the value priority hypotheses for consumer budget plans based on the behavioral sciences and mathematical programming we hypothesize that consumers rank durables by a value or net value priority approximated by utility per dollar or utility minus price and plan to choose items in that order up to a budget cutoff this paper derives these hypotheses and develops a convergent linear programming procedure to estimate utility using primary field data on reservation prices purchase probabilities lottery orders and combination prizes we estimate utilities and compare the hypotheses to 215 actual budget plans lisrel v analysis provides further support for the hypotheses

product and price competition in a duopoly this paper examines the role of consumer preferences costs and price competition in determining the competitive product strategy of a firm in the model studied here there are two identical firms competing on product quality and price they face consumers who prefer a higher quality product to a lower quality product but differ in how much they are willing to pay for quality the consumers can also choose a substitute if they don t like the product price offerings of the two firms for the firms a higher quality product costs more to produce than a lower quality product the paper shows that the equilibrium strategy for each firm should be to differentiate its product from its competitor with the firm choosing the higher quality choosing the higher margin as well this differentiation however is not efficient that is it is possible to choose two other products and offer them at prices that cover their marginal cost and still satisfy consumers needs better in the aggregate a monopolist by contrast would differentiate his product line efficiently this suggests that cannibalization has different effects on product strategy than competition the paper also shows that if one firm enters the market first then it can defend itself from later entrants and gain a first mover advantage by preempting the most desirable product position

on the effects of downstream entry we study the effects of entry in a downstream market where firms e g compaq and ibm cvs and safeway buy an input e g microprocessor grocery items from an upstream supplier e g intel procter gamble and sell their output to consumers we show demand conditions where contrary to conventional wisdom entry of a new downstream firm lowers the downstream market output and increases the consumer price thus consumers may be better off with fewer sellers in such markets we also show that this entry may cause the profit of each incumbent downstream firm to i remain unchanged ii decrease or iii even increase also for a class of widely used demand conditions the supplier s optimal price is shown invariant to the entry exit of its downstream buyer firms we classify all possible effects of downstream entry in terms of fundamental market demand conditions

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

financial intermediation and endogenous growth an endogenous growth model with multiple assets is developed agents who face random future liquidity needs accumulate capital and a liquid but unproductive asset the effects of introducing financial intermediation into this environment are considered conditions are provided under which the introduction of intermediaries shifts the composition of savings toward capital causing intermediation to be growth promoting in addition intermediaries generally reduce socially unnecessary capital liquidation again tending to promote growth

sophisticated entry in a model of spatial competition we analyze free entry equilibrium in a model of spatial competition in which locations of established firms are fixed and entrants profit expectations are rational our most interesting results concern large economies economies in which the number of firms is arbitrarily large when the average cost function is u shaped free entry equilibrium is unique socially optimal and characterized by zero profit in contract when there are no diseconomies of scale even large economies are stubbornly imperfect firms can earn substantial pure profit and free entry equilibrium is neither unique nor socially optimal

technical note existence and uniqueness of price equilibria in defender this note provides a formal proof that for the defender model with uniformly distributed tastes the nash price equilibria exist and for a given set of positions that they are unique we also show that the profit function is well behaved continuous and quasi concave and that the maximum occurs on the concave portion of the curve

facilitating fit revelation in the competitive market this study examines firms strategic decisions in the competitive market regarding whether to engage in marketing activities to assist consumers in finding the fit between their personal tastes and products horizontal attributes we find that competitive firms strategies to facilitate fit revelation critically depend on the product qualities they offer in particular a firm offering a high quality product is more likely to facilitate fit revelation in the competitive market than it would as a market monopolist whereas a firm offering a low quality product is less likely to do so in addition the firm offering the high quality product implements fit revealing activities in a greater intensity than its rival that offers the low quality product if the quality difference between the two products is small and both products qualities are sufficiently high

non linearity between finance and growth abstract we present a simple model which establishes a non linear and possibly non monotonic relationship between financial development and economic growth applying a threshold regression model to king and levine s q j econ 109 1993 83 data set we find evidence consistent with the theoretical model

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

price matching policy and the principle of minimum differentiation this paper shows that if duopolists are allowed to choose their product locations a price matching policy and their prices sequentially and independently both tacit collusion and minimum differentiation occur copyright 1995 by blackwell publishing ltd

same financial development yet different economic growth why we re study the relationship between financial development and real gdp per capita growth in 48 countries what we find is an interesting evidence that only stock market development has positive effects on growth and that banking development has an unfavorable if not negative effect on growth we examine whether or not these impacts are a product of various financial and economic conditional variables our conditional variables consist of financial liberalization two sets of country development dummies crises in banking and currency dummies the creditor protection index as well as the anti director and corruption indices our results clearly show that the conditional variables of financial liberalization high income level and good shareholder protection mitigate the negative impacts of banking development on growth in contrast the conditional variables of middle income level regional latin american sub saharan african and east asian dummies banking and currency crises good creditor protection and higher corruption strengthen the negative impacts of banking development on growth next the conditional variables of middle income level latin american sub saharan african and east asian dummies strengthen the positive impacts of stock market development on growth whereas the conditional variables of financial liberalization mitigate the positive impacts of stock market development on growth last we find that the relationship between growth and bank development is better described as a weak inverse ushape this inverse u shape becomes stronger when additional stock market variables are squared thus financial development and growth may in fact be in a nonlinear form

is the relationship between financial development and economic growth monotonic evidence from a sample of middle income countries summary we revisit the relationship between financial development and economic growth in a panel of 52 middle income countries over the 1980 2008 period using pooled mean group estimations in a dynamic heterogeneous panel setting we show that there is an inverted u shaped relationship between finance and growth in the long run in the short run the relationship is insignificant this suggests that too much finance can exert a negative influence on growth in middle income countries the finding of a non monotonic effect of financial development on growth is confirmed by estimating a threshold model

profit maximizing perceptual positions an integrated theory for the selection of product features and price an important component of marketing strategy is to position a product in perceptual space but to realize a perceptual position we must model the link from physical characteristics to perceptual dimensions and we must use this model to maximize profit this paper integrates psychological theories on how consumers process information with economic models and psychometric measurement and it develops a theory for selecting physical features and price to achieve a profit maximizing perceptual position the theory begins with a lancaster like transformation from goods space to characteristics space and investigates the implications of a mapping to a third space perceptual space we show that all products efficient in perceptual space must be efficient in characteristics space but not conversely but consumers vary in their preference and the way they perceive products thus we introduce distributional components to the theory and derive both geometric and analytic methods to incorporate this consumer heterogeneity next we investigate costs and derive a perceptual expansion path along which a profit maximizing position must exist conjoint analysis and quantal choice models provide the measurements to implement the theory the theory is illustrated with a hypothetical example from the analgesics market and some of the potential psychometric measurements are illustrated with an empirical application in the communications market

energy policymaking in denmark implications for global energy security and sustainability denmark is arguably the most energy secure and sustainable country in the organization of economic cooperation and development oecd the country has reduced its dependence on foreign sources of energy to zero and become self sufficient in its own energy production and use offering important lessons for other nations around the world this study explores the core of denmark s successful approach a commitment to energy efficiency prolonged taxes on energy fuels electricity and carbon dioxide and incentives for combined heat and power chp and wind turbines through these commitments the study shows how denmark transitioned from being almost 100 percent dependent on imported fuels such as oil and coal for their power plants in 1970 to becoming a net exporter of fuels and electricity today the country leads the world in terms of exportation of wind energy technology with a hold on roughly one third of the world market for wind turbines it was able to phase out the use of virtually all oil fired power plants in less than five years and implemented a progressive moratorium on future coal fired power plants in the 1990s their most recent strategy seeks to achieve 30 percent of total energy supply from renewable energy by 2025

what drives the capital flows into brics economies understanding what drives the capital flows has important policy implications for countries in managing the direction and magnitude of such flows this paper empirically investigates the main drivers of capital flows into the fast growing brics countries in the backdrop of their growing inward capital flows employing a fully balanced panel for the period 1995 2015 we focus on among others the hitherto commonly untested variables sovereign credit ratings economic freedom and ease of doing business ranking of these countries in searching for the relevant interaction and causality among the drivers of capital flows we employ the panel granger causality test to arrive at the policy implications the results suggest that market size is a significant driver of capital flows in addition to infrastructure economic freedom in the host countries ease of doing business ranking and sovereign credit ratings are the main drivers in the long run growth of capital flows

inflation thresholds and the finance growth nexus abstract the robustness of the cross sectional relationship between the size of a country s financial sector and its rate of economic growth is by now well established in this article we examine whether the strength of this relationship varies with the inflation rate using five year averages of standard measures of financial development inflation and growth for 84 countries from 1960 to 1995 a series of rolling panel regressions show that there is an inflation threshold for the finance growth relationship that lies between 13 and 25 percent when inflation exceeds the threshold finance ceases to increase economic growth we also find that the level of financial depth varies inversely with inflation in low inflation environments and that disinflation is associated with a positive effect of financial depth on growth

deconstructing the pioneer s advantage examining vintage effects and consumer valuations of quality and variety several studies have demonstrated an order of entry effect on market share suggesting that pioneers outperform later entrants however other research has pointed out the limitations of these studies and found evidence that many pioneers fail or have low market share given this background the purpose of this research is to understand the conditions under which pioneers are more likely and also less likely to have an advantage we propose a game theoretic model that includes important sources of pioneer advantages as well as disadvantages specifically we incorporate a pioneer advantage due to preemption in markets with heterogeneous tastes in addition we incorporate a potential pioneer disadvantage due to technology vintage effects where later entrants utilizing improved technology can have lower costs and higher quality the model allows us to evaluate the extent of vintage effects necessary to overcome a pioneer s advantage key relationships are found between the magnitude of the pioneer advantage or disadvantage and consumer valuations of product attributes e g variety and quality we empirically validate the model with vintage effect data in 36 product categories and measures of consumer valuations of product variety and quality for 12 of these 36 categories the results show that pioneers do better in product categories wherevariety is more important and worse in categories where productquality is more important pioneers in categories with high vintage effects are shown to have lower market shares and higher failure rates similar results appear when analyzing persistence of market leadership over time further validating our model s major implications we also present two case studies that illustrate key elements of the model

an equilibrium analysis of defensive response to entry using a coupled response function model we determine the optimal response to competitive entry in a market characterized by a market share attraction model the response of an incumbent is limited to changes in prices advertising and distribution expenditures brand positions are assumed to be fixed we also assume that the entrant s position is chosen exogenously and that the sales potential of the market is constant after proving the existence of a unique nash equilibrium we show that the optimal response depends on the relative market share of the incumbents the response by nondominant brands with market shares less than 50 mirrors the prediction by decoupled response function models reduce price advertising and distribution spending for the dominant brand having a market share of 50 the response is to reduce price and increase marketing spending this finding explains previous empirical results that could not be addressed by the decoupled models

understanding carbon lock in abstract this paper narrative argues that industrial economies have been locked into fossil fuel based energy systems through a process of technological and institutional co evolution driven by path dependent increasing returns to scale it is asserted that this condition termed carbon lock in creates persistent market and policy failures that can inhibit the diffusion of carbon saving technologies despite their apparent environmental and economic advantages the notion of a techno institutional complex is introduced to capture the idea that lock in occurs through combined interactions among technological systems and governing institutions while carbon lock in provides a conceptual basis for understanding macro level barriers to the diffusion of carbon saving technologies it also generates questions for standard economic modeling approaches that abstract away technological and institutional evolution in their elaboration the question of escaping carbon lock in is left for a future paper

energy sustainability stakeholder conflicts and the future of hydrogen in denmark denmark spends the most on hydrogen research in gross domestic product terms than any other country in the world which has led to an immense amount of activity related to hydrogen fuel cells within the past decade however not all stakeholders in the danish hydrogen network share the same vision for the technology this study therefore uses critical stakeholder analysis to first identify the most influential actors involved in hydrogen research before it documents a set of stakeholder conflicts the study has a threefold conclusion that urges analysts to rethink how they view stakeholder contention within the danish hydrogen research network first the study concludes that hydrogen and fuel cell technologies are still open for interpretation and the application is thus a conflict area between stakeholders second stakeholder conflict can contribute to technical development according to an evolutionary economics perspective third consensus regarding energy system transitions is by nature temporary and at times can be counterproductive to the advancement of hydrogen technologies

the principle of minimum differentiation revisited abstract hotelling s model of differentiated products is examined and modified so that consumers have relatively low reservation prices for the differentiated products the problem of existence of a nash equilibrium in prices in a duopoly with given products is analysed when the reservation price is relatively low a nash equilibrium in prices exists for a larger range of products than when the reservation price is infinite next i examine product competition with instantaneous adjustment to the nash equilibrium prices of the previous game firms competing in a nash fashion have tendencies to move away from each other and try to achieve local monopolistic positions this is in sharp contrast with the acclaimed principle of minimum differentiation of the original model of hotelling of high reservation price where firms clustered in the product space

hotelling s spatial competition as a model of sales abstract hotelling s spatial competition model is used to explain the existence of sales it is shown that 1 an equilibrium in randomized strategies exists when a pure strategy equilibrium fails to exist 2 with more dissimilarity among brands prices are chosen from a wider interval

population growth and economic growth long run evidence from latin america unit root tests the johansen maximal likelihood methodology and granger causality tests in the context of a one step error correction model are used to examine the long run relation between population and per capita gdp in seven latin american countries over most of the 20th century the results suggest that no long run relation has existed and hence population growth neither causes per capita gdp growth nor is caused by it

the direction of causality between financial development and economic growth abstract this paper employs the geweke decomposition test on pooled data of 109 developing and industrial countries from 1960 to 1994 to examine the direction of causality between financial development and economic growth the paper finds that 1 financial development generally leads to economic growth 2 the granger causality from financial development to economic growth and the granger causality from economic growth to financial development coexist 3 financial deepening contributes more to the causal relationships in the developing countries than in the industrial countries 4 the longer the sampling interval the larger the effect of financial development on economic growth 5 financial deepening propels economic growth through both a more rapid capital accumulation and productivity growth with the latter channel being the strongest

note competitive price and positioning strategies brand positioning and brand pricing are important strategic decisions for marketing managers such decisions are interrelated and depend upon competitive brand positions and prices however any unilateral decisions may encourage repositioning and price adjustment by competitors thus leading to either new market equilibria or a price positioning war this paper examines such price and positioning decisions in a competitive environment by extending the defender consumer model to more complex equilibria we assume that the brands are already in the market and that positions are sticky in the sense that brands cannot leapfrog one another among the insights for such incumbent brands are if prices are symmetric and held constant firms seek to reposition toward the center of the market but price advantages by central firms can mediate that central tendency such that an equilibrium exists with positive profits if brand positions are held constant the nash equilibria for prices exist and are unique and category profits the sum of brand profits are maximized for maximum brand differentiation for two and three brand markets the subgame perfect nash equilibrium where positioning decisions are made with foresight on the price equilibria causes firms to unilaterally seek maximum brand differentiation but for four or more brands greater foresight and or cooperation appears necessary to reach the point of maximum brand differentiation these results apply where the defender consumer model is an exact description of consumer response and where the competitive reaction assumptions hold in any empirical situation such forces might be softened resulting in differentiated but not maximally differentiated brands

product and price competition in a two dimensional vertical differentiation model in this paper the one dimensional vertical differentiation model shaked and sutton shaked a j sutton 1982 relaxing price competition through product differentiation rev econom stud 49 3 13 moorthy moorthy k s 1988 product and price competition in a duopoly marketing sci 7spring 141 168 is extended to two dimensions and an analysis of product and price competition is presented a two stage game theoretic analysis in which two firms compete first on product positions and then on price is conducted closed form equilibrium solutions are obtained for each stage in which competitors are unrestricted in their choices of price or product positions a significant finding of this research is that unlike the one dimensional vertical differentiation model firms do not tend towards maximum differentiation although this solution is possible under certain conditions when the range of positioning options on each of the dimensions is equal maxmin product differentiation occurs that is in equilibrium the two firms tend to choose positions which will represent maximum differentiation on one dimension and minimum differentiation on the other dimension

nash equilibrium in duopoly with products defined by two characteristics this article analyzes the analogue ofhotellingls duopoly model when products are dejned by two characteristics using the assumptions of the original model of hotelling we show that demand and projt functions are continuous for a wide class of utility functions when the utilityfunction is linear in the euclidean distance in the space of characteristics a noncooperative equilibrium in prices exists for all symmetric locations ofjirms this is in contrast to the result in the one characteristic model where a noncooperative equilibrium exists only when products are very diferent the noncooperative equilibria are calculated and fully characterized in contrast with the one dimensional model of hotelling where equilibrium prices were constant irrespective of distance of symmetric locations here equilibrium prices tend to zero as the distance between products approaches zero

financial development and economic growth evidence from panel unit root and cointegration tests abstract in this paper we investigate the long run relationship between financial depth and economic growth trying to utilize the data in the most efficient manner via panel unit root tests and panel cointegration analysis in addition we use threshold cointegration tests and dynamic panel data estimation for a panel based vector error correction model the long run relationship is estimated using fully modified ols for 10 developing countries the empirical results provide clear support for the hypothesis that there is a single equilibrium relation between financial depth growth and ancillary variables and that the only cointegrating relation implies unidirectional causality from financial depth to growth

thresholds in the finance growth nexus a cross country analysis thresholds of inflation government size trade openness and per capita income for the finance growth nexus are investigated using five year averages of standard variables for 84 countries from 1965 to 2004 the results suggest that i high inflation crowds out positive effects of financial depth on long run growth ii small government sizes hurt the finance growth nexus in low income countries while large government sizes hurt high income countries iii low levels of trade openness are sufficient for finance growth nexus in high income countries but low income countries need higher levels of trade openness for similar magnitudes of the finance growth nexus and iv catch up effects through the finance growth nexus are higher for moderate per capita income levels

analytical models of competition with implications for marketing issues findings and outlook the authors review a representative cross section of analytical models of competition using a framework for competitive analysis developed from a marketing perspective models are classified by the

endogenous growth and intermediation in an archipelago economy a general equilibrium model based on the parable of an economy of many islands shows the market imperfections in the intermediation activity affect economic growth and possibly prevent take off into sustained growth the inhabitants of different islands accumulate heterogeneous assets and transportation type intermediation allows for better allocation of the productive resources the development process is accompanied by a reduction in intermediation costs which induces firms to adopt more efficient techniques and sustains economic growth a laissez faire economy suffers from two distortions the existence of market imperfections and a thick market externality

estimating automotive elasticities from segment elasticities and first choice second choice data of the share lost to one product because of a price change diversion fractions are the fractions of that lost share going to each of the other products this paper expresses product cross elasticities in terms of diversion fractions and a scaling factor since the automotive market includes more than two hundred products time series data are insufficient for estimating all elasticities instead this paper estimates automotive elasticities by specifying the diversion fractions using cross sectional first choice second choice data and estimating the remaining scaling factor and own elasticities using more aggregate elasticities estimated from time series copyright 1993 by mit press

product positioning and competition the role of location in the fast food industry this paper examines optimal product positioning strategies of asymmetric firms in the context of retail outlet locations in the fast food industry the relationships between profits and product differentiation reveal that both mcdonald s and burger king are better off avoiding close competition if the market area is large enough however in small market areas mcdonald s would prefer to be located together with burger king rather than have the two outlets be only a slight distance apart in contrast burger king s profits always increase with greater differentiation offsetting these incentives is the desirability of locating centrally to appeal to the most customers the equilibrium depends on the market s size in small markets mcdonald s locates near the center of the market and burger king locates to the side of the market in larger markets mcdonald s and burger king choose locations on opposite sides of the market although mcdonald s locates closer to the optimal central location than burger king i also show that the role of price competition on product positioning is fundamentally different under asymmetric competition than under symmetric competition price competition unambiguously induces symmetric firms toward differentiation in contrast with asymmetric firms price competition shifts burger king s incentives toward locating closer to mcdonald s even while price competition increases mcdonald s desire for differentiation as a result equilibrium locations with asymmetric firms are approximately the same regardless of whether prices adjust with location

the role of economic theory in modelling the long run this argues for a closer link between the modelling of the long run relations in applied economics and the intertemporal equilibrium notion from economic theory this abstract was borrowed from another version of this item

the importance of focus to market entrants abstract one of the most difficult questions facing entrepreneurs is how broadly to serve a heterogeneous market that is whether it is better to serve a narrow segment of the market hoping to flourish by gaining a relatively high and increasing market share within that segment or whether it is better to attempt to appeal to a broader cross section of the market thereby allowing the firm to succeed with a lower market share among the customers whom it is targeting a narrower focus permits more concentrated use of fixed resources facilitates the building of customer loyalty and lowers the threat of retaliation from generalist incumbents but requires a much higher market share within the firms target market to succeed porter 1980 has identified three generic strategies available to firms low cost differentiation and focus by focus he means that the firm should develop the ability to serve a particular target customer group very well often at the expense of other potential customer groups implicit in the firm s choice to adopt a focus strategy is that it must address the question of how broadly to focus in terms of any given product attribute given its resources and opportunities a fundamental element of the firm s choice of focus is that it is affected by and in turn affects that of its rivals that is focus is a strategic variable in the sense of the word strategic meant by game theorists each firm s optimal choice of action depends on the actions taken by other firms the literature on the optimal degree of focus for new ventures has reached very mixed conclusions the early authors looking at the question were fairly consistent in their recommendation that a highly focused or niche strategy was generally most appropriate later authors recommended that new ventures should enter markets aggressively facing larger incumbents head on the latest studies develop what we describe as a contingency approach arguing that the best approach depends on industry conditions we think that this literature is now at a point where we can advance our understanding by looking at specific industries in some detail as our understanding expands broader empirical work is becoming increasingly difficult because of the number of factors that must be built into any cross sectional model of new venture performance we hope then to develop an understanding of one industry that is generally similar in nature to many other industries from this understanding conclusions of interest to both researchers and practitioners can be drawn future studies of other industries with different fundamental structures will provide similar benefits more specifically this paper is an empirical inquiry into the microbrewery segment of the u s brewing industry designed to investigate the relative merits of specialist firms different degrees of focus the question addressed is whether focus affects specialist firms short run performance in an industry where there are entrenched generalists as well as many new entrpreneurial specialist entrants the analysis confirms several widely held beliefs of industry participants and observers that microbreweries are far more likely to attempt to serve too broad a market segment than to focus too narrowly that microbreweries are in direct competition with imports and that microbreweries benefit from having many microbrewery rivals within the same state furthermore there appear to be some small learning and or reputation effects in the operation of microbreweries as well as a minor novelty factor that benefits recently opened establishments we must note however that the majority of the variation in the performance of microbreweries stems from differences in the management organization or market of individual breweries not captured explicitly by other variables included in the study this finding perhaps should not be surprising given the huge variation in the backgrounds skills and outlooks of microbrewery owners during the segment s early days the lessons learned from this research are of obvious importance to entrepreneurs in many industries it is a very common situation for an entrepreneur to enter a stable industry in which established firms are already in place serving a broad cross section of the market our findings show that in such circumstances a narrowly focused approach to the market is best we can think of numerous examples of where entrepreneurs have either succeeded by focussing on a particular segment of the market or failed by not doing so in fact there are many cases in which firms have done first one and then the other for example and people express airlines at first flourished by focussing on the needs of budget conscious leisure travellers and then collapsed in part because it began to try to serve business travelers and others who are less price sensitive on certain routes one of the hallmarks of an entrepreneurial business is that it suffers severe resource constraints because the entrepreneur s choice of breadth of focus will have profound effects on the resource requirements of the business it is clear that the choice of which segment or segments of the market on which to focus is a fundamental decision made by all entrepreneurs this paper serves to illustrate the importance of this focus decision and to provide some guidance for entrepreneurs concerning the appropriate degree of focus to adopt in entering an established market

volatility and growth credit constraints and the composition of investment abstract how does uncertainty and credit constraints affect the cyclical composition of investment and thereby volatility and growth this paper addresses this question within a model where firms engage in two types of investment a short term one and a long term one which contributes more to productivity growth because it takes longer to complete long term investment has a relatively less cyclical return but it also has a higher liquidity risk the first effect ensures that the share of long term investment to total investment is countercyclical when financial markets are perfect the second implies that this share may turn procyclical when firms face tight credit constraints a novel propagation mechanism thus emerges through its effect on the cyclical composition of investment tighter credit can lead to both higher volatility and lower mean growth evidence from a panel of countries provides support for the model s key predictions

minimal and maximal product differentiation in hotelling s duopoly abstract hotelling s 1929 model of duopolistic competition is re examined a family of utility functions is used which has as a special case hotelling s original utility function in a two stage location price game it is shown that an equilibrium exists when the curvature of the utility functions in the space of characteristics is sufficiently high the subgame perfect equilibrium never exhibits minimum product differentiation on the other hand not all equilibria are at maximal product differentiation

interaction between economic and financial development this paper presents a model of financial and economic development which assumes the consumption of real resources by the financial sector financial development occurs endogenously as the economy reaches a critical threshold of economic development compared to financial autarky financial intermediaries allocate savings net of their costs of operation to more productive investments whenever the technology financed by intermediaries is more capital intensive than that operated in financial autarky the growth effect of financial development is ambiguous as a result financial development may be unsustainable however when financial development is sustainable the credit market becomes more competitive and more efficient over time and this could eventually contribute to economic growth nonetheless given monopolistic competition in the financial sector the level of entry into the credit market is generally inefficient for instance with diminishing returns to specialisation entrants might be too few at the early stages of economic development and too many later on

what is happening to the impact of financial deepening on economic growth i introduction among the strongest elements of the modern economists canon is that financial sector development has a significant impact on economic growth a generation ago economists like goldsmith 1969 1 and mckinnon 1973 began to draw attention to the benefits of financial structure development and financial liberalization by the early 1990s mckinnon 1991 12 could write with confidence that now however there is widespread agreement that flows of saving and investment should be voluntary and significantly decentralized in an open capital market at close to equilibrium interest rates since the 1990s a burgeoning empirical literature has illustrated the importance of financial sector development for economic growth despite the growing consensus however we find that the link between finance and growth in cross country panel data has weakened considerably over time at the very time that financial sector liberalization spread around the world the influence of financial sector development on economic growth has diminished the seminal empirical work that established the growth finance link is king and levine 1993 which extended the cross country framework introduced in barro 1991 by adding financial variables such as the ratios of liquid liabilities or claims on the private sector to gross domestic product gdp to the standard growth regression they found a robust positive and statistically significant relationship between initial financial conditions and subsequent growth in real per capita incomes for a cross section of about 80 countries in the subsequent decade numerous empirical studies expanded upon this using both cross country and panel data sets for the post 1960 period 2 in this paper we reexamine the core cross country panel result and find that the impact of financial deepening on growth is not as strong with more recent data as it appeared in the original panel studies with data for the period from 1960 to 1989 we consider various explanations for this clear shift first we suggest that financial deepening has a positive effect on growth if not done to excess rapid and excessive deepening as manifested in a credit boom can be problematic even in the most developed markets because it can both weaken the banking system and bring inflationary pressures we test this hypothesis by looking at the finance growth nexus among countries that have or have not experienced financial sector crises we find that once crisis episodes are removed the finance growth relationship remains intact its weakening over time thus seems to be a result of an increased incidence of crises in later years our second and related hypothesis is that the widespread liberalization of financial markets that occurred in the late 1980s and early 1990s made financial deepening less effective this is reminiscent of robert lucas s 1975 critique of econometric policy evaluation advanced three decades ago policies that have promoted and or forced increases in financial depth over the past two decades may have altered the basic structural relationship between finance and growth this could occur if the observed benefits of financial deepening led many countries to liberalize before the associated legal and regulatory institutions were sufficiently well developed as a consequence the impact of financial deepening on growth would become smaller our evidence does not indicate that recent liberalizations are responsible for the breakdown of the finance growth link however there may be an indirect link as premature financial development can lead to financial crises that have real effects third we examine the role of global equity markets that have grown in importance and prominence in the years over which the finance growth relationship disappeared however we do not find any evidence to suggest that equity market growth has substituted for the role of credit markets and banks in particular

a quantitative reassessment of the finance growth nexus evidence from a multivariate var abstract the long run relationship between financial development and economic growth is examined in a multivariate vector autoregression var framework using 10 sample countries difficulties surrounding the cross country regressions and bivariate time series studies are outlined the long run financial development and output relationships are identified in a cointegrating framework through tests of over identifying restrictions we find bi directional causality between financial development and economic growth in all the sample countries conclusions that stand distinct from those in the existing empirical literature we attribute our findings to i analysis of a higher dimensional system ii a new method of identifying the long run economic relationships and iii a new approach to long run causality testing

defensive marketing strategies an equilibrium analysis based on decoupled response function models the entry of a new product attacker into a competitive market is likely to provoke responses from some or all of the existing products defenders this paper investigates the development of optimal defensive strategies based on an understanding of the possible reactions of all the defenders to an optimal attack following lane lane w j 1980 product differentiation in a market with endogenous sequential entry bell j econom 11 1 spring 237 260 we assume that n products each enter sequentially with perfect foresight on subsequent entry then based on new technology an unanticipated attacker enters the n defenders respond in price but not position according to lane s model once this equilibrium is obtained advertising and distribution response functions scale sales we show that under these decoupled response function models of advertising and distribution uniformly distributed tastes and nonincreasing market size the optimal defense for all existing brands is to decrease their respecti

models a la lancaster and a la hotelling when they are the same abstract consumer behaviour in differentiated product markets can be specified following the lancastrian characteristics approach or following hotelling s approach of spatial competition in the case of unit demand i present a class of models of heterogeneous consumer behaviour which can be written as models a la lancaster as well as models a la hotelling

competitive positioning in markets with nonuniform preferences we investigate the nature of competitive equilibrium for brands competing in a multi attribute product space when consumer preferences for product attributes follow nonuniform distributions we establish subgame perfect equilibria in a two stage game where firms choose positions in the first stage and prices in the second stage two types of entry scenarios are investigated in the first the number of brands is given exogenously and all of them choose positions simultaneously in the second scenario firms enter in sequence and the early entrants can choose strategies to deter the entry of later entrants we find the equilibria for two three and four brands for consumer preferences that follow a beta distribution nonuniform distributions result in equilibrium configurations that are substantially different from those obtained for uniform consumer distributions in the two brands case for sufficiently concentrated distributions we find asymmetric position equilibria with one firm at the corner of the market and one firm at an interior position in the case of three brands for sufficiently concentrated preferences we find symmetric equilibria that do not yield maximal differentiation we also establish an equilibrium for the case of four competing brands in addition we characterize entry deterring positioning strategies and examine how they vary with the distribution of consumer preferences

product positioning under price competition this paper presents a consumer based methodology for new product pricing and positioning in the face of price competition the price competition is modelled as a nash equilibrium for which two complementary approaches are employed an analytical approach of duopoly provides qualitative insights into the competitive behavior and a numerical approach of general oligopoly provides quantitative solutions under a wide variety of market scenarios the optimal product positioning is formulated as a stackelberg nash leader followers equilibrium which can be solved numerically using recent advances in the field of variational inequalities a small example concerning analgesics is used to illustrate this methodology

symbolic convergence and the hydrogen economy this article documents that the hydrogen economy continues to attract significant attention among politicians the media and some academics we believe that an explanation lies in the way that the hydrogen economy fulfills psychological and cultural needs related to a future world where energy is abundant cheap and pollution free a fantasy that manifests itself with the idea that society can continue to operate without limits imposed by population growth and the destruction of the environment the article begins by explaining its research methodology consisting of two literature reviews research interviews of energy experts and the application of symbolic convergence theory a general communications theory about the construction of rhetorical fantasies we then identify a host of socio technical challenges to explain why the creation of a hydrogen economy would present immense and possibly intractable obstacles an argument supplemented by our research interviews next we employ symbolic convergence theory to identify five prevalent fantasy themes and rhetorical visions independence patriotism progress democratization and inevitability in academic and public discussions in favor of the hydrogen economy we conclude by offering implications for scholarship relating to energy policy more broadly

notes a numerical approach to deriving long run equilibrium solutions in spatial positioning models choi desarbo and harker 1990 have recently proposed a numerical methodology for optimal product positioning and pricing under the assumption that the incumbents react only with price changes in the short run the current note extends this methodology to include incumbents long run strategy of competitive product repositioning in addition to price reactions this note also introduces the notion of product relocation cost to the equilibrium analysis and applies the concept of full and partial adjustment processes toward an equilibrium to model various strategic behavior of firms this methodology is illustrated using an existing set of data collected for a major telecommunication equipment manufacturer

the determinants of the cost efficiency of electric generating plants a stochastic frontier approach this article provides a detailed analysis of generation plant operating cost efficiency over the period 1988 1997 i estimate a stochastic frontier cost function together with a model of plant inefficiencies to measure the operating efficiencies of individual plants and identify factors that are associated with variations in plant efficiencies i find evidence that plant efficiencies are associated with capacity utilization of the plant the number of plants under utility management and ownership form i also find that regulatory restructuring activity in certain states is associated with improvements in plant operating performance the purpose of this article is to provide a detailed analysis of the operating cost efficiencies of electricity generating plants over the period 1988 1997 i estimate the operating efficiencies of fossil fueled steam generating plants and examine factors that influence plant operating performance i use the estimation procedure of battese and coelli 1995 to simultaneously estimate a stochastic frontier cost function and a function relating plant efficiency levels to plant specific factors and other explanatory variables a comprehensive data set allows me to investigate the influence of capacity utilization ownership form and utility experience on plant efficiency levels since significant regulatory change in the electricity industry had begun during this time period i also investigate the impact of state level regulatory change on plant operating efficiency a number of authors have analyzed the efficiencies of electricity generating plants relative to a best practice frontier including kopp and smith 1980 schmidt and lovell 1979 stevenson 1980 cote 1989 reifschneider and stevenson 1991 hammond 1992 pollitt 1995 and fire grosskopf and logan 1983 1985 these studies find considerable evidence of inefficiency in electricity generation during the 1960s and 1970s the present study provides more recent information regarding generating plant efficiencies during a period of significant regulatory and structural change studies investigating the determinants of power plant departures from the frontier have focused primarily on the effects of ownership mode pollitt 1995 provides a comprehensive review of these studies reifschneider and stevenson 1991 examine the impact on cost efficiency of a number of variables including the capacity utilization of the firm s generating facilities more recently knittel 2001 examines the impact of incentive regulation on plant efficiency levels steiner

an econometric model of location and pricing in the gasoline market abstract the authors propose an econometric model of both the geographic locations of gasoline retailers in singapore and price competition among retailers conditional on their geographic locations although market demand for gasoline is not observed the authors are able to infer the effects of such demand from stations locations and pricing decisions using available data on local market level demographics using the proposed location model which is based on the assumption of social welfare maximization by a policy planner the authors find that local potential gasoline demand depends positively on the local demographic characteristics of the neighborhood using the proposed pricing model which is based on the assumption of bertrand competition between retail chains the authors find that retail margins for gasoline are approximately 21 the authors also find that consumers are willing to travel up to a mile for a savings of 03 per liter using the estimates of the proposed econometric model the a

economic freedom and growth decomposing the effects most studies of the relation between economic freedom andgrowth of gdp have found a positive relation one problem inthis area is the choice of economic freedom measure a singlemeasure does not reflect the complex economic environment anda highly aggregated index makes it difficult to draw policyconclusions in this paper we investigate what specific typesof economic freedom measures that are important for growth the robustness of the results is carefully analysed since thepotential problem with multicollinearity is one of thenegative effects of decomposing an index the results showthat economic freedom does matter for growth this does notmean that increasing economic freedom defined in generalterms is good for economic growth since some of thecategories in the index are insignificant and some of thesignificant variables have negative effects

does one size fit all a reexamination of the finance and growth relationship abstract recent research has found a strong positive effect of a country s financial development on economic growth we propose that this relationship may vary according to the level of financial development divided in three regions in the low region countries with very low levels of financial development additional improvements in financial markets have an uncertain effect on growth in the intermediate region financial development has a large positive effect on growth finally in the high region the effect is positive but smaller we examine a panel of 74 countries using generalized method of moments gmm dynamic panel techniques and find support for the different regions

hotelling s competition with general customer distributions abstract hotelling and his critics assumed uniformly distributed demand in this note the solution is characterized for any distribution f and some propositions follow for any f an equilibrium does not exist if the duopolists are located too closely together but another distribution can be always found for which an equilibrium does exist when we observe duopolies in equilibrium with closer and closer proximity we can expect the density in the area of contention to go up and prices and profits to go down hotelling s known suggestion that any duopolist has an advantage to move his location towards the other and thus creating a tendency for the differentiation to diminish holds whenever an equilibrium exists

on hotelling s competition with non uniform customer distributions abstract hotelling s competition in a two stage location price game is examined with increasing densities of consumers towards the centre it is shown that there is a range of rather even distributions for which firms locate at opposite ends of the market as the distribution becomes more concentrated duopolists will tend to move inside the market

aggregation and imperfect competition on the existence of equilibrium we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result provides general conditions under which there exists a pure strategy price equilibrium for any number of firms producing any set of products this includes products with multi dimen sional attributes in addition to the proof of existence we provide conditions for uniqueness our analysis covers location models the characteristics approach and probabilistic choice together in a unified framework to prove existence we employ aggregation theorems due to prekopa 1971 and borell 1975 our companion paper caplin and nalebuff 1991 introduces these theorems and develops the application to super majority voting rules we present a new approach to the theory of imperfect competition and apply it to study price competition among differentiated products the central result is that there exists a pure strategy price equilibrium for any number of firms producing any set of products in addition to the proof of existence we provide conditions for uniqueness our model both unites diverse strands of the earlier literature and opens up uncharted areas for future analysis in particular we expand the traditional one dimensional framework to allow for multi dimen sional product differentiation our approach involves twin restrictions on consumer preferences one on individuals preferences the other on the distribution of preferences across society these are generalizations of the restrictions supporting 64 majority rule presented in caplin and nalebuff 1988 to prove existence we apply a new technique of aggregation this technique is valuable in a variety of other problems in the companion paper we use the aggregation result to generalize our earlier work on 64 majority rule and to characterize the relationship between the distribution of human capital and the distribution of income caplin and nalebuff 1991 there are additional applications in statistics and in search theory we begin with a brief review of the early literature on imperfect competition describing in more detail the existence problem and previous solutions section 3 presents our twin assumptions and shows that they cover many standard cases in section 4 we introduce the aggregation theorem and use it in the analysis of demand functions the proof of existence of equilibrium is in section

financial liberalization financial sector development and growth evidence from malaysia abstract the objective of this paper is to examine whether financial development leads to economic growth or vice versa in the small open economy of malaysia using time series data from 1960 to 2001 we conduct cointegration and causality tests to assess the finance growth link by taking the real interest rate and financial repression into account the empirical evidence suggests that financial liberalization through removing the repressionist policies has a favorable effect in stimulating financial sector development financial depth and economic development are positively related but contrary to the conventional findings our results support robinson s view that output growth leads to higher financial depth in the long run

finance and the sources of growth the authors evaluate whether the level of development in the banking sector exerts a causal impact on economic growth and its sources total factor productivity growth physical capital accumulation and private saving they use 1 a pure cross country instrumental variable estimator to extract the exogenous component of banking development and 2 a new panel technique that controls for country specific effects and endogeneity they find that banks do exert a large causal impact on total factor productivity growth which feeds through to overall gdp gross domestic product growth the long run links between banking development and both capital growth and private savings are more tenuous

the effect of financial development on convergence theory and evidence we introduce imperfect creditor protection in a multicountry schumpeterian growth model the theory predicts that any country with more than some critical level of financial development will converge to the growth rate of the world technology frontier and that all other countries will have a strictly lower long run growth rate we present evidence supporting these and other implications in the form of a cross country growth regression with a significant and sizable negative coefficient on initial per capita gdp relative to the united states interacted with financial intermediation in addition we find that other variables representing schooling geography health policy politics and institutions do not affect the significance of the interaction between financial intermediation and initial per capita gdp and do not show any independent effect on convergence in the regressions our findings are robust to removal of outliers and to alternative conditioning sets estimation procedures and measures of financial development

perceptual position and competitive brand strategy in a two dimensional two brand market brand positioning and competitive reaction are important determinants of optimal brand strategy analyses of brand strategy have focused on optimal pricing and positioning issues using either empirical models of perceptions and preferences game theory to examine competition or both however the important issues of advertising and distribution strategy have not been fully addressed this paper analyzes competition and strategy between two brands that compete in a two dimensional market with advertising and distribution spending in addition to prices and product positions in particular for a unimodal taste distribution of ideal points we show how optimal competitive nash equilibrium marketing mix levels and profits depend on the positions of both brands brands can reposition to increase profit and under what conditions these strategies imply minimum versus maximum differentiation positioning equilibria and how the intensity of advertising and distribution competition affect equilibrium brand positions

new brand positioning and pricing in an oligopolistic market the positioning and pricing of a new brand requires knowledge about the relationship of both demand and cost with potential attribute locations and prices this paper addresses this problem and illustrates it in the context of the automobile market multi attribute expected utility theory which allows for consumer uncertainty about the brands is used to model individuals behavior attribute weights are estimated from market survey data on brands attributes and preferences using linmap as an estimation procedure expected utility is then updated using the multinomial logit model and choice data to account for the observation that stated preferences do not perfectly reflect the eventual choice it is hypothesized that when faced with an actual choice price may become more important to the consumer while other attributes may become more or less important than is reflected in stated preferences the resulting estimated choice probabilities are aggregated to form demand functions facing each brand which depend on all brands prices and attribute space locations assuming there is a price equilibrium in the existing market and that firms have the same variable cost function variable costs as a function of a brand s attribute levels are estimated given the demand and cost functions facing each firm including the potential new entrant the profit maximizing positioning and pricing of a new brand is analyzed using a game theoretic approach a solution is sought under the assumption that incumbents react to entry by changing their prices possible approaches to the translation of the perceptual attribute positioning of the new brand to physical and engineering attributes are reviewed improvements and future extensions of the study are discussed

thresholds of financial development in the euro area we analyse the dynamics of financial development and economic growth in the euro area as these countries went through considerably higher levels of financial development using a balanced panel data of 38 years from 1980 to 2018 we offer new evidence on the finance growth nexus we show the presence of non linearity as there is an inverted u shaped relationship between finance and growth in the long run estimating the thresholds in the finance growth nexus we notice a threshold effect at 74 86 of gdp for domestic credit 51 of gdp for stock turnover ratio and 65 of gdp for stock market capitalisation we notice that exceeding the threshold causes deceleration in economic growth as too much finance results in crowding out effect for productive economic activities the panel granger causality test results show that financial development should be associated with optimal growth performance these findings in the euro area provide some useful policy implications to the emerging and developing economies in designing their financial development strategies

government expenditure and economic growth evidence from g7 countries this paper examines wagner s law of public expenditure which emphasizes economic growth as the fundamental determinant of public sector growth using time series data drawn from the g7 industrialized countries over the sample period 1960 1993 it presents evidence on both the short and long run effects of growth in national income on government expenditure by resorting to recent developments in the theory of cointegrated processes an attempt is also made in this study to examine if wagner s law holds between certain key components of government expenditure and income