Markup pricing in petroleum refining:: A multiproduct framework

This paper describes a structural model of markup pricing under joint production with quasi-fixed inputs of capital, labor, and inventories. The price–cost markups are functions of the inverse price elasticity of demand, an industry average conjectural variation elasticity, and the inventory to sales ratio. Our empirical findings suggest significant markups over marginal cost that differ considerably by product. This study also estimates the elasticities of markups with respect to supply and demand shocks.     

Modelling Price Dispersion as an Outcome of Competition in the Irish Grocery Market

The paper empirically models price dispersion between related brands within product categories of the Irish Independent Grocery market. Retail brand prices are averaged over the independent shops stocking the brand. Since individual brands are retailed through different groups of shops, brands are priced over heterogeneous consumer segments. Brand price dispersion is estimated to increase with competition when conditioned on brand distribution structures, while controlling for other observed and unobserved deterministic factors. The data suggest that brand pricing across consumer groups induce varying degrees of localised price competition rather than pricing across segments to extract consumer willingness to pay.     

Marginal cost and second-best pricing for water services

This paper examines the pricing strategy of water services relative to marginal cost and second-best pricing rules, which is a principal concern of utility commissions. The water utility is viewed as a multiproduct firm providing residential and nonresidential services, and a translog multiproduct cost function is estimated for a cross section of U.S. water utilities. Marginal costs are estimated and combined with demand elasticities to simulate second-best prices for water services. Results show that while the existing price structure is quite different from the one suggested by marginal costs, it does not depart substantially from the second-best optimum.     

Conjectures, firm characteristics, and market structure : An empirical assessment

This paper makes use of a unique data set to investigate how firms in the Vancouver, British Columbia retail-gasoline market view their rivals and how consumers in turn view these firms. Own- and rival-price elasticities of demand, conjectural variations, and Lerner indices are estimated for thirteen service stations in a submarket of Vancouver. These variables are then related to firm characteristics such as type of ownership, degree of horizontal and vertical integration, and type of service. In this way, systematic patterns in seller behavior and in buyer attitudes are revealed.     

Market structure and the impact of imports on price cost margins

This paper provides a conceptual analysis of the impact of imports on domestic price-cost margins via the interaction of economies of scale, conjectural variations, and demand elasticities. Positive or negative impacts can be theoretically justified based on the relative strength of these factors.     

An Empirical Study of the Effect of Brand Proliferation on Private Label – National Brand Pricing Behavior

This paper investigates the competitive pricing interaction between national brand and private label food products, focusing on the effect of brand proliferation. IRI scanner data from 1991 and 1992 for 135 food product categories and 59 geographic markets are used. Empirical findings are grouped into three categories: i) price, promotion and competitive effects, ii) brand proliferation and entry deterrence, and iii) local market effects. Results indicate that both private label and national brand reaction functions are positively sloped and asymmetric. Successful private label penetration, as measured by total private label share, lowers the average price of national brands. The paper's central finding is that the impact of brand proliferation on market pricing behavior is multi-dimensional. First, an increase in the number of brands increases the ability of national brand manufacturers to raise price. Second, the effectiveness of a brand proliferation strategy depends upon the distribution of market share. The more concentrated the brand structure, the lower the market price of national brands. Thus, the net effect of brand proliferation strategies is dependent upon not only the number of brands, but upon the actual distribution of brand shares. Finally, local market conditions play only a small role in the competitive interaction between private labels and national brands.     

The effect of online shopping channels on brand choice,product exploration and price elasticities

This paper analyzes the effect of an online shopping channel on private label purchases, product exploration and price elasticities. Variation in the timing that an online shopping service was introduced is utilized as a source of exogenous variation in the decision to shop online. Event study estimates indicate a 0.3 to 1.0 (1.0 to 2.0) percent increase (reduction) in the proportion of private label (new) products purchased after the introduction of the online shopping service. Price elasticities are then estimated utilizing an Exact Affine Stone Index (EASI) demand model. Comparisons of in-store and multichannel price elasticities indicate that households are, on average, less price sensitive when shopping across both the in-store and online channels. Own-price (cross-price) elasticities are 1.07 (5.56) times larger in-store than they are in a multichannel setting. These findings suggest that retailers manipulate the online search platform and(or) the provision of substitutes to favor private label products, which have a higher margin. Additionally, these results suggest that retailers may find it profit maximizing to raise prices as consumer baskets become more sticky in the multichannel purchasing regime.     

Cheap Tuesdays and the demand for cinema

Many movie markets are characterised by extensive uniform pricing practices, hampering the ability to estimate price elasticities of demand. Australia presents a rare exception, with most cinemas offering cheap Tuesday ticket prices. We exploit this feature to estimate a random coefficients discrete choice model of demand for the Sydney region in 2007. We harness an extensive set of film, cinema, and time-dependent characteristics to build a rich demand system. Our results are consistent with a market expansion effect from the practice of discounted Tuesday tickets, and suggest that cinemas could profit from price dispersion by discounts based on observable characteristics.     

Upward pricing pressure as a predictor of merger price effects

We use Monte Carlo experiments to evaluate whether “upward pricing pressure” (UPP) accurately predicts the price effects of mergers, motivated by the observation that UPP is a restricted form of the first order approximation derived in Jaffe and Weyl (2013). Results indicate that UPP is quite accurate with standard log-concave demand systems, but understates price effects if demand exhibits greater convexity. Prediction error does not systematically exceed that of misspecified simulation models, nor is it much greater than that of correctly-specified models simulated with imprecise demand elasticities. The results also support that UPP provides accurate screens for anticompetitive mergers.     

Pricing of related products by a multiproduct monopolist

This paper examines the pricing behavior of a multiproduct monopolist (MPM). For a firm selling two products, the profit maximizing price of a particular item is found to depend upon its marginal cost, the own and cross-price elasticities and the budget shares of both products. Conditions are identified under which the price charged by a MPM will be greater than, less than, and equal to the price charged by an otherwise identical single product monopolist as well as the circumstances under which it is profitable for a MPM to utilize one product as a loss leader.     

Household food demand in Turkey: A two-step demand system approach

Demands for sixteen food products are investigated, using data from the Turkish Household Expenditure Survey. The linear approximate almost ideal demand system (LAIDS) is estimated with Shonkwiler and Yen’s two-step procedure. All own-price elasticities are negative and expenditure elasticities positive. Bread, other cereals, bovine, mutton, giblets, and cheese have high expenditure elasticities. Mutton, bovine, and several other protein-rich products are price elastic. Results suggest a mix of gross substitutes and complements, while net substitution is the dominant pattern. Demographic characteristics also play important roles in shaping food demand. The elasticity estimates can inform policy deliberations.     

What is the magnitude of fixed–mobile call substitution? Empirical evidence from 16 European countries

This paper investigates the degree of fixed–mobile call substitution (FMCS) within different European countries. We use quarterly data from 2004 to mid-2010 on 16 mainly Western European countries. By applying dynamic panel data techniques, we are able to estimate short- and long-run elasticities of the telecommunication usage prices on the fixed-line call demand. The own-price and cross-price elasticities found give strong empirical evidence for substitutional effects towards mobile services. In particular, the estimated cross-price elasticities of the mobile price on the fixed-line call demand are relatively large compared to other studies.     

Price behavior in tight oligopoly

The study examines price behavior in tight oligopoly. The investigation proceeds from the premise that tacit cooperation is the rational response of firms comprising tight oligopoly. The study’s thesis is that cooperative conduct in tight oligopoly will reflect one of two general pricing patterns: (1) shared monopoly pricing, or (2) mark-up pricing. A unique empirical test of this dual price hypotheses is developed. The test focuses on the nature of price responses to cost and demand changes as reflected in a price equation that is estimated for each of fifty four-digit SIC industries. The study’s results indicate infrequent, but still notable, instances of shared monopoly pricing. More common is evidence of mark-up pricing, a general category within which demand proved to be significant in roughly half of the industries examined. Theoretical implications of these findings are discussed.     

Competition in Turkish mobile telecommunications markets: Price elasticities and network substitution

This paper estimates demand elasticities for Turkish mobile telecommunications markets. In contrast to most other studies, firm-level data is used to estimate dynamic panel data models including instrumental variable techniques. Both short- and long-run elasticities are calculated, yielding a long-run price elasticity of −0.72 for the post-paid market and of −0.33 for the pre-paid market. The short-run price elasticity is estimated to be −0.36 for the post-paid market and −0.20 for the pre-paid market. In addition, there is evidence of fixed-to-mobile traffic substitution for consumers who use pre-paid cards.     

On vertical control in monopolistic competition

This paper demonstrates that vertical restraints are profitably imposed by a manufacturer or wholesaler who has some market power and whose product is sold in a monopolistically competitive downstream market. Simple conditions are developed under which a price floor (resale price maintenance) or a price ceiling is profitable, and under which private incentive for a restraint is sufficient for its social desirability. Where demand elasticities are constant, observed vertical price floors are always welfare-improving but profitable price ceilings may decrease welfare. In the special case of the CES-aggregate-surplus specification with competitive conjectures, price ceilings are profitable and welfare-decreasing.     

Industrial policy and duopolistic trade with dynamic demand

The authors study strategic trade policy in the framework of an explicit dynamic game in which home and foreign duopolists compete in a third-country market for non-competitive rents. Dynamics are introduced on the demand side by assuming demand for the product depends on past consumption of that good. The analysis demonstrates that the perfect equilibrium of the dynamic game can be replicated by a conjectural variations equilibrium, and that optimal policy requires a tax on exports.     

Market Share and Price Setting Behavior for Private Labels and National Brands

In this paper, we focus on the nature of demand and competitive response in the market for private label and national branded grocery products. Specifically,we employ less restrictive functional forms than usedin prior research. Specifically, we incorporateLA/AIDS demands and the corresponding price reactionequations to estimate consumer price sensitivities andsupply side price strategies for national brand andprivate label products. Oligopolistic priceinterdependence is explored further by specifyingbrand share, brand Herfindahl, and a measure of thestructure of the local retail markets in the supplyside relations to evaluate explicitly the impact ofmarket structure.In our empirical analysis, we estimate a system of market share and price equations simultaneously inorder to examine (i) the determinants of the demandresponse to pricing and promotion decisions and (ii)the determinants of private label and national brandpricing behavior. Using data for 143 food productcategories and 59 geographic markets, we develop amodel that captures the variation in privatelabel-national brand share and pricing acrosscategories and markets. Key findings include: (i)demand response to price and promotion is decidedlyasymmetric, (ii) price followship between privatelabels and national brands is positive, but notstrong, and (iii) markets characterized by highernational brand market share and higher supermarketconcentration tend to have higher prices forboth national brands and private labels.