an evolutionary analysis of the volunteer s dilemma abstract a public good is produced if and only if a volunteer provides it there are many pure strategy nash equilibria in each of which a single player volunteers noisy strategy revisions for instance quantal responses allow play to evolve equilibrium selection is achieved via the characterisation of long run play as revisions approximate best replies the volunteer need not be the lowest cost player relatively high cost but nonetheless reliable players may instead produce the public good more efficient players provide when higher values are associated with lower costs voluntary open source software provision offers a contemporary application

market frictions a unified model of search costs and switching costs it is well known that search costs and switching costs can create market power by constraining the ability of consumers to change suppliers while previous research has examined each cost in isolation this paper demonstrates the benefits of examining the two types of friction in unison the paper shows how subtle distinctions between the two costs can provide important differences in their effects upon consumer behaviour competition and welfare in addition the paper also illustrates a simple empirical methodology for estimating separate measures of both costs while demonstrating a potential bias that can arise if only one cost is considered

loss aversion and price volatility as determinants of attitude towards and preference for variable price in the swedish electricity market the results of a survey of a random sample of 488 swedish residents showed that a positive attitude towards and preference for a variable price agreement with the incumbent electricity supplier was negatively affected by loss aversion and a positive attitude also negatively affected by beliefs about price volatility although correlated with attitude and preference age education and current choice of a variable price agreement had no independent effects income and current electricity costs had no effects

retail competition in electricity markets abstract the introduction of competition into retail electricity supply gave rise to great expectations however to date its performance has proven less than stellar owing primarily to the theoretical concepts underpinning this reform which draw heavily on the austrian school neither consumers decision processes nor this sector s technical paradigm were adequately accounted for leading to an uncorrect estimation of the expected impact of opening to competition short and medium term prospects for the evolution of retail markets must be reconsidered from the perspective of greater stability not a generalization of competition but rather a persistent segmentation between active and inactive clients not a large and rapid diffusion of radical innovations in commercialisation with the potential for undermining the incumbents positions

a simple model of pharmaceutical price dynamics abstract branded pharmaceutical firms use price and promotional strategy to manage public knowledge about their drugs we propose a dynamic theory of pharmaceutical pricing and conduct an exploratory empirical analysis inspired by the theory our theory predicts a pattern of increasing prices and decreasing promotional activities over a drug s life cycle prices are kept low and advertising levels high early in the life cycle in order to build public knowledge about the drug as knowledge grows prices rise and advertising falls if the management of this stock is important enough this tendency of prices to rise can overwhelm the price decreasing effect of entry by generic competitors late in the drug life cycle we argue that our theory of price dynamics explains empirical regularities in this industry

modelling household energy expenditures using micro data this paper is concerned with the empirical modeling of domestic demand for energy in the united kingdom at the level of the individual household a two stage budgeting model of household demand for energy conditional on durable ownership is developed at the first stage income is allocated between energy and nonenergy consumption while at the second stage energy expenditure is disaggregated the second stage allocation is assumed to be between gas electricity and a composite good other fuels estimation takes place using a sample of some 50 000 households drawn from the annual u k family expenditure survey for the years 1972 83 a source that has not been fully exploited in the analysis of energy demand to date copyright 1989 by royal economic society

low pay dynamics and transition probabilities this paper models low pay transitions in britain using a bivariate probit model with endogenous selection to address the initial conditions problem and parental variables as instruments the exogeneity of the initial state is strongly rejected and results in considerable overstatement of the effects of explanatory factors the probability of being low paid depends strongly on low pay in the previous year restricting attention to those who remain employees results in an overstatement of the probability of the low paid moving up the earnings distribution but is not found to have much effect on the estimated effects of explanatory variables

consumer choice and competition policy a study of uk energy markets consumer choice is increasingly recognised as a crucial factor in competition policy to illustrate the implications of such choice we present an investment model of the switching choice in the uk residential natural gas market and examine responses to a specially commissioned survey of nearly seven hundred consumers identifying search and switching costs through an assessment of the savings which consumers say they require to switch supplier together with an evaluation of consumer switching behaviour we deduce that the incumbent retained considerable market power suggesting that some continued regulation may be necessary

information marketing and pricing in the u s antiulcer drug market introduced into the united states in 1977 tagamet was the pioneer product in the class of antiulcer drugs known as h2antagonists by promoting ulcer healing through inhibiting acid secretion tagamet was able to heal ulcers and treat pre ulcer conditions pharmacologically on an outpatient basis thereby substituting for more costly hospital admissions and surgeries in 1983 another h2 antagonist called zantac entered and by early 1987 u s zantac sales surpassed those of the pioneering tagamet today there are four h2 antagonists sold in the united states tagamet zantac pepcid and axid zantac is now the world s largest selling prescription drug having estimated worldwide sales in 1994 of about 4 billion each of the four h2 antagonists is among the top 100 in world drug sales although tagamet lost u s patent protection on may 17 1994 in this paper we examine empirically the role of information in facilitating and explaining growth of the overall antiulcer drug market as well as in shaping the changing market shares of the four patented products the dissemination of information is due largely to the use of marketing channels such as visits by manufacturers representatives to physicians called detailing advertising in medical journals and most recently by direct to consumer advertising we examine these and also explore pricing policies product differentiation and orderof entry effects

the role of consumers in competition and competition policy abstract this paper develops the idea that consumers behaviour matters significantly from the viewpoint of industry performance this is examined through some theoretical propositions on search and switching behaviour but then at greater length through some case study examples these demonstrate how even in potentially competitive industries reluctance by consumers to search or to switch suppliers can lead to sub competitive outcomes comparisons are made between industries where search and switching is easy and those where it is not the significance of non traditional competition policy remedies such as enforcement of annual contracts in changing the outcome is drawn out

hugging trees claiming de facto property rights by blockading resource use this paper explores conflicts between two groups the industry and theenvironmentalists over whether an indivisible resource e g an ancient tree should be harvested or preserved in a complete information war ofattrition the environmentalists willingness to blockade harvest attemptsmay control resource use as effectively as if they held property rights optimal government intervention will override this ability for somebenefit cost combinations but may augment it for other combinations introducing uncertainty about the environmentalists benefits results inextended disputes and consequent lack of efficiency governmentintervention for welfare reasons generally reduces these efficiencylosses

characteristics of demand for pharmaceutical products an examination of four cephalosporins we model demand for four cephalosporins and compute own and cross price elasticities between branded and generic versions of the four drugs we model demand as a multistage budgeting problem and we argue that such a model is appropriate to the multistage nature of the purchase of pharmaceutical products in particular the prescribing and dispensing stages we find quite high elasticities between generic substitutes and also significant elasticities between some therapeutic substitutes

advertising and competition in the ethical pharmaceutical industry the case of antihypertensive drugs abstract this paper uses data on the majority of name brand antihypertensive drugs marketed in the united states during 1988 93 to test the hypothesis that advertising decreases the price elasticity of demand in the pharmaceutical industry this is the first study to directly estimate the effects of drug product promotion on the price elasticity of demand in this industry we find strong evidence of an advertising effect in particular detailing efforts the salient means for product promotion in this industry systematically lower price sensitivity given the inverse relationship between elasticity of demand and price it is likely that consumers pay higher prices as a result of the advertising that occurs in this industry our findings are thus consistent with hurwitz and caves who find evidence that advertising inhibits entry into this market but in contrast to earlier research that found no anticompetitive effect

bargaining with imperfect commitment abstract we study the effect of imperfect commitment in noncooperative two person bargaining games by establishing the reputation for being stubborn a player sometimes commits to her initial demand becoming unable to change her demands or to accept an inferior offer from her opponent when the probability of being stubborn is small the set of equilibria is shown to be small and agreement may be reached immediately despite the possibility of stubbornness a player has greater bargaining power when she is more patient and or is more likely to be stubborn journal of economic literature classification number c78

assessing competition policy on economic development implementation of competition policies is one of the most recommended strategies to developing countries as a tool for achieving economic development using a panel dataset of over 100 countries and 7 years from 2005 2011 i estimate the effect of competition on economic development and also determine which of the comprehensive policy factors are the most relevant for increasing competition a fixed effects instrumental variable approach is used i find that competition intensity positively impacts economic development the estimate is highly significant when effectiveness of antimonopoly policy and squared years of experience handling competition law are used as instruments for competition intensity political stability is shown to be a determinant for higher achievement in development macroeconomic environment and financial market development are also significant factors that contribute to higher economic development less developed countries should work intensively to improve their institutional quality and implement pro competitive policies that are not only related to competition laws

reputation and patience in the war of attrition this article presents an approach to selecting among the many subgame perfect equilibria that exist in a standard concession game with complete information the authors extend the description of a game to include a specific irrational mixed strategy for each player depending on the irrational strategies chosen the authors demonstrate that this approach may select a unique equilibrium in which the weaker player concedes immediately a player is weaker if he is more impatient or if his irrational strategy is to wait in any period with the higher probability copyright 1989 by the london school of economics and political science

centralizing information in networks in the dynamic game we analyze players are the members of a fixed network everyone is initially endowed with an information item that he is the only player to hold players are offered a finite number of periods to centralize the initially dispersed items in the hands of any one member of the network in every period each agent strategically chooses whether or not to transmit the items he holds to his neighbors in the network the sooner all the items are gathered by any individual the better it is for the group of players as a whole besides the agent who first centralizes all the items is offered an additional reward that he keeps for himself in this framework where information transmission is strategic and physically restricted we provide a necessary and sufficient condition for a group to pool information items in every equilibrium this condition is independent of the network structure the architecture of links however affects the time needed before items are centralized in equilibrium

multi battle contests abstract we study equilibrium in a multistage race in which players compete in a sequence of simultaneous move component contests players may win a prize for winning each component contest as well as a prize for winning the overall race each component contest is an all pay auction with complete information we characterize the unique subgame perfect equilibrium analytically and demonstrate that it exhibits endogenous uncertainty even a large lead by one player does not fully discourage the other player and each feasible state is reached with positive probability in equilibrium pervasiveness expected effort in the component contests may be non monotonic in the closeness of the race and realized individual effort may exceed the value of the prize by a factor that is proportional to the maximum number of stage victories required

mergers in the gb electricity market effects on retail charges the opening up of the uk residential electricity sector in 1999 prompted several studies of the impact this had on both the level and structuring of retail charges and on incumbent players market power drawing on observations of regional tariffs for the month of january 2004 this article supports previous conclusions based on simulated retail charges looking at the response of real tariffs to distribution and transmission costs customer density and the length of low voltage underground circuit we also investigate whether vertically integrated suppliers have a particular effect on charges ceteris paribus the effect of cost drivers and supplier related factors

service quality in the electricity industry the role of privatization and managerial behavior abstract this paper analyzes the relationship between privatization and service quality in the electricity industry and tests the hypothesis that managerial behavior is a significant intervening factor the sample includes 31 italian distributors over the period 1998 2004 their quality performance is represented by continuity of supply an aspect of quality that is both contractible and regulated results of the empirical analysis suggest that the transfer of shareholdings to private investors does not lead to quality degradation the results also suggest that managerial dominance translates into a reduction in supply quality this effect is likely to be particularly strong for public sector utilities

non discrimination clauses in the retail energy sector the british energy regulator will soon review a non discrimination licence condition which it imposed to ensure that energy retailers charge the same mark up in different regions many consumers are loyal to incumbent firms necessitating heavy discounting by entrants to attract customers which had led to regional price discrimination matching characteristics of the energy market to models of discrimination we identify the necessary conditions for the licence condition to have a positive effect for consumers and explore whether the policy has helped potentially vulnerable consumers we conclude that the most likely effect of the licence condition is to reduce competition in the mainstream energy markets and welcome the regulator s latest review of the retail market

impact of direct to consumer advertising on pharmaceutical prices and demand author affiliation dhaval dave ddave bentley eduhenry saffer hsaffer gc cuny edu acknowledgment this research was supported by a grant from the agency for healthcare research and quality to the national bureau of economic research the authors are grateful to gregory colman robert feinberg michael grossman dominic hodgkin rick smith and two anonymous reviewers for valuable comments li ma and zhen ma provided excellent research assistance 1 introductionbetween 1995 and 2007 expenditures on prescription drugs increased by 274 raising the drug related share of total health care spending from 6 to over 10 and making it one of the fastest growing components of health care costs 1 the growth in prescription drug expenditures has coincided with the growth in pharmaceutical promotion which increased from 11 4 billion in 1996 to 29 9 billion in 2005 donohue cevasco and rosenthal 2007 promotion of prescription drugs is generally limited to patented drugs and includes direct to consumer advertising dtca on broadcast and print media as well as direct to physician promotion dtpp through visits by company representatives to physician offices known as detailing free samples provided to physicians and advertising in professional journals the largest increase in promotion resulted from the expansion of dtca into broadcast media this expansion was precipitated by the food and drug administration s fda s clarification of the rules governing broadcast advertising in 1997 and 1999 making it feasible for companies to promote via television and radio advertisements dtca spending increased from 150 million in 1993 to 4 24 billion in 2005 these new regulations which allow broadcast dtca remain a controversial policy currently only the united states and new zealand permit such advertising dtca is facing increased scrutiny from congress and consumer groups congressional leaders have contended that dtca raises prescription drug costs and have requested that the policy be revisited 2 some groups maintain that the recent increases in dtca are responsible for the increases in expenditures on prescription drugs the national institute for health care management november 2001 claimed that increases in sales for the 50 most heavily advertised drugs caused 47 8 of the increase in expenditures on prescription drugs growth in prescription drug spending is broadly driven by increases in utilization and price and shifts in the composition of drugs being used all of which may be impacted by dtca dtca can raise the demand for existing drugs and can also affect their price elasticity the increase in demand can be beneficial if it improves adherence donohue et al 2004 bradford et al 2006 or makes individuals aware of the existence of drug therapies for their health conditions expenditures have also increased in part as a result of the fact that newer drugs generally cost more than older drugs and dtca might induce substitution to these newer more expensive drugs which also tend to be more heavily advertised this may be health promoting since newer drugs have been shown to be more effective in improving health than are older drugs lichtenberg and virabhak 2007 treatment through prescription drugs can also be more cost effective than alternative and more intensive therapies inducing some substitution among these forms of care 3 a key component of this question of the extent to which the growth in dtca has contributed to rising prescription drug costs relates to how dtca affects drug prices to the best of our knowledge no prior studies have investigated the impact of dtca on prescription drug prices on a broad scale this study adds to the literature with an empirical investigation of the role of prescription drug promotion in affecting the price of prescription drugs prior studies which have explored the effects of consumer advertising on sales have also generally utilized older data collected prior to 2000 have not differentiated between broadcast and non broadcast dtca and have arrived at mixed conclusions regarding the impact of total dtca on own sales

consumer s surplus without apology the purpose of this paper is to settle the controversy surrounding consumer s surplus and by so doing to validate its use as a tool of welfare economics i will show that observed consumer s surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations the correct theoretical measures of the welfare impact of changes in prices and income on an individual i derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer s surplus these bounds can be explicitly calculated from observable demand data and it is clear that in most applications the error of approximation will be very small in fact the error will often be overshadowed by the errors involved in estimating the demand curve the results in no way depend upon arguments about the constancy of the marginal utility of income consequently this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer s surplus moreover the results imply that consumer s surplus is usually a very good approximation to the appropriate welfare measures to preview below i establish the validity of these rules of thumb for a

bargaining reputation and equilibrium selection in repeated games with contracts consider a two person intertemporal bargaining problem in which players choose actions and offers each period and collect payoffs as a function of that period s actions while bargaining proceeds this can alternatively be viewed as an infinitely repeated game wherein players can offer one another enforceable contracts that govern play for the rest of the game theory is silent with regard to how the surplus is likely to be split because a folk theorem applies perturbing such a game with a rich set of behavioral types for each player yields a specific asymptotic prediction for how the surplus will be divided as the perturbation probabilities approach zero behavioral types may follow nonstationary strategies and respond to the opponent s play in equilibrium rational players initially choose a behavioral type to imitate and a war of attrition ensues how much should a player try to get and how should she behave while waiting for the resolution of bargaining in both respects she should build her strategy around the advice given by the nash bargaining with threats nbwt theory developed for two stage games in any perfect bayesian equilibrium she can guarantee herself virtually her nbwt payoff by imitating a behavioral type with the following simple strategy in every period ask for and accept nothing less than that player s nbwt share and while waiting for the other side to concede take the action nash recommends as a threat in his two stage game the results suggest that there are forces at work in some dynamic games that favor certain payoffs over all others this is in stark contrast to the classic folk theorems to the further folk theorems established for repeated games with two sided reputational perturbations and to the permissive results obtained in the literature on bargaining with payoffs as you go

the generalized war of attrition abstract we model a war of attrition with n k firms competing for n prizes in a natural oligopoly context the k 1 lowest value firms drop out instantaneously even though each firm s value is private information to itself in a standard setting context in which every competitor suffers losses until a standard is chosen even after giving up on its own preferred alternative each firm s exit time is independent both of k and of other players actions our results explain how long it takes to form a winning coalition in politics solving the model is facilitated by the revenue equivalence theorem jel d43 d44 l13 o30

parametric and semi parametric modelling of vacation expenditures we analyse several limited dependent variable models explaining the budget share that dutch families spend on vacations to take account of the substantial number of zero shares two types of models are used the first is the single equation censored regression model we estimate and test several parametric and semi parametric extensions of the tobit model second we consider two equation models in which the participation decision and the decision on the amount to spend are treated separately the first decision is modelled as a binary choice model the second as a conditional regression we estimate and test parametric and semi parametric specifications

a probit model of choice dynamics there are many products which are repeatedly purchased by consumers in such cases it is likely that choice history that is the sequence of choices made in the past as well as marketing variables affect subsequent choice decisions attempts to model the effects of choice history have been generally based on the inclusion of variables that represent brand loyalty and or variety seeking behavior in this paper we present a model of dynamic choice behavior which is more general and incorporates four characteristics the first characteristic labeled preference reinforcement and preference reduction represents loyalty and variety seeking the second is the short term reluctance of a consumer to move from the current brand inertia or the willingness to move to another brand mobility the third characteristic captures the effect of repetitive consumption the long term effect on inertia and mobility the fourth characteristic incorporates the similarity or dissimilarity of choice alternatives this is important in a dynamic model because choice on the current purchase occasion can be affected by whether a similar or dissimilar alternative was chosen on the previous occasion similarities of alternatives are represented in terms of distances the effect of price on choice behavior is also modeled individual level purchase data from a consumer panel are used to estimate a covariance probit and an independent probit specification of the model from a substantive perspective the model gives interesting insights into the dynamics of choice behavior the model predicts switches better than a benchmark model which incorporates only loyalty in addition it is superior to three benchmark models in overall predictive ability

the potential for segmentation of the retail market for electricity in ireland abstract we estimate the gross margin that is earned from the supply of electricity to households in ireland using half hourly electricity demand data the system marginal price also called the wholesale price and the retail price of electricity we analyse how the gross margin varies across customers with different characteristics the wholesale price varies throughout the day thus the time at which electricity is used affects the gross margin the main factor in determining gross margin however is the level of demand the highest gross margins are earned from supplying customers that have the following characteristics being aged between 46 and 55 having a household income of at least 75 000 per annum being self employed having a third level education having a professional or managerial occupation living in a household with seven or more people living in a detached house having at least five bedrooms or being a mortgage holder an ols regression shows that gross margin is partly explained by the energy conservation measures which are present in a household the number of household members the number of bedrooms age occupation and accommodation type

pharmaceutical advertising and medicare part d abstract we explore how and to what extent prescription drug insurance expansions affect incentives for pharmaceutical advertising when insurance expansions make markets more profitable firms respond by boosting advertising theory suggests this effect will be magnified in the least competitive drug classes where firms internalize a larger share of the benefits from advertising empirically we find that the implementation of part d coincides with a 14 19 increase in total advertising expenditures this effect is indeed concentrated in the least competitive drug classes the additional advertising raised utilization among non elderly patients outside the part d program by about 3 6 this is roughly half of the direct utilization effect of part d on elderly beneficiaries the results suggest the presence of considerable spillover effects from publicly subsidized prescription drug insurance on the utilization and welfare of consumers outside the program