repudiation risk and restitution costs toward understanding premiums on insured deposits this paper contains a theoretical development of the relationship of cd premiums to both the risks of the cd issuer and the third party government guarantor of those deposits the theoretical development shows that the risk of the guarantor derives from the possibility that the guarantee could be repudiated and or the restitution of the depositor s claim could be costly the empirical analysis of the premiums for insured cds indicates that during the years preceding the ultimate collapse of the fslic the market priced the risk of both the guarantor as well as the firm the guarantor risk pricing was responsive to the insolvency of the guarantor the attempts to recapitalize the guarantor and the efforts to resolve the insolvent thrifts during this eventful time period cd premiums rose to 187 basis points and averaged 79 and 54 basis points copyright 1994 by ohio state university press

optimal dynamic pricing of inventories with stochastic demand over finite horizons in many industries managers face the problem of selling a given stock of items by a deadline we investigate the problem of dynamically pricing such inventories when demand is price sensitive and stochastic and the firm s objective is to maximize expected revenues examples that fit this framework include retailers selling fashion and seasonal goods and the travel and leisure industry which markets space such as seats on airline flights cabins on vacation cruises and rooms in hotels that become worthless if not sold by a specific time we formulate this problem using intensity control and obtain structural monotonicity results for the optimal intensity resp price as a function of the stock level and the length of the horizon for a particular exponential family of demand functions we find the optimal pricing policy in closed form for general demand functions we find an upper bound on the expected revenue based on analyzing the deterministic version of the problem and use this bound to prove that simple fixed price policies are asymptotically optimal as the volume of expected sales tends to infinity finally we extend our results to the case where demand is compound poisson only a finite number of prices is allowed the demand rate is time varying holding costs are incurred and cash flows are discounted the initial stock is a decision variable and reordering overbooking and random cancellations are allowed

optimal monopolist pricing under demand uncertainty in dynamic markets we examine pricing policy for a monopolist facing uncertain demand in a market characterized by dynamics on the demand side such as diffusion or saturation effects and or on the cost side experience curve effects our model explicitly incorporates the impact of demand uncertainty and thus allows us to analyze the implications of uncertainty on the optimal price path by contrasting the stochastic policy with the corresponding deterministic policy we begin with an analysis of the general model and then focus on several special cases based on well known demand specifications to gain more specific insights and to suggest directional guidelines for dynamic pricing decisions in an uncertain environment in general the interaction among uncertainty demand and or cost dynamics and firm s discount rate thus farsighted firms operating under dynamic market conditions with high demand uncertainty such as high tech companies with innovative products for consumer or industrial markets should attach partic

a non expected utility model and its application in practical auctions this article presents a non expected utility decision model which is nonlinear in the winning probabilities the model not only explicitly expresses bidders attitudes to risk but also addresses t

pricing risk adjusted deposit insurance an option based model this paper presents a methodology for arriving at empirical estimates of deposit insurance premiums from market data by using isomorphic relationships betweeen equity and a call option and insurance and a put option the data utilizes the market value of equity to solve for the asset value and its volatility market perceptions of fdic bailout policies are explicitly modeled so as to eliminate the bias in inverted values of assets and their volatility sensitivity analyses are performed to show that rank orderings based on premiums are robust to changes in specification thus facilitating allocation of aggregate premium across banks while economists have long argued in favor of risk adjusted deposit insurance as both more equitable and more efficient than the current system of flatrate premiums various recent developments have further contributed to an increasing dissatisfaction with the current system first both the banking industry and the government seem to be tending to the view that deregulation of the banking industry would be necessary in order to meet more sophisticated future demands on the industry as well as desirable as a policy means of stimulating greater competition among banks moreover a sudden rise in the incidence of bank failures 1 and the vulnerability of the u s banks to the socalled international debt crisis have served to bring to the fore concern about the health of the banking industry in the absence of deposit insurance riskier banks will be able to attract deposits only at higher rates and these higher costs of funding serve as built in market regulated incentives to limit excessive risk taking by banks as introduction of deposit insurance makes deposits equally risk free across banks these incentives disappear and regulation and close supervision of the banking industry must necessarily replace them as deterrents to excessive risk taking thus when insurance is offered at a flat premium regulation is designed to ensure that the risk posed to the insurer both asset and financial risk is appropriately uniform

welfare implications of piracy with dynamic pricing and heterogeneous consumers abstract we present an information good pricing model with persistently heterogeneous consumers and a rising marginal propensity for them to pirate the dynamic pricing problem faced by a legal seller is solved using a flexible numerical procedure with demand discretisation and sales tracking three offsetting pricing mechanisms occur skimming compressing price changes and delaying product launch a novel trade off in piracy s effect on welfare is identified we find that piracy quickens sales times and raises welfare in fixed size markets and does the opposite in growing markets in our model consumers benefit from very high rates of piracy legal sellers always dislike it and pirate providers like moderate but not very high rates

federal financial guarantees and the occasional market pricing of default risk evidence from insured deposits abstract this paper develops a two date state preference model which demonstrates that investors valuation of third party guaranteed debt depends on the financial condition of the guarantor as the solvency ratio of the guarantor declines investors demand higher promised rates on the firm s debt securities and price the firm risk variables more sensitively the empirical results are derived from sample data of fslic guaranteed obligations from the late 1980s evidence shows differences in the market s perception of fsllc s insolvency between 1987 and 1988 the market response to a decline in the financial condition of the guarantor affected the value of insured cds raising cd rates in relation to the treasury curve and firm risk pricing of insured deposits emerged

software piracy an analysis of protection strategies software piracy by users is generally believed to harm both software firms through lower profits and buying customers through higher prices thus it is thought that perfect and costless technological protection would benefit both firms and consumers the model developed here suggests that in some circumstances even with significant piracy not protecting can be the best policy both raising firm profits and lowering selling prices key to the analysis is joining the presence of a positive network externality with the fact that piracy increases the total number of program users the network externality exists because consumers have an incentive to economize on post purchase learning and customization costs

how not to sell nuclear weapons we consider situations where a sale affects the ensuing interaction between potential buyers these situations are modeled by assuming that an agent who does not acquire the object for sale incurs an identity dependent externality we construct a revenue maximizing auction for the seller we observe that 1 outside options and participation constraints are endogenous 2 the seller extracts surplus also from agents who do not obtain the auctioned object 3 the seller is better off by not selling at all while obtaining some payments if externalities are much larger than valuations

competitive effect of cross shareholdings in all pay auctions with complete information abstract this paper investigates the competitive effect of cross shareholdings in winner take all all pay auctions with two asymmetric bidders we show that cross shareholdings may paradoxically create a pro competitive effect and elicit more effort than a standard contest without cross ownership this observation runs in contrast to the anti competitive effect that cross shareholdings usually create in standard oligopolistic settings such as cournot or bertrand competitions both bidding costs and the sizes of cross shares affect the resultant total effort non monotonically neither a cross share nor a higher bidding cost necessarily decreases effort supply a complete account of equilibrium bidding behaviors is provided and the necessary and sufficient conditions under which cross shareholdings lead to higher or lower levels of overall effort are identified however the pro competitive effect comes at a loss of efficiency

analysis of protection and pricing strategies for digital products under uncertain demand abstract we analyze pricing and protection digital rights management strategies in a two echelon supply chain that consists of a manufacturer and a retailer of digital products the demand for the legal non pirated product which depends on both price and monetary investment in protection is assumed to be uncertain three different supply chain models are analyzed manufacturer stackelberg retailer stackelberg and vertical integration we show that the retailer s utility function has no effect on the equilibrium strategies and suggest schemes to find these strategies for any utility function of the manufacturer further results are obtained under assumptions of either a multiplicative or an additive demand model we study the players strategies under different profit criteria reflecting different attitudes toward risk specifically the expectation criterion and the target criterion and for each criterion we obtain the dependence between the pricing and the protection investment we show that there are situations in which the manufacturer can increase his profit by giving up his leadership to the retailer even if the power balance is in his favor

piracy on the internet accommodate it or fight it a dynamic approach abstract this paper uses a dynamic stochastic model to solve for the optimal pricing policy of music recordings in the presence of p2p file sharing networks eroding their sales we employ a policy iteration algorithm on a discretized state space to numerically compute the optimal pricing policy the realistically calibrated model reflects the real world figures we observe and provides estimates of the optimal pricing policy as well as comparative statics figures the pricing policy is such that for a given p2p network size prices are increasing in the number of buyers of the product and for a given number of buyers of the product prices are non monotonic in the p2p network size surprisingly in the presence of p2p networks increases in production costs and decreases in the valuation of the product increase the consumer and total surplus a higher valuation of the product leads to a lower steady state price increased switching costs have a negative effect on prices and profits so the long term incentive to attract new consumers dominates the short term incentive to harvest loyal consumers the full enforcement of intellectual property rights has adverse effect on both consumer surplus and total welfare

bid costs and endogenous bid caps we study contests where several privately informed agents bid for a price all bidders bear a cost of bidding that is an increasing function of their bids and moreover bids may be capped we show that regardless of the number of bidders if agents have linear or concave cost functions then setting a bid cap is not profitable for a designer who wishes to maximize the average bid on the other hand if agents have convex cost functions i e an increasing marginal cost then affectively capping the bids is profitable for a designer facing a sufficiently large number of bidders

partnerships and double auctions with interdependent valuations in a symmetric independent private values setting a sealed bid double auction dissolves a partnership efficiently this well known result remains valid in a model with interdependent valuations however if common values components are large agents might prefer not to participate in a double auction therefore a simple extention of the rules of double auctions is suggested that ensures participation even though these modified double auctions are not incentive efficient they still realize gains from trade and can be implemented without knowledge about the specifications of the model

collusive bidder behavior at single object second price and english auctions models of collusive bidder behavior at single object second price and english auctions are provided the ind ependent private values model is generalized to permit the formulatio n of coalitions and a strategic response by the auctioneer cooperati ve strategies are found to be dominant in these models coalitions of any size are viable and the payoff to each member increases with th e size of the coalition in addition the collusive strategies of the coalition represent a noncooperative equilibrium the optimal respon se of the auctioneer is to establish a reserve price that is a functi on of the coalition s size these and other features of the model are found to be consistent with the essential features of actual behavio r copyright 1987 by university of chicago press

takeover contests toeholds and deterrence we consider a setting in which two potential buyers one with a prior toehold and one without compete in a takeover modeled as an ascending auction with participating costs the toeholder is more aggressive during the takeover process because she is also a seller of her own shares the non toeholder anticipates this extra aggressiveness of the toeholder thus he is deterred from participating unless he has a high valuation for the target company this leads to large inefficiency losses for many configurations expected target returns are first increasing then decreasing in the size of the toehold

auction guarantees for works of art abstract this paper addresses the question of whether auction guarantees change the bidding environment and whether they cause a change in price once the value of an item is taken into account we analyze both the cases of third party guarantees and in house guarantees we use two datasets one of christie s and sotheby s contemporary and impressionist evening sales from january 2010 to february 2012 and another larger dataset consisting of all items auctioned at christie s from 2001 to may 2011 while more expensive items are more likely to have guarantees we find little empirical evidence to suggest an effect on price from the guarantee itself once the value of the item is taken into account

on the continuous equilibria of affiliated value all pay auctions with private budget constraints abstract we consider all pay auctions in the presence of interdependent affiliated valuations and private budget constraints for the sealed bid all pay auction we characterize a symmetric equilibrium in continuous strategies for the case of n bidders budget constraints encourage more aggressive bidding among participants with large endowments and intermediate valuations we extend our results to the war of attrition where we show that budget constraints lead to a uniform amplification of equilibrium bids among bidders with sufficient endowments an example shows that with both interdependent valuations and private budget constraints a revenue ranking between the two auction formats is generally not possible equilibria with discontinuous bidding strategies are discussed

optimal strategic pricing of reproducible consumer products this paper investigates the strategic pricing of consumer durable products which can be acquired through either purchase or reproduction e g computer software as copy piracy results in an opportunity loss its adverse effect on profits needs to be incorporated in strategic decisions such as pricing using a dual diffusion model which parsimoniously describes sales and copying and employing control theory methodology optimal price trajectories are derived for the period of monopoly the results indicate that a in absence of any protection skimming pricing strategies are generally optimal and b copy protection is warranted only when sales diffuse much faster than copying and the protection technology does not significantly raise the marginal production cost

optimal policies of yield management with multiple predetermined prices it is a common practice for industries to price the same products at different levels for example airlines charge various fares for a common pool of seats seasonal products are sold at full or discount prices during different phases of the season this article presents a model that reflects this yield management problem the model assumes that 1 products are offered at multiple predetermined prices over time 2 demand is price sensitive and obeys the poisson process and 3 price is allowed to change monotonically i e either the markup or markdown policy is implemented to maximize the expected revenue management needs to determine the optimal times to switch between prices based on the remaining season and inventory major results in this research include 1 an exact solution for the continuous time model 2 piecewise concavity of the value function with respect to time and inventory and 3 monotonicity of the optimal policy the implementation of optimal policies is fairly facile because of the existence of threshold points embedded in the value function the value function and time thresholds can be solved with a reasonable computation effort numerical examples are provided

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

asymmetric price benefits auctions abstract this paper studies the performance of two auction procedures for allocating the assets of a dissolving partnership when partners valuations for the assets are independent and asymmetrically distributed with one partner reputed to be more interested in the assets to be divided we provide results on existence and uniqueness of the equilibrium induced by these auctions comparative statics are developed especially the differences between relative efficiency and revenue from the two auctions journal of economic literature classification numbers c72 d39 d44 d52 d74 d82

on the efficient provision of public goods by means of biased lotteries the two player case in this paper we analyze how biased lotteries can be used to overcome the free riding problem in voluntary public good provision we characterize the optimal combinations of bias and lottery prize and the conditions that guarantee efficient public good provision in equilibrium

initial shareholdings and overbidding in takeover contests within the context of takeovers this paper shows that in private value auctions the optimal individually rational strategy for a bidder with partial ownership of the item is to overbid i e to bid more than his valuation this strategy however can lead to i an inefficient outcome and ii the winning bidder making a net loss further the overbidding result implies that the presence of a large shareholder increases the bid premium in single bidder takeovers at the expense of reducing the probability of the takeover actually occurring

digital pricing with piracy and variety seeking abstract this paper aims to explore behavioral digital pricing which incorporates realistic consumer behavior into firms pricing and anti piracy investment models we consider a duopoly market with an original company and a pirated group selling digital products the demand is sensitive to both parties prices we extend the traditional hotelling model by taking into account the effects of externality on both parties we then propose three types of price competition games i cournot model ii stackelberg model with the original company as the leader and iii the stackelberg model with the pirated group as the leader in model ii if the value of externality effects is lower than a threshold the original company will benefit from the government anti piracy policy that tolerates some piracy finally we investigate the behavior of consumer variety seeking in a two period cournot model with the presence of variety seeking both the original and pirated parties will adopt higher prices in the first period surprisingly variety seeking brings higher profits to both parties in two periods

gambling by auctions abstract we provide theoretical and empirical analysis of a selling mechanism used by an internet web site that combines important features of auctions and gambling this is the first analysis of such a selling mechanism which provides insights into how the two kinds of behavior might be related in real life the winner of the object is the bidder with the highest bid not submitted by any other bidder in the equilibrium of our game theoretical model each bid made with positive probability yields the same probability of winning bidders are more likely to submit higher bids and the bid distribution does not depend on the value of the object or the highest bid allowed if one controls for the number of bidders most of these key theoretical predictions are confirmed by the data

the effect of piracy on the market penetration of subscription software software piracy is not necessarily harmful to a software firm seeking to launch a new product when strategically managed through the use of price and protection measures piracy establishes the initial adopters of the software who in turn influence other users to buy the product we examine the role of piracy in affecting the adoption of subscription software products we present an individual level model in an adaptive population setting intended to determine the price protection mix that maximizes the discounted profit stream over the life of the software an extension for nonsubscription software is also discussed

should lotteries offer discounts on multiple tickets in a complete information setting we show that the standard lottery in which each lottery ticket is offered for the same price is an optimal fundraising mechanism in the presence of strong asymmetries in the way bettors value the prize and the public good provided with the lottery proceeds when participants are more homogeneous it is optimal to offer discounts for the purchase of multiple tickets

the impact of discrete bidding and bidder aggressiveness on sellers strategies in open english auctions reserves and covert shilling in practice the rules in most open english auctions require participants to raise bids by a sizeable discrete amount furthermore some bidders are typically more aggressive in seeking to become the current bidder during competitive bidding most auction theory however has assumed bidders can place any tiny continuous bid increase and recommend as optimal the tiniest possible increase this article examines how incorporating discrete bidding and bidder aggressiveness affect optimal strategies for an important decision for auction sellers which is setting the lowest acceptable bid at which to sell the property we investigate two alternative methods sellers often use to enforce this decision these are setting an irrevocable reserve before the auction and covert shilling where the seller or confederates pose as bona fide bidders and raise bona fide bids unsuspected by bidders these optimal strategies interest auction participants especially sellers who must recognize the bidding rules and bidder aggressiveness they will encounter in actual auctions we also examine how these strategies change with the auction context such as the number of bidders and how they differ from corresponding strategies already identified for continuous bidding our model examines open english auctions where bidders have independent private valuations we find that discrete bidding does affect these strategies as does the aggressiveness of the bidder with the highest valuation relative to the average aggressiveness of all other remaining bidders we identify the seller s optimal discrete reserve and show that if the highest valuator is relatively more less aggressive this increases decreases from the optimal continuous reserve and also increases decreases as the number of bidders increases with continuous bidding by contrast this reserve is invariant to the number of bidders as this bidder becomes relatively more aggressive for a given number of bidders the optimal discrete reserve increases while as he or she becomes less aggressive the seller s expected auction utility increases which increases the set of auctions where discrete bidding generates higher seller welfare than continuous we propose a covert shilling model that requires shilling sellers and any confederates and auctioneers to outwardly act no differently than with reserves to avoid detection we identify cases where the seller optimally shills once the bona fide bidding has stopped and identify the corresponding optimal point to stop shilling and accept the next bona fide bid if offered this stopping point does not depend on where bona fide bidding stops or aggressiveness or the number of bidders or on whether shill bids alternate with bona fide bids or are consecutively entered we also find that the optimal lowest acceptable bid with shilling can be higher lower than that with reserves if the highest valuator is sufficiently unaggressive aggressive by comparison in continuous bidding shilling and reserves yield identical lowest acceptable bids sometimes the seller using a shilling strategy optimally should not shill at all and instead accept the bid where bona fide bidding stops this can occur when that bid or the number of bidders is sufficiently high or when the highest valuator is as or less aggressive than other bidders optimal shilling can be as practical to implement as reserves because it does not require sellers to have any information beyond that needed in a reserve auction if sellers shill optimally they can never be worse off compared to using a reserve and can be better off shilling can make bidders worse off but can also make them better off when the seller using a shilling strategy optimally accepts bids below the optimal reserve in these latter cases shilling pareto dominates reserves ex ante we provide numerical examples to illustrate these results we discuss how our results might be affected if shilling is not covert or bidders valuations have a common value component rather than being independent or by the rules used in many discrete bid internet auctions

endogenous participation in charity auctions abstract data from a recent field experiment suggests that differences in participation rates are responsible for much of the variations in charity auction revenues across formats we provide a theoretical framework for the analysis of this and other related results the model illustrates the limits of previous results that assume full participation and introduces some new considerations to the choice of auction mechanism it also implies however that the data cannot be explained in terms of participation costs alone there must exist mechanism specific obstacles to participation

perishable asset revenue management with markovian time dependent demand intensities many industries face the problem of selling a fixed stock of items over a finite horizon these industries include airlines selling seats before planes depart hotels renting rooms before midnight theaters selling seats before curtain time and retailers selling seasonal items with long procurement lead times given a sunk investment in seats rooms or winter coats the objective for these industries is to maximize revenues in excess of salvage value when demand is price sensitive and stochastic pricing is an effective tool to maximize expected revenues in this paper we address the problem of deciding the optimal timing of price changes within a given menu of allowable possibly time dependent price paths each of which is associated with a general poisson process with markovian time dependent predictable intensities we show that a set of variational inequalities characterize the value functions and the optimal possibly random time changes in addition we develop an efficient algorithm to compute the optimal value functions and the optimal pricing policy

on optimal reservation prices in auctions the theory of auction design examines how various factors affect the outcome of an auction most of the existing literature focuses on how varying the amount of information available to each bidder affects the bid taker s expected revenue when all other factors remain constant this paper studies how the bid taker s expected revenue varies with changes in the auction format when such changes affect the number of bidders and in turn the bidders maximum value for the object being sold specifically we examine how varying the reservation price or screening level affects the bid taker s expected revenue though its effect on the number of bidders for two simple examples the losses associated with a reduced number of bidders outweighs any benefits that nontrivial reservation prices might have had in models with an exogonously set number of bidders

how not to raise money we show that standard winner pay auctions are inept fund raising mechanisms because of the positive externality bidders forgo if they top another s high bid revenues are suppressed as a result and remain finite even when bidders value a dollar donated the same as a dollar kept this problem does not occur in lotteries and all pay auctions where bidders pay irrespective of whether they win we introduce a general class of all pay auctions rank their revenues and illustrate how they dominate lotteries and winner pay formats the optimal fund raising mechanism is an all pay auction augmented with an entry fee and reserve price

optimal starting times for end of season sales and optimal stopping times for promotional fares many industries face the problem of selling a fixed stock of items over a finite horizon these industries include airlines selling seats before planes depart hotels renting rooms before midnight theaters selling seats before curtain time and retailers selling seasonal goods such as air conditioners or winter coats before the end of the season given a fixed number of seats rooms or coats the objective for these industries is to maximize revenues in excess of salvage value when demand is price sensitive and stochastic pricing is an effective tool to maximize revenues in this paper we address the problem of deciding the optimal timing of a single price change from a given initial price to either a given lower or higher second price under mild conditions we show that it is optimal to decrease resp to increase the initial price as soon as the time to go falls below resp above a time threshold that depends on the number of yet unsold items

on the evolution of prize perceptions in contests abstract we apply an indirect evolutionary approach to players perceived prize valuations in contests evolution in finite populations leads to preferences that overstate the prize s material value and induce overexpenditure we establish an equivalence between evolutionarily stable strategies and the behavior induced by evolutionarily stable preferences

optimal pricing and quantity of products with two offerings this paper analyzes the decision of a firm offering two versions of a product a deluxe and a regular while both products satisfy the same market the deluxe version is sold at a high price relative to its cost and is aimed at the high end of the demand curve the regular version is sold at a low price relative to its cost and is targeted to customers at the low end of the demand curve this two offering strategy is especially popular with book publishers where a paperback book is introduced some time after the hardbound version is introduced the time between the introduction of the two versions of the product is accompanied by a downward shift in the demand curve due to customers losing interest in the product or satisfying their demand from a secondary used market we solve a profit maximization model for a firm using a two offering strategy the model is solved for linear and exponential deterioration in demand which is assumed to be deterministic also a model with linear deterioration in demand which is assumed to be stochastic is solved the results indicate that substantial improvements in profit can be obtained by using the two offering strategy numerical sensitivity analysis and examples are used to illustrate the results

auctions with price proportional benefits to bidders after some auctions including amish estate sales and buyer rings knockout auctions each bidder receives a share of the revenue generated by the auction we show that in the symmetric case equilibrium bids in both first price sealed bid auctions and oral auctions increase as each bidder s share increases in the case of independent signals oral auctions result in higher expected equilibrium prices than do first price sealed bid auctions journal of economic literature classification number d44

industrial pricing theory and managerial practice we organize the existing theoretical pricing research into a new two level framework for industrial goods pricing the first level consists of four pricing situations new product competitive product line and cost based the second level consists of the pricing strategies appropriate for a given situation for example within the new product pricing situation there are three alternative pricing strategies skim penetration and experience curve pricing there are a total of ten pricing strategies included in the framework we then identified a set of cost product market and information conditions which determine what pricing situation s a firm is facing as well as which strategies are appropriate within a given situation some of these determinant conditions are common to many pricing strategies e g highly elastic demand while others are unique to a given strategy within a particular pricing situation for example within the product line situation the profitability of supplementary sales is a unique determinant of the complementary product pricing strategy razor and blade pricing using this framework as a basis for an empirical study we examined how well current industrial pricing practice matches the prescriptions from the existing research our sample consisted of 270 respondents 27 response rate of these more than 50 indicated that they used more than one pricing strategy in formulating their most recent pricing decision for a high value industrial product sold in the united states as in previous research cost plus pricing was the most often cited pricing strategy 56 of the respondents since the respondents were able to indicate their use of more than one pricing strategy the data are of the pick k from n variety in order to model the managers pricing strategy choices we constructed a stacked binary logit with a separate observation for each strategy within a given pricing situation the signs of the determinant variables were estimated as interaction terms the new product pricing strategies skim penetration experience curve were used for new models in the market skim pricing was used in markets with high levels of product differentiation by firms at a cost disadvantage due to scale penetration pricing was used by firms with a cost advantage due to scale in markets with high level of overall elasticity but low brand elasticity experience curve pricing was used for minor innovations by firms with low capacity utilization in markets with a high level of differentiation the competitive pricing strategies leader parity and low price supplier were used in mature markets parity pricing was used by firms in a poor competitive situation i e high costs low market share low product differentiation these firms were also unable to take advantage of high levels of elasticity since their capacity utilization was high in contrast the low price supplier strategy was used by firmswith low costs due to scale advantages since they have low utilization these firms can take advantage of elastic brand demand none of the determinants were significantly related to the choice of leader pricing product line pricing strategies bundling complementary product and customer value pricing were more likely to be used by firms which sell substitute or complementary products bundle pricing was used for per sale contract pricing in markets with high levels of brand elasticity complementary product pricing razor and blade was used by firms that enjoyed high profitability on its supplementary sales using customer value pricing a firm offers a stripped down version of its current products to appeal to more price sensitive segments or to leverage new distribution channels this strategy was used to target a narrow segment in high growth markets where price changes are difficult to detect cost based pricing was more likely to be used in marketswhere demand is very difficult to estimate in such a situation cost based pricing makes a great deal of sense in general the results show that the managers pricing strategy choices are consistent with normative pricing research however questions about how managers combine their strategies to arrive at a final price as well as the organizational influences on pricing strategies remain important areas for future research

when less is more rationing and rent dissipation in stochastic contests this paper shows how to maximize revenue when a contest is noisy we consider a case where two or more contestants bid for a prize in a stochastic contest where all bidders value the prize equally we show that whenever a tullock contest yields under dissipation the auctioneer s revenue can be increased by optimally fixing the number of tickets in particular in a stochastic contest with proportional probabilities it is possible to obtain almost full rent dissipation we test this hypothesis with a laboratory experiment the results indicate that as predicted revenue is significantly higher in a lottery with rationing than in a standard lottery on the other hand an alternative rationing mechanism that does not limit total expenditures fails to increase revenue relative to a standard lottery

private information and altruism in bidding roscas this article studies how altruism improves allocations in a private information environment where strategic behaviour reduces economic welfare a theoretical analysis establishes that in an environment characterised by uncertainty and private information outcomes of auctions in rotating savings and credit associations roscas are more efficient when bidders preferences are altruistic rather than selfish a semi parametric structural estimation technique for rosca auctions is presented a parametric structural estimation identifies interactions between group characteristics and bidder altruism it is found that effective leadership and intra group diversity are associated with a greater extent of bidder altruism and thus more efficient intra rosca allocations

on the profitability of reducing competition in all pay auctions with risk averse bidders abstract in an all pay auction with risk averse bidders the seller s revenue is decreasing in the number of competitors if either the bidders are very risk averse or the distribution for the valuations attaches probability almost one to a single value

containing piracy with product pricing updating and protection investments we consider a monopolistic producer offering software that is updated periodically but by the end of one period a pirated version is available at a transaction cost this presents the consumers who are different in terms of their willingness to pay for the original compared to the pirated version with possible strategies for either buying a new product or pirating it we address pricing and protection investment strategies to regain the profits affected by the piracy in particular we find that even when the transaction cost is exogenous the producer does not necessarily want to fully price out the piracy the decisive factor in such a case is the level of product newness relative to the transaction cost if the producer is able to achieve high newness for the updated product relative to the transaction cost then a high retail price ensures that he will gain the largest profit possible even though some of the demand will be lost due to piracy on the other hand when the transaction cost is endogenous the producer may have two alternatives in terms of profit for dealing with the piracy pricing the software out or investing heavily in software protection as newness levels rise the option of pricing out the piracy becomes increasingly preferable

rank order competition in the voluntary provision of impure public goods publicly provided goods often create differential payoffs due to timely or spatial distances of group members we design and test a provision mechanism which utilizes rank competition to mitigate free riding in impure public goods in our rank order voluntary contribution mechanism rank order vcm group members compete via observable contributions for a larger share of the public good high contributors receive preferential access a larger share while low contributors receive restricted access a lower share in a laboratory experiment rank order vcm elicits median contributions equal to the full endowment throughout the finitely played games with constant groups in the control treatment with randomly assigned ranks the contributions are significantly lower and decline over time we thus provide evidence of rank competition in situations where discriminatory access to public goods is possible being efficiency enhancing

the 1985 ohio thrift crisis the fslic s solvency and rate contagion for retail cds this paper uses both an arima transfer function intervention model and a panel data analysis to examine the effect of the ohio deposit insurance crisis in 1985 on the pricing of six month retail certificates of deposit cds for federally insured ohio banks and savings and loans adjusting for pricing reactions due to changes in market rates we find a significant unanticipated rise in cd rate premiums on the initial event week of the crisis that continued for approximately seven weeks consistent with a contingent insurance guarantee hypothesis rate premiums are found to be risk based from both a regulator s and a bank manager s perspective it is important to understand the nature of depositors reactions to a depository institution crisis recent events including large real estate loan losses for major banks the rhode island deposit insurance crisis and the general accounting office s gao announcement that a large bank failure or a severe recession could jeopardize the solvency of the federal deposit insurance corporation fdic have renewed debate over the potential for a widespread loss of confidence in the banking system in particular concern has been expressed over the potential for instability in retail deposit markets in a deregulated environment see smith 1984 1

loan sales and the cost of bank capital this paper considers a model where banks may improve the returns on loans by monitoring borrowers bank regulation together with competitive deposit and equity financing can give banks an incentive to sell loans but the extent of their loan selling is limited by a moral hazard problem a solution is given for the optimal design of the bank loan buyer contract that alleviates this moral hazard problem an explanation is also given as to why some banks might buy loans and why loan sales volume has recently increased banks practice of making loans and then selling them to other institutions and individuals has grown in popularity an important example in the development of loan selling has been the increase in banks mortgage loans that are insured and pooled under the authority of the government national mortgage association gnma and then sold to secondary market investors recently however there has been a dramatic rise in the volume of other types of loans being sold especially by money center banks portions of commercial loans originated by these larger banks are being sold to smaller banks foreign banks and other financial and nonfinancial institutions in addition banks car loans and credit card receivables have also been pooled and sold to institutions and individuals selling loans that were once considered nonmarketable assets a process that has been termed asset securitization may be signalling the start of a fundamental change in the commercial banking business the leading banks in loan selling operations now view themselves more as originators and distributors of loans rather than as institutions holding loans as assets the potentially large impact of loan sales on the future of commercial banking naturally evokes the question of what incentives exist for banks to sell loans in this paper we show that loan sales allow some banks to finance loans less expensively than by traditional deposit or equity issue because bank funds received via loan sales can avoid costs associated with required reserves and

optimal auctions with asymmetric financial externalities abstract this paper studies optimal auction design with asymmetric linear financial externalities among bidders when the matrix that relates bidders payoffs to their payments is nonsingular the payment related component in the design objective must equal a unique linear combination of its counterparts in bidder s payoffs if all multipliers of the linear combination are nonnegative a modified myerson procedure is discovered for deriving the optimal design if any multiplier is negative an arbitrarily high value can be achieved for design objective by setting proper fixed transfers to bidders when the matrix is singular the unbounded optimum result typically prevails we applied our method to auctions with cross shareholdings and charity auctions for revenue maximizing and efficient designs

optimal allocation without transfer payments abstract often an organization or government must allocate goods without collecting payment in return this may pose a difficult problem either when agents receiving those goods have private information in regards to their values or needs in this paper we find an optimal mechanism to allocate goods when the designer is benevolent while the designer cannot charge agents he can receive a costly but wasteful signal from them we find conditions for cases in which ignoring these costly signals by giving agents equal share or using lotteries if the goods are indivisible is optimal in other cases those that send the highest signal should receive the goods however we then show that there exist cases where more complicated mechanisms are superior also we show that the optimal mechanism is independent of the scarcity of the goods being allocated

asset returns and economic disasters evidence from the s l crisis abstract this paper shows that depositors lost confidence in fslic during the two years prior to passage of firrea legislation which recapitalized the deposit insurance fund in 1989 during this period promised returns on retail cds reflected the expected loss and return standard deviation on these securities in the absence of government insurance cross sectional analysis is used to estimate both the probability and the conditional price of risk associated with fslic default the results suggest that increased uncertainty about both output and inflation in this disaster scenario drove the price of fslic default risk to extremely high levels the results also indicate that the market for retail deposits is characterized by less than perfect arbitrage across geographical regions

buybacks with costly participation abstract posted price offers and first price auctions along with the multi unit discriminatory auction extension are two widely used mechanisms for allocating conservation contracts the choice between the two typically hinges on the trade off between the posted price s simplicity and the potential revenue gains of the auction in this paper we introduce a novel mechanism that attempts to bridge the gap between the performance of posted price offers and auctions a two price and lottery schedule combines the simplicity of the former with some of the flexibility of the latter using a model that incorporates agents cognitive and information costs of bidding we analyze how the ranking of allocative efficiency and cost effectiveness between the mechanisms varies as the wedge of participation costs increases when the number of bidders is endogenously determined by participation costs bid shading associated with a lack of competition in the auction compromises its cost effectiveness vis a vis the posted price and the lottery schedule we use data from three recent buybacks for fishing licenses conducted in maryland to calibrate our model and identify conditions under which the two price schedule outperforms the other mechanisms

the impact of digital channel distribution on the experience goods industry abstract we explore the impact of a digital channel for experience goods on the profitability and behavior of players in the supply chain and on piracy we consider a firm which can sell an experience good in physical form in digitized form or both we analyze different pricing schemes price for whole album on the retail channel and linear and nonlinear pricing for songs on the digital channel consumers are divided into a retail captive segment whose consumers are limited to the retail channel and a hybrid segment whose consumers have access to both retail and digital channels our findings indicate that for realistic problems the dual distribution channel is most profitable the profitability of the retail channel increases with the size of the retail captive segment and the number of desirable songs on an album relative to the total number of songs on it we show that a skimming pricing strategy is best for the retail channel the ability to sell the product in digitized form on the internet erodes much of the power once enjoyed by the record labels the digital channel may be the best way to promote new artists especially when the hybrid consumer segment is large we also find that piracy has a significant effect on channel profits for both the retail and digital channels piracy has the strongest negative impact on the exclusive retail channel consumers access to the digital channel reduces piracy in both digital and dual channel distribution dual channel suffers least from piracy because it allows retail captive consumers to still legally obtain the product

agreeing on efficient emissions reduction we propose a simple contest based mechanism providing incentives to reduce harmful emissions to their efficient level without infringing upon productive efficiency participation in the most stylized form of the scheme is voluntary and individually rational all rules are mutually agreeable and are unanimously adopted if proposed the scheme balances its budget and requires no principal in a perhaps more realistic stochastic output version which could potentially inform policy decisions we show that the transfers required by the efficient mechanism create a mutual insurance motive that can serve as an effective rationale for the gradual formation of international environmental agreements

silent auctions in the field and in the laboratory we analyze data from hundreds of auctions from three field silent auction sessions we focus on the descriptive statistics and on a parametric model of jump bidding we then report data from six laboratory sessions of silent auctions as a controlled environment this allows us to evaluate the auctions in ways not available within the field the laboratory experiments capture essential features of the field sessions and thus comprise a credible laboratory testbed for further examination of institutional perturbations in the silent auction jel d44 h41

auction fever rising revenue in second price auction formats the prevalent term auction fever visualizes that ascending auctions inconsistent with theory are likely to provoke higher bids than one shot auctions to explore and isolate causes of auction fever experimentally we design four different strategy proof auction formats and order these according to expected rising bids based on pseudo endowment effect arguments psychological ownership and disparity between willingness to pay and willingness to accept observed revenues in the experiment in the four formats rank as expected if bidders have private uncertain values the private information of a bidder is the distribution of her value a control treatment supports our view that the traditional private certain values approach prevents auction fever in the laboratory another control treatment with a procurement auction relates the auction fever bids to bids in a one shot auction with real endowments we conclude that when bidders are uncertain about their valuations auctions that foster pseudo endowment may raise bids and revenues

optimal pricing for information goods with piracy and saturation effect we analyze the pricing decision of a firm selling a product for which there is a significant and continuous saturation effect over time and that can be pirated assuming that the firm uses a skimming strategy we solve three profit maximization models given demand that is linearly decreasing in price few prices can be used over the life of the product the effects of both piracy and saturation are combined in the first model in the second model the firm can invest in technology or copyright enforcement to reduce piracy the third model describes the case in which piracy leads to increased awareness of the product and increased demand numerical sensitivity analysis and examples are used to illustrate the results the results indicate that under strong piracy and saturation effects a skimming strategy is suboptimal

monopoly price dispersion under demand uncertainty when a monopolist sets its price before its demand is known then it may set more than one price and limit the availability of its output at lower prices this article adds demand uncertainty and price rigidities to the standard model of monopoly pricing when there are two states of demand and the ex post monopoly price is greater when demand is high then the monopolist s optimal ex ante pricing strategy is to set two prices and limit purchases at the lower price

the generalized war of attrition abstract we model a war of attrition with n k firms competing for n prizes in a natural oligopoly context the k 1 lowest value firms drop out instantaneously even though each firm s value is private information to itself in a standard setting context in which every competitor suffers losses until a standard is chosen even after giving up on its own preferred alternative each firm s exit time is independent both of k and of other players actions our results explain how long it takes to form a winning coalition in politics solving the model is facilitated by the revenue equivalence theorem jel d43 d44 l13 o30

charitable motives and bidding in charity auctions research on bidding in auctions has generally relied on the assumption of self interested bidders this work relaxes that assumption in the context of charity auctions because understanding charitable motives has important implications for auction design and charities fundraising strategies this study investigates bidders specific types of charitable motives and the strength of these motives we carry out three controlled field experiments consisting of real life auctions conducted on a local internet auction site we use a novel design in which we simultaneously run charity and noncharity auctions for identical products and vary the percentage donated to charity results show that auctions with proceeds donated to charity lead to significantly higher selling prices a result due to a higher bidding by bidders with charitable motives rather than to increased bidder entry we also find that increased prices only occur when the charitable donation is a percentage of the auction revenue and that a fixed charitable donation associated with each auction has no effect on prices furthermore we find that prices are increasing in the percentage donated to charity we find considerable support for a model of voluntary shill like bidding where charitable bidders try to increase proceeds in charity auctions we also find that auctions with 25 of revenue donated to charity had higher net revenue than noncharity auctions hence companies may be able to use charity auctions as part of a corporate social responsibility strategy and at the same time increase profitability even though they donate part of the proceeds to charity

jumping and sniping at the silents does it matter for charities abstract despite its popularity as a fundraiser for charities very little research has been done on the bidding and revenue properties of the silent auction this paper examines the consequences of two behaviors common in silent auctions jump bidding and sniping in laboratory experiments with endogenous participation our results suggest that deliberative jumping the result of impatient bidders attempting to telescope time tends to increase revenue while deliberative sniping by experienced bidders tends to decrease it we also show that when charities can encourage jumping and discourage sniping silent auctions can perform as well as their sometimes more entertaining but more expensive alternative the english auction

a taxonomy and research overview of perishable asset revenue management yield management overbooking and pricing this paper proposes the term perishable asset revenue management to denote the field that combines the areas of yield management overbooking and pricing for perishable assets after summarizing the characteristics common to problems in this field the paper discusses the objectives and constraints faced by decision makers then it offers a comprehensive taxonomy with 14 different elements and reviews the research that has been done related to each element finally it suggests some important areas of future research that can help bridge the gap between theory and application

how lotteries outperform auctions in their recent paper goeree et al 2005 determine that all pay auctions are better for fundraising activities than lotteries we show that the introduction of asymmetry among participants with complete information could reverse this result complete information seems well suited to some charity environments

rotating savings and credit associations when participants are risk averse we model rotating savings and credit associations roscas among risk averse participants who experience privately observed income shocks a random rosca is not advantageous whereas a bidding rosca is if temporal risk aversion is less pronounced than static risk aversion the payoff scheme of a bidding rosca facilitates risk sharing in the presence of information asymmetries the risk sharing performance of a simple arrangement where a group of homogenous individuals runs several bidding roscas simultaneously is as good as that of a linear risk sharing contract and is more enforceable because it carries a fixed rather than a variable contribution

comparative analysis of litigation systems an auction theoretic approach a simple auction theoretic framework is used to examine symmetric litigation environments where the legal ownership of a disputed asset is unknown to the court the court observes only the quality of the case presented by each party and awards the asset to the party presenting the best case rational litigants influence the quality of their cases by hiring skilful attorneys this framework permits us to compare the equilibrium legal expenditures that arise under a continuum of legal systems the british rule continental rule american rule and some recently proposed legal reforms are special cases of our model

charity auctions with multiple goods bidding behavior and revenue abstract in a charity auction with multiple goods we show that the highest losing bid uniform price auction revenue dominates its lowest winning bid counterpart only in the highest losing bid uniform price auction is bidding independent of the number of goods and players and revenue increasing in the number of goods

single versus multiple prize all pay auctions to finance public goods an experimental analysis this paper presents an experimental comparison of single and multiple prize all pay auctions as fundraising mechanisms to finance public goods we consider a setting characterized by heterogenous incomes and incomplete information where single and multiple prize incentive mechanisms are predicted to raise the same overall contribution but different contributions by income level we find that overall for a given total prize sum a single large prize generates higher contributions to the public good than three smaller prizes as predicted by the theory a single prize provides a more effective incentive for high income individuals however contrary to the theoretical predictions multiple prizes do not provide a more effective incentive for low income individuals

an analysis of the war of attrition and the all pay auction we study the war of attrition and the all pay auction when players signals are affiliated and symmetrically distributed we a find sufficient conditions for the existence of symmetric monotonic equilibrium bidding strategies and b examine the performance of these auction forms in terms of the expected revenue accruing to the seller under our conditions the war of attrition raises greater expected revenue than all other known sealed bid auction forms journal of economic literature classification numbers d44 d82 1997 academic press

erratumauction guarantees for works of art this paper addresses the question of whether auction guarantees change the bidding environment and whether they cause a change in price once the value of an item is taken into account we analyze both the cases of third party guarantees and in house guarantees we use two datasets one of christie s and sotheby s contemporary and impressionist evening sales from january 2010 to february 2012 and another larger dataset consisting of all items auctioned at christie s from 2001 to may 2011 while more expensive items are more likely to have guarantees we find little empirical evidence to suggest an effect on price from the guarantee itself once the value of the item is taken into account