price discrimination in broadway theater a common thread in the theory literature on price discrimination has been the ambiguous welfare effects for consumers and the rise in profit for firms relative to uniform pricing in this study i resolve the ambiguity for consumers and quantify the benefit for a firm i describe a model of price discrimination that includes both second degree and third degree price discrimination using data from a broadway play i estimate the structural model and conduct various experiments to investigate the implications of alternative pricing policies the observed price discrimination may improve the firm s profit by approximately 5 relative to uniform pricing while the difference for aggregate consumer welfare is negligible also i show that the gain from changing prices in the face of fluctuating demand is small under the observed price discrimination

nonlinear pricing in an oligopoly market the case of specialty coffee firms that use nonlinear pricing may distort product characteristics away from their efficient levels this paper offers the first empirical study of this issue using data from a specialty coffee market i estimate a structural utility model to compute consumers benefits from changing products sizes i then compare the estimated benefits to cost data design distortions are relatively large for products not targeted to the highest demand consumers distortions decrease toward zero with drink size for products with the largest profit margins these results support some of the central predictions from nonlinear pricing theory including no distortion at the top

optimal temporal policies in fluid milk advertising this study develops an approach to obtain optimal temporal advertising strategies when consumers response to advertising is asymmetric using this approach optimal strategies for generic fluid milk advertising in new york city are determined results indicate that pulsed advertising policies are significantly more effective in increasing demand than a uniform advertising policy sensitivity analyses show that the optimal advertising policies are insensitive to reasonable variations in interest rates and the inclusion of milk demand seasonality in the model also less asymmetric responses to advertising are found to result in shorter optimal pulsing cycles and reduced intensity of advertising pulses copyright 2000 oxford university press

price discrimination copyright law and technological innovation evidence from the introduction of dvds u s copyright law effectively prevents direct price discrimination for copyright holders that sell to different markets in response these firms can engage in indirect price discrimination i derive theoretical predictions about the use of indirect price discrimination and i analyze how optimal pricing strategies differ for different products using data on vhs and dvd movie distribution i find that firms pricing choices are consistent with the predictions of theory and that firms use of indirect price discrimination benefits consumers but harms ancillary retailers finally i examine what optimal pricing strategies might look like in a legal environment that permits direct price discrimination

an empirical analysis of consumer purchase decisions under bucket based price discrimination bucket based price discrimination is a unique price format that involves monthly subscription fees and instantaneous quotas the number of rental products that can be checked out we propose an empirical model in which consumers make dynamic purchase decisions under consumption uncertainty accounting for the constraints imposed by the instantaneous quota applying the model to an online dvd rental data set we find that 1 consumers incur a large disutility 8 from stockout i e unmet consumption needs 2 such a disutility drives consumers overpurchase of the service quota as a way to avoid potential stockout situations and 3 the dynamics of overpurchase are driven by the interplay between trends in consumption needs and the magnitude of consumers plan switching costs we run counterfactual exercises to better understand how the instantaneous quota and stockout risk affect consumers consumption rates purchase decisions and firm profitability we find that the instantaneous quota induces a greater stockout compared with a monthly quota we further demonstrate that the company should recognize the drivers of the dynamics in overpurchase to balance short and long term profitability for example by offering targeted discounts to customers with excess overpurchase

funding liquidity and equity liquidity in the subprime crisis period evidence from the etf market using index and financial exchange traded funds etfs this study explores the relation between funding liquidity and equity liquidity during the subprime crisis period our empirical results show that a higher degree of funding illiquidity leads to an increase in bid ask spread and a reduction in both market depth and net buying imbalance such findings indicate that an increase in funding liquidity can improve equity liquidity with a stronger effect for the financial etfs than for the index etfs our study provides a better overall understanding of the effect of the liquidity supplier funding constraint during the subprime crisis period

global financial services and a global single currency abstract the purpose of this paper is to highlight the evolution of financial institutions in the context of increasingly volatile foreign exchange markets the paper discusses the importance of the formation of a single currency in the us in the 19th century and the formation of the euro in the 20th century for reducing volatility in foreign exchange markets that have assisted financial institutions international business expansion the paper also considers some of the key assumptions of an optimal currency theorem such as labour mobility and argues that in the 21st century more comprehensive financial market integration and a single global currency could emerge provided that capital mobility and hence foreign capital flows continue meeting labour in the host countries for production rather than the other way round

trading on inside information evidence from the share structure reform in china abstract we examine stock trading activities in days before chinese listed firms made public announcement to start share structure reform there is significant evidence that relative to a benchmark period institutional investors bought more event firms shares in the last two trading days prior to announcement randomization tests show significant differences in institutional trading activities between event firms and matched control firms which suggests that some institutions had inside information moreover large trades account for a significant proportion of daily stock price changes in the last 2 days the evidence is consistent with the prediction by holden and subrahmanyam 1992 that when multiple informed investors acquire the same piece of information they will trade aggressively we also find that over the reform period the median share value change of event firms is 6 higher than that of control firms our findings have important implications for enforcement of insider trading regulations in china

liquidity and autocorrelations in individual stock returns this paper documents a strong relationship between short run reversals and stock illiquidity even after controlling for trading volume the largest reversals and the potential contrarian trading strategy profits occur in high turnover low liquidity stocks as the price pressures caused by non informational demands for immediacy are accommodated however the contrarian trading strategy profits are smaller than the likely transactions costs this lack of profitability and the fact that the overall findings are consistent with rational equilibrium paradigms suggest that the violation of the efficient market hypothesis due to short term reversals is not so egregious after all asset prices should follow a martingale process over short horizons as systematic short run changes in fundamental values should be negligible in an efficient market with unpredictable information arrival however lehmann 1990 and jegadeesh 1990 show that contrarian strategies that exploit the short run return reversals in individual stocks generate abnormal returns of about 1 7 per week and 2 5 per month respectively subsequently ball kothari and wasley 1995 and conrad gultekin and kaul 1997 suggest that much of such reversal profitability is within the bid ask bounce theoretically the potential role of liquidity in explaining the high abnormal payoffs to short run contrarian strategies is implied by the rational equilibrium framework of campbell grossman and wang 1993 henceforth cgw in the cgw model non informational trading causes price movements that when absorbed by liquidity suppliers cause prices to revert such non informed trading is accompanied by high trading volume whereas informed trading is accompanied by little trading volume thus price changes accompanied by high low trading volume should should not revert empirically conrad hameed and niden 1994 henceforth chn find that reversal profitability increases with trading

paying too much and being happy about it existence causes and consequences of tariff choice biases abstract a common assumption underlying the analysis of consumers choices among optional tariffs is that consumers choose the tariff that maximizes their surplus and thus the tariff that leads to the lowest billing rate for a given amount of usage yet there is evidence that many users prefer a flat rate even though their billing rate would be lower with a pay per use tariff flat rate bias and some users prefer a pay per use tariff even though they would save money with a flat rate pay per use bias the authors conduct four empirical analyses based on three different data sets they show that the flat rate bias is more important and has a greater regularity and time persistence than the pay per use bias they classify potential causes of the flat rate bias as insurance effect taxi meter effect convenience effect and overestimation effect and show that the insurance the taxi meter and the overestimation effects lead to a flat rate bias they provide evidence that underestimation of usag

estimating demand for local telephone service with asymmetric information and optional calling plans in this paper i study the theoretical and econometric implications of agents uncertainty concerning their future consumption when a monopolist offers them either a unique mandatory nonlinear tariff or a choice in advance from a menu of optional two part tariffs agents uncertainty is resolved through individual and privately known shocks to their types in such a situation the principal may screen agents according to their ex ante or ex post type by offering either a menu of optional tariffs or a standard nonlinear schedule the theoretical implications of the model are used to evaluate a tariff experiment run by south central bell in two cities in kentucky in 1986 the empirical approach explicitly accounts for the existence of informational asymmetries between local telephone users and the monopolist leading to different nested econometric specifications under symmetric and asymmetric information the empirical evidence suggests that there exists a significant asymmetry of information between consumers and the monopolist under both tariff regimes all expected welfare components failed to increase with the introduction of optional tariffs for the estimated value of the parameters copyright 2002 wiley blackwell

industry growth and capital allocation does having a market or bank based system matter are market based or bank based financial systems better at financing the expansion of industries that depend heavily on external finance facilitating the formation of new establishments and improving the efficiency of capital allocation across industries we find evidence for neither the market based nor the bank based hypothesis while legal system efficiency and overall financial development boost industry growth new establishment formation and efficient capital allocation having a bank based or market based system per se does not seem to matter much

accounting for primary and secondary demand effects with aggregate data discrete choice models of aggregate demand such as the random coefficients logit can handle large differentiated products categories parsimoniously while still providing flexible substitution patterns however the discrete choice assumption may not be appropriate for many categories in which we expect consumers may purchase more than one unit of the selected item we derive the aggregate demand system corresponding to a discrete continuous household level model of demand we also propose a method of simulated moments procedure that provides consistent estimates of the structural parameters when only aggregate data are available the procedure also enables the researcher to control both for the potential endogeneity of marketing variables as well as potential heterogeneity in consumer tastes using our aggregate estimates we can measure the decomposition of price elasticities into incidence brand choice and purchase quantity components we also propose several empirical tests to assess the validity of the discrete continuous demand system versus that of the logit model in several simulation experiments we demonstrate the robustness of this model across datasets in which quantity choices may or may not be important our empirical calibration to store level data in the refrigerated orange juice category indicates a considerable improvement in fit of the observed aggregate sales using the discrete continuous model

the future and dynamics of global systemically important banks abstract the purpose of this paper is to analyse some of the issues associated with supervision and regulation of global systemically important banks g sib the paper highlights the importance of managing liquidity risk and creating a global financial system that can minimise regulatory arbitrage by large financial institutions the paper argues that unlike some industries such as the airline industry in which risk has been contained and yet the size and capacity of aircrafts have increased in the banking system less progress has been made to contain financial risk and allow large banks to expand their global activities the paper argues that g sib are able to continue remaining large provided that a globally integrated financial system ensures effective global supervision of these large banks the paper compares the us banking crises in the 19th century and the subsequent emergence of the us federal reserve system to the possibility of establishing a world central bank and a global supervisory board such new global institutions will have the capacity to reduce regulatory arbitrage increase effective supervision reduce systemic and liquidity risk and create a more stable global financial system

the impact of capital market imperfections on investment cash flow sensitivity abstract we examine the investment cash flow sensitivity of us manufacturing firms in relation to five factors associated with capital market imperfections fund flows institutional ownership analyst following bond ratings and an index of antitakeover amendments we find a steady decline in the estimated sensitivity over time furthermore we find that investment cash flow sensitivity decreases with increasing fund flows institutional ownership analyst following antitakeover amendments and with the existence of a bond rating the overall evidence suggests that investment cash flow sensitivity decreases with factors that reduce capital market imperfections

the effects of the breakup of at t on telephone penetration in the united states the breakup of att that is the price of basic access was well below its incremental or marginal cost the largest component of this cross subsidy arises from the prices of long distance services which are well in excess of their incremental cost however since the price elasticity of basic access is near zero while the price elasticity of long distance services varies from about 0 25 to 1 2 depending on the type of service a large economic efficiency loss occurs why did regulation evolve in the united states to cause this extremely large distortion in prices numerous reasons can and have been put forward see e g peter temin 1987 but our favorite explanation arises from a combination of an outmoded framework of telecommunications regulation and changing technology congressional legislation which established the federal communications commission fcc and remains the basic framework for telecommunications regulation was the communications act of 1934 this legislation led to the current joint regulation of telephone companies by both the fcc and state public utility commissions puc s the communications act codified the goal of universal service the notion that all u s households should have telephone service this policy has been quite successful with u s telephone penetration at 93 3 percent in 1990 according to the current population survey cps yet the fcc is basically in charge of setting long distance prices while state puc s are in charge of setting basic access prices both of which are important factors in telephone penetration during the post world war ii period the technology was changing so that the cost of long distance service was decreasing markedly while the cost of labor intensive basic access continued to rise essentially in line with inflation the so called separations system of regulation established to divide the cost of the public telephone network between federal and state regulatory jurisdictions created increasing cross subsidies as the contribution from long distance grew with increases in both the price cost ratio of long distance and increases in long distance demand economists were aware of this problem and in the 1970 s recommended that longdistance prices be decreased and basic access prices be increased indeed to a first approximation if the basic access price elasticity is zero the first best tax solution of a tdiscussants glenn a woroch gte laboratories molly k macauley resources for the future gerald faulhaber university of pennsylvania

multidimensional incentive compatibility and mechanism design abstract incentive compatibility conditions are characterized in general for problems in which several goods are to be allocated and agents types are multidimensional two questions of monopoly pricing under multidimensional uncertainty are then analyzed first we find the optimal nonlinear pricing scheme when the monopolist knows only the distribution of an arbitrarily parameterized family of demand curves and second we solve for the optimal bundling policy for a multiproduct monopolist

optimal nonlinear pricing and contingent contracts rationing of output may be required to allocate resources when it is costly to operate a system of spot markets in electric power markets for example interruptible service is the most frequently used form of capacity sensitive allocation after time of use pricing this paper examines the welfare properties and ease of implementation of alternative rationing rules and the pricing of contracts based on rationing rules the model allows for both demand and supply shocks the theoretical analysis is illustrated by application to curtailment rules and pricing in electric power markets rationing rules are a means of sharing risk and joint costs insurance provides a means of sharing the financial costs of random events however there are additional welfare gains to be obtained from pooling physical quantities of goods in the presence of random demand and supply see spulber 1985 by rationing goods the common costs of production or productive capacity can be reduced while also reducing individual risk this explains in part the extensive attention devoted to rationing of electric power electric power is subject to significant randomness in both supply and demand allocation mechanisms based on prices that adjust in real time on complete contingent contracts or on renegotiation of contracts in response to new information can involve prohibitive transaction costs avoidance of the need to ration would require inefficiently high capacity investment electric utilities must therefore employ rationing rules these rules must be

seasonality in the consumer response to milk advertising with implications for milk promotion policy permitting seasonal variation in the goodwill effect in measuring the impact of fluid milk advertising on milk sales in new york city improved the statistical significance of the estimating equation the allocation of generic advertising dollars according to optimization rules during the period 1979 81 would have resulted in a 9 percent increase in returns to dairymen supplying the new york city market harmonic variables are used to account for seasonality a pascal distribution is used to account for the decay structure and goodwill elasticities are estimated to indicate the impact of generic advertising on sales

bank regulation and international financial stability a case against the 2006 basel framework for controlling tail risk in trading books abstract in attempting to promote international financial stability the basel committee on banking supervision 2006 provided a framework that sought to control the amount of tail risk that large banks around the world would take in their trading books relative to their corresponding minimum capital requirements however many of these banks suffered significant trading losses during the recent financial crisis our paper examines whether the basel framework allowed banks to take substantive tail risk in their trading books without a capital requirement penalty we find that it allowed banks to do so and that its minimum capital requirements can be notably procyclical hence focusing on the way the basel framework sought to control the amount of tail risk in trading books relative to their corresponding minimum capital requirements our paper supports the view that it was not properly designed to promote financial stability we also discuss alternative regulatory frameworks that would potentially be more effective than the basel framework in preventing banks from taking substantive tail risk in their trading books without a capital requirement penalty

commonality in liquidity a global perspective we conduct the first comprehensive study of commonality in liquidity using intraday spread and depth data from 47 stock exchanges we show that commonality is a widespread global phenomenon firm level changes in spreads and depths are significantly influenced by exchange wide changes in liquidity on the majority of the world s stock exchanges emerging asian exchanges have exceptionally strong commonality while those of latin america exhibit little if any commonality in contrast to previous nyse based results we find that commonality in bid ask spreads is most prevalent among small firms while commonality in depths increases monotonically with firm size after documenting the pervasive role of commonality within individual exchanges we examine commonality across exchanges we extend the empirical model of chordia roll and subrahmanyam 2000 and find the first empirical evidence of a distinct global component in bid ask spreads and depths changes in global spreads and depths have a significant effect on changes in liquidity at the exchange level we show that while exchange size total market capitalization plays an influential role in the liquidity transmission process global commonality is not driven by a subset of large exchanges

consumer promotion and purchase timing the case of cheese the dynamics of cheese purchases is analysed by estimating a series of econometric models of duration based on a 170 week household panel besides purchase quantity and price data information with respect to coupon use and household demographic characteristics are used in a variety of models which build upon each other in terms of assumed distribution of interpurchase time effect of previous purchases role of demographic characteristics and effect of unobserved interpurchase time heterogeneity likelihoodratio tests clearly reject the null hypothesis that coupon use has no impact on cheese purchase timing

advertising information and product quality the case of butter this study examines the roles of cholesterol information and advertising in explaining consumption trends for fats and oils focusing on butter results suggest increased consumer awareness of the health effects of blood cholesterol has contributed to the secular decline in butter consumption in canada although consumers responses to negative information appear to outweigh their responses to positive information the industry advertising campaign launched in 1978 by the dairy bureau of canada has had a positive effect on butter demand

regulatory bias in the price structure of local telephone service this article combines a discrete choice model of demand for residential local telephone access and an optimal price regulation model to estimate the welfare weights that state regulators implicitly place on consumers with different incomes and locations i find no evidence of a bias towards rural consumers on average but the relative weight on low income consumers in a geographic area can vary as a function of the proportions of rural and poor population and the political characteristics of the regulator i also measure the welfare consequences of deviating from total consumer surplus maximization and disconnecting prices from costs

the welfare performance of sequential pricing mechanisms consumers are commonly required to subscribe to particular tariff options before uncertainty regarding their future purchases gets resolved since the general comparison of welfare performance of different pricing mechanisms is ambiguous this article empirically evaluates the expected welfare associated with standard nonlinear pricing and optional tariffs by using information directly linked to the type of individual consumers results show that tariffs composed of nonlinear options do not necessarily outperform simpler pricing strategies in terms of expected profits furthermore evidence suggests that a menu of optional two part tariffs dominates any other pricing strategy from an expected welfare perspective

optimal pricing of new subscription services analysis of a market experiment there are now available a number of new subscription services that comprise a dual pricing system of a monthly access fee rental and a per minute usage charge examples include cellular phones the internet and pay tv the usage and retention of such services depend on the absolute and relative prices of this dual system for instance a moderate access fee but a low usage charge might initially appeal to customers but later a low usage customer might find the monthly fee unjustified and thereby relinquish the service providers of such services therefore usually offer several pricing packages to cater to differing customer needs the purpose of this study is to derive a revenue maximizing strategy for subscription services that is the combination of access and usage price that maximizes revenue over a specified time period an additional objective is to determine access and usage price elasticities because they have historically played an important role in theoretical pricing models the application area is the cellular phone market but for a new rather than an existing product to help gauge the likely usage rates and customer retention a field experiment is conducted in which several alternative price combinations are used specifically a sample of potential residential customers most of whom did not have an existing cell phone were divided into four treatment groups the first group were not charged an access fee but did have to pay a small per minute usage charge the second group also paid a small usage charge but in addition had three access price increases over the duration of the trial the third group paid no access fee but had usage charge increases while the fourth group had both access fee and usage charge increases usage levels for each respondent are recorded as is their month of dropout if they discontinue the service an initial examination of the data shows that higher access fees result in higher customer attrition and higher usage cost results in lower usage furthermore usage and retention are related in that declining usage levels over time often signal impending customer attrition hence two phenomena need to be modeled usage of the service and customer retention conditional on usage some seasonal effects are also observed and are allowed for in the model modeling customer attrition simultaneously with usage is important because ignoring customer attrition will likely result in an underestimate of price sensitivity this results from a censoring effect whereby respondents who remain in the trial tend to be wealthier and hence less price sensitive given the known problems of ignoring customer attrition we develop a theoretical model of usage which explicitly incorporates attrition by extending a time series model introduced by hausman and wise 1979 we make two extensions of the hausman and wise model the first is to generalize it from two to many time periods and the second is to allow for respondent heterogeneity by incorporating latent classes we fit the model by maximum likelihood and find that a two segment model is best in addition we examine the predictive validity of our model and find it to be reasonably good in general the results show that access and usage prices have different relative effects on demand and retention there are five key results first access price has some effect on usage but a much stronger effect on retention second usage price has a strong effect on usage and a moderate effect on retention in that if usage price increases so much that usage declines then lower usage levels results in higher attrition third access price elasticity is about half that of usage price with both elasticities generally being much smaller than 1 indicating relative inelasticity for this particular service fourth customer attrition rate churn is much more sensitive to access than usage price and last if just observed usage is examined and customer attrition is ignored then price sensitivity is very likely to be substantially underestimated on the order of 45 in our case finally when developing the revenue maximizing price combination we allow for the cost of customer acquisition by using some typical advertising to sales ratios for the telecommunications industry we find that the revenue maximizing price is 27 70 per month for the access fee and 0 81 per minute for the airtime charge these values are in line with current access fees and usage costs in the given market

evidence of bank market discipline in subordinated debenture yields 1983 1991 we examine debenture yields over the period 1983 1991 to evaluate the market s sensitivity to bank specific risks and conclude that investors have rationally reflected changes in the government s policy toward absorbing private losses in the event of a bank failure although this evidence does not establish that market discipline can effectively control banking firms it soundly rejects the hypothesis that investors cannot rationally differentiate among the risks undertaken by the major u s banking firms an increasingly important issue in the regulation of financial institutions concerns the extent to which market investors can will recognize and control the risks of banking firms although the banking act of 1933 replaced some private risk bearing with federal deposit insurance legislators were reluctant to displace market discipline very extensively flood 1992 by the early 1980s however u s regulators had come to protect virtually all bank liability holders from credit losses most visibly at large banks which were deemed too big to fail sprague 1986 o hara and shaw 1990 this extension of the government safety net largely reflects a skepticism on the part of regulators that normal market forces could adequately identify and control bank risks while u s regulators have recently shown an increased willingness to let some bank investors bear default losses an official suspicion of the efficacy of market discipline remains widespread by contrast some prominent academic economists argue that market investors in bank debentures could provide timely and effective control over banking firms risk exposures and that the social cost of supervising banks would be lower if regulators ceded greater

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

contracts biases and consumption of access services we study theoretically and empirically the consumption of access services we demonstrate that consumption is affected by contract structure pay per use versus three part tariffs even if the optimal consumption plans are identical we find that although there is extensive individual heterogeneity on average consumers choices follow a structure that is similar to a nearly optimal heuristic and correctly react to imbalances between the number of free calls and call opportunities remaining however consumers use the free units too quickly leading to overconsumption and lost surplus these errors are partially driven by mistaken beliefs about the value distribution we also measure subjects willingness to pay for a contract with free access units and we find that nearly half of subjects are willing to pay at least the full per unit price with a substantial fraction willing to overpay in response the optimal firm strategy offers a three part tariff at a very small discount which increases revenue by 8 14 compared to only offering a pay per use contract data as supplemental material are available at http dx doi org 10 1287 mnsc 2013 1889 this paper was accepted by teck hua ho behavioral economics

how much intraregional exchange rate variability could a currency union remove the case of asean 3 abstract a multilateral currency union removes intraregional exchange rates but not the union rate the pre union intraregional exchange rate variability is thus latent a two step procedure is developed to measure this the measured variables are used to model inflation and intraregional trade growth of individual union members counterfactual simulations of the union impact are carried out using the resulting models application to asean 3 shows that the intraregional variability mainly consists of short run exchange rate shocks that the variability significantly affects inflation and intraregional trade of major asean 3 members and that a union would reduce inflation and promote trade regionwide

price elasticities for local telephone calls price elasticities are estimated for local telephone calls and minutes of conversation using data from a pricing experiment in central illinois conducted by general telephone and electronics the experiment charges separately for calls and for minutes using a model that is consistent with the theory of telephone demand the authors estimate the effects of both prices the nonlinear generalized least squares estimates of the elasticities are fairly small about 0 1 or less in absolute value at experimental price levels but they are estimated with high precision the report briefly considers the application of these results to predict the effects of introducing measured service telephone rates in other cities residential telephone subscribers in the united states typically pay a flat monthly rate for local service with no extra charge for calls within the local area the alternative of explicitly charging for local calls commonly referred to as usage sensitive pricing or local measured service is of increasing interest to u s telephone companies and regulatory commissions cosgrove and linhart 5 garfinkel and linhart 8 baude ed 2 3 charging for calls that are now free clearly holds promise of increasing economic efficiency alleman 1 mitch

nonlinear pricing with random participation the canonical selection contracting programme takes the agent s participation decision as deterministic and finds the optimal contract typically satisfying this constraint for the worst type upon weakening this assumption of known reservation values by introducing independent randomness into the agents outside options we find that some of the received wisdom from mechanism design and nonlinear pricing is not robust and the richer model which allows for stochastic participation affords a more general empirical specification we develop a multidimensional methodology for addressing this class of problems providing two important applications to nonlinear pricing first with nonlinear pricing by a monopolist the familiar nodistortion at the top result persists but in tandem with the surprising conclusion that there is either no distortion at the bottom or bunching second in a simple model of product differentiated duopolists competing with nonlinear pricing we show that generally the duopoly outcome is qualitatively similar to the monopoly outcome however when marginal costs are symmetric and competition is sufficiently intense distortions disappear and the equilibrium outcome takes a remarkably simple form efficient quality allocations with cost plus fee pricing

supplying information to facilitate price discrimination the authors examine the incentive of a seller to allow potential buyers to acquire private information about their tastes for the seller s product improved private information for buyers enables the seller to segment the market and charge higher prices to high value buyers however improved information can also provide rents to buyers in a variety of settings this tradeoff is optimally resolved at one of two extremes either buyers are supplied with the best available knowledge of their tastes or no information is supplied by the seller copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

demand and pricing of telecommunications services evidence and welfare implications although telephone pricing has received increasing attention in recent years the geographic patterns of telephone pricing and the corresponding economic consequences of those patterns have remained perplexing to consumers and policymakers and largely unaddressed by economists in this article we first specify a model of the demand for short intralata long distance calling we then draw upon data made available by the recent adoption of extended area service eas in four metropolitan areas to empirically measure the structure of inter exchange telephone demand given these estimates and a conceptual framework for analyzing the economic welfare effects we were able to quantify the consumer surplus effects of alternative pricing policies the empirical results indicate that consumer surplus is noticeably enhanced by adopting eas but the net economic welfare effects are shown to be sensitive to among other things the level of price cost margins prevailing prior to the implementation of eas

systemic risk governance and global financial stability abstract the paper argues that while attempts have been made to reform four of the five key pillars of banks operation i e competition resolution supervisory and auditing and valuation policies less attention has been paid to the role of bank governance and systemic risk despite a strong link between governance and risk taking the paper offers four solutions to strengthen bank governance first the regulatory capital base of banks could be increased second the compensation structure of managers could be reformed third effort could be focussed on creating and implementing resolution regimes which offer the credible prospect of bailing in creditors in the event of stress and fourth solution is to reform the structure of company law for example by extending control rights beyond shareholders furthermore the paper argues that given the diversity of the whole financial system it is expected that the risks individual financial institutions face are also diverse it cannot be assumed that the appropriate capitalisation is constant across all risks while leverage ratios are a useful backstop measure and guard against potential gaming of risk weights their appropriate role is as a backstop the diversity within the financial system also supports the fact that a single measure of systemic risk is unlikely to be universally applicable nor is a single instrument of financial stability policy

unnatural monopolies in local telephone we attempt to overcome the serious data problems of past telecommunications cost studies by focusing on local exchange carriers lecs with enough degrees offreedom to yield precise estimates our global subadditivity tests show that the cost function is definitely not subadditive the results suggest that the benefits to breaking up the monopoly outputs of existing lecs substantially outweigh the potential losses in efficiency they also support permitting entry and increasing competition in local exchange markets furthermore given the competitive nature of long distance service it is doubtful that the predivestiture bell system was a natural monopoly

the demand for dairy products structure prediction and decomposition this article presents an analysis of the demand for dairy products first the structure of dairy product demand is estimated using the household food consumption survey data under the assumption of a two stage budgeting procedure a complete demand system for food incorporating demographic effects is estimated next using the demand relations estimated from cross section data prediction interval tests utilizing time series data are performed for milk and butter last factors affecting consumption are classified into economic and demographic effects and a decomposition of the causes of changes in demand over time is performed

nonparametric identification of a contract model with adverse selection and moral hazard this paper studies the nonparametric identification of a contract model with adverse selection and moral hazard specifically we consider the false moral hazard model developed by laffont and tirole 1986 we first extend this model to allow for general random demand and cost functions we establish the nonparametric identification of the demand cost deterministic transfer and effort disutility functions as well as the joint distribution of the random elements of the model which are the firm s type and the demand cost and transfer shocks the cost of public funds is identified with the help of an instrument testable restrictions of the model are characterized

the rise of risk based pricing of mortgage interest rates in italy abstract this paper assesses how much mortgage interest rates in italy are priced on credit risk as proxied by the probability of household mortgage delinquency estimated using the eu silc database owing to data availability we restrict the analysis of mortgage pricing to italian households consistent with the more widespread use of credit scoring estimates indicate that italian lenders have increasingly priced mortgage interest rates on household credit risk for mortgages granted between 2000 and 2007 we find that a 1 point increase in the probability of default is associated with a 21 basis point rise in mortgage interest rates lower than the 38 basis point premium edelberg 2006 estimated for the us at the end of the 1990s

globalisation growth and institutions abstract we are currently in the second wave of globalisation despite the fact that over the past two decades a number of national financial and other barriers have been removed there are still a number of national regional and global factors that are slowing down the process of financial globalisation from trickling down to all parts of the world this paper briefly discusses the process of globalisation and considers the human development index including education as a way of measuring economic growth and financial wealth in different parts of the world the paper analyses the process of financial globalisation and the way some nations have become the recipients of more foreign capital than others as a way of seeing the importance of both national and international economic and financial integration as important ingredients for sustained economic growth the process of financial integration in europe is analysed as a model for acceleration of the process of globalisation and sustained economic growth in this century the 21st century is referred to as the pacific century and hence financial integration in the asia pacific region apec could create a new impetus for the eu to increase its internal integration including its fiscal policies as a way of remaining competitive in the global economy

do liquidity measures measure liquidity abstract given the key role of liquidity in finance research identifying high quality proxies based on daily as opposed to intraday data would permit liquidity to be studied over relatively long timeframes and across many countries using new measures and widely employed measures in the literature we run horseraces of annual and monthly estimates of each measure against liquidity benchmarks our benchmarks are effective spread realized spread and price impact based on both trade and quote taq and rule 605 data we find that the new effective realized spread measures win the majority of horseraces while the amihud 2002 illiquidity and stock returns cross section and time series effects journal of financial markets 5 31 56 measure does well measuring price impact

cellular service demand biased beliefs learning and bill shock by april 2013 the fcc s recent bill shock agreement with cellular carriers requires consumers be notied when exceeding usage allowances will the agreement help or hurt consumers to answer this question we estimate a model of consumer plan choice usage and learning using a panel of cellular bills our model predicts that the agreement will lower average consumer welfare by 2 per year because rms will respond by raising monthly fees our approach is based on novel evidence that consumers are inattentive to past usage meaning that bill shock alerts are informative and advances structural modeling of demand in situations where multipart taris induce marginal price uncertainty additionally our model estimates show that an

uncertain demand consumer loss aversion and flat rate tariffs we consider a model of firm pricing and consumer choice where consumers are loss averse and uncertain about their future demand possibly consumers in our model prefer a flat rate to a measured tariff even though this choice does not minimize their expected billing amount a behavior in line with ample empirical evidence we solve for the profit maximizing two part tariff which is a flat rate if a marginal costs are not too high b loss aversion is intense and c there are strong variations in demand moreover we analyze the optimal nonlinear tariff this tariff has a large flat part when a flat rate is optimal among the class of two part tariffs

multiproduct nonlinear pricing typically work on mechanism design has assumed that all private information can be captured in a single scalar variable this paper explores one way in which this assumption can be relaxed in the context of the multiproduct nonlinear pricing problem it is shown that the firm will choose to exclude some low value consumers from all markets a class of cases that allow explicit solution is derived by making use of a multivariate form of integration by parts in such cases the optimal tariff is cost based

optimal control of generic fluid milk advertising expenditures optimal expenditures of the new york state milk promotion program are determined for three markets spending level in new york city and albany should be reduced by about 10 while that for syracuse should be increased three times further there exists an optimal seasonal advertising pattern which reflects the seasonal pattern of the class 1 differential in addition the optimal spending level and seasonal pattern of the state promotion program depends on those of the national program thus coordination between the two promotional units is essential to achieve optimality generic dairy promotion is big business dairy farmers now invest over 200 million annually in promoting the consumption of milk and dairy products nonoptimum allocations of funds miss opportunity to achieve high returns the possibility of potential losses emphasizes the importance of understanding the economics of dairy promotion the continuing effect of advertising on sales after the original period of expenditure is aptly summarized by waugh s statement that old advertisements never die they just fade away the lingering impact of advertising suggests the use of a dynamnic setting in which to explore promotion issues thus far most of the atten

impact of liquidity risk on variations in efficiency and productivity a panel gamma simulated maximum likelihood estimation abstract the objective of this study is to assess the importance of short and long run liquidity or debt risk on technical inefficiency and productivity an alternative panel estimator of normal gamma stochastic frontier model is proposed using a simulated maximum likelihood estimation technique empirical estimates indicate a difference in the parameter coefficients of gamma stochastic production function and heterogeneity function variables between the pooled and the swamy arora panel models the results from this study show short and long run risk or variations in liquidity or debt servicing ratio play an important role in explaining the variance in efficiency and productivity

systematic liquidity and the funding liquidity hypothesis abstract in order to reconcile weak evidence of supply side determinants of commonality in liquidity in previous studies we examine commonality in liquidity in china over the period 1995 2012 consistent with supply side explanations we find that market declines and market volatility increase liquidity commonality to identify the direct relationship between the supply side determinants and commonality in liquidity we provide two specific tests and show that an increase in market participants has a negative effect on liquidity commonality while the split share structure reform in 2005 2007 that results in a large increase in shares supply has a positive impact on liquidity commonality finally we find that commonality in liquidity also has a real impact on the economy

order imbalance liquidity and market returns traditionally volume has provided the link between trading activity and returns we focus on a hitherto unexplored but intuitive measure of trading activity the aggregate daily order imbalance on the new york stock exchange signed order imbalances increase decrease following market declines rises which reveals that investors are contrarians on aggregate order imbalances in either direction either excess buy or sell orders reduce liquidity market wide returns are strongly affected by contemporaneous and lagged order imbalances market wide returns reverse themselves after high negative imbalance large negative return days the magnitude of this reversal is partially predictable from the level of the imbalance and return even after controlling for aggregate market volume and liquidity market returns are affected by order imbalance

buying without using biases of german bahncard buyers we use a large data set of german railway travellers to analyse the purchasing decision for fare reducing bahncards we expect that this tariff choice is neither completely rational nor irrational but bounded rational in a meaningful way actually we predict a flat rate bias i e an under use of their bahncards by many customers however we estimate that this bias is not too large the empirical results approve our hypotheses for the most part especially for the more expensive bahncard50 bc50 whereas the under use of the cheaper bahncard25 bc25 is so extensive that it is not worthwhile on average

research note using basket composition data for intelligent supermarket pricing how can supermarkets use the vast data they have to design strategies to compete for large basket shoppers potentially their most profitable customers we say analyze the data to glean basket composition of heterogeneous consumers of theoretical and practical interest is the question will our suggestion improve supermarket profits and if so by what pricing strategies by answering this we can also answer the question do results of extant research on single product marketing that using such information intensifies competition and lowers profits generalize to multiproduct marketing by supermarkets that carry several products and whose patrons purchase multiple items we derive equilibrium data based intelligent pricing strategies that also produce increased supermarket profits what is more interesting is our result that data analysis is profitable whether or not a competitor undertakes data analysis if not too costly implementing data analysis is a dominant strategy moreover with comprehensive data analysis connecting basket information and household data stores can increase profits further by targeting rewards at individual households thereby segmenting the market more completely in contrast to past research findings we show that for supermarkets even under competition use of information on past purchases enables intelligent pricing better segmentation and higher profits

choosing the wrong calling plan ignorance and learning when a firm offers several tariff options to its customers the possibility arises that they will make an ex post mistake in tariff choice this occurs since consumers cannot commit to a certain purchase level at the time they subscribe to the service option and thus they might find out later that a different choice of tariff could have resulted in a lower payment for their actual level of consumption this is a common feature of increasingly important subscriptions markets in which buyers and sellers maintain long term nonanonymous relations and where learning induces interesting dynamics on the one hand buyers may learn their taste over time thus making the right choice as times goes by on the other hand the seller may design options to identify the type of each buyer and if possible to extract a higher proportion of their consumer surplus by offering tariff options that are better tailored to the profile of the consumer this paper focuses on the first type of learning in turn i document buyer behavior in a subscriptions market using data from a tariff experiment run by south central bell scb in kentucky during the second half of 1986 the most frequently studied case of subscriptions markets is the choice among optional calling plans ocps in the telephone industry this paper shows that contrary to the conven

the divergence of liquidity commonality in the cross section of stocks abstract this paper demonstrates that the cross sectional variation of liquidity commonality has increased over the period 1963 2005 the divergence of systematic liquidity can be explained by patterns in institutional ownership over the sample period we document that our findings are associated with similar patterns in systematic risk our analysis also indicates that the ability to diversify systematic risk and aggregate liquidity shocks by holding large cap stocks has declined the evidence suggests that the fragility of the us equity market to unanticipated events has increased over the past few decades

an empirical analysis of stock and bond market liquidity this article explores cross market liquidity dynamics by estimating a vector autoregressive model for liquidity bid ask spread and depth returns volatility and order flow in the stock and treasury bond markets innovations to stock and bond market liquidity and volatility are significantly correlated implying that common factors drive liquidity and volatility in these markets volatility shocks are informative in predicting shifts in liquidity during crisis periods monetary expansions are associated with increased liquidity moreover money flows to government bond funds forecast bond market liquidity the results establish a link between macro liquidity or money flows and micro or transactions liquidity a number of important theorems in finance rely on the ability of investors to trade any amount of a security without affecting the price however there exist several frictions 1 such as trading costs short sale restrictions and circuit breakers that impact price formation the influence of market imperfections on security pricing has long been recognized liquidity in particular has attracted a lot of attention from traders regulators

systemic risk macroprudential policy frameworks monitoring financial systems and the evolution of capital adequacy abstract this paper analyses various issues that need to be tackled when promoting financial stability reviewing the progress made in certain key areas and the remaining challenges it explores the measurement of systemic risk and of individual institutions contribution to it it discusses aspects of macroprudential frameworks including how the countercyclical capital buffer envisaged in basel iii takes into account the properties of the financial cycle and the strengths and weaknesses of macro stress tests it analyses some of the challenges of how best to monitor financial systems and the broader economy in order to detect signs of vulnerability that might lead to future bouts of financial instability and of how to set prudential policy accordingly and it discusses the evolution of capital adequacy standards and the new emphasis on liquidity standards in international regulation

competition and subsidies in the deregulated us local telephone industry the 1996 telecommunications act opened the monopolistic us local telephone industry to new entrants however substantial entry costs have prevented some markets from becoming competitive we study various subsidy policies designed to encourage entry we estimate a dynamic entry game using data on potential and actual entrants allowing for heterogeneous option values of waiting we find that subsidies to smaller markets are more cost effective in reducing monopoly markets but subsidies to only lower cost firms are less cost effective than a nondiscriminatory policy subsidies in only early periods reduce the option value of waiting and accelerate the arrival of competition

modelo de acceso y uso de telefonia en un contexto de incertidumbre en los ingresos este documento presenta un marco teorico sencillo para analizar el rol del nivel y la incertidumbre del ingreso como determinantes de la demanda de telefonia fija en terminos de acceso y uso en particular se muestra como un incremento de la incertidumbre en el ingreso desincentiva el acceso y el uso del servicio de telefonia por parte de los hogares ademas a manera de ejemplo se desarrolla un ejercicio de simulacion para una poblacion de hogares los cuales tienen iguales preferencias pero estan afectos a una distribucion del ingreso this document presents a theoretical simple frame to analyze the role of the level and the uncertainty of the revenue as determinants of the demand of telephony fixes in terms of access and use especially it appears as an increase of the uncertainty in the revenue discourages the access and the use of the service of telephony on the part of the home in addition like example an exercise of simulation develops for a population of homes which have equal preferences but are affected on a distribution of the income

countervailing incentives in agency problems abstract we analyze countervailing incentives in agency problem countervailing incentives exist when the agent has an incentive to understate his private information for some of its realizations and to overstate it for others when countervailing incentives arise pooling generally characterizes the equilibrium contract furthermore performance is distorted both above and below efficient levels in addition the agent s rents generally increase with the realization of his private information over some ranges and decrease over other ranges we demonstate that the creation of countervailing incentives can enhance aggregate welfare

effectiveness of fluid milk advertising since the dairy and tobacco adjustment act of 1983 an econometric model pooling monthly cross sectional and time series data is estimated to measure the impact of national and regional generic fluid milk advertising the estimated model shows that the effectiveness of advertising has increased since the implementation of the dairy adjustment act gains in fluid milk sales attributed to milk advertising are estimated sales gains for both the pre and post act periods are shown along with the gains associated with parameter changes in the post act periods marginal advertising responses are derived

consumer inertia choice dependence and learning from experience in a repeated decision problem abstract understanding when and how individuals think about real life problems is a central question in economics this paper studies the role of inertia inattention state dependence and learning the empirical setting is a tariff experiment when optional measured tariffs for local telephone calls were introduced unanticipatedly we find that consumers tend to align their choices of tariff and telephone use levels correctly despite low potential savings mistakes are not permanent as individuals actively engage in tariff switching in order to reduce the monthly cost of telephone service ignoring unobservable heterogeneity and the endogeneity of past choices would have reversed these results

consumption patterns and self selecting tariffs the authors describe and apply methods for empirically investigating the relation between consumption and tariff choice these methods allow 1 testing of alternative specifications for the relations of tariff choice and consumption patterns 2 estimation of parameters that provide information on the response of customers to marginal prices and fixed fees and 3 a determination of the extent to which the assumptions embodied in welfare results on self selecting tariffs are valid in a particular setting they apply the procedures to residential demand for local telephone service in an area where households are offered a choice among tariffs copyright 1989 by mit press

when more is less using multiple constraints to reduce tail risk abstract financial institutions suffered large trading losses during the 2007 2009 global financial crisis these losses cast doubt on the effectiveness of regulations and risk management systems based on a single value at risk var constraint while some researchers have recommended using conditional value at risk cvar to control tail risk var remains popular among practitioners and regulators accordingly our paper examines the effectiveness of multiple var constraints in controlling cvar under certain conditions we theoretically show that they are more effective than a single var constraint furthermore we numerically find that the maximum cvar permitted by the constraints is notably smaller than with a single constraint these results suggest that regulations and risk management systems based on multiple var constraints are more effective in reducing tail risk than those based on a single var constraint

the demand for local telephone service a fully discrete model of residential calling patterns and service choices we present an empirical model of households choices among local telephone service options for example between flat rate and measured service and the interrelation of these choices with the number and average duration of local calls households make at each time of day to each geographical zone using a nested logit model with estimation performed on a randomly selected subset of the households calling patterns we calculate elasticities of demand for each local service option number of calls average duration and revenues with respect to the fixed monthly charges and the usage charges for calling under each option we find moderate price elasticities of number of calls with respect to usage charges for households subscribing to measured service nevertheless raising usage charges has a negligible effect on revenues since a sufficient number of households either originally subscribe to flat rate service or convert to flat rate service in response to higher usage charges we find a high elasticity of demandfor each service option with respect to itsfixed monthlyfee this indicates high substitutability among service options the shift among service options induces new calling patterns which wefind to be a small but not negligible indirect effect e most telephone operating companies offer residential customers several options for local service there are two general categories of service flat rate service under which a household can for a fixed monthly charge make an unlimited number of calls within a specified geographical area and measured service for which the household pays a lower fixed monthly fee but can make only a specified number or dollar value of calls at no extra charge after which charges are incurred for additional calls various flat rate services differ in the size of the geographical area in which calling is at no extra charge with higher monthly fees for larger areas measured services differ with respect to the threshold number or dollar value of calls beyond which the customer is charged

does uncertainty matter consumer behavior under three part tariffs in communication information and other industries three part tariffs are increasingly popular a three part tariff is defined by an access price an allowance and a marginal price for any usage in excess of the allowance empirical nonlinear pricing studies have focused on consumer choice under two part tariffs we show that consumer behavior differs under three part tariffs and assess how consumer demand uncertainty impacts tariff choice we develop a discrete continuous model of choice among three part tariffs and estimate it using consumer level data on internet usage our model extends prior work in accommodating consumer switching to competitors thereby capturing behavior in competitive industries more accurately our empirical work shows that demand uncertainty is a key driver of choice among three part tariffs consumers expected bill increases with the variation in their usage steering them toward tariffs with high allowances consequently demand uncertainty decreases consumer surplus and increases provider revenue a further analysis of consumers responsiveness to the different elements of a three part tariff under the provider s current pricing structure reveals that prices affect a consumer s tariff choice more than her usage quantity and that the allowance plays a strong role in consumer tariff choice based on our results we derive implications for pricing with three part tariffs

tariff choice with consumer learning and switching costs abstract consumers choosing flat rate contracts tend to have insufficient usage to warrant the cost particularly for new products we propose and estimate a bayesian learning model of tariff and usage choice that explains this flat rate bias without relying on behavioral misjudgments or tariff specific preferences for new products consumers are uncertain about both their utility relative to the population mean and the mean itself we show that this latter uncertainty inflates prior variances which leads consumers to weight their private signals more heavily when updating beliefs posteriors are unbiased across products for a given product however the unknown mean yields a winner s curse consumers with high posteriors tend to overestimate their utility these consumers choose fixed rate tariffs and lower their usage as they correct their beliefs the flat rate bias arises when switching costs deter them from changing tariffs using the estimated model the authors find that tariff menus are ineff