the allocation of inventory risk in a supply chain push pull and advance purchase discount contracts while every firm in a supply chain bears supply risk the cost of insufficient supply some firms may even with wholesale price contracts completely avoid inventory risk the cost of unsold inventory with a push contract there is a single wholesale price and the retailer by ordering his entire supply before the selling season bears all of the supply chain s inventory risk a pull contract also has a single wholesale price but the supplier bears the supply chain s inventory risk because only the supplier holds inventory while the retailer replenishes as needed during the season examples include vendor managed inventory with consignment and drop shipping an advance purchase discount has two wholesale prices a discounted price for inventory purchased before the season and a regular price for replenishments during the selling season advance purchase discounts allow for intermediate allocations of inventory risk the retailer bears the risk on inventory ordered before the season while the supplier bears the risk on any production in excess of that amount this research studies how the allocation of inventory risk via these three types of wholesale price contracts impacts supply chain efficiency the ratio of the supply chain s profit to its maximum profit it is found that the efficiency of a single wholesale price contract is considerably higher than previously thought as long as firms consider both push and pull contracts in other words the literature has exaggerated the value of implementing coordinating contracts i e contracts that achieve 100 efficiency such as buy backs or revenue sharing because coordinating contracts are compared against an inappropriate benchmark often just a push contract furthermore if firms also consider advance purchase discounts which are also simple to administer then the coordination of the supply chain and the arbitrary allocation of its profit is possible several limitations of advance purchase discounts are discussed

frictionless commerce a comparison of internet and conventional retailers there have been many claims that the internet represents a new nearly frictionless market our research empirically analyzes the characteristics of the internet as a channel for two categories of homogeneous products books and cds using a data set of over 8 500 price observations collected over a period of 15 months we compare pricing behavior at 41 internet and conventional retail outlets we find that prices on the internet are 9 16 lower than prices in conventional outlets depending on whether taxes shipping and shopping costs are included in the price additionally we find that internet retailers price adjustments over time are up to 100 times smaller than conventional retailers price adjustments presumably reflecting lower menu costs in internet channels we also find that levels of price dispersion depend importantly on the measures employed when we compare the prices posted by different internet retailers we find substantial dispersion internet retailer prices differ by an average of 33 for books and 25 for cds however when we weight these prices by proxies for market share we find dispersion is lower in internet channels than in conventional channels reflecting the dominance of certain heavily branded retailers we conclude that while there is lower friction in many dimensions of internet competition branding awareness and trust remain important sources of heterogeneity among internet retailers

market frictions a unified model of search costs and switching costs it is well known that search costs and switching costs can create market power by constraining the ability of consumers to change suppliers while previous research has examined each cost in isolation this paper demonstrates the benefits of examining the two types of friction in unison the paper shows how subtle distinctions between the two costs can provide important differences in their effects upon consumer behaviour competition and welfare in addition the paper also illustrates a simple empirical methodology for estimating separate measures of both costs while demonstrating a potential bias that can arise if only one cost is considered

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

price setting in online markets does it click using a unique dataset of daily u s and u k price listings and the associated number of clicks for precisely defined goods from a major shopping platform we shed new light on how prices are set in online markets which have a number of special properties such as low search costs low costs of monitoring competitors prices and low costs of nominal price adjustment we document that although online prices are more flexible than offline prices they nevertheless exhibit relatively long spells of fixed prices large size and low synchronization of price changes considerable crosssectional dispersion and low sensitivity to predictable or unanticipated changes in demand conditions qualitatively these patterns are similar to those observed for offline prices a finding that suggests a need for more research on the sources of price rigidities and dispersion

optimal pricing and return policies for perishable commodities this paper considers the pricing decision faced by a producer of a commodity with a short shelf or demand life a hierarchical model is developed and the results of the single period inventory model are used to examine possible pricing and return policies the paper shows that several such policies currently in effect are suboptimal these include those where the manufacturer offers retailers full credit for all unsold goods or where no returns of unsold goods are permitted the paper also demonstrates that a policy whereby a manufacturer offers retailers full credit for a partial return of goods may achieve channel coordination but that the optimal return allowance will be a function of retailer demand therefore such a policy cannot be optimal in a multi retailer environment it is proven however that a pricing and return policy in which a manufacturer offers retailers a partial credit for all unsold goods can achieve channel coordination in a multi retailer environment this article was originally published in marketing science volume 4 issue 2 pages 166 176 in 1985

digital content provision and optimal copyright protection advances in digital technologies have led to an increasing concern about piracy for providers of digital content e g e books games music software videos yet controversies exist over the influence of copyright protection on firm profitability the objective of this paper is to provide an alternative rationale for the growing anti protection trend and to investigate optimal copyright enforcement and quality provision in a monopoly setting the proposed economic mechanism centers on the influence of copyright protection on consumer search when consumers can get to know the firm s actions e g price quality only after costly search we show that more stringent copyright protection can induce the consumers to rationally expect lower ex post surplus thus exerting a negative strategic effect on the consumers willingness to search this strategic effect may outweigh the positive main effect on the relative attractiveness of the authorized versus the pirated product which can hence explain the opti

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

a contract for coordinating capacity decisions in a business to business b2b supply chain abstract we address the problem of coordinating the capacity decisions of two autonomous manufacturers engaged in a buyer supplier relationship we propose and analyze a supply contract designed to coordinate the companies single period capacities so that both parties end up better off than they would by trading solely through the market the setting is frequently found in supply chains as the contract does not forbid the parties to also trade in the market under the proposed contract each party decides on his own medium term capacity when demands are still only probabilistically known when the demand is realized the supplier must sell to the buyer at a discount contract price up to a contract reservation quantity and the buyer will pay a contract penalty for each unit he reserved but did not order the supplier can sell any leftover capacity on the market and if the buyer needs more than the reserved quantity he must purchase from the supplier at market price or from the market if the supplier s capacity does not suffice the main achievements gained through this research are i conditions for the companies capacity decisions to obtain coordination under the contract ii conditions for the contract to coordinate the parties decisions and leave both better off iii characterization of contract instances in which the profit can be arbitrarily distributed between the parties and iv identification of two distinct kinds of gain produced by the contract finally we illustrate the main properties of the contract with numerical examples

prices and price dispersion on the web evidence from the online book industry using data collected between august 1999 and january 2000 covering 399 books we examine pricing by thirty two online united states based bookstores at the aggregate level we find that both advertising and competitive structure had the predicted effects more competition led to lower prices and to lower price dispersion holding competitive structure constant more widely advertised items also had lower prices at the firm level we observe considerable heterogeneity in behavior firms had differentiated or attempted to differentiate on dimensions such as brand price and selection

using price distributions to estimate search costs we show how the equilibrium restrictions implied by standard search models can be used to estimate search cost distributions using price data alone we consider both sequential and nonsequential search strategies and develop estimation methodologies that exploit equilibrium restrictions to recover estimates of search cost heterogeneity that are theoretically consistent with the search models we illustrate the method using online prices for several economics and statistics textbooks

risk sharing and information revelation mechanism of a one manufacturer and one retailer supply chain facing an integrated competitor this paper develops an information revelation mechanism model of a one manufacturer and one retailer supply chain facing an outside integrated competitor under demand uncertainty we investigate how the manufacturer designs a wholesale price order quantity contract to induce the retailer to report his risk sensitivity information truthfully we try to explore the effects of the outside competitor and the risk sharing rule on the optimal price service level decisions of the retailer and the optimal wholesale prices of the manufacturer we find that the strategic interaction plays an important role in the effect of risk sensitivity on the order quantity for the retailer when the fraction of the risk cost shared by the manufacturer is sufficiently large small the optimal wholesale price for the high risk averse retailer is higher lower than that for the low risk averse retailer

estimating a market equilibrium search model from panel data on individuals from albrecht and axell 1984 and is based on workers who are homogeneous in terms of market productivity and heterogeneous in terms of nonmarket productivity and on firms which are heterogeneous in terms of productive efficiency the equilibrium model is contrasted in terms of its fit to the data with an unrestricted version of the model which is based on a mixture of negative binomial distributions the equilibrium model fails to conform to the data in exactly the dimension of its major focus namely it implies that measurement error accounts for almost all of the dispersion in observed wages the equilibrium model also does not do well in fitting the unemployment duration distribution compared to the unrestricted model the problem is that the duration distribution itself does not support the existence of significant heterogeneity as evidenced by the estimates of the unrestricted model the paper also illustrates the use of such models for policy analysis by simulating the welfare effects of a minimum wage

search with learning for differentiated products evidence from e commerce this article provides a method to estimate search costs in a differentiated product environment in which consumers are uncertain about the utility distribution consumers learn about the utility distribution by bayesian updating their dirichlet process prior beliefs the model provides expressions for bounds on the search costs that can rationalize observed search and purchasing behavior using individual specific data on web browsing and purchasing behavior for mp3 players sold online we show how to use these bounds to estimate search costs as well as the parameters of the utility distribution our estimates indicate that search costs are sizable we show that ignoring consumer learning while searching can lead to severely biased search cost and elasticity estimates

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

talking searching and pricing this paper studies a consumers search model with word of mouth communication firms market a homogeneous product and choose prices consumers obtain price information in two ways they can search on their own and they can talk to other consumers in the basic model word of mouth communication is exogenous and the focus is on how the level of word of mouth communication shapes market equilibrium outcomes when search costs are low an intensification in word of mouth communication decreases firms competition the opposite holds when search costs are high the model is then extended to allow for strategic word of mouth communication market equilibria with word of mouth communication have the feature that some consumers acquire information personally while other consumers obtain their information by networking with others a decrease in the costs of word of mouth communication relatively to the costs of searching reduces the fraction of consumers who acquire information personally consequently it decreases firms competition

the hazards of moral hazard comment on goff shughart and tollison i introduction in a recent study golf shughart and tollison 1997 demonstrate that the adoption of the designated hitter rule in the american league is associated with a sharp increase in the number of hit batsmen these authors suggest an intriguing economic explanation for this empirical regularity since pitchers in the american league no longer have to bat and risk being hit by pitches themselves they do not face the full cost of their actions when hitting opposing batters leading to a classic moral hazard problem it is important to note however that the reduced form empirical strategy used by those authors has no power to distinguish between such a moral hazard story and other competing explanations foremost among the other explanations is a simple compositional change in the type of batter faced pitchers are by and large very poor hitters making the marginal cost of a hit batsmen when a pitcher is at the plate high relative to that of other batters consequently pitchers are only roughly one third as likely to be hit by a pitch as are other batters with the adoption of the designated hitter rule pitchers are replaced at the plate by designated hitters who are far more effective batters and therefore more likely to be hit batsmen thus even if there is no change in the rate at which any batter of a given skill level is a hit batsmen i e no change in behavior on the part of pitchers the number of hit batsmen will rise when the designated hitter rule is put into effect using data from 1993 1996 i demonstrate in this paper that compositional effects alone explain over 80 of the observed cross league difference in hit batsmen in my sample excluding pitchers national league batters are hit by a pitch once every 115 4 at bats and american league batters are hit every 114 5 at bats suggesting little if any moral hazard once compositional differences are eliminated in fairness to goff et al however it should be stressed that the observed gap in hit batsmen between the leagues is smaller in my sample than in theirs so that it is unlikely that compositional effects alone can explain their entire finding 1 a number of other factors however further call into question the plausibility of the moral hazard argument first the very low rate of pitchers being hit by pitched balls when at the plate implies that only rarely are pitchers actually punished for hitting an opposing batter even if it were the case that every instance of a pitcher being hit by a pitch was retribution tabular data for table i omitted only one in 50 times would a pitcher be punished for hitting an opposing batsmen second there does not appear to be any correlation between the frequency with which pitchers hit opposing batsmen and the likelihood that the pitcher will himself be hit while at the plate if retaliation is the motivation for hitting pitchers when at bat as predicted by the moral hazard model then there should be a positive correlation between those two variables ii further exploration of the moral hazard argument table i presents relevant data by league for the years 1993 1996 in addition national league batting statistics are broken down into pitchers and non pitchers the first four columns provide aggregate totals the last three columns normalize by at bats for easier comparisons a number of important points emerge from table i first comparing american league and national league totals the elevated rate of hit batsmen in the american league demonstrated by goff shughart and tollison 1997 for the period up until 1990 is also present in the more recent data used here american league batters are hit an additional 131 times over the four year period 2 normalized by at bats american league batters are 5 more likely to be hit by pitches the difference between the leagues is somewhat smaller than that observed by goff et al in the earlier period roughly 50 additional hit batsmen per year

how much is a dollar worth tipping versus equilibrium coexistence on competing online auction sites theory models of platform competition predict that prices and buyer seller ratios should be approximately equal on coexisting auction sites using field experiments on ebay and yahoo auctions we find evidence that is inconsistent with equilibrium hypotheses and suggest that the market is tipping prices on ebay are consistently 20 70 percent higher than those on yahoo and ebay attracts two additional buyers per seller on yahoo prices and bidders counts are unaffected by the auction ending rule various differences between the sites cannot account for the magnitude of these disparities however a model of imitation dynamics can rationalize our findings

pass through and consumer search an empirical analysis retail price pass through is one of the most important issues facing manufacturers of consumer packaged goods although retailers tend to pass higher wholesale prices through to consumers quickly and completely they often do not pass on trade promotions currently asymmetric pass through is commonly thought to result from retailers exercise of market power alternatively it may be because of consumer search behavior and retailers competitive response we test this theory using a panel threshold asymmetric error correction model applied to wholesale and retail scanner data for ready to eat cereal for a number of retailers in the los angeles metropolitan market we find that consumer search behavior contributes significantly to imperfect pass through by allowing pass through to depend on market power and consumer search costs we find results that are contrary to the conventional wisdom namely market power causes retail prices to fall quickly and rise slowly whereas consumer search behavior causes retail prices to rise quickly and fall slowly precisely the rockets and feathers phenomenon

testing models of consumer search using data on web browsing and purchasing behavior using a large data set on web browsing and purchasing behavior we test to what extent consumers are searching in accordance to various classical search models we nd that the benchmark model of sequential search with a known distributions of prices can be rejected based on the recall patterns we observe in the data moreover we show that even if consumers are initially unaware of the price distribution and have to learn the price distribution observed search behavior for given consumers over time is more consistent with non sequential search than sequential search with learning our

price beliefs and experience do consumers beliefs converge to empirical distributions with repeated purchases we use data on consumers subjective beliefs about the distribution of prices in an online marketplace to investigate two questions of interest first when consumers face price uncertainty to what extent do their beliefs about the distribution of prices reflect the actual empirical price distribution second do consumers learn about features of the empirical distribution through experience using reported expectations for online textbook prices from a survey of 1224 college students we find that consumers with no prior experience in purchasing textbooks online tend to expect online prices to be higher than what is observed empirically however consumers with more experience in the marketplace generally have more accurate beliefs about the price distribution which is consistent with learning

search costs and equilibrium price dispersion in auctions a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool 1 we thank aaron bodoh creed greg lewis steve tadelis and various seminar participants for helpful comments nate woody for programming assistance and the cornell university institute for social sciences for financial support the views expressed herein are solely those of the authors and do not necessarily reflect those of the u s department of justice 1

outsourcing and capacity planning in an uncertain global environment firms employing offshore outsourcing strategies may face both exchange rate and demand uncertainties in this paper we show that the firms may benefit from operational option to switch production by keeping capacities with both domestic and foreign suppliers the value of the operational option increases as the exchange rate uncertainty or demand uncertainty increases in addition when the firms become risk averse they may use domestic capacity to hedge against offshore capacity as a result the firms may choose to hold local capacity even if it exhibits negative marginal contribution to the profit furthermore risk averse firms may keep more total capacity than risk neutral firms

moral hazard and the effects of the designated hitter rule revisited i introduction in a recent paper in this journal we goff shughart and tollison 1997 hypothesized that the introduction of the designated hitter dh rule in the american league but not the national league of major league baseball in 1973 created the potential for a classic moral hazard problem because they are no longer required to appear at the plate american league pitchers can throw at opposing hitters with greater impunity i e at a lower cost than national league pitchers who still must take their turns at bat the economic theory of moral hazard clearly predicts that more batters will be hit by pitches in the american league than in the national league under such circumstances an implication that was supported by our empirical evidence which covered the period running from the birth of the american league in 1901 through the end of the 1990 pennant campaign after controlling for other relevant factors we found that american league batters had been plunked at rates 10 to 15 higher than their national league counterparts in the typical regular baseball season since the dh rule went into effect two comments published in this issue raise questions about the empirical magnitude of the dh effect and cast doubt on our interpretation of the evidence in particular relying on post 1990 data unavailable to us at the time our paper was in press levitt 1998 and trandel white and klein 1998 suggest that the differences in the rates at which batters are hit by pitches in baseball s two major leagues may no longer be statistically significant and moreover to the extent that they are that these differences are better explained by post 1973 changes in the composition of american league batters than by the dh rule s effects on pitchers own costs and benefits of throwing at opposing hitters levitt and trandel white and klein contend that the number of batters hit by pitches rose in the american league after 1973 not because pitchers had less to fear from retaliation directed against them personally but because the substitution of hard hitting dhs for weak hitting pitchers made beanball more profitable al team managers had more to gain from placing designated hitters on base by instructing pitchers to plunk them than from giving free passes to pitchers who otherwise represent easy outs in what follows we explore the implications of this alternative hypothesis more fully because better hitting in the american league does not explain inter league differences in hit batsmen prior to 1990 and because the dh rule continues to be a significant determinant of inter league differences in hit batsmen after 1990 once exogenous events in the national league are taken into account we conclude that our original interpretation of the empirical evidence stands ii what happened in the 1990s two stylized facts lead trandel white and klein to conclude that moral hazard explains little if any of the observed differences in hit batsmen between the american and national leagues one is that when our post world war ii subsample is expanded by adding data from regular season games played through august 31 1997 at most only about 3 of the lower rate of hit batsmen in the national league can be attributed to the american league s adoption of the dh rule in 1973 1 the other is that while consistent with our results american league batters were in fact hit by pitches 12 more frequently over the 1947 1990 period this empirical regularity can be explained better by inter league differences in the composition of batters in particular trandel white and klein suggest that the evidence supports the following statement to the extent that american league batters are on average more likely to be hit by pitches than are national league batters the difference is largely because the al batters are on average better hitters and are thus less costly and more beneficial to hit p

an equilibrium model of search unemployment this paper develops a simple general equilibrium model with sequential search in which a nondegenerate wage offer distribution is endogenously determined we use this model to analyze the comparati

dynamic price competition in auto insurance brokerage we analyze brazilian data on auto insurance and document that a about 20 of policies are sold without brokerage commission b over 40 are sold at the highest fee allowed and c the remaining contracts are associated with a spread out distribution of fees static models cannot rationalize these findings we develop a dynamic model of price competition with search and switching costs that reproduces them we use the equilibrium structure to estimate the model parameters and infer the brokers expected earnings the frequency that insurees switch brokers and the counterfactual effects of a price ceiling policy

estimation of search frictions in the british electricity market this paper studies consumer search and pricing behaviour in the british domestic electricity market following its opening to competition in 1999 we develop a sequential search model in which an incumbent and an entrant group compete for consumers who nd it costly to obtain information on prices other than from their current supplier we use a large data set on prices and input costs to structurally estimate the model our estimates indicate that consumer search costs must be relatively high in order to rationalize observed pricing patterns we confront our estimates with observed switching behaviour and

the morphology of price dispersion this paper is a study of the shape and structure of the distribution of prices at which an identical good is sold in a given market and time period we find that the typical price distribution is symmetric and leptokurtic with a standard deviation between 19 and 36 only 10 of the variance of prices is due to variation in the expensiveness of the stores at which a good is sold while the remaining 90 is due in approximately equal parts to differences in the average price of a good across equally expensive stores and to differences in the price of a good across transactions at the same store we show that the distribution of prices that households pay for the same bundle of goods is approximately normal with a standard deviation between 9 and 14 half of this dispersion is due to differences in the expensiveness of the stores where households shop while the other half is mostly due to differences in households choices of which goods to purchase at which stores we find that households with fewer employed members pay lower prices and do so by visiting a larger number of stores rather than by shopping more frequently

demand uncertainty and returns policies for a seasonal product an alternative model abstract marvel and peck international economic review 36 1995 691 714 considered the following seasonal product problem a manufacturer sets wholesale price p w unit and return credit r unit the retailer then sets retailer price p r unit and order quantity q how should the manufacturer set p w and r demand uncertainty consists of two components valuation and customers arrivals our more realistic models reveal effects unobservable from marvel peck s e g i setting r 0 benefits the manufacturer much more than the retailer ii valuation but not customer arrival uncertainty is imperative for the retailer without it the manufacturer can set p w and r such that he reaps most of the profits

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

search and price dispersion in online grocery markets abstract consumers often purchase multiple products at a time from retailers creating multi product incentives for search in this paper we consider how product variety affects consumer search intensity and the dispersion of prices in multi product retail markets we employ online grocery pricing data from four large retailers in the uk to estimate search costs and equilibrium price dispersion for food products under circumstances where i consumers search for single products and ii consumers search for multiple products at once we compare estimates in each case between a model in which utility increases with product variety and a model in which utility is not a function of variety relative to our preferred specification with variety effects in utility we find estimates of both search cost and search frequency to be biased upwards in single product settings when variety effects are ignored however we find estimates of search costs are biased upwards while search frequency is biased downwards in multi product settings when variety effects in utility are ignored

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

estimating search benefits from path tracking data measurement and determinants we study consumer search behavior in a brick and mortar store environment using a unique data set obtained from radio frequency identification tags which are attached to supermarket shopping carts this technology allows us to record consumers purchases as well as the time they spent in front of the shelf when contemplating which product to buy giving us a direct measure of search effort we estimate a linear regression of price paid on search duration in which search duration is instrumented with a search cost shifter we show that this regression allows us to recover the marginal return from search in terms of price at the optimal stopping point for the average consumer our identification strategy and coefficient interpretation are valid for a broad class of search models and we are hence able to remain agnostic about the details of the search process such as search order and search protocol we estimate an average return from search of 2 10 per minute and explore heterogeneity across consumer

dividing online and offline a case study every new method of trade offers an opportunity for economic agents to compare its costs and benefits relative to the status quo such comparison motivates sorting across market segments and reshapes the whole marketplace the internet provides an excellent example it introduces substantial search cost savings over brick and mortar retail stores but imposes new obstacles for sellers to convey quality using sports card trading as a case study we provide empirical evidence on 1 the sorting of product quality between the online and offline segments 2 the changes for retail outlets after the internet came into place and 3 how supporting industries such as professional grading and card manufacturing adapted to take advantage of the new market copyright 2007 wiley blackwell

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

efficient supply contracts for fashion goods with forecast updating and two production modes we examine the problem of developing supply contracts that encourage proper coordination of forecast information and production decisions between a manufacturer and distributor of high fashion seasonal products operating in a two mode production environment the first production mode is relatively cheap but requires a long lead time while the second is expensive but offers quick turnaround we focus on contracts of the form w1 w2 b wherewi is the wholesale price offered for production modei andb is a return price offered for items left over at the end of the season we find that such a contract can coordinate the manufacturer and distributor to act in the best interest of the channel the pricing conditions needed to ensure an efficient solution vary depending on the degree of demand forecast improvement between periods and the manufacturer s access to forecast information we also examine whether these conditions ensure a pareto optimal solution with respect to two traditional production settings

identification and estimation of online price competition with an unknown number of firms this paper considers identification and estimation of a general model for online price competition we show that when the number of competing firms is unknown the underlying parameters of the model can still be identified and estimated employing recently developed results on measurement errors we illustrate our methodology using uk data for personal digital assistants and employ the estimates to simulate competitive effects our results reveal that heightened competition has differential effects on the prices paid by different consumer segments

true monopolistic competition as a result of imperfect information the paper restates hart s 1985a 1985b definition of large group monopolistic competition distinguishes it from oligopolistic competition and raises the question of whether there are reasonable circumstances that give rise to true monopolistic competition as defined the purpose is to show that consumers imperfect information may create conditions that will turn an otherwise oligopolistic market into a truly monopolistically competitive one

equilibrium price distributions equilibrium price distributions for a homogeneous product consistent with individual incentives are investigated they arise in informationally imperfect markets in which the only primitive datum is the distribution of search costs it is shown that single multi and continuous price distributions are all viable long run phenomena depending on the nature of search costs a method for computing equilibrium price distributions is also provided jevons law of one price has long been an accepted dictum in economic theory in a classroom presentation it still serves sometimes implicitly as a major premise in many micro models of market interaction much of the descriptive theory as well as welfare analysis hinges on this assumption yet one s day to day experience reveals that price differentials are a viable phenomenon and that looking for lower prices may very well be a rewarding activity the prospects of eventually hitting a bargain and the resulting price reduction would more than compensate for the cost incurred during the search process moreover the existence of price dispersions appear to be an empirically stable phenomenon snapshots of markets for relatively homogeneous products reveal substantial and recurring price differentials stigler 1961 and pratt wise and zeckhauser 1979 for example report some evidence supporting this claim an important article by stigler 1961 focused economists attention on the crucial role played by the informational structure of markets it gave rise to the study of the

is more competition always better an experimental study of extortionary corruption using a laboratory experiment we assess whether increasing competition among public officials reduces extortionary corruption we find that increasing the number of providers has no effect on bribe demands when citizens search costs are high but it increases corruption when search costs are low the effect is absent in a parallel setting framed as a standard market which we attribute to citizens using a nonsequential search strategy as opposed to sequential search in the corruption setting we conclude that efforts to reduce search costs such as infrastructure investments are preferable to anti corruption policies aimed at increasing the number of providers jel d73 d49 c91

nonsequential search equilibrium with search cost heterogeneity we generalize the model of burdett and judd 1983 to the case where an arbitrary finite number of firms sells a homogeneous good to buyers who have heterogeneous search costs we show that a price dispersed symmetric nash equilibrium always exists numerical results show that the behavior of prices and consumer surplus with respect to the number of firms hinges upon the nature of search cost dispersion when search costs are relatively concentrated entry of firms leads to lower average prices and greater consumer surplus however for relatively dispersed search costs the mean price goes up and consumer surplus may decrease with the number of firms

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

search frictions and market power in negotiated price markets we provide a framework for empirical analysis of negotiated price markets using mortgage market data and a search and negotiation model we characterize the welfare impact of search frictions and

a model of search with price discrimination abstract we introduce observable heterogeneity across buyers into a model of simultaneous search buyers differences are informative about their willingness to search giving rise to price discrimination even if they all have the same willingness to pay we analyze and compare equilibrium outcomes when price discrimination is allowed and when it is not we find that the price comparison across consumers as well as the effects of banning price discrimination critically depend on the elasticity of the search cost distribution interestingly for normally distributed search costs there is an inverted u shape relationship between prices and buyers size similarly a ban on price discrimination hurts small and large buyers to the benefit of the medium size ones

the bright side of loss aversion in dynamic and competitive markets a well established phenomenon of consumer buying behavior is that consumers evaluate prices relative to a reference point and exhibit loss aversion i e their propensity to buy is more negatively affected by prices above the reference point than it is positively affected by prices below the reference point the objective of this paper is to analytically examine how the competitive strategy and profitability of firms are affected by the presence of consumer loss aversion in the price dimension although we assume that consumer loss aversion increases consumer propensity to search for lower prices we find that it does not necessarily lead to lower prices or profits when firms compete over multiple periods and when the consumer reference price in subsequent periods is affected by current prices specifically consumer loss aversion could lead to higher prices and profits when consumer valuation is sufficiently high relative to search costs and the proportion of consumers with positive search costs is in an intermediate range we also show that when forward looking firms incorporate the negative effect of price promotions on future profits the equilibrium range of price promotions may actually increase

gasoline price dispersion and consumer search evidence from a natural experiment the vast majority of empirical studies examining the link between consumer search and price dispersion focus on how changes in consumer search impact price dispersion this article does the reverse it examines how a shock to price dispersion impacts consumer search a direct measure of search is used and an exogenous shock to price dispersion is found in a refinery fire that caused decades old retail gasoline price cycles and the nonlinear high frequency price dispersion pattern generated by them to stop identifying effects from this shock the results show a substantial response of consumer search to changes in price dispersion

batter up moral hazard and the effects of the designated hitter rule on hit batsmen i introduction despite its relatively recent appearance in the literature the theory of moral hazard has proved to be rich in empirical implications it has been applied fruitfully in a wide variety of settings including medical insurance property and casualty insurance labor contracts savings and loan failures and credit rationing 1 perhaps the most frequently cited application of this idea is sam peltzman s 1975 study of mandatory seat belt laws he reported evidence suggesting that drivers respond rationally to such laws which reduce the risk of injury or death in automobile accidents by driving more recklessly hence while mandatory seat belt laws have resulted in fewer automobile fatalities they have increased the number of non fatal accidents and accidents involving damage to property and pedestrians in this paper we argue that the introduction of the designated hitter dh rule in the american league but not the national league of major league baseball in 1973 created the potential for a classic moral hazard problem because they are not required to appear at the plate american league pitchers can throw at opposing hitters with greater impunity i e at a lower cost than national league pitchers who must take their turn at bat the economic theory of moral hazard clearly predicts that more batters will be hit in the american league under such circumstances an implication which is supported by the empirical evidence reported herein after controlling for other relevant factors we find that american league batters have been hit by pitches at rates 10 to 15 higher than their national league counterparts in the typical post dh rule season ii the simple economics of hitting batters we model pitchers as the ultimate decision makers with regard to behavior that leads to hit batters in making this assumption we ignore the principal agent relation between pitchers and managers as well as any externalities arising among players that may influence the number of batters hit by pitches managers sometimes instruct pitchers to throw at a batter presumably to cool off opponent s bats or to retaliate for opposing pitchers throwing at his team on occasion a pitcher may view his own personal interests in terms of runs and income as diverging from the manager s interests so that he would not carry out such instructions to the letter 2 in any case a batter may be hit when the pitcher makes a deliberate attempt to do so or when the pitcher has not expended much effort to avoid hitting him while the distinction between the two causes of hit batsmen may be important in its own right we treat them as being observationally equivalent both amount to the pitcher altering the probability of hitting a batter by changing the intended location and speed of his pitches in our elementary approach a pitcher s decision to raise or lower this probability hinges on a marginal decision making calculus of weighing the expected benefits against the expected costs of hitting a batter these benefits and costs would ultimately affect the pitcher s expected utility by influencing his lifetime income and consumption possibilities his utility from the indulgence of personal preferences or both increasing the probability of hitting a batter can potentially benefit the pitcher in several ways hit batsmen may become more reluctant now and in future games to lean over the plate thereby reducing their effectiveness against pitches low and outside they may become more susceptible to being fooled by curve balls that give the illusion of being inside or they may dig in less and thereby reduce their power all of these effects lower the probability of runs being scored against the pitcher in present and future appearances additionally the pitcher may alter the probability of hitting batters in order to retaliate against similar tactics being used by opposing pitchers this may be a means of neutralizing an opponent s strategy of throwing at batters and hence help increase run production by the pitcher s own team

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

sourcing decisions with capacity reservation contracts abstract by committing to long term supply contracts buyers seek to lower their purchasing costs and have products delivered without interruption when a long term contract is available suppliers are less pressured to find new customers and can afford to charge a price lower than the prevailing spot market price we examine sourcing decisions of a firm in the presence of a capacity reservation contract that this firm makes with its long term supplier in addition to the spot market alternative this contract entails delivery of any desired portion of a reserved fixed capacity in exchange for a guaranteed payment by the buyer we investigate rational actions of the two parties under two different types of periodic review inventory control policies used by the buyer the two number policy and the base stock policy when typical demand probability distributions are considered inclusion of the spot market source in the buyer s procurement plan significantly reduces the capacity commitments from the long term supplier

semi nonparametric estimation of consumer search costs this paper studies the estimation of the distribution of non sequential search costs we show that the search cost distribution is identified by combining data from multiple markets with common search technology but varying consumer valuations firms costs and numbers of competitors to exploit such data optimally we provide a new method based on semi nonparametric estimation we apply our method to a dataset of online prices for memory chips and find that the search cost density is essentially bimodal such that a large fraction of consumers searches very little whereas a smaller fraction searches a relatively large number of stores copyright c 2012 john wiley sons ltd

capacity reservation contracts for high tech industry abstract capacity reservation provides a risk sharing mechanism that encourages a manufacturer to expand its capacity more we propose a deductible reservation dr contract where customers reserve future capacity with a fee that is deductible from the purchasing price the manufacturer s ex ante announcement of the excess capacity that she will have in addition to the reservation amount is a unique feature of the dr contract an individually rational dr contract that provides channel coordination always exists since there is a unique nash equilibrium for the reservation game among multiple customers the main results of the one customer case can be extended to the n customer case the dr contract is compared with another capacity reservation contract called take or pay while the manufacturer may gain more profit under a take or pay contract there may not be a channel coordinated contract that is also individually rational for the customer finally the similarities and differences between the capacity reservation contracts and other well known supply contracts are discussed

consumer search costs and preferences on the internet we conduct an empirical analysis of consumer preferences and search costs on an internet platform using data from a major french platform priceminister we show descriptive evidence of substantial price dispersion among adverts for the same product of consumers often not choosing the cheapest advert and sometimes choosing an advert dominated in price and non price characteristics by another available advert we consider a sequential search model where consumers sample adverts in an endogenous order based on their preferences and search costs we show that the optimal search and purchase strategy can be characterized by a set of inequalities which can feasibly be tested on transaction and advert data this allows us to estimate for each transaction a set of preference and search cost parameter values thus allowing for flexible consumer heterogeneity in preferences and search costs the estimated model can then describe a wide range of consumer search and purchase behaviours we find that the model can explain almost all transactions in the data and requires non zero preferences and search costs for at least 50 and 22 respectively of observations we also find evidence of heterogeneous and sometimes substantial search costs

an empirical model of search with vertically differentiated products this paper presents a nonsequential search model that allows for vertical product dierentiation in the unique symmetric equilibrium firms with dierent characteristics draw utilities from a common utility distribution because the firms dier in their characteristics this leads to dierent price distributions the model therefore provides a theoretical rationale for explaining price dispersion as a result of quality dierences and search behavior of consumers together using the equilibrium conditions derived from the model it is shown how to estimate search costs by maximum likelihood using only price data a data set on prices from dutch supermarkets reveals that the amount of search has decreased over the sampling period moreover ignoring vertical product dierentiation results in an overestimation of search costs

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

market diffusion with two sided learning we analyze the diffusion of a new product of uncertain value in a duopolistic market both sides of the market buyers and sellers learn the true value of the new product from experiments with it buyers have heterogeneous preferences over the products and sellers compete in prices the pricing policies and market shares in the unique markov perfect equilibrium are obtained explicitly the dynamics of the equilibrium market shares display excessive sales of the new product relative to the social optimum in early stages and too low sales later on the diffusion path of a successful product is s shaped

risk hedging in a supply chain option vs price discount abstract in this research two risk hedging strategies the option contract and the advance purchase discount contract are investigated within a manufacturer retailer two echelon supply chain context this study offers three contributions first the optimal decisions under the two contracts from the perspectives of both the manufacturer and the retailer are determined second circumstances under which supply chain coordination can be reached are identified third the scenario of loss averse manufacturer has been explored the results of the analysis provide practical insights to the manufacturer when she plans production quantity and to the retailer when he replenishes inventory

search costs and equilibrium price dispersion in auction markets abstract a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool

diagnosing consumer confusion and sub optimal shopping effort theory and mortgage market evidence mortgage loans are leading examples of transactions where experts on one side of the market take advantage of consumers lack of knowledge and experience we study the compensation that borrowers pay to mortgage brokers for assistance from application to closing two findings support the conclusion that confused borrowers overpay for brokers services i a model of effective shopping shows that bor rowers sacrifice at least 1 000 by shopping from too few brokers ii borrowers who compensate their brokers with both cash and a commission from the lender pay twice as much as similar borrowers who pay no cash jel d12 d14 g21 we study a large and financially complex expenditure that the majority of consumers make only a few times in their lives the payment for mortgage origination services in these transactions information is not only imperfect but traditional market practices have likely contributed to consumer confusion these payments range from 0 to 30 000 for mortgages of normal size mortgage brokers receive payments from both borrowers and from wholesale lenders on most loans broker fees paid in cash by the borrower are usually broken down into more than a dozen individual items such as origination fee discount points funding fee and doc prep in addition to these cash payments about half of the value that the bor rower transfers to the broker takes the form of a payment from the wholesale lender to the mortgage broker the borrower bears the burden of this part of the payment in the form of a higher interest rate on the loan these payments compensate mortgage brokers for arranging mortgage loans we stress that this paper is about how and how much borrowers pay their brokers for origination services the broker is an administrator of the process of loan origination the broker bears none of the risk of default on the mortgage so that risk is not a determinant of the broker s compensation under standard theories of pricing because consumers enter the mortgage market infrequently and because features of the market make it difficult to learn the best price mortgage origination pricing

optimal production and selling policies with fixed price contracts and contingent price offers abstract this paper investigates optimal production and selling decisions for a single supplier with two types of customers specifically risk averse buyers would rather pay higher fixed prices with guaranteed supply contracts whereas risk prone buyers prefer to secure remaining stocks and pay lower contingent prices this study formulized this problem with a dynamic programming model and analyzed it further using successive approximations theoretical results indicate that no controls are needed for fixed price orders however thresholds exist for manufacturing and contingent price ordering policies these two types of threshold planes increased with the addition of waiting customers furthermore a sensitivity analysis of seasonal factors revealed that the optimal threshold plane shifts upward during high demand periods

search costs and efficiency do unemployed workers search enough many labor market policies affect the marginal benefits and costs of job search the impact and desirability of such policies depend on the distribution of search costs in this paper we provide an equilibrium framework for identifying the distribution of search costs and we apply it to the dutch labor market in our model the wage distribution job search intensities and firm entry are simultaneously determined in market equilibrium given the distribution of search intensities which we directly observe we calibrate the search cost distribution and the flow value of non market time these values are then used to derive the socially optimal firm entry rates and distribution of job search intensities from a social point of view some unemployed workers search too little due to a hold up problem while other unemployed workers search too much due to coordination frictions and rent seeking behavior our results indicate that jointly increasing unemployment benefits and the sanctions for unemployed workers who do not search at all can be welfare improving

the q s s pricing rule we introduce menu costs in the search theoretic model of imperfect competition of burdett and judd when menu costs are not too large the equilibrium is such that sellers follow a q s s pricing rule according to the rule a seller lets inflation erode the real value of its nominal price until it reaches some point s then the seller pays the menu cost and resets the real value of its nominal price to a point randomly drawn from a distribution with support s q where s s q a q s s equilibrium differs with respect to a standard s s equilibrium 1 in a q s s equilibrium sellers sometimes keep their nominal price constant to avoid paying the menu cost other times because they are indifferent to changes in the real value of their price an exploratory calibration reveals that menu costs account less than half of the observed duration of nominal prices 2 in a q s s equilibrium higher inflation leads to higher real prices as sellers pass onto buyers the cost of more frequent price adjustments and to lower welfare

search for differentiated products identification and estimation when consumers search for differentiated products a given search decision can be explained either by low search cost or by low tastes for the set of products already found we propose an identification strategy that allows to estimate the search cost distribution in the presence of unobserved tastes the required data takes the form of conditional search decisions observations of search actions combined with previously observed product displays we develop an application using clickstream data from a hotel search platform estimates of price elasticity of demand in the search model differ from those in the static model reflecting the bias due to endogeneity of search generated choice sets

geographical dispersion of consumer search behaviour abstractthis article investigates whether consumer search behaviour differs across zip codes within the u s as an application daily gasoline price data covering virtually all gas stations within the u s are employed to estimate the distribution of search costs in each zip code the results show that there are significant differences across zip codes regarding the expected number of searches achieved before consumers purchase gasoline in order to have a systematic explanation such differences are further connected to geographic demographic and economic conditions of the zip codes in a secondary analysis the corresponding results imply several strategies for gas stations in order to maximize profits markups suggestions follow for policy makers and regulators to reduce redistributive effects of information barriers across locations

product differentiation search costs and competition in the mutual fund industry a case study of s p 500 index funds we investigate the role that non portfolio fund differentiation and information search frictions play in creating two salient features of the mutual fund industry the large number of funds and the sizeable dispersion in fund fees in a case study we find that despite the financial homogeneity of s p 500 index funds this sector exhibits the fund proliferation and fee dispersion observed in the broader industry we show how extra portfolio mechanisms explain these features these mechanisms also suggest an explanation for the puzzling late 1990s shift in sector assets to more expensive and often newly entered funds an influx of highinformation cost novice investors

price versus production postponement capacity and competition this article presents a comparative analysis of possible postponement strategies in a two stage decision model where firms make three decisions capacity investment production inventory quantity and price typically investments are made while the demand curve is uncertain the strategies differ in the timing of the operational decisions relative to the realization of uncertainty we show how competition uncertainty and the timing of operational decisions influence the strategic investment decision of the firm and its value in contrast to production postponement price postponement makes the investment and production inventory decisions relatively insensitive to uncertainty this suggests that managers can make optimal capacity decisions by deterministic reasoning if they have some price flexibility under price postponement additional postponement of production has relatively small incremental value therefore it may be worthwhile to consider flexible ex post pricing before production postponement reengineering while more postponement increases firm value it is counterintuitive that this also makes the optimal capacity decision more sensitive to uncertainty we highlight the different impact of more timely information which leads to higher investment and inventories and of reduced demand uncertainty which decreases investment and inventories our analysis suggests appropriateness conditions for simple make to stock and make to order strategies we also present technical sufficiency and uniqueness conditions under price postponement these results extend to oligopolistic and perfect competition for which pure equilibria are derived interestingly the relative value of operational postponement techniques seems to increase as the industry becomes more competitive

price uncertainty and consumer search a structural model of consideration set formation we offer an econometric framework that models consumer s consideration set formation as an outcome of her costly information search behavior because frequently purchased products are characterized by frequent price promotions of varying depths of discounts a consumer faces significant uncertainty about the prices of the brands the consumers engage in a fixed sample search strategy that results in their discovering the posted prices of a subset of the available brands this subset is referred to as the consumer s consideration set the proposed model is estimated using the scanner data set for liquid detergents our key empirical results are i consumers zincur significant search costs to discover the posted prices of the brands ii whereas in store displays and feature ads do not influence consumers quality perceptions of the brands they significantly reduce search costs for observing the prices of the brands iii per capita income of consumer s household significantly increases her search costs and iv the consumers price sensitivity is seriously underestimated if we were to assume that consumers get to know all the posted prices at zero cost the proposed model is also estimated for the ketchup category to enable us to do cross category comparisons of consumers price search behavior

crime and punishment in major league baseball the case of the designated hitter and hit batters i introduction are you seriously going to throw at somebody when you re facing randy johnson curt schilling 1 in 1973 amid waning fan interest in baseball the american league al of major league baseball mlb instituted the designated hitter rule as an experiment the stated goal of this rule change was to boost offensive output by increasing the talent pool of batters in the lineup traditionally the competing teams field nine players who must play defense in the field and bat because of the importance of the pitcher who is responsible for putting every ball in play teams rely on pitching ability and ignore the hitting ability when choosing the pitcher in the lineup therefore pitchers tend to be very poor hitters by allowing teams to substitute a player of greater hitting ability known as the designated hitter dh to bat for the pitcher the total offensive output increases the experiment has since grown into an institution in the al that differentiates it from the national league nl where all players must bat and play in the field the dh succeeded in turning the al into the power league as intended but an unintended consequence of the rule change is that the al now has more batters hit by pitches than the nl traditional baseball lore holds that the lack of retaliatory punishment in the al for hitting batters is the cause of this phenomenon veteran nl manager dusty baker describes the deterrent impact from a pitcher s point of view you can be bold in the american league and get away with hitting batters it s different in our league where you have to hit 2 pitchers who do not have to bat where they might face retaliation are more willing to risk hitting batters than pitchers who do bat given that the rules of the game in both leagues are identical except for the use of the dh mlb created ideal conditions for a natural experiment to examine the impact of the dh on hit batters in a controlled setting 3 several economists have looked at the issue and found that there is a statistically significant relationship between the dh and hit batters however the reason for this difference is subject to much debate it is possible for the hit batter differential to exist without the deterrent effect of retaliation the rulebook punishment for hitting a batter awarding the hit batter first base makes retaliatory enforcement costly for teams to employ pitchers are typically poor hitters who rarely reach base via hitting while batters who are dhs are typically good hitters the fewer hit batters in the nl may reflect the lineup composition in which the pitcher must bat nl teams will try to avoid plunking pitchers because they are relatively less likely to reach base than non pitchers while al teams do not have this easy out in their batting lineups a problem with previous studies of the subject is their reliance on yearly aggregate data hit batters are rare events approximately 1 of all plate appearances result in a hit batter that occur in the course of game where other incentives are quite relevant this means that identifying small changes in pitcher behavior from specific factors will be difficult to identify with aggregate data differentiating between the two competing explanations for the hit batter differential between leagues deterrence and lineup composition requires micro level data where we can control for in game strategic incentives for hitting batters using a unique play by play data set that allows us to control for specific factors that affect hit batters we find that pitchers are still more likely to hit batters with a dh in the lineup than without and though pitchers are hit more rarely than other players pitchers do experience retaliation for hitting batters retaliation against pitchers who plunk batters which was not found in earlier studies is needed to generate an effective deterrent for pitchers in the nl

a structural model of the retail market for illicit drugs we estimate a model of illicit drugs markets using data on purchases of crack cocaine buyers are searching for high quality drugs but they determine drugs quality i e their purity only after consuming them hence sellers can rip off first time buyers or can offer higher quality drugs to induce buyers to purchase from them again in equilibrium a distribution of qualities persists the estimated model implies that if drugs were legalized in which case purity could be regulated and hence observable the average purity of drugs would increase by approximately 20 percent and the dispersion would decrease by approximately 80 percent moreover increasing penalties may raise the purity and affordability of the drugs traded by increasing sellers relative profitability of targeting loyal buyers versus first time buyers

the quantity flexibility contract and supplier customer incentives consider a supply chain consisting of two independent agents a supplier e g a manufacturer and its customer e g a retailer the latter in turn serving an uncertain market demand to reconcile manufacturing procurement time lags with a need for timely response to the market such supply chains often must commit resources to production quantities based on forecasted rather than realized demand the customer typically provides a planning forecast of its intended purchase which does not entail commitment benefiting from overproduction while not bearing the immediate costs the customer has incentive to initially overforecast before eventually purchasing a lesser quantity the supplier must in turn anticipate such behavior in its production quantity decision this individually rational behavior results in an inefficient supply chain this paper models the incentives of the two parties identifying causes of inefficiency and suggesting remedies particular attention is given to the quantity flexibility qf contract which couples the customer s commitment to purchase no less than a certain percentage below the forecast with the supplier s guarantee to deliver up to a certain percentage above under certain conditions this method can allocate the costs of market demand uncertainty so as to lead the individually motivated supplier and customer to the systemwide optimal outcome we characterize the implications of qf contracts for the behavior and performance of both parties and the supply chain as a whole

hysteresis price acceptance and reference prices the existence of price thresholds in grocery retailing is well documented most authors explain the existence of price thresholds using assimilation contrast theory adaptation level theory or prospect theory however each of these theories is untenable if consumers are believed to behave rationally we offer a theoretical explanation grounded in real options theory rot and economic hysteresis we test the rot hypothesis against three plausible alternatives using a maximum likelihood friction model that we augment for unobserved heterogeneity our findings support the rot hypothesis and suggest that the existence of price thresholds in aggregate data are driven by a common recognition of real option values which do not disappear with the inclusion of consumer heterogeneity

strategic complementarities and search market equilibrium abstract in this paper we apply supermodular game theory to the equilibrium search literature with sequential search we identify necessary and sufficient conditions for the pricing game to exhibit strategic complementarities and prove existence of equilibrium we then show that price dispersion is inherently incompatible with strategic complementarities in the sense that the diamond paradox obtains when firms are identical and is robust within the class of search cost densities that are small near zero and support strategic complementarities we also show that a major criticism of the literature that agents act as if they know the distribution of prices can be justified in the sense of convergent best response dynamics

market power price adjustment and inflation we study the responses of real and nominal prices to random flutuations in costs and money growth using a monetary search economy in which there are no costs or temporal restrictions on sellers ability to change prices the economy exhibits a form of price stickiness in that the price level may react incompletely to either type of shock as a result of endogenous changes in the average mark up driven by movements in consumers search intensity the average mark up falls as inflation rises a finding consistent with emprical observations as a result of this reduction in market power prices become more responsive to shocks as inflation rises our results are consistent with empirical findings that the degree of price adjustment in response to both cost and money growth shocks is increasing in the average rate of inflation that the variance of inflation increases with its average level and that positive and negative shocks to money growth have asymmetric effects

the effect of the designated hitter rule on hit batsmen pitcher s moral hazard or the team s cost benefit calculation a comment since the designated hitter dh rule was introduced to the american league al in 1973 american league pitchers have hit opposing batsmen more frequently than have national league nl pitchers golf shughart and tollison 1997 hereafter gst attribute this difference to moral hazard on the part of pitchers because american league pitchers no longer bat they do not personally face retaliation in kind for hitting opposing batsmen and hence can throw at opposing batters with greater impunity p 555 gst find that the introduction of the dh rule led to a 10 to 15 increase in hit batters in the american league relative to the national league p 558 and offer this increase as evidence consistent with the moral hazard story we question whether the dh rule has really made such a large difference and whether pitchers moral hazard is the best explanation for whatever difference it has made we offer a different explanation hit batsmen should occur more frequently in the al because from the team s point of view the net benefits of plunking a designated hitter are higher than those of plunking a pitcher our empirical evidence provided below also casts doubt on the gst result we find the moral hazard story questionable for the following reason a national league team that plunked the opposing pitcher in retaliation for his throwing at one of its players would be putting the opposing team s weakest hitter on base sacrificing a very likely out a less costly form of retaliation is to plunk the opponent s best hitter a batter far more likely to create runs for his team if pitched to normally retaliating against the big slugger is also likely to provide a greater benefit threatening the opponents with injury to a top hitter should provide a greater deterrent than threatening them with injury to an average pitcher if retaliation for a hit batsman is indeed directed at a team s big hitter then the fact that al pitchers no longer bat should have little if any effect on their willingness to hit opposing batters we believe it is common knowledge among students of the game that plunking a big slugger is in fact the standard retaliatory strategy 1 of course our a priori argument and casual empiricism are not conclusive in our explanation the pitcher acts as an agent of his team s manager so there is no particular deterrent value in plunking the pitcher but hitting the pitcher might make sense as a retaliatory second move strategy if instead as gst explicitly assume the pitcher himself can decide to throw at an opposing batter our cost benefit explanation for the interleague difference in hit batsmen implies that pitchers are plunked less often than are designated hitters 2 whereas the gst moral hazard explanation implies that pitchers who bat are objects of retaliation 3 support for the view that retaliation is seldom directed at pitchers is provided by james s 1987 annotated list of significant injuries resulting from hit batsmen 1950 1984 only three of 48 cases from regular season games in which a pitcher batted involved injury to a pitcher still we need to take a more detailed look at the data to examine the question when pitchers bat is it pitchers or non pitchers at whom retaliation is directed sampling of a number of years since introduction of the dh shows a pattern consistent with our cost benefit argument designated hitters typically good hitters because fielding skills are not required for their job are hit by pitches somewhat more frequently than are other batters while pitchers typically poor hitters because pitching skills are much more important to their job are hit much less frequently see appendix on average dhs in the al have been hit at about 110 the rate of other al batters since dhs get about 1 9 of al at bats this factor suggests that the total hit batsmen rate in the al should exceed the rate in the nl by about 1

demand uncertainty and returns policies manufacturers facing uncertain demand may induce distributors to carry ample stocks of their products by agreeing to accept returns of unsold goods for credit the authors model the manufacturer s decision to accept returns showing that this decision depends crucially on the nature of the demand uncertainty uncertainty over customer arrivals favors returns while uncertainty over consumers valuation of the manufacturer s product leads distributors to set retail prices too high from the manufacturer s standpoint when returns are allowed the authors show that returns can be expected to raise retail prices while maintaining shrinking distributor margins copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association