necessary and sufficient conditions for factor price equalization although models with factor price equalization are used frequently in both theoretical and applied research in international economics only sufficient conditions for factor price equalization have been presented in the literature in this paper the authors present necessary and sufficient conditions for factor price equalization under quite general assumptions about the technologies of different countries the necessary and sufficient conditions they derive are consistent with joint production decreasing returns to scale and substantive differences in the technologies and endowments of different countries the authors results enable them to reconcile the classical approach and the integrated equilibrium approach to factor price equalization

trade ins and introductory offers in a monopoly we model the commonly used marketing practices of offering discounts to either repeat buyers trade ins or new buyers introductory offers of a quasi durable good we analyze these practices in terms of their potential for intertemporal and third degree price discrimination in our two period model the monopolist sets a first period price that segments the second period market optimally into holders and nonholders of the good in the second period different prices are quoted to the two market segments we present three versions of the model with varying assumptions on consumers rationality

measuring heterogeneous reservation prices for product bundles this paper develops a model for capturing continuous heterogeneity in the joint distribution of reservation prices for products and bundles our model is derived from utility theory and captures both within and among subject variability furthermore it provides dollarmetric reservation prices and individual level estimates that allow the firm to target customers and develop customized and nonlinear pricing policies our experiments show that regardless of whether the products are durables or nondurables the model captures heterogeneity and predicts well models that assume homogeneity perform poorly especially in predicting choice of the bundle furthermore the methodology is robust even when respondents evaluate few profiles self stated reservation prices do not have any informational content beyond that contained in the basic model the direct elicitation method appears to understate overstate the variation in reservation prices across consumers for low priced high priced products and bundles hence this method yields biased demand estimates and leads to suboptimal product line pricing policy the optimization results show that the product line pricing policy depends on the degree of heterogeneity in the reservation prices of the individual products and the bundle a uniformly high price strategy for all products and bundles is optimal when heterogeneity is high otherwise a hybrid strategy is optimal

general equilibrium with endogenously incomplete financial markets abstract the present paper studies a class of general equilibrium economies with imperfectly competitive financial intermediaries and price taking consumers intermediaries optimally choose the securities they issue and the bid ask spread they charge financial intermediation is costly and hence markets are endogenously incomplete an appropriate equilibrium concept is developed and existence is proved competitive equilibria for this class of economies display full indexation of securities payoffs and monetary neutrality even if intermediaries are restricted to issue nominal securities and financial markets turn out to be incomplete this is in sharp contrast with the indeterminacy and non neutrality results established in the literature for incomplete markets economies with exogenously given nominal securities journal of economic literaturclassification numbers d52 g20

does lumpiness matter in an open economy studying international economics with regional data abstract this paper addresses the empirical question whether the regional distribution of production factors within countries is ever so uneven that it triggers specialization of production that makes regions produce different sets of goods at different factor prices due to the different welfare effects of trade policy in a country with regional specialization this is an important question in addition it is a question about the legitimacy of treating a country as a relatively homogenous unit in answering these questions i implement the concept of lumpiness as introduced by courant and deardorff j polit econ 100 1992 198 i find that lumpiness or an uneven regional distribution of production factors that induces intranational specialization and different regional factor prices is not an issue for japan the united kingdom and maybe not even for india

does sunspot monetary policy matter abstract in this note we examine the effectiveness of pure random monetary policies i e changes in the money supply with no direct redistributive effects conditioned only on some extrinsic source of uncertainty in the framework of a general infinite horizon economy with uncertainty we show that these policies affect the agents insurance opportunities and hence have in general real effects when markets are incomplete and some nominal assets are traded the result is shown to extend though in a slightly weaker form to the case in which monetary policy is conditioned only on the intrinsic uncertainty in the economy

a many cone world abstract the breakdown of global factor price equalization or a single cone world is a central concern in various fields of economics this paper examines the empirical validities of the following two claims 1 the multiple cone heckscher ohlin ho model fits better than does the single cone ho model and 2 increases in the number of cones improve the fit of the model one of the contributions of this paper is that it focuses simultaneously on factor endowments production patterns and wage disparities across economies my empirical results support the first claim but not the second claim the results suggest that although the multiple cone model performs better than does the single cone model the increases in the number of cones do not necessarily result in better performance of the ho model

international trade with lumpy countries this paper explores the implications for the pattern of international trade of differences among regions within countries what we call lumpiness if factors of production are sufficiently unevenly distributed across regions then the pattern of trade of the country as a whole may depart from what it would have been had factors been evenly distributed thus lumpiness in the geographical distribution of factors can be a determinant of trade we show in particular that if other determinants of trade are absent then a country will tend to export the good that intensively uses its lumpier i e more unevenly distributed factor

bundling of substitutes or complements abstract the adams yellen two good bundling framework is generalized to allow the goods to be substitutes or complements general theorems on price change effects are given a monopolist may find it most profitable to offer the goods only as a bundle even if they are imperfect substitutes or to not bundle the goods even if they are complements if one good is competitively sold a monopoly producer of the other good can never increase profits by offering his good only as part of a bundle however such a monopolist might profitably offer his good in both bundled and unbundled form to price discriminate even if the two goods are substitutes

the regional economic consequences of tariffs and domestic transportation costs a small open economy is assumed to consist of two regions where interregional transport costs are higher than international transport costs cross hauling of identical commodities occurs and things such as terms of trade changes tariffs and domestic taxes have distinctly regional effects if tariffs generate interregional trade a welfare loss equal to the previous tariff collection occurs tariffs may also increase welfare for one region and may reverse the trade pattern for the economy tariffs and domestic taxes subsidies are not equivalent in this model tariffs also generate regional factor price differences which will not be eliminated by migration unless relative endowments are equalized les effets economiques regionaux des tarifs douaniers et des coats de transport domestique l auteur examine le cas d une petite 6conomie ouverte faite de deux regions entre lesquelles les couits de transport sont plus 6lev6s que les couits de transport internationaux on observe des mouvements de biens identiques entre pays dans les deux directions et des changements dans les termes d echange dans les tarifs douaniers et dans la fiscalit6 domestique ont des effets regionaux distincts si les tarifs douaniers engendrent un commerce interregional une perte de bien etre 6gale a la perte des droits de douane collect6s ant6rieurement se produit l introduction de tarifs douaniers peut accroftre le bien etre d une region et renverser le pattern de commerce international pour l 6conomie dans son ensemble dans ce modele tarifs douaniers et taxes subventions ne s 6quivalent pas les tarifs douaniers peuvent engendrer des diff6rences regionales dans le prix des facteurs qui ne s 6limineront pas par les mouvements migratoires a moins que les dotations relatives de facteurs ne soient 6galis6es

pricing of demand related products can ignoring cross category effect be a smart choice abstract this paper studies pricing strategies of competing retailers offering substitutable products in multiple product categories for such retailers in addition to accounting for within category pricing effects cross category effects can also influence consumers purchase decisions and thereby impact the retailers optimal pricing strategies we model consumers utility for purchasing substitutable products from the same category and from other categories as well we then solve a game theoretic model to identify the retailers optimal prices and profits our results show that accounting for cross category effects largely influences the retailers pricing and profitability in particular cross category effects influence the sensitivity of prices to within category substitution levels while cross category effects have an impact on retailers equilibrium strategies this effect is only relevant when within category substitution effects are present we also find that intentionally ignoring cross category effects leads to lower prices for categories that are either substitutable or highly complementary and to higher prices otherwise when not accounting for the fact that the two categories are demand related implies lower prices than when this information is accounted for then at least one retailer chooses to disregard the cross category effect at equilibrium finally we find evidence for prisoner s dilemma situations where both retailers ignore cross category effect at equilibrium while accounting for it would yield them higher profits

optimal bundling and pricing under a monopoly contrasting complements and substitutes from independently valued products we develop an analytical model of contingent valuations and address two questions of import to a monopolist i should a given pair of complements or substitutes be sold separately pure components together pure bundling or both mixed bundling and at what prices ii how do optimal bundling and pricing strategies for complements and substitutes differ from those for independently valued products we find that the combination of marginal cost levels and the degree of complementarity or substitutability determines which of the three bundling strategies is optimal complements and substitutes should typically be priced higher than independently valued products

a guide to the pitfalls of identifying price discrimination this paper demonstrates that plausible cost based explanations exist for what are commonly perceived to be cases of price discrimination we explain such commonly discussed problems as the price spreads of retail gasoline products the high price of dinners at restaurants the high price of popcorn at movie theaters and the fact that airline ticket prices vary with how long the ticket is purchased before the flight s departure our explanations benefit from not relying on consumer ignorance or implicit collusion among numerous sellers

the relevance of financial policy when the asset market is incomplete equilibrium allocations are not invariant to changes in the financial policies of firms in the presence of secondary assets such as options whose payoffs depend nonlinearly on the price of equity the range of attainable reallocations of revenue varies as a firm alters its position in the asset market corporate financial policy is thus relevant when assets are nominal monetary policy implemented through open market operations is also effective

gaussian demand and commodity bundling in an important and widely cited essay adams and yellen 1976 examine the use of package selling as a price discrimination device they consider a monopolist producing two goods with constant unit costs and facing buyers with diverse tastes the marginal utility of a second unit of either good is assumed to be zero for all buyers the two goods are independent in demand for all buyers so that any buyer s reservation price for the first unit of either good is independent of the market price of the other thus the maximum amount any buyer would pay for a bundle consisting of one unit of each good is the sum of the two reservation prices and buyers are completely described by the values of those two prices 2 resale markets are assumed away in order to obtain comparative results for alternative pricing strategies the distribution of reservation prices in the adams yellen framework is assumed to be bivariate normal implications of gaussian demand are explored pure bundling is shown to operate by reducing buyer diversity thus facilitating the capture of consumers surplus it generally makes buyers worse off than unbundled sales it is more profitable if average reservation prices are high enough mixed bundling combines advantages of both pure bundling and unbundled sales and it is generally strictly more profitable than either bundling which treats goods symmetrically seems most attractive under symmetric reservation price distributions i am indebted to severin borenstein for superb research assistance to the ford motor company for research support through a grant to m i t and to the harvard economics department for housing me as a visiting scholar while most of this research was performed of course only i can be held responsible for this essay s shortcomings 1 the first clear recognition of this possibility seems to have been by stigler 1968 but also see burstein 1960 2 paroush and peles 1981 relax the assumption that consumers purchase at most one unit of each good but they consider only two types of buyers both with linear demand functions they retain the assumption that demands are independent for all buyers telser 1979 and phillips 1981 use different frameworks to analyze bundling policies spence 1980 explores the relation between bundling across commodities as here and bundling multiple units of the same

optimal bundling strategies under heavy tailed valuations we develop a framework for the optimal bundling problem of a multiproduct monopolist who provides goods to consumers with private valuations that are random draws from a distribution with heavy tails we show that in the vickrey auction setting the buyers prefer separate provision of the goods to any bundles we also provide a complete characterization of the optimal bundling strategies for a monopolist producer who provides goods for profit maximizing prices for products with low marginal costs the seller s optimal strategy is to provide goods separately when consumers valuations are heavy tailed and in a single bundle when valuations are thin tailed these conclusions are reversed for goods with high marginal costs for simplicity we use a specific class of independent and identically distributed random variables but our results can be generalized to include dependence skewness and the case of nonidentical one dimensional distributions

the lens condition for factor price equalization abstract deardorff 1994 provides a condition that is necessary for factor price equalization across countries this is a generalization of the condition that country endowments should lie in the diversification cone from the standard 2 2 2 heckscher ohlin model to the case of many goods countries and factors he also shows that this condition is sufficient in the case of two countries and conjectures that the sufficiency might hold in general in this paper we establish the sufficiency in further cases however we show by a counterexample that the sufficiency does not hold in general

a combined monopoly and optimal packaging this paper specifies the conditions under which a profit maximizing monopoly will market a package of two different commodities even when the demands for and the cost of production of each commodity are entirely independent of the other packaging is here a useful way of implicitly discriminating by price especially when explicit price discrimination is not possible some of the welfare applications are discussed

bundling subscription tv channels abstract i analyze a market such as a subscription tv market where multiple varieties of an excludable public good are traded in bundles here bundling is not due to a producer s desire to extract consumers surplus but due to economies of scope in distribution technology the paper studies the pricing and production decisions of a supplier as well as the impacts of certain regulations such as pure bundling or pure components pricing restrictions findings of interest are as follows a profit constrained welfare maximizer would use a pure bundling price system when costs are low and a mixed bundling price system when costs are high a private monopolist produces too few varieties a pure bundling restriction on a private monopolist may increase welfare and consumer surplus but a pure components restriction never increases them

multiproduct pricing in oligopoly abstract this paper proposes a two good model of price competition where some consumers visit all shops and others visit only one we find that information frictions lead to price dispersion when the two goods are complements their prices will tend to be negatively correlated so if one is priced high the other will be discounted this finding is supported by some empirical evidence which suggests that simultaneous price discounts of complements are infrequent if the goods are substitutes their prices will be uncorrelated potentially rationalizing the lack of evidence on their co pricing when selling complements retailers earn higher profits than in the one good model through taxing captive consumers with a high overall price tag and attracting shoppers by pricing one of the goods aggressively bundling practices are thus shown to be detrimental to retailers profits

the sufficiency of the lens condition for factor price equalization in the case of two factors factor price equalization fpe is a central theme in trade theory for which dixit a k norman v 1980 theory of international trade cambridge university press london establish the necessary and sufficient condition the dixit norman condition deardorff a v 1994 the possibility of factor price equalization revisited journal of international economics 36 167 175 provides a more intuitive condition the lens condition and establishes its necessity in general as well as its sufficiency for the case of two countries in this paper i prove that the lens condition is sufficient for fpe in the case of two factors this theorem has implications for empirical work 2001 elsevier science b v all rights reserved

on the non neutrality of money with incomplete markets abstract in this paper we show that if markets are incomplete and there are nominal assets whose payoff is denominated in money monetary policy will be in general non neutral the mechanism through which monetary policy operates is a change in the structure of the rates of return by changing the level of money prices monetary policy affects the payoffs of nominal assets this differs from previous arguments for non neutrality we also show that a consideration of this effect of monetary policy may allow us to claim the superiority from a welfare point of view of a random money growth rate over a deterministic one journal of economic literature classification numbers d52 e50 g10

profitability of product bundling using copulas to model the stochastic dependence of values this article establishes new general conditions for the profitability of product bundling a multiproduct monopolist generally achieves higher profit from mixed bundling than from separate selling if consumer values for two of its products are negatively dependent are independent or have sufficiently limited positive dependence the profitability of monopoly bundling also extends to situations where a multiproduct firm competes with a single product rival

why firms may prefer not to price discriminate via mixed bundling abstract we analyze a simple model of joint purchase discounts using a discrete choice framework to characterize consumer choices the model suggests that mixed bundling is more likely to be associated with monopoly this is due to the benefits reaped via price discrimination in a duopoly environment however only pure components pricing may be offered in equilibrium since firms fear the extra degree of competition inherent in mixed bundling

chapter 11 pricing models in marketing publisher summary this chapter brings together a set of diverse efforts in the recent literature on the modeling of price decisions and related questions in marketing there has been an impressive growth in the array of topics investigated in the literature various trends in the development of pricing models are evident from the foregoing review first one trend has been to develop theoretical models to describe observed pricing strategies in the marketplace and to derive conditions under which certain strategies are optimal this trend is clearly evident when one considers the area of dynamic pricing models another trend is an attempt to develop pricing models in which certain aspects of consumer behavior e g asymmetric response to price increases versus price decreases are incorporated this development is quite recent and does offer a large potential a third dominant direction is the use of game theoretic models for developing equilibrium pricing strategies

bundling decisions by a multiproduct monopolist with incomplete information this paper analyzes bundling decisions of a rnultiproduct monopolist facing uncertain demand the monopolist sells his products using an auction mechanism and the market is analyzed as a game with incomplete information in which the buyers as well as the seller are strategic agents with a small number of buyers a profit maximizing seller will bundle all his output this makes buyers uniformly worse off compared to the case where the same monopolist does not bundle in the sense that any buyer is worse off regardless of his demand for the monopolist s outputs with a larger number of buyers the seller will have a tendency to unbundle his output and high demand buyers are worse off than they would be if the monopolist bundled his output low demand buyers on the other hand are always better off when the monopolist unbundles his output regardless of the number of competing buyers despite the fact that high demand buyers are the typical purchasers of the monopolist s output the net effect of increasing the number of buyers is greater market efficiency since bundling creates market inefficiencies both ex post and ex ante

the political economy of international trade and factor mobility abstract free trade in goods and factors is efficient when we move away from economic theory and consider the policies actually followed by governments we observe distortions being implemented both on goods and factors trades it is natural then to question the relative merits of the two types of intervention and the normative literature has provided only partial answers we ask then why is the international flow of goods and factors not free and the political economy literature has looked at the two issues only separately in studying the determination of trade policy a theoretical paradigm has emerged focusing on the role of influence driven contributions this approach has also found strong empirical support the literature on the political economy of factor mobility on the other hand is fragmented distortions in labor and capital flows are typically the subject of different studies and only recently a unified framework has been proposed more work has to be done in this area as well as in integrating the political economy of trade and factor movements

commodity bundling by single product monopolies consider two products that have independent demands in the sense that all individual buyers consider them neither substitutes nor complements then if the two products are priced separately the demand for either is independent of the price of the other in his classic analysis of block booking of feature films george stigler shows that it may be profitable for a monopoly seller of two such products to bundle them by requiring a buyer to take both in order to get either his work provides a rationale for tying arrangements that does not depend on technological or other dependencies among the products involved 2 adams and yellen extend the analysis of multiproduct monopoly with independent demands 3 they discuss two different bundling strategies pure bundling in which the seller only offers the products in fixed proportions and mixed bundling in which buyers may either buy the products separately or purchase a bundle with fixed proportions of each in this note i consider a single product monopoly and investigate the profit and welfare implications of bundling its product for some other