trade policy making in a small island economy the wto review of the maldives the purpose of this paper is to examine trade policy regime and trade related development issues in the maldives on the basis of the trade policy review maldives 2003 of the wto the key theme of the paper is that given the narrow resource base and small domestic market openness to foreign trade and investment remains the natural policy choice for a small developing economy like the maldives since the late 1980s the maldivian government has made considerable progress in implementing policy reforms driven by this conviction however the reform process is far from complete high import tariffs maintained predominantly on revenue considerations a large direct role played by the public sector in foreign trade and some key sectors of the economy lack of transparency in duty concessions and other investment incentives failure to incorporate environmental concerns as part of the national development policy and delays in meeting reform commitments under the wto are among the key items of the unfinished reform agenda

spatial monopoly non zero profits and entry deterrence the case of cement at least since kaldor 1935 a number of economists have argued that indivisibilities and accompanying economies of scale in spatially extended economies can negate the zero profit result generally associated with free entry the essential argument is that if there are industries in which transportation costs are non negligible and size economies call for firms that are large relative to local demand even the most intense competition need not result in a zero profit equilibrium recently eaton and lipsey 1978 have provided the analytical underpinnings for kaldor s largely intuitive argument and demonstrate that pure profits can remain even with free entry of new firms and price competition eaton and lipsey 1978 p 467 suggest that their result depends critically on the existence of the following conditions 1 the average total cost curve is declining over some initial range 2 customers are geographically spread out and intermingled with firms 3 transport is costly and 4 once the firm enters the market it has location specific sunk costs 2 this paper offers an empirical investigation of the non zero profit argument as applied to the u s cement industry on a priori grounds the cement industry appears to meet the necessary conditions for existence of positive site associated profits the existence or at least the belief that the a priori conditions are satisfied has provided a basis for using the industry as a representative case scherer 1980 pp 252 258 for instance offers a textbook example of entry deterrence through plant location strategy that combines elements of space and the standard deterrence argument 3 scherer then notes that in an interview study of plant size and location decisions in 12 industries across six nations the author observed by far the strongest emphasis on geographic space packing as an entry deterring strategy in the cement industry p 257 scherer s example of entry deterrence via strategic plant proliferation is an extension of the kaldor non zero profit argument however the non zero profit argument has at least one major drawback profits in the cement industry have not been significantly above normal for any sustained period the first section of this paper considers the evidence of the cement industry s approximation to the eaton and lipsey conditions and its historical profitability given the contradictory results between apparent satisfaction of the a priori conditions and the lack of supernormal profits a reformulation of the basic model is presented an explanation offered here for the absence of supernormal profits is derivable from the property rights paradigm the usual procedure in analyzing the reaction to new entrants in a spatially extended model has been to assign either initial locations to a set of firms or provide for a prearranged pattern of sequential entry both procedures implicitly assign property rights to locational rents and ignore the vital element that there will be competition to be the first plant in a given location 4 with demand for the product growing competition to be first at a given location will insure that the timing of construction of the

understanding overbidding in second price auctions an experimental study we present results from second price private value auction spa experiments where bidders may receive noisy signals about their opponentsvalue such signals change biddersperception about the strengthof their opponent and the relationship between biddersperception of their opponent and overbidding provides a novel channel to understand overbidding in spa we found that small and medium overbids are more likely to occur when bidders perceive their rivals to have similar values supporting a modifiedjoy of winninghypothesis but large overbids are more likely to occur when bidders believe their opponents to have much higher values consistent with thespite hypothesis second price private value auctions spas are the most easily understood auction format from a theoretical point of view 1 in standard private value auction models of fully rational bidders with standard preferences bidding one s own value is a weakly dominant strategy this theoretical prediction holds irrespective of biddersrisk atti tudes the number of rival bidders symmetry in the value distributions and so on in laboratory experiments however subjects are found to exhibit a consistent pattern of overbidding kagel et al 1987 found that the actual bids are on average 11 above the dominant strategy bids kagel and levin 1993 found that about 62 of all bids in their five bidder spa sessions exceed the bidder s value while only 8 of all bids were below it both kagel and levin 1993 and harstad 2000 further reported that experience has only a small effect in reducing overbidding in spa an important related finding is that overbidding in english auctions a mechanism that is strategically equivalent to the spa in the case of private values is known to be a short term phenomenon that subjects quickly learn not to undertake kagel and levin 1993 thus any explanation for the prevalence and persistence of overbidding in the spa must also explain its rarity in the english auction given the robustness of the findings of overbidding in spa it is surprising that economists have little understanding of why it happens kagel et al 1987 conjectured that bidding above one s own value in a spa is based on the illusion that it improves the probability of winning with little cost because the winner only pays the second highest bid 2 moreover they argue that overbidding is sustainable because bidders still on average earn positive profits and because the negative feedback from overbidding is a weak mechanism in the spa for example if a bidder overbids in a spa by 10 above her value it is quite possible that she does not win at all and thus does not experience

a laboratory study of auctions with a buy price i introduction the rapid growth in the use of auction markets on the internet has led to a number of innovations in auction design one of these innovations is the development of the buy price a buy price allows the seller during the listing of his or her item to indicate a price at which he or she would be willing to sell if during the course of the auction the buy price is accepted by a buyer then the usual auction procedure is halted and the item is sold to that buyer for the specified price the buy price has been implemented by different online auction sites using various rules on ebay the buy price is temporary and is only available to bidders until an initial bid or more precisely a bid that exceeds the reservation value is made yahoo which currently only has auction sites active in hong kong taiwan and japan uses a permanent buy price that is available throughout the auction amazon also featured a permanent buy price when its auction site was active although both yahoo and amazon closed their respective auction sites in the united states apparently unable to successfully compete with ebay for a variety of reasons the fact that the buy price took various forms on these different sites is an interesting phenomenon the buy price has proven to be quite popular in a cnet news corn article kane 2002 noted that 33 of ebay listings worldwide in the second quarter of 2002 featured ebay s version of a buy price called buy it now and that 19 of gross merchandise sales were accounted for by fixed price sales both buy it now prices in auctions and the ebay stores format anderson et al 2008 studied a sample of 1 177 auctions for a palm brand personal digital assistant sold on ebay in the late summer of 2001 they found that 49 4 of auctions that ended in a sale were listed with a buy price the use of a buy price was popular with both high and low volume sellers their two high volume sellers accounting for 28 4 of the auctions used a buy price 100 of the time of the remaining auctions listed by lower volume sellers 29 4 used a buy price the popularity of the buy price raises several interesting questions what does a seller gain by using a buy price for example does it increase revenue under what conditions would a buyer find a buy price attractive how do buyers respond to different buy price types and levels what incentive is there for an auction house to allow sellers to specify a buy price does the use of a buy price affect bid timing or auction efficiency and finally our primary question why would different auction sites use different versions of a buy price this article is an attempt to gain some insight into these issues through the use of laboratory markets the experiments discussed here make use of three types of auctions auctions with no buy price auctions with a temporary buy price that disappears once a bid is made and auctions with a permanent buy price that is available throughout the entire auction all three types of auctions are examined in the context of two institutions an ascending bid auction with proxy bidding and an ascending bid auction without proxy bidding both auction institutions are implemented with a hard close a specific ending time for the auction finally when a buy price is available in these markets its effects are examined at three different levels the data from these experiments lead to results in four areas revenue bidder utilization bid timing and auction efficiency first seller revenue is higher in auctions with buy prices than in auctions without and revenue is higher when the buy price is permanent rather than temporary this difference between permanent and temporary buy price revenues is most pronounced in the auctions that do not use proxy bidding second auctions that utilize a permanent buy price are slightly more likely to end with the buy price being exercised than those in which the buy price is temporary and buyers respond to lower buy price levels in the manner one would expect with lower buy prices being exercised more frequently

simultaneous use of auctions and posted prices abstract i consider a model in which several identical objects are sold simultaneously via an auction and a posted price mechanism the model explains several empirical regularities regarding bidding behavior in ebay auctions such as the finding that some bidders bid multiple times over the course of the auction and that bidders tend to bid with greater frequency near the end of the auction than the beginning i also show that sellers prefer to simultaneously use auctions and posted prices than to use either mechanism individually

shrouded attributes and information suppression evidence from the field we use eld and natural experiments in online auctions to study the revenue eect of varying the level and disclosure of shipping charges our main ndings are 1 disclosure aects revenues for low shipping charges a seller is better odisclosing 2 increasing shipping charges boosts revenues particularly when these charges are hidden and 3 the level and disclosure of the shipping charge have little eect on the number of bidders attracted to an auction

independent private value auctions bidder behaviour in first second and third price auctions with varying numbers of bidders the symmetric equilibrium of third price auctions is characterized it makes a number of contrasting predictions relative to firms and second price auctions bids exceed private values the marginal effects on bids of an increase in private values is greater than one increasing numbers of bidders reduces bids and risk aversion requires bidding below the risk neutral nash equilibrium in the experiment bidders do not always satisfy the point predictions of the theory however the game theoretic models correctly anticipate at least directionally the important effects of the price rule changes copyright 1993 by royal economic society

implications of rational inattention abstract a constraint that actions can depend on observations only through a communication channel with finite shannon capacity is shown to be able to play a role very similar to that of a signal extraction problem or an adjustment cost in standard control problems the resulting theory looks enough like familiar dynamic rational expectations theories to suggest that it might be useful and practical while the implications for policy are different enough to be interesting

a price discrimination theory of coupons the objective of this paper is to analyze the consumer s decision in electing to use cents off coupons distributed by manufacturers of consumer products arguing that the decision to use coupons is based on the tradeoff between costs of using coupons and the savings obtained it is shown that coupons can serve as a price discrimination device to provide a lower price to a particular segment of consumers based on a price theoretic model it is shown that the users of coupons are more price elastic than nonusers of coupons and that the opportunity cost of time and other household resource variables are determinant factors in consumers decisions implications derived from the model are tested using diary panel data

5 information impact and allocation rules in auctions with affiliated private values a laboratory study in affiliated private value auctions each bidder has perfect information regarding his her own value for the object at auction but higher values of the item for one bidder make higher values for other bidders more likely we report on a series of experiments examining three key implications of these auctions i in a first price auction public information about rivals values increases expected revenue ii an english auction increases expected revenue compared to a first price auction and iii a second price auction is isomorphic to an english auction in examining these issues we compare predictions of some ad hoc bidding models with nash equilibrium predictions in the first price auction experiments nash equilibrium bidding theory organizes the data better than either of two ad hoc bidding models public information about others valuations does increase average revenue but the increase in revenue is smaller and less reliable than predicted under risk neutral nash equilibrium bidding lower average revenue might be attributed to risk aversion while the high variability is attributed to a sizable frequency of individual bidding errors relative to the theory bidding theory precisely organizes english auction outcomes after a brief initial learning period the dominant strategy equilibrium does not organize second price auctions nearly as well as market prices persistently exceed predicted prices the difference between english and second price outcomes is attributed to effects of different information flows inherent in the structure of the two institutions on eliminating bidding errors revenue impacts of these two institutions relative to a first price auction are examined in light of observed bidding patterns

concentration price and critical concentration ratios a potentially important parameter that has not yet been convincingly estimated is the critical concentration ratio this paper attempts to estimate it in three types of market the estimation of a critical concentration ratio if one exists seems of potentially great importance because of its implication for antitrust policy if a critical concentration ratio were found and if concentration had no effect below that level it would seem to follow that a horizontal merger in a market where concentration was below the critical level and where the merger could not increase concentration to the critical level could not substantially lessen competition or tend to create monopoly

competition in interrelated markets an empirical study abstract this paper studies competition in small concentrated and interrelated markets our data set consists of price information from 486 driving schools in 235 local markets in sweden which gives a large sample to test hypotheses on how market structure influences competition the results show that the price in a market is lower if prices in nearby markets are low and the distances to them are short as suggested in models of spatial competition moreover we find that prices in closely located markets are interdependent it is also shown that prices are increasing in firm concentration within a market as most theories of oligopoly predict

market definition in antitrust analysis a regression based approach alleged violations of either sherman 2 s antimonopoly strictures or clayton 7 s proscriptions against anticompetitive mergers necessarily involve a particular product and must occur in a particular place that is the plaintiff in either a 2 or 7 suit must define a relevant market within which the violation alleged has occurred even in the most mundane antitrust analysis however market definition is rarely readily accomplished and unaccompanied by a series of caveats and the possibility of the opposing parties in an antitrust suit failing to contest each other s proffered definition is virtually nil 2 because economists from

pricing and market concentration in oligopoly markets this paper investigates the relationship between prices and market concentration in the auto rental industry we assemble an original database that includes the number of auto rental operators and other exogenous demand and cost conditions at every commercial airport in the country the data are interesting because we observe a large variation in market structure ranging from more than 100 monopoly and duopoly markets to several competitive airports with more than eight firms in addition we collect daily rental prices in each market that are regressed against the number of operating firms and other control factors due to potential biases in treating market participants as exogenously assigned we employ a two stage estimation procedure in which an equilibrium model of endogenous market structure provides correction terms for the second stage price regression results show that ignoring the endogeneity of market structure severely underestimates the impact of additional competitors on prices with the

exogeneity tests of market boundaries applied to petroleum products us antitrust law makes market definition and the calculation of marketshare statistics an integral part of the determination of the anticompetitive impact of a merger because markets frequently overlap however market definition is rarely an easy task a statistical test that can be used as an aid in defining markets is proposed here time series techniques are used to test if price in one region is exogenous to the process that determines price in another the rejection of exogeneity can be an indication that the two regions are economically linked and thus may belong to a common geographic market the test is applied to petroleumproduct prices from various regions of the united states time series techniques have long been appreciated by macroeconomists the uses to which they have been put range from testing for the exogeneity of variables used in the construction of macroeconomic models sims 1972 for example to discovering empirical regularities in macroeconomic data without imposing a priori structure on the observations ashenfelter and card 1982 for example in contrast these techniques have not been so

jump bidding strategies in internet auctions abidding strategy commonly observed in internet auctions is that of jump bidding or entering a bid larger than what is necessary to be a currently winning bidder in this paper we argue that the cost associated with entering online bids and the uncertainty about future entry both of which distinguish internet from live auctions can explain this behavior we present a simple theoretical model that includes the preceding characteristics and derive the conditions under which jump bidding arises in a format commonly used for online trading the ascending price auction we also present evidence recorded from hundreds of internet auctions that is consistent with some of the basic predictions from our model we find that jump bidding is more likely earlier in an auction when jumping has a larger strategic value and that the incentives to jump bid increase as competition increases our results also indicate that jump bidding is effective jump bidders place fewer bids overall and increased early jump bidding deters entry later in the auction we also discuss possible means of reducing bidding costs and evidence that internet auctioneers are pursuing this goal

the bidder s curse comment the prices of auctions on ebay often exceed ebay s fixed price buyit now prices i investigate the causes of this overbidding focusing on the interpretation in malmendier and lee 2011 that the observed overbidding cannot be explained without allowing for nonstandard preferences or beliefs and that the strongest direct evidence points to limited attention using data from their study and new data from ebay i provide evidence that a key condition for identifying nonstandard behavior may not have been met and that the observed overbidding is not inconsistent with standard behavior once we allow for the likely presence of search costs jel d12 d44 d83 the large literature on price dispersion has identified search costs as a primary explanation for the ubiquitous failure of the law of one price while many expected the internet to reduce search costs and consequently price dispersion empirical work has found that price dispersion continues to be widespread even as commerce has shifted online see baye morgan and scholten 2006 for a survey of the literature adding to this evidence malmendier and lee 2011 henceforth ml found that auction ending prices on ebay often exceed ebay s fixed price buy it now bin prices ml examined 167 auctions for the cashflow 101 board game and 1 931 auctions for a cross section of products such as books and consumer electronics in 42 percent of the cashflow 101 auctions the ending price exceeded the lowest contemporaneous bin price and the mean auction ending price was 0 28 above the mean low bin price showing generalizability the authors reported that in 48 percent of the cross section auctions the ending price exceeded the low bin price and the mean net overpayment was 10 percent 1

auction institutional design theory and behavior of simultaneous multiple unit generalizations of the dutch and english auctions historically english and dutch auctions have been used for the exchange of single objects such as works of art or single lots of a good such as produce fish or cut flowers where these institutions have been used for the exchange of multiple units such as the australian wool auction using english rules successive lots of the good are sometimes sold sequentially at auction in some but not all instances this is because the goods are not identical even though the various lots may be close substitutes see penny burns 1985 where the goods are accepted universally as being homogeneous as in the securities markets multiple units are often commonly auctioned simultaneously in the securities industry orders are batched for simultaneous execution in multiple unit auctions in what are referred to as call markets that is the security is called for auction at a particular point in time this type of market is used on the stock exchanges of austria belgium france germany and israel some of these are verbal and some are sealed bid auctions although the u s organized exchanges are predominantly continuous rather than call markets except that call markets are used each day to open trading in each listed security there is a growing number of exceptions such as the proliferation since 1984 of auction preferred stock goldman sachs and co october 1984 and money market preferred stock lehman brothers july 1984 we now have dutch auction rate transferable securities called darts stated rate auction preferred stock or straps and many more after the initial subscription offering of this type of security the market is called every 49 days to reset the preferred dividend rate using a multiple unit auction the exchange of shares and the dividend determination is based on the array of stated dividend rates at which existing holders and potential new holders are willing to sell and or buy corresponding quantities the dividend rate and exchange of shares every 49 days is executed using the uniform price or competitive sealed bid mechanism vernon l smith et al 1980 the discussion to follow will be confined to this sealed bid form of the call market call markets provide temporal consolidation of trade orders or other forms of expressing the desire to buy and sell by comparison with continuous trading call markets offer both advantages and disadvantages robert a schwartz 1988 pp 442 6 the cited advantages include low cost of operating the exchange information aggregation and presumed pricing efficiency price stability individual trades which are thought to have a small impact on price reduced price uncertainty and finally nondiscriminatory pricing however there are offsetting disadvantages 1 the market is inaccessible except at the time of call 2 no bid offer contract or price information is available until the results of the call are announced and 3 there is transaction uncertainty because a submitted bid offer may be too low high to execute inside the supply demand cross these conditions are only partially alleviated if there is a secondary market between calls these disadvantages may be significant in september 1988 the wall street journal published an article on the failure of a call market for the auction rate preferred stock economic science laboratory university of arizona tucson arizona this material is based upon work supported by the national science foundation under grant no ses 8320121

food prices and market structure in sweden this paper examines retail grocery price levels across a large panel of stores in sweden we explain price variation across stores by market structure variables to capture differences in competition intensity and a number of store and region specific factors most of the explained variation in prices can be attributed to store specific factors such as size and chain affiliation overall the relation between market structure variables and food prices is weak and effects are small in percentage terms nevertheless higher local concentration of stores higher regional wholesaler concentration and a lower market share of large stores are all correlated with higher prices

testing a spatial interacting markets hypothesis two models for competitive spatial pricing between retail outlets in a single urban area are presented the models are distinguished in terms of first their relationships to underlying supply and demand conditions in the market and second the spatial forms of inter site competition described properties of the models are identified the statistical theory appropriate to these models is reviewed and the models then fitted to data for retail gasoline prices during periods of falling and then rising average price levels

experimental development of sealed bid auction theory calibrating controls for risk aversion we offer a brief survey of bidding theory in high price auctions of experimental studies of behavior in such auctions and of the interplay between the design and results of the experiments and efforts to further develop the theory two new series of experiments are reported the first applies a convex transformation of payoffs in an attempt to induce a lowering of subject bids as if the bidders had become less risk averse the second applies a method for inducing any prespecified utility function for risky choices on an individual we use it to induce as if risk neutral behavior both series use baseline control to calibrate the hypothesized effect of the procedures on riskaverse behavior

search costs and equilibrium price dispersion in auction markets abstract a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool

opportunity cost inattention and the bidder s curse abstract auction winners sometimes suffer a bidder s curse paying more for an item at auction than the fixed price charged for an identical item by other sellers this seemingly irrational behavior is puzzling because the information necessary to avoid overpaying would appear to be readily available to bidders yet they seem to ignore it to understand this behavior we consider the bidders decisions whether to acquire information about the fixed price before bidding in the presence of opportunity costs our theory introduces costly information acquisition into an auction model with a fixed price aftermarket selling an identical good when information about the fixed price is costly bidders sometimes remain rationally ignorant and overbid in the auction generating the bidder s curse to assess the empirical validity of our proposed explanation we study the model s predictions in an experiment where subjects have an opportunity cost of looking up a fixed price and bid in an auction we find that information acquisition decreases and overbidding increases with opportunity cost as predicted most observed lookup behavior is rationalizable and rational ignorance reliably generates the bidder s curse

the number of firms and production capacity in relation to market size many oligopoly theories predict a positive correlation between market size and the equilibrium number of firms and some also imply that competition is more intense in larger markets we test these predictions on a sample of driving schools in 250 swedish regional markets by estimating the relation between the number of firms production capacity and market size the number of firms increases less than proportionally with market size market size per capacity unit is smaller in large markets since firms produce a fairly homogenous good we argue that this is evidence that profits per capita is decreasing in market size

market structure and market performance in e commerce we investigate the effect of market structure on market performance in the market for consumer electronics we exploit product life cycle information to build an instrumental variable for the number of firms in a market a variable which hitherto had to be treated as exogenous in comparable studies on seller behavior in e commerce we combine data from austria s largest online site for price comparisons with retail data on wholesale prices provided by a major hardware producer for consumer electronics we observe input prices of firms and all their moves in the entry and the pricing game using this information for 70 digital cameras we generate instrumenting is particularly important for estimating the effect of competition on the markup of the price leader

theory and misbehavior of first price auctions recent experimental evidence appears to reject simple nash equilibrium models of bidding behavior in first price auctions the author presents a methodological critique of this evidence existing tests have concentrated on deviations of subjects from predictions in the message space of the action bid deviations the author suggests that it is more natural to evaluate subject behavior in expected payoff space he concludes that the evidence against the simple models is not significant enough to warrant their rejection copyright 1989 by american economic association

spatial aspects of retail market structure beef pricing revisited abstract spatial retail markets with multiplant firms and conjectural variations are analyzed in this paper in this context the interplay between commuting characteristics and concentration is discussed leading to an empirical test for the effect of those variables on retail beef prices commuting characteristics are found to have a significant effect on prices this suggests that a significant concentration price relationship might emerge if retail markets were defined in the narrow way that the spatial retail model suggests that they should be