how does advertising depend on competition evidence from u s brewing the relationship between market structure and advertising has been extensively studied but has generated sharply opposing theoretical predictions as well as inconclusive empirical findings likely because of severe endogeneity concerns we exploit the 2008 merger of miller and coors in the u s brewing industry to examine how changes in local concentration affect firms advertising behavior well established regional preferences over beer brands and the sharp increase in concentration from the merger make this an excellent setting to analyze this question we find a significant positive effect of local market concentration on advertising expenditures a 100 point increase in the herfindahl hirschmann index measure of concentration increases advertising per capita by about 5 our findings shed light on how and when firms choose to deploy advertising the online appendix is available at https doi org 10 1287 mnsc 2017 2889 this paper was accepted by eric anderson marketing

the effects of rent asymmetries in experimental auction markets abstract we report the results of twelve double auction market experiments designed to analyze the effects of asymmetric induced supply and demand configurations on the price convergence path toward a competitive equilibrium the proposition convergence bias that prices tend to approach the competitive equilibrium from above below when consumer surplus is greater less than producer surplus cannot be rejected we do however reject the proposition convergence symmetry that these convergence biases are of equal absolute magnitude excesses of producer over consumer surplus are found to have a more pronounced effect on the sequence of contract prices

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

interpreting rising concentration the case of beer despite considerable long term progress in distinguishing conceptually between the fact of market power and the calculation of market concentration antitrust claimants the department of justice the federal trade commission ftc and private litigants continue to place substantial emphasis on defining a market computing market shares and calculating measures of concentration the operating supposition is virtually always that monopoly or market power is positively associated with concentration whether other offsetting characteristics are also associated with high concentration ordinarily receives less if any consideration the most often cited consideration weighing against an automatic condemnation of increased concentration say through horizontal merger is that costs market power and concentration may all be jointly related economic analysis suggests that if higher concentration brings with it is caused by or causes lower industry costs then it may also bring positive total benefits even if antitrust concern with industry concentration focuses on market power the ability of firms to restrict output and raise price the brewing industry among others has been a major target of this concern because of its high and rising concentration this paper sketches two alternative explanations for this change in industry structure competitive expansion by the more efficient brewers and anticompetitive exclusion of equally efficient but smaller brewers empirical analysis indicates that competition is the better hypothesis in explaining changes in the structure of the beer market

a reappraisal of interpreting rising concentration the case of beer there has been a tremendous amount of change in the structure and conduct of the post world war ii brewing industry most important concentration has risen scale economies have increased and advertising intensity especially television advertising has changed in a recent article in this journal william j lynk 1984 attempted to determine empirically how changes in concentration and technology affected brewing industry performance between 1974 and 1980 2 he found support for the competition hypothesis that cost reductions due to cost superiority or the exploitation of scale economies have dominated the possible market power effect of rising concentration and have caused output to increase and prices to fall thus the alternative or the exclusion hypothesis that large brewers have squeezed smaller rivals out of in contrast to the finding of william j lynk that rising concentration in the u s brewing industry caused industry output to expand and by his presumption prices to fall the results of this study show that concentration had no significant direct impact on post world war ii beer prices estimates from a reduced form price equation reveal that advertising and costs have had a significant positive effect on beer prices these results provide evidence that the rising concentration scale economies and advertising expenditures in the u s brewing industry generated higher beer prices between 1950 and 1971 i would like to thank william hallagan for bringing lynk s paper to my attention and james f ragan jr carol horton tremblay and an anonymous referee for their helpful comments on earlier drafts any remaining errors are my responsibility 1 for example the number of firms declined from 386 to 37 and the five firm concentration ratio increased from 23 to 71 between 1950 and 1978 see elzinga 1973 1982 keithahn 1978 ornstein 1981 and greer 1971a 1981 for excellent industry studies 2 in this paper industry performance is evaluated from the consumer s point of view for a given level of product quality if structure and conduct changes are beneficial to consumers by causing the market price to fall then industry performance has improved

alcohol control laws and the consumption of distilled spirits and beer this article tests the social marketing effectiveness of alcohol control laws designed to reduce the consumption of alcoholic beverages the study uses state level historical data to estimate the demand for distilled spirits and beer using economic sociodemographic and control law explanatory variables spirits and beer consumption are found to react differently to changes in economic sociodemographic and regulatory variables these differences suggest a consumer and product segment based approach to alcohol control laws or social marketing that emphasizes measures directed at youths for beer and at price for spirits

regulating consumer financial products evidence from credit cards we analyze the effectiveness of consumer financial regulation by considering the 2009 credit card accountability responsibility and disclosure card act we use a panel data set covering 160 million credit card accounts and a difference in differences research design that compares changes in outcomes over time for consumer credit cards which were subject to the regulations to changes for small business credit cards which the law did not cover we estimate that regulatory limits on credit card fees reduced overall borrowing costs by an annualized 1 6 of average daily balances with a decline of more than 5 3 for consumers with fico scores below 660 we find no evidence of an offsetting increase in interest charges or a reduction in the volume of credit taken together we estimate that the card act saved consumers 11 9 billion a year we also analyze a nudge that disclosed the interest savings from paying off balances in 36 months rather than making minimum payments we detect a small increase in the share of accounts making the 36 month payment value but no evidence of a change in overall payments jel codes d0 d14 g0 g02 g21 g28 l0 l13 l15

do professional traders exhibit myopic loss aversion an experimental analysis two behavioral concepts loss aversion and mental accounting have been combined to provide a theoretical explanation of the equity premium puzzle recent experimental evidence supports the theory as students behavior has been found to be consistent with myopic loss aversion mla yet much like certain anomalies in the realm of riskless decision making these behavioral tendencies may be attenuated among professionals using traders recruited from the cbot we do indeed find behavioral differences between professionals and students but rather than discovering that the anomaly is muted we find that traders exhibit behavior consistent with mla to a greater extent than students

advertising concentration and profitability in manufacturing advertising concentration and profitability in manufacturing i introduction economists have devoted much effort to empirically testing the hypothesized relationships between industrial concentration profits and advertising twenty years ago lester telser concluded that there is little empirical support for an inverse association between advertising and competition 1964 later other economists studying the relationship between advertising and concentration discovered a positive correlation between the four firm concentration ratio a measure of industry concentration and advertising intensity 1 strickland and weiss 1976 went further to show that there is a causal relationship between these elements increases in concentration cause advertising to intensify and conversely a rise in advertising intensity causes an increase in the level of concentration in recent years the empirical literature on advertising concentration and profitability has atrophied because of dissatisfaction with its theoretical basis as a new approach i adopt the theory of advertising developed by stigler and becker 1977 and extend it to incorporate the relationships among advertising concentration and profitability i then test its most important implications using data from the 1977 census of manufactures and the detailed input output structure of the u s economy 2 section ii examines the relationship between concentration and advertising intensity conventional theory known as the inverted u hypothesis asserts that advertising is expected to increase with concentration at first but to decrease at very high levels of concentration because collusion to avoid advertising costs becomes easier extending the stigler and becker theory i hypothesize that when concentration increases even if the large firms do not collude and continue to act independently they will eventually decrease their advertising intensity at high levels of concentration provided that the demand curve for the industry s products is relatively inelastic if the industry s demand curve is relatively elastic advertising intensity increases monotonically with concentration at all levels of concentration this hypothesis is supported by the 1977 data taken from the census and the input output structure of the u s economy section iii focuses on the relationship between advertising and profitability according to conventional theories advertising intensity promotes product differentiation leading to higher barriers to entry and higher profit margins in the past researchers e g strickland and weiss 1976 realized that contrary to the implications of barriers to entry theory the coefficient of advertising in a profit margin equation was longer for a sample of industries producing producer goods than for industries producing consumer goods they viewed this result as an anomaly inconsistent with both their theoretical reasoning and with other important empirical results already published i obtain a similar result which i am able to link to a theoretical structure thus contributing to the refutation of the barriers to entry hypothesis i begin by extending the stigler and becker theory to treat advertising and research and development r d as two complementary intangible capital goods the sample is divided into two groups producers of homogeneous goods who spend relatively more on r d and producers of heterogeneous goods who spend relatively more on advertising since we are unable to measure r d costs at the appropriate industry level it is not included among the regression variables if r d and advertising intensity are correlated we should expect the coefficient of advertising in the profitability equation in the homogeneous goods subsample to exceed the coefficient of advertising in the profitability equation in the heterogeneous goods subsample in this case the omission of the r d variable provides an implication for testing the new hypothesis

misselling through agents this paper analyzes the implications of the inherent conflict between two tasks performed by direct marketing agents prospecting for customers and advis ing on the product s suitability for the specific needs of customers when structuring salesforce compensation firms trade off the expected losses from misselling unsuitable products with the agency costs of providing market ing incentives we characterize how the equilibrium amount of misselling and thus the scope of policy intervention depends on features of the agency problem including the internal organization of a firm s sales process the transparency of its commission structure and the steepness of its agents sales incentives jel m31 m37 m52 when purchasing unfamiliar products consumers often rely on information and advice pro vided by representatives of the seller this creates the possibility of misselling the question able practice of a salesperson selling a product that may not match a customer s specific needs 1 this problem is particularly severe in markets for technically complex products such as con sumer electronics auto repairs medical care and retail financial services including securities pensions insurance policies and mortgages an important feature of these markets is that the seller often deals with the customer through an agent rather than directly for example financial brokers typically recommend purchase of a specific product after inquiring about their customers particular circumstances and needs the possibility of abuse has led to regulation in some of these markets most notably for securities transactions the financial industry regulatory authority finra the major self regulatory organization for securities firms operating in the united states mandates that broker dealers make a reasonable effort to obtain information about the individual characteristics of their noninstitutional cus tomers and to ensure that their recommendations are suitable to customers financial situations

the effect of price advertising on prices evidence in the wake of 44 liquormart the 44 liquormart decision eliminating rhode island s ban on liquor price advertising made rhode island the subject of a natural experiment for measuring the effect of advertising on prices using massachusetts prices as controls we find that advertising stores substantially cut only prices of the products that they advertise prices of other products at both advertising and nonadvertising stores do not change advertising stores cut their prices on products advertised by rivals while nonadvertising stores do not we find no reductions in price dispersion across stores newspaper advertising stores appear to draw a higher share of customers after they advertise

the changing roles of education and ability in wage determination this study examines changes in returns to formal education and cognitive skills over the past 20 years using the 1979 and 1997 waves of the national longitudinal survey of youth we show that cognitive skills had a 30 50 larger effect on wages in the 1980s than in the 2000s returns to education were higher in the 2000s these developments are not explained by changing distributions of workers observable characteristics or by changing labor market structure we show that the decline in returns to ability can be attributed to differences in the growth rate of technology between the 1980s and 2000s

advertising as special service provision under non price vertical restraints exclusive territories in beer distribution this article presents statistical evidence which supports lester telser s 1960 hypothesis that when vertical restraints are made illegal intrabrand competition results which diminishes the provision of point of sale special services this results because of the public goods problem exhibited by the special services increased special service provision by the national manufacturer must then substitute for the special service provision left unfilled by the wholesaler evidence relating to the efficacy of such substitution is also presented

the effects of banning advertising in junk food markets we develop a structural model to analyze the eects of banning advertising on market equilibria and welfare in junk food markets we consider the impact on demand and prices and show how to quantify welfare eects when advertising might lead consumers to take decisions that are inconsistent with their underlying preferences we use transaction level data on the potato chips market and nd that banning advertising leads to a direct reduction in demand but also toughens price competition leading to lower prices and increased demand welfare increases as consumers benet from no longer making distorted

efficiency effects of exclusive territories evidence from the indiana beer market the welfare effects of vertically imposed exclusive territories and the appropriate antitrust policy toward them have long been debated this paper sheds light on the exclusive territory controversy by examing the effects of indiana s 1979 ban on the grant of exclusive territories to beer wholesalers using time series data for 1948 1990 we find the ban reduced beer consumption in indiana by 6 percent coupled with previous evidence that indiana s ban reduced price our results suggest that exclusive territories in the beer industry increase demand and enhance welfare by stimulating the provision of dealer services

why does the law of one price fail an experiment on index mutual funds we conduct an experiment to evaluate why individuals invest in high fee index funds in our experiments subjects allocate 10 000 across four s p 500 index funds and are rewarded for their portfolio s subsequent return subjects overwhelmingly fail to minimize fees we can reject the hypothesis that subjects buy high fee index funds because of bundled non portfolio services search costs for fees matter but even when we eliminate these costs fees are not minimized instead subjects place high weight on annualized returns since inception fees paid decrease with financial literacy interestingly subjects who choose high fee funds sense they are making a mistake

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

how not to pay for advice a framework for consumer financial protection abstract this paper investigates the determinants of the compensation structure for brokers who advise customers regarding the suitability of financial products our model explains why brokers are commonly compensated indirectly through contingent commissions paid by product providers even though this compensation structure could lead to biased advice when customers are wary of the adviser s incentives contingent commissions can be an effective incentive tool to induce the adviser to learn which specialized product is most suitable for the specific needs of customers if instead customers naively believe they receive unbiased advice high product prices and correspondingly high commissions become a tool of exploitation policy intervention that mandates disclosure of commissions can protect naive consumers and increase welfare however prohibiting or capping commissions could have the unintended consequence of stifling the adviser s incentive to acquire information more vigorous competition benefits consumers and reduces exploitation but firms have limited incentives to educate naive customers

are investors rational choices among index funds s p 500 index funds represent one of the simplest vehicles for examining rational behavior they hold virtually the same securities yet their returns differ by more than 2 percent per year although the relative returns of alternative s p 500 funds are easily predictable the relationship between cash flows and performance is weaker than rational behavior would lead us to expect we show that selecting funds based on low expenses or high past returns outperforms the portfolio of index funds selected by investors our results exemplify the fact that in a market where arbitrage is not possible dominated products can prosper

neoclassical theory versus prospect theory evidence from the marketplace several experimental studies have provided evidence that suggest indifference curves have a kink around the current endowment level these results which clearly contradict closely held economic doctrines have led some influential commentators to call for an entirely new economic paradigm to displace conventional neoclassical theory e g prospect theory which invokes psychological effects this paper pits neoclassical theory against prospect theory by investigating data drawn from more than 375 subjects actively participating in a well functioning marketplace the pattern of results suggests that prospect theory adequately organizes behavior among inexperienced consumers but consumers with intense market experience behave largely in accordance with neoclassical predictions moreover the data are consistent with the notion that consumers learn to overcome the endowment effect in situations beyond specific problems they have previously encountered this transference of behavior across domains has important implications in both a positive and normative sense

first impressions matter an experimental investigation of online financial advice we explore how individuals assess the quality of financial advice they receive and how they form judgments about advisers using an incentivized discrete choice experiment we show that first impressions matter consumers more often follow advisers who dispense good advice before bad we demonstrate how clients opinions of adviser quality can be manipulated by using an easily replicated confirmation strategy that depends on the quality of the advice and the difficulty and order of the advice topics our results also reveal how clients benefit from their own past experience and how they use professional credentials to guide their choices data as supplemental material are available at https doi org 10 1287 mnsc 2016 2590 this paper was accepted by john list behavioral economics

the effects of rent asymmetries in markets characterized by advance production abstract the results of 40 controlled market sessions are reported the effects of advance production and the distribution of the market surplus between buyers and sellers on the relative performance of posted offer and double auction markets are compared with the relative performance of posted offer and double auction institutions in markets with production to order performance differences between the two institutions across production conditions as the surplus distributions are varied are similar but not identical the distribution of surplus appears to have an effect on the performance measures in advance production markets

advertising restrictions and competition in the children s breakfast cereal industry abstract in this article i analyze the consequences of advertising in the children s breakfast cereal market i take advantage of the prohibition on advertising directed at children in the province of quebec to examine the nature of advertising and to determine whether the restriction hinders competition i show that prices are higher in quebec than in canadian provinces that permit advertising this finding suggests that the informative role of advertising dominates any persuasive role since the most likely explanation is that the restriction prevented firms from announcing products existence or characteristics and thus from overcoming perceived differentiation if advertising is informative restricting it should increase the market shares of older better known brands and decrease the market shares of newer and or less well known brands empirical analysis supports this prediction market shares of established brands are larger in quebec than in the rest of canada and the opposite is true for nonest

occupational licensing of a credence good the regulation of midwifery 1 introduction occupational licensing is as old as trade estimates are that in the united states alone at least 800 occupations require some form of license to practice rottenberg 1980 p 2 midwifery is most certainly among the oldest occupations known to homo sapiens and unsurprisingly it has been the subject of licensing regulations over the 20th century there has been however a marked reemergence of the practice over the past 20 years in the united states after nearly being driven from existence by physicians in the early part of the 20th century the percentage of midwife attended births has risen from 0 9 of all births in 1975 to 5 95 of all births in 1995 this latter figure translates into 231 921 midwife attended births for the year 1995 of this figure cnms attended 94 3 or 218 613 births a number of factors account for this resurgence including women s expression of their right to choose birth practitioners and place of birth increased political expression of that right and the escalating costs of traditional childbirth services by obstetricians obs and hospitals butter and kay 1988 in contrast midwife attended births account for a full 75 of all births in europe with far lower infant and maternal mortality rates reported coburn 1997 midwives are classified into two basic categories in this country lay midwife and certified nurse midwife cnm lay midwives typically receive no formal educational training but are clinically trained through apprenticeships on the other hand a cnm is a registered nurse with advanced training in midwifery who possesses evidence of certification by the american college of nurse midwives acnm adams 1989 p 1038 the practice of nurse midwifery as defined by the acnm is the independent management of care of essentially normal newborns and women antepartally before birth intrapartally during birth postpartally after birth and or gynecologically within a health care system which provides for medical consultation collaborative management and referral safriet 1992 p 425 the causes and effects of state regulation that determines the extent of professional independence from physicians of advanced practice nurses apns has been analyzed by dueker et al 2000 for the same general period we employ advanced practice nursing however includes nurse practitioners clinical nurse specialists and nurse anesthetists as well as cnms dueker et al 2000 suggest that for this larger category of nurse specialists apn earnings are lower and physicians assistants earnings are higher in states where apns have attained higher levels of professional independence measured in part by prescriptive authority 1 midwifery has been included along with other heath care professions in interesting studies of the impact of the composition of public licensing boards on particular occupational requirements graddy and nichol 1989 graddy 1991 but to the best of our knowledge midwifery has not been isolated in any study of effects of regulation s 2 the purpose of this paper is thus to analyze empirically the economic impact of alternative forms of regulation within the state markets for midwife services certified nurse midwives are formally recognized by the american college of obstetricians and gynecologists acog and are now able to practice legally in all 50 states including the district of columbia but cnms practice under significant and significantly different regulations that limit their scope of practice and constrain their use by women devries 1985 within the 50 states there are suggestions in the literature that the severity of regulations at the state level a partial product of past pressure by the medical establishment obs in particular has had deleterious effects in the market for midwives services however there has been again to the best of our knowledge no empirical support for such propositions or an analysis of the particular impact of alternative regulations

advertising restrictions and concentration the case of malt beverages the relationship between state imposed advertising restrictions and state level market concentration in the malt beverage industry is examined the authors find that the presence of proscriptions on price advertising significantly increases market concentration at the state level both absolutely and relative to a measure of national concentration the evidence also indicates that banning local nonprice advertising in addition to price advertising yields no marginal significant change in either measure of state level concentration analysis of individual brewers market shares suggests that large national brewers gain at the expense of smaller brewers when price advertising is restricted copyright 1995 by mit press

product differentiation search costs and competition in the mutual fund industry a case study of s p 500 index funds we investigate the role that non portfolio fund differentiation and information search frictions play in creating two salient features of the mutual fund industry the large number of funds and the sizeable dispersion in fund fees in a case study we find that despite the financial homogeneity of s p 500 index funds this sector exhibits the fund proliferation and fee dispersion observed in the broader industry we show how extra portfolio mechanisms explain these features these mechanisms also suggest an explanation for the puzzling late 1990s shift in sector assets to more expensive and often newly entered funds an influx of highinformation cost novice investors

advertising price and welfare evidence from the u s brewing industry the welfare effect of advertising has been a subject of controversy among economists for some time one obvious concern is simply the cost of advertising in 1990 for example americans spent 130 1 billion on advertising to put this figure into perspective this amounted to 523 per capita 2 35 percent of gross national product and roughly 80 percent of the national deficit 1 much of the early debate regarding the social desirability of advertising stems from different preconceptions regarding its purpose 13 14 8 49 for example according to the kaldor 29 hypothesis advertising is primarily persuasive or deceptive in nature it changes consumer preferences creates brand loyalty and persuades consumers to favor commodities that they did not previously desire an opinion survey by bauer and greyser 5 indicates that consumers believe that much of advertising is persuasive and greyser and reece 27 158 find that 85 percent of the over 2 700 harvard business review subscribers surveyed believe that advertising persuades people to buy things they do not need if advertising is purely deceptive then it can be classified as a bad and reduces welfare