buyer experimentation and introductory pricing we study the pricing decisions of a monopolist seller in a two period model in which buyers and the seller are all uncertain about a good s quality we assume that buyers not only learn from experience but also may experiment that is increase the amount of information by consuming more we define an introductory price to be a first period equilibrium price lower than that which maximizes period 1 profit the motivation for introductory pricing is that under certain conditions the seller prefers its buyers to be better informed about quality a lower initial price increases consumption and hence information we consider two versions of the model identical buyers with a public signal of quality heterogeneous buyers who each receive a private quality signal 2001 elsevier science b v all rights reserved

dynamic matching and evolving reputations this paper introduces a general model of matching that includes evolving public bayesian reputations and stochastic production despite productive complementarity assortative matching robustly fails for high discount factors unlike in becker 1973 this failure holds around the highest lowest reputation agents for high skill low skill technologies we find that matches of likes eventually dissolve in another life cycle finding young workers are paid less than their marginal product and old workers more also wages rise with tenure but need not reflect marginal products information rents produce non monotone and discontinuous wage profiles

reputation and prices on the e market evidence from a major french platform we use an exhaustive data set from one of france s largest e commerce platforms priceminister com to estimate a statistical causal effect of a seller s reputation rating and size on transaction prices we go beyond the results currently available by tackling the issue of seller unobserved heterogeneity and the dynamics of reputation in price equations we can also produce results for a large range of product categories books cds video games or dvds product conditions used or new and seller types individual or professional sellers our results show large scale empirical evidence of a significant positive and strong effect of seller reputation on prices

tax evasion and self employment in a high tax country evidence from sweden self employed individuals have arguably greater opportunities than wage earners to underreport their incomes this article uses recent swedish income and expenditure data to examine the extent of underreporting of income among self employed individuals a key hypothesis is that underreporting of incomes among the self employed would be visible in the data as excess food consumption for a given level of observed income our results confirm the underreporting hypothesis in particular we estimate that households with at least one self employed member underreport their total incomes by around 30 under reporting appears to be much more prevalent among self employed people with unincorporated businesses as among those with incorporated businesses

price dispersion and incomplete learning in the long run abstract in each period a seller chooses a price and the customer for that period buys either one unit or nothing the relationship between price and purchase probability is one of two linear functions it is shown that the seller behaving optimally does not necessarily learn which function is the actual relationship since there can be a positive probability of sequences of prices converging to the price at which the two functions give the same purchase probability

the private financial gains to entrepreneurship is it a good use of public money to encourage individuals to become entrepreneurs recent evidence comparing earnings from entrepreneurship versus wage earning shows that after allowing for obvious observable differences most entrepreneurs in most developed countries earn less than similar wage earning employees does this mean that the decision to become an entrepreneur should be discouraged the answer depends in part on whether we believe that entrepreneurs report their income truthfully or not adjusting for what is considered to be underreporting by entrepreneurs lifts entrepreneurial earnings by between 10 and 40 reversing the fortunes of the entrepreneur such that they appear to be earning much more than their counterparts in a wage earning job if this adjustment should prove to be appropriate then there is no obvious reason to increase the incentive for individuals to become entrepreneurs such as with tax breaks or direct start up subsidies in developed countries and there is reason instead to discuss decreasing these subsidies

learning and capacity expansion under demand uncertainty a competitive dynamic model of entry into a new industry is set up and both its positive and normative aspects are studied the main assumptions are that entry is sequential that it occurs under imperfect information on the size of the market and that better information becomes available as time goes on the gradual improvement in information is due to the fact that later waves of entrants are able to observe the profitability of earlier entrants the major results reported here under suitable restrictions are that the equilibrium rate of entry is monotonically decreasing over time and that at any given point in time it is smaller than the socially optimal one when a new market opens as a result of a product being newly invented for instance or when an existing market starts to expand uncertainty with respect to its size is likely to prevail as a result of this uncertainty entry of firms into such markets typically will occur in waves some firms will enter initially while others will wait to see the consequences of that initial entry if the experience of early entrants is favourable entry will continue otherwise entry will cease hence with the introduction of a new product two phases are associated the growth phase typified by positive operating profits for existing firms and expansion of productive capacity due to entry of new firms and the mature phase typified by erosion of profits and fixed total productive capacity empiricists estimating the time pattern of investments during the growth phase have found an s shaped diffusion curve see mansfield 1986 and gort and klepper 1982 the purpose of the present paper is to theoretically characterize these time patterns and to investigate their welfare properties any attempt to model the type of entry described above must account for differences in both entry dates and resultant earnings in other words the theory must explain why the realized earnings of different cohorts of firms are not equal often such ex post differences are reconciled by assuming heterogeneity with respect to some latent underlying characteristic managerial ability for instance and attributing differences in earnings to differences in that characteristic in this paper instead earning differentials are attributable to luck only ex ante all firms are technologically identical and equally capable of forecasting market prospects and rationally acting upon those forecasts ex post some firms turn out to have entered at the right time and are for that reason more profitable the model developed in this paper analyzes a parametric example of a sequential entry problem in which the uncertainty over market size is gradually resolved over time in a bayesian setting in an environment of perfect competition and constant returns toscale a free entry equilibrium concept is introduced and the aggregate implications of the time path of investments are derived i then compare this actual time path to the optimum this comparison is interesting because the equilibrium is analysed under the

a cautionary note on tests of overidentifying restrictions in this note we argue that tests of overidentifying restrictions give little information on the validity of the moment conditions implied by the underlying economic model and therefore are mute about the possibility of identifying the parameters of interest

research issues at the boundary of competitive dynamics and market evolution building on the observation that competitive dynamics and market evolution are inextricably linked and underresearched we propose a road map to guide and stimulate future research in the area a number of rationales have been proposed to explain why there is relatively little research directed toward understanding the links between competitive dynamics and market evolution these include the predominance of different research paradigms in each area a lack of data appropriate for analyzing the two areas together and the difficulty of obtaining robust and significant results with analysis that is by definition complex it must consider factors and outcomes both across firms and over time using this last rationale as a starting point we develop a series of research propositions related to key relationships where a insignificant or contradictory results have been obtained in extant research or b researchers have yet to delve the propositions are designed to deepen our understanding of the relationship between the areas throughout the analysis the key to developing the propositions is to recognize the importance of moderating factors mediating factors and covariates in addition where the approach to empirically test a proposition is new we propose categories measures and comparisons that can be used

an examination of efficiency in british racetrack betting errata and corrections shortly after the publication of our paper in this journal gabriel and marsden 1990 we received a kind letter with several informational questions from paddy waldron a graduate student at wharton and long time punter bettor in his native ireland one of waldron s questions caused us to recheck the original source the sporting chronicle handicap book 1978 from which our data were gathered by research assistants as his questions suggested to us we discovered that a footnote had been overlooked and that the tote returns on irish races included in the flat season about 27 percent of all such races are quoted as returns on a 20 pence bet their minimum bet rather than as returns on the 10 pence minimum used for reporting the other flat races thus we found that we had overstated the tote returns we completely recollected all our data making the necessary adjustments for irish races and adding in eight races that had been reported out of sequence in the handicap book using the corrected data we still find that tote returns exceed starting price returns for all races in our period and for each subperiod races through april races in may and races in june though of course the differences are somewhat smaller than those reported earlier see table 1 further all joint hypothesis regression equation tests suggest the same conclusions as earlier though three of the significance levels do differ two going from 01 to 05 and one from 01 to 1

inside information in a betting market inside information concerning a risky asset is presumed to be beneficial to its holder measurement of the impact and benefit of inside information is difficult because its use for financial gain is often illegal ideally one would like to investigate and compare two mutually isolated groups one with and the other without access to inside information the australian horse betting market offers such an opportunity it is found that even exposure to second hand inside information effects a change in behavior a rise in payoffs and adds power and significance to the prediction of race results copyright 1995 by royal economic society

price competition for an informed buyer abstract this paper investigates price competition with private information on the demand side two sellers each offer a different variety of a good to a buyer endowed with a private binary signal on their relative quality the model provides an informational foundation to differentiation in hotelling s price competition game equilibrium comparative statics is performed with respect to the prior belief and the precision of the private information competition is fierce when the prior strongly favors one seller and private signals are relatively uninformative sellers equilibrium profits may fall with the revelation of public information and are nonmonotonic in the prior belief journal of economic literature classification numbers c72 d43 d82 l15

entrepreneurship and personal income tax evidence from canadian provinces this paper employs the dynamic panel estimation method to investigate the effects of the top personal income tax rate on entrepreneurship as proxied by the employer business entry rate using data from canadian provinces over the period 1984 2015 the empirical findings of this paper show that the top income tax rate has a negative and statistically significant effect on entrepreneurship both in the short and long term according to the preferred estimate of this study a one percentage point increase in the top statutory marginal income tax rate is associated with a 0 13 percentage point decrease in the business entry rate in the short term and a 0 41 percentage point decrease in the long term based on the long term results on average a province that raises its top personal income tax rate by one percentage point can expect to have about 405 fewer new employer businesses enter its economy this is a significant loss for an economy that has been experiencing a decline in entrepreneurship for a long time the key findings of this paper are robust to various sensitivity checks

experimentation in markets we present a model of entry and exit with bayesian learning and price competition a new product of initially unknown quality is introduced in the market and purchases of the product yield information on its true quality we assume that the performance of the new product is publicly observable as agents learn from the experiments of others informational externalities arise we determine the markov perfect equilibrium prices and allocations in a single market the combination of the informational externalities among the buyers and the strategic pricing by the sellers results in excessive experimentation if the new product is launched in many distinct markets the path of sales converges to the efficient path in the limit as the number of markets grows in multi agent learning situations informational externalities may reduce the number of experiments undertaken below the socially efficient level as buyers choose among new experience goods or firms decide whether to adopt a new technology the availability of information from others decisions gives rise to a free rider problem rather than perform a costly experiment herself a buyer may opt to wait and see how the market evaluates the new product in this paper we develop a simple market model of experimentation and analyse the informational effects in a model with buyers and sellers in contrast to the one sided experimentation problems we find that equilibrium experimentation often exceeds the pareto optimal level in two sided models the first model we consider is a dynamic duopoly in continuous time with homogeneous buyers two firms with differentiated products engage in price competition over time one product has a known value while the other is new and its true value is initially uncertain to all the parties in the model the value of the product is determined by the quality of the match between consumer preferences and product characteristics additional information is acquired only through repeat purchases in each period buyers observe a noisy signal of the true value of the product we assume that all signals are publicly observable and that all uncertainty is about a common value component with this assumption all buyers and sellers condition their behaviour on the same information and we can abstract from individual differences in past observations this is justified in economic situations where public data on other buyers choices is available and informative for example when choosing among providers of communication or transportation services such as mail delivery firms or airlines it is reasonable to rely on consumer reports and other published data in addition to one s private experience we also show that our model has an alternative interpretation as one where a flow of buyers make a once and

entry and experimentation in oligopolistic markets for experience goods abstract we investigate a two period bertrand market in which one seller introduces an experience good the new product competes with an alternative good of known quality ex ante neither sellers nor consumers know the value of the new product while consumers can learn their valuation for the new good by actual consumption experimentation sellers cannot observe experimentation outcomes thus asymmetric information arises if the buyer experiments as a result the equilibrium is inefficient and too little entry occurs

efficiency characteristics of a market for state contingent claims this paper concludes that a market for state contingent claims uk horserace betting displays evidence of pervasive but heterogeneous forms of inefficiency in significant contrast to earlier investigations using hitherto unavailable data comparison of notional returns implicit in parallel sets of bookmaker and parimutuel odds identifies inefficiency in terms of zones of distinct but contrasting forms of cross market returns differential the inefficiency is rationalized in terms of both buyer and supplier behaviour its durability is explained in terms of limited arbitrage opportunities

adaptive learning models of consumer behavior abstract in a model of dynamic duopoly optimal price policies are characterized assuming consumers learn adaptively about the relative quality of the two products a contrast is made between belief based and reinforcement learning under reinforcement learning consumers can become locked into the habit of purchasing inferior goods such lock in permits the existence of multiple history dependent asymmetric steady states in which one firm dominates in contrast belief based learning rules must lead asymptotically to correct beliefs about the relative quality of the two brands and so in this case there is a unique steady state

learning and strategic pricing we consider the situation where a single consumer buys a stream of goods from different sellers over time the true value of each seller s product to the buyer is initially unknown additional information can be gained only by experimentation for exogeneously given prices the buyer s problem is a multi armed bandit problem the innovation in this paper is to endogenize the cost of experimentation to the consumer by allowing for price competition between the sellers the role of prices is then to allocate intertemporally the costs and benefits of learning between buyers and sellers we examine how strategic aspects of the oligopoly model interact with the learning process all markov perfect equilibria mpe are efficient we identify an equilibrium which besides its unique robustness properties has a strikingly simple seemingly myopic pricing rule prices below marginal cost emerge naturally to sustain experimentation intertemporal exchange of the gains of learning is necessary to support efficient experimentation we analyze the asymptotic behavior of the equilibria

financial speculators underperformance learning self selection and endogenous liquidity we develop an equilibrium model of learning by rational traders to reconcile several empirical regularities cross sectionally most individual speculators lose money large speculators outperform small speculators past performance positively affects subsequent trade intensity most new traders lose money and cease speculation and performance shows persistence learning from trading generates substantial endogenous liquidity reducing bid ask spreads and the impact of exogenous liquidity shocks on asset prices but amplifying the effects of real shocks introducing slightly overconfident traders increases bid ask spreads hurting all traders finally behavioral theories cannot reconcile all of these empirical regularities

repeated bargaining with persistent private information the paper analyses repeated contract negotiations involving the same buyer and seller where the contracts are linked because the buyer has persistent but not fully permanent private information the size of the surplus being divided is specified as a two state markov chain with transitions that are synchronized with contract negotiation dates equilibrium involves information cycles triggered by the success or failure of aggressive demands made by the seller because there is persistence in the markov chain generating the surplus a successful demand induces the seller to make another aggressive demand in the next negotiation since the buyer s acceptance reveals that the current surplus is large rejection of an aggressive demand on the other hand leads the seller to be pessimistic about the size of the surplus in the next contract so the seller makes a soft offer that is sure to be accepted then after several such offers have been accepted the seller is optimistic enough to again make an aggressive demand creating an information cycle an interesting feature of this cycle is that the soft price is not constant but declines as the cycle continues so as to offset the buyer s option value of re starting the cycle when the current state is bad an explicit mapping is given for the relationship between the basic parameters and the equilibrium prices and quantities in particular there is a closed form solution for the threshold belief that makes the seller indifferent between hard and soft offers

tax progressivity and self employment evidence from canadian provinces we examine the effects of personal income tax progressivity in the sense of rising marginal income tax rate on self employment the impacts of income tax progressivity on self employment depend on the relative effects of taxing success and the presence of tax evasion opportunities empirical estimates using canadian provincial data for the period 1979 2006 indicate that there is a negative association between income tax progressivity and self employment this suggests that the adverse impact of income tax on entrepreneurial risk taking outweighs the tax evasion opportunities for the self employed an important implication of our results is that a reduction in income tax progressivity encourages self employment the empirical estimates are robust to the various sensitivity checks

the role of entrepreneurship in us job creation and economic dynamism the united states has long been viewed as having among the world s most entrepreneurial dynamic and flexible economies it is often argued that this dynamism and flexibility has enabled the us economy to adapt to changing economic circumstances and recover from recessions in a robust manner while the evidence provides broad support for this view the outcomes of entrepreneurship are more heterogeneous than commonly appreciated and appear to be evolving in ways that could raise concern evidence along a number of dimensions and a variety of sources points to a us economy that is becoming less dynamic of particular interest are declining business startup rates and the resulting diminished role for dynamic young businesses in the economy we begin by describing how the concept of entrepreneurship is reflected in existing data on firm age and size the recent addition of firm age to official statistics represents a dramatic improvement in the information available to entrepreneurship researchers we then turn to a discussion of the role of startup firms in job creation business startups account for about 20 percent of us gross total job creation while high growth businesses which are disproportionately young

does competition solve the hold up problem in an environment in which heterogeneous buyers and sellers undertake ex ante investments the presence of market competition for matches provides incentives for investment but may leave inefficiencies namely hold up and coordination problems this paper shows using an explicitly non cooperative model that when matching is assortative and investments precede market competition buyers investments are constrained efficient while sellers marginally underinvest with respect to what would be constrained efficient however the overall extent of this inefficiency may be large multiple equilibria may arise one equilibrium is characterized by efficient matches but there can be additional equilibria with coordination failures

job matching and occupational choice this paper presents a model of job matching the generalizes the existing literature by allowing for different jobs types or occupations such differences affect the value of job specific experience inducing a career profile where certain types are sampled before others more specifically the analysis shows that it is optimal for the young and inexperienced to gravitate toward jobs exhibiting a certain kind of risk then after deriving the equilibrium job turnover rate for an economy in which people do not switch occupations panel data are used to estimate its underlying parameters the hypothesis that people do not switch occupations is rejected against the alternative that they do thus providing empirical support for the theoretical extension undertaken here

dynamic targeted pricing with strategic consumers abstract we investigate in this paper whether dynamic targeted pricing based on consumer purchase history could benefit a practicing firm even when consumers are strategic in that they actively seek to avail themselves of a low price in the future such strategic behavior on the part of consumers has been shown in the literature to render such dynamic targeted pricing unprofitable even for a monopoly firm we show that dynamic targeted pricing can benefit competing firms when they actively pursue customer recognition based on consumer purchase history this is because in order to pursue customer recognition competing firms need to price high to screen out price sensitive consumers and hence price competition is moderated as a result all competing firms can become better off with targeted pricing than without even when consumers behave strategically interestingly because of this competition moderation effect the paradoxical outcome occurs where dynamic targeted pricing may not benefit a monopolist but it may benefit competing firms we also show that dynamic targeted pricing can expand the market such that social welfare unambiguously improves

the optimal linear taxation of employment and self employment incomes abstract this paper models optimal linear taxation when occupational choice and labour supply are endogenous workers choose between paid employment self employment and unemployment self employment incomes are risky and employees may be involuntarily laid off calibrating the model to the uk economy the optimal tax solution involves relatively high taxation with substantial redistribution and a higher nominal but not effective marginal tax rate imposed on the self employed than on employees the implications of making unemployment benefits as well as tax rates endogenous are also analysed and robustness checks are performed

repeated common value auctions with asymmetric bidders abstract this paper considers a first price common value auction with one sided private information among bidders an object is rented each period to the highest bidder without revealing the bids made in previous periods the paper extends single crossing arguments used in static games to show the existence of equilibrium in this repeated auction the model predicts that bidders bid more aggressively in a repeated auction than in a static auction because a higher bid increases the amount of information learned through bidding the aggressive bidding behavior also implies that the per period revenue of the repeated auction is higher than that of the one period counterpart this bidding behavior leads to a theoretical explanation for the winner s curse in repeated auctions in addition the model yields predictions like an increasing wage schedule over time and the institution of a signing bonus that are consistent with labor market observations