price search and periodic price discounts this paper empirically investigates the interplay between buyer search behavior and firm pricing strategy in a commodity market where many firms compete in price to sell homogeneous products we use the heterogeneity in buyer search cost to rationalize why a firm offers periodic price discounts and enjoys a high profit in such a market an estimation method is proposed to recover the nonparametric distribution of buyer search cost from the price and transaction volume data with both data we show that the search cost distribution can be estimated nonparametrically in a sequential search model and estimation results from a nonsequential search model are robust to the assumption on the maximum number of searches we also show that the commonly observed high low pricing strategy can be an optimal strategy for firms when buyers search for price information sequentially as an empirical application we use the proposed method to estimate the two search models using data on a commodity product sold by a firm

sticky prices and deviations from the law of one price evidence from mexican micro price data abstract this paper uses a novel dataset of weekly sampled store level prices to study the impact of sticky prices on the volatility and persistence of intranational deviations from the law of one price lop the volatility of lop deviations is found to be increasing both on the distance separating two locations and on the degree of price stickiness sticky prices are also found to be systematically related to the persistence of lop deviations half lives of lop deviations are systematically larger for goods with stickier prices these observations are shown to accord well with the predictions of a dynamic general equilibrium model featuring real market segmentation and calvo pricing i also find evidence of remarkably fast convergence to the lop average half lives of lop deviations are in the order of 3 6 weeks and show that previously reported convergence estimates may be afflicted by a positive temporal aggregation bias

equilibrium price dispersion with sequential search abstract the paper studies equilibrium pricing in a product market for an indivisible good where buyers search for sellers buyers search sequentially for sellers but do not meet every seller with the same probability specifically a fraction of the buyers meetings lead to one particular large seller while the remaining meetings lead to one of a continuum of small sellers in this environment the small sellers would like to set a price that makes the buyers indifferent between purchasing the good and searching for another seller the large seller would like to price the small sellers out of the market by posting a price that is low enough to induce buyers not to purchase from the small sellers these incentives give rise to a game of cat and mouse whose only equilibrium involves mixed strategies for both the large and the small sellers the fact that the small sellers play mixed strategies implies that there is price dispersion the fact that the large seller plays mixed strategies implies that prices and allocations vary over time we show that the fraction of the gains from trade accruing to the buyers is positive and nonmonotonic in the degree of market power of the large seller as long as the large seller has some positive but incomplete market power the fraction of the gains from trade accruing to the buyers depends in a natural way on the extent of search frictions

the dynamics of energy policy in lebanon when research politics and policy fail to intersect this paper is an exploratory study on energy policymaking in lebanon aiming at investigating the contributing factors to the absence of evidence informed policy by analyzing the relation between energy related research and policy it uses a qualitative approach in which two complementary types of data sources are employed data was mainly obtained from in depth semi structured interviews conducted with 40 key stakeholders the data was further enhanced by an extensive review of related documents available in the public domain as well as research related activities data were analyzed using iterative thematic content analysis which findings served to illustrate the theoretical perspectives in the relevant prevailing literature on linking policy and research this paper suggests that the politicization of energy policy the nature of the generated evidence and the lack of communication of evidence among policy actors as well as the weak and non institutionalized links between researchers and policymakers have posed as an obstacle to an effective efficient and evidence based policy there is a dearth of academic studies that have investigated this issue from a policy perspective the analysis lays the foundation for much needed future studies on the country s energy policy by identifying the participants mapping out the process and providing policy recommendations

discrete equilibrium price dispersion an explicit solution of an equilibrium model with price setting firms and searching customers makes possible a number of comparativestatics predictions about how cost differences among firms search costs of customers and taxes will affect the mean and variance of the distribution of market prices another implication of the model is that a firm s demand depends on the difference between its price and the average price in the market

econometric modeling of electricity consumption in post war lebanon this paper applies econometric models to investigate determinants of electrical energy consumption in post war lebanon the impact of the gross domestic product gdp proxied by total imports ti and degree days dd on electricity consumption is investigated over different time spans covering the period from 1993 to 1997 the time spans are chosen according to the rationing level of electricity supply for the 1993 1994 time span ti is found to be a significant determinant of energy consumption whereas dd has a negative correlation this inconsistency might be attributed to an extensive rationing policy followed during this period for the 1995 1997 time span which includes reduced rationing period 1995 all electrical energy consumption determinants are found to be significant at the 5 significance level analysis results for the rationing free 1996 1997 time span also show the significance of ti and dd at the 5 level furthermore cointegration analysis for the 1995 1997 and 1996 1997 subsets reveals the existence of a long run relationship between all variables in addition error correction models for both subsets are developed to predict short run dynamics finally statistical performance measures such as mean square error mean average deviation and mean average percentage error are presented for all models

price dispersion and loss leader pricing evidence from the online book industry in this paper we develop a theoretical model to analyze the pricing strategies of competing retailers with asymmetric cross selling capabilities when product demand changes our results suggest that retailers with better opportunities for cross selling have higher incentives to adopt loss leader pricing on high demand products than retailers with low cross selling capabilities as a result price dispersion of a product across retailers rises when its demand increases the predictions of our model are consistent with the empirical evidence from the online book retailing industry using product breadth as a proxy for cross selling capability we find that retailers with high cross selling capabilities reduce prices on best sellers more aggressively than retailers with low cross selling capabilities as a result price dispersion increases when a book makes it to the best seller list and the increase is mainly driven by the difference in pricing behavior between retailers with different cross selling capabilities our empirical results are robust against a number of alternative explanations

maximum likelihood estimation of search costs abstract in a recent paper hong and shum 2006 using price distributions to estimate search costs rand journal of economics 37 257 275 present a structural method to estimate search cost distributions we extend their approach to the case of oligopoly and present a new maximum likelihood method to estimate search costs we apply our method to a data set of online prices for different computer memory chips the estimates suggest that the consumer population can be roughly split into two groups which either have quite high or quite low search costs search frictions confer a significant amount of market power to the firms despite more than 20 firms operating in each of the markets we estimate price cost margins to be around 25 the paper also illustrates how the structural method can be employed to simulate the effects of the introduction of a sales tax

monopolistic competition increasing returns to scale and the importance of productivity shocks abstract the neoclassical growth model is extended to incorporate monopolistic competition and increasing returns to scale implications for the measurement of productivity change through the solow residual are studied it is found that for this extension productivity fluctuations continue to account for a substantial fraction of output volatility the model cannot account for volatility of employment

the development of new energy vehicles for a sustainable future a review with the rapid growing number of automobiles new energy vehicle is becoming one of approaches to mitigate the dependence of the auto industry on petroleum so as to reduce pollutant emissions the chinese government has promulgated a number of policies from the perspectives of industrial development development plans demonstration projects fiscal subsidies and tax incentives with an aim to promote the new energy vehicle industry this paper presents a comprehensive and critical review of the policy framework for new energy vehicles the analysis shows that electric vehicle has been assigned a top priority in the future development of the automobile industry in china policy guidance and planning has played a vital role to the growth of new energy vehicle industry however this industry faces significant challenges related to technologies industrial chain and social factors some core technologies are still in its infancy similarly the market share of new energy vehicles is very small in spite of the preferential policies the construction of supporting facilities and infrastructures has to be accelerated in order to accommodate the growing demands there is a long way to go for the industrialization and popularization of new energy vehicles in china

price dispersion in the small and in the large evidence from an internet price comparison site this paper examines four million daily price observations for more than 1 000 consumer electronics products on the price comparison site http shopper com we find little support for the notion that prices on the internet are converging to the law of one price in addition observed levels of price dispersion vary systematically with the number of firms listing prices the difference between the two lowest prices the gap averages 23 per cent when two firms list prices and falls to 3 5 per cent in markets where 17 firms list prices these empirical results are an implication of a general clearinghouse model of equilibrium price dispersion

dynamic price competition in auto insurance brokerage we analyze brazilian data on auto insurance and document that a about 20 of policies are sold without brokerage commission b over 40 are sold at the highest fee allowed and c the remaining contracts are associated with a spread out distribution of fees static models cannot rationalize these findings we develop a dynamic model of price competition with search and switching costs that reproduces them we use the equilibrium structure to estimate the model parameters and infer the brokers expected earnings the frequency that insurees switch brokers and the counterfactual effects of a price ceiling policy

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

vertical relationships and competition in retail gasoline markets empirical evidence from contract changes in southern california comment this study examines how much if any of the differences in retail gasoline prices between markets is attributable to differences in the composition of vertical contract types at gasoline stations in each market the purchase of the independent retail gasoline chain thrifty by arco provides a unique opportunity to examine the effects of changes in different vertical contract types on local retail prices this event caused sharp changes in the market share of i fully vertically integrated stations and ii independent stations differentially affecting local markets in the los angeles and san diego metropolitan areas using unique and detailed station level data this study examines how these sharp changes affected local retail prices the detailed data and the research design based on the thrifty station conversions allow for credible estimation of the effects of the market share of independent retailers and vertically integrated retailers on local market prices controlling for any omitted factors at the station level and the city level over time results for the los angeles and san diego metropolitan areas indicate that a decrease in the market share of independent stations has a significant positive impact on local retail price however a change in the market share of refiner owned and operated branded stations does not have a significant impact on local market price these results have important implications as policy makers consider the regulation of vertical contracts as a means to increase competition in gasoline markets the research design and detailed data also allow for inference on the underlying nature of retail gasoline competition

price dispersion and inflation evidence from israel the paper considers the question whether observed price differentials reflect perceived differences in quality service agreements or location or whether information imperfections can explain this phenomenon it sets out theoretical arguments linking inflation to reductions in the information stock held by agents and thus to greater price dispersion the hypothesis is tested using monthly price data for 13 uniquely defined goods sold in israel between 1971 and 1984 price dispersion is shown to be positively related to the rate of market price inflation since inflation is an unlikely proxy for changes in perceived characteristics the findings support price dispersion theories based on optimally imperfect decision making

more evidence on the performance of merger simulations government antitrust agencies must predict the price effects of proposed mergers and chal lenge those predicted to reduce consumer wel fare merger simulation a model of oligopoly combined with demand estimates is routinely used to simulate the effects of potential merg ers gregory j werden and luke m froeb 2006 provide a survey merger simulation addresses the key question regulators must answer would a potential merger reduce consumer welfare however it requires strong assumptions on the nature of competition both before and after the merger occurs the shape of demand and mar ginal cost functions as well as the statistical assumptions necessary to consistently estimate demand given these strong assumptions and the substantial resources devoted to antitrust review it is important to evaluate the accuracy of simulation methodology this paper adds to a small literature that evaluates merger simu lation by comparing predicted price effects to retrospective estimates of the price effects of a

scale congestion and growth this paper explores the relationship between aggregate and relative congestion returns to scale and economic growth aggregate congestion reduces the effective productivity of capital relative congestion reduces the effective productivity of labour both forms of congestion adversely affect the equilibrium growth rate although their relative effects depend upon aggre gate returns to scale the two forms of congestion have contrasting effects on the transitional dynamics relative congestion retards the rate of adjustment aggregate congestion accelerates it the externalities generated by congestion and non optimal expenditure can be fully cor rected both during the transition and in steady state by a time invariant income tax the role of public expenditure as an instrument of economic growth has been a major policy issue as governments throughout the world design stimulus packages as in japan and face difficult choices to meet the emu criteria in europe empirical research investigating the impact of public investment on the productivity of private capital and output was stimulated by aschauer 1989a b who found the effects to be strongly positive the nature of public investment is however diverse in general public goods vary extensively in terms of the nature of their services spanning the range between the polar cases of pure private and pure public goods but the treatment of public expenditures in formal growth models is limited barro 1990 and futagami et al 1993 treat government expenditure as a pure pub lic good and in so doing they fail to take account of the congestion typically associated with public goods however as barro and sala i martin 1992 have argued almost all public services are characterized by some degree of congestion so that the pure public good should be viewed as only a bench mark these considerations suggest that congestion is an important consider ation in assessing the effect of public expenditures on economic growth attempts to analyse the effects of congestion on economic growth have been limited in various dimensions drawing on the public goods literature edwards 1990 proposes a number of specifications of congestion two notions particularly relevant in a growth context are relative congestion and aggregate absolute congestion the former specifies the level of services derived by an individual from the provision of a public good in terms of the usage of his individual capital stock relative to the aggregate capital stock aggregate congestion sometimes called crowding indicates how aggregate usage of the service alone influences the services received by an individual 2 existing applications of congestion to growth theory introduce it into ak models see barro and sala i martin 1992 1995 glomm and ravikumar 1994 1997 and turnovsky 1996 1997 however the ak model features two limitations that restrict its flexibility to examine the relationship between congestion and growth first as solow 1994 pointed out sustained ongoing

productive government expenditures and long run growth the purpose of this paper is to review some of the recent developments in endogenous growth models specifically our focus is on the growth effects of productive government spending in dynamic general equilibrium models we use a simple overlapping generations model as our basic framework and illustrate the role of taxes and spending we then examine several related issues nonrivalry in publicly provided goods existence and uniqueness of competitive equilibrium endogenous public policy ways of financing public expenditures composition of publicly provided goods and services and private alternatives finally we review some empirical results related to output elasticity of public capital and educational expenditures

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

mergers with differentiated products the case of the ready to eat cereal industry traditional merger analysis is difficult to implement when evaluating mergers in industries with differentiated products i discuss an alternative which consists of demand estimation and the use of a model of postmerger conduct to simulate the competitive effects of a merger i estimate a brand level demand system for ready to eat cereal using supermarket scanner data and use the estimates to 1 recover marginal costs 2 simulate postmerger price equilibria and 3 compute welfare effects under a variety of assumptions the methodology is applied to five mergers two of which occurred and for which i compare predicted to actual outcomes

government spending and welfare with returns to specialization we explore a novel channel through which government spending can stimulate consumption and welfare through its effects on aggregate productivity without directly affecting either utility or production possibilities in the presence of monopolistic competition and increasing returns to specialization it is shown that government spending can partly alleviate the inefficiencies of monopolistic competition this is because government spending generates an endogenous increase in total factor productivity by increasing the variety of intermediate goods if the degree of increasing returns to variety is large enough a rise in such wasteful government spending may increase consumption levels enough to increase welfare

evaluating the performance of merger simulation evidence from the u s airline industry abstract this paper uses merger simulations to predict postmerger prices for five airline mergers from the 1980s and compares these predictions with observed postmerger prices i find that standard simulation methods which measure the effect of the change in ownership on unilateral pricing incentives do not generally provide an accurate forecast by incorporating postmerger information into the model i measure the relative importance of other factors that also contributed to the observed price changes the results indicate that the unexplained component of the price change is largely accounted for by supply side effects i conclude that deviations from the assumed model of firm conduct play an important role in accounting for the differences between the predicted and observed price changes this conclusion suggests that the predictive performance of merger simulation would benefit if more flexible models of firm conduct were incorporated into the methodology

number of sellers average prices and price dispersion abstract a variety of models provide differing predictions regarding the effect of an increase in the number of competitors in a market seller density on prices and price dispersion we review different approaches to generating equilibrium price dispersion and then empirically estimate the relationship between seller density average product price and price dispersion in the retail gasoline industry using four unique gasoline price data sets controlling for station level characteristics we find that an increase in station density consistently decreases both price levels and price dispersion across four geographical areas

mergers coordinated effects and efficiency in the portuguese non life insurance industry we evaluate the impact on market power and efficiency of a series of mergers on three portuguese non life insurance markets we specify and estimate with a panel of firm level data a structural model which includes preferences technology and a market equilibrium condition firms demand curves are not very elastic firms technologies exhibit scale and scope economies and high cost efficiency scores we find that for the period following the mergers there is no evidence of i an increase in market power through coordinated behavior or ii changes in cost efficiency levels in addition social welfare increased

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

price dispersion in an automobile insurance market from automobile insurance data for alberta over the period 1974 81 we find thatpremiums are highly correlated across driver classes in a given year but that premiums for a given driver class are not correlated over a period of more than 5 years firms relative market shares among drivers over age 25 and married males under 25 are inversely related to their deviations from the mean premiums in these driver classes the variance of real premiums decreases with the numberof firms in the market and increases with the real loss cost per car insured and the number of cars insured from these results we conclude that the price dispersion in automobile insurance in alberta is based on costly consumer search

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

divestiture requirements as a tool for competition policy a case from the swedish beer market we investigate the effect of divestitures on prices and welfare following the carlsberg pripps merger in the swedish beer market both difference in difference estimation and simulations using a random coefficients logit model suggest that divestitures are important for dampening price increases prices of divested brands fall by around 3 and the predicted price increase for carlsberg falls from 3 to 1 6 as a result of the divestitures to guide practice on divestitures we investigate the role of the recipient and the number and characteristics of the divested products by simulating post merger outcomes for all relevant cases we find that in this setting with large multiproduct firms the competition authority s most effective means to dampen adverse post merger outcomes are to aim for a small recipient firm and attain a large number of divested products enforcing larger divestitures in terms of market share and raising the average cross price elasticity between the merging parties divested and retained products strengthen the dampening effect further

the effect of ownership structure on prices in geographically differentiated industries i analyze how ownership structure and market geography jointly influence fast food prices i estimate a model of demand and supply that accounts for the market geography and run counterfactual experiments that demonstrate how mergers affect prices i find that the impact of mergers can be large that this impact decreases as the merging outlets are farther apart that mergers among market leaders generally increase prices more than mergers among weaker firms and that mergers can increase prices even if the outlets are so far apart that neither outleti s presence affects prices at the other before the merger

public investment in infrastructure in a simple growth model abstract in this paper we examine the implications for capital accumulation when infrastructure enters as an external input into private production functions in our model infrastructure is nonexclusive but may exhibit varying degrees of nonrivalry revenues from uniform taxes on capital and labor income are used to finance public investment in infrastructure we show that the optimal tax rate is independent of the degree of nonrivalry when production exhibits constant returns to augmentable factors the equilibrium displays constant growth for most parameters the growth rate depends on the population size under decreasing returns the optimal trajectory exhibits monotonic convergence to a steady state level

a simulation model for reliability based appraisal of an energy policy the case of lebanon abstract the lebanese electric power system leps has been suffering from technical and financial deficiencies for decades and mirrors the problems encountered in many developing countries suffering from inadequate or no power systems planning resulting in incomplete and ill operating infrastructure and suffering from effects of political instability huge debts unavailability of financing desired projects and inefficiency in operation the upgrade and development of the system necessitate the adoption of a comprehensive energy policy that introduces solutions to a diversity of problems addressing the technical financial administrative and governance aspects of the system in this paper an energy policy for lebanon is proposed and evaluated based on integration between energy modeling and financial modeling the paper utilizes the load modification technique lmt as a probabilistic tool to assess the impact of policy implementation on energy production overall cost technical commercial losses and reliability scenarios reflecting implementation of policy projects are assessed and their impacts are compared with business as usual scenarios which assume no new investment is to take place in the sector conclusions are drawn on the usefulness of the proposed evaluation methodology and the effectiveness of the adopted energy policy for lebanon and other developing countries suffering from similar power system problems

energy status in lebanon and electricity generation reform plan based on cost and pollution optimization abstract this paper presents a review of the energy status conventional and renewable in lebanon and illustrates their problems with the suggested recommendations in addition a detailed review of the principal directorates of the electricity of lebanon company edl is also presented all along with the existing problems and recommended solutions an economic environmental optimization of different power sources is studied where three scenarios are introduced based on the fuel source of different ccgt power plants the results emphasized on the maximum possible use of wind energy and natural gas in electricity generation based on the optimization study a five year master plan for electricity generation is modeled the suggested plan has an investment capital cost of 5553 m with the savings and additional incomes being 5900 m compared to edl financial status in the adopted base year 2009 in addition this plan exceeds the trend to introduce a 12 share of renewable energy in the power sector by 2020 where the share is supposed to be about 15 out of the total installed capacity before this date the concluding remarks highlight the role of politics in the development of the energy sector

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

mergers brand competition and the price of a pint abstract mergers in the uk brewing industry have reduced the number of national brewers from six to four the number of brands in contrast has remained relatively constant we analyze the effects of mergers on brand competition and pricing brand level demand equations are estimated from a panel of draft beers to model brand substitution possibilities we estimate the matrix of cross price elasticities semiparametrically our structural model is used to assess the strength of brand competition along various dimensions and to evaluate the mergers in particular we compute equilibria of pricing games with different numbers of players

transforming shortcomings into opportunities can market incentives solve lebanon s energy crisis abstract over the past decades lebanon s energy sector has been largely ignored and this has led to high economic and environmental costs the sector is characterized by electricity poverty an expanding and mainly unregulated transport sector and a lack of energy savings spanning through all sectors of the economy recently the government of lebanon has committed to increase the share of renewable energy to 10 of the total energy supply by 2013 and to 12 by the year 2020 it also aims at reducing energy consumption by 6 by the year 2013 this paper aims at contributing to the formulation of a more comprehensive energy strategy for lebanon by analyzing the recent changes in policy direction and by recommending legal regulatory and policy measures in order to transform current shortcomings into opportunities allowing the country to become a regional success story in the deployment of renewable energy and energy efficiency

estimation and identification of merger effects an application to hospital mergers abstract existing empirical estimates of merger effects are compromised by the fact that merging and nonmerging entities differ in unobserved ways that independently affect outcomes of interest to obtain an unbiased estimate of the effect of consummated mergers i propose an approach that focuses on the response of rivals to mergers and accounts for the endogeneity of exposure to these mergers i apply this approach to evaluate the impact of independent hospital mergers in the united states between 1989 and 1996 using the physical colocation of rivals as an instrument for whether they merge i find a sizeable one time increase in price following a rival s merger with the greatest increase occurring among hospitals nearest the merging hospitals these results are more consistent with predictions from structural models of the hospital industry than with prior observational estimates of the effects of hospital mergers

when do consumers search this paper provides empirical evidence relating search to price movements we measure consumer search directly from traffic statistics for web sites that report gasoline prices we show empirically that consumers search more as prices rise than they do when prices fall asymmetric search patterns have consequences for price behavior our findings indicate that retail margins are squeezed by increased search in addition we show that there is more price dispersion when prices are falling than when prices are either stable or rising our results provide a search based explanation for the rockets and feathers phenomenon of asymmetric price adjustment

search market equilibrium bilateral heterogeneity and repeat purchases abstract we develop a general model of search market equilibrium with heterogeneous buyers and sellers this framework unifies previous models with one sided heterogeneity and clarifies many of their special properties it easily accounts for price dispersion active search and the matching of buyer and seller types it also extends to repeat purchases once we embed it into a dynamic game with incomplete information we formalize the inferences and strategies underlying equilibria where firms charge constant prices and customers patronize them loyally we establish a general correspondence between such equilibria and single purchase markets journal of economic literature classification numbers d83 l13

are mergers beneficial to consumers evidence from the market for bank deposits the general conclusion of the empirical literature is that in market consolidation generates adverse price changes harming consumers previous studies however look only at the short run pricing impact of consolidation ignoring effects that take longer to materialize using a database that includes detailed information on the deposit rates of individual banks in local markets for different categories of depositors we investigate the long run price effects of mergers we find strong evidence that although consolidation does generate adverse price changes these are temporary in the long run efficiency gains dominate over the market power effect leading to more favorable prices for consumers jel g21 g34 l1

are all the good men married uncovering the sources of the marital wage premium a longstanding and yet unsettled question in labor economics is does marriage cause men s wages to rise cross sectional wage studies consistently find that married men earn significantly higher wages than do men who are not currently married however it is well known that inferring causal relationships from crosssectional analysis is inappropriate because of the biases introduced by unobserved heterogeneity as a means of circumventing this problem this paper uses data on identical twins to control for unobserved heterogeneity our estimates suggest that marriage increases men s wages by as much as 27 and that little if any of the cross sectional relationship between marriage and wages is due to selection in addition we find little evidence that the marital wage premium is a consequence of household specialization

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

equilibrium price dispersion in retail markets for prescription drugs this study seeks to establish the empirical importance of price dispersion due to costly consumer search by examining retail prices for prescription drugs posted prices in two geographically distinct markets are shown to vary considerably across pharmacies within the same market even after one controls for variation due to pharmacy differences pharmacy heterogeneity accounts for at most one third of the observed price dispersion the empirical analysis hinges on the observation that consumers incentives to price shop depend on characteristics of the drug therapy cross sectional patterns in price distributions across drugs are consistent with the predictions of a search model prices for repeatedly purchased prescriptions for which the expected benefits of search are highest exhibit significant reductions in both dispersion and price cost margins

public investment congestion and private capital accumulation this paper analyses the impact of public investment on the dynamics of private capital formation in an intertemporal optimising market clearing framework the key feature characterising the analysis is that the public good is treated as a durable capital good subject to congestion we show how in the presence of congestion the effect of government investment on private capital formation involves a tradeoff between the degree of substitution between private and public capital in production and the degree of congestion both lump sum and distortionary tax financing are considered with this tradeoff being tightened in the latter case

is it enough evidence from a natural experiment in india s agriculture markets access to information and communication technologies icts such as mobile phone networks is widely known to improve market efficiency in this paper we examine whether access to timely and accurate information provided through ict applications has any additional impact using a detailed data set from reuters market light rml a text message service in india that provides daily price information to market participants we find that this information reduces the geographic price dispersion of crops in rural communities by an average of 12 over and above access to mobile phone technology and other means of communication to identify the effect of information on price dispersion we exploit a natural experiment where bulk text messages were banned unexpectedly across india for 12 days in 2010 we find that besides reducing geographic price dispersion rml also increases the rate at which prices converge across india over time we discuss the implications of this for development organizations and informat

optimal fiscal policies congestion and over entry by shedding light on market imperfections and the congestion of public goods we show that free entry in a market equilibrium will lead to excessive entry relative to the social optimum moreover by specifying a generalized congestion function it is also shown that different fiscal policies including labor income tax capital income tax and government expenditure play a distinct role in terms of remedying market distortions specifically optimal income taxes decrease with the degree of market imperfections in order to remove the monopoly inefficiency while they increase with the degree of congestion in order to remedy the adverse externality caused by congestion distortion since a higher degree of increasing returns to an expansion in the variety of intermediate goods is found to intensify the congestion effect of government infrastructure expenditure the optimal rule of government expenditure proposed by barro 1990 should be modified

imperfect competition and the fiscal multiplier the impact of fiscal policy in an economy with a monopolistic output market but a perfectly competitive labor market is examined both in the short run with a fixed number of firms and in the long run with free entry the main innovation of the paper is the generality of the assumptions about preferences and technology which enable the authors to examine the robustness of the relationship between the degree of monopoly and the fiscal multiplier found by r startz 1989 n g mankiw 1988 and h d dixon 1987 the specific results of these papers are found to rest on two assumptions constant returns and cobb douglas preferences copyright 1996 by the editors of the scandinavian journal of economics

search costs and equilibrium price dispersion in auction markets abstract a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool

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

the welfare impact of reducing choice in medicare part d a comparison of two regulation strategies motivated by widely publicized concerns that there are too many plans we structurally estimate and validate an equilibrium model of the medicare part d market to study the welfare impacts of two feasible similar sized approaches for reducing choice one reduces the maximum number of firm offerings regionally the other removes plans providing donut hole coverage consumers most valued dimension we find welfare losses are far smaller when coupled with elimination of a dimension of differentiation we illustrate our findings relevance under current health care reforms and consider the merits of instead imposing ex ante competition for entry

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

a structural approach to market definition with an application to the hospital industry a structural approach to market definition market definition is essential to merger analysis because no standard approach to market definition exists opposing parties in antitrust cases often disagree about the extent of the market these differences have been particularly relevant in the hospital industry where the courts have denied seven of eight merger challenges since 1994 due largely to disagreements over geographic market definition we compare geographic markets produced using common ad hoc methodologies to a method that directly applies the ssnip test to hospitals in california using a structural model our results suggest that previously employed methods overstate hospital demand elasticities by a factor of 2 4 to 3 4 and define larger markets than would be implied by the merger guidelines s hypothetical monopolist test the use of these methods in differentiated product industries may lead to mistaken geographic market delineation and was likely a contributing factor to the permissive legal environment for hospital mergers

airline mergers airport dominance and market power effects of northwestrepublic and twaozark mergers on fares at minneapolisst paul and st louis

do gasoline mergers affect consumer prices the marathon ashland petroleum and ultramar diamond shamrock transaction abstract in 1999 marathon ashland petroleum map acquired the michigan assets of ultramar diamond shamrock uds which increased map s share of terminal storage in michigan from about 16 percent to about 25 percent and increased the share of gasoline stations bearing a map brand from about 16 percent to about 24 percent in this paper we examine whether this acquisition affected the retail price of gasoline we use a difference in differences model to compare price movements in six michigan cities affected by the acquisition with price movements in two nearby cities unaffected by the acquisition using this model we find no evidence that this acquisition led to higher prices for consumers

market power vertical integration and the wholesale price of gasoline this paper examines empirically the relationship between vertical integration and wholesale gasoline prices we use discrete and differential changes in the extent of vertical integration generated by mergers in west coast gasoline refining and retailing markets to test for incentives to raise rivals costs the research design allows us to test for a relationship between vertical integration and wholesale prices controlling for horizontal market structure cost shocks and trends we find evidence consistent with the strategic incentive to raise competitors input costs this suggests that vertical integration can have a significant impact on wholesale prices

the effect of medicare part d on pharmaceutical prices and utilization prescription drug expenditures represent the most rapidly growing component of health care spending increasing from 5 percent of health care spending in 1980 to more than 10 percent by 2005 centers for medicare and medicaid services cms 2007a further almost 60 percent of all prescriptions in the united states are filled for beneficiaries of medicare medicaid and other government programs rapid innovation in new pharmaceuticals has contributed substantially to quality of life and longevity in the us frank lichtenberg 1996 these facts combined indicate that government procurement schemes are critical both in determining government expenditure on pharmaceuticals and in stimulating innovation of new treatments in this paper we show that the institutions and mechanisms used by the government to pur chase prescription drugs can strongly affect market outcomes by institutions we have in mind large buyer groups structured incentives for patients to consume certain products and the devel opment and use of formularies a formulary is a mechanism that allows a buyer to identify a therapeutically similar treatment as a viable substitute for a patented treatment and to create price competition due to the ability to substitute away from the more expensive product when bargaining with the seller of a patented product the ability to shift demand to a substitute drug is a powerful negotiating tool our paper provides evidence for what we consider a surprising outcome in the case of the new prescription drug program for medicare enrollees moving consumers from cash paying status to membership in an insured group lowers optimal prices for branded prescription drugs below what they otherwise would be this is surprising because the standard effect of insurance is to create inelastic demand and therefore elicit higher prices from a seller with market power duggan and scott morton 2006 however the insurers that we study bundle insurance with a formulary and other mechanisms to create elastic demand an individual consumer typically does not know which drugs are acceptable therapeutic substitutes the consumer s physician typi cally has poor knowledge of prices especially negotiated prices and any one consumer is too small a share of demand to negotiate with a pharmaceutical company a prescription drug plan can potentially surmount all three hurdles our evidence leads us to conclude that the formulary and other mechanisms perform the spe cial role of allowing buyers to move market share among drugs with patent protection thereby raising cross price elasticities and lowering purchase prices or reducing price increases for branded drugs this result contrasts with the common intuition that an uninsured consumer

what determines aggregate returns to scale abstract this paper develops a unified framework that incorporates four features important in existing models with increasing returns fixed costs decreasing marginal costs product variety and market power when fixed costs are not allowed to vary and profits are imposed to be zero in every period only the degree of returns to variety determines the degree of aggregate increasing returns to scale when fixed costs respond to changes in aggregate activity or the zero profit condition does not hold in the short run aggregate returns depend not only on product variety but also on diminishing marginal costs or market power the degree of market power however does not affect input prices which are critical to determine the uniqueness of equilibrium

price dispersion and demand uncertainty evidence from u s scanner data i use the prescott 1975 hotels model to explain variations in price dispersion across items sold by supermarkets in chicago the effect of demand uncertainty on price dispersion is highly significant and quantitatively important my estimates suggest that more than 40 of the cross sectional standard deviation of log prices is due to demand uncertainty i also find that price dispersion measures are negatively correlated with the average price but are not negatively correlated with the revenues from selling the good across stores and weeks and with the number of stores that sell the good temporary sales are modeled as a reaction to unwanted inventories that are accumulated when the realization of demand is low the effect of demand uncertainty on the frequency of temporary sales is also highly significant and quantitatively important items with more demand uncertainty tend to accumulate unwanted inventories more often and tend to have temporary sales more often

sunk costs market structure and growth the author presents a model of endogenous innovation where firms undertake in house research and development r d the concentration of sales and r d resources determines the scale and efficiency of r d operations and rate of productivity growth in zero profit equilibrium r d expenditure is one component of total fixed costs and determines the number of active firms this feedback generates interdependent pricing investment and entry exit decisions the jointly determined rate of growth and number of firms supported in general equilibrium define the economy s balanced growth path multiple equilibria exist and firms expectations about rivalry determine the economy s performance copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

optimal tax debt and expenditure policies in a growing economy abstract this paper employs an endogenous growth model to analyze the role of a consumption tax in enhancing growth and welfare provided government expenditure impacts directly on the decisions of private agents two fiscal instruments are necessary to replicate the first best optimum the tradeoff between consumption and income taxes to achieve this outcome is discussed and shown to depend upon the degree of congestion associated with the public good and the level of government expenditure relative to its social optimum in general the analysis suggests a potentially important role for a consumption tax as part of an overall optimal fiscal package

the price discrimination effect of a large merger of parking garages this note investigates the effects of a large horizontal merger on the shape of the 1 to 12 h price menus offered by parking garages in paris the merger caused low end prices to increase proportionally more than high end prices this results in larger discounts on longer hours and hence in more price discrimination between short term and long term motorists

a treatment effect method for merger analysis with an application to parking prices in paris we propose a method of building control groups for retrospective merger evaluation the procedure involves two parameters a distance or radius and an order of exposure reflecting the notion that a merger can affect an outlet in a more or less direct way we implement the method of estimating the price effect of a merger in the paris parking market and illustrate the consequences of including indirectly exposed outlets in the control group the methodology applies to any industry with spatial competition and allows one to check the sensitivity of the results to the choice of the control group

the causal relationship between energy consumption and economic growth in lebanon this paper investigates the dynamic causal relationship between energy consumption and economic growth in lebanon over the period 1980 2009 within a bivariate framework imposed on us due to data limitations and in an effort to increase the robustness of our results we employ a variety of causality tests namely hsiao toda yamamoto and vector error correction based granger causality tests we find strong evidence of a bidirectional relationship both in the short run and in the long run indicating that energy is a limiting factor to economic growth in lebanon from a policy perspective the confirmation of the feedback hypothesis warns against the use of policy instruments geared towards restricting energy consumption as these may lead to adverse effects on economic growth consequently there is a pressing need to revise the current national energy policy that calls for a 5 energy conservation target also to shield the country from external supply shocks given its substantial dependence on energy imports policymakers should emphasize the development of domestic energy resources further the most pertinent implication is that relaxing the present electric capacity shortages should be made a national priority in view of its potential positive effect on the economy

on the effects of consumer search and firm entry in a multiproduct competitive market this paper studies a model in which consumers search among multiple competing firms for products that match their preferences at a reasonable price we focus on how easier search possibly due to the adoption of search facilitating technologies such as the internet influences equilibrium prices assortments firm profits and consumer welfare conventional wisdom suggests that easier search creates a competition intensifying effect that puts pressure on firms to lower their prices and reduce assortments however in our model we demonstrate that search also exhibits a market expansion effect that encourages firms to expand their assortment easier search means that each firm is searched by more consumers because of broader assortments consumers are more likely to find products that better match their ideal preferences improving the efficiency of the market in fact we demonstrate that the market expansion effect can even dominate the competition intensifying effect potentially leading to higher prices broader assortments more profits and expanded welfare