retail pricing and clearance sales sellers of new products are faced with having to guess demand conditions to set price appropriately but sellers are able to adjustprice over time and to learn from past mistakes additionally it is not necessary that all goods be sold with certainty it is sometimes better to set a high price and to risk no sale this process is modeledto explain retail pricing behavior and the time distribution of transactions prices start high and fall as a function of time on theshelf the initial price and rate of decline can be predicted and depends on thinness of the market the proportion of customers who are window shoppers and other observable characteristics copyright 1986 by american economic association

china s projected cereals deficits in a world context abstract lester brown s recent writings about trends in china s food consumption production and rapidly rising import requirements and his predictions that the world is running out of potential to increase production of cereals received wide publicity in the press they increased awareness of the problem among the public which was stimulated by recent declines in world cereals production per capita falling stocks and sharp rises in world market prices this paper is an attempt on my part to extract a coherent picture of what brown says about china and the world and examine it in the light of what we know about this country and of possible developments in the world as a whole i make the following conclusions 1 1 brown misjudges china s potential to maintain and indeed increase cereals production because he misinterprets the data on land losses he treats diversion of land from cereals to mainly other crops and aquaculture as if such land were lost to food production he ignores new data which indicate that china has more agricultural land than reported in official statistics and his projected numbers do not account for responses on the part of producers consumers and government policy to an increasing scarcity of products and rising prices 2 2 the analogies he draws with the experiences of japan south korea and taiwan are inappropriate 3 3 china will probably be a growing net importer of cereals but at levels much below those projected by brown 4 4 world production of cereals may indeed grow at a lower rate than in the long term past but not as low as that projected by brown which could be sufficient to accommodate china s growing import requirements and the probable ones of other countries 5 5 the world food problem is one of persistence of very low food consumption levels and high incidence of undernutrition in many developing countries mainly in sub saharan africa and south asia the persistence of severe food insecurity problems reflects not so much constraints in increasing food production in the world as whole but development failures often agricultural development failures and the persistence of poverty in certain countries

durable goods monopolists durable goods monopolists face special problems because the sale of their products creates a secondhand market not controlled by the monopolist to the extent the monopolist is able to rent his product rather than sell it or to make binding promises about his future production such problems are ameliorated given the inability to do the above the monopolist is led to producing goods less durable than those produced by either competitive firms or monopolist returns a reverse averch johnson result that monopolist sellers may invest less in fixed costs including plant modernization and research and development than would the renters is shown it is also shown that even though sellers have less monopoly power than renters and nondurable goods monopolists it is possible that the seller will cause a greater deadweight loss than the other types of monopolies

long run competition in capacity short run competition in price and the cournot model in this article we investigate the nature of equilibrium in markets in which firms choose the scale of operation before they make pricing decisions we analyze a duopoly model in which firms choose their capacities before engaging in bertrand like price competition we demonstrate that the cournot outcome is unlikely to emerge in such markets and that the equilibrium tends to be more competitive than the cournot model would predict in addition our results indicate a tendency toward asymmetric firm sizes and price dispersion that results from the mixed strategies firms use in equilibrium

on the optimal pricing policy of a monopolist the paper presents a simple explanation of price dispersion by a monopolist assuming only that consumers arrive in a random order and are served on a first come first served basis a firm can sometimes increase its profits by charging two different prices for the same good and rationing sales at the lower price however it is never necessary to charge more than two prices and a single price is sufficient as long as either the marginal revenue curve is everywhere downward sloping or the marginal cost of production is constant

imperfect price discrimination and welfare we develop a model in which a monopolist uses differences across consumers in their valuation of time to imperfectly price discriminate though it is customary to analyse price discrimination problems by the calculus of variations after postulating a continuum of types we assume a finite number of types and exploit the geometry and duality of the contract set and the structure of the programming specification we analyse in detail the qualitative properties of the model s solution and show by construction that our results exhaust the implications of the model for equilibrium contract pairs we show that imperfect discrimination is not bounded in welfare terms between perfect discrimination and single price monopoly and that the deadweight loss consumer surplus and output comparisons between single price monopoly and imperfect discrimination are ambiguous

china s consumption of cereals and the capacity of the rest of the world to increase exports abstract chinese official statements foresee little further increases in per caput demand for cereals for food and non food uses despite expected significant growth in livestock production international comparisons indicate that china s direct food consumption of cereals per caput will likely remain at fairly high levels and consumption for all other uses may increase further at a low population growth rate the average annual growth rate of aggregate demand for cereals to 2030 may not exceed 1 50 this suggests that china will not need to increase its cereal imports to the very high levels indicated by some recent statements in the unlikely case that china s import requirements grow to 150 million metric tons in 2030 the major exporting regions could generate the required surplus even if their production grew at rates below those of the longer term past

cyclic pricing by a durable goods monopolist in the model of this paper a monopoly seller of a durable good holds periodic sales as a means of price discrimination a new cohort of consumers enters the market in each period interested in purchasing the good either immediately or after a delay within each cohort consumers vary in their tastes for the good under broad conditions the seller will vary the price over time in most periods he will charge a price just low enough to sell immediately to consumers with a high willingness to pay periodically however he will drop the price far enough to sell to an accumulated group of consumers with a low willingness to pay

using yield management to shift demand when the peak time is unknown traditional peak load and stochastic peak load models assume firms have prior information about when peak demand occurs however price dispersion such as is typically used by firms practicing yield management can achieve some of the same efficient demand shifting even when the peak time is unknown equilibrium price dispersion arises because of stochastic demand and price rigidities but a previously unexplored benefit of price dispersion is its ability to reduce equilibrium capacity costs through demand shifting the model also suggests how yield management now more commonly called revenue management might actually benefit business travellers contrary to the popular prejudice

demand uncertainty and sales a study of fashion and markdown pricing the theory of clearance sales is expanded and applied to explain why markups markdowns and the frequency of sales of merchandise sold by department stores have increased dramatically in recent years and why they differ across merchandise groups tha major theme of the paper is that the growing role of fashion and product variety is an important reason for these increases and for the differences between merchandise groups the growing importance of fashion is illustrated by documenting the declining use of whites and the increasing use of colors and prints estimates of the effects of imports and technological and demographic changes on markups and markdowns are presented copyright 1988 by american economic association

optimal selling strategies when to haggle when to hold firm a seller encountering risk neutral buyers one at a time should if commitments are feasible quote a single take it or leave it price to each this strategy is superior to any other for finite or infinite buyer populations whether there is learning or the distribution of buyer prices is known at the outset with one object for sale or many although haggling may offer advantages in terms of price discrimination these gains are more than offset by the losses it generates by encouraging buyers to refuse purchases at high prices

a theory of clearance sales clearance sales are widely used by firms as an intertemporal selling policy in particular in markets where firms face demand uncertainty and need to choose capacity in advance clearance sales consist in charging a high price initially but then lowering the price in the sales period high valuation consumers purchase the good at the high initial price so as to avoid rationing at the low price while low valuation consumers wait for the price to drop we develop a simple model of intertemporal monopoly pricing under demand uncertainty and show that clearance sales may be the optimal intertemporal selling policy

the efficiency of advance purchase discounts in the presence of aggregate demand uncertainty abstract the pricing behavior of two airlines is examined one is operated by a welfare maximizing social planner the other by an unregulated monopolist total capacity is fixed and aggregate demand is uncertain it is shown that advance purchase discounts can assist in attaining an efficient allocation of capacity when it is not feasible to operate a spot market on the day of the flight it is further shown that the planner may offer larger or smaller discounts than the monopolist

the timing of sales this paper presents a model of intertemporal price discrimination a fixed number of sellers produce a homogeneous good consumers with different preferences enter the market in each period and leave when they make a purchase the sellers typically vary their prices over time charging a high price in most periods but occasionally cutting the price to sell to a large group of customers with a low reservation price in some equilibria all stores lower their price at the same time and to the same level

advance purchase discounts and monopoly allocation of capacity optimal pricing by a monopoly airline that faces capacity constraints during the peak demand period is studied the existence of capacity constraints means that in order to expand output the airline must divert demand from the peak period to the off peak period a particular advance purchase discount policy is shown to be the profit maximizing method of selling tickets if the advance purchase requirement were infeasible output and total surplus would both be lower jel l12 substantial discounts for air travel are generally available to travelers who are willing to purchase tickets a week or more in advance of the departure date this paper demonstrates why the imposition of an advance purchase requirement may be a profit maximizing strategy for a monopoly airline facing capacity constraints during times of peak demand 1 the practice of imposing an advance purchase requirement on discount tickets is also placed in a favorable light in terms of its impact on social

shortages segmentation and self selection this paper considers the rationality and implications of using shortages as a self selection device shortages lead to uncertain access and enable sellers to offer ensured access either to the good or to a preferred variety of the good at a higher price or as part of a bundle it is shown that such activities allow firms to span nonconcavities in their revenue function firms respond to changes in demand and costs through changes in quantity and or the premium for ensured access but not through changes in the base price

marginal cost pricing when spot markets are complete the standard formulation of a spot market subject to uncertain excess demand uses a tatonnement process that restricts trade until the market clearing price is found here i present a model in which there is no restriction on trade during the process of the resolution of uncertainty about aggregate excess demand the idea is to enlarge the commodity space and define goods by the probability that they will sell in addition to other characteristics the probability of sale characteristic is the spot market analogue of the contingencies under which delivery will take place in the arrow debreu model a failure to distinguish goods by the probability of sale characteristic can lead to the rejection of the competitive paradigm even when everyone is a price taker and the allocation is efficient

equilibrium price dispersion under demand uncertainty the roles of costly capacity and market structure when capacity is costly and prices are set in advance firms facing uncertain demand will sell output at multiple prices and limit the quantity available at each price i show that the optimal price strategy of a monopolist and the unique pure strategy nash equilibria of oligopolists both exhibit intrafirm price dispersion moreover as the market becomes more competitive prices become more dispersed a pattern documented in the airline industry while generating similar predictions the model differs from the revenue management literature because it disregards market segmentation and fare restrictions that screen customers

monopoly price dispersion under demand uncertainty when a monopolist sets its price before its demand is known then it may set more than one price and limit the availability of its output at lower prices this article adds demand uncertainty and price rigidities to the standard model of monopoly pricing when there are two states of demand and the ex post monopoly price is greater when demand is high then the monopolist s optimal ex ante pricing strategy is to set two prices and limit purchases at the lower price

world consumption of cereals will it double by 2025 abstract a number of recent statements in the press and the professional literature signal the considerable increases in world production of cereals required to meet the growth of demand they rightly point out the urgent need to increase investment in the agriculture of the developing countries particularly in agricultural research to meet the challenge but the magnitude of the likely increases in world demand varies among authors as does the prospective role of the developed countries as net exporters of cereals we examine the alternative projections and conclude that a a doubling of world demand by 2025 is an unlikely outcome and a doubling of demand of the developing countries is within the realm of realism though optimistic and b the exports of cereals from the developed countries will continue to grow but the huge quantities visualized by some authors are overly exaggerated

global projections for root and tuber crops to the year 2020 abstract many of the developing world s poorest farmers and food insecure people are highly dependent on root and tuber crops as a contributing if not the principal source of food nutrition and cash income hence an improved understanding of the production utilization trade and estimated future economic importance of these crops has potentially far reaching implications for investments in agricultural research at both the international and perhaps even more importantly national levels previous projections for the evolution of global supply demand and trade into the 21st century however have focused on grains oilseeds and livestock this paper presents global projections of supply demand and trade for root and tuber crops to the year 2020 according to the baseline scenario roots and tubers will decline in relative economic importance only marginally vis a vis the other major food and feed crops over the next three decades according to an alternative high demand and production growth scenario the economic importance of roots and tubers versus the same commodities will increase slightly the results of this scenario contrast with earlier projections that predicted a decline in importance for roots and tubers policymakers should take cognizance of and act on the growth prospects for these crops in the past root and tuber crops have often been overlooked in policy deliberations precisely because their potential was considered more limited than actual growth rates clearly indicate or that current projections foresee

durable goods monopoly with entry of new consumers this paper analyzes a model of a dynamic monopolist who produces at constant unit cost each period a new cohort of consumers enters the market each entering cohort is identical consumers within a cohort have different tastes for the good my main results are if players are sufficiently patient any positive average profit less than the maximum feasible level can be attained in a subgame perfect equilibrium in the subset of subgame perfect equilibria in which players use stationary strategies the seller cannot make sales at prices significantly greater than the lowest willingness to pay when period length goes to zero and the seller attains the maximum profit when commitment is feasible by charging the same static monopoly price in every period this paper analyzes a model of a dynamic monopolist who operates in a market in which there is a regular flow of new consumers the seller produces a durable good at constant unit cost each period a new cohort of consumers enters the market consumers wish to buy exactly one unit of the item but are willing to wait resales are not allowed each entering cohort is identical

conflict war and redistribution this article analyzes the circumstances under which conflict leads to the outbreak of war using a formal model which incorporates both the redistribution of resources as an alternative to war and imperfect information countries act as rational agents concerned with both consumption and the public bad of a war in the first period both countries can either consume or build arms whereas in the second period there can be either the threat or the use of force to reallocate resources if both countries are fully informed then there will be no war but rather a voluntary redistribution of resources in a situation of asymmetric information however in which one country is fully informed and the other is not a war can occur if the uninformed country uses a separating equilibrium strategy precommitting itself to a positive probability of war in order to prevent bluffing by the informed country

revenue management without commitment dynamic pricing and periodic flash sales a seller has a fixed number of goods to sell by a deadline at each time he posts a regular price and decides whether to hold a flash sale over time buyers privately enter the market and strategically time their purchases if a buyer does not purchase when she arrives she can pay an attention cost to recheck the regular price afterwards or she can wait for future flash sales where she may obtain a good at a discounted price in the unique markov perfect equilibrium the seller sporadically holds flash sales to lower the stock of goods a flash sale increases the willingness to pay of future buyers but decreases the willingness to pay of buyers who arrive early in the game when it is very likely that a buyer will obtain a good in a flash sale the seller holds a big initial flash sale for all but one unit of the good

advance selling when consumers regret we characterize the effect of anticipated regret on consumer decisions and on firm profits and policies in an advance selling context where buyers have uncertain valuations advance purchases trigger action regret if valuations turn out to be lower than the price paid whereas delaying purchase may cause inaction regret from missing a discount or facing a stockout consumers whom we describe as emotionally rational act strategically in response to the firm s policies and in anticipation of regret in this context regret explains two types of behavioral patterns inertia delayed purchase and frenzies buying early at negative surplus we show how firms should optimally respond to consumer regret and also characterize a normative regret threshold above which they should not advance sell action regret reduces profits as well as the value of advance selling and booking limit policies for price setting firms inaction regret has the opposite effects these effects are diminished by capacity constraints and are reversed for firms facing price pressure in the advance period owing e g to competition or market heterogeneity regret heterogeneity explains premium advance selling for the capacity constrained firm which may benefit from larger shares of regretful buyers finally we show how the negative effects of regret on profits can be mitigated by regret priming marketing campaigns and by offering refunds or options or allowing resales our results highlight the importance of assessing the relative strength of regret within and across market segments and of accounting for these factors in pricing and marketing policies this paper was accepted by christian terwiesch operations management