combining the endogenous choice of price quantity and timing abstract this paper builds a theory of endogenous role distribution leader follower and nash player and of endogenous choice for the type of competition strategy price and quantity in a product differentiated duopoly model we examine an extended game by adding a pre play stage in which duopoly firms simultaneously decide whether to select a price contract or a quantity contract and also whether to move in the first period or in the second period before market competition we demonstrate that the unique equilibrium outcome is simultaneous quantity competition if the goods are substitutes and simultaneous price competition if the goods are complements

elasticity of demand and behaviour based price discrimination behaviour based price discrimination bbpd is typically analysed in a framework characterised by perfectly inelastic demand this paper provides a first assessment of the role of demand elasticity on the profit consumer and welfare effects of bbpd we show that the demand expansion effect that is obviously overlooked by the standard framework with unit demand plays a relevant role in comparison to uniform pricing we show that firms are worse off under bbpd however as demand elasticity increases the negative impact of bbpd on profits gets smaller despite a possible slight increase in the average prices charged over the two periods in comparison to uniform pricing we show that bbpd boosts consumer surplus and that this benefit is independent of elasticity in contrast to the welfare results derived under the unit demand assumption where bbpd is always bad for welfare the paper shows that bbpd can be welfare enhancing if demand elasticity is sufficiently high

research note quantity discounts in differentiated consumer product markets in this paper we extend the standard hotelling model of product differentiation to incorporate a second dimension of consumer heterogeneity that relates to the quantity of the product consumers wish to buy this extension allows us to derive optimal nonlinear pricing rules chosen by competing sellers when offering differentiated products in the marketplace it also permits us to assess whether sellers find it optimal to offer quantity discounts in such a setting and the implications of such discounts on their profitability we find that offering quantity discounts corresponds indeed to equilibrium behavior the extent of discounting declines the less differentiated the products surprisingly when sellers offer to consumers a choice between two different sized packages their profits are at most as high as when such a choice is unavailable moreover when utilizing nonlinear pricing rules is not feasible the profits of the sellers actually decline when they offer consumers a choice between different sized packages a limited empirical investigation supports the comparative statics we derive in our theoretical model

basing point pricing and production concentration basing point pricing is a delivered price system in which the price quoted for delivery of a commodity is the sum of the price quoted at a predetermined basing point plus the cost of transportation from the basing point to the point of delivery whether or not the commodity is actually shipped from the basing point thus a seller who is not located at the base site absorbs freight for shipments toward the base point and charges phantom freight on shipments away from the base point basing point pricing has been widely practiced throughout the world for example testimony of the federal trade commission before the tnec i 94 i p 33 alleged that industries in the united states which then or previously followed basing point pricing included lumber iron and steel pig iron cement lime brick asphalt shingles and roofing window glass white lead metal lath building tile floor tile gypsum plaster bolts nuts and rivets cast iron soil pipe range boilers valves and fittings sewer pipes paper and paper products salt sugar corn derivatives industrial alcohol linseed oil fertilisers chemicals transportation equipment and power cable almost from its inception economists have generally considered basingpoint pricing to reflect a cartel or price leadership arrangement hoover i937 stigler i949 machlup i949 and such practices have been attacked under antitrust statutes for example aetna portland cement co vs ftc i 57 f 2nd 533 i946 triangle conduit cable co vs ftc i68 f 2nd i 75 7th cir i 948 cement institute vs ftc i57 f 2nd 533 i948 nonetheless basing point pricing remains prevalent particularly outside the united states opec has used a gulf based price plus transport costs to determine the delivered prices of crude oil to most places in the world haddock i982 p 290 the pricing of cement in great britain and steel in europe can be characterised as multibase point systems greenhut i987 recent attempts by for example haddock i982 to return to the theme that the basing point system could be competitive and desirable have been challenged by thisse and vives i988 and benson et al i990 on the basis of recent advances in the analysis of pricing policy given then that we assume basing point pricing to be a collusive device adopted by incumbent firms to impose some kind of price discipline on potential entrants the price leadership point referred to above important strategic and locational issues arise in particular a major concern of the early analysis of basing point pricing was the effect such a pricing policy would have on location choice of entrant firms

the impact of provincial marketing boards on price relations and pricing dynamics in the north american slaughter hog market canadian provincial hog marketing boards act as sales agents for hog producers the hypothesis that the introduction of marketing boards in alberta manitoba and saskatchewan between 1969 and 1972 created seller side market power is tested and supported their hog prices rose to levels comparable to ontario where a marketing board had been in place organized sellers can also influence pricing dynamics because of the linked spatial oligopsonistic nature of the hog packing industry cointegration tests and variance decompositions indicate that establishing boards in the surplus producing western provinces made them relatively less isolated from pricing innovations in deficit producing eastern canada

comparing stochastic price regimes abstract marshallian consumer s surplus can often be defended as a useful approximation to hicksian compensating variation under price uncertainty however expected compensating variation is not a generally valid welfare measure and expected consumer s surplus cannot be justified as an approximation to a rigorous construct

utilizing the broader agency perspective for studying headquarters subsidiary relations in multinational companies the nature of global business today increases the complexity of multinational companies and highlights the challenges of managing headquarters subsidiary hq sub relationships we identify key unresolved issues in hq sub relations including closing the gap between headquarters expectations and subsidiary performance managing the nested hierarchical relationships across multiple organizational layers and aligning these relationships across diverse subunits embedded in different social contexts we propose that agency theory particularly its more recent progressions can advance our understanding of these issues and we offer a perspective to guide such research we discuss several research implications of the static bilateral static multilateral dynamic and social and contextual streams of agency theory

resource allocation in a general equilibrium model of production under uncertainty the case of variable supply of labor abstract this paper examines the effects of a marginal change in uncertainty on resource allocation and factor rewards by relaxing the assumption of factor inelasticity we demonstrate that integrating a variable labor supply into batra s two sector uncertainty model can mitigate or reverse many of the earlier results specifically a marginal increase in uncertainty may trigger the resource to move from the certainty sector to the uncertainty sector in the presence of a backward bending labor supply curve

errors in the numerical assessment of the benefits of price stabilization this paper presents a simple computational procedure for determining a consumer s willingness to pay to have a price stabilization policy implemented numerical simulations are then provided which demonstrate that the commonly used expected surplus measures whether hicksian or marshallian can in fact seriously misstate the true benefits of price stabilization these simulations also illustrate the extent to which the results may be dependent upon the assumptions made implicitly or explicitly regarding the consumer s attitudes toward risk thereby underscoring the need to conduct sensitivity analyses to determine the robustness of cost benefit assessments with respect to these assumptions

managing the mne subsidiary advancing a multi level and dynamic research agenda abstract multinational enterprise mne subsidiaries abroad are important organizations in their own rights they typically hold some of the mne s most critical resources and operate at the forefront of complex international environments in this review we identify and organize theoretical and empirical research on subsidiary management based on over 600 articles in leading academic journals we develop a conceptual framework that integrates complementary streams of theoretical and empirical research with the subsidiary as its focal unit of analysis in particular we review six lines of research on subsidiary scope practices knowledge management engagement with local market and nonmarket actors performance and individuals within subsidiaries we highlight theoretical perspectives that have contributed to and been advanced by research on mne subsidiaries based on the review we explore future research agendas linking the contemporary research themes with two main thrusts first subsidiary management is a multi level phenomenon that would benefit from more microfoundational research second subsidiary management operates at key interfaces of technology paradigm shifts and of disruptions in the political and institutional environment research into the dynamics of subsidiary management would thus enhance our understanding of international business in a volatile global economy

dynamic targeted pricing with strategic consumers abstract we investigate in this paper whether dynamic targeted pricing based on consumer purchase history could benefit a practicing firm even when consumers are strategic in that they actively seek to avail themselves of a low price in the future such strategic behavior on the part of consumers has been shown in the literature to render such dynamic targeted pricing unprofitable even for a monopoly firm we show that dynamic targeted pricing can benefit competing firms when they actively pursue customer recognition based on consumer purchase history this is because in order to pursue customer recognition competing firms need to price high to screen out price sensitive consumers and hence price competition is moderated as a result all competing firms can become better off with targeted pricing than without even when consumers behave strategically interestingly because of this competition moderation effect the paradoxical outcome occurs where dynamic targeted pricing may not benefit a monopolist but it may benefit competing firms we also show that dynamic targeted pricing can expand the market such that social welfare unambiguously improves

competitor analysis and foothold moves a foothold is a small position that a firm intentionally establishes within a market in which it does not yet compete we extend theory on competitive dynamics to examine relationships between comp

on the efficiency of location decisions under discriminatory pricing abstract the paper analyzes the question of whether delivered pricing policies give rise to an inefficient location of firms and in particular to a geographical distribution of capacity which is overly concentrated the analysis adds to the literature on spatial pricing and location decisions the element of uncertainty over the timely delivery of products and therefore the possibility that risk averse consumers may be willing to pay a higher delivered price for products if they can hedge and divide their orders among two suppliers the results are in strong contradiction to the common belief that identical delivered pricing systems produce a highly inefficient distribution and that fob would yield the optimal location however it is shown that in markets with coordination problems the concern about excessive concentration of productive capacity may be legitimate

competitive parity status disparity and mutual forbearance securities analysts competition for investor attention most studies of responses to change in competitive environments focus on competitor specific adaptations however rivals are often acutely aware of one another and this awareness should influence their competitive behavior in this study we focus on three market structures that affect competitive behavior competitive parity status disparity and multipoint contact in particular we examine how securities analysts responded to a regulatory discontinuity regulation fair disclosure reg fd which promotes competitive parity by eliminating privileged access to proprietary firm information as a critical source of competitive advantage we predict and find that reg fd activated mutual forbearance among analysts linked through multipoint contact we also predict and find that high status analysts forbear more strongly analysts responses to heterogeneity in competitive advantage thus depend importantly on their competitive overlap and status which has implications for both their behavior and the information they provide to investors

strategic loyalty reward in dynamic price discrimination in a dynamic model with overlapping generations of consumers we study duopolistic competition when firms can price discriminate at each period between their previous customers and the consumers that they have never served long term contracts are not enforceable in markov perfect equilibrium one firm charges higher prices to its past customers than to its new customers as past customers have revealed their strong preferences for the firm the other firm however rewards its previous customers by charging lower prices to them than to its new customers this loyalty reward strategy comes from the interplay between the firms usual incentive to extract surplus from consumers with revealed strong preferences and their incentives to acquire information and to recognize their young loyal customers the result also relies on the firms inability a priori to tell different generations apart it is the outcome of the unique equilibrium of a simplified two period or t period version of the game and holds with forward looking consumers who are impatient enough

causes of u s farm commodity programs this paper i s an attempt to explain variations by commodity in producer protection afforded by farm price support programs since the1930s particularly emphasized are theideas that these programs are essentially income redistributional measures and that given political forces the programs are attempts to redistribute efficiently variables associated with the cost to producers of generating political pressure and the social cost deadweight losses of redistribution are both found to be empirically important copyright 1987 by university of chicago press

competing globally allying locally alliances between global rivals and host country factors an emerging literature highlights the relationship between competitive intensity and the likelihood that two rival firms will form an alliance placing this argument in an international context we first suggest that the global competitive intensity between two rival multinationals positively affects the likelihood that they will ally in any host country additionally we highlight how a number of host country contextual factors moderate the relationship between global competitive intensity and alliance formation in a given host country we test our hypotheses with a sample of 13 global automobile companies operating in 27 countries and the results largely support our predictions

fighting collusion by permitting price discrimination we investigate the effect of a ban on third degree price discrimination on the sustainability of collusion we build a model with two firms that may be able to discriminate between two consumer groups two cases are analyzed i best response symmetries so that profits in the static nash equilibrium are higher if price discrimination is allowed ii best response asymmetries so that profits in the static nash equilibrium are lower if price discrimination is allowed in both price discrimination scenarios firms discount factor has to be higher in order to sustain collusion in grim trigger strategies than under uniform pricing

customer information sharing among rival firms abstract the recent rapid growth of the internet as a medium of communication and commerce combined with the development of sophisticated software tools are to a large extent responsible for producing a new kind of information databases with detailed records about consumers preferences these databases have become part of a firm s assets and as such they can be sold to third parties this possibility has raised numerous concerns from consumer privacy advocates and regulators who have entered into a heated debate with business groups and industry associations about whether the practice of customer information sharing should be banned regulated or left unchecked this paper investigates the incentives of rival firms to share their customer specific information and evaluates the welfare implications if such exchanges are banned in the context of a perfect price discrimination model

privacy and personal data collection with information externalities abstract we provide a theoretical model of privacy in which data collection requires consumers consent and consumers are fully aware of the consequences of such consent nonetheless excessive collection of personal information arises in the monopoly market equilibrium which results in excessive loss of privacy compared to the social optimum the main mechanism for this result is information externalities and users coordination failure in which some users decision to share their personal information may allow the data controller to infer more information about non users we also show that the emergence of data brokerage industry can facilitate the collection and monetization of users personal data even in a fragmented market where no individual website has incentives to do so independently due to scale economies in data analytics we discuss policy implications of our analysis in light of the recent eu general data protection regulation gdpr

wage distortion and resource allocation under uncertainty the effects of uncertainty on resource allocation have been examined in a two sector general equilibrium model of production constructing a model in which firms are risk indifferent and face uncertainty regarding the use of capital rothenberg and smith 9 considered the implications of uncertainty for welfare resource allocation and income distribution their model was refined by batra 3 to permit uncertainty in production to influence the firms decisions to hire both capital and labor batra s approach appears to be more general in that producers are assumed to be risk averse in lieu of risk neutral the writing of this paper is inspired by batra s contributions 2 3 batra s well known intermediate run equilibrium model is reformulated to allow for wage distortion utilizing the model several issues regarding the effects of changes in factor supplies in commodity prices and in the degree of wage distortion will be examined factor market distortions in the absence of uncertainty have been studied extensively in literature 2 their impacts on resource allocation in stochastic environment have not been explored however we argue that the introduction of the wage differential has a major impact on batra s results first relative value factor intensities generally replace relative physical factor intensities in determining signs of

dynamic pricing when to entice brand switching and when to reward consumer loyalty this article develops a theory of dynamic pricing in which firms may offer separate prices to different consumers based on their past purchases brand preferences over two periods are described by a copula admitting various degrees of positive dependence when commitment to future prices is infeasible each firm offers lower prices to its rival s customers when firms can commit to future prices consumer loyalty is rewarded if preference dependence is low but enticing brand switching occurs if preference dependence is high our theory provides a unified treatment of the two pricing policies and sheds light on observed practices across industries

expected consumer s surplus and the welfare effects of price stabilization suppose a consumer faces a price which is uncertain ex ante a question which often arises is whether the consumer would benefit from a stabilization policy under which the price would then be fixed and known with certainty many authors have addressed this question by calculating the expected compensating variation of the price change others have used expected marshallian consumer s surplus often with the explanation that it is a good approximation to expected compensating variation 2 an important unresolved issue however is whether expected compensating variation does in fact provide a valid ranking of stochastic prices against stabilized prices i e a ranking in agreement with that given by expected utility in section 2 we demonstrate that expected compensating variation is not in general a valid utility indicator in essence while utility comparisons under uncertainty require the use of the cardinal properties of von neumannmorgenstern utility functions the expected surplus measures depend only on ordinal preference rankings expected compensating variation then is completely insensitive to and cannot reflect the precise factor of interest in suchstudies the consumer s attitudes toward risk we then derive a set of restrictions on the utility function which are necessary in order for expected compensating variation to be a valid measure we see that price stabilization policies can only be evaluated with compensating variation if consumer preferences are assumed to satisfy quite stringent requirements this is in constrast to the familiar certainty case in which compensating variation always provides correct rankings

adjustment to production uncertainty and the theory of the firm this paper considers the behavior of the firm which faces uncertainty in its production process but can adjust its output once the uncertainty is resolved ex post adjustment unlike previous treatments involves a marginal cost penalty if more output is required and a lowering of price if too much is produced with ex post adjustment allowed in this fashion it is found that nonlinear risk preferences do not affect the sign of the firm s marginal risk premium at optimum ex ante output the firm will produce less output than under certainty whether it is risk averse risk neutral or prefers risk

third degree stochastic dominance here f x and g x are less than cumulative probability distributionis where x is a continuous or discrete random variable representing the outcome of a prospect the closed interval a b is the sample space of both prospects the integral shown in rule 2 and those shown throughout the paper are stieltjes integrals recall that the stieltjes integral fb f x dg x exists if one of the functions f and g is continuous and the other has finite variation in a b let d1 d2 and d3 be three sets of utility functions x d1 is the set containing all utility functions with 4 x and 1 x continuous and 41 x 0 for all xe a b d2 is the set with x 1 x 2 x continuous and q j x 0 02 x o for all xc a b d3 is the set with x 1 x 2 x 3 x continuous and 1 x 04 2 x o o for all xc a b here 1 x denotes the ith derivative of x hadar and russell proved that rule 1 is valid for all cd1 and rutle 2 is valid for all ed2 the authors point out that the set of probability distributions that can be ordered by means of second degree stochastic dominance is in general larger than that which can be ordered by means of first degree stochastic dominance note that in rule 2 they assume that x is not only an increasing function of x but also exhibits weak global risk aversion a condition guaranteed by requiring the second derivative of x to be nonpositive in this paper a condition which will be called third degree stochastic dominance is considered it is based on the following assumption about the form of the utility function x from a normative point of view one expects the risk premium associated with an uncertain prospect to become smaller the greater is the individual s wealth the plausibility and implications of this assumption h ave been explored by john pratt as well as others the risk premium of an uncertain prospect is that amount by which the certainty equivalent of the prospect differs from its expected value in mathematical terms given the prospect f x with expected value a the corresponding risk premium t is obtained by solving the following equation rb

futures trading and the welfare evaluation of commodity price stabilisation it is notorious that commodity prices are volatile and there is a substantial literature on the wisdom of complete or partial elimination of this volatility the modern academic literature starts from waugh i944 who argued that consumers benefit from price volatility since they can take advantage of low prices by increasing consumption and oi i96i who argued the parallel proposition for producers massell i969 noting that waugh had assumed supply side disturbances whilst oi had assumed demand side disturbances provided an integrated model in the same spirit samuelson i972 showed that notwithstanding the contributions of waugh and oi it will not be beneficial within a standard competitive market clearing model to destabilise prices the literature is surveyed in turnovsky i978 this raises the question of whether stabilisation can be justified in the context of a competitive free market in which private agents make optimal stockholding decisions wright and williams i982 a number of authors see for example johnson i967 ch 5 have suggested that the fundamental theorem of welfare economics rules out such intervention standard arguments that would qualify this conclusion are superior governmental access to capital markets or information and the assertion that stabilisation may result in a favourable redistribution of income newbery and stiglitz i98i have stressed the rather more powerful argument that application of the fundamental theorem of welfare economics in an uncertain and explicitly intertemporal context requires the existence of a complete set of forward and contingent contracts markets futures or forward markets do exist for delivery of many important primary commodities at near dates but this is far from sufficient to satisfy the prerequisites of the theorem since agents will use those markets which do exist as substitutes for those that are absent since for example moral hazard considerations prevent widespread trading of crop insurance contracts farmers are obliged to obtain insurance against poor crops through the imperfect substitute of hedging on futures markets the limited range of futures and contingent claims markets invalidates the argument that intervention can never be justified in welfare terms but at the same time this only establishes the possibility of a justification for intervention a specific case must be made for each market futures trading allows market transactors to fix their prices in advance of delivery for example a farmer may completely hedge by selling his entire

stochastic dominance and expected utility survey and analysis while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics finance agriculture statistics marketing and operations research in this survey the first second and third order stochastic dominance rules are discussed with an emphasis on the development in the area since the 1980s

bundling and competition for slots we consider competition between sellers selling multiple distinct products to a buyer having k slots under independent pricing a pure strategy equilibrium often does not exist and equilibrium in mixed strategy is never efficient when bundling is allowed each seller has an incentive to bundle his products and an efficient technology renting equilibrium always exists furthermore in the case of digital goods or when sales below marginal cost are banned all equilibria are efficient comparing the mixed strategy equilibrium with the technology renting equilibrium reveals that bundling often increases the buyer s surplus finally we derive clear cut policy

history based price discrimination and entry in markets with switching costs a welfare analysis abstract we analyze history based price discrimination in an asymmetric industry where an incumbent protected by switching costs faces an entrant who does not have access to information about consumers purchase histories we demonstrate that consumer surplus is higher with uniform pricing than with history based price discrimination we find that the entry decision is invariant to whether the incumbent implements history based pricing or uniform pricing this implies that the potential abuse of market dominance imposed by history based price discrimination is exploitation not exclusion finally we establish that the profit gain to the incumbent from history based pricing exceeds the associated loss to consumers

third degree price discrimination in oligopoly all out competition and strategic commitment price discrimination by imperfectly competitive firms may intensify competition leading to lower prices for all consumers the tradeoff of consumer groups welfare that is characteristic of monopolistic discrimination need not arise this escalation of competition may make firms worse off and as a result firms may wish to avoid the discriminatory outcome under conditions similar to those in which unambiguous price and welfare effects may arise unilateral commitments not to price discriminate including the adoption of everyday low pricing or no haggle policies may raise firm profits by softening price competition

customer poaching and advertising this paper is a first look at the dynamic effects of customer poaching in homogeneous product markets where firms need to invest in advertising to generate awareness when a firm is able to recognize customers with different purchasing histories it may send them targeted advertisements with different prices it is shown that only the firm which advertises the highest price in the first period will engage in price discrimination a practice that clearly benefits the discriminating firm this poaching gives rise to the race for discrimination effect through which price discrimination may act actually to soften price competition rather than intensify it as a result all firms may become better off even when only one of them can engage in price discrimination this paper offers a first attempt to evaluate the effects of price discrimination on the efficiency properties of advertising in markets with low or no advertising costs allowing firms to price discriminate leads them to provide too little advertising which is not good for consumers and overall welfare only in markets with high advertising costs might firms overadvertise regarding the welfare effects price discrimination is generally bad for welfare and consumer surplus though good for firms

competitive promotional strategies this article analyzes the equilibrium pricing strategies of brands engaged in a pricing game each brand has a monopoly market loyal consumers and competes with others in a common market called brand switchers in the case of a duopoly it is shown that the behavior of the brand switchers characterizes the equilibrium behavior of the duopolists this article focuses on two key comparative statics namely the depth of discounts away from a regular high price and the probability of giving a deal or the frequency of deals how these properties vary with the size of the loyal markets and the behavior of the brand switching population is discussed copyright 1988 by the university of chicago

consumer s surplus and price uncertainty this paper investigates the conditions under which expected equivalent variation provides a correct ranking of stabilized and uncertain price situations expected equivalent variation can be recovered from ordinal preferences whereas ex ante equivalent variation requires additional information regarding con sumer attitudes toward income risk the two measures are equal for income risk neutral consumers more important for applied welfare analysis where income risk aversion is presumed expected equivalent variation provides a lower bound for ex ante equivalent variation these two features of expected equivalent variation commend it as a viable welfare measure for applied work copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

price discrimination with private and imperfect information in this paper i investigate the competitive and welfare effects of the improvements in information accuracy in markets where firms can price discriminate after observing a private and noisy signal about a consumer s brand preference i show that when firms believe that consumers have a brand preference for them then they charge more to these consumers and this price has an inverse u shaped relationship with the signal s accuracy in contrast the price charged after a disloyal signal has been observed falls as the signal s accuracy rises while industry profit and overall welfare fall monotonically when price discrimination is based on increasingly more accurate information the reverse happens to consumer surplus

the competitive firm with uncertainty in the rate of labor turnover the adoption of more sophisticated production techniques usually requires firms to increase their expenditures on worker training and to pay greater attention to the costs of labor turnover economists are beginning to explicitly incorporate both training expenditures and the rate of labor turnover into the theory of the firm at the same time they are extending the theory of the firm to cases in which the firm faces uncertainty in its environment for example uncertainty in the price of output the prices of inputs or the quantity of output that a given input mix will yield this paper seeks to extend both of these areas of research by first introducing uncertainty in the rate of labor turnover and then examining the consequences of this new form of uncertainty for optimal training expenditures the optimal wage and the optimal level of output at the firm the paper assumes that the firm can increase output by providing workers with more training and can discourage turnover by paying workers a higher wage the quantities of labor and capital that the firm employs are held constant throughout the analysis it is found that the introduction of uncertainty in the rate of labor turnover results in lower optimal expenditures for both training and wages the reduction in training also reduces the level of output per worker at the firm comparative static analysis of ceteris paribus changes in the mean and variance of the labor turnover rate are also performed an increase in the mean of the turnover rate with the variance held constant reduces the wage and the amount of training provided also an increase in the variance of the turnover rate with the mean held constant reduces the wage and the amount of training provided a number of authors have considered models of the competitive firm in which the firm must determine its output level in the presence of uncertainty sandmo 13 batra and ullah 2 hartman 7 ishii 9 ingene and yu 8 flacco 5 and many others consider the behavior of the competitive firm facing uncertainty in its output price blair 3 ratti and ullah 12 stewart 15 perrakis 11 macminn and holtman 10 and many others consider cases in which the firm faces uncertainty in its technology or factor prices in all of these models it is assumed that the firm must make its input and output decisions before the uncertainty is resolved without ex

individual marketing with imperfect targetability our research investigates the competitive ramifications of individual marketing and information management in today s information intensive marketing environments the specific managerial issues we address are as follows first what kinds of incentive environments do competing firms face when they can only target individual customers imperfectly second does the improvement in an industry s targetability intensify price competition in the industry such that all competing firms become worse off third should a firm share its customer knowledge so as to improve its rival s targetability fourth how should an information vendor sell its information that can improve a firm s targetability finally do competing firms have the same incentives to invest in their own targetability to answer those questions we develop a simple model a la narasimhan 1988 in which each of the two competing firms have their own loyal customers and compete for common switchers we assume that each firm can classify its own loyal customers and switchers correctly only with a less than perfect probability this means that each firm s perceived customer segmentation differs from the actual customer segmentation based on their perceived reality these two competing firms engage in price competition as an extension we also allow the competing firms to make their investment decisions to acquire targetability we show that when individual marketing is feasible but imperfect improvements in targetability by either or both competing firms can lead to win win competition for both even if both players behave noncooperatively and the market does not expand win win competition results from the fact that as a firm becomes better at distinguishing its price insensitive loyal customers from the switchers it is motivated to charge a higher price to the former however due to imperfect targetability each firm mistakenly perceives some price sensitive switchers as price insensitive loyal customers and charges them all a higher price these misperceptions thus allow its competitors to acquire those mistargeted customers without lowering their prices and hence reduce the rival firm s incentive to cut prices this effect softens price competition in the market and qualitatively changes the incentive environment for competing firms engaged in individual marketing a prisoner s dilemma occurs only when targetability in a market reaches a sufficiently high level this win win perspective on individual marketing has many managerial implications first we show that superior knowledge of individual customers can be a competitive advantage however this does not mean that a firm should always protect its customer information from its competitors to the contrary we find that competing firms can all benefit from exchanging individual customer information with each other at the nascent stage of individual marketing when firms targetability is low indeed under certain circumstances a firm may even find it profitable to give away this information unilaterally however as individual marketing matures as firms targetability becomes sufficiently high further improvements in targetability will intensify price competition and lead to prisoner s dilemma therefore it is not only prudent politics but also a business imperative for an industry to seize the initiative on the issue of protecting customer privacy so as to ensure win win competition in the industry second we show that the firm with a larger number of loyal customers tends to invest more in targetability when the cost of acquiring targetability is high however the firm with a smaller loyal base can through information investment acquire a higher level of targetability than the firm with a larger loyal base as long as the cost of acquiring targetability is not too high as the cost further decreases competing firms will all have more incentives to increase their investments in targetability until they achieve the highest feasible level third an information vendor should make its information available nonexclusively exclusively when its information is associated with a low high level of targetability when the vendor does sell its information exclusively it should target a firm with a small loyal following if it can impart a high level of targetability to that firm finally our analysis shows that an information intensive environment does not doom small firms in fact individual marketing may provide a good opportunity for a small firm to leapfrog a large firm the key to leapfrogging is a high level of targetability or customer knowledge

resource allocation with factor price differentials under price uncertainty the authors adapt the price uncertainty model to examine the implications of four types of marginal changes in price uncertainty changes in commodity price level the variance of price a proportional change in both the mean and the standard deviation of price and an equiproportionate change in the moments the analysis focuses on the effect of price uncertainty on sectoral capital labor ratios factor employment output levels factor rewards and expected profits the stability issue and its meaning for the determinant of the basic system is also discussed 11 references

optimal tariff under domestic distortions abstract the purpose of this paper is to derive a generalized formula for a third best optimal tariff in the presence of domestic production distortions in a country in which tariff is the only available trade policy

uncertainty price stabilization and welfare foreign price instability can significantly affect the welfare of an open economy relying heavily on foreign trade for instance japan is vulnerable to oil price increases because 99 percent of its oil is imported similarly grain producers of many countries have advocated price stabilization and received protection from the risk of low foreign prices primary exporters are also concerned about foreign price instability because it contributes to export earnings instability recently itagaki 4 and beladi and samanta 1 investigated the issue of optimal tariff when international trade is subject to price instability their analyses suggest that trade restrictions can improve the welfare of an open economy when international trade is carried out under price uncertainty although the literature on price stabilization policies for a closed economy is extensive the implications of stabilization policies on an open economy facing foreign price instability have received little attention this paper investigates whether a domestic price stabilization policy can improve the welfare of an open economy facing foreign price instability the welfare effects of price stabilization on a closed economy were investigated by waugh 12 oi 8 massell 6 and newbery and stiglitz 7 1 among the contributions in this field gilbert s 3 work on the consequences of international price stabilization for an open economy represents an important advance over models using aggregate social surplus using approximations of welfare gains gilbert suggested that a risk averse country would benefit if the world price of a commodity were stabilized at the pre stabilization mean by an international intervention authority since a small country is a price taker it cannot neutralize price instability originating in the world market what is the optimal policy for a small open economy facing foreign price instability despite its well known optimality free trade is rarely practiced in small countries as evidenced by the common agricultural policy of the european economic community eec

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

multiproduct pricing in oligopoly abstract this paper proposes a two good model of price competition where some consumers visit all shops and others visit only one we find that information frictions lead to price dispersion when the two goods are complements their prices will tend to be negatively correlated so if one is priced high the other will be discounted this finding is supported by some empirical evidence which suggests that simultaneous price discounts of complements are infrequent if the goods are substitutes their prices will be uncorrelated potentially rationalizing the lack of evidence on their co pricing when selling complements retailers earn higher profits than in the one good model through taxing captive consumers with a high overall price tag and attracting shoppers by pricing one of the goods aggressively bundling practices are thus shown to be detrimental to retailers profits

rivalry deterrence in international markets contingencies governing the mutual forbearance hypothesis the mutual forbearance hypothesis states that when the same competitors meet in multiple markets rivalry is deterred our study highlights how pressures for local responsiveness impact the veracity of this hypothesis for multinational corporations mncs in host countries we develop theory to explain how subsidiary ownership home host cultural distance host country regulatory restrictions on mnc activities and the presence of local competitors affect the rivalry dampening impact of multi market contact we tested our hypotheses with a sample of 13 global automobile companies operating in 27 countries and report strong support for our hypotheses

basing point pricing competition versus collusion we consider the implications of game theoretic models for the competitive or collusive nature of basing point pricing bpp in one shot games equilibrium price schedules do not generally conform to bpp with unrestricted price competition nevertheless bpp can emerge in dynamic contexts define modified fob price policy as using fob in one s natural market and matching the rival s delivered price whenever profitable a configuration where both firms do this is a subgame perfect equilibrium of a two stage game where firms choose first price policies and then compete in the marketplace further with repeated competition bpp can be used as punishment device

on the strategic choice of spatial price policy the strategic incentives with respect to the choice of price policy in spatial competition are analyzed in a duopoly model price discrimination emerges as the unique equilibriu m outcome in games with either simultaneous choice of policy and pric e or sequential choice where firms may commit first to uniform mill p ricing before the actual market stage nevertheless profits may be h igher with uniform pricing the authors models are applied to analyz e some common business practices that arise in geographical pricing like the basing point system and in the pricing of varieties or opti ons from a base product in a product differentiation context copyright 1988 by american economic association

uncertainty domestic distortions and the optimal tariff a number of studies have appeared in recent years incorporating uncertainty in a two sector general equilibrium model of trade particularly noteworthy are the contributions by batra 1 and ingene and yu 4 283 95 among others 3 6 326 31 the literature on the optimal trade policies under domestic factor market distortion in a non stochastic framework is also vast 8 but there has not been any attempt to formulate optimal tariff policy in a stochastic model of international trade characterized by uncertain relative price and factor market distortion recently itagaki 5 292 97 has analyzed the issue of optimal tariff under relative price uncertainty but without any domestic distortions in this context he has shown that for a small open economy facing uncertain terms of trade the optimal tariff is not zero however the analysis of optimal trade policies under domestic distortion along with uncertain terms of trade is conspicuously absent this paper extends their analysis and derives a generalized formula for the optimal tariff in such an economy where a tariff is considered as the only available trade policy a thorough understanding of the optimal trade policies in the presence of domestic factor market distortion and uncertain terms of trade will be useful for many ldc s plagued by growing distortions in this paper we assume that producers maximize their profits and consumers maximize their utility after the import tariff is levied by the policymakers and both international and domestic prices have been observed and the policymakers take into account the behavior of the producers and consumers when they are choosing the optimal tariff rate in the next section the model is presented then we derive the optimal tariff formula for the economy with uncertain terms of trade in the presence of domestic factor market distortions section iii contains a summary and some concluding remarks

urban unemployment uncertainty and economic expansion the hypothesis that economic growth may be immiserizing in the presence of market distortions was first explored more than thirty years ago bhagwati 4 201 5 5 481 5 and johnson 11 151 4 amongst others analyzed cases in which factor growth can cause a loss of real income in a small open economy while there are many types of market distortions a particularly interesting one was introduced by harris and todaro 7 126 42 to provide a theoretical rationale for migration patterns in lesser developed economies in the harris todaro henceforth h t model there exists a rigid minimum wage in manufacturing the urban sector that exceeds the freely determined agricultural rural wage rural workers migrate to the urban area until the rural wage equals the expected urban wage where expected is taken to mean the minimum wage times the probability of obtaining employment note that the probability can also be interpreted as the proportion of time that an urban laborer is employed corden and findlay 6 59 78 extended the h t model to the case of intersectorally mobile capital thereby bringing it into alignment with the neo classical trade model they also provided a geometric analysis of the effects of factor accumulation and hicks neutral technical change upon output levels and factor utilization other researchers have examined the mobile capital ht model in terms of its dynamic stability 14 219 34 effects of wage subsidies and taxes 13 69 80 customs unions 15 311 19 and various growth issues including immiserization 12 245 56 as important as these contributions have been they share the common assumption of certainty or certainty equivalence yet the development literature makes clear that the agricultural sector of ldc s is characterized by uncertainty 3 thus just as the neo classical trade literature has been extensively investigated under uncertainty 1 9 so can the h t based literature be extended this has been done only twice by ingene and yu 10 who examined the effect of a change in the minimum wage and ingene 8 who looked at changes in the degree of uncertainty

the yield curve and the macro economy across time and frequencies this paper assesses the relation between the yield curve and the main macroeconomic variables in the u s between early 1960s and 2009 across time and frequencies using wavelet analyses the shape of the yield curve is modelled by latent factors corresponding to its level slope and curvature estimated by maximum likelihood with the kalman filter the macroeconomic variables measure economic activity unemployment inflation and the fed funds rate the cross wavelet tools employed coherency and phase difference the set of variables and the length of the sample allow for a thorough appraisal of the timevariation and structural breaks in the direction intensity synchronization and periodicity of the relation between the yield curve and the macro economy our evidence establishes a number of new stylized facts on the yield curve macro relation and sheds light on several results found in the literature which could not have been achieved with analyses conducted strictly in the time domain as most of the literature or purely in the frequency domain

commodity price stabilization in a peasant economy the peasant household s preferences for price stabilization are shown to depend on observable parameters describing consumption and production decisions a measure of willingness to pay is obtained for the case where the household is engaged in both the production and the consumption of the commodity in question for plausible parameter values it appears likely that the peasant household will prefer price stabilization and that stabilization of the producer price alone dominates complete stabilization

product line competition customization vs proliferation we study a market with customers who have heterogeneous preferences for product attributes we consider two types of firms that compete on price and product variety a traditional firm which chooses a limited set of product configurations and a customizing firm which can produce any configuration to order the traditional firm carries product inventories and experiences a lead time delay the customizing firm does not carry inventory and its customers incur waiting costs until they receive their orders we assume that the customizing firm has limited capacity in the short run e g when it does not outsource production to high volume manufacturers we derive the equilibrium for a duopoly competition between the customizing firm and the traditional firm study its characteristics and compare it to a monopoly we characterize conditions that favor customization under competition we find that the customizing firm s profit is not monotone in the market size and its ease of customization similarly a

on the basing point system reply david d haddock s 1990 contention is really that the jacques f thisse and xavier vives 1988 and the bruce l benson melvin l greenhut and george norman 1990 papers do not provide a collusive model that yields base point pricing bpp he apparently believes his paper 1982 established competitive bpp and suggests in 1990 that the collusive model and hard empirical work alone remain however no collusive model is required since it has already been well demonstrated in the literature on plant location and spatial price theory that firms at feasible distance locations from a production center would accept bpp only because they fear that to do otherwise would subject them to retaliatory actions by the larger more powerful firms at the production center moreover the paper by thisse vives 1988 henceforth tv and benson greenhut norman 1990 henceforth bgn indicated sufficiently that other systems would arise than haddock s competitive bpp especially since the restrictive conditions necessary for the latter militate against its use haddock in fact appears to accept these conditions in his references to arthur r burns proposals 1936 of nearbase point pricing nbpp hard empirical analysis would indeed be in order in determining the extent of nbpp not competitive bpp this paper responds to the above noted issues in three main sections section i briefly provides some historical data on the collusive uses of bpp for any future researcher who seeks empirically to uncover a

a note on adjustment to production uncertainty and the theory of the firm this paper analyzes the impact of production uncertainty on the firm s optimal output decision if uncertainty is introduced by an additive risk variable then short run optimal output is unchanged but the owner manager s expected utility can change causing long run output effects if uncertainty is introduced by a multiplicative random variable then short run output can change as well

product differentiation with consumer arbitrage abstract we determine the equilibrium to a game where two firms set delivered price schedules and consumers simultaneously declare where they want to take delivery of the product equilibrium pricing policies provide incentives for consumers not to demand their preferred varieties but rather to purchase more standard varieties this behavior may decrease market diversity the demanded varieties tend to agglomerate around the market center we also show that it is efficient for the cost of adapting the product to consumers to be shared through arbitrage but oligopoly gives rise to an inefficient level of personal arbitrage

should mobile marketers collect data other than geo location we take today s mobile marketing data landscape as a starting point and consider a duopoly model of third degree price discrimination in which firms can complement geo location information with data on consumer flexibility of varying quality we show that depending on consumer heterogeneity higher quality flexibility data affect profits according to three different patterns in equilibrium both firms tend to acquire data if the data are of high quality while only one acquires data if the data quality is low firms are likely to gain from additional data if consumers have similar preferences and or when data are precise although social welfare weakly improves consumers can be harmed

stochastic dominance and expected utility while stochastic dominance has been employed in various forms as early as 1932 it has only been since 1969 1970 that the notion has been developed and extensively employed in the area of economics

bundling and international market segmentation the paper shows how firms by bundling their products with nontradables may contribute to the segmentation of international oligopoly markets we develop a simple example with two products one that is homogeneous across markets and one that is bundled with a nontradable e g local services integration of the markets for the homogeneous product yields the expected price equalization across markets however integration of the markets for bundled products leaves the economy entirely unaffected hence the standard methodology of comparing a segmented and an integrated equilibrium would exaggerate the effects of integration in this economy

stochastic dominance and uncertain price prospects since the seminal and simultaneous publications of hadar and russell 6 and hanoch and levy 8 there has been a virtual explosion of papers investigating implications of stochastic dominance rules for decisions under uncertainty dominance principles have important applications to portfolio choice capital budgeting and financial intermediation stochastic dominance can also be applied to investment and production decision problems under uncertainty in these areas both overall and marginal impacts of uncertainty have received wide attention 2 the emphasis in consumer welfare analysis under uncertainty has been on the ranking of different price prospects ranking of price prospects is more complicated than that of income prospects for two related reasons first due to differences in ordinal preferences among consumers the second degree stochastic dominance rule on price prospects does not yield a unanimous ranking among risk averse consumers thus waugh 17 massell 12 and samuelson 14 have focused on the ranking of price prospects for a single consumer or consumers with identical ordinal preferences second there is no a priori reason for income risk averse consumers to exhibit aversion to fair price risks specifically the indirect utility function of an income risk averse consumer is neither concave nor convex in prices indirect ways of comparing consumer welfare under alternative price prospects via expected consumer surplus expected compensating variation or expected equivalent variation have thus been investigated in the literature expected consumer surplus ecs has been particularly popular for ranking certain and uncertain price prospects 3 however turnovsky shalit and schmitz 16 showed that the ranking

pricing with customer recognition abstract this article studies the dynamic effects of behaviour based price discrimination and customer recognition in a duopolistic market where the distribution of consumers preferences is discrete consumers are myopic and firms are forward looking in the static and first period equilibrium firms choose prices with mixed strategies when price discrimination is allowed forward looking firms have an incentive to avoid customer recognition thus the probability that both will have positive first period sales decreases as they become more patient furthermore an asymmetric equilibrium sometimes exists yielding a 100 0 division of the first period sales as a whole price discrimination is bad for profits but good for consumer surplus and welfare