price adjustment in long term contracts the case of coal in two recent papers i examined the effects of relationship specific investment on the duration of contracts negotiated between electric utilities and coal suppliers that work demonstrated that when relationshipspecific investment is important for a cost minimizing supply relationship contracts are frequently utilized that specify ex ante the terms and conditions of trade over many future years in this article i examine the characteristics of the price adjustment provisions specified in these long term coal contracts i utilize a sample of about 250 coal contracts to analyze the structure of formal price adjustment provisions in coal contracts in order to determine the factors that affect initial negotiated contract prices and to examine actual transaction price behavior over time there has been much recent theoretical work as well as some related empirical work that has focused on the benefits of long term contracts when relationship specific investments are important 2 there has also been some theoretical work that focuses on the contractual arrangements that may be chosen to mitigate opportunism problems and guard against

spatial competition and vertical integration cement and concrete revisited reply in this review 1983 mark mcbride reconsiders the federal trade commission s ftc enforcement policy toward vertical mergers between cement and ready mix concrete firms in response to a significant increase in acquisitions of ready mix concrete firms by cement manufacturers during the 1960 s the ftc undertook a series of legal actions to block or dissolve the mergers the actions of the ftc constituted one of the most intensive efforts undertaken to date to challenge vertical mergers in a single industry mcbride p 1012 notes that the actions of the ftc provoked considerable debate concerning the motivation for the mergers both in the industry and in academe a significant number of articles were published advancing various reasons for the mergers in addition to the ftc s main contention that the mergers were motivated by a desire for captive markets it has been suggested that there were economies of integration or that the mergers were the outcome of an erroneous view of the potential benefits to foreclosure held by executives in the beleaguered cement industry 2 mcbride s 1983 paper offers another explanation for the mergers his argument is that vertical integration was undertaken to avoid rigid oligopolistic pricing in the cement industry 3 the empirical results presented by mcbride suggest that vertical integration was a significant factor in the decline of cement prices in the 1960 s the purpose of this comment is to point out some of the problems with mcbride s analysis in particular we show that the experimental design of his testing equation is faulty and does not offer a test of his hypothesis as a result mcbride s analysis does not provide convincing evidence on whether cement firms vertically integrated to avoid rigid oligopolistic pricing or if cement firms were merely reacting to prices that had already begun to decline our intent however is not to challenge mcbride s contention that vertical integration can provide lower prices to consumers rather we would argue that the evidence presented at the ftc hearings involving cement and ready mix concrete firms as well as mcbride s and others analyses illustrate the problems in discerning the motives for mergers 4

operationalizing opportunities in entrepreneurship research use of data envelopment analysis despite the impressive development of substantive theories in entrepreneurship without the development of measurement theories further advancement of the field is problematic in particular the notion of opportunities central to entrepreneurship research requires adequate macro level operationalization we demonstrate how to employ data envelopment analysis dea to operationalize not only innovative opportunities but also technological arbitrage opportunities we provide an illustrative example based on a sample of 66 countries during the period of 1993 2002 we include estimates of innovative and arbitrage opportunities for possible use by other scholars discuss the promise and limitations of such estimates demonstrate how both innovative and arbitrage opportunities correlate with the rates of entrepreneurial activity and suggest several possible directions for future research

multiperiod sales production decisions under uncertainty abstract this paper studies the behavior of an expected profit maximizing multiperiod firm under uncertainty in output and demand the firm s problem is to determine in each period the level of sales and inventory and the expected output for the coming period the optimal policy is derived in an explicit closed form and is proved to be myopic it is shown that the observed phenomenon of downward price inflexibility can be explained and further specified by using the results of our model

resale price maintenance in an oligopoly with uncertain demand abstract this paper considers a model where oligopolistic manufacturers sell to consumers through competitive retailers who face demand uncertainty the setup is a symmetric duopoly with product differentiation and a perfectly competitive retail market in the game with unconstrained price competition there is price dispersion in the retail market in the game with resale price maintenance rpm manufacturers profits are higher retail inventories are at least as high and total surplus is at least as high the effect of rpm on consumer surplus is ambiguous rpm also precludes possible coordination failure between the manufacturers

long term contracting and multiple price systems this article examines product markets in which long term contracts and spot transactions coexist such markets are characterized by multiple price systems wherein adjustment to supply and demand shocks occurs through spot prices while contract prices are fixed or adjust slowly the authors derive the existence of contracts as well as the equilibrium fraction of spot trade in the framework of an optimizing model and analyze the effects of shocks on market equilibrium when some buyers and sellers locked in contractually the model is employed to interpret the change in the copper market from a multiple price system to one characterized solely by spot trade copyright 1992 by university of chicago press

cointegration tests and spatial price linkages in regional cattle markets this analysis empirically evaluates spatial linkages in regional cattle markets using cointegration tests of regional price series several markets were not cointegrated over the 1980 through 1987 period however significant increases in cointegration of several regional livestock markets are observed through the 1980s the increased cointegration parallels significant structural changes in the livestock industry a formal analysis of market characteristics reveals that distances between markets industry concentration ratios market volumes and market types have significant influences on cointegration relationships between markets

economic integration efficiency change and technological progress this article examines the forces driving output growth in 21 manufacturing industries at the 3 digit level in hong kong during the period 1976 to 1997 a varying frontier coefficients model is adopted that relaxes the assumption of homogeneous application of the best practice production technology the varying coefficients frontier approach allows the decomposition of output growth into factor contributions technological progress and efficiency change following the decomposition framework it facilitates the investigation of the relative roles of the three components of output growth and of the manner in which technical efficiency changed over time the article finds evidence of moderate annual tfp growth of 2 7 in hong kong manufacturing attributed mainly to technological progress this implies technical efficiency gained through learning by doing has been insignificant reflecting the loss of skilled labour associated with manufacturing relocation to mainland china

evaluating unemployment policies what do the underlying theories tell us the paper surveys unemployment policies for advanced market economies and evaluates them by examining the predictions of the underlying macroeconomic theories the basic idea is that for the most part different unemployment policy prescriptions rest on different macroeconomic theories and our confidence in the prescriptions should depend at least in part on theories ability to predict some salient stylized facts about unemployment behavior the paper considers four types of policies laissez faire demand management policies supply side policies and structural policies copyright 1995 by oxford university press

competition and price variation when consumers are loss averse we modify the salop 1979 model of price competition with differentiated products by assuming that consumers are loss averse relative to a reference point given by their recent expectations about the purchase consumers sensitivity to losses in money increases the price responsiveness of demand and hence the intensity of competition at higher relative to lower market prices reducing or eliminating price variation both within and between products when firms face common stochastic costs in any symmetric equilibrium the markup is strictly decreasing in cost even when firms face different cost distributions we identify conditions under which a focal price equilibrium where firms always charge the same focal price exists and conditions under which any equilibrium is focal

a consumer as an entrant in the norwegian cement market this paper sheds light on the strategy of two entrants in the norwegian cement market where both started importing cement one entrant was an initial consumer of the incumbent s product and thus imported for own consumption the author demonstrates that this type of entrant will undertake a sunk investment to have access to a second supplier in cases where other types of entrants are deterred both types of entrants must accept a high import price if the incumbent can purchase the exclusive right to import from foreign suppliers the author finds that the two observed entry attempts are consistent with the model s predictions copyright 1993 by blackwell publishing ltd

is carbon lock in blocking investments in the hydrogen economy a survey of actors strategies the difficulty of introducing hydrogen and fuel cells in the market stems from the fact that they are not an evolutionary innovation such as biofuels or hybrid cars instead they create a disruption in technological utilization the domination of oil technologies sets a socio economical context favoring actors involved in the current paradigm and gives less opportunity to alternative fuels to develop and challenge the status quo if this hypothesis is correct then companies interested in the hydrogen economy would not become active because of an unstable context or contradictory interests concerning the replacement of the present system a review of actions and announcements of main actors shows that technology readiness and the absence of infrastructure are the major justifications to delay investments some measures are discussed which could be deployed in order to reduce uncertainties such as regulation of carbon emissions from cars technological subvention and partnerships for infrastructure implementation

sources procedures and microeconomic effects of innovation fabio arcangeli paul david frank engelman christopher freeman massimo moggi richard nelson luigi orsenigo nathan rosenberg michele salvati g n von tunzelman two anonymous referees and the participants at the meeting of the committee on distribution growth and technical progress of the italian national research council cnr rome november 16 1985 have helped with various redraftings a particularly grateful acknowledgment is for the insightful and patient help of moses abramovitz this work has been undertaken at the science policy research unit spru university of sussex as part of the research program of the designated research centre sponsored by the economic and social research council esrc earlier support to the research that led to this paper by the italian national research council cnr is also gratefully acknowledged the statistical research has been undertaken with the assistance of stephano brioschi ilaria fornari and giovannu prennushi

asymmetric adjustment in symmetric duopoly abstract adjustments to unanticipated demand shocks in a symmetric differentiated bertrand duopoly are analysed asymmetric adjustment may arise even when adjustment costs are negligible or absent in some equilibria only one firm adjusts to negative shocks while both firms adjust to positive shocks

imperfectly credible disinflation under endogenous time dependent pricing the real effects of an imperfectly credible disinfl ation depend critically on the extent of price rigidity therefore the study of how policymakers credibility affects the outcome of an announced disinflation should not be dissociated from the analysis of the determinants of the frequency of price adjustments in this paper we examine how the policymaker s credibility affects the outcome of an announced disinflation in a model with endogenous time dependent pricing rules both the initial degree of price ridigity calculated optimally and more notably the changes in contract length during disinflation play an important role in the explanation of the effects of imperfect credibility we initially evalute the costs of disinfl ation in as etup where credibility is exogenous and then allow agents to update beliefs about the type of monetary authority that they face we show that in both cases the interaction between the endogeneity of time dependent rules and imperfect credibility increases the output costs of disinflation

business networks and cooperation in international business relationships cooperative relationships between firms can be better understood if they are examined in the context of a network of connected business relationships based on research on business relationships and business networks this paper formulates a lisrel model that analyses cooperation in international business relationships between suppliers and customer firms theory suggests that cooperation can raise the value of business relationships and that business network connections have an impact on cooperation the model is investigated in a sample of 136 international business relationships the analysis shows that relationship profitability is directly affected by relationship commitment and indirectly through commitment by business network connections

creating value through mutual commitment to business network relationships a structural model of business relationship development in a business network context is formulated and tested on delta from the european international marketing and purchasing imp project the e

an options approach to investment in a hydrogen infrastructure this paper discusses the investments needed for the introduction of hydrogen as a transport fuel using option theory we develop a model to calculate the value and optimal timing of a first commercial rollout of hydrogen vehicles in a larger area taking japan as a specific example we find that the project is best viewed as an out of the money call option with a small but positive option value we estimate this value at approximately 1 5 billion euros without tax advantages an important finding is that the moment of investment is first and foremost determined by the maturing of the technology by contrast the investment timing is not as much affected by deployment strategy as is frequently thought in particular whether or not the hydrogen retail infrastructure is introduced smoothly does not sensitively influence the investment timing fairly independent of parameter assumptions the project value at the moment of deployment is negative for the retailer and positive for the car manufacturer this implies the need for a negotiated partnership finally we assess various forms of government support e g subsidies or tax cuts looking at the effectiveness of this support spending in relation to the advancement of hydrogen deployment we find again because investment timing is primarily determined by technology maturation that tax incentives are relatively ineffective we are lead to believe that government subsidy for technology development is a more effective means to achieve earlier investment as faster production cost reductions for hydrogen and fuel cell vehicles lead to accelerated investment

sticky prices a new monetarist approach why do some sellers set nominal prices that apparently do not respond to changes in the aggregate price level in many models prices are sticky by assumption here it is a result we use search theory with two consequences prices are set in dollars since money is the medium of exchange and equilibrium implies a nondegenerate price distribution when the money supply increases some sellers may keep prices constant earning less per unit but making it up on volume so profit stays constant the calibrated model matches price change data well but in contrast to typical sticky price models money is neutral jel e52 e31 e42

price smoothing and inventory this paper explains the phenomenon of price rigidity or price smoothing as the outcome of the optimal inventory policy of a multi period profit maximizing firm under demand and output uncertainties price smoothing may be manifested in two forms first price changes may be moderated with respect to those implied by the demand function and second the firm may choose to restrict price fluctuations by establishing upper and or lower bounds on prices we show that the extent of the asymmetry in price smoothing depends on the relationship between the inventory holding cost and the backlog penalty cost our model accommodates a wide range

sectoral price rigidity and aggregate dynamics abstract this paper studies the business cycle implications of sectoral heterogeneity in price rigidity using a highly disaggregated multi sector model the model is estimated by the simulated method of moments using a mix of aggregate and sectoral u s data the frequencies of price changes implied by our estimates are consistent with those reported in micro based studies we show that heterogeneity in price rigidity is the primary factor explaining the heterogeneity in the responses of sectoral output and inflation to a monetary policy shock we also find that ignoring sectoral heterogeneity in price rigidity leads to the mismeasurement of the relative importance of aggregate and sector specific shocks in aggregate and sectoral fluctuations

malmquist productivity index decompositions a unifying framework in two widely cited but unpublished working papers simar and wilson 1998 and zofio and lovell 1998 proposed an alternative decomposition of the malmquist productivity index which retained what seemed to be the strongholds of previous proposals with regard to the contribution of technological and efficiency change to productivity change namely a technical change term with regard to the best practice variable returns to scale vrs technology which is to be found in ray and desli 1997 and a scale efficiency change term that illustrates a firm s situation with regard to optimal scale benchmark technology fare et al 1994 attaining this objective required the introduction of an additional term in the malmquist productivity index decomposition which would reflect the scale bias of technical change it is our objective to provide economic rationale for this term within a theory of production context the existing decompositions and recent articles that further elaborate on this issue the ide

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

paralyzed by fear rigid and discrete pricing under demand uncertainty we propose a new theory of price rigidity based on firms knightian uncertainty about their competitive environment this uncertainty has two key implications first firms learn about the shape of their demand function from past observations of quantities sold this learning gives rise to kinks in the expected profit function at previously observed prices making those prices both sticky and more likely to reoccur second uncertainty about the relationship between aggregate and industry level inflation generates nominal rigidity we prove the main insights analytically and quantify the effects of our mechanism our estimated quantitative model is consistent with a wide range of micro level pricing facts that are typically challenging to match jointly it also implies significantly more persistent monetary non neutrality than in standard models allowing it to generate large real effects from nominal shocks

dynamic competition and price adjustments the link between price rigidity and market structure has long been a topic of interest to researchers in both macroeconomics and industrial organization research on this subject with its antecedents in the widely debated topic of administered inflation has gone through several stages in recent years the focus of research has been on explaining the speed of price adjustment 8 7 11 4 2 3 a parallel line of research has been on the role of entry in disciplining the price behavior of incumbent firms 15 14 5 the current study extends previous work on price adjustment in several important ways most importantly we introduce dynamic elements of competition as measured by several disaggregated measures of domestic and import entry we are able to evaluate the extent to which price effects of entry into u s manufacturing are due to changes in desired prices or to changes in the speed of adjustment to desired prices we depart from previous studies in that we use pooled data to estimate by nonlinear regression methods both the desired target price change and the speed of adjustment across industries

intertemporal profit margin variability and market structure in australian manufacturing abstract three distinct hypotheses have been put forward in recent years by caves and yamey qualls and eckard to explain why intertemporal profit margin variability will be linked positively with market concentration using australian data this paper estimates a two equation model in which the dependent variables are average industry profit margins and intertemporal variability in profit margins and the explanatory variables include various indicia of market structure including concentration concentration is found consistently to be a significant positive determinant of variability in margins and the evidence suggests that this is due to the cyclical factors behind quall s explanation

productivity growth in east asia a reappraisal in recent years there has been considerable disagreement over the extent to which productivity growth has accounted for the success of the east asian economies empirical evidence based on forms of growth accounting or direct estimation of a production function is inconclusive so that the debate appears to be at a stalemate this article applies an alternative approach using the malmquist productivity indices to investigate the contribution of productivity to the longer term growth the results support the view that over the longer term the east asian economies were input driven but interesting differences arise between countries when shorter periods are analysed

stopping inflations big and small previous studies of disinflation work with models in which firms use time dependent strategies changing nominal prices at intervals of fixed length these models may be criticized for failing to allow pricing behavior to adjust after a large shift in policy regime consequently this paper develops a model that permits firms to adopt strategies that are partially state dependent changing nominal prices whenever they depart sufficiently from their target values the paper uses this model to examine how the welfare costs and benefits of disinflation vary with the initial inflation rate and the speed of disinflation copyright 1997 by ohio state university press

robustness of the relationship between price variability and inflation for us manufacturing we study the relationship between relative price variability and inflation in two different ways we first look at product class census unit values for five time periods between 1958 and 1982 and find evidence of a positive relationship between variability and inflation then we directly update the vining and elwertowski 1976 study for the period 1974 91 using individual commodity series from the bureau of labor statistics we conclude by discussing differences across industries in price stickiness

in pursuit of monopoly power recent quantitative work in industrial economics this paper reviews empirical work in industrial organization devoted to the question of inferring the existence of monopoly power from data on observed market outcomes like profits and prices the discussion covers inter industry work long conventional in the area newer developments in intra industry analysis and case studies and concludes with some remarks on a small but growing body of work assessing market dynamics the wide range of studies reviewed all generally reveal that market power exists in many industries

escaping carbon lock in this article explores the climate policy implications of the arguments made in understanding carbon lock in unruh 2000 which posited that industrial countries have become locked into fossil fuel based energy systems through path dependent processes driven by increasing returns to scale carbon lock in arises through technological organizational social and institutional co evolution culminating in what was termed as techno institutional complex tic in order to resolve the climate problem an escape from the lock in condition is required however due to the self referential nature of tic escape conditions are unlikely to be generated internally and it is argued here that exogenous forces are probably required

sticky prices in the euro area a summary of new micro evidence this paper summarises the vast evidence on micro price setting recently obtained for euro area countries we consider studies with micro data on consumer and producer prices as well as survey information the main findings are 1 prices in the euro area are sticky and stickier than in the us 2 downward price rigidity is only slightly more marked than upward price rigidity 3 heterogeneity and asymmetries are observed in price setting and 4 the relevance of theories that explain price stickiness such as implicit or explicit contracts marginal costs and coordination failure is confirmed whereas menu costs pricing thresholds and costly information explanations are judged much less relevant by firms jel c25 d40 e31

five facts about prices a reevaluation of menu cost models are price decreases 3 the frequency of price increases covaries strongly with inflation whereas the frequency of price decreases and the size of price increases and price decreases do not 4 the frequency of price change is highly seasonal it is highest in the first quarter and then declines 5 we find no evidence of upwardsloping hazard functions of price changes for individual products we show that the first second and third facts are consistent with a benchmark menu cost model whereas the fourth and fifth facts are not

the cyclicality of sales regular and effective prices business cycle and policy implications author s coibion olivier gorodnichenko yuriy hong gee hee abstract we study the cyclical properties of sales regular price changes and average prices paid by consumers effective prices using data on prices and quantities sold for numerous retailers across many us metropolitan areas inflation in the effective prices paid by consumers declines significantly with higher unemployment while little change occurs in the inflation rate of prices posted by retailers this difference reflects the reallocation of household expenditures across retailers a feature of the data which we document and quantify rather than sales we propose a simple model with household store switching and assess its implications for business cycles and policymakers jel d12 e31 e32 l25 l81

new keynesian economics and the phillips curve models with sticky prices are an important part of new keynesian economics the author shows that several of the new keynesian models imply a formulation that is similar to the expectations augmented phillips curve of milton friedman and edmund phelps he then presents new estimates of the new keynesian phillips curve the author uses two proxies for price expectations survey based measures and an econometric based measure originally developed by bennett mccallum 1976 overall the results are consistent with the model but the survey based results are more precise suggesting that the surveys may be better measures of actual expectations copyright 1995 by ohio state university press

the real thing nominal price rigidity of the nickel coke 1886 1959 we report that the price of a 6 5 oz coca cola was 5c from 1886 until 1959 thus we are documenting a nominal price rigidity that lasted more than 70 years the case of coca cola is particularly interesting because during the 70 year period there were substantial changes in the soft drink industry as well as two world wars the great depression and numerous regulatory interventions and lawsuits which led to substantial changes in the coca cola market conditions the nickel price of coke nevertheless remained unchanged we find that this unusual rigidity is best explained by 1 a contract between the company and its parent bottlers that encouraged retail price maintenance 2 a single coin vending machine technology which limited the company s price adjustment options due to limited availability and unreliability of the existing flexible price adjustment technologies and 3 a single coin monetary transaction technology which limited the company s price adjustment options due to the customer inconvenience cost we show that these price adjustment costs are of a different nature than the standard menu cost and their estimates exceed the existing estimates by an order of magnitude a possible broader relevance of the nickel coke phenomenon is discussed in the context of nickel and dime stores which were popular in the us in the late 1800s and the early 1900s

a realist appraisal of post keynesian pricing theory this paper argues that based on the ontological insights of critical realism epistemological guidelines can be established to review post keynesian pricing theories critically consequently the paper suggests a basis on which the coherence of post keynesian pricing theory can be established crucially some often cited contrib u t i o n s are inconsistent with such a realist define d post keynesian economics the role of empirical work in critical realism is discussed

determinants of price adjustment this paper reports results of an empirical study investigating the adjustment speed of prices to change in costs and demand particular emphasis is laid on the impact of concentration on the adjustment speed in addition the effects of the business cycle and capital intensity are considered it shows that concentrated industries tend to adjust prices faster while capital intensity has a negative impact prices are more flexible during an upswing than in times of a recession

the new keynesian synthesis the new keynesians made more rapid progress in understanding the microeconomics of unemployment than in understanding the microeconomics of nominal price rigidity but the past five years have seen important breakthroughs in this second area this paper will describe these breakthroughs discuss our current understanding of nominal rigidity and assess the work that remains to be done

the magnitude of menu costs direct evidence from large u s supermarket chains we use store level data to document the exact process of changing prices and to directly measure menu costs at five multistore supermarket chains we show that changing prices in these establishments is a complex process requiring dozens of steps and a nontrivial amount of resources the menu costs average 105 887 year per store comprising 0 70 percent of revenues 35 2 percent of net margins and 0 52 price change these menu costs may be forming a barrier to price changes specifically 1 a supermarket chain facing higher menu costs due to item pricing laws that require a separate price tag on each item changes prices two and one half times less frequently than the other four chains 2 within this chain the prices of products exempt from the law are changed over three times more frequently than the products subject to the law in principle fixed costs of changing prices can be observed and measured in practice such costs take disparate forms in different firms and we have no data on their magnitude so the theory can be tested at best indirectly at worst not at all alan blinder 1991 p 90

a mixed industrial structure magnifies the importance of menu costs new keynesian literature assumes symmetric industrial structure when analysing explanations of money non neutrality this paper analyses the impact of modifying this assumption by allowing for a mixed industrial structure some industries are characterized by monopolistic competition others by perfect competition the mixed industrial structure implies misallocation of labour between the different industries which may contribute to explanations of non neutrality of money following a 5 money increase the menu costs needed for non neutrality may be 40 times smaller and ratio of welfare gain over private loss more than 100 times larger than in the corresponding model with a symmetric structure

law or economics w hen aaron director and edward levi launched the journal of law and economics in 1958 director suggested the title law or economics this alternative title certainly described the world more accurately at that time the traditional attitude of each discipline toward the other had been one of indifference only gradually has that attitude been replaced by a mixture of cooperation and hostility the first systematic application in america of economics to law was the use of price theory to explain economic phenomena involved in the antitrust cases director made creative use of price theory to explain phenomena such as tie in sales and patent licensing and assisted younger colleagues such as john mcgee and lester telser in their respective studies of predatory competition and resale price maintenance in such applications professional economic analysis was replacing the amateur economics of the lawyer lawyers did not welcome this development the national committee for the study of the antitrust laws was the scene of a deep schism between the fifty three lawyers and the eight economists 2 these numbers probably represented the belief that 13 percent of antitrust policy is economics the remainder law at one point the lawyers attempted to exclude the economists completely from the formulation of the report the division was not simply one between angels and legally trained devils consider the question of price discrimination economists insisted that price discrimination could persist only under noncompetitive conditions under full competition rivals would undermine any attempt to sell part of the supply at a higher price the lawyers argued to the contrary

price dynamics in uk manufacturing a microeconomic view this paper examines the response of prices to cost and demand shocks in seventy five three digit and four digit industries in the united kingdom during the 1980s the results suggest that prices responded sluggishly to costs but virtually not at all to demand the short run response to materials and fuel shocks was much larger than the response to unit labor cost shocks and some of this difference persisted into the long run prices responded more sluggishly to cost and demand shocks when aggregate inflation was lower and finally pricing dynamics were more sluggish in less competitive industries copyright 1992 by the london school of economics and political science

evidence on the flexibility of prices we consider two competing theories that provide potentially important explanations of price rigidity the first theory argues that prices are sticky at the aggregate level because of the cumulative effects of relatively short adjustment lags at the firm level in contrast the second theory argues that aggregate prices are slow to adjust because individual prices are slow to adjust we estimate a structural model in which imperfectly competitive firms set prices in order to maximize profits subject to quadratic costs of price adjustment the results suggest that to the extent that aggregate price rigidity exists it can be explained by sluggishness of individual price adjustment however prices at both the aggregate and individual level are found to adjust rapidly to nominal cost innovations copyright 1994 by mit press

shortages segmentation and self selection this paper considers the rationality and implications of using shortages as a self selection device shortages lead to uncertain access and enable sellers to offer ensured access either to the good or to a preferred variety of the good at a higher price or as part of a bundle it is shown that such activities allow firms to span nonconcavities in their revenue function firms respond to changes in demand and costs through changes in quantity and or the premium for ensured access but not through changes in the base price

competition and pricing in the credit card market many credit card issuers charge fixed rates that remain the same for three to five years while the rest charge variable rates that are indexed to market rates the presence of these two distinct rate types forces prices at firms selling an otherwise identical product to move asynchronously variable rates move one for one with the index while fixed rates stay constant empirical and theoretical analysis shows that this pricing structure provides an explanation for the simultaneous yet seemingly contradictory existence of high rate cost margins and aggressive non price competition for new customers a phenomenon that existed in the credit card market in the early 1990s

monetary policy in a forward looking input output economy this paper examines the implications for monetary policy of sticky prices in both final and intermediate goods in a new keynesian model both optimal policy under commitment and discretionary policy under simple loss functions are studied household utility losses under alternative loss functions are compared additionally the robustness of policy performance to model and shock misperceptions and parameter uncertainty is examined targeting inflation in both consumer and intermediate goods performs better than targeting inflation in one sector targeting price levels of both final and intermediate goods performs significantly better moreover targeting price levels in both sectors yields superior robustness properties

price response asymmetric information and competition we compare predictions from a theoretical model based on the structure of the main outdoor retail market in jerusalem with the results of an empirical analysis of price response to changes in cost we find that firms without adjacent competition exhibit both upward and downward price rigidity an outcome we ascribe to asymmetric information between the consumer and the firm given that previous studies have focused on downward price rigidities of firms with market power our findings highlight the importance of accounting for transitory information asymmetries between the consumer and the firm when studying price rigidity

the rigidity of prices this paper uses evidence on individual transaction prices to analyze price behavior the evidence shows that for many transactions pricesremain rigid for periods exceeding one year the rigidity of price ispositively correlated with industry concentration for several productsthe correlation of price changes across buyers is low the paper alsoinvestigates the relationship between price rigidity price change andthe length of time a buyer and seller have been doing business together the author interprets the evidence as emphasizing the importance of nonprice rationing and the inadequacy of models in whichprice movements alone clear markets copyright 1986 by american economic association

adjustment cost and supply response in a fishery a dynamic revenue function in industries where firms can adjust product mix in response to price changes the process can be delayed by adjustment costs an example is fishermen who change fishing grounds to target different species if adjustment costs are sufficiently large this may hamper the fishermen s response so that regulatory tools that are not efficient in the long run are useful in the short run moreover adjustment costs can influence the choice of species targeted in this paper dynamic supply equations are specified using a revenue function approach different hypotheses about the dynamics of the supply equations are tested for norwegian trawlers

the influence of cost and demand changes on the rate of change of prices 1982 the influence of cost and demand changes on the rate of change of prices applied economics vol 14 no 2 pp 195 209

sticky prices and costly credit we develop a theory of money and credit as competing payment instruments then put it to work in applications agents use cash and credit because the former latter is subject to the inflation tax transaction costs frictions that make the choice of payment method interesting also imply equilibrium price dispersion we derive closed form solutions for money demand and show how to simultaneously account for the price change facts cash credit shares in micro data and money interest correlations in macro data the effects of inflation on welfare price dispersion and markups are discussed as are nonstationary equilibria with dynamics in the price distribution

real exchange rates and macroeconomics evidence and theory since the early 1980s a large body of research has thrown doubt on the relevance of macroeconomic models for understanding exchange rates the authors argue that a balanced reading of recent literature in exchange rate economics gives a more optimistic assessment many studies have established the pertinence of long run purchasing power parity ppp and the explanatory power of macroeconomic fundamentals in real exchange rate fluctuations a reasonably strong case can be made for a traditional macroeocnomic interpretation of real exchange rates which emphasizes short run price stickiness but long run ppp but a central new ingredient in this interpretation is the presence of international commodity market segmentation and persistent deviations from the law of one price an example is given of a dynamic general equilibrium model that can reproduce some of the observed features of real exchange rate fluctuations

price fixing policy abstract the prohibition against price fixing is competition law s most important and least controversial provision yet there is far less consensus than meets the eye on what constitutes price fixing and prevalent understandings cannot be reconciled with principles of oligopoly theory this article 1 presents a fundamental reconceptualization of our understanding of horizontal agreements 2 develops a systematic analysis of price fixing policy that focuses on its deterrence benefits and chilling costs and 3 compares this direct approach to commentators favored formulations that typically involve some sort of formalistic communications based prohibition by targeting a subset of means rather than the illicit ends conventional formulations tend to impose liability in cases with lower deterrence benefits and greater chilling costs than those reached under a direct approach and to incur greater administrative costs as well

local business taxes theory and practice local taxes which are borne by business are an aspect of local government revenue systems in almost all western countries these taxes cover a wide range of possible structures from the highly visible and direct such as taxes on business profits assets and wealth to the more indirect which bear on the inputs to a firm such as payroll property and resource rentals and severance taxes or taxes which bear on outputs such as sales taxes most local governments also employ in addition to taxes user fees and charges the range of local business tax is still further widened when we extend consideration beyond corporate business to include sole traders and partnerships in this case in addition to most of the above taxes we must also consider local taxes on personal income capital gains capital transfers and inheritance hence the range of taxes to be considered amongst local business taxes is both large and very complex

cyclical price flexibility a test of administered pricing the study of cyclical price behavior has been a debate over the extent to which prices behave in a classical manner falling in recessions and rising in expansions at one extreme in this debate the proponents of administered prices state that in recessions administered prices tend to fall less than market dominated prices similarly since administered price does not fall as much in recession it rises less in recovery 8 p 292 some proponents 4 i 7 p ii have suggested a response lag in administered price industries resulting in countercyclical price behavior in these industries at the other extreme in this debate stigler and kindahl sk and annual data do not exactly test cyclical hypothesis rice i i used three concentration intervals and found little relation to the standard deviation of the percentage change in average annual prices he used both bls list price data and nber transactions price data his test is also biased against any cyclical hypotheses since business cycles are not annual phenomena if the relation between price changes and concentration is u shaped the concentration intervals selected will be crucial to any u shape test also a chi square test of this sort is weaker than the parametric tests which could have been used on the same data weiss investigated the relations between concentration percentage price changes and deviation from trend for the nber transactions price series over different stages of the business cycle using three concentration groups he found that in recessions prices in the least concentrated industries were more likely to fall both absolutely and relative to trend then other price series but there was no distinction between price behavior in the two most concentrated

productivity growth technical progress and efficiency change in industrialized countries this paper analyzes productivity growth in 17 oecd countries over the period 1979 1988 a nonparametric programming method activity analysis is used to compute malmquist productivity indexes these are decomposed into two component measures namely technical change and efficiency change we find that u s productivity growth is slightly higher than average all of which is due to technical change japan s productivity growth is the highest in the sample with almost half due to efficiency change jel c43 d24 in this paper we apply recently developed

a structural approach to identifying the sources of local currency price stability the inertia of the local currency prices of traded goods in the face of exchange rate changes is a well documented phenomenon in international economics this paper develops a structural model to identify the sources of this local currency price stability and applies it to micro data from the beer market the empirical procedure exploits manufacturers and retailers first order conditions in conjunction with detailed information on the frequency of price adjustments following exchange rate changes to quantify the relative importance of local non traded cost components markup adjustment by manufacturers and retailers and nominal price rigidities in the incomplete transmission of such changes to prices we find that on average approximately 60 of the incomplete exchange rate pass through is due to local non traded costs 8 to markup adjustment 30 to the existence of own brand price adjustment costs and 1 to the indirect strategic effect of such costs though these results vary considerably across individual brands according to their market shares

price rigidity inflation and market concentration some canadian evidence from the 1970s in the literature on industrial pricing there is a long standing dispute over the theoretical rationale for and the empirical validity of price rigidity briefly the arguments is that the speed of price adjustment is a function of market structure in competitive markets prices are flexible they adjust rapidly to supply and demand shocks but in oligopoly they can be relatively rigid they adjust only slowly if it all to these same shocks 1 but because the theoretical basis fot the rigidity hypothesis is decidedly ad hoc it is often summarily dismissed 2 empirically however a number of studies for various countries and time period have found relationship between concentration a proxy for oligopolistic market structure and price change and or some other measure of the speed of price adjustment compatible with price rigidity 3 although these result are not totally unambiguous 4 the canadian evidence at least prior to the 1970s strongly supports the rigidity hypothesis sellekaerts and l

retail interest rate rigidity after financial liberalization the argument for financial liberalization in developing countries is broadly that administered retail lending and deposit interest rates set below their market clearing levels result in the misallocation of credit and thus retard investment and growth see fry 1994 the usual policy prescription in the development literature is therefore to allow commercial banks to determine their own retail interest rates the fact that the commercial banks have this freedom does not of course imply that retail rates will be market clearing commercial banks may be sluggish when adjusting their retail rates implying that the misallocation of credit may remain a problem even after liberalization furthermore sluggish retail interest rate adjustment will increase the lags involved in the transmission of monetary policy this is clearly an important issue yet it has received very little attention in the financial liberalization literature one possible reason for this lack of attention is that much of the literature on price rigidity in the banking system utilizes microeconomic crosssectional data sets data of a type that is useful for examining issues of market concentration in different geographical markets see gilbert 1984 this type of data is typically unavailable for developing econornies this paper introduces a different approach using only the time series data that are available the issue of rigidity is examined using the cointegration and error correction methodology utilizing results on speeds of adjustment of retail lending and deposit rates to changes in wholesale interbank rates a further innovation in the paper is the use of an asymmetric error correction methodology which makes it possible to examine whether retail rates have greater rigidity upwards or downwards

can sticky prices account for the variations and persistence in real exchange rates abstract this paper provides an empirical assessment of the importance of sticky prices in accounting for the variations and the persistence in real exchange rates vector autoregressions with five variables from two countries that always include the united states are estimated restrictions are imposed to identify a global shock and two sets of country specific output shocks one set of shocks is associated with instantaneous price adjustments while the other has delayed effects on prices data from the g7 countries reveal that us sticky price shocks are the dominant source of real exchange rate variations but these shocks have reasonably short half lives and cannot account for the observed real exchange rate persistence non sticky price shocks can induce very persistent real exchange rate dynamics even though they account for little of the historical real exchange rate variations