effects of piracy on quality of information goods it is commonly believed that piracy of information goods leads to lower profits which translate to lower incentives to invest in innovation and eventually to lower quality products manufacturers policy makers and researchers all claim that inadequate piracy enforcement efforts translate to lower investments in product development however we find many practical examples that contradict this claim therefore to examine this claim more carefully we develop a rigorous economic model of the manufacturer s quality decision problem in the presence of piracy we consider a monopolist who does not have any marginal costs but has a product development cost quadratic in the quality level produced the monopolist faces a consumer market heterogeneous in its preference for quality and offers a quality level that maximizes its profit we also allow for the possibility that the manufacturer may use versioning to counter piracy we unexpectedly find that in certain situations lower piracy enforcement increases the monopolist s incentive to invest in quality we explain the reasons and welfare implications of our findings this paper was accepted by lorin hitt information systems

product and price competition in a duopoly this paper examines the role of consumer preferences costs and price competition in determining the competitive product strategy of a firm in the model studied here there are two identical firms competing on product quality and price they face consumers who prefer a higher quality product to a lower quality product but differ in how much they are willing to pay for quality the consumers can also choose a substitute if they don t like the product price offerings of the two firms for the firms a higher quality product costs more to produce than a lower quality product the paper shows that the equilibrium strategy for each firm should be to differentiate its product from its competitor with the firm choosing the higher quality choosing the higher margin as well this differentiation however is not efficient that is it is possible to choose two other products and offer them at prices that cover their marginal cost and still satisfy consumers needs better in the aggregate a monopolist by contrast would differentiate his product line efficiently this suggests that cannibalization has different effects on product strategy than competition the paper also shows that if one firm enters the market first then it can defend itself from later entrants and gain a first mover advantage by preempting the most desirable product position

pricing under quality of service uncertainty market segmentation via statistical qos guarantees abstract this article examines how performance contingent pricing schemes with long term statistical performance guarantees can be applied to many it services we study two forms of performance contingent pricing with rebate proportional to failure rate and fixed rebate for below threshold performance we show that threshold performance contingency pricing can increase both profits and fairness customers who receive higher benefits pay higher effective price relative to standard pricing but an even better solution is to offer a menu of performance guarantees this can increase the firm s profit and segment the market only service providers whose performance level is sufficiently better than the industry standard can benefit from this pricing mechanism

the role of firm size in bilateral bargaining a study of the cable television industry we examine the effect of buyer merger on bilateral negotiations between a supplier and n buyers merger may have bargaining effects in addition to the usual efficiency effects the effect of merger on the buyers bargaining position depends on the curvature of the supplier s gross surplus function merger enhances worsens the buyers bargaining position if the function is concave convex based on a panel of advertising revenue in the cable television industry our estimates indicate that the gross surplus function for suppliers of program services is convex this result suggests that cable operators integrate horizontally to realize efficiency gains rather than to enhance their bargaining position vis a vis program suppliers

the choice between market failures and corruption because government intervention transfers resources from one party to another it creates room for corruption as corruption often undermines the purpose of the intervention governments will try to prevent it they may create rents for bureaucrats induce a misallocation of resources and increase the size of the bureaucracy since preventing all corruption is excessively costly second best intervention may involve a certain fraction of bureaucrats accepting bribes when corruption is harder to prevent there may be both more bureaucrats and higher public sector wages also the optimal degree of government intervention may be nonmonotonic in the level of income

the communications and information economy issues tariffs and economics research areas abstract this survey paper analyses some of the fundamental economic issues concerning the communications and information economy the first highlighted major trends are the balkanisation of the communications networks and the advent of competitive tariffs this leads to a move away from time and distance based charges to tariffs covering bandwidth service and contents use it is noted that very few resources have gone into the analysis of that sector and its inter relations with others the paper advocates for more visibility and research into the unique aspects of the communications and information sector it does so by making an inventory of key economics and computational economics research issues in need of contributions selected from the following areas public communications infrastructure and tariffing principles sales of communications services public access and equal access policies competitive access pricing communications industry finance engineering economic studies information contents macroeconomic issues finally the specific aspects of models of the communications and media sector are addressed in view of modelling work this includes variables pricing and production models for both communications and information contents the most unique contribution is here a formal model for quantifying and pricing knowledge both for consumption and for assets building

are corruption and taxation really harmful to growth firm level evidence exploiting a unique data set containing information about the estimated bribe payments of ugandan firms the authors study the relationship between bribe payments taxes and firm growth in uganda for the period 1995 97 using industry location averages to circumvent the potential problem of endogeneity and to deal with issues of measurement error they find that both the rate of taxation and the rate of bribery are negatively correlated with firm growth for the full data set a one percentage point increase in the bribery rate is associated with three percentage point reduction in firm growth an effect about three times that of taxation moreover after excluding outliers the authors find that bribery has a much greater negative impact on growth and taxation a considerably smaller one this provides some validation of firm level theories of corruption which posit that corruption retards development even more than taxation does

quality and competition in recent years the practitioner literature in operations management has seen a dramatic surge in articles on quality management it reflects the increased emphasis on quality by u s firms which has been attributed largely to increased competition faced by them the question of how quality is influenced by competitive intensity however has not received much attention either in the practitioner or the academic research literatures the notion of competitive intensity itself has not been defined precisely in this paper we develop formal models of oligopolistic competition to investigate whether equilibrium levels of quality increase as competition intensifies we consider three different competitive settings i asymmetric duopolistic competition where the dominant firm s intrinsic demand potential decreases ii a symmetric duopoly where the firms are precluded from cooperating in setting quality levels and iii symmetric oligopolistic competition where the number of firms increases we find that the relation between equilibrium quality and competitive intensity depends on what is understood by increased competition and in addition the relation is contingent on the values of parameters describing the cost and demand structure for the industry

remanufacturing as a marketing strategy the profitability of remanufacturing systems for different cost technology and logistics structures has been extensively investigated in the literature we provide an alternative and somewhat complementary approach that considers demand related issues such as the existence of green segments original equipment manufacturer competition and product life cycle effects the profitability of a remanufacturing system strongly depends on these issues as well as on their interactions for a monopolist we show that there exist thresholds on the remanufacturing cost savings the green segment size market growth rate and consumer valuations for the remanufactured products above which remanufacturing is profitable more important we show that under competition remanufacturing can become an effective marketing strategy which allows the manufacturer to defend its market share via price discrimination

corruption manufacturing plant growth and the asian paradox indonesian evidence summary using panel data from the indonesian manufacturing industry during the suharto era 1975 95 we assess the impact of plant level corruption on output and productivity growth in support of the grease the wheels hypothesis and the view of an asian paradox we find that corruption measured as bribes and indirect tax payments has a positive and statistically significant effect on individual plant growth this effect persists over the entire period which suggests improvements in the efficacy of the bribe system and a strengthening of the long term contract between firms and the government

corruption a review as is increasingly recognised in academic literature and by international organisations corruption acts as a major deterrent to growth and development the aim of this survey is to organise and summarise existing theoretical and empirical work on corruption with a view to identifying opportunities for further research the paper begins with a brief overview of key definitions of corruption and then turns to a review of the factors that favour or deter the growth of corruption together with a brief look at related models this is followed by an examination of the consequences of corruption for society and the consideration of measures that might help to reduce corruption the paper ends with suggestions for future research and includes summaries of data sources and key variables for use in this research

an experiment on learning with limited information nonconvergence experimentation cascades and the advantage of being slow abstract we present the results of an experiment on learning in a continuous time low information setting for a dominance solvable version of a cournot oligopoly with differentiated products we find little evidence of convergence to the nash equilibrium in an asynchronous setting characterized by players updating their strategies at different frequencies play tends toward the stackelberg outcome which favors the slower player convergence is significantly more robust for a serial cost sharing game which satisfies a stronger solution concept of overwhelmed solvability as the number of players grows this improved convergence tends to diminish seemingly driven by frequent and highly structured experimentation by players leading to a cascading effect in which experimentation by one player induces experimentation by others these results have implications both for traditional oligopoly competition and for a wide variety of strategic situations arising on the internet

a stochastic equilibrium model of internet pricing abstract perhaps the greatest technological innovation of the next several decades will be universal access and utilization of the internet already congestion is becoming a serious impediment to efficient utilization we introduce a stochastic equilibrium concept for a general mathematical model of the internet and demonstrate that the efficient social welfare maximizing stochastic allocation of internet traffic can be supported by optimal congestion prices we further demonstrate that approximately optimal prices can be readily computed and implemented in a decentralized system by constructing a large computer simulation model we also address the alternative of building excess capacity to avoid congestion

paying too much and being happy about it existence causes and consequences of tariff choice biases abstract a common assumption underlying the analysis of consumers choices among optional tariffs is that consumers choose the tariff that maximizes their surplus and thus the tariff that leads to the lowest billing rate for a given amount of usage yet there is evidence that many users prefer a flat rate even though their billing rate would be lower with a pay per use tariff flat rate bias and some users prefer a pay per use tariff even though they would save money with a flat rate pay per use bias the authors conduct four empirical analyses based on three different data sets they show that the flat rate bias is more important and has a greater regularity and time persistence than the pay per use bias they classify potential causes of the flat rate bias as insurance effect taxi meter effect convenience effect and overestimation effect and show that the insurance the taxi meter and the overestimation effects lead to a flat rate bias they provide evidence that underestimation of usag

symbiosis vs crowding out the interaction of formal and informal credit markets in developing countries abstract it is a common observation in many developing countries that enterprises are active borrowers in both formal and informal credit markets we propose a model in which the formal sector s superior ability in deposit mobilization is traded off against the informational advantage that lenders in the informal sector enjoy the formal sector can screen borrowers by providing only partial financing for projects thereby forcing borrowers to resort to the informal sector for the remainder of the loan we use the model to predict how the market structure responds to changes in the environment and we consider the policy implications of various forms of government intervention

information goods vs industrial goods cost structure and competition we study markets for information goods and find that they differ significantly from markets for traditional industrial goods markets for information goods in which products are vertically differentiated lack the segmentation inherent in markets for industrial goods as a result a monopoly will offer only a single product competition leads to highly concentrated information good markets with the leading firm behaving almost like a monopoly even with free entry and without network effects we study how the structure of the firms cost functions drives our results this paper was accepted by barrie r nault information systems

an equilibrium queuing model of bribery it is sometimes argued that bribery is inefficient because bureaucrats may cause delays for attracting more bribes this hypothesis is examined in the context of a queue where customers having different values of time are ranked by their bribe payments to the queue s server the nash equilibrium strategies of the customers are derived it is shown that the server is unlikely to slow down the allocation process when bribery is allowed the model does not have stringent informational requirements and the equilibrium outcome minimizes the average value of time costs of the queue it also suggests a useful auctioning procedure

is corruption grease grit or a gamble corruption increases variance of productivity across countries the effect of corruption on economic growth has attracted interest in empirical development economics the conventional view of corruption as impediment for growth has been challenged by the grease on the wheels hypothesis we take a new perspective on the issue and suggest corruption as macro risk referred to as a gamble hypothesis using cross country data and two alternative indicators of corruption we find corruption to be a significant driver of heteroscedasticity in total productivity this supports the new gamble hypothesis we also note some misleading interpretations in the previously published frontier applications to avoid these shortcomings we apply a flexible semi nonparametric estimator

nonlinear pricing of information goods this paper analyzes optimal pricing for information goods under incomplete information when both unlimited usage fixed fee pricing and usage based pricing are feasible and administering usage based pricing may involve transaction costs it is shown that offering fixed fee pricing in addition to a nonlinear usage based pricing scheme is always profit improving in the presence of nonzero transaction costs and there may be markets in which a pure fixed fee is optimal this implies that the optimal pricing strategy for information goods is almost never fully revealing moreover it is proved that the optimal usage based pricing schedule is independent of the value of the fixed fee a result that simplifies the simultaneous design of pricing schedules considerably and provides a simple procedure for determining the optimal combination of fixed fee and nonlinear usage based pricing the introduction of fixed fee pricing is shown to increase both consumer surplus and total surplus the differential effects of setup costs fixed transaction costs and variable transaction costs on pricing policy are described these results suggest a number of managerial guidelines for designing pricing schedules for instance in nascent information markets firms may profit from low fixed fee penetration pricing but as these markets mature the optimal pricing mix should expand to include a wider range of usage based pricing options minimum fees quantity discounts and adoption levels across the different pricing schemes are characterized strategic pricing responses to changes in market characteristics are described and the implications of the paper s results for bundling and vertical differentiation of information goods are discussed

revenue management model for on demand it services abstract this paper presents a model for applying revenue management to on demand it services the multinomial logit model is used to describe customer choice over multiple classes with different service level agreements slas a nonlinear programming model is provided to determine the optimal price or service level for each class through a numerical analysis we examine the impacts of system capacity and customer waiting incentives on the service provider s profit and pricing strategies

optimization and analysis of the profitability of tariff structures with two part tariffs abstract service providers often offer tariff structures with several two part tariffs that consist of a fixed fee and a usage price such that consumers may pick the tariff they prefer prices of tariffs have significant impacts on service providers profit because they simultaneously influence consumers tariff choices and their usage the number of tariffs also plays an important role because more tariffs segment the market better but also increase the administrative burden and require more marketing effort this article presents a mixed integer nonlinear programming optimization problem to determine profit maximizing tariffs compares several heuristic search methods in particular the gradient method stochastic search and simulated annealing to solve this problem analyses the profitability of different tariff structures and outlines the factors that drive differences in profitability across various tariff structures the results show that especially for large samples of more than 100 consumers simulated annealing performs best and deviates only 0 2 from the optimum structures with fewer two part tariffs are generally sufficient because additional two part tariffs only negligibly increase service providers profit

how to price discriminate when tariff size matters firms that serve a large market with many diverse consumer types use discriminatory or nonlinear pricing to extract higher revenue inducing consumers to separate by self selecting from a large number of tariff options but the extent of price discrimination must often be tempered by the high costs of devising and managing discriminatory tariffs including costs of supporting consumers in understanding and making selection from a complex menu of choices these tariff design trade offs occur in many industries where firms face many consumer types and each consumer picks the number of units to consume over time examples include wireless communication services other telecom and information technology products legal plans fitness clubs automobile clubs parking healthcare plans and many services and utilities this paper evaluates alternative ways to price discriminate while accounting for both revenues and tariff management costs the revenue maximizing menu of quantity price bundles can be very or infinitely large and hence not practical instead two part tariffs 2pts which charge a fixed entry fee and a per unit fee can extract a large fraction of the optimal revenue with a small menu of choices and they become more attractive once the costs of tariff management are factored in we show that three part tariffs 3pts which use an additional instrument the free allowance are an even more efficient way to price discriminate a relatively small menu of 3pts can be more profitable than a menu of 2pts of any size this 3pt menu can be designed with less information about consumer preferences relative to the menu of two part tariffs which in order to segment customers optimally needs fine grained information about preferences our analysis reveals a counterintuitive insight that more complex tariffs need not always be more profitable it matters whether the complexity is from many choices or more pricing instruments

revenue implications of money creation under leviathan most governments possess a monopoly franchise in the creation of money economists provide an analytical justification for this institutional arrangement either in terms of the use of monetary aggregates for macro economic stabilization or in terms of the alleged inability of competitive markets to generate tolerably efficient monetary results any complete case for the government s monetary monopoly must however depend on a comparison of market and political arrangements a comparison that requires predictions about how governments are likely to behave once a monopoly franchise is assigned similarly such predictions are crucial in evaluating restrictions that might be imposed on the government s exercise of its money creation power in designing a monetary constitution in the analysis of political arrangements the revenue implications of the money creation power are probably more significant than considerations of either macro economic stability or optimality in the money supply although those revenue implications are incidental to demonstrating the nature of market failure in monetary arrangements they are fundamental in understanding how the government might exploit a monopoly in money creation once granted our interest in the revenue effects of money creation stems from a broader study of constitutional restrictions on the revenueraising authority of government see our book the power to create money is naturally encompassed in this restrictions on the revenue raising power must embody restrictions on the power to create money consequently the fiscal constitution has important implications for the monetary constitution in this paper we examine both the revenue implications of money creation and desirable consitutional restrictions on the money creation power within the context of a specific model of political processes

optimal labour contracts under asymmetric information an introduction the review of economic studies has instituted a new series of lectures to be given annually by a younger british economist at the association of university teachers of economics meetings the choice of lecturer is determined by a panel whose members are currently professors hahn mirrlees and nobay this paper is a revised version of the first lecture in the series it was presented at the aute meeting held at the university of surrey in april 1982 and was refereed in the usual way mak

monopoly with incomplete information recent theoretical research on principal agent relationships has emphasized incentive problems that arise when the parties involved are constrained by either asymmetric information or their inability to monitor each other s actions here we concentrate on the former constraint and consider the case of a single principal the monopolist the main contribution is to show that under a separability assumption strong conclusions can be drawn about the nature of optimal incentive schemes although the primary focus is on optimal quantity discounts in a monopolized market the results also shed light on related topics such as optimal income taxation and commodity bundling

location and the multinational enterprise a neglected factor this article first traces the changing world economic scenario for international business over the past two decades and then goes on to examine its implications for the location of foreign direct investment and multinational enterprise activity it suggests that many of the explanations of the 1970s and early 1980s need to be modified as firm specific assets have become mobile across natural boundaries a final section of the article examines the dynamic interface between the value added activities of multinational enterprises in different locations

a note on competitive bribery games abstract within a competitive bribery game in which each player has incomplete information we show that there exists a unique nash equilibrium which is symmetric similar results hold for another bribery game form that prevails in the literature implications for corrupt practices in relation to economic development are also discussed

simple competitive internet pricing abstract it is widely recognised that pricing is required to control congestion on the internet one lesson that has emerged from many proposals is that any price system should be simple and robust to competition this is highlighted in the question currently under debate in the market for internet services should usage prices should be employed at all in a duopoly model with overall positive network effects it is shown that flat rate pricing can occur in equilibrium even when the costs of measuring variable demand are very small

optimal nonuniform prices we consider optimal nonuniform pricing schedules where the price depends upon the amount purchased such schedules are regularly used by public utilities and other services welfare optimal nonuniform prices are related to the theory of optimal uniform prices developed by ramsey we characterize situations in which upward or downward discontinuities in pricing schedules are optimal our results are applicable to a number of related problems including optimal taxation insurance and incentives economic theory has confined most of its attention to markets with uniform prices in which the price per unit charged is invariant to the level of a customer s purchases this focus is warranted when goods are resellable since any attempt to charge nonuniform prices could be circumvented by reselling amongst customers but when goods are not resellable nonuniform prices are not only possible but common public utilities have declining block pricing with lower unit charges for large levels of consumption many agencies providing services including communications transportation even education use two part pricing with a fixed entry or retainer charge and a further charge per unit consumption nonuniform price schedules can be expected to be ever more common as services become a larger fraction of total output the increasing prevalence of nonuniform pricing policies have made them the focus of recent public and economic attention oi 1971 feldstein 1972 and ng and weisser 1974 have examined optimal two part pricing policies leland and meyer 1976 examine block pricing and show by example that optimal welfare policies may require nonuniform prices if zero profit constraints are binding in this paper we consider arbitrary nonuniform pricing policies using variational techniques two part and block pricing schedules are of course special cases of the environment we consider the work most closely related to our examination is the seminal paper by spence 1978 and subsequent analysis by roberts 1979 spence however does not pay explicit attention to the key role played by constraints on optimal pricing schedules roberts considers upward price discontinuities which lead to bunching of consumers at a given level of consumption but not downward price discontinuities which lead to regions in which no consumer chooses to consume gaps bunching or gaps may appear in the optimal price schedule even when underlying demand and cost functions are smooth and well behaved the prevalence of discontinuous pricing schedules e g the block pricing structures of public utilities argues that these questions are of practical as well as theoretical interest

is corruption an efficient grease this paper tests whether corruption may be an efficient grease in the wheels of an otherwise deficient institutional framework it analyzes the interaction between aggregate efficiency corruption and other dimensions of governance for a panel of 69 countries both developed and developing using two measures of corruption and two other aspects of governance we observe that corruption is less detrimental to efficiency in countries where institutions are less effective it may even be positively associated with efficiency in countries where institutions are extremely ineffective we thus find evidence for the grease the wheels hypothesis in its weak and strong forms

congestion and network externalities in the short run pricing of information system services transfer pricing provides management with an efficient tool for coordinating the use of information system services in practice these services if they are charged out to end users are priced via an allocation of historical costs based on individual usage or are assigned a price based on the fair market value of outside alternatives both approaches encourage suboptimal usage of information systems resources they ignore three constituents of optimal transfer prices 1 the reaction of other users to any change in a given user s consumption of service 2 the technical response to additional use of an information system service in the form of congestion and network externalities and 3 end user preferences for the information system service together these influences on demand contribute to an externality two types of externalities are significant in information systems congestion externalities decrease and network externalities increase the utility of services this research provides a complete model for computing optimal transfer price which corrects several existing problems in information system service valuation when full absorption cost allocations contain significant fixed precommitted or sunk cost components it is not possible to balance the budget direct costing improves on full absorption costing but misspecifies costs when demand is nonlinear to balance the budget with a minimum of disutility to end users management must resort to second best pricing inefficiency arises from two sources when externalities are ignored in transfer pricing end users cannot plan service usage and thus encounter unanticipated congestion which lowers morale and efficiency and increases costly expediting where congestion effects are highly nonlinear congestion may effectively shut down the system on the other hand incorrect transfer prices can motivate usage too low to take advantage of network benefits end users may confuse externality effects and intrinsic value of an information system service in these cases the price and performance of outside alternatives exert a complex and subtle influence on use and pricing of services where there exist identical outside and inside processing alternatives and transfer pricing does not reflect this there is a significant tendency to overprice and underutilize internal services in this case there may be a tendency to outsource when processing should be kept in house future markets for information systems will favor technologies which exhibit strong network externalities and pricing of these technologies will become increasingly complex because of the interrelationship of hardware software and data originated externalities the models provided in this research will allow management to take advantage of these opportunities

does corruption boost or harm firms performance in developing and emerging economies a firm level study in the last decade a growing number of studies have addressed the ongoing debate about whether corruption sands or greases the wheels of business at the firm level this study revisits this debate and proposes a comprehensive theoretical framework to test whether corruption harms or boosts firm performance as well as the extent to which this relationship is mediated by the countries institutional settings the size and strategic behaviour of the firms and market competition based on a sample of 21 250 firms located in 117 emerging and developing countries and resorting to instrumental variable iv estimations three main results were found a regardless of the proxy used for corruption and firm performance the former clearly harms the latter b corruption greases the wheels of business for african firms but it sands the wheels for firms in latin america the caribbean eastern europe central asia and southern asia and c the negative impact of corruption on performance is mitigated for larger and exporting firms

nonlinear pricing with random participation the canonical selection contracting programme takes the agent s participation decision as deterministic and finds the optimal contract typically satisfying this constraint for the worst type upon weakening this assumption of known reservation values by introducing independent randomness into the agents outside options we find that some of the received wisdom from mechanism design and nonlinear pricing is not robust and the richer model which allows for stochastic participation affords a more general empirical specification we develop a multidimensional methodology for addressing this class of problems providing two important applications to nonlinear pricing first with nonlinear pricing by a monopolist the familiar nodistortion at the top result persists but in tandem with the surprising conclusion that there is either no distortion at the bottom or bunching second in a simple model of product differentiated duopolists competing with nonlinear pricing we show that generally the duopoly outcome is qualitatively similar to the monopoly outcome however when marginal costs are symmetric and competition is sufficiently intense distortions disappear and the equilibrium outcome takes a remarkably simple form efficient quality allocations with cost plus fee pricing

a reduced form optimal nonlinear income tax problem abstract for a finite population with quasilinear preferences it is shown how mirrlees optimal nonlinear income tax problem can be simplified to a reduced form problem involving only the allocation of the consumption good this result is a finite version of a proposition established in the continuum by s lollivier and j c rochet

participation constraints in adverse selection models abstract this paper characterizes the optimal contract offered by an uninformed principal to an informed agent when the latter s reservation utility depends on his type the informational rent is nonmonotonic so that interior types may have a vanishing rent or be excluded from trade the paper identifies conditions for the optimal contract to be separating to be nonstochastic and to induce full participation it also discusses the nature of the solution when bunching occurs the results are applied to nonlinear pricing under price cap regulation and bypass competition and to competition in nonlinear pricing journal of economic literature classification numbers d82 d42 d23 d78 l51 l15

the economics of organization the transaction cost approach the transaction cost approach to the study of economic organization regards the transaction as the basic unit of analysis and holds that an understanding of transaction cost economizing is central to the study of organizations applications of this approach require that transactions be dimensionalized and that alternative governance structures be described economizing is accomplished by assigning transactions to governance structures in a discriminating way the approach applies both to the determination of efficient boundaries as between firms and markets and to the organization of internal transactions including the design of employment relations the approach is compared and contrasted with selected parts of the organization theory literature

corruption and entrepreneurship evidence from brazilian municipalities we estimate the effect of corruption on business activity in brazilian municipalities we employ a new measure of corruption based on data from random audits of municipal governments our results suggest that higher levels of corruption are generally associated with reductions in the number of business establishments furthermore we find that these effects become larger over time suggesting that corruption is particularly detrimental over the long run however we also find that the effect of corruption on business activity can be insignificant or even positive conditional on institutional quality being very poor this is consistent with the grease the wheels hypothesis which argues that corruption provides entrepreneurs with means to avoid burdensome regulations and taxes

eight questions about corruption this paper will discuss eight frequently asked questions about public corruption 1 what is corruption 2 which countries are the most corrupt 3 what are the common characteristics of countries with high corruption 4 what is the magnitude of corruption 5 do higher wages for bureaucrats reduce corruption 6 can competition reduce corruption 7 why have there been so few recent successful attempts to fight corruption 8 does corruption adversely affect growth

relicensing as a secondary market strategy secondary markets in the information technology industry where used or refurbished equipment is traded have been growing steadily for original equipment manufacturers oems in this industry the importance of secondary markets has grown in parallel not only as a source of revenue but also because of their impact on these firms competitive advantage and market strategy recent articles in the press have severely criticized some oems who are perceived to be actively trying to eliminate the secondary market for their products other oems have policies that enhance their secondary markets the goal of this paper is to understand how an oem s incentives and optimal strategies vis a vis the secondary market are shaped contingent on her relative competitive advantage product characteristics and consumer preferences the critical trade off that we examine is whether the indirect benefit from maintaining an active secondary market the resale value effect can outweigh the potentially negative effect of the sales of used products at the expense of new product sales the cannibalization effect to that end we develop a durable good model where the oem can directly affect the resale value of her product through a relicensing fee charged to the buyer of the refurbished equipment we analyze the oem s strategy in both the monopoly and the duopoly cases characterize the optimal relicensing fee set by the oem and draw conclusions on the conditions that favor stimulating or deterring the secondary market this paper was accepted by candace a yano operations and supply chain management

user delay costs and internal pricing for a service facility this paper studies optimal pricing and capacity decisions for a service facility in an environment where users delay cost is important the model assumes a general nonlinear delay cost structure and incorporates the tradeoff between the delay cost and capacity cost we find necessary and sufficient conditions for the optimality of a pricing rule that charges out service resources at their marginal capacity cost we examine the issue of budgetary balance and find that net value maximization entails a budget deficit for the service facility that is the service facility should be evaluated as a deficit center the results provide guidelines under which the optimal magnitude of the deficit can be determined

group buying on the web a comparison of price discovery mechanisms web based group buying mechanisms are being widely used for both business to business b2b and business to consumer b2c transactions we survey currently operational online group buying markets and then study this phenomenon using analytical models we build on the literatures in information economics and operations management in our analytical model of a monopolist offering web based group buying under different kinds of demand uncertainty we derive the monopolist s optimal group buying schedule under varying conditions of heterogeneity in the demand regimes and compare its profits with those that obtain under the more conventional posted price mechanism we further study the impact ofproduction postponement by endogenizing the timing of the pricing and production decisions in a two stage game between the monopolist and buyers our results have implications for firms choice of price discovery mechanisms in e markets and for the scheduling of production and pricing decisions in the presence and absence of scale economies of production

expert mediated sequential search abstract this paper studies markets such as internet marketplaces for used cars or mortgages in which consumers engage in sequential search in particular we consider the impact of information brokers experts who can for a fee provide better information on true values of opportunities we characterize the optimal search strategy given a price and the terms of service set by the expert and show how to use this characterization to solve the monopolist expert s service pricing problem our analysis enables the investigation of three common pricing schemes pay per use unlimited subscription and package pricing that can be used by the expert we demonstrate that in settings characteristic of electronic marketplaces namely those with lower search costs for consumers and lower costs of production of expert services unlimited subscription schemes are favored finally we show that the platform that connects consumer and experts can improve social welfare by subsidizing the purchase of expert services the optimal level of subsidy forces the buyer to exactly fully internalize the marginal cost of provision of expert services in electronic markets this cost is minimal so it may be worthwhile for the platform to make the expert freely available to consumers

music for a song an empirical look at uniform song pricing and its alternatives economists have well developed pricing theories that challenge the wisdom of the common practice of uniform song pricing this paper explores the profit and welfare implications of various alternatives including song specific pricing various forms of bundling two part tariffs nonlinear pricing and third degree price discrimination using survey based data on nearly 500 students valuations of 50 popular songs in early january 2008 we find that various alternatives including simple schemes such as pure bundling and two part tariffs can raise both producer and consumer surplus revenue could be raised by nearly 10 percent relative to profit maximizing uniform pricing and by over a fifth relative to current 0 99 uniform pricing moreover revenue could be increased by a tenth while maintaining consumer surplus at the high level accompanying current 0 99 uniform song pricing while person specific uniform pricing can raise revenue by three quarters none of the non discriminatory schemes raise revenue s share of surplus above 35 percent even with sophisticated pricing much of the area under the demand curve for this product cannot be appropriated as revenue

durable products time inconsistency and lock in many durable products cannot be used without a contingent consumable product e g printers require ink ipods require songs razors require blades etc for such products manufacturers may be able to lock in consumers by making their products incompatible with consumables that are produced by other firms we examine the effectiveness of such a strategy in the presence of strategic consumers who anticipate the future prices of both the durable product and the contingent consumable under a lock in strategy the manufacturer has pricing power over the contingent consumable which she can use to extract additional rents from higher valuation consumers but such pricing power may also reduce consumers willingness to pay for the durable because it subjects them to being held up with higher consumables prices in the future restricting our attention to linear pricing policies we find that if the manufacturer can commit to shutting down production of her durable after an initial one time sale then competition from another consumable of an appropriately degraded level of quality can benefit the manufacturer by mitigating consumers fears of being held up on the other hand when the manufacturer cannot commit to shutting down production of her durable then her own output of additional durables gives her an incentive to keep consumables prices low and competition in the consumables market is less beneficial this paper was accepted by pradeep chintagunta and preyas desai special issue editors this paper was accepted by pradeep chintagunta and preyas desai special issue editors

pricing information goods a strategic analysis of the selling and pay per use mechanisms we analyze two pricing mechanisms for information goods these mechanisms are selling where up front payment allows unrestricted use and pay per use where payments are tailored to use we analytically model a market where consumers differ in use frequency and where use on a pay per use basis invokes a psychological cost associated with the well known ticking meter effect we demonstrate that pay per use yields higher profits in a monopoly provided the associated psychological cost is low in a duopoly one firm uses selling and the other uses pay per use here in contrast to the monopoly selling yields higher profits than pay per use we demonstrate that surprisingly the profits of both duopolists can increase as the psychological cost associated with pay per use increases next we show that uncertainty in consumer use frequency does not affect pay per use in a monopoly but lowers profits from selling in a duopoly both the seller and the pay per use provider obtain lower profits when use frequency is uncertain we also analyze how pricing mechanism performance is affected if the firms cannot commit to prices if the pay per use provider offers a two part tariff and if consumers are risk averse

uncertain demand consumer loss aversion and flat rate tariffs we consider a model of firm pricing and consumer choice where consumers are loss averse and uncertain about their future demand possibly consumers in our model prefer a flat rate to a measured tariff even though this choice does not minimize their expected billing amount a behavior in line with ample empirical evidence we solve for the profit maximizing two part tariff which is a flat rate if a marginal costs are not too high b loss aversion is intense and c there are strong variations in demand moreover we analyze the optimal nonlinear tariff this tariff has a large flat part when a flat rate is optimal among the class of two part tariffs

multiproduct nonlinear pricing typically work on mechanism design has assumed that all private information can be captured in a single scalar variable this paper explores one way in which this assumption can be relaxed in the context of the multiproduct nonlinear pricing problem it is shown that the firm will choose to exclude some low value consumers from all markets a class of cases that allow explicit solution is derived by making use of a multivariate form of integration by parts in such cases the optimal tariff is cost based

the impact of tariff structure on customer retention usage and profitability of access services past research in marketing and psychology suggests that pricing structure may influence consumers perception of value in the context of two commonly used pricing schemes pay per use and two part tariff we evaluate the impact of pricing structure on consumer preferences for access services to this end we develop a utility based model of consumer retention and usage of a new service a notable feature of the model is its ability to capture the pricing structure effect and measure its impact on consumer retention usage and pricing policy using data from a pricing field experiment for a new telecommunication service we find that consumers derive lower utility from consumption under a two part tariff than pay per use pricing resulting in lower retention of customers and lower usage of the service specifically our demand analysis shows that a two part tariff structure leads to an average decline of 10 5 in the annual retention rate and an average decrease of 38 7 in yearly usage relative to pay per use pricing after controlling for income effects despite the higher customer churn and lower usage we find that the two part tariff is still the profit maximizing pricing structure however our results show that if firms ignore the pricing structure or access fee effect then they would overcharge customers for the access fee and undercharge them for the per minute price translated in terms of profitability the failure to account for the access fee effect leads to a reduction of 11 in firm profit

corruption types of corruption and firm financial performance new evidence from a transitional economy using a nationwide survey of provincial institutional quality and a sample of private manufacturing small and medium scale enterprises the smes this paper contributes to the literature by considering for the first time the effects of corruption on the financial performance of vietnamese private smes interestingly contrary to previous findings we find that corruption when measured by a dummy variable does not affect firms financial performance after controlling for heterogeneity simultaneity and dynamic endogeneity however the intensity of bribery and the majority of the forms of corruption were found to have negative impacts on firms financial performance hence a typical approach using only a dummy variable for bribery might not adequately evaluate the impact of bribe intensity or even ignores the negative impacts of some types of bribes on firms financial performance the findings suggest that anti corruption measures are vital for the development of the vietnamese private smes

nonuniform bertrand competition the feasibility of bertrand undercutting with nonuniform prices is established and properties are derived for bertrand equilibrium in nonuniform price strategies with free entry equilibrium entails zero profit minimum average cost production if there is more than one producing firm all prices collapse to a minimum average cost uniform price an existence condition is compared to conditions from uniform price theory without free entry equilibrium prices may not collapse to a uniform price positive profit may occur but all firms earn equal profit and incur equal marginal cost while consumers pay average outlay no greater than marginal cost copyright 1992 by the econometric society

pricing diagnostic information diagnostic information allows an agent to predict the state of nature about the success of an investment project better than the prior we analyze the optimal pricing scheme for selling diagnostic information to buyers with different privately known ex ante success probability investment costs and returns of successful projects are assumed to be the same for all buyers the value of diagnostic information is the difference in expected payoffs with and without it and we show that the willingness to pay for diagnostic information is nonmonotonic in the ex ante success probability when the information seller can offer only one quality level and negative payments are not allowed we find that the optimal menu of linear contracts is remarkably simple a pure royalty is offered to buyers with low ex ante success probability and a pure fixed fee is offered to buyers with high ex ante success probability

the flat rate pricing paradox conflicting effects of all you can eat buffet pricing abstract are price and consumption independent in flat rate price service contexts a field experiment at an all you can eat pizza restaurant shows that a 50 discount on the price of the meal led customers to consume 27 9 less pizza 2 95 versus 4 09 pieces a second analysis indicated that individual taste ratings of this pizza tended to be inversely related to how much is consumed one possible interpretation of these two findings is that individuals in a flat rate or fixed price context may consume the amount that enables them to get their money s worth rather than consuming until their marginal utility of consumption is 0

on the robustness of the consumer homogeneity assumption with respect to the discount factor for remanufactured products abstract the strategic closed loop supply chain clsc literature makes the assumption that a consumer s willingness to pay wtp for a remanufactured product is a fraction of his her wtp for the corresponding new product and this fraction called discount factor is assumed to be constant among consumers recent empirical research challenges this assumption by showing that there is considerable variability in discount factors among consumers this paper considers a complex model in the clsc literature strategic remanufacturing under quality choice and compares its solution under constant discount factors with the solution that assumes a probability distribution for the discount factors which is analytically intractable and must be obtained numerically we consider quality choice and remanufacturing for both monopoly and competitive cases overall we find remarkable consistency between the results of the constant and variable discount factor models thus we make a convincing argument that the constant discount factor assumption is robust and can be used due to its tractability

the challenge of revenue sharing with bundled pricing an application to music bundling can increase revenue and profits relative to selling products on a standalone basis and this is an especially attractive strategy for zero marginal cost information products despite the clear benefits of bundling it has one major problem bundling produces revenue that is not readily attributable to particular pieces of intellectual property creating a revenue division problem the shapley value provides a well motivated solution to this problem and we use unique survey data to create measures of bundle value and in turn to estimate shapley values for each of 50 bundle elements we then evaluate feasible revenue sharing schemes including equal sharing proportional sharing and the modified shapley value of ginsburgh and zang 2003 2004 we first document that the shapley value is highly incentive compatible all bundle elements fare better inside the bundle than they do outside on a standalone basis we then evaluate the feasible schemes according to both their incentive compatibility and their similarity with the shapley value we find not surprisingly that the feasible schemes are less incentive compatible than the shapley value among the feasible schemes the gz scheme performs best while equal sharing performs worst

corruption and cross border investment in emerging markets firm level evidence abstract this paper studies the joint impact of corruption on the entry mode and volume of inward foreign direct investment fdi using a unique firm level data set we find that corruption not only reduces inward fdi but also shifts the ownership structure towards joint ventures the latter finding supports the view that corruption increases the value of using a local partner to cut through the bureaucratic maze however r d intensive firms are found to favor sole ownership

pricing and allocation for quality differentiated online services we explore the problem of pricing and allocation of unique one time digital products in the form of data streams we look at the short term problem where the firm has a capacitated shared resource and multiple products or service levels we formulate the allocatively efficient generalized vickrey auction gva for our setting and point out the computational challenges in determining the individual discriminatory transfer payments we propose an alternative uniform price computationally efficient revenue maximizing knapsack formulation called the multiple vickrey auction mva while not incentive compatible the mva mechanism achieves bounded posterior regret and can be solved in real time it has the added benefit of realizing imputed commodity prices for the various services a feature lacking in the discriminatory gva approach for service providers that are concerned about the incentive compatibility but want imputed service prices we suggest a maximal mva mmva uniform pricing scheme that trades off revenue maximization for allocative efficiency for sake of completeness we discuss the properties of a first price pay your bid scheme while np hard and not incentive compatible this formulation has the perceived benefit of cognitive simplicity on the parts of sellers and bidders

why do amusement parks only charge a fixed admission fee abstract we come up with some explanations on why amusement parks adopt pass pricing even when no additional transaction costs exist for implementing non linear pricing schemes the related factors include much fun generated by any ride and a higher transportation cost

mechanism design for free but no free disposal services the economics of personalization under privacy concerns online personalization services belong to a class of economic goods with a no free disposal nfd property where consumers do not always prefer more services to less because of the privacy concerns these concerns arise from the revelation of information necessary for the provision of personalization services we examine vendor strategies in a market where consumers have heterogeneous concerns about privacy in successive generalizations we allow the vendor to offer a fixed level of personalization variable levels of personalization and monetary transfers coupons to the consumers that depend on the level of personalization chosen we show that a vendor offering a fixed level of personalization does not offer a coupon unless his marginal value of information mvi is sufficiently high and even when personalization is costless the vendor does not cover the market under a fixed services offering the vendor serves the same market with or without couponing next we demonstrate that in the absence of couponing the vendor s optimal variable personalization services contract maximizes surplus for all heterogeneous consumers which is in contrast to standard results from monopolistic screening when the vendor can offer coupons that vary according to personalization levels the optimal contract is not fully revealing unless his mvi is high and he will not offer coupons when this mvi is low however a vendor with a moderate mvi between certain thresholds offers a bunched contract wherein consumers with low privacy concerns receive a variable services coupon contract those with moderate privacy concerns receive a fixed services coupon contract and those with high privacy concerns do not participate in the market the coupon value is decreasing in privacy sensitivity of consumers

research note when is versioning optimal for information goods this paper provides insights about when versioning is an optimal strategy for information goods our characterization of this class of goods is that variable costs are invariant with quality including the special case of zero variable costs our analysis assumes a monopoly firm that has an existing product in the market and has an opportunity to segment the market by introducing additional lower quality versions we derive a simple decision rule for determining the optimality of versioning based on the solution to a single product maximization problem versioning is optimal when the optimal market share of the lower quality version offered alone is greater than the optimal market share of the high quality version offered alone a firm can profitably employ versioning for an information good if it can design the lower quality in a way that relative to their valuations for the high end version high type consumers have a lower relative valuation for the lower quality than do low type consumers when variable costs increase a firm that offered only one product version need not consider adding another version when variable costs decrease the firm should explore adding a lower quality version

managing new and remanufactured products we study a firm that makes new products in the first period and uses returned cores to offer remanufactured products along with new products in future periods we introduce the monopoly environment in two period and multiperiod scenarios to identify thresholds in remanufacturing operations next we focus our attention on the duopoly environment where an independent operator io may intercept cores of products made by the original equipment manufacturer oem to sell remanufactured products in future periods we characterize the production quantities associated with self selection and explore the effect of various parameters in the nash equilibrium among other results we find that if remanufacturing is very profitable the original equipment manufacturer may forgo some of the first period margin by lowering the price and selling additional units to increase the number of cores available for remanufacturing in future periods further as the threat of competition increases the oem is more likely to completely utilize all available cores offering the remanufactured products at a lower price

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

capacity acquisition subcontracting and lot sizing the fundamental question encountered in acquiring capacity to meet nonstationary demand over a multiperiod horizon is how to balance the trade off between having insufficient capacity in some periods and excess capacity in others in the former situation part of the demand is subcontracted while in the latter capacity that has been paid for is rendered idle capacity and subcontracting decisions arise in many economic activities ranging from production capacity planning in semiconductor fabs to leasing communication networks from transportation contracts to staffing of call centers in this paper we investigate the trade offs between acquiring capacity subcontracting production and holding inventory to satisfy nonstationary demand over a finite horizon we present capacity acquisition models with holding and without holding inventory and identify forecast robust properties of the models that restrict the dependence of optimal capacity decisions on the demand forecasts we develop algorithms for numerous practical cost structures involving variable and fixed charges and prove that they all have polynomial time complexity for models with inventory we solve a sequence of constant capacity lot sizing and subcontracting subproblems which is also of independent interest