market frictions a unified model of search costs and switching costs it is well known that search costs and switching costs can create market power by constraining the ability of consumers to change suppliers while previous research has examined each cost in isolation this paper demonstrates the benefits of examining the two types of friction in unison the paper shows how subtle distinctions between the two costs can provide important differences in their effects upon consumer behaviour competition and welfare in addition the paper also illustrates a simple empirical methodology for estimating separate measures of both costs while demonstrating a potential bias that can arise if only one cost is considered

expanding demand through price advertisement abstract retail stores frequently advertise prices when consumer search is costly advertising low prices expands the number of consumers who visit and buy we show that this demand enhancement may offset a retailer s loss in margins from the low price making advertisement desirable we further show that a multi product monopolist may choose to advertise low prices only for select products even when advertised and non advertised products are substitutes for duopolist retailers at a common location an equilibrium exists in which for some range of advertising costs one store advertises and the other free rides on its competitor

monopolistic competition in the spirit of chamberlin a general model this paper develops a model of large group chamberlinian monopolistic competition in which 1 there are many firms producing differentiated commodities 2 each firm is negligible in that it can ignore its impact on and hence reactions from other firms 3 free entry leads to zero profit of operating firms but 4 each firm faces a downward sloping demand curve the existence of a monopolistically competitive equilibrium is established in a companion paper more particular questions such as whether the market provides too many or too few products are addressed for a special case of the model

profit efficiency among basmati rice producers in pakistan punjab farm specific profit inefficiency among basmati rice producers was estimated from a variable coefficient profit frontier the mean level of inefficiency at farm resources and price levels was 28 with a wide range 5 87 average loss of profit was rs 1 222 per hectare socioeconomic factors related to profit loss were the farm household s education nonagricultural employment and a credit constraint institutional determinants of profit loss were a water constraint and the late application of fertilizer punjab wide benefits of increasing farmer s profit efficiency are large a 25 reduction in profit loss among basmati rice producers may generate over rs 240 million in extra profits each rice season rice is a major export commodity for pakistan generating about 2 5 billion pakistan rupees rs annually or 20 of foreign exchange earnings from commodity trade in the early 1980s two varieties dominate in pakistan s international trade in rice basmati 370 a high quality long grained aromatic variety and the medium long grained irri 6 distinct export markets exist for these rices over 90 of the basmati is exported to oil rich middle eastern nations while the mediumlong varieties are mainly marketed in southeast asia in 1983 the export price of basmati was about rs 7 900 per ton while the price of medium long grained varieties averaged rs 2 700 per ton pakistan has a comparative advantage in the international market for basmati but probably not for medium long grained rices azhar and mamhud historically pakistan had a near monopoly in international trade in basmati but now faces increased competition from thailand and the united states efferson therefore pakistan must strive to increase the efficiency of basmati production to retain its comparative advantage and competitive edge in foreign rice markets basmati 370 is a pure line selection made in

measurement of economic efficiency in pakistani agriculture farm efficiency and the question of how to measure it is an important subject in developing countries agriculture there are three distinct approaches to measurement based on cost profits and production functions farrell developed the concept of technical efficiency based on input and output relationships technical inefficiency arises when actual or observed output from a given input mix is less than the maximum possible allocative inefficiency arises when the input mix is not consistent with cost minimization advances have been made in the frontier cost function literature using flexible functional forms bauer greene 1980 forsund knoxlovell and schmidt and schmidt an approach using systems of equations based on cost profit and distance functions was developed to incorporate all available information on multiproduct farms kumbhakar schmidt fare grosskopf and nelson hayes the present study uses a cost function approach and combines the concepts of technical and allocative efficiency in the cost relationship any errors in the production decision translate into higher costs for the producer at the same time the stochastic nature of production implies that the theoretical cost function is stochastic 2 two distinct approaches are used first we use the stochastic frontier approach in which translog cost function is specified and estimated without using share equations the derived measure of inefficiency is then related to socioeconomic demographic and farm size variables second we use a behavioral approach in which translog cost function again is estimated but this time as a function of the shadow prices of the inputs the cost share equations are estimated jointly with a cost equation incorporating all cross equation restrictions moreover the input use inefficiency is introduced through the parameters and these are related to the structural variables this approach permits us to obtain a farm specific measure of allocative inefficiency

some models for estimating technical and scale inefficiencies in data envelopment analysis in management contexts mathematical programming is usually used to evaluate a collection of possible alternative courses of action en route to selecting one which is best in this capacity mathematical programming serves as a planning aid to management data envelopment analysis reverses this role and employs mathematical programming to obtain ex post facto evaluations of the relative efficiency of management accomplishments however they may have been planned or executed mathematical programming is thereby extended for use as a tool for control and evaluation of past accomplishments as well as a tool to aid in planning future activities the ccr ratio form introduced by charnes cooper and rhodes as part of their data envelopment analysis approach comprehends both technical and scale inefficiencies via the optimal value of the ratio form as obtained directly from the data without requiring a priori specification of weights and or explicit delineation of assumed functional forms of relations between inputs and outputs a separation into technical and scale efficiencies is accomplished by the methods developed in this paper without altering the latter conditions for use of dea directly on observational data technical inefficiencies are identified with failures to achieve best possible output levels and or usage of excessive amounts of inputs methods for identifying and correcting the magnitudes of these inefficiencies as supplied in prior work are illustrated in the present paper a new separate variable is introduced which makes it possible to determine whether operations were conducted in regions of increasing constant or decreasing returns to scale in multiple input and multiple output situations the results are discussed and related not only to classical single output economics but also to more modern versions of economics which are identified with contestable market theories

search costs and investment in quality in this paper we analyze how lower search costs aect rms incentives to invest in quality we identify two con icting eects on the one hand lower search costs increase incentives to invest in quality by eroding the market share of low quality rms and increasing the market share of high quality rms on the other hand by intensifying price competition lower search costs adversely aect high quality rms more than low quality rms the net eect of a change in the search cost on quality is shown to depend on the initial quality distribution there is a critical value such that if the average quality in the market is initially above this value lower search costs lead to lower quality whereas if the initial quality is below this value lower search cost leads to higher quality we show that our results are consistent with a superstar eect

the extent of resource use inefficiencies in cotton production in pakistan s punjab an application of data envelopment analysis abstract this paper attempts to identify sources of resource use inefficiency for cotton production in pakistan s punjab the use of a non parametric method data envelopment analysis dea is developed to study the relative technical and allocative efficiencies of individual farms which use similar inputs produce the same product and operate under comparable circumstances in the cotton wheat system of pakistan there are a considerable number of farms that are both technically and allocatively inefficient the use of dea shows that the technique provides a clear identification of both the extent and the sources of technical and allocative inefficiencies in cotton production however both the interpretation of the farm level results generated and the projection of these results to a higher level require care given the technical nature of the agricultural production processes

impacts of considering climate variability on investment decisions in ethiopia extreme interannual variability of precipitation within ethiopia is not uncommon inducing droughts or floods and often creating serious repercussions on agricultural and nonagricultural commodities a dynamic climate module is integrated into an economy wide model containing a detailed zonal level agricultural structure this coupled climate economic model is used to evaluate the effects of climate variability on prospective irrigation and infrastructure investment strategies and the ensuing country wide economy the linkages between the dynamic climate module and the economic model are created by the introduction of a climate yield factor cyf defined at the crop level and varied across ethiopian zones nine sets of variable climate vc data are processed by the coupled model generating stochastic wet and dry shocks producing an ensemble of potential economic prediction indicators analysis of gross domestic product and poverty rate reveal a significant overestimation of the country s future welfare under all investment strategies when climate variability is ignored the coupled model ensemble is further utilized for risk assessment to guide ethiopian policy and planning

assessing the relative efficiency of agricultural production units in the blackland prairie texas the way in which data envelopment analysis dea can be used to assess the relative technical efficiency of agricultural production units is illustrated two variants of the existing dea additive model introduced each eliminating earlier difficults encountered inapplication and theory these new models are demonstrated through application to agricultural data obtained from the blackland prairie texas

measuring the effects of search costs on equilibrium prices and profits abstract this paper assesses the effects of search costs on equilibrium prices and profits using an estimated model of demand and costs in a laundry detergent market i find that some firms profits initially rise and then fall with search costs overall the magnitude and direction of the search costs effects on prices and profits are heterogeneous this is because search costs create conflicting incentives for a firm to reduce prices to attract the attention of searching consumers yet also raise prices to harvest profit from consumers who are unaware of competing products these effects can vary with the relationship between the firms actual prices and the consumers pre search beliefs about prices

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

the impact of global warming on agriculture a ricardian analysis reply we measure the economic impact of climate on land prices using cross sectional data on climate farmland prices and other economic and geophysical data for almost 3 000 counties in the united states we find that higher temperatures in all seasons except autumn reduce average farm values while more precipitation outside of autumn increases farm values applying the model to a global warming scenario shows a significantly lower estimated impact of global warming on u s agriculture than the traditional production function approach and in one case suggests that even without co sub 2 fertilization global warming may have economic benefits for agriculture 16 refs 5 figs 5 tabs

technical efficiency in developing country agriculture a meta analysis abstract a meta analysis is performed to review empirical estimates of technical efficiency te in developing country agriculture the objective of the study is to contribute to a better understanding of the factors that influence estimates of mean te a data set of 51 observations of te from 32 studies is used in order to test if specific characteristics of the data and econometric specifications account for systematic differences in the efficiency estimates results using the two limit tobit procedure indicate that factors such as primal versus dual number of fixed inputs and number of variable inputs increase average te estimates on the other hand using the cobb douglas functional form and cross sectional data yields a lower level of te other factors including the number of variables in the model crop type stochastic versus deterministic frontiers and sample size do not seem to significantly affect estimates of te across studies

new product introduction with costly search abstract in the usual model of product market search a low search cost can turn out to have detrimental incentives on new product introduction as the low search cost erodes firms market power attenuating the profit from innovation this paper studies a model of monopolistic competition with costly search where the point of departure is that of a fixed cost of initiating search in this environment a low search cost could turn out to be favorable to innovation at a low search cost more consumers may decide to start searching possibly resulting in higher profits for firms in the larger market despite the erosion of market power

price quality and reputation evidence from an online field experiment we examine the link between price quality seller claims and seller reputation in internet auctions after purchasing actual baseball cards and having them professionally graded we find that some buyers in the online graded market are misled by incredible claims of quality they pay higher prices but do not receive better quality and in fact are defrauded more often online seller reputation is effective for identifying good faith sellers but conditional on completed auctions reputable sellers do not provide better quality evidence also suggests that high claim sellers target less experienced buyers we attribute these patterns to two loopholes in the ebay rating system we benefited from the comments of austan goolsbee raphael thomadsen john shea dan vincent david reiley larry ausubel peter cramton v joseph hotz jeff smith jimmy chan vincent crawford mark duggan and attendees at numerous seminars and conferences we are particularly grateful to seth sanders and john list for their constructive advice at the early stage of the research to timothy bresnahan rachel kranton and thomas hubbard for their detailed suggestions in reshaping earlier versions and to editor ariel pakes and two anonymous referees for their careful readings special thanks to eight friends who acted as our agents in purchasing baseball cards in retail markets and to numerous sports card store owners who shared their insights on the sportscard industry excellent research assistance from randy alexander moore and krzysztof fizyta is gratefully acknowledged any remaining errors are ours

a model of recommended retail prices manufacturers frequently post nonbinding public price recommendations but neither the rationale for this practice nor its impact on prices is well understood i develop a model in which recommendations signal a manufacturer s production cost to searching consumers who then form beliefs about retail prices increasing search makes consumers reject offers for the manufacturer s and competitors products more often and i show that both consumers and the manufacturer prefer more search when the production cost is low and less search when it is high with incentives thus aligned manufacturer recommendations inform consumers via cheap talk and their removal harms both parties

consumer search costs and preferences on the internet we conduct an empirical analysis of consumer preferences and search costs on an internet platform using data from a major french platform priceminister we show descriptive evidence of substantial price dispersion among adverts for the same product of consumers often not choosing the cheapest advert and sometimes choosing an advert dominated in price and non price characteristics by another available advert we consider a sequential search model where consumers sample adverts in an endogenous order based on their preferences and search costs we show that the optimal search and purchase strategy can be characterized by a set of inequalities which can feasibly be tested on transaction and advert data this allows us to estimate for each transaction a set of preference and search cost parameter values thus allowing for flexible consumer heterogeneity in preferences and search costs the estimated model can then describe a wide range of consumer search and purchase behaviours we find that the model can explain almost all transactions in the data and requires non zero preferences and search costs for at least 50 and 22 respectively of observations we also find evidence of heterogeneous and sometimes substantial search costs

value of an additional firm in monopolistic competition the paper develops a model of monopolistic competition in which the satisfaction levels consumers get from products are independently and identically distributed potential substitution among products then generates demand curves through the mechanism of order statistics the value of extra variety can be calculated directly pareto lognormal and beta distributions are investigated using numerical integration some but not all cases support the argument that the optimal number of firms exceeds the equilibrium number

beliefs and consumer search in a vertical industry this paper studies vertical relations in a search market as the wholesale arrangement between a manufacturer and its retailers is typically unobserved by consumers their beliefs about who is to be blamed for a price deviation play a crucial role in determining wholesale and retail prices the common assumption in the consumer search literature is that consumers exclusively blame an individual retailer for a price deviation we show that in the vertical relations context predictions based on this assumption are not robust in the sense that if consumers assign just a small probability to the event that the upstream manufacturer is responsible for the deviation equilibrium predictions are qualitatively di erent for the robust beliefs the vertical model can explain a variety of observations such as retail price rigidity or alternatively low cost pass through non monotonicity of retail prices in search costs and seemingly collusive retail behavior the model can be used to study a monopoly online platform that sells access to nal consumers

competition advertising and meeting competition clauses abstract pricing according to meeting competition clauses mcc s is often argued to enforce collusive agreements our analysis incorporates uncertainty and advertising we show within a spatial model that mcc s permit price discrimination but at the expense of lower profits

growth options and poverty reduction in ethiopia an economy wide model analysis abstract this study focuses on which agricultural subsectors are important in ethiopia s economic growth and poverty reduction and what kind of agricultural and nonagricultural growth is needed to achieve the millennium development goal of halving the incidence of poverty by 2015 a spatially disaggregated economy wide model was developed enabling the analysis of growth and poverty reduction linkages at national and regional levels using national household surveys agricultural sample surveys geographic information systems and other national and regional data the study reveals that agriculture can play a central role in decreasing poverty and increasing growth in ethiopia within the agriculture growth in cereals and other staple crops should receive priority agricultural growth also requires concurrent investments in roads and other market conditions at the subnational level similar growth rates within agricultural subsectors have different effects on poverty necessitating regionally based strategies for growth and poverty reduction

conversion subsidies for organic production results from sweden and lessons for the united states organic conversion subsidies used in europe are less likely to be politically acceptable in the united states where organic agriculture development is market driven persistent barriers to conversion in the united states include limited availability of and access to production and market information training in management systems and cost of conversion related investments by determining whether these factors affect the requirement of a subsidy to convert we can suggest whether u s policy makers need to provide subsidies to encourage conversion and identify policy variables consistent with market based approaches that could stimulate conversion a utility difference model is used with swedish data to analyze factors that determine whether a subsidy is required to motivate organic conversion the results show that farmers requiring subsidies manage larger less diversified farms and are more concerned with organic inspection quality and adequacy of technical advice access to more market outlets and information sources substitutes for payment level in the farmer s utility function indicating that services rather than subsidies may be used to encourage organic agriculture to the extent that conditions are similar in the u s organic sector market based programs such as cost sharing for conversion and market access improvement should stimulate growth of this industry 2000 elsevier science b v all rights reserved

a simple model of search engine pricing we present a simple model of how a monopolistic search engine optimally determines the average relevance of firms in its search pool in our model there is a continuum of consumers who use the search engine s pool and there is a continuum of firms whose entry to the pool is restricted by a price per click set by the search engine we show that a monopolistic search engine may have an incentive to set a relatively low price per click that encourages low relevance advertisers to enter the search pool in general the ratio between the marginal and average relevance in the search pool induced by the search engine s policy is equal to the ratio between the search engine s profit per consumer and the equilibrium product price these conclusions do not change if the search engine charges a fixed access fee rather than a price per click a search engine is a platform that serves a two sided market it is based on a technology that potentially improves the quality of consumer search before the advent of internet search engines yellow pages were the closest example of a search engine firms pay to be included in the yellow pages with various degrees of prominence the yellow pages organise the set of firms according to some categorisation system in internet environments consumers use search engines by submitting a query in a language dictated by the search engine the objects that the query elicits depend on the search engine s

frontier production functions and technical efficiency a survey of empirical applications in agricultural economics abstract the modelling and estimation of frontier production functions has been an important area of econometric research during the last two decades forsund lovell and schmidt 1980 and schmidt 1986 present reviews of the concepts and models involved and cite some of the empirical applications which had appeared to their respective times of publication this paper seeks to update the econometric modelling of frontier production functions associated with the estimation of technical efficiency of individual firms a survey of empirical applications in agricultural economics is an important part of the paper

determinants and resource use efficiency of better cotton an innovative cleaner production alternative abstract the resource constraints along with socioeconomic attributes and capabilities of farmers cause variations in the adoption of agricultural technologies these variations represent an inefficiency source in complete utilization of management practices and epitomize a lack of achieving full potential offered by better cotton an innovative cleaner production alternative therefore this research focused on identifying the potential areas of improvement in better cotton farmers input use by investigating the technical and economic efficiencies as well as the factors determining the resource use efficiency technical allocative and economic efficiencies of better cotton were analyzed using input oriented data envelopment analysis factors affecting technical and economic efficiencies were identified using bootstrapped truncated regression there was variation in technical efficiency and it was positively influenced by farmers education farming experience and drainage status whereas it was negatively influenced by the number of household members involved in farming and the area under cotton the mean economic efficiency of 56 indicated that at the current productivity level inefficient farmers can reduce their costs by 44 the economic efficiency was negatively affected by the number of household members involved in farming and the intensity of using crop management practices thus efforts should be made to improve input use efficiency of particularly those better cotton farmers who are currently operating inefficiently this efficiency analysis aims to provide recommendations to policy makers and promoters of better cotton as to which practices and inputs should be focused while implementing better cotton as a cleaner alternative to conventional cotton

analyses of technical efficiency using sdf and dea models evidence from nepalese agriculture alleviation of poverty is a central issue in nepal given the limited stock of land and the infant unorganized manufacturing sector increased demand for food has to be satisfied by improving production efficiency this article examines how this could be achieved stochastic distance function and data envelopment analysis models identify the existence of a high degree of technical inefficiency in nepalese agriculture suggesting that there is a substantial prospect of increasing agricultural productivity using the existing level of inputs and resources more efficiently among the three farm sizes in the data set medium size farmers achieve a higher technical efficiency than large and small farm sizes suggesting that productive efficiency can be increased with the encouragement of creating medium size holdings the observed decreasing returns to scale also implies that productivity gains could be achieved by breaking up of large farms into small family farms the technical inefficiency model suggests the

comparative advertising disclosing horizontal match information improved consumer information about horizontal aspects of products of similar quality leads to better consumer matching but also to higher prices so consumer surplus can go up or down while profits rise with enough quality asymmetry though the higher quality and hence larger firm s price falls with more information so both effects benefit consumers this occurs when comparative advertising is used against a large firm by a small one comparative advertising as it imparts more information therefore helps consumers although it also improves the profitability of the small firm overall welfare goes down because of the large loss to the attacked firm

product differentiation with imperfect information the paper employs a model of monopolistic competition and product differentiation with consumers who are not well informed about the specification of the offered brands welfare analysis of the degree of product differentiation in such a market concludes that the socially desirable product variety is limited due to consumers imperfect information consequently when the number of consumers is sufficiently large or economies to scale in production are sufficiently weak the market would offer excessive variety the literature on product differentiation is motivated by the observation that only some of the potential brands of a differentiated product are produced and sold it studies issues such as the role of the market structure in the determination of product diversity and the welfare performance of alternative markets in making this product selection for example see lancaster 1979 and salop 1979 in the spatial models tradition spence 1976 and dixit and stiglitz 1977 in the diversifying representative consumer tradition these studies model product selection as an equilibrium outcome of monopolistic competition the welfare analysis focuses on the tradeoff between consumer benefits which naturally increase with variety and production efficiency which owing to economies to scale decreases with variety they find no natural relation between the socially optimal variety and the market outcome the latter can be smaller or larger than the former depending on the parameters of the model although it is natural to expect that in some markets for differentiated products consumers are imperfectly informed about the available brands all these studies assume that consumers possess perfect information the present paper assumes that consumers are imperfectly informed and indeed obtains qualitatively different results first regardless of how significant are the production economies of scale the optimal variety is below a predetermined level that depends on the parameters of consumer utility and information second when consumer population is sufficiently large or economies to scale in production are sufficiently weak the market would offer excessive variety the explanation is that consumers imperfect information limits the extent to which they can exploit the variety offered in the market it is therefore a social waste to increase variety to a level that consumers cannot benefit from

true monopolistic competition as a result of imperfect information the paper restates hart s 1985a 1985b definition of large group monopolistic competition distinguishes it from oligopolistic competition and raises the question of whether there are reasonable circumstances that give rise to true monopolistic competition as defined the purpose is to show that consumers imperfect information may create conditions that will turn an otherwise oligopolistic market into a truly monopolistically competitive one