endogenous entry and self selection in private value auctions an experimental study this paper presents the results of an experimental study of endogenous entry in first price independent private value auctions n potential bidders simultaneously decide whether to participate in an auction or receive a known outside option in the second stage entrants submit bids after learning their own private values and the number of entrants an equilibrium model of heterogeneous risk averse bidders implies a self selection effect where bidding in the auction is lower with endogenous entry because only less risk averse bidders enter this effect is confirmed by the experiment we also observe excessive entry relative to the theoretical model

bidding behavior in descending and ascending auctions this research examines how individual differences and institutional practices influence consumer bidding in auctions bidders may be motivated by different goals e g thrill of winning the item with minimal attention to what they pay for it versus prudence winning the item at a price at or below its perceived value also innate or auctioneer induced differences may exist in the precision and salience of bidder cognitions about the item s value we report two studies on how these motivational and cognitive factors influence bids in descending and ascending auctions respectively each study also manipulated a situational variable wait time at each price step the two auctions realized different average prices for the same item set average bids were higher in the descending versus ascending auction in several study conditions in both auction formats bidders primed with thrill versus prudence bid higher but more precise and or salient values attenuated this goal effect among other results in the descending auction longer wait times elicited higher bids from bidders primed with thrill but not prudence in the ascending auction longer wait times produced lower bids for bidders primed with prudence but not thrill these findings on consumer bidding behavior have practical implications for auction design

almost common values auctions revisited in almost common value auctions one bidder the advantaged bidder has a valuation advantage over all other regular bidders it is well known that in second price auctions with two bidders even a slight private value advantage can have an explosive effect on auction outcomes as the advantaged bidder wins all the time and auction revenue is substantially lower than in a pure second price common value auction we explore the robustness of these results to the addition of more regular bidders in second price auctions and the extent to which these results generalize to ascending price english auctions in an effort to provide insight into when and why one ought to be concerned about such slight asymmetries

learning by bidding we analyze a dynamic second price auction with an informed bidder and an uninformed bidder who upon seeing a posted price learns whether his valuation is above that price in the essentially unique equilibrium an informed bidder bids in the first period if her valuation is below some cutoff and bids only in the last period otherwise an uninformed bidder bids in every period to optimally change the price unless the price is above his valuation or he is the high bidder this model also provides a rationale behind the use of a secret reserve price in private value settings

equilibrium properties of auctions and alternative procedures for allocating transferable permits abstract this paper examines the equilibrium properties of a range of auctions and related procedures placing emphasis on the types of procedures that are likely to be of special interest in environmental management applications nash equilibrium properties are first derived for a very general class of auctions for multiple homogeneous or heterogeneous objects or permits next it is shown that given appropriate assumptions three broad classes of public allocation procedures that do not generate revenues for the government would yield participants equal expected profits these classes are 1 incentive compatible auctions where bidders receive equal lump sum refunds 2 non incentive compatible procedures where refunds are a function of participants bids and 3 free initial distribution of permits on a lump sum basis followed by trading via a competitive market the applicability of the general results is then demonstrated by examining the particular non incentive compatible fair division procedure originally suggested by knaster finally implications of the theoretical results for applications including the allocation of transferable discharge permits and water rights are discussed

hedonic estimation applied to a water rights market rights is concerned with the efficiency of water allocations where there are legal and institutional constraints on water rights trades economists have argued that such constraints prohibit water from moving to its socially highest valued uses and hence that the allocation of water under these restrictions is inefficient on the other hand if water rights associated with a certain parcel of farm real estate could be sold separately from the land in a perfectly competitive market the allocation of water would be efficient hirshleifer et al 1969 42 43 anderson 1983 1 the past attempts to examine and compare the efficiency of water rights markets have been qualitative one notable example is the study by brown et al 1982 which hypothesized that water rights markets are more efficient in regions where water is relatively scarce six basins were examined and as

testing for risk aversion a stochastic dominance approach we conduct an experiment based on the stochastic dominance framework in order to investigate risk aversion in isolation of other effects such as subjective probability distortion the certainty effect and framing effects the result is striking most individuals are not risk averse 2001 elsevier science b v all rights reserved

irrigation districts and water markets an application of cooperative decision making theory water supply organizations control a large portion of agricultural water rights in the western u s this paper applies cooperative and club theory models to analyze the response of these organizations to potential rural to urban water transfers application of the models is to a proposed water trade between southern california s imperial irrigation district and metropolitan water district the analysis reveals that substantial intraorganizational conflict can emerge in response to specific transfer proposals and this conflict may be sufficient to defeat or delay otherwise beneficial transfers poorly defined property rights and a failure to align these rights with operational control in the water supply organization are pinpointed as key sources of conflict

robustness of bidder preferences among auction institutions i introduction the answer to the question of how bidders choose to enter one auction versus an alternative competing auction is important to understand in providing a complete picture of the nature of endogenous entry decisions into auctions the issue of how a bidder chooses which among alternative auctions to enter as well as whether to enter an auction at all is of substantial importance to auctioneers attempting to attract bidders to their auctions there is a growing literature addressing issues in endogenous entry in auctions there are several papers such as engelbrecht wiggans 1993 pevnitskaya 2004 and palfrey and pevnitskaya 2008 that consider the decision of whether to enter an auction or not and study the effect of endogenous entry on bidding behavior there is a much larger group for example harstad 1990 engelbrecht wiggans 1993 levin and smith 1994 mcafee 1993 and mcafee and mcmillan 1987 that considers competition between auctioneers in which the auctioneers are competing along some characteristic such as entry price we consider the case in which auctioneers may be competing with each other based on the choice of auction mechanism our interest is in the degree to which the auction mechanism itself might impact the entry decisions of potential bidders of course there would be a direct pecuniary impact of the mechanism in that bidders should be more likely to enter auction mechanisms that they believe allow them to get lower prices but there may be other cognitive issues in regard to the structure of the mechanism that may also impact the choice behavior in ivanova stenzel and salmon iss 2004a we introduced an experimental design aimed at eliciting and measuring preferences subjects might possess for different auction institutions and applied the design to testing bidder preferences between ascending a dynamic mechanism and sealed bid first price a static mechanism auctions it seems reasonable to expect bidders to have preferences between these two auction mechanisms due to the strategic differences between them in a first price auction the winner pays a price equal to his own bid whereas in the ascending auction he pays a price that is an increment above the second highest bid these differences might result in difficulty of deciding how to bid and in the possibility of experiencing some form of regret 1 the design involved having subjects make a choice between entering into a two bidder sealed bid first price auction versus a two bidder ascending auction each with different entry prices by varying the entry prices we could measure the subjects willingness to pay for either auction our main finding in the paper was that while subjects exhibited strong preferences for the ascending auction at equal entry prices they were not willing to pay up to the expected profit difference between the two auctions to participate in an ascending auction thus they ended up entering the supposedly less preferred sealed bid first price auction even in situations in which they would expect to make a higher net surplus including the cost of the entry fee by entering into the ascending auction instead that paper proposed one possible answer to the puzzle that involved assuming that bidders were risk averse in their bidding behavior and then risk averse to the same degree in their auction choice behavior this explanation worked because neither risk averse nor approximately risk neutral bidders should be expected to pay much to enter into an ascending auction instead of a sealed bid first price auction just as we observed in the experiment for the most risk averse bidders this is because while they bid the highest in the first price auction and therefore expected little surplus in the event that they win they consequently end up winning with higher probability than less risk averse bidders this is a trade off risk a verse bidders are willing to accept and consequently it is easy to show that highly risk averse bidders should not be willing to pay much to get into the more lucrative though risky ascending auction

resource allocation to defensive marketing and manufacturing strategies abstract in this paper we investigate the coordinated use of marketing and manufacturing strategies to formulate a defensive business strategy for an incumbent firm upon market entry while defensive marketing strategies have been researched extensively little has been done on defensive manufacturing strategies and even less on coordinating these two we propose a formulation for the joint formation of a defensive strategy by the marketing and production functions under budget constraint considerations the incumbent firm may allocate its resourcesto advertising and distribution expenditures as well as to manufacturing investments to reduce the unit production cost the incumbent firm has also the option of simply allocating all of its resources purely to advertising and distribution we show that while there exist cases where the optimal reaction to entry involves investments in manufacturing improvements there are also cases where defense is in marketing strategies alone we identify the market conditions that promote such reactions to entry and also provide sensitivity analysis

english auctions with resale an experimental study i design and test a simple english auction and two english auctions with resale but with different informational backgrounds all three treatments theoretically have the same equilibrium i find however that the possibility of resale alters behavior significantly in the two treatments with resale subjects deviated from both the nash prediction and the common results about bidding behavior in english auctions subjects tend to overbid when they are certain they can reap the whole surplus in the resale market i employ different models like qre and levels of reasoning and conclude that overbidding can be explained as a rational response to the noisy environment in markets with human participants that is as rational decision making when anticipating others to make errors when the outcome of the resale market is not certain there is significant signaling behavior and auction prices tend to be lower than the nash prediction

a note on the effect of optimal advertising on the distribution free newsboy problem abstract recently lee and hsu 2011 study the advertising effect on the distribution free newsboy problem in one of their results they show that the optimal expenditure on advertising the optimal order quantity and the optimal lower bound on the expected profit increase with the advertising effect parameters although this result holds in general it requires additional assumptions in this note we provide the necessary and sufficient conditions under which the statements of lee and hsu 2011 hold these conditions are shown to be violated if the advertising expenditure is too low or there is a very small difference between the optimal profit and the profit without advertising

papers in experimental economics competitive market institutions double auctions vs sealed bid offer auctions consider a market with the following characteristics 1 privacy that is each agent knows only his own valuation or cost conditions 2 exchange follows the rules of the oral double auction that is buyers freely announce bids or accept offers and sellers freely announce offers or accept bids 3 aggregate market supply and demand per trading period is stationary for at least two to three periods and 4 there are at least four buyers and as many sellers the literature reporting the results of a large number of experimental markets with these characteristics documents what appears to be a remarkably rapid convergence to a competitive equilibrium ce however any claim of double auction da convergence to the ce can only have meaning in one of three senses i the ce is attained immediately ii after t periods of trading some measure of the market s state such as mean price is nearer relative to experimental sampling variability to a ce than to some distinct alternative equilibrium such as a monopoly or nash equilibrium iii after t periods of trading this measure is nearer to a ce in da experimental markets than in markets organized under a different institution of contract for example a sealed bid auction since everything from electrons and the stars to rats and people yield state measures subject to error or random variation the deterministic criterion i can have no serious scientific standing by such criteria any hypothesis can be rejected and there could be no science of physics biology or economics 2 with the exception of certain very simple markets such as single object auctions or certain idealized markets such as the cournot quantity adjuster model economics has only two concepts of equilibrium monopoly and competitive the only formal model of da trading that has been proposed see david easley and john ledyard p 6 predicts stochastic convergence in finite time with probability one to a ce hence the only test alternative to the ce research hypothesis in da markets is a monopoly or monopsony equilibrium experimentalists have not reported statistical tests of the ce professor department of economics university of arizona assistant professor department of economics indiana university instructor department of economics university of arizona and sandia national laboratories albuquerque nm respectively we are indebted to the national science foundation for research support and to art denzau and mort kamien for helpful comments there is an early and recently growing body of experimental evidence for convergence to a competitive equilibrium under double auction rules the earliest evidence contained in experiments initiated in january 1956 is reported in smith 1962 1964 1965 1976 however these early experiments used between twenty and fifty or so participant buyers and sellers because in keeping with prevailing professional beliefs it was thought that a ce was unlikely to be approached unless numbers were quite large using large numbers was not unreasonable since it is a good beginning procedure to give a theory whatever is believed to be its best shot more recent evidence using six buyers six sellers and two traders in speculative da markets with cyclical demand is reported by r m miller charles plott and smith and williams 1979 for evidence from a comparison of oral and computerized da experiments with four buyers and four sellers see williams 1980 for further evidence in the context of the study of price controls see m isaac and plott 1981b and smith and williams 1981b in the context of a conspiracy study see isaac and plott 1981a in the context of comparisons between da and posted offer pricing see jon ketcham smith and williams in the context of a study of four variations on da rules see smith and williams 1980 all of these more recent papers report double auction experiments using no more than four buyers and four sellers 2as frederick mosteller once noted if you wanted to reject the inverse square law of attraction try tossing a sheet of paper out the window

on modeling the advertising operations interface under asymmetric competition abstract using a market share attraction structure of advertising competition and following a supermodular game approach this article demonstrates for an asymmetric oligopoly the directional impact of changes in model parameters on the marketing controlled variables of all rivals advertising budgets and the operations controlled variables of all rivals ordered quantities importantly the various changes are examined analytically empirically and numerically in both non dominated and dominated asymmetric oligopolies in this regard the results indicate that firms in a dominated oligopoly one firm of market share larger than or equal to 50 behave differently compared to firms in a non dominated oligopoly each firm of market share less than 50 in response to changes in model parameters furthermore changes in model parameters are investigated in terms of their relative influential impact on a variety of equilibrium measures in this regard the findings indicate that for the analyzed model the marketing parameters exert much more influence on the equilibrium measures than the operations parameters additionally a change in the mode of competition from non cooperation oligopoly to cooperation joint ownership dictates that strong asymmetric firms of favorable marketing and operations parameters continue advertising but at lower levels and weak asymmetric firms of less favorable parameters cease advertising altogether

eliciting subjective probabilities with binary lotteries abstract we evaluate a binary lottery procedure for inducing risk neutral behavior in a subjective belief elicitation task prior research has shown this procedure to robustly induce risk neutrality when subjects are given a single risk task defined over objective probabilities drawing a sample from the same subject population we find evidence that the binary lottery procedure also induces linear utility in a subjective probability elicitation task using the quadratic scoring rule we also show that the binary lottery procedure can induce direct revelation of subjective probabilities in subjects with popular non expected utility preference representations that satisfy weak conditions

learning to bid the design of auctions under uncertainty and adaptation we examine auction design in a context where symmetrically informed adaptive agents with common valuations learn to bid for a good despite the absence of private valuations asymmetric information or risk aversion bidder strategies do not converge to the bertrand nash equilibrium strategies even in the long run deviations from equilibrium strategies depend on uncertainty regarding the value of the good auction structure the agents learning model and the number of bidders although individual agents learn nash bidding strategies in isolation the learning of each agent by flattening the best reply correspondence of other agents blocks common learning these negative externalities are more severe in second price auctions auctions with many bidders and auctions where the good has an uncertain value ex post

collusion in uniform price auctions experimental evidence and implications for treasury auctions in uniform price auctions of shares there exist collusive equilibria in which bidders capture the entire surplus from the auction as well as competitive equilibria in which the auctioneer captures the entire surplus from the auction we provide experimental evidence that in uniform price auctions non binding pre play communication facilitates convergence to collusive equilibrium outcomes on the other hand regardless of the opportunities for communication in discriminatory auction experiments subject strategies conform closely with the unique equilibrium in undominated strategies in which bidders gains are equal to the smallest tick size in the bidding schedule this evidence suggests that uniform price auctions of treasury securities may result in lower revenues than the currently employed discriminatory procedure

the effect of advertising on the distribution free newsboy problem abstract advertising is very important for the newsboy problem because the shelf life of the newsboy product is short and advertising may increase sales to avoid overstocking in this paper models to study the effect of advertising are developed for the distribution free newsboy problem where only the mean and variance of the demand are known as in khouja and robbins 2003 it is assumed that the mean demand is an increasing and concave function of advertising expenditure three cases are considered 1 demand has constant variance 2 demand has constant coefficient of variation and 3 demand has an increasing coefficient of variation this paper provides closed form solutions or steps to solve the problem numerical results of the model are also compared with those from other papers the effects of model parameters on optimal expenditure on advertising optimal order quantity and the lower bound on expected profit are derived or discussed

auctions with toeholds an experimental study of company takeovers we run experiments on english auctions where the bidders already own a part toehold of the good for sale the theory predicts a very strong explosive effect of even small toeholds while asymmetric toeholds do have an effect on bids and revenues in the lab which gets stronger the larger the asymmetry it is not nearly as strong as predicted we explain this by analyzing the flatness of the payoff functions which leads to large deviations from the equilibrium strategies being relatively costless this is a general fundamental weakness of this type of explosive equilibria which makes them fail when human players are involved our analysis shows that a levels of reasoning model explains the results better where this equilibrium fails moreover we find that although big toeholds can be effective in a takeover battle the cost to acquire them might be higher than the strategic benefit they bring

note note on optimal ordering quantity to realize a pre determined level of profit in this note we consider the one period inventory model in which it is required to determine the order quantity which maximizes the probability of realizing a predetermined level of profit r we give a condition for determining the optimal order quantity and provide explicit expressions for the optimal order quantity in three special cases

an experimental test of the commitment cost theory are used in making public policy recommendations carrying out cost benefit analysis and formulating marketing and pricing strategies unlike traded goods individuals are not likely familiar with valuing and pricing nonmarket goods as such a key characteristic among almost all nonmarket goods is uncertainty regarding value that individuals have uncertainty regarding the value they have for nonmarket goods is supported by a number of recent empirical findings e g johannesson et al loomis and ekstrand van kooten krcmar and bulte among other things uncertainty may be a result of unfamiliarity with the good in question for example a poll of scottish individuals found that over 70 were unfamiliar with

management of a periodic review inventory system using bayesian model averaging when new marketing efforts are made abstract many companies invest in various marketing efforts such as price promotion and advertising in order to attract new customers and build customer loyalty this paper examines the problem of setting efficient inventory levels when new marketing efforts are made and product demand is autocorrelated we assume that the inventory manager operates with a base stock policy based on a critical fractile if marketing has a temporary effect the underlying demand tends to revert to a long term equilibrium trend and the inventory manager needs to use a stationary demand model e g autoregressive model to determine the required inventory level in contrast if the effect is permanent demand shocks contain an element that represents a permanent departure from previous levels and a non stationary demand model e g random walk needs to be used instead we show that the required inventory behaves much differently for the case of using a stationary demand model as opposed to a non stationary model but it is difficult in practice to identify a correct demand model in the absence of a long sampling span in this paper we propose an inventory model that explicitly acknowledges uncertainty over stationary and non stationary demand models in response to new marketing efforts the proposed model averages the inventory policies of the two demand models weighted by each model s posterior probability this is an extension of bayesian model averaging simulation results demonstrate that the bayesian model averaging inventory model improves the inventory system

overbidding and overspreading in rent seeking experiments cost structure and prize allocation rules we study experimentally the effects of cost structure and prize allocation rules on the performance of rent seeking contests most previous studies use a lottery prize rule and linear cost and find both overbidding relative to the nash equilibrium prediction and significant variation of efforts which we term overspreading we investigate the effects of allocating the prize by a lottery versus sharing it proportionally and of convex versus linear costs of effort while holding fixed the nash equilibrium prediction for effort we find the share rule results in average effort closer to the nash prediction and lower variation of effort combining the share rule with a convex cost function further enhances these results we can explain a significant amount of non equilibrium behavior by features of the experimental design these results contribute towards design guidelines for contests based on behavioral principles that take into account implementation features of a contest

eliciting and utilizing willingness to pay evidence from field trials in northern ghana we utilize the becker degroot marschak 1964 mechanism to estimate the willingness to pay for clean drinking water technology in northern ghana the bdm mechanism has attractive properties for empirical research allowing us to directly estimate demand compute heterogeneous treatment effects and study the screening and causal effects of prices with minor modifications to a standard field experiment setting we demonstrate the implementation of bdm along these three dimensions compare it to the standard take it or leave it method for eliciting willingness to pay and discuss practical issues for implementing the mechanism in true field settings jel classifications c93 d12 d82 l11 l31

subjective probabilities in games an application to the overbidding puzzle this article illustrates how the joint elicitation of subjective probabilities and preferences may help us understand behavior in games we conduct an experiment to test whether biased probabilistic beliefs may explain overbidding in first price auctions the experimental outcomes indicate that subjects underestimate their probability of winning the auction and indeed overbid when provided with feedback on the precision of their predictions subjects learn to make better predictions and to curb significantly overbidding the structural estimation of different behavioral models suggests that biased probabilistic beliefs are a driving force behind overbidding and that risk aversion plays a lesser role than previously believed

the newsboy problem under progressive multiple discounts abstract previous research on the newsboy problem is based on the assumption that excess inventory is either discounted once and sold or disposed of real world settings especially in the apparel industry involve many cases where multiple discounts are used under multiple discounts a retailer has a series of discounts that are progressively used as the product remains on the shelf in this paper we formulate and solve a newsboy problem with multiple e discounts the new problem is solved with the objectives of 1 maximizing the expected profit and 2 maximizing the probability of achieving a target profit we show that multiple discounts when possible provide higher expected profit than using a single discount we verify the analytical results using numerical integration and illustrate the results with numerical examples

irrigation technology adoption and gains from water trading under asymmetric information we develop a water allocation and irrigation technology adoption model under the prior appropriation doctrine with asymmetric information among heterogeneous farmers and between farmers and water authorities we find that adverse selection reduces the adoption of modern irrigation technology we also show that even with asymmetric information incentives for water trade exist and lead to additional technology adoption with gains to all parties this suggests that under asymmetric information a thin secondary market improves the allocation of water resources and induces additional adoption of modern irrigation technologies

monetary rewards and decision cost in experimental economics a survey of thirty one experimental studies which report data on the comparative effects of monetary rewards and opportunity cost shows 1 several studies in which increased rewards shift the central tendency of the data toward the predictions of rational models 2 in virtually all cases rewards reduce the variance of the data around the predicted outcome this is consistent with a model in which rewards are balanced against decision cost in agent behavior and explicates the argument that when rational models fail it can be attributed to low opportunity cost of deviations from the rational prediction

dynamic decision making in a two stage supply chain with repeated transactions abstract this research investigates how the experience learned in repeated transactions by consumers and manufacturers would affect supply chain partners strategic decisions such as price order quantity and service level consumer demand depends on two factors 1 retailer price and 2 service level provided by the manufacturer in the past and current transaction periods game theory is used to understand interactions between the horizontally competitive suppliers and their vertical interactions to the common retailer in the one period looking ahead decision environment dynamic system concepts are integrated into the game theoretic model for understanding the evolution of the strategic decisions over multiple time periods the research shows that the manufacturer with any type of cost advantage for providing more services to its customers will capture a larger market than its competitor comparison of our model to the myopic model indicates that the myopic suppliers who ignore the customer learning effect on future periods shrink their market sizes and earn less profit over time the manufacturers who use the learning experience to plan future investment can prevent this phenomenon from happening and enhance their competitiveness

an experimental analysis of auctions with interdependent valuations abstract we study experiments in an auction setting with interdependent valuation groups of three players receive private signals and then bid for a single indivisible item valuations for the item differ within groups and depend asymmetrically on a bidder s own and other bidders signals theoretically the english auction yields efficient allocations while other standard auction formats fail to do so consistent with equilibrium predictions we find that an english auction yields significantly more efficiency than a second price sealed bid auction we also study the seller s expected revenue and the bidders expected profits and find that the experimental results are close to the theoretical predictions

market power in water markets abstract we model market power in water markets as multi market cournot competition with a river structure suppliers are connected through water balances which imposes resource constraints and they are connected to heterogeneous water users via a water delivery infrastructure our model captures a wide range of specific water market structures we establish conditions for existence of an equilibrium and we assess the effects of market power on water extraction delivery and water prices although the monopoly case is similar to standard economic theory three other specific water market structures illustrate that standard intuition has to be revisited

a note on budget allocation for market research and advertising abstract firms that introduce new products often conduct market research to reduce the substantial uncertainty in demand when a fixed budget is assigned to marketing oriented activity investments in market research must be balanced against other advertising expenses we characterize a firm s optimal marketing and production decisions for a new product the larger a firm s production cost the higher is the cost associated with unsold products market research increases the forecast accuracy and thus reduces the risk of overage as a consequence one might expect that a firm s investment in market research should be higher if it faces higher production costs interestingly we find that an increase in the production cost may sometimes lead to a decrease in the optimal investment in market research even when the marketing budget is not restrictive

the effects of payoff magnitude and heterogeneity on behavior in 2 2 games with unique mixed strategy equilibria the logit version of quantal response equilibrium predicts that equilibrium behavior in games will vary systematically with payoff magnitudes if all other factors are held constant including the nash equilibria of the game we explore this in the context of a set of asymmetric 2x2 games with unique totally mixed strategy equilibria the data provide little support for the payoff magnitude predictions of the logit equilibrium model we extend the theoretical quantal response equilibrium model to allow for heterogeneity and find that the data fit the heterogeneous version of the theory significantly better

spot water markets and risk in water supply water availability patterns in semiarid regions are typically extremely variable even in basins with a highly developed infrastructure users are subject to unreliable water supplies incurring substantial economic losses during periods of scarcity more flexible instruments such as voluntary exchanges of water among users can help users to reduce risk exposure this article looks at the effects of spot water markets on the economic risk caused by water availability variations our theoretical and empirical risk analyses are based on the random profits of water users profit probability density functions are formally and graphically characterized for both water sellers and buyers under several possible market outcomes we conclude from this analysis that where water supply is stochastic water markets unambiguously reduce both parties risk exposure the empirical study is conducted on an irrigation district in the guadalquivir valley southern spain where there is a high probability of periods of extreme water scarcity water demand functions for the district representative irrigators and a spatial equilibrium model are used to simulate market exchanges and equilibrium this programming model is combined with statistical simulation techniques we show that the profit probability distribution of a representative irrigator is modified if water exchanges are authorized leading to risk reductions results also indicate that if the market were extended to several districts and users that are subject to varying hydrological risk exposure extremely low profit events would be less likely to occur in sum we show that exchanging water in annual spot markets can reduce farmers economic vulnerability caused by water supply variability across irrigation seasons these results support the water policy reform carried out in spain in 1999 to allow for voluntary water exchanges among right holders

on manufacturing marketing incentives stereotypically marketing is mainly concerned about satisfying customers and manufacturing is mainly interested in factory efficiency using the principal agent agency paradigm which assumes that the marketing and manufacturing managers of the firm will act in their self interest we seek incentive plans that will induce those managers to act so that the owner of the firm can attain as much as possible of the residual returns one optimal incentive plan can be interpreted as follows the owner subcontracts to pay the manufacturing manager a fixed rate for all capacity he delivers each marketing manager receives all of the returns from his product in turn all managers pay a fixed fee to the owner under this plan the marketing managers will often complain about the stock level decisions even though these levels are announced in advance under a revised plan the owner can eliminate such complaints by delegating the stocking decisions to the respective marketing managers without any loss this plan is interpreted as requiring the owner to make a futures market for manufacturing capacity paying the manufacturing manager the expected marginal value for each unit of capacity delivered receiving the realized marginal value from the marketing managers and losing money on average in the process

on the robustness and strategic implications of a parsimonious advertising inventory competitive model with extensions to pricing competition abstract using a market share attraction structure of advertising competition this research introduces first a parsimonious inventory advertising model for which competition is limited to two symmetric firms thus obtaining its related comparative statics following a supermodular game approach the derived comparative statics remain robust upon considering non dominant firms each with a market share of less than 50 competing in an asymmetric oligopoly of n rivals where each firm controls the inventory advertising decision variables furthermore changes in model parameters are investigated in terms of their relative impact on equilibrium measures in this regard the findings indicate that for the analyzed model the marketing parameters possess much more influence on the equilibrium measures than the operations parameters the generalization appears applicable to both non dominated oligopolies as well as dominated oligopolies where one firm has a market share equal to or greater than 50 where each firm controls the inventory advertising decision variables in addition to price however changes in shift parameters elicit a response from the dominant firm which will differ from its non dominant rivals for products and services additionally while the literature shows that the non dominant firm will pursue a defensive strategy of decreasing both the equilibrium price and the amount of equilibrium advertising in response to competitive entry our findings show that results for a fixed market potential may not continue to be robust once inclusion of the operations variables of order quantity are considered finally the study explores the implications of the free entry equilibrium for which the number of firms in the industry is determined endogenously

linking advertising and quantity decisions in the single period inventory model abstract the single period problem spp also known as the newsboy or news vendor problem is to find the order quantity which maximizes the expected profit in a single period probabilistic demand framework interest in the spp remains unabated and many extensions to it have been proposed in the last decade an important aspect of the spp is the effect of advertising on sales in this paper we extend the spp to a case in which advertising leads to increases in sales we assume that the mean demand is increasing and concave in advertising expenditure and address three cases of demand variance as a function of advertising expenditure 1 demand has constant variance 2 demand has constant coefficient of variation and 3 demand has an increasing coefficient of variation we deal with two objectives a maximizing the expected profit and b maximizing the probability of achieving a target profit we provide closed or near closed form solutions to the problem under uniform exponential and normal demand distributions we illustrate the results using numerical examples and provide some insights into the effect of advertising

bargaining rules for a thin spot water market markets for water rights have long been advocated to resolve user conflicts and to improve efficiency trelease 1961 hartman and seastone 1970 the potential for efficiency gains from market allocation of water has been well established burness and quirk 1979 eheart lyon and wong 1983 moore 1986 almost all studies of water markets address the transferability of long term water rights i e base or property rights eheart et al 1983 lyon 1986 saliba bush and martin 1987 crouter 1987 however rental or spot markets for water can improve efficiency by allowing allocational adjustments in line with changing conditions without disturbing the base rights system exchanges of either base rights or spot rights that entail a change in the point of diversion may result in third party effects even in the absence of return flow problems johnson gisser and werner 1981 eheart et al 1983 2 such third party effects place practical limits on the geographic scope of water exchanges and result in a thin market i e a market with few eligible participants thin markets are likely to be manipulated by participants leading to inefficiency unless suitable bargaining rules are designed to counter market manipulation the efficiency gains from water exchanges cannot be fully realized this paper uses multilateral bargaining models based on a game theoretic approach to address bargaining rules that will facilitate the efficient operation of a thin water market across a variety of bargaining environments institutional features such as the size of the water market the water rights system the distribution of farm sizes and the level of participants information define the bargaining environment the models are translated into computer simulations based on data representing irrigation water demand in the crane creek watershed of kankakee county illinois thin water markets are likely to be the rule rather than the exception especially in the u s west where many streams with insufficient flows are fully or overappropriated given this fact it is crucial to investigate how the efficiency of a thin water market is affected by the relative bargaining strengths of the participants and to suggest suitable bargaining rules that could improve the social gains achieved in thin water markets

reordering strategies for a newsboy type product abstract this paper considers the very common situation in which a single period newsboy type product may be ordered or produced twice during a season period we show that the explicit consideration of this reorder opportunity makes the newsboy problem very much richer the specific version considered in this paper allows a reorder during mid season after the early season demand has been observed and this reorder arrives after a given lead time the demand distributions during the various portions of the season may have very general distribution forms also the late season and early season demands may be dependent solution procedures are developed to find the best way to exploit this reorder opportunity and our numerical solutions indicate that this reorder opportunity can improve profits considerably as long as the product s profit margin is not very high other real world variations of this two order newsboy problem are briefly discussed

bargaining over agricultural property rights discretion are malleable shifting as collective values and policies evolve over time the costs of resolving conflicts over property rights in water quality air quality wildlife habitat scenic vistas and other commons resources have the potential to be enormous innes policies to address these disputes determine which costs will be borne by whom and have broad ramifications for agriculture and environmental quality in this article i explore the process of bargaining over disputed rights to natural resources emphasizing the role of costs and delays in signaling information so that expectations may converge and voluntary settlements may be achieved economists traditionally focus on the economics of alternative outcomes resource allocations not on the processes for achieving those outcomes property rights disputes present a challenge for economists whose efficiency oriented tools do not indicate which interests ought to be favored or which starting point to use in evaluating the impacts of a change in entitlements nevertheless economic expertise is needed to devise effective institutional incentives for resolving disputes and to identify the distributional consequences of alternative dispute resolution processes the article concludes with observations on a constructive role for economists in this arena perceived fairness and property rights conflicts

chapter 9 econometric and time series market response models publisher summary marketing has seen a rapid expansion in the widespread use of quantitative methods correlation and regression analysis were among the first techniques used as marketing research emerged as a discipline after world war ii in the early 1970s regression analysis became econometrics simultaneous equation systems could be estimated almost as easily as single regression equations while econometrics as a whole continues to flourish as new and more sophisticated estimation techniques and associated computer software have become available simultaneous equation systems have not become widely prevalent the dynamic structure of marketing variables themselves is addressed in the chapter followed by discussions of leads and lags among marketing variables and the assessment of the direction of causality dynamic properties of sales response functions have been discussed in more detail marketing generalizations that have been uncovered as well as empirical evidence on the shape of the sales response function is reported

rationalizable bidding in first price auctions abstract we analyze the consequences of strategically sophisticated bidding without assuming equilibrium behavior in particular we characterize interim rationalizable bids in symmetric first price auctions with interdependent values and affiliated signals we show that 1 every nonzero bid below the equilibrium is rationalizable 2 some bids above the equilibrium are rationalizable 3 the upper bound on rationalizable bids of a given player is a nondecreasing function of her signal in the special case of independent signals and quasi linear valuation functions i the least upper bound on rationalizable bids is concave hence ii rationalizability implies substantial proportional shading for high valuations but is consistent with negligible proportional shading for low valuations we argue that our theoretical analysis may shed some light on experimental findings about deviations from the risk neutral nash equilibrium

an experimental investigation of the seller incentives in the epas emission trading auction the clean air act requires the epa to conduct annual auctions of emission allowances under the discriminative auction rules sellers with the lowest asking prices receive the highest bids this paper studies an inverted version of this auction in which buyers face the same incentives as sellers in the epa auction consistent with theoretical predictions buyers bid above their valuation auction outcomes are inefficient and increasing the number of buyers increases bids buyers facing human opponents compete more aggressively than the risk neutral prediction but bids do not differ systematically from this prediction when buyers face computerized nash robots copyright 1995 by american economic association

governance and contract choice theory and evidence from groundwater irrigation markets abstract this paper examines the role governance institutions play in the adoption of contracts we develop a simple model of the contracting relationship in a setting where unverifiable outcomes exist and use it to interpret data on groundwater irrigation contracts in bangladesh a distinguishing feature of this market is the variety of village level institutions which impose different degrees of punishment for contract violation consistent with the model we find households adopt contracts that rely on unverifiable outcomes which are not formally contractible when punishment for contract violation is weak conversely households adopt contracts that rely on formally contractible and verifiable outcomes when punishment is severe this evidence is consistent with contract terms being chosen optimally given what is or is not formally contractible

using laboratory experimental auctions in marketing research a case study of new packaging for fresh beef this paper illustrates the use of laboratory experimental auctions in a pretest market research program for new products we review the experimental auctions literature discuss the range of auction mechanisms available and present the advantages and disadvantages of using a particular mechanism for a laboratory pretest market we then present a step by step example of how a theoretically incentive compatible auction mechanism fifth price sealed bid was used in a laboratory pretest market for vacuum packaged beef based on the illustration we discuss the potential for using laboratory experimental auctions in pretest market research we present the limitations that may be encountered in such applications and outline research aimed at improving the behavioral properties of the technique

theory and misbehavior of first price auctions recent experimental evidence appears to reject simple nash equilibrium models of bidding behavior in first price auctions the author presents a methodological critique of this evidence existing tests have concentrated on deviations of subjects from predictions in the message space of the action bid deviations the author suggests that it is more natural to evaluate subject behavior in expected payoff space he concludes that the evidence against the simple models is not significant enough to warrant their rejection copyright 1989 by american economic association

multi dimensional reference dependent preferences in sealed bid auctions how most laboratory experiments differ from the field abstract we study bidding behavior in first and second price sealed bid auctions with loss averse agents our model predicts overbidding in first price induced value auctions consistent with evidence from most laboratory experiments substantially different bidding behavior could result in commodity auctions where money and auction item are consumed along different dimensions of the consumption space differences also result in second price auctions our study thereby indicates that transferring qualitative behavioral findings from induced value laboratory experiments to the field may be problematic if subjects are loss averse