buyer power with atomistic upstream entry can downstream consolidation increase production and welfare abstract this paper investigates the effects of buyer power on entry into an atomistic upstream market and economic welfare under reasonable market conditions we show that industries with a few buyers induce more upstream entry than industries with a larger number of firms in particular monopsony can be more conducive to entry and lead to higher social welfare than more fragmented industry structures this seeming paradox arises because a single buyer better internalizes the positive effects of entry on later periods supply conditions than a collection of firms this result is relevant in a number of market settings including markets for specialized labor and processing markets for agricultural products

downstream merger and welfare in a bilateral oligopoly i analyse the effects of a downstream merger in a differentiated oligopoly when there is bargaining between downstream firms and upstream agents firms or unions bargaining outcomes can be observable or unobservable by rivals when competition is in quantities upstream agents are independent and bargaining is over a uniform input price a merger between downstream firms may raise consumer surplus and overall welfare however when competition is in prices or the upstream agents are not independent or bargaining is over a two part tariff or bargaining covers both the input price and the level of output the standard welfare results are restored a downstream merger always reduces consumer surplus and overall welfare

when random assignment is not enough accounting for item selectivity in experimental research experimental methods are critical tools in marketing psychology and economics to isolate the effects of key variables from vagaries intrinsic to field data as such they are often considered exempt from the sort of sample selectivity artifacts widely documented in empirical research in part because participants are randomly assigned to experimental conditions to conserve time and resources experiments often focus on items participants have chosen or are familiar with for example postchoice satisfaction ratings certain free recall tasks or specifying consideration sets preceding brand choice when consumer input even partially influences the items about which researchers request subsequent data the potential for item selectivity arises in such situations analyses are contingent on both the choice context s of the experiment and the alternatives participants elect to evaluate potentially leading to substantial item selectivity overall and to differing degrees across conditions we examine sit

vertical control opportunism and risk sharing abstract a manufacturer who offers secret contracts faces an opportunism problem she undercuts her own input prices and fails to offset retail competition i show that this problem diminishes when retailers are risk averse and face demand uncertainty risk aversion and uncertainty create a bilateral risk sharing incentive that raises equilibrium input prices above marginal cost the manufacturer can therefore profit from downstream risk aversion when retail competition is fierce

multifirm unions and the incentive to adopt pattern bargaining in oligopoly abstract this paper develops a model of wage bargaining between an industry wide trade union and firms in an oligopoly and considers the circumstances under which the union prefers pattern bargaining that is negotiating contracts in a sequential manner to simultaneous bargaining with the firms the paper goes on to consider the importance of the bargaining order in pattern bargaining when the firms are asymmetric the analysis shows that the union gains by first targeting a firm which is in a relatively weak bargaining position i e impatient to settle or a firm with relatively large profits

manufacturers and retailers in the global economy we develop a general equilibrium model to capture key features of the retailing and of the manufacturing industry in order to understand how these two industries interact and how labor is allocated between them we show that the observed shift in employment from manufacturing to retailing the rise in retailer product assortment and the emergence of slotting allowances in many retail markets are consistent with the global integration of product markets while higher retail market concentration is best explained by technological change in retailing we also identify a novel benefit from market integration consisting of efficiency gains in the vertical distribution chain

on the recoverability of choice behaviors with random coefficients choice models in the context of limited data and unobserved effects random coefficients choice models are seeing widespread adoption in marketing research partly because of their ability to generate household level parameter estimates with limited data however the power of such models may tempt researchers to trust that they continue to produce reasonable estimates when in fact either model misspecification or insufficient data limits the models ability to recover household level parameters successfully if household level choice behaviors are not recovered successfully managerial decisions such as marketing mix planning and targeting direct marketing segmentation and forecasting may not produce the desired results this study addresses the following questions first can random coefficients choice models correctly identify markets characterized by preference and response heterogeneity state dependence the use of alternative decision heuristics that result in reduced choice sets and combinations of these effects if so how much data is required and is this realistic given the size of data sets typically used in marketing analyses which model selection criteria should be used to identify these markets when there is spurious market identification which parameters contribute to the spurious result an extensive simulation experiment is conducted wherein random coefficients logit models with varying specifications of parameter heterogeneity state dependence effects and choice set heterogeneity are applied to 128 experimental conditions the results show which types of markets can be identified reliably and which cannot based on the results of the simulation the authors develop a model selection heuristic that identifies the correct market in 81 of the experimental conditions in contrast strict application of the best model selection criterion alone results in correct market identification in at most 34 of experimental conditions interestingly we find that the amount of data number of households or number of purchases per household does not affect our ability to identify the correct market type with this heuristic so there is a good chance of identifying the correct market type even when little data is available

a framework to analyze the performance of thinly traded agricultural commodity markets thinly traded agricultural commodity markets are a concern for farmers and policy markers due to the belief that prices in these settings will be highly volatile subject to manipulation and incapable of efficiently allocating resources analysis of thin agricultural markets has to date been impeded by lack of an appropriate analytical framework from which to study their behavior in this paper we propose the modern agricultural markets mam framework as an appropriate paradigm through which to view and evaluate thin markets we argue that thinly traded markets that meet key conditions required for a mam will generate maximum economic surplus and enable farmers to earn at least a competitive return on their investments in the absence of these conditions however the concerns known as the thin market problem have validity we set forth the mam framework interpret it in a thin market context and conduct several brief case studies of thin markets to illustrate use of the approach and draw some key inferences about these markets behavior the analysis indicates that appropriate government policies directed to thin markets are those that facilitate their convergence to mam status but in reality key policies under recent consideration would have the opposite effect

the nash bargaining solution is optimal abstract we consider the problem faced by players in a two person bargaining game who have different opinions about what is the appropriate solution concept to use a procedure is proposed to resolve such a conflict and it is shown that the nash bargaining solution constitutes the unique equilibrium of the game induced by the procedure as a by product we obtain that in the axiomatic characterization of the nash solution the controversial independence of irrelevant alternatives axiom can be replaced by a much weaker recursivity axiom which amounts to requiring independence of alternatives that cannot be obtained as an outcome of a risk sensitive solution

countervailing power revisited abstract the paper uses the nash bargaining concept to study the predictions of the theory of countervailing power within two theoretical models a cournot model and a model of perfect competition within the cournot model a decrease in the number of retailers unambiguously leads to an increase in equilibrium consumer prices in the model of perfect competition the reverse is true one may thus conclude that countervailing power can have positive effects for the consumers only if competiton at the retail level is very fierce

co determination and innovation this paper examines the effect of the german co determination law of 1976 mitbestg on the innovative activity of german firms co determination applies to firms with 2 000 employees or more data from 1971 1976 and 1981 1990 on 148 firms are used to compare the number of patents granted to co determined firms before and after the introduction of the law several control variables are applied and in particular in order to avoid a possible bias from specific effects of firm size we compare the co determined firms with others before and after 1976 the results do not support the view that co determination slows down technological progress and reduces innovativity

the codetermined firm in oligopoly abstract a simple duopoly model is considered where firm owners bargain with employees representatives about employment but not about wages as is the case for codetermined firms in germany it turns out that for some range of the bargaining power a prisoner s dilemma exists bargaining is the dominant strategy although joint profits would be maximized with unrestricted profit maximization

industry profits and competition under bilateral oligopoly abstract we show that contrary to the key result of the standard cournot nash oligopoly model industry profits can increase with the number of firms if input prices are not exogenous but are determined by bargaining in bilateral oligopoly

hedonic regressions mis specification and neural networks there is an emerging literature in the field of hedonic regressions which successfully applies flexible functional forms in contrast numerous authors report hedonic regressions with relatively simple functions often with little or no attempt to consider interaction terms and higher level powers such simple functions perform relatively well in spite of good a priori grounds for quite complex interaction effects indeed the studies are characterised by a general indifference to testing these more flexible models even when degrees of freedom permit using detailed scanner data hedonic functions for the uk tv market are estimated and tested for interaction effects for a case study of the market higher level interaction effects are tested for and compare the results with those from a neural network with its property of universal approximation the use of neural networks is particularly novel in this context and some general findings on their suitability emerge

all things considered the role of choice set formation in diversification abstract the diversification effect a tendency toward greater variety as multiple choices are made simultaneously in advance of consumption is a robust and important phenomenon researchers have typically explained the diversification effect in terms of differences in the process by which people select items from among those available this precludes the possibility that the locus of the effect lies in people s choice sets themselves that is how people decide which options to consider when making choices the authors examine the effects of set formation using an experimental choice sequence task and conjoined stochastic model of set formation and conditional choice the findings demonstrate that set formation plays a critical role in diversification previously chosen options are indeed discounted but only for simultaneous choices and only in the set formation portion of the model furthermore the expected number of choice set items is substantially greater in multiple versus single item choice s

estimating heterogeneous eba and economic screening rule choice models consumer choice in surveys and in the marketplace reflects a complex process of screening and evaluating choice alternatives behavioral and economic models of choice processes are difficult to estimate when using stated and revealed preferences because the underlying process is latent this paper introduces bayesian methods for estimating two behavioral models that eliminate alternatives using specific attribute levels the elimination by aspects theory postulates a sequential elimination of alternatives by attribute levels until a single one the chosen alternative remains in the economic screening rule model respondents screen out alternatives with certain attribute levels and then choose from the remaining alternatives using a compensatory function of all the attributes the economic screening rule model gives an economic justification as to why certain attributes are used to screen alternatives a commercial conjoint study is used to illustrate the methods and assess their performance in this data set the economic screening rule model outperforms the eba and other standard choice models and provides comparable results to an equivalent conjunctive screening rule model

mechanism design how to implement social goals existing economic institutions the theorist wants to explain or forecast the economic or social outcomes that these institutions generate but in mechanism design theory the direction of inquiry is reversed we begin by identifying our desired outcome or social goal we then ask whether or not an appropriate institution mecha nism could be designed to attain that goal if the answer is yes then we want to know what form that mechanism might take in this paper i offer a brief introduction to the part of mechanism design called implementation theory which given a social goal characterizes when we can design a mechanism whose predicted

modeling multiple sources of state dependence in random utility models a distributed lag approach we propose a utility theoretic brand choice model that accounts for four different sources of state dependence 1 effects of lagged choices structural state dependence 2 effects of serially correlated error terms in the random utility function habit persistence type 1 3 effects of serial correlations between utility maximizing alternatives on successive purchase occasions of a household habit persistence type 2 and 4 effects of lagged marketing variables carryover effects our proposed model also allows habit persistence to be a function of lagged marketing variables while accommodating the effects of unobserved heterogeneity in household choice parameters this model is more flexible than existing state dependence models in marketing and labor econometrics using scanner panel data we find structural state dependence to be the most important source of state dependence marketing mix elasticities are systematically understated if state dependence effects are incompletely accounted for the seetharaman and chintagunta 1998 model is shown to recover spurious variety seeking effects while overstating habit persistence effects ignoring habit persistence type 1 leads to an underestimation while ignoring habit persistence type 2 leads to an overestimation of structural state dependence effects we find lagged promotions to have carryover effects on habit persistence ignoring one or more sources of state dependence underestimates the total incremental impact of a sales promotion we draw implications for manufacturer pricing

vertical integration and vertical restraints this paper surveys the field of vertical integration and vertical restraints with particular reference to implications for competition policy it outlines the existing legal framework then discusses some particular u k examples involving vertical restraints the theoretical discussion includes analyses of technological economies transactions costs contractual rights monopoly effects verticle restraints as externalities interbrand versus intrabrand competition the strategic effects of vertical separation and agency issues some policy implications are drawn amongst these being the points that vertical linkages can have strong anticompetitive effects that there is little support for separate treatment of resale price maintenance that policy should focus on economic effects rather than legal form that the case for the block exemption of franchising in the ec is unclear and that the law has failed to take the implications of the vertical separation literature into account copyright 1993 by oxford university press

divesting ownership in a rival we examine the consumer welfare effect of a firm s partial ownership of a competitor and compare the implications of alternative forms of divestiture we identify conditions under which turning voting shares into non voting shares is preferable to selling the shares to the firm s current shareholders an option frequently chosen we also show that selling the voting shares to a large independent shareholder is preferable to selling them to small shareholders we provide additional theoretical results and apply them to the divestiture of portugal telecom s holdings in ptm

on the welfare effects of vertical integration opportunism vs double marginalization abstract we investigate the welfare effects of vertical integration by an upstream supplier dealing with two downstream firms through secret linear tariffs we show that whether vertical integration is anti or procompetitive depends on the distribution of the bargaining power between firms in the pre integration case in particular when the supplier has all or at least higher bargaining power than downstream firms vertical integration is socially desirable on the contrary when downstream firms have all or at least higher bargaining power than the supplier integration is detrimental to society

rejoinder temporal stochastic inflation in choice based research we examine the specification and interpretation of discrete choice models used in behavioral theory testing with a focus on separating coefficient scale from error scale particularly over time numerous issues raised in the thoughtful commentaries of louviere and swait louviere j j swait 2010 discussion of alleviating the constant stochastic variance assumption in decision research theory measurement and experimental test marketing sci 29 1 18 22 and hutchinson zauberman and meyer hzm hutchinson j w g zauberman r meyer 2010 on the interpretation of temporal inflation parameters in stochastic models of judgment and choice marketing sci 29 1 23 31 are addressed specifically the roles of response scaling preference covariates actual versus hypothetical consumption immediacy and heterogeneity as well as key differences between the experimental setup in salisbury and feinberg salisbury l c f m feinberg 2010 alleviating the constant stochastic variance assumption in decision research theory measurement and experimental test marketing sci 29 1 1 17 and those typifying intertemporal choice and construal level theory we strongly concur with most of the general conclusions put forth by the commentary authors but we also emphasize a central point made in our research that may have been lost that the temporal inflation effects observed in our empirical analysis could be attributed to stochastic effects deterministic influences or an amalgam appropriate inferences depend on the nature of one s data and stimuli we also report on further analyses of our data as well as a meta analysis of hzm s table 1 that is consistent with our original findings implications for and dimensions relevant to future research on temporal stochastic inflation and its role in choice based research are discussed

price discrimination and bargaining empirical evidence from medical devices many important issues in business to business markets involve price discrimination and negotiated prices situations where theoretical predictions are ambiguous this paper uses new panel data on buyer supplier transfers and a structural model to empirically analyze bargaining and price discrimination in a medical device market while many phenomena that restrict price discrimination are suggested as ways to decrease hospital costs e g mergers group purchasing organizations and transparency i find that 1 non discriminatory pricing actually works against hospitals because competition is more intense under price discrimination and 2 results depend ultimately on a previously unexplored bargaining effect

a larger slice or a larger pie an empirical investigation of bargaining power in the distribution channel this research aims to provide insights into the determinants of channel profitability and the relative power in the channel by considering consumer demand and the interactions between manufacturers and retailers in an equilibrium model we use the nash bargaining solution to determine wholesale prices and thus how margins are split in the channel equilibrium margins are a function of demand primitives and of retailer and manufacturer bargaining power bargaining power is itself a function of exogenous retail and manufacturer characteristics the parties bargaining positions are determined endogenously from the estimated substitution patterns on the demand side the more they have to lose in a negotiation relative to an outside option the weaker the bargaining position we use the proposed bargaining model to investigate the role of the three main factors that have been blamed for the power shift from manufacturers to retailers in recent years firm size increases store brand introductions and service level differentiation in our empirical analysis of the german market for coffee we find that bargaining power varies among the different manufacturer retailer pairs this result suggests that bargaining power is not an inherent characteristic of a firm but rather depends on the negotiation partner we are able to confirm empirically previous theoretical findings that there can be cases where the slice of the pie that goes to one of the channel members may decrease but the overall pie increases and compensates for the smaller share of profits

mergers when prices are negotiated evidence from the hospital industry in recent years many hospitals have merged in part to gain bargaining leverage with managed care organizations mcos we investigate the price impact of hospital mergers by formulating and estimating an equilibrium bargaining model between hospital systems and managed care health insurers over prices for inpatient services we estimate the parameters of the model using claims and discharge data from northern virginia in 2006 inova health system proposed to acquire prince william hospital we nd that this merger would have raised prices signicantly and that the remedy of separate bargaining imposed by the ftc in a separate hospital case would have resulted in a larger price increase

designing incentive compatible contracts for effective demand management demand relief from customers can help a utility or any load serving entity solve a variety of problems there exist all sorts of different demand management programs that utilities use a critical issue is the incentive paid to the customer to participate in demand management programs and provide load relief the utility has to design cost effective yet attractive demand management contracts the main goal is to get load relief when needed and to do so in a cost effective way customers sign up for programs when the benefits they derive in the form of up front payments demand discounts and interruption payments exceed their cost of interruption in order to design such contracts mechanism design with the revelation principle is adopted from game theory and applied to the interaction between a utility and its customers the idea behind mechanism design is to design an incentive structure that encourages customers to sign up for the right contract and reveal their true value of power and thus the value of power interruptibility

buyers miscoordination entry and downstream competition this article shows that buyers coordination failures might prevent entry in an industry with an incumbent firm and a more efficient potential entrant if there were a single buyer or if all buyers formed a central purchasing agency coordination failures would be avoided and efficient entry would always occur more generally exclusion is less likely the lower the number of buyers for any given number of buyers exclusion is less likely the more fiercely buyers compete in the downstream market first intense competition may prevent miscoordination equilibria from arising second in cases where miscoordination equilibria still exist it lowers the maximum price that the incumbent can sustain at such exclusionary equilibria buyers have experienced increased concentration in many sectors in particular grocery retailing 1 2 this trend has triggered a wide debate on the effects of buyer power 3 we contribute to this debate by studying how concentration and competition among buyers affect the possibility of entry by a new upstream supplier in an industry characterised by scale economies in our model buyers fragmentation may lead to a situation where a new upstream firm does not manage to enter a market although endowed with lower marginal costs than an incumbent firm when several buyers decide independently from which supplier to purchase miscoordination equilibria may arise where all buyers buy from the incumbent even if the entrant sets a lower price if all buyers address the incumbent none of them has an incentive to deviate that is to switch to the entrant anticipating that a single order would not allow the

bilateral oligopoly the efficiency of intermediate goods markets abstract we show that intermediate goods markets may be efficient despite the presence of commonly accepted signs of market failure such as high concentration both among sellers and buyers sparse trading networks price dispersion and externalities the results are derived in an extensive form model of bilateral bargaining with multiple buyers and multiple sellers and with externalities between the negotiations we also characterize the structure of the endogenous trading network i e how firms choose trading partners prices are dispersed and depend on both the concentration of capital and the concentration of sales consistent with some stylized facts on buyer power

parameter bias from unobserved effects in the multinomial logit model of consumer choice abstract over the past two decades validation of choice models has focused on predictive validity rather than parameter bias in real world validation of choice models true parameter values are unknown so examination of parameter bias is not possible in contrast the main focus of this study is parameter bias in simulated scanner panel choice data with known parameter values study of parameter bias enables the assessment of a fundamental issue not addressed in the choice modeling literature the extent to which the logit choice model is capable of distinguishing unobserved effects that give rise to persistence in observed choices e g heterogeneity and state dependence although econometric theory provides some information about the causes of bias the extent of such bias in typical scanner data applications remains unclear the authors present an extensive simulation study that provides information on the extent of bias resulting from the misspecification of four unobserved effects that receive fr

bilateral monopolies and incentives for merger the paper presents a model of duopoly in which firms acquire inputs through bilateral monopoly relations with suppliers it combines a bargaining model with a duopoly model to examine how input pri

an empirical comparison of logit choice models with discrete versus continuous representations of heterogeneity abstract currently there is an important debate about the relative merits of models with discrete and continuous representations of consumer heterogeneity in a recent jmr study andrews ansari and currim 2002 hereafter aac compared metric conjoint analysis models with discrete and continuous representations of heterogeneity and found no differences between the two models with respect to parameter recovery and prediction of ratings for holdout profiles models with continuous representations of heterogeneity fit the data better than models with discrete representations of heterogeneity the goal of the current study is to compare the relative performance of logit choice models with discrete versus continuous representations of heterogeneity in terms of the accuracy of household level parameters fit and forecasting accuracy to accomplish this goal the authors conduct an extensive simulation experiment with logit models in a scanner data context using an experimental design based on aac and other

competition through commissions and kickbacks in markets for retail financial products and health services consumers often rely on the advice of intermediaries to decide which specialized offering best fits their needs product providers in turn compete to influence the intermediaries advice through hidden kickbacks or disclosed commissions motivated by the controversial role of these widespread practices we formulate a model to analyze competition through commissions from a positive and normative standpoint the model highlights the role of commissions in making the advisor responsive to supply side incentives we characterize situations when commonly adopted policies such as mandatory disclosure and caps on commissions have unintended welfare consequences jel d21 d82 d83 g21 l15 l25

pass through vertical contracts and bargains abstract this paper analyzes the determinants of pass through that are specific to vertical relationships between wholesalers and retailers the type of vertical agreement firms contract upon as well as their relative bargaining power are identified as major determinants of pass through rates

alleviating the constant stochastic variance assumption in decision research theory measurement and experimental test analysts often rely on methods that presume constant stochastic variance even though its degree can differ markedly across experimental and field settings this reliance can lead to misestimation of effect sizes or unjustified theoretical or behavioral inferences classic utility based discrete choice theory makes sharp testable predictions about how observed choice patterns should change when stochastic variance differs across items brands or conditions we derive and examine the implications of assuming constant stochastic variance for choices made under different conditions or at different times in particular whether substantive effects can arise purely as artifacts these implications are tested via an experiment designed to isolate the effects of stochastic variation in choice behavior results strongly suggest that the stochastic component should be carefully modeled to differ across both available brands and temporal conditions and that its variance may be relatively greater for choices made for the future the experimental design controls for several alternative mechanisms e g flexibility seeking and a series of related models suggest that several econometrically detectable explanations like correlated error state dependence and variety seeking add no explanatory power a series of simulations argues for appropriate flexibility in discrete choice specification when attempting to detect temporal stochastic inflation effects

on the efficiency of connection charges part i a stochastic framework this two part paper addresses the design of retail electricity tariffs for distribution systems with distributed energy resources such as solar power and storage in particular the optimal design of dynamic two part tariffs for a regulated monopolistic retailer is considered where the retailer faces exogenous wholesale electricity prices and fixed costs on the one hand and stochastic demands with intertemporal price dependencies on the other part i presents a general framework and analysis for revenue adequate retail tariffs with advanced notification dynamic prices and uniform connection charges it is shown that the optimal two part tariff consists of a dynamic price that may not match the expected wholesale price and a connection charge that distributes uniformly among all customers the retailer s fixed costs and a price volume risk premium a sufficient condition for the optimality of the derived two part tariff among the class of arbitrary ex ante tariffs is obtained numerical simulations quantify the substantial welfare gains that the optimal two part tariff may bring compared to the optimal linear tariff without connection charge part ii focuses on the impact of two part tariffs on the integration of distributed energy resources

market based coordination of thermostatically controlled loads part ii unknown parameters and case studies this two part paper considers the coordination of a population of thermostatically controlled loads tcls with unknown parameters to achieve group objectives the problem involves designing the bidding and market clearing strategy to motivate self interested users to realize efficient energy allocation subject to a peak energy constraint the companion paper part i formulates the problem and proposes a load coordination framework using the mechanism design approach to address the unknown parameters part ii of this paper presents a joint state and parameter estimation framework based on the expectation maximization algorithm the overall framework is then validated using real world weather data and price data and is compared with other approaches in terms of aggregated load response simulation results indicate that our coordination framework can effectively improve the operational efficiency of the distribution system and reduce power congestion at key times

the nash bargaining solution in vertical relations with linear input prices abstract we re examine the nash bargaining solution when an upstream and n downstream firms bargain over a linear input price with unobservable contracts we show that the profit sharing rule is given by a simple and instructive formula which depends on the parties disagreement payoffs the profit weights in the nash product and the elasticity of derived demand a downstream firm s profit share increases in the equilibrium derived demand elasticity which in turn depends on the final goods demand elasticity

bargaining power fear of disagreement and wage settlements theory and evidence from u s industry the paper develops and estimates a theoretical model of wage determination and union nonunion wage differentials in order to overcome the institutional ctiticisms of the formal bargaining literature the paper generalizes the nash zeuthen harsanyi model by linking the solution to the institutional concepts of bargaining power and fear or cost of disagreement and by making the outcome depend not only on endogenous but also on exogenous factors an operational specification of bargaining power and fear of disagreement allows the model to be estimated with data covering twelve companies and trade unions during the period from mid 1950 s to the late 1970 s while giving limited support to the nashzeuthen harsanyi solution the empirical analysis indicates that the bargaining outcome usually deviates from the nash zeuthen harsanyi point and in accordance with the institutionalist claim that it varies significantly with exogenous factors contrary to the traditional labor economics view the results do not support the general conclusion that the bargaining solution lies on the marginal revenue product curve of labor instead the relevant coefficients suggest that for many firms and unions the outcome might be better characterized by the efficient contract vertical contract curve

modeling heterogeneity and state dependence in consumer choice behavior in frequently purchased consumer goods markets consumer brand choices exhibit substantial persistence across purchase occasions in this article i estimate a choice model that admits of both heterogeneity in preferences and true state dependence as sources of this persistence using nielsen scanner data on ketchup i find evidence for true state dependence in the choice process even after controlling for a rich heterogeneity structure simulation of the model indicates that the long term effect of a promotion induced purchase on future purchase probabilities is positive but small

endogenous scope of firm union bargaining with vertical pay comparisons abstract there is strong evidence that employees motivation and incentives in the workplace are affected by vertical pay comparisons in a stylized cournot duopoly model with firm specific unions that institutionalize workers vertical fairness concerns we show that universal wage employment w e bargaining may arise as the equilibrium scope of bargaining institution we thus propose that intra firm vertical fairness concerns may resolve the mismatch between recent findings in the empirical literature on labor market institutions and the predictions of traditional models that universal w e bargaining will never arise in equilibrium the scope of bargaining puzzle we derive a number of testable hypotheses that address the recent shift towards more decentralized bargaining institutions the decline in unions bargaining power and the prevalence of w e bargaining

strategic delegation and delay in negotiations over the bargaining agenda this paper develops a game theoretic model that endogenizes the items included in the bargaining agenda the model s equilibria suggest two possible sources of inefficiency 1 exclusion of items from the bargaining agenda and 2 delay to agreement due to negotiations over the bargaining agenda evidence from union contract negotiations is provided to demonstrate the relevance of these sources of inefficiency the model also allows strategic delegation by the union in certain equilibria the surplus maximizing union selects wage maximizing delegates such as senior union members to negotiate the contract

countervailing power and consumer prices this paper considers the importance of countervailing power manifested as the effects of increased retail concentration on consumer prices and welfare within a market setting where imperfectly competitive retailers negotiate intermediate prices with a monopoly supplier only when retailer services are regarded as very close substitutes do final prices fall following a reduction in the number of retailers even in these circumstances the social benefits of countervailing power may not be realised as the supplier may seek to protect its profits by using a refusal to supply restraint to engage in exclusive trading

multiunit bargaining in oligopolistic industries a model of wage determination in unionized oligopolistic industries is developed and used to compare the outcome of collective bargaining under two different bargaining structures one in which the workers of each firm are represented by separate and independent unions local bargaining and one in which a national union represents all workers in the industry in both cases the bargaining problem has a unique outcome with industrywide bargaining resulting in higher wages in addition industrywide unions are inherently stable in that there are no incentives for independent unions to attempt to cheat on the collusive agreement

buyer power from joint listing decision we consider a model of vertically related markets in which an upstream firm faces a competitive fringe of less efficient suppliers and negotiates with customers that compete in a downstream market we allow downstream firms to form a buyer group which selects suppliers on behalf of its members we show that transforming individual listing decisions into a joint listing decision makes delisting less harmful for a group member which in turn enhances the group members bargaining position at the expense of the upstream firm we also discuss the implication for upstream investment incentives

the relative profitability of nash bargaining on the labour demand curve or the contract curve abstract given the nash bargaining solution with parametric bargaining strengths and threat points it is shown that profits are often higher if the bargaining agenda between a union and a single firm or two unions and cournot duopolists excludes employment

the strategic choice of union oligopoly bargaining agenda abstract this article analyzes the optimal choice of union oligopoly bargaining agenda i e right to manage versus efficient bargaining under possible market entry it is shown that agreement by both the union and the incumbent firm about efficient bargaining emerges as equilibrium in nash strategies even more so under non blockaded entry for deterrence motives this is consistent with the common empirical findings that unionized firms do not behave according to the prediction of the right to manage model that employment will be on the labor demand curve the entry deterrence effect highlighted in this paper also suggests that labor market organization should not be overlooked as a component of the welfare analysis of product market competition

the competition effects of industry wide vertical price fixing in bilateral oligopoly this paper examines the competition and welfare effects of vertical price fixing through industry wide resale price maintenance rpm arrangements such as those benefiting from exemption from a general prohibition against rpm a bilateral oligopoly framework is employed incorporating differentiation between manufacturer products and between retailer services transactions between the stages involve prices being determined through bargaining we do not find rpm to be universally undesirable however where retailer power is strong the social effects of rpm are likely to be adverse since the practice can assist in coordinating final price levels and prevent socially desirable countervailing power arising

exclusive contracts and bargaining power abstract incorporating nash bargaining into the standard one buyer one supplier framework in the chicago school critique we show a possibility that an inefficient incumbent supplier can deter a socially efficient new supplier entry through exclusive contracts

vertical bargaining and retail competition what drives countervailing power this article investigates the effects of changes in market concentration on the equilibrium prices in a supply chain results are derived from a theoretical model of bilateral bargaining between upstream and downstream firms which allows for general forms of demand and retail competition whether countervailing buyer power arises in the form of lower input prices following greater concentration downstream depends on the pass through rate of input prices to retail prices countervailing buyer power generally does not translate into lower retail prices because of heightened market power at the retail level

price taker bidding strategy under price uncertainty this paper provides a framework to obtain the optimal bidding strategy of a price taker producer an appropriate forecasting tool is used to estimate the probability density functions of next day hourly market clearing prices this probabilistic information is used to formulate a self scheduling profit maximization problem that is solved taking advantage of its particular structure the solution of this problem allows deriving a simple yet informed bidding rule results from a realistic case study are discussed in detail

on the contract curve a test of alternative models of collective bargaining the traditional model of collective bargaining confines unions to settlements constrained by the employer s labor demand curve but an alternative model places wage employment outcomes on a contract curve that extends beyond the labor demand curve this paper derives a multidimensional hedonic contract curve model in which employment security provisions are used to maintain efficient bargains outside the employer s demand curve and distinguishes empirically between the contract curve and demand constraint models using data for public school teachers in new york state estimates clearly support the contract curve model over the demand constraint model by linking the gap between compensation and the value of the marginal product to the strength of employment security provisions

market based coordination of thermostatically controlled loads part i a mechanism design formulation this paper focuses on the coordination of a population of thermostatically controlled loads tcls with unknown parameters to achieve group objectives the problem involves designing the device bidding and market clearing strategies to motivate self interested users to realize efficient energy allocation subject to a peak energy constraint this coordination problem is formulated as a mechanism design problem and we propose a mechanism to implement the social choice function in dominant strategy equilibrium the proposed mechanism consists of a novel bidding and clearing strategy that incorporates the internal dynamics of tcls in the market mechanism design and we show it can realize the team optimal solution this paper is divided into two parts part i presents a mathematical formulation of the problem and develops a coordination framework using the mechanism design approach part ii presents a learning scheme to account for the unknown load model parameters and evaluates the proposed framework through realistic simulations

the welfare effects of upstream mergers in the presence of downstream entry barriers we examine the incentives for upstream firms to consolidate horizontally and the impact of this process on industry performance when there are downstream entry barriers and firms negotiate bilaterally in the short run consumers are not worse off with upstream mergers since consolidation only results in a redistribution of industry rents in the long run consumers are better off after upstream mergers since they induce more entry into that segment when social welfare is evaluated a limit on upstream consolidation may prevent excessive entry but upstream entry can be sometimes insufficient if the retailers intrinsic bargaining power is excessive

bargaining ability and competitive advantage empirical evidence from medical devices in markets where buyers and suppliers negotiate supplier costs buyer willingness to pay and competition determine only a range of potential prices leaving the final price dependent on other fac

upfront payments and exclusion in downstream markets although upfront payments are often observed in contracts between manufacturers and retailers little is known about their competitive effects or the role retailers play in securing them in this article we consider a model in which two competing retailers make take it or leave it offers to a common manufacturer we find that upfront payments are a feature of equilibrium contracts and in all equilibria only one retailer buys from the manufacturer these findings support the claims of small manufacturers who argue that they are often unable to obtain widespread distribution for their products because of upfront payments copyright 2007 rand

bilateral control with vertical contracts when a manufacturer contracts secretly with competing retailers he is subject to opportunism and linear or non linear tariffs may not allow the manufacturer to maintain monopoly prices to analyse the effects of rpm o brien shaffer 1992 use a concept of contract equilibrium which concentrates on pairwise deviations thereby questioning the robustness of the analysis this paper emphasises the distinction between the contract equilibrium and standard non cooperative concepts we advocate for some caution in the use of the former concept as if overlooks an inexistence problem we then confirm the intuition that rpm can help solve the manufacturer s commitment problem this confirms that o brien shaffer s insight is robust and validates the courts reluctance against rpm

price uncertainty and consumer search a structural model of consideration set formation we offer an econometric framework that models consumer s consideration set formation as an outcome of her costly information search behavior because frequently purchased products are characterized by frequent price promotions of varying depths of discounts a consumer faces significant uncertainty about the prices of the brands the consumers engage in a fixed sample search strategy that results in their discovering the posted prices of a subset of the available brands this subset is referred to as the consumer s consideration set the proposed model is estimated using the scanner data set for liquid detergents our key empirical results are i consumers zincur significant search costs to discover the posted prices of the brands ii whereas in store displays and feature ads do not influence consumers quality perceptions of the brands they significantly reduce search costs for observing the prices of the brands iii per capita income of consumer s household significantly increases her search costs and iv the consumers price sensitivity is seriously underestimated if we were to assume that consumers get to know all the posted prices at zero cost the proposed model is also estimated for the ketchup category to enable us to do cross category comparisons of consumers price search behavior

strategic bidding for price taker hydroelectricity producers this paper introduces a stochastic programming model that integrates strategic bids or offers for electricity in quantities and prices in a deregulated electricity market the model is designed to maximize the profits of a producer of electricity who manages a series of power plants along a river the model is compared with a previously reported stochastic model where the bidding process is disregarded the superiority of the new model is empirically demonstrated on historical data

upstream merger in a successive oligopoly who pays the price abstract this study applies a successive oligopoly model with an unobservable non linear tariff between upstream and downstream firms to analyze the possible anti competitive effects of an upstream merger in the norwegian food sector specifically the market for eggs the theoretical predictions are that an upstream merger may lead to higher average prices paid by downstream firms and at the same time no changes in the prices paid by consumers consistent with the theoretical predictions it is found that the merger had no effect on consumer prices but led to higher average prices paid by the downstream firms to the merged firm

the economic theory of vertical restraints the types of contracts arising in a typical vertical manufacturer retailer relationship are more sophisticated than a simple uniform price in addition to setting per unit prices manufacturers and retailers also revert to non linear pricing and non price instruments these instruments or contracts are referred to as vertical restraints and can take the form of franchise fees resale price maintenance exclusive dealing exclusive territories and slotting allowances the use and the effects of one type of instrument versus another depend crucially on specific market assumptions upstream and downstream and on the division of bargaining power between manufacturers and retailers this paper surveys the industrial organization literature on retail pricing and shows that vertical restraint instruments have important effects on producer and consumer prices market structure efficiency and welfare

buyer power in international markets this paper investigates the implications for international markets of the existence of retailers wholesalers with market power two main results are shown first in the presence of buyer power trade liberalization may lead to retail market concentration due to this concentration retail prices may be higher and welfare may be lower in free trade than in autarky thus reversing the standard effects of trade liberalization second the pro competitive effects of trade liberalization are weaker under buyer power than under seller power

demand side management for regulation service provisioning through internal pricing we develop a market based mechanism that enables a building smart microgrid operator smo to offer regulation service reserves and meet the associated obligation of fast response to commands issued by the wholesale market independent system operator iso who provides energy and purchases reserves the proposed market based mechanism allows the smo to control the behavior of internal loads through price signals and to provide feedback to the iso a regulation service reserves quantity is transacted between the smo and the iso for a relatively long period of time e g a one hour long time scale during this period the iso follows shorter time scale stochastic dynamics to repeatedly request from the smo to decrease or increase its consumption we model the operational task of selecting an optimal short time scale dynamic pricing policy as a stochastic dynamic program that maximizes average smo and iso utility we then formulate an associated nonlinear programming static problem that provides an upper bound on the optimal utility we study an asymptotic regime in which this upper bound is shown to be tight and the static policy provides an efficient approximation of the dynamic pricing policy equally importantly this framework allows us to optimize the long time scale decision of determining the optimal regulation service reserve quantity we demonstrate verify and validate the proposed approach through a series of monte carlo simulations of the controlled system time trajectories