the internationalisation of stock markets and the abolition of u k exchange control this paper aims to assess the impact of the abolition of u k exchange control on the degre of integration of u k and overseas stock markets using cointegration techniques we find that although there is no significant increase in the correlation of short run stock market returns for the united kingdom and certain overseas markets post 1979 there does appear to be a marked increase in the degree to which these markets move together in the long run after this date there appears to be no long run gain from diversification since cointegration of two variables implies that at least one of them can be used to help forecast the other our findings also imply the inefficiency of a number of stock markets

price search and periodic price discounts this paper empirically investigates the interplay between buyer search behavior and firm pricing strategy in a commodity market where many firms compete in price to sell homogeneous products we use the heterogeneity in buyer search cost to rationalize why a firm offers periodic price discounts and enjoys a high profit in such a market an estimation method is proposed to recover the nonparametric distribution of buyer search cost from the price and transaction volume data with both data we show that the search cost distribution can be estimated nonparametrically in a sequential search model and estimation results from a nonsequential search model are robust to the assumption on the maximum number of searches we also show that the commonly observed high low pricing strategy can be an optimal strategy for firms when buyers search for price information sequentially as an empirical application we use the proposed method to estimate the two search models using data on a commodity product sold by a firm

sticky prices and deviations from the law of one price evidence from mexican micro price data abstract this paper uses a novel dataset of weekly sampled store level prices to study the impact of sticky prices on the volatility and persistence of intranational deviations from the law of one price lop the volatility of lop deviations is found to be increasing both on the distance separating two locations and on the degree of price stickiness sticky prices are also found to be systematically related to the persistence of lop deviations half lives of lop deviations are systematically larger for goods with stickier prices these observations are shown to accord well with the predictions of a dynamic general equilibrium model featuring real market segmentation and calvo pricing i also find evidence of remarkably fast convergence to the lop average half lives of lop deviations are in the order of 3 6 weeks and show that previously reported convergence estimates may be afflicted by a positive temporal aggregation bias

equilibrium price dispersion with sequential search abstract the paper studies equilibrium pricing in a product market for an indivisible good where buyers search for sellers buyers search sequentially for sellers but do not meet every seller with the same probability specifically a fraction of the buyers meetings lead to one particular large seller while the remaining meetings lead to one of a continuum of small sellers in this environment the small sellers would like to set a price that makes the buyers indifferent between purchasing the good and searching for another seller the large seller would like to price the small sellers out of the market by posting a price that is low enough to induce buyers not to purchase from the small sellers these incentives give rise to a game of cat and mouse whose only equilibrium involves mixed strategies for both the large and the small sellers the fact that the small sellers play mixed strategies implies that there is price dispersion the fact that the large seller plays mixed strategies implies that prices and allocations vary over time we show that the fraction of the gains from trade accruing to the buyers is positive and nonmonotonic in the degree of market power of the large seller as long as the large seller has some positive but incomplete market power the fraction of the gains from trade accruing to the buyers depends in a natural way on the extent of search frictions

discrete equilibrium price dispersion an explicit solution of an equilibrium model with price setting firms and searching customers makes possible a number of comparativestatics predictions about how cost differences among firms search costs of customers and taxes will affect the mean and variance of the distribution of market prices another implication of the model is that a firm s demand depends on the difference between its price and the average price in the market

price dispersion and loss leader pricing evidence from the online book industry in this paper we develop a theoretical model to analyze the pricing strategies of competing retailers with asymmetric cross selling capabilities when product demand changes our results suggest that retailers with better opportunities for cross selling have higher incentives to adopt loss leader pricing on high demand products than retailers with low cross selling capabilities as a result price dispersion of a product across retailers rises when its demand increases the predictions of our model are consistent with the empirical evidence from the online book retailing industry using product breadth as a proxy for cross selling capability we find that retailers with high cross selling capabilities reduce prices on best sellers more aggressively than retailers with low cross selling capabilities as a result price dispersion increases when a book makes it to the best seller list and the increase is mainly driven by the difference in pricing behavior between retailers with different cross selling capabilities our empirical results are robust against a number of alternative explanations

maximum likelihood estimation of search costs abstract in a recent paper hong and shum 2006 using price distributions to estimate search costs rand journal of economics 37 257 275 present a structural method to estimate search cost distributions we extend their approach to the case of oligopoly and present a new maximum likelihood method to estimate search costs we apply our method to a data set of online prices for different computer memory chips the estimates suggest that the consumer population can be roughly split into two groups which either have quite high or quite low search costs search frictions confer a significant amount of market power to the firms despite more than 20 firms operating in each of the markets we estimate price cost margins to be around 25 the paper also illustrates how the structural method can be employed to simulate the effects of the introduction of a sales tax

exchange controls and european stock market integration this paper examines the impact on stock price predictability that the removal of exchange controls had on major european countries during the late 1970s and 1980s it is found that for germany switzerland and france the removal of exchange controls led to an increase in the interdependence between these and other markets in contrast there is little evidence of an increase in interdependence for the uk and italy

price dispersion in the small and in the large evidence from an internet price comparison site this paper examines four million daily price observations for more than 1 000 consumer electronics products on the price comparison site http shopper com we find little support for the notion that prices on the internet are converging to the law of one price in addition observed levels of price dispersion vary systematically with the number of firms listing prices the difference between the two lowest prices the gap averages 23 per cent when two firms list prices and falls to 3 5 per cent in markets where 17 firms list prices these empirical results are an implication of a general clearinghouse model of equilibrium price dispersion

george stigler s contribution to the economic analysis of regulation george stigler changed the way economists analyze government regulation this enormous legacy is essentially embodied in two articles his 1962 analysis of electricity rates with claire friedland and his 1971 theoretical piece there were to be sure precursors and successors in his own work but none of them so profoundly affected the course of intellectual inquiry as these two the importance of both articles rests more i believe with the questions each posed than with the answers even by the standards of the day neither piece evinced the sort of technical sophistication that the profession has come to admire neither produced conclusions that were impervious to all serious subsequent challenges but both produced insights that have altered the course of research in the area to this day to understand stigler s contribution it is best to proceed chronologically and to begin with the state of the field around 1962 there is room here only for caricature rather than extensive survey however i think it is fair to say that the field derived its main energy from the normative economics of marginal cost pricing the proper role of government was to correct the private market failures that prevented attainment of marginal cost pricing applied economic analysis of regulation was then largely descriptive and its main tendency was to show how the regulatory institutions constrained departures from marginal cost pricing monopoly was viewed as the main barrier to marginal cost pricing and the natural monopoly occupied center stage in the economics of regulation the prime examples of natural monopoly were sup1 man made monopolies were the main subject matter of industrial organization stigler s profound influence on this field is summarized by harold demsetz s article in this issue

price dispersion and inflation evidence from israel the paper considers the question whether observed price differentials reflect perceived differences in quality service agreements or location or whether information imperfections can explain this phenomenon it sets out theoretical arguments linking inflation to reductions in the information stock held by agents and thus to greater price dispersion the hypothesis is tested using monthly price data for 13 uniquely defined goods sold in israel between 1971 and 1984 price dispersion is shown to be positively related to the rate of market price inflation since inflation is an unlikely proxy for changes in perceived characteristics the findings support price dispersion theories based on optimally imperfect decision making

price dispersion in the lab and on the internet theory and evidence price dispersion is ubiquitous in settings that closely approximate textbook bertrand competition we show that only a little bounded rationality among sellers is needed to rationalize such dispersion a variety of statistical tests based on datasets from two independent laboratory experiments and structural estimates of the parameters of our models suggest that bounded rationality based theories of price dispersion organize the data remarkably well evidence is also presented to suggest that the models are consistent with data from a leading internet price comparison site

price dispersion in an automobile insurance market from automobile insurance data for alberta over the period 1974 81 we find thatpremiums are highly correlated across driver classes in a given year but that premiums for a given driver class are not correlated over a period of more than 5 years firms relative market shares among drivers over age 25 and married males under 25 are inversely related to their deviations from the mean premiums in these driver classes the variance of real premiums decreases with the numberof firms in the market and increases with the real loss cost per car insured and the number of cars insured from these results we conclude that the price dispersion in automobile insurance in alberta is based on costly consumer search

number of sellers average prices and price dispersion abstract a variety of models provide differing predictions regarding the effect of an increase in the number of competitors in a market seller density on prices and price dispersion we review different approaches to generating equilibrium price dispersion and then empirically estimate the relationship between seller density average product price and price dispersion in the retail gasoline industry using four unique gasoline price data sets controlling for station level characteristics we find that an increase in station density consistently decreases both price levels and price dispersion across four geographical areas

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

when do consumers search this paper provides empirical evidence relating search to price movements we measure consumer search directly from traffic statistics for web sites that report gasoline prices we show empirically that consumers search more as prices rise than they do when prices fall asymmetric search patterns have consequences for price behavior our findings indicate that retail margins are squeezed by increased search in addition we show that there is more price dispersion when prices are falling than when prices are either stable or rising our results provide a search based explanation for the rockets and feathers phenomenon of asymmetric price adjustment

search market equilibrium bilateral heterogeneity and repeat purchases abstract we develop a general model of search market equilibrium with heterogeneous buyers and sellers this framework unifies previous models with one sided heterogeneity and clarifies many of their special properties it easily accounts for price dispersion active search and the matching of buyer and seller types it also extends to repeat purchases once we embed it into a dynamic game with incomplete information we formalize the inferences and strategies underlying equilibria where firms charge constant prices and customers patronize them loyally we establish a general correspondence between such equilibria and single purchase markets journal of economic literature classification numbers d83 l13

motivations for market restructuring evidence from u s electricity deregulation abstract the purpose of this paper is to examine whether electricity restructuring was brought about due to the public interest theory that regulatory changes are undertaken to benefit society or the interest group theory that groups hoping to gain from deregulation lobby for regulatory changes from 1996 to 2002 eighteen states developed restructuring programs targeted at improving efficiency through the use of increased wholesale trading abolition of cost of service regulation measures to open electricity production to non utility entities and the unbundling of transmission and distribution results indicate some evidence of the public interest theory and strong evidence of the interest group theory

equilibrium price dispersion in retail markets for prescription drugs this study seeks to establish the empirical importance of price dispersion due to costly consumer search by examining retail prices for prescription drugs posted prices in two geographically distinct markets are shown to vary considerably across pharmacies within the same market even after one controls for variation due to pharmacy differences pharmacy heterogeneity accounts for at most one third of the observed price dispersion the empirical analysis hinges on the observation that consumers incentives to price shop depend on characteristics of the drug therapy cross sectional patterns in price distributions across drugs are consistent with the predictions of a search model prices for repeatedly purchased prescriptions for which the expected benefits of search are highest exhibit significant reductions in both dispersion and price cost margins

the adoption of state electricity regulation the role of interest groups this paper examines the adoption of state electricity regulation around the beginning of the 20th century i model this decision as a hazard rate to determine what influenced the adoption of state regulation i find that adoption is positively correlated with capacity shortages greater wealth and lower residential electricity penetration rates these results suggest that state regulation responded to regulatory inefficiencies and residential consumer interests in addition adoption rates were higher in states that had a strong industrial and coal mining presence these results are consistent with the interest group and contracting theories of regulation states began replacing municipal regulation of electric utilities with state regulation in 1907 despite the long history surprisingly little is known about the causes of the regime shift in this paper i estimate a hazard model that defines the probability of adopting state regulation as a function of variables that measure the potential benefits and costs of a number of interest groups the shortage of installed capacity and concurrent levels of electricity prices and profits the results shed light on which theories of regulation are most consistent with the data i find evidence that is consistent with the interest group theory of regulation which began with peltzman 1976 and the contracting theory of regulation attributed to priest 1993 the interest group theory of regulation centers around private interest group competition regulators respond to the pressures of interest groups one testable implication of the interest group theory is that if state regulation benefited a certain class of consumers such as residential consumers at the expense of another class of consumers the

is it enough evidence from a natural experiment in india s agriculture markets access to information and communication technologies icts such as mobile phone networks is widely known to improve market efficiency in this paper we examine whether access to timely and accurate information provided through ict applications has any additional impact using a detailed data set from reuters market light rml a text message service in india that provides daily price information to market participants we find that this information reduces the geographic price dispersion of crops in rural communities by an average of 12 over and above access to mobile phone technology and other means of communication to identify the effect of information on price dispersion we exploit a natural experiment where bulk text messages were banned unexpectedly across india for 12 days in 2010 we find that besides reducing geographic price dispersion rml also increases the rate at which prices converge across india over time we discuss the implications of this for development organizations and informat

implications of ownership regulation and market structure for performance evidence from the u s electric utility industry before and after the new deal this study evaluates the impact of variations in regulation ownership and market structure in the u s electric utility industry during the period surrounding the new deal when considerable institutional variation provided a natural experiment for analysis a simultaneous equations model of electricity supply and demand is developed and estimated for the years 1930 and 1942 with firm and market level data collected on utilities serving cities of population 50 000 or more the paper offers evidence that regulation public ownership and competition served to reduce electricity prices and enhance allocative efficiency during the period under examination

the effect of medicare part d on pharmaceutical prices and utilization prescription drug expenditures represent the most rapidly growing component of health care spending increasing from 5 percent of health care spending in 1980 to more than 10 percent by 2005 centers for medicare and medicaid services cms 2007a further almost 60 percent of all prescriptions in the united states are filled for beneficiaries of medicare medicaid and other government programs rapid innovation in new pharmaceuticals has contributed substantially to quality of life and longevity in the us frank lichtenberg 1996 these facts combined indicate that government procurement schemes are critical both in determining government expenditure on pharmaceuticals and in stimulating innovation of new treatments in this paper we show that the institutions and mechanisms used by the government to pur chase prescription drugs can strongly affect market outcomes by institutions we have in mind large buyer groups structured incentives for patients to consume certain products and the devel opment and use of formularies a formulary is a mechanism that allows a buyer to identify a therapeutically similar treatment as a viable substitute for a patented treatment and to create price competition due to the ability to substitute away from the more expensive product when bargaining with the seller of a patented product the ability to shift demand to a substitute drug is a powerful negotiating tool our paper provides evidence for what we consider a surprising outcome in the case of the new prescription drug program for medicare enrollees moving consumers from cash paying status to membership in an insured group lowers optimal prices for branded prescription drugs below what they otherwise would be this is surprising because the standard effect of insurance is to create inelastic demand and therefore elicit higher prices from a seller with market power duggan and scott morton 2006 however the insurers that we study bundle insurance with a formulary and other mechanisms to create elastic demand an individual consumer typically does not know which drugs are acceptable therapeutic substitutes the consumer s physician typi cally has poor knowledge of prices especially negotiated prices and any one consumer is too small a share of demand to negotiate with a pharmaceutical company a prescription drug plan can potentially surmount all three hurdles our evidence leads us to conclude that the formulary and other mechanisms perform the spe cial role of allowing buyers to move market share among drugs with patent protection thereby raising cross price elasticities and lowering purchase prices or reducing price increases for branded drugs this result contrasts with the common intuition that an uninsured consumer

price dispersion and demand uncertainty evidence from u s scanner data i use the prescott 1975 hotels model to explain variations in price dispersion across items sold by supermarkets in chicago the effect of demand uncertainty on price dispersion is highly significant and quantitatively important my estimates suggest that more than 40 of the cross sectional standard deviation of log prices is due to demand uncertainty i also find that price dispersion measures are negatively correlated with the average price but are not negatively correlated with the revenues from selling the good across stores and weeks and with the number of stores that sell the good temporary sales are modeled as a reaction to unwanted inventories that are accumulated when the realization of demand is low the effect of demand uncertainty on the frequency of temporary sales is also highly significant and quantitatively important items with more demand uncertainty tend to accumulate unwanted inventories more often and tend to have temporary sales more often

output consumption and the stock market implications for european convergence this paper investigates the nature of the relationship between output and stock prices and consumption and stock prices with respect to the different financial structures that exist primarily in the european union eu evidence is found of a long run relationship for both relationships with the exception of germany and to an extent france which is argued is due to their bank dominated financial systems kalman filter estimates reveal that both relationships have increased in strength although little evidence is found of any convergence in the strength of the relationship across the eu