commodities momentum a behavioral perspective the growth in commodity related investments has sparked interest in the performance of momentum strategies in these markets this paper introduces a behavioral proxy of the 52 week high and low momentum that explains a significant proportion of the variation of conventional momentum returns after controlling for commodity specific risk factors our findings show that the 52 week high strategy generates significant profits after accounting for transaction costs we report that the 52 week high strategy is a better predictor of returns than conventional momentum our findings suggest that term structure and hedging pressure risk factors provide only a partial explanation of the results

limit theorems for markets with sequential bargaining this paper models trade as a non coopertative strategic game played at an inlinite sequence of dates a single indivisible commodity is traded buyers and sellers have transferable utility and are characterized by their reservation utilities they meet at random and bargain over the price at which a single unit of the good will be exchanged under a variety of circumstances it is shown that as the costs of search and bargaining become negligible the outcome of the game converges to the competitve flow equilibrium even when there is complete information journal of economic literature classification numbers 022 19x7

decentralized trading strategic behaviour and the walrasian outcome for a market with a finite number of agents pairwise matching and bargaining it is shown that even when the market is frictionless the equilibrium is not necessarily competitive it depends on the amount of information agents use if their behaviour is conditioned only on the sets of agents present and the time the competitive solution is the unique subgame perfect equilibrium if agents have full information and condition their behaviour on some of it there are also noncompetitive equilibria in which behaviour depends on specific information such as the identity of the trading partner and past events

commodity liquidity measurement and transaction costs we examine the performance of liquidity proxies in commodities the amihud measure has the largest correlation with liquidity benchmarks amivest and effective tick measures also perform well these proxies are useful for studies of commodity liquidity over a long time period and those that lack access to high frequency data we use various aspects of transaction costs such as spread depth immediacy and resiliency to give insight into the costs of different execution approaches transaction costs increase with volatility and exhibit mean reversion splitting trades over one hour can reduce trading costs by two thirds compared to an immediate execution the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

matching markets with adverse selection abstract this paper considers a market with adverse selection in the spirit of rothschild and stiglitz quart j econ 90 1976 629 the major departure from existing approaches is that we model a decentralized market that is open ended and constantly refilled by new participants e g by new workers and firms in the case of a labor market the major novelty of this approach is that the distribution of types in the market becomes an endogenous variable which is jointly determined with equilibrium contracts as frictions become small we show that the least cost separating contracts are always supported as an equilibrium outcome regardless of the distribution of types among entrants moreover we derive conditions under which this outcome is also unique

bargaining and markets complexity and the competitive outcome abstract rubinstein and wolinsky rev econ stud 57 1990 63 78 consider a simple decentralised market game in which agents meet randomly or voluntarily and bargain over the terms of trade they show that any individually rational price can be sustained as a sequential equilibrium even though the model has a unique competitive outcome here i consider rubinstein and wolinsky s model and show that if complexity costs of implementing strategies enter players preferences together with the standard payoff in the game then every equilibrium is stationary markov and induces the unique competitive price thus i demonstrate that aversion to complexity may provide a justification for the competitive outcome

valuing product innovation genetically engineered varieties in us corn and soybeans we develop a discrete choice model of differentiated products for us corn and soybean seed demand to study the welfare impact of genetically engineered ge crop varieties using a unique data set spanning the period 1996 2011 we find that the welfare impact of the ge innovation is significant in the last five years of the period analyzed our preferred counterfactual indicates that total surplus due to ge traits was 5 18 billion per year with seed manufacturers appropriating 56 of this surplus the seed industry obtained more surplus from ge corn whereas farmers received more surplus from ge soybeans

estimating the effects of global patent protection in pharmaceuticals a case study of quinolones in india under the trips agreement wto members are required to enforce product patents for pharmaceuticals the debate about the merits of this requirement has been extremely contentious many low income economies claim that patent protection for pharmaceuticals will result in substantially higher prices for medicines with adverse consequences for the health and well being of their citizens on the other hand research based global pharmaceutical companies argue that prices are unlikely to rise significantly because most patented products have therapeutic substitutes in this paper we empirically investigate the basis of these claims central to the ongoing debate is the structure of demand for pharmaceuticals in poor economies where because health insurance coverage is so rare almost all medical expense are met out of pocket using a detailed product level data set from india we estimate key price and expenditure elasticities and supply side parameters for the fluoroquinolones sub segment of the systemic anti bacterials i e antibiotics segment of the indian pharmaceuticals market we then use these estimates to carry out counterfactual simulations of what prices profits and consumer welfare would have been had the fluoroquinolone molecules we study been under patent in india as they were in the u s at the time our results suggest that concerns about the potential adverse welfare effects of trips may have some basis we estimate that in the absence of any price regulation or compulsory licensing the total annual welfare losses to the indian economy from the withdrawal of the four domestic product groups in the fluoroquinolone sub segment would be on the order of u s 450 million or about 73 of the sales of the entire systemic anti bacterials segment in 2000 of this amount foregone profits of domestic producers constitute roughly 50 million or 11 the overwhelming portion of the total welfare loss therefore derives from the loss of consumer welfare in contrast the profit gains to foreign producers in the absence of any price regulation are estimated to be only around 53 million per year

the risk in hedge fund strategies theory and evidence from trend followers hedge fund strategies typically generate option like returns linear factor models using benchmark asset indices have difficulty explaining them following the suggestions in glosten and jagannathan 1994 this article shows how to model hedge fund returns by focusing on the popular trend following strategy we use lookback straddles to model trend following strategies and show that they can explain trend following funds returns better than standard asset indices though standard straddles lead to similar empirical results lookback straddles are theoretically closer to the concept of trend following our model should be useful in the design of performance benchmarks for trend following funds

screening in a matching market contract design under incomplete information is often analysed in a bilaterally monopolistic setting if the informed party s reservation value does not depend on its private information its type it is a standard result that the uninformed side offers low types distorted contracts to reduce the information rent left to high types we challenge this result by embedding contract design in a matching market environment we consider a market where players meet pairwise and where in each match either side may be chosen to make a take it or leave it offer as frictions become sufficiently low we find that the set of equilibria is independent of whether there is complete or incomplete information in particular all contracts are free of distortions

dynamic matching and bargaining games a general approach this paper presents a new characterization result for competitive allocations in quasilinear economies this result is informed by the analysis of non cooperative dynamic search and bargaining games such games provide models of decentralized markets with trading frictions a central objective of this literature is to investigate how equilibrium outcomes depend on the level of the frictions in particular does the trading outcome become walrasian when frictions become small existing specifications of such games provide divergent answers the characterization result is used to investigate what causes these differences and to generalize insights from the analysis of specific search and bargaining games

the competitive effects of a new product introduction a case study this paper analyzes the competitive effect of a new product introduction we break the overall competitive effect into two parts the effect on the prices of existing products due to increased competition and the effect of having additional product variety using data from both before and after the introduction we directly estimate the price effects and the additional variety effect then using only the estimated post introduction demand structure along with an assumed model of competition we estimate the price effects indirectly by comparing the indirect and direct estimates we assess the validity of alternative models of competition for the industry

spatial differentiation and vertical mergers in retail markets for gasoline this paper studies an empirical model of spatial competition applied to gasoline markets the main feature is to specify commuting paths as the locations of consumers in a hotelling style model as a result spatial differentiation depends in an intuitive way on the structure of the road network and the direction of traffic flows the model is estimated using panel data on the quebec city gasoline market and used to evaluate the consequences of a recent vertical merger difference in difference and counterfactual simulation methods are compared and the results to a large extent validate the assumptions of the demand model jel g34 l13 l42 l81 q41 r41

household level welfare effects of organic milk introduction using household scanner data and a discrete choice modeling approach we estimate demand for milk products at the micro level and compute the distribution of welfare effects from introducing organic milk across households with different characteristics within the partial equilibrium framework the price effects of introducing organic milk are larger for low income households than for high income households and the differences in the variety effects of introducing organic milk to groups with various levels of education are larger than the differences in the variety effects among groups with different income levels policy implications of these findings are discussed copyright 2013 oxford university press

the rate of convergence to perfect competition of matching and bargaining mechanisms abstract we study the steady state of a market with incoming cohorts of buyers and sellers who are matched pairwise and bargain under private information a friction parameter is the length of the time period until the next meeting we provide a necessary and sufficient condition for the convergence of mechanism outcomes to perfect competition at the linear rate in which is shown to be the fastest possible among all bargaining mechanisms the condition requires that buyers and sellers always retain some bargaining power the bargaining mechanisms that satisfy this condition are called nonvanishing bargaining power nbp mechanisms simple random proposer take it or leave it protocols are nbp while k double auctions k da are not we find that k das have equilibria that converge to perfect competition at a linear rate converge at a slower rate or even do not converge at all

dynamic matching two sided incomplete information and participation costs existence and convergence to perfect competition consider a decentralized dynamic market with an infinite horizon and participation costs in which both buyers and sellers have private information concerning their values for the indivisible traded good time is discrete each period has length and each unit of time continuums of new buyers and sellers consider entry traders whose expected utility is negative choose not to enter within a period each buyer is matched anonymously with a seller and each seller is matched with zero one or more buyers every seller runs a first price auction with a reservation price and if trade occurs both the seller and the winning buyer exit the market with their realized utility traders who fail to trade continue in the market to be rematched we characterize the steady state equilibria that are perfect bayesian we show that as converges to zero equilibrium prices at which trades occur converge to the walrasian price and the realized allocations converge to the competitive allocation we also show the existence of equilibria for sufficiently small provided the discount rate is small relative to the participation

retail globalization and household welfare evidence from mexico the arrival of global retail chains in developing countries is causing a radical transformation in the way that households source their consumption this paper draws on a new and unique collection of mexican microdata to estimate the effect of foreign supermarket entry on household welfare and its underlying channels the richness of the data allows us to estimate a general expression for the welfare gains from retail fdi and to decompose the total effect into several distinct components to base our estimates on plausibly exogenous variation in foreign retail entry we propose an event study design that exploits data on the universe of foreign store locations and opening dates in combination with high frequency data on barcode level store prices consumption quantities and household incomes in those same locations over the period 2002 2014 we find that foreign retail entry causes large and significant welfare gains for the average household that are mainly driven by a reduction in the cost of living a substantial share of this price index effect is due to pro competitive effects on consumer prices charged by domestic stores we find little evidence of significant changes in average municipality level incomes wages or employment we do however find evidence of store exit and adverse effects on domestic store profits and the incomes of traditional retail sector workers finally we present evidence that the gains from retail fdi are on average positive for all income groups but strongly regressive and quantify the opposing forces that underlie this finding

the credibility revolution in empirical economics how better research design is taking the con out of econometrics since edward leamer s memorable 1983 paper let s take the con out of econometrics empirical microeconomics has experienced a credibility revolution while leamer s suggested remedy sensitivity analysis has played a role in this we argue that the primary engine driving improvement has been a focus on the quality of empirical research designs the advantages of a good research design are perhaps most easily apparent in research using random assignment we begin with an overview of leamer s 1983 critique and his proposed remedies we then turn to the key factors we see contributing to improved empirical work including the availability of more and better data along with advances in theoretical econometric understanding but especially the fact that research design has moved front and center in much of empirical micro we offer a brief digression into macroeconomics and industrial organization where progress by our lights is less dramatic although there is work in both fields that we find encouraging finally we discuss the view that the design pendulum has swung too far critics of design driven studies argue that in pursuit of clean and credible research designs researchers seek good answers instead of good questions we briefly respond to this concern which worries us little

exact consumer s surplus and deadweight loss consumer s surplus is a widely used tool in applied welfare economics both economic theorists and cost benefit analysis often use consumer s surplus despite its somewhat dubious reputation the basic idea is to evaluate the value to a consumer or his willingness to pay for a change in price of a good from say pricep to pricep because price changes affect consumer welfare an evaluation of this effect is often a key input to public policy decisions yet consumer s surplus is probably the most controversial of widely used economic concepts both paul samuelson and ian little conclude that the economics profession would be better off without it it is my feeling of the situation that substantial agreement exists on the correct quantities to be measured the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change the quantities correspond to john hicks compensating variation measures an alternative measure which takes ex post price change utility as the basis of comparison is hicks equivalent variation the controversy arises in the measurement of these quantities the usual measurement procedure is to use the area to the left of the marshallian market demand curve between two price levels jules dupuit originated this measure of welfare change and alfred marshall and hicks derived appropriate conditions for its use the primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income marshall gave this condition and if it holds the same quantity will be derived as the area to the left of the compensated hicksian demand curve this area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure thus the constant marginal utility of income is a sufficient condition for marshallian consumer s surplus to be equal to hicks consumer s surplus in this case arnold harberger s plea to use the welfare triangle as one half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change in a recent paper robert willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the marshallian measure derived form the market demand curve his bounds which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer s income spent on the good demonstrate that the marshallian consumer s surplus is often a good approximation to hicks consumer s surplus the fact that the proportion of the consumer s income spent matters as well as the income elasticity was first pointed out by harold hotelling willig contends that the approximation error will be less than the errors involved in estimating the demand curve thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using marshallian consumer s surplus to measure welfare change however in this paper i show that for the case primarily considered by willig of a single price change which is also the situation in which consumer s surplus is often used in applied work no approximation is necessary professor of economics massachusetts institute of technology and research associate national bureau of economic research i would like to thank peter diamond erwin diewert daniel mcfadden robert merton robert solow hal varian joel yellin and the referees for help and comments research support from the national science foundation is acknowledged the reason that we still have two rather than one of samuelson s six measures of consumer s surplus arises from an index number problem of the correct basis for the welfare comparison i will give both measures but plan to concentrate on the compensating variation

price competition in u s brewing this study utilizes a brand level dataset that captures a unique natural experiment a 100 increase in the excise tax to evaluate different pricing models in the u s beer industry to assess the plausibility of different models the increase in marginal cost resulting from the tax increase is exploited observed prices in the post increase period are compared to the prices that should be observed under various pricing models three types of models are analyzed bertrand nash leadership and collusion results indicate that extreme cases of collusion can be confidently ruled out while several models may explain the observed prices equally well

mechanism design by competing sellers a dynamic model with many sellers and buyers is constructed agents failing to trade may trade in the next period an equilibrium is found where sellers hold identical auctions and buyers randomize over the sellers they visit the distribution of buyer valuations is endogenous an auction with efficient reserve is an optimal mechanism from each seller s point of view in spite of the ability of any seller to alter the distribution of buyer types participating in the seller s mechanism by altering the mechanism copyright 1993 by the econometric society

price discovery in a matching and bargaining market with aggregate uncertainty abstract we introduce aggregate uncertainty into a rubinstein and wolinsky 1985 type dynamic matching and bilateral bargaining model the market can be either in a high state where there are more buyers than sellers or in a low state where there are more sellers than buyers traders do not know the state they randomly meet each other and bargain by making take it or leave it offers the only information transmitted in a meeting is the time a trader spent on the market there are two kinds of search frictions time discounting and exogenous exit we find that as the search frictions vanish the market discovers the competitive price quickly the prices offered in equilibrium converge in expectation to the true state walrasian price at the rate linear in the total search friction this rate is the same as it would be if the state were commonly known

valuation of new products in attribute space we contribute to the literature on new product valuation by presenting a model of new product introduction based on the distance metric dm approach of pinkse slade and brett 2002 models based on the dm approach are capable of dealing with highly differentiated food categories that are often responsible for the lion s share of new product activity furthermore since new products are typically characterized by differences in observable attributes the dm approach is appropriate in that it directly accounts for such differences our findings reveal that consumers benefit from new products even when the number of alternatives is already high copyright 2007 oxford university press

combining mean reversion and momentum trading strategies in foreign exchange markets abstract the literature on equity markets documents the existence of mean reversion and momentum phenomena researchers in foreign exchange markets find that foreign exchange rates also display behaviors akin to momentum and mean reversion this paper implements a trading strategy combining mean reversion and momentum in foreign exchange markets the strategy was originally designed for equity markets but it also generates abnormal returns when applied to uncovered interest parity deviations for five countries i find that the pattern for the positions thus created in the foreign exchange markets is qualitatively similar to that found in the equity markets quantitatively this strategy performs better in foreign exchange markets than in equity markets also it outperforms traditional foreign exchange trading strategies such as carry trades and moving average rules

complexity and competition extensive form market games typically have a large number of noncompetitive equilibria in this paper we argue that the complexity of noncompetitive behavior provides a justification for competitive equilibrium in the sense that if rational agents have an aversion to complexity at the margin then maximizing behavior will result in simple behavioral rules and hence in a competitive outcome for this purpose we use a class of extensive form dynamic matching and bargaining games with a finite number of agents in particular we consider markets with heterogeneous buyers and sellers and deterministic exogenous sequential matching rules although the results can be extended to other matching processes if the complexity costs of implementing strategies enter players preferences lexicographically with the standard payoff then every equilibrium strategy profile induces a competitive outcome

markov equilibria in dynamic matching and bargaining games abstract rubinstein and wolinsky rev econ stud 57 1990 63 show that a simple homogeneous market with exogenous matching has a continuum of non competitive perfect equilibria however the unique markov perfect equilibrium of this model is competitive by contrast in the more general case of heterogeneous markets even the markov property is not enough to guarantee the perfectly competitive outcome we define a market game that allows for heterogeneous values on both sides of the market and exhibit a number of examples of non competitive markov perfect equilibria with and without discounting unlike the homogeneous case these equilibria allow for inefficient trades and for trade at non uniform prices the non competitive equilibrium may be unique

portfolio performance evaluation old issues and new insights this article presents a model that provides insights about various measures of portfolio performance the model explores several criticisms of these measures these include the problem of identifying an appropriate benchmark portfolio the possibility of overestimating risk because of market timing ability and the failure of informed investors to earn positive risk adjusted returns because of increasing risk aversion the article argues that these need not be serious impediments to performance evaluation

differentiating the consumer benefits from labeling of gm food products although recurrent evidence is found that consumers have different willingness to pay for gm and non gm products there is disagreement in the scientific community about the size of consumer benefits from gm labeling in this article we use a theoretical model based on a standard constant elasticity of substitution ces to explain the importance of the quality effect it is shown that failing to consider the quality effect may yield an overestimation of benefits from gm labeling voluntary or mandatory

are small stock returns achievable returns of the small company universe an examination of actual small company passive portfolios sheds some light on this issue these small stock portfolios deliver the returns of their targets within statistically acceptable bounds there are however significant differences across their returns and these differences appear to be related to management style pure indexers try to maintain perfect index like portfolio compositions minimizing trading cost is of secondary importance to them these portfolios have the lowest returns at the other extreme some portfolios emphasize minimizing trading costs at the expense of perfect portfolio composition these portfolios have the highest returns

the role of private information in dynamic matching and bargaining can it be good for efficiency abstract we consider a private information replica of the dynamic matching and bargaining model of mortensen and wright 2002 we find that private information typically deters entry but the welfare can actually be higher under private information

efficiency with costly information a reinterpretation of evidence from managed portfolios we investigate the informational efficiency of mutual fund performance for the period 1965 84 results are shown to be sensitive to the measurement of performance chosen we find that returns on s p stocks returns on non s p stocks and returns on bonds are significant factors in performance assessment once we correct for the impact of non s p assets on mutual fund returns we find that mutual funds do not earn returns that justify their information acquisition costs this is consistent with results for prior periods coauthors are martin j gruber sanjiv das and matthew hlavka article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

cut throat fringe competition in an emerging country market tax evasion or the absence of market power brazil s established soft drink firms recently lost ground to multiple low price entrants with small scale operations and minimal advertising while incumbents attributed such undercutting to entrants lower costs from non compliance with the law generics counterargued that incumbents high prices stemmed from unilateral market power rather than cost heterogeneity by estimating a structural model i can single handedly explain established brands high prices through low equilibrium price elasticities of demand tax evasion in the fringe while plausible appears to be offset by higher procurement costs or less efficient scale more generally a competitive informal sector can alleviate the allocative distortions in certain concentrated industries

evidence on the accuracy of merger simulations this paper evaluates the efficacy of a structural model of oligopoly used for merger review using premerger data we estimate several demand systems and use a static bertrand model to simulate the price effects of two mergers using pre and postmerger data we directly estimate the price effects the direct estimates imply that one merger resulted in moderate price increases while the second left prices essentially unchanged while some simulations are similar to the directly estimated price effects overall simulations overstate the price effects in one case and understate them in the other explanations for the discrepancies are explored

convergence to perfect competition of a dynamic matching and bargaining market with two sided incomplete information and exogenous exit rate abstract consider a decentralized dynamic market with an infinite horizon and incomplete information in which buyers and sellers values for the traded good are private and independently drawn time is discrete each period has length and each unit of time a large number of new buyers and sellers enter the market within a period each buyer is matched with a seller and each seller is matched with zero one or more buyers every seller runs a first price auction with a reservation price and if trade occurs the seller and winning buyer exit with their realized utility traders who fail to trade either continue in the market to be rematched or exit at an exogenous rate we show that in all steady state perfect bayesian equilibria as approaches zero equilibrium prices converge to the walrasian price and realized allocations converge to the competitive allocation

prices delay and the dynamics of trade we characterize the dynamics of trading patterns and market composition when trade is bilateral finding a trading partner is costly prices are determined by bargaining and preferences are private information we show that equilibrium is inefficient and exhibits delay as sellers price discriminate between buyers with different values as frictions vanish transaction prices are asymptotically competitive and the welfare loss of inefficient trading approaches zero even though the trading patterns continue to be inefficient and delay persists journal of economic literature classification numbers d40 d50

walras retrouve decentralized trading mechanisms and the competitive price we extend the standard analysis of decentralized markets to allow for the possibility that traders interact simultaneously with more than one trader on the opposite side of the market in contrast with the literature we reconcile the walrasian equilibrium with the outcome of decentralized strategic trade we show that there exist generic matching technologies that determine local market conditions such that as market frictions vanish the equilibrium price is the one that would result in the static walrasian market our analysis highlights the importance of local market conditions for the determination of equilibrium prices

temperature and seasonality influences on spanish electricity load abstract deregulation of the spanish electricity market in 1998 and the possible listing of electricity or weather derivative contracts have encouraged the study of the relationship between electricity demand and weather in spain in this paper a transfer function intervention model is developed for forecasting daily electricity load from cooling and heating degree days the influence of weather and seasonality is proved and is significant even when the autoregressive effects and the dynamic specification of the temperature are taken into account the estimated general model shows a high predictive power the results and information presented in this paper could be of interest for current users and potential traders in the deregulated spanish electricity market

sources of bias and solutions to bias in the consumer price index four sources of bias in the consumer prices index cpi have been identified the most discussed is substitution bias which creates a second order bias in the cpi three other changes besides prices changes create first order effects on a correctly measured cost of living index coli i explain in this paper that a pure price based approach of surveying prices to estimate a coli cannot succeed in solving the 3 problems of first order bias i discuss economic and econometric approaches to measuring the first order bias effects as well as the availability of scanner data that would permit implementation of the techniques

learning and price discovery in a search market we introduce learning into an otherwise standard two sided search and bargaining market there is uncertainty about the price distribution due to uncertainty about an underlying exogenous state of relative demand in the high state buyers are on the long side otherwise they are on the short side in equilibrium prices are on average higher in the high state individual agents learn about the distribution while searching agents typically start out by experimenting with a tough bargaining position buyers may initially insist on a low price and sellers on a high price after successive failures to trade agents become increasingly pessimistic about the market conditions and soften their bargaining stance when frictions are small equilibrium transaction prices are approximately market clearing despite aggregate demand being unknown thus the search and bargaining procedure enables price discovery in a decentralized market

understanding the nature of the risks and the source of the rewards to momentum investing buying recent winners and shorting recent losers guarantees time varying factor exposures in accordance with the performance of common risk factors during the ranking period adjusted for this dynamic risk exposure momentum profits are remarkably stable across subperiods of the entire post 1926 era factor models can explain 95 of winner or loser return variability but cannot explain their mean return components are more profitable than those based on total returns neither industry effects nor cross sectional differences in expected returns are the primary cause of the momentum phenomenon article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

competitive pricing and efficiency in search equilibrium we consolidate and generalize some results on price determination and efficiency in search equilibrium extending models by rubinstein and wolinsky and by gale heterogeneous buyers and sellers meet according to a general matching technology and prices are determined by a general bargaining condition when the discount rate r and search costs converge to 0 we show that prices in all exchanges are the same and equal the competitive market clearing price given positive search costs efficiency obtains iff bargaining satisfies hosios condition and r 0 when prices are set by third party market makers however we show that search equilibrium is necessarily efficient

underlying trends and seasonality in uk energy demand a sectoral analysis this paper demonstrates the importance for energy demand modelling of allowing for trends and seasonal effects that are stochastic in form inherent underlying trends may be non linear and reflect not only technical progress which usually produces greater energy efficiency but also other factors such as changes in consumer tastes and the economic structure that may be working in the opposite direction using quarterly unadjusted data for various sectors in the uk it is shown that unless energy demand models are formulated so as to allow for stochastic trends and seasonals estimates of price and income elasticities could be seriously biased

dynamic efficiencies of the 1997 boeing mcdonnell douglas merger we evaluate the welfare effects of the 1997 boeing mcdonnell douglas merger in the medium sized wide body aircraft industry we find that the merger led to lower prices to explain the price drop we develop a dynamic oligopoly game with learning by doing we quantify the welfare effects of the merger by incorporating both increased market power and merger efficiencies from accelerated learning by doing our dynamic analysis indicates that net consumer surplus increased by as much as 5 14 billion whereas a static model ignoring efficiencies of learning by doing predicts a 0 92 billion loss

brand inertia in u s household cheese consumption to analyze u s consumers brand choices for cheese purchases we derive a set of discrete choice models from dynamic utility maximization acnielsen homescan survey data on u s households is used to estimate a dynamic probit model for each of the top brands for cheddar shredded and sliced cheese in four u s regions we find that households have strong brand inertia a result robust across alternative specifications predicted probabilities confirm greater inertia in the top brands and consumers are more likely to switch into them brand inertia is relatively larger in cheddar and sliced cheese especially in the central and southeast regions copyright 2008 oxford university press

what happens when demand is estimated with a misspecified model we conduct monte carlo experiments to investigate the biases of assuming a misspecified demand model we study continuous models linear log linear and aids and discrete choice models logit in the context of differentiated products and aggregate data estimating demand with the wrong model yields varying degrees of bias in estimated elasticities but the logit model can yield unbiased estimates for a certain size of the assumed market potential merger simulations confirm the key importance of market potential in logit estimation suggesting that a discrete choice model may be preferable even when the discreteness of the purchase decision is questionable

taking the dogma out of econometrics structural modeling and credible inference without a doubt there has been a credibility revolution in applied econometrics one contributing development has been in the improvement and increased use in data analysis of structural methods that is the use of models based in economic theory structural modeling attempts to use data to identify the parameters of an underlying economic model based on models of individual choice or aggregate relations derived from them structural estimation has a long tradition in economics but better and larger data sets more powerful computers improved modeling methods faster computational techniques and new econometric methods such as those mentioned above have allowed researchers to make significant improvements while angrist and pischke extol the successes of empirical work that estimates treatment effects based on actual or quasi experiments they are much less sanguine about structural analysis and hold industrial organization up as an example where progress is less dramatic indeed reading their article one comes away with the impression that there is only a single way to conduct credible empirical analysis this seems to us a very narrow and dogmatic approach to empirical work credible analysis can come in many guises both structural and nonstructural and for some questions structural analysis offers important advantages in this comment we address the criticism of structural analysis and its use in industrial organization and consider why empirical analysis in industrial organization differs in such striking ways from that in fields such as labor which have recently emphasized the methods favored by angrist and pischke

demand estimation and merger simulations for drugs logits v aids abstract we use adhd drugs sales data from 2000 2003 and compare estimates of elasticities and merger simulations from three different demand models models include logit random coefficients logit and conditional aids demand model with multistage budgeting the magnitude of cross price elasticities is larger in the third model in comparison to the first two and some of the cross price elasticities are estimated to be negative hypothetical merger simulations show larger price effects for the multistage aids model in comparison to the discrete choice models

bilateral matching and bargaining with private information we study equilibria of a dynamic matching and bargaining game dmbg with two sided private information bilateral bargaining the model is a private information replica of mortensen and wright 2002 there are two kinds of frictions time

milk by any other name consumer benefits from labeled milk this article uses revealed preferences of consumers to study the consumer benefits from rbst free and organic labeled milk the article specifies and estimates a quadratic aids demand system model for different milk types using u s supermarket scanner data the introduction of rbst free and organic milk is used to estimate consumer benefits that are decomposed into two components competitive and variety effects results show significant consumer benefits from organic milk and to a lesser extent from rbst free milk based on the findings we explore implications for present u s labeling standards th eu s food sector is going through rapid transformations in terms of new product introduction and innovations organic and genetically modified gm food products are leading the way in changing the landscape of available choices to consumers this rapid expansion of product space has taken place concomitantly with an increase in public policy concerns on issues of standardization labeling health risks and associated consumer welfare in this paper we explore these broader issues in the context of a specific product introduction the introduction of recombinant bovine somatotropin rbst free and organic milk in the u s market from a policy perspective understanding the market for organics and the various components of that demand i e what portion is for gm free and what is for other attributes of organics can help determine the value of creating a national standard and the potential welfare losses to consumers of weakening such a standard are consumers willing to pay extra for organic and rbst free milk if so how

capturing the risk premium of commodity futures the role of hedging pressure abstract we construct long short factor mimicking portfolios that capture the hedging pressure risk premium of commodity futures we consider single sorts based on the open interests of hedgers or speculators as well as double sorts based on both positions the long short hedging pressure portfolios are priced cross sectionally and present sharpe ratios that systematically exceed those of long only benchmarks further tests show that the hedging pressure risk premiums rise with the volatility of commodity futures markets and that the predictive power of hedging pressure over cross sectional commodity futures returns is different from the previously documented forecasting power of past returns and the slope of the term structure

combining momentum with reversal in commodity futures this paper examines profitable trading strategies that jointly exploit momentum and reversal signals in commodity futures while the single sort momentum strategies returns 11 14 per annum on average a consistent reversal pattern of momentum profits is pronounced from 12 to 30 months after portfolio formation combining the observed reversal pattern with the momentum signal our double sort strategy returns 20 24 per annum which significantly outperforms single sort strategies the proposed strategy is robust to seasonality effects and sample adjustments in commodity futures the profitability of the double sort strategy cannot be explained by standard risk factors term structure market volatility investor sentiment data mining or transaction costs but appears to be related to global funding liquidity as a consequence the double sort strategy in commodity futures may be employed as a portfolio diversification tool

markov perfect equilibrium in the us digital camera market abstract this paper examines the model launch and withdrawal decisions of the major digital camera makers for the period 1996 1999 these manufacturers produce differentiated products and some have the experience of participating in a similar market the film camera market this paper investigates to what extent the following four factors affect firms decisions to launch a new model of digital camera the effects of competition with within brand models the effects of competition with cross brand models the level of experience in the film camera market and market conditions the empirical findings suggest that good market conditions can accommodate more products which has a positive effect on product launches on the other hand existing cross brand models have a negative effect on product launches while within brand models and experience in similar markets have an ambiguous effect on product launches

tactical allocation in commodity futures markets combining momentum and term structure signals this paper examines the combined role of momentum and term structure signals for the design of profitable trading strategies in commodity futures markets with significant annualized alphas of 10 14 and 12 66 respectively the momentum and term structure strategies appear profitable when implemented individually with an abnormal return of 21 02 our double sort strategy that exploits both momentum and term structure signals clearly outperforms the single sort strategies this double sort strategy can additionally be utilized as a portfolio diversification tool the abnormal performance of the combined portfolios cannot be explained by a lack of liquidity data mining or transaction costs

learning from trades i study stationary cut off strategy equilibria of a dynamic market model where buyers sample sellers sequentially from an unknown distribution buyers learn about the distribution from the sampled sellers and a trade signal the trade signal reveals whether a randomly chosen seller traded yesterday observing a trade as opposed to no trade is good news about the distribution buyers who observe a trade use a higher cut off than buyers who observe no trade despite buyers learning from sampled sellers that puts a countervailing pressure on the cut offs the trade signal may reduce market efficiency while an appropriate exogenous signal increases efficiency

program duplication in higher education is not necessarily bad abstract public systems of higher education have recently attempted to cut costs by providing financial incentives to cut duplicated programs i e programs that are offered at different institutions we study the profit and welfare effects of reducing program duplication against the background of a funding system reform in flanders belgium we find that dropping duplicated programs at individual institutions tends to be socially undesirable due to the students low willingness to travel to other institutions and to the limited fixed cost and variable cost savings furthermore we find that the financial incentives offered to drop programs may be very ineffective leading to both undesirable reform and undesirable status quo these findings emphasize the complexities in regulating product diversity in higher education and serve as a word of caution towards the various decentralized financial incentive schemes that have recently been introduced

asymmetric information in bilateral trade and in markets an inversion result abstract i consider bilateral trade between a seller and a buyer with private valuations the seller makes a take it or leave it price offer if the seller observes the buyer s valuation symmetric information bilateral trade is trivially efficient if the seller cannot observe the valuation asymmetric information bilateral trade is inefficient this bilateral trading game is embedded into a large matching market in the steady state equilibrium of the market game the relation between the informational regime and efficiency is inverted with small frictions efficiency obtains if information is asymmetric if information is symmetric however the trading outcome can be very inefficient even if frictions vanish