analyst forecasting errors additional evidence analyst forecasting errors are approximately as large as dreman and berry 1995 documented and an optimistic bias is evident for all years from 1985 through 1996 in contrast to their findings i show that analyst forecasting errors and bias have decreased over time moreover the optimistic bias in quarterly forecasts was absent for sp 2 firms with comparatively large amounts of market capitalization absolute value of earnings forecast and analyst following and 3 firms in certain industries

airbus versus boeing revisited international competition in the aircraft market this paper examines international competition in the commercial aircraft industry we estimate a discrete choice differentiated products demand system for wide body aircraft and examine the airbus boeing rivalry under various assumptions on firm conduct we then use this structure to evaluate two trade disputes between the united states and european union our results suggest that aircraft prices increased by about 3 7 percent after the 1992 u s e u agreement on trade in civil aircraft that limits subsidies this price hike is consistent with a 5 percent increase in firms marginal costs after the subsidy cuts we also simulate the impact of the future entry of the airbus a 380 super jumbo aircraft on the demand for other wide bodied aircraft notably the boeing 747 we find that the a 380 could reduce the market share of the 747 by up to 14 8 percentage points in the long range wide body market segment depending upon the discounts offered on the a 380 but would reduce the market for airbus s existing wide bodies by an even greater margin

optimal task assignments with loss averse agents abstract this paper studies optimal task assignments in a setting where agents are expectation based loss averse according to koszegi and rabin 2006 2007 and are compensated according to an aggregated performance measure in which tasks are technologically independent we show that the optimal task assignment is determined by a trade off between paying lower compensation costs and restricting the set of implementable effort profiles under multitasking we show that loss aversion combined with how much the marginal cost of effort in one task increases with the effort chosen in other tasks determines when multitasking saves on compensation costs but results in an implementation problem

comparisons and combinations of long and long short strategies market neutral long short strategies get their returns from alphas and short rebates long strategies get their returns from alpha and the market differing return and risk sources complicate their comparison partly because of the strong market referenced focus of conventional performance analysis compelling theoretical advantages of active return per unit of active risk suggest that long short strategies are better able to deliver excess return than are conventional institutional long strategies long short strategies even with tiny positive alphas are seen to improve investors efficient frontiers when added to a traditional t bill long portfolio mix mostly because their risk sources are uncorrelated surprisingly the improvement occurs even if long short strategies are sharpe ratio inferior to long strategies these results provide theoretical support for including long short strategies in most investors mix of assets

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

natural endowments production technologies and the quality of wines in bordeaux does terroir matter we study whether quality assessments made by wine experts and by consumers based on prices obtained at auction between 1980 and 1992 can be explained by variables describing endowments land characteristics exposures of vineyards and technologies from grape varieties and picking to bottled wines however since technological choices are likely to depend on endowments the effects can only be identified using an instrumental variables approach we show that technological choices affect quality much more than natural endowments the effect of which is negligible

a latent structure approach to measuring reputation the present study provides estimates of reputation as a dynamic latent variable that is determined by price premiums and market data further it analyzes the effect of extrinsic factors on reputation specifically this study seeks to i quantify the reputation of washington apples over time ii study the dynamic nature of reputation and iii analyze the effect of the label washington apple the model adopted in this study is the dynamic multiple indicator multiple cause dymimic modeling approach which is a special case of the general latent variable modeling scheme called state space models both dymimic and hedonic approaches are applied to the data on washington apples and results from the two approaches are compared reputation plays an important role in assuring product quality in markets where consumers can only imperfectly judge the product quality until after consumption if reputation effects are absent in these types of markets there is an incentive for producers to reduce quality and take short run gains before buyers catch on in order to avoid such quality cutting products with good reputations will sell for premium prices shapiro 1983 showed theoretically that price premiums are necessary for producers to invest in quality and reputation there is an extensive theoretical literature on reputation but empirical studies are limited empirical studies on the impact of firm reputation on shareholder wealth or product demand include jarrell and peltzman 1985 borenstein and zimmerman 1988 and karpoff and lott 1993 caves and green 1996 showed that factors that may affect a firm s reputation influence the relationship between price and quality gorton 1996 analyzed how a bank s reputation for default affects the discount rate on its debt the measurement of the value of reputation to producers in terms of price premiums and how a reputation can be built up and destroyed are important issues that have not been empirically analyzed the current study provides estimates of reputation as a dynamic latent variable that is determined by price premiums and market data further it analyzes the effect of extrinsic factors on reputation steenkamp 1990 points out that consumers observe at the moment of purchase the intrinsic and extrinsic product quality cues but not the quality attributes intrinsic cues are characteristics of the product such as color freshness texture and flavor while extrinsic

exchange rates and cash flows in differentiated product industries a simulation approach how do exchange rate changes impact firms cash flows we extend a simulation method developed in industrial organization to answer this question we use prices quantities and product characteristics for differentiated products coupled with a discrete choice framework and an assumption of price competition to estimate marginal costs for all producers using a monte carlo approach we generate counterfactual prices and profits for different levels of exchange rates we illustrate the method using the market for bottled water our results stress that even in a relatively simple market such as this one different brands face very different exchange rate risks consider a firm that produces a good in france using mainly local inputs and sells it abroad in locations that have a floating exchange rate vis a vis the euro profits and in turn the value of the firm are potentially exposed to exchange rate changes if the euro appreciates profits when measured in euros are likely to decrease how large is the decrease in profits similarly what is the impact of such an exchange rate change on the profits of an import competing firm these are the questions that a large literature on exchange rate exposure attempts to answer

quantifying the effects from horizontal mergers in european competition policy this paper starts from a recent case to study how merger analysis in europe may be potentially improved starting from the geographic market definition in the merger decision we formulate and estimate an oligopoly model with differentiated products based on the estimates we compare several alternative market power tests a hypothetical market power test an actual market power test and a comparative market power test our comparison of these alternative tests illustrates that the recently introduced empirical techniques need not be in conflict with traditional policy practices in europe but should be seen as a natural extension of commonly accepted principles furthermore we emphasize the importance of our dynamic comparative market power test in the european context according to this test the relevant point of comparison when assessing a merger is not the status quo but rather a relevant alternative merger scenario that is likely to happen in the event the merger is rejected in a european context the choice is often to accept a sequence of regionally based mergers or rather a sequence of pan european mergers finally we also emphasize the importance of constructing confidence intervals when computing the predicted merger effects especially if one is interested in testing the hypothesis that a merger has no effects

whisper forecasts of quarterly earnings per share abstract we compare first call analyst forecasts of earnings to unofficial forecasts commonly referred to as whispers our analysis indicates that whispers are more accurate proxies for market expectations of earnings than are first call forecasts consistent with the claim in the professional press that whispers are increasingly becoming the true market expectation of earnings further trading strategies based on the relation between whisper and first call forecasts earn abnormal returns this suggests that whispers contain information not contained in first call forecasts and that at least part of this information is impounded in price prior to the earnings release

analyst forecasting errors and their implications for security analysis a comparison of 66 100 consensus estimates of wall street analysts with reported earnings for a large sample of nyse amex and otc companies demonstrates that their forecasts differ significantly from actual reported earnings a minority of estimates fall within a range around reported earnings considered acceptable to many professional investors the error rates are not meaningfully affected by the business cycle or industry groupings the average error also appears to be increasing over time these findings question the use of finely calibrated earnings forecasts that are integral to the most common valuation models and indirectly question the valuation methods themselves

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

a theory of collective reputations with applications to the persistence of corruption and to firm quality the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by his past behaviour and because his track record is observed only with noise by the group s past behaviour as well the paper thus studies the joint dynamics of individual and collective reputations and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality 1 collective reputations collective reputations play an important role in economics and the social sciences countries ethnic racial or religious groups are known to be hard working honest corrupt hospitable or belligerent some firms enjoy substantial rents from their reputations for producing high quality products some departments are reported to treat their faculty or students fairly the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by her past behaviour and because her track record is observed only with noise by the group s past behaviour as well the paper studies the joint dynamics of individual and collective reputations in a model in which current generations are progressively replaced by new ones and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature see section 2 for a detailed comparison with the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality let us spell out the building blocks of our theory in more detail a a group s reputation is only as good as that of its members each member is characterized by individual traits such as talent diligence or honesty past individual behaviour conveys information about these traits and generates individual reputations

trade and trade policy with imperfect competition the case of identical products and free entry abstract this paper analyses intra industry trade between economies containing an imperfectly competitive industry in which firms produce a homogeneous output production is subject to increasing returns to scale and there is free entry and exit of firms trade is shown to unambiguously increase welfare by reducing the degree of monopoly in each market and increasing firm size the effects of differences in technology and endowments on the pattern of trade and welfare are examined import tariffs are shown to raise welfare in the country employing the tariff and the welfare implications of various types of industry subsidy are examined

high and declining prices signal product quality high and declining prices signal a high quality product high prices are the efficient means of signaling because the consequent loss of sales volume is most damaging for lower cost lower quality products as time passes and the number of informed consumers increases the signaling distortion lessens resulting in a declining price profile the prediction of high and declining prices is robust across a variety of dynamic models and is consistent with recent empirical findings copyright 1991 by american economic association

voluntary export restraints on automobiles evaluating a trade policy the authors evaluate the voluntary export restraint that was initially placed on exports of automobiles from japan in 1981 they evaluate the impact this policy had on u s consumer welfare firm profits and foregone tariff revenue from its initiation through 1990

collective reputation and quality firms who sell regional or specialty products often share a collective reputation based on aggregate quality collective reputation can be approached as a dynamic common property resource problem we show that for an experience good without firm traceability individual firms have the incentive to choose quality levels that are sub optimal for the group these results support minimum quality standards trigger strategies are analyzed as an alternative solution to this problem finally the implications of these results are discussed as they relate to the case study of washington apples specialty regional authentic and local food products have become a more important part of consumer purchases in recent years firms have responded by marketing food products that come from specific geographic areas this trend in consumers preferences has led the european union to introduce protected designations of origin labels and protected geographical identification labels which provide protection of food names on a geographical or traditional basis ranging from parmesan cheese to such lesser known items such as galician veal in the united states there are popular state products that carry labels such as washington apples idaho potatoes

market power and joint dominance in u k brewing market power and joint dominance are examined in u k brewing i assess unilateral and coordinated effects where the latter is equated with joint dominance and show how one can distinguish between the two econometrically the application makes use of two demand equations the nested logit of mcfadden 1978a and the distance metric of pinkse slade and brett 2002 the two equations yield very different predictions concerning elasticities and markups nevertheless although there is evidence of market power using either demand model that power is due entirely to unilateral effects in other words neither model uncovers evidence of coordinated effects tacit collusion

heterogeneity and fine wine prices application of the quantile regression approach this study addresses the price heterogeneity of the five first growths of bordeaux we apply the quantile regression qr approach with market segmentation based on wine bottle price quantiles we

the economics of collective reputation evidence from the wine industry we use original data regarding the array of italian winery coalitions wine denominations to analyze the economics and determinants of collective reputation we first run a cross sectional analysis with 2008 data and the full set of control variables then move to the dynamics of collective reputation with panel data analysis on a 30 year time span 1978 2008 group reputation is history dependent in particular past bad collective behavior increases the probability of being stuck in a bad reputation trap minimum quality standards and effective enforcement are fundamental drivers of group reputation the relationship between group size and collective reputation is non linear free entry may not be optimal due to free riding problems finally institutional signals such as the wine classification system are useful because they can be used by consumers as easily available proxies for information that is much more difficult to acquire

what is the value of terroir meaning land to refer to the special characteristics of a place that impart unique qualities to the wine pro duced the appellation d origine controlee aoc system in france and similar systems adopted in other wine producing countries are based upon the geographic location of grape production predicated on this notion of ter roir under the us system production regions are designated as american viticultural areas avas with finer geographical designations known as sub avas such designations allow wineries to identify the geographical origin of the grapes used in producing their wines and equally important seek to prevent producers outside an ava from making false claims about the nature and origin of their wines what is the value of terroir in the american context does the reality of terroir the loca tion specific geology and geography predomi nate in determining the quality of wine does the concept of terroir the location within an officially named appellation impart additional value to grapes and wine does location within such an appellation impart additional value to vineyards the central question we address is whether measurable site attributes such as slope aspect elevation and soil type or appellation designations are more important determinants

measuring market power in the ready to eat cereal industry the ready to eat cereal industry is characterized by high concentration high price cost margins large advertising to sales ratios and numerous introductions of new products previous researchers have concluded that the ready to eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition this paper empirically examines this conclusion in particular i estimate price cost margins but more importantly i am able empirically to separate these margins into three sources i that which is due to product differentiation ii that which is due to multi product firm pricing and iii that due to potential price collusion the results suggest that given the demand for different brands of cereal the first two effects explain most of the observed price cost margins i conclude that prices in the industry are consistent with noncollusive pricing behavior despite the high price cost margins leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality it is these two factors that lead to high price cost margins

financial analyst characteristics and herding behavior in forecasting this study classifies analysts earnings forecasts as herding or bold and finds that 1 boldness likelihood increases with the analyst s prior accuracy brokerage size and experience and declines with the number of industries the analyst follows consistent with theory linking boldness with career concerns and ability 2 bold forecasts are more accurate than herding forecasts and 3 herding forecast revisions are more strongly associated with analysts earnings forecast errors actual earnings forecast than are bold forecast revisions thus bold forecasts incorporate analysts private information more completely and provide more relevant information to investors than herding forecasts

product reliability and firm value the experience of american and japanese automakers 1973 1992 in a typical month several recall campaigns of motor vehicles are announced by automobile manufacturers they are carried out to correct defective vehicles whether safetyor pollution related recalls imply that the products made available to consumers are not what they were supposed to be a question arises then as to whether and how much the offending automakers are affected by these recall campaigns the answer to this question has been ambiguous in the literature we have two purposes in this paper first on the basis of a longer and broader database we offer additional and more conclusive evidence that documents significant and negative market reactions to automobile recall announcements our finding therefore helps to resolve the ambiguity in the literature on this question second we offer new evidence on japanese automobile companies they too suffer from significant and negative stock market reactions but the incidence of recalls is less frequent perhaps as a result the magnitude of the stock market reaction to each recall is somewhat larger nevertheless because recalls are much less frequent the total losses

sparkling wine choice from supermarket shelves the impact of certification of origin and production practices we report the results of a study based on revealed and stated preference data on choice of prosecco wines in retail stores close to the origin of production in northern italy emphasis is placed on ability to reconcile the utility structure of stated preference data with that underlying revealed preference data we extend the analysis to cover nonattendance of key attributes such as price and certification of origin while controlling for the large range of brand effects

hedonic price functions and the measurement of preferences the case of swedish wine consumers abstract a hedonic price function for wine is estimated using swedish data 1989 1991 implicit prices for quality attributes are determined not from a regression of variety price on a vector of quality attributes but rather from a regression of quantity sold adjusted for weeks of availability on price and quality attributes such a reduced form is justified by the assumption that prices and attribute contents can be taken as exogenous to the swedish consumer price elasticity is estimated to be about 1 65 holding quality constant showing that swedish consumers are highly sensitive to price estimates of the implicit valuations of quality attributes are shown to differ greatly from those obtained from the more usual hedonic regression with price as the dependent variable

consumer sorting and hedonic valuation of wine attributes exploiting data from a field experiment this article uses a novel experimental approach to measure consumer willingness to pay wtp for wine attributes we invited customers of a local supermarket who had selected a bottle of wine to purchase to participate in a valuation experiment integrating their original wine choice into the experiment each participant evaluated six alternative wines generating a rich set of data on willingness to pay and consumer characteristics the data from the experiment allow us to compare standard shelf price based wine attribute valuation estimates with estimates using wtp data and an increasing amount of information about individual consumers the full model employs individual fixed effects to estimate wtp parameters without bias from consumer sorting or supply side influences our wtp estimates for wine attributes differ markedly from previous attribute value estimates consumers in our sample display clear and stable preferences for wine varieties but less clear preferences for appellations our results suggest caution is needed in using market prices to estimate parameters of the consumer valuation function for product attributes

field experiments on the anchoring of economic valuations i introduction take the last three digits of your social security number ssn turn those numbers into a dollar value i e if your numbers are 462 then they provide a value of 462 consider whether you would be willing to pay that dollar amount for a first edition of j r r tolkien s the hobbit now how much would you actually pay for a first edition original copy a stylized result from laboratory experiments in economics and psychology is that the answer to the latter valuation question can be strongly influenced by the dollar amount computed at the start 1 critics of neoclassical theory have argued that the influence of uninformative anchors such as the transformed ssn refutes the notion that decision makers preferences are predefined consistent and stable instead they are constructed during the process of choice bettman luce and payne 1998 hoeffler and ariely 1999 slovic 1995 a natural conclusion one might draw from studies of anchoring is that decisions may be influenced by irrelevant circumstances and optimization principles do not apply the laboratory evidence consonant with anchoring effects is considerable tversky and kahneman 1974 make a seminal contribution implementing a protocol similar to the one described above to examine general knowledge questions 2 furnham and boo 2011 provide a recent review of the literature and identify more than 25 studies that report significant anchoring effects substantive areas investigated include general knowledge questions epley and gilovich 2006 tversky and kahneman 1974 probability estimates wright and anderson 1989 legal judgments englich and mussweiler 2001 forecasting switzer and sniezek 1991 and valuation and purchasing decisions ariely loewenstein and prelec 2003 taken together the results suggest strong effects from anchoring protocols even in areas where subjects have significant experience yet the importance of anchoring for economic outcomes remains an open question one reason is that research goals and methods differ across the disciplines of psychology and economics croson 2005 hertwig and ortmann 2001 plott 1996 3 fumham and boo 2011 note that drawing generalizable conclusions from the existing anchoring studies is difficult as many involve undergraduate students engaged with topics they are unlikely to encounter in field settings their observation is consistent with the criticism of the ecological validity of many studies made by gerd gigerenzer and colleauges gigerenzer et al 2008 discussed in our footnote 2 while the results of these studies may help distinguish among competing causal claims about the anchoring process they are less relevant for understanding the potential for anchors to affect market equilibria further many of the studies lack meaningful incentives and we believe that economists are justifiably circumspect about results that may merely reflect mistakes made by unmotivated subjects consistent with this view is the idea that with appropriate incentives and feedback anchoring effects should diminish and behavior more closely match predictions from neoclassical models 4 recent attempts to examine the relevance of anchoring for economic outcomes closely follow ariely loewenstein and prelec 2003 alp hereafter who find statistically and economically significant effects of anchors on willingness to pay wtp for common consumer goods and on willingness to accept wta for unpleasant sounds and tastes bergman et al 2010 and fudenberg levine and maniadis 2012 flm hereafter replicate the consumer goods portion of the alp study with mixed results bergman et al 2010 find significant anchoring results consistent with the earlier work although the magnitude of the effect is smaller implementing an auxiliary protocol they find also that anchoring effects diminish with cognitive ability flm 2012 attempt to anchor both wtp and wta and find no evidence of anchoring in the wtp treatment

market integration and competition in environmental and trade policies recent empirics suggest the relevance of transport cost reductions for world trade growth along with eliminations in protectionist trade barriers to address the welfare effects of trade cost reductions in a context of trade and the environment we develop a two stage game model where governments choose environmental and trade policies and firms play a cournot nash game we show that reductions in transport costs lead to lower emission taxes and higher tariffs and we find that the degree of pollution damage plays a central role in whether market integration is welfare improving relative to autarky

what s in a name reputation as a tradeable asset the author develops a model in which a firm s only asset is its name which summarizes its reputation and studies the forces that cause names to be valuable tradable assets an adverse selection model in which shifts of ownership are not observable guarantees an active market for names with either finite or infinite horizons no equilibrium exists in which only good types buy good names the reputational dynamics that emerge from the model are more realistic than those in standard game theoretic reputation models and suggest that adverse selection plays a crucial role in understanding firm reputation

starting point bias in dichotomous choice valuation with follow up questioning abstract follow up questions are frequently used to improve the efficiency of dichotomous choice contingent valuation questionnaires however a number of authors e g 12 16 have noted a significant difference between the wtp distributions implied by initial and follow up question responses this paper investigates starting point bias as one explanation for the phenomenon we develop a model of starting point bias in the context of dichotomous choice questioning with follow up using a monte carlo simulation to illustrate the potential bias imparted to wtp estimates an application is provided based on data from a cv study in northcentral iowa

monopolistic competition and international trade reconsidering the evidence we test some propositions about international trade flows that are derived from models of monopolistic competition developed by elhanan helpman and paul krugman we investigate whether the volume of trade between oecd countries is consistent with the predictions of a model in which all trade is intraindustry trade in differentiated products we then repeat the test with non oecd countries we also investigate whether the share of intraindustry trade is consistent with a more general theoretical model in which some but not all trade is intraindustry trade our results lead us to question the apparent empirical success of these models

the economics of nested names name specificity reputations and price premia a good can be identified by its region or country of origin the firm that produces it and its product name in other words names can nest within each other to categorize goods with increasing specificity this article develops a conceptual framework for jointly analyzing the effect of product firm and collective reputations on market price the model is estimated via quantile regression with california wine market data the results portray how the structure and relative importance of reputations change as product prices vary specifically reputation premia migrate from collective to specific names as prices increase

an empirical assessment of the welfare effects of reciprocal dumping abstract can two way trade in similar products lead to lower welfare than if such trade was banned theory answers yes to empirically investigate this proposition we examine swedish imports of bottled water assuming one shot bertrand and cournot competition we can use the estimates from a structural model of demand to uncover marginal costs we simulate the effect on consumer and producer surplus of banning imports we do not find convincing evidence that banning imports would increase overall welfare given our choice of market this suggests we should not be overly concerned with the welfare effects of two way trade in consumer goods that are close to homogenous

price and quality cycles for experience goods we explore a dynamic competitive model for experience goods and study an equilibrium for it in which firms plan initially to produce high quality at low price then high quality at high price then low quality at high price each consumer is aware that all firms eventually intend to run down their reputations at customers expense yet he rationally chooses to wait for direct evidence that the firm to which he is attached has already entered into the exploitative phase

market incentives for safe foods an examination of shareholder losses from meat and poultry recalls meat and poultry recalls while voluntary are carried out under governmental oversight if firms have financial incentives to avoid being implicated in a recall situation governmental involvement in recalls may cause firms to internalize social costs when making investment decisions concerning food safety controls to examine these incentives we analyze federally supervised meat and poultry recalls from 1982 to 1998 within an event study results show significant shareholder losses when publicly traded food companies are implicated in a recall involving serious food safety hazards we find no evidence that the stock market reacts negatively when recalls involve less severe hazards each year unsafe foods sicken millions and lead to losses in terms of life and productivity mead et al estimate that foodborne pathogens account for 76 million illnesses and 5 000 deaths in the united states given human error and the limitations of food safety technology food items that pose undue risks to the public will be distributed from time to time when this occurs the firms involved stand to incur expenses related to recovering disposing of or reconditioning potentially contaminated products already placed on the market in addition negative publicity can lead to reductions in product demand and may erode prior investments in reputation and brand capital these firms may also face costs from liability claims associated with an outbreak of food related illnesses or injury our main objective in this paper is to examine reductions in food company valuations that result from food contamination incidents we focus specifically on meat and poultry firms that have shipped products that were later recalled for food safety reasons because preventative actions taken by firms can affect the probability of being implicated in a product recall situation the wealth that is lost when companies are required to recall

predation reputation and entry deterrence abstract economists often argue that predatory practices are irrational since there exist cheaper or more certain means to gain or maintain a monopoly our gametheoretic equilibrium analysis suggests that if a firm is threatened by several potential entrants then predation may be rational against early entrants even if it is costly when viewed in isolation because it yields a reputation which deters other entrants asymmetric information plays a crucial role in our analysis since it provides the rationale for entrants to base their expectations of the firm s future behavior on its past actions the analysis also suggests methods to treat general reputational phenomena

strength of protection for geographical indications promotion incentives and welfare effects we address the question of how the strength of protection for geographical indications gis affects the gi industry s promotion incentives equilibrium market outcomes and the distribution of welfare geographical indication producers engage in informative advertising by associating their true quality premium relative to a substitute product with a specific label emphasizing the gi s geographic origin the extent to which the names words of the gi label can be used and or imitated by competing products which depends on the strength of gi protection determines how informative the gi promotion messages can be consumers heterogeneous preferences vis a vis the gi quality premium are modeled in a vertically differentiated framework both the gi industry and the substitute product industry are assumed to be competitive with free entry the model is calibrated and solved for alternative parameter values results show that producers of the gi and of the lower quality substitute good have divergent interests gi producers are better off with full protection whereas the substitute good s producers prefer intermediate levels of protection but they never prefer zero protection because they benefit indirectly if the gi producers incentives to promote are preserved for consumers and aggregate welfare the preferred level of protection depends on the model s parameters with an intermediate level of protection being optimal in many circumstances

anchoring effects evidence from art auctions in order to separate anchoring where an irrelevant message has an effect on the outcome from rational learning where past prices are not irrelevant because they may be used to estimate unobservable quality we use the following strategy we first develop a hedonic prediction of price for both the current sale e g the 2006 sale and the previous sale these hedonic predic tions are based on observable characteristics of each painting and an index of overall prices we then regress actual sale price on our hedonic prediction on the difference between the actual price in the previous sale and our hedonic prediction this expression tests for anchoring and on the difference between the actual price in the previous sale and our hedonic prediction of price in the previous sale this expression controls for unobservable characteristics the test for anchor ing is the extent to which the actual price in the previous sale affects the current sale price we can identify anchoring from other effects because the demand for art which is captured by the average overall price index changes over time whereas the unobservable component of qual ity is assumed to remain constant between auctions this allows us to control for unobserved quality characteristics as long as something drastic has not happened between sales such as a painting has been deemed a fake which is a very rare occurrence the assumption of constant quality is a realistic one

valuing open space in a residential sorting model of the twin cities abstract we present an analysis of how open space amenities affect residential location choices using a horizontal sorting model to estimate household preferences for open space to parameterize the model a new and rich dataset spanning 17 years of home sales in the seven county twin cities area of minnesota was assembled heterogeneity across types of open space and across households is shown to be a critical determinant of the welfare impacts of open space conservation our general equilibrium simulations allow housing prices to re equilibrate in response to policy induced demand shifts demonstrating that as the scale of intervention becomes larger general equilibrium and partial equilibrium welfare measures increasingly diverge finally we find that the spatial structure of policy is an important component of policy design suggesting open space policy should be place specific in its design and implementation

evaluating the net benefits of collective reputation the case of bordeaux wine in this paper we develop an original approach to assess the net benefits associated with a generic promotion program using an application to bordeaux wines the benefit is computed from the marginal impact of the program s collective reputation on the individual reputation for sub regions within bordeaux these different marginal impacts are estimated using detailed survey data about the image of bordeaux wines in seven european countries we find positive and significant spillover effects from the collective reputation bordeaux that moreover increase with the reputation of the sub region these spillover effects when significantly positive vary from a minimum of 5 to a maximum of 15 of additional favorable quality opinions we then calculate a measure of the average net benefits earned by producers from the regional promotion program in selected sub regions within bordeaux our results indicate that producers in some sub regions are more likely to benefit from the promotion program and suggest that the current fee structure may not be properly aligned with market conditions

does food safety information impact u s meat demand a theoretical model of consumer response to publicized food safety information on meat demand is developed with an empirical application to u s meat consumption evidence is found for the existence of pre committed levels of consumption seasonal factors time trends and contemporaneous own and cross commodity food safety concerns the average demand response to food safety concerns is small especially in comparison to price effects and to previous estimates of health related issues this small average effect masks periods of significantly larger responses corresponding with prominent food safety events but these larger impacts are short lived with no apparent food safety lagged effects on food safety concerns in the united states have dramatically increased in the past decade with regard to incidences of contaminated meat products concerns have arisen because contaminated meat products can result in serious risk to the well being and health of consumers contamination comes from a myriad of sources including but not limited to outbreaks of listeria monocytogenes escherichia coli e coli and salmonella centers for disease control and prevention food safety problems are not isolated to the united states as other unsafe contaminates in meats have emerged across the world including highly publicized outbreaks of bovine spongiform encephalopathy bse in europe the potential impacts of publicized food safety events on consumer s demand for meat products in the united states include own effects on the demand for the contaminated meat involved as well as cross effects impacting the demand for other meats the objective of this article is to investigate whether publicized food safety concerns surrounding beef pork and poultry chicken and turkey have impacted meat consumption food safety indices are constructed separately for beef pork and poultry

key market values for bottled wine in an emerging market product attributes or business strategy this article focuses on the emerging bottled chilean red wine market and studies the main determinants of the consumer price of wine sold on the domestic market a hedonic price function was estima

the house doesn t always win evidence of anchoring among australian bookies abstract we examine australian horseracing bookmakers responses to late scratches instances in which a horse is abruptly withdrawn after betting has commenced our observed bookies exhibit anchoring on the original odds and fail to re adjust odds fully on the remaining horses after a scratch thereby earning lower profit margins and occasionally creating nominal arbitrage opportunities for bettors we also examine which horses odds bookies adjust after a scratch and demonstrate diminished profit margins even after controlling for these endogenous adjustments our results indicate that bookies adjustments recover approximately 80 of lost profit margin but that bookies forgo the remaining 20 due to systematic under adjustments

behavioural heterogeneity in wine investments we introduce a heterogeneous agent model to explain the dynamics of fine wine investments our results show evidence of the existence of both fundamentalists those who trade on mean reversion tow

the effect of competition on trade evidence from the collapse of international cartels how do changes in competitive intensity affect trade patterns some cartels may find it advantageous to eliminate cross hauling and divide markets geographically we exploit a quasi natural experiment associated with increased antitrust enforcement to determine if market division strategies were used in seven recently prosecuted international cartels since antitrust activity is unlikely to affect spatial patterns of demand and supply other than through its effect on the competitive environment enforcement induced changes are ideally suited to study the effect of competition on trade patterns analyzing the cartels individually and as a group we find no significant change in spatial patterns of trade following cartel breakup in particular there is no systematic change in the effect of distance on trade these results suggest that cross hauling is not uncommon under collusion and hence that the existence of cross hauling by itself does not provide evidence of effective competition

a homeowner s dilemma anchoring in residential real estate transactions abstract we examine whether and how listing strategies impact sale prices in residential home sales literatures in housing economics negotiations and auctions offer diverse predictions around this question on the one hand housing studies typically treat home prices as an objective function of property and neighborhood characteristics yet the large and robust literature on anchoring effects tversky and kahneman 1974 suggests a positive relationship between listing prices and sale prices finally evidence from the auctions literature suggests the opposite pattern through herding behaviors we analyzed more than 14 000 transactions taking into account observable property heterogeneity geographical location and timing of the sales we find that higher starting prices are indeed associated with higher selling prices consistent with anchoring for the average home in our sample over pricing between 10 and 20 leads to an increase in the sale price of 117 163 this effect is particularly strong in areas with higher rates of mortgage foreclosure or serious delinquency additional analyses show that our results are unlikely to be driven by seller motivations or unobserved home qualities we contrast our findings with recommendations and private beliefs of real estate agents who provide services and advice for about 90 of home sales in the us

anchored in the past persistent price effects of obsolete vineyard ratings in france abstract although abundant evidence for anchoring in economic valuations has been produced in experimental settings there have been relatively few studies testing for anchoring in actual markets we analyze data on grape and vineyard prices in the champagne region of france to determine whether current prices are anchored on past prices set under a discontinued price setting system the key feature of this system is a vineyard quality rating called the echelle des crus edc the econometric challenge is to separately identify anchoring effects from the effects of relevant information edc era prices may convey about grape and vineyard quality our empirical approach controls for observable attributes of vineyards and time invariant unobserved determinants of vineyard quality that may be revealed to market participants through edc era prices in addition we use an instrumental variables strategy to mitigate confounding influences of time varying unobservables we find strong evidence that anchoring has large effects on prices for grapes and vineyards we also examine whether the anchoring effect is diminishing over time as market participants come to rely more on objective information to determine prices we find instead a persistent effect of the edc many years after it became obsolete

estimation of a hedonic price equation for bordeaux wine does quality matter in this paper the hedonic price technique is applied to bordeaux wine in the hedonic price function we include not only the objective characteristics appearing on the label of the bottle but also the sensory characteristics of the wine our data come from an experimental study in which juries have evaluated and graded a sample of bordeaux wines the estimation of the hedonic price equation shows that the market price is essentially determined by the objective characteristics the estimation of a jury grade equation shows that quality unlike the market price is essentially determined by the sensory characteristics

coherent arbitrariness stable demand curves without stable preferences economic theories of valuation generally assume that prices of commodities and assets are derived from underlying fundamental values for example in finance theory asset prices are believed to reflect the market estimate of the discounted present value of the asset s payoff stream in labor theory the supply of labor is established by the tradeoff between the desire for consumption and the displeasure of work finally and most importantly for this chapter consumer microeconomics assumes that the demand curves for consumer products chocolates cds movies vacations drugs and so forth can be ultimately traced to the valuation of pleasures that consumers anticipate receiving from these products because it is difficult as a rule to measure fundamental values directly empirical tests of economic theory typically examine whether the effects of changes in circumstances on valuations are consistent with theoretical prediction for example whether labor supply responds appropriately to a change in the wage rate whether compensated demand curves for commodities are downward sloping or whether stock prices respond in the predicted way to share repurchases however such comparative static relationships are a necessary but not sufficient condition for fundamental valuation e g summers 1986 becker 1962 was perhaps the first to make this point explicitly when he observed that consumers choosing commodity bundles randomly from their budget set would nevertheless produce downward sloping demand curves

product differentiation and oligopoly in international markets the case of the u s automobile industry this paper develops and estimates a model of the u s automobile industry on the demand side a discrete choice model is adopted that is estimated using micro data from the consumer expenditure survey the estimation results are used in conjunction with population weights to derive aggregate demand on the supply side the automobile industry is modelled as an oligopoly with product differentiation equilibrium is characterized by the first order conditions of the profit maximizing firms the estimation results are used in counterfactual simulations to investigate two trade policy issues the effects of the ver and exchange rate pass through