strategic capacity rationing to induce early purchases dynamic pricing offers the potential to increase revenues at the same time it creates an incentive for customers to strategize over the timing of their purchases a firm should ideally account for this behavior when making its pricing and stocking decisions in particular we investigate whether it is optimal for a firm to create rationing risk by deliberately understocking products then the resulting threat of shortages creates an incentive for customers to purchase early at higher prices but when does such a strategy make sense if it is profitable to create shortages what is the optimal amount of rationing risk to create we develop a stylized model to study this problem in our model customers have heterogeneous valuations for the firm s product and face declining prices over two periods customers are assumed to have identical risk preferences and know the price path and fill rate in each period via its capacity choice the firm is able to control the fill rate and hence the rationing risk faced by customers customers behave strategically and weigh the payoff of immediate purchases against the expected payoff of delaying their purchases we analyze the capacity choice that maximizes the firm s profits first we consider a monopoly market and characterize conditions under which rationing is optimal we examine how the optimal amount of rationing is affected by the magnitude of price changes over time and the degree of risk aversion among customers we then analyze an oligopoly version of the model and show that competition reduces the firms ability to profit from rationing indeed there exists a critical number of firms beyond which a rationing equilibrium cannot be supported

the value of fast fashion quick response enhanced design and strategic consumer behavior a fast fashion system combines quick response production capabilities with enhanced product design capabilities to both design hot products that capture the latest consumer trends and exploit minimal production lead times to match supply with uncertain demand we develop a model of such a system and compare its performance to three alternative systems quick response only systems enhanced design only systems and traditional systems which lack both enhanced design and quick response capabilities in particular we focus on the impact of each of the four systems on strategic or forward looking consumer purchasing behavior i e the intentional delay in purchasing an item at the full price to obtain it during an end of season clearance we find that enhanced design helps to mitigate strategic behavior by offering consumers a product they value more making them less willing to risk waiting for a clearance sale and possibly experiencing a stockout quick response mitigates strategic behavior through a different mechanism by better matching supply to demand it reduces the chance of a clearance sale most importantly we find that although it is possible for quick response and enhanced design to be either complements or substitutes the complementarity effect tends to dominate hence when both quick response and enhanced design are combined in a fast fashion system the firm typically enjoys a greater incremental increase in profit than the sum of the increases resulting from employing either system in isolation furthermore complementarity is strongest when customers are very strategic we conclude that fast fashion systems can be of significant value particularly when consumers exhibit strategic behavior this paper was accepted by yossi aviv operations management

voting over economic plans we review and provide motivation for a one sector model of economic growth in which decisions about capital accumulation are made by a political process if it is possible to commit for at least three periods into the future then for any feasible consumption plan there is a perturbation that is majority preferred to it furthermore plans that minimize the maximum vote that can be obtained against them yield a political business cycle if it is impossible to commit voters select the optimal consumption plan for the median voter

the visible hand demand effects of recommendation networks in electronic markets online commercial interactions have increased dramatically over the last decade leading to the emergence of networks that link the electronic commerce landing pages of related products to one another our paper conjectures that the explicit visibility of such product networks can alter demand spillovers across their constituent items we test this conjecture empirically using data about the copurchase networks and demand levels associated with more than 250 000 interconnected books offered on amazon com over the period of one year while controlling for alternative explanations of demand correlation using a variety of approaches our findings suggest that on average the explicit visibility of a copurchase relationship can lead to up to an average threefold amplification of the influence that complementary products have on each others demand levels we also find that newer and more popular products use the attention they garner from their network position more efficiently and that diversity in the sources of spillover further amplifies the demand effects of the recommendation network our paper presents new evidence quantifying the role of network position in electronic markets and highlights the power of basing virtual shelf position on consumer preferences that are explicitly revealed through shared purchasing patterns this paper was accepted by pradeep chintagunta marketing

product introduction with network externalities the authors study the introduction of a new product in a market with network externalities there is a common presumption that such markets exhibit excess inertia i e that they are biased toward existing products in contrast the authors provide conditions under which equilibrium involves insufficient friction i e a tendency to rush into new incompatible technologies they also analyze the firms incentives to make their products compatible and they show that the firm introducing the new technology is biased against compatibility copyright 1992 by blackwell publishing ltd

the growth of interorganizational systems in the presence of network externalities we develop a model of network growth in the presence of network externalities for the case where a buyer initiates an interorganizational system with its suppliers in our two stage model suppliers joining the network in the first stage can gain economic benefit from increased market share or higher price for the primary product suppliers encounter negative externalities since the economic benefit accruing to participating suppliers is less for increasingly larger networks in the first stage the buyer may experience initial supplier adoption of the network followed by a stalling problem due to negative externalities in order to overcome this stalling problem the buyer may find it optimal to subsidize some suppliers costs to join the network in the second stage we characterize the buyer s optimal second stage subsidy policy and show the conditions under which the buyer will find it optimal to offer a subsidy if the suppliers have some positive ex ante expectation of a second stage subsidy the growth of the network will be retarded in the first stage resulting in suboptimal profits for the buyer

public goods in networks this paper considers incentives to provide goods that are non excludable along social or geographic links we find first that networks can lead to specialization in public good provision in every social network there is an equilibrium where some individuals contribute and others free ride in many networks this extreme is the only outcome second specialization can benefit society as a whole this outcome arises when contributors are linked collectively to many agents finally a new link increases access to public goods but reduces individual incentives to contribute hence overall welfare can be higher when there are holes in a network

network structure and strategic investments an experimental analysis abstract this paper experimentally analyzes the effect of network structures on individuals decisions in a game of strategic substitutes the theoretical basis for our experiment is the model of bramoulle and kranton 2007 as predicted we find that individuals are able to coordinate on equilibria but that coordination strongly depends on the network structure despite frequent coordination failures in graphs of size n 4 equilibrium play seems easier on network architectures with high low density and low high centrality if play converges it almost exclusively does so towards the predicted equilibria theoretical results with respect to welfare are also confirmed next to global graph structural properties we also explore the effects of local and individual factors we find that behavior on networks is affected by the number of direct neighbors but not by individuals risk attitudes apparently the global and the local structure of a network does not leave much explanatory room for individual effects that pertain to risk taking

strategic transfers and private provision of public goods abstract this paper considers strategic monetary transfers between two agents when these contribute to a mutual public good if the agents differ in their contribution productivity then the less productive agent has an incentive to make large unconditional transfers to the more productive agent although agents move simultaneously in each stage of the game the less productive agent becomes a stackelberg leader furthermore the generic subgame perfect equilibrium is characterized by full specialization

incomplete information and ideological explanations of platform divergence one of the paradoxes of formal spatial voting models is the robustness of the theoretical result that candidates will converge toward centrists positions and the empirical observation of persistent policy divergence of candidates a solution is that candidates are ideological have policy preferences when candidates have policy preferences and incomplete information about voter preferences then platform divergence is theoretically predicted experimental tests of the ideological model are presented it is shown that platform divergence is significant when candidates are ideological and have incomplete information about voter preferences however candidate positions are more convergent on average than the theory predicts suggesting that subjects value winning independently of the expected payment

learning by doing and learning from others human capital and technical change in agriculture household level panel data from a nationally representative sample of rural indian households describing the adoption and profitability of high yielding seed varieties hyvs associated with the green revolution are used to test the implications of a model incorporating learning by doing and learning spillovers the estimates indicate that i imperfect knowledge about the management of the new seeds was a significant barrier to adoption ii this barrier diminished as farmer experience with the new technologies increased iii own experience and neighbors experience with hyvs significantly increased hyv profitability and iv farmers do not fully incorporate the village returns to learning in making adoption decisions

the law of the few the law of the few refers to the following empirical phenomenon in social groups a very small subset of individuals invests in collecting information while the rest of the group invests in forming connections with this select few in many instances there are no observable dierences in characteristics between those who invest in information and those who invest in forming connections this paper shows that the law of few naturally emerges in environments with identical rational agents we develop a strategic game in which players have the opportunity to invest in collecting information as well as in investing in bilateral connections with others we find that every strict equilibrium of this game exhibits the law of the few we also show that this pattern of social dierentiations is ecient in some cases

the economic consequences of social network structure we survey the literature on the economic consequences of the structure of social networks we develop a taxonomy of macro and micro characteristics of social interaction networks and discuss both the theoretical and empirical findings concerning the role of those characteristics in determining learning diffusion decisions and resulting behaviors we also discuss the challenges of accounting for the endogeneity of networks in assessing the relationship between the patterns of interactions and behaviors

core and periphery in networks abstract we study a model of network formation where the benefits from connections exhibit decreasing returns and decay with network distance we show that the unique equilibrium network is a periphery sponsored star where one player the center maintains no links and earns a high payoff while all other players maintain a single link to the center and earn lower payoffs both the star architecture and payoff inequality are preserved in an extension of the model where agents can make transfers and bargain over the formation of links under the condition that the surplus of connections increases in the size of agents neighborhoods our model thus generates two common features of social and economic networks 1 a core periphery structure 2 positive correlation between network centrality and payoffs

experiments with network formation abstract we examine how groups of agents form trading networks in the presence of idiosyncratic risk and the possibility of contagion specifically four agents play a two stage finite repeated game in the first stage the network structure is endogenously determined through a non cooperative proposal game in the second stage agents play multiple rounds of a coordination game against all of their chosen neighbors after the realization of a payoff relevant shock while parsimonious our four agent environment is rich enough to capture all of the important interaction structures in the networks literature bilateral marriage local interaction star and uniform matching consistent with our theory marriage networks are the most frequent and stable network structures in our experiments we find that payoff efficiency is around 90 percent of the ex ante payoff dominant strategies and the distribution of network structures is significantly different from that which would result from random play

technology adoption in the presence of network externalities we analyze technology adoption in industries where network externalities are significant the pattern of adoption depends on whether technologies are sponsored a sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it key findings include the following 1 compatibility tends to be undersupplied by the market but excessive standardization can occur 2 in the absence of sponsors the technology superior today has a strategic advantage and is likely to dominate the market 3 when one of two rival technologies is sponsored that technology has a strategic advantage and may be adopted even if it is inferior 4 when two competing technologies both are sponsored the technology that will be superior tomorrow has a strategic advantage

conventions and local interaction structures experimental evidence we present a series of experimental coordination games with a payoff dominant and a risk dominant nash equilibrium we examine in how far local interaction structures have effects on players strategy choices our three major observations are the following first local interaction with open neighborhoods along a circle leads to less coordination on the payoff dominant equilibrium than interaction in closed neighborhoods see also keser ehrhart and berninghaus economics letters 1998 second when players are allocated around a circle the neighborhood size has in the long run no effect on the players strategy choices third with the same neighborhood size players allocated on a lattice tend less than players allocated around a circle to coordinate on the payoff dominant equilibrium this is true although the players are given exactly the same instructions

what is benefit taxation abstract benefit taxation is a system in which individuals are taxed according to the benefits they receive from public expenditures this paper describes an alternative to the standard lindahl method of determining the distribution of individual benefits from government provided public goods and uses this alternative to calculate benefit taxes this alternative avoids some of the paradoxial features of lindahl pricing and generates outcomes in which all consumers benefit from reduced costs of providing public goods an illustrative calculation shows that benefit taxes defined in this way may be quite regressive

candidate uncertainty mental models and complexity some experimental results since the work of downs 1957 spatial models of elections have been a mainstay of research in political science and public choice despite the plethora of theoretical and empirical research involving spatial models researchers have not considered in great detail the complexity of the decision task that a candidate confronts two facets of a candidate s decision process are investigated here using a set of laboratory experiments where subjects face a fixed incumbent in a two dimensional policy space first we analyze the effect that the complexity of the electoral landscape has on the ability of the subject to defeat the incumbent second we analyze the impact that a subject s mental model which we infer from a pre experiment questionnaire has on her performance the experimental results suggest that the complexity of a candidate s decision task and her perception of the task may be important factors in electoral competition

coordination and local interaction experimental evidence abstract subjects repeatedly played a three player coordination game with a payoff dominant and a risk dominant equilibrium subjects interacting in fixed groups quickly coordinated on the payoff dominant equilibrium while those interacting with their neighbors around a circle eventually coordinated on the risk dominant equilibrium

experimental games on networks underpinnings of behavior and equilibrium selection in this paper we describe a series of laboratory experiments that implement specific examples of a general network structure specifically actions are either strategic substitutes or strategic complements and participants have either complete or incomplete information about the structure of a random network since economic environments typically have a considerable degree of complementarity or substitutability this framework applies to a wide variety of settings we examine behavior and equilibrium selection the degree of equilibrium play is striking in particular with incomplete information behavior closely resembles the theoretical equilibrium whenever this is unique when there are multiple equilibria general features of networks such as connectivity clustering and the degree of the players help to predict informed behavior in the lab people appear to be strongly attracted to maximizing aggregate payoffs social efficiency but there are forces that moderate this attraction 1 people seem content with in the aggregate capturing only the lion s share of the efficient profits in exchange for reduced exposure to loss and 2 uncertainty about the network structure makes it considerably more difficult to coordinate on a demanding but efficient equilibrium that is typically implemented with complete information

classroom games candidate convergence this article details an experiment that is easily run in the classroom it demonstrates how two candidate elections quickly converge to an equilibrium it points out that the equilibrium is centered on the median voter finally it illustrates what happens when preferences or institutions change material associated with conducting the experiment is provided as is supplemental material for classroom instruction a critical part of teaching political economy is getting students to understand the link between voter preferences candidate position taking and vote aggregation rules while in the abstract it is easy to understand that candidates will often converge to the median voter the ease with which candidates respond is not often grasped this exercise mimics multiple elections with candidates holding no information about the distribution of voter preferences parallels are also drawn to one dimensional spatial location models the median voter model is one of the basic building blocks for political economy the model assumes that voters have single peaked preferences over a single policy dimension this means that each voter has a single preferred position that can be mapped onto the policy dimension and the voter s utility decreases as a function of distance from that preferred position candidates seek election by proposing a policy position that will be implemented if elected voters then compare the utility they get from the policy position proposed by each candidate in a two candidate model the median voter s position is in equilibrium and candidates converge to the equilibrium the simplicity of the model and its unique equilibrium allows those teaching various aspects of political economy to quickly cut through the complexity of political elections this classroom experiment has three goals the first is to demonstrate that competitive elections quickly drive candidates to adopt winning positions second the exercise points to the stability of an equilibrium this is especially useful for students who feel that an equilibrium is a fuzzy concept with little explanatory power in this exercise candidates who deviate from the equilibrium are quickly punished third the exercise introduces a feature common to many political systems redistricting this can be thought of as a change in the preferences of some voters simple changes in student

network effects on strategic interactions a laboratory approach abstract we examine the effect of interaction structure network on two classes of collective activities herding and shirking respectively referring to the situation where a player s incentive to take a certain action increases and decreases if more of her network neighbors follow the same action in our experiment we find that subjects do not act according to theoretical equilibrium and their frequencies of making the socially beneficial choice in herding and shirking games are inversely influenced by the number of network neighbors they have moreover the observed local network effect is stronger in shirking games while the global network effect is more significantly present in herding games we explain the behavioral regularities through a hybrid learning model which extends sewa learning into a network context as such our learning model provides a foundation for the observed dynamics disequilibrium behavior as well as the local and global network effects

purchasing pricing and quick response in the presence of strategic consumers we consider a retailer that sells a product with uncertain demand over a finite selling season the retailer sets an initial stocking quantity and at some predetermined point in the season optimally marks down remaining inventory we modify this classic setting by introducing three types of consumers myopic consumers who always purchase at the initial full price bargain hunting consumers who purchase only if the discounted price is sufficiently low and strategic consumers who strategically choose when to make their purchase a strategic consumer chooses between a purchase at the initial full price and a later purchase at an uncertain markdown price in equilibrium strategic consumers and the retailer make optimal decisions given their rational expectations regarding future prices availability of inventory and the behavior of other consumers we find that the retailer stocks less takes smaller price discounts and earns lower profit if strategic consumers are present than if there are no strategic consumers we find that a retailer should generally avoid committing to a price path over the season assuming such commitment is feasible committing to a markdown price or to not mark down at all is often too costly inventory may remain unsold even in the presence of strategic consumers the better approach is to be cautious with the initial quantity and then mark down optimally furthermore we discuss the value of quick response the ability to procure additional inventory after obtaining updated demand information albeit at a higher unit cost than the initial order we find that the value of quick response to a retailer is generally much greater in the presence of strategic consumers than without them on average 67 more valuable and as much as 558 more valuable in our sample in other words although it is well established in the literature that quick response provides value by allowing better matching of supply with demand it provides more value often substantially more value by allowing a retailer to control the negative consequences of strategic consumer behavior