intertemporal price discrimination in infinite horizon in infinite horizon a credible durable good monopolist may resort to intertemporal price discrimination we provide an analytical characterization of his optimal price policy when consumers and the monopolist have different values for the trade because of distinct discount factors

can time preference be an instrument for price discrimination abstract it is shown that contrary to some claims in the literature a monopolist cannot use heterogeneous time preferences as an instrument for price discrimination

money back guarantees and market experimentation abstract we study the use of money back guarantees as a form of market experimentation in a market for experience goods with repeat purchases we show that extending the customer base in the second period by using a money back guarantee can be optimal only if a monopolist faces an uncertain distribution of buyers within the second period a money back guarantee allows the monopolist to discriminate between new and repeat purchasers while a pure price reduction does not thus whenever money back guarantees are feasible an optimal experimentation strategy includes a money back guarantee in the second period but not necessarily a price reduction

are women more attracted to co operation than men we conduct a real effort experiment where participants choose between individual compensation and team based pay in contrast to tournaments we find that women choose team based pay at least as frequently as men in all our conditions and significantly more often in a well defined subset of conditions women s greater attraction to co operative incentives results in part from their more optimistic assessments of their prospective teammate s ability women also respond differently to alternative rules for team formation in a manner that is consistent with advantageous inequity aversion in contrast men show a greater responsiveness to efficiency gains associated with team production

peer pressure and partnerships partnerships and profit sharing are often claimed to motivate workers by giving them a share of the pie but in organizations of any significant size the free rider effects would seem to choke off

dynamic pricing in the presence of social learning and strategic consumers when a product of uncertain quality is first introduced consumers may choose to strategically delay their purchasing decisions in anticipation of the product reviews of their peers this paper investigates how the presence of social learning affects the strategic interaction between a dynamic pricing monopolist and a forward looking consumer population within a simple two period model our analysis yields three main insights first we find that the presence of social learning has significant structural implications for optimal pricing policies in the absence of social learning decreasing price plans are always preferred by the firm by contrast in the presence of social learning we find that i if the firm commits to a price path ex ante preannounced pricing an increasing price plan is typically announced whereas ii if the firm adjusts price dynamically responsive pricing prices are initially low and may either rise or decline over time second we establish that under both preannounced an

durable goods monopoly with varying demand this paper solves for the proflt maximising strategy of a durable goods monopolist when incoming demand varies over time each period additional consumers enter the market these consumers can then choose whether and when to purchase we flrst characterise the consumer s utility maximisation problem and under a monotonicity condition show the proflt maximising allocation can be solved through a myopic algorithm which has an intuitive marginal revenue interpretation consumers ability to delay creates an asymmetry in the optimal price path which exhibits fast increases and slow declines this asymmetry pushes the price level above that charged by a flrm facing the average level of demand applications of this framework include deterministic demand cycles one ofi shocks and iid demand draws the optimal policy outperforms renting and can be implemented by a time consistent best price provision

inter temporal price discrimination and satiety driven repeat purchases abstract we discuss customers inter temporal repeat purchasing behavior when their valuations for a product are subject to transitory satiety the satiety can be increased by purchases and gradually decays in between repeat purchasing customers optimize their inter temporal purchasing schedules including the purchasing time and the purchasing quantity to maximize their time average payoffs and the monopoly seller chooses the optimal cyclic pricing policy to maximize its time average profit we derive the conditions under which firms earn the same profit under the cyclic pricing policy as under the fixed price pricing policy when the inter temporal price discrimination is more profitable we show that the optimal pricing policy depends on the relation between customer valuation and customer satiety our results imply that overlooking the effect of transitory satiety tends to cause firms to underprice we also consider extensions in which there exists a fixed purchasing cost or in which purchasing and consumption decisions are separate

cyclic pricing by a durable goods monopolist in the model of this paper a monopoly seller of a durable good holds periodic sales as a means of price discrimination a new cohort of consumers enters the market in each period interested in purchasing the good either immediately or after a delay within each cohort consumers vary in their tastes for the good under broad conditions the seller will vary the price over time in most periods he will charge a price just low enough to sell immediately to consumers with a high willingness to pay periodically however he will drop the price far enough to sell to an accumulated group of consumers with a low willingness to pay

intertemporal price discrimination dynamic arrivals and changing values we study the profit maximizing price path of a monopolist selling a durable good to buyers who arrive over time and whose values for the good evolve stochastically the setting is completely stationary with an infinite horizon contrary to the case with constant values optimal prices fluctuate with time we argue that consumers randomly changing values offer an explanation for temporary price reductions that are often observed in practice

non excludable public good experiments we conduct a two stage game experiment with a non excludable public good in the first stage two subjects choose simultaneously whether or not they commit to contributing nothing to provide a pure public good in the second stage knowing the other subject s commitment decision subjects who did not commit in the first stage choose contributions to the public good we found no support for the evolutionary stable strategy equilibrium and the ratio of subjects who did not commit to contributing nothing increased as periods advanced that is the free riding rate declined over time furthermore this behavior did not arise due to altruism or kindness among subjects but from spiteful behavior of subjects

price discrimination through refund contracts in airlines this paper shows how an airline monopoly uses refundable and non refundable tickets to screen consumers who are uncertain about their travel our theoretical model predicts that the difference between these two fares diminishes as individual demand uncertainty is resolved using an original data set from u s airline markets we find strong evidence supporting our model price discrimination opportunities through refund contracts decline as the departure date nears and individuals learn about their demand

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

optimal nonuniform prices we consider optimal nonuniform pricing schedules where the price depends upon the amount purchased such schedules are regularly used by public utilities and other services welfare optimal nonuniform prices are related to the theory of optimal uniform prices developed by ramsey we characterize situations in which upward or downward discontinuities in pricing schedules are optimal our results are applicable to a number of related problems including optimal taxation insurance and incentives economic theory has confined most of its attention to markets with uniform prices in which the price per unit charged is invariant to the level of a customer s purchases this focus is warranted when goods are resellable since any attempt to charge nonuniform prices could be circumvented by reselling amongst customers but when goods are not resellable nonuniform prices are not only possible but common public utilities have declining block pricing with lower unit charges for large levels of consumption many agencies providing services including communications transportation even education use two part pricing with a fixed entry or retainer charge and a further charge per unit consumption nonuniform price schedules can be expected to be ever more common as services become a larger fraction of total output the increasing prevalence of nonuniform pricing policies have made them the focus of recent public and economic attention oi 1971 feldstein 1972 and ng and weisser 1974 have examined optimal two part pricing policies leland and meyer 1976 examine block pricing and show by example that optimal welfare policies may require nonuniform prices if zero profit constraints are binding in this paper we consider arbitrary nonuniform pricing policies using variational techniques two part and block pricing schedules are of course special cases of the environment we consider the work most closely related to our examination is the seminal paper by spence 1978 and subsequent analysis by roberts 1979 spence however does not pay explicit attention to the key role played by constraints on optimal pricing schedules roberts considers upward price discontinuities which lead to bunching of consumers at a given level of consumption but not downward price discontinuities which lead to regions in which no consumer chooses to consume gaps bunching or gaps may appear in the optimal price schedule even when underlying demand and cost functions are smooth and well behaved the prevalence of discontinuous pricing schedules e g the block pricing structures of public utilities argues that these questions are of practical as well as theoretical interest

incentive systems in a real effort experiment in the reported experiment different payment schemes are examined on their incentive effects payments based on individual team and relative performance are compared subjects conducted computerized tasks that required substantial effort the results show that individual and team payment induced the same effort levels in team production free riding occurred but it was compensated by many subjects providing more effort than in case of individual pay effort was higher but more variable in tournaments while in case of varying abilities workers with relatively low ability worked very hard and drove up effort of the others finally attitudes towards work and other workers differed strongly between conditions

durable goods monopolists rational consumers and improving products we consider the case of a monopolist supplying an improving durable product to a population that is heterogeneous in its valuation of product quality in a two period framework we show that if consumers expect the product to improve in present value terms then intertemporal discrimination might result in the first period marginal consumer being left with zero surplus and some higher end consumers postponing purchase the resulting trajectories for quality and price do not constitute a subgame perfect equilibrium one of our conclusions is that the logic of profit maximization in the context of rational consumer choice imposes a demand side constraint on the rate of product improvement we also emphasize the disequilibrium consequences of improving a product so rapidly that high end consumers are tempted to wait for a future new and improved version finally the formulation adopted in the paper may be useful to understand observed differences in product improvement rates in different markets

the product life cycle and sample representativity bias in price indexes abstractofficial price indexes are usually calculated using matched samples of products if products exhibit systematic price trends at different points in their life cycle then matched sample methods may introduce bias if the life cycle movement in the sample does not adequately reflect that in the population this article explores the extent of these life cycle pricing effects and then examines the bias it can introduce in measured inflation a large us supermarket scanner data set for six cities and six products over 12 years is used using hedonic methods we find that the life cycle component of price change is important across a range of products and cities to explore the bias introduced by these movements we use simulations that construct indexes with different sample update frequency for indexes that are never completely resampled we find an annual absolute bias of 0 88 and 0 59 percentage points depending upon whether we use the actual prices or prices imputed from our hedonic model this comp

desert and inequity aversion in teams teams are becoming increasingly important in work settings we develop a framework to study the strategic implications of a meritocratic notion of desert under which team members care about receiving what they feel they deserve team members nd it painful to receive less than their perceived entitlement while receiving more may induce pleasure or pain depending on whether preferences exhibit desert elation or desert guilt our notion of desert generalizes distributional concern models to situations in

new york city cab drivers labor supply revisited reference dependent preferences with rational expectations targets for hours and income this paper reconsiders whether cabdrivers labor supply decisions reflect reference dependent preferences following botond koszegi and matthew rabin 2006 we construct a model with targets for hours as well as income both determined by rational expectations estimating using henry s farber s 2005 2008 data we show that the reference dependent model can reconcile his 2005 finding that drivers stopping probabilities are significantly related to hours but not income with the negative wage elasticity of hours found by colin camerer et al 1997 and farber 2005 2008 the model yields sensible estimates that avoid farber s 2008 criticism that drivers income targets are too unstable to allow a useful reference dependent model of labor supply

durable goods monopoly with limited choice of commitment strategy when should the monopolist precommit consider a firm a monopolist offering a unique product to a fixed number of potential customers suppose that no consumer desires more than one unit of the good within a given period or across periods that is there is no value to repeat purchases in addition suppose that customers vary with respect to their initial reservation prices which decline over time a natural interpretation is that the monopolist is selling a good that is durable alternatively the firm is providing an entertainment or fashion good consumers may place a premium on obtaining the product quickly before it becomes less useful less stylish or less novel coase 7 conjectured that this firm s ability to extract surplus is limited because the firm has to compete with itself across time periods high valuation customers would be unwilling to pay a high initial price because they would anticipate that over time the firm will be reducing the price in order to sell to lower valuation customers subsequent literature formalizes this as a time inconsistency problem faced by a monopolist unable to make intertemporal commitments a separate strand of the literature proceeds from the polar assumption that the monopolist can precommit to any multiperiod pricing strategy comparison to coase s monopolist is simple higher profits are obtainable under precommitment because more surplus is extracted from high valuation customers an important proposition due to stokey 22 is that it will be optimal for the monopolist to precommit to a declining intertemporal price schedule if consumers with higher initial valuations have a higher rate of time preference 2 otherwise the optimal strategy is to hold price constant at the static monopoly level and to sell no more than the static monopoly quantity 3

relative performance or team evaluation optimal contracts for other regarding agents this paper derives optimal incentive contracts for agents with other regarding preferences it offers a behavioral explanation for the empirically observed lack of relative performance evaluation we analyze a principal multi agent model and assume that agents are inequity averse or status seeking we show that team contracts can be optimal even if the agents performance measures are positively correlated such that relative performance evaluation would be optimal with purely self interested agents and even though relative performance evaluation provides additional incentives to provide effort if agents have other regarding preferences furthermore optimal incentive contracts for other regarding agents can be low powered as compared to contracts for purely self interested agents

transparency inequity aversion and the dynamics of peer pressure in teams theory and evidence we provide an explanation for peer pressure in teams based on inequity aversion analyzing a two period model with two agents we find that the effect of inequity aversion strongly depends on the information structure when contributions are unobservable agents act as though they were purely selfish however when contributions are made transparent at an interim stage agents exert higher efforts in the first period and adjust their efforts according to the interim information in the second period this form of peer pressure reduces free riding and thus more efficient outcomes are attained the results are confirmed in a real effort experiment

price discrimination on booking time abstract even if consumers are forward looking and free to choose when to purchase a firm can price discriminate on booking time if consumers learn their valuations at different times and consumers who learn later have higher valuations the model is related to our work on optimal screening with returns contracts akan ata and dana 1 but here we consider a simpler binary valuation distribution and consider more realistic consumer learning assumptions the main contribution is to show that the profitability of screening on time is robust to relaxing the assumption that consumers learn instantaneously in addition to analyzing a bad news model in which information arrives gradually we characterize a general bound on consumer optimism that guarantees that the instantaneous learning results are robust

measuring unfair in equality abstract this paper shows one way of generalizing the standard framework of inequality measurement to allow for a distinction between fair and unfair inequalities we introduce the unfairness lorenz curve and the unfairness gini which are generalizations of the standard versions of the lorenz curve and the gini with this more general framework in place we study the implications of responsibility sensitive theories of justice for the evaluation of the income distribution in norway from 1986 to 2005 we find that both the pre tax and the post tax income distributions have become less fair in norway even though the standard gini for the pre tax income distribution has decreased in the same period two trends explain this development the increase in income share of the top percentile and the change in the situation of females in the labor market the concentration of income at the top of the distribution contributes both to increased unfairness and increased inequality whereas the increase in females working hours and level of education primarily contributes to a reduction in inequality thus the latter effect dominates for the standard gini and the former effect for the unfairness gini furthermore we find that the increase in post tax unfairness is even larger than the increase in pre tax unfairness which shows that the tax system in norway contributes less to eliminating unfairness in 2005 than in 1986

when is price discrimination profitable we consider a general model of monopoly price discrimination and characterize the conditions under which price discrimination is and is not profitable we show that an important condition for profitable price discrimination is that the percentage change in surplus i e consumers total willingness to pay less the firm s costs associated with a product upgrade is increasing in consumers willingness to pay we refer to this as an increasing percentage differences condition and relate it to many known results in the marketing economics and operations management literatures

output and wages with inequality averse agents we analyze a two task work environment with risk neutral but inequality averse individuals for the agent employed in task 2 eort is verifiable while in task 1 it is not accordingly agent 1 receives an incentive contract which due to his wealth constraint leads to a rent that the other agent resents we show that greater inequality aversion unambiguously decreases total output and therefore average labor productivity more specifically inequality aversion reduces eort wage

dynamic pricing in the presence of inventory considerations research overview current practices and future directions the benefits of dynamic pricing methods have long been known in industries such as airlines hotels and electric utilities where the capacity is fixed in the short term and perishable in recent years there has been an increasing adoption of dynamic pricing policies in retail and other industries where the sellers have the ability to store inventory three factors contributed to this phenomenon 1 the increased availability of demand data 2 the ease of changing prices due to new technologies and 3 the availability of decision support tools for analyzing demand data and for dynamic pricing this paper constitutes a review of the literature and current practices in dynamic pricing given its applicability in most markets and its increasing adoption in practice our focus is on dynamic intertemporal pricing in the presence of inventory considerations

the timing of sales this paper presents a model of intertemporal price discrimination a fixed number of sellers produce a homogeneous good consumers with different preferences enter the market in each period and leave when they make a purchase the sellers typically vary their prices over time charging a high price in most periods but occasionally cutting the price to sell to a large group of customers with a low reservation price in some equilibria all stores lower their price at the same time and to the same level

liquidation fire sales and acquirers private information abstract we develop a dynamic model in which a distressed firm optimizes an exit choice between sell out and default as well as its timing we assume that the distressed firm is not informed about the acquirer s asset valuation we show that the firm delays liquidation to decrease the acquirer s information rent notably the firm can change the exit choice from sell out to default when the screening cost is high in this case shareholders declare default regardless of the acquirer s valuation which provides the acquirer the maximum information rent together with the deadweight costs of bankruptcy the maximal information rent which causes a wealth transfer from debt holders of the bankrupt firm to the acquirer lowers the sales price and debt recovery this mechanism can explain many empirical findings about fire sales and acquirers excess gains higher volatility leverage and asymmetric information increase the likelihood of a fire sale but higher bankruptcy costs could play a positive role in preventing a fire sale with asymmetric information the firm can reduce debt issuance to avoid the risk of a fire sale

intertemporal price discrimination and sales strategy under incomplete information this article examines intertemporal price variations to provide a theoretical explanation for them when firms have only incomplete information about consumers reservation prices for the commodity we contend that some intertemporal price variations can result from attempts by firms to discriminate among consumers we demonstrate that such price discrimination is the optimal policy for a seller if consumers have a higher time discount rate than producers

social norms and economic incentives in firms abstract this paper studies the interplay between economic incentives and social norms in firms we introduce a general framework to model social norms arguing that norms stem from agents desire for or peer pressure towards social efficiency in a simple model of team production we examine the interplay of three types of contracts with social norms we show that one and the same norm can be output increasing neutral or output decreasing depending on the contract multiplicity of equilibria and crowding out effects of steeper incentives can arise

non linear pricing and optimal shipping policies abstract a monopolist produces a good for sale to a buyer with uncertain valuation the seller seeks to implement a profit maximizing non linear pricing scheme which includes the time at which the good is shipped to the consumer if the buyer discounts future payoffs and the seller does not then delayed shipments act as an almost perfect substitute for complete information and the monopolist can extract almost all of the surplus from trade shipping policies thus serve as a powerful tool of enhancing price discrimination however if the seller is as patient as or even only slightly more patient than the buyer then she cannot benefit from delaying allocations

fashion and sales abstract when there is unpredictable fashion in taste it will be optimal to limit the stock of each variety of a horizontally differentiated durable good if consumers are uncertain about one another s taste they will then accept higher first period prices for perfect matches in order to avoid finding only bad matches on sale thus there exists a mechanism which allows a monopolist to price discriminate inter temporally even when it has predictable clearance sales and consumers are infinitely patient there is no distortion in product selection when this equilibrium arises

the end of the opportunism vs trust debate bounded reliability as a new envelope concept in research on mne governance modern transaction cost economics tce thinking has developed into a key intellectual foundation of international business ib research but the williamsonian version has faced substantial criticism for adopting the behavioral assumption of opportunism in this paper we assess both the opportunism concept and existing alternatives such as trust within the context of ib research especially work on multinational enterprise mne governance case analyses of nine global mnes illustrate an alternative to the opportunism assumption that captures more fully the mechanisms underlying failed commitments inside the mne as a substitute for the often criticized assumption of opportunism we propose the envelope concept of bounded reliability brel an assumption that represents more accurately and more completely the reasons for failed commitments without invalidating the other critical assumption in conventional tce and internalization theory thinking namely the widely accepted envelope concept of bounded rationality brat bounded reliability as an envelope concept includes two main components within the context of global mne management opportunism as intentional deceit and benevolent preference reversal the implications for ib research of adopting the bounded reliability concept are far reaching as this concept may increase the legitimacy of comparative institutional analysis in the social sciences

guilt in games a clear conscience is a good pillow why does this old proverb contain an insight the emotion of guilt holds a key psychologists report that the prototypical cause of guilt would be the infliction of harm loss or distress on a relationship partner roy baumeister arlene m stillwell and todd f heatherton 1994 245 june price tangney 1995 moreover guilt is unpleasant and may affect behavior to render the associated pangs counterfactual baumeister stillwell and heatherton state if people feel guilt for hurting their partners and for failing to live up to their expectations they will alter their behavior to avoid guilt in ways that seem likely to maintain and strengthen the relationship avoided guilt is the down of the sound sleeper s bolster how can guilt be modeled how are human interaction and economic outcomes influenced we offer a formal approach for providing answers start with an extensive game form which associates a monetary outcome with each end node say that player i lets player j down if as a result of i s choice of strategy j gets a lower monetary payoff than j expected to get before play started player i s guilt may depend on how much he lets j down player i s guilt may also depend on how much j believes i believes he lets j down we develop techniques to analyze equilibria when players are motivated in part by a desire to avoid guilt the intellectual home for our exercise is what has been called psychological game theory this framework originally developed by john geanakoplos david pearce and ennio stacchetti 1989 and recently extended by battigalli and dufwenberg 2005 henceforth b d allows players utilities to depend on beliefs about choices states of nature

reference dependent risk attitudes we use koszegi and rabin s 2006 model of reference dependent utility and an extension of it that applies to decisions with delayed consequences to study preferences over monetary risk because our theory equates the reference point with recent probabilistic beliefs about outcomes it predicts specific ways in which the environment influences attitudes toward modest scale risk it replicates classical prospect theory including the prediction of distaste for insuring losses when exposure to risk is a surprise but implies first order risk aversion when a risk and the possibility of insuring it are anticipated a prior expectation to take on risk decreases aversion to both the anticipated and additional risk for large scale risk the model allows for standard consumption utility to dominate reference dependent gain loss utility generating nearly identical risk aversion across situations

optimal incentives for teams much of the existing theory of incentives describes a static relationship that lasts for just one transaction this static assumption is not only unrealistic but the resulting predictions appear to be at odds with many work organizations the current paper introduces possible long term interaction among agents and studies how the design of explicit incentives and work organizations can exploit and interact with the implicit incentives generated by the repeated interaction of the agents the optimal incentive scheme is shown to display observed features of the increasingly popular teams such as the use of low powered group incentives