expanding demand through price advertisement abstract retail stores frequently advertise prices when consumer search is costly advertising low prices expands the number of consumers who visit and buy we show that this demand enhancement may offset a retailer s loss in margins from the low price making advertisement desirable we further show that a multi product monopolist may choose to advertise low prices only for select products even when advertised and non advertised products are substitutes for duopolist retailers at a common location an equilibrium exists in which for some range of advertising costs one store advertises and the other free rides on its competitor

the strategic implications of scale in choice based conjoint analysis choice based conjoint cbc studies have begun to rely on simulators to forecast equilibrium prices for pricing strategic product positioning and patent copyright valuations whereas cbc research

british bus deregulation competition and demand coordination abstract our framework formally explains some of the recent curious events surrounding deregulation of the british local bus industry the winner takes all nature of this market induces competitive providers to engage in predatory or preemptive behavior in scheduling and pricing unlike previous works we explicitly model consumers responses to firms schedule announcements we show that the market is unstable if demand is uncoordinated but stable otherwise our results highlight the important role played by demand coordinating mechanisms in local bus markets and our results suggest that pure strategy nash equilibria exist in models a la hotelling 1929 whenever demand is effectively coordinated

coalition building in a spatial economy abstract we analyze the possibility and consequences of coalition formation among suppliers of retail services we first provide a framework in which producers of substitutes have an incentive to cluster in marketplaces to attract consumers dispersed in space owing to spatial externalities the resulting spatial equilibrium can be welfare suboptimal we characterize regimes in which we find too little and those in which there is too much agglomeration of firms we analyze the role of coalitions of firms e g initiated by a land developer in this framework and show that such coalitions can overcome the suboptimality of the decentralized spatial allocation

extended generalized purchasing power parity and optimum currency area in east asian countries this article extends the theory of generalized purchasing power parity g ppp by developing a model including foreign variables such as the real money supply output and interest rate a cointegration rank test with two structural breaks in the deterministic trend was adopted to selected asian countries with japan as the base country there were two cointegrating vectors and six common stochastic trends in the model the cointegrating vectors were estimated by the same approach used by pesaran et al 2000 the first cointegrating vector is interpreted as g ppp and the second one is interpreted as the extended g ppp according to g ppp these countries could form a single currency area the first stochastic trend is primarily driven by japan s real money supply the second third and fourth by the real exchange rates of the philippines singapore and thailand respectively the fifth by japan s output and the sixth by japan s government bond yields

multinomial logit market share models equilibrium characteristics and strategic implications we specify and analyze the conditions under which the mnl market share models are appropriate for equilibrium analysis our results show that a linear price response function as is often used in empirical research in conjunction with the typical concavity assumed in a large range of marketing response functions would yield an interior equilibrium solution we then consider the optimal reactions on pricing and marketing spending to entry and potential market expansion in the context of the mnl models we demonstrate that the entry of a new brand evokes a decrease in the equilibrium prices of the existing brands as a defensive reaction this is true in both an expanding market as well as a fixed market however while new entry into a fixed market would trigger the incumbents to lower the marketing expenditure we show that firms tend to raise marketing activities as they experience market expansion consequently there exist distinct possibilities that marketing efforts for the existing brands increase in view of entry in an expanding market further managerial and marketing implications for endogeneity of the number of firms are explored

boundedly rational nash equilibrium a probabilistic choice approach we propose an equilibrium for n person finite games based on bounded rationality using the legit model of discrete choice theory at equilibrium each player uses appropriate choice probabilities given those used by the others rationality is parameterized on a continuum from complete rationality to uniform random choice results on the existence of equilibrium and on convergence to nash as rationality becomes perfect are similar to results due to mckelvey and palfrey we identify conditions such that for a given rationality parameter range the path of choices over time when the players use fictitious play converges to equilibrium c 1997 academic press

firm mobility and location equilibrium two types of location equilibria are compared the first one is that of a simultaneous price and location game the second is that of a two stage location then price game it is suggested that equilibrium locations are further apart under the second and profits are higher since firms internalize the harmful price competition effect of moving close to each other the paper introduces a nonpurchase option into the logit model of spatial competition and the sensitivity of the equilibrium is analyzed

investment incentives in procurement auctions this paper investigates firms incentives to invest in cost reduction in the first price sealed bid auction a format largely used for procurement two central features of the model are that we allow firms to be heterogeneous and that investment is observable we find that firms will tend to underinvest in cost reduction because they anticipate fiercer head on competition using the second price auction as a benchmark we also find that the first price auction will elicit less investment from market participants and that this is socially inefficient these results have implications for market design when investment is important different market institutions provide different incentives for firms to reduce costs acquire information expand and so on in short to undertake any activity that affects their competitive positions accordingly the performance of these market institutions should be judged not only from a static perspective taking firms competitive positions as given but also from a dynamic perspective auction markets are a natural competitive environment to study because there is a clear sense in which we can design such markets by choosing appropriate rules for competition in this paper we study how the first price auction fpa a format commonly used for procurement affects firms incentives to invest in cost reduction many procurement markets are characterized by a small number of participants heterogeneity among firms and low rates of turnover therefore it is interesting to investigate to what extent the format used for the auction contributes to these characteristics the basic ingredients of our model are as follows there are n firms and one of them has the opportunity prior to the auction to make an investment we model this investment as an improvement in the ex ante distribution of costs for this firm the main question we ask is what are the firm s incentives to invest given that this investment is observed by its competitors clearly the benefits of such investment depend on how the firm s competitors react in other words to determine the firm s incentive to invest we need to compare the equilibrium at the procurement stage if it makes this investment and if it does not in section 3 we derive new comparative statics results for the fpa we find that after the investment the investor s opponents will bid collectively more aggressively this result holds generally when there are only two bidders or when the investor s opponents are symmetric proposition 1 otherwise a sufficient condition is that investment changes market leadership proposition 2 in the language of industrial organization investment has a negative strategic effect in the fpa this erodes 1

do real exchange rates contain a unit root evidence from turkish data this study explores whether the long run purchasing power parity ppp hypothesis holds for selected real exchange rates from turkish economy during the period 1982m1 2003m12 in addition to conventional unit root tests five different unit root test procedures have been applied including efficient point optimal tests extended m tests and gls detrended variants of df tests to four monthly real exchange rate series defined in terms of both producer and consumer price indices the countries analysed are the usa the uk germany and italy which are major trade partners of turkey mixed evidence is found for the long run ppp hypothesis when real exchange rate is defined in terms of german dm and italian lira however the empirical analysis reveals that the ppp hypothesis holds strongly in the long run for the uk and us based real exchange rates series using either ppi or cpi in corroboration with other studies in the literature the bias correlated half life estimates suggest relatively faster speeds of

endogenous quality differentiation in congested markets firms selling a product with congestion externalities to a heterogeneous population of customers have an incentive to offer differentiated levels of quality in a price competitive market differentiation arises endogenously through the prices chosen by firms in equilibrium firms offer a range of prices which induce an efficiency improving range of quality levels and allow customers to self select their preferred price quality combinations additional results suggest that with many firms in the market the choice of prices dominates the choice of service capacities in determining congestion levels copyright 1991 by blackwell publishing ltd

efficiency and surplus bounds in cournot competition we derive bounds on the ratios of deadweight loss and consumer surplus to producer surplus under cournot competition to do so we introduce a parameterization of the degree of curvature of market demand using the parallel concepts of concavity and convexity the more concave is demand the larger the share of producer surplus in overall surplus the smaller is consumer surplus relative to producer surplus and the lower the ratio of deadweight loss to producer surplus deadweight loss over total potential surplus is at rst increasing with demand concavity then eventually

the principle of minimum differentiation holds under sufficient heterogeneity the so called principle of minimum differentiation stated by hotelling has been challenged by many authors this paper restores the principle by showing that n firms locate at the center of the market and charge prices higher than the marginal cost of production when heterogeneity in consumers tastes is large enough

industrial loans and market structure abstract based on the observation that financing is one of the main obstacles to create new firms this paper deals with the interactions between the market structure of both the banking sector and the borrowing industries we consider that firms installation costs are financed by means of industrial loans from specialized banks with endogenous entry in banking activity as well as in the borrowing industry we find that a natural oligopoly emerges in both sectors if the entry cost in the industrial sector is small enough relative to the banks entry cost

price matching policy and the principle of minimum differentiation this paper shows that if duopolists are allowed to choose their product locations a price matching policy and their prices sequentially and independently both tacit collusion and minimum differentiation occur copyright 1995 by blackwell publishing ltd

purchasing power parity and unit root tests using panel data abstract this paper reports the results of unit root tests for real exchange rates using a panel framework this panel approach provides greatly improved power compared to conventional univariate time series unit root tests we obtain evidence supporting ppp over the recent flexible exchange rate period for g 6 and oecd countries we show explicitly that failure to find such evidence in previous research was due to the low power of the tests

vintage production models of u k manufacturing industry vintage production models for the u k are extended to cover hours worked as a separate element of labour input the main purpose of the analysis is then to ascertain whether the output of manufacturing as measured by some index can be satisfactorily explained as a simple stable function of a small number of input aggregates

on the analysis of asymmetric first price auctions we provide a new set of tools for studying asymmetric rst price auctions connecting their equilibria to the concavity of the underlying type distributions and showing how one can use surplus expressions related to symmetric auctions to bound equilibrium behavior in asymmetric auctions we apply these tools to studying procurement auctions in which as is common in practice one seller is given an advantage re ecting for example better reliability or quality we show conditions under which for any given rst price handicap auction there is a second price auction with bonuses that outperforms it with most of our results involving ex post dominance

aggregation and social choice a mean voter theorem a celebrated result of black 1948a demonstrates the existence of a simple majority winner when preferences are single peaked the social choice follows the preferences of the median voter the median voter s most preferred outcome beats any alternative however this conclusion does not extend to elections in which candidates differ in more than one dimension this paper provides a multi dimensional analog of the median voter result we provide conditions under which the mean voter s most preferred outcome is unbeatable according to a 64 majority rule the conditions supporting this result represent a significant generalization of caplin and nalebuff 1988 the proof of our mean voter result uses a mathematical aggregation theorem due to prekopa 1971 1973 and borell 1975 this theorem has broad applications in economics an application to the distribution of income is described at the end of this paper results on imperfect competition are presented in the companion paper caplin and nalebuff 1991

the recent slowdown of productivity growth the slowdown of productivity growth in the developed countries during the seventies will in this paper be viewed as a combined effect of three closely interacting forces i a long term deterioration in the efficiency and flexibility of some basic mechanisms of the economic and political systems of these countries ii the fading away of a number of uniquely favourable circumstances for productivity growth during the fifties and sixties and iii the exposure of these economies to unusually severe macroeconomic disturbances in the seventies careful inspection of time series with attempted modifications for cyclical factors suggests that there was hardly any general slowdown of productivity growth among developed countries before approximately i972 4 1 as we know the situation is radically different since then labour productivity growth per year for the entire national economy gdp per man hour seems to have fallen between the periods i960 73 and i973 9 by about i 2 percentage points in the united states 45 by about 24 percentage points in western europe2 45 and by about 5 9 percentage points in japan 6o table i see also fig i the slowdown was of about the same size in the business and manufacturing sectors see table i to calculate the extent of the slowdown of total factor productivity growth is of course a much more hazardous matter to which i will return later if just the various system changes and the fading away of the uniquely favourable factors had been the dominating forces behind the productivity growth slowdown we would expect the slowdown to have been gradual rather than abrupt as it turned out to be this abruptness as well as its timing makes the dramatic macroeconomic disturbances around i972 4 a prime suspect when looking for the villain behind the productivity growth slowdown indeed it is a basic hypothesis of the paper that these macroeconomic disturbances were not only by themselves strongly unfavourable for productivity growth but that they also revealed and accentuated the gradual deterioration of the

the interrelationship between price and output decisions and investment decisions microfoundations and aggregate implications abstract this paper develops a model of firm behavior in which both price and output decisions and investment decisions are made the model permits an analysis of the dynamics of inventory and capital accumulation on price and output behavior there are two main results 1 short run price and output levels will differ from long run levels as desired stocks of inventory and capital diverge from actual levels 2 the size of the elasticities of price and output to changes in demand and cost variables depends on the speed with which gaps between desired and actual stocks are closed through investment

are real exchange rates nonstationary evidence from a panel data test it is well documented that real exchange rates between the united states and many industrialized countries in the post bretton woods period are integrated this result implies that purchasing power parity ppp does not hold even as a long run relationship this paper demonstrates that the failure to reject the unit root hypothesis may result from the low power of existing univariate test procedures i test for unit roots in real exchange rates by employing a more powerful panel based procedure using both cpi and wpi real dollar exchange rate data i strongly reject the null hypothesis of a unit root my results provide overwhelming support for the long run ppp under the current float copyright 1996 by ohio state university press

exchange rates policy convergence and the european monetary system in this paper we use a recently developed multivariate cointegration technique to analyze the degree of policy convergence of ems member relative to that of some non ems countries interestingly we find convergence for the nominal and real exchange rates and money supplies of the ems members but not for the non ems countries we also provide some evidence to support the german leadership hypothesis in the context of intra ems monetary policy convergence which accords with anecdotal evidence on the modus operandi of the ems

existence and computation of mixed strategy nash equilibrium for 3 firms location problem location problems of firms on a closed interval were introduced by hotelling 3 and later investigated by eaton lipsey 2 firms sell a homogeneous product at a fixed price customers distributed along the interval buy one unit each from the firm nearest to them and firms aim to maximize the number of their customers it is well known that where the customers are evenly distributed along the interval and the number of firms is other than 3 the location problem has a pure strategy nash equilibrium see 2 the case of 3 firms is peculiar in that no pure strategy nash equilibrium exists for in any situation one of the extreme firms not located between the other two can increase its revenue by either moving towards or away from the other two firms the existence of mixed strategies is not obvious because the payoff functions are discontinuous whenever two or more firms are located at the same point in a recent paper dasgupta and maskin 1 investigate a class of games all derived from economic problems and all with some discontinuities in their payoff functions they demonstrate that the discontinuities in the payoff functions do not prevent the existence of mixed strategies nash equilibria in the games investigated in particular location problems of the type described earlier have such weak discontinuities and hence possess a mixed strategy nash equilibrium although their proof is constructive offering a method of approaching these equilibria as a limit of equilibria of finite games the equations involved very quickly become unmanageable in this note we compute a mixed strategy nash equilibrium for the 3 firms location problem let the customers be evenly distributed along 0 1 then a mixed strategy is a probability measure over 0 1 the symmetry of the problem suggests that the solution will be doubly symmetric in that all firms choose the same mixed strategy and that this strategy is symmetric around symmetric locations are given the same probabilities dasgupta and maskin confine their analysis to doubly symmetric solutions and prove that the strategies in any doubly symmetric equilibrium are atomless given the symmetric nature of the game and following the analysis of dasgupta and maskin we shall confine ourselves here to such doubly sym

a strategic analysis of flexible manufacturing systems abstract in this paper a game theoretic model is presented by which investment in flexible manufacturing systems fms is analyzed if the investment in this innovative production system is viable due to either revenue enhancements or cost reductions the result is a competition for the first move among similar firms in an oligopolistic industry as a result the schumpeterian hypothesis of investment in a technological innovation occuring within an industry by swarms appears to apply to fms diffusion empirical evidence supporting the results of the theoretical analysis is presented

a location model with preference for variety we propose a new location model where consumers are allowed to make multiple purchases i e one unit from each firm this model may fit many markets e g newspapers credit cards better than existing models a common feature of these markets is that some consumers are loyal to one brand while others consume more than one product our model yields predictions consistent with this observation if firms are allowed to choose their locations on the interval then spatial differentiation may not be maximal and in some cases it may even be minimal thus under certain conditions we restore hotelling s principle of minimum differentiation

the effects of macroeconomic stability on foreign trade an analysis for spain 1986 2000 two main factors underlie the rebirth of interest in the study of the influence of the real exchange rate on trade the reduction of its volatility and the current trend towards price stability the objective of this study is to analyse the effects of the process of nominal convergence required of the european member states for the fulfilment of monetary integration on foreign trade flows the case of spain which is especially interesting in this context is studied for the period 1986 to 2000 the results of estimating the aggregate functions of the export and import of goods shows how macroeconomic stability has altered the behaviour of trade with respect to the two basic determinants income and prices how it has caused a significant structural change in the real exchange rate and finally how it has laid the explanatory bases for transactions in the twenty first century with the single currency the euro

identification in differentiated products markets using market level data we present new identification results for nonparametric models of differentiated products markets using only market level observables we specify a nonparametric random utility discrete choice model of demand allowing rich preference heterogeneity product market unobservables and endogenous prices our supply model posits nonparametric cost functions allows latent cost shocks and nests a range of standard oligopoly models we consider identification of demand identification of changes in aggregate consumer welfare identification of marginal costs identification of firms marginal cost functions and discrimination between alternative models of firm conduct we explore two complementary approaches the first demonstrates identification under the same nonparametric instrumental variables conditions required for identification of regression models the second treats demand and supply in a system of nonparametric simultaneous equations leading to constructive proofs exploiting exogenous variation in demand shifters and cost shifters we also derive testable restrictions that provide the first general formalization of bresnahan s 1982 intuition for empirically distinguishing between alternative models of oligopoly competition from a practical perspective our results clarify the types of instrumental variables needed with market level data including tradeoffs between functional form and exclusion restrictions

competition of newspapers and the location of political parties in this paper we suggest a model for an analysis of how newspapers and political parties determine their ideological orientation and how both decisions depend on each other quite naturally dissemination of information plays an important role the model is set up as a two stage game because elements of horizontal as well as vertical product differentiation are present in this model location patterns in ideology space exhibit in general neither maximal nor minimal differentiation although we keep quite close to the downs model with information as the most important distinguishing feature furthermore the model shows by way of example that economic theory can be a useful tool to investigate issues which are central to communication science

a continuous model for multistore competitive location this paper presents a simple model to determine the location strategies of two retail firms planning to open a number of stores in a geographical market firms try to maximize their profit under a leader follower type competition in which the number of stores is made endogenous by the introduction of fixed costs a novel methodology is developed in which firms strategies are defined in terms of their location densities this methodology leads to a model that is solvable analytically and to several results on competitive location strategies first it is shown that if the follower decides to enter a market he enters at least as strongly as the leader second the leader can effectively deter entry even if she is severely cost disadvantaged however in some cases the leader is better off by allowing the follower to enter the market third the leader may also let the follower enter the market in some situations where she has a cost advantage it is also shown that in situations where both firms enter the market their location strategies are quite insensitive to model parameters

hotelling s spatial competition as a model of sales abstract hotelling s spatial competition model is used to explain the existence of sales it is shown that 1 an equilibrium in randomized strategies exists when a pure strategy equilibrium fails to exist 2 with more dissimilarity among brands prices are chosen from a wider interval

balanced budget redistribution as the outcome of political competition this paper models balanced budget redistribution between socio economic groups as the outcome of electoral competition between two political parties equilibrium is unique in the present model and a sufficient condition for existence is given requiring that there be enough stochastic heterogeneity with respect to party preferences in the electorate the validity of hotelling s principle of minimum differentiation and of director s law are examined under alternative hypotheses concerning administrative costs of redistributions and voter s possibilities both of abstaining from voting and of becoming campaign activists for one of the parties the policy strategy of expected plurality maximization is contrasted with the strategy of maximizing the probability of gaining a plurality incomes are fixed and known so lump sum taxation is feasible however constraints on tax transfer differentiation between individuals are permitted in the analysis

a meta analysis of multibrand multioutlet channel systems in today s multibrand multichannel marketplace optimal channel design involves issues such as distribution intensity channel exclusivity vertical and horizontal coordination and online offline mixed structures we investigate how a firm s choice in these design issues affects its profitability under varying levels of brand and outlet differentiation our spatial model explicitly captures heterogeneous consumer preference for brand position store location and outlet type under various consumer behavior assumptions we apply this same underlying model to 10 different channel structures deriving associated demand functions and equilibrium solutions we perform a meta analysis over the entire set of results to estimate a general model that summarizes the linkages among the factors shaping optimal channel structure decisions in a multibrand multioutlet market this general model efficiently describes the complex interactions of channel characteristics with industry structure and consumer characteristics providing new findings as well as greater clarity to some results in the literature a predictive analysis applied to additional channel structures exhibits strong generalizability in qualitative findings

monopoly price discrimination and demand curvature this paper presents a general analysis of the eects of monopolistic third degree price discrimination on welfare and output when all markets are served su cient conditions involving straightforward comparisons of the curvatures of the direct and inverse demand functions in the dierent mar kets are presented for discrimination to have negative or positive eects on

product differentiation and location decisions under demand uncertainty we investigate hotelling s duopoly game of location then price choices with quadratic transportation costs and uniformly distributed consumers under the assumption that firms are uncertain about the exact location of demand we characterize the unique equilibrium and the socially optimal locations contrary to the individual level random utility models location uncertainty is a differentiation force in equilibrium increases in the variance of the uncertainty lead to greater differentiation higher expected equilibrium prices and profits and a greater welfare loss

spatial price and variety competition in an urban retail market abstract we develop a nested logit model of spatial competition in retail markets consumers choose stores on the basis of price variety and transport cost three games are considered a price game a variety game and a combined price and variety game the videocassette rental market in edmonton alberta is used for illustration centrally located stores set lower prices and higher varieties than stores on the market periphery prices in the price and price variety games are nearly identical despite large differences in varieties similarly equilibrium varieties in the price variety game are similar to varieties in the variety game

real exchange rate behavior the recent float from the perspective of the past two centuries using annual data spanning two centuries for dollar sterling and franc sterling real exchange rates we find strong evidence of mean reverting real exchange rate behavior using simple stationary autoregressive models estimated on prefloat data we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float such stationary univariate equations explain 60 80 percent of the in sample variation in real exchange rates although the degree of short run persistence may be high the econometric estimates imply a half life of shocks to the real exchange rate of about 6 years for dollar sterling and a little under 3 years for franc sterling

product and price competition in a two dimensional vertical differentiation model in this paper the one dimensional vertical differentiation model shaked and sutton shaked a j sutton 1982 relaxing price competition through product differentiation rev econom stud 49 3 13 moorthy moorthy k s 1988 product and price competition in a duopoly marketing sci 7spring 141 168 is extended to two dimensions and an analysis of product and price competition is presented a two stage game theoretic analysis in which two firms compete first on product positions and then on price is conducted closed form equilibrium solutions are obtained for each stage in which competitors are unrestricted in their choices of price or product positions a significant finding of this research is that unlike the one dimensional vertical differentiation model firms do not tend towards maximum differentiation although this solution is possible under certain conditions when the range of positioning options on each of the dimensions is equal maxmin product differentiation occurs that is in equilibrium the two firms tend to choose positions which will represent maximum differentiation on one dimension and minimum differentiation on the other dimension

second mover advantage and price leadership in bertrand duopoly we consider the issue of first versus second mover advantage in differentiated product bertrand duopoly with general demand and asymmetric linear costs we generalize existing results for all possible combinations where prices are either strategic substitutes and or complements dispensing with common extraneous and restrictive assumptions we show that a firm with a sufficiently large cost lead over its rival has a first mover advantage for the linear version of the model we invoke a natural endogenous timing scheme coupled with equilibrium selection according to risk dominance the analysis yields as the unique equilibrium outcome sequential play with the low cost firm as leader

symmetric equilibrium existence and optimality in differentiated product markets abstract equilibrium existence and optimality are analysed in a market for products differentiated by their variety a game of three stages is analysed firms enter in the first stage choose varieties in the second stage and choose prices in the third stage the existence of subgame perfect equilibria is established at equilibrium products are symmetrically located in the space of characteristics and are offered at equal prices the surplus maximizing solution is characterized and it is shown that surplus maximizing product diversity is lower than the equilibrium one

discrete choice and variable returns to scale in previous studies of the probabilistic theory of qualitative choice e g marschak 1960 and mcfadden 1974 it has been assumed that an individual chooses among various alternatives with their utility levels independent of the number of individuals who choose each alternative there are however many examples in which the utility of a choice depends on the number of individuals who make the same choice for instance the utility of a given spatial choice may depend upon the number of others who choose neighboring locations neighborhood utility may decrease crowding or it may increase agglomerative economies with population size a second example is the automobile traveler s choice of routes the benefit of one route choice over another due to congestion depends on the number of drivers who choose the same route both of the examples suggested above deal with spatial choices of a particular kind but there are even examples from the more traditional macroeconomic theory one such example is of a product produced under variable returns to scale by a number of different sellers the price that each seller charges will depend upon the number of his customers if a buyer must choose to purchase from only one seller the price paid and thus utility will depend upon the total number of buyers choosing the same seller in all of the examples cited a reasonable model of choice is one that postulates uncertainty about the actual utility of each alternative the point of view is that a chooser s notional utility about each choice is a random variable in this case it is not certain which alternative will be chosen but the chosen alternative is the one with the greatest perceived utility it follows therefore that the probability that a given alternative is chosen is the probability that the utility perceived to be associated with it is larger than the utility perceived to be associated with any other alternative

limit theorems for estimating the parameters of differentiated product demand systems we provide an asymptotic distribution theory for a class of generalized method of moments estimators that arise in the study of dierentiated product markets when the number of observations is associated with the number of products within a given market we allow for three sources of error sampling error in estimating market shares simulation error in approximating the shares predicted by the model and the underlying model error it is shown that the estimators are can provided the size of the consumer sample and the number of simulation draws grow at a large enough rate relative to the number of products we consider the implications of the results for berry levinsohn and pakes 1995 random coecient logit model and the pure characteristic model analyzed in berry and pakes 2002 the required rates dier for these two frequently used demand models a small monte carlo study shows that the dierence in asymptotic properties of the two models are reflected in quite a striking way in the models small sample properties moreover the limit distributions provide a good approximation to the actual monte carlo distribution of the parameter estimates the results have important implications for the computational burden of the two models

purchasing power parity under the european monetary system abstract using reduced rank cointegration analysis this study examines whether exchange rate realignments are effective in extenuating the deviations from purchasing power parity ppp under the european monetary system ems in contrast to previous studies more positive evidence for the ppp hypothesis is found the difference in findings can be attributed partly to the statistical technique used the correction of the finite sample bias and the adjustment for realignment effects in general the results of this study support that currency realignments of the ems have been effective in maintaining ppp among its member countries

stationarity of the european real exchange rates evidence from panel data this paper employs a panel unit root test for the real exchange rates of 13 eu member countries the estimation period covers the ems period from 1980 1 to 1992 2 in contrast with the earlier panel unit root studies concerning purchasing power parity ppp effective real exchange rates are used as a result the non stationarity of the real exchange rate was rejected however the half life of the real exchange rate adjustment turned out to be long potential reasons for this might be the relatively short estimation period and the nature of the data

taxes and agglomeration economies how are they related to nonprofit firm location author affiliation teresa d harrison department of economics drexel university 3141 chestnut street philadelphia pa 19104 usa tharrison drexel edu1 introductionnonprofits are an ever increasing component of the u s economy from 1997 2001 employment growth in the nonprofit sector averaged 2 5 outpacing both the business 1 8 and the government sectors 1 6 moore 2004 much of this growth stems from new nonprofits yet few studies have investigated possible determinants of nonprofit entry and location decisions most of these studies focus on demand side factors wolch and geiger 1983 downes and greenstein 1996 bielefeld murdoch and waddell 1997 for example downes and greenstein 1996 focus on demographic and religious characteristics of the surrounding community and its relation to private school location in this paper i use firm level data and focus on potentially important supply side variables tax rates and agglomeration economies most nonprofits are exempt from corporate sales and property taxes hansmann 1987 and gulley and santerre 1993 find evidence that higher corporate property and sales taxes are positively related to nonprofit market share however market share measures obfuscate the dynamics of the industry in terms of entry and exit rates if market share for nonprofits increases in response to higher tax rates this could be because new nonprofits are entering or because for profits are leaving the industry identifying these two cases is impossible with market share data using nonprofit tax return data i examine the relation between these tax exemptions and state county location decisions of new nonprofits to my knowledge this is the first paper to study these interactions at the individual firm level nonprofits also receive tax favored status due to the individual tax deduction on charitable contributions gentry and penrod 1998 employees of and donors to the nonprofits will be affected by the individual tax rates this in turn alters the costs to the nonprofit of location in a high or low tax area unlike previous studies i therefore investigate the relation between individual marginal tax rates and nonprofit location another potential supply side determinant of firm location decisions is the existing firm concentration in the area the potential economies of scale generated by proximity to other firms have been extensively examined in for profit industries 1 previous studies have generally found a positive relation between agglomeration and location carlton 1983 bartik 1985 woodward 1992 gius and frese 2002 rosenthal and strange 2003 to my knowledge bielefeld et al 2004 is the only study that examines nonprofit agglomeration finding evidence of agglomeration in dallas texas this warrants additional examination because nonprofit output is generally service driven and less mobile thus agglomeration implies greater direct competition making market saturation a larger issue in the nonprofit market using a nationwide dataset i examine how location and existing firm concentration are related and explore the potential presence of market saturation i also investigate possible differences between inter and intra industry agglomeration my results provide new insight into nonprofit firm behavior in most cases higher tax rates are associated with new firm location but the results for corporate and property taxes vary across the sample years i find that individual tax rates are an important consideration for nonprofits and are positively correlated to location my analysis also contributes to the literature by examining how the sensitivity to tax rates varies according to the sources of revenues for the institution firms that depend highly on individual donations are more likely to locate in high individual tax states while nonprofits with large mission related revenues are more sensitive to the property tax rate

a note on information revelation in procurement auctions abstract this paper is about a procurement auction setting introduced in gal or gal or and dukes 2007 in which suppliers offer differentiated products and the buyer needs to decide whether to reveal or not to the suppliers the own preferences for the various products we provide some technical remarks and complements to the analysis of gal or gal or and dukes 2007 and an extension to the case of risk averse suppliers

the economics of product variety a survey demand for variety may arise from a taste for diversity in individual consumption and or from diversity in tastes even when each consumer chooses a single variant the full degree of variety potentially demanded will not in general be supplied because scale economies even to a small degree mean that the potential welfare or revenue gain from greater variety must be balanced against the lower unit production costs with fewer variants the economics of product variety consists essentially in analysing the effect of this balance in different situations and comparing the degree of product variety for different market structures with each other and with the optimum the survey commences with the work on market structures with single product firms generalized monopolistic competition tracing modern developments in both the chamberlinian and hotelling traditions the latter has been particularly fruitful due to the expansion of the original locational ideas into virtual spaces in product characteristics the emphasis in recent work on product variety has been on multiproduct firms in both monopolistic and oligopolistic structures including strategic market preemption although most work has been in a full information context there have been advances in product variety under imperfect information either by consumers to properties of the firms products or firms as to consumers demands

equilibrium vertical differentiation in a bertrand model with capacity precommitment both quality differentiation and capacity commitment have been shown to relax price competition however their joint influence on the outcome of price competition has not yet been assessed in this article we consider a three stage game in which firms choose quality then commit to capacity and finally compete in price when the cost of quality is negligible we show that firms do not differentiate their products in a subgame perfect equilibrium in other words capacity precommitment completely eliminates the incentive to differentiate by quality

the logit model of monopolistic competition brand diversity one of the important issues in the literature on monopolistic competition concerns whether the free entry equilibrium will provide sufficient variety of differentiated brands this paper examines variety issue using the logit choice model to capture brand differentiation the consumption value of each brand is drawn from the extreme value distribution and the consumer then purchases the brand with the highest value with the resulting demand structure the authors find that monopolistic competition results in two few firms and thus too few brands from the viewpoint of consumers this result supports the findings of other models with symmetrically differentiated brands copyright 1990 by blackwell publishing ltd

bidding for the future signaling in auctions with an aftermarket abstract this paper considers auctions where bidders compete for an advantage in future strategic interactions when bidders wish to exaggerate their private information equilibrium bidding functions are biased upwards as bidders attempt to signal via the winning bid signaling is most prominent in second price auctions where equilibrium bids are above value in english and first price auctions signaling is less extreme since the winner incurs the cost of her signaling choice the opportunity to signal lowers bidders payoffs and raises revenue when bidders understate their private information separating equilibria need not exist and the auction may not be efficient

costly buyer search in a differentiated products model an experimental study this study examines whether the content of buyer information and the timing of its dissemination affects seller market power we construct laboratory markets with differentiated goods and costly buyer search in which sellers simultaneously post prices the experiment varies the information on price or product characteristics that buyers learn under different timing assumptions pre and postsearch generating four information treatments theory predicts that price information lowers the equilibrium price but information about product characteristics increases the equilibrium price that is contrary to intuition the presence of informed buyers may impart a negative externality on other uninformed buyers data support the model s negative externality result when sellers face a large number of robot buyers that are programmed to search optimally observed prices conform to the model s comparative statics and are broadly consistent with predicted levels with human buyers however excessive search instigates increased price competition and sellers post prices that are significantly lower than predicted

competition among institutions abstract economic theory offers two different approaches to the analysis of group formation and the role of institutions general equilibrium approach explores the influence of the economic environment on formation of coalitions game theory explores the influence of institutional rules on equilibrium outcomes we introduce an integrative approach an institution s policy depends on its membership while its membership depends on the policies of all the institutions we present three distinct mathematical approaches to these models highlighting the algebraic nature of the question of existence of equilibrium our apparatus cover many economic and political environments including cases with multiple dimensions and multiple institutions journal of economic literature classification numbers c62 d50 d71 d72 h11 h40 r13 r53

evidence on ppp for selected asian countries from a panel cointegration test with structural breaks the goal of this article is to examine evidence for purchasing power parity ppp for a panel of asian countries namely malaysia thailand india pakistan sri lanka and the philippines our main contribution is that for the first time in this literature we use a panel cointegration test developed by westerlund 2006 which allows us to incorporate multiple structural breaks we find that using gregory and hansen s 1996 residual based test for cointegration and pedroni s 1999 panel cointegration test without structural breaks provide weak evidence of cointegration between nominal exchange rates vis a vis the us dollar and relative prices however when we use the lagrange multiplier panel structural break cointegration test we find strong evidence of panel cointegration providing evidence for ppp

dynamic price competition with network effects i consider a dynamic model of competition between two proprietary networks consumers die and are replaced with a constant hazard rate and firms compete for new consumers to join their network by offering network entry prices i derive a series of results pertaining to a existence and uniqueness of symmetric equilibria b monotonicity of the pricing function e g larger networks set higher prices c network size dynamics increasing dominance vs reversion to the mean and d firm value how it varies with network effects finally i apply my general framework to the study of termination charges in wireless telecommunications i consider various forms of regulation and examine their impact on firm profits and market share dynamics

consumer heterogeneity and strategic quality decisions though recent studies show that quality differentiation is an equilibrium outcome products of similar qualities frequently are observed in the marketplace this inconsistency may be explained by incorporating consumer heterogeneity along unobservable attributes into a model of competition in this paper consumers not only take into account the quality and price of a product but also their heterogeneous tastes along other attributes which are unobservable to firms we investigate the effect of heterogeneity along the unobservable attributes on both quality and price equilibrium in a two stage game framework we show that when consumers are sufficiently heterogeneous along the unobservable attributes the firms offer products of identical qualities in equilibrium under low levels of heterogeneity along the unobservable attributes however our results are consistent with past research which argues for quality differentiation

near optimality of second price mechanisms in a class of asymmetric auctions consider a setting with n sellers having i i d costs with log concave density f from cumulative f and a buyer who puts a premiumi on procuring from seller i we show how for any given 1 n a sim ple second price bonus auction can be chosen which comes surprisingly close to giving the auctioneer the same surplus as an optimal mecha nism the bonuses depend only on the magnitude and monotonicity of the slope of virtual costs given f we show that these in turn depend only on fairly coarse information about f we explore how this result generalizes to asymmetrically distributed costs abstract

a panel project on purchasing power parity mean reversion within and between countries abstract previous time series studies have shown evidence of mean reversion in real exchange rates deviations from purchasing power parity ppp appear to have half lives of approximately four years however the long samples required for statistical significance are unavailable for most currencies and are potentially inappropriate because of regime changes in this study we re examine deviations from ppp using a panel of 150 countries and 45 annual post wwii observations our panel shows strong evidence of mean reversion that is similar to that from long time series ppp deviations are eroded at a rate of approximately 15 annually i e their half life is around four years such findings can be masked in time series data but are relatively easy to find in cross sections

spatial price discrimination with heterogeneous products product heterogeneity is introduced into the context of spatial price discrimination many of the strong properties of the standard homogeneous goods case which are attained as a limit case here are shown to be no longer valid in particular the social optimum is no longer sustainable as a market equilibrium unless products are either identical or else very different

competitive positioning in markets with nonuniform preferences we investigate the nature of competitive equilibrium for brands competing in a multi attribute product space when consumer preferences for product attributes follow nonuniform distributions we establish subgame perfect equilibria in a two stage game where firms choose positions in the first stage and prices in the second stage two types of entry scenarios are investigated in the first the number of brands is given exogenously and all of them choose positions simultaneously in the second scenario firms enter in sequence and the early entrants can choose strategies to deter the entry of later entrants we find the equilibria for two three and four brands for consumer preferences that follow a beta distribution nonuniform distributions result in equilibrium configurations that are substantially different from those obtained for uniform consumer distributions in the two brands case for sufficiently concentrated distributions we find asymmetric position equilibria with one firm at the corner of the market and one firm at an interior position in the case of three brands for sufficiently concentrated preferences we find symmetric equilibria that do not yield maximal differentiation we also establish an equilibrium for the case of four competing brands in addition we characterize entry deterring positioning strategies and examine how they vary with the distribution of consumer preferences

mean reversion in real exchange rates a modified dickey fuller test which is approximately uniformly most power invariant is employed to examine mean reversion in real exchange rates results from this test provide a wider and more significant support for mean reversion than the standard dickey fuller test

from local to global competition abstract we introduce a framework that has known models of oligopolistic competition with differentiated products the circle the logit and the ces as limit cases this integrative approach incorporates both localized and global competition as well as price sensitive individual demands it is used to explain the impact of major changes over the last two centuries reductions in transport costs increased taste for variety population growth and use of technologies with greater returns to scale we work out the properties of an extended chamberlinian model with applications both in industrial organization and economic geography

market research and innovation strategy in a duopoly we model a duopoly in which ex ante identical firms must decide where to direct their innovation efforts the firms face market uncertainty about consumers preferences for innovation on two product attributes and technology uncertainty about the success of their research and development r d investments firms can conduct costly market research before setting r d strategy we find that the value of market information to a firm depends on whether its rival is expected to obtain this information in equilibrium consequently one firm may forgo market research even though its rival conducts such research and learns the true state of demand we examine both vertical and horizontal demand structures with vertical preferences firms are a priori uncertain about which attribute all consumers will value more in this case a firm that conducts market research always attempts innovation on the attribute it discovers that consumers prefer and expends more on r d than a rival that has not conducted market research with horizontal preferences distinct segments exist each caring about innovation on only one attribute and firms are a priori uncertain how many consumers each segment contains in this case a firm that conducts market research may follow a niche strategy and attempt innovation to serve the smaller segment to avoid intense price competition for the larger segment a firm that conducts market research may therefore invest less in r d and earn lower postlaunch profits than a rival that has forgone such research

rational choice under an imperfect ability to choose we consider an individual who lacks the information processing capacity required for a direct comparison of all feasible allocations instead of finding at once a best allocation the individual myopically adjusts his current allocation toward higher utility the individual makes adjustment errors inversely proportional to his ability to choose we compare the stationary state of this process with the standard model we see how an imperfect ability to choose modifies both positive and normative predictions of the standard model and how the standard model can be obtained from our more general one as the special case corresponding to perfect ability jel d 11

demand for differentiated products discrete choice models and the characteristics approach we propose a specific characteristics framework in order to construct linkages between alternative conceptual approaches to modelling product differentiation first it is shown that a demand system which satisfies the gross substitutes property imposes specific requirements on the locations of products in particular the dimension of the characteristics space must be larger than or equal to the number of products minus one we then identify a method for casting a given demand system subject to certain restrictions into our characteristics framework this is illustrated for the logit probit and linear probability models of discrete choice theory finally we find a characteristics representation of the ces representative consumer

mass media competition political competition and public policy if better informed voters receive favourable policies then mass media will affect policy because mass media provide most of the information people use in voting this paper models the incentives of the media to deliver news to different groups the increasing returns to scale technology and advertising financing of media firms induce them to provide more news to large groups such as taxpayers and dispersed consumer interests and groups that are valuable to advertisers this news bias alters the tradeoff in political competition and therefore introduces a bias in public policy the paper also discusses the effects of broadcast media replacing newspapers as the main information source about politics the model predicts that this change should raise spending on government programmes used by poor and rural voters

testing purchasing power parity under the null hypothesis of co integration this paper analyzes monthly data on the exchange rates and price indices of the eleven major industrial countries over the modern period of floating exchange rates it presents tests that are based upon the null hypothesis of cointegration the paper finds evidence that most country pairs not involving north american currencies have exchange rates and price indices that are cointegrated it estimates the error correction representation for the series that are cointegrated and it shows that the dynamic adjustment of the relationship between exchange rates and prices is accomplished almost entirely in the market for foreign exchange copyright 1991 by royal economic society

a long run view of the european monetary system abstract this papaer analyzes the exchange rates and consumer price indices of six countries participating in the european monetary system ems during the entire period of floating exchange rates the analysis shows that most of these real exchange rates have unit roots even when one allows for the possibility of a structural break at the time of the advent of the ems further proces and exchange rates are not co integrated during the ems period the data suggest that the 12 realignments of the ems have not served fully too offset the member countries inflation differentials

product differences and prices abstract under assumptions following hotelling s 1929 paper stability in competition the possibility of constructing an example in which equilibrium prices exist everywhere and the two merchants display tendencies to agglomerate is ruled out

searching for stationarity purchasing power parity under the current float abstract using panel data methods we investigate long run purchasing power parity by testing for unit roots in real exchange rates of industrial countries under the current float the evidence against the unit root hypothesis is stronger for larger than for smaller panels for monthly than for quarterly data and when the german mark rather than the united states dollar is used as the base currency while we find that accounting for serial correlation considerably weakens the evidence against the unit root null the results as a whole are consistent with long run purchasing power parity

purchasing power parity for east asia countries further evidence based on panel stationary test with multiple structural breaks in this article we re investigate the validity of purchasing power parity ppp for a sample of 10 east asia countries over the period of january 1987 to june 2005 using a recently developed econometric technique of the panel stationary test with multiple structural breaks proposed by carrion i silvestre et al 2005 this test considers multiple structural breaks positioned at different unknown dates and a different number of breaks for each individual empirical evidence shows that the ppp holds true for half of 10 east asia countries during the research period our results have important policy implications for these 10 east asia countries under study

where to locate in a circular city abstract we study the location choices by cournot oligopolists in a circular market where consumers are located uniformly along the circumference we analyze the subgame perfect nash equilibria spne of a two stage location quantity game we demonstrate that the equidistant location pattern is only one of the many equilibrium location patterns that arise in a circular market nonequidistant multiple or a continuum of location equilibria may also arise both spatial agglomeration and dispersion or a combination of agglomeration and dispersion may occur in equilibrium in the case of infinitely many location equilibria we establish the welfare equivalence of the equilibrium location patterns

the principle of minimum differentiation revisited return of the median voter we study a linear location model hotelling 1929 in which n with n 2 boundedly rational players follow noisy myopic best reply behavior we show through numerical and mathematical analysis that such players spend almost all the time clustered together near the center re establishing the principle of minimum differentiation that had been discredited by equilibrium analyses thus our analysis of the best response dynamics shows that when considering market dynamics as well as their policy and welfare implications it may be important to look beyond equilibrium analyses

aggregation and imperfect competition on the existence of equilibrium we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result provides general conditions under which there exists a pure strategy price equilibrium for any number of firms producing any set of products this includes products with multi dimen sional attributes in addition to the proof of existence we provide conditions for uniqueness our analysis covers location models the characteristics approach and probabilistic choice together in a unified framework to prove existence we employ aggregation theorems due to prekopa 1971 and borell 1975 our companion paper caplin and nalebuff 1991 introduces these theorems and develops the application to super majority voting rules we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result is that there exists a pure strategy price equilibrium for any number of firms producing any set of products in addition to the proof of existence we provide conditions for uniqueness our model both unites diverse strands of the earlier literature and opens up uncharted areas for future analysis in particular we expand the traditional one dimensional framework to allow for multi dimen sional product differentiation our approach involves twin restrictions on consumer preferences one on individuals preferences the other on the distribution of preferences across society these are generalizations of the restrictions supporting 64 majority rule presented in caplin and nalebuff 1988 to prove existence we apply a new technique of aggregation this technique is valuable in a variety of other problems in the companion paper we use the aggregation result to generalize our earlier work on 64 majority rule and to characterize the relationship between the distribution of human capital and the distribution of income caplin and nalebuff 1991 there are additional applications in statistics and in search theory we begin with a brief review of the early literature on imperfect competition describing in more detail the existence problem and previous solutions section 3 presents our twin assumptions and shows that they cover many standard cases in section 4 we introduce the aggregation theorem and use it in the analysis of demand functions the proof of existence of equilibrium is in section

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

bertrand equilibrium in a differentiated duopoly this paper studies the stability of price competition in a horizontally differentiated duopoly the firms demand is derived from a distribution of consumer preferences this description of the consumer sector is applicable to a large class of differentiated commodity markets including spatial competition models the author shows that there is a pure price setting equilibrium when consumer tastes are sufficiently dispersed further conditions on the dispersedness of preferences guarantee uniqueness of the equilibrium in addition the author examines the relation between consumer preferences and the competitiveness and efficiency of the equilibrium outcome copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association