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

buyer search costs and endogenous product design buyer search costs for price are changing in many markets through a model of buyer and seller behavior i consider the effects of changing search costs on prices both when product differentiation is fixed and when it is endogenously determined in equilibrium if firms cannot change product design lower buyer search costs for price lead to increased price competition however if product design is a decision variable lower search costs for price may also lead to higher product differentiation which decreases price competition in this case the overall effect of lower buyer search costs for price may even be higher prices lower social welfare and higher industry profits the result is especially interesting because recent technological changes such as internet shopping can affect the market structure through lowering buyer search costs

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

on the effects of consumer search and firm entry in a multiproduct competitive market this paper studies a model in which consumers search among multiple competing firms for products that match their preferences at a reasonable price we focus on how easier search possibly due to the adoption of search facilitating technologies such as the internet influences equilibrium prices assortments firm profits and consumer welfare conventional wisdom suggests that easier search creates a competition intensifying effect that puts pressure on firms to lower their prices and reduce assortments however in our model we demonstrate that search also exhibits a market expansion effect that encourages firms to expand their assortment easier search means that each firm is searched by more consumers because of broader assortments consumers are more likely to find products that better match their ideal preferences improving the efficiency of the market in fact we demonstrate that the market expansion effect can even dominate the competition intensifying effect potentially leading to higher prices broader assortments more profits and expanded welfare

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

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

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

testing mixed strategy equilibria when players are heterogeneous the case of penalty kicks in soccer the concept of mixed strategy is a fundamental component of game theory and its normative importance is undisputed however its empirical relevance has sometimes been viewed with skepticism the main concern over the practical usefulness of mixed strategies relates to the indifference property of a mixedstrategy equilibrium in order to be willing to play a mixed strategy an agent must be indifferent between each of the pure strategies that are played with positive probability in the mixed strategy as well as any combination of those strategies given that the agent is indifferent across these many strategies there is no bene t to selecting precisely the strategy that induces the opponent to be indifferent as required for equilibrium why an agent would in the absence of communication between players choose exactly one particular randomization is not clear of course whether agents in real life actually play nash equilibrium mixed strategies is ultimately an empirical question the evidence to date on this issue is based almost exclusively on laboratory experiments e g barry o neill 1987 amnon rapoport and richard b boebel 1992 dilip mookherjee and barry sopher 1994 jack ochs 1995 kevin a mccabe et al 2000 the results of these experiments are mixed o neill 1987 concludes that his experimental evidence is consistent with nash mixed strategies but that conclusion was contested by james n brown and robert w rosenthal 1990 with the exception of mccabe et al 2000 which looks at a three person game the other papers generally reject the nash mixedstrategy equilibrium while much has been learned in the laboratory there are inherent limitations to such studies it is sometimes argued that behavior in the simpli ed arti cial setting of games played in such experiments need not mimic real life behavior in addition even if individuals behave in ways that are inconsistent with optimizing behavior in the lab market forces may discipline such behavior in the real world finally interpretation of experiments rely on the assumption that the subjects are maximizing the monetary outcome of the game whereas there may be other preferences at work among subjects e g attempting to avoid looking foolish that distort the results tests of mixed strategies in nonexperimental data are quite scarce in real life the games played are typically quite complex with large strategy spaces that are not fully speci ed ex ante in addition preferences of the actors may not be perfectly known we are aware of only one paper in a similar spirit to our own research using data from classic tennis matches mark walker and john wooders 2001 test whether the probability the player who serves the ball wins the point is equal for serves to the right and chiappori department of economics university of chicago 1126 east 59th street chicago il 60637 levitt department of economics university of chicago groseclose graduate school of business stanford university 518 memorial way stanford ca 94305 the paper was presented at games 2000 in bilbao and at seminars in paris and chicago we thank d braun j m conterno r guesnerie d heller d mengual p reny b salanie and especially j l ettori for comments and suggestions and m mazzocco and f bos for excellent research assistance any errors are ours 1 the theoretical arguments given in defense of the concept of mixed strategy equilibria relate either to puri cation john c harsanyi 1973 or to the minimax property of the equilibrium strategy in zero sum games for recent elaborations on these ideas see authur j robson 1994 and phil reny and robson 2001 2 the ultimatum game is one instance in which experimental play of subjects diverges substantially from the predicted nash equilibrium robert slonim and alvin e roth 1998 demonstrate that raising the monetary payoffs to experiment participants induces behavior closer to that predicted by theory although some disparity persists

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

multiproduct equilibrium price dispersion abstract the model of burdett and judd econometrica51 1993 955 969 is generalized to the case of may goods consumers choose the best price observed for each good there are two classes of equilibria those that involve constant expected profits for each good independently of price and those with increasing profits for each good in price a continuum of the latter type always exists these equilibria are qualitatively different than the unique equilibrium of the single good case journal of economic literature classification numbers d83 d43 l13

price dispersion in the small and in the large evidence from an internet price comparison site this paper examines four million daily price observations for more than 1 000 consumer electronics products on the price comparison site http shopper com we find little support for the notion that prices on the internet are converging to the law of one price in addition observed levels of price dispersion vary systematically with the number of firms listing prices the difference between the two lowest prices the gap averages 23 per cent when two firms list prices and falls to 3 5 per cent in markets where 17 firms list prices these empirical results are an implication of a general clearinghouse model of equilibrium price dispersion

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

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

limited information and advertising in the u s personal computer industry traditional discrete choice models assume buyers are aware of all products for sale in markets where products change rapidly the full information assumption is untenable i present a discrete choice model of limited consumer information where advertising influences the set of products from which consumers choose to purchase i apply the model to the u s personal computer market where top firms spend over 2 billion annually on advertising i find estimated markups of 19 over production costs where top firms advertise more than average and earn higher than average markups high markups are explained to a large extent by informational asymmetries across consumers where full information models predict markups of one fourth the magnitude i find that estimated product demand curves are biased toward being too elastic under traditional models i show how to use data on media exposure to improve estimated price elasticities in the absence of micro ad data

the returns to education in thailand a pseudo panel approach summary this study employs the pseudo panel approach for estimating returns to education in thailand while treating the endogeneity bias common to estimates from data on individuals pseudo panel data are constructed from repeated cross sections of thailand s national labor force surveys of workers born during 1946 67 estimates show a downward bias of the returns to education in least squares regressions with individual data a result confirmed with instrumental variable estimation the overall rate of return is between 14 and 16 females have higher returns than males and workers in urban areas have higher returns than those in rural areas

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

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

reforms with a female face gender liberalization and economic policy in andhra pradesh india summary the state of andhra pradesh india provides a case study of a liberalization program with an emphasis on women s empowerment based on the state budget data and fieldwork data from two villages this paper investigates the content of this policy regime to argue that women s empowerment policies were ultimately constrained by the policy context of liberalization the state lowered shares of expenditure upon social reproduction and the substantive content of women s empowerment policy was reduced to a thrift and micro credit program fieldwork data indicate the latter lacks administrative support and relies upon the expenditure of time and resources by participants themselves re emphasizing class and caste inequalities among women and undermining the broader project of empowerment

variety pass through an examination of the ready to eat breakfast cereal market abstract we examine variety pass through effects that occur when multiproduct retailers adjust the length of their product lines in response to changes in wholesale prices studying variety pass through is essential to understanding how wholesale price changes transmit into retail prices when variety is endogenous using data from the ready to eat breakfast cereal category we find that retailers jointly adjust retail prices and the length of their product lines in response to changes in wholesale prices we show the importance of controlling for the endogeneity of retailers product line decisions when calculating price pass through rates

poverty traps and nonlinear income dynamics with measurement error and individual heterogeneity theories of poverty traps stand in sharp contrast to the view that anybody can make it through hard work and thrift however empirical detection of poverty traps is complicated by the lack of long panels measurement error and attrition this paper shows how dynamic pseudo panel methods can overcome these difficulties allowing estimation of non linear income dynamics and testing for the presence of poverty traps the paper explicitly allows for individual heterogeneity in income dynamics to account for the possibility that particular groups of individuals may face traps even if the average individual does not these methods are used to examine the evidence for a poverty trap in labor earnings income and expenditure in mexico and are compared to panel data estimates from a short rotating panel the results do find evidence of nonlinearities in household income dynamics and demonstrate large bias in the panel data estimates nevertheless even after allowing for heterogeneity and accounting for measurement error the paper finds no evidence of the existence of a poverty trap for any group in the sample

the shopping basket a model for multicategory purchase incidence decisions consumers make multicategory decisions in a variety of contexts such as choice of multiple categories during a shopping trip or mail order purchasing the choice of one category may affect the selection of another category due to the complementary nature e g cake mix and cake frosting of the two categories alternatively two categories may co occur in a shopping basket not because they are complementary but because of similar purchase cycles e g beer and diapers or because of a host of other unobserved factors while complementarity gives managers some control over consumers buying behavior e g a change in the price of cake mix could change the purchase probability of cake frosting co occurrence or co incidence is less controllable other factors that may affect multi category choice may be unobserved household preferences or observed household demographics we also argue that not accounting for these three factors simultaneously could lead to erroneous inferences we then develop a conceptual framework that incorporates complementarity co incidence and heterogeneity both observed and unobserved as the factors that could lead to multi category choice we then translate this framework into a model of multi category choice our model is based on random utility theory and allows for simultaneous interdependent choice of many items this model the multivariate probit model is implemented in a hierarchical bayes framework the hierarchy consists of three levels the first level captures the choice of items for the shopping basket during a shopping trip the second level captures differences across households and the third level specifies the priors for the unknown parameters we generalize some recent advances in markov chain monte carlo methods in order to estimate the model specifically we use a substitution sampler which incorporates techniques such as the metropolis hit and run algorithm and the gibbs sampler the model is estimated on four categories cake mix cake frosting fabric detergent and fabric softener using multicategory panel data the results disentangle the complementarity and co incidence effects the complementarity results show that pricing and promotional changes in one category affect purchase incidence in related product categories in general the cross price and cross promotion effects are smaller than the own price and own promotions effects the cross effects are also asymmetric across pairs of categories i e related category pairs may be characterized as having a primary and a secondary category thus these results provide a more complete description of the effects of promotional changes by examining them both within and across categories the co incidence results show the extent of the relationship between categories that arises from uncontrollable and unobserved factors these results are useful since they provide insights into a general structure of dependence relationships across categories the heterogeneity results show that observed demographic factors such as family size influence the intrinsic category preference of households larger family sizes also tend to make households more price sensitive for both the primary and secondary categories we find that price sensitivities across categories are not highly correlated at the household level we also find some evidence that intrinsic preferences for cake mix and cake frosting are more closely related than preferences for fabric detergent and fabric softener we compare our model with a series of null models using both estimation and holdout samples we show that both complementarity and co incidence play a significant role inpredicting multicategory choice we also show how many single category models used in conjunction may not be good predictors of joint choice our results are likely to be of interest to retailers and manufacturers trying to optimize pricing and promotion strategies across many categories as well as in designing micromarketing strategies we illustrate some of these benefits by carrying out an analysis which shows that the true impact of complementarity and co incidence on profitability is significant in a retail setting our model can also be applied to other domains the combination of item interdependence and individual household level estimates may be of particular interest to database marketers in building customized cross selling strategies in the direct mail and financial service industries

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

mixed strategy in oligopoly pricing evidence from gasoline price cycles before and under a timing regulation this paper studies oligopoly firms dynamic pricing strategies in a gasoline market before and after the introduction of a unique law that constrains firms to set price simultaneously and only once per day the observed gasoline pricing behavior both before and under the law is well captured by the edgeworth price cycle equilibrium in the maskin and tirole dynamic oligopoly model my results highlight the importance of price commitment in tacit collusion i also find evidence that the price leadership outcome under the law is better predicted by mixed strategies play than by alternative hypotheses

resilience thresholds to temperature anomalies a long run test for rural tanzania abstract the existence of thresholds constitutes an important frontier topic for resilience analysis and measurement this paper contributes to the literature by identifying critical resilience thresholds below which rural tanzanian households are unable to absorb the negative effects of temperature anomalies on long run growth to make up for the lack of long micro panels we generate a synthetic panel covering the time span 2000 2013 we show that 25 47 of households in our sample lie below the estimated thresholds the evidence of resilience driven regime shifts and non linear dynamics has important implications for adaptation to climate change in developing countries and is of significant interest for policy interventions

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

how responsive is body weight to transitory income changes evidence from rural tanzania we use time series of rainfall to estimate the response of body weight to transitory changes in household income in rural tanzania we find that the response of body weight to income changes is positive on average but that the impact is highest for female children and lower for adults for female children a ten percent increase in household income implies an increase in body weight by about 0 4 kg in contrast the body weight of adolescents and young adults is virtually invariant to income changes

loss leader pricing and rain check policy loss leader pricing and rain check policies are common in retail markets yet research on these topics is surprisingly scarce in this paper we study the effects of leader pricing and rain check policy on stores profits and market outcomes suppose stores can accurately predict demand might they still run out of stock we investigate whether such a result is plausible when stores can offer rain checks the paper also helps resolve an issue that has recently attracted much attention should the ftc repeal its rule prohibiting stock outs of advertised sale items

rivalry in price and variety among supermarket retailers recent theoretical models of retail competition suggest that product heterogeneity is critical to retail price and variety strategies this article provides empirical evidence on supermarket retailers price and variety strategies using a nested constant elasticity of substitution nces modeling framework the model is estimated using chain level scanner data for four major grocery chains in a large urban west coast market the results show that retailers compete for market share using both price and variety while they all tend to follow moderately cooperative pricing strategies the extent to which they follow cooperative strategies in variety is less homogeneous

great expectations assortment size expectations and satisfaction abstract recent research challenges the idea that greater choice is always desirable showing that larger assortments can increase choice deferral and switching the current research demonstrates that even when consumers make a purchase the same item may generate lower satisfaction when chosen from a larger rather than a smaller assortment the authors explain this effect in terms of an expectation disconfirmation mechanism when assortments are small consumers have low expectations about their ability to match their preferences as assortment sizes increase so do consumers expectations of the degree of preference match they can achieve subsequently consumers may experience greater negative expectation disconfirmation or less positive expectation disconfirmation when a chosen item comes from a larger rather than a smaller set either less positive or more negative disconfirmation leads to lower choice satisfaction the results from three studies support this expectation based process and establish t

information multiprice search and cost of living index theory this paper derives the cost of living index of an individual who faces imperfect and costly information about prices traditional cost of living in dexes assume that the consumer passively accepts prices as given the authors derive a multiprice search model in which the consumer choos es the search strategy that minimizes the expected cost of buying a g iven level of utility in contrast to existing search models the mod el allows the consumer to change the allocation of expenditures among goods as information about prices changes and enables them to constr uct a cost of living index for an agent who searches across distribut ions of offer prices unlike traditional cost of living measures that ignore search behavior the searcher s cost of living index depends on search costs copyright 1987 by university of chicago press

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

dealing temporary price cuts by seller as a buyer discrimination mechanism this paper is concerned with temporary price cuts deals sales and specials as a mechanism for the seller to price discriminate between buyers with different intensities of demand we analyze why a seller offers such price cuts which buyers take advantage of them and what the parameters are that determine the amount and frequency of the discount offered in the remainder of this section we briefly review the literature on price deals 1 in section ii simple models of buyer and seller behavior are developed and we show why and how a seller adopts a dealing strategy section iii summarizes the key implications of the model and indicates how the price discrimination hypothesis could be tested in practice section iv suggests possible extensions of the model finally section v gives our conclusions in the marketing literature the issue of who is deal prone has been extensively researched an explanation for temporary price cuts usually called deals sales or specials is provided we hypothesize that they are a mechanism that discriminates between more intense and less intense demanders we further hypothesize a positive relationship between demand elasticity and holding costs buyers with more intense demand with high holding costs are those who will be buying the product at its regular price the low holdingcost buyers take advantage of deals by forward buying the model is applicable to three relationships 1 manufacturer reseller where the reseller may be a wholesaler or a retailer 2 resellerreseller for example wholesaler retailer and 3 retailer consumer we are grateful to michael mussa and albert madansky for their comments we also benefited from comments made by the marketing faculty of the wharton school at a seminar where an earlier version of this paper was presented neil beckwith in particular is acknowledged 1 for a more detailed review of deals and similar pricecutting mechanisms e g mail in rebates cents off labels coupons etc see narsimhan 1982 chan 2 journal of business 1985 vol 58 no 3 1985 by the university of chicago all rights reserved 0021 9398185 5803 0004 01 50

earnings mobility and measurement error a pseudo panel approach the degree of mobility in incomes is often seen as an important measure of the equality of opportunity in a society and of the flexibility and freedom of its labor market but estimation of mobility using panel data is biased by the presence of measurement error and non random attrition from the panel this paper shows that dynamic pseudo panel methods can be used to consistently estimate measures of absolute and conditional mobility in the presence of non classical measurement errors these methods are applied to data on earnings from a mexican quarterly rotating panel absolute mobility in earnings is found to be very low in mexico suggesting that the high level of inequality found in the cross section will persist over time however the paper finds conditional mobility to be high so that households are able to recover quickly from earnings shocks these findings suggest a role for policies which address underlying inequalities in earnings opportunities

the social content of macroeconomic policies abstract there is now widespread recognition of the need to integrate macroeconomic policy and social policy but the mainstream approach is one of adding on social policy we argue for a transformatory approach which would mainstream gender equitable social policy within macroeconomic policy we identify three interlinked biases which prevent this from happening deflationary bias male breadwinner bias and commodification bias we illustrate a transformatory approach with the example of the canadian alternative federal budget we argue that a social dialogue is necessary for the formulation of such alternatives