time aggregation and the distributional shape of unemployment duration this paper reports empirical evidence on the sensitivity of unemployment duration regression estimates to distributional assumptions and to time aggregation the results indicate that parameter estimates are robust to distributional assumptions while estimates of duration dependence are not time aggregation does not seem to have drastic effects on the estimates in a simple parametric model like the weibull but can produce dramatic changes in the more complicated extended generalized gamma model semiparametric models for grouped data produce stable estimates and perform much better than continuous time models in terms of significance at high levels of time aggregation

bilateral trade and shocks in political relations evidence from china and some of its major trading partners 1990 2013 abstract an extensive number of studies investigate the effects of political relations on trade by estimating a gravity model using annual or quarterly data we argue that the use of low frequency data introduces an aggregation bias because the cycle of moderate political shocks is much shorter measured in weeks using monthly data from 1990 through 2013 for china we estimate a model of political relations and conclude that political shocks are short lived narrative evidence from two case studies illustrates the transitory nature of these shocks a var model shows that although political shocks influence exports to china the effects largely vanish within two months a comparison of the monthly and annual frequency gravity equation regressions illustrates the effects of temporal aggregation

the relevant market for production and wholesale of electricity in the nordic countries an econometric study we apply cointegration analysis to daily averages of nord pool prices covering the period 2001 2007 in order to empirically characterize the geographical dimension of the relevant market for production and wholesale of electricity we reach the following econometric conclusions i price areas finland sweden and norway 3 unambiguously belong to the same relevant market ii denmark 2 belongs to this same market except for the subsample 2004 2007 iii norway 1 and denmark 1 define separate markets on their own we find that the stochastic trends in nord pool prices originate in countries abundant in capacity to generate hydro power

efficiency growth and concentration an empirical analysis of hospital markets taking an evolutionary view of markets harold demsetz hypothesized that firms differ persistently in efficiency and that industry concentration results from growth of efficient firms at the expense of inefficient ones we test the hypothesis with high quality microdata from the us hospital industry an industry of keen policy and scientific interest we measure efficiency by firm in the early 1980s and relate it to subsequent growth of efficient firms to the persistence of profit differences and to changes in the concentration of markets initial hospital efficiency and subsequent growth and profitability are significantly and positively related also greater initial variation in hospital efficiency within local markets is positively related to subsequent growth in market concentration these findings support the logic of demsetz s evolutionary efficiency hypothesis though they cannot confirm the stronger idea that variation in firm efficiency is the dominant explanation for changes in concentration

individually rational budget balanced mechanisms and allocation of surplus abstract we investigate the issue of implementation via individually rational ex post budget balanced bayesian mechanisms we show that all decision rules generating a nonnegative expected social surplus are implementable via such mechanisms if and only if the probability distribution of the agents type profiles satisfies two conditions the well known condition of cremer and mclean 1988 full extraction of the surplus in bayesian and dominant strategy auctions econometrica 56 1247 1257 and the identifiability condition introduced in this paper we also show that these conditions are necessary for ex post efficiency to be attainable with budget balance and individual rationality and that the expected social surplus in these mechanisms can be distributed in any desirable way lastly we demonstrate that like cremer mclean condition the identifiability condition is generic if there are at least three agents

modeling inertia and variety seeking tendencies in brand choice behavior theories of exploratory behavior suggest that inertia and variety seeking tendencies may coexist within the individual implying that the same individual may exhibit inertia and variety seeking at different times depending on his her choice history past research has not allowed for such within consumer variability in these tendencies the purpose of this study is to present a choice model that allows us to identify such hybrid behavior i e a mixture of inertia and variety seeking and to distinguish hybrid behavior from simpler types of behavior such as pure inertia pure variety seeking and zero order behavior the model is estimated at the household level using panel data for three product classes covering a total of 1069 households the empirical analysis shows that more than half the households analyzed exhibited hybrid behavior rather than simpler types of behavior

aggregation of exponential smoothing processes with an application to portfolio risk evaluation in this paper we propose a unified framework to analyse contemporaneous and temporal aggre gation of exponential smoothing ewma models focusing on a vector ima 1 1 model we obtain a closed form representation for the parameters of the contemporaneously and temporally aggregated process as a function of the parameters of the original one in the framework of ewma estimates of volatility we present an application dealing with value at risk var pre diction at different sampling frequencies for an equally weighted portfolio composed of multiple indices we apply the aggregation results by inferring the decay factor in the portfolio volatility equation from the estimated vector ima 1 1 model of squared returns empirical results show that var predictions delivered using this suggested approach are at least as accurate as those obtained by applying the standard univariate riskmetricstm methodology

the nature and extent of the market for high quality beef in japan before the abolition of import quotas it is examined whether wagyu beef produced in japan and high quality beef produced in the united states and exported to japan are components of the same product market in addressing this issue an approach is used for defining the nature and extent of a product market relying on the concept of instantaneous causality the results for selected cuts of beef suggest that the markets are in fact separate

a note on the estimation of the demand for sugar in the usa in the presence of measurement error in the data inaccuracy in the measurement of the price data for the substitute sweeteners for sugar is a problem encountered in the estimation of the demand for sugar two diagnostics are introduced to assess the effect that this measurement error has on the estimated coefficients of the sugar demand relationship the regression coefficient bounds diagnostic is used to indicate a range in which the true price responsiveness of consumers to changes in the price of sugar substitutes lies the bias correction factor is computed to evaluate the magnitude of the overestimation of the responsiveness of the quantity of beverage sugar and non beverage sugar demanded to a change in the price of sugar

balanced bayesian mechanisms in the transferable utility case a number of authors have identified conditions on beliefs that guarantee the existence of bayesian incentive compatible mechanisms with balanced transfers we present a new easy to interpret condition and we show that it is strictly more general than all the other conditions found in the literature we also study conditions guaranteeing the bayesian implementability of all social decision rules with balanced budget mechanisms

how variety seeking versus inertial tendency influences the effectiveness of immediate versus delayed promotions abstract four studies investigate 1 whether a variety seeking versus inertial environment activates a certain mind set about risk propensity and 2 whether this mind set influences preferences for immediate versus delayed promotions study 1 demonstrates that a variety seeking environment activates a risk taking mind set whereas an inertial environment activates a risk averse mind set and that such a difference in risk propensity makes a delayed immediate promotion relatively more appealing for consumers with a variety seeking inertial tendency study 2 reveals that preferences for a brand offering a delayed promotion are stronger when consumers have a variety seeking tendency and that preferences of consumers low vs high in need for cognitive closure are more influenced by the difference in variety seeking versus inertial tendency study 3 provides further insights by allowing participants to be variety seeking or inertial and by controlling for redemption effort and the hedonic utilitarian as

common trends and common cycles the existence of a serial correlation common feature among the first differences of a set of i 1 variables implies the existence of a common cycle in the beveridge nelson stock watson decomposition of those variables a test for the existence of common cycles among cointegrated variables is developed the test is used to examine the validity of the common trend common cycle structure implied by flavin s excess sensitivity hypothesis and campbell and mankiw s mixture of rational expectations and rule of thumb hypothesis for consumption and income linear independence between the cointegration and the cofeature vectors is exploited to decompose consumption and income into their trend and cycle components copyright 1993 by john wiley sons ltd

estimating the degree of market integration existing tests of spatial market integration are commonly based on statistical criteria without an explicit link to an economic model of price determination this article proposes new measures of market integration defined directly in terms of a well known spatial price determination model and develops an econometric methodology for estimating these measures due to the intractability of the conditional density function of prices we use indirect inference to estimate the model parameters and market integration measures the methodology is illustrated with simulated data and is applied to soybean price data for the united states brazil and the eu copyright 2008 oxford university press

a model of stochastic variety seeking in this paper we propose and test a stochastic model of consumer choice that incorporates attribute based variety seeking our stochastic variety seeking model svs has nested within it a fixed variety seeking model a zero order model of choice and a first order pure variety model we compare the svs model to alternative models under stochastic variety seeking we examine the nature of the variety sought and provide a test of the satiation hypothesis unlike fixed variety seeking models our model allows variety seeking to vary in intensity and consistency over individuals as well as over purchase occasions we show that the model is equivalent to a random utility model with the features that the attributes of brands relative to those of the brand previously bought influence choice and the extent of variety seeking is random over choice occasions for a given individual the model permits a closed form solution to the conditional switching probabilities parameterized by variety seeking parameters and dependent on brand attributes we apply our model to individual choice data obtained from a field study specifically designed for the purpose at hand

integration of multiple national markets for electricity the case of norway and sweden during the second part of the 1990s the nordic denmark finland norway and sweden countries have created a unique multinational market for electricity this paper aims to analyse the degree of integration of the different national markets that constitute the nordic electricity market in particular the norwegian and swedish wholesale and retail electricity markets are analysed the results suggest that the wholesale markets are well integrated thus prices differ significantly only during periods with unusually high or low supply of hydropower however the retail markets are not integrated to the same degree thus retail prices and trade margins differ significantly differences in the national electricity market legislation seem to be a key factor behind these differences

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

some consequences of temporal aggregation in empirical analysis i derive the generating mechanism of a temporally aggregated process when the disaggregated one belongs to the vector autoregressive integrated moving average class i then study the effects of temporal aggregation on a set of characteristics of usual interest such as exogeneity causality cointegration and common features an empirical example with canadian interest rates illustrates the main issues

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

efficiency despite mutually payoff relevant private information the finite case individuals have or observe partly private information they independently choose acts possibly including messages the center may also act individuals utilities may depend on all acts and information including others private information are there incentives depending only on public information that make desired behavior a bayesian equilibrium assume incentive payments are separable and fully transferable appropriate incentives exisit either if the center s information depends stochastically however slightly on all relevant private information or if individuals relative valuations of acts however divergent are not too dissimilarly affected by different states of nature more generally one gives necessary and sufficient conditions for existence whenever the strategy profile asks agents to reveal all private knowledge relevant to their beliefs about the center s information

antitrust and merger policy a review and critique a ny antitrust policy that tries to put some restrictions on mergers must have a conceptual basis one such framework might be a populist approach in which only absolute or relative size of the merger partners and or the resulting entity would be the criterion political rhetoric often embodies this approach an alternative approach the one that underlies the 1982 department of justice merger guidelines concerns itself with the possible exercise of market power 1 i believe this second approach is more consistent with the language of section 7 of the clayton act itself which instructs the department of justice and the federal trade commission to prevent those mergers the effects of which may be substantially to lessen competition or to tend to create a monopoly this market power approach also places merger policy in a realm that is susceptible to economic analysis for this reason as well this approach appeals to me the merger guidelines are firmly rooted in the standard oligopoly theory developed by chamberlin 1933 fellner 1949 and stigler 1964 and strengthened

variety seeking through brand switching a concept of variety seeking behavior is modeled as a stochastic brand choice model the model yields a measure of variety seeking for each individual consumer panel data for 28 products are analyzed for each household and the possibility of market segmentation by variety seeking behavior is explored

research note consumer addressability and customized pricing the increasing availability of customer information is giving many firms the ability to reach and customize price and other marketing efforts to the tastes of the individual consumer this ability is labeled as consumer addressability consumer addressability through sophisticated databases is particularly important for direct marketing firms catalog retailers such as l l bean and land s end credit card issuing banks and firms in the long distance telephone market we examine the strategic implications of consumer addressability on competition between database direct marketing firms we address questions such as in a competitive environment how should firms invest in addressability will future improvements in the degree of addressability increase or mitigate the intensity of competition between the firms will greater addressability always be beneficial for firms we model competition between two firms in a market where consumers differ on a horizontal attribute of product differentiation the market comprises consumers located on a linear attribute space and firms located at the ends of the line we represent the degree of addressability or the reach of a firm s database as the proportion of consumers at each point in the market who are in the firm s database consequently the firm can offer these consumers customized prices consumer addressability creates two effects that govern the competition between firms a surplus extraction effect because a firm might address a consumer who is not reached by its competitor and a competitive effect that is created by the set of consumers who can be addressed by both firms the key results of the paper pertain to when the addressability decision is endogenous when the extent of market differentiation or consumer heterogeneity in preferences for a product brand attribute as well as the incremental cost of addressability are sufficiently large firms make symmetric investments in equilibrium given high costs firms choose sufficiently low levels of addressability low addressability and high levels of market differentiation both help reduce price competition which facilitates symmetric choice of addressability by the firms in equilibrium however when market differentiation and the cost of incremental addressability become small firms face the prospect of destructive competition as a result they strategically differentiate in their choice of addressability to mitigate this competition interestingly even in the extreme case when incremental addressability is costless not every firm chooses full addressability in equilibrium this has useful implications for direct marketing given that the advances in information technology should improve the ability of firms to address their consumers it might indeed not be desirable for all direct marketing firms to indefinitely pursue greater addressability as costs of doing so decline the analysis also shows an interesting effect of market differentiation in addressable markets equilibrium profits can decrease with an increase in market differentiation when the marginal cost of addressability is sufficiently high finally we discuss the competitive outcome that would result when firms compete with addressable as well as uniform posted prices

modeling consumer demand for variety consumers are often observed to purchase more than one variety of a product on a given shopping trip the simultaneous demand for varieties is observed not only for packaged goods such as yogurt or soft drinks but in many other product categories such as movies music compact disks and apparel multinomial mn choice models cannot be applied to data exhibiting the simultaneous choice of more than one variety the random utility interpretation of either the mn logit or probit model uses a linear utility specification that cannot accommodate interior solutions with more than one variety alternative chosen to analyze data with multiple varieties chosen requires a nonstandard utility specification standard demand models in the economics literature exhibit only interior solutions we propose a demand model based on a translated additive utility structure the model nests the linear utility structure while allowing for the possibility of a mixture of corner and interior solutions where more than one but not all varieties are selected we use a random utility specification in which the unobservable portion of marginal utility follows a log normal distribution the distribution of quantity demanded the basis of the likelihood function is derived from these log normal random utility errors the likelihood function for this class of models with mixtures of corner and interior solutions is a mixed distribution with both a continuous density portion and probability mass points for the corners the probability mass points must be calculated by integrals of the log normal errors over rectangular regions we evaluate these high dimensional integrals using the ghk approximation we employ a bayesian hierarchical model allowing household specific utility parameters our utility specification related to the approach of wales and woodland 1983 who employ a translated quadratic utility function wales and woodland were only able to study at the most three varieties because there was no practical way to evaluate the utility function at that time in addition the quadratic utility specification is not a globally valid utility function making welfare computations and policy experiments questionable hendel 1999 and dube 1999 present an alternative approach in the utility function which is constructed by summing up over unobservable consumption occasions while only one variety is consumed on each occasion the marginal utilities of varieties change over the consumption occasions giving rise to a simultaneous purchase of multiple varieties our bayesian inference approach allows us to obtain individual household estimates of utility parameters household utility estimates are used to compute the value of each variety we compute a compensating value for the removal of each flavor that is we compute the monetary equivalent of the household s loss in utility from removal of a flavor these calculations show that households highly value popular flavors and would incur substantial utility losses from removal of these flavors from the yogurt assortment next we consider the implications of our model for retailer assortment and pricing policies given limited shelf space only a subset of the possible varieties can be displayed for purchase at any one time if consumers value variety then a retailer with lower variety must compensate the consumers in some way such as a lower price level we see this trade off between price and variety across different retailing formats discount or warehouse format retailers often have both lower variety and lower prices to measure this trade off we explore the utility loss from reduction in variety and find the reductions in price that will compensate for this utility loss these price reduction calculations must be based on a valid utility structure heterogeneity in tastes is critical in these utility computations and policy experiments we find that a relatively small fraction of households with extreme preferences dominate the compensating value computations that is some households are observed to purchase mostly or exclusively one variety these households must be heavily compensated for the removal of this variety from the assortment in some retailing contexts customization of the assortment is possible at the customer level we show that such customization virtually eliminates any utility loss from reduction in variety

economic policy uncertainty and dollar pound exchange rate return volatility abstract the extent to which economic policy uncertainty epu amplifies exchange rate volatility has been an important research question for at least a decade previous research has investigated this relationship using monthly data concluding that epu imparts an effect on exchange rate volatility either contemporaneously or with a one month lag the use of monthly frequency however may not provide an accurate causal interpretation and may even compromise the accuracy of the estimates if the natural cycles of epu are shorter than a month to address this econometric concern i construct uncertainty measures at a daily frequency and estimate a garch model using daily usd british pound returns the evidence indicates that epu contributes to exchange rate volatility much more quickly than monthly data can detect using a regression technique for separating epu from non policy economic uncertainty i find that non policy market uncertainty increases volatility more than epu does

on the internal contradictions of the law of one price as stated originally the venerable law of one price succinctly describes long run equilibrium in a perfectly competitive market the law was later amended defining a market as the geographic area within which the same thing sells for the same price at the same time allowance being made for transportation costs modified in that way the law has two plausible interpretations by one interpretation every production site is a market by the other prices in fact do not differ by transportation costs the transportation cost amendment thus introduces internal contradictions that render the revised law of one price either useless or wrong jel d40 l10 a market according to the masters is the area within which the price of a commodity tends to uniformity allowance being made for transportation costs that is two places are in the same market for a good if the prices at the two places differ by transportation costs stigler 1987 77 economic terms seem to pass in their historical development through a series of stages which without pretension to rigidness may be described as follows first no definition is given but it is assumed that every one has a sufficiently clear idea of the subject to make a formal definition unnecessary second a definition is attempted and a number of exceptional forms are noted third with the further increase of data the relative importance of the various forms changes confusion in discussion is introduced logomachy takes the place of constructive investigation fourth a complete classification of the forms embraced under the original term is made and problems are investigated with reference to these classes the bewildering vagueness of economic theory is largely due to the fact that the terms used are in all of these stages of development moore 1906 211 i introduction delineating the boundaries of markets engaged economists attention early on many product attributes are important to consumers but price is an objectively measurable margin along which rivalry is sharply engaged market prices transmit information about changing demand and supply conditions to buyers and sellers and widening price cost margins signal profit opportunities to which alert entrepreneurs respond price consequently has held center stage in economists attempts to define markets augustin cournot 1927 51 for instance wrote that a market is the entire territory of which the parts are so united by the relations of unrestricted commerce that prices take the same level throughout with ease and rapidity alfred marshall 1930 325 supplied a similar definition in his celebrated declaration that the more nearly perfect a market is the stronger is the tendency for the same price to be paid for the same thing at the same time in all parts of the market more recently joseph stiglitz 1993 19 summarized what he called the law of the single price stating that under this law there is a uniform price in the market and price differences are quickly eliminated by arbitrage 1 marshall 1930 325 introduced an important qualification however when he observed that but of course if the market is large allowance must be made for the expense of delivering the goods to different purchasers each of whom must be supposed to pay in addition to the market price a special charge on account of delivery that qualification subsequently found its way into stigler s price theory textbook quoted in the epigraph intentionally or not the law of one price was thereby converted into a law of different prices other economists subsequently added transaction costs and information costs to the list of caveats culminating in a multiplicity of prices nevertheless claimed to be consistent with the law of one price economics has few laws

role of linking mechanisms in multitask agency with hidden information we investigate the adverse selection problem where a principal delegates multiple tasks to an agent we characterize the virtually implementable social choice functions by using the linking mechanism proposed by jackson and sonnenschein 2007 that restricts the message spaces the principal does not require any incentive wage schemes and can therefore avoid any information rent and welfare loss we show the resemblance between the functioning of this message space restriction and that of incentive wage schemes we also extend the results of the single agent model to the multi agent model

modeling multiple sources of state dependence in random utility models a distributed lag approach we propose a utility theoretic brand choice model that accounts for four different sources of state dependence 1 effects of lagged choices structural state dependence 2 effects of serially correlated error terms in the random utility function habit persistence type 1 3 effects of serial correlations between utility maximizing alternatives on successive purchase occasions of a household habit persistence type 2 and 4 effects of lagged marketing variables carryover effects our proposed model also allows habit persistence to be a function of lagged marketing variables while accommodating the effects of unobserved heterogeneity in household choice parameters this model is more flexible than existing state dependence models in marketing and labor econometrics using scanner panel data we find structural state dependence to be the most important source of state dependence marketing mix elasticities are systematically understated if state dependence effects are incompletely accounted for the seetharaman and chintagunta 1998 model is shown to recover spurious variety seeking effects while overstating habit persistence effects ignoring habit persistence type 1 leads to an underestimation while ignoring habit persistence type 2 leads to an overestimation of structural state dependence effects we find lagged promotions to have carryover effects on habit persistence ignoring one or more sources of state dependence underestimates the total incremental impact of a sales promotion we draw implications for manufacturer pricing

market definition in antitrust analysis a regression based approach alleged violations of either sherman 2 s antimonopoly strictures or clayton 7 s proscriptions against anticompetitive mergers necessarily involve a particular product and must occur in a particular place that is the plaintiff in either a 2 or 7 suit must define a relevant market within which the violation alleged has occurred even in the most mundane antitrust analysis however market definition is rarely readily accomplished and unaccompanied by a series of caveats and the possibility of the opposing parties in an antitrust suit failing to contest each other s proffered definition is virtually nil 2 because economists from

pricing strategies in a dynamic duopoly a differential game model we formulate a differential game model for dynamic pricing in a duopolistic market firms demand functions are derived from utility maximizing behavior of consumers with the demand for a brand given by the logit model preferences for brands are assumed to evolve over time in the market in a manner akin to learning models postulated in the marketing literature we derive the differential equations governing the equilibrium open loop price paths over time and show that in steady state the brand with the higher preference level charges the higher price the formulation is extended to include the effects of consumer heterogeneity and equilibrium steady state prices are compared with those obtained when heterogeneity is ignored a comparison of steady state dynamic prices with myopic prices is provided an empirical example is discussed to show how steady state model predictions may be obtained from actual longitudinal purchase data

small system modelling of real wages inflation unemployment and output per capita in italy 1970 1994 the relationships between real wages output per capita inflation and unemployment in italy between 1970 and 1994 are modelled using a cointegrated vector autoregression there is evidence of a change in the underlying equilibria and in the dynamic evolution of the variables probably associated with the substantial changes in many sectors of the italian economy after 1979 alternative ways to model structural change in the italian labour market are considered in adopting a split sample approach the results favour an hysteresis interpretation of unemployment

temporal aggregation and hall s model of consumption behaviour a simple exercise of time series analysis shows that the presence of the phonomenon of temporal aggregation in quarterly consumption data can substantially alter the empirical inference about hall mocel of consumption behaviour this fact has received almost no attention in the econometric research in this field

the effects of additive outliers on tests for unit roots and cointegration this article discusses the properties of the univariate dickey fuller test and the johansen test for the cointegrating rank when there exist additive outlying observations in the time series we provide analytical as well as numerical evidence that additive outliers may produce spurious stationary hence the dickey fuller test will reject a unit root too frequently and the johansen test will indicate too many cointegrating vectors the results easily generalize to models with temporary change outliers through an empirical example we discuss how additive and temporary change outliers can be detected in practice and we show how dummy variables can be used to remove the influence of such extreme observations

positioning and pricing in a variety seeking market we study competitive positioning and pricing strategies in markets where consumers seek variety variety seeking behavior is modeled as a decrease in the willingness to pay for the product purchased on the previous purchase occasion using a three stage hotelling type model we show that the presence of variety seeking consumers reduces product differentiation offered in equilibrium thereby explaining some otherwise counterintuitive findings in empirical research we find that firms charge higher prices in period 1 and lower prices in period 2 the lower price in period 2 represents the price incentive that firms need to offer to prevent the variety seeking consumers from switching furthermore we find that the observed switching in a market may not fully capture the true magnitude of the underlying variety seeking tendencies among consumers finally we show that the presence of variety seeking consumers leads to lower firm profits and a higher consumer surplus surplus increases for variety seeking consumers as well as regular consumers therefore the presence of variety seeking consumers benefits everyone in the market

correlated types and bayesian incentive compatible mechanisms with budget balance abstract this note presents a condition which guarantees the existence of a bayesian incentive compatible mechanism with budget balance when agents have quasi linear utility functions this condition requires correlation among agents private signals types and is 1 simple and easy to verify 2 good for any decision rule whether efficient or not 3 valid even if agents types are mutually payoff relevant and 4 true for almost every probability distribution of agents types journal of economic literatureclassification numbers c72 d82

temporal aggregation of univariate and multivariate time series models a survey abstract we present a unified and up to date overview of temporal aggregation techniques for univariate and multivariate time series models explaining in detail although intuitively the technical machinery behind the results some empirical applications illustrate the main issues

testing for cointegration power versus frequency of observation further monte carlo results abstract this paper studies the effects of increasing the frequency of observation and the data span on the johansen cointegration tests the ability of the tests to detect cointegration depends more on the total sample length than the number of observations

the extent of the market examines the classical theory of the market in this paper authors consider the role of price market determination price movement in competitive and monopolistic markets extension of commodity markets

exogeneity tests of market boundaries applied to petroleum products us antitrust law makes market definition and the calculation of marketshare statistics an integral part of the determination of the anticompetitive impact of a merger because markets frequently overlap however market definition is rarely an easy task a statistical test that can be used as an aid in defining markets is proposed here time series techniques are used to test if price in one region is exogenous to the process that determines price in another the rejection of exogeneity can be an indication that the two regions are economically linked and thus may belong to a common geographic market the test is applied to petroleumproduct prices from various regions of the united states time series techniques have long been appreciated by macroeconomists the uses to which they have been put range from testing for the exogeneity of variables used in the construction of macroeconomic models sims 1972 for example to discovering empirical regularities in macroeconomic data without imposing a priori structure on the observations ashenfelter and card 1982 for example in contrast these techniques have not been so

a dynamic analysis of market structure based on panel data internal market structure analysis infers brand positions in an attribute space from preference and choice data given a market in which consumers have heterogeneous tastes for attributes previous market structure models have adopted a static framework e g elrod 1988 chintagunta 1994 elrod and keane 1995 furthermore they assumed that consumer perceptions of brand attributes do not vary across consumers yet these approaches may render inaccurate representations of market structure if there is state dependence in consumer choice behavior this paper attempts to incorporate consumer choice dynamics into market structure models by specifying the source of choice dynamics explicitly in particular the process by which past purchases affect current choices is modeled in a framework which captures both consumer habit persistence and variety seeking behavior more specifically consumer preferences for brand attributes are modeled to depend on the attributes of brands bought on the previous purchase occasion furthermore the modeling approach adopted incorporates heterogeneity in both consumer preferences and perceptions of brand attributes the audience of this paper includes practitioners and academics interested in understanding consumer choice processes and inferring market structure from consumer choice data the proposed models are estimated on nielsen scanner panel data for margarine peanut butter yogurt and liquid detergent using simulated maximum likelihood techniques the empirical results suggest that accounting for choice dynamics improves both in sample and out of sample fit the results indicate that the average consumer is habit persistent in all the product categories studied this result is consistent with the findings of kannan and sanchez 1994 who conducted an aggregate analysis of consumer variety seeking behavior across product categories however the results obtained in this paper suggest that consumers are heterogeneous with respect to the processes by which past purchases affect current purchases these results provide strong evidence for habit persistence and variety seeking in brand attributes to be the behavioral source of consumer choice dynamics in food categories thus consumer tastes utility weights seem to be affected by the attributes of the brands consumed in the past given the empirical result that a large proportion of consumers are habit persistent this suggests that tastes are reinforced by the brand attributes consumed in the past the empirical results also show that not accounting for state dependence in market structure models for panel data may produce misleading results that is depending on consumer behavior patterns models that do not account for state dependence may distort the true nature of competition among brands more specifically the results confirm the expectation that if there is habit persistence that is if consumer tastes are reinforced by attributes of brands consumed in the past models that do not capture this choice dynamics will overestimate the distance between similar brands furthermore the policy experiments conducted suggest that 1 static models overestimate the short run impact of a price cut on the sales of the brand on promotion 2 price cuts hurt the sales of the more similar brands more and 3 free samples affect relatively less similar brands the most finally this paper studies variety seeking and habit persistence across brands over purchase occasions however variety seeking behavior may also involve the purchase of a portfolio of brands or items at a purchase occasion consumers may buy multiple items knowing that prior to the next trip they may want to consume different items simanson 1990 walsh 1995 this type of behavior can be modeled within the context of dynamic expected utility maximization with forward looking consumers the development and estimation of market structure models that include forward looking consumers who maximize expected utility over a planning horizon incorporating their future tastes and needs and shopping for an inventory of brands remain an important future research issue

production growth and business cycles ii new directions abstract this paper outlines new directions for investigations of real business cycle models consideration of stochastic growth of exogenous and endogenous forms analysis of suboptimal outcomes arising due to externalities of distorting taxes and implications of labor market heterogeneity

endogenous switching costs in a duopoly model we analyze the effect of alternative pricing policies on the competitive outcome in a two period differentiated product duopoly model if firms can precommit to a second period price for their loyal customers equilibrium profits fall but if they precommit to a discount then the equilibrium profits increase in either case switching costs are endogenized in period two firms discriminate against newcomers

common features in economics and finance an overview of recent developments this introductory article offers an overview of some developments in the common features literature since the publication of the seminal article by engle and kozicki in the journal of business economic statistics in 1993 with the aim of highlighting the unifying theme of the contributions in this volume

geographic markets causality and railroad deregulation this paper presents an approach to defining a market using the notion of instantaneous causality the market for which the approach is empirically implemented is the flour market in the united states over the period january 1979 through october 1982 one anomaly over this period was the deregulation of railroad rates in october 1980 the empirical results based on three spatially diffuse cities suggest that the market is national in scope and that after railroad deregulation the price interrelationship between cities was strengthened

incentives and the existence of pareto optimal revelation mechanisms abstract from the characterization of strongly and bayesian incentive compatible paretooptimal mechanisms with transferable utilities we derive the following results if there are only two types per individual then a strongly incentive compatible paretooptimal mechanism exists if there are only two individuals with more than three types then there are sets of beliefs open in the class of all beliefs for which no bayesian incentive compatible pareto optimal mechanism exists if there are more than two individuals then the class of beliefs for which such mechanisms exist is open and dense in the class of all beliefs

bounded rationality in pricing under state dependent demand do firms look ahead and if so how far the authors propose an empirical procedure to investigate the pricing behavior of manufacturers and retailers in the presence of state dependent demand rather than assuming that firms are perfectl

on the extent of the market wholesale gasoline in the northeastern united states this paper develops the classical view of the extent of markets by introducing explicitly in the analysis the concept of arbitrage costs arbitrage or transaction costs imply that market boundaries are essentially stochastic while a set of products or regions may have binding arbitrage conditions i e may be in the same market at a given point in time they may not at another thus in defining a market the probability that a set of agents or regions would h3ve binding arbitrage conditions has to be assessed this paper develops an econometric methodology to estimate the transaction costs required to arbitrage among a given set of products as well as the probability that that set of products would be bound by binding arbitrage condi tions finally the methodology is applied to wholesale gasoline in the northeastern part of the united states address for communications pablo t spiller herbert hoover memorl l bldg 9348 stanford ca 94305

a framework for investigating habits the hand of the past and heterogeneity in dynamic brand choice in this paper we develop a general class of dynamic brand choice models called lightning bolt lb models which are consistent with the theory of random utility maximization of consumer choice behavior the underlying random utility process is markov and the inter temporal evolution of the utility maximizing brand choice process is also markov the models permit parsimonious parameterizations of the random utility process in brand choices with the resulting switching probabilities being functionally related to explanatory variables the model allows for structural state dependence feedback habit persistence inertia and unobserved heterogeneity the theoretical development shows that several well known stochastic brand choice models can be deduced from random utility maximization theory from a managerial perspective the usefulness of the proposed model stems from its ability to separate out the effects of habits state dependence and heterogeneity strong state dependence effects imply incentives for inducing trial of a brand e g product sampling in contrast with state dependence a strong habit persistence effect may be indicative of buyer behavior where inducement of trial of a different brand may not be sufficient to maintain a sustained defection of the consumer from the habitually purchased brand to the trial brand failure to distinguish between these two effects has important implications for example a model that only accounts for state dependence effects would in the presence of only habit persistence incorrectly attribute it to state dependence based on this the manager could decide to embark on an expensive sampling program that might prove ineffective due to the absence of state dependence it is also important to distinguish between the effects of unobserved heterogeneity and state dependence in the absence of true state dependence failing to account for unobservable variations across households such as differences in price sensitivities results in the temporally persistent unobservable elements showing up as state dependence in the model hence a manager may incorrectly opt for sampling as the appropriate marketing action whereas a couponing or price promotion strategy should have been preferred we estimate the model parameters using the ac nielsen household scanner panel data set on catsup purchases further we investigate empirical techniques for overcoming the initial conditions problem that affects many dynamic models of brand choice through simulation analysis using the estimated parameters we show that the calculated profitability of a promotion must take into account the multi period impact due to state dependence further we demonstrate how ignoring heterogeneity can result in spurious state dependence thereby making marketing tactics such as product sampling appear far more attractive than they actually are specifically the model that accounts only for habit persistence and state dependence effects predicts a share increase of 2 4 points through sampling for one of the brands in the empirical analysis once the effects of unobserved heterogeneity are accounted for however this number drops precipitously to 0 3 while even this low number might fulfill the objectives of the brand manager it ensures that expectations are not eight times that number it is important to note that this paper is a first attempt at analyzing the three fundamental dimensions of dynamic brand choice behavior our formulation represents a reduced form approach as opposed to a structural approach other limitations of the model include our focus on time invariant choice sets extensions of the model to situations where choice sets vary over time are possible but are difficult another limitation is the dependence on multivariate extreme value distributions an alternative would be to use multivariate normal distributions i e a probit like structure which has certain useful properties a comparison of the two approaches would be useful empirical extensions of the model to allow for higher order processes and nested logit type model structures could also be fruitful explicitly incorporating variety seeking behavior in the model would further enrich the theoretical framework proposed in this paper

accounting for choice set endogeneity in random utility models of recreation demand abstract modeling the choice among a discrete set of recreation alternatives is driven by the possible patterns of substitution among sites researchers typically assume that the individual s choice set is the same as the set of alternatives included in the recreation survey instrument our endogenous choice set model is a generalization of the standard multinomial logit random utility model which allows for the possibility of heterogeneous choice sets that are endogenously determined in the model using two examples we show that parameter and compensating variation estimates differ greatly between the endogenous choice set model and the traditional logit model

aggregation unit roots and the time series structure of manufacturing real wages the effects of both temporal and cross sectional aggregation on the estimated time series characteristics of manufacturing real wage data are examined the effects especially of temporal aggregation are found to be quite large and in accord with statistical theory the well known results of j altonji and o ashenfelter 1980 that real wages are a random walk and of c r nelson and c i plosser 1982 that real wages are an ima 1 1 process both seem to be entirely artifacts of temporal aggregation with the true models following processes that are much more complex and that display substantial cyclical behavior copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

vertical differentiation with variety seeking consumers we analyze price and quality competition in a vertically differentiated duopoly in which consumers have a preference for variety the preference for variety is a consequence of diminishing marginal utility for repeated experiences with the same product we find consumer variety seeking can either soften or intensify price competition depending on the difference in firm qualities and the strength of consumer preference for variety when the qualities are similar or the consumer preference for variety is strong prices and profits are higher than would be obtained in the absence of variety seeking on the other hand if qualities differ enough or the preference for variety is weak stronger preferences for variety are associated with more intense price competition and lower profits when firms set their qualities before competing on price and the range of feasible qualities is restricted such that variety seeking softens competition competing firms choose to minimally differentiate themselves from each other the preference for variety can drive the firms to offer multiunit discounts and the greater price flexibility from these discounts does not necessarily reduce profits relative to simple unit pricing this paper was accepted by j miguel villas boas marketing

flexibility in consumer purchasing for uncertain future tastes consumers often simultaneously purchase multiple units in the same product category whether they are best off purchasing an assortment of alternatives or an equal number of one alternative is addressed in this paper models of an expected utility maximizing consumer are developed and it is shown that an assortment may have greater expected utility than an equal number of any one alternative the rationale is that the assortment allows the consumer to choose from inventory the alternative most appropriate for a consumption occasion using preference information not available at the purchase occasion it is also shown that when consuming alternatives from inventory the consumer may forego the alternative offering the most utility in the expectation that it will yield even more utility in the future

indirect competition with spatial product differentiation although two markets may appear to be separate sometimes one firm participates in both of them that firm provides a link between the two markets such a straddling firm transmits indirect competition from each market to the other since its actions reflect competitive conditions in both markets in a model of spatial product differentiation the author shows that indirect competition may make a market perform significantly better than the number of firms would indicate moreover total consumer surplus increases if two previously distinct markets are linked by a straddler finally the author considers implications of these results for antitrust analysis copyright 1989 by blackwell publishing ltd

consumer learning brand loyalty and competition in several markets consumers can gain further information regarding how well a product fits their preferences only by experiencing it after purchase this could then generate loyalty for the products tried first this paper considers a model in which consumers learn in the first period about the product they buy and then make choices in the second period about the competing products given what they learned in the first period the paper finds that if the distribution of valuations for each product is negatively positively skewed a firm benefits is hurt in the future from having a greater market share today the brand loyalty characteristic with negative skewness two effects are identified on one hand marginal forward looking consumers are less price sensitive than myopic consumers and this is a force toward higher prices on the other hand forward looking firms realize that they gain in the future from having a higher market share in the current period and compete more aggressively in prices for similar discount factors for consumers and firms the latter effect dominates the paper also characterizes the importance of consumer learning effects on the market outcome

incentive compatible mechanisms with full transferability abstract we consider the bayesian collective choice problem with side payment we introduce the regularity condition which describes the case that agents have mutually correlated private information under the regularity condition we construct a transfer rule with budget balancing which together with the efficient public decision rule is incentive compatible truth telling may be a unique iteratively undominated strategy profile in our direct mechanism

market integration efficiency of arbitrage and imperfect competition methodology and application to u s celery this paper develops and applies a methodology to test for efficiency of interregional commodity arbitrage application of the methodology requires only time series data on prices for alternative cities regions countries or product forms yet the approach is capable of generating evidence on a number of market parameters including market integration arbitrage efficiency the magnitude of marketing margins product substitutability and competitiveness of markets estimation is based on a switching regression model with three regimes efficient arbitrage relative shortage and relative glut results from application of the model to u s celery marketing indicated significant departures from efficient arbitrage for both california and florida celery

price competition in markets with consumer variety seeking we investigate price competition between firms in markets characterized by consumer variety seeking while previous research has addressed the effect of consumer inertia on prices there exists no research on the effects of variety seeking on price competition our study fills this gap in the literature using a two period duopoly framework as in klemperer s analysis of inertial markets we show that the noncooperative pricing equilibrium in a market with consumer variety seeking may be the same as the collusive outcome in an otherwise identical market without variety seeking specifically our variety seeking model implies tacit collusion between firms in both periods unlike the inertia model of klemperer that implies tacit collusion between firms only in the second period but implies fierce price competition in the first period when consumers are assumed to have rational expectations about future prices the implied first period prices increase further which is consistent with what klemperer finds in an inertial market to summarize while our variety seeking analyses support two key results pertaining to second period prices and rational expectations previously derived for inertial markets by klemperer they depart from one key result pertaining to first period prices

unbiased estimation of the half life to ppp convergence in panel data three potential sources of bias introduce complications for panel data estimation of the half life of purchasing power parity deviations they are bias induced by inappropriate cross sectional aggregation of heterogeneous coefficients small sample estimation bias of dynamic lag coefficients and bias induced by time aggregation of commodity prices all of these biases have been addressed individually in the literature in this paper we address all three biases in arriving at our estimates using an annual panel data set of cpi based real exchange rates for 21 oecd countries from 1973 to 1998 we obtain a point estimate of the unbiased half life of 3 0 years with a 95 confidence interval of 2 3 4 2 years

open access and the evolution of the u s spot market for natural gas federal regulations promoting open access transportation dramatically altered the organizational structure of the u s market for natural gas in the 1980s generally unbundling the merchant and transport functions of interstate pipelines an empirical analysis of wellhead spot prices is undertaken to examine the effect of open access on the geographic scope of the spot market using monthly spot price data from 1984 91 three statistical tests are applied and compared price correlations granger causality and cointegration we find that open access integrated the regional wellhead markets into a national competitive market for natural gas the effects of unbundling on contracts for natural gas are then investigated incentives for long term contracts between pipelines and producers are shown to be effectively removed by the introduction of competitive buying and selling of gas at the wellhead through open access

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

a model of balanced choice behavior in some product categories consumers appear to alternate among items in a consistent and purposeful though not entirely deterministic fashion such alternation occurs even in the absence of any apparent external influences on choice to explain such balanced choice behavior we present a model based upon the premise that past consumption influences the utility of items on subsequent choice occasions individuals may seek variety on certain product attributes and exhibit loyalty toward others the model specification yields a logit choice model which may be calibrated using consumption diary panel data at the individual or cross sectional level

brand loyalty and market equilibrium two concepts of brand loyalty are defined inertial brand loyalty resulting from time lags in awareness and cost based brand loyalty resulting from intertemporal utility effects their market level implications are formally derived in a continuous time model it is found that inertial brand loyalty leads to equilibria with price dispersion while cost based brand loyalty also may allow single price equilibria in all cases as brand loyalty vanishes so does the difference between the average trading price and the price which obtains with no brand loyalty consistent with empirical results the theory predicts that the relationship between market share and performance is positive in cross sectional studies but flat in time series studies the theory is also consistent with the view that market share is an asset in itself after developing the theory several strategic implications are drawn in the end some questions for further theoretical and empirical research are raised

stochastic trends and economic fluctuations in a small open economy in this paper we describe how restricted vector autoregressions can be employed to examine the sources of macroeconomic fluctuations we show how cointegration restrictions can be used to identify a var system with common stochastic trends subject to transitory and permanent changes in average growth and how we may investigate the system s responses to permanent shocks i e to innovations to the trends theoretical cointegration vectors are derived from a small open economy growth model for terms of trade real gdp real consumption and real investments applying these methods to swedish annual data 1875 1986 we find that permanent real supply shocks account for most of the fluctuations in gdp even in the short run