do mergers really reduce costs evidence from hospitals in this paper we compare potential and realized cost savings from hospital mergers our approach isolates changes in realized cost savings due to different output mixes from systematic changes due to time and also provides a measure of the potential cost savings due to scale economies our findings suggest that economies of scale are present for merging hospitals and they realize these cost savings immediately following a merger however we also show that over time cost savings from the merger decrease and the proportion of hospitals experiencing positive cost savings declines

answering the skeptics yes standard volatility models do provide accurate forecasts a voluminous literature has emerged for modeling the temporal dependencies in financial market volatility using arch and stochastic volatility models while most of these studies have documented highly significant in sample parameter estimates and pronounced intertemporal volatility persistence traditional ex post forecast evaluation criteria suggest that the models provide seemingly poor volatility forecasts contrary to this contention we show that volatility models produce strikingly accurate interdaily forecasts for the latent volatility factor that would be of interest in most financial applications new methods for improved ex post interdaily volatility measurements based on high frequency intradaily data are also discussed

durable goods theory for real world markets the early 1970s witnessed three major advances in durable goods theory swan 1970 1971 and sieper and swan 1973 on optimal durability coase 1972 on time inconsistency and akerlof 1970 on adverse selection this paper surveys durable goods theory starting with these three contributions where much of the focus is on recent literature and on models that explain real world phenomena in addition to the ideas found in the contributions of swan coase and akerlof topics covered include why producers sometimes practice planned obsolescence the role of adverse selection in new car leasing and reasons for aftermarket monopolization

comovements in national stock market returns evidence of predictability but not cointegration abstract this paper is a response to the literature that tests for cointegration between national stock market indices it argues that apparent findings of cointegration in other studies may often be due to the use of asymptotic rather than small sample critical values in fact economic theory suggests that cointegration is unlikely to be observed in efficient markets however this paper finds evidence for the predictability of relative returns and the existence of a winner loser effect across 16 national equity markets a conclusion is that national stock market indices include a common world component and two country specific components one permanent and one transitory

advertising learning and consumer choice in experience good markets an empirical examination this article empirically analyzes different effects of advertising in a nondurable experience good market a dynamic learning model of consumer behavior is presented in which i allow both informative effects of advertising and prestige or image effects of advertising this learning model is estimated using consumer level panel data tracking grocery purchases and advertising exposures over time empirical results suggest that in this market advertising s primary effect was that of informing consumers the estimates are used to quantify the value of this information to consumers and evaluate the welfare implications of an alternative advertising regulatory regime

the timing and magnitude of retail store markdowns evidence from weekends and holidays we examine daily prices of eight goods at seventeen retail stores collected in ann arbor michigan over a four month period from november 1 to february 28 we focus on weekly and seasonal price patterns and on the frequency of price markdowns or sales there were frequent markdowns in the intensive shopping period prior to christmas and a tendency for such sales to occur on weekends we interpret these findings as evidence that a significant number of markdowns are timed to occur when shopping intensity is exogenously high we complement the imperfect information based motives for sales in the literature by contributing an additional element based on the role of bulk shopping and increasing returns in the shopping technology

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

market structure and media diversity i introduction information on news and current affairs can raise political awareness and promote a range of ideas under the assumption that unregulated media markets supply too little variety many societies have charged regulators with ensuring there are sufficient opportunities for different new and independent viewpoints diversity and that media respond to the interests of their local communities localism 1 the federal communications commission fcc has traditionally limited the amount of common and cross ownership of newspapers radio and television tv stations recently the fcc relaxed ownership rules and refocused their attention on market forces for example consumer preferences and new media such as satellite the internet and smartphone in order to achieve their diversity and localism goals given the increase in choices through new media supporters of greater ownership concentration argue that traditional media should be free to consolidate and use the efficiencies to provide more diverse and local news programming opponents question whether such efficiencies are achievable and argue that large consolidated media corporations are not flexible enough to serve the interests of local and minority communities in this paper we estimate consumer preferences for their local news and current affairs news service described by the offerings from newspapers radio tv the internet and smartphone news service characteristics are diversity of opinion in the reporting of information coverage of multiculturalism issues amount of information on community news and events and amount of space or time devoted to advertising we use our demand estimates to calculate the impact on consumer welfare from a change in media market structure that reduces the number of independent tv stations in the market by one specifically we employ the willingness to pay wtp construct to measure the expected consumer welfare effects between the news service supplied to the consumer before the change in market structure and the service supplied after the change we focus on broadcast tv stations because they are the main news for most households and because the fcc has direct oversight of their ownership we estimate our demand model with data obtained from a nationwide survey of households during march 2011 results show that the representative consumer is willing to pay from 18 to 26 per month for an increase in diversity of opinion and slightly more for community news from a low to a medium level but only an additional 6 to 7 to move to a high level of diversity of opinion or community news the representative consumer also values an improvement in information that reflects the interests of women and minorities from low to medium 7 the representative consumer is willing to pay about 5 to avoid a change from a low to a medium level of advertising but the much higher amount of 20 to avoid a change from a medium to a high level using fcc 2011 data on media market structure we present evidence that indicates the amount of diversity localism and advertising in the news services supplied to consumers is lower in markets with one fewer independent tv station as a result the average small market i e five or fewer tv stations consumer loses 83 per month whereas the average large market i e 20 or more tv stations consumer loses 37 per month these losses are equivalent to 45 million annually for all small market households in the united states and 13 million for large market households if the change in market structure occurs in all markets aggregate losses nationwide would be about 681 million other studies have measured the relationship between information on news and current affairs and market structure flowever these studies measure supply from just one of the media sources that comprise the consumer s news service for example milyo 2007 gentzkow 2007 and gentzkow and shapiro 2010 for newspapers and siegelman and waldfogel 2001 and crawford 2007 for radio and tv

exchange rates and cash flows in differentiated product industries a simulation approach how do exchange rate changes impact firms cash flows we extend a simulation method developed in industrial organization to answer this question we use prices quantities and product characteristics for differentiated products coupled with a discrete choice framework and an assumption of price competition to estimate marginal costs for all producers using a monte carlo approach we generate counterfactual prices and profits for different levels of exchange rates we illustrate the method using the market for bottled water our results stress that even in a relatively simple market such as this one different brands face very different exchange rate risks consider a firm that produces a good in france using mainly local inputs and sells it abroad in locations that have a floating exchange rate vis a vis the euro profits and in turn the value of the firm are potentially exposed to exchange rate changes if the euro appreciates profits when measured in euros are likely to decrease how large is the decrease in profits similarly what is the impact of such an exchange rate change on the profits of an import competing firm these are the questions that a large literature on exchange rate exposure attempts to answer

what difference does dynamics make the case of digital cameras abstract when the well known blp model is applied to products with rapid technological changes and declining prices it tends to yield implausible results a sequence of increasingly sophisticated dynamic demand models most recently gowrisankaran and rysman 2009 hereafter gr have been developed to overcome these problems we apply both models to new data on the us digital camera market in addition we demonstrate that the gr model can be specified as a blp model plus an additional set of terms this suggests that a dynamic model can be estimated as a blp model plus a non parametric function which is less computationally demanding as a first step to implementing this semi parametric approach we estimate a blp model augmented with age as a proxy for the non parametric component we find that demand for digital cameras is more elastic when demand dynamics is accounted for in both the dynamic model and the blp model with the age proxy this suggests that the market is more competitive though the results are consistent with firms engaging in intertemporal price discrimination merger simulations predict the lowest price and quantity changes using the gr model

exchange rate volatility and u s monetary policy an arch application this paper examines the effect of shifts in u s monetary policy regimes on the stochastic process that generates foreign exchange rates to account for the observed behavior of the data record the author models nominal dollar exchange rates as univariate autoregressive conditional heteroskedastic processes he then tests the stability of this process across u s monetary policy regimes for four of the currencies in the sample accounting for regime shifts improves the fit of the model regime shifts also appear to diminish the degree of persistence of variance making it less likely that exchange rates are integrated in variance copyright 1989 by ohio state university press

additional information for comments on alternative models of demand for automobiles by charlotte wojcik abstract in a recent paper in this journal econ lett 68 2000 113 wojcik argues that the nested logit is likely to be superior to demand specifications we and others have used in recent empirical work we review the relevant models and their uses consider her application and find that her conclusions are incorrect

the interrelationships between u s and foreign equity market yields tests of granger causality this study examines the interrelationships between yields on the u s and several foreign market portfolios over the 1980 89 period tests of granger causality are used to investigate the effects of uni directional causality bi directional causality and contemporaneous adjustment in the determination of market rates of return the results indicate that international equity market returns are largely contemporaneously determined and the significance of contemporaneous effects varied over time uni directional and bi directional causality were found to be relatively weak

the behavior of stock prices on ldc markets abstract the paper investigates the behavior of stock prices for a group of well established and newly emerging ldc securities markets the results suggest the probability distributions to be consistent with a lognormal distribution with some securities exhibiting non stationary variance ldc markets even though not as efficient as major dc markets are quite comparable to the smaller european markets and the behavior of security prices as reported in this study appears to be generalizable for the heavily traded segments of ldc markets

product differentiation cost reducing mergers and consumer welfare cost synergies are an explicitly recognized justification for a two firm merger and empirical techniques are now widely used to assess the impact of cost reducing mergers on prices and welfare in the post merger market we show that if the merger occurs in a vertically product differentiated market then the merger will lead to a reduction in product offerings that limits the usefulness of pre merger empirical estimates indeed we further show that in such markets two firm mergers will typically lead to higher prices regardless of the merger s cost savings jel classifica tion l10 l41 differentiation des produits fusions pour reduire les couts et bien etre du consommateur les synergies de couts sont une justification explicitement reconnue pour la fusion de deux firmes et il existe des techniques empiriques vastement utilisees pour mesurer l impact des fusions visant areduire les couts sur les prix et le niveau de bien etre dans le marcheapres la fusion on montre que si la fusion se produit dans un marchede produit differencieintegreverticalement alors la fusion reduit l even tail de produits ce qui limite l utilitedes estimations empiriques faites avant la fusion de plus on montre que dans de tels marches les fusions de deux firmes finissent par engendrer des prix plus eleves quelles que soient les reductions de couts auxquelles on en arrive

competition and mergers in the retail market for toys i study competition between big box retailers k mart and wal mart and toy retailers kb toys and toys r us with the aim of estimating wal mart s effect on the profits of toy retailers using rece

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

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

measuring the effects of search costs on equilibrium prices and profits abstract this paper assesses the effects of search costs on equilibrium prices and profits using an estimated model of demand and costs in a laundry detergent market i find that some firms profits initially rise and then fall with search costs overall the magnitude and direction of the search costs effects on prices and profits are heterogeneous this is because search costs create conflicting incentives for a firm to reduce prices to attract the attention of searching consumers yet also raise prices to harvest profit from consumers who are unaware of competing products these effects can vary with the relationship between the firms actual prices and the consumers pre search beliefs about prices

mergers when firms compete by choosing both price and promotion enforcement agencies have a relatively good understanding of how to measure the loss of price competition caused by merger however when firms compete in multiple dimensions merger effects are not well understood in this paper we study mergers in industries where firms compete by setting both price and promotion and ask what happens if we mistakenly assume that price is the only dimension of competition to answer the question we build a structural model of the super premium ice cream industry where a 2003 merger between haagen dazs and dreyer s was challenged by the federal trade commission a structural merger model that ignores promotional competition underpredicts the price effects of a merger in this industry 5 instead of 12 about three fourths of the difference can be attributed to estimation bias estimated demand is too elastic with the remainder due to extrapolation bias from assuming post merger promotional activity stays constant instead it declines

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

market power and joint dominance in u k brewing market power and joint dominance are examined in u k brewing i assess unilateral and coordinated effects where the latter is equated with joint dominance and show how one can distinguish between the two econometrically the application makes use of two demand equations the nested logit of mcfadden 1978a and the distance metric of pinkse slade and brett 2002 the two equations yield very different predictions concerning elasticities and markups nevertheless although there is evidence of market power using either demand model that power is due entirely to unilateral effects in other words neither model uncovers evidence of coordinated effects tacit collusion

more evidence on the performance of merger simulations government antitrust agencies must predict the price effects of proposed mergers and chal lenge those predicted to reduce consumer wel fare merger simulation a model of oligopoly combined with demand estimates is routinely used to simulate the effects of potential merg ers gregory j werden and luke m froeb 2006 provide a survey merger simulation addresses the key question regulators must answer would a potential merger reduce consumer welfare however it requires strong assumptions on the nature of competition both before and after the merger occurs the shape of demand and mar ginal cost functions as well as the statistical assumptions necessary to consistently estimate demand given these strong assumptions and the substantial resources devoted to antitrust review it is important to evaluate the accuracy of simulation methodology this paper adds to a small literature that evaluates merger simu lation by comparing predicted price effects to retrospective estimates of the price effects of a

applied welfare economics with discrete choice models economists have been paying increasing attention to the study of situations in which consumers face a discrete rather than a continuous set of choices such models are potentially very important in evaluating the impact of government programs upon consumer welfare but very little has been said in general regarding the tools of applied welfare economics indiscrete choice situations this paper shows how the conventional methods of applied welfare economics can be modified to handle such cases it focuses on the computation of the excess burden of taxation and the evaluation of quality change the results are applied to stochastic utility models including the popular cases of probit and logit analysis throughout the emphasis is on providing rigorous guidelines for carrying out applied work this abstract was borrowed from another version of this item

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

evaluating the performance of merger simulation evidence from the u s airline industry abstract this paper uses merger simulations to predict postmerger prices for five airline mergers from the 1980s and compares these predictions with observed postmerger prices i find that standard simulation methods which measure the effect of the change in ownership on unilateral pricing incentives do not generally provide an accurate forecast by incorporating postmerger information into the model i measure the relative importance of other factors that also contributed to the observed price changes the results indicate that the unexplained component of the price change is largely accounted for by supply side effects i conclude that deviations from the assumed model of firm conduct play an important role in accounting for the differences between the predicted and observed price changes this conclusion suggests that the predictive performance of merger simulation would benefit if more flexible models of firm conduct were incorporated into the methodology

characteristics of demand for pharmaceutical products an examination of four cephalosporins we model demand for four cephalosporins and compute own and cross price elasticities between branded and generic versions of the four drugs we model demand as a multistage budgeting problem and we argue that such a model is appropriate to the multistage nature of the purchase of pharmaceutical products in particular the prescribing and dispensing stages we find quite high elasticities between generic substitutes and also significant elasticities between some therapeutic substitutes

a multivariate garch model of international transmissions of stock returns and volatility the case of the united states and canada this study examines the short run dynamics of returns and volatility for stocks traded on the new york and toronto stock exchanges the main finding is that inferences about the magnitude and persistence of return innovations that originate in either market and that transmit to the other market depend importantly on how the cross market dynamics in volatility are modeled moreover much weaker cross market dynamics in returns and volatility prevail during later subperiods and especially for canadian stocks with shares dually listed in new york implications for international asset pricing hedging strategies and regulatory policy are discussed

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

estimating market power in a two sided market the case of newspapers the newspaper industry is a two sided market the readers market and the advertising market are closely linked by inter market network externalities we estimate market power in the italian newspaper industry by building a structural model which encompasses a demand estimation

measuring the sensitivity of parameter estimates to estimation moments we propose a local measure of the relationship between parameter estimates and the moments of the data they depend on our measure can be computed at negligible cost even for complex structural models we argue that reporting this measure can increase the transparency of structural estimates making it easier for readers to predict the way violations of identifying assumptions would affect the results when the key assumptions are orthogonality between error terms and excluded instruments we show that our measure provides a natural extension of the omitted variables bias formula for nonlinear models we illustrate with applications to published articles in several fields of economics

a larger slice or a larger pie an empirical investigation of bargaining power in the distribution channel this research aims to provide insights into the determinants of channel profitability and the relative power in the channel by considering consumer demand and the interactions between manufacturers and retailers in an equilibrium model we use the nash bargaining solution to determine wholesale prices and thus how margins are split in the channel equilibrium margins are a function of demand primitives and of retailer and manufacturer bargaining power bargaining power is itself a function of exogenous retail and manufacturer characteristics the parties bargaining positions are determined endogenously from the estimated substitution patterns on the demand side the more they have to lose in a negotiation relative to an outside option the weaker the bargaining position we use the proposed bargaining model to investigate the role of the three main factors that have been blamed for the power shift from manufacturers to retailers in recent years firm size increases store brand introductions and service level differentiation in our empirical analysis of the german market for coffee we find that bargaining power varies among the different manufacturer retailer pairs this result suggests that bargaining power is not an inherent characteristic of a firm but rather depends on the negotiation partner we are able to confirm empirically previous theoretical findings that there can be cases where the slice of the pie that goes to one of the channel members may decrease but the overall pie increases and compensates for the smaller share of profits

cost pass through in differentiated product markets the case of u s processed cheese in this paper we estimate a mixed logit model for demand in the u s processed cheese market the estimates are used to determine pass through rates of cost changes under different behavioral regimes we find that under collusion the pass through rates for all brands fall between 21 and 31 while under nash bertrand price competition the range of pass through rates is between 73 and 103 the mixed logit model provides a more flexible framework for studying pass through rates than the logit model since the curvature of the demand functions depends upon the empirical distribution of consumer types

should further mergers be allowed product differentiation and merger in the external audit market the external audit market in us is a market with noticeable features a highly concentrated market various choice patterns of auditors and the sequential mergers of big auditors over time there has been growing concern about the impact of mergers and the increasing market concentration using a flexible multinomial probit model and micro level data on over 3000 public companies this article investigates production differentiation and merger in the external audit service market between the big four accounting firms based on the estimation results of the demand estimates a model of post merger conduct is then used to simulate the competitive effects of a merger the results suggest that merger effects on prices in this market are not significant with no larger than 3

demand for differentiated durable products the case of the u s computer printer market i introduction this paper aims to provide a theoretical and empirical description of consumer behavior in a dynamic market for differentiated durable goods the computer hardware industry serves as an example of the type of market we consider markets for computer systems and components as well as for many other high technology products exhibit some striking similarities that are of particular concern for an empirical economist as follows products are differentiated in multiple dimensions in addition to price products are durable yielding consumption services over multiple periods product quality rapidly improves over time empirical work on estimating differentiated product demand systems has been dominated by static discrete choice models with random utility see berry levinsohn and pakes 1995 goldberg 1995 and nevo 2001 among others however markets for durable goods exhibit several features at odds with their assumption of myopic consumer behavior first traditional static discrete choice models implicitly assume that consumers participate in the market every period choosing one of the available products or an outside option thus the fraction of consumers who do not buy any product in a given period could only be explained by the high value they assign to the outside alternative for durable goods however purchases are made infrequently and result in a consumer s exiting the market for a significant period of time hence the model needs to account for consumers outflow from the market arising from their purchase decisions second a static framework may give a misleading picture of the aggregate sales time pattern in a dynamic industry in many markets for durable products it is not uncommon to see rapidly improving product quality and falling prices given any reasonable set of consumer preferences over the product characteristics space static discrete choice models for such an industry will tend to predict an upward trend in aggregate sales this fails to account for a variety of patterns commonly seen in the data third the evolution of product quality leads to the possibility of intertemporal demand substitution by forgoing a current purchase the consumer retains the option to buy a potentially better product in the future hence the decision of when to buy may be just as important for consumers as the decision of what to buy this trade off cannot be accounted for in the static framework the purpose of this paper is to remedy these shortcomings of static discrete choice models in durable goods markets with particular attention paid to technological change and the dynamics of new products adoption the paper presents a dynamic model of consumer demand for differentiated durable products that explicitly accounts for consumers expectations of future product quality and consumers outflow from the market that arises endogenously from their purchase decisions in this model the consumer faces a sequence of static discrete choice problems over a non stationary choice set we show that for a subclass of random utility models which include the multinomial logit and the mcfadden 1978 generalized extreme value gev model there exists a scalar valued sufficient statistic that determines the value of the option to postpone the purchase this allows us to model industry evolution over a vastly reduced state space and to formalize the consumer s decision of when to buy as an optimal stopping problem a solution to that problem defines the hazard rate of product adoptions while the nested discrete choice model determines the alternative specific purchase probabilities integrating individual decisions over the population distribution generates rich dynamics of aggregate and product level sales the paper proceeds to present monte carlo evidence that ignoring the time dimension of consumer choice will induce a downward bias in the estimates of consumer preferences over quality sometimes reversing the sign of the coefficients

the welfare effects of restricted hospital choice in the us medical care market summary managed care health insurers in the usa restrict their enrollees choice of hospitals to within specific networks this paper considers the implications of these restrictions a three step econometric model is used to predict consumer preferences over health plans conditional on the hospitals they offer the results indicate that consumers place a positive and significant weight on their expected utility from the hospital network when choosing plans a welfare analysis assuming fixed prices implies that restricting consumers choice of hospitals leads to a loss to society of approximately 1 billion per year across the 43 us markets considered this figure may be outweighed by the price reductions generated by the restriction copyright 2006 john wiley sons ltd

tiered co payments pricing and demand in reference price markets for pharmaceuticals health insurance companies curb price insensitive behavior and the moral hazard of insureds by means of cost sharing such as tiered co payments or reference pricing in drug markets this paper evaluates the effect of price limits below which drugs are exempt from co payments on prices and on demand first using a difference in differences estimation strategy we find that the new policy decreases prices by 5 percent for generics and increases prices by 4 percent for brand name drugs in the german reference price market second estimating a nested logit demand model we show that consumers appreciate co payment exempt drugs and calculate lower price elasticities for brand name drugs than for generics this explains the different price responses of brand name and generic drugs and shows that price related co payment tiers are an effective tool to steer demand to low priced drugs

airline code share alliances and their competitive effects abstract code share alliances have become a prominent feature in the competitive landscape of the airline industry however policy makers are extremely hesitant to approve proposed code share alliances when the potential partners route networks have significant overlap the main concern is that an alliance may facilitate price collusion on partners overlapping routes this article shows how policy makers can use a structural econometric framework to quantify the competitive effects of proposed code share alliances where potential alliance partners compete on overlapping routes in the prealliance industry as an example i apply the econometric model to the delta continental northwest alliance this proposed alliance was initially greeted with skepticism by the u s department of transportation owing to the potential partners unprecedented level of route network overlap for the markets considered in my analyses it appears as though the ultimate approval of the alliance by policy makers was justified

international listings of stocks the case of canada and the u s the globalization of financial markets has seen ever increasing numbers of firms choosing to list their stocks on foreign exchanges we examine whether the extent of economic and financial market integration or segmentation between a firm s home country and listing country influences stock price reaction by examining the case of two similar countries the u s and canada during the 100 days before the week of interlisting in the u s risk adjusted stock prices of canadian firms rise on average by over 9 4 rise by an additional 2 around the interlisting date but follow with a corresponding drop of 9 7 in the 100 days after interlisting we interpret this evidence to be consistent with the financial market segmentation between canada and the u s however a subsample of canadian resource firms does not exhibit these stock price effects suggesting industry related factors may also be an important determinant of integration we also find average trading volume in interlisted stocks more than doubles in the months following interlisting

estimation of random coefficient demand models two empiricists perspective we document the numerical challenges we experienced estimating random coefficient demand models as in berry levinsohn and pakes 1995 using two well known data sets and a thorough optimization design the optimization algorithms often converge at points where the first and second order optimality conditions fail there are also cases of convergence at local optima on convergence the variation in the values of the parameter estimates translates into variation in the models economic predictions price elasticities and changes in consumer and producer welfare following hypothetical merger exercises vary at least by a factor of 2 and up to a factor of 5

the gains from merger or collusion in product differentiated industries a merger in an industry with differentiated products increases the market power of the merging firms to the extent that their products are close substitutes and that other firms produce only more distant substitutes such a merger makes the residual demand curve of each partner steeper by shifting each in the direction of the industry demand curve 2 the extent of this increase in market power depends upon the own elasticity of demand for each merging firm s product as well as the cross elasticity of demand for each with all other firms products as a result evaluating the effect of a merger between two firms with n 2 other competitors would seem to require the estimation of at least n2 parameters all of the price elasticities of demand a formidable task that extremely difficult estimation task is unnecessary however the necessary information is contained in the slopes of the two single firm residual demand curves before the merger and the extent to which the merged firm will face a steeper demand curve for example suppose a merger between two u s brewing firms say pabst and anheuser busch were proposed it is not particularly important to determine whether it is competition from miller or competition from stroh or from heileman or which puts the most effective brake on anheuser busch s pricing only the total effect of these other firms and the particular effect of competition from pabst are of interest this paper proposes econometric procedures for estimating the demand system that merger partners will face based only on pre merger data the key to the procedures is that the effects of all other firms in the industry are summed together formally we start with a model of an n firm product differentiated industry manipulation of the model removes the prices and quantities of all but two firms this reduces the dimensionality of the problem to manageable size rather than an n firm demand system we estimate a two firm residual demand system in this way the technique extends our econometric method for

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

estimation of a model of entry in the airline industry this paper considers the effect of an airline s scale of operation at an airport on the profitability of routes flown out of that airport the empirical methodology uses the entry decisions of airlines as indicators of underlying profitability the results extend the empirical literature on airport presence by providing a new set of estimates of the determinants of city pair profitability these estimates imply that city pair profits increase in airport presence and decrease rapidly in the number of entering firms the literature on empirical models of oligopoly entry is also extended via a focus on the role of differences between firms

supermarket choice and supermarket competition in market equilibrium multi store firms are common in the retailing industry theory suggests that cross elasticities between stores of the same firm enhance market power to evaluate the importance of this effect in the u k supermarket industry we estimate a model of consumer choice and expenditure using three data sources profit margins for each chain a survey of consumer choices and a data set of store characteristics to permit plausible substitution patterns the utility model interacts consumer and store characteristics we measure market power by calculating the effect of merger and demerger on nash equilibrium prices demerger reduces the prices of the largest firms by between 2 and 3 8 depending on local concentration mergers between the largest firms lead to price increases up to 7 4

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

estimating multiple discrete choice models an application to computerization returns buyers in many markets face multiple discrete choices they can purchase multiple units as well as multiple brands at the same time this paper presents a multiple discrete choice model for the analysis of differentiated products demand users maximize profits by choosing the number of units of each brand they purchase i estimate the model using micro level data on the demand for personal computers i use the estimated demand structure to assess the welfare gains from computerization and technological innovation in peripherals the estimated return on investment in personal computers is 92 moreover a 10 increase in the performance to price ratio of microprocessors leads to a 2 2 gain in the estimated user surplus the personal computer pc market is of interest to industrial organization economists because of its size the continual technological change and above all because of the farreaching implications of pcs on the economy as a whole several distinct features make pc demand difficult to model pcs are a differentiated durable good in constant technological evolution moreover buyers make multiple discrete choices firms according to our data spread their purchases of pcs over different brands at the same time they buy pcs in blocks several units of each brand that they have chosen the aim of the paper is to present a model that captures these features and to use this model to estimate the welfare gains from computerization classical discrete choice models allow one choice among mutually exclusive alternatives in contrast the proposed framework allows users to demand multiple units and multiple brands the model can be applied to other cases of multiple discrete choices e g the composition of airline fleets car holdings per household the fields of the faculty in economics departments household cereals consumption or any other good consumed in more than one variety during a relevant time period although pervasive multiple discrete choice problems have received little attention because of their complexity a central issue regarding the pc market is the current controversy in the economics literature about the computerization puzzle this puzzle stems from the empirical finding that computerization has had no effect on firm productivity griliches and siegel 1991 and morrison and berndt 1990 contrary to those results hendel 1994 and lichtenberg 1995 using more disaggregate data than most previous studies report excess returns to computerization this indicates that data aggregation may have created the computerization puzzle in this paper i present a model consistent with the basic

structure and performance global interdependence of stock markets around the crash of october 1987 using a new data source on share price indices this paper finds no evidence that the substantial variations in the reactions to the crash of october 1987 across countries are related to the structure of markets however trading halts and capital controls on residents may have moderated the speed of declines in some markets the paper also examines one measure of interlinkages between markets the trading of foreign stocks on domestic markets and finds this to be closely related to interdependence between markets

choice inconsistencies among the elderly evidence from plan choice in the medicare part d program comment consumers enrollment decisions in medicare part d can be explained by abaluck and gruber s 2011 model of utility maximization with psychological biases or by a neoclassical version of their model that precludes such biases we evaluate these competing hypotheses by applying nonparametric tests of utility maximization and model validation tests to administrative data we find that 79 percent of enrollment decisions from 2006 to 2010 satisfied basic axioms of consumer theory under the assumption of full information the validation tests provide evidence against widespread psychological biases in particular we find that precluding psychological biases improves the structural model s out of sample predictions for consumer behavior

one is almost enough for monopoly it has been argued that two factors product durability and potential entry may force a monopolist to price at marginal cost this article shows that when these two forces coexist the tendency toward competition may be negated first we prove that durable goods oligopolists without commitment powers may attain joint profits arbitrarily close to those of a monopolist with perfect commitment power second we demonstrate that the presence of a potential entrant may enable a durable goods monopolist to act as if he had commitment power thus potential as well as actual entry may restore monopoly power

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

choice set heterogeneity and the role of advertising an analysis with micro and macro data abstract the authors show how to use microlevel survey data from a tracking study on brand awareness in conjunction with data on sales and advertising expenditures to improve the specification estimation and interpretation of aggregate discrete choice models of demand in a departure from the commonly made full information assumption they incorporate limited information in the form of choice sets to reflect that consumers may not be aware of all available brands at purchase time they find that both the estimated brand constants and the price coefficient are biased downward when consumer heterogeneity in choice sets is ignored these biased estimates can lead firms to make costly price setting mistakes in addition the tracking data enable the authors to identify separately two processes by which advertising influences market shares they find that advertising has a direct effect on brand awareness inclusion in choice set in addition to its effect on consumer preferences increase in utility this

the welfare impact of hmo mergers abstract this paper estimates the welfare consequences of hmo mergers using data from california s small group market the analysis estimates the parameters from a differentiated products demand system the parameters are then used to simulate the effects of several hmo mergers by solving for the nash equilibrium in prices under different ownership structures even small mergers in moderately concentrated markets can result in significant consumer surplus reductions however these welfare losses can be offset by large efficiency gains the welfare consequences of hmo mergers turn less upon demand side considerations than on the health plan s ability to realize efficiencies

the persistence of volatility and stock market fluctuations this paper examines the potential influence of changing volatility in stock market prices on the level of stock market prices it demonstrates that volatility is only weakly serially correlated implying that shocks to volatility do not persist these shocks can therefore have only a small impact on stockmarket prices since changes in volatility affect expected required rates of return for relatively short intervals these findings lead us to be skeptical of recent claims that the stock market s poor performance during the 1970 s can be explained by volatility induced increases in risk premia this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

demand estimation and merger simulations for drugs logits v aids abstract we use adhd drugs sales data from 2000 2003 and compare estimates of elasticities and merger simulations from three different demand models models include logit random coefficients logit and conditional aids demand model with multistage budgeting the magnitude of cross price elasticities is larger in the third model in comparison to the first two and some of the cross price elasticities are estimated to be negative hypothetical merger simulations show larger price effects for the multistage aids model in comparison to the discrete choice models

a structural approach to market definition with an application to the hospital industry a structural approach to market definition market definition is essential to merger analysis because no standard approach to market definition exists opposing parties in antitrust cases often disagree about the extent of the market these differences have been particularly relevant in the hospital industry where the courts have denied seven of eight merger challenges since 1994 due largely to disagreements over geographic market definition we compare geographic markets produced using common ad hoc methodologies to a method that directly applies the ssnip test to hospitals in california using a structural model our results suggest that previously employed methods overstate hospital demand elasticities by a factor of 2 4 to 3 4 and define larger markets than would be implied by the merger guidelines s hypothetical monopolist test the use of these methods in differentiated product industries may lead to mistaken geographic market delineation and was likely a contributing factor to the permissive legal environment for hospital mergers

measuring volatility persistence in the presence of sudden changes in the variance of canadian stock returns it is well known that volatility persistence is overestimated if regime shifts are not accounted for in the standard garch model this research detects time periods of sudden changes in variance using the iterated cumulated sums of squares icss algo rithm using weekly data for the canadian stock market indicates that after accounting for endogenously determined volatility shifts in the garch model the estimated persistence in volatility is significantly reduced this casts some doubt on previous findings that volatility in financial markets is highly persistent the findings have impor tant implications for investors and financial market participants jel classification g1

liberalizing a distribution system the european car market we quantify the competitive effects of liberalizing the selective and exclusive distribution system in the european car market based on a model of oligopoly pricing with differentiated products we consider two possible competitive effects from liberalization i the creation of international intrabrand competition cross border trade which will result in a reduction of international price discrimination and ii a possible cumulative effect arising from a strengthening of national intrabrand competition which would result in reduced double marginalization we find that the reduction in international price discrimination mainly redistributes consumer gains across countries it has a positive but modest effect on total welfare if liberalization also has the cumulative effect of reducing double marginalization the welfare effects are much higher finally we find that the effects of liberalization on the manufacturers profits are either small or positive this finding implies that international price discrimination and softening competition through a double marginalization mechanism should not be interpreted as main profit motives for the previous distribution system but only as unintended side effects hence the industry rationale for maintaining the previous distribution system should be sought in other areas jel f15 l42

international portfolio diversification with estimation risk international portfolio diversification has long been advocated as a way of enhancing average returns while reducing portfolio risk for the investor who considers diversifying into foreign securities this proposition however relies on the assumption that the required inputs to the classical mean variance analysis are known with certainty typically expected returns variances and covariances are simply replaced by their ex post sample values and the optimal portfolio is derived without mentioning the uncertainty inherent in these parameter values but the rational investor should take this uncertainty into account when forming expectations and probably will consider estimators that are less subject to estimation error than the classical sample mean this paper investigates alternative estimators of expected returns and their implications for the alleged gains from diversification an important observation is the crucial influence that errors in estimating expected returns have on portfolio analysis a closer examiprevious studies of international portfolio diversification have relied on ex post meanvariance analysis without considering the problem of estimation risk typically past averages are substituted for expected returns and no allowance is made for the uncertainty inherent in these parameter values first i demonstrate the shortcomings of such an approach and second i investigate another method of estimating expected returns initially proposed by stein by shrinking the sample averages toward a common mean i find that the out of sample performance of the optimal portfolio is substantially increased one of the implications of this method is that the classical conclusions vastly overestimate the possible gains in average returns instead benefits from diversification are more likely to accrue from a reduction in risk this paper draws on part of my dissertation at the university of chicago i am grateful to arnold zellner michael mussa george constantinides and especially john bilson for useful discussions and comments numerous improvements were also suggested by the referee this research received the generous financial support of the college interuniversitaire d etudes doctorales dans les sciences du management

quantifying the effects from horizontal mergers comments on the underlying assumptions in our paper published in this issue we measured the effects of the proposed volvo scania merger we first estimated an oligopoly model with product differentiation and then used the parameter estimates to compute the post merger equilibrium and the implied price and welfare changes under various alternative scenarios in section 4 4 of our paper we discussed what we view as the most important sources of concern regarding our empirical analysis in part based on the comments from the experts hired by volvo during the case the hausman leonard hl paper elaborates in more detail on the specific points raised by the experts during the case in this note we respond to these points

capital controls and international capital market segmentation the evidence from the japanese and american stock markets the paper focuses on two countries japan and the u s to test the integration of capital markets in japan the enactment of the foreign exchange and foreign trade control law in december of 1980 amounted to a true regime switch that virtually eliminated capital controls using multifactor asset pricing models we show that the price of risk in the u s and japanese stock markets was different before but not after the liberalization this evidence supports the view that governments are the source of international capital market segmentation the notion that world capital markets are perfectly integrated is central to most theoretical developments in both international finance and macroeconomics indeed it also lies behind much of the recent international policy discussion capital markets are integrated if assets with perfectly correlated rates of return have the same price regardless of the location in which they are traded 1 segmentation may arise either because of government impediments to capital movements or because of individuals attitudes or irrationality if the hypothesis that the international capital markets are integrated is rejected there is still an important empirical question left unanswered which is related to the source of segmentation while there is a rich body of theoretical research on international market integration only a few studies have tried to investigate this important question empirically a first group of empirical studies on market integration has generally adopted

a markov model of switching regime arch in this article i present a new approach to model more realistically the variability of financial time series i develop a markov arch model that incorporates the features of both hamilton s switching regime model and engle s autoregressive conditional heteroscedasticity arch model to examine the issue of volatility persistence in the monthly excess returns of the three month treasury bill the issue can be resolved by taking into account occasional shifts in the asymptotic variance of the markov arch process that cause the spurious persistence of the volatility process i identify two periods during which there is a regime shift the 1974 2 1974 8 period associated with the oil shock and the 1979 9 1982 8 period associated with the federal reserve s policy change the variance approached asymptotically in these two episodes is more than 10 times as high as the asymptotic variance for the remainder of the sample i conclude that regime shifts have a greater impact on the properties of the data and i ca

partial identification and mergers this paper discusses policy choice under ambiguity in the context of merger simulation we do so by incorporating the uncertainty about post merger conduct into a simple merger simulation model we isolate the problem of uncertainty regarding post merger conduct by working with a simple conduct parameters model in the spirit of bresnahan 1982 and lau 1982 we then apply manski s 2011 analysis and discuss policy choice under the maxmin minimax regret and expected utility criteria

persistence in variance structural change and the garch model this article examines the persistence of the variance as measured by the generalized autoregressive conditional heteroskedasticity garch model in stock return data in particular we investigate the extent to which persistence in variance may be overstated because of the existence of and failure to take account of deterministic structural shifts in the model both an analysis of daily stock return data and a monte carlo simulation experiment confirm the hypothesis that garch measures of persistence in variance are sensitive to this type of model misspecification

academic journal pricing and the demand of libraries the prices of for profit academic journals have increased rapidly over the past decade barbara albee and brenda dingley 2001 there remains substantial debate as to the explanation for these increases among those put forward are the increased concentration of the journal industry see e g mccabe 2002 and the relatively recent effort by major publishers to bundle print and electronic journals aaron s edlin and rubinfeld 2004 while both explanations are undoubtedly important what is missing is the significant role of the primary customers of journal publishers the academic libraries as agents of college and university faculties libraries serve the interests of their principals while having only limited information about faculty journal demands facing little or no hard budget constraint faculty are unlikely or unwilling to make difficult allocative choices as a result libraries have been making hard choices for years between journals and books and among journals in a world of increasing budgetary pressure given that electronic transmission of knowledge is becoming increasingly important an understanding of the reasons for the increases in journal prices is a vital element in the ongoing discussion of best mechanisms by which scholarly communications can be disseminated in this paper we formulate a model of library journal demand and suggest how it can be used to analyze the optimal pricing of journals by publishers this represents part of a larger project whose long range goal is to explain the pattern of journal pricing over time and to evaluate two broad policy questions i to what extent have mergers and or bundling practices been responsible for the increase in journal prices ii to what extent are journal prices likely to change in response to changing library acquisition strategies reallocation of budgets between serials and books journal sharing among libraries setting hard budgets etc

gains from international diversification 1968 85 returns on portfolios of stocks and bonds this paper applies the multi period investment model to a universe of international securities on the basis of the simple probability assessment approach our principal findings are 1 the gains from including non u s asset categories in the universe were remarkably large in some cases statistically significant especially for the highly risk averse strategies 2 the gains from removing the no leverage constraint were more substantial than they were in the absence of non u s securities and 3 there is strong evidence of market segmentation in that the optimal levels of investment in u s securities were mostly zero in the presence of the non u s asset categories