a theory of retail pricing until recently the retail enterprise the shop has been comparatively neglected by economic theorists partly because they assigned little role to retailing the growth of interest in the problem in recent years reflects the development of models of imperfect information and the revival of interest in location theory pricing theory for the retail enterprise however remains a neglected area after surveying existing models of retailing the paper concentrates on the idea that the shop saves its customers costs by assembling goods in one place this introduces an essential non convexity and importantly affects the conditions under which shops compete with each other and the constraints on their price setting under the admittedly unrealistic assumption of full buyer information a theory of retail pricing is developed retail prices are frequently regarded as exceptions both to the law of costs and generally to every rational process of price formation which is all the more remarkable since these prices are the only ones which are of direct interest to the consumer and which are directly influenced by consumption knut wickselt

the resolution of financial distress most models of financial structure embody an assumption about financial distress that causes debt to be costly to the issuing firm this approach has been criticized on the grounds that the assumed costs could be avoided by a costless financial reorganization in this article we show that despite the possibility of costless reorganization it may be rational for firms to incur significant costs in the resolution of financial distress the main assumptions that give rise to our results are the existence of asymmetric courts to impose a reorganization on the claimants of a firm article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

price discrimination and retail configuration the hypothesis that price discrimination based on willingness to pay for quality can occur in multifirm markets is confirmed using microdata on gasoline retailing a test that discriminates between price structures associated with discrimination and with cost driven competitive differentials is developed and implemented with controls for variation in outlet and market characteristics a second test based on profitability variation rejects a competitive peak load pricing explanation for the observed price dispersion the data suggest that price discrimination at the retail level adds at least 9 a gallon to the average price of full service gasoline

a new bankruptcy procedure that uses multiple auctions abstract we propose a new bankruptcy procedure that makes use of multiple auctions the procedure is designed to work even when capital markets do not function well for example in developing economies or in economies in transition although it can be used in all economies

price discrimination in free entry markets using a spatial model of monopolistic competition we investigate price discrimination in free entry zero profit markets we show that when brands are heterogeneous competition does not prevent discrimination the power to earn economic profits is not necessary for a firm to maintain discriminatory prices our model treats formally the fact that consumers difer not only in the utility they derive from a good but also in how strongly they prefer one brand over all others in markets where firms are very competitive sorting consumers on the strength on brand preference produces larger price differentials between groups than sorting on the basis of consumers reservation prices for the good when firms sort customers on the basis of strength of brand preference however we find that the output and welfare effects are generally less favorable than when sorting is more closely related to consumers reservation prices

the behavior of the common stock of bankrupt firms the event of reorganization or liquidation will be determined by a court to the extent such legal decisions are insensitive to general market movements perhaps the market risk of the firm s shares is reduced it could be the case that most corporate bankruptices are so fully anticipated that little or no new information is released when bankruptcies are filed casual observation suggests that major corporate bankruptcies do not come as complete surprises trading in listed stocks usually is halted some time before bankruptcy filings stories that a corporation is about to file a bankruptcy petition sometimes appear in the financial press several days prior to the filing more conclusive evidence that the market anticipates corporate bankruptcies has been presented in previous empirical studies the findings of westerfield 4 and aharony jones and swary 1 demonstrated that shareholders experience abnormal losses over periods of from four to six years prior to bankruptcy one of westerfield s cumulative performance measures indicated that shareholders of bankrupt companies lost on average 76 percent of their wealth relative to returns on securities of equivalent risk during the seventy one months preceding the announcement of bankruptcy of course large shareholder losses prior to bankruptcy do not guarantee that additional large losses will not be suffered when bankruptcy is announced to date only limited evidence supporting the existence of a bankruptcy announcement effect has been reported altman 2 found that shareholders suffered an average capital loss of approximately 26 percent during the period from one month before to one month after bankruptcy announcements unfortunately a two month interval is too long to provide a clear measure of the market s reaction to bankruptcy announcements it is possible that most or all of the shareholder losses detected by altman occurred during the month preceding the announcements

optimal capital structure and bankruptcy choice dynamic bargaining versus liquidation abstract we model a firm s optimal capital structure decision in a framework in which it may later choose to enter either chapter 11 reorganization or chapter 7 liquidation creditors anticipate equityholders ex post reorganization incentives and price them into the ex ante credit spreads using a realistic dynamic bargaining model of reorganization we show that the off equilibrium threat of costly renegotiation can lead to lower leverage even with liquidation in equilibrium if reorganization is less efficient than liquidation the added option of reorganization can actually make equityholders worse off ex ante even when they liquidate on the equilibrium path

an empirical investigation of u s firms in reorganization the purpose of this paper is to understand the institutional features of chapter 11 from an empirical examination of thirty firms that have emerged from reorganization we find the recontracting framework of chapter 11 to be complex lengthy and costly violations of absolute priority in favor of stockholders are frequently encountered these deviations may result from the bargaining process of chapter 11 or from a recontracting process between creditors and stockholders which recognizes the ability of stockholder oriented management to preserve firm value an example of such recontracting addresses myers underinvestment problem an investigation of the effects of chapter 11 on the pricing of risky debt is also provided the purpose of this paper is to understand the institutional features of chapter

transitions in the german labor market structure and crisis abstract since the so called hartz iv reforms around 2005 and during the global crisis of 2008 2009 the german labor market featured mainly declining unemployment rates we develop a search and matching model with heterogeneous skills to explore the role of structural and cyclical policies for this performance calibrating unemployment benefits to approximate legislation before and after the reforms we find a large reduction in unemployment and its duration with the transition concluding after about three years during the crisis the extended use of short time labor subsidies that prevent jobs from being destroyed is likely to have prevented strong increases in unemployment

the outputs of retail activities concepts measurement and evidence from u s census data the authors develop a new economic framework for the empirical analysis of retail margins this framework formalizes the role of distribution services as outputs of retail activities their main results are the following the measures of outputs of retail activities identified in the data perform as important and robust determinants of retail margins variables that purport to capture oligopolistic features of market structure play a limited or no role in determining retail margins quantity setting and price setting under the assumptions of profit maximization and monopolistic competition are categorically rejected by the data the data base is information on 49 retail sectors from the 1982 u s census of retail trades copyright 1993 by mit press

using options to divide value in corporate bankruptcy abstract this paper revisits the proposal to use options in corporate bankruptcy that was put forward in bebchuk 1988 according to the proposed procedure corporate bankruptcy should be implemented through the distribution to participants of appropriately designed options the paper starts by discussing the goals that should guide the design of bankruptcy procedures the paper then explains how the options procedure can improve both ex post efficiency and ex ante efficiency the paper offers a refined version of the procedure and it also responds to questions that have been raised regarding the execution and desirability of the procedure the paper concludes by explaining the relationship between the options approach to corporate bankruptcy and the black scholes characterization of all corporate securities as options

selling costs and switching costs explaining retail gasoline margins recent theoretical work has shown that price discrimination can take place in imperfectly competitive as well as monopoly markets the persistence of higher retail margins on unleaded than on leaded gasoline during the 1980s suggests that discrimination may occur even in very competitive markets this article studies a number of cost based explanations for such gasoline pricing as well as the possibility of price discrimination the analysis indicates that gas stations discriminate against groups of customers who are less likely to switch to another station the conclusions highlight the influence of shopping or search costs on pricing decisions even in markets thought to be quite competitive

the effect of poison pill securities on shareholder wealth abstract this paper examines empirical evidence about the effect of poison pill takeover defenses on shareholder wealth i find evidence that announcements of the most restrictive forms of the pill defense are associated with stock price declines also the most restrictive forms of the pill defense are associated with abnormally high rates of defeat of unsolicited tender offers although this evidence is consistent with managerial entrenchment the evidence implies that on average poison pill defenses have seemingly had only a modest effect on firm valuation

short time work benefits revisited some lessons from the great recession the great recession triggered a resurgence of short time work stw throughout the oecd several countries introduced stw from scratch or significantly expanded the scope of the programmes already in place in some countries like italy japan and germany between 2 5 and 5 of the workforce participated in stw schemes at the trough of the recession in this paper we analyse the rationale for stw benefits and their effects on labour adjustment from both a cross country and a time series perspective we find that stw actually contributed to reduce job losses during the great recession however the number of jobs saved according to our macroeconomic and microeconomic estimates is smaller than the number of participants in these schemes and the full time equivalent jobs involved pointing in some countries to sizeable deadweight costs other institutions like plant level bargaining over hours wages and employment levels may be more effective than stw in encouraging adjustment along the intensive margins in the presence of temporary shocks our results also suggest that stw cannot be readily extended to countries having much different institutional configurations as the demand for stw is very much affected by other institutions such as employment protection legislation and the degree of centralization of collective bargaining furthermore stw must be temporary as during upturns may actually negatively affect employment we also find that specific design features of stw such as experience rating and disincentives to 100 reductions in working hours are important in improving the cyclical properties of stw tito boeri and herbert bruecker

price competition in multimarket duopolies in this article we analyze the pricing strategies offirms that compete for the demand of an assortment of goods in a complete information static framework in particular we model the competition between two symmetric firms in a market that consists of two types of consumers each of which may buy one unit of both goods sold by the two firms we show that all nash equilibria are such that neither firm charges the same price for both goods interestingly under certain conditions thefirms jointly price discriminate between the two types of consumers and may even achieve the same level of profits as if they maximized joint profits for another set of conditions the unique equilibrium is such that the price for one of the goods and the price for the bundle are the same as the price of the good in a standard hotelling model with one good finally we show that if these equilibria exist both firms prefer to sell both goods rather than specialize in either one of them these results are a direct consequence of the interplay between the multimarket rivalry and the existence of more than one market segment as modelled in this article

the default rate experience on high yield corporate debt recent 1978 83 net returns on high yield low rated debt have been impressive averaging 490 to 580 basis points above the long term government bond index but low rated junk bonds pose a risk of default not present in the higher rated segment of the bond market the authors divided the par value of defaulting debt by total low rated straight debt outstanding to arrive at an estimate of the default rate for high yield bonds excluding johns manville which had the only defaulting debt rated investment grade just prior to the default date for the 1974 84 period this averaged 1 52 per cent or 152 basis points annually year to year variations in the rate were substantial furthermore default experience differed across various industry segments railroads and reits were particularly vulnerable to default in the past although they are unlikely to represent a large portion of future defaults retailer electronic computer airline and oil and gas defaults have become more common in recent years losses from default are actually lower than the default rate alone implies defaulted bonds traded on average at 41 per cent of par shortly after default after accounting for the bonds retained value and the loss of interest the average reduction in return to the investor who had purchased the bonds at par would have been in the range of 96 to 100 basis points annually

price discrimination in grocery trade evidence from italy this paper investigates the determinants of price dispersion between staple and non staple goods in grocery retailing as the result of pricing decisions by multiproduct firms theoretical predictions about the nature of supermarkets pricing behaviour are compared and tested empirically using disaggregated data from the italian grocery trade over the period 1990 1992 the empirical results provide evidence for the existence in all types of retail organization of the form of price discrimination suggested by bliss particularly for specialist shops the results are consistent with discrimination due to the exploitation of consumers switching costs

does decreasing working time reduce environmental pressures new evidence based on dynamic panel approach abstract there is a growing interest in the correlation between working time and environmental pressures but prior empirical studies were mostly focused on static methods within limited country groups to fill the gap this study aims to stimulate the discussion by distinguishing between different time periods for developed and developing country groups respectively in particular we contribute to a further understanding of the environmental effects of working time reduction policies by comparing the differences under the dynamic framework of system generalized method of moments we applied this dynamic panel regression approach for 55 countries worldwide over the period 1980 2010 and employing carbon emissions per capita as the environmental indicator in general results confirmed the significant relationship between hours of work and environmental impacts in developed economies although this is not the case for the developing counterparts interestingly the significant correlations for the developed country group turned from positive during the first sub period 1980 2000 to negative during the second sub period 2001 2010 connecting these results with previous literature we proposed the reasons of rebound energy use derived from certain leisure activities which were more energy intensive if excessive non working time provided

short time work some long run implications this paper outlines a simple model to examine some long run implications of short time work schemes stws on labor market performance and welfare it is not clear that stws reduce unemployment as the induced wage push discourages job creation

security pricing and deviations from the absolute priority rule in bankruptcy proceedings claims ultimately awarded to shareholders of firms in reorganization were examined for a sample of 30 filings under the 1978 bankruptcy reform act we measured the amount paid to shareholders in excess of that which they would have received under the absolute priority rule and found that this amount represents on average 7 6 of the total awarded to all claimants evidence is also reported that common share values reflect a significant proportion of value ultimately received in violation of absolute priority suggesting that deviations from the rule were expected by the equity markets the absolute priority rule hereafter apr states that a bankrupt firm s value is to be distributed to suppliers of capital such that senior creditors are fully satisfied before any distributions are made to junior creditors and junior creditors are paid in full before common shareholders bankruptcy reorganization proceedings however are leaving shareholders and junior creditors with valuable assets even when senior claimants receive only partial settlements as barrett and sullivan 1988 noted traditionally shareholders have been last in line their claims on a troubled company s assets have had the lowest priority and their impact on the course of bankruptcy code proceedings generally has been next to nil but lately the balance of power has been shifting warner 1977 provided one of the early discussions of the implications of deviations from the apr baldwin and mason 1983 pp 510 511 examined the resolution of claims in the massey ferguson reorganization and provided no support for the hypothesis that the market believes absolute priority rules will be enforced if the firm defaults on its financial obligations franks and torous 1989 analyzed a sample of bankruptcies that occurred during the period 1970 through 1984 and found that 21 of 27 sample cases exhibited departures from the apr more recently weiss 1990 examined 37 firms that filed for bankruptcy between 1980 and 1986 and reported that 27 of the cases involved apr violations

claimholder incentive conflicts in reorganization the role of bankruptcy law when a firm is financial distress in most cases a set of mutually advantageous reorganization plans exist this article shows that the bankruptcy code by providing rules governing the negotiation process yields a unique solution to the reorganization process in addition the structure imposed by the code mitigates the holdout problem created by the individual claimant s divergent incentives article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

the resolution of claims in financial distress the case of massey ferguson when a firm s business deteriorates to the point where it cannot meet its financial obligations the firm is said to have entered the state of financial distress the first signals of distress are usually violations of debt covenants coupled with the omission or reduction of dividends some financially distressed firms eventually go bankrupt others recover or manage to settle the claims against them out of court 1 the behavior of firms in financial distress is interesting for two reasons first the costs of financial distress are an important element in capital structure theory in many models 2 these costs are hypothesized to counteract the tax benefits of leverage and lead to an internal optimum for the capital structure of the firm second financial distress has come to be recognized as a state in which contractual claims are incompletely specified standard terms of the debt equity contract are violated when the firm enters financial distress and claimants may then decide not to act according to previously agreed upon rules or legal formulas recent history has provided a number of examples of firms in financial distress including massey ferguson international harvester chrysler and braniff the resolution of claims in these situations often differs from what is predicted by legal rules or standard theoretical models this paper examines the actual resolution of claims in the reorganization of massey ferguson ltd in part i we use time series data on daily stock returns to test different specifications of priority rules for debt and equity claims in part ii we consider whether massey ferguson avoided deadweight costs of financial distress through the restructuring of claims negotiated among creditors during the winter of 1980 81

the effects of third degree price discrimination in oligopoly retail firms and restaurants commonly offer senior citizen discounts i suspect this practice is not motivated by altruism rather the behavior can be better explained as profit maximizing price discrimination these firms are setting a low price in a market which probably has high elasticity of demand but why should the demand of senior citizens be more elastic than average one possibility is that elderly people have below average income and they would not eat out if restaurant prices were high perhaps a more plausible explanation is that retired people simply have more time on their hands to spend commuting across town to take advantage of discounts the purpose of these discounts may then be to lure senior citizens away from other restaurants rather than to get them out of the house the analysis of third degree price discrimination has a long history a c pigou 1920 joan robinson 1933 and two articles on the subject have recently appeared in this review richard schmalensee 1981 hal varian 1985 the industry structure in these analyses is monopoly but an explicit model of some form of competition is obviously needed to study discriminatory discounts meant to attract customers from rival firms and even discounts meant to get people out of the house may have an oligopoly analysis which is qualitatively different from their monopoly anlysis in this paper i present a simple duopoly model of a differentiated products industry i show that a firm s price elasticity of demand in a market can be expressed as the sum of two parts the industry demand elasticity and the cross price elasticity the first measures the tendency of consumers in a market to stay home when the price goes up the second the tendency to switch suppliers in the monopoly case in which the crossprice elasticity is zero and the collusive case in which the cross price elasticity is irrelevant discrimination between markets is due to differences in industry demand elasticity in the noncooperative oligopoly case equilibrium price differentials can be accounted for both by differences in cross price elasticity as well as differences in industry demand elasticity total industry output when the firms can discriminate between two markets is compared to what it would be if discrimination were impossible which regime has larger output depends on the sum of the adjustedconcavity condition and the elasticity ratio condition the first predominates when the rival products are poor substitutes and the firms have approximate monopoly power while the second predominates at the other extreme where the products are close substitutes and the firms have almost no market power the adjusted concavity condition compares the relative curvature of demands in the two markets and was originally discovered by robinson 1933 in her analysis of monopoly price discrimination the elasticity ratio condition compares the relative difference in industry demand elasticity between the two markets with the relative difference in cross price elasticity according to the elasticity ratio condition a discriminatory discount due to high industry elasticity of demand would be more likely to increase total output than one due to high cross price elasticity the effect of discrimination on profit is also discussed the distinction made here department of economics university of wisconsin madison madison wi 53706 this paper is a revision of part of my doctoral dissertation i am grateful to steve matthews ken judd and john panzar for guidance in this research i also thank seminar participants at wisconsin the justice department and the 1986 econometric society meetings in new orleans and the discussant martin perry the excellent comments of the referees improved the exposition of the paper

is chapter 11 costly abstract we examine a sample of 459 firms filing for chapter 11 during the period 1991 1998 and find that our sample firms experience significant improvements in their operating performance during chapter 11 our evidence is consistent with the hypothesis that chapter 11 if anything provides net benefits to bankrupt firms in the cross section firms with higher debt ratios experience greater improvements in operating performance and the complexity of the renegotiation process negatively affects the improvement we find no relationship between chapter 11 outcome and changes in risk adjusted firm value in chapter 11

continuous cross subsidies and quantity restrictions this article provides a model of loss leader pricing and quantity restrictions for a competitive multiproduct industry when individual consumers have continuous and independent demands for the set of available goods utilizing a generalization of the model proposed by bliss 1988 we demonstrate the importance of consumer heterogeneity for the existence of cross subsidies when there is complete information and individual consumers have smooth downward sloping demands continuous cross subsidies arising from consumer heterogeneity are also shown to exist in hotelling models our use of continuous rather than unit demands allows us to analyze issues related to welfare which in turn exposes a strong incentive for the firm to place binding quantity restrictions on consumers we also show how the presence of quantity restrictions can be used to distinguish between continuous cross subsidies arising from heterogeneous consumers versus those arising from classic demand complementarity with homogeneous agents

ex ante costs of violating absolute priority in bankruptcy a basic question for the design of bankruptcy law concerns whether value should be divided in accordance with absolute priority research done in the past decade has suggested that deviations from absolute priority have beneficial ex ante effects in contrast this paper shows that ex post deviations from absolute priority also have negative effects on ex ante decisions taken by shareholders such deviations aggravate the moral hazard problem with respect to project choice increasing the equityholders incentive to favor risky projects as well as with respect to borrowing and dividend decisions