and other leading hypotheses a significantly concave curvature in the price dispersion coefficients across the three grades supports a price information hypothesis detailed socioeconomic data on consumers spatially matched to the stations they are most likely to patronize shows that income is a secondary factor implications for policy are discussed

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

new evidence on asymmetric gasoline price responses in a 1997 paper borenstein cameron and gilbert bcg claim that gasoline prices rise quickly following an increase in the price of crude oil but fall slowly following a decrease this note estimates an error correction model with daily spot gasoline and crude oil price data over the period 1985 1998 and finds no evidence of asymmetry in wholesale gasoline prices the sources of the difference in results are twofold first we use the standard engle granger two step estimation procedure whereas bcg used a nonstandard estimation methodology second even using bcg s nonstandard specification the use of daily rather than weekly data yields little evidence of price asymmetry

the taxation of drivers and the choice of car fuel type in this paper the choice of the car fuel type is studied in the dutch situation three types are important gasoline diesel and lpg with 80 of the cars using gasoline incentives for using diesel or lpg are provided by the tax system that implies higher fixed cost but lower variable cost for users of these fuel types we start by studying fuel type choice on the basis of a logit model and move on to estimate demand functions for kilometres driven for social purposes while correcting for the possible selectivity bias we find that diesel and lpg are in general regarded as inferior alternatives but that monetary incentives are sufficiently strong to overcome this hurdle for drivers with a large demand for kilometres we also find that there are significant effects of the lower variable cost for diesel and lpg drivers on their demand for kilometres the conclusions are confirmed by estimation of a structural model in which fuel type choice and demand for kilometres are consistently explained on the basis of one set of preferences and unobserved heterogeneity is taken into account

naked exclusion comment the ability of an incumbent firm to deter entry by writing exclusionary contracts with customers has been a subject of contention in the antitrust literature the courts concern with such exclusionary contracts has been challenged by those who argue that an incumbent faced with buyers whose interest is to promote entry and competition would have to pay buyers more for the inclusion of exclusionary provisions than it could possibly gain from exclusion in a provocative article eric b rasmusen et al 1991 henceforth rrw have argued that an incumbent may in fact be able to exclude rivals profitably using such contractual provisions because it can exploit buyers lack of coordination in essence if buyers expect other buyers to sign such provisions then they may see little reason not to do so themselves the rrw argument is potentially an important one because most alleged instances of entry deterrence through exclusionary contracts with customers occur in situations with multiple buyers unfortunately however rrw s two main results contain errors in this note we reconsider the rrw model providing correct characterizations of the likelihood and cost of exclusion for an incumbent firm our results indicate that while the intuition suggested by rrw is valid the equilibrium likelihood and cost of exclusion differ from what rrw derive moreover our analysis illuminates some further aspects of exclusionary contracting with multiple buyers among these issues we focus on how an incumbent can use discriminatory offers to exploit the externalities that exist among buyers in the provision of competition in section i we review the basic assumptions of the rrw model in sections ii and iii we then consider in turn the cases of simultaneous and sequential offers studied by rrw for the simultaneous model we distinguish between settings in which the incumbent can and cannot discriminate in its offers to different buyers this distinction is the source of the problem in rrw s analysis their simultaneous offer model assumes no discrimination but the proof of their proposition 2 assumes at times that discrimination is feasible we show that absent the ability to discriminate the incumbent can exclude profitably only when buyers fail to coordinate on their most preferred continuation equilibrium in contrast we show that when discrimination is possible the incumbent need not rely on a lack of buyer coordination to segal department of economics landau building stanford university stanford ca 94305 e mail ilya segal stanford edu whinston department of economics northwestern university 2003 sheridan road evanston il 60208 e mail mwhinston nwu edu we thank eric rasmusen john wiley and participants in the berkeley stanford iofest the university of copenhagen vertical restraints conference and a seminar at the antitrust division of the u s department of justice for helpful comments we thank federico echenique for excellent research assistance 1 for example a recent department of justice investigation concerned the use of exclusive contracts by the leading provider of computerized ticketing services ticketmaster most major cities have several large concert sports venues in many cities ticketmaster has exclusive contracts with a very large share of these venues 2 the other leading response to the argument that contracts with buyers cannot be a profitable method of exclusion is given in philippe aghion and patrick bolton 1987 section i one factor limiting the applicability of the aghion and bolton theory however is that it involves partial exclusion the contracts signed are not fully exclusionary they involve finite stipulated damages and the profitability of the strategy arises from extracting rents from an entrant when entry occurs indeed in the aghion and bolton model contracts that fully exclude offer no benefits over writing no contract at all in section iii of their paper aghion and bolton also discuss a two buyer version of their model in which externalities arise across buyers in contrast to the analysis here and in rrw they allow the incumbent to make an offer to a buyer i that is conditional on the acceptance decision of the other buyer 3 r innes and r j sexton 1994 also discuss the use of discriminatory offers in the context of a model in which buyers can form coalitions with the entrant

approximating compensated income from ordinary demand functions abstract this paper proposes a re versible s econd or der t aylor resort approximation to compensated income from ordinary demand functions resort yields the malmquist vartia m v algorithm as a first order case using the slutsky equation resort obtains the substitution matrix and checks it for symmetry and negative semi definiteness to validate compensated income this validation procedure is an improvement over m v

an economic theory of vertical restraints vertical restraints imposed by manufacturers on the prices locations and sales of retail firms represent a puzzling departure from the simple price mediated exchange of conventional markets in this article we analyze the theoretical basis for these restraints in a setting where retailers inform consumers and are imperfectly competitive and where a manufacturer has some monopoly power we identify three potential externalities affecting retailers decisions these externalities lead to the failure of simple uniform price contracts to coordinate the incentives of retailers with the objective of maximizing combined manufacturer and retailer profits we identify the packages of vertical restraints that are minimally sufficient under various conditions to neutralize the externalities and to achieve the joint profit maximum

expenditure function estimates of the efficiency and distributive impact of indirect taxes in the united kingdom abstract this paper uses the expenditure function to consider the efficiency and distributional impact of indirect taxes in the united kingdom estimates of the parameters of the linear expenditure system of demand equations are employed to measure the compensating variation and equivalent variation costs of taxes on households in different income groups in addition distributional weights are used to consider the overall impact of different taxes and tax changes on social welfare finally we consider other types of demand system estimates which might be used in this kind of exercise

a consistent semiparametric estimation of the consumer surplus distribution abstract in this paper we examine the consequences of demand function heterogeneity for the estimation of the consumer surplus in particular we show that given a linear demand function with random coefficients one can consistently estimate the consumer surplus distribution without making parametric assumptions about the coefficient distribution the approach is illustrated using data on gasoline consumption

the rise of economics in competition policy a canadian perspective competition policy in canada and elsewhere has changed remarkably over the last 50 yearsin large measure due to advances in economics in this article we trace the impact of developments in industrial organization on the three central areas of competition policy cartels single firm conduct and mergers we focus on canadian competition policy but draw comparisons with developments in the united states and europe

rockets and feathers revisited an international comparison on european gasoline markets this paper re examines the issue of asymmetries in the transmission of shocks to crude oil prices onto the retail price of gasoline relative to the previous literature the distinguishing features of the present paper are i use of updated and comparable data to carry out an international comparison of gasoline markets ii two stage modeling of the transmission of oil price shocks to gasoline prices first refinery stage and second distribution stage in order to assess possible asymmetries at either one or both stages iii use of asymmetric error correction models to distinguish between asymmetries that arise from short run deviations in input prices and from the speed at which the gasoline price reverts to its long run level iv explicit possibly asymmetric role of the exchange rate as crude oil is paid for in dollars whereas gasoline sells for different sums of national currencies v bootstrapping of f tests of asymmetries in order to overcome the lowpower problem of conventional testing procedures in contrast to several previous findings the results generally point to widespread differences in both adjustment speeds and short run responses when input prices rise or fall

environmental food taxes and inequalities simulation of a meat tax in sweden abstract this paper investigates the distributional effect of an environmental tax on meat in sweden if such a tax was to be introduced welfare effects are measured as compensation variation cv for multiple price changes where hicksian cross price elasticities household expenditures and price changes are included in the calculations results show that taxes on meat are almost neutral over households when expenditures on meat are used as welfare indicators and regressive if income is used this can be explained by the households similar shares of total expenditures on meat the households with the smallest income levels need to be compensated with 904 sek per person and year equivalent to euro 86 6 per year in the year 2009 exchange rate to feel that utility is not lowered if taxes on meat are introduced and the households with the highest income levels need to be compensated with 1141 sek euro 109 3 per person and year for the year 2009 these compensations correspond to 0 74 and 0 78 of total expenditures for the low and high income group respectively when instead comparing the compensation with income levels the effects correspond to 0 99 for the households with the smallest income levels and to 0 51 for the households with the largest income

s 1 s policies for perishable inventory we consider s 1 s policies for a single item whose lifetime is fixed and known with certainty demands are generated by a stationary poisson process and there is a positive leadtime for replenishment we believe this study gives the only analysis for perishables with a positive order leadtime the analysis involves the derivation of the stationary distribution of the s dimensional stochastic process corresponding to the time elapsed since the last s orders were placed this distribution is then used to obtain an expression for the expected cost rate of operating the system in steady state as a function of s a computer program has been developed to compute optimal s values and expected annual costs we report a computation for a variety of system parameters which show some of the unusual features of the problem finally we show how this model can be used in the context of a problem of optimizing availability of operating equipment subject to scheduled maintenance as well as random failure

search with learning from prices does increased inflationary uncertainty lead to higher markups aggregate cost uncertainty arising from real shocks or unanticipated inflation reduces the informativeness of prices by scrambling relative and aggregate variations but when agents can acquire additional information such increased noise may in fact lead them to become better informed and price competition will intensify we examine these issues in a model of search with learning where consumers search optimally from an unknown price distribution while firms price optimally given consumers search rules we show that the decisive factor in whether inflation variability increases or reduces the incentive to search and thereby market efficiency is the size of informational costs