hitting the jackpot product proliferation by multiproduct firms under uncertainty this paper presents a model of product proliferation by multiproduct firms under uncertainty firms introduce new differentiated products because they want to hit as many jackpots as possible products with high profits and long lives there is uncertainty about the success of new products as the probability of hitting a jackpot increases product proliferation increases more products are introduced and expected in equilibrium the expected number of products in equilibrium is always less than at the optimum but in industries with multiple firms as the probability of hitting a jackpot increases rivalry intensifies and that gap shrinks

quasi experimental price elasticities of cigarette demand and the bootlegging effect this paper updates the lyon and simon quasi experimental price elasticities of cigarette demand and studies their sensitivity to changes in the cigarette market over time as well as their sensitivity to the effects of bootlegging the results indicate a downward trend in these elasticities over time and an upward bias for states where bootlegging exists however once the comparison group is modified to include bootlegging free states only this difference over time and across groups becomes statistically insignificant

option listing and stock returns abstract this article examines the effect of option introductions on the underlying stocks in addition to the price increase and volatility decrease that take place when new options are listed we obtain and explain the following new empirical results i an increase in the value of the market around the listing dates of new options ii an increase in the value of an industry index which excludes the optioned stocks iii the dissipation of the price and volatility effects in recent periods and iv the existence of an announcement effect in one subperiod of our sample and its dissipation in recent periods

asymmetric information and options in an extension of the kyle 1985 model of continuous insider trading it is shown that asymmetric information can make it impossible to price options by arbitrage even when an option would appear to be redundant its introduction into the market can cause the volatility of the underlying asset to become stochastic this eliminates the potential for dynamically replicating the option the change in the price process of the asset reflects a change in the information transmitted by volume and prices when the option is traded article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

evaluating the linearized almost ideal demand system linearizing the almost ideal demand system laids by recourse to the stone share weighted price index is common practice two issues are addressed here first scrutiny of the errors in variables implications of the linearization reveals that not only is the sur estimator inconsistent but a consistent iv estimator cannot be constructed second some alternatives to the green alston elasticities specifically designed for the laids model are developed but neither these nor the green alston elasticities are found to have any advantages over the conventional elasticity formulae some errors in the green alston 1990 paper are corrected the inconsistency and elasticity issues are documented by a monte carlo investigation

efficient division of profits from complementary innovations abstract many products including microprocessors telecommunications devices computer software and on line auction services make use of multiple technologies each of which is essential to make or sell the product the owner of one technology benefits from the existence of complementary technologies we show that despite this externality the structure of payoffs that support efficient r d investment by duopolists racing to discover a single innovation generalizes to the structure that supports efficient investment for complementary innovations the paper also examines how alternative intellectual property regimes and legal institutions affect r d investment in complementary technologies the results have policy implications for the organization of r d the assessment of damages for patent infringement and allocations of value in patent pools

modeling multiattribute utility risk and belief dynamics for new consumer durable brand choice this paper proposes a brand choice model to aid in the prelaunch management of a new consumer durable entry in an existing category the model contributes to theory by integrating the critical phenomena of multiattribute preference risk and dynamics in an individual level expected utility framework the integration is based on established theoretical constructs in utility bayesian decision analysis and discrete choice theory measurement and estimation procedures are presented an application is described and the managerial relevance of this work as a planning and forecasting tool is examined

appropriability and market structure in a stochastic invention model this research examines in the laboratory a class of game theoretic equilibrium models of private research and development r d we formulate a stochastic model of r d investment whose predictions can be examined by using laboratory experiments the noncooperative nash equilibrium of our operational model yields testable predictions about the effects of appropriability and market structure on r d the experimental results support the hypothesis that the degree of appropriability is inversely related to r d spending the results strongly support the hypothesis that an increase in group size yields greater aggregate r d the noncooperative nash equilibrium is shown to be a good predictor of central tendencies in the experiments

the demand for information and the diffusion of a new product abstract the paper examines the implications of the ability of a consumer to learn about the characteristics of a new product on the diffusion of the product over time the demand for information by the consumer is shown to generate a sigmoid diffusion curve for total sales of the product further it is shown that over time the elasticity of demand along the diffusion curve increases

an equilibrium model of investment under uncertainty this paper analyzes the optimal investment decisions of heterogeneous rms in a competitive uncertain environment we characterize rms optimal investment strategy explicitly and derive a closed form solution for rm value we show that in the strategic equilibrium real option premia are signi cant as a result rms delay investment choosing optimally not to undertake some positive npv projects the model predicts that rm returns vary over the business cycle with returns negatively skewed during expansions but positively skewed in recessions

option volume and stock prices evidence on where informed traders trade this paper investigates the informational role of transactions volume in options markets we develop an asymmetric information model in which informed traders may trade in option or equity markets we show conditions under which informed traders trade options and we investigate the implications of this for the linkage between markets our model predicts an important informational role for the volume of particular types of option trades we empirically test our model s hypotheses with intraday option data our main empirical result is that negative and positive option volumes contain information about future stock prices the information content of trading activity is a subject of widespread interest if trades are correlated with private information then the outcome of the transaction process may portend future movements in price the extension of trading to different venues or to derivative instruments however means that this link between transactions and information need not be easily discernible if there are alternative markets in which informed traders can profit from their information then where informed traders choose to trade may have important implications not only for security p rice movements but for the behavior of related prices as well this suggests that transactions in derivative markets may be an important predictor of future security price movements in this paper we investigate the informational role of transactions volume in options markets for some readers this focus may seem puzzling an option is a derivative security so its price should be dictated unilaterally by the behavior of the stock price this unidirectional linkage is only true however in complete markets if information is impounded into prices by trading then the ability of informed traders to transact in options markets mearns

price and income elasticities of disaggregated import demand results from uecms and an application this paper presents an empirical analysis of the demand for maize milk powder butter and rice imports in cyprus using annual time series data covering the period 1975 1994 none of these products is produced in cyprus and all the necessary quantities are imported to meet domestic demand the primary objective of the paper is to derive long run price and income elasticities of import demand that can be used to analyse the impact of various policies such as the adoption of the common agricultural policy cap when and if the republic of cyprus joins the european union eu in so doing the paper takes on board some recent developments in time series econometrics the cointegration test used the bounds test is a recent test and is based on the estimation of an unrestricted error correction model uecm parsimonious models were derived using hendry s general to specific approach the estimated elasticities were subsequently used to quantify some of the implications for cyprus had the cap been ope

adoption and diffusion of an innovation of uncertain profitability the argument has frequently been made that the pattern of diffusion associated with most new innovations will typically have certain characteristics a diffusion curve for an innovation is usually defined as the proportion of its potential users who have already adopted as a function of time measured from the first adoption many empirical studies by both economists and other social scientists have shown that diffusion curves nearly always have two distinct characteristics i they are s shaped the proportion adopted is an increasing function of time which is initially convex but eventually becomes concave and ii they tend to be right hand skewed the inflection point occurs at a time corresponding to a proportion adopted which is less than one half so that the function is concave over the greatest amount of time in fact this skewing is occasionally severe enough to make the diffusion curve appear concave everywhere the focus of most empirical studies of innovation diffusion has centered on identification of either the major determinants of the speed of diffusion or the characteristics of firms which determine how long they delay adoption the seminal contributions are griliches 6 study of hybrid corn and mansfield s 121 study of 12 industrial innovations these studies and most of the similar ones following conclude that diffusion is faster for innovations with higher profitability and that large firms tend to be the earliest adopters some studies e g mansfield 121 herregat 71 have attempted to ascertain

rational expectations and the aggregation of diverse information in laboratory security markets the idea that markets might aggregate and disseminate information and also resolve conflicts is central to the literature on decentralization hurwicz 1972 and rational expectations lucas 1972 we report on three series of experiments all of which were predicted to have performed identically by the theory of rational expectations in two of the three series one in which participants trade a complete set of arrow debreu securities and a second in which all participants have identical preferences double auction trading leads to efficient aggregation of diverse information and rational expectations equilibrium failure of the third series to exhibit such convergence demonstrates the importance of market institutions and trading instruments in achievement of equilibrium

digital options and efficiency in experimental asset markets abstract in asset markets extraordinary price run ups bubbles followed by crashes back to levels closer to fundamental values have been shown to adversely affect the real economy leading to inefficient resource allocation and underinvestment conversely derivative markets contribute to price discovery and lead to informationally more efficient prices in the market for the underlying asset we combine these observations and test experimentally whether digital options a type of derivative that has recently been introduced to a wider audience via online prediction markets can reduce price bubbles in a laboratory setting we find that subjects do not use the derivative market to improve their expectations of future asset prices and analyze this result

stealth trading in options markets we investigate how price discovery occurs in the options markets through traders trade size choice by employing transactions data on all options traded on a sample of 100 firms we show that informed traders fragment their orders into small medium trades for low high volume contracts we also find that almost 60 of the price discovery occurs in the exchange with the largest market share for a given option where informed traders favor medium size trades upon examining distinct option series for a given stock we find that at the money calls display the highest information share

noncooperative oligopoly and preemptive innovation without winner take all earlier models of innovation under oligopolistic rivalry are modified to include a share parameter a describing the manner in which profits are divided among rivals when one firm is successful in its search for a valuable resource stock there is a unique value of a that maximizes expected industry profits by guiding noncooperative oligopolists to choose the profit maximizing exploration rate moreover setting a at this maximizing value which always allocates some share of industry profits to the losers in the exploration race leads to an exploration rate identical to what would be chosen by a jointly managed cartel

innovation adoption and diffusion when there are competing innovations abstract firms face a choice between two innovations without knowing which of the two is better each firm has a prior that one of the innovations is better which is updated by bayes rule as trials with the innovations are made a simple decision rule indicating which innovation should be tried given any posterior is derived and used to define an expected diffusion curve for the better innovation this curve has the commonly observed ogive shape even in the absence of any external demonstration effect when the distribution of firm priors belongs to a general class

demand for beef and chicken products separability and structural change several studies have indicated that the recent shift from beef to poultry in consumption is not entirely caused by changes in rela tive prices or income braschler chavas dahlgran hudson and vertin moschini and meilke frank thurman most studies of structural change have focused on red meat consumption only thurman has looked closely at the poultry market and no one has considered poultry products yet the mix of chicken products marketed changed dramat ically during the last twenty years and should have influenced aggregate meat demand the share of broiler slaughter marketed as whole birds declined from 74 in 1965 to 28 in 1985 while cut up parts and processed chick en products increased from 26 to 72 whole birds are inferior goods and cut up parts and processed chicken are normal goods haidacher et al the shift in chicken prod uct mix away from whole birds should have increased the preference for total chicken in this article two related questions are ad dressed first do consumers allocate expendi tures among meats by animal origin or by product type second does disaggregation of meat into products in a meat demand model give insight into the causes of structural

does order preferencing matter 1we would like to thank david easley eugene kandel the referee g william schwert the editor participants at the dealer markets conference at ohio state university and an anonymous referee for helpful comments we gratefully acknowledge financial support from the johnson graduate school of management and the national science foundation 1 abstract this study examines how order preferencing affects the competitiveness and efficiency of laboratory financial markets we operationalize preferencing by allowing some dealers to execute a portion of the order flow by matching the most favorable quotes available increasing the proportion of order flow that is preferenced can increase bid ask spreads reduce the informational efficiency of prices and benefit dealers at the expense of liquidity traders preferencing has none of these effects however when two or more dealers are not receiving preferencing orders preferencing may significantly degrade market performance if preferencing arrangements affect all or virtually all dealers

boom and bust patterns in the adoption of financial innovations we develop a dynamic model of the adoption of financial innovations each period firms decide whether or not to adopt an innovation of uncertain value and the profitability of each period s adoptions reveals information about the innovation s value we show that characteristics of financial innovation waves cited by critics as evidence of irrational excess are in fact consistent with fully rational behavior we also show that social welfare is enhanced when more firms adopt innovations of questionable value and that financial intermediaries base an incentive to encourage such adoption article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

earnings announcements stock price adjustment and the existence of option markets this paper employs a new approach to study the effects of option trading on the behavior of underlying stock prices extant research compares distributional properties of the stock price at two points in time divided by an event in the option market that might affect price behavior as an alternative we examine the stock price adjustment to the release of quarterly earnings using samples of firms with and without listed options we find the two samples exhibit different adjustment processes with the nonoption firms requiring substantially more time to adjust since the advent of organized stock option trading the investment community

the demand for cigarettes in japan a two stage budgeting procedure was used to estimate demand elasticities for cigarettes in japan cigarettes were disaggregated into japanese u s and rest of world testing for habit effects was performed at both stages results indicated that habit effects occur for total expenditures on cigarettes but not between types

the inverse almost ideal demand system abstract a new demand system related to the almost ideal demand system aids of deaton and muellbauer is developed and illustrated this inverse aids iaids retains all of the desirable theoretical properties of the aids model with the exception of consistent aggregation an empirical issue is whether a linear approximation will work as well for the iaids as it has for the aids model since quantities are not as highly correlated as prices an application to u s meat demand demonstrates that the linear approximation of the iaids is excellent which enhanced the ease and range of application

testing dynamic specification for import demand models the case of cotton error correction models impose few prior restrictions on dynamic model specification and allow the data to determine model structure despite this obvious advantage few applications have adopted the error correction model to explain trade flows an error correction model of cotton import demand is estimated for france japan and hongkong a variety of tests are applied to determine the dynamic structure of the model it is found that the most general models are those that best fit the data for cotton import demand long run elasticities from these general models are significantly different than elasticities derived from a comparable static model

do investors follow the herd in option markets we investigate the previously unexplored herding behaviour of investors in option markets by examining equity option contracts traded in the us between 1996 and 2012 we document strong herding effects in option trading activity that are conditional on a set of systematic factors related to periods of market stress more specifically we find that option investors tend to herd during periods of high market volatility risk on dates of macroeconomic announcements during the financial crisis of 2008 when a large number of market option positions is either opened or closed and during periods of a large average dispersion of analysts forecasts

food consumption in urban china an empirical analysis this paper examines consumption patterns of urban households in china using aggregated household consumption data a demand system comprising six commodities rice pork vegetables fish eggs and fruits is estimated using a two stage budgeting procedure which incorporates an almost ideal deamnd system aids in each stage elasticity estimates from the system are plausible and consistent with other relevant studies results from this study strengthen the evidence of the emergence of a large chinese market for non stable food the study provides rationale and basis for additional research into chinese food consumption especially processed food

the degree of spillovers and the number of rivals for maximum effective r d abstract the amount of cost reduction or effective r d that results in a symmetric sequential nash equilibrium with quadratic payoffs and differentiated goods is shown to increase with spillovers in oligopolies with a few rivals and to achieve a maximum for spillovers that are not perfect in industries with many firms similar tendencies apply for consumer surplus profits and static welfare more rivals typically lead to reduced investments output and profitability while consumer surplus and welfare increase or at least do not decrease limited entry in markets with a few rivals may enhance innovative investments profitability and consumer surplus if only product differentiation and spillovers are sufficiently high and r d costs sufficiently low too many rivals will then again lead to reductions and a decrease in static welfare

the informational efficiency of experimental asset markets a fundamental difficulty in devising any test of general efficient market hypotheses is the specification of the relevant public and private information sets of traders without a consensus as to reasonable empirical specifications tests of the hypotheses remain minimal or controversial in this study we examine the efficiency of experimental asset markets in which one may unambiguously identify the public and private information sets of traders we focus on how market efficiency is affected by the presence of futures markets in settings that incorporate different types of uncertainty and inside information our experimental results support four conclusions 1 market outcomes tend to evolve toward strong form informationally efficient equilibria whether or not futures markets and or event uncertainty are present 2 the presence of futures markets clearly stabilizes spot prices 3 the presence of futures markets tends to speed the evolution of asset markets to more efficient equilibria where there

real options and preemption under incomplete information abstract this paper introduces incomplete information and preemption into an equilibrium model of firms facing real investment decisions the optimal investment strategy may lie anywhere between the zero npv trigger level and the optimal strategy of a monopolist depending on the distribution of competitors costs and the implied fear of preemption our model implies that the equity returns of firms which hold real options and are subject to preemption will contain jumps and positive skewness

innovation firm size and growth in a centralized organization the optimal innovation firm size and growth are derived for a centrally controlled firm in which only the entrepreneur evaluates and restores current projects or evaluates and adopts new projects current projects are subject to failure due to entry and possible obsolescence while new projects may not be successful the optimal allocation of attention implies bounds on firm size and that the rate of innovation depends not only on monopoly profits firm size and technological opportunity but also on the probability of obsolescence the effects of monopoly power and firm size on innovation also depend on the degree of obsolescence

technology adoption with uncertain future costs and quality in this paper we study the impact of uncertainty about future innovations in quality and costs on consumers technology adoption decisions we model the uncertainty in the technology s quality and costs as a markov process and consider three models of the adoption decision the first model assumes that consumers do a simple net present value npv analysis that compares the npv of adopting to that of not adopting without considering the possibility of waiting the second model is a stochastic dynamic program that considers the possibility of waiting and views the adoption decision as a one time event i e the consumer will only make a single purchase the only question is when the third model allows repeat purchases so the consumer may upgrade by purchasing new versions of the technology whenever it suits her we study structural properties of these models e g the following what changes in qualities and costs will make the consumer better off what changes will encourage adoption we will see that the simple npv and single purchase model have many intuitive properties with the right notion of improvements and reasonable assumptions about the technology changes we find that improvements in the technology make the consumer better off and encourage adoption here improvements are defined using a partial order on quality and cost pairs the results are more complicated in the repeat purchase model under the same conditions on technology changes technology improvements will make the consumer better off however except for special cases of transitions these improvements may make the consumer better off and discourage adoption

stock market quality in the presence of a traded option we use an economic experiment to examine the implications of asymmetric information for linkages between a stock and a traded option we find the presence of the option splits price discovery across markets and changes the process by which conditional expectations are updated the time series properties of the stock price depend directly on the intrinsic value of the option when the intrinsic value of the option is positive informational efficiency is higher in the market for the stock and volatility is lower we provide evidence that the introduction of an option improves market quality in the underlying asset

innovative strategic groups in multinational industries abstract differences in innovative strategies between groups of domestic and multinational enterprises are analyzed within a two stage game model that incorporates the asymmetries in transaction costs between the two species of enterprises nash and cooperative behaviour is shown to result in different equilibrium r d strategies with the multinational companies doing typically more r d for larger markets and domestic companies focusing on specific market segments survey data from companies operating in eleven high tech multinational industries in belgium provide support for these strategic differences and show how they are related to company performance

how do exchanges select stocks for option listing we investigate the factors influencing the selection of stocks for option listing exchanges tend to list options on stocks with high trading volume volatility and market capitalization but the relative effect of these factors has changed over time as markets have evolved we observe a shift from volume toward volatility after the moratorium on new listings ended in 1980 using control sample methodology designed to correct for the endogeneity of option listing we find no evidence that volatility declines with option introduction in contrast to previous studies that do not use control samples beginning with a handful of options listed on the chicago board options exchange cboe in april 1973 the exchange traded option market has since matured into a thriving industry in the united states options trade on five exchanges with contracts on stock indices exchange traded funds currencies interest rates and over 3 000 stocks total equities options volume traded on u s exchanges has risen from 5 7 million contracts in 1974 to over 722 million contracts in 2001 options clearing corporation http www optionsclearing com option markets have also thrived in western europe and other economies with well developed capital markets in this paper we study the listing choices made by option exchanges in the united states in an effort to better understand what determines the success of financial innovation and how derivative markets develop understanding this process has important implications for the continuing development of new securities markets domestically and globally in the new century innovation

learning preemption and the degree of rivalry we examine a model in which all firms receive common signals as to the uncertain profitability of an investment whose actual payoffs are split only among those who develop the project earliest the benefit from preempting rivals yields an equilibrium reduction in the amount of learning and earlier development as the number or rivals increases the set of equilibria shrinks as the number of rivals gets large and in the limit only the competitive outcome occurs

something to talk about social spillovers in movie consumption we exploit the randomness of weather and the relationship between weather and moviegoing to quantify social spillovers in movie consumption instrumenting for early viewership with plausibly exogenous weather shocks captured in lasso chosen instruments we find that shocks to opening weekend viewership are doubled over the following five weekends our estimated momentum arises almost exclusively at the local level and we find no evidence that it varies with either ex post movie quality or the precision of ex ante information about movie quality suggesting that the observed momentum is driven in part by a preference for shared experience and not only by social learning

effects of an increase in the federal excise tax on cigarettes the economic impact of a cigarette tax increase on the cigarette and tobacco industries depends on market forces and on the u s tobacco program this study uses a log linear equilibrium displacement model parameter estimates from prior studies and recent data to indicate quantitative effects international trade implies that the effect of the tax increase on the price of domestic tobacco will be small even in the case of fixed tobacco quotas however the effects on tobacco producers revenue quota lease rates and producer economic rents can be significant depending on the response of u s tobacco policy to a tax change

information acquisition and the adoption of new technology the profitability of a new technology is rarely known with certainty at its announcement date consequently prior to making an adoption decision it behooves the firm considering the adoption of this innovation to reduce the level of uncertainty associated with its profitability the firm accomplishes this by sequentially gathering information updating its prior estimate of profitability in a bayesian manner quantifying the uncertainty regarding the innovation permits application of dynamic programming techniques criteria are derived which tell the firm when to stop collecting information and make the adoption decision it will be shown that it is optimal for the firm to continue to collect information until its estimate of profitability crosses one of two thresholds upon crossing the upper threshold the firm adopts the technology whereas the firm rejects the technology if the lower threshold is crossed the model predicts that even the manager who behaves optimally will occasionally adopt unprofitable technologies and reject profitable ones

rational frenzies and crashes most markets clear through a sequence of sales rather than through a walrasian auctioneer because buyers can decide whether to buy now or later rather than only now or never their current willingness to pay is much more sensitive to price than the demand curve is a consequence is that markets will be extremely sensitive to new information leading to both frenzies in which demand feeds on itself and crashes in which price drops discontinuously the paper also shows how a result from static auction theory the revenue equivalence theorem can be applied to solve for a dynamic price path

warrant exercise dividends and reinvestment policy in this paper we examine sequential exercise strategies by warrantholders and the gain from hoarding warrants we analyze several obstacles to acquiring large blocks in order to exploit sequential strategies first we identify several reinvestment policies for which sequential exercise is not advantageous thereby eliminating the gain from hoarding however sequential exercise strategies may be advantageous for monopoly or oligopoly warrantholders even absent dividends because using exercise proceeds to repurchase stock or to expand the firm s scale increases the riskiness of an equity share second oligopoly warrantholders can receive a smaller warrant value than perfectly competitive warrantholders suggesting a potential cost to unsuccessful hoarding

non stationarity and the import demand for virgin olive oil in the european union the aim of this study is to analyse the importation of virgin olive oil to european union countries paying special attention to the spanish export contribution the method used is based on the estimation of an imports demand system the novelty of the paper lies not in the modelling approach but in the explicit consideration of the univariate characteristics of series that is included in the analysis since prices are non stationary cointegration among them has been tested results indicate that they are cointegrated and that homogeneity holds as a result relative prices are included in the imports demand system structural change is also considered so as to account for the entrance of both spain and greece into the eu during the period studied results demonstrate the leadership of spain within the eu virgin olive oil market as well as the increasing competitiveness of greek oil

the impact of energy derivatives on the crude oil market we examine the effects of energy derivatives trading on the crude oil market there is a common public and regulatory perception that derivative securities increase volatility and can have a destabilizing effect on the underlying market consistent with this view we find an abnormal increase in volatility for three consecutive weeks following the introduction of nymex crude oil futures while there is also evidence of a longer term volatility increase this is likely due to exogenous factors such as the continuing deregulation of the energy markets subsequent introductions of crude oil options and derivatives on other energy commodities have no effect on crude oil volatility we also examine the effects of derivatives trading on the depth and liquidity of the crude oil market this analysis reveals a strong inverse relation between the open interest in crude oil futures and spot market volatility specifically when open interest is greater the volatility shock associated with a given unexpected increase in volume is much smaller

on the diffusion of new technology a game theoretic approach this paper is an attempt at a rigorous albeit not exceedingly general analysis of the diffusion of new technology in particular consider an industry composed of two firms each using the current best practice technology the firms are assumed to be operating at nash equilibrium output levels generating a market price given demand and profit allocations when a cost reducing innovation is announced each firm must determine when if ever to adopt it based in part upon the discounted cost of implementing the new technology and in part upon the behavior of the rival firm if either firm adopts before the other it can expect to make substantial profits at the expense of the other firm on the other hand the discounted sum of purchase price and adjustment costs may decline with the lengthening of the adjustment period as various quasi fixed factors become more easily variable therefore although waiting costs the firm more in terms of foregone profits it may save money on the cost of purchasing the new technology thus the firm must weigh the costs and benefits of delaying adoption as well as take account of its rival s strategic behavior

developing real option game models by mixing concepts from both game theoretic analysis and real options theory an investment decision in a competitive market can be seen as a game between firms as firms implicitly take into account other firms reactions to their own investment actions we review two decades of real option game models suggesting which critical problems have been solved by considering game theory and which significant problems have not been yet adequately addressed we provide some insights on the plausible empirical applications or shortfalls in applications to date and suggest some promising avenues for future research

substitutability for farm commodities the demand for u s tobacco in cigarette manufacturing a generalized leontief cost function and system of factor demand functions for the domestic cigarette industry is estimated we strongly rejected fixed proportions both imported tobacco and other inputs are substitutes for u s tobacco the estimated output constant price elasticities are combined with the output effect calculated from cost shares and time series estimates of the cigarette demand elasticity and an export demand elasticity from previous studies to consider the effects of reducing the u s price support competition from foreign tobacco implies that a u s price decline would increase significantly the quantity of u s tobacco demanded

second mover advantages in the strategic adoption of new technology under uncertainty abstract this paper introduces technological uncertainty into a timing game of new technology adoption it is shown that the timing neither necessarily involves first mover advantages in precommitment equilibria reinganum review of economic studies xlviii 1981 395 405 nor rent equalization due to the threat of preemption fudenberg and tirole review of economic studies lii 1985 383 401 rather there may be second mover advantages because of informational spillovers furthermore the model predicts that the equilibrium payoffs will typically be discontinuous and non monotonic in the probability that the new technology is profitable a welfare analysis reveals several market failures and suggests that policy intervention should adequately depend on the nature of uncertainty and the rate of technological progress

the implications of heterogeneous habit in consumer beverage purchases on soda and sin taxes abstract in this article we study the heterogeneity of habit strength in households demand for regular carbonated sweetened beverages csbs and beer in the united states a demand model that nests a smooth transition function is used to describe habit based consumption patterns revealing heterogeneous strengths of habits among households we find that more habitual consumers those with a strong preference for a particular product are not as sensitive to price or expenditure as the aggregate population this finding is further supported by simulations of the potential effects of soda and beer taxes we find the aggregate response to soda and beer taxes is smaller than when the influence of habit is assumed to be homogeneous

preemption and rent equalization in the adoption of new technology we study the adoption of a new technology to illustrate the effects of preemption in games of timing we show that the threat of preemption equalizes rents in a duopoly but that this result does not extend to the general oligopoly game if the gain to preemption is sufficiently small then the optimal symmetric outcome which involves late adoption is an equilibrium this contrasts with reinganum s result that in precommitment equilibria there must be diffusion we develop a new and richer formalism for modeling games of timing which permits a continuoustime representation of the limit of discrete time mixed strategy equilibria

bad eggs learning by doing and the choice of technology we model long run economic development through technology adoption under scientific uncertainty about environmental effects there are four possible long run equilibria in a socially planned economy high growth adopt rapidly but abandon damaging technologies once revealed ddt cfcs cautious brake the introduction of new technologies to avoid mistakes genetically modified organisms no growth halt technological progress to preserve secondary knowledge and collapse adopt rapidly without ever abandoning damaging technologies in the base parameterization a short sighted social planner chooses the cautious strategy a far sighted planner chooses the high growth strategy unless damages are irreversible in which case the cautious strategy again dominates regulatory options in the market economy are investigated pollution taxes do not affect the firm s level of precaution if they can only be applied after the adopting firm has reaped the benefits however they do encourage the abandonment of damaging technologies liability rules do affect precaution but may lead to excessive caution or even a no growth trap

identification of habit in japanese food consumption abstract demand models were estimated for five commodities using annual retail level japanese data estimates were made with the houthakker taylor houthakker h s taylor l d 1970 consumer demand in the united states analysis and projections harvard university press new york ma state adjustment model significant lags were found for meat and cereal which means that habit is important for these commodities some habit affects were also found for seafood

price and income elasticities of demand for passenger transport fuels in spain implications for public policies abstract the significant increase in passenger transport activity cars experienced by spain and its associated increase in energy consumption have several associated negative aspects including a greater dependence on foreign energy sources and higher ghg emissions therefore reducing the level of transport activity would bring important socioeconomic and environmental benefits the aim of this paper which focuses on energy consumption in the passenger transport is fourfold 1 to provide a diagnostic of energy consumption in the spanish passenger transport system and the related problems 2 to develop a model to calculate price and income elasticities of demand for transport fuel 3 to apply this model to the spanish passenger transport sector 4 to infer policy recommendations derived from the results of the diagnostic and the model it is claimed that in view of those low price elasticities and high income elasticities and if a reduction in the scale of transport activity is deemed socially desirable a combination of instruments is necessary fuel taxes play an important role within this combination apart from their long term effects the low price elasticity of demand for transport fuel would allow the collection of a significant amount of revenues which could eventually be earmarked to encourage reductions in private transport demand and modal shifts with other instruments

schumpeterian competition in experimental markets abstract we report on a series of laboratory experiments that capture key elements of research and development r d rivalry the experimental environment has a small number of sellers who compete in terms of pricing and production decisions and in terms of cost reducing r d rewards for innovation depend on the profitability of product market competition the experiments capture a kind of dynamic schumpeterian competition there is a sharp contrast in experimental results between monopolies and four seller competitive markets aggregate r d is higher under competition than under monopoly and prices follow marginal cost reductions much more quickly under competition than under monopoly the paper examines market performance in the experiments and the sources of market performance problems

strategic technology switching under risk aversion and uncertainty abstract firms devising green investment strategies within a deregulated environment must take into account not only economic and technological uncertainty but also strategic interactions due to competition also further complicating green investment decisions is the fact that firms are likely to exhibit risk aversion since alternative energy technologies entail risk that cannot be diversified therefore we develop a utility based real options framework for pre emptive and non pre emptive competition in order to analyse how economic and technological uncertainty interact with risk aversion to impact the adoption of an existing technology in the light of uncertainty over the arrival of an improved version we confirm that greater risk aversion delays investment and show that technological uncertainty accelerates the follower s entry delays the entry of the pre emptive leader and intriguingly does not affect the non pre emptive leader s investment decision also we show how the relative loss in the leader s value due to the follower s entry is affected by economic and technological uncertainty as well as risk aversion and how the risk of pre emption under increasing economic uncertainty raises the value of direct investment in the new technology relative to stepwise investment