price discrimination in broadway theater a common thread in the theory literature on price discrimination has been the ambiguous welfare effects for consumers and the rise in profit for firms relative to uniform pricing in this study i resolve the ambiguity for consumers and quantify the benefit for a firm i describe a model of price discrimination that includes both second degree and third degree price discrimination using data from a broadway play i estimate the structural model and conduct various experiments to investigate the implications of alternative pricing policies the observed price discrimination may improve the firm s profit by approximately 5 relative to uniform pricing while the difference for aggregate consumer welfare is negligible also i show that the gain from changing prices in the face of fluctuating demand is small under the observed price discrimination

competitive coupon targeting with the advent of panel data on household purchase behavior and the development of statistical procedures to utilize this data firms can now target coupons to selected households with considerable accuracy and cost effectiveness in this article we develop an analytical framework to examine the effect of such targeting on firm profits prices and coupon face values we also derive comparative statics on firms optimal mix of offensive and defensive couponing the number of coupons distributed redemption rates face values and incremental sales per redemption among our findings when rival firms can target their coupon promotions at brand switchers the outcome will be a prisoner s dilemma in which the net effect of targeting is simply the cost of distribution plus the discount given to redeemers

nonlinear pricing in an oligopoly market the case of specialty coffee firms that use nonlinear pricing may distort product characteristics away from their efficient levels this paper offers the first empirical study of this issue using data from a specialty coffee market i estimate a structural utility model to compute consumers benefits from changing products sizes i then compare the estimated benefits to cost data design distortions are relatively large for products not targeted to the highest demand consumers distortions decrease toward zero with drink size for products with the largest profit margins these results support some of the central predictions from nonlinear pricing theory including no distortion at the top

household electricity demand revisited respond to price changes this paper develops a model for evaluating the effects of alternative tariff designs on electricity use the model concurrently addresses several interrelated difficulties posed by nonlinear pricing heterogeneity in consumer price sensitivity and consumption aggregation over appliances and time we estimate the model using extensive data for a representative sample of 1300 california households the results imply a strikingly skewed distribution of household electricity price elasticities in the population with a small fraction of households accounting for most aggregate demand response we then estimate the aggregate and distributional consequences of recent tariff structure changes recent efforts to restructure electricity markets have renewed interest in electricity demand and pricing this interest reflects a broad desire to improve the efficiency of electricity markets and policy makers concerns over the impact of price changes on consumers how new pricing mechanisms would affect households consumption and expenditures is a matter of considerable uncertainty however this uncertainty has provoked controversy and debate in the regulatory policy arena hampering market reforms using econometric methods to assess the effects of electricity price changes presents several challenges these include the nonlinear structure of tariff schedules aggregation of metered consumption behaviour over time and appliances and the interdependence of energy use with longer term household decisions over appliance ownership and dwelling characteristics the first two issues introduce complex simultaneity problems between marginal prices and consumption the third issue imposes high data requirements information on household specific appliance holdings and residence features and creates heterogeneity in consumption responses related to the characteristics of these durable goods when the researcher s objective is to develop a model for simulating the effects of prospective tariff changes ignoring these issues will provide an incomplete assessment of demand responses and potentially misleading predictions of a new tariff s consumption and revenue consequences in this paper we estimate a model of household electricity demand that can be used

the impact of price discrimination on revenue evidence from the concert industry abstract concert tickets can be sold at the same price or at different prices that reflect different seating categories price discrimination generates about 5 greater revenues than single price ticketing the return to price discrimination is higher in markets with greater demand heterogeneity as predicted by price discrimination theory the return to an increase from three to four concert seat categories is roughly half that of an increase from one to two

price discrimination copyright law and technological innovation evidence from the introduction of dvds u s copyright law effectively prevents direct price discrimination for copyright holders that sell to different markets in response these firms can engage in indirect price discrimination i derive theoretical predictions about the use of indirect price discrimination and i analyze how optimal pricing strategies differ for different products using data on vhs and dvd movie distribution i find that firms pricing choices are consistent with the predictions of theory and that firms use of indirect price discrimination benefits consumers but harms ancillary retailers finally i examine what optimal pricing strategies might look like in a legal environment that permits direct price discrimination

do the electronic books reinforce the dynamics of book supply chain market a theoretical analysis abstract in this paper we develop a set of mathematical models to examine and compare different pricing and launch strategies of electronic books e books under two types of copyright arrangements namely the royalty and buyout arrangements we conduct a sensitivity analysis to assess how various market structure parameters influence the publisher s pricing options in different copyright launch modes and channels of distribution aimed at gaining managerial insights into the complex issues in pricing and launch strategies involving e books we recommend optimal launch strategies and pricing decisions for the e book supply chain

airline market power and intertemporal price dispersion this paper analyzes the empirical relationship between market structure and price dispersion in the airline markets connecting the u k and the republic of ireland price dispersion is measured by the gini coefficient calculated using fares posted on the internet at specific days before takeoff we control for passengers heterogeneity in their purpose of travel as well as for such peak periods as christmas and easter our finding of a negative correlation between competition and price dispersion suggests that competition is likely to hinder the airlines ability to price discriminate although this effect appears to be lessened in peak periods

measuring heterogeneous reservation prices for product bundles this paper develops a model for capturing continuous heterogeneity in the joint distribution of reservation prices for products and bundles our model is derived from utility theory and captures both within and among subject variability furthermore it provides dollarmetric reservation prices and individual level estimates that allow the firm to target customers and develop customized and nonlinear pricing policies our experiments show that regardless of whether the products are durables or nondurables the model captures heterogeneity and predicts well models that assume homogeneity perform poorly especially in predicting choice of the bundle furthermore the methodology is robust even when respondents evaluate few profiles self stated reservation prices do not have any informational content beyond that contained in the basic model the direct elicitation method appears to understate overstate the variation in reservation prices across consumers for low priced high priced products and bundles hence this method yields biased demand estimates and leads to suboptimal product line pricing policy the optimization results show that the product line pricing policy depends on the degree of heterogeneity in the reservation prices of the individual products and the bundle a uniformly high price strategy for all products and bundles is optimal when heterogeneity is high otherwise a hybrid strategy is optimal

sales quantity surcharge and consumer inattention quantity surcharges occur when retailers carry a product in two sizes and offer a promotion on the small size the large size then costs more per unit than the small one when quantity surcharges occur sales of the large size decline only slightly even though the same quantity can be purchased for less we document this behavior in two data sets and four product categories it is consistent with the notion of passive shoppers found in the industrial organization literature and the notion of rational inattention in macroeconomics we discuss implications for consumer decision making demand estimation and firm pricing

estimating demand for local telephone service with asymmetric information and optional calling plans in this paper i study the theoretical and econometric implications of agents uncertainty concerning their future consumption when a monopolist offers them either a unique mandatory nonlinear tariff or a choice in advance from a menu of optional two part tariffs agents uncertainty is resolved through individual and privately known shocks to their types in such a situation the principal may screen agents according to their ex ante or ex post type by offering either a menu of optional tariffs or a standard nonlinear schedule the theoretical implications of the model are used to evaluate a tariff experiment run by south central bell in two cities in kentucky in 1986 the empirical approach explicitly accounts for the existence of informational asymmetries between local telephone users and the monopolist leading to different nested econometric specifications under symmetric and asymmetric information the empirical evidence suggests that there exists a significant asymmetry of information between consumers and the monopolist under both tariff regimes all expected welfare components failed to increase with the introduction of optional tariffs for the estimated value of the parameters copyright 2002 wiley blackwell

price discrimination and retail configuration the hypothesis that price discrimination based on willingness to pay for quality can occur in multifirm markets is confirmed using microdata on gasoline retailing a test that discriminates between price structures associated with discrimination and with cost driven competitive differentials is developed and implemented with controls for variation in outlet and market characteristics a second test based on profitability variation rejects a competitive peak load pricing explanation for the observed price dispersion the data suggest that price discrimination at the retail level adds at least 9 a gallon to the average price of full service gasoline

brand specific tastes for quality this paper develops a model of nonlinear pricing with competition the novel ele ment is that each consumer s willingness to pay for quality is private information and is allowed to dier across brands the consumer s preferences are represented by a multidimensional type containing the marginal value of quality for dierent products buyers with high willingness to pay for quality also display strong preferences for par ticular brands and require higher discounts in order to switch away from their favorite product therefore competition is ercer for buyers with lower tastes for quality and hence more elastic demands this is in sharp contrast to earlier models in which com petition is ercer for higher taste more valuable buyers in equilibrium rms either compete intensively for the entire market providing strictly positive rents to all con sumers or shut down the least pro table segment of the market quality levels are distorted downwards for all buyers except for those with the highest type the number of competing rms and the degree of correlation across brand preferences enhance the e ciency of the allocation

separating between unobserved consumer types evidence from airlines we propose an alternative approach to identify unobserved consumer types and assess whether firms price discriminate unlike other screening schemes that rely on quantity discounts or product differentiation in our finite mixture structure individuals have unit demands and the product is homogeneous we implement the model using an original u s airlines data set the results support the existence of two demand types the high type business traveler is less price sensitive has a higher valuation and pays a higher price than the low type tourist the proportion of high types also increases as the departure date nears jel c23 l93 r41

bundle size pricing as an approximation to mixed bundling multiproduct firms can set separate prices for all possible bundled combinations of its products mixed bundling however this is impractical for firms with more than a few products because the number of prices increases exponentially with the number of products we find that simple pricing strategies are often nearly optimal specifically we show that bundle size pricing setting prices that depend only on the size of bundle purchased tends to be more profitable than offering the individual products priced separately and tends to closely approximate the profits from mixed bundling jel d24 d42 l11 l13 l25

an empirical study of observational learning this article provides an empirical examination of observational learning using data from an online market for music i find that observational learning benefits consumers producers of high quality music and the online platform i also study the role of pricing as a friction to the learning process by comparing outcomes under demand based pricing to counterfactual pricing schemes i find that employing a fixed price the industry standard can hamper learning by reducing the incentive to experiment resulting in less consumer surplus but more expected revenue for the platform

competitive price discrimination we model firms as supplying utility directly to consumers the equilibrium outcome of competition in utility space depends on the relationship u between profit and average utility per consumer public policy constraints on the deals firms may offer affect equilibrium outcomes via their effect on u f rom this perspective we examine the profit utility and welfare implications of price discrimination policies in an oligopolistic framework we also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two part tariffs

comments on gaussian demand and commodity bundling different commodities are often sold together as a bundle e g complete dinners in a restaurant stereo systems in mixed bundling strategies the individual components of the bundle are also offered for sale separately in block booking or pure bundling strategies they are not via simple hypothetical examples of two product firms stigler 1963 and adams and yellen 1976 have demonstrated that these selling practices can increase profit even if there is no cost advantage to bundling and the component products are independent in demand it is obvious from these examples that heterogeneity in consumer tastes especially in relative valuations of the firm s two products is a necessary condition for profitable bundling unfortunately more specific principles to describe concisely the necessary and or sufficient conditions for profitable bundling are not so obvious since consumer demand in the examples is represented by a complete enumeration of consumer reservation prices optimal prices and pricing strategies must be determined by trial and error marginal analysis is inappropriate or uninformative more important these numerical examples do not yield characterizations of profit for each strategy as functions of a small number of parameters that summarize the relevant features of the distribution of reservation prices in the consumer population by assuming that reservation prices for the firm s two products are distributed in the consumer population according to the bivariate normal probability law schmalensee in this issue has constructed a class of examples within which the profitability of bundling can be analyzed as a function of production costs the mean and variance of the reservation price for each commodity and the correlation between the two commodities reservation prices although this analysis is sometimes mathematically complex schmalensee is quite thorough subject to the normality assumption many of the questions suggested by the

price discrimination by a many product firm determining the optimal selling strategy for a multiproduct firm facing consumers with unknown tastes is a difficult task this paper aims to show how almost optimal nonlinear tariffs can often be found when the number of products becomes large

nonlinear pricing of information goods this paper analyzes optimal pricing for information goods under incomplete information when both unlimited usage fixed fee pricing and usage based pricing are feasible and administering usage based pricing may involve transaction costs it is shown that offering fixed fee pricing in addition to a nonlinear usage based pricing scheme is always profit improving in the presence of nonzero transaction costs and there may be markets in which a pure fixed fee is optimal this implies that the optimal pricing strategy for information goods is almost never fully revealing moreover it is proved that the optimal usage based pricing schedule is independent of the value of the fixed fee a result that simplifies the simultaneous design of pricing schedules considerably and provides a simple procedure for determining the optimal combination of fixed fee and nonlinear usage based pricing the introduction of fixed fee pricing is shown to increase both consumer surplus and total surplus the differential effects of setup costs fixed transaction costs and variable transaction costs on pricing policy are described these results suggest a number of managerial guidelines for designing pricing schedules for instance in nascent information markets firms may profit from low fixed fee penetration pricing but as these markets mature the optimal pricing mix should expand to include a wider range of usage based pricing options minimum fees quantity discounts and adoption levels across the different pricing schemes are characterized strategic pricing responses to changes in market characteristics are described and the implications of the paper s results for bundling and vertical differentiation of information goods are discussed

an empirical analysis of competitive nonlinear pricing abstract we estimate a model of competitive nonlinear pricing with multidimensional preference heterogeneity using individual level data on advertisements bought by local businesses e g doctors electricians from two yellow page directories in one u s city market variation in individual choices and payments allows us to identify the joint density of preferences marginal costs of publishing and common utility parameters our estimates suggest substantial welfare loss due to asymmetric information comparing duopoly outcomes with counterfactual monopoly outcomes we find that with less competition i producer surplus increases substantially ii more low type consumers are excluded iii product variety increases but benefits accrue only to the high type consumers iv total consumer surplus decreases v but its distribution across consumers does not change

spatial differentiation and vertical mergers in retail markets for gasoline this paper studies an empirical model of spatial competition applied to gasoline markets the main feature is to specify commuting paths as the locations of consumers in a hotelling style model as a result spatial differentiation depends in an intuitive way on the structure of the road network and the direction of traffic flows the model is estimated using panel data on the quebec city gasoline market and used to evaluate the consequences of a recent vertical merger difference in difference and counterfactual simulation methods are compared and the results to a large extent validate the assumptions of the demand model jel g34 l13 l42 l81 q41 r41

spatial differentiation and price discrimination in the cement industry evidence from a structural model we estimate a structural model of the cement industry that incorporates spatial differentiation and price discrimination focusing on the us southwest over 1983 2003 we leverage the structure of the model to obtain consistent estimates of the underlying parameters using data on market outcomes that are substantially aggregated our results indicate that transportation costs around 0 46 per tonne mile rationalize the data this friction enables relatively isolated plants to obtain higher prices from nearby customers we further find that disallowing price discrimination would create 30 million in consumer surplus annually and show how the model can identify suitable divestitures in merger analysis

an empirical analysis of digital music bundling strategies we use panel data on digital song and album sales coupled with a quasi random price experiment to determine own and cross price elasticities for songs and albums we then develop a structural model of consumer demand to estimate welfare under various policy relevant counterfactual scenarios this approach represents an early application of the big data management paradigm within the media industries and provides managers with detailed guidance on optimal pricing and marketing strategies for digital music our results show that tiered pricing coupled with reduced album pricing increases revenue to the labels by 18 relative to uniform pricing policies traditionally preferred by digital marketplaces while also increasing consumer surplus by 23 thus optimal tiered pricing can yield a pareto improvement over the prior status quo additionally our results indicate that even without tiered pricing unbundling albums outperforms album only pricing policies that dominated the era of physical cd cassette sales this paper was accepted by alok gupta special issue on business analytics

selling costs and switching costs explaining retail gasoline margins recent theoretical work has shown that price discrimination can take place in imperfectly competitive as well as monopoly markets the persistence of higher retail margins on unleaded than on leaded gasoline during the 1980s suggests that discrimination may occur even in very competitive markets this article studies a number of cost based explanations for such gasoline pricing as well as the possibility of price discrimination the analysis indicates that gas stations discriminate against groups of customers who are less likely to switch to another station the conclusions highlight the influence of shopping or search costs on pricing decisions even in markets thought to be quite competitive

wage flexibility in regional labour markets evidence from italy and germany ammermuller a lucifora c origo f and zwick t wage flexibility in regional labour markets evidence from italy and germany regional studies this paper investigates the functioning of regional labour markets in italy and germany for different employee groups and regions it derives theoretical hypotheses on group specific correlations between regional unemployment and individual wages distinguishing between regions using micro data matched to local unemployment rates wage equations are specified and empirically tested for italy no evidence is found in favour of a relationship between wages and local unemployment in germany results appear to be sensitive to model specification and type of employees in both countries the reaction of wages to local unemployment varies significantly along the wage distribution being more sensitive around median quantiles ammermuller a lucifora c origo f et zwick t la flexibilite des salaires dans les marches du travail regionaux des preuves provenant de

mergers with differentiated products the case of the ready to eat cereal industry traditional merger analysis is difficult to implement when evaluating mergers in industries with differentiated products i discuss an alternative which consists of demand estimation and the use of a model of postmerger conduct to simulate the competitive effects of a merger i estimate a brand level demand system for ready to eat cereal using supermarket scanner data and use the estimates to 1 recover marginal costs 2 simulate postmerger price equilibria and 3 compute welfare effects under a variety of assumptions the methodology is applied to five mergers two of which occurred and for which i compare predicted to actual outcomes

the cultural roots of guanxi an exploratory study this paper first describes the cultural roots and characteristics of guanxi in chinese society it then goes on to test some propositions about the perceived relationship between these characteristics and i hofstede s conceptualisation of collectivism and power distance and ii the content and quality of formal institutions the sampling frame used consisted of three groups of students viz chinese singaporeans non chinese singaporeans and mainland chinese studying in tertiary institutions in singapore our findings suggest that while the perceptions of guanxi were positively and significantly related to hofstede s culturally related variables this was not so in the case of formal institutions this latter result suggests that in east asian countries guanxi may well be regarded as at least a partial substitute for formal institutions

multiattribute loss aversion and reference dependence evidence from the performing arts industry we study the prevalence of multiattribute loss aversion and reference effects in a revenue management setting based on data of individual level purchases over a series of concert performances the reference dependence that drives consumer choice is not only based on the price but also on observed sales as a fraction of the seating capacity during their past visits we find that consumers suffer from loss aversion on both prices and seats sold consumers incur significant utility loss when prices are above their references or when the actual seat sales are lower than their references we suggest pricing policies that can address consumer decisions driven by such reference dependence and loss aversion this paper was accepted by vishal gaur operations management

on the determinants and implications of school choice semi structural simulations for chile this paper studies the implications of school choice in the context of the chilean quasivoucher system we use information of school choices of about 80 000 students that lived in the metropolitan area of santiago in chile in 2002 and the results of the discrete choice model estimated in gallego and hernando 2008 to perform a number of exercises aimed at quantifying what we call the value of choice i e how much do households gain from a school choice system against a number of counterfactuals that restrict school choice in several dimensions geographic choice the existence of top ups and the supply of voucher schools we also i analyze the effects on socioeconomic segregation of students and ii study the potential effects of introducing a non flat voucher that is decreasing in students ses our results suggest that overall school choice seems to be valuable to households but there is a lot of heterogeneity in its value in some simulations school choice is regressive as when lotteries are used to allocate students to current schools or when we consider the effects of the increase in the supply of voucher schools and in other progressive when students are allowed to choose outside the county in which they live interestingly policies that restrict the use of top ups to the voucher do not seem to reduce segregation in a significant way this contrasts with the introduction of a differentiated voucher which would mostly benefit the poor and even compensate them for loses from some dimensions of school choice observed in particular groups

a probabilistic approach to pricing a bundle of products or services the authors propose a probabilistic approach to optimally price a bundle of products or services that maximizes seller s profits their focus is on situations in which consumer decision making is o

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

the effect of ownership structure on prices in geographically differentiated industries i analyze how ownership structure and market geography jointly influence fast food prices i estimate a model of demand and supply that accounts for the market geography and run counterfactual experiments that demonstrate how mergers affect prices i find that the impact of mergers can be large that this impact decreases as the merging outlets are farther apart that mergers among market leaders generally increase prices more than mergers among weaker firms and that mergers can increase prices even if the outlets are so far apart that neither outleti s presence affects prices at the other before the merger

mobile money in tanzania in developing countries mobile telecom networks have emerged as major providers of financial services bypassing the sparse retail networks of traditional banks we analyze a large individual level data set of mobile money transactions in tanzania to provide evidence of the impact of mobile money on alleviating financial exclusion in developing countries we identify three types of transactions i money transfers to others ii short distance money self transportation and iii money storage for short to medium periods of time we utilize a natural experiment of an unanticipated increase in transaction fees to identify the demand for these transactions using the demand estimates we find that the willingness to pay to avoid walking with cash an extra kilometer short distance self transportation and to avoid storing money at home money storage for an extra day are 1 25 and 0 8 of an average transaction respectively which demonstrates that mobile money ameliorates significant amounts of crime

measuring market power in the ready to eat cereal industry the ready to eat cereal industry is characterized by high concentration high price cost margins large advertising to sales ratios and numerous introductions of new products previous researchers have concluded that the ready to eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition this paper empirically examines this conclusion in particular i estimate price cost margins but more importantly i am able empirically to separate these margins into three sources i that which is due to product differentiation ii that which is due to multi product firm pricing and iii that due to potential price collusion the results suggest that given the demand for different brands of cereal the first two effects explain most of the observed price cost margins i conclude that prices in the industry are consistent with noncollusive pricing behavior despite the high price cost margins leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality it is these two factors that lead to high price cost margins

a structural econometric model of price discrimination in the french mortgage lending industry we propose a model of discrimination in the market for mortgages the model explains accepted loan applications and simultaneously determines loan sizes and interest rates a competitive and a discriminating monopoly version of the model are proposed offered interest rates and loan sizes are a function of observable borrower characteristics the competitive model rests on a marginal condition reflecting contract optimality to which a zero profit condition is added in contrast the discriminating monopoly maximizes profits under a borrower participation constraint reflecting the availability of a rental market as an outside option each version of the model is a bivariate nonlinear model and is estimated by standard maximum likelihood methods the data used for estimation is a sample of clients of a french network of mortgage lenders we show the presence of social discrimination in the data the loan conditions depending not only on the borrower s wage and down payment but also on the borrower s occupational status abnormally high risk premia in the competitive version of the model suggest the presence of market power justifying an attempt at estimating its monopolistic version the discriminating monopoly model estimates show that the borrowers price elasticity of demand for housing varies with occupational status and is inversely related with the lender s interest rate markups this confirms that the lender exploits structural differences in the preferences to discriminate as predicted by standard theories

universal health insurance in the clinton plan coverage as a tax financed public good the financing arrangements embodied in the clinton health reform plan involve some important differences in the way in which public goods are usually financed the subsidies to small low wage firms mandated to provide benefits distort markets in both labor and products and offer incentives for the creation of small firms in addition the financing scheme implicitly envisions a head tax on families at modest income levels but offers a possible rationale for it nevertheless the main reason for many of the financing features appears to be an attempt to hold down the apparent budgetary cost of universal coverage

bundling information goods of decreasing value consumers average value for information goods websites weather forecasts music and news declines with the number consumed this paper provides simple guidelines to optimal bundling marketing strategies in this case if consumers values do not decrease too quickly we show that bundling is approximately optimal if consumers values to subsequent goods decrease quickly we show by example that one should expect bundling to be suboptimal

nonlinear pricing with random participation the canonical selection contracting programme takes the agent s participation decision as deterministic and finds the optimal contract typically satisfying this constraint for the worst type upon weakening this assumption of known reservation values by introducing independent randomness into the agents outside options we find that some of the received wisdom from mechanism design and nonlinear pricing is not robust and the richer model which allows for stochastic participation affords a more general empirical specification we develop a multidimensional methodology for addressing this class of problems providing two important applications to nonlinear pricing first with nonlinear pricing by a monopolist the familiar nodistortion at the top result persists but in tandem with the surprising conclusion that there is either no distortion at the bottom or bunching second in a simple model of product differentiated duopolists competing with nonlinear pricing we show that generally the duopoly outcome is qualitatively similar to the monopoly outcome however when marginal costs are symmetric and competition is sufficiently intense distortions disappear and the equilibrium outcome takes a remarkably simple form efficient quality allocations with cost plus fee pricing

a stakeholder approach to the ethicality of bric firm managers use of favors this article investigates the use of favors by managers of bric firms to accomplish business goals the ethicality of which should be determined by the moral reasoning in these countries rather than from a developed country perspective we define a favor as an exchange of outcomes between individuals typically utilizing one s connections that is based on a commonly understood cultural tradition with reciprocity by the receiver typically not being immediate and its value being less than what would constitute bribery within that cultural context this exchange normally takes place between and among members of networks and may involve a network outsider contacted by a network insider on behalf of another insider we see the giver and receiver of the favor as well as network insiders and outsiders as stakeholders additionally society could also be considered to be a stakeholder since the practice of using favors generally inhibits the development of legitimate strong formal institutions since the use of favors in emerging economies is rooted in cultural traditions that we view as informal institutions furthermore we assert that the practice of using favors can lead to bribery which harms society as a stakeholder both morally and economically we posit that bric country managers behaviors stem from informal culturally based practices jeito in brazil blat sviazi in russia jaan pehchaan in india and guanxi in china we utilize institutional theory to explain why favors are relied upon and isct to support the argument that the use of favors in environments like the brics is generally considered ethical

price discrimination in oligopoly evidence from regional newspapers recent theoretical work has shown that the incentive to target rival firms customers with low prices can increase price discrimination and that the strength of the incentive depends on a firm s market position using data on swedish newspaper subscriptions we find strong support for these predictions newspapers with a local competitor sell a larger part of their circulation at a discount than monopoly newspapers moreover in competitive markets the use of discounts is inversely related to the newspaper s market share we find no evidence that price discrimination based on observable and exogenous characteristics is influenced by the market structure

gaussian demand and commodity bundling in an important and widely cited essay adams and yellen 1976 examine the use of package selling as a price discrimination device they consider a monopolist producing two goods with constant unit costs and facing buyers with diverse tastes the marginal utility of a second unit of either good is assumed to be zero for all buyers the two goods are independent in demand for all buyers so that any buyer s reservation price for the first unit of either good is independent of the market price of the other thus the maximum amount any buyer would pay for a bundle consisting of one unit of each good is the sum of the two reservation prices and buyers are completely described by the values of those two prices 2 resale markets are assumed away in order to obtain comparative results for alternative pricing strategies the distribution of reservation prices in the adams yellen framework is assumed to be bivariate normal implications of gaussian demand are explored pure bundling is shown to operate by reducing buyer diversity thus facilitating the capture of consumers surplus it generally makes buyers worse off than unbundled sales it is more profitable if average reservation prices are high enough mixed bundling combines advantages of both pure bundling and unbundled sales and it is generally strictly more profitable than either bundling which treats goods symmetrically seems most attractive under symmetric reservation price distributions i am indebted to severin borenstein for superb research assistance to the ford motor company for research support through a grant to m i t and to the harvard economics department for housing me as a visiting scholar while most of this research was performed of course only i can be held responsible for this essay s shortcomings 1 the first clear recognition of this possibility seems to have been by stigler 1968 but also see burstein 1960 2 paroush and peles 1981 relax the assumption that consumers purchase at most one unit of each good but they consider only two types of buyers both with linear demand functions they retain the assumption that demands are independent for all buyers telser 1979 and phillips 1981 use different frameworks to analyze bundling policies spence 1980 explores the relation between bundling across commodities as here and bundling multiple units of the same

is perfect price discrimination really efficient welfare and existence in general equilibrium we examine the welfare properties of surplus maximization by embedding a perfectly discriminating monopoly in an otherwise standard arrow debreu economy although we discover an inefficient equilibrium we validate partial equilibrium intuition by showing i that equilibria are efficient provided that the monopoly goods are costly and ii that a natural monopoly can typically use personalized two part tariffs in these equilibria however we find that pareto optima are sometimes incompatible with surplus maximization even when transfer payments are used we provide insight into the source of this difficulty and give some instructive examples of economies where a second welfare theorem holds

quantifying the coordinated effects of partial horizontal acquisitions abstract recent years have witnessed an increased interest by competition agencies in assessing the competitive effects of partial acquisitions we propose an empirical structural methodology which can deal with settings involving all types of owners and ownership rights to quantify the coordinated effects of partial horizontal acquisitions on differentiated products industries by evaluating the impact of such acquisitions on the minimum discount factors for which coordination can be sustained we also provide an empirical application of the methodology to several acquisitions in the wet shaving industry that give rise to cross and common ownership structures the results are as follows i the incentives to coordinate of the firms that the acquiring party is pre acquisition able to influence are non decreasing with any acquisition ii the incentives to coordinate of the acquired firm are non decreasing with acquisitions involving full or partial both financial and corporate control rights but non increasing with acquisitions involving full or partial solely financial rights and iii the incentives to coordinate of the remaining firms in the industry are non increasing with any acquisition this implies that the coordinated effects of partial horizontal acquisitions are in general ambiguous which illustrates the importance of an empirical structural methodology

mobility housing and labour markets in times of economic crises this special issue addresses the effects of the most recent financial and economic crisis starting in 2007 on mobility housing and labour markets in order to learn some lessons for the future t

measuring unilateral effects in partial horizontal acquisitions recent years have witnessed an increased interest by competition agencies in assessing the competitive effects of partial acquisitions we propose an empirical structural methodology to examine quantitatively the unilateral impact of partial horizontal acquisitions the acquisitions may be direct or indirect and may or may not correspond to control the proposed methodology simulates the effects on prices market shares firm profits and consumer welfare it can deal with differentiated product industries and nest full mergers as a special case we provide an empirical application to several acquisitions in the wet shaving industry

the welfare effects of bundling in multichannel television markets we measure how the bundling of television channels affects short run welfare we estimate an industry model of viewership demand pricing bundling and input market bargaining using data on ratings purchases prices bundles and input costs we conduct simulations of a la carte policies that require distributors to offer individual channels for sale to consumers we estimate that negotiated input costs rise by 103 0 percent under a la carte these higher input costs offset consumer benefits from purchasing individual channels mean consumer and total surplus change by an estimated 5 4 to 0 2 percent and 1 7 to 6 0 percent respectively jel d12 l11 l51 l82 m31

music for a song an empirical look at uniform song pricing and its alternatives economists have well developed pricing theories that challenge the wisdom of the common practice of uniform song pricing this paper explores the profit and welfare implications of various alternatives including song specific pricing various forms of bundling two part tariffs nonlinear pricing and third degree price discrimination using survey based data on nearly 500 students valuations of 50 popular songs in early january 2008 we find that various alternatives including simple schemes such as pure bundling and two part tariffs can raise both producer and consumer surplus revenue could be raised by nearly 10 percent relative to profit maximizing uniform pricing and by over a fifth relative to current 0 99 uniform pricing moreover revenue could be increased by a tenth while maintaining consumer surplus at the high level accompanying current 0 99 uniform song pricing while person specific uniform pricing can raise revenue by three quarters none of the non discriminatory schemes raise revenue s share of surplus above 35 percent even with sophisticated pricing much of the area under the demand curve for this product cannot be appropriated as revenue

sticker shocks using vat changes to estimate upper level elasticities of substitution we estimate the upper level elasticity of substitution between goods and services of a nested aggregate ces preference specification we show how this elasticity can be derived from the long run response of the relative price of a good to a change in its vat rate we estimate this elasticity using new data on changes in vat rates across 74 goods and services for 25 european union countries from 1996 through 2015 depending on the level of aggregation we find a vat pass through rate between 0 4 and 0 7 this implies an upper level elasticity of 3 at the lowest level of aggregation with 74 categories and 1 cobb douglas preferences at a high level of aggregation that distinguishes 10 categories of goods and services

to bundle or not to bundle commodity bundling is studied in an environment where the dispersion of valuations unambiguously decreases when two or more goods are sold as a bundle only bundling is more likely to dominate separately selling the goods if marginal costs are low relative to the average valuation or if the distribution of valuations is very peaked around the mean

package size and price discrimination in the paper towel market abstract estimates from a structural model of consumer behavior and firm conduct are used to decompose the extent to which quantity discounts for paper towels are consistent with second degree price discrimination as opposed to cost differences across sizes counterfactual exercises assuming that firms offer only one package size or charge uniform prices across sizes indicate that competition in the multi roll package size segment results in increased consumer surplus and lower prices for all consumers

labour opportunities provided by spanish high speed rail hsr commuting services in a period of financial crisis an approach based on regional wage disparities and housing rental prices labour migration derived from interregional high speed rail hsr commuting is a relatively new behaviour whose development has partly coincided with a worldwide period of recession little resear

public monopoly and economic efficiency evidence from the pennsylvania liquor control board s entry decisions we estimate a spatial model of liquor demand to analyze the impact of government controlled retailing on entry patterns in the absence of the pennsylvania liquor control board the state would have roughly 2 5 times the current number of stores higher consumer surplus and lower payments to liquor store employees with just over half the number of stores that would maximize welfare the government system is instead best rationalized as profit maximization with profit sharing government operation mitigates but does not eliminate free entry s bias against rural consumers we find only limited evidence of political influence on entry jel d42 d72 l11 l12 l43 l81

competitive screening under heterogeneous information we study the interplay between informational frictions and second degree price discrimination our theory recognizes that consumers differ in their tastes for quality as well as in the information they possess about available offers which leads to dispersion over price quality menus in equilibrium while firms are ex ante identical we show that their menus are ordered so that more generous menus leave more surplus to consumers of all valuations we explore the cross section of equilibrium menus and variations in market conditions to generate empirical predictions on prices qualities and markups across firms and within a firm s product line for instance more competition may raise prices for low quality goods yet consumers are better off as the qualities they receive also increase the predictions of our model illuminate empirical findings in many markets such as those for cell phone plans yellow pages advertising cable tv and air travel

third degree price discrimination in a short stay accommodation industry this article analyses the pricing in the short stay accommodation industry in tasmania it utilizes a novel 2008 survey of tasmanian short stay accommodation firms in which business managers were asked about their perception of the elasticity of their firm s demand in each of the market segments that their firm supplied this direct observation of elasticity allows us to demonstrate that firms price across market segments act in a manner consistent with the lerner index and the theory of third degree price discrimination further we show in line with expectations based on the literature that increased quality of the accommodation lowers the elasticity of demand while the elasticity of demand is higher in winter surprisingly internet sales channels do not exhibit a different elasticity of demand to other sales channels

multiproduct nonlinear pricing typically work on mechanism design has assumed that all private information can be captured in a single scalar variable this paper explores one way in which this assumption can be relaxed in the context of the multiproduct nonlinear pricing problem it is shown that the firm will choose to exclude some low value consumers from all markets a class of cases that allow explicit solution is derived by making use of a multivariate form of integration by parts in such cases the optimal tariff is cost based

empirical analysis of metering price discrimination evidence from concession sales at movie theaters prices for goods such as blades for razors ink for printers and concessions at movies are often set well above cost theory has shown that this could yield a profitable price discrimination strategy often termed metering the idea is that a customer s intensity of demand for aftermarket goods e g the concessions provides a meter of how much the customer is willing to pay for the primary good e g admission if this correlation in tastes for the two goods is positive a high price on the aftermarket good allows firms to extract a greater total price admissions plus concessions from higher type customers this paper develops a simple aggregate model of discrete continuous demand to motivate how this correlation can be tested using simple regression techniques and readily available firm data model simulations illustrate that the regressions can be used to predict whether aftermarket prices should be above below or equal to their marginal cost we then apply the approach to box office and concession data from a chain of spanish theaters and find that high priced concessions do extract more surplus from customers with a greater willingness to pay for the admission ticket

the challenge of revenue sharing with bundled pricing an application to music bundling can increase revenue and profits relative to selling products on a standalone basis and this is an especially attractive strategy for zero marginal cost information products despite the clear benefits of bundling it has one major problem bundling produces revenue that is not readily attributable to particular pieces of intellectual property creating a revenue division problem the shapley value provides a well motivated solution to this problem and we use unique survey data to create measures of bundle value and in turn to estimate shapley values for each of 50 bundle elements we then evaluate feasible revenue sharing schemes including equal sharing proportional sharing and the modified shapley value of ginsburgh and zang 2003 2004 we first document that the shapley value is highly incentive compatible all bundle elements fare better inside the bundle than they do outside on a standalone basis we then evaluate the feasible schemes according to both their incentive compatibility and their similarity with the shapley value we find not surprisingly that the feasible schemes are less incentive compatible than the shapley value among the feasible schemes the gz scheme performs best while equal sharing performs worst

market power and second degree price discrimination in retail gasoline markets abstract empirical evidence of quality based second degree price discrimination is scarce the co existence of regular grade 10 ethanol blended gasoline e10 and regular grade non blended gasoline e0 in a major metropolitan city allows for second degree price discrimination to be examined while eliminating the issue of endogenous product differentiation because the two blends of gasoline are near perfect substitutes using a unique data set including daily price information for 402 retailers that sell only e0 gasoline only ethanol blended e10 gasoline or both blends simultaneously i find evidence that retailers use second degree price discrimination to segment the population between perceived lower and higher quality gasoline despite the fact that both blends can safely be used in nearly all vehicles additionally i uncover two elasticities of demand for gasoline and discuss the welfare effects of price changes and market segmentation

uniform pricing in us retail chains we show that most u s food drugstore and mass merchandise chains charge nearly uniform prices across stores despite wide variation in consumer demographics and competition demand estimates reveal substantial within chain variation in price elasticities and suggest that the median chain sacrifices 16 million of annual profit relative to a benchmark of optimal prices in contrast differences in average prices between chains are broadly consistent with the optimal benchmark we discuss a range of explanations for nearly uniform pricing highlighting managerial inertia and brand image concerns as mechanisms frequently mentioned by industry participants relative to our optimal benchmark uniform pricing may significantly increase the prices paid by poorer households relative to the rich dampen the response of prices to local economic shocks alter the analysis of mergers in antitrust and shift the incidence of intranational trade costs

first degree price discrimination goes to school personalized pricing is widely discussed but seldom observed making studies of its efficacy rare yet first degree price discrimination is common in the pricing of higher education and i use data on prices and the characteristics of students admitted to a professional graduate program at a public university to estimate a matriculation demand function i then derive linear pricing functions that maximize revenue for a target number of students by allowing these functions to depend on progressively richer sets of observables i explore the effect of personalization of pricing on profit tailoring prices to a one dimensional measure of student quality would raise revenue by 2 2 per cent above the revenue with uniform pricing pricing based on both student quality and state residency raises revenue by 8 4 per cent and further tailoring based on available observables raises prices 9 0 per cent above the maximum revenue under uniform pricing pricing that obeys current statutory tuition limits raises revenue less but still by just over half as much i also infer the welfare weights that the pricing process implicitly attaches to student characteristics

dynamic oligopoly pricing evidence from the airline industry we explore how pricing dynamics in the european airline industry vary with the competitive environment our results highlight substantial variations in pricing dynamics that are consistent with a theory of intertemporal price discrimination first the rate at which prices increase towards the scheduled travel date is decreasing in competition supporting the idea that competition restrains the ability of airlines to price discriminate second the sensitivity to competition is substantially increasing in the heterogeneity of the customer base reecting further that restraints on price discrimination are only relevant if there is initial scope for price discrimination these patterns are quantitatively important explaining about 83 percent of the total within ight price dispersion and explaining 17 percent of the observed cross market variation of pricing dynamics

multiproduct monopoly commodity bundling and correlation of values through what selling strategy can a multiproduct monopolist maximize his profits when his knowledge about individual consumers preferences is limited one possibility extensively studied in the context of a single good monopoly is to use quantity dependent pricing as a means of discriminating among customers with differing tastes see for example oi 1971 and maskin and riley 1984 an alternative technique for price discrimination first suggested by stigler 1968 and analyzed further by adams and yellen 1976 is for the monopolist to package two or more products in bundles rather than selling them separately through a series of examples adams and yellen illustrate that bundling can serve as a useful price discrimination device even when all consumers willingnesses to pay for each of the goods individually are unaffected by whether they are also consuming the other product a typical example is illustrated in figure i adapted from figure iv in adams and yellen where there are two goods three consumers ab c who consume at most one unit of each good with reservation values for each good that are independent of whether the other good is consumed and zero costs of production there a bundle offered at a price of 100 fully extracts all potential surplus which would be impossible pricing the goods independently unfortunately though these authors do not provide any general characterization of the circumstances in which bundling is actually a multiproduct monopolist s optimal strategy their examples however such as figure i create the impression that the profitable use of bundling

commuting migration housing and labour markets complex interactions commuting migration housing and labour markets are important for the overall economy and for the everyday life of many people commuting makes up a large part of all journeys world wide and many resourcedemanding transport investment projects are initiated to cope with this type of travelling in a range of countries increasing flows of national and international migration are central determinants of demographic developments in industrialised countries the working age population or those aspiring to be part of the economically active population constitute a large proportion of the total population consequently income earned through working represents a major component of total earnings in these economies cahuc and zylberberg 2004 in order to obtain an efficient labour market workers should locate and relocate to where the relevant jobs are to be found from an economic point of view commuting and migration are essential elements for obtaining a well functioning labour market fischer et al 1996 lux and sunega 2012 zabel 2012 finally housing is a basic good and for many people rents or loan repayments make up a relatively large proportion of their overall budget oecd 2011 moreover housing represents a dominating element of homeowners wealth or equity due to its central role during the financial and economic crisis starting around 2007 it has become clear that housing prices are important for the development of the overall economy in many countries for example muellbauer and murphy 2008 zabel 2012 housing and labour markets are linked in many ways when explaining these links it is useful to start with some of the distinguished features of housing markets as already mentioned houses frequently constitute a major part of households wealth moreover earned income from employment is a major

an econometric model of location and pricing in the gasoline market abstract the authors propose an econometric model of both the geographic locations of gasoline retailers in singapore and price competition among retailers conditional on their geographic locations although market demand for gasoline is not observed the authors are able to infer the effects of such demand from stations locations and pricing decisions using available data on local market level demographics using the proposed location model which is based on the assumption of social welfare maximization by a policy planner the authors find that local potential gasoline demand depends positively on the local demographic characteristics of the neighborhood using the proposed pricing model which is based on the assumption of bertrand competition between retail chains the authors find that retail margins for gasoline are approximately 21 the authors also find that consumers are willing to travel up to a mile for a savings of 03 per liter using the estimates of the proposed econometric model the a

willingness to pay and compensation demanded experimental evidence of an unexpected disparity in measures of value aside from possible income effects measures of the maximum amounts people will pay to avoid a loss and the minimum compensation necessary for them to accept it are generally assumed to be equivalent unexpectedly wide variations between these sums however have been noted in survey responses to hypothetical options this paper reports the results of a series of experiments that confronted people with actual money payments and cash compensations the results indicate that the compensation measure of value seems to exceed significantly the willingness to pay measure which would appear to call into some question various rules of entitlement damage assessments and interpretations of indifference curves

the spatial interaction of housing and labour markets commuting flow analysis of north west england the consideration of housing and labour market interaction is a relatively recent development in an academic and policy debate which has traditionally considered home and work in isolation this pa

endogenous product choice a progress report empirical models of differentiated product demand are widely used by both academics and practitioners while these methods treat carefully the potential endogeneity of price until recently they have assumed the number and characteristics of the products offered by firms are exogenous this paper presents a progress report on an ongoing research agenda to address this issue first it summarizes how the appropriate choice of orthogonal instruments can yield consistent estimates of own and cross price elasticities in the presence of endogenous product characteristics second it summarizes how to measure quality markups and the welfare consequences of endogenous product quality in u s cable television markets related papers and extensions to consider multiple product characteristics and dynamics are also discussed

national institutional structures transaction cost economizing and competitive advantage the case of japan japan s economic success since world war ii has been striking modern japan was the first major industrial economy to emerge from outside the western tradition economically devastated in 1945 by 1990 japan had the world s second largest economy and a gdp per head 20 percent greater than that of the united states in this paper it is argued that one reason for japan s success is that the costs of achieving cooperation and specialization are lower in japan than in the west cooperation and specialization have been acknowledged to have a beneficial impact upon productivity ever since adam smith wrote about cooperative specialization in the context of the division of labor modern economic theory however suggest that in a world of self interested individuals the costs of achieving cooperation and specialization are substantial in this paper it is argued that the cultural value system that japan has inherited from its preindustrial past and particularly the tokugawa period helps facilitate cooperation b

quality based price discrimination and tax incidence the market for gasoline and diesel cars in europe the existing tax policies toward gasoline and diesel cars in european countries provide a unique opportunity to analyze quality based price discrimination and the implied tax incidence in my econometric framework consumers choose the type of engine based on their annual mileage prices are set by the manufacturers the relative pricing of gasoline and diesel cars appears to be consistent with monopolistic price discrimination effectively segmenting low mileage from high mileage consumers on average about 75 to 90 of the price differentials between gasoline and diesel cars can be explained by markup differences i draw implications for the effectiveness and the revenue effects of tax policy