quantitative analysis of network externalities in competing technologies the vcr case we develop a dynamic structural model of consumers choices and producers pricing in an oligopolistic market for newly introduced durable products with network externalities the model is then applied to empirically analyze the de facto standardization of the vhs format in the u s home vcr market during 1981 1988 we find i the network advantage of vhs explains at least 70 3 to 86 8 of the logarithm of relative sales of vhs to betamax in each year ii an increase in the network advantage of vhs was an engine of tipping toward the vhs format and iii in the early 1980s the network advantage of vhs was mainly due to its expected growth advantage

tipping and concentration in markets with indirect network effects this paper develops a framework for measuring tipping the increase in a firm s market share dominance caused by indirect network effects our measure compares the expected concentration in a market to the hypothetical expected concentration that would arise in the absence of indirect network effects in practice this measure requires a model that can predict the counterfactual market concentration under different parameter values capturing the strength of indirect network effects we build such a model for the case of dynamic standards competition in a market characterized by the classic hardware software paradigm to demonstrate its applicability we calibrate it using demand estimates and other data from the 32 64 bit generation of video game consoles a canonical example of standards competition with indirect network effects in our example we find that indirect network effects can lead to a strong economically significant increase in market concentration we also find important roles for beliefs on both the demand side as consumers tend to pick the product they expect to win the standards war and on the supply side as firms engage in penetration pricing to invest in growing their networks

the asset market model of the balance of payments and the exchange rate a survey of empirical evidence abstract the purpose of this survey is to assemble and evaluate empirical evidence on the asset market model of the balance of payments and the exchange rate in section i the distinctive features of asset market models are compared with earlier keynesian models particular attention is directed to the assumptions and predictions of the monetary model which is a special and well known case of more general asset market models and thereby serves as a useful benchmark for discussion in sections ii and iii the empirical evidence under fixed and flexible exchange rates is evaluated the paper is concluded in section iv with an assessment of our current state of knowledge

beyond privatization institutional innovation and growth in china s large state owned enterprises abstract this article demonstrates that china s large state owned enterprises soes are not stagnant fossils waiting to die under economic reform policies this sector has undergone large change due to enhanced enterprise autonomy the impact of market forces rapid growth of domestic demand for upstream products strategic integration with the world economy and the state s policy to promote large businesses china s large soes are developing new institutional forms that do not neatly fit into existing patterns china is experimentally changing its institutions through a combination of central policy local initiative and interaction with international investment this presents a challenge to the transitional orthodoxy and to ideas concerning property rights in development economics there is not a universal model of property rights and government action that works best in all circumstances china s experience with the reform of large soes shows the diverse possibilities for effective industrial institutions

exchange rate overshooting the trade balance and rational expectations abstract this paper presents a model of exchange rate determination characterized by imperfect asset substitutability between domestic and foreign bonds sticky goods market prices and rational expectations the model is used to analyze the response of the exchange rate to a step change in relative money supplies the assumption of imperfect asset substitutability permits introduction into the analysis of trade flows which respond to relative price changes these flows create non monotonic exchange rate adjustments to long run equilibrium these non monotonic adjustments are consistent with rationality and may lead to short run undershooting or overshooting

revenue management with forward looking buyers a seller wishes to sell multiple goods by a deadline for example the end of a season potential buyers enter over time and can strategically time their purchases each period the profit maximizing mechanism awards units to the buyers with the highest valuations exceeding a sequence of cutoffs we show that these cutoffs are deterministic depending only on the inventory and time remaining in the continuous time limit the optimal mechanism can be implemented by posting anonymous prices when incoming demand decreases over time the optimal cutoffs satisfy a one period look ahead property and prices are defined by an intuitive differential equation

rational inattention dynamics inertia and delay in decision making we solve a general class of dynamic rational inattention problems in which an agent repeatedly acquires costly information about an evolving state and selects actions the solution resembles the choice rule in a dynamic logit model but it is biased towards an optimal default rule that does not depend on the realized state we apply the general solution to the study of i the sunk cost fallacy ii inertia in actions leading to lagged adjustments to shocks and iii the tradeoff between accuracy and delay in decision making

clashing paradigms total quality financial restructuring and theories of the firm the american corporate sector saw major reform movements during the 1980s despite frequent admixture in practice two key movements can be singled out as analytically distinct financial restructuring generally debt financed often involving mergers and total quality management a particular approach to productive restructuring unfortunately the precepts and practices of these movements often clashed this paper examines these tension and explores them by reference to economic theories of the firm associated with each movement while financial restructuring has been interpreted through the lens of neoclassical agency theory total quality management has strong links with alternative approaches that can be grouped under the heading capabilities theory copyright 1997 by oxford university press

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

word of mouth communication and percolation in social networks this paper develops a model of demand pricing and advertising in the presence of social learning via word of mouth communication between friends in the model consumers must receive information about a monopolist s product in order to consider purchasing it the presence of word of mouth is not sufficient for demand to be more elastic and prices to be lower compared to an informed population i derive the comparative static results of connectivity mean preserving spread of friendships and clustering of friends on prices the optimal targets for advertising are not generically the individuals with the most friends jel l12 l14 a fundamental issue for economists is understanding the process by which demand is formed through social learning by consumers this article develops a framework based on random graphs for understanding the ways social learning via

the economics of predation what drives pricing when there is learning by doing predatory pricing a deliberate strategy of pricing aggressively in order to eliminate competitors is one of the more contentious areas of antitrust policy and its existence and efficacy are widely debated the purpose of this paper is to formally characterize predatory pricing in a modern industry dynamics framework that endogenizes competitive advantage and industry structure our framework encompasses important phenomena such as learning by doing network effects switching costs dynamic demand and certain types of adjustment costs due to its prominent role in legal cases involving alleged predation we examine learning by doing in more detail we first show that predation like behavior arises routinely in our learning by doing model equilibria involving predation like behavior typically coexist with equilibria involving much less aggressive pricing to disentangle predatory pricing from mere competition for efficiency on a learning curve we next decompose the equilibrium pricing condition and develop alternative characterizations of a firm s predatory pricing incentives we finally measure the impact of these incentives on industry structure conduct and performance we show that forcing a firm to ignore the predatory incentives in setting its price can have a large impact and that this impact stems from eliminating equilibria with predation like behavior along with the predation like behavior however a fair amount of competition for the market is eliminated

online content pricing purchase and rental markets digitization of content is changing how consumers and firms use purchase and rental markets low transaction costs make accessing content easier for consumers digital technology enables firms to create nondurable rental versions of their content and to restrict content to the purchasing consumer effectively shutting down resale markets to empirically analyze the interaction of purchase and rental markets i design a preference measurement tool to recover consumers intertemporal preferences through current period choices alone i then use these preferences to solve for a dynamic equilibrium between consumers and the firm in the context of the online home video market i find that when the firm is able to commit to holding prices fixed forever providing content through the purchase market alone is sufficient however when the firm is unable to commit it should serve both purchase and rental markets canonical theory models would predict exclusive rentals but the purchase option enables indirect price discrimination in practice i also find that when consumers place a premium on accessing new content they are less likely to intertemporally substitute thereby increasing the firm s pricing power consistent with theory commitment to future prices increases profits considerably this finding supports the rigid pricing structure of such retailers as apple despite studios push toward more pricing flexibility

equilibrium price output dynamics and the non insulating properties of fixed exchange rates abstract this paper develops an open economy fixed exchange rate equilibrium model of the business cycle which demonstrates a new channel for output persistence the persistence or serial correlation of output arises because of persistent changes in relative prices additionally the model shows that fixed exchange rates do not insulate a small open economy from domestic monetary shocks

intertemporal price speculation and the optimal current account deficit abstract the paper studies the effects of terms of trade fluctuations in an infinite horizon optimizing model of a small open economy while the current account response to a transitory terms of trade shock is in part explicable by intertemporal smoothing an important additional factor is the effect of anticipated future terms of trade shifts on the ral value of the external debt in terms of the home consumption basket when foreign borrowing is indexed to the import good a temporary worsening of the terms of trade creates the expectation of a decline in the real value of external debt this fall in the relevant real interest rate leads households to increase consumption while export prices are low and to decrease consumption sharply once the terms of trade recover if an adverse price shock is of sufficiently brief duration instantaneous utility will rise initially

knowledge market failure and the multinational enterprise a reply debate is an indication that an issue warrants discussion the comments of james love and donald mcfetridge in this issue are fine statements that articulate a received wisdom their comments differ with each other and these differences remind us that there is less consensus in our understanding of internalization and transaction costs than commonly supposed if we do not address all of the commentators specific points it is not for lack of appreciation but because it is our belief that a fuller vision of the terrain already mapped and that which is yet uncharted would provide a more useful basis for exploration and discovery a listing of issues is the task of a referee while a published debate might perform a useful task by laying out the contours of the research tradition and future

do consumers correctly expect price reductions testing dynamic behavior the assumption that consumers are fully rational and hold correct price expectations is demanding in dynamic settings we claim that it is testable provided that market level data on prices and purchases are available we find that consumers hold simple expectations regarding the timing of promotions for music albums consumers act as if they were aware of reductions but did not revise their beliefs over time the anticipation effect due to strategically delaying purchase amounts to 1 5 of the decision to purchase during regular periods these results have implications in terms of demand estimation optimal pricing and welfare computations

estimating switching costs with market share data an application to medicare part d abstract choice inertia and switching frictions are well documented features of the demand for health insurance in this paper we estimate switching costs in the medicare part d market with aggregate market share data using standard discrete choice models for differentiated products we consider various modelling assumptions myopic and forward looking consumers and with and without random coefficients both myopic and forward looking consumer models with no random coefficients yield switching cost estimates that closely match the actual average switching frequency with implied dollar valued switching costs of 1600 to 2000 we find the inclusion of random coefficients to the myopic consumer model results in smaller estimates of switching costs but only at the expense of the model s fit to the switching frequency the estimated welfare losses from switching frictions are large but they are smaller under the forward looking consumer model amounting to around 500 per enrollee annually compared to over 1000 under the myopic model

new institutional economics in the post socialist transformation debate the paper suggests that there is a tension between the basic tenant of new institutional economics nie and the manner in which it has been applied in the debate on post socialist transformation this tension is explored in the context of four main perspectives on nie i property rights ii transaction costs economics iii new economic history and iv evolutionary economics there are two main arguments the first is that the transformation phase should be seen as open ended rather than a closed process where the pure market is the inevitable end result the second is that although the nie literature touches on most of the issues which are relevant to post socialist transformation the insights that it offers are still too general for policy guidance

voluntary export restraints on automobiles evaluating a trade policy the authors evaluate the voluntary export restraint that was initially placed on exports of automobiles from japan in 1981 they evaluate the impact this policy had on u s consumer welfare firm profits and foregone tariff revenue from its initiation through 1990

keeping it fresh strategic product redesigns and welfare abstract product redesigns happen across virtually all types of products yet there is little evidence on the market and welfare effects of redesigns we develop a model of redesign decisions in a dynamic oligopoly model and use it to analyze redesign activity in the u s automobile market we find automobile model redesigns are frequent despite an estimated average cost around 1 billion our estimates also suggest that redesigns lead to large increases in profits and welfare due to the strong preferences consumers have for redesigns we show that welfare would be improved if redesign competition were reduced allowing redesign activity to be more responsive to the planned obsolescence channel the net effect of these changes would reduce total redesigns by roughly 10 increasing total welfare by roughly 3 the high valuation that consumers put on newly designed models drives frequent redesigns and gives automobile manufacturers fairly substantial market power with a 2 to 1 ratio of firm profits to consumer surplus

intertemporal price discrimination dynamic arrivals and changing values we study the profit maximizing price path of a monopolist selling a durable good to buyers who arrive over time and whose values for the good evolve stochastically the setting is completely stationary with an infinite horizon contrary to the case with constant values optimal prices fluctuate with time we argue that consumers randomly changing values offer an explanation for temporary price reductions that are often observed in practice

decision making under uncertainty capturing dynamic brand choice processes in turbulent consumer goods markets we construct two models of the behavior of consumers in an environment where there is uncertainty about brand attributes in our models both usage experience and advertising exposure give consumers noisy signals about brand attributes consumers use these signals to update their expectations of brand attributes in a bayesian manner the two models are 1 a dynamic model with immediate utility maximization and 2 a dynamic forward looking model in which consumers maximize the expected present value of utility over a planning horizon given this theoretical framework we derive from the bayesian learning framework how brand choice probabilities depend on past usage experience and advertising exposures we then form likelihood functions for the models and estimate them on nielsen scanner data for detergent we find that the functional forms for experience and advertising effects that we derive from the bayesian learning framework fit the data very well relative to flexible ad hoc functional forms such as exponential smoothing and also perform better at out of sample prediction another finding is that in the context of consumer learning of product attributes although the forward looking model fits the data statistically better at conventional significance levels both models produce similar parameter estimates and policy implications our estimates indicate that consumers are risk averse with respect to variation in brand attributes which discourages them from buying unfamiliar brands using the estimated behavioral models we perform various scenario evaluations to find how changes in marketing strategy affect brand choice both in the short and long run a key finding obtained from the policy experiments is that advertising intensity has only weak short run effects but a strong cumulative effect in the long run the substantive content of the paper is potentially of interest to academics in marketing economics and decision sciences as well as product managers marketing research managers and analysts interested in studying the effectiveness of marketing mix strategies our paper will be of particular interest to those interested in the long run effects of advertising note that our estimation strategy requires us to specify explicit behavioral models of consumer choice behavior derive the implied relationships among choice probabilities past purchases and marketing mix variables and then estimate the behavioral parameters of each model such an estimation strategy is referred to as structural estimation and econometric models that are based explicitly on the consumer s maximization problem and whose parameters are parameters of the consumers utility functions or of their constraints are referred to as structural models a key benefit of the structural approach is its potential usefulness for policy evaluation the parameters of structural models are invariant to policy that is they do not change due to a change in the policy in contrast the parameters of reduced form brand choice models are in general functions of marketing strategy variables e g consumer response to price may depend on pricing policy as a result the predictions of reduced form models for the outcomes of policy experiments may be unreliable because in making the prediction one must assume that the model parameters are unaffected by the policy change since the agents in our models choose among many alternative brands their choice probabilities take the form of higher order integrals we employ monte carlo methods to approximate these integrals and estimate our models using simulated maximum likelihood estimation of the dynamic forward looking model also requires that a dynamic programming problem be solved in order to form the likelihood function for this we use a new approximation method based on simulation and interpolation techniques these estimation techniques may be of interest to researchers and policy makers in many fields where dynamic choice among discrete alternatives is important such as marketing decision sciences labor and health economics and industrial organization

upstream innovation and product variety in the u s home pc market this article investigates the welfare implications of the rapid innovation in central processing units cpus and asks whether it results in inefficient elimination of basic personal computer pc products i analyse a game in which firms make multiple discrete product choices and tackle challenges such as partial identification and sample selection estimation results demonstrate that the demand for pcs is highly segmented and that fixed costs consume a substantial portion of the per unit producer profit the estimated model implies that intel s introduction of its pentium m chip contributed significantly to the growth of the mobile pc segment and to consumer welfare the lion s share of the benefits to consumers was enjoyed by the 20 least price sensitive consumers i also find that the pentium m crowded out the pentium iii and pentium 4 technologies and that the benefits to consumers from keeping those older products on the shelf would have been comparable to the added fixed costs while total welfare cannot be increased by keeping older technologies on the shelf such a policy would have allowed the benefits from innovation to trickle down to price sensitive households improving their access to mobile computing

the terms of trade and the current account the harberger laursen metzler effect the paper examines the effect of terms of trade changes on a small country s spending and current account assuming optimizing behavior in an intertemporal framework with perfect international capital mobility a temporary future terms of trade deterioration implies a deterioration improvement of the trade balance whereas a permanent terms of trade deterioration has an ambiguous effect depending on the rate of time preference nominal and real variables are considered via exact price indexes two periods and an infinite horizon are examined

mergers with differentiated products the case of the ready to eat cereal industry traditional merger analysis is difficult to implement when evaluating mergers in industries with differentiated products i discuss an alternative which consists of demand estimation and the use of a model of postmerger conduct to simulate the competitive effects of a merger i estimate a brand level demand system for ready to eat cereal using supermarket scanner data and use the estimates to 1 recover marginal costs 2 simulate postmerger price equilibria and 3 compute welfare effects under a variety of assumptions the methodology is applied to five mergers two of which occurred and for which i compare predicted to actual outcomes

intertemporal price discrimination with complementary products e books and e readers this paper studies intertemporal price discrimination ipd with complementary products in the context of e readers and e books using individual level data 2008 2012 i estimate a dynamic demand

strategy meets institutions the transformation of management labor relations at deutsche telekom and ntt this comparison of labor management relations at deutsche telekom dt and ntt group formerly nippon telephone and telegraph demonstrates the value of considering both institutions and strategic decision making to under stand the interaction between companies and unions as corporations diversify multi divisional or holding company structures emerge but the degree of diversity introduced in employment relations within the corporate group de pends on the interaction between corporate strategy and the strategy of orga nized labor the authors field research based on interviews with managers and labor leaders shows that despite a broadly similar corporate strategy of diversi fication by dt and ntt after the liberalization of telecommunication markets employment relations became more decentralized both for unions and for works councils within the dt group than within the ntt group this differ ence in outcomes is explained by the relative power and strategic choices of labor and management rather than by constraints and opportunities specific to the existing national institutions

the dynamic effects of bundling as a product strategy several key questions in bundling have not been empirically examined in marketing is mixed bundling more effective than pure bundling or pure components does correlation in consumer valuations make bundling more or less effective does bundling serve as a complement or substitute to network effects to address these questions we develop a consumer choice model from microfoundations to capture the essentials of our setting the handheld video game market we provide a framework to understand the dynamic long term effects of bundling on demand the primary explanation for the profitability of bundling relies on homogenization of consumer valuations for the bundle allowing the firm to extract more surplus we find that bundling can be effective through a novel and previously unexamined mechanism of dynamic consumer segmentation which operates independent of the homogenization effect and can in fact be stronger when the homogenization effect is weaker we also find that bundles are treated as separate products distinct from component products by consumers sales of both hardware and software components decrease in the absence of bundling and consumers who had previously purchased bundles might delay purchases resulting in lower revenues we also find that mixed bundling dominates pure bundling and pure components in terms of both hardware and software revenues investigating the link between bundling and indirect network effects we find that they act as substitute strategies with a lower relative effectiveness for bundling when network effects are stronger

demand for differentiated durable products the case of the u s computer printer market i introduction this paper aims to provide a theoretical and empirical description of consumer behavior in a dynamic market for differentiated durable goods the computer hardware industry serves as an example of the type of market we consider markets for computer systems and components as well as for many other high technology products exhibit some striking similarities that are of particular concern for an empirical economist as follows products are differentiated in multiple dimensions in addition to price products are durable yielding consumption services over multiple periods product quality rapidly improves over time empirical work on estimating differentiated product demand systems has been dominated by static discrete choice models with random utility see berry levinsohn and pakes 1995 goldberg 1995 and nevo 2001 among others however markets for durable goods exhibit several features at odds with their assumption of myopic consumer behavior first traditional static discrete choice models implicitly assume that consumers participate in the market every period choosing one of the available products or an outside option thus the fraction of consumers who do not buy any product in a given period could only be explained by the high value they assign to the outside alternative for durable goods however purchases are made infrequently and result in a consumer s exiting the market for a significant period of time hence the model needs to account for consumers outflow from the market arising from their purchase decisions second a static framework may give a misleading picture of the aggregate sales time pattern in a dynamic industry in many markets for durable products it is not uncommon to see rapidly improving product quality and falling prices given any reasonable set of consumer preferences over the product characteristics space static discrete choice models for such an industry will tend to predict an upward trend in aggregate sales this fails to account for a variety of patterns commonly seen in the data third the evolution of product quality leads to the possibility of intertemporal demand substitution by forgoing a current purchase the consumer retains the option to buy a potentially better product in the future hence the decision of when to buy may be just as important for consumers as the decision of what to buy this trade off cannot be accounted for in the static framework the purpose of this paper is to remedy these shortcomings of static discrete choice models in durable goods markets with particular attention paid to technological change and the dynamics of new products adoption the paper presents a dynamic model of consumer demand for differentiated durable products that explicitly accounts for consumers expectations of future product quality and consumers outflow from the market that arises endogenously from their purchase decisions in this model the consumer faces a sequence of static discrete choice problems over a non stationary choice set we show that for a subclass of random utility models which include the multinomial logit and the mcfadden 1978 generalized extreme value gev model there exists a scalar valued sufficient statistic that determines the value of the option to postpone the purchase this allows us to model industry evolution over a vastly reduced state space and to formalize the consumer s decision of when to buy as an optimal stopping problem a solution to that problem defines the hazard rate of product adoptions while the nested discrete choice model determines the alternative specific purchase probabilities integrating individual decisions over the population distribution generates rich dynamics of aggregate and product level sales the paper proceeds to present monte carlo evidence that ignoring the time dimension of consumer choice will induce a downward bias in the estimates of consumer preferences over quality sometimes reversing the sign of the coefficients

durable goods oligopoly with secondary markets the case of automobiles we study the effects of durability and secondary markets on equilibrium firm behavior in the car market we construct a dynamic oligopoly model of a differentiated product market to incorporate the equilibrium production dynamics that arise from the durability of the goods and their active trade in secondary markets we derive an econometric model and estimate its parameters using data from the automobile industry over a 20 year period our estimates are used to provide a measure of the competitive importance of the secondary market

a reconsideration of hedonic price indexes with an application to pc s this paper compares hedonic to matched model indexes matched model indexes are averages of the price changes of goods that remain on sampled stores shelves since goods that disappear tend to have falling market values matched model indexes select from the right tail of price changes the bls can construct hedonic indexes that correct for this selection and are justified by standard arguments in an empirical study of pc s hedonics produce sharp price declines while matched model indexes are near zero also though there are modifications to hedonics that seem desirable they are not those in current use

house prices and consumer welfare we develop a new approach to measuring changes in consumer welfare due to changes in the price of owner occupied housing in our approach an agent s welfare adjustment is defined as the transfer required to keep expected discounted utility constant given a change in current house prices we demonstrate that up to a first order approximation there is no aggregate change in welfare due to price increases in the existing housing stock this follows from a simple market clearing condition where capital gains experienced by sellers are exactly offset by welfare losses to buyers we show that this result holds approximately even in a model that accounts for changes in consumption and investment plans prompted by current house price changes there can however be changes in welfare due to additions to the stock of housing or to changes in the price of renovating and upgrading the existing stock of housing for the united states we estimate the welfare cost of house price appreciation to be an average of 127 per household per year over the 1984 1998 period

the flexible coefficient multinomial logit fc mnl model of demand for differentiated products we show fc mnl is flexible in the sense of diewert thus its parameters can be chosen to match a well defined class of possible own and cross price elasticities of demand in contrast to models such as probit and random coefficient mnl models fc mnl does not require estimation via simulation it is fully analytic under well defined and testable parameter restrictions fc mnl is shown to be an unexplored member of mcfadden s class of multivariate extreme value discrete choice models therefore fc mnl is fully consistent with an underlying structural model of heterogeneous utility maximizing consumers we provide a monte carlo study to establish its properties and we illustrate its use by estimating the demand for new automobiles in italy

the environmental effect of green taxation the case of the french bonus malus a feebate on the purchase of new cars the bonus malus was introduced in france in 2008 less polluting cars benefited from a price reduction of up to 1 000 euro whereas the most polluting ones were subject to a taxation of 2 600 euro we estimate the impact of this policy on carbon dioxide emissions in the short and long run if the shift towards the classes benefiting from rebates is considerable we estimate the environmental impact of the policy to be negative while feebates may be efficient tools for reducing co2 emissions they should thus be designed carefully to achieve their primary goal

income and wealth heterogeneity in the macroeconomy how do movements in the distribution of income and wealth affect the macroeconomy we analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity our main finding is that in the stationary stochastic equilibrium the behavior of the macroeconomic aggregates can be almost perfectly described using only the mean of the wealth distribution this result is robust to substantial changes in both parameter values and model specification our benchmark model whose only difference from the representative agent framework is the existence of uninsurable idiosyncratic risk displays far less cross sectional dispersion and skewness in wealth than u s data however an extension that relies on a small amount of heterogeneity in thrift does succeed in replicating the key features of the wealth data furthermore this extension features aggregate time series that depart significantly from permanent income behavior

econometric approaches to empirical models of exchange rate determination abstract this paper identifies four principal econometric approaches to the estimation and testing of asset market models of exchange rate determination the traditional static reduced form approach the error correction and co integration dynamic reduced form approaches the simultaneous equations approach and large scale multi equation macroeconometric simulation models each of these econometric approaches is evaluated with respect to its theoretical validity and the comparative properties of the empirical results obtained this leads to the conclusion that although there may be little to choose between the different theoretical exchange rate models there may be grounds for favouring a multi equation simultaneous estimation procedure for this class of models

the firm in the information age organizational responses to technological change in the processed foods sector the transformation of production processes that occurred across a range of manufacturing industries during the industrial age generated new and more complex requirements for the process of intermediation as well as for the production systems themselves the development of hierarchical organizations provided firms with the ability to oversee directly many of these new tasks and to create markets that supported them in contrast the advent of the information age has tended not so much to require the creation of markets de novo but has rather altered the nature of existing relationships of intermediation in ways that have facilitated a much wider collection of organizational forms

dynamic demand for new and used durable goods without physical depreciation the case of japanese video games we develop a new dynamic demand model for new and used durable goods and quantify the impact of used goods markets on producers profits and consumer welfare

dynamic logit with choice aversion we characterize a generalization of discounted logistic choice that incorporates a parameter to capture different views the agent might have about the costs and benefits of larger choice sets the discounted logit model used in the empirical literature is the special case that displays a preference for flexibility in the sense that the agent always prefers to add additional items to a menu other cases display varying levels of choice aversion where the agent prefers to remove items from a menu if their ex ante value is below a threshold we show that higher choice aversion as measured by dislike of bigger menus also corresponds to an increased preference for putting off decisions as late as possible

monetary policy exchange rate dynamics and the labour market the large fluctuations of exchange rates since the 1970 s have stimulated theories of exchange rate dynamics two broad classes of models can be distinguished sticky price models e g bilson 1979 dornbusch 1976 gray and turnovsky 1979 mathieson 1977 and witte 1979 with monotonic exchange rate dynamic adjustment and the possibility of overshooting exchange rate dynamics are the result of slowly adjusting prices the other class is flexible price models e g branson 1976 calvo and rodriguez 1977 dornbusch and fischer 1980 driskill 1980 kouri 1976 and niehans 1977 with a richer variety of dynamic paths and almost invariably no overshooting exchange rate dynamics are the result of wealth accumulation through current account imbalances within the class of sticky price models perhaps the most prominent is dornbusch 1976 this model emphasizes the differential speed of adjustment between goods and assets markets as the cause of short run exchange rate overshooting following a monetary expansion using this framework frenkel and rodriguez 1982 show that it is the assumption of perfect capital mobility or perfect asset substitutability which results in overshooting with a low degree of asset substitutability the exchange rate is likely to undershoot its equilibrium value as they stress the speed of adjustment in commodity markets does not seem to be a fundamental factor frenkel and rodriguez op cit p 3 bhandari driskill and frenkel 1984 confirm this result using a stock rather than a flow formulation of the capital account their analysis emphasizes the relationship between the degree of asset substitutability the responsiveness of the trade balance to relative prices and the interest rate semi elasticity of the money demand as the condition for over shooting bhandari 1981 made an early attempt to provide a model in which the role of the degree of asset substitutability and the speed of adjustment of the goods market can be investigated however his analysis suffers from major weaknesses in model specification see gazioglou 1984 the present paper analyses exchange rate dynamics in a model that integrates slowly adjusting prices with wealth accumulation dynamics the aim is to examine the overshooting hypothesis and the nature of the dynamic path that is whether it is monotonic or cyclical following a change in monetary policy henderson 1980 and kawai 1985 have attempted a similar synthesis under perfect asset substitutability and by restricting the choice of assets to domestic and foreign currencies henderson and

demand dynamics in the seasonal goods industry an empirical analysis this study develops and estimates a dynamic model of consumer choice behavior in markets for seasonal goods where products are sold over a finite season and availability is limited in these markets retailers often use dynamic markdown policies in which an initial retail price is announced at the beginning of the season and the price is subsequently marked down as the season progresses strategic consumers face a trade off between purchasing early in the season when prices are higher but goods are available and purchasing later when prices are lower but the stockout risk is higher if the good starts providing utility as soon as it is purchased e g apparel consumers purchasing earlier in the season can also get more use from the product compared to those purchasing later our structural model incorporates three features essential for modeling the demand for seasonal goods changing prices limited availability and possible dependence of total consumption utility on the time of purchase in this model heterogeneous consumers have expectations about future prices and product availability and they strategically time their purchases we estimate the model using aggregate sales and inventory data from a fashion goods retailer the results indicate that in the fashion goods context ignoring consumers expectations about future availability or the change in total consumption utility over the season can lead to biased demand estimates we find that strategic consumers delay their purchases to take advantage of markdowns and that these strategic delays hurt the retailer s revenues retailer revenues facing strategic consumers are 9 lower than they would have been facing myopic consumers limited availability on the other hand reduces the extent of strategic delays by motivating consumers to purchase earlier we find that the impact of strategic delays on retailer revenues would have been as high as 35 if there were no stockout risk by means of counterfactual experiments we show that the highest retailer profits are achieved by offering small markdowns early in the season on the other hand given current markdown percentages the retailer can improve profits by carrying less stock as consumers accelerate purchases and purchase at higher prices when they anticipate scarcity in future periods as long as the reduction in availability is not great the profit gain from earlier higher priced sales can overcome the loss resulting from the reduction in overall sales

short run dynamics in models of money and growth originating with james tobin s initial treatment of money as a second asset in the solow one sector growth model the subject of money and growth has received a great deal of attention in the recent literature tobin s emphasis on portfolio balance to determine the equilibrium of the model provides a useful framework for the discussion of the development of two opposing schools of thought among recent writers on the subject of money and growth the neoclassical approach follows tobin in his emphasis on portfolio balance and includes contributions by miguel sidrauski and harry johnson among others a cogent and comprehensive statement of the neoclassical viewpoint can be found in the excellent survey by david levhari and don patinkin the second approach the keynes wicksell approach as expounded by jerome stein in particular and also including contributions by hugh rose and keizo nagatani faults the neoclassical model on two basic and related points they are the implications of the model for the dynamics of price change and the lack of independent savings and investment decisions the neoclassical approach is characterized by the assumption that desired per capita real balances are always held prices must adjust instantaneously to assure portfolio balance a given rate of expansion of the nominal money stock combined with the exogenously given rate of population growth serves to determine the equilibrium rate of inflation consistent with asset equilibrium the division of assets between money and physical capital is thereby determined and there need be no specification of an independent investment function all physical savings are instantaneously channelled into capital accumulation and the desired capital stock is always held the long run properties of the neoclassical model allow for the coexistence of nonzero steady state inflation and goods market equilibrium by specifying that excess demand for goods causes a departure from the steady state rate of inflation but is not a necessary condition for a nonzero inflation rate at any point in time it is contended that in a dynamic world there are two forces operating to drive the price level excess demand for goods and inflationary expectations in steady state excess demand is zero actual inflation equals expected inflation not necessarily zero and the possibility of nonzero steady queen s university this paper was written while i was a graduate student at the university of chicago my understanding of the issues has been greatly improved by many discussions with rudiger dornbusch stanley fischer and michael mussa i also wish to thank members of workshops at the university of chicago university of rochester and york university and to participants in the chicago symposium on trade growth and the balance of payments university of chicago december 1970 for helpful comments on an earlier version of this paper jerome stein george borts and an anonymous referee provided very useful comments for which i am most grateful of course i am responsible for any remaining errors financial support from the canada council is gratefully acknowledged i a puzzling result of tobin s initial treatment is that the introduction of money into the barter model lowered the capital intensity and output per capita i have recently tried to analyze this seemingly paradoxical result elsewhere see purvis

inventories and the automobile market this article studies the within model year pricing production and inventory management of new automobiles using new monthly data on u s transaction prices we document that for the typical vehicle prices fall over the model year at a 9 0 annual rate concurrently both sales and inventories are hump shaped to explain these time series we formulate an industry model for new automobiles in which inventory and pricing decisions are made simultaneously the model predicts that automakers build to stock inventory management policy substantially influences the time series of prices and sales accounting for four tenths of the price decline observed over the model year

balance of trade announcements and asset prices influence on equity prices exchange rates and interest rates abstract this paper examines the informational impact of traded balance announcements on asset prices including equities currrencies long and short term debt instruments and financial futures this study finds that in the 1980s prior to the 1985 plaza agreement for international economic cooperation information in trade balance announcements seem to have influenced only interest rates however in the 1985 1987 period such announcements also influenced stock prices and currency values these influences intensity further in the 1987 1988 period thus asset prices are sensitive to news in trade balance announcements and this sensitivity seems to have increased significantly in recent years with important implications for asset pricing models and economic policy formulation jel f30

when do secondary markets harm firms to investigate whether secondary markets aid or harm durable goods manufacturers we build a dynamic model of durable goods oligopoly with transaction costs in the secondary market calibrating model parameters using data from the us automobile industry we find the net effect of opening the secondary market is to decrease new car manufacturers profits by 35 percent counterfactual scenarios in which the size of the used good stock decreases such as when products become less durable when the number of firms decreases or when firms can commit to future production levels increase the profitability of opening the secondary market

switching cost and deposit demand in china this article develops and estimates a dynamic model of consumer demand for deposits in which banks provide differentiated products and product characteristics that evolve over time the switching cost is 0 8 of the deposit s value which leads the static model to bias the demand estimates the dynamic model shows that the price elasticity over a long time horizon is larger than the same elasticity over a short time horizon counterfactual experiments with a dynamic monopoly show that reducing the switching cost has a comparable competitive effect on bank pricing as a result of reducing the dominant position of the monopoly

expectations and exchange rate dynamics after a decade of floating abstract dornbusch s model of expectations and exchange rate dynamics has been a theoretical success and an empirical failure the premise underlying this paper is that the price and exchange rate dynamics inherent in his model cannot be captured by single equation methods to capture these dynamics we estimate dornbusch s model using constrained maximum likelihood methods which incorporate cross equation restrictions derived from the structural equations and assumption of rational expectations our central result is that the estimation of dornbusch s model is much more successful than single equation methods have led us to believe

measuring consumer switching costs in the television industry in this article i develop and estimate a model of dynamic consumer behavior with switching costs in the market for paid television services i estimate the parameters of the structural model using data on cable and satellite systems across local us television markets over the period 1992 2006 the results suggest switching costs range from 159 to 242 for cable and from 212 to 276 for satellite providers in 1997 dollars using a simple dynamic model of cable providers i demonstrate that switching costs of these magnitudes can significantly affect the firms optimal strategies

real interest rates home goods and optimal external borrowing the paper investigates the optimal time path of consumption and external borrowing in the dependent economy model the small country faces given world prices and a given world real interest rate the presence of a home goods sector implies that the relevant real interest rate appropriate to consumption decisions depends on the rate of change of the real price of home goods the paper shows how transitory disturbances in output or in the world real interest rate affect the time profile of consumption and the trade balance in particular it is shown that the presence of a home goods sector dampens the consumption effects of changes in the world interest rate

environmentalism stimulus and inequality reduction through industrial policy did cash for clunkers achieve the trifecta the 2009 american cash for clunkers program which subsidized consumers who scrapped old vehicles and purchased new vehicles was promoted by appealing to multiple constituencies we evaluate the policy and alternatives according to its stated goals emissions reductions economic stimulus and reducing inequality we calibrate a dynamic partial equilibrium portfolio model to match consumer expenditure data from 1998 to 2011 focusing on heterogeneity across cars and trucks we find the program generated 0 17 in environmental benefits 0 28 in consumer surplus and 0 31 in net discounted additional spending per subsidy dollar since subsidies largely went to middle income infra marginal consumers the program exacerbated consumption inequality we evaluate alternative policy designs and find no policy which simultaneously improves all outcomes jel h23 l52 l92 d63

dynamics of consumer demand for new durable goods most new consumer durable goods experience rapid prices declines and quality improvements suggesting the importance of modeling dynamics this paper specifies a dynamic model of consumer preferences for new durable goods with persistently heterogeneous consumer tastes rational expectations and repeat purchases over time we estimate the model on the digital camcorder industry using panel data on prices sales and characteristics we find that the 1 year elasticity in response to a transitory industrywide price shock is about 25 percent less than the 1 month elasticity standard cost of living indices overstate welfare gain in later periods due to a changing composition of buyers

does amd spur intel to innovate more we estimate an equilibrium model of dynamic oligopoly with durable goods and endogenous innovation to examine the effect of competition on innovation in the personal computer microprocessor industry firms make dynamic pricing and investment decisions while consumers make dynamic upgrade decisions anticipating product improvements and price declines consistent with schumpeter we find that the rate of innovation in product quality would be 4 2 percent higher without amd present though higher prices would reduce consumer surplus by 12 billion per year comparative statics illustrate the role of product durability and provide implications of the model for other industries

improving the numerical performance of static and dynamic aggregate discrete choice random coefficients demand estimation the widely used estimator of berry levinsohn and pakes 1995 p roduces estimates of consumer preferences from a discrete choice demand model with random coefficients market level demand shocks and endogenous prices we derive numerical theory results characterizing the properties of the nested fixed point algorithm used to evaluate the objective function of blp s estimator we discuss problems with typical implementations including cases that can lead to incorrect parameter estimates as a solution we recast estimation as a mathematical program with equilibrium constraints which can be faster and which avoids the numerical issues associated with nested inner loops the advantages are even more pronounced for forward looking demand models where the bellman equation must also be solved repeatedly several monte carlo and real data experiments support our numerical concerns about the nested fixed point approach and the advantages of constrained optimization for static blp the constrained optimization approach can be as much as ten to forty times faster for large dimensional problems with many markets

exchange rate dynamics with wealth effects some theoretical ambiguities abstract this paper helps fill in a remaining gap in the exchange rate dynamics literature the role of wealth and relative price effects the analysis differs from dornbusch 1976 in the inclusion of wealth effects it differs from engel and flood forthcoming in the inclusion of relative price effects in the savings function the basic result of the paper is that when relative price effects dominate wealth effects exchange rate undershooting occurs but when wealth effects dominate overshooting may occur

salience myopia and complex dynamic incentives evidence from medicare part d the standard medicare part d drug insurance contract is non linear with reduced subsidies in a coverage gap resulting in a dynamic purchase problem we consider enrolees who arrived near the gap early in the year and show that they should expect to enter the gap with high probability implying that under a benchmark model with neoclassical preferences the gap should impact them very little we find that these enrolees have flat spending in a period before the doughnut hole and a large spending drop in the gap providing evidence against the benchmark model we structurally estimate behavioural dynamic drug purchase models and find that a price salience model where enrolees do not incorporate future prices into their decision making at all fits the data best for a nationally representative sample full price salience would decrease enrolee spending by 31 entirely eliminating the gap would increase insurer spending 27 compared to 7 for generic drug only gap coverage

the market impact and the cost of environmental policy evidence from the swedish green car rebate we quantify the effects of the swedish gcr a program to reduce oil dependence and greenhouse gas emissions in the automobile industry we find the gcr to increase the market shares of green cars and its cost to be 109 tonco2 saved thus 5 times the price of an emission permit since the main green cars in sweden are ffvs flexible fuel vehicles which can switch between petrol gasoline and ethanol we also account for fuel choice which increases the cost of the program finally we show that consumers would have purchased ffvs regardless of the rebate provided by the gcr

capital mobility and exchange rate overshooting abstract this paper examines the relation between the degree of capital mobility and the exchange rate overshooting phenomenon in a framework that employs a stock formulation of the capital account the results are compared with those emerging from the corresponding flow formulation and it is shown that the stock formulation modifies the quantitative but not qualitative implications of the model

covered interest parity uncovered interest parity and exchange rate dynamics a number of macroeconomic models of open economies under flexible exchange rate assume a strong version of perfect capital mobility which implies that currency speculation commands no risk premium if this assumption is dropped a number of important results no longer obtain first the exchange rate and interest rate cannot be in steady state unless both the government deficit and current account equal zero not simply their sum as would otherwise be the case second even in steady state the domestic interest rate can deviate from the foreign interest rate by an amount which de ends upon relative domestic asset supplies finally introducing risk aversion on the part of speculators can reduce the response on impact of the exchange rate to changes in domestic asset supplies in this sense rational speculators if they are less risk averse than other agents can destabilize exchange markets this abstract was borrowed from another version of this item

product differentiation and oligopoly in international markets the case of the u s automobile industry this paper develops and estimates a model of the u s automobile industry on the demand side a discrete choice model is adopted that is estimated using micro data from the consumer expenditure survey the estimation results are used in conjunction with population weights to derive aggregate demand on the supply side the automobile industry is modelled as an oligopoly with product differentiation equilibrium is characterized by the first order conditions of the profit maximizing firms the estimation results are used in counterfactual simulations to investigate two trade policy issues the effects of the ver and exchange rate pass through

exchange rate and current account dynamics under rational expectations an econometric analysis an econometric portfolio balance model of an open economy incorporating exchange rate price and current account dynamics is derived and estimated the usual stability conditions do not guarantee a unique rational expectations solution and several proposals for resolving this situation are considered using constrained maximum likelihood methods the model is estimated for japan the estimation results indicate that the model is quite successful in explaining the patterns found in the data the model is estimated using several methods of resolving the question of non uniqueness and the results are compared this abstract was borrowed from another version of this item

intertemporal substitution and new car purchases this article presents a dynamic demand model for motor vehicles this approach accounts for the change in the mix of consumers over the model year and measures consumers substitution patterns across products and time i find intertemporal substitution is significant consumers are more likely to change the timing of their purchase in reaction to a price increase rather than buy another vehicle in the same period further i find automakers use of large cash back rebates at the end of the model year although boosting overall sales induces large numbers of consumers to delay their purchases and so pay lower prices