the quantitative analytics of the basic neomonetarist model this paper constructs a dynamic macroeconomic model with less than perfect price flexibility which has a classical side consistent with real business cycle theory augmented by investment adjustment costs increasing returns to scale and a new flexible formalization of imperfect competition something akin to the classical dichotomy is justified by a mode of approximation appropriate for a model in which one state variable adjusts quickly while another state variable adjusts slowly even with investment adjustment costs monetary expansions are found to raise the real interest rate the determinants of real rigidity and the macroeconomic rate of price adjustment are investigated copyright 1995 by ohio state university press

standardization and the stability of collusion we characterize the interplay between firms decision in terms of product standardization and the nature of their ensuing market behaviour we prove the existence of a nonmonotone relationship between firms decision at the product stage and their intertemporal preferences c 1998 elsevier science s a

behavioral responses to inheritance tax evidence from notches in france abstract for the first time we exploit quasi experimental variation to investigate the impact of inheritance taxation on wealth accumulation using bunching and difference in differences methods we directly estimate several behavioral responses during lifetime rather than relying solely on observations at death our empirical findings shed new light upon wealth accumulation and bequest motives taken together the small responses to inheritance tax estimated cannot be supported by the desire to retain control over wealth

non equivalent pass through of anti dumping duties countervailing duties and import tariffs we directly compare the short run pass through of tariffs anti dumping ad duties and countervailing cv duties into us import prices consistent with the theoretical predictions we find clear pattern of non equivalence in import price reaction to the three duty types with the most notable difference detected between ad duties and tariffs according to our estimates a tariff rate would have to be approximately two times higher than an ad duty rate in order to have the same effect on the delivered import price

cost manipulation games in oligopoly with costs of manipulating we analyze a class of two stage games where rival firms incur real resource costs in manipulating their marginal costs so as to influence the outcome of the game they want to play in stage two marginal costs may be manipulated by various means such as redistribution of productive assets choice of location or creation of an internal input market a general formulation of the game is provided and several applications are analyzed we show that the optimal allocation of resources within an oligopoly can be asymmetric even for ex ante symmetric firms this is an additional explanation of heterogeneity in oligopoly

product differentiation and collusion sustainability when collusion is costly a widely debated question in recent years by both strategy theorists and antitrust practitioners is what role product differentiation between firms plays in their ability to sustain a collusive agreement in order to reduce the strength of competition and gain higher profits this paper addresses the following question what happens to the product differentiation collusion sustainability relationship when setting up and maintaining an agreement is costly we show that introducing collusion costs into the discussion has relevant implications indeed sufficiently high collusion costs modify the underlying market structure thus altering the product differentiation collusion sustainability relationship with respect to the case where collusion costs are absent or low in particular if the gains from collusion are increasing decreasing with the degree of product differentiation the relationship between product differentiation and collusion sustainability is always positive negative whereas if the gains from collusion are inverted u shaped the relationship is inverted u shaped too these results stress the importance of considering those markets where the coordination between firms is sufficiently costly as structurally different from those markets where coordination has no costs for firms

choosing between time and state dependence micro evidence on firms price reviewing strategies because of recent findings based on survey data it is now well known that firms differ from each other with respect to their price reviewing strategies while some firms review their prices at fixed intervals of time others prefer to perform price revisions in response to changes in economic conditions some theories have been suggested to explain this however empirical evidence on the relative importance of the factors that determine the different strategies of firms is virtually non existent in this paper we help to fill this gap by investigating the factors that explain why firms follow time dependent state dependent or both time and state dependent price reviewing rules we find that the strategies of firms vary with firm characteristics that have a bearing on the importance of information costs with the variability of the optimal price and with the sensitivity of profits to non optimal prices

market segmentation and collusive behavior abstract the recent literature on oligopolistic third degree price discrimination has been primarily concerned with rival firms incentives to acquire customer specific information and the consequences of such information on firm profitability and welfare this literature has taken mostly a static view of the interaction between competing firms in contrast in this paper we investigate the impact of customer specific information on the likelihood of tacit collusion in a dynamic game of repeated interaction this issue is very important because competitive price discrimination usually leads to a cutthroat price competition prisoners dilemma among firms firms therefore may seek ways to soften competition and sustain higher prices our main result is that collusion becomes more difficult as the firms ability to segment consumers improves

lechatelier samuelson principle in games and pass through of shocks abstract the lechatelier samuelson principle states that as a reaction to a shock an agent s short run adjustment of an affected action is smaller than its long run adjustment when the agent can also adjust other related actions we extend the principle to strategic environments where the long run adjustment also accounts for other players adjusting their strategies we show that the principle holds for supermodular games strategic complements satisfying monotone comparative statics and provide sufficient conditions for the principle to hold in games of strategic substitutes heterogeneity we discuss the principle s implications for cost pass through of multiproduct firms

state dependent pricing and the general equilibrium dynamics of money and output economists have long suggested that nominal product prices are changed infrequently because of fixed costs in such a setting optimal price adjustment should depend on the state of the economy yet while widely discussed statedependent pricing has proved difficult to incorporate into macroeconomic models this paper develops a new tractable theoretical state dependent pricing framework we use it to study how optimal pricing depends on the persistence of monetary shocks the elasticities of labor supply and goods demand and the interest sensitivity of money demand

not all price endings are created equal price points and asymmetric price rigidity abstract we document an asymmetry in the rigidity of 9 ending prices relative to non 9 ending prices consumers have difficulty noticing higher prices if they are 9 ending or noticing price increases if the new prices are 9 ending because 9 endings are used as a signal for low prices price setters respond strategically to the consumer heuristic by setting 9 ending prices more often after price increases than after price decreases 9 ending prices therefore remain 9 ending more often after price increases than after price decreases leading to asymmetric rigidity 9 ending prices are more rigid upward than downward these findings hold for both transaction prices and regular prices and for both inflation and no inflation periods

asymmetric price adjustment and economic fluctuations this paper considers a possible explanation for asymmetric adjustment of nominal prices the authors present a menu cost model in which positive trend inflation causes firms relative prices to decline automatically between price adjustments in this environment shocks that raise firms desired prices trigger larger price responses than shocks that lower desired prices the authors use this model of asymmetric adjustment to address three issues in macroeconomics the effects of aggregate demand the effects of sectoral shocks and the optimal rate of inflation copyright 1994 by royal economic society

buyer supplier interaction asset specificity and product choice abstract firms often differentiate their products through the use of inputs that are differentiated or specialized the goal of this paper is to explore how the demand for specific investments may affect product variety in a bilateral duopolistic industry i develop a model where the degree of specificity of investments is endogenously determined through the product choices of both downstream buyers and upstream suppliers of inputs the existence of non contractible investments results in the emergence of a single supplier of a non specialized input however as the importance of having specific inputs increases fully specialized suppliers may emerge the buyers choose to increase their own competition by producing more similar products only in cases when the inputs are non specialized they do so to increase the investment incentives of the suppliers

exchange rate pass through to consumer prices in south africa evidence from micro data abstracta sizeable literature examines exchange rate pass through to disaggregated import prices but few micro studies focus on consumer prices this article explores exchange rate pass through to consumer prices in south africa for 2002 2007 using a unique data set of highly disaggregated data at the product and outlet level the empirical approach allows pass through to be calculated over various horizons for different goods and services the heterogeneity of pass through for food sub components is considerable switches between import and export parity pricing of maize are found significant for five out of ten food sub components using actual weights from the cpi basket overall pass through to the almost 63 per cent of the cpi covered is about 30 per cent after two years and higher for food

duopoly delivered pricing and horizontal mergers federal merger guidelines recognize that when sellers are spatially dispersed the closeness of competitors can be crucial in evaluating the welfare consequences of a merger 1 this recognition makes it surprising that more research has not focused on the issue of horizontal mergers in spatial models the spatial setting is particularly interesting since the fact that a merger might occur in the future can alter the location decision made by firms we analyze a spatial duopoly with price discrimination in the first stage firms choose locations noncooperatively along a linear market with the foresight that a merger may occur in a later stage in the second stage firms decide whether to merge delivered price schedules are announced in stage three within this structure we study the effects of simultaneous and sequential entry and conclude that the possibility of merger generally leads to inefficient location choices and higher transport costs levy and reitzes examine the anticompetitive effects of mergers in salop s circular model 9 12 in this model firms are evenly spread around a circle and then a bertrand nash game is played in prices they conclude that if two adjoining firms merge the merged firm will increase prices at both its locations and prices will rise although to a lesser extent at all other locations in related work mcafee simons and williams study a cournot nash model of horizontal mergers between firms that engage in spatial price discrimination 10 their work also yields an estimate of the increases in equilibrium post merger delivered price yet both of these studies treat firm locations as fixed this rules out any influence of future possible merger on the location choices of firms we will show that this influence can be substantial

research joint ventures product differentiation and price collusion abstract we investigate the interplay between firms decisions in product development either joint or independent and their ensuing repeated pricing either collusive or bertrand nash a joint venture develops a single product whereas independent ventures develop their respective products which can be differentiated we prove that joint product development and the resulting lack of horizontal product differentiation may destabilise collusion whilst firms r d decisions have no bearings on collusive sustainability if differentiation is vertical we also discover the non monotone dependence of firms venture decisions at the development stage upon their time preferences as well as upon consumers willingness to pay

global versus local shocks in micro price dynamics a number of recent papers point to the importance of distinguishing between the price reaction to macro and micro shocks we emphasize instead the importance of distinguishing between global and local shocks we exploit a panel of 276 micro price levels collected on a semi annual frequency over two decades in 59 countries around the world that enables us to distinguish between different types global and local of macro and micro shocks we find that global macro and micro shocks are always associated with a slower response of prices than the respective local shocks focusing on structural monetary macro shocks we show that prices reach their long run value much slower in response to a global macro shock as compared to the time it takes for prices to reach their long run value in response to a local macro shock

inventories markups and real rigidities in menu cost models a growing consensus in new keynesian macroeconomics is that nominal cost rigidities rather than countercyclical markups account for the bulk of the real effects of monetary policy shocks we revisit these conclusions using theory and data on inventories we study an economy with nominal rigidities in which goods are storable our theory predicts that if costs of production are sticky and markups do not vary much in response to say expansionary monetary policy firms react by excessively accumulating inventories in anticipation of future cost increases in contrast if the data inventories are fairly constant over the cycle and in response to changes in monetary policy we show that costs must increase and markups must decline sufficiently in times of a monetary expansion in order to reduce firm s incentive to hold inventories and thus bring the model s inventory predictions in line with the data versions of the model consistent with the dynamics of inventories in the data imply that countercyclical markups account for a sizable fraction of the response of real variables to monetary shocks

microdata evidence on the empirical importance of selection effects in menu cost models we use microdata on product prices linked to information on the producing firms that set them to study to what extent the timing of price changes reacts to changes in marginal cost this self selec

internal cartel stability with time dependent detection probabilities abstract to account for the illegal nature of price fixing agreements per period detection probabilities that can vary over time are introduced in a dynamic oligopoly the resulting iccs for internal cartel stability indicate that for discount factors up to 10 per period detection probabilities of 5 are needed to reduce the number of cartel members by 50 for the special case of stationary supergames with constant per period detection probabilities p elegant rules emerge internal cartel stability requires the discount factor to increase with 100 p 1 p percent while a fixed fine of 100 1 p p percent of incremental cartel profits is required for making the icc always binding

state dependent pricing local currency pricing and exchange rate pass through this paper presents a two country dsge model with state dependent pricing as in dotsey et al 1999 in which firms discriminate across countries by setting prices in local currency in this model a domestic monetary expansion has greater spillover effects to foreign prices and foreign economic activity than an otherwise identical model with time dependent pricing in addition the predictions of the state dependent pricing model match the business cycle moments better than the predictions of the time dependent pricing model when driven by monetary policy shocks

pass through of competitors exchange rates to us import and producer prices this paper shows that in theory and bls microdata the prices of imported goods respond to the exchange rates er of the producer s foreign competitors in contrast standard models have no role for competitors ers excluding the effects of competitors exchange rates typically biases upwards estimates of bilateral exchange rate pass through because competitors ers and bilateral ers are positively correlated a multi country version of atkeson and burstein s 2008 industry aggregation model is able to explain a sizable proportion of pass through of competitors exchange rates to import prices and also predicts pass through of foreign competitors prices and pass through of competitors ers to us producer prices both of which are supported in the data the results suggest that pass through will be larger for er movements shared by a greater fraction of foreign competitor countries

collusion agglomeration and heterogeneity of firms abstract jehiel 1992 and friedman and thisse 1993 show that spatial agglomeration appears in a standard two stage location price model if symmetric firms collude in prices we introduce a cost difference between two firms we show that agglomeration never appears in a collusive equilibrium even when the cost difference between firms is sufficiently small

market structure and cost pass through in retail abstract we examine the extent to which vertical and horizontal market structure can together explain incomplete retail pass through to answer this question we use scanner data from a large u s retailer to estimate product level pass through for three vertical structures national brands private label goods not manufactured by the retailer and private label goods manufactured by the retailer our approach circumvents issues associated with internal firm prices and demonstrates that accounting for horizontal market structure is important for measuring the effects of vertical integration and reduced double marginalization on pass through

a dynamic oligopoly with collusion and price wars we provide a collusive framework with heterogeneity among jirms investment entry and exit it is a symmetric information model in which it is hard to sustain collusion when there is an activejim that is likely to exit in the near future numerical analysis is used to compare a collusive to a noncollusive environment only the collusive industry generates price wars also the collusive industry offers both more and higherquality products to consumers albeit often at a higher price the positive effect of collusion on variety and quality more than compensates consumers for the negative effect of collusive prices so that consumer surplus is larger with collusion

frequency of price adjustment and pass through we empirically document using u s import prices that on average goods with a high frequency of price adjustment have a long run pass through that is at least twice as high as that of low frequency adjusters we show theoretically that this relationship should follow because variable mark ups that reduce long run pass through also reduces the curvature of the proflt function when expressed as a function of the cost shocks making the flrm less willing to adjust its price lastly we quantitatively evaluate a dynamic menu cost model and show that the variable mark up channel can generate signiflcant variation in frequency equivalent to 37 of the observed variation in the data on the other hand the standard workhorse model with constant elasticity of demand and calvo or state dependent pricing has di culty matching the facts

localized competition multimarket operation and collusive behavior this paper studies collusive behavior in a repeated oligopoly model with localized competition also reinterpreted as a model of multimarket operation private information about the rivals past actions naturally arises from these product market structures the resulting communication problems imply that firms should not adopt strategies with too severe punishments infinite grim punishments may be too severe for large discount factors the standard stick and carrot punishments from the perfect public information model are always too severe for all discount factors modified stick and carrot punishments can still be used though for a smaller range of discount factors than the standard stick and carrot punishments

a note of the theory of international transfers abstract if each of n trading countries supplies each of several international public consumption goods then sufficiently small international transfers have no effect on the consumption production or welfare of any country

semicollusion in the norwegian cement market abstract a model of semicollusion where firms collude on prices and compete on capacities is tailor made to the characteristics of the norwegian cement market and tested on this particular market for the period 1927 1982 the results indicate that the rapid increase in capacity and thereby in exports in the period 1956 1967 the late phase of the price cartel best can be explained by the market sharing agreement each firm overinvested in capacity to receive a large quota in the domestic market

protection lobbying and market structure abstract we look at a model of lobbying by oligopolistic industry where firms allocate resources between lobbying and internal cost reducing activities we ask the following questions i if firms differ with respect to comparative advantage in lobbying what is the equilibrium allocation of resources between lobbying and cost reducing activities ii can lobbying opportunities reverse the profitability ranking among firms iii under what condition is the conventional wisdom that highly concentrated industries tend to obtain more protection valid the answers depend on various measures of comparative advantage in lobbying and on the demand curve

closely competing firms and price adjustment some findings from an online marketplace we investigate retailers price setting behavior using a unique dataset containing by the second records of prices offered by closely competing retailers on a major japanese price comparison website first we find that when the average price of a product across retailers falls rapidly the frequency of price adjustments increases and the size of price adjustments becomes larger second we find positive autocorrelation in the frequency of price adjustments implying that there tends to be clustering where price adjustments occur in succession in contrast there is no such autocorrelation in the size of price adjustments these two findings indicate that the behavior of competing retailers is characterized by state dependent pricing rather than time dependent pricing

nonminimal product differentiation as a bargaining outcome abstract it is well known that in a duopoly model of product choice with quadratic transportation cost the firms locate at the extreme endpoints of the market jehiel 1992 int j ind organ 10 633 641 has examined this model in an infinite horizon setting where in the initial period the firms choose location and in subsequent periods charge the nash bargaining solution prices then in the unique equilibrium both firms locate at the center of the market this paper examines the case when the firms instead charge the prices determined by either the egalitarian bargaining solution or the kalai smorodinski bargaining solution it is shown that central agglomeration is an equilibrium furthermore there is a continuum of symmetric equilibria in addition where the firms locate apart from each other so the products are not necessarily minimally differentiated thus different bargaining solutions provide quite different outcomes

cost heterogeneity industry concentration and strategic trade policies abstract we show that if domestic firms do not have identical unit costs then the interplay between the herfindahl index of concentration and the elasticity of the slope of the demand curve is of major importance in the determination of optimal trade policies in some cases the direction of optimal policy is reversed

price discrimination by u s and german exporters the insensitivity of the u s trade balance to the sharp depreciation of the dollar in the past three years has revived interest in the relationship between exchange rates and the trade balance a central issue in most analyses of the relation between the current account and the exchange rate concerns the price adjustment process the simple integrated competitive market model predicts that local currency prices should change in proportion to the nominal exchange rate for a country too small to influence world prices the relationship between local currency import prices and exchange rates has been referred to as the pass through relationship in the empirical literature in international economics if the proportional relationship between import prices and exchange rates holds pass through is said to be complete accounts of recent u s experience cite the failure of dollar prices of imported goods to rise in proportion to exchange rates i e incomplete pass through as an important factor in explaining the persistence of the trade deficit unfortunately observations on pass through alone provide limited insight into the behavior of markets since incomplete pass through is consistent with at least two fundamentally different paradigms one is the standard competitive model of trade in which the law of one price holds but exchange rate fluctuations are associated with large changes in import demand due to other factors for example if dollar appreciation is correlated with increases in world demand and industry marginal cost is increasing then pass through will be less than complete the other is an imperfectly competitive model in which exporters are capable of price discriminating across destination markets a phenomenon paul krugman 1987 has labeled pricing to market in this model incomplete pass through is typically associated with fluctuations in the markup of price over marginal cost on exports 2 these fluctuations in markups are believed to be countryspecific they do not reflect the behavior of prices to other export destinations both models are plausible explanations of recent u s experience unfortunately it is impossible to distinguish between these competing models using only information on import prices and exchange rates for a single country in order to distinguish between the competing models an empirical analysis of goods prices and exchange rates must be capable of measuring either marginal cost or the markup over marginal cost either of these tasks poses formidable empirical problems much of the empirical literature in industrial organization has been concerned with precisely these issues since markups are an important measure of the competitiveness of industries

price elasticities and demand side real rigidities in micro data and in macro models abstract high degrees of demand side real rigidities are able to generate the large monetary non neutrality found in aggregate data this paper provides micro based evidence on the key parameters governing this rigidity using european homescan data we find strong evidence for demand side real rigidity which is however significantly lower than that normally assumed in macro models in a menu cost model calibrated to our estimates we show that these estimates are associated with reasonable values for production side parameters but they are not able to generate the degree of monetary non neutrality observed in macro data

the estate tax and the demise of the family business abstract this paper uses data from san francisco probate records to estimate if and to what extent the estate tax forces the sale of family businesses and farms this question cannot be addressed with estate tax return data farmers and small business owners frequently complain that the estate tax makes it difficult to pass their operations on to their heirs if there are insufficient liquid assets in the entrepreneur s estate the heirs may be forced to sell the enterprise in order to pay the estate tax using variation in tax liability from state and federal tax changes in 1982 i estimate the effect of the estate tax on business sales estimates from models using cross year tax variation and a difference in difference strategy provide some evidence for a positive effect of the estate tax on sales although it is difficult to link this to explicit measures of liquidity need

the competitive effects of price floors using hotelling s model of locational competition we show that a moderate price floor destroys the maximal differentiation equilibrium resulting in minimum differentiation equilibrium prices are lower than prices in the absence of a floor a low price floor can lead to multiple equilibria with both minimum and maximum differentiation as possible outcomes

dynamics of the u s price distribution abstract we use microdata underlying u s consumer producer and import price indices to document how the distribution of price changes evolves over time two striking features characterize pricing across all three datasets 1 frequency of price adjustments is countercyclical 2 frequency of price adjustments is correlated with variance conversely other statistics that have received recent attention like kurtosis do not exhibit uniform patterns across our data sets what implications do our empirical results have for monetary policy using a flexible accounting framework that collapses the high dimensional distribution of price changes into a single measure of aggregate price flexibility we show that flexibility is highly variable and countercyclical

menu costs and the neutrality of money a model of endogenous price adjustment under money growth is presented firms follow s s pricing policies and price revisions are imperfectly synchronized in the aggregate price stickiness disappears and money is neutral the connection between firm price adjustment and relative price variability in the presence of monetary growth is also investigated the results contrast with those obtained in models with exogenous fixed timing of price adjustment

fiscal stabilization with partial exchange rate pass through this paper examines the role of fiscal stabilization policy in a two country framework that allows for a general degree of exchange rate pass through i derive analytical solutions for optimal monetary and fiscal policy which are shown to depend on the degree of passthrough in the case of partial pass through an optimizing policy maker uses counter cyclical fiscal stabilization in addition to monetary stabilization however in the extreme cases of complete or zero pass through the fiscal stabilization instrument is not employed there is also no additional gain from the fiscal instrument in the case of coordination between the two countries these results are due to the specific way the optimal fiscal policy rule affects marginal costs rather than being a substitute for monetary policy fiscal policy complements it by increasing the correlation of the marginal cost terms within and across countries this in turn makes monetary policy more effective at stabilizing them

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

exchange rate pass through to import prices and monetary policy in south africa abstractunderstanding how import prices adjust to exchange rates helps anticipate inflation effects and monetary policy responses this article examines exchange rate pass through to the monthly import price index in south africa during 1980 2009 short horizon pass through estimates are calculated using both single equation equilibrium correction models and systems johansen models controlling for both domestic and foreign costs average pass through is incomplete at about 50 per cent within a year and 30 per cent in six months and in the long run from the johansen analysis including feedback effects is about 55 per cent there is evidence of slower pass through under inflation targeting pass through is found to decline with recent exchange rate volatility and there is evidence for asymmetry with greater pass through occurring for small appreciations

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

a state dependent model of intermediate goods pricing recent analyses of transaction level datasets have generated new stylized facts on price setting and greatly influenced the empirical macroeconomics literature this work has uncovered marked heterogeneity in price stickiness demonstrated that even non zero price changes do not fully pass through cost shocks and offered evidence of synchronization in the timing of price changes further intrafirm prices have been shown to differ from arm s length prices in each of these characteristics this paper develops a state dependent model of intermediate goods pricing which allows for arm s length and intrafirm transactions and is capable of generating these empirical pricing patterns

staggered price setting with endogenous frequency of adjustment abstract a model of staggered price setting in which the frequency of price changes is endogenous is presented

goods prices and exchange rates what have we learned import prices typically change by a smaller proportion than the exchange rate between the exporting and importing country recent research indicates that common currency relative prices for similar goods exported to different markets are highly correlated with exchange rates between those markets this evidence suggests that incomplete pass through is a consequence of third degree price discrimination while distance matters for market segmentation borders have independent effects the source of the border effect has not been clearly identified furthermore there is little evidence yet to suggest substantial market power is implied by the observed price discrimination

partial collusion fosters minimum product differentiation we investigate a spatial duopoly in which the firms simultaneously select locations at the beginning of time once chosen the locations are fixed forever but the firms will choose prices in each of a countably infinite succession of time periods we are interested in equilibrium behavior when the firms will collusively arrange a trigger strategy equilibrium in prices and will select their locations knowing that a particular such trigger strategy price equilibrium will ensue specifically we restrict our attention to prices that support an outcome on the profit possibility frontier at which the ratio of firm 1 s profits to those of firm 2 is positively related to the similar ratio of profits at the single shot noncooperative equilibrium for these profit sharing rules the resulting location equilibrium is unique and involves the pairing of firms at the market center

real rigidities and nominal price changes a large literature seeks to provide microfoundations of price setting for macro models a challenge has been to develop a model in which monetary policy shocks have the highly persistent efiects on real variables estimated by many studies nominal price stickiness has proved helpful but not su cient without some form of real rigidity or strategic complementarity we embed a model with a real rigidity a la kimball 1995 wherein consumers ee from relatively expensive products but do not ock to inexpensive ones we estimate key model parameters using micro data from the u s cpi which exhibit sizable movements in relative prices of substitute products when we impose a signiflcant degree of real rigidity fltting the micro price facts requires very large idiosyncratic shocks and implies large movements in micro quantities

mixed oligopoly and spatial agglomeration abstract we investigate a mixed market where a state owned welfare maximizing public firm competes against profit maximizing private firms we use a circular city model with quantity setting competition in contrast to a pure market case discussed by pal 1998a spatial agglomeration of private firms always appears in equilibrium all private firms locate at the same point and the public firm locates at the opposite side we also find that this equilibrium pattern of the location is second best provided that output of each private firm cannot be controlled by the social planner jel classification h42 l13 oligopole mixte et agglomeration spatiale les auteurs examinent un marche mixte ou une entreprise publique possedee par l etat et cherchant a maximiser le niveau de bien etre est en concurrence avec des entreprises privees qui cherchent a maximiser leurs profits on utilise un modele de cite circulaire ou la concurrence se fait en choisissant la quantite produite en contraste avec le cas du marche parfait discute par pal 1998a l agglomeration spatiale des entreprises privees parait etre en equilibre toutes les entreprises privees se localisent au meme point et l entreprise publique se localise du cote oppose il appert que ce pattern d equilibre de localisation est un equilibre de second ordre compte tenu du fait que la production de chaque entreprise privee ne peut etre controlee par le planificateur social

welfare properties of strategic r d investments in hotelling models abstract in linear city models if firms are allowed not allowed to locate outside the linear city they engage in excessive insufficient r d investments from the normative viewpoint this implies that the feasible set of locations drastically affects their investments

exchange rate pass through in developing and emerging markets a survey of conceptual methodological and policy issues and selected empirical findings abstractglobal integration has increased the international linkages of financial markets for emerging market countries a key channel for the international transmission of inflation and economic cycles is from exchange rate movements to domestic prices known as exchange rate pass through erpt this article reviews the conceptual methodological and policy issues connected with erpt in emerging market and developing countries and critically surveys selected empirical studies a key contribution is to categorise and compare the heterogeneous methodologies used to extract erpt measures in the empirical literature single equation models and systems methods are contrasted frequent misspecifications that produce unreliable erpt estimates are highlighted the discerning policy maker needs to ascertain by which methods erpt measures were calculated the controls and restrictions applied and the time frame and stability of the estimates

estate and gift taxes and incentives for inter vivos giving in the us abstract this paper describes the current estate and gift tax rules that apply to intergenerational transfers in the us it summarizes the incentives for inter vivos giving gifts from a donor to a recipient while the donor is alive as a strategy for reducing estate tax liability it shows that the current level of intergenerational transfers is much lower than the level that would be implied by simple models of dynastic utility maximization moreover even among elderly households with net worth in excess of 2 5 million roughly four times the net worth at which us households became liable for estate tax in 1995 only about 45 take advantage of the opportunity for tax free inter vivos giving cross sectional regressions using the 1995 survey of consumer finances suggest that transfers rise with household net worth possibly reflecting the impact of progressive estate taxes households with a preponderance of their net worth in illiquid forms such as a private business are less likely to make transfers than their equally wealthy counterparts with more liquid wealth those with substantial unrealized capital gains for whom the benefits of basis step up at death under the income tax are greatest are less likely to make large inter vivos transfers than similarly wealthy households with higher basis assets

price matching policy and the principle of minimum differentiation this paper shows that if duopolists are allowed to choose their product locations a price matching policy and their prices sequentially and independently both tacit collusion and minimum differentiation occur copyright 1995 by blackwell publishing ltd

cartels profits and excess capacity a model of a collusive duopoly in which each firm has limited capacity is studied the negotiated output quotas depend on the bargaining power of the firms which derives from the damage the firms can do by cutting prices for fixed capacities the unit profit of the small firm is at least as large as that of the large firm and the relative position of the small firm is better when demand is low when the capacities can be chosen once and for all there is excess capacity in equilibrium so long as the cost of capacity is not too high copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

time intensive r d and unbalanced trade abstract this paper highlights a novel mechanism that generates global imbalances it develops a general equilibrium trade model with one of two countries having a comparative advantage in a sector whose production is characterized by i rapid anticipated demand growth and ii large up front r d costs international funding of the accruing r d costs generates capital inflows in the r d stage which are balanced by subsequent outflows importantly sector level growth does not generate growth differentials between countries typically regarded as rationales of global imbalances additionally it is shown that a trade surplus can coincide with appreciations of the real exchange rate i argue that switzerland s trade surplus which was driven to record heights during 2010 2014 by pharmaceutical exports exemplifies this mechanism calibrating the model to swiss trade flows underpins this argument

on what states do prices depend answers from ecuador in this paper we argue that differences in the cost structure across sectors play an important role in the decision of firms to adjust their prices we develop a menu cost model of pricing in which retail firms intermediate trade between producers and consumers an important facet of our analysis is that the labor cost share of retail production differs across goods and services in the consumption basket for example the price of gasoline at the retail pump is predicted to adjust more frequently and by more than the price of a haircut due to the high volatility in wholesale gasoline prices relative to the wages of unskilled labor even when both retailers face a common menu cost this modeling approach allows us to account for some of the cross sectional differences observed in the frequency of price adjustments across goods we apply this model to ecuador to take advantage of inflation variations and the rich panel of monthly retail prices

rigidities and adjustments of daily prices to costs evidence from supermarket data we assess the extent of inertia in grocery retail prices using data on prices and costs from a large supermarket chain in colombia relative to previous work our analysis benefits from encompassing a wide variety of products availability of reliable replacement cost data and the daily frequency of the data we confirm the existence of significant nominal rigidities in reference prices three months and even more so in reference costs about six months but differing depending on the type of product being on average smaller in the case of perishable goods using a non linear autoregressive distributed lag nardl approach to cointegration we examine the path of prices relative to costs and determine the speed of adjustment of prices to shocks we find significant mean reversion but also uncover asymmetries in response to positive and negative changes in costs as a novel finding we uncover evidence of the effect of market concentration input price volatility along with own labels and the perishable nature of products on the likelihood of price asymmetry in response to costs changes

domestic politics foreign interests and international trade policy reply this paper incorporates the foreign interest in the determination of a country s international trade policy into a model of political competition between candidates contesting elective office we envisage foreign and domestic producer interests as expressing political support for a candidate via campaign contributions and candidates as making trade policy pronouncements to maximize political support from producer interests tariffs are divisive but vers are consistent with conciliatory policy positions yielding mutual gain to foreign and domestic interests no candidate has an interest in formulating a trade policy position using a tariff if a ver is a policy option protection in the developed countries has in recent years often taken the form of bilaterally negotiated voluntary export restraints vers rather than the more traditional unilaterally imposed import restrictions the use of voluntary export restraints has been paralleled by interest in the theoretical literature the effects of vers have been compared with tariffs and quotas and vers have been examined in a political economy framework with a view to identifying the gainers and losers from this form of restric

reset price inflation and the impact of monetary policy shocks abstract many business cycle models use a flat short run phillips curve due to time dependent pricing and strategic complementarities to explain fluctuations in real output but in doing so these models predict unrealistically high persistence and stability of us inflation in recent decades we calculate reset price inflation based on new prices chosen by the subsample of price changers to dissect this discrepancy we find that the models generate too much persistence and stability both in reset price inflation and in the way reset price inflation is converted into actual inflation our findings present a challenge to existing explanations for business cycles jel e31 e52

imported inputs and invoicing currency choice theory and evidence from uk transaction data a significant proportion of international trade is in intermediate goods this paper considers theoretically and empirically how exporters dependence on imported inputs affects their choice of invoicing currency the model predicts that exporters that depend more on foreign currency denominated inputs are less likely to price in their home currency i test this and other theoretical results using a novel dataset that covers uk trade transactions with non eu countries i find considerable support for the model s predictions a 10 percentage point higher share of foreign currency denominated inputs is associated with a 20 percentage point higher probability of pricing in the same foreign currency relative to the producer s currency

border prices and retail prices abstract we analyze retail prices and at the dock import prices of specific items in the bureau of labor statistics bls cpi and ipp databases using both databases simultaneously to identify items that are identical in description at the dock and when sold at retail this identification allows us to measure the distribution wedge associated with bringing traded goods from the point of entry into the united states to their retail outlet we find that overall u s distribution wedges are 50 70 around 10 to 20 percentage points higher than that reported in the literature we discuss the implications of this for measuring the size of the pure tradeables sector exchange rate pass through and real exchange rate determination we find that distribution wedges are very stable over time but there is considerable variation across items there is some variation across the country of origin for the imported item for our major trading partners but not as much as the cross item variation we also investigate the determinants of distribution wedges finding that wedges do not vary systematically with exchange rates but are related to other features of the micro data

eco labelling scheme environmental protection and protectionism in this paper a model of international duopoly is developed involving competition in both prices and levels of environmental friendliness and the implications of government policies are studied it is shown that contrary to the conventional wisdom a regulatory increase in the minimum required level of environmental friendliness of imported goods may harm the home firm and may result in a rise in the volume of imported goods whether consumers lose or gain from such a regulatory increase depends on consumption spillover effects we also show that under certain conditions the duopoly s equilibrium choice of levels of environmental friendliness is socially optimal jel classification f00 eco etiquetage protection environnementale et protectionnisme ce memoire developpe un modele de duopole international ou la concurrence se fait a la fois par les prix et par les niveaux de sensibilite aux problemes environnementaux on etudie les impacts des politiques gouvernementales contrairement a ce que suggere la sagesse conventionnelle il semble qu un accroissement reglementaire dans le minimum requis de disposition favorable a l environnement des biens importes peut nuire a l entreprise locale et peut resulter en un accroissement du volume de biens importes le consommateur perdra ou gagnera en consequence de cette accroissement de la reglementation selon la nature des effets de retombees on montre aussi que sous certaines conditions le choix des niveaux d equilibre de sensibilite aux problemes de l environnement s avere socialement optimal

advantageous semi collusion the textbook view that cartels increase industry profits and lower consumer welfare ignores the effects of competition in other activities a revisionist view shows that when cartel members compete in other activities i e when they semi collude the cartel members may be worse off and consumers better off using a two stage model in which the non production activity is r d and is subject to technological spillovers we show that both the traditional and revisionist views can be wrong that consumers and producers can both be made worse off or both better off by a semi collusive production cartel

pass through of commodity price shocks in distribution channels with risk averse agents abstract we apply variance analysis for studying the risk sharing mechanism in distribution channels in which the risk averse buyer and supplier are suffered from commodity price shocks we obtain the closed form optimal pass through rate that minimizes the total channel price cost risk and maximizes the channel throughput for a stackelberg leadership game and a nash bargaining solution using the commodity price data in the steel industry we demonstrate that the pass through rate should be set between 40 and 80 for major metal alloys

international price dispersion in state dependent pricing models menu cost models predict a hump shaped relationship between real and nominal exchange rate volatility the hump occurs at higher values of nominal exchange rate volatility the higher trade costs and lower international substitution elasticities are these predictions accord well with the negative relationship between relative price and nominal exchange rate volatility i document using a data set of prices collected in eastern europe in a volatile environment in contrast trade costs must be sufficiently high or international substitution elasticities low in order for the model to account for the positive correlation between real and nominal exchange rate volatility in the aggregate data

retailers and consumers the pass through of import price changes in this paper we estimate pass through rates of import price changes to retail prices across retailers and consumers for apparel purchases in germany for the period of 2000 07 we find that high price retailers do not pass through changes in the import price pass through rates for low price retailers are 53 per cent within three months consequently pass through rates for low income households are 58 per cent significantly larger than those for high income households we then present one possible explanation for these observations in a theoretical model with endogenous vertical product differentiation due to bundling an ex ante homogeneous import goods with services following an import price change retailers who sell a cheaper unbundled product change prices to a greater extent than retailers who sell a higher priced bundle of product and service

effects of a mandatory local currency pricing law on the exchange rate pass through abstract this paper discusses whether law 28300 of 2004 that required peruvian firms to express their prices in peru s currency in a context of high price dollarization affected the exchange rate pass through erpt we hypothesize that the enactment of the law introduced menu costs for firms that used to set their prices in dollars prompting several of them to make a permanent switch to pricing in local currency using disaggregated consumer price index cpi data we find that following passage of the law the erpt was completely offset for non durable goods with dollarized prices and partially offset for durable goods with dollarized prices these effects may vary due to differences in imported component shares market power and markup pricing

the new open economy macroeconomics a survey since the 1995 publication of obsteld and rogoff s redux model there has been an outpouring of research on open economy dynamic general equilibrium models that incorporate imperfect competition and nominal rigidities this paper offers an interim survey of this recent literature 2001 elsevier science b v all rights reserved

pricing to market currency invoicing and exchange rate pass through to producer prices abstract in this paper we examine producer prices to shed light on a number of outstanding issues in the understanding of price adjustment in the face of fluctuating exchange rates first we provide results that link two closely related literatures on firm characteristics and exchange rate pass through and currency of invoicing and pass through we show that there is significant within and across industry heterogeneity in the currency of invoice of exports of canadian goods to the u s and further in the degree of pass through to producer prices next we exploit the fact that we observe firms that sell the same good to both the domestic and export markets often in different currencies to difference out the common marginal cost component of the prices this allows us to relate markups to exchange rate movements and we find evidence that pricing to market is most prominent when firms are setting export prices in u s dollars

price competition non price competition and market structure theory and evidence from the uk this paper examines the impact of price competition on advertising r and d expenditure and market structure a general theoretical result is derived which restricts the space of possible outcomes regarding the behaviour of concentration and advertising r and d expenditure following an intensification of price competition the theory is tested using uk data on the evolution of competition concentration and advertising over 1954 77 the econometric results suggest that the introduction of restrictive practices legislation in the uk caused a rise in concentration in previously cartelized high advertising manufacturing industries and probably also a fall in advertising intensity

decision stages and asymmetries in regular retail price pass through we study the pass through of wholesale price changes onto regular retail prices using an unusually detailed data set obtained from a major retailer we model pass through as a two stage decision process that reflects both whether as well as how much to change the regular retail price we show that pass through is strongly asymmetric with respect to wholesale price increases versus decreases wholesale price increases are passed through to regular retail prices 70 of the time while wholesale price decreases are passed through only 9 of the time pass through is also asymmetric with respect to the magnitude of the wholesale price change with the magnitude affecting the response to wholesale price increases but not decreases finally we show that covariates such as private label versus national brand 99 cent price endings and the time since the last wholesale price change have a much stronger impact on the first stage of the decision process i e whether to change the regular retail price than on th

endogenous lobby formation and endogenous protection a long run model of trade policy determination this paper provides a theory of lobby formation within a framework in which trade policy is determined through political contributions under certain conditions free trade turns out to be an equilibrium outcome either when the government has a high affinity for political contributions or when it cares a great deal about social welfare moreover greater inequality in asset distribution results in a greater number of lobbies and in most cases more protection for each of these lobbies furthermore industries with higher levels of capital stock fewer capitalists more inelastic demand and smaller geographical dispersion are the ones that get organized

the political economy of the european customs classification customs classification is an important element in a country s trade policy how a good is classified can affect the rate of duty that applies the coverage of non tariff barriers and the formulation and application of rules of origin reclassifications can occur because of the introduction of a new product but also because of protectionist motives this paper is the first attempt at explaining these reclassifications focusing on the european union i examine whether the number of tariff lines in an industry result from the introduction of new products or from protectionist lobbying the analysis focuses on 90 manufacturing industries over 12 years results suggest that protectionist lobbying does play a role in explaining changes in the eu s customs classification

the effect of succession taxes on family firm investment evidence from a natural experiment this paper provides causal evidence on the impact of succession taxes on firm investment decisions and transfer of control using a 2002 policy change in greece that substantially reduced the tax on intrafamily transfers of businesses i show that succession taxes lead to a more than 40 decline in investment around family successions slow sales growth and a depletion of cash reserves furthermore succession taxes strongly affect the decision to sell or retain the firm within the family i conclude by discussing implications of my findings for firms in the united states and europe

product differentiation with consumer arbitrage abstract we determine the equilibrium to a game where two firms set delivered price schedules and consumers simultaneously declare where they want to take delivery of the product equilibrium pricing policies provide incentives for consumers not to demand their preferred varieties but rather to purchase more standard varieties this behavior may decrease market diversity the demanded varieties tend to agglomerate around the market center we also show that it is efficient for the cost of adapting the product to consumers to be shared through arbitrage but oligopoly gives rise to an inefficient level of personal arbitrage

emerging floaters pass throughs and some new commodity currencies in spite of early skepticism on the merits of floating exchange rate regimes in emerging markets 8 of the 25 largest countries in this group have now had a floating exchange rate regime for more than a decade using parsimonious var specifications covering the period of floating exchange rates this study computes the dynamics of exchange rate pass throughs to consumer price indices we find that pass throughs have typically been moderate even though emerging floaters have seen considerable nominal and real exchange rate volatilities previous studies that set out to estimate exchange rate pass throughs ignored changes in policy regimes making them vulnerable to the lucas critique we find that within the group of emerging floaters estimated pass throughs are higher for countries with greater nominal exchange rate volatilities and that trade more homogeneous goods these findings are consistent with the pass through model of floden and wilander 2006 and earlier findings by campa and goldberg 2005 respectively furthermore we find that the indonesian rupiah the thai baht and possibly the mexican peso are commodity currencies in the sense that their real exchange rates are cointegrated with international commodity prices

spatial price discrimination and merger the n firm case the consequences of merger are analyzed in an n firm model of spatial price discrimination the merger occurs with known probability after location decisions have been made the possibility of merger alters locations generates inefficiency and increases the profit of the merging firms in the case of corner mergers but never in the case of interior mergers the possibility of merger may also reduce the profit of the excluded firms