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 initiated vs seller initiated information revelation sales presentations are the core of the selling process where salespeople provide information to prospects one challenge is that the amount of information available to be potentially communicated may exceed salespeople s ability to communicate or customers ability to process there is limited bandwidth between the firm and customers one important decision then is which information should customers see what the firm chooses to tell customers may be informative in itself when constrained to a seller initiated information revelation format where the firm chooses which feature to show the firm never finds it optimal to offer more features than it is able to inform customers about consequently customers never find credible a claim that the product has all features the important implication is that price alone cannot serve as a signal of quality in this setting in contrast a buyer initiated information revelation format where customers decide which information to receive increases the probability of a sale and also results in the production of higher quality products in a competitive setting by adopting buyer initiated information revelation firms are able to attain positive profits this is due to the fact that customers infer the product s quality from the price along with the information revelation format customers know that at some prices firms find it profitable to produce high quality products and at other lower prices this is not the case thus customer empowerment leads to higher profits

precautionary savings and self selection evidence from the german reunification experiment in the absence of complete insurance expected future income shocks lead prudent individuals to build up precautionary savings in order to avoid wide fluctuations in the consumption path the reaction of savings to expected future shocks is stronger the more risk averse an individual is risk aversion might influence not only the savings behavior of an individual facing a stochastic income path but it can also affect occupational choice in the first place in particular risk averse individuals might choose occupations that are associated with less risky income paths while less risk averse individuals might prefer occupations with higher income risk assessing the importance of self selection of individuals into occupations according to their risk aversion is difficult since risk aversion is usually unobserved yet failing to control for unobserved risk aversion in regressions of wealth on measures of labor income risk will lead to a bias if selfselection takes place since measures of labor income risk will be negatively correlated with the error term that is capturing the unobserved risk aversion this could lead to a rejection of the theory of precautionary savings even if individuals act according to the theory

the hidden information content of price movements dynamic patterns of prices in different markets may motivate strategic consumers who could be monitoring price movements over time to game vendors do past price movements carry information about the probability and magnitude of future price drops conducting empirical work in the airline industry on near 1000 us domestic routes we find that some price metrics carry information about future price swings these variables can assist in predicting the likelihood and magnitude of price drops these price metrics yield significantly different signals which also vary as the prediction horizon changes

unemployment risk and precautionary wealth evidence from households balance sheets this paper examines precautionary behavior by relating job loss risk to household net worth we use existing best practice and some new strategies to deal with some problematic issues inherent in this literature regarding proxying uncertainty instrumentation and incorporating theoretical restrictions we do not find precautionary variation in the wealth holdings of households with low permanent income but do find precautionary effects for moderate and higher income households when the dependent variable is total net worth these findings are robust to several alternative specifications but we do not find precautionary responses in subaggregates of wealth that exclude home equity

how important is precautionary saving we estimate how much of the wealth of a sample of psid respondents is held because some households face more income uncertainty than others we begin by solving a theoretical model of saving which we use to develop appropriate measures of uncertainty we then regress measures of wealth on our measures of uncertainty and find evidence that households engage in precautionary saving finally we simulate the wealth distribution that our empirical results imply would prevail if all households had the same uncertainty as the lowest uncertainty group we find that between 39 and 46 percent of wealth in our sample is attributable to the extra uncertainty that some consumers face compared to the lowest uncertainty group

the principle of minimum differentiation holds under sufficient heterogeneity the so called principle of minimum differentiation stated by hotelling has been challenged by many authors this paper restores the principle by showing that n firms locate at the center of the market and charge prices higher than the marginal cost of production when heterogeneity in consumers tastes is large enough

household saving micro theories and micro facts in this survey we review the recent theoretical and empirical literature on household saving and consumption the discussion is structured around a list of motives for saving and how well the standard theory captures these motives we show that almost all of the motives for saving that have been suggested in the informal saving literature can be captured in the standard optimizing model particular attention is given to recent work on the precautionary motive and its implications for saving and consumption behavior we also discuss the behavioral or psychological approach that eschews the use of standard optimization techniques and focuses instead on direct consideration on saving we provide a section on facts who save and how much we then discuss informally the recent decline in the u s saving rate and whether the theory is of much use in understanding this and other changes in aggregate saving rates over time we do not find any convincing explanation for the change in saving rates we also discuss some analyses of saving behavior over the life cycle addressing such questions as whether households save enough for retirement and whether the consumption patterns of older households can be rationalized within a simple life cycle model we also review a great number of studies of the consumption euler equations based on our analysis of the studies cited we conclude that there is still mixed evidence that consumption is excessively sensitive to income we also examine in depth the recent empirical literature on the precautionary motive we conclude that although some households do seem to have a significant precautionary motive at some points in their life cycle this motive is not so strong empirically as some investigators suggest

the nature of precautionary wealth abstract this paper uses the panel study of income dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with predictably greater income uncertainty however the apparent pattern of precautionary wealth is not consistent with a standard parameterization of the life cucle model in which consumers are patient enough to begin saving for retirement early in life wealth is estimated to be far less sensitive to uncertainty than implied by that model instead our results suggest that over most of their working life time consumers behave in accordance with the buffer stock models of saving described in carroll 1992 1997 or deaton 1991 in which consumers hold wealth principally to insulate consumption against near term fluctuations in income

unemployment insurance and precautionary saving abstract models of precautionary saving imply that households will hold more assets when faced with greater income uncertainty however previous empirical studies of income uncertainty have produced somewhat mixed support for the precautionary saving hypothesis in this paper we note that differences in the state contingent income stream available to workers through the unemployment insurance ui program provides an excellent source of variation for testing the presence of a precautionary savings motive simulations of a stochastic life cycle model suggest that a ui system similar to the type currently in place in the u s can lead to a significant reduction in the assets accumulated by a median worker moreover there is considerable variation in the ui benefit schedules for workers living in different states in the u s which provides an exogenous source of variation for empirically testing the precautionary saving hypothesis we carry out this test using data on expected ui benefit replacement rates and financial assets held by households in the survey of income and program participation our empirical results are consistent with the predictions of the model and suggest that reducing the ui benefit replacement rate by 50 percent would increase gross financial asset holdings by 14 percent or 241 for the average worker we also find empirical evidence that this crowd out effect of ui on household saving is stronger for those facing higher unemployment risk and weaker for older workers both of which are implications from our precautionary saving model

an expenditure based estimate of britain s black economy abstract we estimate the size of britain s black economy defined narrowly as unreported taxable income by using income and expenditure data drawn from the 1982 family expenditure survey our working assumptions are that all income groups report expenditure on food correctly employees in employment report income correctly and that the self employed under report their income we estimate food exependiture equations for all groups and then invert them to arrive at the conclusion that on average true self employment income is 1 55 times as much as reported self employment income this implies that the size of the black economy is about 5 5 percent of gdp

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

home field advantage location decisions of portuguese entrepreneurs an investor s home bias in industrial location decisions may stem from personal factors social capital other non transferable assets and imperfect information about the urban and regional environment this paper explores the distinction between home base and non home location decisions in portugal we reach two important conclusions first the introduction of a variable accounting for prior base of economic activity significantly improves the statistical results second we find that the weighting of distinct location attributes differs between home and non home locations notably non home location choices are strongly governed by agglomeration economies and proximity to major urban centers possibly replicating prior location decisions to economize on search costs the results also enable us to quantify the investor s willingness to opt for a possible home field advantage for example entrepreneurs accept over three times higher labor costs to compete in their resident area of business 2002 elsevier science usa all rights reserved

precautionary savings and the self employed this work focuses on the impact of uncertainty on savings under bequest form specifically we estimate whether and to what extent income variability does have an effect on post mortem savings we approximate the post mortem savings with the closest dedicated savings which is savings in term insurance a lump sum inherited at the death of the subscriber furthermore we test whether the intensity of the income variance or the riskiness of the job type such as self employment matters more in the choice our results show that self employment status is one of the most relevant variables affecting term insurance ownership

intertemporal pricing and consumer stockpiling we study a dynamic pricing problem for a class of products with stable consumption patterns e g household items staple foods consumers may stock up the product at current prices for future consumption but they incur inventory holding costs we model this situation as a dynamic game over an infinite time horizon in each period the seller sets a price and each consumer chooses how many units to buy we develop a solution methodology based on rational expectations by endowing each player with beliefs we decouple the dynamic game into individual dynamic programs for each player we solve for the rational expectations equilibrium where all players make optimal dynamic decisions given correct beliefs about others behavior in equilibrium the seller may either charge a constant fixed price or offer periodic price promotions at predictable time intervals we show that promotions are useful when frequent shoppers are willing to pay more for the product than are occasional shoppers we also develop several model extensions to study the impact of consumer stockpiling on the seller s inventory production and rationing strategies

price match announcements in a consumer search duopoly using a model of sequential search we show that announcements to price match raise prices by altering consumer search behavior first price matching diminishes firms incentives to lower prices to attract consumers who have no search costs second for consumers with positive search costs price matching lowers the marginal benefit of search inducing them to accept higher prices finally price matching can lead to asymmetric equilibria where one firm runs fewer sales and both firms tend to offer smaller discounts than in a symmetric equilibrium price increases grow in the proportion of consumers who invoke price matching guarantees and in the level of equilibrium asymmetry

hotelling s spatial competition as a model of sales abstract hotelling s spatial competition model is used to explain the existence of sales it is shown that 1 an equilibrium in randomized strategies exists when a pure strategy equilibrium fails to exist 2 with more dissimilarity among brands prices are chosen from a wider interval

a price discrimination theory of coupons the objective of this paper is to analyze the consumer s decision in electing to use cents off coupons distributed by manufacturers of consumer products arguing that the decision to use coupons is based on the tradeoff between costs of using coupons and the savings obtained it is shown that coupons can serve as a price discrimination device to provide a lower price to a particular segment of consumers based on a price theoretic model it is shown that the users of coupons are more price elastic than nonusers of coupons and that the opportunity cost of time and other household resource variables are determinant factors in consumers decisions implications derived from the model are tested using diary panel data

price dispersion in the lab and on the internet theory and evidence price dispersion is ubiquitous in settings that closely approximate textbook bertrand competition we show that only a little bounded rationality among sellers is needed to rationalize such dispersion a variety of statistical tests based on datasets from two independent laboratory experiments and structural estimates of the parameters of our models suggest that bounded rationality based theories of price dispersion organize the data remarkably well evidence is also presented to suggest that the models are consistent with data from a leading internet price comparison site

precautionary saving and subjective earnings variance abstract in this paper i examine a model of precautionary saving and i show that the fact that people may insure against income risk makes it difficult to evaluate the extent of precautionary accumulation by simply looking at the relationship between wealth and earnings variance i also argue that occupations may represent a bad proxy for income risk

the rational effect of price promotions on sales and consumption we explore the rational effect of price variation on sales and consumption in markets where consumers are uncertain about the future price of goods we first derive an optimal ordering policy which expresses the amount a consumer should purchase and consume in a given period as a function of the observed price of the good the distribution of future prices and the nature of his or her inventory this policy extends previous normative models of inventory control such as those by golabi 1985 and kalymon 1970 to the case where the amount to consume in a given period is an explicit decision variable and prices follow a first order stochastic process we then use this model to explore how changes in the long run frequency and temporal correlations of price promotions should normatively affect the contemporaneous relationship between purchase consumption and price among the predictions which follow from the model are that consumption should rationally increase with the size of existing inventories the short term sensitivity of sales to prices should be greater than that of consumption to price and this discrepancy increases with decreases in the temporal correlation of price deals and the long term relative frequency of price deals

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

why competition may drive up prices abstract we show that the expected price of an incumbent firm may increase in response to increasing competition as it may become more profitable to exploit a rather immobile fraction of consumers instead of capturing a larger but more contested segment of the market to derive this result we consider two approaches of modelling the degree of competition first in a duopolistic setting competition is said to be more intense if the entrant s product becomes more attractive to the mobile fraction of buyers in this case we find that all buyers i e both the mobile and the immobile fraction may lose if the market becomes more competitive secondly in a model with two entrants competition is said to become intense if entrants serve an overlapping segment of the market for mobile buyers

consumption versus expenditure previous authors have documented a dramatic decline in food expenditures at the time of retirement we show that this is matched by an equally dramatic rise in time spent shopping for and preparing meals using a novel data set that collects detailed food diaries for a large cross section of u s households we show that neither the quality nor the quantity of food intake deteriorates with retirement status we also show that unemployed households experience a decline in food expenditure and food consumption commensurate with the impact of job displacement on permanent income these results highlight how direct measures of consumption distinguish between anticipated and unanticipated shocks to income whereas measures of expenditures obscure the distinction

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

the importance of business owners in assessing the size of precautionary savings abstract not properly accounting for differences between business owners and nonbusiness owners in studies of household wealth can lead to erroneous conclusions about the significance of different saving motives using data from the panel study of income dynamics from the 1980s and 1990s we show that within samples of both business owners and non business owners the amount of precautionary savings with respect to labor income risk is modest and accounts for less than 10 of total household wealth previous large estimates of the size of precautionary balances resulted from pooling these two groups together such pooling is inappropriate given that business owners face higher labor risk and accumulate more wealth than non business owners for reasons unrelated to precautionary motives

measuring the well being of the poor using income and consumption we examine the relative merits of consumption and income as measures of the material well being of the poor consumption offers several advantages over income because consumption is a more direct measure of well being than income and is less subject to underreporting bias measurement problems with income are problematic for analyses of changes in well being of the poor because the biases appear to have changed over time and are correlated with government policies on the other hand income is often easier to report and is available for much larger samples providing greater power to test hypotheses we begin by considering the conceptual and pragmatic reasons why consumption might be better or worse than income then we employ several empirical strategies to examine the quality of income and consumption data first we compare income and consumption reports for those with few resources as well as their assets and liabilities to examine measurement errors and under reporting second we examine other evidence on the internal consistency of reports of low income or consumption third we compare how well micro data in standard datasets weight up to match aggregates for classes of income and consumption that are especially important for low resource families fourth we validate income and consumption measures by comparing them to other measures of hardship or material well being although the evidence tends to favor consumption measures our analyses suggest that both measures should be used to assess the material well being of the poor

price convergence in the european car market this article examines price convergence in the european union eu car market over the period 1995 to 2005 we find that there is a clear evidence of price convergence among the eu15 countries but not before 1999 moreover countries of the economic and monetary union emu started convergence previously to the eu15 as a whole finally exchange rate changes have significantly contributed to price dispersion over time across countries the results provide significant evidence that trade liberalization and the emu have enhanced the process of regional integration in the european automobile industry even though there is room for further measures to promote integration

vertical versus horizontal tax externalities an empirical test abstract we study taxation externalities in federations of benevolent governments where different hierarchical government levels tax the same base one can observe two types of externalities a horizontal externality working among governments of the same level and leading to tax rates that are too low compared to the social optimum and a vertical externality working between different levels of government and leading to suboptimally high tax rates building on the model of keen and kotsogiannis keen michael j kotsogiannis christos 2002 does federalism lead to excessively high taxes american economic review 92 1 363 370 we derive a discriminating hypothesis to distinguish vertical and horizontal tax externalities based on measurable variables this test is applied to a panel data set on local taxes in a sample of swiss municipalities that feature direct democratic fiscal decision making so as to maximize the correspondence with the benevolent governments of the theory we find that vertical externalities dominate they are thus an observed empirical phenomenon as well as a notable extension to the theory of tax competition

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

the existence of low end firms may help high end firms two models of competition between high end and low end products benefiting the high end firms are presented one is a quantity competition model and the other is a price competition model with product differentiation the key factor is the existence of two heterogeneous consumer groups those who demand only high end name brand products and those who care little whether products are high or low end we show that under certain conditions the profits of firms in the high end market are larger when there are firms producing low end products than when there are not the existence of price sensitive consumers who care little about product quality intensifies competition among the high end firms the existence of low end firms functions as a credible threat which induces the high end firms not to overproduce because price sensitive consumers buy products from the low end firms the result provides a new theoretical mechanism concerning the profitability and pricing of national brand firms after the entry of private labels it has an implication for pricing and marketing strategies established firms should not decrease their prices after the entry of nonestablished firms

risk management housing and stockholding this article investigates the possible explanations of the stockholding puzzle by focusing on housing and other uninsurable risks associated with income health and business taking the french household wealth survey patrimoine 2004 french national statistical institute we find that the share of financial wealth invested in stocks depends on transaction and information costs risk aversion exposure to real estate risk and to a lesser extent labour market risk these results are obtained by controlling for endogenous home ownership status

can a decline in search cost increase prices this paper provides a new explanation of why a decline in consumers price search cost may not lead to lower prices in a duopoly with price competition i show that when some consumers are captive to one firm there may be a non monotonic relationship between search cost and market power firms may charge high prices with higher probability and the average price charged may be higher when consumers price search cost falls below a critical level furthermore when firms have asymmetric captive segments expected prices charged by each firm may move in opposite directions as search cost declines resume est ce qu un declin dans le cout de la recherche accroit les prix ce texte propose une nouvelle explication des raisons pour lesquelles un declin dans le cout de la recherche des consommateurs pour le meilleur prix peut ne pas entrainer un declin du niveau des prix dans un duopole avec competition par les prix on montre que quand certains consommateurs sont prisonniers d une firme il peut y avoir une relation non monotone entre cout de la recherche et pouvoir dans ce marche les firmes peuvent imposer des prix plus eleves avec une plus grande probabilite et le prix moyen charge peut etre plus eleve quand le cout de recherche du meilleur prix des consommateurs tombe au dessous d un seuil critique de plus quand les firmes ont des segments captifs asymetriques le prix charge anticipe pour chaque firme peut se deplacer dans des directions opposees a proportion que les couts de recherche declinent

online shopping and platform design with ex ante registration requirements we study platform design in online markets in which buying involves a nonmonetary cost for consumers caused by privacy and security concerns firms decide whether to require registration at their website before consumers learn relevant product information we derive conditions under which a monopoly seller benefits from ex ante registration requirements and demonstrate that the profitability of registration requirements is increased when taking into account the prospect of future purchases or an informational value of consumer registration to the firm moreover we consider the effectiveness of discounts store credit as a means to influence the consumers registration decision finally we confirm the profitability of ex ante registration requirements in the presence of price competition the online appendix is available at https doi org 10 1287 mnsc 2016 2595 this paper was accepted by j miguel villas boas marketing

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

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

did the euro foster online price competition evidence from an international price comparison site i introduction the euro became a reality for consumers in 12 nations on 1 january 2002 when it was introduced for retail transactions in all the participating countries 1 prior to this retail transactions were conducted in local currencies although there were many macroeconomic and political reasons for the implementation of a single currency one consumer based argument made in favor of the euro s introduction was that a single currency would facilitate the transparency of prices across europe and reduce transaction costs associated with currency exchange pedro solbes the european union eu commissioner for economic and financial affairs suggested that trading in the same currency across borders lowers costs while cross border price transparency encourages competition 2 presumably the mechanism that solbes has in mind by which price transparency encourages competition is through increasing the intensity of consumer search across countries internet price comparison sites offer a natural place to look for such effects given that geographic boundaries are irrelevant online and price transparency in this setting makes it fairly easy for consumers to identify bargains and arbitrage price differences within and among eurozone countries 3 in this article we study the dynamics of online retail pricing in the period immediately before and immediately after the retail introduction of the euro to assess its impact using retail price data that we collected from kelkoo the leading internet price comparison site in the eu our analysis is based on a data set that has several features that distinguish it from the extant literature 4 we collected firm and price information from the kelkoo sites in seven eu countries four in the eurozone and three outside it our study focuses on pricing for 28 products across a variety of product categories and price points we obtained price information during a period that straddled the introduction of the euro thus we are able to look at variation both pre and post euro introduction as well as variation between pricing inside and outside the eurozone to our knowledge this is the first study that offers as many cross country comparisons of online prices and covers as broad a range of products 5 we believe this to be one of the first academic studies regarding the impact of the euro on retail pricing 6 by including four eurozone and three non eurozone countries in the study we examine what some might view as a natural experiment on the impact of this important monetary reform on pricing behavior we recognize that there are differing views of the relevant transaction price to use in comparing prices in online markets some have taken the position that identical products sold by different firms in online markets are homogeneous and therefore that a majority of consumers using a price comparison site will purchase at the minimum listed price see baye and morgan 2001 in this case the relevant price to compare pre and post euro is the minimum price on the other hand one might reasonably argue that price differences for identical products stem from heterogeneities in service or reputations and that firms charging higher prices also enjoy sales note the work of narasimhan 1988 pan et al 2001 and baye et al 2004 in this case the natural comparison is the average price charged by all firms in the market the absence of sales data precludes us from discriminating between these two extreme views therefore we study both average and best quoted minimum prices online figure 1 depicts the trend in the difference in prices over time in this figure we plot the difference in the average price and the difference in the average minimum price between the eurozone and the non eurozone on a weekly basis negative numbers indicate that prices in the eurozone are lower than those in the non eurozone and positive figures indicate the reverse

modeling the psychology of consumer and firm behavior with behavioral economics abstract marketing is an applied science that tries to explain and influence how firms and consumers behave in markets marketing models are usually applications of standard economic theories which rely on strong assumptions of rationality of consumers and firms behavioral economics explores the implications of the limits of rationality with the goal of making economic theories more plausible by explaining and predicting behavior more accurately while maintaining formal power this article reviews six behavioral economics models that are useful to marketing three models generalize standard preference structures to allow for sensitivity to reference points and loss aversion social preferences toward outcomes of others and preference for instant gratification the other three models generalize the concept of game theoretic equilibrium allowing decision makers to make mistakes encounter limits on the depth of strategic thinking and equilibrate by learning from feedback the authors also discuss a sp

assessing the effects of local taxation using microgeographic data we study the impact of local taxation on the location and growth of firms our empirical methodology pairs establishments across jurisdictional boundaries to estimate the impact of taxation our approach improves on existing work as it corrects for unobserved establishment heterogeneity for unobserved time varying site specific effects and for the endogeneity of local taxation applied to data for english manufacturing establishments we find that local taxation has a negative impact on employment growth but no effect on entry

market size and tax competition abstract with international externalities different country sizes imperfect competition and trade costs tax competition for mobile firms is efficiency enhancing with respect to the free market outcome under both scenarios the resulting inefficiencies in international specialization and trade flows vanish when trade costs are low enough otherwise only international tax coordination can implement the efficient spatial distribution of firms

consumption puzzles and precautionary savings abstract when marginal utility is convex agents accumulate savings as a precautionary measure against labor income eventualities this paper shows that precautionary savings can go a long way in making the excess growth excess smoothness and excess sensitivity features of consumption consistent with the stochastic processes of labor income observed in the u s at the microeconomic level

consumer privacy and marketing avoidance a static model we introduce the concept of marketing avoidance consumer efforts to conceal themselves and to deflect marketing the setting is one in which sellers market some item through solicitations to potential consumers who differ in their benefit from the item and suffer harm from receiving solicitations concealment by one consumer induces sellers to shift solicitations to other consumers whereas deflection does not solicitations cause two externalities direct harm on consumers and the indirect cost of consumer concealment and deflection we find that in markets where the marginal cost of solicitation is sufficiently low efforts by low benefit consumers to conceal themselves will increase the cost effectiveness of solicitations and lead sellers to market more however concealment by high benefit consumers leads sellers to market less furthermore concealment by low benefit consumers increases direct privacy harm and consumer welfare is higher with deflection than concealment finally it is optimal to impose a charge on solicitations

the timing of sales this paper presents a model of intertemporal price discrimination a fixed number of sellers produce a homogeneous good consumers with different preferences enter the market in each period and leave when they make a purchase the sellers typically vary their prices over time charging a high price in most periods but occasionally cutting the price to sell to a large group of customers with a low reservation price in some equilibria all stores lower their price at the same time and to the same level

price setting in online markets basic facts international comparisons and cross border integration we document basic facts about prices in online markets in the united states and canada which is a rapidly growing segment of the retail sector relative to prices in regular stores prices in online markets are more flexible and exhibit stronger pass through 60 75 percent and faster convergence half life less than two months in response to movements of the nominal exchange rate multiple margins of adjustment are active in the process of responding to nominal exchange rate shocks properties of goods sellers and markets are systematically related to pass through and the speed of price adjustment for international price differentials

permanent income current income and consumption evidence from two panel data sets in this article i estimate euler equations that is the first order conditions of the consumers maximization problem using data from two data sets consumption data are taken from the consumer expenditure survey income data are taken from the panel study of income dynamics because the data for the estimation come from two samples i use a generalization of the instrumental variables estimator the two sample instrumental variables estimator i find evidence that consumption is excessively sensitive to predictable income growth the estimates of the coefficient of excess sensitivity for three consumption measures range from 2 to 5

do agglomeration economies reduce the sensitivity of firm location to tax differentials recent theoretical work in economic geography has shown that agglomeration forces can mitigate race to the bottom tax competition by partly or fully offsetting firms sensitivity to tax differentials we test this proposition using data on firm births across swiss municipalities we find that corporate taxes deter firm births less in more spatially concentrated sectors firms in sectors with an agglomeration intensity in the top quintile are less than half as responsive to differences in corporate tax burdens as firms in sectors with an agglomeration intensity in the bottom quintile hence agglomeration economies do appear to attenuate the impact of tax differentials on firms location choices

an experimental study of price dispersion abstract we report an experiment examining a simple clearinghouse model that generates price dispersion according to this model price dispersion arises because of consumer heterogeneity some consumers are informed and simply buy from the firm offering the lowest price while the remaining consumers are captive and shop based on considerations other than price in our experiment we observe substantial and persistent price dispersion we find that as predicted an increase in the fraction of informed consumers leads to more competitive pricing for all consumers we also find as predicted that when more firms enter the market prices to informed consumers become more competitive while prices to captive customers become less competitive thus our experiment provides strong support for the model s comparative static predictions about how changes in market structure affect pricing

the surprisingly low importance of income uncertainty for precaution abstract while it is common to use income uncertainty to explain household saving decisions there is much disagreement about the importance of precautionary saving this paper suggests that income uncertainty is not an important motive for saving although households do have other precautionary reasons to save using a question from the survey of consumer finances that asks how much households want for precautionary purposes this paper shows that expressed household preferences and liquid savings are much lower than predicted by standard modeling assumptions households rarely list unemployment as a reason to save perceived income uncertainty does not affect liquid savings or precautionary preferences neither does being in an occupation with higher income volatility instead households seem very concerned with expenditure shocks

welfare impacts of improved chickpea adoption a pathway for rural development in ethiopia we analyse the impact of improved chickpea adoption on welfare in ethiopia using three rounds of panel data first we estimate the determinants of improved chickpea adoption using a double hurdle model we apply a control function approach with correlated random effects to control for possible endogeneity resulting from access to improved seed and technology transfer activities to instrument for these variables we develop novel distance weighted measures of a household s neighbours access to improved seed and technology transfer activities second we estimate the impact of area under improved chickpea cultivation on household income and poverty we apply a fixed effects instrumental variables approach where we use the predicted area under cultivation from the double hurdle model as an instrument for observed area under cultivation we find that improved chickpea adoption significantly increases household income while also reducing household poverty finally we disaggregate results by landholding to explore whether the impact of adoption has heterogeneous effects adoption favoured all but the largest landholders for who the new technology did not have a significant impact on income overall increasing access to improved chickpea appears a promising pathway for rural development in ethiopia s chickpea growing regions

capacity sharing between competitors market competition may lead to mismatch between supply and demand that is overpricing may give rise to underselling and underpricing may yield stockout capacity sharing is a common practice to

tax evasion tax competition and gains from nondiscrimination with equilibrium mixed strategies abstract this note extends janeba and peters econ j 109 1999 93 paper on tax evasion and tax competition by allowing for equilibrium mixed strategies it shows that discrimination is still the weakly dominant strategy for both countries

the location choices of foreign investors a district level analysis in india this paper analyzes the determinants of the location choices made by foreign investors at the district level in india to gauge the relative importance of economic geography factors local business conditions and the presence of previous foreign investors we employ a discretechoice model and poisson regressions to control for the potential violation of the assumption of independence of irrelevant alternatives our sample includes about 19 500 foreign investment projects approved in 447 districts from 1991 2005 we find that foreign investors strongly prefer locations where other foreign investors are they are also attracted to industrially diverse locations and those with better infrastructure we conclude that the concentration of fdi in a few locations could fuel regional divergence in post reform india

how prudent are consumers using data from the consumer expenditure survey this paper presents a simple test that provides an explicit estimate of the parameter in the utility function that reflects the strength of the precautionary saving motive the coefficient of relative prudence the test yields a fairly precise estimate of a small precautionary motive in fact the estimate is too small to be consistent with widely accepted beliefs about risk aversion the presence of liquidity constrained households does not appear to explain this finding and there is some evidence that self selection of households into risky environments also cannot explain the results

pricing sunk costs and market structure online evidence from book retailing while online consumers are less concerned than traditional consumers about firm location they may be more concerned about unobservable quality and to signal this online retailers rely more on advertising than traditional retailers imperfect price competition may arise because of vertical product differentiation incomplete consumer awareness and near perfect information exchange between retailers this paper evaluates alternative theories of competition and market structure in online retailing advertising product development and revenue data for the online book market reveal that consumers respond to advertising and website spending rather than low prices as the market size expanded during 1997 2001 these endogenous sunk costs escalated and there was no major new entry advertising to sales ratios and market concentration ratios are much higher than for traditional bookselling using price and demand information for individual books over a number of weeks we find counter cyclical and cross sectional price variation inconsistent with perfect price competition copyright 2001 oxford university press

precautionary savings of agents with heterogeneous risk aversion this article focuses on the estimation of the importance of the precautionary motive in the wealth accumulation decision we use the micro data set of the de nederlandsche bank dnb household survey dhs centerdata tilburg university a dutch household survey containing information on wealth a subjective measure of income uncertainty and subjective qualitative measures of risk aversion we find that only a small share of wealth is accumulated for the precautionary motive by the dutch households this share of wealth is constant across assets with different degrees of liquidity the economic downturn of the period 2008 to 2010 seems to affect risk attitudes and precautionary saving our findings also suggest that the more risk averse individuals are those who hold less savings

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

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

the impact of corporate and personal income taxes on the location of firms and on employment some panel evidence for the swiss cantons abstract the impact of corporate income taxes on location decisions of firms is widely debated in the tax competition literature tax rate differences across jurisdictions may lead to distortions of firms investment decisions empirical evidence on tax induced relocation and subsequent economic development in the us and europe is still inconclusive much the same applies to switzerland while there is some evidence on personal income tax competition between swiss cantons evidence on the impact of intercantonal corporate income tax differences on the location of business within switzerland is missing in this paper we present econometric evidence on the influence of corporate and personal income taxes on the regional distribution of firms in 1981 and 1991 and on cantonal employment using a panel data set of the 26 swiss cantons from 1985 to 1997 the results show that corporate and personal income taxes deter firms to locate in a canton and subsequently reduce cantonal employment

dynamic targeted pricing with strategic consumers abstract we investigate in this paper whether dynamic targeted pricing based on consumer purchase history could benefit a practicing firm even when consumers are strategic in that they actively seek to avail themselves of a low price in the future such strategic behavior on the part of consumers has been shown in the literature to render such dynamic targeted pricing unprofitable even for a monopoly firm we show that dynamic targeted pricing can benefit competing firms when they actively pursue customer recognition based on consumer purchase history this is because in order to pursue customer recognition competing firms need to price high to screen out price sensitive consumers and hence price competition is moderated as a result all competing firms can become better off with targeted pricing than without even when consumers behave strategically interestingly because of this competition moderation effect the paradoxical outcome occurs where dynamic targeted pricing may not benefit a monopolist but it may benefit competing firms we also show that dynamic targeted pricing can expand the market such that social welfare unambiguously improves

storable good monopoly the role of commitment we study dynamic monopoly pricing of storable goods in an environment where demand changes over time the literature on durables has focused on incentives to delay purchases our analysis focuses on a different intertemporal demand incentive for consumers the key force on the consumer side is advance purchases or stockpiling this stockpiling motive can be present in the case of standard durables as well in environments unmodeled in the prior literature we show that if the monopolist cannot commit then prices are higher in all periods and social welfare is lower than in the case in which the monopolist can commit this is in contrast with the durable goods analysis in the literature on the coase conjecture

firm location decisions regional grants and agglomeration externalities we examine whether discretionary government grants influence where domestic and multinational firms locate new plants and how the presence of agglomeration externalities interacts with these policy instruments we find that a region s existing industrial structure has an effect on the location of new entrants grants do have a small effect in attracting plants to specific geographic areas but importantly we find that firms are less responsive to government subsidies in areas where there are fewer existing plants in their industry this suggests that these subsidies are less effective in influencing firms location decisions in the face of countervailing co location benefits