compatibility and bundling of complementary goods in a duopoly this paper presents a simple model of compatibility and bundling in industries where consumers assemble several necessary components into a system that is close to their ideal the authors show that for a wide range of parameters firms will choose to produce compatible components but will offer discounts to consumers who purchase all components from the same firm however firms would be better off if they could commit not to provide such discounts furthermore the equilibrium tends to involve socially excessive bundling finally mixed bundling strategies tend to increase the range of parameters over which socially excessive standardization occurs copyright 1992 by blackwell publishing ltd

agriculture diffusion and development ripple effects of the neolithic revolution are the effects of the neolithic revolution still impacting on incomes across the world today i find strong support for this proposition using new country specific estimates of the timing of the agricultural transition and provide evidence that the differences are due to how technological diffusion is accounted for a correction for world migrations since 1500 significantly improves the fit transition year also helps to explain income in 1500 itself and an alternative measure of pre modern development state history has similar ability to predict income in 1500 and 1997

on measuring competitive viability and monopoly power in cable an empirical cost approach this study provides empirical evidence concerning the economic feasibility of competition in the local market for video delivery services using responses from the fcc s 1995 cost survey we jointly estimate a translog cost function with factor share equations to evaluate subadditivity the fitted total cost of each firm is compared with the cost of two firms providing the same total output in eleven different market scenarios although costs were mildly superadditive in the vast majority of cases they were lower when one firm provided the output average cost savings with respect to a monopoly were fairly small ranging from 1 37 with a 10 market overlap to 5 05 with a complete overbuild we also calculated marginal cost from the fitted total cost equation and a price for cable services derived from the fcc survey data using these results and rubinovitz s price elasticity of 1 46 we estimated that reregulation had a regulatory effectiveness of 0 3251 and held prices to 40 5 of the monopoly level

inflation targeting in emerging market and transition economies lessons after a decade abstract starting in the early 1990s several emerging market and transition economies adopted inflation targeting it in this paper we discuss a number of issues that arise in this context a the definition of it b the role of preconditions for it c the use of intermediate exchange rate targets and d the specification of inflation targets our overall conclusion is that suitably modified it is a useful policy strategy for emes

optimal bundling of technological products with network externality for many high tech and internet related products utility to consumers depends in part on the size of the user base a phenomenon called network externality a firm with a portfolio of these and other products that are often asymmetric in their degree of network externality or marginal cost may have to look beyond the traditional strategies of pure components pure bundling and mixed bundling one such strategic alternative in a two product case would be a so called mixed bundling 1 under which the bundle and product 1 are offered but the other product can only be purchased in a bundled form the purpose of this study is to compare and contrast the impact of such asymmetry or symmetry in direct network externality and cost on the choice of bundling strategies we model a monopolist firm that has a product in each of two categories and faces heterogeneous consumers results suggest that pure bundling is more profitable when both products have low marginal costs or high network externality whereas pure components or mixed bundling 1 is more profitable when the products diverge in their costs and network externality e g only one product has network externality traditional mixed bundling is optimal in other instances

early starts reversals and catch up in the process of economic development early states like china and india have been experiencing more rapid economic growth in recent decades we show that more rapid growth by early starters has been the norm in economic history and that the reversal of fortune associated with the european overseas expansion was both exceptional and temporary not only was the post 1500 reversal in the process of being reversed after 1960 but also the advantage conferred by early development in the latter period was considerably greater than the growth rate disadvantage that it conferred during 1500 1960 implying a rapid undoing of the first reversal

managing channel profits a channel of distribution consists of different channel members each having his own decision variables however each channel member s decisions do affect the other channel members profits and as a consequence actions a lack of coordination of these decisions can lead to undesirable consequences for example in the simple manufacturer retailer consumer channel uncoordinated and independent channel members decisions over margins result in a higher price paid by the consumer than if those decisions were coordinated in addition the ensuing suboptimal volume leads to lower profits for both the manufacturer and the retailer this paper explores the problems inherent in channel coordination we address the following questions what is the effect of channel coordination what causes a lack of coordination in the channel how difficult is it to achieve channel coordination what mechanisms exist which can achieve channel coordination what are the strengths and weaknesses of these mechanism what is the role of nonprice variables e g manufacturer advertising retailer shelf space in coordination does the lack of coordination affect normative implications from in store experimentation can quantity discounts be a coordination mechanism are some marketing practices actually disguised quantity discounts we review the literature and present a simple formulation illustrating the roots of the coordination problem we then derive the form of the quantity discount schedule that results in optimum channel profits this article was originally published in marketing science volume 2 issue 3 pages 239 272 in 1983

reputation and imperfect information abstract a common observation in the informal literature of economics and elsewhere is that is multistage games players may seek early in the game to acquire a reputation for being tough or benevolent or something else but this phenomenon is not observed in some formal game theoretic analyses of finite games such as selten s finitely repeated chain store game or in the finitely repeated prisoners dilemma we reexamine selten s model adding to it a small amount of imperfect or incomplete information about players payoffs and we find that this addition is sufficient to give rise to the reputation effect that one intuitively expects

china s macroeconomic performance and management during transition since reforms started in 1978 china has combined rapid growth with moderate price stability this paper analyzes china s macroeconomic performance over the past fifteen years with special attention to factors responsible both for the pace of economic expansion and the periodic fluctuations regarding the former the author identifies four sources of stimuli administrative decentralization high levels of fixed capital investment the elastic supply and quality of the labor force and the increasing volume of savings supplemented in recent years by a large inflow of foreign direct investment future growth with stability calls for controlling and implementing banking and fiscal reform

monetary convergence of the eu accession countries to the eurozone a theoretical framework and policy implications abstract a flexible approach to direct inflation targeting offers the european union accession countries a viable monetary policy choice that is believed to facilitate both the economic transition and the monetary convergence to the eurozone following this assumption a model investigating the nexus between inflation and selected monetary variables in three eu accession countries the czech republic poland and hungary is advanced the empirical analysis is aimed at explaining the sensitivity of the cpi based inflation path in these countries to backward as well as forward looking expectations nominal exchange rate fluctuations the eurozone inflation impulses and output changes the analysis implies that the monetary convergence begins with flexible inflation targeting and concludes with a full fledged euroization

coordinating channels under price and nonprice competition this paper analyzes how manufacturers should coordinate distribution channels when retailers compete in price as well as important nonprice factors such as the provision of product information free repair faster check out or after sales service differentiation among retailers in price and nonprice service factors is a central feature of markets ranging from automobiles and appliances to gasoline and is especially observed in the coexistence of high service retailers and lower price discount retailers therefore how a manufacturer should manage retail differentiation is an important channel management question yet the approach in the existing literature has been to examine channel coordination under the standard symmetric contracting assumption that offering a uniform contract to all the retailers in a market will be sufficient for coordination i bring this assumption into question and ask when is it optimal for the manufacturer to use the channel contract to deliberately induce retail differentiation even if the retailers were ex ante identical in their cost and other characteristics the paper identifies the type of channel contracts that can endogenously induce symmetry as opposed to differentiation among retailers next the paper highlights a type of channel conflict that arises from the very nature of retail price service competition a manufacturer might find the retailers to be excessively biased towards price competition at the cost of service provision or vice versa the paper establishes when a manufacturer is likely to stimulate greater price as opposed to greater service competition among the retailers the framework that i develop to address these issues highlights the role of two basic types of consumer heterogeneity consumers are heterogeneous in their locations as in the spatial models of horizontal differentiation and in their willingness to pay for retail services as in the models of vertical differentiation the model also uses a natural relationship in retail markets between the travel time cost incurred by a consumer and her willingness to pay the more affluent consumers who have a higher willingness to pay for retail services also have a higher cost for their personal time given these market features the paper analyzes the problem faced by a manufacturer who sells to competing retailers the paper shows that the standard notion in the literature of offering similar contracts to all the retailers is sufficient only in markets with substantial locational differentiation relative to the differences in the willingness to pay effective channel management in these markets simply requires mechanisms that ensure that retailer interests are aligned so that they compete by offering a mix of price and service that is desirable from the manufacturer s point of view however in markets with small locational differentiation and substantial diversity in consumer willingness to pay the manufacturer s problem is not just to align retailer interests but to also use the channel contract to induce the correct level of retail differentiation this helps the manufacturer to better cater to the diversity in consumer willingness to pay and to prevent the cut throat competition that the retailers would otherwise have indulged in the manufacturer can achieve this through the use of menu based contracts menu based contracts induce differentiated retailer behavior despite the fact that the retailers are not forced into accepting different terms of trade this aspect can be useful in shielding manufacturers from litigation under the robinson patman act the paper also shows that for relatively high ticket items retailers tend to be excessively biased towards competing in the provision of retail services the correlation between consumer willingness to pay for service and travel costs implies that for high ticket products the competing retailers will focus on the more service sensitive customers at the cost of ignoring the price sensitive consumers in the market the manufacturer is therefore likely to encourage greater price competition among the retailers in contrast for low ticket items the manufacturer prefers to reduce price competition and encourage greater provision of services this provides an endogenous rationale for the use of price ceilings versus floors the basic model is also extended to consider the effect of upstream competition between manufacturers under upstream competition coordinating retail price and service decisions is not always optimal for an individual manufacturer this extension to manufacturer competition provides a basis for understanding the role of retail price service differentiation in the context of a channel duopoly it also shows that a mixed distribution channel a channel in which one manufacturer chooses to be coordinated while the other chooses to be noncoordinated can be an equilibrium in markets with weak brand loyalty

inflation targeting as a monetary policy rule the purpose of the paper is to survey and discuss in ation targeting in the context of monetary policy rules the paper provides a general conceptual discussion of monetary policy rules attempts to clarify the essential characteristics of in ation targeting compares in ation targeting to other monetary policy rules and draws some conclusions for the monetary policy of the european system of central banks jel classi cation e42 e52

the central banker as a risk manager estimating the federal reserve s preferences under greenspan we derive a natural generalization of the taylor rule that links changes in the interest rate to the balance of the risks implied by the dual objective of sustainable economic growth and price stability this monetary policy rule reconciles economic models of expected utility maximization with the risk management approach to central banking within this framework we formally test and reject the standard assumption of quadratic and symmetric preferences in inflation and output that underlies the derivation of the taylor rule our results suggest that fed policy decisions under greenspan were better described in terms of the fed weighing upside and downside risks to their objectives rather than simply responding to the conditional mean of inflation and of the output gap

research note consumer addressability and customized pricing the increasing availability of customer information is giving many firms the ability to reach and customize price and other marketing efforts to the tastes of the individual consumer this ability is labeled as consumer addressability consumer addressability through sophisticated databases is particularly important for direct marketing firms catalog retailers such as l l bean and land s end credit card issuing banks and firms in the long distance telephone market we examine the strategic implications of consumer addressability on competition between database direct marketing firms we address questions such as in a competitive environment how should firms invest in addressability will future improvements in the degree of addressability increase or mitigate the intensity of competition between the firms will greater addressability always be beneficial for firms we model competition between two firms in a market where consumers differ on a horizontal attribute of product differentiation the market comprises consumers located on a linear attribute space and firms located at the ends of the line we represent the degree of addressability or the reach of a firm s database as the proportion of consumers at each point in the market who are in the firm s database consequently the firm can offer these consumers customized prices consumer addressability creates two effects that govern the competition between firms a surplus extraction effect because a firm might address a consumer who is not reached by its competitor and a competitive effect that is created by the set of consumers who can be addressed by both firms the key results of the paper pertain to when the addressability decision is endogenous when the extent of market differentiation or consumer heterogeneity in preferences for a product brand attribute as well as the incremental cost of addressability are sufficiently large firms make symmetric investments in equilibrium given high costs firms choose sufficiently low levels of addressability low addressability and high levels of market differentiation both help reduce price competition which facilitates symmetric choice of addressability by the firms in equilibrium however when market differentiation and the cost of incremental addressability become small firms face the prospect of destructive competition as a result they strategically differentiate in their choice of addressability to mitigate this competition interestingly even in the extreme case when incremental addressability is costless not every firm chooses full addressability in equilibrium this has useful implications for direct marketing given that the advances in information technology should improve the ability of firms to address their consumers it might indeed not be desirable for all direct marketing firms to indefinitely pursue greater addressability as costs of doing so decline the analysis also shows an interesting effect of market differentiation in addressable markets equilibrium profits can decrease with an increase in market differentiation when the marginal cost of addressability is sufficiently high finally we discuss the competitive outcome that would result when firms compete with addressable as well as uniform posted prices

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

a probabilistic approach to pricing a bundle of products or services the authors propose a probabilistic approach to optimally price a bundle of products or services that maximizes seller s profits their focus is on situations in which consumer decision making is o

a test for cross subsidies in local telephone rates do business customers subsidize residential customers recent regulatory and technological changes suggest that the local telecommunications market may soon present opportunities for profitable entry bypass activity by businesses combined with the generally higher business rates suggests that business service revenues may be subsidizing residential access to the local network before regulators allow wide scale entry into local telecommunications they need to know if local phone service rates exhibit cross subsidies using data supplied by new england telephone this article tests a new set of sufficient conditions for cross subsidization that do not require observations on stand alone cost the results indicate that business service revenues subsidize residential service provision at nearly 65 of the suburban central offices the sufficient conditions for a residential to business cross subsidy fail for all central offices in the sample

institutions and the long run impact of early development we study the role of institutional development as a causal mechanism of history affecting current economic performance several indicators capturing different dimensions of early development in 1500 ad are used to remove the endogenous component of the variations in institutions these indicators are adjusted with large scale movements of people across international borders using the global migration matrix of putterman and weil 2010 to account for the fact that the ancestors of a population have facilitated the diffusion of knowledge when they migrate the exogenous component of institutions due to historical development is found to be a significant determinant of current output by demonstrating that the relationship between early development and current economic performance works through the channel of institutions and that better institutions can be traced back to historical factors the results of this paper shed some light on how history has played a role in shaping long run comparative development

research note competitive bundling and counterbundling with generalist and specialist firms bundling which is the practice of selling two or more products or services in a package is a pervasive marketing practice and is often used as a strategic competitive tool however there has not been enough consideration of competitive bundling situations in which exit of a competitor is not a concern in this paper we address this issue by identifying conditions under which strategic competitors may or may not resort to bundling when competitor exit considerations are absent we study competition between a multiproduct generalist firm and two single product specialist firms in two product categories one of which has undifferentiated products and the other has differentiated products in our model the specialist firms can form an alliance to bundle their products in competing with the generalist firm in contrast to the previous literature we find that concurrent bundling by competitors if it occurs in equilibrium is profitable we also find that when one competitor bundles and the other does not the bundling firm gains a greater share of customers and makes a higher profit however when conditions favor counterbundling by a competitor such counterbundling helps the competitor retain its customers finally we note that under other market conditions concurrent bundling by competitors escalates price competition to the extent that retaining customers through bundling is not profitable in such a case we show that strategic competitors are better off having asymmetric product lines with one competitor bundling and the other selling unbundled

quantifying the risk of deflation we propose formal and quantitative measures of the risk that future inflation will be excessively high or low relative to the range preferred by a private sector agent unlike alternative measures of risk our measures are designed to make explicit the dependence of risk measures on the private sector agent s preferences with respect to inflation we illustrate our methodology by estimating the risks of deflation for the united states germany and japan for horizons of up to 2 years the question of how large these risks are has been subject to considerable public debate we find that as of september 2002 when this question first arose there was no evidence of substantial deflation risks for the united states and for germany contrary to some conjectures at the time in contrast there was evidence of substantial deflation risks in japan

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

tying foreclosure and exclusion in recent years the leverage theory of tied good sales has faced heavy and influential criticism in an important sense though the models used by its critics are actually incapable of addressing the leverage theory s central concerns here the author reconsiders the leverage hypothesis and argues that tying can indeed serve as a mechanism for leveraging market power the mechanism through which this leverage occurs its profitability and its welfare implications are discussed in detail copyright 1990 by american economic association

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

an industry equilibrium analysis of downstream vertical integration this paper investigates the effect of product substitutability on nash equilibrium distribution structures in a duopoly where each manufacturer distributes its goods through a single exclusive retailer which may be either a franchised outlet or a factory store static linear demand and cost functions are assumed and a number of rules about players expectations of competitors behavior are examined it is found that for most specifications product substitutability does influence the equilibrium distribution structure for low degrees of substitutability each manufacturer will distribute its product through a company store for more highly competitive goods manufacturers will be more likely to use a decentralized distribution system this article was originally published in marketing science volume 2 issue 2 pages 161 191 in 1983

commentary managing channel profits channel coordination and more generally coordination of activities between interdependent economic agents is even more important today than when the paper was published more than 20 years ago one reason is the trend toward globalization and outsourcing caused in part by the development of increasingly complex products and services that integrate many different competencies coordination today involves all the aspects of the marketing mix product design coordination price and service coordination the focus of managing channel profits coordination of availability in highly hybrid distribution systems to better reach an increasingly complex and fragmented market and coordination of communication with the target market managing channel profits argues a tendency toward a lack of coordination without explicit institutional arrangements and coordination mechanisms such as quantity discounts and contracts to solve the problem the price and service coordination ideas of managing channel profits have been successfully applied for 25 years of developments in marketing of revenue and cost sharing arrangements between increasingly interdependent market participants

statehood experience legal traditions and climate change policies this study investigates how the implementation of modern climate change policies is related to former colonies length of state history and their legal heritage we argue that countries with longer statehood experience around the time of colonization were better equipped to implement the legal philosophies transplanted by their colonial powers therefore the implications of receiving british common law versus french civil law should be particularly important in countries with a greater accumulated history of statehood using a cross section of up to 78 former colonies our results provide support for this hypothesis in particular our estimates demonstrate that common law countries have weaker modern climate change policies than civil law countries and the difference is inflated by a longer statehood experience measured by the length of state history from 1 to 1800 ad legal origin has no effect in areas which by the time of colonization had no statehood experience finally we report similar results for the pattern of labor market regulations jel k15 k31 k32 o44 q54 q58

preindustrial and postwar economic development is there a link everybody knows now that the hardware dimension of development the physical infrastructure for example is a lot easier to put in place than the software to keep it operable which depends on local skills and institutions united nations development programme 1

a strategic motivation for commodity bundling the analytical literature on commodity bundling explains the practice of selling two or more differentiated products in a single package as a surrogate for direct price discrimination in contrast this paper shows that imperfect competition creates a strategic incentive to bundle the profitability of bundling whether it adversely affects rival producers and whether it yields an overall efficiency gain depends inter alia on the nature of product market competition the role of complementarity in explaining why firms bundle is also explored copyright 1990 by blackwell publishing ltd

inflation targeting should it be modeled as an instrument rule or a targeting rule abstract the paper discusses how current inflation targeting should be modeled and argues that it is better represented as a commitment to a targeting rule a rule specifying operational objectives for monetary policy or a condition for the target variables than as a commitment to a simple instrument rule like a taylor rule

does inflation targeting make a difference in developing countries we evaluate the treatment effect of inflation targeting in thirteen developing countries that have adopted this policy by the end of 2004 using a variety of propensity score matching methods we show that on average inflation targeting has large and significant effects on lowering both inflation and inflation variability in these thirteen countries however the effectiveness of inflation targeting on lowering inflation is found to be quite heterogeneous the performance of a given inflation targeting regime can be affected by country characteristics such as government s fiscal position central bank s desire to limit the movements of exchange rate its willingness to meet the preconditions of policy adoption and the time length since the policy adoption

equilibrium product bundling this article offers an equilibrium theory of product bundling by rival firms in several models where a primary good is produced in a duopoly market and one or more other goods is produced under perfectly competitive conditions bundling is shown to emerge as an equilibrium strategy of one or both of the duopolists for its role as a product differentiation device when the rival firms can commit to bundling sales their profits are higher but social welfare is reduced copyright 1997 by university of chicago press

the perils of nominal targets a monetary authority can be committed to pursuing an inflation price level or nominal gdp target yet systematically fail to achieve the prescribed goal constrained by the zero lower bound on the policy rate the monetary authority is unable to implement its objectives when private sector expectations stray far enough from the target low inflation expectations become self fulfilling resulting in an additional markov equilibrium in which the monetary authority falls short of the nominal target average output is below its efficient level and the policy rate is typically low introducing a stabilization goal for long term nominal rates can implement a unique markov equilibrium without fully compromising stabilization policy

can an evolutionary approach to development predict post war economic growth might differences in levels of development prior to the era of industrialisation explain some of the dramatic differences in rates of economic growth across developing countries in recent decades this article explores the logic behind such a conjecture and presents evidence that it is true using population and agrarian densities as proxies for early development basic growth regressions are estimated for a sample of developing countries in 1960 90 and for provinces in one country china in 1978 92 the robustness of the results to the inclusion of other measures including ethnic heterogeneity and social capability is also shown

conjoint analysis of price premiums for hotel amenities over the past decade or so conjoint analysis green and rao 1971 johnson 1974 appears to have become one of industry s most widely applied marketing research techniques for estimating consumer s multi attribute utility functions cattin and wittink 1982 however a continuing problem in application of conjoint analysis is how to handle the price attribute in the construction of stimulus profiles for presentation to respondents in many cases of practical interest the price level will be highly correlated with other product attribute levels if the researcher ignores this correlation by allowing the price levels to vary independently of other attributes the resulting profiles may appear sufficiently unrealistic to result in respondents discounting each profile s attractiveness thus reducing the validity of the results a related problem which adds to the complexity of new product pricing research is the bundling issue in the context of conjoint analysis the question is whether one can predict a respondent s evaluation of a bundle of product attributes and price as a simple linear function of the summed part worths of the entities making up the bundle when each entity is presented with its actual price metric hybrid conjoint models have received a fair amount of industry application to date the purpose of these models is to reduce data collection time while still retaining individual differences in part worth functions the present paper extends this class of models to include categorical conjoint analysis in which the criterion variable is classificatory this model is applied to an extremely large conjoint problem involving over 40 attributes and over 100 attribute levels the study results support the viability of the model for dealing with extremely large conjoint problems the study also shows evidence of the inability of simple functions of self explicated utilities for components of a bundle of hotel amenities to predict respondents preferences for the total bundle journal of business 1984 vol 57 no 1 pt 2 1984 by the university of chicago all rights reserved 0021 9398 84 5712 0019 0 1 50

add on pricing by asymmetric firms this paper uses an analytical model to examine the consequences of add on pricing when firms are both horizontally and vertically differentiated and there is a segment of boundedly rational consumers who are unaware of the add on fees at the time of initial purchase we find that consumers who know the add on fees can be penalized and increasingly so by the existence of boundedly rational consumers our consideration of quality asymmetries on base goods and add ons plus the inclusion of boundedly rational consumers leads to several novel findings regarding firm profits when quality asymmetry is on base goods only and with boundedly rational consumers add on pricing can diminish profit for a qualitatively superior firm and increase profit for an inferior firm i e a lose win result compared to when add on pricing is prohibited or infeasible when quality asymmetries exist on both base goods and add ons and without boundedly rational consumers the opposite win lose result prevails when quality asymmetries exist on both base goods and add ons and with boundedly rational consumers the result can be win win win lose or lose win depending on the magnitude of quality differentiation on add ons this paper was accepted by j miguel villas boas marketing

making monetary policy objectives and rules what is it that monetary policy makers do and how do they do it the simple answer is that a central banker moves interest rates in order to maintain steady real growth and stable prices in this essay i examine the issues that arise in framing the problem faced by monetary policy makers i begin with a discussion of how over the past decade or so central banks have been made more independent and more accountable the result has been the virtual elimination of the inflation bias problem that is caused by political interference in the monetary policy process and better overall macroeconomic performance the essay proceeds with an example of a formal version of the policymakers problem describing their objectives and the information they need to formulate a policy rule i conclude with a discussion of a simple versus complex policy rules the impact of uncertainty on policy making and how central bankers use formal modelling in making their day to day decisions copyright 2000 by oxford university press

what is wrong with taylor rules using judgment in monetary policy through targeting rules it is argued that inflation targeting is best understood as a commitment to a targeting rule rather than an instrument rule e ither ageneral targeting rule explicit objectives for monetary policy or a specific targeting rule a criterion for the forecasts of the target variables to be fulfilled essentially the equality of the marginal rates of transformation and substitution between the target variables targeting rules allow the use of judgment and extramodel information are more robust and easier to verify than optimal instrument rules and they can nevertheless bring the economy close to the socially optimal equilibrium

inventories and optimal monetary policy in a small open economy abstract we study how inventory investment affects the design of optimal monetary policy in a new keynesian small open economy model we find that under producer currency pricing when the intratemporal elasticity of substitution is smaller than 1 optimal monetary policy in our model with inventories is similar to a standard model without inventories however when the intratemporal elasticity of substitution is larger than 1 inventory investment increases the importance of nominal exchange rate stabilization relative to a standard model without inventories the importance of nominal exchange rate stabilization increases with the intratemporal elasticity of substitution