why do u s states adopt public private partnership enabling legislation abstract public private partnerships or ppps have the potential to address a range of urban economic issues as of late 2012 thirty two u s states and puerto rico had enacted legislation enabling the use of ppps ppp enabling laws address such issues as the treatment of unsolicited ppp proposals prior legislative approval of ppp contracts and the mixing of public and private funds we utilize 13 key elements of ppp enabling laws to develop an index reflecting the degree to which a state s law is encouraging or discouraging of private infrastructure investment we examine why states pass such laws and why some states pass legislation that is relatively more favorable to private investment we consider demand side supply side and political institutional drivers of passage vehicle registration growth and greater traffic congestion both increase the likelihood of passage as does political agreement between a state s executive and legislative branches traffic congestion growth in per capita income and the percent of republicans in the state s house of representatives all increase a law s favorability to private investment there is little indication that traditional public finance variables such as federal highway aid affect the likelihood of passage or the favorability of a state s ppp enabling law

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

the impact of regulation on economic growth in developing countries a cross country analysis summary the role of an effective regulatory regime in promoting economic growth and development has generated considerable interest among researchers and practitioners in recent years in particular building effective regulatory structures in developing countries is not simply an issue of the technical design of the most appropriate regulatory instruments it is also concerned with the quality of supporting regulatory institutions and capacity this paper explores the role of state regulation using an econometric model of the impact of regulation on growth the results based on two different techniques of estimation suggest a strong causal link between regulatory quality and economic performance

price coherence and excessive intermediation suppose an intermediary provides a benefit to buyers when they purchase from sellers using the intermediary s technology we develop a model to show that the intermediary would want to restrict sellers from charging buyers more for transactions it intermediates with this restriction an intermediary can profitably raise demand for its services by eliminating any extra price buyers face for purchasing through the intermediary we show that this leads to inflated retail prices excessive adoption of the intermediaries services over investment in benefits to buyers and a reduction in consumer surplus and sometimes welfare competition among intermediaries intensifies these problems by increasing the magnitude of their effects and broadening the circumstances in which they arise we discuss applications to payment card systems travel reservation systems rebate services and various other intermediaries jel codes d40 l11 l14 l42

strategic price complexity in retail financial markets abstract there is mounting empirical evidence to suggest that the law of one price is violated in retail financial markets there is significant price dispersion even when products are homogeneous also despite the large number of firms in the market prices remain above marginal cost and may even rise as more firms enter in a non cooperative oligopoly pricing model i show that these anomalies arise when firms add complexity to their price structures complexity increases the market power of the firms because it prevents some consumers from becoming knowledgeable about prices in the market in the model as competition increases firms tend to add more complexity to their prices as a best response rather than make their disclosures more transparent because this may substantially decrease consumer surplus in these markets such practices have important welfare implications

the market for quacks a group of n quacks plays a price competition game facing a continuum of patients who recover with probability whether or not they acquire a quack s treatment if patients chose rationally the market would be inactive i assume however that patients choose according to a boundedly rational procedure which re ects anecdotal reasoning this element of bounded rationality has signi cant

monopolistic competition in the spirit of chamberlin a general model this paper develops a model of large group chamberlinian monopolistic competition in which 1 there are many firms producing differentiated commodities 2 each firm is negligible in that it can ignore its impact on and hence reactions from other firms 3 free entry leads to zero profit of operating firms but 4 each firm faces a downward sloping demand curve the existence of a monopolistically competitive equilibrium is established in a companion paper more particular questions such as whether the market provides too many or too few products are addressed for a special case of the model

credible commitment and success with public enterprise reform abstract this paper studies why some efforts at public enterprise reform fail and why others succeed economic reforms are intended to increase efficiency and thus help sustain long term growth yet many governments have had difficulty sustaining the reforms they initiated and have reintroduced rigid controls over markets and enterprises this is because either in the process of implementation the government discovers that the costs of carrying the reform further are greater than the expected efficiency gains or the public is skeptical that the new policies can be sustained and does not take the actions necessary for the gains to be realized this paper develops a new institutionalist framework and employs various measures of policy commitment and net gain from continued reform to analyze these issues the paper suggests ways in which the potential success or failure of a reform can be assessed with implications for the steps that reformers might take to increase the chances of success

brand specific tastes for quality this paper develops a model of nonlinear pricing with competition the novel ele ment is that each consumer s willingness to pay for quality is private information and is allowed to dier across brands the consumer s preferences are represented by a multidimensional type containing the marginal value of quality for dierent products buyers with high willingness to pay for quality also display strong preferences for par ticular brands and require higher discounts in order to switch away from their favorite product therefore competition is ercer for buyers with lower tastes for quality and hence more elastic demands this is in sharp contrast to earlier models in which com petition is ercer for higher taste more valuable buyers in equilibrium rms either compete intensively for the entire market providing strictly positive rents to all con sumers or shut down the least pro table segment of the market quality levels are distorted downwards for all buyers except for those with the highest type the number of competing rms and the degree of correlation across brand preferences enhance the e ciency of the allocation

price competition under mixed multinomial logit demand functions in this paper we postulate a general class of price competition models with mixed multinomial logit demand functions under affine cost functions in these models the market is partitioned into a finite set of market segments we characterize the equilibrium behavior of this class of models in the case where each product in the market is sold by a separate independent firm we identify a simple and very broadly satisfied condition under which a pure nash equilibrium exists and the set of nash equilibria coincides with the solutions of the system of first order condition equations a property of essential importance to empirical studies this condition specifies that in every market segment each firm captures less than 50 of the potential customer population when pricing at a specific level that under the condition is an upper bound for a rational price choice for the firm irrespective of the competitors prices we show that under a somewhat stronger but still broadly satisfied version of the abov

platform intermediation in a market for differentiated products we study a two sided market where a platform attracts firms selling differentiated products and buyers interested in those products in the subgame perfect equilibrium of the game the platform fully internalises the network externalities present in the market and firms and consumers all participate in the platform with probability one the monopolist intermediary extracts all the economic rents generated in the market except when firms and consumers can trade outside the platform in which case consumers obtain a rent that corresponds to the utility they would get if they did trade outside the platform the market allocation is constraint efficient in the sense that the monopoly platform does not introduce distortions over and above those arising from the market power of the differentiated product sellers an increase in the number of retailers increases the amount of variety in the platform but at the same time increases competition as a result the platform lowers the firm fees and raises the consumer charges in contrast an increase in the extent of product differentiation raises the value of the platform for the consumers but weakens competition in this case the platform raises both the charge to the consumers and the fee for the firms

interest rate smoothing and price level trend stationarity abstract this paper discusses the definition and mechanics of central bank interest rate smoothing under rational expectations a tension arising between interest rate smoothing and macroeconomic stabilization objectives induces non trend stationary price level and money stock behavior the paper thereby helps explain why such nominal non stationarities are widely observed further implications are drawn for base drift distribution of real returns on long term fixed rate nominal debt and operating characteristics of interest rate pegs and policy instruments

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

competitive price discrimination we model firms as supplying utility directly to consumers the equilibrium outcome of competition in utility space depends on the relationship u between profit and average utility per consumer public policy constraints on the deals firms may offer affect equilibrium outcomes via their effect on u f rom this perspective we examine the profit utility and welfare implications of price discrimination policies in an oligopolistic framework we also show that an equilibrium outcome of competitive nonlinear pricing when consumers have private information about their tastes is for firms to offer efficient two part tariffs

price and variety in the spokes model the spokes model of nonlocalized spatial competition provides a new analytical tool for dierentiated oligopoly and a representation of spatial monopolistic competition an increase in the number of rms leads to lower equilibrium prices when consumers have relatively high product valuations but surprisingly to higher equilibrium prices for in termediate consumer valuations new entry alters consumer and social welfare through price market expansion and matching eects with free entry the market may pro vide too many or too few varieties from a social welfare perspective and the equilibrium price remains above marginal cost even when the number of rms is arbitrarily large

customer markets credit market imperfections and real price rigidity according to standard theory an increase in demand should raise prices of goods given factor prices empirically however prices appear to be unaffected by short run variations in demand this paper suggests an explanation of this observation if customers react slowly to price changes and credit markets are imperfect prices may be unchanged or even fall when demand increases the reason is that when demand is high profits are high and firms can compete more intensely for customers without increasing their borrowing copyright 1991 by the london school of economics and political science

advertising for attention in a consumer search model we model the idea that when consumers search for products they first visit the firm whose advertising is most salient the gains a firm derives from being visited early increase in search costs so equilibrium advertising increases as search costs rise as a result higher search costs may decrease both consumer welfare and firm profits we extend the basic model by allowing for firm heterogeneity in advertising costs firms that raise attention more easily advertise more but also charge lower prices and obtain higher profits as advertising cost asymmetries increase consumer surplus falls and aggregate profits rise

institutions and government controls abstract this paper develops a model of government policy toward industrial control and regulation that sheds light on the determinants of differential country experiences in terms of organizational arrangement and enterprise performance in contrast to the model developed by shleifer and vishny shleifer a vishny r w 1994 politicians and firms quarterly journal of economics 109 995 1025 shleifer a vishny r w 1998 the grabbing hand government pathologies and their cures harvard univ press cambridge ma which suggests that government controls over firms come about when politicians can use public funds to buyoff the managers and solicit their cooperation in politically motivated redistribution of rents the present shows that it may be the ability to use the government s regulatory powers at discretion that encourages politicians to impose controls on firms and redistribute their rents the model implies that the politicians appetite for intervention tends to be greater when the cost of collecting and using public funds is higher which is the opposite of what the shleifer vishny model predicts the present model helps explain the puzzling observation that countries with poor institutions are more likely to impose extensive controls on production and maintain large and inefficient public sectors the model also sheds light on a variety of other stylized facts and puzzles and offers new hypotheses to be tested

behavioral heterogeneity and the income effect inspired by the recent literature on aggregation theory this paper introduces hits a semiparametric model of consumer demand that allows for diversity in tastes the strong variation of budget shares observed across income groups has two possible origins the individual income effect and taste differences between poor and rich households consumer surveys reporting repeated cross sections do not permit the direct measurement of these two effects in hits linear heterogeneity allows the gmm estimation of structural coefficients on an aggregate series the joint density of spending and tastes is then recovered from cross sections by a nonparametric procedure involving a deconvolution we estimate the model on british data 1968 1998 and report that taste heterogeneity explains a large fraction of the variation of budget shares with income

buyer confusion and market prices we employ a price setting duopoly experiment to examine whether buyer confusion increases market prices each seller offers a good to buyers who have homogeneous preferences sellers decide on the number of attributes of their good and set prices the number of attributes bears no cost to the sellers and does not affect the value of the good to the buyers but adds complexity to buyers evaluation of the goods the experimental results indicate that the buyers make more suboptimal choices and that prices are higher when the number of attributes of the goods is higher moreover prices and profits are higher than those in a benchmark treatment with perfectly rational robot buyers

the greek stabilization of 1944 46 it is a matter of great contention among economists whether economic stabilization programs can be instituted without imposing high real costs those believing in the core or underlying rate of inflation hypothesis argue that relying only on conventional monetary and fiscal policies will impose high costs the rational expectations proponents on the other hand argue that a convincing antiinflation program will likely minimize these costs as economic agents respond to a genuine regime change or change in the rules under which monetary and fiscal policies are conducted a way of discriminating between these contending views is to examine the stabilization phase of the world s episodes of hyperinflation thus far the work of thomas sargent 1982 on the post world war i experiences in austria hungary poland and germany and william bomberger and myself 1983 on post world war ii hungary have adduced evidence in support of the rationalists view price level stability was achieved rapidly without a prolonged period of high unemployment the greek stabilization of 1944 46 is not so straightforward and as such provides an interesting contrast to the other episodes its unique feature is that price level stability took over a year to achieve following the initial reform of november 11 1944 it was not achieved until in a third reform in early 1946 the greek 1018 1024

equilibrium with product differentiation tive consumer formulations is used to examine the properties of single and multiple price equilibria conditions under which decreases in the intensity of consumer preferences reduce price are given it is shown that with certain types of demand curves entry can eliminate price cost markups even given product differentiation if competition is localized it is demonstrated that entry does not affect the markup finally the effect of spurious product differentiation on price is examined

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

the political economy of chinese style privatization motives and constraints summary the paper examines how the privatization of chinese state owned enterprises soes can be successfully triggered and completed by identifying the motives of local government leaders and the constraints that face them during transition we conclude that first whether local governments are motivated to privatize their soes depends on if the ownership transfer is expected to stimulate sufficiently high growth of local tax revenues without sacrificing the bureaucrats private control benefits second a specific privatization program can succeed only if it manages to satisfy the managerial cooperation constraint the workers compensation constraint and the bank debt servicing constraint the motives cum constraints political economy approach offers an important explanation for the pace and scope of the ongoing chinese style privatization

the hungarian hyperinflation and stabilization of 1945 1946 inflation in hungary after world war ii was the most intense on record the reforms of august 1946 were immediately and entirely successful in stabilizing prices this paper describes and analyzes the unique policies and institutions that produced these phenomena despite its severity the hungarian experience was consistent with the less extreme inflation and stabilization experiences examined by sargent price stabilization was accomplished by fiscal rather than purely monetary measures and was paradoxically accompanied by rapid and prolonged money growth

poincare s stabilization abstract the data and press commentaries studied in this paper call for a reinterpretation of the french inflationary crisis and its stabilization in 1926 in contrast with sargent s interpretation there is evidence that the budgetary situation was well in hand and that only fear of a capital levy made the public unwilling to buy government bonds as a result the government had to repay the bonds coming to maturity with monetary financing only when poincare introduced a bill to shift the tax burden off bondholders did the demand for government bonds recover and inflation stop

pricing strategies in a dynamic duopoly a differential game model we formulate a differential game model for dynamic pricing in a duopolistic market firms demand functions are derived from utility maximizing behavior of consumers with the demand for a brand given by the logit model preferences for brands are assumed to evolve over time in the market in a manner akin to learning models postulated in the marketing literature we derive the differential equations governing the equilibrium open loop price paths over time and show that in steady state the brand with the higher preference level charges the higher price the formulation is extended to include the effects of consumer heterogeneity and equilibrium steady state prices are compared with those obtained when heterogeneity is ignored a comparison of steady state dynamic prices with myopic prices is provided an empirical example is discussed to show how steady state model predictions may be obtained from actual longitudinal purchase data

technological extinctions of industrial firms an inquiry into their nature and causes after a buildup in the number of firms new industries commonly experience a shakeout in which the number of firms declines sharply three theoretical perspectives on how technological change contributes to industry shakeouts are analyzed the theories are used to synthesize predictions concerning technological change and industry evolution the predictions inform an analysis of four us industries that experienced sharp shakeouts automobiles tires televisions and penicillin using data on firm participation and innovation from the commercial inception of the four products through their formative eras we uncover regularities in how the products evolved the regularities suggest that shakeouts are not triggered by particular technological innovations nor by dominant designs but by an evolutionary process in which technological innovation contributes to a mounting dominance by some early entering firms copyright 1997 by oxford university press

monopolistic competition and preference diversity approach our model is especially attractive because it starts from economic primitives a specification of the set of possible individual preference patterns it shows how specific properties of the distribution of preferences translate into properties of aggregate demand this allows us to understand the relationship between the distribution of preferences and the degree to which the market introduces biases in product selection this paper presents a general model of the demand for differentiated products which has as special cases two of the most popular approaches used to analyse welfare and competition in monopolistically competitive markets the model of spatial competition on the circle and the model of symmetric aggregate demand the circle model is attractive because both demand and costs have a definite and easy to visualize physical foundation and because it is tractable salop 1979 provides an exemplary modem analysis with this model one can analyze the relationship between the optimal amount of product variety and the amount which a monopolistically competitive market will support in many plausible cases competition produces too much variety such a strong conclusion raises questions of robustness almost simultaneously spence 1976 and dixit and stiglitz 1977 developed an alternative approach to monopolistic competition based upon the chamberlinian assumption of symmetry see also shubik 1959 rather than specifying a distribution of preferences and deriving demand through aggregation as did salop and his predecessors these authors started by specifying a symmetric aggregate benefit function indicating how social welfare depends on the amounts of the various products supplied both spence and dixit stiglitz were able to show that the welfare conclusions from the circle model were not robust depending on the functional form of the benefit function equilibrium may entail either excessive or insufficient product variety 1 the assumption of symmetric demand has proven fruitful in the analysis of many economic problems it is therefore natural to ask what distribution of tastes would give

new product introduction with costly search abstract in the usual model of product market search a low search cost can turn out to have detrimental incentives on new product introduction as the low search cost erodes firms market power attenuating the profit from innovation this paper studies a model of monopolistic competition with costly search where the point of departure is that of a fixed cost of initiating search in this environment a low search cost could turn out to be favorable to innovation at a low search cost more consumers may decide to start searching possibly resulting in higher profits for firms in the larger market despite the erosion of market power

the taiwanese hyperinflation and stabilization of 1945 1952 during the years 1945 1949 taiwan experienced a hyperinflation separate from the hyperinflation on the chinese mainland the stabilization ultimately implemented by the chinese nationalists differed in important ways from the programs that ended the big european inflations the program was embarked upon with little hope of or efforts toward reducing the budget deficit price stability took three years to achieve and use was made of high real yielding bank accounts as an anti inflation tool the behavior of key economic variables during the episode raises questions relating to current theories of how economic agents react to regime changes copyright 1989 by ohio state university press

emergence of captive finance companies and risk segmentation in loan markets theory and evidence this paper presents a theoretical model and empirical evidence of risk segmentation of the secured consumer installment loan market by two different types of lending institutions independent lending institutions and captive finance companies a consumer installment loan is a credit arrangement repaid through periodic installment payments over a specific length of time in general consumer installment loans are used for financing the purchase of expensive durable

imperfect competition in selection markets policies to correct market power and selection can be misguided when these forces coexist we build a model of symmetric imperfect competition in selection markets that parameterizes the degree of market power and selection we use graphical price theoretic reasoning to characterize the interaction between these forces using a calibrated model of health insurance we show that the risk adjustment commonly used to offset adverse selection can reduce coverage and social surplus conversely in a calibrated model of subprime auto lending realistic levels of competition can generate an oversupply of credit implying that greater market power is desirable

becoming a bad doctor we analyze a market with n rational rms doctors and a continuum of boundedly rational consumers patients following spiegler 2006a we assume that patients are not familiar with the market and rely on anecdotes we analyze the price setting game played by doctors with given dierent healing qualities doctors know their own quality as well as the qualities of their competitors in the unique equilibrium all doctors no matter how bad earn positive prots if doctors even costlessly choose their qualities doctors mainly oer mediocre qualities in all spne welfare may strictly decrease in the number of doctors

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

relationship between spatial agglomeration and hotel prices evidence from business and tourism consumers abstract in this paper we examine the relationship between number of local competitors and both the average and the dispersion of retail prices in urban hotels using a dataset from the metropolitan area of madrid spain by controlling for hotel characteristics and spatial factors we obtained results for each of the days in one week in line with predictions derived from the traditional monopolistic approach empirical results consistently indicate that a greater density of competitors implies a lower average and less dispersion of local prices moreover we found evidence which supports the idea that the effect of local agglomeration on average prices is particularly weaker at weekends this in turn indirectly suggests that within the metropolitan area there is a greater degree of substitution in hotel locations for tourism consumers than for business consumers

shrouded attributes consumer myopia and information suppression in competitive markets bayesian consumers infer that hidden add on prices e g the cost of ink for a printer are likely to be high prices if consumers are bayesian firms will not shroud information in equilibrium however shrouding may occur in an economy with some myopic or unaware consumers such shrouding creates an inefficiency which firms may have an incentive to eliminate by educating their competitors customers however if add ons have close substitutes a curse of debiasing arises and firms will not be able to profitably debias consumers by unshrouding add ons in equilibrium two kinds of exploitation coexist optimizing firms exploit myopic consumers through marketing schemes that shroud high priced add ons in turn sophisticated consumers exploit these marketing schemes it is not possible to profitably drive away the business of sophisticates it is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms we show that informational shrouding flourishes even in highly competitive markets even in markets with costless advertising and even when the shrouding generates allocational inefficiencies

access to water for the urban poor in cape town where equity meets cost recovery local authorities in south africa have responded to the post apartheid promise of redistribution and democratisation by adopting market principles in the delivery of essential services this articl

a monetary interpretation of the poincare stabilization of 1926 the stabilization of the french franc and economy in mid 1926 under premier raymond poincar6 was so dramatic that it became known as the poincar6 miracle this reform and the economic problems that precipitated it attracted considerable analytical interest during the 1920s lately economists and historians have returned to reexamine this episode yeager 32 focused on it as an example of a country pulling back from the brink of hyperinflation kindleberger 14 used it as an example of the effects of destabilizing expectations sargent 23 pointed to it in support of the contention that a convincing change in regime can quickly stabilize an economy with high inflation without the necessity of prolonged unemployment all three as well as others view the episode as one that hinged critically on a change in fiscal policy as poincar6 moved decisively to balance the budget our purpose is not to disagree with whether a regime change took place or to challenge any particular view of the transition costs of stabilization we argue instead that what poincar6 did was to alter immediately the nature of the monetary regime that was the source of the instability in the french economy during the 1920s if one were to seek a historic parallel for what poincar6 did it would not be in the stabilizations that ended the big hyperinflations that sargent 24 yeager 32 and others 4 17 18 have studied rather it would be in the spirit of the famous accord worked out between the u s treasury and the federal reserve in 1951 2

consumer and competitor reactions evidence from a field experiment abstract in response to a price change by a single seller it is common for the density of sellers in the market to influence both the quantity response of consumers and the price response of other sellers using field experiment data collected around a series of exogenously imposed price changes we find that an individual retailer with a larger number of competitors faces a more responsive demand this finding is fundamental to a predicted inverse relationship between market prices and the number of competitors we also examine the reaction of rival stations to exogenous price changes and find that the magnitude of a competitor s response is inversely related to the density of stations in the market

imperfect competition with complements and substitutes abstract i study price competition in settings where end products are combinations of components supplied by different monopolists nesting standard models of perfect complements and imperfect substitutes i show sufficient conditions for a discrete choice demand system to yield demand for each product which is log concave in price and has log increasing differences in own and another product s price leading to strong comparative statics results many results familiar from simple models like the price effects of mergers or changes in marginal costs extend naturally to this more complex setting

optimal pricing mechanisms with unknown demand the standard profit maximizing multi unit auction intersects the submitted demand curve with a preset reservation supply curve which is determined using the distribution from which the buyers valuations are drawn however when this distribution is unknown a preset supply curve cannot maximize monopoly profits the optimal pricing mechanism in this situation sets a price to each buyer on the basis of the demand distribution inferred statistically from other buyers bids the resulting profit converges to the optimal monopoly profit with known demand as the number of buyers goes to infinity and convergence can be substantially faster than with sequential price experimentation

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

prices profits and preference dependence we develop a new approach to discrete choice demand for differentiated products using copulas to separate the marginal distribution of consumer values for product varieties from their dependence relationship and apply it to the issue of how preference dependence affects market outcomes in symmetric multiproduct industries we show that greater dependence lowers prices and profits under certain conditions suggesting that preference dependence is a distinct indicator of product differentiation we also find new sufficient conditions for the symmetric multiproduct monopoly and the symmetric single product oligopoly prices to be above or below the single product monopoly price

oligopolistic nonlinear tariffs we consider the welfare implication of increased variety in industries with differentiated products where nonlinear price schedules are feasible we use an oligopoly model and demonstrate that increased variety 1 allows more consumers of low valuation for the product to participate in the market 2 lowers the marginal price charged from consumers thus inducing increased consumption with infinite brands we get convergence to the pareto optimal marginal cost pricing and the whole market is served

economic liberalization the changing role of the state and wagner s law china s development experience since 1978 summary the paper applies wagner s law of increasing state activity to illustrate the changing function of the state in china as a consequence of economic liberalization wagner s law describes the association between increasing national wealth in progressive states and the rise in state activity and expenditure this indicates that the causes of bureaucratic expansion are to be sought not just in terms of political pressures but the interplay between political considerations and the economic necessities resulting from the emergence of new property rights a simple illustrative model is developed to measure the effects of increasing national wealth and the growth of the public sector this suggests that the patterns of economic development observed by wagner in 19th century europe are not unlike those observed in china today

international pricing in a generalized model of ideal variety we examine international markups and pricing in a generalized version of lancaster s ideal variety model in this model entry causes crowding in variety space so that the marginal utility of new varieties falls as market size grows crowding is partially offset by income effects as richer consumers will pay more for varieties closer matched to their ideal types we show theoretically and confirm empirically that declining marginal utility of new varieties results in a higher own price elasticity of demand and lower prices in large countries and a lower own price elasticity of demand and higher prices in rich countries the model is also useful for generating facts from the literature regarding cross country differences in the rate of variety expansion

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

a theory of privatization or why bureaucrats are still in business abstract privatization is a dynamic phenomenon and changes in ownership arrangements require explanations based upon changes in background variables without movements in these variables bureaucrats are likely to stay in business even if reform would increase efficiency it is argued that changes in one such variable the cost of government finance have played a particularly significant role in trigerring privatizations and related reforms the increasing cost of government finance resulting from higher levels of general public expenditure and taxation also explains the policy sequence observed in many countries in which comprehensive ownership reform is preceded by a period of increased financial stringency for state owned enterprises soes

the first privatisation selling soes and privatising public monopolies in fascist italy 1922 1925 italy s first fascist government applied a large scale privatisation policy between 1922 and 1925 the government privatised the state monopoly of match sale eliminated the state monopoly on life insurances sold most of the state owned telephone networks and services to private firms reprivatised the largest metal machinery producer and awarded concessions to private firms to build and operate motorways these interventions represent one of the earliest and most decisive privatisation episodes in the western world while ideological considerations may have had a certain influence privatisation was used mainly as a political tool to build confidence among industrialists and to increase support for the government and the partito nazionale fascista privatisation also contributed to balancing the budget which was the core objective of fascist economic policy in its first phase

two tier pricing of shared facilities in a free entry equilibrium we explore how well the market will provide shared facilities which are subject to congestion it is usually efficient to have multiple facilities because it is more efficient to spend resources on facilities than to endure crowding costs we assume firms can charge a membership price and a visit price we present a symmetric nash equilibrium in these two prices we show that ifthe number offirms is large the membership price will be small thus the membership price is a measure of market power when entry occurs in response to positive profit but such that entry is deterred by the prospect of negative profit in a symmetric nash equilibrium the endogenous number offirms is bounded below by one fewer than the efficient number thefees paid by a client converge to an appropriately defined competitive price as the economy is replicated

a model of directed consumer search abstract we present a framework to study directed consumer search firms sell products with two attributes one is readily observable the other is observed only after visiting a firm search is directed as the order of search is influenced by the observable characteristics moreover if prices are readily observable firms also influence search direction by their choice of price we show that when consumers observe prices before search prices and profits are lower than when they do not a lower price then not only retains more consumers but is also more likely to attract them the latter effect makes demand more elastic when consumers observe prices before searching prices decrease in search costs consumer surplus initially increases in search costs but may ultimately decrease

the dynamics of smithian growth this paper analyzes the evolution of an economy where growth is driven by increased specialization caused by the geographical expansion of markets it proves that such smithian growth exhibits generic threshold behavior below a critical density of transport linkages the economy is split into isolated local markets with limited specialization above the critical density these markets begin to fuse into a large economywide market causing growth to accelerate this allows an explicit test of the consensus among historians of sung dynasty china that the economic revolution during that period was a result of commercialization caused by the creation of a national waterway network

variety and size regulation in discrete choice oligopoly imperfectly competitive markets for a differentiated product may underprovide brand variety when consumer tastes for brands are highly heterogeneous we show that when the brands in question are indivisible in consumption and each consumer buys a customized quantity or size of the preferred brand only a welfare improvement can be obtained by regulating the size of purchase we study neutral size regulation which requires that the size of purchase be set equal to the size that would prevail in the absence of regulation this improves brand variety and consumer surplus provided consumer tastes are sufficiently heterogeneous

value of an additional firm in monopolistic competition the paper develops a model of monopolistic competition in which the satisfaction levels consumers get from products are independently and identically distributed potential substitution among products then generates demand curves through the mechanism of order statistics the value of extra variety can be calculated directly pareto lognormal and beta distributions are investigated using numerical integration some but not all cases support the argument that the optimal number of firms exceeds the equilibrium number

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

pricing in inflationary times the penny drops how does the frequency and magnitude of micro price rises and falls relate to macroeconomic crisis as well as moderation weekly micropricing behaviour in british groceries was investigated across three leading retailers over the moderation period 2004 7 and the crisis period 2008 10 we find significant price flexibility sharply distinguished from behaviour observed in most previous works downward price flexibility increased markedly in 2008 overall basket prices rise but significantly more individual prices fall than rise in the latter period tests of obfuscation in price setting suggested that large numbers of small price falls were used to disguise the basket price rises

conjectural variations and location theory abstract imperfectly competitive markets such as those involving spatial separation of producers and consumers are characterized by interactions between competing firms actions call forth reactions and the possible reactions form an important part of the information set that should be used to determine the initial actions one method for dealing with this is the conjectoral variation approach despite some shortcomings this methodology sheds considerable light on decision making in the space economy equally importantly it sheds light on more general microeconomies modelled as spatial analogs this paper shows that conjectural variations and the nature of competition between rival firms do indeed matter in location choice and more generally in product design in particular we shall be concerned with showing how the conjectured responses of rival firms affect their desire to agglomerate

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

hyperinflations their origins development and termination abstract this paper summarizes and critically surveys research on hyperinflation appraisal and review of the literature considers the origins development termination and the lessons to be learned from hyperinflations the historical evidence as well as the econometric evidence is analyzed it is concluded that while the lessons to be learned from such episodes perhaps have been overstated a number of useful implications may be derived from studying hyperinflations such as an understanding of the forces which link monetary and fiscal policies to inflation and policy makers role in influencing individuals expectations

why firms may prefer not to price discriminate via mixed bundling abstract we analyze a simple model of joint purchase discounts using a discrete choice framework to characterize consumer choices the model suggests that mixed bundling is more likely to be associated with monopoly this is due to the benefits reaped via price discrimination in a duopoly environment however only pure components pricing may be offered in equilibrium since firms fear the extra degree of competition inherent in mixed bundling

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

on informative advertising and product differentiation abstract we study informative advertising within a random utility non localized competition model of product differentiation quasi concavity of profits may fail as each firm may prefer to deviate to a high price targeting consumers who only become informed about its own product when a symmetric equilibrium exists it is unique increasing the number of firms may increase or decrease the equilibrium price advertising tends to be suboptimal when product differentiation is low and excessive otherwise we also revisit grossman and shapiro grossman g shapiro s 1984 informative advertising with differentiated products review of economic studies 51 63 81 focusing on similarities in constructing a symmetric equilibrium in the two models but also illustrating differences in their welfare properties

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

spurious complexity and common standards in markets for consumer goods behavioural and industrial economists have argued that because of cognitive limitations consumers are liable to make sub optimal choices in complex decision problems firms can exploit these limitations by introducing spurious complexity into tariff structures weakening price competition this paper models a countervailing force consumers choice problems are simplified if competing firms follow common conventions about tariff structures because such a common standard promotes price competition a firm s use of it signals that its products offer value for money if consumers recognize this effect there can be a stable equilibrium in which firms use common standards and set competitive prices

taste heterogeneity and the scale of production fragmentation unification and segmentation abstract we propose a simple framework within which taste heterogeneity is a determinant of the scale of production we show i when taste heterogeneity is small every firm chooses a mass production technology ii when taste heterogeneity is large every firm chooses a small scale production technology and iii when the degree of taste heterogeneity is intermediate these symmetric equilibria cease to exist and both technologies coexist in equilibrium we then extend the basic framework to a geographic framework and obtain a historical evolution of marketing that is characterized by three phases a geographically fragmented market with small scale production a geographically unified market with mass production and a geographically unified but characteristically segmented market

letting the market work for you an evolutionary perspective on product strategy managers must choose to allocate scarce resources either to the maintenance of a range of products tailored to heterogeneous consumer preferences or to the efficient production of a small number of products in addition managers must choose the degree to which they periodically cull the product line vigorous selection removes poor performers from the product line but this action simultaneously impairs the firm s ability to monitor changes in consumer preferences empirical evidence from the computer workstation industry reveals that the ideal choice of product variety depends on the competitive ecology of the industry product variety becomes less valuable as the total number of products on the market increases but it increases in value as uncertainty makes the accurate prediction of demand difficult copyright 2000 john wiley sons ltd

a model of labeling with horizontal differentiation and cost variability we study optimal disclosure of variety by a multiproduct firm with random costs the prices for labeled varieties are increasing functions of the cost differential and do not reveal which variety is cheaper to produce nondisclosure is most common under moderate uncertainty about costs and not too much idiosyncrasy in valuations and quality asymmetry mandatory disclosure decreases expected welfare when cost variability is large and quality asymmetry is small the cheaper variety tends to be oversupplied undersupplied when disclosure is voluntary mandatory competition among multiproduct firms that source inputs in the same upstream market may not lead to more disclosure

joint pricing procurement control under fluctuating raw material costs abstract we consider a firm that periodically procures raw material units stores them and processes them into finished products upon order arrivals the raw material cost evolves in a markovian fashion whereas the demand process is influenced by both the raw material cost and sales prices charged by the firm the firm controls both the raw material procurement activity and sales price in each period we show the optimality of base stock list price type of policies with the additional raw cost dependence under conditions that are verifiable when the firm engages in price competition with other firms tapping into the same raw material market and when the raw material cost process has time continuity and mean reversion tendencies we identify two monotone patterns in which policy parameters should follow as the raw material cost fluctuates cost increases are also shown to translate into price increases at low inventory levels in other circumstances however there does not appear to be a clear pattern as to how the firm should pass cost increases on to end customers our numerical evidence unequivocally supports the adaptation of procurement and pricing controls to changing raw material costs

market structure and market performance in e commerce we investigate the effect of market structure on market performance in the market for consumer electronics we exploit product life cycle information to build an instrumental variable for the number of firms in a market a variable which hitherto had to be treated as exogenous in comparable studies on seller behavior in e commerce we combine data from austria s largest online site for price comparisons with retail data on wholesale prices provided by a major hardware producer for consumer electronics we observe input prices of firms and all their moves in the entry and the pricing game using this information for 70 digital cameras we generate instrumenting is particularly important for estimating the effect of competition on the markup of the price leader

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

search prominence and return costs abstract it is widely held that sellers prefer to appear early in a consumer s search but evidence suggests this need not be the case we develop a model which incorporates costly search and costly return and demonstrate that appearing later may be better when return is free prominence is desirable by standard logic however costly return induces a tradeoff it benefits an earlier seller by reducing the initial search but also benefits a later seller by preventing return conditional on search we show that for small search costs later is better whenever high outcomes have a low likelihood or whenever two independent match value draws are likely to be near one another later can still be better if sellers compete in prices prior to search finally with many sellers the optimal position may be first last or in between but earlier positions are favored as the number of sellers grows

monopolistic competition in the spirit of chamberlin special results the idea of large group monopolistic competition was first introduced by chamberlin in i 933 although a large literature has developed on this topic since that time it can be argued that few of the models which have been formulated really capture monopolistic competition in chamberlin s sense in a companion paper to this one hart i 983 a model was presented which it was claimed did satisfy the desiderata of large group monopolistic competition specifically the model had the property that i there were many firms producing differentiated commodities 2 each firm was negligible in the sense that it could ignore its impact on and hence reactions from other firms 3 free entry led to zero profit of operating firms but 4 each firm faced a downward sloping demand curve and hence equilibrium price exceeded marginal cost the model of hart i983 was quite general and only such issues as the existence and limiting properties of equilibrium were considered the purpose of the present paper is to analyse a special case of this model in greater detail and to consider in this context the old question of whether too few or too many brands are produced under monopolistic competition before embarking on the analysis however let me briefly indicate why i believe that there is a need for a new model of monopolistic competition further discussion of this may be found in hart i983 in the last few years a sizeable literature has developed on imperfect competition and product differentiation see for example dixit and stiglitz i977 lancaster i979 salop i979 and spence i976 in much of this literature see for example spence i976 markets of fixed finite size are considered where the entry of firms is limited by the existence of set up costs under these conditions only a finite number of firms can operate and hence firms will not be negligible in the sense of 2 in addition due to the integer problem operating firms will generally make strictly positive profits i e 3 is violated models of

trade firm size and product variety under monopolistic competition monopolistic competition is used to examine rationalization behavior in response to market integration a particular second order condition on demand functions for differentiated products must be satisfied to generate an increase in firm size with an associated decline in equilibrium price when market size increases for identical products the firm size increase is guaranteed the number of firms increases less than it does in proportion to market size for identical products but may increase more than in proportion to market size for differentiated products the latter results implies that market integration need not lead to exit of firms

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

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