aggregate investment and consistent intertemporal technologies it is frequent practice to model an industry or economy as if it were a single agent solving a single optimization problem a model of firm behavior which has had extensive use as an aggregative model is the adjustment cost model of investment we assume there are a number of competitive firms in an industry that choose investment paths to maximize their present value the technologies of the firms exhibit capital stock adjustment costs for general concave technologies of the firms there is no aggregate concave technology that can represent the technological possibilities available to the industry we find conditions on the technologies of the firms that are necessary and sufficient for the existence of an aggregate technology that can consistently model the industry s behavior and discuss their empirical implications

petrol prices oil price rises and oil price falls some evidence for the uk since 1972 this paper examines the relationship between retail petrol prices excise duties and crude oil prices in the uk over the period 1973 1988 the existence of a stable relationship between the petrol price level of excise duty and spot oil price is confirmed through use of the cointegration approach although the speed of reaction of petrol prices to changes in the crude price depends on whether crude prices are rising or falling any asymmetry in the pricing response is virtually absent after an adjustment period of only four months

temporary wholesale gasoline price spikes have long lasting retail effects the aftermath of hurricane rita abstract i study u s gasoline prices following hurricane rita to show that short lived geographical differences in the severity of wholesale gasoline price spikes are associated with long lasting geographical differences in retail prices in most u s cities wholesale prices spiked significantly for roughly 2 weeks following the hurricane however in cities where this spike was particularly large retail margins remained higher than in other cities for nearly 2 months high retail margins dissipated more quickly after the hurricane in cities where competition between stations tends to generate cyclical retail price fluctuations independent of wholesale cost movements i discuss why prices may have fallen faster in cities exhibiting retail price cycles and present additional results identifying differences in market characteristics between cities with and without price cycles i find that cycling cities tend to have higher population density and have independent nonrefinery brand stations that are mor

asymmetric adjustment costs in simple general equilibrium models abstract this paper demonstrates that the introduction of asymmetric adjustment costs in a simple general equilibrium framework establishes a meaningful link between factor price determination and output determination breaking the analytically convenient dichotomy of the heckscher ohlin samuelson model the possibility of trade between seemingly similar countries that differ in their adjustment technologies is visited

price setting supergames with capacity constraints this paper examines the role of industry capacity in enforcing collusion in the context of repeated games for a fixed capacity per firm it is shown that changes in the number of firms have a non monotone effect on the best enforceable cartel price this is due to the fact that while an additional firm lowers the share that each of the other firms enjoys at the collusive price it also increases the losses to each firm should the cartel fail

rules communication and collusion narrative evidence from the sugar institute case detailed notes on weekly meetings of the sugar refining cartel show how communication helps firms collude and so highlight the deficiencies in the current formal theory of collusion the sugar institute did not fix prices or output prices were increased by homogenizing business practices to make price cutting more transparent meetings were used to interpret and adapt the agreement coordinate on jointly profitable actions ensure unilateral actions were not misconstrued as cheating and determine whether cheating had occurred in contrast to established theories cheating did occur but sparked only limited retaliation partly due to the contractual relations with selling agents jel l13 l41 this paper reexamines the cartel problem by studying the private discussions within one cartel while we find much that is in accord with george j stigler s 1964 basic insight that firms would structure an agreement conscious of their later incentive to cheat on it we also uncover puzzles for established theory and identify elements that a richer theory should encompass especially regarding the role of communication in collusion our window into the inner workings of a cartel is a remarkable series of notes on the weekly meetings of the sugar institute this trade association was formed in december 1927 in the wake of several years of falling margins and excess capacity by 14 firms comprising nearly all the cane sugar refining capacity in the united states it operated until 1936 when the supreme court ruled its practices illegal among the top executives in regular attendance at the meetings was louis v place vice president of mccahan a midsize refinery in philadelphia place who was in charge of all activities of the company except production and raw sugar purchases wrote over 500 pages of single spaced detailed

edgeworth price cycles and intertemporal price discrimination in a retail gasoline market exhibiting edgeworth price cycles prices change asymmetrically with many small decreases interrupted by occasional large increases the result is a de facto menu of prices from which consumers can choose based on exactly when they buy this article introduces four classes of purchase timing strategies designed to systematically shift consumer purchases towards the cycle troughs it shows in the study market of toronto canada the monetary gains to consumers from optimized timing strategies are as high as 3 9 markups earned from these consumers fall up to 82 in spite of the gains from timing strategies surprisingly few consumers use them evidence is presented that a main reason is that consumers are not well informed about the cycles policy implications are discussed

empirical studies of gasoline retailing a guide to the literature abstract this paper surveys the empirical literature on gasoline retailing which has been growing rapidly over the last three decades possibly in response to antitrust and regulatory concerns and increased availability of pricing data studies of both pricing and non price decision variables are considered in general it is found that crude oil prices are the primary driver of national price movements over time however market structure has been identified as playing a role in price dynamics equilibrium selection and price differentials across markets and stations the economic literature emphasizes the importance of heterogeneity across stations and coordination problems faced by retailers several directions for future work are suggested including the development of theory and demand estimation using high frequency station level data

edgeworth cycles with partial price commitment abstract the price commitment model of maskin and tirole 1988 provides an extensively cited foundation for edgeworth cycles we examine the viability of edgeworth cycles when price commitment is partial in the sense that a subset of firms are committed to price in each period if multiple firms are not committed in each period then the existence of edgeworth cycle equilibria requires a demanding convexity condition on the profit function

charges in the industrial water sector comparison between ireland and spain the european treaty supports the application of the polluter pays principle in all environmental policies including the water framework directive this paper assesses the efficiency of water charging systems in two european regions the regions examined are the south west region of ireland and the navarre region in spain which were selected because they are similar in terms of economic indicators but different in terms of water pricing structures the paper describes the development and application of a simple model to analyse data on water charging systems from these two regions we present the results of a detailed scenario based investigation illustrating the differences between experience composition and basis impact and constraints on the application of water charges for both regions the key findings are that existing water charges do not provide incentives for users to use water efficiently and thereby do not contribute effectively to the environmental objectives of the water framework directive

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

do auctions and forced divestitures increase competition evidence for retail gasoline markets to foster competition governments can intervene by auctioning licenses to operate or by imposing divestitures the dutch government has done exactly that organizing auctions to redistribute tenancy rights for highway gasoline stations and imposing divestitures of such stations on the four major companies we evaluate this policy experiment and find that the auctioning of licenses without an obligation to divest has no discernible effect on prices an obligation to divest lowers prices by 1 3 2 3 at divested sites moreover prices decrease by 0 9 1 2 at sites nearby this suggests that the observed price decreases are at least partly due to competitive spillovers

european environmental taxes and charges recent experience issues and trends abstract the use of environmental taxes and charges in oecd countries increased by over 50 between 1987 and 1994 while revenues raised by environmental taxes and charges remain small relative to overall taxation they comprise a rising proportion in most european countries several european countries have either undertaken or are considering systematic shifts in taxes away from labour and onto the use of environmental resources potential negative effects on competitiveness and regressive distributional effects are the major cause of concern with regard to the introduction of environmental taxes a number of ways of mitigating such effects exist and have been implemented

the implicit pension contract developments and new directions pension economics has emerged as a separate literature over the past decade some of the early pension work was devoted to financial issues including implications of pensions for savings rates and portfolio allocation most new developments however have stemmed from research surrounding labor markets this research has led to an implicit contract theory of pensions a theory that has pensions playing a more complicated role in worker firm relation than heretofore realized the theory explains much of economic behavior in labor markets and bridges a gap between labor and financial literatures this essay describes the genesis for these ideas and traces some of the most important research results in the area an equal amount of spece is devoted to a consideration of likely directions for future research

imperfect information and dynamic conjectural variations this article analyzes oligopoly interaction in an environment where firms are imperfectly informed about the evolution of the market demand curve the analysis develops a two period cournot framework under the assumptions that demand shifts are positively serially correlated that firms never directly observe the demand curve and that firms never observe the previous quantity decisions of rivals firms do draw inferences about the position of the demand curve from past observations on prices consequently the current output of a firm will influence the current market price which will then influence rivals inferences about future demand the future output decisions of rivals will respond accordingly the theory predicts negative dynamic conjectural variations essentially a firm perceives that an increase in its output will lower the current market clearing price which will cause rival firms to think that the demand curve has shifted down and hence induce them to lower their outputs in the future

the effect of explicit communication on pricing evidence from the collapse of a gasoline cartel we study the collapse of collusion in quebec s retail gasoline market following a competition bureau investigation and show that it involved two empirical regularities high margins and asymmetric price adjustments using weekly station level prices we test whether collusion was successful and whether asymmetric adjustments were part of the cartel s strategy we do so in the markets targeted by the investigation and in markets throughout the province with similar pre collapse pricing cyclical markets our results suggest that stations in both target and cyclical markets adjusted pricing following the announcement margins fell by 30 15 in target cyclical markets and adjustments became more symmetric

a note on the substitution between wage and non wage benefits in spot labour markets abstract recent empirical work suggests that spot labour market workers have a strong preference towards wages over fringe benefits this paper provides a theoretical framework based on this finding after a discussion of the utility function and equilibrium the paper proceeds to a comparative statics analysis an important result is that workers spend all extra compensation on wages only this is shown to be true in the case that wage benefits are taxed furthermore proportional taxes have no effect for workers choice between wage and non wage benefits

turnover costs and the wage fringe mix this paper examines how firms choose their compensation package to influence employee turnover a firm will attempt to maintain a steady state of trunover consistent with its training and hiring costs we develop a model of this relationship when the firm s ability to offer a differentiated compensation package both the theoretical and empirical findings of our study emphasize the importance of the link between turnover costs and the compensation mix that is quits are negatively realted to both the share of pensions in the total compensation package and the level of wages the influence of pensions in attracting stable workers however is diminishing an important implication is that the policies which attempt to standardize worker compensation will hinder the market determination of turnover and hence will generate inefficiencies in the labour market

a simple spatial model for edgeworth cycles abstract maskin and tirole 1998 formalise edgeworth s 1925 model of a dynamic equilibrium between two players where prices increase sharply and decrease slowly the edgeworth cycle here we present an application of the model showing how edgeworth cycles might arise in a marketplace where spatial competition is important we illustrate the approach using the example of retail gasoline markets where edgeworth cycles have been widely observed

an empirical study of an auction with asymmetric information this paper examines federal auctions for drain age leases on the outer continental shelf from 1959 to 1969 these are leases that are adjacent to tracts on which a deposit has been discovered the authors find that the data strongly support the hypotheses that neighbor firms are better informed about the value of a lease than nonneighbor firms that neighbor firms coordinate their bidding decisions and that both types of firms bid strategically in accordance with the bayesian nash equilibrium model for first price sealed bid auctions with asymmetric information

labour demand and the source of adjustment costs to examine the importance of the two sources of costs of adjusting labor demand net costs of adjusting employment and gross costs of hiring and firing the author collects new sets of short monthly time series from a medium size hospital and three manufacturing plants models with quadratic costs and with lumpy costs are developed and yield lower bounds on the fraction of adjustment costs that are gross the estimates demonstrate that both types of costs affect dynamic labor demand but that gross adjustment costs especially and the turnover that generates them deserve much more attention copyright 1995 by royal economic society

professionals play minimax the implications of the minimax theorem are tested using natural data the tests use a unique data set from penalty kicks in professional soccer games in this natural setting experts play a one shot two person zero sum game the results of the tests are remarkably consistent with equilibrium play in every respect i winning probabilities are statistically identical across strategies for players ii players choices are serially independent the tests have substantial power to distinguish equilibrium play from disequilibrium alternatives these results represent the first time that both implications of von neumann s minimax theorem are supported under natural conditions during the last few decades game theory has contributed to a reshaping of important aspects of the methodology of economics and other social sciences in a large part this is because the language concepts and techniques of non cooperative game theory have become central to many areas of the discipline undoubtedly studying the interaction of ideally rational players greatly aids our understanding of the behaviour of real individuals firms and other agents moreover as kreps 1991 remarks studying the former should aim at understanding the latter the point of game theory is to help economists understand and predict what will happen in economic social and political contexts theoretical contributions should thus feed back to empirical analysis however testing the implications of the theory has proven extremely difficult in the literature the primary reason is that many predictions often hinge on properties of the utility functions and the values of the rewards used even when predictions are invariant over classes of preferences data on rewards are seldom available in natural settings moreover there is often great difficulty in determining strategy sets and in measuring individuals choices effort levels and the incentive structures they face as a result even the most fundamental predictions of game theoretical models have not yet been supported empirically in real situations in view of the substantial problems associated with testing theoretical predictions using natural data many authors have been compelled to test them in experimental settings interestingly enough despite the controlled structure of experiments the results of many experiments during the last few decades typically reject the assumption that subjects are playing according to the theoretical implications of equilibrium play for instance a number of experiments have evaluated the empirical validity of von neumann s minimax theory for two person zero sum games a theory that occupies a central position in our understanding of strategic situations the results have been mixed and are often rather negative see for instance brown and rosenthal 1990 rapoport and boebel 1992 camerer 2003 and the references therein

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

modelling how much extra motorists pay on the road a cross sectional study of profit margins of unleaded petrol in australia abstract gross profitability margin difference between retail and wholesale prices for unleaded petrol exhibits substantial variations across 108 cities towns and regional centres in australia this paper examines if such variations averaged during 2007 2012 can be explained by a transport costs proxied by the distance between retailers and wholesalers b the size of the retail market c market competition proxied by the number of cars in the vicinity of the retailers d dummy variables capturing other qualitative attributes associated with the retailers locations three cross sectional regressions are estimated but only one successfully passes all diagnostic tests by identifying a number of locations exhibiting excessive profit margins the results of this paper enhance the efficiency and transparency of petrol pricing in the retail market it is found that the extent of excessive profiteering in western australia wa and south australia sa were lower than other australian states and territories this important finding can be explained by a strong presence of independent petrol stations in sa and the successful price monitoring performance of fuelwatch in wa

union membership in the united states 1973 1981 this paper reports estimates of union membership gathered from may current population surveys from 1973 to 1981 the authors present data by occupation industry selected states and smsas race gender and educational attainment the paper both extends and differs from that by freeman and medoff which presents unionism estimates for the private sector for 1968 75 to facilitate longitudinal analysis this paper reports three year moving averages of occupational and industry data and annual estimates of demographic classifications the data include public sector as well as private sector workers and they exclude workers not covered by the national labor relations act also the authors provide only union membership estimates not estimates on workers covered by union contracts this paper suggests that the percentage of all workers that are unionized in the united states remained fairly constant over the 1973 81 period

are costs really sticky and biased evidence from manufacturing listed companies in china abstractrecent studies on cost behaviour have proved that cost increase caused by business expansion is larger than cost decrease caused by business downsizing this cost stickiness behaviour contradicts the traditional theoretic assumption that cost level and business size change in a linear way this article investigates the existence or non existence of cost stickiness using a sample of china s manufacturing listed companies during the period 2010 2014 first our findings show that cost stickiness is a pervasive phenomenon and overestimated in the manufacturing industry second we find that cost stickiness varies greatly across industries and in different regions finally we find that cost stickiness is affected by the economic growth specifically cost stickiness increases with the macroeconomic growth our results from china s manufacturing listed companies provide evidence on asymmetric cost behaviour and contain important implications for both cost accounting research and financial accounting r

symmetric or asymmetric price adjustments in the oil market an empirical analysis of the relations between international and domestic prices in the federal republic of germany 1972 89 abstract this paper investigates how german consumer and wholesale prices for gasoline and light heating oil react to changes in the corresponding rotterdam prices monthly data from 1972 to 1989 are employed and the subperiods of the 1970s 1972 to 1979 and 1980s 1980 1989 are distinguished error correction models are estimated to seperate long run equilibrium relations and short run adjustment processes for the 1980s we find rapid symmetric and full adjustment of the german prices to the rotterdam prices whereas during the 1970s we find some asymmetries and at least for gasoline the adjustment processes took considerably more time

identifying and characterising price leadership in british supermarkets price leadership is a concept that lacks precision we propose a deliberately narrow falsifiable definition then develop it illustrate its feasibility and test it using the two leading british supermarket chains we find both firms engaging in leading prices upward over a range of products with the larger being initially more dominant but the smaller increasing leadership activity to take overall leadership over time however more price leadership events are price reductions than price increases consistently led by the smaller firm nevertheless the increases are of larger monetary amounts than the falls so average basket price increases over time

a theory of dynamic oligopoly ii price competition kinked demand curves and edgeworth cycles we provide game theoretic foundations for the classic kinked demand curve equilibrium and edgeworth cycle we analyze a model in which firms take turns choosing prices the model is intended to capture the idea of reactions based on short run commitment in a markov perfect equilibrium mpe a firm s move in any period depends only on the other firm s current price there are multiple mpe s consisting of both kinked demand curve equilibria and edgeworth cycles in any mpe profit is bounded away from the bertrand equilibrium level we show that a kinked demand curve at the monopoly price is the unique symmetric renegotiation proof equilibrium when there is little discounting we then endogenize the timing by allowing firms to move at any time subject to short run commitments we find that firms end up alternating thus vindicating the ad hoc timing assumption of our simpler model we also discuss how the model can be enriched to provide explanations for excess capacity and market sharing keiiwords tacit collusion markov perfect equilibrium kinked demand curve edgeworth cycle excess capacity market sharing endogenous timing

a theory of dynamic oligopoly iii cournot competition abstract we study the markov perfect equilibrium mpe of an alternating move infinite horizon duopoly model where the strategic variable is quantity we exhibit a pair of difference differential equations that when they exist differentiable mpe strategies satisfy for quadratic payoff functions we solve these equations in closed form and demonstrate that the mpe corresponding to the solution is the limit of the finite horizon equilibrium as the horizon tends to infinity we conclude with a discussion of adjustment costs and endogenization of the timing

self selection via fringe benefits this paper extends the theory of self selection to circumstances in which economic agents have some access to markets we use the analysis to explain the existence of multidimensional compensation packages in the presence of limited re marketability employment contracts that include fringe benefits are prominent examples of such multidimensional packages

gas wars retail gasoline price fluctuations this paper examines the retail gasoline price fluctuations known as gas wars weekly prices for the los angeles area were examined for the period from january 2 1968 through december 23 1975 the observed fluctuations were remarkably regular and apparently large ly predictable the data appear consistent with the recent game theory model of e maskin and j tirole in which competing firms produce edgeworth cycles by undercutting each other and eventually relenting copyright 1993 by mit press

petrol prices and subjective wellbeing abstract we examine the effect of petrol prices on subjective wellbeing swb using household panel data to do so we use 17 waves of the household income and labour dynamics in australia hilda survey based on our preferred instrumental variable estimates we find that a standard deviation increase in petrol prices leads to a decline of 0 0157 0 0245 standard deviations in swb the finding that increases in petrol prices significantly lower swb is robust to alternative measures of wellbeing and alternative ways of addressing endogeneity as well as employing different sources of fuel price data measured at a range of frequencies we also examine the channels through which petrol prices influence swb and find that maintaining social networks is an important way through which petrol prices influence swb

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

austrian style gasoline price regulation how it may backfire in january 2011 a price regulation was established in the austrian gasoline market which prohibits firms from raising their prices more than once per day similar restrictions have been discussed in new york state and germany despite their intuitive appeal this article argues that austrian type policies may actually harm consumers in a two period duopoly model with consumer search i show that under the regulation firms will distort their prices intertemporally in such a way that their aggregate expected profit remains unchanged this implies that as some consumers find it optimal to delay their purchase due to expected price savings but find it inconvenient to do so a friction is introduced that decreases net consumer surplus in the market

are costs really sticky evidence from publicly listed companies in the uae this article measures the degree of adjustment between operating revenues and costs for publicly listed companies in the united arab emirates uae traditional cost models assume that variable costs change proportionally in response to an upward or downward fluctuation in demand however in recent years such an assumption has been questioned by a variety of papers from the economics and accounting fields typically cost stickiness is defined as costs decreasing by less than 1 when sales decrease by 1 while reacting closer to the proportion of change when sales increase this study unlike the vast majority of the literature did not find cost stickiness in the uae after using panel data regression analysis the main explanation is that uae has mostly expatriate labour force that does not have the typical benefits of employment protection legislation epl available in other national jurisdictions epl is a main reason that costs adjustments during decreasing sales is curbed due to the associated co

costs of adjustment the aggregation problem and investment this paper looks at the empirical consequences of inappropriately using a representative firm to mimic the aggregate investment decisions of a group of heterogeneous firms faced with costs of adjusting capital inputs improper aggregation generates a bias with two important consequences 1 an apparent insensitivity of the aggregate capital stock to the user cost of capital and 2 predicted responses of the capital stock to shocks that are considerably slower than observed both of these consequences are features of available investment equations copyright 1992 by mit press

the 1 5th mover advantage there has been much discussion about the timing of moves in games however one assumption usually goes unquestioned namely that of an irrevocable commitment of the first mover in many cases this is not realistic since final commitments are often preceded by actions that are binding only to a limited degree partial commitments an example is the announcements of price changes i analyze a game in which the degree of a partial commitment is endogenized in the case of strategic complements a player profitably makes use of the possibility to commit partly she chooses a role somewhere between first and second mover which gives her a 1 5th mover advantage

the multivariate flexible accelerator model its empirical restrictions and an application to u s manufacturing this paper derives an exhaustive set of restrictions implied by the multistock flexible accelerator specification of the adjustment cost model for the firm the flexible accelerator specification of the demand for capital and labor is estimated using u s manufacturing annual data for the 1947 1976 period the consistency of the data with the model is examined by testing the validity of the derived restrictions finally the conditions which permit aggregation over firms are determined and tested empirically the flexible accelerator specification has been popular in the empirical literature on interrelated investment and employment decisions see nadiri and rosen 38 coen and hickman 10 and schramm 40 more recent examples include sargent 39 berndt fuss and wavermann 4 berndt and morrison 6 and meese 34 under suitable assumptions the specification may be rationalized by the adjustment cost model of the firm eisner and strotz 13 lucas 30 mortensen 35 extends the work of lucas and derives some empirically testable restrictions of the accelerator specification that are implied by the adjustment cost framework the broad objective of this paper is to provide a more rigorous and comprehensive test of the adjustment cost model than is presently found in the literature this objective is achieved in three stages first we offer an alternative derivation of the mortensen restrictions and more importantly we prove theorem 1 that his restrictions are exhaustive i e we establish an integrability result for the flexible accelerator adjustment cost model second the flexible accelerator specification of the demand for capital and labor is estimated using total u s manufacturing annual data for the 1947 76 period it is assumed that firms minimize expected production costs subject to a technology which implies that capital and labor stocks are costly to adjust while a third factor materials is freely adjustable the consistency of the data with the adjustmentcost framework is examined by testing for the validity of the derived restrictions further we test the validity of some separability restrictions on the adjustmentcost technology that to varying degrees are imposed a priori in all of the cited empirical studies finally we provide a complete characterization of the individual firm technologies which justify the common assumption of the existence of a representative firm this problem of aggregation over firms which has been

forecasting gasoline prices in the presence of edgeworth price cycles abstract forecasting is a central theme in economics the ability to forecast prices enables economic agents to make optimal decisions for the present and future in this article we investigate if and how gasoline prices can be forecast in retail gasoline markets that are subject to high frequency asymmetric price cycles known as edgeworth price cycles we examine a series of purchase timing decision rules and a series of feasible forecasting algorithms for updating those rules over time we find that in the presence of cycles agents in our five australian markets can systematically reduce purchase prices below market average the equivalent of 11 to 15 u s cents per gallon using simple decision rules and feasible forecasting algorithms

a comparison of regular price cycles in gasoline and liquefied petroleum gas abstract regular and asymmetric gasoline price cycles are observed in a number of countries while most studies found that such price cycles are well characterized by the theoretical edgeworth price cycle some studies suggest alternative explanations this paper contributes to this literature by being the first to compare regular price cycles in a nongasoline product liquefied petroleum gas lpg with gasoline price cycles our main finding is that lpg price cycles in the perth area of western australia are much longer and more asymmetric than gasoline price cycles in the same market this finding is consistent with noel s 2008 prediction that edgeworth cycles are longer and more asymmetric when aggregate demand is more elastic the aggregate demand for lpg is presumably more elastic than the demand for gasoline

the theorems of international trade with factor mobility abstract this paper addresses the relation between goods trade and international factor mobility in general terms the basic theorems of international trade suitably interpreted are shown to hold in their strong versions if the number of international markets for goods and factors is at least as large as the number of factors the crucial dimensionality issue is hence not the relative number of goods and factors per se but the number of international markets relative to the number of factors only the price version of the heckscher ohlin theorem fails to be essentially preserved by this condition

aggregate pattern of time dependent adjustment rules ii strategic complementarity and endogenous nonsynchronization abstract this paper provides an explanation for an important institutional feature of staggered time dependent adjustment rules assumed in a number of macroeconomic models it identifies strategic complementarity as the crucial factor leading to nonsynchronized decisions in a game theoretic framework the paper first shows that nonsynchronization is the equilibrium outcome in an infinite horizon game in which strategic complementarity is present whether the players choose predetermined or fixed actions by pursuing the interpretation of a nonsynchronized move dynamic game as a series of games with symmetric stackelberg leadership it is further suggested that the relationship between strategic complementarity and the benefit to the stackelberg follower provides the insight to the game theoretic explanation of nonsynchronization the results of this paper reveal a link between strategic complementarity and nonsynchronization two important macroeconomic features journal of economic literature classification numbers e30 l16

idiosyncrasies in australian petrol price behaviour evidence of seasonalities it has been argued that there are certain idiosyncrasies in australian petrol price behaviour to the extent that these idiosyncrasies result in large magnitude differences in petrol prices they may be exploited by consumers to significantly reduce their household expenditure on the product similarly such seasonalities may influence retailers in their purchase and storage decision the objective of this paper is to test for seasonalities in the australian retail petrol market the approach adopted is similar to that for determining calendar anomalies as documented in the financial and commodity markets literature we find that a monthly seasonal effect is pronounced with petrol prices lower in the months of february may and highest in july and august a day of the week effect is also apparent and is manifest in all petrol prices for capital cities adelaide brisbane melbourne and sydney across various years however the half month effect as is common in stock returns is not observed moreover contrary to popular belief that petrol prices are higher surrounding holidays no evidence of the holiday effect is found in brisbane and melbourne petrol prices also have some relationship to the mood of consumers as proxied using weather conditions this is not observed in adelaide and sydney

do edgeworth price cycles lead to higher or lower prices abstract a recent literature seeks to understand the causes of the high frequency asymmetric retail price cycles observed in many retail gasoline markets however much less attention has been given to the effects of the cycles in particular whether the cycles lead to higher or lower prices and margins the leading theory for the underlying cause of the price cycles edgeworth price cycles is silent on the issue the challenge in addressing this most important question has been the difficulty in isolating cycle effects from other confounding factors especially market structure in this article i exploit a unique natural experiment to isolate the effect of cycles a refinery fire that in a matter of days halted cycles that had previously persisted for decades i find that edgeworth price cycles lead to lower prices and lower margins i conclude with implications for competition policy

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

asymmetric responses in the timing and magnitude of changes in australian monthly petrol prices to daily oil price changes abstract this article investigates whether uncompetitive pricing tactics are being employed in the retail petrol market in australia through examining the effect of a change in daily oil prices on monthly petrol prices to do so we incorporate asymmetry into the coefficients of a normalised beta weighting function within an asymmetric mixed data sampling amidas framework this enables us to examine both the timing and the lagged marginal effects of a change in retail petrol prices in response to a change in the oil price we find evidence of asymmetries in both the timing and magnitude of retail petrol prices to a change in the oil price specifically we find that while price falls are slowly and symmetrically passed onto consumers price increases are more delayed but higher in intensity over time depending on the capital city when retailers eventually do increase petrol prices in response to an oil price rise with delay the price rise is between 2 1 and 3 4 times more than when retailers reduce petrol prices in response to a fall in the price of oil this finding is consistent with retailers delaying substantial petrol price rises in order to mask the existence of uncompetitive practices

collusion with intertemporal price dispersion we develop a theory of optimal collusive intertemporal price dispersion dispersion clouds consumer price awareness encouraging firms to coordinate on dispersed prices our theory generates a collusive rationale for price cycles and sales patient firms can support optimal collusion at the monopoly price for less patient firms monopoly prices must be punctuated with fleeting sales the most robust structure involves price cycles that resemble edgeworth cycles low consumer attentiveness enhances the effectiveness of price dispersion by reducing the payoff to deviations involving price reductions however for sufficiently low attentiveness price rises are also a concern

retail gasoline price cycles across spatially dispersed gasoline stations abstract studies of volatility in retail gasoline prices have used either weekly averages of the prices at a small subset of stations in a city or daily observations on prices at a small number of stations this paper uses daily observations on station specific prices within a large canadian metropolitan area to address whether weekly average prices or prices for a small number of stations provide an accurate description of pricing in a market with volatility this paper considers whether researchers using restricted data can draw meaningful conclusions about the appropriate theoretical model and the policy response to allegations of anticompetitive behavior

matching turnover and unemployment this paper develops the view that workers move into and out of the labor market because of changes in the perceived value of their market opportunities a search model is combined with a matching model to yield movement of workers from job to job and into and out of employment

conjectural variations strategies in accelerated cournot games abstract a family of constant conjectural variations strategies is defined and examined in the natural context of infinitely repeated cournot duopoly games with discounting it is shown that any pair of linear reaction functions in the family gives rise to a unique pair of quantities in stationary equilibrium as the conjectures and discount parameter vary the sum of the stationary quantities will vary anywhere between the competitive and the monopoly outcomes equilibrium is strongly stable and credible in the sense of exhibiting a variation of selten s subgame perfection provided that firms can react quickly enough to one another s actions

labor demand and the structure of adjustment costs this study examines the costs firms face in adjusting labor demand to exogenous shocks evidence on monthly plant level data shows that adjustment proceeds in jumps employment is unchanged in response to small shocks but moves instantaneously to a new equilibrium if the shocks are large results in the large literature that assumes smooth adjustment are due to aggregation of this nonlinear relation the finding has implications for cyclical changes in productivity for severance pay layoff and plant closing restrictions and for all other policies that affect the cost of adjusting employment copyright 1989 by american economic association

vertical control and price cycles in gasoline retailing we examine norwegian gasoline pump prices using daily station specific observations from 2003 to 2006 the four big gasoline companies use a vertical restraint that is adopted industry wide labeled price support this moves price control from the hands of independent retailers into the hands of the headquarters retail gasoline prices follow a fixed weekly pattern where we observe de facto simultaneous decision making by the headquarters without knowledge of their rivals prices when every monday around noon they decide to increase pump prices to the same level the price level on mondays corresponds to the recommended prices published by the headquarters of the gasoline companies

do petrol prices rise faster than they fall when the market shows significant disequilibria abstract this paper examines if the long run relationship between retail and wholesale petrol prices is subject to adjustment asymmetric behaviour using weekly australian data 2007 2012 across 111 locations a short run dynamic model is specified in which three feedback coefficients capture three different types of disequilibria large and positive large and negative small positive negative significant evidence of asymmetric behaviour is found in 28 locations which are mainly in tasmania queensland and new south wales in these locations when prices are conspicuously above the equilibrium path retailers sluggishly lower their prices but when prices are substantially below the equilibrium values the adjustment speed is significantly faster

cournot and the oligopoly problem cournot s recherches sw les principes mathpmatiques de la thiorie des richesses 1838 contribution to economic theory ranges from the formulation of the concept of demand function to the analysis of price determination in different market structures from monopoly to perfect competition he is credited for being the pioneer in the use of mathematics in economic analysis nevertheless cournot is most known for his theory of oligopoly cournot claimed that prices would also be determined under oligopolistic rivalry he envisioned firms the celebrated mineral water producers competing independently deciding about their production levels and bringing to the market the output where a price emerges from the interaction of supply and demand an equilibrium is reached when the output of any firm is a best response to the other firms outputs that is when each firm chooses an output level that maximizes profits given the outputs chosen by the rivals the equilibrium involves a price above the marginal cost of production cournot thought furthermore that this equilibrium would be stable in the sense that a departure from it would be self correcting through a series of reactions of the firms the disequilibrium dynamics would be governed by the best response functions of the firms that is by the functions that give the optimal output of a firm in terms of the outputs of the rivals cournot also evoked the question of why is it that firms do not come to an understanding and agree on sharing the market at the monopoly price the answer is that from the point of view of a firm if the rivals follow the agreement it is in the interest of the firm to depart from it since this way it can increase its profits in other words there is an incentive to cheat cournot thought that monopoly or cartel type agreements could only be maintained by means of a formal engagement p 83 our author also considered competition of

price leadership and unequal market sharing collusion in experimental markets abstract we consider experimental markets of repeated homogeneous price setting duopolies we investigate the effect on collusion of sequential versus simultaneous price setting we also examine the effect on collusion of changes in the size of each subject s market share in case both subjects set the same price our results show that sequential price setting compared with simultaneous price setting facilitates collusion if subjects have equal market shares or if the follower has the larger market share with sequential price setting we find more collusion if subjects have equal market shares rather than unequal market shares we observe more collusion if the follower has the larger market share than if the follower has the smaller market share

endogenous price commitment sticky and leadership pricing evidence from the italian petrol market this article studies dynamic pricing strategies in the italian gasoline market before and after the market leader unilaterally announced its commitment to adopt a sticky pricing policy using daily italian firm level prices and weekly average eu prices we show that the effect of the new policy was twofold first it facilitated price alignment and coordination on price changes after the policy change the observed pricing pattern shifted from cost based to sticky leadership pricing second using a dif in dif estimation and a synthetic control group we show that the causal effect of the new policy was to significantly increase prices through sticky leadership pricing our paper highlights the importance of price commitment by a large firm in order to sustain tacit collusion

an empirical investigation of the determinants of asymmetric pricing abstract this article empirically investigates the cause of asymmetric pricing retail prices responding faster to cost increases than decreases using daily price data for over 11 000 retail gasoline stations i find that prices fall more slowly than they rise as a consequence of firms extracting informational rents from consumers with positive search costs premium gasoline prices are shown to fall more slowly than regular fuel prices which supports theories based upon competition with consumer search further testing also rejects focal price collusion as an important determinant of asymmetric pricing

a theory of endogenous commitment commitment is typically modelled by assigning to one of the players the ability to take an initial binding action the weakness of this approach is that the fundamental question of who has the opportunity to commit cannot be addressed as it is assumed this paper presents a framework in which commitment power arises endogenously from the fundamentals of the model we construct a finite dynamic game in which players are given the option to change their minds as often as they wish but pay a switching cost if they do so we show that for games with two players and two actions there is a unique subgame perfect equilibrium with a simple structure this equilibrium is independent of the order and timing of moves and is robust to other protocol specifications moreover despite the perfect information nature of the model and the costly switches strategic delays may arise in equilibrium the flexibility of the model allows us to apply it to various environments in particular we study an entry deterrence situation its equilibrium is intuitive and illustrative of how commitment power is endogenously determined copyright 2008 wiley blackwell

seasonal patterns in daily prices of unleaded petrol across australia abstract this study addresses a very significant policy issue not previously examined at a disaggregated level for australia by identifying on which day s petrol is more expensive and in which locations discount days are non existent after conducting a time series analysis of the day of the week effect in retail prices of unleaded petrol in 114 locations across australia jan 2005 to apr 2012 it is observed that prices mostly peak on thursday friday and then decline until they hit their cyclical trough mainly on sunday tuesday however these daily differences are only statistically significant in capital cities or large regional centres a cross sectional analysis of the mean prices during the period nov 2007 to feb 2012 shows that a in remote and less populous locations where sales are presumably limited and overhead costs are high petrol is more expensive b petrol generally costs more in places which exhibit less price variability the disaggregated and location specific results can increase our understanding of australia s retail petrol market and can be beneficial to motorists as well as various government and non government organisations such as the accc australian competition and consumer commission aaa australian automobile association and fuelwatch

edgeworth price cycles evidence from the toronto retail gasoline market i exploit a new station level twelve hourly price dataset to examine the strong retail price cycles in the toronto gasoline market the cycles appear similar to theoretical edgeworth cycles strongly asymmetric tall rapid and highly synchronous across stations i test a series of predictions made by the theory about how firm behaviors would differentially evolve over the path of a cycle the evidence is consistent with the existence of edgeworth cycles and inconsistent with competing hypotheses while the cycles are an interesting phenomenon for study in their own right the evidence has important policy and welfare implications

the probability of receiving benefits at different hours of work this study finds that in probit equations 50 of people working 35 hours per week in the us will not be offered benefits or health insurance through their employers to replace services received while on welfare women with an average of 39 hours of work per week have an average 76 probability of being offered medical benefits as one of three example options while men working an average of 43 hours per week have on average a 72 probability of being offered medical benefits the probability of being offered medical insurance life insurance and retirement benefits is slightly over 20 for working 35 hours per week although women have a slightly higher probability of being offered all the benefits individuals with children have a lower probability of being offered all the benefits which is not significant for medical insurance retirement or flexible work schedules individuals working for large firms have a greater probability of being offered benefits excluding flexible scheduling and profit sharing working longer hours increases the probability of receiving benefits except in training situations higher wages are found in the three stage least squares estimation in reduced form equation to be related to more work experience higher aptitude test scores residence in a standard metropolitan statistical area work at larger firms more work hours per week and not being single data are obtained from the 1991 us national longitudinal survey of labor market experience of youth among 1988 persons 26 34 years old who worked and were paid an hourly wage persons in the sample earned an average of 9 00 per hour and worked slightly more than 41 hours per week 33 were black 20 hispanic and slightly under 50 were female about 60 had a child under 6 years old the average firm size was 5205 employees

adjustment costs and factor demands in canadian manufacturing industries the question of whether regional disparities in canada could arise as a result of nonconstant returns to scale and non identical production functions is examined this is accomplished by estimating and comparing the decision rules for factor demands across canadian regions the decision rules are based on a flexible and dynamic production technology which allows for the presence of internal adjustment costs do not impose constant returns to scale or require hours and workers to have the same output elasticities the model is estimated for four separate canadian regions ontario quebec the western and eastern provinces on annual data ranging from 1965 to 1985