revenue management with strategic customers last minute selling and opaque selling companies in a variety of industries e g airlines hotels theaters often use last minute sales to dispose of unsold capacity although this may generate incremental revenues in the short term

optimal retail contracts with asymmetric information and moral hazard constrained joint profit maximizing retail contracts are derived when the dealer is privately informed about demand conditions before contracting with the manufacturer demand is increased by dealer promotion which is unobservable by the manufacturer consequently the manufacturer does not know whether to attribute a low level of sales to a decline in demand or to a lack of promotion we show that in general the optimal contract exhibits some form of resale price maintenance and quantity fixing the type of resale price maintenance and quantity fixing depends on how price and quantity affect the link between sales and promotion

the role of knowledge codification in the emergence of consensus under uncertainty empirical analysis and policy implications the aim of the article is to empirically analyse the main factors which allow the emergence of consensus moreover we raise the question of the nature of the codified process involved which seems to be too reducing to promote knowledge flows within the community and therefore to contribute to learning processes and better choices about the future our analysis relies on a prospective investigation based on a delphi type study carried out by beta in 1994

the incentive for conservation investment in regulated utilities abstract some public utilities have implemented programs which call for their direct investment in residential energy conservation measures this paper examines the set of regulatory circumstances in which a rational regulated utility would have an incentive for such investment given this regulatory environment we determine whether or not the utility will invest in the correct amount in the sense of economic efficiency finally we analyze how corrective regulatory policy can aid in attaining the goal of economic efficiency

the market for quacks a group of n quacks plays a price competition game facing a continuum of patients who recover with probability whether or not they acquire a quack s treatment if patients chose rationally the market would be inactive i assume however that patients choose according to a boundedly rational procedure which re ects anecdotal reasoning this element of bounded rationality has signi cant

money pumps in the market agents who employ non rational choice procedures are often vulnerable to exploitation in the sense that a profit seeking trader can offer them a harmful transaction which they will nevertheless accept we examine the vulnerability of a procedure for deciding whether to buy a lottery observe another agent who already bought it and buy the lottery if that agent s experience was positive we show that the exploitation of such agents can be embedded in an inter temporal market mechanism in the form of speculative trade in an asset of no intrinsic value jel d84

integration of discrepant sales forecasts the influence of plausibility inferences based on an evoked range abstract the authors hypothesize that when managers integrate two projections to form a sales estimate they evoke and use a sales range to judge inappropriately the plausibility of each projection this judged plausibility as well as the margin of error based on the market research company s typical accuracy is used to assign weights to each projection five experiments find strong evidence for this process and demonstrate a resulting bias

ants rationality and recruitment this paper offers an explanation of behavior that puzzled entomologists and economists ants faced with two identical food sources were observed to concentrate more on one of these but after a period they would turn their attention to the other the same phenomenon has been observed in humans choosing between restaurants after discussing the nature of foraging and recruitment behavior in ants a simple model of stochastic recruitment is suggested this explains the herding and epidemics described in the literature on financial markets as corresponding to the equilibrium distribution of a stochastic process rather than to switching between multiple equilibria

bubbles and volatility of stock prices effect of mimetic contagion the author discusses the effect of the mimetic contagion on the dynamics of stock prices each investor bids and or asks prices such that adjusts to his present value calculated from his incomplete information set and to the average price of others buyers and sellers mimetic contagion an original stochastic treatment based on the equation of motion of the probability density function is used to calculate the equations of the mean and variance of the market price as soon as the agents are mimetic and or have correlated present values then the moments of the market price are driven away from the fundamental ones copyright 1991 by royal economic society

the wisdom of the minority we consider a simple variant of the canonical model of social learning and show that in many situations it is optimal for an agent to abandon her own information and follow the minority rather than the majority this possibility depends on two economically meaningful requirements agents are differentially informed and observe only the number of agents having chosen each option such as consumers observing only market shares we show that minority wisdom arises when information is sufficiently heterogeneous and the well informed are not overly abundant yet the conditions necessary are not overly restrictive in fact it is possible for the minority to be wise even when the minority consists of a lone dissenter and a majority of citizens are well informed

penny wise and pound foolish the left digit effect in price cognition through five experiments we provide a cognitive account of when and why nine ending prices are perceived to be smaller than a price one cent higher first this occurs only when the leftmost digits of the prices differ e g 2 99 vs 3 00 second the left digit effect also depends on the numerical and psychological distances between the target price and a competing product s price the closer the two prices being compared the more likely is the left digit effect third the left digit effect is not restricted to the domain of prices it also manifests with other multidigit numbers

self reinforcing mechanisms and interactive behaviour we consider the possibility of switching between two options when there are benefits from compatibility and imprecise information about the other agents choices we find that lock in to one of multiple equilibria is just a temporary occurrence the system lingers at prevalence of one option with intermittent transitions to prevalence of the other

round prices and price rigidity evidence from outlawing odd prices abstract this paper exploits a legal change in israel that banned the use of non zero digit price endings e g 6 99 to study the relationship between digit price endings and price rigidity we compare the propensity of product prices to change before and after the ban while distinguishing between products whose prices ended with a zero and products whose prices did not end with a zero digit before the ban we find that before the ban zero digit price endings were more likely to change typically upward compared with products with non zero digit price endings after the legal change these differences disappeared overall these findings support the price point theory blinder 1991

marketing margins and price uncertainty the case of the u s wheat market this paper seeks to determine the effect of changes in output price risk on marketing margins a theoretical model of price determination in a marketing channel with risk averse firms is developed this model shows that if marketing firms are competitive and decreasingly absolute risk averse then an increase in output price risk should result in higher expected marketing margins empirical evidence from the wheat marketing channel supports the theoretical model increased price variability significantly increases wheat marketing margins for both the farm mill margin and the mill retail margin these results suggest a potential benefit from price stabilization programs

markdown pricing and cattle supply in the beef packing industry we determine the effect of anticipated and unanticipated cattle supply on the departure of fed cattle price from cattle s marginal value product results indicate fed cattle were priced significantly below their marginal value during 31 of the 59 quarters between 1972ii and 1986iv when unanticipated supply shocks are small markdown behavior is consistent with the hypothesis that packers follow an average processing cost apc pricing rule one implication of our results is that reducing industry concentration is not likely to lead to changes in cattle prices predicted by scp based studies of the industry

measuring market power in multi product oligopolies the us meat industry this paper develops and estimates an economic model for measuring market power in a quantity setting oligopoly engaged in the joint production of demand related goods the model which allows for firms conjectures about both same and cross market responses to own output variation is applied to the us meat beef and pork industry he hypothesis that the industry s equilibrium reflects price taking behaviour is rejected the hypothesis of no cross effects cannot be rejected roughly half of the farm to retail price spreads for beef and pork appear to be attributable to market power

why is equity order flow so persistent abstract order flow in equity markets is remarkably persistent in the sense that order signs to buy or sell are positively autocorrelated out to time lags of tens of thousands of orders corresponding to many days two possible explanations are herding corresponding to positive correlation in the behavior of different investors or order splitting corresponding to positive autocorrelation in the behavior of single investors we investigate this using order flow data from the london stock exchange for which we have membership identifiers by formulating models for herding and order splitting as well as models for brokerage choice we are able to overcome the distortion introduced by brokerage on timescales of less than a few hours the persistence of order flow is overwhelmingly due to splitting rather than herding we also study the properties of brokerage order flow and show that it is remarkably consistent both cross sectionally and longitudinally

incentives for conservation and quality improvement by public utilities the author examines the design of incentive programs to motivate regulated utilities to supply both basic service e g electricity supply local telephone service and service enhancements e g energy conservation services improved clarity and speed of voice communication the optimal regulatory programs are shown to vary greatly depending upon the information available to the regulator the price of the basic service may optimally be distorted above or below marginal cost to better motivate the supply of the service enhancement policy prescriptions are compared with current programs and proposals to promote energy conservation 35 refs 2 figs

modeling the economic interaction of agents with diverse abilities to recognize equilibrium patterns we model differences among agents in their ability to recognize temporal patterns of prices using the concept of debruijn sequences in two dynamic models of markets we demonstrate the existence of equilibria in which prices fluctuate in a pattern that is independent of the fundamentals and that can be recognized only by the more competent agents jel c7 d4 s477

evolution coordination and banking panics abstract i study equilibrium selection by an evolutionary process in an environment with multiple equilibria one of which involves a banking panic the analysis is built on a repeated version of the diamond dybvig 1983 model the optimal equilibrium is uniquely selected if it is also risk dominant when there are multiple banks the probability of observing a panic increases as the size of the banks decreases local interaction generates contagion effects that allow a bank run to spread first among banks in the same geographic location and then throughout the population

penny wise dollar foolish buy sell imbalances on and around round numbers this paper provides evidence that stock traders focus on round numbers as cognitive reference points for value using a random sample of more than 100 million stock transactions we find excess buying selling by liquidity demanders at all price points one penny below above round numbers further the size of the buy sell imbalance is monotonic in the roundness of the adjacent round number i e largest adjacent to integers second largest adjacent to half dollars etc conditioning on the price path we find much stronger excess buying selling by liquidity demanders when the ask falls bid rises to reach the integer than when it crosses the integer we discuss and test three explanations for these results finally 24 hour returns also vary by price point and buy sell imbalances are a major determinant of that variation across price points buying selling by liquidity demanders below above round numbers yield losses approaching 1 billion per year this paper was accepted by brad barber teck ho and terrance odean special issue editors

regulating a monopolist with unknown demand and cost functions we consider the design of regulatory policy when the regulator is imperfectly informed about both the firm s cost function and the demand function it faces to some extent the optimal policy here is the natural combination of the optimal policies when there is uncertainty only about either demand or cost important qualitative differences also exist however for example it may be optimal to set prices below marginal cost and the pricing authority delegated to the firm may be more limited when there is uncertainty about both cost and demand

when more seems like less differential price framing increases the choice share of higher priced options four experiments supported by six supplemental studies show that premium but higher priced products e g direct flights larger capacity data storage devices are more popular when the additional

the provision of information in a bertrand oligopoly a two stage model of a homogeneous good oligopoly is constructed that is composed of a first stage determining costless information provision to consumers and then a second stage of price setting a perfect equilibrium is found that is characterized by les s than full information and by positive expected profits an alternati ve interpretation of the model is of firms deciding the proportion of contracts to tender for and then the prices at which the tenders wil l be made copyright 1993 by blackwell publishing ltd

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

reputation and the control of pollution this paper investigates the effectiveness of reputation in inducing a polluting firm to self regulate its emissions when consumers have imperfect information in particular we ask to what extent must consumers reward and punish the firm before it chooses self regulation as its dominant strategy we find that if payoffs in the stage game are such that both the consumer and the polluting firm have beliefs that are consistent with each others behaviors then the firm has a positive probability of playing clean in each period of a finite game further we find that a weak reward punishment scheme may have an adverse effect on the environment and that there are both environmental and welfare gains associated with strengthening the scheme

word of mouth communication and social learning this paper studies the way that word of mouth communication aggregates the information of individual agents we find that the structure of the communication process determines whether all agents end up making identical choices with less communication making this conformity more likely despite the players naive decision rules and the stochastic decision environment word of mouth communication may lead all players to adopt the action that is on average superior these socially efficient outcomes tend to occur when each agent samples only a few others i introduction economic agents must often make decisions without knowing the costs and benefits of the possible choices given the frequency with which such situations arise it is understandable that agents often choose not to perform studies or experiments but instead rely on whatever information they have obtained via casual word of mouth communication reliance on this sort of easily obtained information appears to be common in circumstances ranging from consumers choosing restaurants or auto mechanics to business managers evaluating alternative organizational structures this paper studies two related environments in arguing that individuals reliance on word of mouth communication has interesting implications for their aggregate behavior first motivated by the diffusion of new technologies we consider a choice between two competing products with unequal qualities or payoffs and show that the structure of communication is important in determining whether the population as a whole is likely to learn to use the superior product second we consider a choice between two products or practices that are equally good and ask whether consumers are likely to herd onto a single choice or whether diversity will obtain even in the long run we explore the implications of word of mouth communication in a simple nonstrategic environment there is a large population of identical players each of whom repeatedly chooses between two possible actions each player s payoff is determined by his own

it takes two to tango equilibria in a model of sales we show that the varian model of sales with more than two firms has two types of equilibria a unique symmetric equilibrium and a continuum of asymmetric equilibria in contrast the 2 firm game has a unique equilibrium that is symmetric for the n firm case the asymmetric equilibria imply mixed strategies that can be ranked by first order stochastic dominance this enables one to rule out asymmetric equilibria on economic grounds by constructing a metagame in which both firms and consumers are players the unique subgame perfect equilibrium of this metagame is symmetric

choosing what i want versus rejecting what i do not want an application of decision framing to product option choice decisions abstract the authors examine the effects of using a subtractive versus an additive option framing method on consumers option choice decisions in three studies the former option framing method presents consumers with a fully loaded product and asks them to delete options they do not want the latter presents them with a base model and asks them to add the options they do want combined the studies support the managerial attractiveness of the subtractive versus the additive option framing method consumers tend to choose more options with a higher total option price when they use subtractive versus additive option framing this effect holds across different option price levels study 1 and product categories of varying price study 2 moreover this effect is magnified when subjects are asked to anticipate regret from their option choice decisions study 2 however option framing has a different effect on the purchase likelihood of the product category itself depending on the subject s initial inter

the empirical evidence for citizen information and a local market for public goods in their 1993 article in this review paul teske mark schneider michael mintrom and samuel best sought to establish the microfoundations for a model of a competitive market for public 5 services between local governments in polycentric regions an important part of their model focused on subgroups of informed citizens especially recent movers theoretical analysis was supplemented by an empirical study of the factors shaping accuracy of long island homeowners information about relative expenditures and tax rates of their school districts david lowery w e lyons and ruth hoogland dehoog criticize the relevance of this empirical evidence suggesting the atypical nature of education as a service especially in this site and challenging the sufficiency of the demonstrated levels of information for generating a competitive market teske and his colleagues reply by pointing out the general importance of education throughout american local policymaking and by defending the relevance of their measures and conclusions for their market model

price clustering of chinese ipos the impact of regulation cultural factors and negotiation abstractduring june 2009 may 2012 the china securities regulatory commission csrc suspended window guidance that limits issue prices using this regime change as a natural experiment we test th

energy price shocks household location patterns and housing crises theory and implications abstract the u s housing collapse in 2007 is widely blamed for inducing a financial crisis that spread to the real economy and caused a severe and prolonged downturn this paper develops a model to investigate the role of gasoline price shocks in triggering the housing market collapse and identifies a new channel through which energy price shocks affect the financial market and the macro economy results suggest that unanticipated gasoline price shocks increase the cost of work commutes lower the value of homes away from the city center and increase foreclosure rates as homeowners either cannot afford mortgage payments amid elevated gas expenditures or seek to abandon underwater homes the model predicts that gasoline price shocks disproportionately affect suburban households that face greater exposure due to longer commutes and lower incomes empirical evidence from the 2007 08 housing collapse is presented to corroborate this theory

becoming a bad doctor we analyze a market with n rational rms doctors and a continuum of boundedly rational consumers patients following spiegler 2006a we assume that patients are not familiar with the market and rely on anecdotes we analyze the price setting game played by doctors with given dierent healing qualities doctors know their own quality as well as the qualities of their competitors in the unique equilibrium all doctors no matter how bad earn positive prots if doctors even costlessly choose their qualities doctors mainly oer mediocre qualities in all spne welfare may strictly decrease in the number of doctors

an empirical analysis of price endings with scanner data several consumer behavior theories have been offered to explain the preponderance of prices that end in the digit 9 this study attempts to incorporate these proposed behaviors into the implicit utility function of consumer choice models resulting in both a more accurate tool for managerial decision making and additional insights into how consumers actually behave toward price endings an attempt is made to compensate for both level effects those effects in which consumers may underestimate the value of a price and image effects those effects in which consumers may infer meaning from the right hand digits the models are estimated using scanner panel data for two frequently purchased products tuna and yogurt the results support the importance of accounting for the digits in consumer choice models providing evidence for both image effects and level effects

does twitter chatter matter online reviews and box office revenues with a rapid rise of text based social media and online word of mouth wom activity millions of people express their thoughts and opinions on a variety of topics considering that nowadays wom is

social learning and dynamic pricing of durable goods we analyze the impacts of social learning sl on the dynamic pricing and consumer adoption of durable goods in a two period monopoly consumers can make either early uninformed purchases or late but potentially informed purchases as a result of social learning several results are derived first we identify the market conditions under which ex ante homogeneous consumers may choose to purchase at different times second equilibrium adoption may demonstrate inertia where all adopt late or frenzy where all adopt early in particular adoption inertia appears when sl intensity is reasonably high but may vanish when sl intensity exceeds a certain threshold third firm profits and social welfare first weakly decrease in sl intensity and may then jump up by a lump sum amount at the threshold sl intensity level mentioned above last we show that the firm potentially benefits from informative advertising or investing to cultivate more social learning

the regulation of multiproduct firms part ii applications to competitive environments and policy analysis abstract this paper extends our companion paper part i laffont and tirole 1990 on the regulation of the rate of return and prices of a multiproduct firm in two directions first it studies optimal pricing by a regulated firm competing with regulated or unregulated rivals with or without market power or other distorted pricing it then focuses on the access pricing problem and its potential foreclosure effects second it shows how optimal pricing can be decentralized to the regulated firm in the absence of cost and demand information

filtered social learning knowledge sharing is economically important but also typically incomplete we filter our communication this paper analyzes the consequences of filtering in the model homogeneous agents share knowledge with their peers whenever the private benefits exceed communication costs the welfare implications of this transmission mechanism hinge on whether units of knowledge complement substitute for or are independent of each other both substitutability and complementarity generate externalities cheaper communication eliminates externalities in the former case but not necessarily in the latter complementary basic skills such as numeracy catalyze technology adoption and adoption may be path dependent even when payoffs are certain and independent across agents

a range theory account of price perception it is well accepted in the behavioral pricing literature that a consumer s perception of the attractiveness of a market price depends on a comparison of the market price to an internal reference price the rationale underlying this dynamic has its roots in adaptation level theory however consistent with range theory we postulate that a consumer s assessment of the attractiveness of a market price may also depend on a comparison of the market price to the endpoints of the evoked price range four experiments provide evidence that variance in the width of the evoked price range affects price attractiveness judgments in the absence of any variance in the internal reference price of theoretical importance findings from the present article suggest that pricing theory is in need of augmentation in order to account for this effect of managerial relevance these findings suggest that changes in context can bring about changes in the evoked price range and perceptions of the attractiveness of a market price

tariff regulation with energy efficiency goals we study the optimal tariff structure that could induce a regulated utility to promote energy efficiency by its customers given that it is privately informed about the effectiveness of its effort on demand reduction the regulator should optimally offer a menu of incentive compatible two part tariffs if the firm s energy efficiency activities have a high impact on demand reduction the consumer should pay a high fixed fee but a low per unit price approximating the tariff structure to a decoupling policy which strengthens the firm s incentives to pursue energy conservation instead if the firm s effort to adopt energy efficiency actions is scarcely effective the tariff is characterized by a low fixed fee but a high price per unit of energy consumed thus shifting the incentives for energy conservation on consumers the optimal tariff structure also depends on the cost of the consumer s effort in case the consumer can also adopt energy efficiency measures and on the degree of substitutability between the consumer s and the firm s efforts

endogenous availability cartels and merger in an equilibrium price dispersion abstract in a generalization of the butters advertising model the equilibrium involves one firm that advertises at least twice as much as the others who all advertise equally a cartel formation game is considered and any equilibrium cartel involves at least two but generally not all firms in one equilibrium only the largest firms join the cartel a merger game is considered and in equilibrium the large firm buys the other firms in sequence with discounting equalizing the expected utility of the targets and prices rising over time journal of economic literature classification numbers d43 d83 l11 l13 l41

market failure and energy policy a rationale for selective conservation abstract appropriate activities for the government in the energy sector of the us economy are suggested on the basis of market failures in this sector alleged market failures are explored and specifically targeted remedies proposed where indicated the resulting government policies can be characterized as selectively conservationist designed to induce lower levels of use of particular fuels sometimes in particular industries

sustainable development and girardian economics what is sustainable development why is it an issue ideally what needs to be done and practically what can be done are answered in this chapter by relying on the framework of girardian economics developed by french economist andre orlean and based on rene girard s model of mimetic rivalry under conditions of high uncertainty

measuring market power and cost efficiency effects of industrial concentration in this paper i show how appelbaum s framework for testing price taking behavior in a single industry can be formally extended to consider concentration explicitly in so doing i separate the market power effect of concentration from its cost efficiency effect data from the us beef packing industry are used to illustrate an empirical application of the model the findings support oligopsonistic market power and slaughter cost efficiency in the industry however the cost efficiency effect outweighs the market power effect

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

the market for evaluations recent developments in computer networks have driven the cost of distributing information virtually to zero creating extraordinary opportunities for sharing product evaluations the authors present pricing and subsidy mechanisms that operate through a computerized market and induce the efficient provision of evaluations the mechanisms overcome three major challenges first evaluations which are public goods are likely to be underprovided second an inefficient ordering of evaluators may arise and third the optimal quantity of evaluations depends on what is learned from the initial evaluations

limited memory categorization and competition this paper investigates the effects of a limited consumer memory on the price competition between firms it studies a specific aspect of memory namely the categorization of available price information that the consumers may need to recall for decision making this paper analyzes competition between firms in a market with uninformed consumers who do not compare prices informed consumers who compare prices but with limited memory and informed consumers who have perfect memory consumers aware of their memory limitations choose how to encode the prices into categories whereas firms take the limitations of consumers into account in choosing their pricing strategies two distinct types of categorization processes are investigated 1 a symmetric one in which consumers compare only the labels of price categories from the competing firms and 2 an asymmetric one in which consumers compare the recalled price of one firm with the actual price of the other we find that the equilibrium partition for the consumers calls for finer categorization toward the bottom of the price distribution thus consumers have a motivation to invest in greater memory resources in encoding lower prices to induce firms to charge more favorable prices the interaction between the categorization strategies of the consumers and the price competition between the firms is such that small initial improvements in recall move the market outcomes quickly toward the case of perfect recall even with few memory categories the expected price consumers pay and their surplus is close to the case of perfect recall there is thus a suggestion in this model that market competition adjusts to the memory limitations of consumers

a complete solution to a class of principal agent problems with an application to the control of a self managed firm this paper considers a class of principal agent problems which have the following features 1 there is adverse selection because the principal ignores the value of one parameter of the agent s true characteristics 2 leaving aside the information parameter the principal s welfare as well as the agent s welfare depend on two types of variables observable to both of them the first ones possibly multidimensional are called action variable s and the second one which is one dimensional has in general the meaning of a money transfer 3 the principal is a stackelberg leader of the two person game he can commit himself to decision rules which are admissible on informational grounds he optimizes within the adequate class taking into account besides the agent s reaction one constraint which has generally the meaning of an individual rationality constraint and sometimes of a feasibility constraint the optimization is limited to the class of non stochastic mechanisms 4 the problem can also receive an alternative interpretation the principal faces a continuum of agents of unknown characteristics the distribution being known however stylized principal agent problems of this type have often been considered in the economic literature in particular the reader will later be able to recognize that the standard income tax model a la mirrlees 1971 the quality or quantity choice model of the monopolist a la mussa and rosen 1978 or maskin and riley 1982 and the model of government regulation of the private monopolist of baron and myerson 1982 all belong to

all pay contests this paper studies a class of games all pay contests which capture general asymmetries and sunk investments inherent in scenarios such as lobbying competition for market power labor market tournaments and r d races players compete for one of several identical prizes by choosing a score conditional on winning or losing it is weakly better to do so with a lower score this formulation allows for differing production technologies costs of capital prior investments attitudes toward risk and conditional and unconditional investments among others i provide a closed form formula for players equilibrium payoffs and analyze player participation a special case of contests is multiprize complete information all pay auctions

testing the monopsony inefficiency incentive for backward integration in theory monopsony at one stage in a vertically related market provides an incentive for backward integration into the adjacent competitive stages by integrating backward a monopsonist internalizes the monopsony inefficiency due to underemployment of the factor produced upstream however little is known about the importance of such incentive in practice in this paper i provide an empirically implementable model to test the monopsony inefficiency incentive for vertical integration for illustration the model is applied to the u s beef slaughter industry findings seem to support the monopsony inefficiency incentive for backward integration by the industry into the live cattle market

white certificates energy efficiency programs under private information of consumers abstract energy efficiency is an objective of public interventions at least since the public utility regulatory policy act of 1978 purpa recently conservation has received considerable attention in the united states and in particular in the european union but this time in order to mitigate global warming policy measures include regulations at the technical level and the introduction of white certificates in order to force utilities and firms to invest into conservation in a way similar to the already existing renewable energy quota this paper derives the optimal mechanism if utilities must deal with white certificates facing consumers holding private information the optimal mechanism has some theoretically interesting features like restricted participation and a discontinuity

the economics of rumours this paper studies a class of information transmission processes which we call rumours the distinctive features of these processes are that the information transmission takes place in such a way that the recipient does not quite know whether or not to believe the information and that the probability that someone receives the information depends on how many people already have it specifically we study an example in which there is an investment project with returns only known to a few people these people have a cost of undertaking the project and this cost is private information the only information the other agents receive is that someone else has invested they are not told whether that person actually knew the returns or whether he too was just acting on the basis of his observation of others they use their optimal bayesian decision rule to decide whether to invest we show that for a wide class of alternative specifications this decision rule has the property that a positive fraction of those who observe the rumour will not invest in this sense a rumour cannot mislead everybody counter intuitive comparative statics results are obtained for example more information and higher productivity may reduce welfare while changing the speed with which the rumour spreads has no welfare effect

estimating the degree of market power in the beef packing industry a technique for assessing the degree of monopoly power developed by appelbaum 1979 1982 is extended here to permit measurement of monopsony power as well data from the u s beef packing industry are examined the results reveal small but statistically significant monopoly monopsony price distortions in slaughter cattle and wholesale beef markets but in spite of a recent trend toward heightened concentration in the industry give no indication that performance has become appreciably less competitive of late this abstract was borrowed from another version of this item

an empirical analysis of internal and external reference prices using scanner data single source yogurt data are used to examine whether both internal and external reference prices affect purchase decisions internal reference prices are memory resident prices based on actual fair or other price concepts external reference prices are observed stimuli such as regular prices that stores may display along with a sale price for comparability discrete choice models with variables representing the two types of reference prices are estimated and both types of variables are found to have significant effects on purchase probabilities this suggests that consumers may use multiple reference points in evaluating price in purchase decisions in addition a model using an indicator of a sale price discount explains purchase probabilities as well as one that models the actual discount which suggests that consumers may be reacting to the indication of savings rather than to the amount of the discount

testing for switching market conduct this paper tests for switching market conduct in an oligopsonistic industry the model adopts bresnahan s procedure for identifying the oligopoly solution and integrates the procedure with a switching regression model applied to the us beef slaughter industry two distinct regimes of conduct in the industry were identified the two regimes are consistent with the time periods during which the industry has undergone major structural change

sell probabilistic goods a behavioral explanation for opaque selling probabilistic or opaque selling whereby a seller hides the exact identity of a product until after the buyer makes a payment has been used in practice and received considerable attention in the literature under what conditions and why is probabilistic selling attractive to firms the extant literature has offered the following explanations to price discriminate heterogeneous consumers to reduce supply demand mismatches and to soften price competition in this paper we provide a new explanation to exploit consumer bounded rationality in the sense of anecdotal reasoning we build a simple model where the firm is a monopoly consumers are homogeneous and there is no demand uncertainty or capacity constraint this model allows us to isolate the impact of consumer bounded rationality on the adoption of opaque selling we find that although it is never optimal to use opaque selling when consumers have rational expectations it can be optimal when consumers are boundedly rational we show that opaque selling may soften price competition and increase the industry profits as a result of consumer bounded rationality our findings underscore the importance of consumer bounded rationality and show that opaque selling might be even more attractive than previously thought

dynamic regulation of quality we develop a dynamic regulation model of quality provision where maintenance efforts and quality shocks have a durable impact when the regulator contracts with a sequence of agents asymmetric information can lead to overprovision of quality reflecting a dynamic rent extraction effect when the regulator contracts with a single agent the efficiency of their relationship depends on the regulator s ability to transfer rents across periods hiring a single agent with unlimited liability is socially preferable to hiring a sequence of agents even when no commitment is feasible by contrast shorter franchises are socially preferable if the agent has limited liability

the design of optimal conservation programs by electric utilities considering strategic consumer behavior the practice of utility demand side conservation programs one of the most topical issues of utility management provokes strategic reactions of consumers as a solution of this moral hazard optimal conservation programs are characterized when the consumers differ either with respect to their subjective time preference or with respect to the level of demand in particular we derive incentive compatible conservation schemes that mitigate strategic behavior these incentives differ starkly from actual programs first the costs of conservation may exceed the avoided costs yet accepting such high costs at the margin need not imply a large conservation second such incentive scheme should bypass the inefficient consumers e g the poor but should instead target consumers who act efficiently and have a high demand e g the rich

business as usual market crashes and wisdom after the fact the authors present a three stage model of market dynamics in the first stage routine behavior tends to keep information of common interest trapped in private hands in the second stage private information reaches a threshold that triggers some agents to alter their behavior these actions release information to the market the final stage involves the market s response to this news as other participants react to the initial departure from routine behavior the authors present an application to industry investment they also outline applications to the international debt crisis to bank runs and to political upheavals copyright 1994 by american economic association

games with procedurally rational players the authors study interactive situations in which players are boundedly rational each player rather than optimizing given a belief about the other players behavior as in the theory of nash equilibrium uses the following choice procedure she first associates one consequence with each of her actions by sampling literally or virtually each of her actions once then she chooses the action that has the best consequence the authors define a notion of equilibrium for such situations and study its properties copyright 1998 by american economic association

end of 9 endings price recall and price perceptions prices that end with 9 also known as psychological price points are common comprising about 70 of the retail prices they are also more rigid than other prices we take advantage of a natural experiment to document an emergence of a new price ending that has the same effects as 9 endings in january 2014 the israeli government passed a new regulation prohibiting the use of non 0 ending prices bringing an end to 9 ending prices we find that seven months after 9 ending prices have disappeared 90 ending prices acquired the same status as 9 ending prices had before the new regulation was adopted thus 90 ending prices became the new psychological price points partially eliminating the regulation s intended effect

patterns of rightmost digits used in advertised prices implications for nine ending effects analysis of the rightmost digits of selling prices in a sample of retail price advertisements confirmed past findings indicating the overrepresentation of the digits 0 5 and 9 the high cognitive accessibility of round numbers can account for the overrepresentation of 0 and 5 ending prices and suggests the existence of two effects that could account for the overrepresentation of 9 ending prices 1 a tendency of consumers to perceive a 9 ending price as a round number price with a small amount given back and 2 a tendency of consumers to underestimate a 9 ending price by encoding it as the first round number evoked during incomplete left to right processing analysis of the patterns of rightmost digits observed in the sample provides supportive evidence particularly for the second of these two 9 ending effects

regulating a monopolist with unknown demand the authors analyze the optimal regulatory policy when the firm has better information about demand than the regulator from the outset of their relationship the firm s cost structure is common knowledge but monitoring of output is prohibitively costly the authors find that when marginal production costs increase with output the firm command s no rents from its private information and the efficient price is established for each realization of demand in contrast with declining marginal costs the same price is established by the regulator for all demand realizations and the firm s rents can be substantial overall major qualitative differences in the optimal regulatory policy arise when the firm s private information concerns demand rather than costs copyright 1988 by american economic association

risk pooling through physical probabilistic selling abstract this paper investigates the impacts of a new type of probabilistic selling p s where the retailer orders specific products and package some as a discounted physical probabilistic product ppp rather than merely a virtual choice we call this p s strategy as physical probabilistic selling p p s the price gap between the specific products and the probabilistic product results in demand reshape i e some customers who originally buy specific products will switch to buying the probabilistic product which decreases aggregate demand uncertainty however the price discount decreases the profit margin considering this trade off we develop a three product newsvendor model to address the question of how to set the price for the ppp and make inventory allocation decisions we prove that there are two effects under p p s namely the risk pooling effect due to demand reshape and the risk diversification effect due to inventory flexibility with demand uncertainty p p s can improve the retailer s profit at lower inventory levels with proper demand reshape induced by the optimal price discount p p s is more profitable with smaller product differentiation higher customer price sensitivity higher demand uncertainty and lower package cost with supply uncertainty we demonstrate through numerical studies that p p s is a viable strategy to combat asymmetrical supply risk that yields higher profits and service levels

reference price and price perceptions a comparison of alternative models reference price effects on consumer price perceptions are often explained by helson s adaptation level theory in which the cognitive representation of reference price is the prototype of the relevant category however recent conceptualizations and empirical evidence suggest the possibility of an exemplar model which may be specified using volkmann s range theory or parducci s range frequency theory in two experiments these three contextual models of reference price effects are pitted against one another based on the manova and model fitting range frequency theory accounted for reference price effects that the other theories could not suggesting that consumers compare the target price against specific members of the category rather than the category prototype a third experiment demonstrated that range and frequency effects are moderated by the stimulus presentation condition suggesting that consumers place greater weight on extreme prices anchoring the range for internal reference prices than for external reference prices

competition in the us meatpacking industry is it history the us meatpacking industry has become concentrated to a degree not experienced since the days of the beef trust a century ago a number of mainstream studies have investigated if such concentration has been detrimental to competition just as earlier studies may have helped shape competition policy towards meatpacking a century ago contemporary studies have made their way into current discussions and may shape competition policy at the turn of this century this paper asks whether or not contemporary studies are useful in informing competition policy after comparing how competition looks from the econometric vantage point with how it looks from the vantage point of the industry s 300 yr history this article concludes that mainstream studies are more useful for a competition policy targeting conduct rather than structure

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

relying on the information of interested parties we investigate the conventional wisdom that competition among interested parties attempting to influence a decisionmaker by providing verifiable information elicits all relevant information we find that if the decisionmaker is strategically sophisticated and well informed about the relevant variables and about the preferences of the interested party or parties competition may be unnecessary to achieve this result if the decisionmaker is unsophisticated or not well informed competition is not generally sufficient if the interested parties interests are sufficiently opposed however or if the decisionmaker is seeking to advance the parties welfare then competition can reduce or even eliminate the decisionmaker s need for prior knowledge about the relevant variables and for strategic sophistication in other settings only the combination of competition among information providers and a sophisticated skepticism is sufficient to allow effective decisionmaking

contracting with diversely naive agents in standard contract theoretic models the underlying assumption is that agent types differ in their preference or cost parameters and the principal s objective is to design contracts in order to screen this type we study a contract theoretic model in which the heterogeneity among agent types is of a cognitive nature in our model the agent has dynamically inconsistent preferences agent types differ only in their degree of sophistication that is their ability to forecast the change in their future tastes we fully characterize the menu of contracts which the principal offers in order to screen the agent s sophistication the menu does not exclude any type it provides a perfect commitment device for relatively sophisticated types and exploitative contracts which involve speculation with relatively naive types more naive types are more heavily exploited and generate a greater profit for the principal our results allow us to interpret real life contractual arrangements in a variety of industries

the self perpetuation of biased beliefs to overcome strong prior beliefs strong evidence to the contrary is needed if a person is predisposed to choosing a certain action the advice from an advisor who sets a low threshold for recommending the alternative action is not of much use the preference for like minded advisors who supply coarse information implies that the advice a person receives is likely to reinforce his existing priors this effect can lead to polarisation of opinion and the emergence of self serving beliefs the learning process is prolonged and the induced short run bias can become perpetual if information is costly

a microsimulation of traders activity in the stock market the role of heterogeneity agents interactions and trade frictions we propose a model with heterogeneous interacting traders which can explain some of the stylized facts of stock market returns in the model synchronization effects which generate large fluctuations in returns can arise purely from communication and imitation among traders the key element in the model is the introduction of a trade friction which by responding to price movements creates a feedback mechanism on future trading and generates volatility clustering the model also reproduces the empirically observed positive cross correlation between volatility and trading volume