bidding into electricity markets a transmission constrained residual demand derivative approach this paper proposes a novel approach to optimize a generator s profit in an offer based electricity market cleared by an optimal power flow opf program a generator s offer is optimized based on its transmission constrained residual demand derivative tcrdd which avoids representing the full network model in the optimization the tcrdd can be easily calculated based on a solved opf without changing existing opf algorithms and programs as demonstrated with an ieee 118 bus example the tcrdd approach is computationally efficient the tcrdd approach can help market participants to bid into electricity markets and help market monitors to diagnose bidding behaviors in the presence of transmission constraints

revealing rival marginal offer prices via inverse optimization we consider a strategic producer that trades its energy in a multi period network constrained electricity pool and for strategic reasons is interested in identifying its rival producers offer prices considering industry practice we assume that the strategic producer has knowledge of the daily market outcomes i e energy quantities sold bought and resulting locational marginal prices lmps for each time period and all nodes of the network using this information we formulate an inverse optimization problem that allows estimating the rival producers offer prices that have been marginal at any of the time periods under study such problem is well behaved effectively identifies rival offer prices and can be efficiently solved the effectiveness of the proposed technique is illustrated through a simple example and a realistic case study

nodal market power assessment in electricity markets market power assessment is an important aspect of electric market analysis and operation market power problems are more complicated in an electric market than those in other markets due to the specific properties of electricity this paper investigates market power problems and the related solution techniques in an electric power market the impact of load variation the size of a power supplier and random failures on market power has been investigated the geographic difference of market power caused by network constraints has been considered must run share mrs and nodal must run share nmrs have been proposed to represent system and local market powers respectively an optimization technique and the topological analysis of power flow have been used to determine the mrs and nmrs expected nodal must run share enmrs has been proposed to represent the impact of random failures on market power and the associated risk of customers paying a high price due to the exercise of market power the contingency enumeration and probabilistic technique have been used to determine the enmrs the ieee reliability test system is analyzed to illustrate the proposed indices and techniques

risk limiting economic dispatch for electricity markets with flexible ramping products the expected increase in the penetration of renewables in the approaching decade urges the electricity market to introduce new products in particular flexible ramping products to accommodate the renewables variability and intermittency a risk limiting economic dispatch scheme provides the means to optimize the dispatch and provision of these products in this paper we adopt the extended loss of load probability as the definition of risk we first assess how the new products distort the optimal economic dispatch by comparing to the case without such products specifically using parametric analysis we establish the relationship between the minimal generation cost and the two key parameters of the new products the up and down flexible ramping requirements such relationship yields a novel routine to efficiently solve the non convex risk limiting economic dispatch problem both theoretical analysis and simulation results suggest that our approach may substantially reduce the cost for incorporating the new products we believe our approach can assist the isos with utilizing the ramping capacities in the system at the minimal cost

generalized models of japanese demand for fish given a relative lack of knowledge about japanese consumer preferences for fish japanese fish demand is modeled using both marshallian ordinary and inverse demand systems each of which nests a number of competing specifications results indicate that the inverse demand systems dominate the ordinary demand systems in forecasting performance and in nonnested tests the inverse system suggests that japanese fish prices are less responsive to changes in consumption than found in previous studies

the effect of unit fees on the consumption of quality a law of demand explanation to the alchian allen or shipping the good apples out proposition rests on a change in the relative price of quality when a unit fee is introduced however the manner in which quality is consumed is crucial in some cases for instance there is no substitution between the quality attribute and the priced quantity measured attribute this paper shows that in these cases the relative price of quality is unchanged by a unit fee nevertheless while the unit fee proposition fails to obtain for individual choice it does hold in aggregate

some evidence on the alchian and allen theorem the third law of demand this paper examines empirically the alchian and allen proposition that shipping charges induce consumers to opt for higher quality goods we show in a household productions framework why this holds whether goods or buyers travel using a large sample of individual consumption data for football games we find that buyers who travel the farthest purchase the best tickets in the end we believe that the alchian and allen theorem is so broad and pervasive that it qualifies as the third law of demand

optimal pricing in electrical networks over space and time an electrical system is modelled with a transmission network customers central generators and independent generators the system is subject to stochastic failures and stochastic demand parameters optimal spot prices are derived for the system they vary stochastically with space and time and depend on electrical load flow patterns the price difference between two locations or two voltage levels and the wheeling charge between them will change magnitude and sometimes sign over time as a function of events throughout the network current spatial pricing methods are significantly different from the spot price based methods derived here

price effects on compound commodities we examine the effect of simultaneous price changes on the total demand for a group of goods which we call a compound commodity specifically we consider unit and proportional cost components e g taxes transportation costs imposed on compound commodities if the unit cost is positive then the proportional cost raises the relative price of the more expensive good and thus induces substitution towards the less expensive good within this group then the substitution effect of the proportional cost for a compound commodity is non negative if and only if the compound commodity and the other goods are on average not strongly substitutable

competition and the cigarette tv advertising ban competition and the cigarette tv advertising ban i introduction whether advertising increases or decreases competition has been debated for decades on one hand kaldor 1949 50 bain 1956 and others argue that advertising reduces competition by enabling the leading firms in an industry to increase product differentiation this lowers the existing elasticity of demand for the firm s output and erects barriers to the entry of new firms into the industry on the other hand telser 1964 nelson 1975 and others argue that advertising increases competition by disseminating information about the price and other product attributes more widely among consumers this increases the demand elasticities facing the existing firms and facilitates the entry of new firms the results of empirical studies of these alternative theories conflict and so the debate continues 1 empirical studies generally focus on large cross sectional industry samples and compare various measures of competition e g profits industrial concentration or market share stability between high advertising consumer goods industries and low advertising producer goods industries the principal drawback of this approach is that one must control for the many differences among industries in addition to advertising which might affect the proxies for competition the present paper takes a different approach to test the same hypotheses the 1970 ban of cigarette advertising on television can be viewed as a quasi experiment i assume that it substantially reduced the efficacy of cigarette advertising whatever its effects on competition and test for these effects by comparing industry performance measures before and after the ban the results on balance indicate that the ban reduced competition in the cigarette industry ii background in 1970 federal legislation was passed banning the advertising of cigarettes on television and radio effective 2 january 1971 the ban was the result of increasing evidence assumulated during the previous two decades regarding the adverse effects of smoking on health and was not related to considerations of industry competition prior to the ban the cigarette industry was a heavy user of television advertising see table i from 1963 to 1970 the industry s television plus radio advertising to sales ratio averaged 7 4 percent 2 the industry s total advertising to sales ratio during this period averaged 9 8 percent which was among the highest of all industries 3 television advertisements accounted for 76 percent of this total in effect the ban forced the industry to drop its principal advertising medium virtually overnight of course the industry could and did substitute advertising in other media for the lost television advertising however during the first five years after the ban increased spending in other media did not offset the elimination of television advertising expenditures consequently the mean total advertising to sales ratio fell to 6 7 percent during 1971 75 4 these advertising substitutes were qualitatively inferior exacerbating the impact of the spending reductions on efficacy advertising intensity did not approach pre ban levels again until 1976 during 1976 80 the advertising to sales ratio averaged 11 0 percent higher than the mean for the pre ban years 1963 70 5 because the substitutes were inferior to television advertisements the increased advertising expenditure per dollar of sales does not mean that the market impact of advertising was necessarily greater than for the pre ban period 6 it should also be noted that the ban did not cause a decline in industry sales it it had this might have generated its own confounding effects on the performance measures analyzed below total cigarette sales rose from about 470 billion units in 1960 to about 533 billion units in 1970 and about 620 billion units in 1980 a 32 percent increase over 1960

shipping the good horses out this paper formalizes the alchian allen 1964 theorem within a vertically differentiated goods general equilibrium model in contrast to the existing literature equilibrium prices depends on the transportation cost it shows that the eect of a xed transportation cost regardless of quality tilts the importing region s demand towards the consumption of higher quality goods the model extends the alchian allen theorem by showing that the strength of this eect depends on the importing region s endowment specically if the importing region is endowed with the imported goods of similar quality mix the eect is even stronger we also show that the importing region s market size and preferences matter to the strength of the eect using auction data of australian thoroughbred yearlings we conrm that better horses are shipped out further furthermore consistent with the model s prediction the strength of the alchian allen eect depends on the endowment of the importing regions

the demand for site specific recreational activities a characteristics approach abstract a model of constrained utility maximizing behavior is developed to explain how a representative individual allocates his ski days among alternative sites the physical characteristics of the ski areas and the individual s skiing ability are explicit arguments in the utility function the budget allocation is given along with the parametric costs to ski including travel costs entrance fees equipment costs and the opportunity cost of his time shares a site s share being the proportion of ski days that the individual spends at that site are derived and assumed multinomially distributed a stochastic specification which maintains the inherent properties of the shares maximum likelihood estimation confirms the basic hypothesis that costs ability and characteristics all are important determinants of the sites shares the model explains a large proportion of the skier s allocation of ski days a multinomial logit model of skier behavior is also developed and maximum likelihood estimates of its parameters are obtained examination of the summary statistics from my model and the logit model indicates that my model predicts the skier s choice of sites better than the logit model

market share behavior and mobility an analysis and time series application a measure of market share mobility is derived from an hypothesized model of underlying market share behavior explicit linkage of the two exposes some properties of the index and its implied behavioral assumptions and informs empirical work results for the u k newspaper industry offer some evidence of stable overall mobility relationships but the absence of long run equilibrium relationships at the market share level suggests these may be misleading further work at the latter level seems likelier to advance understanding of both market share behavior and mobility while care is required when supplementing concentration data with mobility statistics in antitrust cases

a cross section analysis of household demand for food and nutrients in tanzania abstract undernutrition and malnutrition are still problems of unacceptable proportions in many developing countries however the debate on the roles of income and other socio economic variables such as women s education and household size on food and nutrient demand continues this study examines the demand for food and nutrients amongst households in tanzania using recent survey data a quadratic almost ideal demand system quaids is employed to estimate price and expenditure elasticities as well as the impact of socio economic variables on food demand patterns a moment based instrumental variable approach is then used to analyse the determinants of nutrient demand the results show that income and other socio economic variables exert significant effects on the demand for food and nutrients the estimated expenditure elasticities for the nutrients range from 0 307 for iron to 1 26 for vitamin b12 the elasticities are higher for those micronutrients that are consumed through animal products and lower for those micronutrients that are mainly obtained through staple foods these results reflect the higher expenditure elasticities for meat fish eggs milk and milk products as well as fruits and vegetables relative to cereals and pulses reinforcing the assertion that the demand for vitamins a and b12 as well as calcium and zinc will increase with rising income

demand shifts due to salience effects experimental evidence we conduct a laboratory experiment that tests two fundamental predictions unique to salience theory if an agent purchases one of two vertically differentiated products salience theory makes the following two distinct predictions first it hypothesizes that a higher expected price level for both products shifts demand toward the more expensive high quality product second it predicts that demand for the high quality product is larger if the price level is expectedly high than if it is unexpectedly high in our experiment subjects purchased fast or slow internet access at different price levels our results strongly support both predictions of salience theory

household production and complementarity an example based on samuelson s coffee cream tea paradox abstract i use a linear programming formulation of samuelson s paradox journal of economic literature 12 1974 1255 1289 where cream and coffee are substitutes to illustrate how cross price effects between goods can depend on the household s production technology rather than or in addition to its subjective preferences

explaining import quality the role of the income distribution abstract we examine a generalized version of flam and helpman flam h helpman e 1987 vertical product differentiation and north south trade american economic review 77 810 822 in which consumption prices for quality differentiated goods are rising in household income we provide propositions for aggregating this relationship across heterogenous households to map cross country differences in income distributions to cross country differences in import price distributions the theoretical predictions are examined and confirmed using disaggregated data on prices of traded goods and micro data on household income from the luxemburg income study country pairs with more similar income distributions have more similar import price distributions whether similarity is measured by 1st 4th moment statistics population and consumption shares within world income and product price quantiles or income and price dis similarity indices

what determines the price of a racing horse this article uses the data of 10 auctions from the two largest australian auction houses to study how a racing horse is priced we ask whether bloodline is indeed a determining factor we find that the track record of its parents and siblings are important factors in determining the price of a yearling moreover more mature horses and those purchased by foreign buyers are generally more expensive we also show that racing horses sold in the flagship auctions are associated with a significant premium

the optimal tax on antebellum us cotton exports abstract the us produced about 80 of the world s cotton in the decades prior to the civil war how much monopoly power did the us possess in the world cotton market and what would have been the effect of an optimal export tax this paper estimates the elasticity of foreign demand for us cotton exports and uses the elasticity in a simple partial equilibrium model to calculate the optimal export tax and its effect on prices trade and welfare the results indicate that the export demand elasticity for us cotton was about 1 7 and that the optimal export tax of about 50 would have raised us welfare by about 10 million about 0 3 of us gdp or about 1 of the south s gdp

interregional price difference in the new orleans auctions market for slaves our article investigates the variation of winning bids in slave auctions held in new orleans from 1804 to 1862 specifically we measure the variation in the price of slaves conditional on their geographical origin previous work using a regression framework ignored the auction mechanism used to sell slaves this introduced a bias in the conditional mean of the winning bid because it depended on the number of bidders participating in the auction unfortunately the number of bidders is unobserved by the econometrician we adopt the standard framework of a symmetric independent private value auction and propose an estimation strategy to attempt to deal with this omitted variable bias our estimate of the mean number of bidders doubled from 1804 to 1862 we find the number of bidders had a significant positive effect on the average winning bid an increase from 20 to 30 bidders in an auction raised the average winning bid by around 10 the price variation according to the geographical origin of slaves foun

technology and the dynamics of industrial structures an empirical mapping of dutch manufacturing this paper explores the empirical link between on the one hand innovation and on the other hand industrial structure and dynamics in the netherlands we use the concept of technological regimes as the guiding framework to interpret this relationship the data are drawn from the production statistics and the business register of manufacturing firms in the netherlands and the second community innovation survey a classification of technological regimes that refines pavitt s taxonomy is applied to the data our analysis is aimed at identifying the variables that are best able to discriminate between technological regimes for our dutch case we find that a mix of innovation related and market structure related variables account for most variability and broad differences across regimes dynamic market structure variables account for an additional share of variability and finer differences across regimes overall we conclude that the concept of technological regimes provides a useful framework that helps to shed further light on the relationship between innovation and market structure

a conditional demand approach to the alchian allen effect abstract we explore the alchian allen effect that is the effect of an absolutely equal increase in the price of two goods on their demand ratio for conditional viz short run and unconditional viz long run demand functions we show that the alchian allen effect for unconditional demand equals its conditional counterpart where the consumption level of a third good is held constant if the two goods feature identical substitution elasticities with the third good remarkably this result holds true for both hicksian and marshallian demand functions

demand fluctuations and firm heterogeneity this paper reports evidence supporting the hypothesis that production flexibility is one of the forces that explain differences in the distribution of firm sizes across industries using a data set composed of annual observations on 163 four digit manufacturing industries over the period 1978 88 the authors find a negative relationship between market share and sales variability this empirical result suggests that large and small fir ms each have their own efficiency niches while large firms enjoy the advantage of static production efficiency the flexible production technologies of small firms enable them to respond better to changin g demand conditions copyright 1993 by blackwell publishing ltd

a unifying market power measure for deregulated transmission constrained electricity markets market power assessment is a prime concern when designing a deregulated electricity market in this paper we propose a new functional market power measure termed transmission constrained network flow tcnf that unifies three large classes of transmission constrained structural market power indices in the literature residual supply based network flow based and minimal generation based furthermore it is suitable for demand response and renewable integration and hence more amenable to identifying market power in the future smart grid the measure is defined abstractly and allows incorporation of power flow equations in multiple ways we investigate the current market operations using a dc approximation and further explore the possibility of including detailed ac power flow models through semidefinite relaxation and interior point algorithms from matpower finally we provide extensive simulations on ieee benchmark systems and highlight the complex interaction of engineering constraints with market power assessment

top executive rewards and firm performance a comparison of japan and the united states this paper studies top executive turnover and compensation and their relation to firm performance in the largest japanese and u s companies japanese executive turnover and compensation are related to earnings stock returns and to a lesser extent sales performance measures the fortunes of japanese top executives therefore are positively correlated with stock performance and current cash flows or with factors contributing to such performance the relations for the japanese executives are generally economically and statistically similar to those for their u s counterparts there is some evidence however that the fortunes of japanese executives are more sensitive to low income but less sensitive to stock returns than those of u s executives

locational market power screening and congestion management experience and suggestions the existing new england electricity market follows a uniform pricing system inframarginal generators are paid a uniform clearing price while constrained on generators are paid bid prices subject to a locational market power screen in this paper we first report the operation experience of this approach during the market s first two years we then briefly review the new england power system nepool locational pricing proposal being implemented two new approaches for locational market power screening are presented the first one is based on a zonal network model and the second is based on a nodal transmission model both approaches are being evaluated by an independent consultant and are be to recommended to nepool test results of both approaches are included

advertising competition and market share instability this paper tests the hypothesis that advertising reduces leading firm market share instability a proxy for interfirm rivalry by creating market power if advertising increases product differentiation and brand loyalty then it also reduces demand cross elasticities and stabilizes shares changes over time in the combined market shares of the top four firms are examined for a large sample of four digit standard industrial classification manufacturing indust ries for 1963 82 multiple regression equations are used to explain s hare instability measured as deviations both about the simple mean a nd about a linear time trend the results indicate that advertising d oes not reduce market share instability copyright 1987 by the university of chicago

spot pricing of electricity arguments and prospects abstract the paper in this issue extend the early literature on spot pricing but differences of opinion still remain between proponents and critics mathematical models designed to prove that spot pricing is socially optimal are unpersuasive regrettably there are no further empirical estimates of the consequences costs and benefits of spot pricing but previous studies suggest that it would be profitable and economic for a significant subset of large industrial users current moves to deregulate and privatize electricity industries are likely to stimulate rather than hinder the adoption of spot pricing

advertising competition and market share instability advertising can promote market power by differentiating products by establishing brand loyalty among consumers and by raising the costs of entry on the other hand advertising can be a source of valuable information to consumers that leads to an erosion in the market shares of individual sellers the empirical relationship between advertising and market share instability across industries sheds light on the competitive implications of advertising and promotional activities prior tests of this relationship rely on market share observations from the census of manufactures that are reported only every five years the present study by contrast employs a data set consisting of annual market share observations for 163 four digit manufacturing industries over the period 1978 88 the empirical results show a positive and statistically significant ceteris paribus relationship between advertising intensity and market share instability thereby lending support to the hypothesis that advertising is generally pr

dc power flow revisited linear mw only ldquodcrdquo network power flow models are in widespread and even increasing use particularly in congestion constrained market applications many versions of these approximate models are possible when their mw flows are reasonably correct and this is by no means assured they can often offer compelling advantages given their considerable importance in today s electric power industry dc models merit closer scrutiny this paper attempts such a re examination

on giffen like goods abstract this paper provides as a counter example to the alchian allen theorem a theory of giffen like goods a per unit charge to two similar goods raises the relative price of the lower quality good and yet increases the relative demand of the good

demographic variables in demand analysis in this paper the authors discuss five procedures for incorporating demographic variables into theoretically plausible demand systems translating scaling and the gorman reverse gorman and implicit prais houthakker procedures these five procedures are used to incorporate a single demographic variable the number of children in a household into the generalized ces demand system using household budget data for the united kingdom for the period 1966 1972 excerpt

shipping the good apples out a new perspective i introduction the alchian and allen substitution theorem posits that a per unit tax or shipping fee applied to similar goods will increase the relative consumption of the higher quality good originally formulated in alchian and allen s 1964 textbook university economics the theorem is often called the shipping the good apples out theorem because of the empirical observation that supermarkets in apple importing areas such as indiana have a higher proportion of high quality apples relative to low quality apples than supermarkets in apple growing areas such as washington state a washington resident on holiday in indiana might well conclude that the good apples are getting shipped out the theoretical basis for the alchian and allen result was questioned by gould and segall 1969 who demonstrate that the result holds unequivocally only in a two good world borcherding and silberberg 1978 defend the alchian and allen result in an n good world but only when the two taxed goods are close substitutes this special case appears to be all that can be salvaged in terms of theory for further discussion see umbeck 1980 the purpose of this article is to reinterpret the alchian and allen result in an n good world this reinterpretation shows that their result holds more broadly than suggested by borcherding and silberberg and indeed more broadly than though not as robustly as originally claimed by alchian and allen ii background consider a world with n goods x sub 1 x sub 2 x sub n the first two of which can be thought of as respectively the high quality and standard quality versions of some product e g good apples and bad apples by assumption then p sub 1 p sub 2 0 following borcherding and silberberg i phrase the alchian and allen thesis as differential x sub 1 x sub 2 differential t 0 where x sub 1 p sub 1 p sub 2 u and x sub 2 p sub 1 p sub 2 u are hicksian income compensated demand functions and t is a per unit charge applied to both goods 1 the chain rule gives us differential x sub i differential t differential x sub i differential p sub 1 differential x sub i differential p sub 2 and combining this with the quotient rule i get mathematical expression not reproducible in ascii substituting in the compensated elasticities epsilon sub ij p sub j x sub i differential x sub i differential p sub j i arrive at differential x sub 1 x sub 2 differential t x sub 1 x sub 2 epsilon sub 11 p sub 1 epsilon sub 12 p sub 2 epsilon sub 21 p sub 1 epsilon sub 22 p sub 2 the first term here is always positive so i will focus attention on the second term 1 epsilon sub 11 p sub 1 epsilon sub 12 p sub 2 epsilon sub 21 p sub 1 epsilon sub 22 p sub 2 the alchian and allen claim is that 1 is positive iii a two good world with only two goods hicks s 1946 310 11 third law mathematical expression not reproducible in ascii reduces to epsilon sub ij epsilon sub ii and one can substitute for epsilon sub 11 and epsilon sub 21 in 1 to get 2 epsilon sub 12 epsilon sub 22 1 p sub 2 1 p sub 1 the first term here is positive because the two goods in a two good world must be substitutes epsilon sub 12 0 and own price elasticities are negative epsilon sub 22 p sub 2 0 i therefore get the alchian and allen result differential x sub 1 x sub 2 differential t 0 the intuitively compelling story is that consumers are substituting out of bad apples and into good apples

changes in concentration turbulence and the dynamics of market shares most previous studies of the dynamics of industry structure by emphasizing changes in concentration conceal much of the nature of underlying competitive processes here we employ a stochastic fir

a discrete choice model of recreational participation site choice and activity valuation when complete trip data are not available abstract a discrete choice model of the demand for site specific recreational activities is developed and estimated it simultaneously predicts both how many trips the individual will take and which site will be chosen on each trip the model is formulated to estimate demand when the data set reports the total number of trips in a given time period but the actual destinations for only a subset of the total the model also includes a correction for sample selectivity bias the application is marine recreational fishing the consumer s surplus associated with any change in supply conditions is derived and used to assess the impact of changes in species availability

the generalized alchian allen theorem a slutsky equation for relative demand we generalize the alchian allen theorem so as to account for income and endowment effects and provide two versions of a generalized alchian allen theorem one for a unit cost component and one for a proportional cost component both versions provide a decomposition of an uncompensated change in the demand ratio of two goods into a substitution effect and an income endowment effect and may thus be regarded as extensions of the familiar slutsky equation for relative demand finally we apply our results to the choice of real estates and to parental time allocation decisions the latter providing implications for child care policies uel dll h21 j22 r21 i introduction the alchian allen theorem see alchian and allen 1964 74 75 suggests that an increase in the prices of two goods by the same amount leads to a decrease in the relative price of the more expensive good and hence to a relative increase in the compensated demand for that good as this pure substitution effect applies to any pair of goods with a common but abstract unit cost component the alchian allen theorem has a broad range of applications for example the common unit cost component may be interpreted as a specific tax as a fixed transportation cost as a flat transaction cost or as the wage forgone in favor of different leisure time activities accordingly the alchian allen theorem has been discussed in various fields of both theoretical and empirical economics 1 above all borcherding and silberberg 1978 formulated the alchian allen theorem for compensated demand in the standard consumer model with three goods then hummels and skiba 2004 extended the analysis of borcherding and silberberg by introducing an ad valorem tariff on the two goods under consideration and showed that the effect of a change in the ad valorem tariff is basically opposite to the effect of a change in the unit cost in this paper we generalize the two formulas for substitution effects one for demand changes resulting from the unit cost components and one resulting from the proportional cost components 2 within the alchian allen framework so as to incorporate income and endowment effects we believe that this generalization constitutes an important result as these effects are arguably significant for a broad variety of goods in this way we arrive at two versions of the generalized alchian allen theorem gaat which essentially provides a decomposition of an uncompensated change in the demand ratio of two goods into a substitution effect compensated effect and an income endowment effect because of the apparent similarity of our decomposition of the change in the demand ratio with the renowned slutsky equation the two versions of the gaat we provide here may be regarded as the proper versions of the slutsky equation for relative demand the alchian allen result i e an increase in the demand for the more expensive good relative to the demand for the less expensive good resulting from an increase of a common unit cost component of both goods has been examined empirically for example bertonazzi maloney and mccormick 1993 interpreted the alchian allen theorem within a household production framework 3 and found that football fans traveling farther tend to purchase higher quality tickets hummels and skiba 2004 presented the hypothesis that an increase in unit transport costs increases the share of the higher quality goods and therefore the share weighted average of prices and confirmed this using international trade data moreover some researchers have indirectly provided findings that are consistent with the alchian allen result sobel and garrett 1997 found that an increase in specific taxes is estimated to increase the market share of premium brand cigarettes and nesbit 2007 found that an increase in specific taxes is estimated to increase the market share of premium grade gasoline

the trade reducing effects of market power in international shipping abstract developing countries pay substantially higher transportation costs than developed nations which leads to less trade and perhaps lower incomes this paper investigates price discrimination in the shipping industry and the role it plays in determining transportation costs in the presence of market power shipping prices depend on the demand characteristics of goods being traded we show theoretically and estimate empirically that ocean cargo carriers charge higher prices when transporting goods with higher product prices lower import demand elasticities and higher tariffs and when facing fewer competitors on a trade route these characteristics explain more variation in shipping prices than do conventional proxies such as distance and significantly contribute to the higher shipping prices facing the developing world a simple back of the envelope calculation suggests that eliminating market power in shipping would boost trade volumes by 5 9 for the us to 15 2 for latin america our findings are also important for evaluating the impact of tariff liberalization cargo carriers decrease shipping prices by 1 2 for every 1 reduction in tariffs

good grapes and bad lobsters applying the alchian and allen theorem i the theorem the alchian and allen theorem states that adding a common charge to the price of two substitute goods increases the relative consumption of the higher quality good real income held constant the classic example of this theorem is from alchian and allen s 1964 75 textbook university economics suppose that grapes are grown in california and that it costs 5 cents a pound to ship grapes to new york whether the grapes are choice or standard suppose further that in california the choice grapes sell for 10 cents a pound and the standard for 5 cents a pound if grapes are shipped to new york the shipping costs will raise the costs of choice grapes to 15 cents and of standard grapes to 10 cents in new york the costs of choice grapes are lower relative to standard grapes 1 5 to 1 than in california 2 to 1 new yorkers faced with a lower price of choice grapes relative to standard will consume relatively more choice grapes than californians will alchian and allen s theorem is solely about relative price effects and does not rely upon income effects or selection effects it assumes that those most willing to pay the fixed charge do not have systematically different preferences and incomes as those not paying the charge furthermore the theorem does not hold for corner solutions where the high and low quality goods are consumed by different classes of consumers or equivalently each consumer purchases only one unit of the good in question we must then consider the different rates at which consumers of high and low quality goods decrease consumption when price changes purchasers of high quality items need not reap more consumer surplus than purchasers of low quality items 1 ii per unit costs versus fixed and sunk costs the alchian and allen theorem applies only when the costs are applied to each good on a per unit basis charging a single fee or fixed tax to allow consumption of the good to take place does not create a substitution effect the fixed fee once paid is treated as a sunk cost and consumers face the same relative prices they faced initially an increase in the cost of a grape shipping permit for instance will not have any direct effects on the quality of grapes many of the examples of the alchian allen theorem that have been given in the literature do not specify true per unit taxes umbeck 1980 for example argues that an increase in the installation charge for phones will increase phone usage but in this case the relevant charges are fixed the installation or monthly service charge will increase current phone usage only if individuals are planning to go without a phone in future periods in contrast individuals who will continue phone service into the foreseeable future cannot minimize their monthly charges or their installation charges by increasing their phone usage now any change in behavior would be due to an income effect which is unpredictable a trickier problem is raised by borcherding and silberberg 1978 133 who claim that it does not matter if the goods are shipped to the consumers or the consumers are shipped to the goods going to maine or the country involves a transport cost to people not from maine or the country what the alchian allen theorem predicts therefore is that tourists in maine will consume on average higher quality lobsters than the natives and similarly for city versus rural dweller s purchases of produce at roadside stands if people who make a special trip to maine in fact choose to eat truly delectable instead of inferior quality lobsters sold there this confirms alchian and allen s thesis emphasis added when the tourists are transported the alchian allen theorem applies only if 1 the tourists are planning both high quality and low quality trips in the future and 2 high quality lobster is strongly and positively related to a high quality vacation in maine

customer power strategic investment and the failure of leading firms why might firms be regarded as astutely managed at one point yet subsequently lose their positions of industry leadership when faced with technological change we present a model grounded in a study of the world disk drive industry that charts the process through which the demands of a firm s customers shape the allocation of resources in technological innovation a model that links theories of resource dependence and resource allocation we show that established firms led the industry in developing technologies of every sort even radical ones whenever the technologies addressed existing customers needs the same firms failed to develop simpler technologies that initially were only useful in emerging markets because impetus coalesces behind and resources are allocated to programs targeting powerful customers projects targeted at technologies for which no customers yet exist languish for lack of impetus and resources because the rate of technical progress can exceed the performance demanded in a market technologies which initially can only be used in emerging markets later can invade mainstream ones carrying entrant firms to victory over established companies

transmission constrained inverse residual demand jacobian matrix in electricity markets a generation firm in an electricity market may own multiple generators located at multiple locations this paper generalizes the concept of transmission constrained residual demand from a single generator s perspective to that of a generation firm we calculate the derivative of a generation firm s inverse residual demand function i e the jacobian matrix based on a multi parameter sensitivity analysis of the optimal power flow solution and characterize some of its properties this jacobian matrix provides valuable information such as in characterizing a generation firm s profit maximizing strategy we apply the bundle newton method utilizing the jacobian matrix to find a generation firm s maximum profit the effectiveness and performance of the algorithm is demonstrated with the ieee 118 bus system example the jacobian matrix and the profit maximizing algorithm are helpful for market participants to bid into electricity markets and for market monitors to analyze firm based strategic behaviors

ambiguous changes in product quality economic goods are frequently sold according to a price per unit quantity where the quantity characteristic does not measure all the economically important characteristics of the good milk is sold by the quart automobiles rented by the mile physicians services bought by the visit and tennis lessons by the hour in all cases heterogeneous units are available in the market and the price per unit quantity depends upon the amount of the unpriced characteristic contained in each unit the per quart price of milk depends upon the butterfat content the mileage costs of automobile rentals on the cars make and the price per unit time for personal services on the providers skill and training the common distinction made between these variants of the same good is that they differ in quality where quality refers to the amounts of the unpriced attributes contained in each unit of the priced attribute thus milk is packaged according to the attribute milk liquid and the quality of milk refers to the ratio of butterfat per unit of liquid 2 this paper considers some of the unique aspects of the economics of supply and demand under this situation where products contain at least two desired attributes only one of which is quantified and measured prior to purchase product quality is here defined by the ratio of the second quality attribute per unit of the measured quantity attribute 3 this simple specification of quality allows a direct link between standard economic models of related products and the economics of variable product quality previous analyses which treat quality simply as a shift parameter in the demand function are shown to obscure the actual subtleties of supply and demand with variable endogenous quality 4 the paper proceeds by first examining the efficient quality and quantity and the competitive equilibrium the market equilibrium under monopoly is then contrasted in the second section the general theme of the

shipping the good fish out an empirical study on the eu seafood imports under the eu s generalized system of preferences abstractthe impact of the eu european union generalized system of preference gsp on the relative eu s demand for seafood quality was evaluated in the study we first explored the theoretical alchian allen result of change in ad valorem tariffs in an n good world and then tested this result in the empirical study the theoretical analysis suggests that whether a reduced ad valorem tariff in an n good case raises the relative demand for high value goods depends not only on the substitutability between high value and low value goods but also on the substitutability between these similar goods with their weak substitutes in the empirical sections we first estimated the elasticities of the substitutions and then used these elasticities to evaluate the quality composition of the eu s seafood imports from the beneficiary countries the empirical results in general confirm the occurrence of shipping the good fish out due to the reduced tariff rates under the eu s gsp arrangements

inverse optimization for the recovery of market structure from market outcomes an application to the miso electricity market we propose an inverse optimization based methodology to determine market structure from commodity and transportation prices the methods are appropriate for locational marginal price based electricity markets where prices are shadow prices in the centralized optimization used to clear the market we apply the inverse optimization methodology to outcome data from the midcontinent iso electricity market miso and under noise free assumptions recover parameters of transmission and related constraints that are not revealed to market participants but explain the price variation we demonstrate and evaluate analytical uses of the recovered structure including reconstruction of the pricing mechanism and investigations of locational market power through the transmission constrained residual demand derivative prices generated from the reconstructed mechanism are highly correlated to actual miso prices under a wide variety of market conditions in a case study the residual demand derivative is shown to be corr

competing at home to win abroad evidence from japanese industry the study explores the influence of domestic competition on international trade performance using data from a broad sample of japanese industries domestic rivalry is measured directly using market share instability rather than employing structural variables such as seller concentration we find robust evidence that domestic rivalry has a positive and significant relationship with trade performance measured by world export share particularly when r d intensity reveals opportunities for dynamic improvement and innovation conversely trade protection reduces export performance these findings support the view that local competition not monopoly collusion or a sheltered home market pressures dynamic improvement that leads to international competitiveness

firm based measurements of market power in transmission constrained electricity markets in this paper two different approaches to analyzing firm based market power considering transmission constraints are proposed one is an application of the transmission constrained residual demand jacobian while the other is a generalization of the residual supply index to the case of transmission constraints these two approaches provide complementary evaluations of market power medium and large scale system examples are provided to demonstrate computational efficiency and both approaches could be applied to real world electricity markets

how much and how often a model of repeated consumption with endogenous consumption frequency abstract we study the consumption pattern for a repeated good in which individuals choose both consumption frequency and intensity in response to income price and setup cost results include that increased setup costs reduce frequency and increase intensity and that the effects of a setup cost increase are qualitatively different from those of a price increase or an income reduction

transfer capability improvement through market based operation of series facts devices traditionally electric system operators have dispatched generation to minimize total production costs ignoring the flexibility of the transmission system implementation of smart grid systems could allow operators to co optimize flexible transmission alongside generation dispatch the technologies that would enable such co optimization are still regulated as part of the monopoly transmission system one particular flexible transmission asset is variable impedance flexible ac transmission system facts this paper 1 points out the positive externality problem existing in a recent market design proposal with active transmission participation and 2 proposes a sensitivity based method to estimate the marginal market value of facts adjustments to overcome this positive externality problem the marginal value would suggest efficient impedance adjustments to the operator and provide the right financial incentives for the facts owners to operate their assets in a socially optimal way revenue adequacy is demonstrated under specific conditions and more broadly investigated through simulation studies an analytical example on a two bus system as well as a numerical study on the ieee 118 bus system are presented the results suggest that inclusion of a price signal for facts devices would lead to significant social welfare improvements in competitive power markets

market share dynamics and the persistence of leadership debate this paper introduces a novel analysis of the classic persistence of leadership question and applies it to a newly constructed dataset for japanese manufacturing the analysis rests on an appeal to an empirical scaling relationship between current market share and the variance of changes in market share this relationship provides a powerful model selection criterion for candidate models of market share dynamics it also makes it feasible even in small datasets to test directly for the properties of the first passage times corresponding to loss of leadership

testing a model of exploration and exploitation as innovation strategies we suggest a structural model that specifies firm growth as a function of firm specific parameters market specific parameters and competition for purchasing power the model distinguishes between two firm innovation strategies exploration and exploitation on the basis of a set of simulations of this model we derive a number of empirically testable hypotheses a subset of these have already found support in the empirical literature we take these as evidence in favor of the explanatory power of the model in addition we are able to derive further testable propositions on the interaction of firm demographic processes innovative behavior and market structure that go beyond the existing literature and that we suggest for further research we conclude that the approach chosen here provides a fruitful pathway for further research

transportation costs and international trade in the second era of globalization while the precise causes of postwar trade growth are not well understood declines in transport costs top the lists of usual suspects however there is remarkably little systematic evidence documenting the decline this paper brings to bear an eclectic mix of data in order to provide a detailed accounting of the time series pattern of shipping costs the ad valorem impact of ocean shipping costs is not much lower today than in the 1950s with technological advances largely trumped by adverse cost shocks in contrast air shipping costs have dropped an order of magnitude and airborne trade has grown rapidly as a result as a result international trade has also experienced a significant rise in speed

the japanese beer wars initiating and responding to hypercompetition in new product development in the mid 1980s the japanese beer industry a stable oligopoly in which competition had traditionally been limited to well understood nonprice dimensions experienced an outbreak of new product hypercompetition which saw a ten fold increase in the industry s new product introduction rate produced a major shake up in firms competitive positions and forced firms to transform themselves in fundamental ways in order to compete effectively surprisingly this hyper competition occurred despite heavy government regulation of the industry driving it were a variety of demographic dietary social economic and distribution trends which affected demand for beer plus the existence of a major player asahi on the edge of bankruptcy and therefore sufficiently desperate to risk a frontal attack on the industry leader kirin at the firm level substantial internal change and the building of new organizational capabilities were required both to initiate and respond to hypercompetition examining in detail th

the effect of prices on nutrition comparing the impact of product and nutrient specific taxes this paper provides an analysis of the role of prices in determining food purchases and nutrition using very detailed transaction level observations for a large nationally representative sample of us consumers over the period 2002 2007 using product specific nutritional information we develop a new method of partitioning the product space into relevant nutritional clusters that define a set of nutritionally bundled goods which parsimoniously characterize consumer choice sets we then estimate a large utility derived demand system over this joint product nutrient space that allows us to calculate price and expenditure elasticities using our structural demand estimates we simulate the role of product taxes on soda sugar sweetened beverages packaged meals and snacks and nutrient taxes on fat salt and sugar we find that a 20 nutrient tax has a significantly larger impact on nutrition than an equivalent product tax due to the fact that these are broader based taxes however the costs of these taxes in terms of consumer utility are only about 70 cents per household per day a sugar tax in particular is a powerful tool to induce healthier nutritive bundles among consumers

measuring the benefits of greater spatial granularity in short term pricing in wholesale electricity markets hourly generation unit level output levels detailed information on the technological characteristics of generation units and daily delivered natural gas prices to all generation units for the california wholesale electricity market before and after the implementation of locational marginal pricing are used to measure the impact of introducing greater spatial granularity in short term energy pricing the average hourly number of generation unit starts increases but both the total hourly energy consumed and total hourly operating costs for all natural gas fired generation units fall by more than 2 percent after the implementation of locational marginal pricing

the persistence of market leadership evidence from japan this article explores the persistence of market leadership in japanese manufacturing industries over the period 1975 2004 by applying survival data techniques we examine how long market leadership persists and how the duration of market leadership varies according to industry specific characteristics our findings indicate that market leaders maintain their leadership positions for on average 20 years from 1975 in japanese manufacturing industries we provide evidence that market leadership tends to persist in capital intensive and legally cartelized industries whereas it is less likely to persist in demand volatile r d intensive and import intensive industries copyright 2009 the author 2009 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

on the properties of nodal price response matrix in electricity markets we establish sufficient conditions for nodal price response matrix in electric power system to be symmetric and negative semi definite the results are applicable for electricity markets with nonlinear and intertemporal constraints

taxation and product quality new evidence from generic cigarettes in this journal barzel 1976 theorized that per unit taxes should increase the average quality of a product whereas ad valorem taxes may either lower product quality or leave it unaffected there are several different ways to present the logic behind this theory barzel stresses that per unit taxes do not tax all attributes of a commodity causing a substitution from the taxed attributes quantity into the others quality 1 another way is to draw an analogy to the alchian and allen 1964 theorem where the addition of a fixed fee causes a decrease in the relative price of the higher quality version of the product 2 because ad valorem taxes add the same percentage to the prices of both the highand low quality versions of the product they do not distort relative prices thus ad valorem taxes should

the devolution of declining industries in declining industries capacity must be reduced in order to restore profitability who bears this burden where production is all or nothing there is a unique subgame perfect equilibrium the largest firms exit first ghemawat and nalebuff 1985 in this paper firms continuously adjust capacity again there is a unique subgame perfect equilibrium all else equal large firms reduce capacity first and continue to do so until they shrink to the size of their formerly smaller rivals intuitively bigger firms have lower marginal revenue and correspondingly greater incentives to reduce capacity this prediction is supported by empirical findings

hicksian separability does not hold over space implications for the design of household surveys and price questionnaires abstract if relative prices of goods within a commodity group are constant hicksian separability lets the price of a single good represent the group price level this is relied on by price questionnaires used with household surveys in developing countries and when constructing temporal and spatial deflators methods of estimating demand systems from household survey data also rely on hicksian separability yet this restriction remains untested in cross sections we use unique data from vietnam with multiple specifications from within the same food groups to test if within group relative prices are constant over space the data firmly reject these restrictions some guidelines for survey design are discussed in terms of the characteristics of commodity groups that should be disaggregated and those that should have more elementary goods added to their linked price questionnaire

giffen behavior and subsistence consumption this paper provides the first real world evidence of giffen behavior i e upward sloping demand subsidizing the prices of dietary staples for extremely poor households in two provinces of china we find strong evidence of giffen behavior for rice in hunan and weaker evidence for wheat in gansu the data provide new insight into the consumption behavior of the poor who act as though maximizing utility subject to subsistence concerns we find that their elasticity of demand depends significantly and nonlinearly on the severity of their poverty understanding this heterogeneity is important for the effective design of welfare programs for the poor jel d12 012

evaluating the impact of nonreciprocal trade preferences using gravity models this article presents new evidence on the impact of nonreciprocal preferential trade policies nrptps granted by developed countries to exports from developing countries over the period 1995 to 2003 the analysis has been carried out by using three levels of data aggregation it accounts for unobservable heterogeneity endogeneity of the preferential treatment and potential selection bias we find a positive and significant impact of nrptps when considering total exports and total agricultural exports however at 2 digit agricultural level the results are heterogeneous

a sensitivity approach to detection of local market power potential market power gives certain market participants the ability to manipulate the market to their advantage when their product is not substitutable by competitors identification of generators which have the potential for market power either individually or within a small group is performed using sensitivity information from the linear programming optimal power flow lp opf the impact of network constraints on admissible price perturbations are used to group generators that have the potential to exhibit local market power specific price perturbation vectors are found that highlight a constraint induced locational advantage for these suppliers in practice this is most commonly observed in load pockets for which iso policies mitigate market power

the quality income effect and the selection of location we analyze a location choice model with two vertically differentiated firms and two regions with different consumer income we find that the high quality producer settles in the poor region and the low quality one in the rich region when income disparities are sufficiently high and goods are differentiated enough this apparently counter intuitive result is not determined by technology or size issues rather it relies on the relationship between regional income disparities and product quality which we call the quality income effect

trade matters in the fight against poverty narratives perceptions and lack of evidence in the case of fish trade in africa two opposing views exist in the literature on the potential role that international fish trade plays in economic development while some claim that fish trade has a pro poor effect others denounce the negative effect of fish export on local populations food security and doubt its contributions to the macro economy in this paper we explore this debate in sub saharan africa our analysis did not find any evidence of direct negative impact of fish trade on food security neither did it find evidence that international fish trade generates positive pro poor outcomes this paper discusses the possible reasons for this apparent lack of development impact and highlights the unsupported assumptions underlying the current discourse about international fish trade we suggest that given lack of evidence for the development benefits of fish trade between africa and developed countries fisheries policy could consider support for regional africa to africa trade that meets the growing african demand for lower value fish means of overcoming barriers to intra african trade in fish are discussed

residual demand curves for modeling the effect of complex offering conditions on day ahead electricity markets residual demand curves rdcs can be used to represent the strategic interaction of participants in electricity markets rdcs relate the energy that an agent can buy or sell in one hour with the clearing market price that would be obtained in such hour assuming the market is organized as simple bid independent auctions despite the fact that they have been widely used in the literature the existence of time and or spatial constraints in the market clearing algorithm makes the rdcs not directly applicable this paper tries to overcome these difficulties by extending the concept of rdcs to zonal pricing markets where complex offering conditions and transmission constraints are taken into account therefore the rdcs are redefined in order to capture such effects which are usually neglected or oversimplified a new method for computing the redefined rdcs is established and its application to the iberian electricity market is presented the results show that modeling complex conditions and transmission constraints in rdcs can have a significant effect when compared to the standard approach found in the literature therefore the method presented in this paper modeling the effect of firm s decisions on market prices in a more accurate way

on the third law of demand i introduction the alchian and allen 1967 63 64 theorem sometimes elevated to the status of a third law of demand as in bertonazzi et al 1993 is a clever application of the fundamental principle of economizing behavior as usually stated the theorem suggests that by reducing the price of higher quality relative to lower quality versions of the same good a fixed transportation charge will trigger a predictable shift in the mix of quality grades purchased by consumers in distant markets as compared to the mix purchased locally producers will respond rationally to this difference in behavior relatively more high quality goods will be included in outbound shipments leaving more low quality goods to be sold nearer the point of origin hence other things being the same the theorem predicts that it will be harder to find good apples in the state of washington a prime apple growing region than in say new york city where bad apples are comparatively more expensive the first law of demand still holds of co urse in that fewer apples of both types will be consumed in new york than in seattle ceteris paribus similarly given that the cost of a babysitter will be the same no matter where the parents of young children decide to spend the evening out they are more likely than an otherwise identical childless couple to choose an upscale restaurant over an inexpensive eatery and to go to the theater rather than to the movies moreover if both couples plan to see a play or a concert the couple with children will opt for better seats the foregoing examples indicate that the alchian and allen theorem is rich in empirical implications in what follows however we show that placed in the context of a market model its range of applications is narrower than has been acknowledged in the literature heretofore more specifically our analysis demonstrates that a fixed charge unambiguously reduces the price of a higher quality good relative to a lower quality version of the same good only when that good is sold by a perfectly competitive constant cost industry under increasing cost conditions or imperfectly competitive industry structures by contrast it is possible for relative prices either to be unaffected by the addition of a fixed charge or indeed for the lower quality good to become relatively cheaper in distant markets depending on the elasticity characteristics of relevant market demand and supply functions our analysis is in no way intended as an attack on alchian and allen or their fine textbook which has taught more than one generation of economists to be better price theorists we do not quarrel in the least with the pedagogical value of their theorem which has been immense our purpose is to identify some plausible scenarios under which the third law of demand may fail to hold the present article is thus in the spirit of yang and stitt 1995 who show that the ramsey 1927 rule for optimal commodity taxation is changed in important ways when the assumption of constant production costs is relaxed it is organized as follows in the next section the fundamentals of the alchian and allen theorem are described in more detail and its predictions are situated within the existing literature section iii explores the theorem s operations under alternative cost conditions and industry structures factors complicating the analysis of the effects of a fixed charge on the relative prices of high and low quality goods are also addressed in this section finally section iv contains some concluding remarks ii shipping the good apples out to borrow an example from a classic statement of the alchian and allen theorem 1 suppose that good washington apples sell for 10 cents each in seattle and bad apples each cost a nickel there because the price of a good apple is twice that of a bad apple seattle s consumers must sacrifice the opportunity of buying two bad apples to obtain a good one

the effects of advertising prices and distribution on market share volatility although the influence of marketing decision variables on market share has received ample attention in the literature less is known about their effects on volatility this study attempts to shed light on this issue by empirically examining the effects of advertising pricing and distribution not only on market share but also on its volatility using an egarch model we argue that establishing a link between management controlled actions such as advertising pricing and distribution and market share volatility may benefit firms seeking to reduce uncertainty in their market share performance application of the proposed model to data on two markets suvs and minivans suggested that advertising pricing and distribution significantly influence market share volatility