strategic segmentation of a market abstract when competing firms target information towards specific consumers through direct marketing activities complete segmentation of markets can result we analyze a two stage duopoly where prior to price competition each firm targets information to specific consumers and only consumers informed by a firm can buy from it this has the effect of endogenously determining market segments in a model of sales in equilibrium pure local monopoly emerges firms target and sell to mutually exclusive market segments when the cost of marketing approaches zero market shares reflect relative production efficiency equal shares when firms are symmetric this may not be the case when marketing cost is high

competitive coupon targeting with the advent of panel data on household purchase behavior and the development of statistical procedures to utilize this data firms can now target coupons to selected households with considerable accuracy and cost effectiveness in this article we develop an analytical framework to examine the effect of such targeting on firm profits prices and coupon face values we also derive comparative statics on firms optimal mix of offensive and defensive couponing the number of coupons distributed redemption rates face values and incremental sales per redemption among our findings when rival firms can target their coupon promotions at brand switchers the outcome will be a prisoner s dilemma in which the net effect of targeting is simply the cost of distribution plus the discount given to redeemers

position auctions with consumer search this paper examines a model in which advertisers bid for sponsored link positions on a search engine the value advertisers derive from each position is endogenized as coming from sales to a population of consumers who make rational inferences about rm qualities and search optimally consumer search strategies equilibrium bidding and the welfare benets of position auctions are analyzed implications for reserve prices and a number of other auction design questions are discussed

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

information provision in a vertically differentiated competitive marketplace this paper examines the interaction of information provision product quality and pricing decisions by competitive firms to explore the following question in a competitive market where consumers face uncertainty about product quality and or their preference for quality which firms those that sell higher or lower quality products have the higher incentive to provide what type of information we find that while the higher quality firm should always provide information resolving consumer uncertainty on product quality the lower quality firm under certain conditions will have the higher incentive to and will be the one to provide information resolving consumer uncertainty about their quality preferences in the analysis we trace the latter result to competition and to free riding on the information provision specifically in a monopoly market or when consumer free riding is restricted by the costliness of store visits the lower quality firm would have a lower incentive to provide information resolving consumer preference uncertainty than otherwise the model is also adapted to examine product returns as a possible strategy of information provision

competitive targeted advertising with price discrimination this paper investigates the eects of price discrimination by means of targeted advertis ing in a duopolistic market where the distribution of consumers preferences is discrete and where advertising plays two major roles it is used by rms as a way to transmit relevant information to otherwise uninformed consumers and it is used as a price discrimination device we compare the rms optimal marketing mix advertising and pricing when they adopt mass advertising non discrimination strategies and targeted advertising price discrim ination strategies if rms are able to adopt targeted advertising strategies we nd that the symmetric price equilibrium is in mixed strategies while the advertising is chosen deter ministically our results also unveil that as long as we allow for imperfect substitutability between the goods rms do not necessarily target more ads to their own market in par ticular rms optimal marketing mix leads to higher advertising reach in the rival s market than in the rms own market provided that advertising costs are su ciently low in relation to the consumer s reservation value the comparison of the optimal marketing mix under mass advertising strategies and targeted advertising strategies reveals that targeted adver tising might constitute a tool to dampen price competition in particular if advertising costs are su ciently low in relation to the value of the goods we obtain that average prices with non discrimination mass advertising are below those with price discrimination and targeted advertising regardless of the market segment accordingly when i goods are imperfect substitutes ii advertising is not too expensive and iii targeted advertising constitutes an eective price discrimination tool price discrimination through targeted advertising may be detrimental to social welfare since it boosts industry pro ts at the expense of consumer surplus

wage and technology dispersion this paper explains why firms with identical opportunities may use different technologies and offer different wages our key assumption is that workers must engage in costly search in order to gather information about jobs stigler 1961 in equilibrium some firms adopt high fixed cost high productivity technologies offer high wages and fill job openings quickly other firms adopt less capital intensive technologies and offer low wages hiring mostly uninformed workers in equilibrium the amount of wage dispersion leaves workers indifferent about whether to gather information and the fraction of informed workers leaves firms indifferent about their wage and technology choice we show that worker search which would appear to be a rent seeking activity in partial equilibrium may be efficiency enhancing in general equilibrium

theory and evidence on pricing by asymmetric oligopolies we present an analysis of markets with many asymmetrically positioned retailers that compete for the business of both informed and uninformed customers for a homogenous good such as software music book or a brand name appliance we show that two forms of asymmetry one related to loyal segment sizes of retailers and one related to the positioning of firms completely explain the observed price dispersion in such markets and the multitude of asymmetrical strategies adopted by retailers the stochastic dominance of empirical mixed strategy measures is used to test the theory with data on 968 books from 10 online retailers

joint stochastic dynamic pricing and advertising with time dependent demand abstract this paper examines the sale of a finite number of items in a class of stochastic dynamic pricing and advertising models with time dependent demand elasticities we prove structural properties of the optimal expected profits with respect to time inventory level price impact advertising impact and different model parameters such as discount rate marginal unit costs and holding costs we find that the value of an additional item opportunity costs is decreasing in the unit costs the discount rate the holding cost rate and the number of items left to sell we also derive structural properties of optimal joint pricing and advertising strategies this way we obtain general qualitative insights in the complex interplay and the mutual dependence of optimal pricing and advertising decisions among other properties we show that a higher advertising impact leads to higher optimal prices and lower advertising rates which in turn implies a lower speed of sale the results obtained help practitioners to respond to changes in market conditions by adjusting price and advertising accordingly our results allow speeding up numerical computations of decisions as the set of possible actions can be reduced significantly our analysis implies general results for pure pricing as well as pure advertising models with time dependent demand elasticities

cheap money and risk taking opacity versus fundamental risk we explore the effect of interest rates on risk taking and find that it depends on the type of risk involved in a bayesian setting investments can be risky either because payoff relevant signals are noisy or because the dispersion of the prior is high while both types of risk contribute symmetrically to the overall riskiness of an investment project we show that changes in interest rates affect risk taking in these two types of risk in opposite directions this makes the net effect of interest rates on risk taking as measured by the average riskiness of financed projects necessarily ambiguous and dependent on the sources of risk

collective moral hazard maturity mismatch and systemic bailouts the paper elicits a mechanism by which private leverage choices exhibit strategic complementarities through the reaction of monetary policy when everyone engages in maturity transformation authorities haver little choice but facilitating refinancing in turn refusing to adopt a risky balance sheet lowers the return on equity the key ingredient is that monetary policy is non targeted the ex post benefits from a monetary bailout accrue in proportion to the number amount of leverage while the distortion costs are to a large extent fixed this insight has important consequences first banks choose to correlate their risk exposures second private borrowers may deliberately choose to increase their interest rate sensitivity following bad news about future needs for liquidity third optimal monetary policy is time inconsistent fourth macro prudential supervision is called for we characterize the optimal regulation which takes the form of a minimum liquidity requirement coupled with monitoring of the quality of liquid assets we establish the robustness of our insights when the set of

product diversity in asymmetric oligopoly is the quality of consumer goods too low we analyse an oligopoly model incorporating horizontal differentiation and quality differences high quality goods are overpriced and underproduced when the market is fairly well covered low quality products may be profitable when their net social contribution is negative implying excessive entry in a relatively uncovered market even low quality goods are underproduced and there may be underentry when fixed costs are independent of quality the market tends to select the right firms otherwise the market may produce low quality products when it should produce high quality ones the model is calibrated using market data for yoghurt

what does an oligopoly maximize a monopolist maximizes a well defined objective function monetary profit in a competitive industry although each individual pursues selfish objectives the market behaves as if an agent was maximizing an objective function social welfare can we say the same for an oligopoly do firms pursuing selfish objectives and behaving strategically act as if an agent was maximizing a fictitious objective function necessary and sufficient conditions for nash equilibria of static and state space games to be observationally equivalent to single optimization problems are derived nash equilibria of the game that are not maxima of the function are shown to be generically unstable copyright 1994 by blackwell publishing ltd

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

informative advertising with differentiated products in this paper we study the role of promotional expenditures by sellers in a model of product differentiation advertising conveys full and accurate information about the characteristics of products heterogeneous consumers who have no source of information other than advertisements seek to purchase the products that best fit their needs despite the roles played by advertising in improving the matching of products and consumers and in increasing the elasticity of demand faced by each firm we find that the market determined levels of advertising are excessive given the extent of diversity in the market we derive a promotional equilibrium based on a specific information transmission technology paying explicit attention to the structure of consumer information and its impact on firms demand curves this allows us to study the effects of changes in the advertising technology including an increased ability to target messages to specific groups of consumers on the equilibrium in the product market we find that decreased advertising costs may reduce profits by increasing the severity of price competition

product variety and firm agglomeration for the purpose of explaining interindustry variation in the geographic distribution of firms we explore the impact of product heterogeneity on the incentives for firms to cluster in the presence of a ubiquitous periphery of stand alone firms our analysis revolves around two counteracting forces greater product heterogeneity increases consumer search which raises the amount of shopping at a cluster since this results in greater demand for a firm that joins the cluster this effect increases the incentive to cluster however greater product heterogeneity gives stand alone firms more local monopoly power since this raises their price cost margins this effect increases the incentive for a firm to stand alone our analysis shows that the former effect typically dominates so that greater firm agglomeration is associated with industries characterized by greater product heterogeneity

the welfare cost of bank capital requirements abstract capital requirements are the cornerstone of modern bank regulation yet little is known about their welfare cost this paper measures this cost and finds that it is surprisingly large i present a simple framework which embeds the role of liquidity creating banks in an otherwise standard general equilibrium growth model a capital requirement limits the moral hazard on the part of banks that arises due to deposit insurance however this capital requirement is also costly because it reduces the ability of banks to create liquidity the key insight is that equilibrium asset returns reveal the strength of households preferences for liquidity and this allows for the derivation of a simple formula for the welfare cost of capital requirements that is a function of observable variables only using us data the welfare cost of current capital adequacy regulation is found to be equivalent to a permanent loss in consumption of between 0 1 and 1

advertising and consumer search in a duopoly model we consider a duopoly in a homogenous goods market where part of the consumers are ex ante uninformed about prices information can come through two different channels advertising and sequential consumer search we arrive at the following results first there is no monotone relationship between prices and the degree of advertising second advertising and search are substitutes for a large range of parameters third when the cost of either search or advertising vanishes the competitive outcome arises finally both expected advertised and non advertised prices are non monotonic in search cost one of the implications is that firms actually may benefit from consumers having low rather than high search costs

networks in entrepreneurship the case of high technology firms the value of networks as an integral part of the explanation of entrepreneurial success is widely acknowledged however the network perspective does not specify the role of networks in the emergence and early growth of a venture we have distinguished three entrepreneurial processes in new venture development i e discovery of opportunities securing resources and obtaining legitimacy which are of importance for survival and performance this paper examines how these processes are influenced by strong and or weak ties and whether the degree of innovation incremental versus radical acts as a contingency factor in the way network ties support entrepreneurial processes in this explorative study three cases on high technology firms in the netherlands provide empirical material enabling us to develop a number of propositions on the network effect in particular the mix of strong and weak ties on the three entrepreneurial processes

negotiations and exclusivity contracts for advertising exclusive advertising on a given media outlet is usually profitable for an advertiser because consumers are less aware of competing products however for such arrangements to exist media must benefit as well we examine conditions under which such exclusive advertising contracts benefit both advertisers and media outlets referred to as stations by illustrating that exclusive equilibria arise in a theoretical model of the media advertisers and consumers who participate in both the product and media markets in the model stations sell advertising space to advertisers and broadcast advertising messages to consumers conditions leading to higher equilibrium levels of advertising can be unprofitable for advertisers because high levels of advertising make consumers better informed and thus lead to fiercer product price competition as a result media stations may be less profitable as well because their payoff is determined as a fraction of the advertiser surplus generated in the product market stations mitigate this effect by offering advertisers exclusive advertising contracts with such contracts consumers are less informed about competing products yielding higher producer surplus it is profitable for stations to offer exclusivity when commercial advertising is an important means for advertisers to inform consumers about their products

a bertrand model of pricing and entry abstract we analyze an oligopolistic pricing and entry model in which there is a sunk cost of entry and in which firms outputs are homogeneous firms pure strategies consist of a binary entry decision and conditional on entry a uniform or non linear price schedule there does not exist a pure strategy nash equilibrium in this model so we analyze the symmetric mixed strategy equilibrium the main result is that if there exists a positive sunk cost of entry then an increase in the number of potential competitors puts more probability weight on higher prices this result is counter to the usual intuition that underlies current antitrust policy

the existence of equilibrium in discontinuous economic games ii applications in part i of this study we established two existence theorems for mixed strategy equilibrium in games with discontinuous payoff functions see theorems 4 4 and 5 5 in dasgupta and maskin 1986 hereafter d m 1986 in this second part we use the second of these two theorems to prove the existence of mixed strategy equilibrium in some wellknown discontinuous economic games that fail to have pure strategy equilibria the models we analyse are the bertrand edgeworth example of price setting duopolists with capacity constraints see section 2 2 price competition among firms producing differentiated products hotelling 1929 and d aspremont gabszewicz and thisse 1979 see section 2 3 spatial competition eaton and lipsey 1975 and shaked 1975 see section 3 and models of market dependent information rothschild and stiglitz 1976 and wilson 1977 section 4 the paper concludes section 5 with a classification of these models

advertising in competitive markets in this paper small firms sell a homogeneous good to small consumers under conditions of free entry but consumers receive price information only through firms advertising in equilibrium every firm on the continuous price distribution buys less advertising than is socially optimal the result is robust if firms advertise in just one medium if readers of different advertising media are positively correlated excess advertising can occur in media used exclusively to advertise discount prices copyright 1991 by american economic association

leaning against the wind and the timing of monetary policy abstract if monetary policy is to aim also at financial stability how would it change to analyze this question this paper develops a general form framework financial stability objectives are shown to make monetary policy more aggressive in reaction to negative shocks cuts are deeper but shorter lived than otherwise by keeping cuts brief monetary policy tightens as soon as bank risk appetite heats up within this shorter time span cuts must then be deeper than otherwise to also achieve standard objectives finally we analyze how robust this result is to the presence of a bank regulatory tool and provide a parameterized example

financial crises bank risk exposure and government financial policy a macroeconomic model with nancial intermediation is developed in which the intermediaries banks can issue outside equity as well as short term debt this makes bank risk exposure an endogenous choice the goal is to have a model that can not only capture a crisis when banks are highly vulnerable to risk but can also account for why banks adopt such a risky balance sheet in the rst place we use the model to assess quantitatively how perceptions of fundamental risk and of government credit

stochastic dynamic pricing and advertising in isoelastic oligopoly models abstract in this paper we analyze stochastic dynamic pricing and advertising differential games in special oligopoly markets with constant price and advertising elasticity we consider the sale of perishable as well as durable goods and include adoption effects in the demand based on a unique stochastic feedback nash equilibrium we derive closed form solution formulas of the value functions and the optimal feedback policies of all competing firms efficient simulation techniques are used to evaluate optimally controlled sales processes over time this way the evolution of optimal controls as well as the firms profit distributions are analyzed moreover we are able to compare feedback solutions of the stochastic model with its deterministic counterpart we show that the market power of the competing firms is exactly the same as in the deterministic version of the model further we discover two fundamental effects that determine the relation between both models first the volatility in demand results in a decline of expected profits compared to the deterministic model second we find that saturation effects in demand have an opposite character we show that the second effect can be strong enough to either exactly balance or even overcompensate the first one as a result we are able to identify cases in which feedback solutions of the deterministic model provide useful approximations of solutions of the stochastic model

selling formats for search goods the paper offers a comparative analysis of different ways to sell products selling formats when buyers incur evaluation costs since these costs are sunk at the moment of trade buyers may refrain from incurring them for fear of later opportunism on the part of sellers it is found that the use of many common selling formats can be explained in terms of their ability to alleviate this problem specifically i explain price advertising seller colocation and bargaining the theory explains much of the divergence in retail trading institutions and leads to several testable predictions

it takes two to tango equilibria in a model of sales we show that the varian model of sales with more than two firms has two types of equilibria a unique symmetric equilibrium and a continuum of asymmetric equilibria in contrast the 2 firm game has a unique equilibrium that is symmetric for the n firm case the asymmetric equilibria imply mixed strategies that can be ranked by first order stochastic dominance this enables one to rule out asymmetric equilibria on economic grounds by constructing a metagame in which both firms and consumers are players the unique subgame perfect equilibrium of this metagame is symmetric

capital reallocation and liquidity this paper studies the cyclical properties of capital reallocation and the frictions which inhibit such reallocation we show that the amount of capital reallocation and the benefits to reallocation vary at the business cycle frequency the amount of capital reallocation is procyclical in contrast the benefits to capital reallocation appear countercyclical we measure the amount of reallocation using data on flows of capital across firms and the benefits to capital reallocation using several measures of the cross sectional dispersion of the productivity of capital we then study a calibrated model of an economy where capital reallocation is costly and impute the cost of reallocation which is consistent with the amount of and benefits to reallocation in the data we find that the cost of reallocation needs to be substantially countercyclical to be consistent with the observed joint cyclical properties of reallocation and productivity dispersion the cyclical variation in this cost is interpreted as variation in the liquidity of capital broadly defined since physical costs are unlikely to vary countercyclically

the advertising mix for a search good we extend the persuasion game to bring it squarely into the economics of advertising we model advertising as exciting consumer interest into learning more about the product and determine a firm s equilibrium choice of advertising content over quality information price information and horizontal match information equilibrium is unique whenever advertising is necessary the outcome is a separating equilibrium with quality unravelling lower quality firms need to provide more information for a given quality level as a function of consumer visit costs first quality information is disclosed then price information and then horizontal product information are added to the advertising mix some suggestive evidence is provided from airline ads in newspapers this paper was accepted by j miguel villas boas marketing

competition by choice the effect of consumer search on firm location decisions this paper relates firm location choice and consumer search firms that cluster together attract consumers by facilitating price comparison but clustering increases the intensity of local competition the author constructs a simple model which shows that firms may choose head on competition by locating together under reasonable conditions this is the only equilibrium outcome copyright 1990 by american economic association

oligopolistic pricing with heterogeneous consumer search abstract a finite number of identical stores sell a homogeneous good to consumers with heterogeneous search costs who search sequentially with perfect recall and without replacement consumers search rules are optimal with respect to the stores pricing strategies and consumers must visit a store to obtain information about its actual price a symmetric nash equilibrium sne always exists the model exhibits a variety of equilibrium behaviors between monopoly pricing and marginal cost pricing the competitiveness of a market depends crucially on the shape of the search cost distribution moreso than on the number of competing firms

bankruptcy limited liability and the modigliani miller theorem this paper examines the validity of the modigliani miller theorem in the presence of bankruptcy the theorem asserts that the value of a firm and the set of return patterns that the capital markets offer to private investors are independent of firm debt equity ratios the usual proof of the theorem is based on the presumption that in perfect capital markets borrowing by firms and borrowing by individuals can be perfect substitutes it is unclear whether this presumption is valid when there is a positive probability that either the firm or the individual who borrows to invest in the firm goes bankrupt on the one hand joseph stiglitz 1969 and robert merton have argued that the modigliani miller theorem remains valid even with bankruptcy if agents who borrow to invest in a firm can limit their liability to the amount of collateral they put up on the other hand vernon smith 1972 has argued that a margin loan which is secured by a pure equity collateral has a different return pattern from a direct loan to the firm and cannot serve as a substitute for the latter see also david baron smith s argument raises a number of issues first it brings out the important fact that return patterns for limited liability borrowing and lending depend on the composition of the portfolio that serves as collateral if a firm goes bankrupt a pure equity collateral is worthless whereas a collateral that contains some bonds may still earn a positive return because the bonds have a privileged claim to the firm s remaining assets in general margin contracts with different collateral compositions will generate different return patterns both for the borrower and the lender given this multiplicity of return patterns on margin loans one would not expect that all margin loans can be used as substitutes for direct loans to the firm this intuition is confirmed by smith s demonstration that a particular margin loan namely the loan on pure equity collateral cannot serve this purpose the question remains open whether this is actually needed for the modiglianimiller theorem it might be enough if some appropriate margin loan could be used as a substitute for lending to the firm in pursuing this problem one finds a gap in the standard proof of the modiglianimiller theorem usually one applies an arbitrage argument to show that as a firm changes its debt equity ratio investors in shares and bonds adjust their portfolios so as to leave their overall return patterns unchanged no such arguments are given for other securities related to the firm in particular for margin investments and for margin loans that serve to finance those margin investments without an analysis of professor of economics university of bonn research on this paper was supported by nsf grant soc 75 13437 at princeton university and by the deutsche forschungsgemeinschaft i have benefited from the advice of dwight jaffee and an anonymous referee in a similar vein stiglitz 1972 asserts the value of the firm decregses because there is a divergence in the estimation of the chances of bankruptcy between the lender and the borrower p 467 this analysis rests upon a form of market segmentation that is without economic merit in his model there are two groups of agents optimists and pessimists the optimists invest all their wealth in the firm s equity valued to make the rate of return equal to that on the riskless asset the pessimists are indifferent between the risky firm s bonds and the riskless asset it follows that the optimists being more optimistic than the pessimists must prefer the risky bond to the riskless asset and hence to the equity yet stiglitz assumes that the optimists invest in the equity and not in the risky bond of course if one group invests all its wealth into one asset that asset need not satisfy a marginal equality condition at all a correct analysis of his model leads to the results of this paper

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

advertising for consideration abstract we analyze markets where firms competing on price advertise to increase the probability of entering consumers consideration sets we find that moderately costly advertising allows firms to raise prices and possibly profits by reducing the fraction of price conscious consumers and by segmenting the market according to whether or not consumers consider the lower priced firm however when the cost of advertising is sufficiently low advertising leads to a prisoners dilemma that adversely impacts profits without affecting expected prices

advertising expenditure and consumer prices this paper studies the effect of a change in the marginal costs of advertising on advertising expenditures of firms and on consumer prices i make use of a policy change in austria that involved an increase of the taxation of advertising in parts of the country and a simultaneous decrease in other parts i show that advertising expenditures of firms move quickly in the opposite direction of the marginal costs of advertising consumer prices increase with advertising in some industries and decrease in others this effect correlates with informational differences in advertisements across industries

dissecting the cycle a methodological investigation following burns and mitchell we define the cycle as a pattern in the level of aggregate economic activity an algorithm to locate turning points is developed as is a new measure of pro cyclicality a link between turning points and the moments of the series is established thereby providing the statistical foundation that burns and mitchell s work lacked using these tools we are able to dissect cycles in terms of the contributions made by trend growth volatility serial correlation and non linear effects we dissect several models and find little evidence that certain non linear effects are important to the nature of business cycles

booms and banking crises banking crises are rare events that break out in the midst of credit intensive booms and bring about deep and long lasting recessions this paper presents a textbook dynamic stochastic general equilibrium model to explain these phenomena the model features a nontrivial banking sector where bank heterogeneity gives rise to an interbank market moral hazard and asymmetric information in this market may lead to sudden market freezes banking crises credit crunches and severe financial recessions those recessions follow credit booms and are not necessarily triggered by large exogenous adverse shocks

interest rates and bank risk taking abstract a recent line of research views the low interest rate environment of the early to mid 2000s as an element that triggered increased risk taking appetite of banks in search for yield this paper uses approximately 18000 annual observations on euro area banks over the period 2001 2008 and presents strong empirical evidence that low interest rates indeed increase bank risk taking substantially this result is robust across a number of different specifications that account inter alia for the potential endogeneity of interest rates and or the dynamics of bank risk notably among the banks of the large euro area countries this effect is less pronounced for french institutions which held on average a relatively low level of risk assets finally the distributional effects of interest rates on bank risk taking due to individual bank characteristics reveal that the impact of interest rates on risk assets is diminished for banks with higher equity capital and is amplified for banks with higher off balance sheet items

informative advertising in differentiated oligopoly markets abstract this paper examines the welfare implications of informative advertising in differentiated product oligopoly markets the analysis reconciles the conflicting results in previous studies that find advertising to be undersupplied in homogeneous product markets but oversupplied in differentiated product markets when the degree of differentiation is small in equilibrium purely informative advertising is undersupplied when brands are sufficiently close substitutes and oversupplied when brands are more differentiated product differentiation also has welfare implications for the effect of technological change in the advertising sector in response to an advertising cost innovation equilibrium prices fall and the market converges to the socially optimal resource allocation for brands that are sufficiently close substitutes whereas equilibrium prices rise and divergence occurs when brands are more differentiated

price competition and endogenous valuation in search advertising abstract this article studies how to endogenously assess the value of a superior advertising position in the price competition and examines the resulting location competition outcomes and price dispersion patterns the authors consider a game theoretic model in which firms compete for advertising positions and then compete in price for customers in a product market firms differ in their competence and positions are differentiated in their prominence which reflects consumers online search behavior they find that when endogenously evaluated within the product market competition a prominent advertising position might not always be desirable for a firm with competitive advantage even if it is cost free the profitability of a prominent advertising position depends on the trade off between the extra demand from winning the position and the higher equilibrium prices when the weaker competitor wins it furthermore the authors show that the bidding outcome might not align with the relative competitive s

personalized pricing and advertising an asymmetric equilibrium analysis we study personalized price competition with costly advertising among n quality cost differentiated firms strategies involve mixing over both prices and whether to advertise in equilibrium only the top two firms advertise earning bertrand like profits welfare losses initially rise then fall with the ad cost with losses due to excessive advertising and sales by the wrong firm when firms are symmetric the symmetric equilibrium yields perverse comparative statics and is unstable our key results apply when demand is elastic when ad costs are heterogeneous and with noise in consumer tastes

customer poaching and advertising this paper is a first look at the dynamic effects of customer poaching in homogeneous product markets where firms need to invest in advertising to generate awareness when a firm is able to recognize customers with different purchasing histories it may send them targeted advertisements with different prices it is shown that only the firm which advertises the highest price in the first period will engage in price discrimination a practice that clearly benefits the discriminating firm this poaching gives rise to the race for discrimination effect through which price discrimination may act actually to soften price competition rather than intensify it as a result all firms may become better off even when only one of them can engage in price discrimination this paper offers a first attempt to evaluate the effects of price discrimination on the efficiency properties of advertising in markets with low or no advertising costs allowing firms to price discriminate leads them to provide too little advertising which is not good for consumers and overall welfare only in markets with high advertising costs might firms overadvertise regarding the welfare effects price discrimination is generally bad for welfare and consumer surplus though good for firms

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

competitive promotional strategies this article analyzes the equilibrium pricing strategies of brands engaged in a pricing game each brand has a monopoly market loyal consumers and competes with others in a common market called brand switchers in the case of a duopoly it is shown that the behavior of the brand switchers characterizes the equilibrium behavior of the duopolists this article focuses on two key comparative statics namely the depth of discounts away from a regular high price and the probability of giving a deal or the frequency of deals how these properties vary with the size of the loyal markets and the behavior of the brand switching population is discussed copyright 1988 by the university of chicago

real interest rates leverage and bank risk taking do low interest rate environments lead to greater bank risk taking we show that when banks can adjust their capital structures reductions in real interest rates lead to greater leverage and higher risk for any downward sloping loan demand function however if the capital structure is fixed the effect depends on the degree of leverage following a decrease in interest rates well capitalized banks increase risk while highly levered banks may decrease it if loan demand is linear or concave further the capitalization cutoff depends on the degree of bank competition this effect therefore should vary across countries and over time

strategic pricing consumer search and the number of firms discover prices there are three distinct price dispersed equilibria characterized by low moderate and high search intensity the effects of an increase in the number of firms on search behaviour expected prices price dispersion and welfare are sensitive i to the equilibrium consumers search intensity and ii to the status quo number of firms for instance when consumers search with low intensity an increase in the number of firms reduces search does not affect expected price leads to greater price dispersion and reduces welfare in contrast when consumers search with high intensity increased competition results in more search and lower prices when the number of competitors in the market is low to begin with but in less search and higher prices when the number of competitors is large duopoly yields identical expected price and price dispersion but higher welfare than an infinite number of firms a question that has received much attention in economic theory is how the number of competitors and market outcomes are related despite the existence of work showing the contrary see e g satterthwaite 1979 rosenthal 1980 the prediction that emerges from a market where firms interact in a cournot fashion has come to dominate economic thought namely that an increase in the number of competitors leads to larger aggregate production lower market price and improved market performance measured in terms of some social welfare criterion ruffin 1971 this paper challenges the generality of this belief by presenting an oligopoly model with consumer search where the equilibrium expected price may be constant increasing or nonmonotonic in the number of firms we present an economy with two types of consumers consumers who search for prices at no cost fully informed and consumers who must pay a fixed search cost for each price quotation they observe less informed 1 all buyers have the same willingness to pay for the good and buy either a single unit or nothing at all on the supply side of the market there are n firms producing a homogeneous good at constant marginal cost we analyse a one shot simultaneous move game firms set prices and consumers decide how many prices to search for at the same moment in time our model is essentially an oligopolistic version of burdett and judd 1983 where some consumers search costlessly in this model consumers search using a fixed sample size search strategy i e they choose the number of prices to observe before receiving any offer nonsequential search is appealing when consumers find it more advantageous to gather price information quickly morgan and manning 1985 this occurs when the search outcome is observed with delay and delay is costly for instance an mba graduate looking for a job 1 the presence in the model of consumers who search costlessly captures the fact that some people have a

equilibrium risk shifting and interest rate in an opaque financial system we analyse the risk taking behaviour of heterogenous intermediaries that are protected by limited liability and choose both their amount of leverage and the risk exposure of their portfolio due the opacity of the financial sector outside providers of funds cannot distinguishing prudent intermediaries from those imprudent ones that voluntarily hold high risk portfolios and expose themselves to the risk of bankrupcy we show how the number of imprudent intermediaries is determined in equilibrium jointly with the interest rate and how both ultimately depend on the cross sectional distribution of intermediaries capital one implication of our analysis is that an exogenous increase in the supply of funds to the intermediary sector following e g capital inflows lowers interest rates and raises the number of imprudent intermediaries the risk taking channel of low interest rates another one is that easy financing may lead an increasing number of intermediaries to gamble for resurection following a bad shock to the sector s capital again raising economywide systemic risk the gambling for resurection channel of falling equity

informative price advertising in a sequential search model the purpose of this paper is to study the role and implications of price advertising when shopping trips are costly to consumers to do so we introduce advertising into an optimal sequential search model information about prices is both gathered by consumers and disseminated by firms consumers search sequentially and stores advertise with various intensity when it is in their interest to do so our model has a unique equilibrium exhibiting priee dispersion the model generates predictions about the shape of the price distribution and firms advertising behavior we explore the effects of entry and find that when initial advertising costs at zero level of effort are precisely zero entry drives the equilibrium to the perfectly competitive outcome however when initial marginal advertising costs are positive entry drives prices higher and while the informed consumers almost surely locate competitive prices welfare does not necessarily increase finally we compare the effectiveness of the two informational channels when advertising costs shrink prices become competitive however when search costs shrink prices remain bounded above marginal production costs

pricing product diversity and search costs a bertrand chamberlin diamond model we study price competition in the presence of search costs and product differentiation the limit cases of the model are the bertrand paradox the diamond paradox and chamberlinian monopolistic competition market prices rise with search costs and decrease with the number of firms prices may initially fall with the degree of product differentiation because more diversity leads to more search and more competition equilibrium diversity rises with search costs while the optimum level falls so entry is excessive the market failure is most pronounced for low preference for variety and high search costs

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

truly costly sequential search and oligopolistic pricing we modify the paper of stahl 1989 stahl d o 1989 oligopolistic pricing with sequential consumer search american economic review 79 700 12 by relaxing the assumption that consumers obtain the first price quotation for free when all price quotations are costly to obtain the unique symmetric equilibrium need not involve full consumer participation the region of parameters for which non shoppers do not fully participate in the market becomes larger as the number of shoppers decreases and or the number of firms increases the comparative statics properties of this new type of equilibrium are interesting in particular expected price increases as search cost decreases and is constant in the number of shoppers and in the number of firms welfare falls as firms enter the market we show that monopoly pricing never obtains with truly costly search d 2005 elsevier b v all rights reserved

collateralized borrowing and risk taking at low interest rates abstract empirical evidence suggests financial intermediaries increase risky investments when interest rates are low we develop a model consistent with this observation and ask whether the risks undertaken exceed the social optimum interest rate policy affects risk taking in the model through two opposing channels first low policy rates make riskier assets more attractive than safe bonds second low policy rates reduce the amount of safe bonds available for collateralized borrowing in interbank markets the calibrated model features excessive risk taking at the optimal policy however at low policy rates collateral constraints tighten and risk taking does not exceed the social optimum

monetary policy and long run systemic risk taking as an extension to the literature on the risk taking channel of monetary policy this paper studies the existence of a systemic risk taking channel srtc in the eurozone through an original macroeconomic perspective based on causality measures because the srtc is effective after an incubation period we make a distinction between short and long term causality following the methodology proposed by dufour and taamouti 2010 we find that causality from monetary policy to systemic risk while not significant in the very short term robustly represents 75 to 100 of the total dependence between the two variables in the long run reverse causality is rejected systemic risk did not influence the policy of the european central bank before the global financial crisis however central banks must be aware that a too loose monetary policy stance may be conducive to a build up of systemic risk

price competition and advertising in oligopoly abstract this paper studies price advertising in an oligopoly market where consumers have only local price information sellers may attract consumers from other locations by advertising their price with positive probability they advertise a low price to attract customers from distant locations with the remaining probability they post a high price and serve only local customers the random advertising equilibrium approaches the equilibrium under perfect price information when the cost of advertising becomes small

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

oligopolistic pricing and advertising abstract n sellers advertise a homogeneous good to m buyers whose only source of information is this advertising there is a unique nash equilibrium ne in which sellers choose a common advertising level and mix over prices this ne approaches marginal cost pricing as advertising costs decrease and approaches monopoly pricing as advertising costs increase more sellers induce lower prices and less advertising per seller however the social welfare effect can be negative for some advertising technologies the ne advertising level is generically less than socially optimal journal of economic literature classification numbers d00 d4 d43 d8 d83 i00 i1 i13 m37

going where the ad leads you on high advertised prices and searching where to buy an important role of informative advertising is to inform consumers of the simple fact that the shop that advertises sells a particular product this information may help consumers to save on their search activities instead of wandering around a consumer can simply visit the shop that has advertised knowing that there he can find the commodity he is looking for the implications of this simple fact have not been studied before using game theoretic reasoning in a model that combines consumer search and firms advertising we show that firms may find it optimal to advertise prices that are higher than nonadvertised prices the important mechanism underlying this result is that advertising lowers the expected search cost for consumers through this analysis we provide a new insight into the role of informative advertising

rationalizability learning and equilibrium in games with strategic complementarities we study a rich class of noncooperative games that includes models of oligopoly competition macroeconomic coordination failures arms races bank runs technology adoption and diffusion r d competition pretrial bargaining coordination in teams and many others for all these games the sets of pure strategy nash equilibria correlated equilibria and rationalizable strategies have identical bounds also for a class of models of dynamic adaptive choice behavior that encompasses both best response dynamics and bayesian learning the players choices lie eventually within the same bounds these bounds are shown to vary monotonically with certain exogenous parameters we study the class of noncooperative supermodular games introduced by topkis 1979 and further analyzed by vives 1985 1989 who also pointed out the importance of these games in industrial economics supermodular games are games in which each player s strategy set is partially ordered the marginal returns to increasing one s strategy rise with increases in the competitors strategies so that the game exhibits strategic complementarity 2 and if a player s strategies are multidimensional marginal returns to any one com ponent of the player s strategy rise with increases in the other components this class turns out to encompass many of the most important economic applications of noncooperative game theory in macroeconomics diamond s 1982 search model and bryant s 1983 1984 rational expectations models can be represented as supermodular games in each of these models more activity by some members of the economy raises the returns to increased levels of activity by others in oligopoly theory some models of bertrand oligopoly with differentiated products qualify as supermodu lar games in these games when a firm s competitors raise their prices the marginal profitability of the firm s own price increase rises a similar structure is present in games of new technology adoption such as those of dybvig and spatt 1983 farrell and saloner 1986 and katz and shapiro 1986 when more users hook into a communication system or more manufacturers adopt an interface standard the marginal return to others of doing the same often rises similarly in some specifications of the bank runs model introduced by diamond and dybvig 1983 when more depositors withdraw their funds from a bank it is more worthwhile for other depositors to do the same in the warrant exercise

segmentation advertising and prices this paper explores the implications of market segmentation on firm competitiveness in contrast to earlier work here market segmentation is minimal in the sense that it is based on consumer attributes that are completely unrelated to tastes we show that when the market is comprised by two consumer segments and when there is sufficient variation in the per consumer costs firms need to incur to access the different consumer populations then firms obtain positive profits in symmetric equilibrium otherwise the equilibrium is characterized by zero profits as a result a minimal form of market segmentation combined with advertising cost asymmetries across consumer segments give firms an opportunity to generate positive rents in an otherwise bertrand like environment

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

information gatekeepers on the internet and the competitiveness of homogeneous product markets we examine the equilibrium interaction between a market for price information controlled by a gatekeeper and the homogenous product market it serves the gatekeeper charges fees to firms that advertise prices on its internet site and to consumers who access the list of advertised prices gatekeeper profits are maximized in an equilibrium where a the product market exhibits price dispersion b access fees are sufficiently low that all consumers subscribe c advertising fees exceed socially optimal levels thus inducing partial firm participation and d advertised prices are below unadvertised prices introducing the market for information has ambiguous social welfare effects

the effects of direct to consumer advertising of pharmaceuticals on adherence we evaluate the effect of direct to consumer dtc advertising on adherence to the standard drug regimen for treating high cholesterol statins we use a rich panel data set from an insurance firm that includes all prescription drug purchases and insurance claims from 1997 to 2002 the data include the relevant demographic variables including income we match this data with unique data from nielsen monitor plus on monthly dtc advertising expenditures by therapeutic category for all media types the research strategy identifies individuals who have been diagnosed with specific chronic conditions and tracks whether adherence as measured by purchases of specific prescription drugs within designated therapeutic classes can be explained in part by the level and type of dtc advertising to which the individual was potentially exposed income has a positive effect on adherence we find that advertising has a small negative effect on the average level of adherence we find some suggestive evidence that this is b

competition of firms discriminatory pricing and location1 two costlessly mobile firms are to be located in a market region a subset of the plane the firms compete by setting locations and delivered price schedules to study this competitive stiuation an appropriate extensive form game is defined along with an appropri ate noncooperative solution concept existence and general properties of the equilibrium are demonstrated among the results are each firm increases its profit by locating so as to decrease total cost to both firms of serving the market firms will never locate coinciden tally if they have identical production costs and transport cost rates or if these are different and the firms are located in a circular market region having a uniform demand distribution this paper studies competition between two profit maximizing firms in space who are costlessly mobile and may discriminate in price we will allow the firms to set locations and delivered price schedules and we will be concerned with the existence and properties of equilibria in location and price starting with hotelling 9 the spatial competition literature has focused on location on bounded linear markets by two or more firms hotelling assumed identical firms that produced a single good with constant cost of production and considered consumers to be uniformly distributed and to have inelastic demand he also assumed that the consumers pay transport cost and purchase the good from the cheapest source hotelling claimed that a nash equilibrium in locations for the two firm market existed and yielded back to back locations at the center of the market many authors most recently d aspremont gabszewicz and thisse 2 have noted that an equilbrium in prices and location does not exist for hotelling s model however if the firms employ identical exogeneously specified prices hotelling s conclusions hold subsequent work by smithies 14 hartwick and hartwick 7 and eaton 3 claimed to show that a nash equi librium in f o b prices and locations can exist in markets with a uniform distribu tion of consumers each of whom have identical elastic demand functions for the two and three firm problems the work of d aspremont et al casts doubt on these conclusions without the adoption of restrictive conditions our work contrasts with these works and related research which has dealt with linear markets with uniform distributions of customers and with identical firms our work will involve markets that are subsets of the plane having nonuniform distributions of customers our firms will be allowed to be different that is have differences in production and transport costs however the fundamental difference in our approach is that our firms will set discriminatory prices and not price f o b in many ways our work will represent the discriminatory pricing

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