information transmission cournot and bertrand equilibria we examine how incentives for two duopolists to honestly share information change depending upon the nature of competition cournot or bertrand and the nature of the information structure while in earlier papers uncertainty is about an unknown common demand intercept in the present paper uncertainty is about unknown private costs the different information structure reverses the incentives to share information while with unknown common demand sharing is a dominant strategy with bertrand competition and concealing is a dominant strategy with cournot competition with unknown private costs sharing is a dominant strategy with cournot competition and concealing is a dominant strategy with bertrand competition

intergenerational mobility under private vs public education intergenerational earnings mobility is analyzed in a model where human capital is produced using schooling and parental time in steady states more mobile societies have less inequality but in the short run higher mobility may result from an increase in inequality starting from the same inequality mobility is higher under public than under private education a rise in income shocks for example due to increased returns to ability or a switch from public to private schooling both increase inequality however increased shocks raise mobility in the short run and do not affect it in the long run whereas an increased role for private schooling reduces mobility in both the short and long run that these differences may help to identify the source of changes in inequality and other real world implications are illustrated in a brief discussion of time trends and cross country differences

managing advertising and promotion for long run profitability in recent years manufacturers have become increasingly disposed toward the use of sales promotions often at the cost of advertising yet the long term implications of these changes for brand profitability remain unclear in this paper we seek to offer insights into this important issue we consider the questions of i whether it is more desirable to ad vertise or promote ii whether it is better to use frequent shallow promotions or infrequent deep promotions and iii how changes in regular prices affect sales relative to increases in price promotions additional insights regarding brand equity the relative magnitude of short and long term effects and the decomposition of advertising and promotion elasticities across choice and quantity decisions are obtained to address these points we develop a heteroscedastic varying parameter joint probit choice and regression quantity model our approach allows consumers responses to short term marketing activities to change in response to changes in marketing actions over the long term we also accommodate the possibility of competitive reactions to policy changes of a brand the model is estimated for a consumer packaged good category by using over eight years of panel data the resulting parameters enable us to assess the effects of changes in advertising and promotion policies on sales and profits our results show that in the long term advertising has a positive effect on brand equity while promotions have a negative effect furthermore we find price promotion elasticities to be larger than regular price elasticities in the short term but smaller than regular price elasticities when long term effects are considered consistent with previous research we also find that most of the effect of a price cut is manifested in consumers brand choice decisions in the short term but when long term effects are again considered this result no longer holds last we estimate that the long term effects of promotions on sales are negative overall and about two fifths the magnitude of the positive short term effects finally making reasonable cost and margin assumptions we conduct simulations to assess the relative profit impact of long term changes in pricing advertising or promotion policies our results show regular price decreases to have a generally negative effect on the long term profits of brands advertising to be profitable for two of the brands and increases in price promotions to be uniformly unprofitable

the intergenerational earnings and income mobility of canadian men evidence from longitudinal income tax data our objective is to obtain an accurate estimate of the degree of intergenerational income mobility in canada we use income tax information on about 400 000 father son pairs and find intergenerational earnings elasticities to be about 0 2 earnings mobility tends to be slightly greater than income mobility but nonparametric techniques uncover significant nonlinearities in both of these relationships intergenerational earnings mobility is greater at the lower end of the income distribution than at the upper end and displays an inverted v shape elsewhere intergenerational income mobility follows roughly the same pattern but is much lower at the very top of the income distribution

the evolution of high incomes in northern america lessons from canadian evidence this paper uses tax statistics to construct new series on canadian top income shares from 1920 to 2000 and provides a systematic comparison with the u s experience as in the united states top income shares in canada display a ushaped pattern over the century with a precipitous drop during world war ii followed by a slower decline until 1970 since the late 1970s top income shares have been increasing dramatically and the very top shares are now as high as in the pre war era as in the united states the recent increase in top income shares is the consequence of a surge in top wages and salaries the canadian experience since the late 1970s does not appear to be well explained by tax changes suggesting that the upward trend in canada derives from the united states perhaps because many high income canadians have an emigration option this in turn suggests that the recent increase in u s personal income top shares is not merely a change in tax reporting behavior the recent sharp increase in top income shares in canada is of the same magnitude at the individual and family level and is not due to an increase in income mobility

structural analysis of cointegrating vars this survey uses a number of recent developments in the analysis of cointegrating vector autoregressions vars to examine their links to the older structural modelling traditions using autoregressive distributed lag ardl and simultaneous equations models sems in particular it emphasizes the importance of using judgement and economic theory to supplement the statistical information after a brief historical review it sets out the statistical framework discusses the identification of impulse responses using the generalized impulse response functions reviews the analysis of cointegrating vars and highlights the large number of choices applied workers have to make in determining a specification in particular it considers the problem of specification of intercepts and trends and the size of the var in more detail and examines the advantages of the use of exogenous variables in cointegration analysis the issues are illustrated with a small u s macroeconomic model

from theory to practice canadian economists contributions to public finance we survey canadian economists contributions to the field of public finance from the mid 1980s to 2016 we highlight the development and extension of the models and tools of public economics and the empirical studies that have deepened our understanding of the efficiency and distributional issues over a wide range of public finance issues we also highlight contributions to the development of policies through commissioned reports and the important role that canadian institutions the canadian tax foundation the think tanks and the federal and provincial departments of finance have played in shaping tax and fiscal policies de la theorie a la pratique contributions des economistes canadiens a la finance publique on examine les contributions des economistes canadiens au domaine de la finance publique du milieu des annees 1980 a 2016 on souligne le developpement et l extension des modeles et des outils d economie publique et les etudes empiriques qui ont aide a approfondir notre comprehension des enjeux d efficacite et de distribution dans un vaste eventail de questions de finance publique on souligne aussi les contributions des rapports commandites au developpement de politiques publiques ainsi que le role important d institutions canadiennes l association canadienne d etudes fiscales les groupes d experts ainsi que les ministeres des finances du gouvernement federal et des gouvernements provinciaux dans le design des politiques fiscales

using elasticities to derive optimal income tax rates this paper derives optimal income tax formulas using compensated and uncompensated elasticities of earnings with respect to tax rates a simple formula for the high income optimal tax rate is obtained as a function of these elasticities and the thickness of the top tail of the income distribution in the general non linear income tax problem this method using elasticities shows precisely how the different economic effects come into play and which are the key relevant parameters in the optimal income tax formulas of mirrlees the optimal non linear tax rate formulas are expressed in terms of elasticities and the shape of the income distribution these formulas are implemented numerically using empirical earning distributions and a range of realistic elasticity parameters

the long term effect of marketing strategy on brand sales few studies have considered the relative role of the integrated marketing mix advertising price promotion product and place on the long term performance of mature brands instead emphasizing advertising and price promotion thus little guidance is available to firms regarding the relative efficacy of their various marketing expenditures over the long run to investigate this issue the authors apply a multivariate dynamic linear transfer function model to five years of advertising and scanner data for 25 product categories and 70 brands in france the findings indicate that the total short term plus long term sales elasticity is 1 37 for product and 74 for distribution conversely the total elasticities for advertising and discounting are only 13 and 04 respectively this result stands in marked contrast to the previous emphasis in the literature on price promotions and advertising the authors further find that the long term effects of discounting are one third the magnitude of the short term effects the ratio is reversed from other aspects of the mix in which long term effects exceed four times the short term effects underscoring the strategic role of these tools in brand sales

common marketing agency as a device for facilitating collusion in a variety of markets firms voluntarily and independently delegate control over certain aspects of marketing to common agents in this article we present an explicit model of agency delegation where firms noncooperatively select agents name output prices and choose compensation schemes we exhibit an equilibrium in which all strategic variables not merely the marketing choices delegated to agents but prices as well are selected perfectly cooperatively this cooperative equilibrium is very simple and attractive each firm sets the collusive output price and employs a commission scheme to compensate the agent although each

customized advertising via a common media distributor we show that when a single media content distributor such as a television cable company or an internet provider delivers advertising messages on behalf of multiple competing brands it can sometimes utilize customized advertising to implement monopoly pricing even though such monopolistic pricing can be implemented with varying degrees of customization of commercials product revenues and consumer surplus are highest when the distributor chooses the highest level of customization feasible consumers would obviously prefer aggressive price competition in product markets however given that collusion on prices is facilitated anyway when the distributor acts as a common agent the welfare of consumers is enhanced when commercials are better aligned with their preferences

wealth inequality theory measurement and decomposition this paper reviews the basic principles of inequality measurement underlining the advantages and shortcomings of alternative measures from a theoretical standpoint and in the context of the study of the distribution of wealth adopting the two most popular measures the gini index and the p shares the paper documents wealth inequality in canada using the 1999 2005 and 2012 survey of financial security sfs it carries out several decompositions with covariates featuring dfl type reweighting methods and gini and p shares rif regressions the latter parallel decompositions deepen our understanding of how changes in socio demographic characteristics including the compensating role of family formation and human capital impact wealth inequality

marketing models and the lucas critique the lucas critique has been largely ignored in the marketing literature we present a number of conditions under which the critique is most likely to also apply in marketing settings next we provide some perspectives on how to diagnose and accommodate the lucas critique and identify various avenues for future research

demographic differences in cyclical employment variation demographic differences in patterns of employment variation over the business cycle are examined in this paper three primary conclusions emerge first both participation and unemployment must be considered in any analysis of cyclical changes in the labor market second young people bear a disproportionate share of cyclical employment variation third failure to consider participation has led to undue pessimism about the effect of aggregate demand policy on high unemployment groups if participation did not surge reduction in overall unemployment to its 1969 level would reduce the unemployment of almost all demographic groups to very low levels

the category demand effects of price promotions although price promotions have increased in both commercial use and quantity of academic research over the last decade most of the attention has been focused on their effects on brand choice and brand sales by contrast little is known about the conditions under which price promotions expand short run and long run category demand even though the benefits of category expansion can be substantial to manufacturers and retailers alike this paper studies the category demand effects of consumer price promotions across 560 consumer product categories over a 4 year period the data describe national sales in dutch supermarkets and cover virtually the entire marketing mix i e prices promotions advertising distribution and new product activity we focus on the estimation of main effects i e the dynamic category expansive impact of price promotions as well as the moderating effects of marketing intensity and competition both conduct and structure on short and long run promotional effectiveness the research design uses modern multivariate time series analysis to disentangle short run and long run effects first we conduct a series of unit root tests to determine whether or not category demand is stationary or evolving over time the results are incorporated in the specification of vector autoregressive models with exogenous variables varx models the impulse response functions derived from these varx models provide estimates of the short and long term effects of price promotions on category demand these estimates in turn are used as dependent variables in a series of second stage regressions that assess the explanatory power of marketing intensity and competition several model validation tests support the robustness of the empirical findings we present our results in the form of empirical generalizations on the main effects of price promotions on category demand in the short and the long run and through statistical tests on how these effects change with marketing intensity and competition the findings generate an overall picture of the power and limitations of consumer price promotions in expanding category demand as follows category demand is found to be predominantly stationary either around a fixed mean or a deterministic trend although the total net short term effects of price promotions are generally strong with an average elasticity of 2 21 and a more conservative median elasticity of 1 75 they rarely exhibit persistent effects instead the effects dissipate over a time period lasting approximately 10 weeks on average and their long term impact is essentially zero by contrast the successful introduction of new products into a category is more frequently associated with a permanent category demand increase several moderating effects on price promotion effectiveness exist more frequent promotions increase their effectiveness but only in the short run the use of nonprice advertising reduces the category demand effects of price promotions both in the short run and in the long run competitive structure matters as well the less oligopolistic the category the smaller the short run effectiveness of price promotions at the same time we find that the dominant form of competitive reaction either in price promotion or in advertising is no reaction short run category demand effectiveness of price promotions is lower in categories experiencing major new product introductions finally both the short and long run price promotion effectiveness is higher in perishable product categories the paper discusses several managerial implications of these empirical findings and suggests various avenues for future research overall we conclude that the power of price promotions lies primarily in the preservation of the status quo in the category

disaggregating the effect of the business cycle on the distribution of income this paper disaggregates total household income into a complete set of components and studies the comparative cyclicality of these com ponent to economic growth comparisons of the relative responsiveness to gnp growth of wages hours of work and total labor market income of heads and wives and transfer income sources of households are made across income race sex and age groups this provides a picture of the channels by which economic growth produces income change significant differences in elasticities are found to exist both between different income components and between different population groups for the same component the narrowing income distribution in times of high growth occurs primarily because of large elasticities on head s labor market income among the poor both wages and hours show evidence of cycli cality the labor market earnings of women both wives and household heads is far less responsive to growth cyclicality in transfer income varies enormously between population groups and by type of transfer

the changing architecture of advertising agencies in contrast to other marketing activities advertising is usually outsourced historically to an integrated full service advertising agency that provides both creative and media services recently major changes have occurred specialized media shops have appeared and large holding companies with several agencies and a separate media shop have emerged this paper describes how firms in the current industry structure choose their agents a theoretical section specifies the firm s decision process in obtaining the creative and media components conditions under which one or both could be effectively produced internally are identified in the prevalent case when these components are outsourced we evaluate whether they can be more efficiently produced by a bundled full service agency or by unbundling to separate agents an empirical section tests the theory implications with cross sectional data on u s firm choices of advertising agents the bundled full service agency is still widely used firms with large advertising budgets unbundle to take advantage of media discounts obtained by market making media shops internal agencies are used when firms have internal creative abilities or have low level requirements in both creative and media the creative and media agencies within holding companies are found to act independently

viewpoint innovations in the theory and practice of redistribution policy we present a survey of key results from second best optimal redistribution theory and their implications for tax transfer policy the core results include the corlett hague theorem the deaton conditions the production efficiency theorem the atkinson stiglitz theorem and the mirrlees saez characterization of the optimal non linear income tax system these have been augmented in recent years by optimal participation tax rates the implications of involuntary unemployment the use of unconventional instruments such as minimum wages in kind transfer and workfare and the optimal taxation of capital income and bequests l auteur presente un survol des principaux resultats theoriques de la redistribution optimale de second ordre et de leurs implications pour les politiques d imposition et de transferts les resultats fondamentaux incluent le theoreme de corlett hague les conditions de deaton les theoremes d efficacite en production le theoreme d atkinson stiglitz ainsi que la caracterisation du systeme optimal d imposition non lineaire du revenu a la mirrlees saez ces derniers resultats ont ete enrichis au cours des dernieres annees par certains autres portant sur les taux d imposition decoulant des allocations conditionnelles les implications du chomage involontaire l usage d instruments non conventionnels tels que le salaire minimum les transferts en nature le workfare ainsi que l imposition optimale des revenus du capital et des legs ces resultats sont exposes et leurs implications pour les politiques d imposition et de transferts sont discutees

cyclicality of real wages among young men abstract this paper analyzes the cyclical behavior of real wages received by the young men in the national longitudinal surveys of labor market experience it extends the studies by bils journal of political economy 1985 93 666 689 and tremblay quarterly review of economics and business 1990 30 90 101 by using the full duration of the survey and by examining differences in wage cyclicality across industries and between workers that change employers and those that stay with the same employer

wages and employment in a segmented labor market this paper analyzes the impact of business cycle fluctuations on a labor market segmented into a unionized primary sector and a competitive secondary sector either permanent or temporary changes in real aggregate demand are shown to widen the intersectoral wage differential in recession and under reasonable specifications of key parameters to cause greater fluctuations of primary sector employment than secondary sector employment this pattern agrees with the stylized facts of the u s economy

negotiations and exclusivity contracts for advertising exclusive advertising on a given media outlet is usually profitable for an advertiser because consumers are less aware of competing products however for such arrangements to exist media must benefit as well we examine conditions under which such exclusive advertising contracts benefit both advertisers and media outlets referred to as stations by illustrating that exclusive equilibria arise in a theoretical model of the media advertisers and consumers who participate in both the product and media markets in the model stations sell advertising space to advertisers and broadcast advertising messages to consumers conditions leading to higher equilibrium levels of advertising can be unprofitable for advertisers because high levels of advertising make consumers better informed and thus lead to fiercer product price competition as a result media stations may be less profitable as well because their payoff is determined as a fraction of the advertiser surplus generated in the product market stations mitigate this effect by offering advertisers exclusive advertising contracts with such contracts consumers are less informed about competing products yielding higher producer surplus it is profitable for stations to offer exclusivity when commercial advertising is an important means for advertisers to inform consumers about their products

the persistence of marketing effects on sales are marketing efforts able to affect long term trends in sales or other performance measures answering this question is essential for the creation of marketing strategies that deliver a sustainable competitive advantage this paper introduces persistence modeling to derive long term marketing effectiveness from time series observations on sales and marketing expenditures first we use unit root tests to determine whether sales are stable or evolving trending over time if they are evolving we examine how strong this evolution is univariate persistence and to what extent it can be related to marketing activity multivariate persistence an empirical example on sales and media spending for a chain of home improvement stores reveals that some but not all advertising has strong trend setting effects on sales we argue that traditional modeling approaches would not pick up these effects and therefore seriously underestimate the long term effectiveness of advertising the paper concludes with an agenda for future empirical research on long run marketing effectiveness

the price elasticity of selective demand a meta analysis of econometric models of sales the author describes a meta analysis of econometric studies that estimated the elasticity of selective sales or market share to price the literature review yielded 367 suitable price elasticities

income inequality in the united states 1913 1998 this paper presents new homogeneous series on top shares of income and wages from 1913 to 1998 in the united states using individual tax returns data top income and wages shares display a u shaped pattern over the century our series suggest that the large shocks that capital owners experienced during the great depression and world war ii have had a permanent effect on top capital incomes we argue that steep progressive income and estate taxation may have prevented large fortunes from fully recovering from these shocks top wage shares were flat before world war ii dropped precipitously during the war and did not start to recover before the late 1960s but are now higher than before world war ii as a result the working rich have replaced the rentiers at the top of the income distribution

top income shares in canada recent trends and policy implications according to canadian taxfiler data over the last thirty years there has been a surge in the income shares of the top 1 top 0 1 and top 0 01 of income recipients even with longitudinal smoothing by individual using three or five year moving averages top shares fell in 2008 and 2009 but only by a fraction of the overall surge alberta british columbia and ontario have much more pronounced surges than other provinces part of the canadian surge is likely attributable to u s factors but a comprehensive explanation remains elusive even so i draw implications for policies that might achieve some support from across the political spectrum including the elimination of tax preferences that favour those with high incomes the promotion of shareholder democracy and to maintain canada s relatively high intergenerational mobility continued wide accessibility to healthcare and education

voluntary quality disclosure and market interaction marketers disclose quality information directly to potential consumers using a variety of communication channels this study investigates how competition may influence duopoly firms incentive to voluntarily reveal quality information we show that firms in competitive markets reveal less information than a monopoly firm in addition sequential disclosure leads to asymmetric equilibrium disclosure behavior the disclosure leader reveals unambiguously less information than in the simultaneous disclosure case whereas the follower ex ante reveals less more private information than that released by the leader or by the firms in the simultaneous case when the disclosure cost is sufficiently low high we also examine the equilibrium firm profits and social welfare we demonstrate that there may be a u shaped relationship between equilibrium monopoly profits or social welfare under both monopoly and duopoly and the disclosure cost moreover in comparison to the simultaneous disclosure case sequential disclosure can lead to increasingly softened competition improving both firm profitability and social welfare

the intergenerational transmission of employers we find that about 40 of a cohort of young canadian men have been employed at some time with an employer for which their father also worked and 6 9 have the same employer in adulthood the intergenerational transmission of employers is positively related to paternal earnings particularly at the very top of the earnings distribution and to the presence of self employment income and the number of employers with which the father has had direct contact it has an important influence on nonlinear patterns in the intergenerational elasticity of earnings

comments on competitive responsiveness marketing science features many and diverse articles that analyze competitive responsiveness although recent marketing science editorials e g shugan 2002 suggest that competitive responsiveness is only a part of a comprehensive competitive marketing strategy it remains a vital part for that reason and many others marketing science is particularly proud of this special issue edited by david j reibstein and dick r wittink before introducing and vigorously applauding both the editors and authors of this excellent special issue we emphasize that competitive responsiveness raises numerous issues including whether one can forecast outcomes of new policies based on past observations made under old policies i e the lucas critique and decisions regarding which variables should be considered endogenous shugan 2004 i e determined within the model perhaps normative models are inherently perishable evolution in market structure requires modifications over time also although complete consistency within the world of the model is aesthetically pleasing imposing industry specific exogenous constraints that might appear unrelated to the modeling assumptions is sometimes necessary

customer information sharing among rival firms abstract the recent rapid growth of the internet as a medium of communication and commerce combined with the development of sophisticated software tools are to a large extent responsible for producing a new kind of information databases with detailed records about consumers preferences these databases have become part of a firm s assets and as such they can be sold to third parties this possibility has raised numerous concerns from consumer privacy advocates and regulators who have entered into a heated debate with business groups and industry associations about whether the practice of customer information sharing should be banned regulated or left unchecked this paper investigates the incentives of rival firms to share their customer specific information and evaluates the welfare implications if such exchanges are banned in the context of a perfect price discrimination model

practice prize reports the practice prize reports consist of one article with two parts as follows sinha ashish j jeffrey inman yantao wang joonwook park attribute drivers a factor analytic choice map approach for understanding choices among skus and tellis gerard j rajesh k chandy deborah macinnis pattana thaivanich modeling the microeffects of television advertising which ad works when where for how long and why

semiparametric analysis to estimate the deal effect curve abstract the marketing literature suggests several phenomena that may contribute to the nature of the relationship between sales and price discounts these phenomena can produce complex nonlinearities and interactions in the deal effect curve that are best captured with a flexible approach because a fully nonparametric regression model suffers from the curse of dimensionality the authors propose a semiparametric regression model store level sales over time are modeled as a nonparametric function of own and cross item price discounts and a parametric function of other predictors the authors compare the predictive validity of the semiparametric model with that of two parametric benchmark models and obtain superior performance the results for three product categories indicate threshold and saturation effects for both ownand cross item temporary price cuts the authors also find that the nature of the own item curve depends on other items price discounts comparisons with restricted model specification

gender and industry differences in employment cyclicality evidence over the postwar period this paper explains how cyclical patterns of employment vary between genders and across industries and how these two factors are related by gender differences in the industry distribution of workers evidence shows that men s employment is more procyclical than women s and that men s overrepresentation in highly volatile industries more than accounts for the gender gap in employment cyclicality

the effect of marginal tax rates on taxable income a panel study of the 1988 tax flattening in canada abstract federal tax reform in 1988 flattened the canadian personal income tax schedule changing the marginal tax rates for many individuals using methods similar to those applied by auten and carroll rev econ 81 4 1999 681 in the study of the effects of the 1986 u s tax reform act we estimate the responsiveness of income to changes in taxes to be substantially smaller in canada however we find evidence of a much higher response in self employment income in the labor income of seniors and from those with high incomes

a meta analysis of marketing communication carryover effects abstractto optimally set marketing communication marcom budgets reliable estimates of short term elasticities and carryover effects are required empirical generalizations from meta analyses of prior field studies can help guide these decisions however the last such meta analysis of marcom carryover effects was performed on koyck model based estimates collected before 1984 and was confined to mass media advertising the authors update and extend extant empirical generalizations via two meta analyses of carryover estimates compiled from studies encompassing personal selling targeted advertising and mass media advertising using diverse model forms until 2015 the first is focused on and utilizes 918 estimates of the carryover proportion of the total effect termed long term share of the total effect and the second focuses on 863 derivable estimates of 90 implied duration intervals the authors find the mean long term shares of the total effect for personal selling 687 and targeted advertisin

the elasticity of taxable income with respect to marginal tax rates a critical review this paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates using tax return data first we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis we discuss what other parameters should be estimated when the elasticity is not a sufficient statistic second we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the united states to illustrate those issues third we provide a critical discussion of selected empirical analyses of the elasticity of taxable income in light of the theoretical and empirical framework we laid out finally we discuss avenues for future research jel h24 h31 j22

research note vertical information sharing in a volatile market when demand is uncertain manufacturers and retailers often have private information on future demand and such information asymmetry impacts strategic interaction in distribution channels in this paper we investigate a channel consisting of a manufacturer and a downstream retailer facing a product market characterized by short product life uncertain demand and price rigidity assuming the firms have asymmetric information about the demand volatility we examine the potential benefits of sharing information and contracts that facilitate such cooperation we conclude that under a wholesale price regime information sharing might not improve channel profits when the retailer underestimates the demand volatility but the manufacturer does not although information sharing is always beneficial under a two part tariff regime it is in general not sufficient to achieve sharing and additional contractual arrangements are necessary the contract types we consider to facilitate sharing are profit sharing and buyback contracts

generalizing what is known about temporal aggregation and advertising carryover this paper provides a theoretical explanation for the inconsistent findings from previous econometric analyses of aggregated data concerning the duration of advertising carryover using this theoretical explanation and the knowledge of a data interval bias the paper reviews and summarizes the empirical work in the area of sales response modeling and then after adjusting for aggregation bias presents support for an empirical generalization that the average advertising duration interval is of brief duration typically between six and nine months

the effect of marginal tax rates on taxable income a panel study of the 1986 tax reform act this paper uses a treasury department panel of more than 4 000 taxpayers to estimate the sensitivity of taxable income to changes in tax rates on the basis of a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform the analysis emphasizes that the response of taxable income involves much more than a change in the traditional measures of labor supply the evidence shows an elasticity of taxable income with respect to the marginal net of tax rate that is at least one and could be substantially higher the implications for recent tax rate changes are discussed

structural analysis of manufacturer pricing in the presence of a strategic retailer consumer goods manufacturers usually sell their brands to consumers through common independent retailers theoretical research on such channel structures has analyzed the optimal behavior of channel members under alternative assumptions of manufacturer retailer interaction vertical strategic interaction research in empirical industrial organization has focused on analyzing the competitive interactions between manufacturers horizontal strategic interaction decision support systems have made various assumptions about retailer pricing rules e g constant markup category profit maximization the appropriateness of such assumptions about strategic behavior for any specific market however is an empirical question this paper therefore empirically infers 1 the vertical strategic interaction vsi between manufacturers and retailer 2 the horizontal strategic interaction hsi between manufacturers simultaneously with the vsi and 3 the pricing rule used by a retailer the approach is particularly appealing because it can be used with widely available scanner data where there is no information on wholesale prices researchers usually have no access to wholesale prices even manufacturers who have access to their own wholesale prices usually have limited information on competitors wholesale prices in the absence of wholesale prices we derive formulae for wholesale prices using game theoretic solution techniques under the specific assumptions of vertical and horizontal strategic interaction and retailer pricing rules we then embed the formulae for wholesale prices into the estimation equations while our empirical illustration is using scanner data without wholesale prices the model itself can be applied when wholesale prices are available early research on the inference of hsi among manufacturers in setting wholesale prices using scanner data e g kadiyali et al 1996 1999 made the simplifying assumption that retailers charge a constant margin this assumption enabled them to infer wholesale prices and analyze competitive interactions between manufacturers in this paper we show that this model is econometrically identical to a model that measures retail price coordination across brands hence the inferred cooperation among manufacturers could be exaggerated by the coordinated pricing category management done by the retailer we find empirical support for this argument this highlights the need to properly model and infer vsi simultaneously to accurately estimate the hsi when using data at the retail level functional forms of demand have been evaluated in terms of the fit of the model to sales data but recent theoretical research on channels lee and staelin 1997 tyagi 1999 has shown that the functional form has serious implications for strategic behavior such as retail passthrough while the logit and linear model implies equilibrium passthrough of less than 100 lee and staelin call this vertical strategic substitute vss the multiplicative model implies optimal passthrough of greater than 100 vertical strategic complement vsc because passthrough rates on promotions have been found to be below or above 100 chevalier and curhan 1976 armstrong 1991 we empirically test the appropriateness of the logit vss and the multiplicative vsc functional form for the data we perform our analysis in the yogurt and peanut butter categories for the two biggest stores in a local market we found that the vss implications of the logit fit the data better than the multiplicative model we also find that for both categories the best fitting model is one in which 1 the retailer maximizes category profits 2 the vsi is manufacturer stackelberg and 3 manufacturer pricing hsi is tacitly collusive the fact that the retailer maximizes category profits is consistent with theoretical expectations the inference that the vsi is manufacturer stackelberg reflects the institutional reality of the timing of the game retailers set their retail prices after manufacturers set their wholesale prices note that in the stores and product categories that we analyze the two manufacturers own the dominant brands with combined market shares of about 82 in the yogurt market and 65 in the peanut butter market the result is also consistent with a balance of power argument in the literature the finding that manufacturer pricing is tacitly collusive is consistent with the argument that firms involved in long term competition in concentrated markets can achieve tacit collusion managers use decision support systems for promotion planning that routinely make assumptions about vsi hsi and the functional form the results from our analysis are of substantive import in judging the appropriateness of assumptions made in such decision support systems

duopoly information equilibrium cournot and bertrand abstract in a duopoly model where firms have private information about an uncertain linear demand it is shown that if the goods are substitutes not to share information is a dominant strategy for each firm in bertrand cournot competition if the goods are complements the result is reversed furthermore the following welfare results are obtained 1 i with substitutes in cournot competition the market outcome is never optimal with respect to information sharing but it may be optimal in bertrand competition if the products are good substitutes with complements the market outcome is always optimal 2 ii bertrand competition is more efficient than cournot competition 3 iii the private value of information to the firms is always positive but the social value of information is positive in cournot and negative in bertrand competition

an equilibrium theory of wage and employment cyclicality by gender and by industry this paper presents an equilibrium theory that accounts for how cyclical patterns of employment and real wages vary between genders and across industries workers self selection of industrial sectors gender differences in comparative advantage among sectors sector nonneutral shocks and resulting mobility of workers across sectors play the key roles in explaining wage and employment cyclicality by gender and by industry numerical simulations demonstrate that reasonable parameter values exist under which the current model accords with several stylized facts these parameter values are characterized most importantly by men s comparative advantage in the sector subject to larger cyclical demand shocks

planning marketing mix strategies in the presence of interaction effects companies spend millions of dollars on advertising to boost a brand s image and simultaneously spend millions of dollars on promotion that many believe calls attention to price and erodes brand equity we believe this paradoxical situation exists because both advertising and promotion are necessary to compete effectively in dynamic markets consequently brand managers need to account for interactions between marketing activities and interactions among competing brands by recognizing interaction effects between activities managers can consider interactivity trade offs in planning the marketing mix strategies on the other hand by recognizing interactions with competitors managers can incorporate strategic foresight in their planning which requires them to look forward and reason backward in making optimal decisions looking forward means that each brand manager anticipates how other competing brands are likely to make future decisions and then by reasoning backward deduces one s own optimal decisions in response to the best decisions to be made by all other brands the joint consideration of interaction effects and strategic foresight in planning marketing mix strategies is a challenging and unsolved marketing problem which motivates this paper this paper investigates the problem of planning marketing mix in dynamic competitive markets we extend the lanchester model by incorporating interaction effects constructing the marketing mix algorithm that yields marketing mix plans with strategic foresight and developing the continuous discrete estimation method to calibrate dynamic models of oligopoly using market data both the marketing mix algorithm and the estimation method are general so they can be applied to any other alternative model specifications for dynamic oligopoly markets thus this dual methodology augments the decision making toolkit of managers empowering them to tackle realistic marketing problems in dynamic oligopoly markets we illustrate the application of this dual methodology by studying the dynamic lanchester competition across five brands in the detergents market where each brand uses advertising and promotion to influence its own market share and the shares of competing brands empirically we find that advertising and promotion not only affect the brand shares own and competitors but also exert interaction effects i e each activity amplifies or attenuates the effectiveness of the other activity normatively we find that large brands underadvertise and overspend on promotion while small brands underadvertise and underpromote finally comparative statics reveal managerial insights into how a specific brand should respond optimally to the changes in a competing brand s situation more generally we find evidence that competitive responsiveness is asymmetric

a theory of dual labor markets with application to industrial policy discrimination and keynesian unemployment this paper develops a model of dual labor markets based on employers need to motivate workers in order to elicit effort from their workers employers may find it optimal to pay more than the going wage this changes fundamentally the character of labor markets the model is applied to a wide range of labor market phenomena it provides a coherent framework for understanding the claims of industrial policy advocates it also can provide the basis for a theory of occupational segregation and discrimination that will not be eroded by market forces finally the model provides the basis for a theory of involuntary unemployment

top incomes in the long run of history a recent literature has constructed top income shares time series over the long run for more than twenty countries using income tax statistics top incomes represent a small share of the population but a very significant share of total income and total taxes paid hence aggregate economic growth per capita and gini inequality indexes are sensitive to excluding or including top incomes we discuss the estimation methods and issues that arise when constructing top income share series including income definition and comparability over time and across countries tax avoidance and tax evasion we provide a summary of the key empirical findings most countries experience a dramatic drop in top income shares in the first part of the twentieth century in general due to shocks to top capital incomes during the wars and depression shocks top income shares do not recover in the immediate postwar decades however over the last thirty years top income shares have increased substantially in english speaking countries and in india and china but not in continental european countries or japan this increase is due in part to an unprecedented surge in top wage incomes as a result wage income comprises a larger fraction of top incomes than in the past finally we discuss the theoretical and empirical models that have been proposed to account for the facts and the main questions that remain open

how dynamic consumer response competitor response company support and company inertia shape long term marketing effectiveness long term marketing effectiveness is a high priority research topic for managers and emerges from the complex interplay among dynamic reactions of several market players this paper introduces restricted policy simulations to distinguish four dynamic forces consumer response competitor response company inertia and company support a rich marketing dataset allows the analysis of price display feature advertising and product line extensions the first finding is that consumer response differs significantly from the net effectiveness of product line extensions price feature and advertising in particular net sales effects are up to five times stronger and longer lasting than consumer response second this difference is not due to competitor response but to company action for tactical actions price and feature it takes the form of inertia as promotions last for several weeks for strategic actions advertising and product line extensions support by other marketing instruments greatly enhances dynamic consumer response this company action negates the postpromotion dip in consumer response and enhances the long term sales benefits of product line extensions feature and advertising therefore managers are urged to evaluate company decision rules for inertia and support when assessing long term marketing effectiveness

endogeneity in marketing decision models there are many critical concerns including the accounting for endogeneity when one is properly estimating response functions however it is sometimes certainly not always better to leave some variables exogenous when building mathematical models intended to help decision makers the exogenous variables allow the decision maker to better adapt the mathematical model to different situations and to incorporate myriad variables and constraints outside of the model

individual marketing with imperfect targetability our research investigates the competitive ramifications of individual marketing and information management in today s information intensive marketing environments the specific managerial issues we address are as follows first what kinds of incentive environments do competing firms face when they can only target individual customers imperfectly second does the improvement in an industry s targetability intensify price competition in the industry such that all competing firms become worse off third should a firm share its customer knowledge so as to improve its rival s targetability fourth how should an information vendor sell its information that can improve a firm s targetability finally do competing firms have the same incentives to invest in their own targetability to answer those questions we develop a simple model a la narasimhan 1988 in which each of the two competing firms have their own loyal customers and compete for common switchers we assume that each firm can classify its own loyal customers and switchers correctly only with a less than perfect probability this means that each firm s perceived customer segmentation differs from the actual customer segmentation based on their perceived reality these two competing firms engage in price competition as an extension we also allow the competing firms to make their investment decisions to acquire targetability we show that when individual marketing is feasible but imperfect improvements in targetability by either or both competing firms can lead to win win competition for both even if both players behave noncooperatively and the market does not expand win win competition results from the fact that as a firm becomes better at distinguishing its price insensitive loyal customers from the switchers it is motivated to charge a higher price to the former however due to imperfect targetability each firm mistakenly perceives some price sensitive switchers as price insensitive loyal customers and charges them all a higher price these misperceptions thus allow its competitors to acquire those mistargeted customers without lowering their prices and hence reduce the rival firm s incentive to cut prices this effect softens price competition in the market and qualitatively changes the incentive environment for competing firms engaged in individual marketing a prisoner s dilemma occurs only when targetability in a market reaches a sufficiently high level this win win perspective on individual marketing has many managerial implications first we show that superior knowledge of individual customers can be a competitive advantage however this does not mean that a firm should always protect its customer information from its competitors to the contrary we find that competing firms can all benefit from exchanging individual customer information with each other at the nascent stage of individual marketing when firms targetability is low indeed under certain circumstances a firm may even find it profitable to give away this information unilaterally however as individual marketing matures as firms targetability becomes sufficiently high further improvements in targetability will intensify price competition and lead to prisoner s dilemma therefore it is not only prudent politics but also a business imperative for an industry to seize the initiative on the issue of protecting customer privacy so as to ensure win win competition in the industry second we show that the firm with a larger number of loyal customers tends to invest more in targetability when the cost of acquiring targetability is high however the firm with a smaller loyal base can through information investment acquire a higher level of targetability than the firm with a larger loyal base as long as the cost of acquiring targetability is not too high as the cost further decreases competing firms will all have more incentives to increase their investments in targetability until they achieve the highest feasible level third an information vendor should make its information available nonexclusively exclusively when its information is associated with a low high level of targetability when the vendor does sell its information exclusively it should target a firm with a small loyal following if it can impart a high level of targetability to that firm finally our analysis shows that an information intensive environment does not doom small firms in fact individual marketing may provide a good opportunity for a small firm to leapfrog a large firm the key to leapfrogging is a high level of targetability or customer knowledge

competitive reactions to advertising and promotion attacks how do competitors react to each other s price promotion and advertising attacks what are the reasons for the observed reaction behavior we answer these questions by performing a large scale empirical study on the short run and long run reactions to promotion and advertising shocks in over 400 consumer product categories over a four year time span our results clearly show that the most predominant form of competitive response is passive in nature when a reaction does occur it is usually retaliatory in the same instrument i e promotion attacks are countered with promotions and advertising attacks are countered with advertising there are very few long run consequences of any type of reaction behavior by linking reaction behavior to both cross and own effectiveness we further demonstrate that passive behavior is often a sound strategy while firms that do opt to retaliate often use ineffective instruments resulting in spoiled arms accommodating behavior is observed in only a minority of cases and often results in a missed sales opportunity when promotional support is reduced the ultimate impact of most promotion and advertising campaigns depends primarily on the nature of consumer response not the vigilance of competitors

comparative advantage and unemployment worker heterogeneity in productivity and labor supply is introduced into a matching model workers who earn high wages and work high hours are identified as those with strong market comparative advantage high rents from being employed the model is calibrated to match separation job finding and employment in the sipp data the model predicts a big drop in employment for workers with weak comparative advantage during recessions but the data show that workers with strong comparative advantage also display sizable employment fluctuations implying that aggregate employment fluctuations are not explained by the responses of workers with small rents to employment

the long term effects of price promotions on category incidence brand choice and purchase quantity abstract to what extent do price promotions have a long term effect on the components of brand sales namely category incidence brand choice and purchase quantity the authors answer this question by using persistence modeling on weekly sales data of a perishable and a storable product derived from a scanner panel their analysis reveals first that permanent promotion effects are virtually absent for each sales component next the authors develop and apply an impulse response approach to estimate the promotional adjustment period and the total dynamic effects of a price promotion specifically they calculate the long term equivalent of gupta s 1988 14 84 2 breakdown of promotional effects because of positive adjustment effects for incidence but negative adjustment effects for choice the authors find a reversal of the importance of category incidence and brand choice 66 11 23 for the storable product and 58 39 3 for the perishable product the authors discuss the implications of the findings an

differences in dynamic brand competition across markets an empirical analysis we investigate differences in the dynamics of marketing decisions across geographic markets empirically we begin with a linear quadratic game involving forward looking firms competing on prices and advertising based on the corresponding markov perfect equilibrium we propose estimable econometric equations for demand and marketing policy our model allows us to measure empirically the strategic response of competitors along with economic measures such as firm profitability we use a rich dataset that combines sales marketing mix factor cost and advertising cost data for eighteen geographic markets in the frozen entree category we find that larger markets tend to be less price sensitive and more profitable than smaller markets we also find evidence of positive carryover of own advertising on own demand in terms of consumer substitution patterns we find that the role of advertising in our data seems to be more category building complementary than share stealing competitive the complementary role is stronger in larger markets on the supply side we find that firms make smaller adjustments to own advertising as goodwill goes up consistent with cross advertising effects on demand firms make smaller larger adjustments to advertising in response to competitive goodwill in the less competitive larger in the more competitive smaller markets finally we find that consumer welfare decreases increases in larger smaller markets when firms move to a zero advertising regime

changes in wage inequality in canada an interprovincial perspective this paper uses the canadian labour force survey to understand why the level and dispersion of wages have evolved differently across provinces from 1997 to 2013 the faster increase in the level of wages and the decline in wage dispersion in newfoundland saskatchewan and alberta are the starkest interprovincial differences we find that they are accounted for by the growth in the extractive resources sectors which benefited less educated and younger workers the most increases in minimum wages since 2005 are found to be the main reason why wages at the very bottom grew more than those in the middle of the distribution

sleeping with the enemy should competitors share the same advertising agency the possibility of account conflicts is generally regarded as a very serious problem in the advertising industry the problem is that once an advertising agency works for a firm it learns private information which it can use strategically i e make available to the firm s competitors but in oligopolistic situations knowing more about a competitor may not necessarily be beneficial because the competitor may react to this knowledge similarly allowing the competitor to have more information may not necessarily be detrimental in fact the decision of whether to share the same agency depends on three effects which are identified here 1 the decision making framework effect 2 the strategic effect and 3 the uncertainty effect the first effect always favors sharing the same gency the direction of the latter two effects is ambiguous this ambiguity is resolved against the sharing of agencies when 1 the competitor s reaction to the firm s situation is especially harmful in that particular situation strategic effect and 2 the competitor s actions are increasingly harmful uncertainty effect

what happens when you tax the rich evidence from executive compensation this paper examines the responsiveness of taxable income to changes in marginal tax rates using detailed compensation data on several thousand corporate executives from 1991 to 1995 the data confirm that the higher marginal rates of 1993 led to a significant decline in taxable income indeed this small group of executives may account for as much as 20 percent of the aggregate change in wage and salary income for approximately the one million richest taxpayers over this time period one person alone can account for more than 2 percent the decline however is almost entirely a short run shift in the timing of compensation rather than a permanent reduction in taxable income the short run elasticity of taxable income with respect to the net of tax share exceeds one in this sample but the elasticity after one year is at most 0 4 and probably closer to zero breaking out the tax responsiveness of different types of compensation shows that the large short run responses come almost entirely from a large inc

performance regimes and marketing policy shifts even in mature markets managers are expected to improve their brands performance year after year when successful they can expect to continue executing on an established marketing strategy however when the results are disappointing a change or turnaround strategy may be called for to help performance get back on track in such cases performance diagnostics are needed to identify turnarounds and to quantify the role of marketing policy shifts in this process this paper proposes a framework for such a diagnosis and applies several methods to provide converging evidence for two main findings first contrary to prevailing beliefs the performance of brands in mature markets is not always stable instead brands systematically improve or deteriorate their performance outlook in clearly identifiable time windows that are relatively short compared to windows of stability second these shifts in performance regimes are associated with the brand s marketing actions and policy shifts as opposed to competitive marketing promotion oriented marketing policy shifts are particularly potent in improving a brand s performance outlook

the elasticity of taxable income evidence and implications abstract a central tax policy parameter that has recently received much attention but about which there is substantial uncertainty is the overall elasticity of taxable income we provide new estimates of this elasticity which address identification problems with previous work by exploiting a long panel of tax returns to study a series of tax reforms throughout the 1980s this identification strategy also allows us to provide new evidence on both the income effects of tax changes on taxable income and on variation in the elasticity of taxable income by income group we find that the overall elasticity of taxable income is approximately 0 4 the elasticity of real income not including tax preferences is much lower we estimate small income effects of tax changes on reported income implying that the compensated and uncompensated elasticities of taxable income are very similar we estimate that this overall elasticity is primarily due to a very elastic response of taxable income for taxpayers who have incomes above 100 000 per year who have an elasticity of 0 57 while for those with incomes below 100 000 per year the elasticity is less than one third as large moreover high income taxpayers who itemize are particularly responsive to taxation our estimates suggest that optimal tax structures may feature tightly targeted transfers to lower income taxpayers and a flat or even declining marginal rate structure for middle and high income taxpayers

how closely do top income shares track other measures of inequality in recent years researchers have used taxation statistics to estimate the share of total income held by the richest groups such as the top 10 or the top 1 compiling a standardised top income shares dataset for 13 developed countries i find that there is a strong and significant relationship between top income shares and broader inequality measures such as the gini coefficient this suggests that panel data on top income shares may be a useful substitute for other measures of inequality over periods when alternative income distribution measures are of low quality or unavailable

regulating complementary products a comparative institutional analysis optimal regulation subject to informational constraints is analyzed for industries for which production requires complementary inputs an issue for regulatory policy is whether supply in these industries should be bundled or unbundled bundled supply calls for regulation of an integrated industry unbundled supply has each component regulated separately a main result is that unbundling introduces into regulation an additional component of information cost that is similar to double marginalization in the monopoly pricing of complementary products unbundling may be advantageous if it allows sufficient competition in nonmonopoly services but the information cost can exceed the benefits of competition

the case for a progressive tax from basic research to policy recommendations the fair distribution of the tax burden has long been a central issue in policyhe fair distribution of the tax burden has long been a central issue in policymaking a large academic literature has developed models of optimal tax making a large academic literature has developed models of optimal tax theory to cast light on the problem of optimal tax progressivity in this theory to cast light on the problem of optimal tax progressivity in this paper we explore the path from basic research results in optimal tax theory to paper we explore the path from basic research results in optimal tax theory to formulating policy recommendations formulating policy recommendations models in optimal tax theory typically posit that the tax system should maximize a models in optimal tax theory typically posit that the tax system should maximize a social welfare function subject to a government budget constraint taking into account social welfare function subject to a government budget constraint taking into account that individuals respond to taxes and transfers social welfare is larger when resources that individuals respond to taxes and transfers social welfare is larger when resources are more equally distributed but redistributive taxes and transfers can negatively are more equally distributed but redistributive taxes and transfers can negatively affect incentives to work save and earn income in the fi rst place this creates the clasaffect incentives to work save and earn income in the fi rst place this creates the classical trade off between equity and effi ciency which is at the core of the optimal income sical trade off between equity and effi ciency which is at the core of the optimal income tax problem in general optimal tax analyses maximize social welfare as a function of tax problem in general optimal tax analyses maximize social welfare as a function of individual utilities the sum of utilities in the utilitarian case the marginal weight for individual utilities the sum of utilities in the utilitarian case the marginal weight for a given person in the social welfare function measures the value of an additional dollar a given person in the social welfare function measures the value of an additional dollar of consumption expressed in terms of public funds such welfare weights depend on of consumption expressed in terms of public funds such welfare weights depend on the level of redistribution and are decreasing with income whenever society values the level of redistribution and are decreasing with income whenever society values more equality of income therefore optimal income tax theory is fi rst a normative more equality of income therefore optimal income tax theory is fi rst a normative theory that shows how a social welfare objective combines with constraints arising from theory that shows how a social welfare objective combines with constraints arising from limits on resources and behavioral responses to taxation in order to derive specifi c limits on resources and behavioral responses to taxation in order to derive specifi c

taxation and top incomes in canada we estimate the elasticity of reported income with respect to tax rates for high earners using sub national variation across canadian provinces we argue this allows for better identification of tax elasticities than the existing literature we find that elasticities of reported income at the provincial level are large for incomes in the top 1 but small for lower earners there are strong indications that the response happens both through earned and capital income while our estimated elasticities are large changes in tax rates cannot explain much of the overall long run trend of higher income concentration in canada resume fiscalite et revenus les plus eleves au canada les auteurs evaluent l elasticite du revenu declare par rapport aux taux d imposition pour les revenus les plus eleves en utilisant les variations intra nationales a travers les provinces du canada ils suggerent que cela produit une meilleure identification des elasticites que ce que contient la litterature pour le moment on decouvre que les elasticites du revenu declare sont elevees pour les 1 au sommet mais faibles pour les revenus plus bas il appert fortement que la reponse se produit tant pour les revenus gagnes que pour les revenus d investissement meme si les elasticites mesurees sont elevees les changements dans les taux d imposition ne peuvent pas expliquer beaucoup de la tendance a long terme vers une plus forte concentration des hauts revenus au canada

individual heterogeneity and interindustry wage differentials estimates of interindustry wage differentials are obtained using a fixed effects estimator on a long panel the national longitudinal survey of young men nls after controlling for observable worker characteristics 84 percent of the residual variance of log wages across industries is explained by individual fixedeffects only 16 percent of the residual variance is explained by industry dummies since no controls for specific job characteristics are used job characteristics that vary across industries could potentially explain this rather small residual across industry log wage variance that is not attributable to individual effects clearly then these data do not force us to resort to noncompetitive explanations of interindustry wage differentials such as efficiency wage theory furthermore efficiency wage theories predict that wages in efficiency wage paying or primary industries should be relatively rigid therefore industry wage differentials should widen in recessions however no such tendency is found in the data

a stackelberg model of pricing of complementary goods under information asymmetry abstract we consider a duopoly market where two separate firms offer complementary goods in a leader follower type move each firm has private forecast information about the uncertain market demand and decides whether to share it with the other firm we show that information sharing would benefit the leader firm but hurt the follower firm as well as the total system if the follower firm shares information unconditionally we then devise a simple to implement information sharing scheme under which both firms and the total system are better off we also provide several interesting managerial insights and establish the robustness of the model in managing a supply chain through our analytical and simulation results

asymmetric reference price effects and dynamic pricing policies we consider a group of frequently purchased consumer brands which are partial substitutes and examine two situations the first where the group of brands is managed by a retailer and second where the brands compete in an oligopoly we assume that demand is a function of actual prices and reference prices and develop optimal dynamic pricing policies for each situation in addition to researchers studying pricing strategy our results may interest retailers choosing between hi lo pricing and an everyday low price and manufacturers assessing whether to follow procter gamble s lead and replace a policy of funding consumer price reductions through trade deals with a constant wholesale price a reference price is an anchoring level formed by customers based on the pricing environment the literature suggests that demand for a brand depends not only on the brand price but also whether the brand price is greater than the reference price a perceived loss or is less than it a perceived gain the responses to gains and losses are asymmetric broadly speaking we find that when enough consumers weigh gains more than losses the optimal pricing policy is cyclical likewise when they weigh losses more than gains a constant price is optimal thus we provide a rationale for dynamic pricing which is quite distinct from the three explanations previously offered 1 decreasing unit variable costs due to learning effects 2 the transfer of inventory to consumers who face lower inventory holding costs than do retailers and 3 competitive effects our explanations apply even when the other explanations do not i e in mature product categories where learning effects are minimal when retailer inventories are minimized through the use of just in time policies and when competitive effects do not exist as in a monopoly greenleaf 1995 has shown numerically that in the presence of reference price effects the optimal pricing policy for a monopolist can be cyclical we first analytically extend greenleaf s result to a monopolist with a constant cost of goods facing a homogeneous market where all customers either weigh gains more than losses or vice versa using this building block we examine a monopolist retailer managing multiple brands we assume that demand is a linear function of prices of multiple brands and together with an expression which reflects the reference price effect further we assume that the retailer maximizes average profit per period next we analyze a duopoly and extend the results to an oligopoly we assume that the manufacturers are able to set the retail prices as in an integrated channel here we retain the same demand function as for the retailer and derive markov perfect nash equilibria we use two alternative processes of reference price formation the exponential smoothed es past price process which is frequently used in the literature and for the multi brand situations the recently proposed reference brand rb process hardie johnson and fader 1993 in the latter the reference price is the current price of the last brand bought the reference brand we adapt the individual level rb formulation in hardie et al to an aggregate demand specification for the es process we obtain most results analytically for the rb process we use simulation finally we extend our results to a population with two customer segments segment 1 which weighs gains more than losses and segment 2 which does the opposite i e is loss averse when the market consists exclusively of segment 1 customers and es is the reference price process we find that prices are cyclical in all cases analyzed i e for a monopoly a monopolist retailer managing multiple brands a duopoly and an oligopoly if the rb formulation is the underlying process a monopolist retailer managing two brands uses cyclical prices but in a duopoly the equilibrium solution is for the brands to maintain constant prices when all customers belong to segment 2 i e they are loss averse constant prices are optimal in all cases for both reference price formulations when the population consists of both segment 1 and segment 2 and the es process applies we develop a sufficient condition for cyclical pricing policies to be optimal the condition is expressed in terms of the proportion of the two segment sizes the absolute difference between the gain and loss parameters of each segment and their respective exponential smoothing constants interestingly for reasonable values of the latter two factors cyclical policies are optimal even when the proportion of segment 1 is quite small similar magnitudes are obtained numerically for the rb case

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had

practice prize paper marketing mix recommendations to manage value growth at p g asia pacific procter gamble p g asia pacific is interested in managing value growth only after fully understanding the true effects of the marketing mix variables can p g managers make strategic decisions answering questions such as the following 1 are the p g brands in the detergent market inelastic or elastic with respect to price how has the price elasticity changed over time can p g increase the price of its brands to gain value growth 2 what are the price distribution and sizing combinations needed to achieve the desirable value growth 3 how can p g gain market share from its competitors without cannibalizing its own brands p g asia pacific approached us to develop a value growth framework to answer these questions to generate the answers for the above questions we develop a three step weighted random coefficient estimator that captures the heterogeneity across cross sections different stock keeping units and states and the endogeneity of distribution based on the parameter estimates we provide strategic recommendations to p g for a field test to validate our suggestions we developed a simulator for p g managers so that they can generate appropriate marketing mix strategies for achieving the desired value growth as a result p g gained over 39 million in value growth over a one year period by implementing the recommendations from our modeling approach