a note on inertia in market share abstract in a simple model in which market share displays inertia i show that a larger firm will always charge a higher price and make more profits than its smaller rival but its market share will remain larger than its rival s

competitive coupon targeting with the advent of panel data on household purchase behavior and the development of statistical procedures to utilize this data firms can now target coupons to selected households with considerable accuracy and cost effectiveness in this article we develop an analytical framework to examine the effect of such targeting on firm profits prices and coupon face values we also derive comparative statics on firms optimal mix of offensive and defensive couponing the number of coupons distributed redemption rates face values and incremental sales per redemption among our findings when rival firms can target their coupon promotions at brand switchers the outcome will be a prisoner s dilemma in which the net effect of targeting is simply the cost of distribution plus the discount given to redeemers

pricing frills and customer ratings this paper explores whether and how a firm should adapt its strategy in view of consumer use of prior customer ratings specifically we consider optimal pricing and whether the firm should offer an unexpected frill to early customers to enhance their product experiences we show that if price history is unobserved by consumers a forward looking firm should always modify its strategy from single period optimal one but it may be optimal to do so by lowering price by lowering price and offering frills or by raising price and offering frills depending on the market growth rate specifically the last strategy becomes optimal when market growth rate is high enough the results are similar when the price history is observed by consumers except that no deviation from single period profit maximization choices is optimal when market growth is low enough we also analyze whether the firm should prefer that the price information be stated in or left out of consumer reviews in addition in considering the effects of consumer heterogeneity we conclude that the optimal firm s effort to affect ratings is higher when the idiosyncratic part of consumer uncertainty is larger

the role of brand image and product characteristics on firms entry and oem decisions we investigate the optimal market entry and original equipment manufacturer oem decisions of a firm facing a market in which firms brands can be horizontally differentiated and products can be vertically differentiated the entrant might sell under its own brand and compete with an incumbent become a supplier to the incumbent or both findings reveal that when consumers perceive the firms are horizontally and vertically differentiated the entrant profits by simultaneously entering the market and establishing an oem arrangement with the incumbent in such competitive scenarios both buyer and seller increase profits by agreeing on wholesale prices that are not too low which softens both horizontal and vertical conflict between the firms findings also show that the incumbent may prefer to pay high wholesale prices to the entrant even if the incumbent had the option to source the product independently at a lower marginal cost when firms have the capability of producing each other s product lines su

investment risks in power generation a comparison of fossil fuel and renewable energy dominated markets abstract due to their high capital intensity weather dependent renewable energies res such as solar and wind face considerable investment risks in power markets in addition their uncertain production volumes also affect the investment risks of other plant types through the impact on power prices and residual demand increasing res shares thus potentially increase overall investment risks in power markets which many analysts consider to be a potential problem against this background this paper compares investment risks of different technologies in markets with increasing shares of variable res it further analyses how generation mixes are affected by these investment risks if the risks are evaluated on a stand alone basis or in a plant portfolio context of a private firm for this purpose a stylized investment and dispatch model is used to conduct monte carlo simulations from which risk measures are derived the results show that capital intensive res face the highest stand alone risks since their profits are most affected by the power price risk however the results further indicate that the stand alone risks of variable res decrease with their share in the market because of a negative correlation of output and price risk in addition res have a risk benefit in firm plant portfolios in terms of constituting a hedge against losses of fossil fuel plants this positive portfolio effect however rapidly decreases and becomes negative with increasing res shares in the market

economic dispatch savings in the coal fired power sector an empirical study of china abstract the current equal share dispatch approach has often been criticized for its negative influence on the electricity system operation in china which worsens the energy security environmental sustainability and affordability problems to provide references for the on going electricity market reform this study employs an optimization model to quantify the economic dispatch savings in the coal fired power sector key findings are summarized as follows 1 the heat rates of 2803 coal generators in china range from 273 91 gce kwh to 348 38 gce kwh units in 2014 and the great differences among these generators at different geographical areas exhibit the necessity for economic dispatch 2 5 67 of the coal used for power generation could be saved from economic dispatch in a provincial level the monetary value of which can reduce the average electricity price by 0 0058 yuan kwh in 2014 3 three major political and economic challenges hinder the transition from the current dispatch mode to economic dispatch namely the insufficient running hours for cost recovery limited cross border trading due to electricity over supply and local protectionism and the political economy problems from generators of different ownership types

price advertising and coupons in a monopoly model the paper studies the pricing and advertising policies of a monopolist in a situation where consumers discover prices by costly search the monopolist is shown to choose between no advertising and large scale advertising this is shown to be optimal behavior even with decreasing returns to scale to advertising expenditures which would a priori argue for small advertising expenditures the optimal advertising policy is undertaken in conjunction with a pricing policy that is characterized by downwardly rigid prices flexibility with regard to realizations of a cost parameter is achieved via couponing which even though it is untargeted allows for discrimination between ex ante identical consumers i introduction the failure of some prices to react to changes in demand and supply conditions has always attracted the attention of economists price rigidities are important for two reasons first they may cause and or reflect inefficiencies in the allocation of resources and second if prices are rigid the consequent quantity adjustments may have important macroeconomic implications a related issue is the potential discrepancy between posted and actual transaction prices in particular given that the latter are sometimes significantly more flexible than the former for example retailers tend to post the prices recommended by the manufacturer even though they might be ready to offer discounts in low demand states in fact in some durable goods markets the listed price is simply the starting price in a bargaining process between the seller and individual buyers in this paper i argue that in some contexts firms find it optimal to set relatively rigid posted prices due to the costs of price advertising but can still achieve some degree of flexibility by sending out coupons to a fraction of consumers i start from the observation that in decentralized markets the transmission of price information from sellers to buyers is usually a costly activity consumers can engage in costly search to find out prices and firms can engage in costly advertising to disseminate price information more specifically i analyze a static monopoly model in which the seller after privately observing his unit production

the effects of effort and intrinsic motivation on risky choice people often need to trade off between the probability and magnitude of the rewards that they could earn for investing effort the present paper proposes that the conjunction of two simple assumptions relating effort induced reward expectations to prospect theory s value function provides a parsimonious theory that predicts that the nature of the required effort will have a systematic effect on such trade offs using the case of frequency or loyalty programs a series of five studies involving both real and hypothetical choices demonstrated that a the presence as opposed to absence of effort requirements enhances the preference for sure small rewards over large uncertain rewards b the preference for reward certainty is attenuated when the effort activity is intrinsically motivating and c continuously increasing the effort level leads to an inverted u effect on the preference for sure small over largeuncertain rewards the studies also employ process measures and examine the mechanisms underlying the impact of the effort stream on the trade off between the certainty and magnitude of rewards the final section discusses the theoretical implications of this research as well as the practical implications with respect to frequency programs and other types of incentive systems

the principle of minimum differentiation holds under sufficient heterogeneity the so called principle of minimum differentiation stated by hotelling has been challenged by many authors this paper restores the principle by showing that n firms locate at the center of the market and charge prices higher than the marginal cost of production when heterogeneity in consumers tastes is large enough

reward programs and tacit collusion reward programs a promotional tool to develop customer loyalty offer incentives to consumers on the basis of cumulative purchases of a given product or service from a firm reward programs have become increasingly common in many industries the best known examples include frequent flier programs offered by airlines frequent guest programs offered by hotels and frequent shopper programs offered by supermarkets despite the widespread business practice of reward programs research efforts on reward programs particularly in marketing have been scarce our paper takes an important step towards understanding the design of reward programs and its implications on pricing strategies we study a market that consists of two segments heavy and light user segments the key distinction between the two segments is that the heavy user segment purchases in each period and thus is a candidate for the reward programs in contrast the light user segment exits the market after one purchase and is not in a position to exploit reward programs an important feature of our model is that we allow for different price sensitivity between heavy user and light user segments our model closely examines the type of rewards a reward worth a dollar to the consumer might have different cost implications for the offering firm depending on the type of reward for example cash rewards have higher unit reward cost inefficient reward for the firm than a free product of the firm such as an airline ticket or long distance minutes efficient reward specifically we examine an interesting puzzle observed in the marketplace several firms offer a cash reward or a product not made by the firm such as jackets electronic items etc these firms could offer their own product as rewards and significantly lower their cost we examine whether there is any reason for such a seemingly suboptimal practice our analysis shows that reward programs weaken price competition by offering the incentives for repeat purchases reward programs increase a firm s cost to attract competing firms current customers because firms gain less from undercutting their prices equilibrium prices go up moreover as consumers become unwilling to switch because of potential rewards the firm with a larger market share in the heavy user segment charges higher prices therefore a low price in the first period which leads to a larger market share in the heavy user segment will always be followed by a high price in the second period in our model consumers are rational and can correctly anticipate firms incentive to offer lower prices initially to enroll them into the reward programs our paper offers an explanation as to why the type and amount of reward may vary across the programs we identify two determining factors for the selection of rewards size and relative price sensitivity of the heavy user segment we find that in a market with a small heavy user segment that is also much more price sensitive than the light user segment it is optimal for firms to offer the most inefficient rewards the intuition is based on the firms incentive to exploit the price insensitive light user segment by offering inefficient rewards firms are able to commit to weaker competition and therefore higher prices when the heavy user segment is large or not very price sensitive when compared to the light user segment competing firms should adopt the most efficient rewards to maximize their profit this may well be the case in a number of real world situations in which efficient rewards are quite prevalent we also find that optimal reward amount has a negative relationship with unit reward cost because both firms use rewards to attract the heavy users they tend to offer more when they adopt the more efficient rewards finally our paper identifies the relationship between market characteristics and theimpact of reward programs on firms profits and consumers benefits we find that firms gain from the adoption of reward programs as long as light users are not too price sensitive when light users are very price sensitive firms engage in intense price competition thus benefiting little from the loyalty of heavy users created through rewards because reward programs increase market prices light users who do not get the reward earn strictly lower benefit in contrast heavy users often stand to gain more from the reward program in most cases firms and the heavy users are better off at the expense of light users

experimenting with purchase history based price discrimination many purchases of differentiated goods are repeated giving sellers the opportunity to engage in price discrimination based upon the shopper s previous behavior by either offering loyalty discounts to repeat buyers or introductory rates to new customers recent theoretical work suggests that loyalty discounts can be profitable to sellers when customer preferences are not stationary and sellers can pre commit to prices for repeat buyers but otherwise returning customers can be expected to pay the same or more than new buyers this paper reports behavior in controlled laboratory experiments designed to empirically test the impact of these factors on pricing strategies the results generally support the comparative static predictions of the theoretical model when customer preferences are fixed over time sellers attempt to lure customers from their rival price pre commitment for repeat shoppers when buyer preferences vary over time resulted in modest loyalty pricing but the discounts are not as prevalent as predicted as sellers rarely price below cost behaviorally price pre commitment to loyal customers is found to reduce prices overall

establishing the role that wind generation may have in future generation portfolios assessing the correct future mix in generation portfolios has become more difficult given the introduction of emission trading schemes the recent fuel price rises and the increasing competitiveness of wind energy this paper combines analysis of generation economics load and wind generation characteristics generation adequacy and plant utilization to gain insight into the role of wind generation in desirable generation portfolios the unique characteristics of wind generation are accounted for in the analysis and sensitivity analysis is carried out with respect to discount rates carbon taxes and various fuel price scenarios results show that for a large range of future scenarios wind generation has a significant role to play in future generation portfolios in ireland mean variance portfolio theory is applied to examine the benefits of portfolio diversification in terms of avoiding exposure to volatile fuel prices analysis shows that wind generation has a further role to play in generation portfolios in this respect

optimal wind power deployment in europe a portfolio approach geographic diversification of wind farms can smooth out the fluctuations in wind power generation and reduce the associated system balancing and reliability costs the paper uses historical wind production data from five european countries austria denmark france germany and spain and applies the mean variance portfolio theory to identify cross country portfolios that minimise the total variance of wind production for a given level of production theoretical unconstrained portfolios show that countries spain and denmark with the best wind resource or whose size contributes to smoothing out the country output variability dominate optimal portfolios the methodology is then elaborated to derive optimal constrained portfolios taking into account national wind resource potential and transmission constraints and compare them with the projected portfolios for 2020 such constraints limit the theoretical potential efficiency gains from geographical diversification but there is still considerable room to improve performance from actual or projected portfolios these results highlight the need for more cross border interconnection capacity for greater coordination of european renewable support policies and for renewable support mechanisms and electricity market designs providing locational incentives under these conditions a mechanism for renewables credits trading could help aligning wind power portfolios with the theoretically efficient geographic dispersion 2009 elsevier ltd

multi period competition with switching costs an overlapping generations formulation i examine an infinite period duoply market with positive consumer switching costs and overlapping generations of consumers when consumers have a finite time horizon then unlike beggs and klemperer 1992 the two firms may alternate dominance from one period to the next alternately charging high and low prices this agrees with the intuition that firms with a high locked in market share may set price so as to exploit that market share which causes a subsequent low market share among the new cohort of buyers leading to lower prices etc jel codes l13 d21 d43 d92

dynamic modeling of thermal generation capacity investment application to markets with high wind penetration modeling the dynamics of merchant generation investment in market environments can inform the making of policies whose goals are to promote investment in renewable generation while maintaining security of supply such models need to calculate expected output costs and revenue of thermal generation subject to varying load and random generator outages in a power system with high penetrations of wind this paper presents a dynamic investment simulation model where the short term energy market is simulated using probabilistic production costing using the mix of normals distribution mond technique to represent residual load load net of wind output price mark ups due to market power are accounted for an energy only market setting is used to estimate the economic profitability of investments and forecast the evolution of security of supply simulated results for a great britain gb market case study show a pattern of increased relative security of supply risk during the 2020s in addition many new investments can recover their fixed costs only during years in which more frequent supply shortages push energy prices higher

let me talk to my manager haggling in a competitive environment although negotiating over prices with sellers is common in many markets such as automobiles furniture services consumer electronics etc it is not clear how a haggling price policy can help a firm gain a strategic advantage or whether it is even sustainable in a competitive market in this paper we explore the implications of haggling and fixed prices as pricing policies in a competitive market we develop a model in which two competing retailers choose between offering either a fixed price or haggling over prices with customers there are two consumer segments in our analysis one segment thehagglers has a lower opportunity cost of time and a lower haggling cost than the other segment thenonhagglers when both retailers follow the same pricing policy then a haggling policy is more profitable than a fixed price policy only when the proportion of nonhagglers is sufficiently high we find two kinds of prisoners dilemma under some conditions a more profitable haggling policy can be broken by a fixed price policy and under other conditions a fixed price policy can be broken by a haggling policy surprisingly we show that under some conditions an asymmetric outcome with one retailer haggling and the other offering a fixed price is also an equilibrium

intraconnectivity and interconnectivity when value creation may reduce profits this paper analyses firms decisions to provide connectivity to their customers we distinguish between intraconnectivity the ability of one firm s customers to connect to each other and interconnectivity the ability of one firm s customers to connect with another firm s customers the profitability implications of allowing connectivity are not a straightforward consequence of the consumer value of connectivity because connectivity affects not only the customer value but also the intensity of competition by creating or changing network externality we find that if sales are driven by brand switching rather than by category expansion a firm may find it optimal not to provide intraconnectivity even if providing it is not costly and may find it optimal to provide interconnectivity even at a cost exceeding the consumer value of connectivity on the other hand if category expansion is possible providing intraconnectivity may be profitable in this case either the equilibrium intraconnectivity provision may be asymmetric or both firms may find it individually optimal to provide intraconnectivity under certain conditions in the latter case the firms choice of intraconnectivity is a prisoner s dilemma game

the effects of wind generation capacity on electricity prices and generation costs a monte carlo analysis abstractwe use monte carlo analysis to examine the potential of increased renewable generation to provide a hedge against variability in energy prices and costs fuel costs electricity demand and wind generation are allowed to vary and a unit commitment and economic dispatch algorithm is employed to produce cost minimizing generation schedules under different levels of installed wind capacity increased wind capacity reduces the mean and the variance of production costs but only the variance of electricity prices wind generators see their market revenues increase while consumer payments and fossil generator profits do not considerably vary as wind capacity increases risk aversion is captured by considering the conditional value at risk for both consumers and producers the optimal level of wind generation increases as risk aversion increases due to the potential of wind to act as a hedge against very high electricity prices in high fuel price scenarios

the impact of the north atlantic oscillation on electricity markets a case study on ireland abstract the north atlantic oscillation nao is a large scale atmospheric circulation pattern driving climate variability in north western europe as the deployment of wind powered generation expands on electricity networks across europe the impacts of the nao on the electricity system will be amplified this study assesses the impact of the nao via wind power generation on the electricity market considering thermal generation costs wholesale electricity prices and wind generation subsidies a monte carlo approach is used to model nao phases and generate hourly wind speed time series data electricity demand and fuel input data a least cost unit commitment and economic dispatch model is used to simulate an island electricity system modelled on the all island irish electricity system the impact of the nao obviously depends on the level of wind capacity within an electricity system our results indicate that on average a switch from negative to positive nao phase can reduce thermal generation costs by up to 8 reduce wholesale electricity prices by as much as 1 5 mwh and increase wind power generators revenue by 12

the existence of equilibrium in discontinuous economic games ii applications in part i of this study we established two existence theorems for mixed strategy equilibrium in games with discontinuous payoff functions see theorems 4 4 and 5 5 in dasgupta and maskin 1986 hereafter d m 1986 in this second part we use the second of these two theorems to prove the existence of mixed strategy equilibrium in some wellknown discontinuous economic games that fail to have pure strategy equilibria the models we analyse are the bertrand edgeworth example of price setting duopolists with capacity constraints see section 2 2 price competition among firms producing differentiated products hotelling 1929 and d aspremont gabszewicz and thisse 1979 see section 2 3 spatial competition eaton and lipsey 1975 and shaked 1975 see section 3 and models of market dependent information rothschild and stiglitz 1976 and wilson 1977 section 4 the paper concludes section 5 with a classification of these models

the effectiveness of the public support policies for the european industry financing as a contribution to sustainable development in recent years the debate about the role of the public institutions in the fields of corporate social responsibility and sustainable development has gained momentum nevertheless the ambiguity of the latter concepts makes it difficult both to measure them and to estimate the impact that the different public initiatives may have on them in this sense the present research has the aim to design a fuzzy logic based methodology applied to the evaluation of the above mentioned processes in relation to the state aid policies for the european industry regarding the study contour the european union state aids seems not to have introduced important changes leading to socially responsible results and therefore favourable for the sustainable development generated by the european manufacturing industry

a price discrimination theory of coupons the objective of this paper is to analyze the consumer s decision in electing to use cents off coupons distributed by manufacturers of consumer products arguing that the decision to use coupons is based on the tradeoff between costs of using coupons and the savings obtained it is shown that coupons can serve as a price discrimination device to provide a lower price to a particular segment of consumers based on a price theoretic model it is shown that the users of coupons are more price elastic than nonusers of coupons and that the opportunity cost of time and other household resource variables are determinant factors in consumers decisions implications derived from the model are tested using diary panel data

bertrand supertraps we study oligopoly price competition between multiproduct firms firms whose products interact in the profit function specifically we focus on the impact of intrafirm product interactions on the level of equilibrium profits this impact may be decomposed in two different ways a a direct effect keeping the competitors actions fixed plus a strategic effect i e through the competitors actions or alternatively b a competitive advantage effect change in firmi only plus an imitation effect change in all other firms we derive conditions such that a the strategic effect more than outweighs the direct effect and conditions such that b the imitation effect more than outweighs the competitive advantage effect bertrand supertraps for example an increase in the degree of economies of scope would increase profits if prices were fixed or if the change were limited to firmi s cost function however if all firms increase the degree of economies of scope then all firms receive lower profits a variety of other applications is considered including learning curves core competencies demand synergies systems competition compatibility bundling network effects switching costs durable goods long term contracts

strategic loyalty reward in dynamic price discrimination in a dynamic model with overlapping generations of consumers we study duopolistic competition when firms can price discriminate at each period between their previous customers and the consumers that they have never served long term contracts are not enforceable in markov perfect equilibrium one firm charges higher prices to its past customers than to its new customers as past customers have revealed their strong preferences for the firm the other firm however rewards its previous customers by charging lower prices to them than to its new customers this loyalty reward strategy comes from the interplay between the firms usual incentive to extract surplus from consumers with revealed strong preferences and their incentives to acquire information and to recognize their young loyal customers the result also relies on the firms inability a priori to tell different generations apart it is the outcome of the unique equilibrium of a simplified two period or t period version of the game and holds with forward looking consumers who are impatient enough

why competition may drive up prices abstract we show that the expected price of an incumbent firm may increase in response to increasing competition as it may become more profitable to exploit a rather immobile fraction of consumers instead of capturing a larger but more contested segment of the market to derive this result we consider two approaches of modelling the degree of competition first in a duopolistic setting competition is said to be more intense if the entrant s product becomes more attractive to the mobile fraction of buyers in this case we find that all buyers i e both the mobile and the immobile fraction may lose if the market becomes more competitive secondly in a model with two entrants competition is said to become intense if entrants serve an overlapping segment of the market for mobile buyers

positioning and pricing in a variety seeking market we study competitive positioning and pricing strategies in markets where consumers seek variety variety seeking behavior is modeled as a decrease in the willingness to pay for the product purchased on the previous purchase occasion using a three stage hotelling type model we show that the presence of variety seeking consumers reduces product differentiation offered in equilibrium thereby explaining some otherwise counterintuitive findings in empirical research we find that firms charge higher prices in period 1 and lower prices in period 2 the lower price in period 2 represents the price incentive that firms need to offer to prevent the variety seeking consumers from switching furthermore we find that the observed switching in a market may not fully capture the true magnitude of the underlying variety seeking tendencies among consumers finally we show that the presence of variety seeking consumers leads to lower firm profits and a higher consumer surplus surplus increases for variety seeking consumers as well as regular consumers therefore the presence of variety seeking consumers benefits everyone in the market

interfirm bundled discounts as a collusive device this paper investigates whether and how firms competing in price with homogeneous goods i e bertrand competitors can achieve supernormal profits using interfirm bundled discounts by committing to offering price discounts conditional on the purchase of a specific brand of other differentiated good the homogeneous good suppliers can separate consumers into distinct groups such brand specific discounts help the firms relax competition and attain a collusive outcome consumers become worse o due to higher effective prices our result shows that in oligopolies it is feasible to leverage other s market power without excluding rivals

market segmentation self selection and product line design the purpose of this paper is to develop a theory of market segmentation based on consumer self selection the extant theory is based on the third degree price discrimination model of pigou central assumptions of which are that the firm can directly address individual segments and isolate them by using consumer self selection i am relaxing these assumptions in the context of a monopolist designing a product line i show that this relaxation has significant implications for how the products and prices are chosen and what they look like in particular segments may be aggregated even though there are no economies of scale furthermore consumer self selection enables us to model cannibalization and competition among firms

why do firms train theory and evidence this paper offers a theory of training whereby workers do not pay for the general training they receive the superior information of the current employer regarding its employees abilities relative to other firms creates ex post monopsony power and encourages this employer to provide and pay for training even if these skills are general the model can lead to multiple equlibria in one equilibrium quits are endogenously high and as a result employers have limited monopsony power and provide little training while in another equilibrium quits are low and training is high using microdata on german apprentices we show that the predictions of our model receive some support from the data

cross market discounts firms in several markets attract consumers by offering discounts in other unrelated markets this promotion strategy which we call cross market discounts has been successfully adopted in the last few years by many grocery retailers in partnership with gasoline retailers across north america europe and australia in this paper we use an analytical model to investigate the major forces driving the profitability of this novel promotion strategy we consider a generalized scenario in which purchases in a source market lead to price discounts redeemable in a target market our analysis shows that this strategy can be a revenue driver by simultaneously increasing prices as well as sales in the source market even though we assume the demand curve to be downward sloping in price moreover it distributes additional consumption motivated by the discount in two markets and under diminishing marginal returns from consumption this can simultaneously increase firm profits and consumer welfare more effectively than traditional nonlinear pricing strategies our study provides many other interesting insights as well and our key results are in accordance with anecdotal evidence obtained from managers and industry publications

dynamic pricing when to entice brand switching and when to reward consumer loyalty this article develops a theory of dynamic pricing in which firms may offer separate prices to different consumers based on their past purchases brand preferences over two periods are described by a copula admitting various degrees of positive dependence when commitment to future prices is infeasible each firm offers lower prices to its rival s customers when firms can commit to future prices consumer loyalty is rewarded if preference dependence is low but enticing brand switching occurs if preference dependence is high our theory provides a unified treatment of the two pricing policies and sheds light on observed practices across industries

risk return incentives in liberalised electricity markets we employ monte carlo analysis to determine the distribution of returns for various electricity generation technologies costs and revenues for each technology are calculated by means of a unit commitment and economic dispatch algorithm at hourly resolution this represents a considerable contribution to the literature as costs and revenues are determined endogenously which in turn allows the returns of midmerit and peaking plant to be examined market entry is determined on the basis of a heuristic while market exit is according to a predetermined retirement schedule the results show that ccgt is the investment technology of choice for baseload only portfolios while ocgt proves optimal when all technologies are considered the high capital costs of baseload generation reduce incentives to invest the methodology can be expanded to consider random outages revenues from scarcity prices capacity markets and ancillary service payments

switching costs in the deposit market this paper derives switching costs endogenously as a trade off between service quality and the interest rate faced by a depositor who values the services provided by banks in a market with known interest rates and uncertain service the depositor must locate satisfactory bank service the depositor who establishes a good reputation with the satisfactory bank enjoys improved relationship specific service the improvement produces utility gains from remaining with the bank these gains result in trade off in the long run of this market when banks are forward looking such switching costs facilitate monopsonistic determination of deposit rates copyright 1994 by royal economic society

research note customer loyalty programs are they profitable loyalty programs are very common in practice many researchers have worked at understanding the impact of loyalty programs on market competition and the mechanism behind it interestingly almost all of the studies have explored a symmetric equilibrium where both of the competing firms offer a loyalty program to our knowledge the extant literature has not investigated in depth whether asymmetric equilibrium can exist where only one firm chooses to offer a loyalty program and the other firm chooses to compete via lowering prices such a question is important because some markets do support such asymmetric equilibriums with respect to loyalty programs also the existence of asymmetric equilibrium shows that a loyalty program need not be profitable for some firms in this paper we use a game theoretic framework to investigate specific types of customer loyalty programs that provide benefit to loyal customers in the form of discount over market prices the model considers consumer switching and includes two types of consumer heterogeneity the first type of heterogeneity concerns the differences between customers with respect to their liking for loyalty programs and the second type concerns the differences among the loyalty program members with respect to their ability to collect enough loyalty points to redeem loyalty rewards by analyzing a duopoly market we find that both symmetric equilibrium i e where both competing firms offer the loyalty program and asymmetric equilibrium i e where one firm alone offers the loyalty program can be sustained the paper explores conditions for the existence of these two equilibriums

understanding consumer dynamic decision making under competing loyalty programs the authors develop an incentive aligned experimental paradigm to study how consumer purchase dynamics are affected by the interplay between competing firms loyalty programs and their pricing and

fuel mix diversification incentives in liberalized electricity markets a mean variance portfolio theory approach monte carlo simulations of gas coal and nuclear plant investment returns are used as inputs of a mean variance portfolio optimization to identify optimal base load generation portfolios for large electricity generators in liberalized electricity markets we study the impact of fuel electricity and co2 price risks and their degree of correlation on optimal plant portfolios high degrees of correlation between gas and electricity prices as observed in most european markets reduce gas plant risks and make portfolios dominated by gas plant more attractive long term power purchase contracts and or a lower cost of capital can rebalance optimal portfolios towards more diversified portfolios with larger shares of nuclear and coal plants

endogenous switching costs in a duopoly model we analyze the effect of alternative pricing policies on the competitive outcome in a two period differentiated product duopoly model if firms can precommit to a second period price for their loyal customers equilibrium profits fall but if they precommit to a discount then the equilibrium profits increase in either case switching costs are endogenized in period two firms discriminate against newcomers

customer recognition in experience vs inspection good markets we study the effects of customer recognition and behavior based price discrimination bpd in a two period experience good duopoly with a discrete value distribution and we investigate the role of consumers ex ante valuation uncertainty in dynamic price competition through comparison with an inspection good duopoly several results are reached first the firms may reward repeat purchase when the probability of a high value is relatively low and when the high low value difference is large otherwise they may engage in poaching second bpd frequently increases each firm s total profits even in the poaching equilibrium these results contrast with the inspection good duopoly and the driver is that consumers period 2 product preference depends on their realized values in period 1 third consumers ex ante valuation uncertainty may increase or decrease firm profits without bpd and it weakly increases firm profits with bpd relative to the inspection good duopoly this paper was accepted by j miguel

competitive promotional strategies this article analyzes the equilibrium pricing strategies of brands engaged in a pricing game each brand has a monopoly market loyal consumers and competes with others in a common market called brand switchers in the case of a duopoly it is shown that the behavior of the brand switchers characterizes the equilibrium behavior of the duopolists this article focuses on two key comparative statics namely the depth of discounts away from a regular high price and the probability of giving a deal or the frequency of deals how these properties vary with the size of the loyal markets and the behavior of the brand switching population is discussed copyright 1988 by the university of chicago

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

it s not what you get but when you get it the effect of gift sequence on deposit balances and customer sentiment in a commercial bank abstract the authors examine the impact of gifts on deposit balances and customer satisfaction in a longitudinal field experiment conducted at a commercial bank they find that gifts increased deposit balances survey response rates and customer satisfaction compared with the no gift control they manipulated several factors within the gift treatment gift type the accompanying message and the sequence of gift value which improved 35 then 100 gift worsened 100 then 35 gift or was a single gift a highly detrimental effect of decreasing gift value occurred on deposit balances this deterioration aversion persisted in a long term follow up analysis of deposit balances a vignette experiment replicates deterioration aversion and extends the results demonstrating increased effectiveness of improving gifts over constant gift sequences and indicating that the mechanism underlying deterioration aversion involves the violation of expectations

research note using basket composition data for intelligent supermarket pricing how can supermarkets use the vast data they have to design strategies to compete for large basket shoppers potentially their most profitable customers we say analyze the data to glean basket composition of heterogeneous consumers of theoretical and practical interest is the question will our suggestion improve supermarket profits and if so by what pricing strategies by answering this we can also answer the question do results of extant research on single product marketing that using such information intensifies competition and lowers profits generalize to multiproduct marketing by supermarkets that carry several products and whose patrons purchase multiple items we derive equilibrium data based intelligent pricing strategies that also produce increased supermarket profits what is more interesting is our result that data analysis is profitable whether or not a competitor undertakes data analysis if not too costly implementing data analysis is a dominant strategy moreover with comprehensive data analysis connecting basket information and household data stores can increase profits further by targeting rewards at individual households thereby segmenting the market more completely in contrast to past research findings we show that for supermarkets even under competition use of information on past purchases enables intelligent pricing better segmentation and higher profits

are loyalty rewarding pricing schemes anti competitive abstract many economists and policy analysts seem to believe that loyalty rewarding pricing schemes like frequent flyer programs tend to reinforce firms market power and hence are detrimental to consumer welfare the existing academic literature has supported this view to some extent in contrast we argue that these programs are business stealing devices that tend to enhance competition in the sense of generating lower average transaction prices and higher consumer surplus in highly competitive environments this result is robust to alternative specifications of the firm commitment power and demand structures however it could be reversed if the number of firms is sufficiently small and if firms are restricted to use program designs with sufficiently weak commitment capacity

consumer learning brand loyalty and competition in several markets consumers can gain further information regarding how well a product fits their preferences only by experiencing it after purchase this could then generate loyalty for the products tried first this paper considers a model in which consumers learn in the first period about the product they buy and then make choices in the second period about the competing products given what they learned in the first period the paper finds that if the distribution of valuations for each product is negatively positively skewed a firm benefits is hurt in the future from having a greater market share today the brand loyalty characteristic with negative skewness two effects are identified on one hand marginal forward looking consumers are less price sensitive than myopic consumers and this is a force toward higher prices on the other hand forward looking firms realize that they gain in the future from having a higher market share in the current period and compete more aggressively in prices for similar discount factors for consumers and firms the latter effect dominates the paper also characterizes the importance of consumer learning effects on the market outcome

do government subsidies stimulate training expenditure microeconometric evidence from plant level data this paper examines whether financial assistance provided by government induces firms to spend more of their own funds on training expenditures using plant level data for the republic of ireland we pay particular attention to the potential problems in such an evaluation study namely selectivity and endogeneity by first identifying a valid counterfactual for grant receiving plants via a matching estimator and then employing a difference in differences technique on this matched sample our results show that there are differences in causal effects between domestic and foreign owned plants for the former we find clear evidence that grant receipt stimulates private expenditure whereas there are no statistically significant effects for foreign owned plants based in ireland

buy n times get one free loyalty cards are they profitable for competing firms a game theoretic analysis abstract this paper evaluates whether firms offering loyalty programs lps should choose a restricted redemption policy by imposing a specific number of purchases before customers can redeem their points such restriction is commonly offered in form of buy n times get one free loyalty cards we develop a multinomial logit model where consumer s utility depends on the value of the product and of the rewards using an iterative algorithm we numerically solve a nash game for two firms offering loyalty programs optimal strategies and profits are obtained for three different scenarios games 1 both firms do not restrict redemption 2 both firms restrict redemption and 3 only one firm restricts redemption while the other firm does not our main findings indicate that each firm s optimal strategies are significantly affected by whether the competitor decides to restrict or not to restrict redemption in particular a firm that restricts reward redemption should offer a higher price if its competitor also restricts redemption further the dominant strategy of the game depends on customers valuations of time and rewards for example when customers highly value time but do not highly value rewards the dominant strategy for both firms is not to restrict redemption alternatively firms can face a prisoner dilemma situation leading to unrestricted redemption policy for intermediate levels of customer valuation of both time and rewards

contracts as a barrier to entry in markets with nonpivotal buyers considering markets with nonpivotal buyers we analyze the anticompetitive effects of breakup fees used by an incumbent facing a more efficient entrant in the future buyers differ in their intrinsic switching costs breakup fees are profitably used to foreclose entry regardless of the entrant s efficiency advantage or level of switching costs banning breakup fees is beneficial to consumers the ban enhances the total welfare unless the entrant s efficiency is close to the incumbent s inefficient foreclosure arises not because of rent shifting from the entrant but because the incumbent uses a long term contract to manipulate consumers expected surplus from not signing it

technological incompatibility endogenous switching costs and lock in systems are goods comprising of durables that are sequentially updated with complements with sequential purchases if suppliers produce incompatible brands consumers who upgrade systems with complements of a different brand must replace the durables they own thus the price of these durables is an endogenous switching cost the paper deals with the concern that firms may use incompatibility to create consumer s switching costs to reduce competition in aftermarkets however it shows that with homogenous durables and small costs of reaching compatibility endogenous switching costs increase intertemporal price competition to the extent that producers prefer to have compatible technologies

lower price or higher reward measuring the effect of consumers preferences on reward programs despite criticisms regarding their effectiveness reward programs today represent a prevalent and apparently successful form of marketing investment for several industries such as airlines hotels gas stations and credit cards to understand what might contribute to their success this paper investigates the purchase behavior of consumers who participate in a reward program from the travel industry we estimate a dynamic demand model of gasoline purchase and compare the value that consumers attach to rewards with the value they attach to the money spent for gasoline we find that there exists a significant portion of frequent travelers who extract more value from one dollar s worth of rewards than from one dollar spent for gasoline most of the effectiveness of the reward program is due to the behavior of these consumers their insensitivity to price induces firms to increase fuel prices by 1 euro cent per liter which corresponds to about 10 increase in their margins the program also contributes to

truth in concentration in the land of 80 20 laws among the more prominent truisms in marketing are 80 20 type laws e g 20 percent of the customers account for 80 percent of the purchases these kinds of statistics indicate a certain degree of concentration in customer purchases i e the extent to which a large portion of the product s total purchases are made by a small fraction of all customers such concentration levels suggesting that markets can be segmented in various ways are often reported in basic marketing texts we show that a meaningful interpretation of these concentration statistics is not nearly as easy or immediate as it is to compute them the key factors influencing the degree of apparent concentration in purchases are reviewed and we present a modeling approach for estimating the true level of relevant concentration among customers

price competition in markets with consumer variety seeking we investigate price competition between firms in markets characterized by consumer variety seeking while previous research has addressed the effect of consumer inertia on prices there exists no research on the effects of variety seeking on price competition our study fills this gap in the literature using a two period duopoly framework as in klemperer s analysis of inertial markets we show that the noncooperative pricing equilibrium in a market with consumer variety seeking may be the same as the collusive outcome in an otherwise identical market without variety seeking specifically our variety seeking model implies tacit collusion between firms in both periods unlike the inertia model of klemperer that implies tacit collusion between firms only in the second period but implies fierce price competition in the first period when consumers are assumed to have rational expectations about future prices the implied first period prices increase further which is consistent with what klemperer finds in an inertial market to summarize while our variety seeking analyses support two key results pertaining to second period prices and rational expectations previously derived for inertial markets by klemperer they depart from one key result pertaining to first period prices

energy planning and modern portfolio theory a review abstract modern portfolio theory mpt stands as a widely accepted methodology to meet the challenges associated with the definition of energy planning for a particular territory or region energy planning is thus framed as an investment selection problem mpt is characterized by having a wider capacity and conceptual richness than the other previously used methodologies such as the individual least cost alternative the portfolio approach is based on solving for an objective function that seeks to minimize either the cost or the risk of the portfolio subject to different constraints considering that real electricity generation assets can be defined in terms of cost or return and economic risk for each alternative technology the relevant portfolios are the result of solving the optimization model to determine the efficient cost risk frontier the work presented here consists of an exhaustive review of the literature in relation to the application of mpt methodology to the field of energy planning and electricity production a new classification is proposed from a financial perspective of the selection of investments from the preceding studies it delves deeper into the explanation of the limits to the methodology and into the concept of risk which is key from both a financial and an energy perspective the main methodological contributions found in the literature are examined that are aimed at improving the capacity of the model and adjusting it to the reality of the electricity market finally conclusions are provided from the works analyzed in terms of renewable technologies and the policy implications derived from them in most studies a preference has been shown for the inclusion of renewable technologies in the efficient portfolios however in order to implement the decision to increase the share of renewable technologies greater flexibility in the interconnection capacity between states and in storage capacity is needed

human capital theory and uk vocational training policy since the industrial training act of 1964 the uk government has adopted a variety of policies intended to redress a problem of under investment in vocational training in the 1960s and 1970s it attempted to regulate the training provided by firms through a levy scheme more recently subsidised training schemes have been the centrepiece of policy this paper examines the explanations for market failure in vocational training and explores the rationale for such policies under investment can arise from credit constraints and uncertainty facing trainees and from imperfect competition in the labour market which creates external benefits for firms both subsidies and regulation can be effective in dealing with these problems although it is argued that the training levy scheme as implemented in the uk and other countries should be viewed mainly as a mechanism for releasing credit constraints copyright 1999 by oxford university press

pricing with customer recognition abstract this article studies the dynamic effects of behaviour based price discrimination and customer recognition in a duopolistic market where the distribution of consumers preferences is discrete consumers are myopic and firms are forward looking in the static and first period equilibrium firms choose prices with mixed strategies when price discrimination is allowed forward looking firms have an incentive to avoid customer recognition thus the probability that both will have positive first period sales decreases as they become more patient furthermore an asymmetric equilibrium sometimes exists yielding a 100 0 division of the first period sales as a whole price discrimination is bad for profits but good for consumer surplus and welfare

consumer choice and cournot behavior in capacity constrained duopoly competition in a two stage model of duopolistic capacity choice and subsequent price competition consumer switching costs can deter some consumers from seeking service at a low price firm that lacks sufficient capacity to serve the entire market in this setting firms residual demand functions are aggregatedfrom thefirm selection decisions of individual consumers based on firms prices and their induced degrees of service reliability if consumers are approximately risk neutral with respect to service reliability then capacity constrained duopoly competition has a unique subgame perfect equilibrium in which firms choose cournot capacities and prices the equilibrium robustness of cournot behavior extends to duopoly markets in which consumer switching costs are induced by subscription pricing