edgeworth price cycles cost based pricing and sticky pricing in retail gasoline markets abstract this paper examines dynamic pricing behavior in canadian retail gasoline markets i find three distinct pricing patterns cost based pricing sticky pricing and sharp asymmetric retail price cycles that resemble the edgeworth cycles of maskin and tirole 1988 i use a markov switching regression to estimate the prevalence of the regimes and the structural characteristics of the cycles themselves i find cycles are more prevalent when there are more small firms and are accelerated and amplified with very many small firms in markets with few small firms sticky pricing dominates the findings are consistent with the theory of edgeworth cycles

grain transport and rural credit in mozambique solving the space time problem this paper shows how credit market failures can lead to large welfare losses in grain markets by inducing increased transport for seasonal storage in locations with low credit costs the burden of these welfare losses falls primarily on rural households these conclusions are obtained from a spatial temporal model solved using a mixed complementarity formulation that easily handles interest rate differentials across space efforts to address credit market failures and to improve the efficiency of rural storage should be given priority as opposed to the creation of large formal sector grain collection centers

price wars in price setting supergames this paper presents a method of generating price wars in price setting supergames the market is one where symmetric oligopolists produce a differentiated product and use price as a strategic variable prices are posted and can be observed by all there is thus little uncertainty or scope for secret price cutting nevertheless price wars occur they are precipitated by periodic but infrequent demand shocks firms use the wars to learn about changed conditions in the market so that they can calculate the new stationary nash equilibrium learning is modeled in a bayesian fashion via the kalman filter copyright 1989 by the london school of economics and political science

interfirm rivalry in a repeated game an empirical test of tacit collusion rivalry in the vancouver retail gasoline market is modeled as a repeated game service station demand cost and intertemporal reaction functions are estimated from daily data on individual station prices costs and sales these functions are then used to calculate noncooperative and cooperative solutions to the constitutent game and the actual outcome of the repeated game the actual outcome is found to be substantially less lucrative than the monopoly solution nevertheless all stations are better off than if they played their noncooperative strategies in every period copyright 1987 by blackwell publishing ltd

price wars and price collusion in china s airline markets in the absence of an effective antitrust law both fare wars and price collusion have been pervasive in china s airline markets causing concern for both airlines and consumers a study of monthly airfare data from 2002 to 2004 confirms that fare wars occur periodically as well as price collusion both tend to be short lived the fact that collusion is more likely to occur in january and april when demand is high as revealed by china eastern s and china southern s price war and collusion models has been confirmed by interview information obtained from the airlines sales managers however there is also evidence in these models suggesting that collusion can be more easily formed when demand is low high airport concentration measured by the hhi may facilitate collusion in certain circumstances but it may also lead to more price wars under other conditions concentration in both airports and routes does not appear to systematically affect the occurrence of fare wars and collusion in all the models estimated we also reject the possibility that mutual forbearance due to multimarket contact plays any important anti competitive role in china s airline markets

chapter 4 competitive marketing strategies game theoretic models publisher summary this chapter reviews the key developments in the understanding of competitive marketing strategies product price advertising and distribution competition are all addressed while the emphasis is on models the chapter surveys the empirical literature as well there is a significant amount of empirical work to report but the ratio of theoretical to empirical work is nevertheless unpleasantly large much progress has been made in the last ten years or so in the study of competitive marketing strategies most of this chapter has been theoretical using simple models of firm and consumer behavior these models serve the function of demonstrating rigorously the existence of certain effects factors which need to be considered in analyzing real world competition

cheating on collusive agreements abstract this paper addresses the question of why firms might incur great expense and individuals risk prison sentences to enter a collusive agreement and then not abide by it in the model firms must make pricing or production decisions at frequent intervals explicit coordination is therefore not possible in each decision period players have private information about their own costs which they can use in making their choices this private information can cause defection and precipitate the punishment phase nevertheless participants find it in their own best interest to enter the collusive arrangement

generic advertising in an asymmetric cournot oligopoly we examine how benefits of mandated generic advertising vary with firm size in an asymmetric cournot oligopoly market generic advertising funded through a mandatory assessment changes demand but also increases firms costs the effect on a firm s profits depends upon the nature of the change in demand and the company s market share situations are identified in which generic advertising 1 disproportionately favors large small firms 2 decreases profits and 3 increases decreases social welfare our findings explain the concerns that are often raised on small firms being disadvantaged by generic advertising we discuss implications for policy and for firms advertising strategies copyright 2010 oxford university press

north american tomato market a spatial equilibrium perspective this paper studies the north american tomato market in a world market perspective for this purpose a spatial equilibrium model with endogenous prices is constructed and solved by quadratic mathematical programming method six scenarios involving the impacts from transportation costs tariffs and north american free trade agreement nafta were modelled the solutions illustrate their impacts on production consumption trade flows prices and net social welfare due to nafta mexico became the main tomato exporter to the usa

strategic pricing models and interpretation of price war data abstract price wars cartel breakdowns and other seemingly disequilibrium pricing phenomena are examined questions of interest include when do breakdowns occur how long do they last what determines their severity and are they characterized by increased cross sectional price dispersion and or temporal price volatility the first half of the paper explains how the choice of punishment strategy the specification of the stochastic shocks to the system and the assumptions regarding observability determine the pricing dynamics implicit in several theoretical price war models theories are classified into imperfect monitoring models in which players actions cannot be observed learning models in which structural parameters are unknown to the players and cyclical models in which observability is perfect but business cycles affect the difficulty of colluding the second half in contrast examines data on prices actually set by firms in industries which are subject to periodic wars when the models are confronted with the data we can see how well oligopoly theory explains the behavior of the firms in these industries the object of the exercise is not to pick a winner instead the role of industry characteristics in determining pricing dynamics is assessed and the reasons why simple models may fail to explain complex pricing patterns are examined finally directions for future research are suggested by the empirical regularities which are uncovered

political economy of the u s mexican tomato trade agreement we develop a political economy model to analyse the us mexican tomato trade agreement by treating the minimum import price as a negotiated settlement we incorporate the special characteristics of the us mexican tomato dispute namely trade among large countries the role of competing fresh and processed tomato lobbies quota revenues accruing to mexican producers bargaining for a minimum import price rather than a tariff and the role of the canadian tomato market we show the importance of the size of the lobby group s supply the weight elected officials place on national welfare and the elasticities of export supply and import demand in determining the optimal price wedge for the united states larger fresh tomato or cherry grape tomato supply intensifies the degree of protection awarded to us growers while us processors work to mitigate this effect from mexico s perspective larger mexican fresh or cherry grape output induces a push towards free trade due to the agreement s depressing effect on mexican prices while mexican processors and quota revenues exacerbate the price wedge

agricultural tariffs or subsidies which are more important for developing economies this article assesses the impact of the world price depressing effect of agricultural subsidies and border protection in organization for economic co operation and development oecd countries on developing economies exports imports and welfare developing economy exporters are likely to benefit from reductions in such subsidies and trade barriers whereas net importers may lose as world prices rise a simple partial equilibrium model of global trade in commodities that benefit from domestic support or export subsidies is developed to estimate the relevant elasticities simulation results suggest that a 50 percent reduction in border protection will have a much larger positive impact on developing economies exports and welfare than a 50 percent reduction in agricultural subsidies although there is significant heterogeneity across developing economies the results suggest that efforts in the doha round of world trade organization wto negotiations should be directed at substantially reducing border protection

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

subgame perfect reaction function equilibria in discounted duopoly supergames are trivial abstract this paper is concerned with infinitely repeated duopoly games with discounting a question which has been open since friedman s rev econ stud 35 1968 257 272 reaction function article is settled for a general class of games the question is wheter nontrivial reaction function equilibria can be subgame perfect this question is answered in the negative such equilibria must be trivial in the sense of prescribing the stage game noncooperative equilibrium actions in every period independent of prior history

local risk aversion in the rank dependent expected utility model first order versus second order effects abstract we evaluate locally the risk premium of a lottery in the framework of the rdeu model as the sum of two terms the first is a measure of risk aversion while the second is a measure of spreading aversion

the rapid rise of china s dairy sector factors behind the growth in demand and supply with the rapid growth in china s dairy industry a number of recent papers have addressed either the supply or the demand trends for dairy products in china none however presents a systematic explanation for the recent growth in both the supply and demand for dairy products the goal of this paper is to sketch a more comprehensive picture of china s dairy sector and to assess the nature of the sector s development in the coming decades drawing upon several empirical studies we examine the trends in dairy product consumption to create a composite picture of the factors underlying the recent growth we also empirically investigate the sources of production gains in milk supply and assess the relative importance of expanding herd size changes in the nature of production technological change and improvements in efficiency to the overall growth of milk production

a generalization of pratt arrow measure to nonexpected utility preferences and inseparable probability and utility the pratt arrow measure of local risk aversion is generalized for then dimensional state preference model of choice under uncertainty in which the decision maker may have inseparable subjective probabilities and utilities unobservable stochastic prior wealth and or smooth nonexpected utility preferences local risk aversion is measured by the matrix of derivatives of the decision maker s risk neutral probabilities without reference to true subjective probabilities or riskless wealth positions and comparative risk aversion is measured without requiring agreement on true probabilities risk neutral probabilities and their derivatives are shown to be sufficient statistics for approximately optimal investment and financing decisions in complete markets for contingent claims

effects of spatial density on veterinarian income where are all of the veterinarians with increased numbers of veterinarians in the market it is critical to understand how this increased competition affects income potential at multiple levels this study presents an empirical appr

price dispersion and learning in a dynamic differentiated goods duopoly we study the evolution of prices set by duopolists who are uncertain about the perceived degree of product differentiation customers sometimes view the products as close substitutes sometimes as highly differentiated as the informativeness of the quantities sold increases with the price differential there is scope for active learning by firms when information has low value to the firms they charge the same price as would be set by myopic players and there is no price dispersion when firms value information more highly on the other hand they actively learn by creating price dispersion such price dispersion arises in a cyclical fashion and is most likely to be observed when the firms environment changes sufficiently often but not too frequently firms payoffs are higher when they use correlated pricing strategies contrary to what one might expect such coordination need not hurt consumers provided they are sufficiently impatient

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

ad valorem tariff and spatial equilibrium models the objectives of this article are to illustrate theoretically and empirically how to incorporate an ad valorem tariff in spatial equilibrium models and show the equivalence of three approaches primal dual and mcp of spatial equilibrium trade modelling the article lays out in detail the theory empirical applications and the results for all three approaches so that trade modellers can easily follow and apply them in their work the primal approach is commonly used by spatial equilibrium modellers though the dual approach corresponds to the textbook depiction of consumer surplus producer surplus and gains from trade the mixed complementarity problem mcp is not commonly used by spatial equilibrium modellers though it is relatively simpler if the modeller knows the equilibrium conditions this article also presents advantages and disadvantages of each approach

what determines cartel success following george stigler 1964 many economists assume that incentive problems undermine attempts by firms to collude to raise prices and restrict output but the potential profits from collusion can create a powerful incentive as well theory cannot tell us a priori which effect will dominate whether or when cartels succeed is thus an empirical question we examine a wide variety of empirical studies of cartels to answer the following questions 1 can cartels succeed 2 if so for how long 3 what impact do cartels have 4 what causes cartels to break up we conclude that many cartels do survive and that the distribution of duration is bimodal while the average duration of cartels across a range of studies is about five years many cartels break up very quickly i e in less than a year but there are many others that last between five and ten years and some that last decades limited evidence suggests that cartels are able to increase prices and profits to varying degrees cartels can also affect other non price variables including advertising innovation investment barriers to entry and concentration cartels break up occasionally because of cheating or lack of effective monitoring but the biggest challenges cartels face are entry and adjustment of the collusive agreement in response to changing economic conditions cartels that develop organizational structures that allow them the flexibility to respond to these changing conditions are more likely to survive price wars that erupt are often the result of bargaining issues that arise in such circumstances sophisticated cartel organizations are also able to develop multipronged strategies to monitor one another to deter cheating and a variety of interventions to increase barriers to entry

an alternating move price setting duopoly model with stochastic costs abstract this paper examines an alternating move price setting duopoly model in which marginal costs are stochastic without persistence it is shown that provided marginal costs do not fluctuate excessively equilibria in which firms match the current monopoly price do not exist by contrast equilibria in which firms always match their rival along the equilibrium path do exist in these equilibria deviations off of the equilibrium path result in extended price wars in which firms repeatedly undercut each other finally examples in which such price wars are observed in equilibrium are constructed

dynamic oligopoly behaviour in the airline industry abstract this paper examines the dynamic interaction between united airlines and american airlines on a set of duopoly routes we estimate quarterly conduct parameters or conjectural variations and test constant behaviour bertrand cournot and collusive models we also test two regimeswitching models derived from the green porter price war model one based on reversion to bertrand behaviour during price wars the other on reversion to cournot behaviour the three constant behaviour models are all rejected the regime switching models can both describe the data but the cournot based version is preferred

a theory of anticipated utility abstract a new theory of cardinal utility with an associated set of axioms is presented it is a generalization of the von neumann morgenstern expected utility theory which permits the analysis of phenomena associated with the distortion of subjective probability

a spatial equilibrium model for imperfectly competitive milk markets a generalization of takayama and judge s spatial equilibrium model that allows for any degree of market structure is presented the model is applied to the japanese dairy industry to examine interregional milk movements generated under alternative assumed degrees of market competition the results indicate that the perfect competition and monopoly equilibrium solutions result in a lower and a higher price respectively than actual price levels on the other hand the cournot nash equilibrium solutions are the most similar to actual observations and the actual interregional milk movements are best explained by imperfectly competitive behavior

the mixing ratio in the indonesian dairy industry the indonesian dairy industry has been viewed by the indonesian government as an industry that has the potential to improve the welfare of low income and landless farmers through providing them with an additional source of farm income as well the government sees the industry as a vehicle for providing opportunities for employment in rural areas from an economy wide viewpoint its development is viewed as a way indonesia might save foreign exchange since a large share of its dairy requirements have to be imported a variety of measures have been used to assist the industry this paper investigates one of the measures the busep scheme or mixing ratio regulation which requires domestic processors to use indonesian produced milk before imported milk c 1999 elsevier science b v all rights reserved

vancouver s gasoline price wars an empirical exercise in uncovering supergame strategies this paper uses a unique data set to determine which dynamic model of tacit collusion best describes behaviour in a particular industry the area investigated is a region of the vancouver british columbia retail gasoline market players are service station managers who compete daily firms choose price in each period using strategies that depend on prices chosen in the previous period periodically unanticipated demand shocks precipitate price wars when shocks occur the firms in the market must determine the new demand conditions and adjust their strategies from an econometric point of view slopes of intertemporal reaction functions are latent variables the resulting system of equations with time varying parameters is estimated via the kalman filter different repeated game oligopoly models correspond to different transition matrices for the latent variables the models can thus be assessed in terms of their power to explain firm behaviour in this market

risk aversion in the theory of expected utility with rank dependent probabilities expected utility with rank dependent probability theory is a model of decision making under risk where the preference relations on the set of probability distributions is represented by the mathematical expectation of a utility function with respect to a transformation of the probability distributions on the set of outcomes this paper defines based on g teaux differentiability measures of risk aversion for such preferences which characterize the relation more risk averse and applies these measures to the analysis of unconditional and conditional portfolio choice problems

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

effects of global trade liberalization on softwood lumber markets this study develops a world spatial equilibrium softwood lumber model comprised of the major importing and exporting countries regions to analyse the impacts of global trade reform on the world softwood lumber market the results show that free trade leads to an increase in lumber trade and canadian producers and us consumers are the biggest beneficiaries trade liberalization improves the overall world welfare as world producer and consumer surpluses increase the result highlights the importance of moving towards free trade in the global softwood lumber market

tacit collusion with price matching punishments abstract tacit collusion is explored under a strategy in which loosely speaking firms match the lowest price set by any firm in the previous period conditions are provided under which this strategy supports collusive outcomes in a subgame perfect equilibrium in contrast to traditional results the highest collusive price is always lower than the monopoly price it corresponds to the unique nash equilibrium price when upward and downward price deviations are matched our paper provides a game theoretic interpretation of the old kinked demand curve theory which unlike earlier attempts does not depart from standard timing assumptions to do so

imperfect competition in agricultural markets evidence from ethiopia abstract drawing upon unique transaction level data from rural ethiopia this paper tests for general forms of imperfect competition among rural wholesale traders these are key to the grain distribution system as they purchase from farmers and perform interregional trade tests show that traders in a typical source market engage in imperfectly competitive behavior in purchasing from farmers driving down the price paid to farmers approximately 3 in contrast there is no conclusive evidence of imperfect competition among traders in the larger more centrally located market studied thus efficiency losses due to market structure are likely to be greatest in markets which also have poor road links and lesser volumes of marketed grain

the procompetitive effect of demand enhancing check off programs this article explores demand enhancing check off programs and how such programs may influence both private programs as well as industry market structure under duopoly a firm may increase its sales through privately funding product quality improvements however such endogenous sunk costs may also be used to exclude a rival industry funded check off programs affect firms strategies and can be procompetitive the rationale lies not only in how the check off enhancement is perceived by consumers but also in the way the check off s crowding out effect reduces the ability of a firm to use its private expenditures to bar a rival s market access

chapter 11 pricing models in marketing publisher summary this chapter brings together a set of diverse efforts in the recent literature on the modeling of price decisions and related questions in marketing there has been an impressive growth in the array of topics investigated in the literature various trends in the development of pricing models are evident from the foregoing review first one trend has been to develop theoretical models to describe observed pricing strategies in the marketplace and to derive conditions under which certain strategies are optimal this trend is clearly evident when one considers the area of dynamic pricing models another trend is an attempt to develop pricing models in which certain aspects of consumer behavior e g asymmetric response to price increases versus price decreases are incorporated this development is quite recent and does offer a large potential a third dominant direction is the use of game theoretic models for developing equilibrium pricing strategies

evolving dairy markets in asia recent findings and implications abstract this paper is an overview of important findings regarding the ongoing evolution of asian dairy markets based on a series of new economic investigations these investigations provide systematic empirical foundations to assess asian dairy markets with their new consumption patterns changing industries and trade prospects under different domestic and trade policy regimes with four case studies china india japan and korea a prospective analysis of future regional patterns of consumption and a policy analysis of trade liberalization of asian dairy markets the overview distills the findings of these new investigations and integrates them in the earlier economic literature it draws policy implications and identifies lessons for countries outside of asia especially for emerging exporters in latin america

collusive price rigidity under price matching punishments by analysing an infinitely repeated game where unit costs alternate stochastically between low and high states and where firms follow a price matching punishment strategy we demonstrate that the best collusive prices are rigid over time when the two cost levels are sufficiently close this provides game theoretic support for the results of the kinked demand curve in contrast to the kinked demand curve it also generates predictions regarding the level and the determinants of the best collusive price which in turn has implications for the corresponding collusive profits the relationships between such price rigidity and the expected duration of a high cost phase the degree of product differentiation and the number of firms in the market are also investigated

meat and milk self sufficiency in asia forecast trends and implications abstract recent structural changes in dietary patterns in asia resulting from economic development are placing increasing pressure on the existing production systems in the region particularly those systems producing ruminant meat non ruminant meat and milk this has significant policy implications for the countries in the region in terms of self sufficiency goals in these commodities and the associated inter and intra regional trade opportunities in the future forecasts of ruminant meat non ruminant meat and milk production and consumption for selected asian countries between the years 2000 and 2010 revealed the following china pakistan and viet nam are likely to be self sufficient with respect to ruminant meat malaysia is likely to continue to be a net importer of ruminant meat india and malaysia will be more than self sufficient with respect to non ruminant meat with the converse being true for pakistan and india laos and pakistan will be self sufficient with respect to milk production with the possibility of indonesia thailand and cambodia becoming self sufficient if the current trends continue structural changes in the early 1980s generally resulted in higher average annual growth rates of production particularly in non ruminant meat production thus forecasts of ruminant meat production and consumption by 2000 using the medium term average annual growth rates for production present a more favourable outcome in terms of self sufficiency for countries such as bangladesh the philippines and viet nam but a less favourable outcome for countries such as indonesia malaysia laos and india similar forecasts for non ruminant meat indicated an improvement in the long term non ruminant self sufficiency estimates for most cases particularly for bangladesh china and cambodia intensification and commercialisation of meat production systems have increased meat self sufficiency in a number of countries but often at the expense of grain self sufficiency given these trends the impact of trade liberalisation measures on livestock production in the region and inter and intra regional trade of livestock commodities and grain is likely to be significant

effectiveness and effects of attempts to regulate the uk petrol industry this paper evaluates the impact that investigation and regulation of the uk petrol industry has had on the profitability of the companies using a gross margin for petrol we estimate a series of variable parameter autoregressive processes the results demonstrate that the 1979 monopolies and mergers commission investigation into the industry caused a long term decline in profit margins in the industry despite the fact that no recommendations or undertakings were made this cannot however be said for subsequent investigations

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

estimation of time varying price elasticity in 1970 1997 japanese raw milk supply by structural time series model the price elasticity of raw milk supply in japan is estimated over time by a structural time series model in state space form and the changes in elasticity are tested by the diagnosing test of de john and penzer in 1998 the supply function is modeled with a local linear trend and a strictly exogenous autoregressive distributed lag price the seasonality in the data is adjusted by a structural time series model in the 1970 1997 period there were major dairy policy changes in japan a production adjustment related penalties and two tier pricing hokkaido is the region that mainly provides the supply of raw milk for milk products while tofuken is the region that mainly produces drinking milk the estimated price elasticity in hokkaido became stable after imposition of the production adjustment on the other hand price elasticity in tofuken became stable after the inflation of the mid 1970s price elasticity is estimated to be more inelastic as well as more likely to converge in inelasticity in hokkaido than in tofuken we discuss the relationship between changes in dairy policy and changes in price elasticity