product and price competition in a duopoly this paper examines the role of consumer preferences costs and price competition in determining the competitive product strategy of a firm in the model studied here there are two identical firms competing on product quality and price they face consumers who prefer a higher quality product to a lower quality product but differ in how much they are willing to pay for quality the consumers can also choose a substitute if they don t like the product price offerings of the two firms for the firms a higher quality product costs more to produce than a lower quality product the paper shows that the equilibrium strategy for each firm should be to differentiate its product from its competitor with the firm choosing the higher quality choosing the higher margin as well this differentiation however is not efficient that is it is possible to choose two other products and offer them at prices that cover their marginal cost and still satisfy consumers needs better in the aggregate a monopolist by contrast would differentiate his product line efficiently this suggests that cannibalization has different effects on product strategy than competition the paper also shows that if one firm enters the market first then it can defend itself from later entrants and gain a first mover advantage by preempting the most desirable product position

estimating a model of strategic network choice the convenience store industry in okinawa this paper investigates a determinant of location choice for multistore retailing firms the trade off between the business stealing effect and the cost saving effect from clustering their own stores i present an empirical model of network choice by two multistore firms i use lattice theoretical results to address the computational burden of solving for an equilibrium in store networks the framework integrates the static entry game of complete information with post entry outcome data while using simulations to correct for the selection of entrants i present an application of the model to the case of the convenience store industry in okinawa island japan using unique cross sectional data on store networks and revenues i use parameter estimates to examine the impact of a hypothetical horizontal merger on store configurations costs and profits results suggest a retailer s trade off between cost savings and lost revenues from clustering its stores is positive across markets and negative within a market i find an acquirer of a hypothetical merger of two multistore firms would decrease its number of stores in suburbs but increase its number in the city center

price pass through and the minimum wage this paper tests a textbook consequence of competitive markets that an industry wide increase in the price of labor is passed on to consumers through an increase in prices using several data sources on restaurant prices i explore the price impact of minimum wage hikes in canada and the united states particular attention is paid to the timing of these price responses to gauge the stickiness of minimum wage cost shocks i find that restaurant prices generally rise with changes in the wage bill and that this response is concentrated in the quarter surrounding the month during which the legislation is enacted

asymmetric promotion effects and brand positioning several studies have shown that promotions of national brands yield more effect than those of store brands e g allenby and rossi 1991 blattberg and wisniewski 1989 however the evolution of price quality data available from consumer reports over the last 15 years seems to reveal a reduction of the quality gap between store brands and national brands while price differences remain substantial simultaneously the share of private label brands has increased progressive grocer 1994 in this context we study whether we can maintain a view of the world where national brands may easily attract consumers from store brands through promotions whereas store brands are relatively ineffective in attracting consumers from national brands by such means we analyze consumer reactions to price discounts in a parsimonious preference model featuring loss aversion and reference dependence along dimensions of price and quality hardie johnson and fader 1993 tversky and kahneman 1991 the key result of our analysis is that given any two brands there is an asymmetric promotion effect in favor of the higher quality higher price brands if and only if the quality gap between the brands is sufficiently large in comparison with the price gap thus the direction of promotion asymmetry is not unconditional it depends uniquely on the value of the ratio of quality and price differences compared to a category specific criterion which we call if the ratio of quality and price differences is larger than this criterion the usual asymmetry prevails if such is not the case the lower quality lower price brands promote more effectively more precisely our model predicts that cross promotion effects depend on two components of brand positioning in the price quality quadrant first we define a variable termed positioning advantage that indicates whether relative to the standards achieved by another brand a given brand is underpriced positive advantage or overpriced negative advantage promotion effectiveness is increasing in this variable second cross promotion effects between two brands depend on their distance in the price quality quadrant this variable impacts promotion effectiveness negatively and symmetrically for any pair of brands positioning advantage and brand distance are orthogonal components of brand positioning irrespective of the degree of correlation between available price and quality levels in the market empirically we investigate the role of brand positioning in explaining cross promotion effects using panel data from the chilled orange juice and peanut butter categories we compute the independent positioning variables positioning advantage and brand distance from readily available data on price and quality positioning after obtaining our estimates of we next measure promotion effectiveness by estimating choice share changes in response to a price discount using a choice model that does not contain any information about quality price ratios finally we test the relation between the two positioning variables and the promotion effectiveness measures the data reveal that in the orange juice category lower quality lower price brands generally promote more effectively than higher quality higher price brands in the peanut butter data the opposite asymmetry holds in both cases inter brand promotion patterns are well explained by the positioning variables an attractive feature of our model is that in addition to the direction of promotion asymmetries it also explains the extent of those asymmetries a further interesting aspect of this approach is that we go beyond a categorization of brands into price tiers for instance lower tier brands in our data may promote more effectively than one national brand but less effectively than another consistent with our theoretical predictions the data presented here seem to confirm that such cases occur because the lower tier brand offers a favorable trade off of price and quality differences compared with one national brand and a less favorable trade off compared with the other the content of this paper is potentially relevant for brand managers or retailers concerned with predicting the impact of their promotions the paper is of particular interest to marketing scientists who study the performance of store brands versus national brands and may also appeal to those who wish to explore the marketing implications of behavioral decision theory finally our investigation does not reject blattberg and wisniewski s 1989 finding shared by allenby and rossi 1991 and hardie johnson and fader 1993 that national brands have a principle advantage in promotion effectiveness rather it formalizes when this principle advantage is overruled by positioning disadvantages of such brands

opec market failure or power failure abstract the actions of opec and saudi arabia are discussed in terms of their objectives and their technical and social constraints it is concluded 1 that opec does not act as a cartel and 2 that hotelling s rule is not an important feature of pricing or production opec s more specifically saudi arabia s ideal policy is to keep price moderate to try to assure a market for their high reserves over the long run such an action would require heavy investments in capacity including in excess capacity for times of interruption of supply from other countries as in the 1990s and for times of high demand as in the 2000s the action may be inconsistent with other objectives and in any case may be too difficult to achieve

entry exit and performance in airline markets abstract data from the airline industry indicate that 1 entry generally is not induced by price levels substantially above the norm 2 entry reduces fares and increases output and exit increases fares and reduces output and 3 incumbents cut price and maintain output in response to entry and survivors increase both price and output in response to exit these findings cast doubt on the ability of entry to prevent or reverse price increases from anticompetitive mergers

product differentiation and entry timing in a continuous time spatial competition model abstract we extend the well known spatial competition model d aspremont gabszewicz thisse 1979 to a continuous time model in which two firms compete in each instance our focus is on the entry timing decisions of firms and their optimal locations we demonstrate that the leader has an incentive to locate closer to the center to delay the follower s entry leading to a non maximum differentiation outcome we also investigate how exogenous parameters affect the leader s location and firms values and in particular numerically show that the profit of the leader changes non monotonically with an increase in the transport cost parameter

towards a testable model of entry a study of the us manufacturing industries this paper develops a simple model of firms entry decisions fits it to interindustry data and tests hypotheses related to contestability theory it is shown that entry increases with the profit level of incumbents holding fixed the expected losses that the entrant would suffer in the event of exit these expected losses are greater the higher the probability of a predatory incumbent response and the larger the sunk costs that must be committed by the entrant the effects of sunk costs are significant and incumbents are significantly more likely to react aggressively when they are both profitable and concentrated copyright 1990 by the london school of economics and political science

economies of scale and barriers to entry dixit has recently presented a model in which established firms select capacity to discourage entry but cannot employ threats they would not rationally execute after entry entry deterrence in a slight modification of this model involves the classical limit price output under linear or concave demand however the capital cost of a firm of minimum efficient scale is an upper bound on the present value of the monopoly profit stream that can be shielded from entry it is argued that this suggests the general unimportance of entry barriers erected by scale economies

an analysis of preemptive behavior in the titanium dioxide industry abstract much of the recent theoretical work on oligopoly theory focuses on preemptive capital expansion this paper continues this work by testing whether dupont s behavior in the titanium dioxide industry was consistent with the capital commitment model between 1972 and 1977 this is different from previous empirical papers analyzing preemptive capital expansion because it focuses on strategic behavior in a specific industry and because the hypothesis tests in this paper are based on a formal model of firms optimizing behavior the results lend support to the conclusion that dupont committed capital to preempt the smallest five firms in the industry between 1972 and 1977

an empirical test of the effect of excess capacity in price setting capacity constrained supergames abstract in a multi period game industry excess capacity may act to deter firms from cheating on a non cooperative oligopoly price a model is developed that translates the deterrrent influence of excess capacity into predictions about the relationship between excess capacity and oligopoly price cost margins the model is tested with time series data from the u s aluminum industry results are consistent with those predicted by the model

exchange rate pass through and credit constraints abstract the macroeconomic evidence of the short term impact of exchange rates on exports and prices is notoriously weak this paper examines the microfoundations of this disconnect i study the response of firms export and price setting decisions to fluctuations in exchange rates and credit conditions using firm level survey data financially constrained firms pass through exchange rate changes to prices at almost twice the rate of unconstrained firms similarly their export volumes are about twice as sensitive to exchange rate fluctuations the effect of borrowing constraints is particularly strong during the recent financial crisis

outsourcing retail pricing to a category captain the role of information firewalls it has been argued that retailers lack both the resources and capabilities to maximize category performance retailers may seek category management cm advice from a manufacturer referred to as a category captain cc a cc s recommendations affect all brands in the category not just her own despite an increase in the number of cc collaborations retailers are still concerned about manufacturer opportunism and militant behavior by manufacturers not selected as ccs whereas government agencies are worried about anticompetitive behavior that could harm consumers the federal trade commission recommends strictly enforced information firewalls within a cc s organization as a best practice guideline in this study we develop an empirical model and use policy simulations to quantify the impact of cc arrangements with information firewalls on retailers manufacturers and consumers we show how these effects could be influenced by the deactivation of vertical and horizontal information firewalls within the cc s organization

competitive strategies for late entry into a market with a dominant brand this paper considers optimal positioning advertising and pricing strategies for a firm contemplating entry in a market dominated by an entrenched competitor drawing on behavioral research on consumer preference formation we develop an individual level model that reflects differing consumer responses to similar products offered by the dominant brand and later entrants an effect we term asymmetric preferences from the resulting aggregate market response model we derive several competitive implications notably 1 that preference asymmetry can make a differentiated late entry strategy optimal even if preferences would appear to dictate otherwise and 2 that me too strategies are not equilibrium late entry strategies more generally our analysis suggests that preference asymmetry can contribute to the persistent competitive advantage of dominant brands

measuring the impact of negative demand shocks on car dealer networks the goal of this paper is to study the behavior of consumers dealers and manufacturers in the car sector and present an approach that can be used by managers and policy makers to investigate the impact of significant demand shocks on profits prices and dealer networks more specifically we investigate consumer demand substitution patterns and price decisions across different cars and dealer locations to identify dealerships with low margins or high fixed costs and measure the value of closing down dealerships for manufacturers we apply our model empirically to the san diego area using a transactional data set with information about the locations of dealers and consumers as well as manufacturer and retail prices we find strong consumer disutility for travel and find that dealers have local demand areas that are shared with a small set of competitors we show that a reduction of market demand by 30 over two years similar to the economic crisis of 2008 2009 results in an annual drop in prices of approximately 11 we discuss this price drop in the context of the 2009 federal policy measure known as the car allowance rebate system program we compare predictions and actual dealership closings in the general motors and chrysler dealer networks as an application of our approach

accounting for primary and secondary demand effects with aggregate data discrete choice models of aggregate demand such as the random coefficients logit can handle large differentiated products categories parsimoniously while still providing flexible substitution patterns however the discrete choice assumption may not be appropriate for many categories in which we expect consumers may purchase more than one unit of the selected item we derive the aggregate demand system corresponding to a discrete continuous household level model of demand we also propose a method of simulated moments procedure that provides consistent estimates of the structural parameters when only aggregate data are available the procedure also enables the researcher to control both for the potential endogeneity of marketing variables as well as potential heterogeneity in consumer tastes using our aggregate estimates we can measure the decomposition of price elasticities into incidence brand choice and purchase quantity components we also propose several empirical tests to assess the validity of the discrete continuous demand system versus that of the logit model in several simulation experiments we demonstrate the robustness of this model across datasets in which quantity choices may or may not be important our empirical calibration to store level data in the refrigerated orange juice category indicates a considerable improvement in fit of the observed aggregate sales using the discrete continuous model

job destruction and propagation of shocks this paper considers propagation of aggregate shocks in a dynamic general equilibrium model with labor market matching and endogenous job destruction cyclical fluctuations in the job destruction rate magnify the output effects of shocks as well as making them much more persistent interactions between capital adjustment and the job destruction rate play an important role in generating persistence propagation effects are shown to be quantitatively substantial when the model is calibrated using job flow data incorporating costly capital adjustment leads to significantly greater propagation

symmetric pass through of tariffs and exchange rates under imperfect competition an empirical test abstract this paper examines the effect of tariffs and exchange rates on u s prices of japanese cars trucks and motorcycles in particular we test whether the long run pass through of tariffs and exchange rates are identical the symmetry hypothesis we find that this hypothesis is easily accepted in our sample we also find that the pass through relation varies across products ranging from about 0 6 for trucks to unity for motorcycles these coefficients have very different implications for trade policy we explain the results based on demand cost and institutional conditions in each industry

the law of one price a case study we use retail transaction prices for a multinational retailer to examine the extent and permanence of violations of the law of one price for identical products we find typical deviations of 20 50 percent with some evidence for convergence over time such differences might be due to differences in local costs if so relative prices of similar products round versus square mirrors should be equal across countries in fact relative prices vary significantly across very similar goods within a product group the finding suggests that differences in local distribution costs local taxes and probably tariffs do not explain the price pattern leaving strategic pricing or other factors resulting in varying markups as alternative explanations jel classification f41 l11

mcdonald s and kfc in china competitors or companions in this paper we study the entry and expansion decisions of mcdonald s and kfc in china using an originally assembled data set on the two chains expansion in the china market from their initial entry up to year 2007 we analyze how the presence of a rival affects each firm s strategies the results indicate that a rival s presence has a net positive effect on a chain s expansion decision we focus on testing two possible explanations for a positive rival impact market learning and demand expansion first we derive a set of theoretical predictions on how a chain s optimal expansion decision would react to its rival s expansion patterns when market learning versus demand expansion is the driving force of the rival s positive influence the empirical analysis based on these predictions consistently suggests that market learning is more likely to explain the positive effect of kfc on mcdonald s and that demand expansion is more plausible with mcdonald s positive spillover on kfc in other words the results are consistent with the presence of kfc signaling market demand potential and growth to mcdonald s and the presence of mcdonald s helping to cultivate consumer taste and generate demand for western fast food which benefits kfc

bifurcation analysis of zellner s marshallian macroeconomic model the marshallian macroeconomic model in zellner and israilevich 2005 provides a novel way to examine sectoral dynamics through the introduction of a dynamic entry exit equation in addition to the usual demand and supply functions found in models of this class in this paper we examine the possibility of cyclical behavior in the marshallian macroeconomic model and investigate the existence of a hopf bifurcation with respect to the parameter in the entry exit equation

price discrimination by u s and german exporters the insensitivity of the u s trade balance to the sharp depreciation of the dollar in the past three years has revived interest in the relationship between exchange rates and the trade balance a central issue in most analyses of the relation between the current account and the exchange rate concerns the price adjustment process the simple integrated competitive market model predicts that local currency prices should change in proportion to the nominal exchange rate for a country too small to influence world prices the relationship between local currency import prices and exchange rates has been referred to as the pass through relationship in the empirical literature in international economics if the proportional relationship between import prices and exchange rates holds pass through is said to be complete accounts of recent u s experience cite the failure of dollar prices of imported goods to rise in proportion to exchange rates i e incomplete pass through as an important factor in explaining the persistence of the trade deficit unfortunately observations on pass through alone provide limited insight into the behavior of markets since incomplete pass through is consistent with at least two fundamentally different paradigms one is the standard competitive model of trade in which the law of one price holds but exchange rate fluctuations are associated with large changes in import demand due to other factors for example if dollar appreciation is correlated with increases in world demand and industry marginal cost is increasing then pass through will be less than complete the other is an imperfectly competitive model in which exporters are capable of price discriminating across destination markets a phenomenon paul krugman 1987 has labeled pricing to market in this model incomplete pass through is typically associated with fluctuations in the markup of price over marginal cost on exports 2 these fluctuations in markups are believed to be countryspecific they do not reflect the behavior of prices to other export destinations both models are plausible explanations of recent u s experience unfortunately it is impossible to distinguish between these competing models using only information on import prices and exchange rates for a single country in order to distinguish between the competing models an empirical analysis of goods prices and exchange rates must be capable of measuring either marginal cost or the markup over marginal cost either of these tasks poses formidable empirical problems much of the empirical literature in industrial organization has been concerned with precisely these issues since markups are an important measure of the competitiveness of industries

capacity signals and entry deterrence abstract if potential entrant firms are well informed they will generally not believe incumbent s threats to expand output when experiencing entry but this expectation underlies most excess capacity models we demonstrate an asymmetric information equilibrium in which potential entrants rationally fear output expansion by oligopolists with excess capacity less effective collusive oligopolies may be destabilized expanding output upon entry one symptom of less effective collusion is excess capacity hence excess capacity becomes a signal of the potential for output expansion in a rational expectations equilibrium this signal may also be mimicked by oligopolies which would not otherwise carry excess capacity

defensive marketing strategies this paper analyzes how a firm should adjust its marketing expenditures and its price to defend its position in an existing market from attack by a competitive new product our focus is to provide usable managerial recommendations on the strategy of response in particular we show that if products can be represented by their position in a multiattribute space consumers are heterogeneous and maximize utility and awareness advertising and distribution can be summarized by response functions then for the profit maximizing firm it is optimal to decrease awareness advertising it is optimal to decrease the distribution budget unless the new product can be kept out of the market a price increase may be optimal and even under the optimal strategy profits decrease as a result of the competitive new product furthermore if the consumer tastes are uniformly distributed across the spectrum a price decrease increases defensive profits it is optimal at the margin to improve product quality in the direction of the defending product s strength and it is optimal at the margin to reposition by advertising in the same direction in addition we provide practical procedures to estimate 1 the distribution of consumer tastes and 2 the position of the new product in perceptual space from sales data and knowledge of the percent of consumers who are aware of the new product and find it available competitive diagnostics such as the angle of attack are introduced to help the defending manager this article was originally published in marketing science volume 2 issue 4 pages 319 360 in 1983

competitive pricing behavior in the auto market a structural analysis in a competitive marketplace the effectiveness of any element of the marketing mix is determined not only by its absolute value but also by its relative value with respect to the competition for example the effectiveness of a price cut in increasing demand is critically related to competitors reaction to the price change managers therefore need to know the nature of competitive interactions among firms in this paper we take a theory driven empirical approach to gain a deeper understanding of the competitive pricing behavior in the u s auto market the ability motivation paradigm posits that a firm needs both the ability and the motivation to succeed in implementing a strategy boulding and staelin 1995 we use arguments from the game theoretic literature to understand firm motivation and abilities in different segments of the auto market we then combine these insights from the game theoretic literature and the ability motivation paradigm to develop hypotheses about competition in different segments of the u s auto market to test our hypotheses of competitive behavior we estimate a structural model that disentangles the competition effect from the demand and cost effects on prices the theory of repeated games predicts that firms with a long run profitability objective will try to sustain cooperative pricing behavior as a stable equilibrium when conditions permit for example markets with high concentration and stable market environments are favorable for sustaining cooperative behavior and therefore provide firms with the ability to cooperate the theory of switching costs suggests that in markets in which a firm s current customers tend to be loyal firms have a motivation to compete very aggressively for new customers recognizing the positive benefits of loyalty from the customer base in the long run as consumer loyalty in the market increases the gains from increasing market share by means of aggressive competitive behavior are more than offset by losses in profit margins firms therefore have the motivation to price cooperatively empirically we find aggressive behavior in the minicom pact and subcompact segments cooperative behavior in the compact and midsize segments and bertrand behavior in the full size segment these findings are consistent with our theory based hypotheses about competition in different segments in estimating a structural model of the auto market we address several methodological issues a particular difficulty is the large number of car models in the u s auto market existing studies have inferred competitive behavior only in markets with two to four products they also use relatively simple functional forms of demand to facilitate easy estimation functional forms of demand however impose structure on cross elasticities between products such structure when inappropriate can bias the estimates of competitive interaction we therefore use the random coefficients logit demand model to allow flexibility in cross elasticities we also use recent advances in new empirical industrial organization neio to extend structural estimation of competitive behavior to markets with a large number of products we use the simulation based estimation approach developed by berry et al 1995 to estimate our model a frequent criticism of the neio approach is that its focus on industry specific studies limits the generalizability of its findings in this study we retain the advantages of neio methods but partially address the issue of generalizability by analyzing competitive behavior in multiple segments within the auto industry to see whether there is a consistent pattern that can be explained by theory theoretical modelers can use our results to judge the appropriateness of their models in predicting competitive outcomes for the markets that they analyze a by product of our analysis is that we also get estimates of demand and cost apart from competitive interactions for the market managers can use these estimates to perform what if analysis they can answer questions about what prices to charge when a new product is introduced or when an existing product s characteristics are changed

sequential product positioning under differential costs this paper examines the product positioning decisions of firms that enter a market sequentially and that have potentially different cost structures it shows that if the first mover knows the second mover to have a lower production cost it positions away from the most attractive location in the market further the larger the second mover s cost advantage the farther away the first mover positions from the most attractive location the paper also models uncertainty in the first mover s mind about the later entrant s cost structure and shows that an increase in this uncertainty in the sense of mean preserving spread also makes the first mover position farther from the most attractive location in the market overall this paper suggests that unless the first entrant in a market is certain that the later entrant will not have a superior cost structure it may be better off leaving the best position in the market vacant and having a niche or fringe product

expectations learning and business cycle fluctuations this paper explores an alternative theory based on learning dynamics in the con text of an otherwise standard stochastic growth model we consider an environment in which households and firms have an incomplete model of the macroeconomy knowing only their own objectives constraints and beliefs agents are optimizing have a completely specified belief system but do not know the equilibrium map ping between primitive disturbances the aggregate state of the economy and mar ket clearing prices by extrapolating from historical patterns in observed data they approximate this mapping to forecast variables that are exogenous to their decision problems such as the rental rate of capital and the real wage this belief structure has the property that beliefs affect the true data generating process of the economy which in turn affects belief formation the economy is therefore self referential shifts in beliefs about future returns to labor and capital affect current market clear ing prices which in turn can reinforce beliefs in this environment current prices can become less informative about future economic conditions generating fluctuations in real activity this kind of mechanism driving business cycle fluctuations is found in early writ ings on macroeconomic dynamics for example alfred c pigou 1927 on page 122 writes

agency theory and franchising some empirical results this article provides an empirical assessment of various agency theoretic explanations for franchising including risk sharing one sided moral hazard and two sided moral hazard the empirical models use proxies for factors such as risk moral hazard and franchisors need for capital to explain both franchisors decisions about the terms of their contracts royalty rates and up front franchise fees and the extent to which they use franchising in this article i exploit several new sources of data on franchising to construct a cross section of 548 franchisors involved in various business activities in the united states in 1986 the data are most consistent with a model based on two sided moral hazard the empirical models are also more successful at explaining the extent to which franchisors choose to franchise stores than at explaining the terms of franchise contracts finally contrary to the predictions of several theoretical models i find that royalty rates and franchise fees are not negatively related

rivalry in price and location by differentiated product manufacturers in this article we estimate a model of strategic rivalry between food manufacturers in product design and pricing we derive a spatial structural model in which food manufacturers jointly select prices and the optimal attribute composition of their product lines we find that manufacturers have an incentive to locate yogurt products nearby others in attribute space and that products with the most similar attribute compositions enjoy the widest price cost margins our findings explain the observation that most consumer package goods tend to be very similar yet manufacturers appear to earn above normal profits copyright 2013 oxford university press

price reactions to new competition a study of us luxury car market 1986 1997 abstract this paper examines the questions of whether the incumbent responds to entry and which firms respond to entry in an industry by using a data sample of the us luxury car market during the period of 1986 and 1997 the statistical analysis finds that the incumbent s response varies across firms but some group of firms responds to entry similarly in particular this paper finds that the german exporters of luxury cars respond significantly to the entry of a japanese rival in the us market similarly by reducing their prices and mark ups the extent to which they respond to entry become greater as the japanese firm s market share increases the statistical test accepts the hypothesis of the equality of coefficients among the german firms but rejects the hypothesis when both the german and british firms are included in the sample

capacity use in multi unit firms evidence for efficiency gains or strategic competition in the us restaurant industry in this article i examine both the full firm size distribution and establishment level capacity use to determine if efficiency gains or strategic competition account for the proliferation of multi unit firms in the us restaurant industry using us census microdata i find that multi unit firms operate a greater number of restaurants and larger individual restaurants in larger metropolitan statistical areas msas this evidence of increased profitability goes hand in hand with increases in capacity utilization through longer operating hours and more intensive production of meals and nonmeals output at individual establishments greater capacity exploitation is consistent with efficient firms rather strategic behaviour such as product proliferation or location preemption to limit rivalry furthermore these results hold true for multi unit firms but not for large national chain systems suggesting that efficiency gains accrue from firm specific capital not just from marketing or distribution scale econ

the determinants of the voting premium in italy the evidence from 1974 to 2003 abstract we examine the voting premium in italy in the period 1974 to 2003 when it ranged from 1 to 100 at firm level the measure of the price differential between voting and non voting stocks cannot be fully explained without taking into account the effect of the largest shareholder s identity family controlled firms have higher voting premiums especially when the family owns a large stake in the company s voting equity and the founder is the firm s ceo and or chairman we explain this result by showing that families attach greater importance to control and are more prone than other types of controlling shareholders to expropriate the non voting class of shareholders

research on equity adjustment agency costs and commercial bank performance experimental evidence from china this article studies the impact of options to adjust the performance of commercial banks from agency costs in the shareholding structure of the adjustment process considering changes in agency costs only in agency costs no more than the commercial banks when new results the company will have to adjust agent the cost of power stealth measure more just by reflecting the size of the incremental results in addition equity restructuring costs are the basis of agency governance and ownership structure has an important impact on agency costs through a few selected china 14 listed commercial banks 2007 2012 data we show that the impact of performance of commercial banks on the proportion of the company s largest shareholders is generally more significant however the impact of equity restriction on commercial banks was not as significant as seen from the application of balanced panel data model analysis and the test results however the agency costs of commercial bank performance were signific

firm outsourcing decisions evidence from u s foreign trade zones deborah l swenson this article examines the operations of firms located in u s foreign trade subzones to study the responsiveness of outsourcing to international cost changes i find that firms reduce their reliance on foreign inputs when dollar depreciation increases the relative price of imported inputs the effect is pervasive across industries and is economically significant in addition firms that rely more heavily on imported intermediate inputs reduce their overall shipments when dollar depreciation elevates their imported input costs however the magnitude of the shipments effect is economically small suggesting that firms respond to exchange rate movements by adjusting their operations on other dimensions jel f23 f1 i introduction during the nafta debates u s industry argued that it would be placed at a competitive disadvantage if it failed to gain access to mexican parts that benefited from tariff reductions in the absence of such benefits it was argued that u s firms might even move their production off shore at the same time u s trade unions expressed great concern that jobs and high levels of economic activity would be lost if nafta caused a rise in the outsourcing of intermediate inputs although these countervailing concerns have attracted much attention very little is known about the responsiveness of firm outsourcing to relative price changes or about its secondary effects on firm shipments since outsourcing decisions are made at the firm level and appropriate data is rarely available to researchers this article seeks to address this void by analyzing a data set that provides information on these purchasing and shipment decisions recent aggregate evidence indicates that firms are purchasing an increasing portion of their intermediate inputs from their foreign affiliates or from unrelated parties located abroad 1 it is argued that advances in transportation and communications have facilitated the trend toward the dispersion of production activities while the aggregate trends are striking little research has focused on individual firm decisions one exception is brainard and riker s 1997 examination of multinational firms employment choices as they respond to international wage changes brainard and riker conclude that the degree of firm substitution among a firm s numerous foreign affiliates is much higher than that between parent firms and their foreign affiliates which is relatively small this labor market evidence suggests that foreign affiliate labor is not easily substituted for home labor and that the two may even be complements 2 in contrast a higher degree of substitutability is implied by work including feenstra a nd hanson 1996 and irwin 1996 for the united states or campa and goldberg 1997 for the united states united kingdom japan and canada which documents that the usage of imported intermediate inputs has increased in almost all cases since the 1970s 3 this article studies the issue of input sourcing flexibility and its consequences by examining individual firm decisions the analysis is based on the activities of a set of firms located in u s foreign trade subzones i focus on this subset of firms since the u s foreign trade subzones program provides a unique opportunity to examine firm level decisions regarding inputs and shipments the reporting requirements of the foreign trade zones program enable us to view aspects of firm sourcing decisions that are usually unobservable i use two estimation methods to measure the general substitutability of inputs and outsourcing flexibility first i develop a constant elasticity of substitution ces model of input demand i then use nonlinear least squares techniques to estimate the underlying demand parameters implied by the structural equations i then perform a tobit analysis of firm sourcing decisions the benefit of the second form of analysis is that it allows me to study additional determinants of outsourcing and it does not require strong assumptions about the functional form of the production function

excess capacity and entry some empirical evidence recent articles by spence i977 dixit i979 and schmalensee i98i have elaborated on wenders i97i1 proposition that excess capacity can act as a barrier to entry the intent of all of these treatments is to suggest that firms may rationally invest in excess capacity with the expectation that excess capacity will be seen by potential entrants either as a signal of aggressive intent or as a credible threat 2 when excess capacity does not lead to creation of a credible threat it may still act as a barrier to entry by shifting the risk return perceptions of potential entrants enough to divert the potential entrants investments into other industries 3 alternatively investment in excess capacity by incumbent firms may reduce the prospects of an active market for the used equipment of a defunct entrant and thereby help to convert fixed costs into sunk costs consequently raising entry barriers 4 this paper represents an exploratory effort to investigate empirically the prevalence and efficiency of excess capacity in deterring entry first a simple and traditional model of entry is presented this is followed by the description of the data used to explore the excess capacity investment concept a combined results and comments section follows the description of the data

price increasing competition in a discrete choice model of product differentiation the symmetric duopoly price may be lower than equal to or higher than the single product monopoly price whereas the market share effect encourages a duopolist to charge less than the monopoly price because a duopolist serves fewer consumers the price sensitivity effect motivates a higher price when more consumer choice steepens the firm s demand curve the joint distribution of consumer values for the two conceivable products determines the relative strength of these effects the analysis provides precise conditions for price increasing competition and reveals that it is unexceptional from a theoretical perspective

note competitive price and positioning strategies brand positioning and brand pricing are important strategic decisions for marketing managers such decisions are interrelated and depend upon competitive brand positions and prices however any unilateral decisions may encourage repositioning and price adjustment by competitors thus leading to either new market equilibria or a price positioning war this paper examines such price and positioning decisions in a competitive environment by extending the defender consumer model to more complex equilibria we assume that the brands are already in the market and that positions are sticky in the sense that brands cannot leapfrog one another among the insights for such incumbent brands are if prices are symmetric and held constant firms seek to reposition toward the center of the market but price advantages by central firms can mediate that central tendency such that an equilibrium exists with positive profits if brand positions are held constant the nash equilibria for prices exist and are unique and category profits the sum of brand profits are maximized for maximum brand differentiation for two and three brand markets the subgame perfect nash equilibrium where positioning decisions are made with foresight on the price equilibria causes firms to unilaterally seek maximum brand differentiation but for four or more brands greater foresight and or cooperation appears necessary to reach the point of maximum brand differentiation these results apply where the defender consumer model is an exact description of consumer response and where the competitive reaction assumptions hold in any empirical situation such forces might be softened resulting in differentiated but not maximally differentiated brands

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

excess capacity as a barrier to entry in the us titanium industry abstract the purpose of this paper is to construct and empirically test a model designed to determine the impact if any of expected excess capacity on the probability of entry the analysis is conducted within the context of a single oligopoly specifically the us titanium metal industry using time series data an empirical model is developed and estimated in order to determine expected values of the components of excess capacity capacity and production by disentangling the components of excess capacity and estimating them separately it is possible to separate any incumbent actions that may preempt entry from the effects of underlying cycles in demand and production these predicted values are utilized in a logit model generating results which indicate that expected levels of capacity expansion appear to diminish the probability of firm entry into the titanium industry

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

turf wars product line strategies in competitive markets in this paper we study product line scope and pricing decisions in a horizontally differentiated duopoly past research has shown that a firm may offer a broader product line to attract higher demand or charge a higher price or both and benefit at the expense of its competitor we show that such outcomes may be reversed especially when consumers have relatively high valuation and low heterogeneity in their preferences for the line extension we find that an equilibrium exists such that only one firm prefers to expand scope but profits may be higher for both firms even in the absence of market size expansion this is because a broader scope permits that firm to effectively price discriminate by raising prices for its core customers the competitor optimally responds by lowering prices to gain share and earn a higher profit thus higher prices for the firm expanding its product line translate into higher demand for the competing firm thus increasing profit for both we show that our results hold when firms deploy generic offensive or defensive strategies during product line expansion

exchange rates and market power evidence from the petrochemical industry abstract this paper takes a microeconometric approach to the study of exchange rate pass through in imperfectly competitive markets we provide evidence for the hypothesis that incomplete exchange rate pass through can be attributed to non competitive conduct by foreign firms a unique feature of our approach is the use of highly disaggregated industry data which is compatible with the behavioral assumptions of a homogeneous product oligopoly model we employ a panel data set consisting of location and product specific price and cost data for 29 traded petrochemicals for the us germany and japan during 1982 to 1993 our empirical estimates indicate that german and japanese firms exercised statistically significant market power in the us petrochemical market during our sample period

price induced patterns of competition this research focuses on how price changes influence the observed pattern of brand competition the paper begins with a basic utility model formulation and examines the implications of three major classes of preference distributions on the expected patterns of competition a price tier model is proposed to operationalize the theory and to allow predictive testing the price tier model is estimated on 28 brands across four product categories the results show a specific asymmetric pattern of price competition higher price higher quality brands steal share from other brands in the same price quality tier as well as from brands in the tier below however lower price lower quality brands take sales from their own tier and the tier below brands but do not steal significant share from the tiers above the results are consistent with a bimodal preference distribution with the regular price indifference point being located toward the lower quality end of the preference distribution for the categories analyzed

the efficiency of investment in the presence of aggregate demand spillovers in the presence of aggregate demand spillovers an imperfectly competitive form s profit is positively related to aggregate income which in turn rises with profits of all firms in the economy this pecuniary externality makes a dollar of a firm s profit raise aggregate income by more than a dollar since other firms profits also rise and in this way gives rise to a multiplier since such multipliers are ignored by firms making investment decisions privately optimal investment decisions under uncertainty will not in general be socially optimal under reasonable conditions investment is too low

incomplete exchange rate pass through and imperfect competition the effect of local production extent to which product prices respond to exchange rate induced changes in costs this research has revealed that the percentage change in the prices of imported goods is smaller than the percentage change in exchange rates of the exporting country and that price responses differ across destinations a phenomenon termed pricing to market this finding may indicate market imperfections in international trade for example those that may arise in the case of segmented markets alternatively these empirical facts may reflect the sale of products whose production occurs in multiple locations when firms are able to shift their production across borders or alter their location of sourcing their costs will not change one for one with home country exchange rate movements and therefore their prices are unlikely to change one for one with exchange rate movements however this possibility has not been addressed empirically in the literature on pricing to market this study contributes to the literature by estimating exchangerate pass through while controlling for local production in the destination market we focus on the u s automobile market and the pricing of u s and japanese firms in particular for several reasons first we have product level information on pricing and content and there is substantial variation in destination country production across products and over time second existing studies have found evidence of pricing to market and incomplete exchange rate passthrough in automobile markets providing a useful comparison for our results and making this an appropriate market in which to study the effect of local production on exchange rate passthrough consistent with other studies we find that japanese firms partially pass through japanese cost changes to their u s customers in addition we find that this partial pass through characterizes not only japanese cost shocks but cost shocks that these japanese firms experience in their u s production this finding persists in a sample that includes both u s and japanese firms automobile firms generally do not pass through cost shocks in their entirety our data also show that those japanese auto

market structure capacity expansion and pricing a model applied to the japanese iron and steel industry abstract the main objective of this paper is to study empirically the simultaneous and recursive relations between short run pricing capacity decision and fluctuations in the elements of market structure for this purpose a time series industry model was constructed and applied to the japanese iron and steel industry for 1957 1975 the statistical results imply that over time industry market structure especially seller concentration might change endogenously in the system the model also indicated that seller concentration as an element of market structure was a significant determinant of short run domestic and export prices and also had a significant effect on the capacity decisions these findings support the proposition that market structure affects market conduct at any moment in time while it is some degree shaped by past market conduct or behavior and structure

price convergence in the european car market this article examines price convergence in the european union eu car market over the period 1995 to 2005 we find that there is a clear evidence of price convergence among the eu15 countries but not before 1999 moreover countries of the economic and monetary union emu started convergence previously to the eu15 as a whole finally exchange rate changes have significantly contributed to price dispersion over time across countries the results provide significant evidence that trade liberalization and the emu have enhanced the process of regional integration in the european automobile industry even though there is room for further measures to promote integration

cost pass through in the u s automobile market we study cost pass through in the u s automobile market using a framework that incorporates the effects of cost changes on input decisions we find that accounting for firms factor market decisions significantly increases measured cost pass through although we reject the hypothesis of full cost pass through and constant markups in addition our evidence suggests that cost shocks common to all manufacturers have a greater effect on prices than do model specific cost shocks finally we examine how pass through varies with manufacturer nationality finding that u s firm cost pass through exceeds that of european and asian firms

research note on the profitability of firms in a differentiated industry in a model of vertical differentiation the principal concern of this paper is to identify sufficient conditions for producing a higher or lower quality good to be more profitable in terms of profits and profit margin our basic model considers a short run scenario where the firms quality levels are fixed and they engage in price competition here our results are three first we develop the notion of relative cost efficiency and show that its increasing or decreasing monotonicity in product quality implies that of firm profitability in equilibrium a firm s relative cost efficiency refers to its quality adjusted cost dis advantage relative to its immediate competitors for a given distribution of consumer tastes second selling a higher quality good is more profitable when absolute cost efficiency defined as the ratio between a firm s quality and unit cost is increasing in quality third we also establish a set of lower and upper bounds on each firm s profitability the basic model is then extended in two directions we examine unit cost functions that demonstrate monotone profitability even when both quality and price are endogenous variables we also show that the spirit of relative cost efficiency and its associated sufficient condition hold valid for a logconcave consumer distribution

pricing to market in european automobile exports to oecd countries a panel data approach this paper investigates pricing to market behaviour using data for european auto exports the empirical analysis uses forward instead of spot exchange rates cross country and cross product analyses reveal that pricing behaviour depends mainly on the class of product while the country of origin and destination appears as less important furthermore the data do not usually reject the hypothesis of a symmetric response of export prices to depreciations and appreciations of the exporter s currency finally although the point estimates confirm the combined influence of the business cycle and the direction of the exchange rate movements on pricing to market in most cases formal tests seldom provide statistical significance for this result

social costs of oligopoly and the value of competition in this study we present a new methodology for estimating welfare losses caused by market power we depart from past studies by explicitly taking into account different levels of market power we provide estimates of a actual social costs arising from existing market structures and b expected monopoly social costs that would occur if there were no competition actual or potential the difference between actual and monopoly welfare losses represents the value of competition in existing markets we further estimate the separate contributions of actual and potential competition to this value our methodology is based upon an empirical model of oligopoly behaviour and limit pricing from this model we estimate the markup which would occur were there no competition we use this markup in turn to estimate industry demand elasticity at the monopoly price with this elasticity and the assumption of linear demand we can characterise demand cost and welfare conditions at each equilibrium monopoly actual and competitive with this new methodology and some other modifications of earlier techniques we provide not only new estimates of welfare losses but also estimates of the value of competition under existing conditions we find that the actual deadweight loss triangle averages 2 9 of value of shipments for a sample of 37 industries we also estimate that were these industries to maximise joint profits with no threat of entry the welfare loss would be i i 6 the difference 8 7 we attribute to the beneficial effects of potential competition 4 9 and actual competition 3 8 our monopoly benchmark thus yields additional understanding of the value of competition we cannot represent our study as having solved all of the problems associated with social cost estimation of monopoly power indeed given general equilibrium problems associated with horizontal vertical and cross industry aggregation interacting with the second best problem we doubt that all the problems can be solved although we can point out some of the potentials for bias after presenting our estimates we discuss the implications of sampling methodology and aggregation problems demonstrating that potentially strong but possibly offsetting biases exist in all studies including ours

competition in large markets this paper develops a simple and robust implication of free entry followed by competition without substantial strategic interactions increasing the number of consumers leaves the distributions of producers prices and other choices unchanged in many models featuring non trivial strategic considerations producers prices fall as their numbers increase hence examining the relationship between market size and producers actions provides a nonparametric tool for empirically discriminating between these distinct approaches to competition to illustrate its application i examine observations of restaurants seating capacities exit decisions and prices from 224 u s cities given factor prices and demographic variables increasing a city s size increases restaurants capacities decreases their exit rate and decreases their prices these results suggest that strategic considerations lie at the heart of restaurant pricing and turnover

antidumping investigations and the pass through of antidumping duties and exchange rates comment well in excess of 100 percent based on their understanding of the us antidumping calculation however the hypothesis is based on an incorrect understanding of the antidumping calculation under us law when corrected for this error the hypothesis would lead to a prediction of simple 100 percent pass through at most dumping refers to selling a product in an export market at less than its normal value a benchmark that is most commonly based on sales in the domestic market of the same product antidumping laws set tariffs to offset the amount of dumping the excess of normal value over export price in us practice a dumping complaint is brought on behalf of an industry against rival imports with the cases defined by product and by country a successful case results in the potential imposition of antidumping duties over and above any normal tariffs an unsuccessful case results in no duties being imposed american antidumping law and practice have the somewhat unusual characteristic that anti dumping duties are estimated and used to set duty deposits for a forward looking period in an initial investigation then are recalculated and actually assessed for the same period now back ward looking in a later review with some variation the later review is typically completed about two years after the initial investigation the review sets a new deposit rate and a second review determines the actual assessment rate retrospectively this can be repeated indefinitely the ini tial duty estimate resulting in a deposit rate allows companies to modify their pricing behavior so as to affect the actual dumping duties that are later assessed blonigen and haynes exploit this characteristic of the us administration of its antidump ing law to examine the effects of the imposition of antidumping duties on the pass through to us pricing the dumping investigation and resulting deposit rate provide information that the company can use in its subsequent sales in order to reduce or eliminate its dumping liability in the eventual review by comparing the antidumping deposit rates with eventual us pricing the degree of pass through of antidumping deposits can be estimated and the effects on exchange rate pass through of a potential antidumping dumping duty can be studied here i focus on the factual underpinnings that lead to blonigen and haynes s pricing model rather than the empirical results that model predicts that the method by which the us department of commerce usdoc calculates ad duties will lead to pass through of estimated antidump ing duties at twice the level of those estimated duties if companies wish to eliminate the eventual dumping duties by studying the outcomes of a series of ad cases concerning steel from canada they conclude that pass through of estimated duties exceeds 160 percent broadly consistent with

an empirical model of firm entry with endogenous product type choices i describe a model of entry with endogenous product type choices these choices are formalized as the outcomes of a game of incomplete information in which rivals differentiated products have nonuniform competitive effects on profits i estimate the model for location choices in the video retail industry using a nested fixed point algorithm solution the results imply significant returns to product differentiation simulations illustrate the tradeoff between demand and intensified competition and the extent to which markets with more scope for differentiation support greater entry

product positioning and competition the role of location in the fast food industry this paper examines optimal product positioning strategies of asymmetric firms in the context of retail outlet locations in the fast food industry the relationships between profits and product differentiation reveal that both mcdonald s and burger king are better off avoiding close competition if the market area is large enough however in small market areas mcdonald s would prefer to be located together with burger king rather than have the two outlets be only a slight distance apart in contrast burger king s profits always increase with greater differentiation offsetting these incentives is the desirability of locating centrally to appeal to the most customers the equilibrium depends on the market s size in small markets mcdonald s locates near the center of the market and burger king locates to the side of the market in larger markets mcdonald s and burger king choose locations on opposite sides of the market although mcdonald s locates closer to the optimal central location than burger king i also show that the role of price competition on product positioning is fundamentally different under asymmetric competition than under symmetric competition price competition unambiguously induces symmetric firms toward differentiation in contrast with asymmetric firms price competition shifts burger king s incentives toward locating closer to mcdonald s even while price competition increases mcdonald s desire for differentiation as a result equilibrium locations with asymmetric firms are approximately the same regardless of whether prices adjust with location

the role of potential competition in industrial organization potential competition has been recognized as a mechanism to control the exploitation of market power at least since the work of j b clark 1902 but it was not until 50 years later that economists most notably joe bain and paolo sylos labini refocused attention on the idea with inputs from the theories of imperfect competition optimal control and dynamic games their work evolved into ever more sophisticated models of the reactions of existing competitors to the threat of new competition although the most appropriate models of competitive interaction are those which begin with a specific industry a number of theories have been proposed which attempt to develop more general conclusions my purpose in this paper is to develop an understanding of the strengths and limitations of these alternative theories by examining the available theoretical empirical and institutional knowledge rather than attempt the sisyphean task of recounting every model which relates conditions of entry and market performance i have partitioned the analysis into four major schools of thought according to their most central propositions these are the traditional model of limit pricing dynamic limit pricing the theory of contestable markets and the market efficiency model traditional limit pricing models rest on the assumption that firms respond to entry but are able to earn persistent profits when the structural characteristics of markets make entry difficult dynamic limit pricing is similar but emphasizes that markets can only be temporarily protected from entry contestability theory in its pure form asserts that potential competition is as effective as actual competition in controlling market performance the efficient markets hypothesis broadly interpreted states that markets are workably competitive and that the market structure reflects differential efficiency not strategic behavior while one can construct many other hypotheses about potential competition these classifications

a survey of the effects of the minimum wage on prices abstract it is well established in the literature that minimum wage increases compress the wage distribution firms respond to these higher labour costs by reducing employment reducing profits or raising prices while there are hundreds of studies on the employment effect of the minimum wage there are merely a handful of studies on its profit effects and only a couple of dozen studies on its price effects furthermore a comprehensive survey on minimum wage price effects is not available in the literature given the policy relevance of this neglected issue in this paper we summarize and critically compare the available evidence on the effects of minimum wages on prices

strategic entry deterrence recent developments in the economics of industry this paper reviews the recent developments in the economics of industry with respect to strategic entry deterrence starting from bain s 1956 classical analysis a simple two stage game between an incumbent firm and a potential entrant is used to present the general structure of the entry deterrence problem commitments credible threat and sub game perfection are illustrated in this context the various strategic variables that an incumbent firm can use to bar entry are discussed the issue of whether a group of incumbents can noncooperatively deter entry is taken up and some empirical evidence is reviewed copyright 1989 by blackwell publishers ltd

commentaries and rejoinder to measuring the impact of negative demand shocks on car dealer networks by paulo albuquerque and bart j bronnenberg this series of discussions presents commentaries and a rejoinder on strategic and managerial issues arising from albuquerque and bronnenberg albuquerque p b j bronnenberg 2012 measuring the impact of negative demand shocks on car dealer networks marketing sci 31 1 4 23

long run price effects of exchange rate changes in finnish pulp and paper exports this paper presents long run exchange rate elasticities of finnish newsprint and pulp export prices in the united kingdom uk and germany over the period 1980 94 the elasticities were estimated for a markup pricing model using johansen s cointegration method the magnitudes of the elasticity estimates obtained by imposing price homogeneity indicate that pass through of exchange rate changes to export prices has been incomplete in both markets for newsprint the pass through elasticity was 0 60 in the uk and 0 46 in germany which means that about one half of the changes in the exchange rates is reflected in prices as expressed in the destination countries currencies and about a half in prices measured in finnish markka instead in pulp exports the pass through elasticities differed from each other between the two destination countries more clearly than in newsprint exports indicating a different pricing behaviour of finnish pulp exporters in the uk and germany when exchange rate changes pass throug

excess capacity and limit pricing an empirical test entry may be inhibited by expectations that incumbents have lower marginal costs incumbents may be able to use limit pricing or excess capacity to further this expectation we construct an empirical model of oligopoly capacity and pricing decisions and of entrant responses the results support the hypothesis that both lower prices and greater excess capacity inhibit entry they further support limit pricing but provide no evidence that oligopolies deliberately install excess capacity to deter entry the results suggest however that limit pricing firms may exploit the entry inhibiting effects of unintended excess capacity by raising their limit prices

capacity output and sequential entry two crucial assumptions frequently made in industrial organization are that an established firm deters entry either by a constant high output the sylos postulate or by high excess capacity the excess capacity hypothesis these assumptions may be an accurate description of the observed conduct of firms in some industries however when the rules of the post entry game are clearly specified the optimal output and investment strategies of an established firm may depart considerably from these behavioral assumptions because of this possible inconsistency with rational behavior any conclusions about the formation of industry based upon either assumption are highly suspect what is more these assumptions avoid the main issue of whether entry deterrence is worthwhile at all this paper presents a dynamic model of entry in which established firms pursue a cournot nash alternatively stackelberg strategy toward a potential entrant the entrant behaves in cournot nash fashion and chooses output on the basis of expected postentry profits at the equilibrium of the post entry game within this framework a constant output entry deterring strategy would involve maintenance of an entry deterring output level before and after entry is threatened an excess capacity entry deterring strategy would involve holding excess capacity at an entry deterring level and increasing output to that level after entry is threatened special conditions are presented under which the sylos postulate or the excess capacity hypothesis will accurately describe optimal entry deterring strategies in addition special conditions are examined under which the established firm maintains a constant output or holds pre entry excess capacity when large scale entry does in fact take place the analysis shows that in general established firm reactions to entry are quite different from these special cases the sylos postulate see joseph bain paolo sylos labini franco modigliani 1958 asserts not only that potential entrants expect established firms to maintain their output constant as entry occurs but that established firms keep output constant at a level that deters entry whether or not it is profitable to do so hailed as a welcome major breakthrough on the oligopoly front modigliani 1958 the sylos postulate underlies many papers in the large theoretical and empirical literature on limit pricing yet the sylos postulate ignores both the strategic interaction between firms and the dynamic aspects of entry 2 unless the established firm s monopoly output exceeds the entrydeterring level the established firm with a general cost function able to choose an entry deterring output level will instead always desire a lower output level before entry for the special case where capacity is an upper bound on output and the established firm is a stackelberg leader in the post entry game

an experimental evaluation of strategic preemption abstract this paper reports the results of a series of two stage two person noncooperative games where one player can strategically preempt the other in one of our designs the subgame perfect equilibrium entails complete preemption in the other it entails partial preemption the data show that players tend to completely preempt when it is privately optimal however when partial preemption is privately optimal a non trivial fraction of players persist in choosing the non preemptive structure this may result because of occasional irrational behavior following preemptive play which induces some dominant agents to play less aggressively

pricing to market behaviour in european car markets abstract this paper investigates ptm behaviour in european car markets for a period of great interest 1993 98 taking into account the role of invoicing currency the results indicate that local currency price stability is a strong and pervasive phenomenon across products independently of the invoicing currency the paper offers robustness checks tests and arguments that justify the interpretation of this finding at least in part as evidence of ptm it implies the existence of market segmentation and price discrimination despite the completion of the single market programme on 1 january 1993

choosing between order of entry assumptions in empirical entry models evidence from competition between burger king and mcdonald s restaurant outlets we demonstrate how a non nested statistical test developed by vuong 1989 can be used to assess the suitability of alternate order of entry assumptions used for identification purposes in empirical entry models as an example we estimate an entry model of mcdonald s and burger king restaurant outlets in united states the data set focuses on relatively small isolated markets for these markets the non nested tests suggest that order of entry assumptions that give burger king outlets a first mover advantage are statistically preferred last a monte carlo experiment provides encouraging results suggesting that the vuong type test yields reliable results within the entry model framework

the role of spatial demand on outlet location and pricing abstract in this article the authors consider the problem of outlet pricing and location in the context of unobserved spatial demand the analysis constitutes a scenario in which capacity constrained firms set prices conditional on their location demand and costs this enables firms to develop maps of latent demand patterns across the market in which they compete the analysis further suggests locations for additional outlets and the resultant equilibrium effect on profits and prices using bayesian spatial statistics the authors apply their model to seven years of data on apartment location and prices in roanoke va they find that spatial covariation in demand is material in outlet choice the 95 spatial decay in demand extends 3 6 miles in a region that measures slightly more than 9 5 miles they also find that capacity constraints can cost complexes upward of 100 per apartment as they predict price elasticities and costs are biased downward when spatial covariance in demand is ignored costs a

the structure of ownership and the theory of the firm the separation of ownership from control produces a condition where the interests of owner and of ultimate manager may and often do diverge and where many of the checks which formerly operated to limit the use of power disappear in creating these new relationships the quasi public corporation may fairly be said to work a revolution it has divided ownership into nominal ownership and the power formerly joined to it thereby the corporation has changed the nature of profit seeking enterprise 1

how sticky is sticky enough a distributional and impulse response analysis of new keynesian dsge models in this paper we add to the literature on the assessment of how well data simulated from new keynesian dynamic stochastic general equilibrium dsge models reproduce the dynamic features of historical data in particular we evaluate sticky price sticky price with dynamic indexation and sticky information models using impulse response and correlation measures and via implementation of a distribution based approach for comparing possibly misspecified dsge models using simulated and historical inflation and output gap data one of our main findings is that for a standard level of stickiness i e annual price or information adjustment the sticky price model with indexation dominates other models we also find that when a lower level of information and price stickiness is used i e bi annual adjustment there is much less to choose between the models see bils and klenow 2004 for evidence in favor of lower levels of stickiness this finding is due to the fact that simulated and historical densities are much closer under bi annual adjustment

the red queen effect competitive actions and firm performance we investigate the red queen effect as a contest of competitive moves or actions among rivalrous firms the results from a multi industry study of over 4 700 actions confirms the existence of red q

input choices under price uncertainty theory shows that depending on risk preferences and technological parameters price uncertainty may alter firms choice of capital intensity this paper presents an empirical analysis of the effect of price uncertainty on firms choices of capital and labor stocks empirical results from a cross section of manufacturing industries as well as within industries over time show that greater price uncertainty increases an industry s capital labor ratio it appears that risk aversion does not dominate firms decision making these empirical findings have implications for the analysis of factor demand and productivity and capacity utilization rates

simultaneous equations models of the structure performance paradigm abstract this paper is concerned with determining the dimension of the simultaneous equations model surrounding the basic profits concentration relationship a very general model is considered and then simplified using a simple test for exogeneity and it is concluded that the model is nonlinear in concentration and that simultaneous interaction occurs between profits and foreign competition variables

endogeneity and heterogeneity in a probit demand model estimation using aggregate data two issues that have become increasingly important while estimating the parameters of aggregate demand functions to study firm behavior are theendogeneity of marketing activities typically price andheterogeneity across consumers in the market under consideration ignoring these issues in the estimation of the demand function parameters can lead to biased and inconsistent estimates for the effects of marketing activities endogeneity and heterogeneity have achieved prominence in large measure because of the increasing popularity of logit models to characterize demand functions usingaggregate data the logit model accounts for purchase incidence and brand choice by including a no purchase alternative in the consumer s choice set this allows for category sales to change as a function of the marketing activities of brands in the category there are three issues with using the logit model with the no purchase option to characterize demand when studying competitive interactions among firms 1 the marketing literature dealing with brand choice behavior at the consumer level has found that the iia restriction is not appropriate as each brand in the choice set is more similar to some brands than it is to others 2 studies have found that the purchase incidence decision is distinct from the brand choice decision hence it may not be appropriate to model the no purchase decision as just another alternative in the choice set with the iia restriction holding across all brands and the no purchase option 3 even if the distinction between the purchase incidence and brand choice decisions is accounted for via for example a nested logit specification accounting for the purchase incidence decision with aggregate data requires assumptions for computing the share of the no purchase alternative which is otherwise unobserved in this paper we propose a probit model as an alternative to the logit model to specify the aggregate demand functions of firms competing in oligopoly markets the probit model avoids the iia property that affects the logit model at the individual consumer level furthermore the probit model can naturally account for the distinction between the purchase incidence and brand choice decisions due to the general covariance structure assumed for the utilities of the alternatives we demonstrate how the parameters of the proposed model can be estimated using aggregate time series data from a product market in the estimation we account for the endogeneity of marketing variables as well as for heterogeneity across consumers our results indicate that both endogeneity as well as heterogeneity need to be accounted for even after allowing for a non iia specification at the individual consumer level specific to our data we also find that ignoring endogeneity has a bigger impact on the estimated price elasticities than ignoring the effects of heterogeneity a comparison of the elasticities obtained from the probit model with those from the corresponding logit specification indicates that therange of elasticities obtained from the probit model across brands is larger than that obtained from the logit the results have implications for issues such as firm level pricing in addition to specifying a probit model and providing comparisons with the logit model the paper also addresses the third issue raised above we propose a simple alternative to the purchase incidence brand choice specification by decomposing the demand for a brand into a category demand equation and a conditional brand choice share equation we provide a comparison of results from this specification to those from the specification that includes the no purchase alternative and find that estimated elasticities are sensitive to the specification used we also estimate the demand function parameters using a traditional specification such as the double logarithmic model here we find that the estimated elasticities could be signed in such a manner as to be not useful for firm level pricing decisions one of the key limitations of the proposed model is that while it accounts for the purchase incidence and brand choice decisions of households it does not account for differences across consumers in their purchase quantities the model and analysis are best suited for product categories in which consumers typically make single unit purchases another limitation is more practical in nature while recent advances have been made in computing probit probabilities it could nevertheless be a challenge to do so when the number of alternatives is large

new brand positioning and pricing in an oligopolistic market the positioning and pricing of a new brand requires knowledge about the relationship of both demand and cost with potential attribute locations and prices this paper addresses this problem and illustrates it in the context of the automobile market multi attribute expected utility theory which allows for consumer uncertainty about the brands is used to model individuals behavior attribute weights are estimated from market survey data on brands attributes and preferences using linmap as an estimation procedure expected utility is then updated using the multinomial logit model and choice data to account for the observation that stated preferences do not perfectly reflect the eventual choice it is hypothesized that when faced with an actual choice price may become more important to the consumer while other attributes may become more or less important than is reflected in stated preferences the resulting estimated choice probabilities are aggregated to form demand functions facing each brand which depend on all brands prices and attribute space locations assuming there is a price equilibrium in the existing market and that firms have the same variable cost function variable costs as a function of a brand s attribute levels are estimated given the demand and cost functions facing each firm including the potential new entrant the profit maximizing positioning and pricing of a new brand is analyzed using a game theoretic approach a solution is sought under the assumption that incumbents react to entry by changing their prices possible approaches to the translation of the perceptual attribute positioning of the new brand to physical and engineering attributes are reviewed improvements and future extensions of the study are discussed

multiple discreteness and product differentiation demand for carbonated soft drinks for several of the largest supermarket product categories such as carbonated soft drinks canned soups ready to eat cereals and cookies consumers regularly purchase assortments of products within the category consumers often purchase multiple products and multiple units of each alternative selected on a given trip this multiple discreteness violates the single unit purchase assumption of multinomial logit and probit models the misspecification of such demand models in categories exhibiting multiple discreteness would produce incorrect measures of consumer response to marketing mix variables in studying product strategy these models would lead to misleading managerial conclusions we use an alternative microeconomic model of demand for categories that exhibit the multiple discreteness problem recognizing the separation between the time of purchase and the time of consumption we model consumers purchasing bundles of goods in anticipation of a stream of consumption occasions before the next trip we apply the model to a panel of household purchases for carbonated soft drinks

capacity utilization and its determinants for a container shipping line theory and evidence under utilization of fleet capacity appears to be a long lasting issue in the container shipping industry also there are some difficulties unsolved while measuring the ratio of capacity utilization cu of a container shipping line from the perspective of an engineering approach the slots capacity installed is the most popular way to represent the capacity output since the slots capacity installed lacks theoretical support this study adopts an economics model to find the capacity output of a shipping line further the derived cu ratio identifies the realized utilization of fleet capacity for a shipping line focused on the three largest container shipping lines in taiwan this article shows that their fleet capacity are totally under utilized and the movement patterns of cu ratios are approximately identical in addition the variations of cu ratios also suggest that the enactment of ocean shipping reform act has contributed a positive effect on the capacity utilization of a container shipping line