frictionless commerce a comparison of internet and conventional retailers there have been many claims that the internet represents a new nearly frictionless market our research empirically analyzes the characteristics of the internet as a channel for two categories of homogeneous products books and cds using a data set of over 8 500 price observations collected over a period of 15 months we compare pricing behavior at 41 internet and conventional retail outlets we find that prices on the internet are 9 16 lower than prices in conventional outlets depending on whether taxes shipping and shopping costs are included in the price additionally we find that internet retailers price adjustments over time are up to 100 times smaller than conventional retailers price adjustments presumably reflecting lower menu costs in internet channels we also find that levels of price dispersion depend importantly on the measures employed when we compare the prices posted by different internet retailers we find substantial dispersion internet retailer prices differ by an average of 33 for books and 25 for cds however when we weight these prices by proxies for market share we find dispersion is lower in internet channels than in conventional channels reflecting the dominance of certain heavily branded retailers we conclude that while there is lower friction in many dimensions of internet competition branding awareness and trust remain important sources of heterogeneity among internet retailers

optimal regulation with unknown demand and cost functions abstract this paper presents an analysis of optimal regulation of a firm that has private information about both its cost and demand functions an earlier paper on the same topic lewis and sappington rand j econ 19 1998 438 457 is reviewed a difficulty with their analysis is discussed and an alternative formulation of their model is proposed two broad classes of problem are considered i the case where social and private incentives are roughly aligned which implies optimal prices are weakly above marginal costs and ii the case where social and private incentives diverge which implies pricing below marginal cost may be optimal journal of economic literature classification numbers d42 d82 l51

theories of bank behavior under capital regulation abstract this paper reviews academic studies of bank capital regulation in an effort to evaluate the intellectual foundation for the imposition of the basel i and basel ii systems of risk based capital requirements the theoretical literature yields general agreement about the immediate effects of capital requirements on bank lending and loan rates and the longer term impacts on bank ratios of equity to total or risk adjusted assets this literature produces highly mixed predictions however regarding the effects of capital regulation on asset risk and overall safety and soundness for the banking system as a whole thus the intellectual foundation for the present capital regulation regime is not particularly strong the mixed conclusions in the academic literature on banking certainly do not provide unqualified support for moving to an even more stringent and costly system of capital requirements these widely ambiguous results do suggest however that assessing the implications of capital regulation for balance sheet risk and monitoring effort in diverse banking systems is an important agenda for future theoretical research in the banking area

discrete equilibrium price dispersion an explicit solution of an equilibrium model with price setting firms and searching customers makes possible a number of comparativestatics predictions about how cost differences among firms search costs of customers and taxes will affect the mean and variance of the distribution of market prices another implication of the model is that a firm s demand depends on the difference between its price and the average price in the market

multi dimensional screening a user s guide abstract multi dimensional screening models have many potential applications but economists have so far been hindered by the considerable technical difficulties involved in their resolution this paper studies the simplest formulation of the general screening model and we provide a complete solution to this case we then show how this model can be applied to multi product nonlinear pricing and to multi product monopoly regulation finally we discuss how the model has been applied to other economic situations of interest including auction design and optimal taxation

prices and price dispersion on the web evidence from the online book industry using data collected between august 1999 and january 2000 covering 399 books we examine pricing by thirty two online united states based bookstores at the aggregate level we find that both advertising and competitive structure had the predicted effects more competition led to lower prices and to lower price dispersion holding competitive structure constant more widely advertised items also had lower prices at the firm level we observe considerable heterogeneity in behavior firms had differentiated or attempted to differentiate on dimensions such as brand price and selection

using price distributions to estimate search costs we show how the equilibrium restrictions implied by standard search models can be used to estimate search cost distributions using price data alone we consider both sequential and nonsequential search strategies and develop estimation methodologies that exploit equilibrium restrictions to recover estimates of search cost heterogeneity that are theoretically consistent with the search models we illustrate the method using online prices for several economics and statistics textbooks

maximum likelihood estimation of search costs abstract in a recent paper hong and shum 2006 using price distributions to estimate search costs rand journal of economics 37 257 275 present a structural method to estimate search cost distributions we extend their approach to the case of oligopoly and present a new maximum likelihood method to estimate search costs we apply our method to a data set of online prices for different computer memory chips the estimates suggest that the consumer population can be roughly split into two groups which either have quite high or quite low search costs search frictions confer a significant amount of market power to the firms despite more than 20 firms operating in each of the markets we estimate price cost margins to be around 25 the paper also illustrates how the structural method can be employed to simulate the effects of the introduction of a sales tax

how valuable is a good reputation a sample selection model of internet auctions on the online auction site ebay by convention sellers do not ship goods to winning bidders until after they have received payment so there is an opportunity for sellers to take advantage of bidders trust realizing this the designers of ebay created a system that relies on self enforcement using reputation several recent studies have found that bidders give little or no reward to sellers who have better reputations i show that in fact sellers are strongly rewarded for the first few reports that they have behaved honestly but marginal returns to additional reports are severely decreasing

the design of multidimensional auctions procurement auctions usually require the bid to specify several characteristics of the contract to be fulfilled in this article i study the design of such mechanisms allowing for a special case of correlation of the firm s costs i describe the properties of optimal mechanisms and study the design of multidimensional auctions contrary to the independent costs model to implement the optimal outcome the procurer will need to use a two stage auction in the first stage the procurer selects one firm in the second stage he bargains to readjust the level of quality to be provided

implementation of reduced form auctions a geometric approach an auction is a mechanism for allocating a single indivisible object to one of several competing bidders the winner is the bidder who is awarded the object the rules of the auction specify two functions the first is the probability with which a bidder wins as a function of everyone s bids the second is the payment each bidder makes to the seller as a function of all the bids and whether or not he wins for instance a first price auction awards the object to the highest bidder with probability one providing there are no tie bids the winner pays his bid and the losers pay nothing the bidders in an auction differ significantly these differences are captured by the bidder s type a type may be the bidder s personal valuation of the object for sale his degree of risk aversion or perhaps his information about the object maskin and riley 1984 discuss a number of different economically meaningful examples of bidder types from the viewpoint of the seller and the other bidders each bidder s type is a random variable in this analysis we confine attention to auctions in which the types are independently and identically distributed according to a known probability distribution the revelation principle asserts that every auction is strategically equivalent to an auction in which bidders bid by announcing their type and no bidder has any incentive to lie such an auction is called an incentive compatible direct auction we will confine our attention to the probability functions for direct auctions and let the incentive compatibility conditions restrict the payment functions each bidder can compute the probability that he wins conditional on his own type by averaging over the types of the other bidders the function relating a bidder s type to his probability of winning is the reduced form of the auction the literature on optimal auctions usually addresses the problem of maximizing expected revenue for the seller for this purpose all the relevant information about the probability function of an auction is contained in its reduced form it is the reduced form that determines each bidder s behavior and hence the seller s expected revenue in a symmetric auction each bidder s reduced form is identical so that expected revenue is a functional defined on reduced forms which are functions of one variable namely types this makes the seller s problem somewhat tractable to design an auction a seller must be able to recognize a reduced form and recover the underlying auction reduced forms satisfy an intuitive feasibility condition given a set of types the

economic insights from internet auctions this paper surveys recent studies of internet auctions four main areas of research are summarized first we survey several studies that document and attempt to explain the frequently observed sniping or last second bidding behavior in these auctions second we summarize several methods proposed to quantify the distortions caused by asymmetric information in these markets most notably due to the winner s curse third we explore research about the role of reputation mechanisms installed to help combat these distortions finally we discuss what internet auctions have to teach us about auction design

search costs and equilibrium price dispersion in auctions a leading explanation for price dispersion in posted price markets is search costs we incorporate this insight into a model of competing second price auctions similar to ebay by doing so we extend the narrow literature on competing auctions to capture price dispersion and grow the already large literature on price dispersion to include auctions we provide evidence on search costs and price dispersion using data collected from ebay identifying search costs by exploiting a discontinuity in the visibility of auctions due to ebay s search tool 1 we thank aaron bodoh creed greg lewis steve tadelis and various seminar participants for helpful comments nate woody for programming assistance and the cornell university institute for social sciences for financial support the views expressed herein are solely those of the authors and do not necessarily reflect those of the u s department of justice 1

price dispersion in the small and in the large evidence from an internet price comparison site this paper examines four million daily price observations for more than 1 000 consumer electronics products on the price comparison site http shopper com we find little support for the notion that prices on the internet are converging to the law of one price in addition observed levels of price dispersion vary systematically with the number of firms listing prices the difference between the two lowest prices the gap averages 23 per cent when two firms list prices and falls to 3 5 per cent in markets where 17 firms list prices these empirical results are an implication of a general clearinghouse model of equilibrium price dispersion

risk based capital requirements and bank portfolio risk abstract we construct a linear programming model and analyze the effectiveness of r b capital adequacy standards when bank deposits are fully insured we derive a set of optimal asset risk weights given a constraint in raising equity and using these weights the r b capital plan is an effective regulation mechanism without a constraint on equity maximum leverage restrictions and r b capital plans are mutually exclusive alternatives as we deviate from the optimal risk weights a combination of a leverage restriction and a r b equity ratio seems to be the more appropriate approach to controlling bank portfolio risk

an efficient dynamic auction for heterogeneous commodities this paper proposes a new dynamic design for auctioning multiple heterogeneous commodities generalizing earlier work that treated identical objects an auctioneer wishes to allocate one or more units of each of k heterogeneous commodities to n bidders the auctioneer announces a vector of current prices bidders report back quantities demanded at these prices and the auctioneer adjusts the prices units are credited to bidders at the current prices as their opponents demands decline and the process continues until every commodity market clears bidders rather than being required to behave as price takers are permitted to strategically exercise their market power nevertheless with pure private values the proposed auction yields walrasian equilibrium prices an efficient outcome results as from a vickrey clarke groves mechanism but bidders are only required to evaluate their demands along a one dimensional path of prices rather than reporting their utilities over the entire k dimensional consumption set the auction is also more transparent and potentially simpler for bidders to understand and has the advantage of assuring the privacy of the upper portions of bidders demands theoretically the new auction provides a new foundation for convergence to walrasian equilibrium in an exchange economy practically it provides an efficient method for simultaneously auctioning two or more related types of securities for example three month and six month treasury bills it is also potentially useful for auctioning multiple types of communications spectrum for example licenses for paired and unpaired spectrum

the bidder s curse traditional explanations for the popularity of auctions are efficiency and revenue maximization we argue that another reason is the potential for overbidding i e buyers bidding above their willingness to pay outside the auction the auction mechanism ensures that even if only few buyers overbid they affect prices and allocations we employ a novel approach to identify overbidding in the field comparing auction prices to simultaneous fixed prices for identical items on the same ebay webpage we argue that fixed prices provide an upper bound for auction bids in a detailed data set of board game auctions we find that the final price exceeds the simultaneous fixed price in 42 percent of the auctions the result is not explained by differences in item quality shipping costs or seller reputation prior auction experience does not eliminate overbidding the finding replicates in a second broad data set of a cross section of auctions 48 percent overbidding the substantial fraction of overbid auctions is induced by a small number of bidders only 17 percent ever bid above the fixed price using a simple model of second price auctions with alternative fixed prices we show that transaction costs of switching between auctions and fixed prices cannot explain the results given that even the expected auction price is higher than the fixed price consistent with limited attention the closer the fixed price is listed relative to an auction the less likely are overbids this effect is strongest for bidders first bids when they are likely to examine the auction and fixed price listings more closely

price dispersion in the lab and on the internet theory and evidence price dispersion is ubiquitous in settings that closely approximate textbook bertrand competition we show that only a little bounded rationality among sellers is needed to rationalize such dispersion a variety of statistical tests based on datasets from two independent laboratory experiments and structural estimates of the parameters of our models suggest that bounded rationality based theories of price dispersion organize the data remarkably well evidence is also presented to suggest that the models are consistent with data from a leading internet price comparison site

equilibrium with product differentiation tive consumer formulations is used to examine the properties of single and multiple price equilibria conditions under which decreases in the intensity of consumer preferences reduce price are given it is shown that with certain types of demand curves entry can eliminate price cost markups even given product differentiation if competition is localized it is demonstrated that entry does not affect the markup finally the effect of spurious product differentiation on price is examined

rationalizable outcomes of large private value first price discrete auctions abstract we consider discrete versions of first price auctions we present a condition on beliefs about players values such that with any fixed finite set of possible bids and sufficiently many players only bidding the bid closest from below to one s true value survives iterative deletion of bids that are dominated where the dominance is evaluated using beliefs that satisfy the condition the condition holds in an asymmetric conditionally independent environment so long as the likelihood of each type is bounded from below in particular with many players common knowledge of rationality and that all types are possible in an independent and private values auction implies that players will bid just below their true value

number of sellers average prices and price dispersion abstract a variety of models provide differing predictions regarding the effect of an increase in the number of competitors in a market seller density on prices and price dispersion we review different approaches to generating equilibrium price dispersion and then empirically estimate the relationship between seller density average product price and price dispersion in the retail gasoline industry using four unique gasoline price data sets controlling for station level characteristics we find that an increase in station density consistently decreases both price levels and price dispersion across four geographical areas

mechanism design by competing sellers a dynamic model with many sellers and buyers is constructed agents failing to trade may trade in the next period an equilibrium is found where sellers hold identical auctions and buyers randomize over the sellers they visit the distribution of buyer valuations is endogenous an auction with efficient reserve is an optimal mechanism from each seller s point of view in spite of the ability of any seller to alter the distribution of buyer types participating in the seller s mechanism by altering the mechanism copyright 1993 by the econometric society

risk taking behavior of banks under regulation abstract this paper analyzes the value maximization of regulated banks within a moral hazard framework in the model regulators monitor both the capital ratio and the asset portfolio and banks simultaneously select the optimum capital ratio and asset portfolio a key assumption is that a bank cannot expect a positive put option value once it is classified as risky by regulators the optimum values of the two variables depend on investment opportunities and charter values as well as regulatory parameters the model that explicitly incorporates regulation can explain various phenomena that are seemingly inconsistent with the predictions of moral hazard models for example a positive relationship between the capital ratio and the riskiness of the asset portfolio a particularly interesting result is that a larger charter value results in a higher risk interior solution

risk in banking and capital regulation this paper investigates the role of bank capital regulation in risk control it is known that banks choose portfolios of higher risk because of inefficiently priced deposit insurance bank capital regulation is a way to redress this bias toward risk utilizing the mean variance model the following results are shown a the use of simple capital ratios in regulation is an ineffective means to bound the insolvency risk of banks b as a solution to problems of the capital ratio regulation the theoretically correct risk weights under the risk based capital plan are explicitly derived and c the theoretically correct risk weights are restrictions on asset composition which alters the optimal portfolio choice of banking firms the recent increase in bank failures especially after the 1980 and 1982 deregulatory acts has again ignited a controversy over the risk portfolio of the banking industry given the importance of this sector there has been increased scrutiny of the industry s motives for risk taking and possible regulatory changes to improve its stability these investigations have centered around two rather complementary areas the first of these is the role of deposit insurance and how its current pricing procedure encourages risk taking and justifies current bank regulations the works of buser chen and kane 4 kane 9 and benston et al 2 have made substantive contributions the authors demonstrates the way in which our current fixed rate insurance system rewards risk taking by the firm and insulates it through deposit insurance from the market discipline that needs to exist to ensure proper risk evaluation this realization has led these authors to propose a series of regulatory changes to encourage proper portfolio choice within the industry these include a shift to market value accounting risk based deposit insurance premiums and additional capital regulation the last of these serves as a method of coinsurance whereby higher capital levels require the bank to absorb greater losses in the event of failure and encourage additional prudence in management in essense it is one method of risk reduction that may offset the risk preference imposed on the industry due to the inappropriate insurance pricing because the amount of capital influences the probability of bank insolvency and thus the soundness of the entire banking system the regulators ceteris paribus prefer more capital to

oligopolistic pricing with sequential consumer search n identical stores compete by choosing prices for a homogeneous good with constant marginal costs consumers search sequentially with perfect recall for the lowest price one class of consumers called shoppers have zero search costs while all other consumers have a positive search cost c there is a unique symmetric nash equilibrium price distribution with the property that it changes smoothly from marginal cost pricing when all consumers are shoppers and or c 0 and monopoly pricing when no consumers are shoppers remarkably as the number of stores increases the nash equilibrium becomes more monopolistic copyright 1989 by american economic association

the organization and scope of agents regulating multiproduct industries abstract a mechanism design problem with two dimensional uncertainty is solved to derive the optimal policy for regulating a monopolist with private information about the marginal cost of producing two different goods the paper establishes that informational economies of scope or incentive complementarities arise when one firm produces both goods the regulator should weigh these economies against the benefits of relative performance incentives when choosing between integrated and decentralized organizations unless the marginal costs of the two products are sufficiently positively correlated the optimal ex ante policy gives control of both markets to a single firm journal of economic literature classification number s d82 l22 l51

internet auctions with many traders abstract we study a multi unit auction environment similar to ebay sellers each with a single unit of a homogeneous good set reserve prices at their own second price auctions each buyer has private value for the good and wishes to acquire a single unit buyers can bid as often as they like and move between auctions we characterize a perfect bayesian equilibrium for this decentralized dynamic mechanism in which conditional on reserve prices an efficient set of trades occurs at a uniform price in a large but finite market the sellers set reserve prices equal to their true costs under a very mild distributional assumption so ex post efficiency is achieved buyers strategies in this equilibrium are simple and do not depend on their beliefs about other buyers valuations or the number of buyers and sellers

ebay s crowded evenings competition neglect in market entry decisions do firms neglect competition when making entry decisions this paper addresses this question analyzing the time of day at which ebay sellers set their auctions to end consistent with competition neglect it is found that i a disproportionate share of auctions end during peak bidding hours ii such hours exhibit lower selling rates and prices and iii peak listing is more prevalent among sellers likely to have chosen ending time strategically suggesting disproportionate entry is a mistake driven by bounded rationality rather than mindlessness the results highlight the importance for marketing researchers of assessing rather than assuming the rationality of firm behavior

procurement when price and quality matter a buyer seeks to procure a good characterized by its price and its quality from suppliers who have private information about their cost structure xed cost and marginal cost of providing quality we characterize the buyer s optimal buying mechanism we then use the optimal mechanism as a theoretical and numerical benchmark to study simpler buying procedures such as scoring auctions and bargaining scoring auctions can extract a signifi cant proportion of the buyer s strategic surplus the difference between the expected utility from the optimal mechanism and the e cient auction bargaining does less well and often does worse than the e cient auction

bargaining over a menu of wage contracts we investigate an infinite horizon bargaining problem in which a firm and a worker bargain over two dimensions quality and wage the worker has private information about his type only the uninformed firm makes an offer and it can offer a menu of quality wage contracts instead of single one we show that for all discount factors the unique sequential equilibrium outcome is separating without delay the firm separates the types of worker with a menu of contracts in the first period our result shows that in multi dimensional bargaining the coase conjecture holds in the sense that the game ends in the first period but it fails in the sense that the uninformed party can preserve the entire bargaining power

semi nonparametric estimation of consumer search costs this paper studies the estimation of the distribution of non sequential search costs we show that the search cost distribution is identified by combining data from multiple markets with common search technology but varying consumer valuations firms costs and numbers of competitors to exploit such data optimally we provide a new method based on semi nonparametric estimation we apply our method to a dataset of online prices for memory chips and find that the search cost density is essentially bimodal such that a large fraction of consumers searches very little whereas a smaller fraction searches a relatively large number of stores copyright c 2012 john wiley sons ltd

bidding behavior in competing auctions evidence from ebay much of the existing auction literature treats auctions as running independently of one another with each bidder choosing to participate in only one auction however in many online auctions a number of substitutable goods are auctioned concurrently and bidders can bid on several auctions at the same time recent theoretical research shows how bidders can gain from the existence of competing auctions the current paper providing the first empirical evidence in support of competing auctions theory using online auctions data from ebay our results indicate that a significant proportion of bidders do bid across competing auctions and that bidders tend to submit bids on auctions with the lowest standing bid as the theory predicts the paper also shows that winning bidders who cross bid pay lower prices on average than winning bidders who do not

competitive promotional strategies this article analyzes the equilibrium pricing strategies of brands engaged in a pricing game each brand has a monopoly market loyal consumers and competes with others in a common market called brand switchers in the case of a duopoly it is shown that the behavior of the brand switchers characterizes the equilibrium behavior of the duopolists this article focuses on two key comparative statics namely the depth of discounts away from a regular high price and the probability of giving a deal or the frequency of deals how these properties vary with the size of the loyal markets and the behavior of the brand switching population is discussed copyright 1988 by the university of chicago

price dispersion and competition with differentiated sellers i measure price dispersion among differentiated retail gasoline sellers and study the relationship between dispersion and the local competitive environment significant price dispersion exists even after controlling for differences in station characteristics and price differences between sellers change frequently the extent of price dispersion is related to the density of local competition but this relationship varies significantly depending on the type of seller and the composition of its competitors these findings are consistent with interactions between seller and consumer heterogeneity that are not well understood in the existing price dispersion literature

equilibrium price dispersion in retail markets for prescription drugs this study seeks to establish the empirical importance of price dispersion due to costly consumer search by examining retail prices for prescription drugs posted prices in two geographically distinct markets are shown to vary considerably across pharmacies within the same market even after one controls for variation due to pharmacy differences pharmacy heterogeneity accounts for at most one third of the observed price dispersion the empirical analysis hinges on the observation that consumers incentives to price shop depend on characteristics of the drug therapy cross sectional patterns in price distributions across drugs are consistent with the predictions of a search model prices for repeatedly purchased prescriptions for which the expected benefits of search are highest exhibit significant reductions in both dispersion and price cost margins

competition among sellers who offer auctions instead of prices abstract in this paper we study a large market in which sellers compete by offering auctions to buyers instead of simple fixed price contracts two variants of the model are studied one extends a model first analyzed by wolinsky rev econ stud 55 1988 71 84 in which buyers learn their valuations only after meeting sellers the other variant extends the model of mcafee econometrica61 1993 1281 1312 in which buyers know their valuations before they choose among available auctions the equilibrium array of auctions is characterized for each case and the efficiency properties of the equilibria are analyzed journal of economic literatureclassification numbers d41 d44 d82

capital requirements and the behaviour of commercial banks abstract i study the consequences of capital regulations on the portfolio choices of commercial banks elaborating on previous work by kareken and wallace 1978 koehn and santomero 1980 and kim and santomero 1988 i obtain the following results if the objective of commercial banks is maximization of the market value of their future profits value maximizing banks capital regulations cannot prevent banks from choosing very specialized and very risky portfolios risk based insurance premia are in fact the relevant instrument for that purpose on the other hand if banks behave as portfolio managers utility maximizing banks capital regulations can be effective but only if the weights used in the computation of the ratio are proportional to the systematic risks of the assets their betas because of limited liability of commercial banks a minimum capital regulation or a closing rule may become necessary as well to prevent failing banks from betting for resurrection

a reexamination of mean variance analysis of bank capital regulation abstract the mean variance framework has been used to analyze the effects of bank capital regulation on the asset and bankruptcy risk of insured utility maximizing banks this literature claims that more stringent capital regulation will increase asset risk and can increase bankruptcy risk these conclusions are notable because they are opposite to those obtained for insured value maximizing banks in this paper we show that the utility maximization literature does not support its conclusions regarding the effects of bank capital regulation because it has mischaracterized the bank s investment opportunity set by neglecting the option value of deposit insurance

the bidder s curse comment the prices of auctions on ebay often exceed ebay s fixed price buyit now prices i investigate the causes of this overbidding focusing on the interpretation in malmendier and lee 2011 that the observed overbidding cannot be explained without allowing for nonstandard preferences or beliefs and that the strongest direct evidence points to limited attention using data from their study and new data from ebay i provide evidence that a key condition for identifying nonstandard behavior may not have been met and that the observed overbidding is not inconsistent with standard behavior once we allow for the likely presence of search costs jel d12 d44 d83 the large literature on price dispersion has identified search costs as a primary explanation for the ubiquitous failure of the law of one price while many expected the internet to reduce search costs and consequently price dispersion empirical work has found that price dispersion continues to be widespread even as commerce has shifted online see baye morgan and scholten 2006 for a survey of the literature adding to this evidence malmendier and lee 2011 henceforth ml found that auction ending prices on ebay often exceed ebay s fixed price buy it now bin prices ml examined 167 auctions for the cashflow 101 board game and 1 931 auctions for a cross section of products such as books and consumer electronics in 42 percent of the cashflow 101 auctions the ending price exceeded the lowest contemporaneous bin price and the mean auction ending price was 0 28 above the mean low bin price showing generalizability the authors reported that in 48 percent of the cross section auctions the ending price exceeded the low bin price and the mean net overpayment was 10 percent 1

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

dynamic markets with competitive bidding the model features a dynamic market in steady state in which prices are determined in first price auctions it combines competition over time familiar from the pairwise meeting models with instantaneous bidding competition it inquires how different properties of the model determine the relative importance of these two aspects of the competition and in particular how the non market clearing price result of the matching and bargaining models is affected by the

is fairly priced deposit insurance possible we analyze risk sensitive incentive compatible deposit insurance in the presence of private information and moral hazard without deposit linked subsidies it is impossible to implement risk sensitive incentive compatible deposit insurance pricing in a competitive deregulated environment except when the deposit insurer is the least risk averse agent in the economy we establish this formally in the context of an insurance scheme in which privately informed depository institutions are offered deposit insurance premia contingent on reported capital the result holds for alternative sorting instruments as well this suggests a contradiction between deregulation and fairly priced risk sensitive deposit insurance this paper exposes a conflict between a deregulated competitive financial services industry on the one hand and fairly priced risk sensitive deposit insurance on the other we show that if depository institutions dis are perfectly competitive i e each makes zero profits on average then it is impossible to implement incentive compatible risk sensitive deposit insurance pricing recent distress among dis has fueled debate about reform of the existing deposit insurance system many believe that the prevailing risk insensitive premium structure encourages dis to choose excessively risky assets and that it should be replaced by deposit insurance premia linked to the dis choices of risk 2 risk sensitive deposit insurance pricing however imposes greater informational demands on the deposit insurer and runs afoul of both

risk based capital adequacy standards for a sample of 43 major banks abstract the paper extends the option theoretic framework for the estimation of risk adjusted deposit premiums to the calculation of risk based capital adequacy standards based on market data for equity and the book value of debt the model solves for the market value of the capital infusion required to lower the implied deposit premium to acceptable levels of risk this capital infusion can then be translated into market value capital adequacy standards and book value capital asset ratios the determination of which is within the current statutory discretion of regulatory agencies the model is empirically applied to a sample of 43 major u s banks

bundling and optimal auctions of multiple products we study the optimal i e revenue maximizing auction of multiple products we make three major points first we extend the relationship between price discrimination and optimal auctions from the single product case to the multiple product case a monopolist setting prices for multiple products may offer discounts on purchases of bundles of products similarly the optimal auction of multiple products facilitates price discrimination by allocating products inefficiently to customers who are willing to purchase both products second we demonstrate that optimal auctions are qualitatively distinct from monopoly sales of multiple products because of uncertainty about the values of other consumers two products are bundled probabilistically in an optimal auction for a customer who is willing to buy both of them a customer may then receive a discount on a lower valued product without receiving a higher valued product third we show that in an optimal auction of two products the allocation of one product may vary with the amount of competition for the other product

the effect of risk based capital requirements on profit efficiency in banking the purpose of this paper is twofold to show how to measure profit efficiency in banking using a newly developed technique and to use that technique to determine the effect of risk based capital requirements on the profit performance of us banks the measure of profit efficiency used captures deviations from profit maximization arising from technical inefficiency caused by a lack of managerial oversight and allocative inefficiency which is caused by managers choosing a nonoptimal mix of inputs and outputs a leverage ratio constraint and a risk weighted capital ratio constraint are explicitly included in the model which allows identification of the effect on profits of those constraints the techniques are applied to random samples of us banks for 1990 1992 and 1994 the results indicate that allocative inefficiency is a larger source of profit loss than technical inefficiency and that the risk based capital standards have a significant effect on bank allocative efficiency

optimal procurement mechanisms we analyze optimal mechanisms in environments where sellers are privately informed about quality a methodology is provided for deriving conditions that are necessary and sufficient to determine when two simple trading environments maximize either social or private surplus the commonly used auction mechanism is frequently inefficient in procurement environments often the optimal mechanism is simply to order potential suppliers and to tender take it or leave it offers to each sequentially we completely characterize the environments in which either mechanism is optimal in doing so we develop a general methodology that determines when and if a given trading institution is optimal

capital controls and bank risk abstract we analyze the effects of deposit guarantees on banks loan portfolio in contrast to earlier work we view bank loans net of evaluation and monitoring costs as non zero npv investments e g market securities deposit guarantees lead to inefficient investment and under plausible circumstances capital requirement increases lead banks to increase asset risk the risk increase reduces the beneficial effects of capital increases on the probability of default and on the economic efficiency of bank lending in some cases a tightening of the capital constraint even leads to an increase in the probability of default and financial instability and to higher expected costs of transferring assets to regulatory agencies increases in bank capital are not a substitute for risk monitoring and control and may imply an increased need for such surveillance

capital regulation and bank risk taking a note abstract this paper examines theoretically the effects of more stringent capital regulation on bank asset portfolio risk the analysis shows that for a value maximizing bank incentives to increase asset risk decline as its capital increases thus as long as regulatory efforts to contain asset risk and size are not reduced more stringent capital regulation unambiguously reduces the expected liability of the deposit insurance system

search and choice in online consumer auctions price dispersion in simultaneous online auctions is a puzzle in light of the relatively low search costs required to find the lower price much of this price dispersion appears to be due to a lack of switching by bidders between auctions which in turn could be due to inertia related to search costs we identify some of the influencing factors through a controlled field experiment involving pairs of simultaneous auctions keeping the sellers and the goods sold identical between two auctions we vary auction design features between and within pairs including shipping cost open reserve secret reserve price and duration and we provide bidders with incentives to search we use a choice model that examines individual choice between pairs of simultaneous auctions we find that within pair price dispersion is substantial and that prices and auction choice by bidders are indeed related to search costs we find strong inertia in auction choice and find that this effect significantly interacts with time left in the auction although individuals do not always choose a lower priced auction they are more likely to do so when search costs are low or search incentives are high

bertrand competition when rivals costs are unknown the conclusions of the bertrand model of competition are substantially altered by the presence of asymmetric information about rivals costs asymmetric information eliminates the discontinuity in the bertrand model and significantly alters the properties of the market equilibrium in the bertrand nash equilibrium when rivals costs are unknown firms price above marginal cost and have positive expected profit the analysis is extended to franchise competition the market equilibrium is sensitive to market structure and yields incentives for entry copyright 1995 by blackwell publishing ltd

heterogeneity promoting optimal procurement abstract when procurement takes place in the presence of horizontally differentiated contractors the design of the object being procured affects the resulting degree of competition this paper highlights the interaction between the optimal procurement mechanism and the design choice contrary to conventional wisdom the sponsor s design choice instead of homogenizing the market to generate competition promotes heterogeneity

information gatekeepers on the internet and the competitiveness of homogeneous product markets we examine the equilibrium interaction between a market for price information controlled by a gatekeeper and the homogenous product market it serves the gatekeeper charges fees to firms that advertise prices on its internet site and to consumers who access the list of advertised prices gatekeeper profits are maximized in an equilibrium where a the product market exhibits price dispersion b access fees are sufficiently low that all consumers subscribe c advertising fees exceed socially optimal levels thus inducing partial firm participation and d advertised prices are below unadvertised prices introducing the market for information has ambiguous social welfare effects