Opportunity Cost Pass‐Through from Fossil Fuel Market Prices to Procurement Costs of the U.S. Power Producers

This paper investigates the transmission of fossil fuel commodity spot market price changes to procurement costs of U.S. power producers. We measure and compare the speed and magnitude with which spot prices predict procurement costs using restricted access fuel price data. Natural gas spot prices are quickly reflected in procurement costs. Coal spot prices offer very little predictive power to coal procurement costs. Although not causal, the empirical results also show differences across regulatory status. These findings may have implications for the electricity market deregulation literature that creates marginal cost curves as a competitive benchmark.     

Asymmetric Cost Pass-Through in Multi-Unit Procurement Auctions: An Experimental Approach*

We explore input cost pass-through in multi-unit procurement auctions. Whether cost shocks are private versus common across firms has important implications for discriminatory, but not uniform price auctions. We provide evidence of asymmetric pass-through of private cost shocks in discriminatory auctions. Unlike uniform price auctions, revenue-maximizing bidders in discriminatory auctions ‘pad’ bids close to the expected clearing price for units with costs below that price, but they do not bid below cost on higher cost units. Therefore, if costs are higher than expected, the clearing price rises and if costs are lower than expected, the clearing price remains high.     

CUT‐THROAT FRINGE COMPETITION IN AN EMERGING COUNTRY MARKET: TAX EVASION OR THE ABSENCE OF MARKET POWER?*

Brazil's established soft‐drink firms recently lost ground to multiple low‐price entrants, with small‐scale operations and minimal advertising. While incumbents attributed such undercutting to entrants' lower costs from non‐compliance with the law, ‘generics’ counterargued that incumbents' high prices stemmed from unilateral market power rather than cost heterogeneity. By estimating a structural model, I can single‐handedly explain established brands' high prices through low equilibrium price elasticities of demand. Tax evasion in the fringe, while plausible, appears to be offset by higher procurement costs or less efficient scale. More generally, a competitive informal sector can alleviate the allocative distortions in certain concentrated industries.     

Public Procurement Auctions and Competition in Turkey

This paper empirically investigates the effect of the competitive environment (number of participants) on the cost of procurement. We use a unique dataset provided by the Public Procurement Authority (PPA) of Turkey that covers all of the government procurement auctions for the years 2004–2006. First, after controlling for possible endogeneity, we show that the number of bidders significantly and negatively affects the procurement price. Thus, the existence of a more competitive environment significantly decreases procurement costs in Turkey. Second, when auctions are open to foreign participation, the auction price tends to be lower. Finally, prices in services and goods sectors are more sensitive to changes in the number of bidders than is true for the construction sector. The results of this paper have several policy implications for e-procurement and efficient procurement design.     

Collusion through Coordination of Announcements

A theory is developed to explain how sellers can effectively collude by coordinating on list prices (or surcharges), while leaving sellers to set their final prices. List prices are interpreted to be cheap talk announcements about cost information unknown to buyers. Buyers use those announcements to decide whom to invite to their procurement auction and the reserve price to set. By coordinating on a high list price to signal high cost, sellers produce supracompetitive prices by inducing buyers to be less aggressive, as reflected in a higher reserve price. We show that collusion can raise social welfare.     

Combined price support and fertilizer subsidy policies for food self-sufficiency: A case study of rice in Bangladesh

Output price support and input subsidies, particularly fertilizer subsidies, are used in many developing countries as short-term policies for stimulating food production. This paper presents a method of evaluating combined price support and fertilizer subsidy policies, allowing for differences in emphasis on each. Bangladesh is taken as a case study. The paper also indicates the likely distributional consequences of the various combined policies and formulates policy suggestions based on the results. The guiding hypothesis for the study is that some combination of price support and fertilizer subsidies is preferable to a price support or fertilizer subsidy monopolicy in achieving rice self sufficiency in Bangladesh.     

INFORMATION REVELATION AND BUYER PROFITS IN REPEATED PROCUREMENT COMPETITION*

I investigate how procurement costs are affected by the information that buyers reveal about sellers' behavior, in a setting with two sequentially offered contracts for which a seller's privately known costs are identical. Expected prices are lowest when sellers learn nothing until all contracts are allocated, are higher when they learn all sellers' price offers as contracts are allocated, and typically are even higher when they learn only the winner's identity, or the winner's identity and price offer. The results suggest that buyers engaged in repeated procurement may pay less by revealing minimal or extensive information, rather than an intermediate amount.     

Financial and operational decisions in the electricity sector: Contract portfolio optimization with the conditional value-at-risk criterion

The restructuring of electricity markets around the world have caused increased volatility and uncertainty of the price power. As a result, providers of power now face increased uncertainty and risk in the operational and financial decisions related to procurement. Providers must seek optimal ways to deliver the required volume of power to retailers and end users while managing risk. We consider a mixed-integer programming model for a power providing agent that jointly considers the problem of selecting custom electricity contracts and finding the optimal procurement strategy of meeting contract obligations under spot price uncertainty. A two-stage stochastic integer programming (SIP) model with a conditional value-at-risk (CVaR) constraint to incorporate risk aversion is developed. Computational results are presented that demonstrates the CVaR approach and the results are compared with a corresponding expected cost minimization approach. The SIP model with CVaR will allow acceptance of contracts at lower prices compared to an approach based on a corresponding risk-neutral model as a hedge against uncertainty and mis-specified arbitrage.     

PRICE DISPERSION IN THE SMALL AND IN THE LARGE: EVIDENCE FROM AN INTERNET PRICE COMPARISON SITE

This paper examines four million daily price observations for more than 1,000 consumer electronics products on the price comparison site http://Shopper.com . We find little support for the notion that prices on the Internet are converging to the 'law of one price.' In addition, observed levels of price dispersion vary systematically with the number of firms listing prices. The difference between the two lowest prices (the 'gap') averages 23 per cent when two firms list prices, and falls to 3.5 per cent in markets where 17 firms list prices. These empirical results are an implication of a general 'clearinghouse' model of equilibrium price dispersion.     

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.     

Determining the Maximum Hourly Demand of Natural Gas for Large Suppliers

This article deals with the determination of the maximum hourly energy consumption of large (municipal) natural gas suppliers using the Monte Carlo simulation method. To ensure an adequate supply for all their customers, suppliers need to purchase capacities in geological storage systems. If, due to cost considerations or inaccurate predictions, the chosen capacities are smaller than the actual consumption, additional costs are incurred for the procurement of short-term quantities of gas, e.g. from the balancing energy market. It is therefore necessary to formulate and solve an optimisation problem, which is done as described in the following by means of a simulation after modelling all required quantity values and price data. The aim is to minimise the structure costs—i.e. the fixed capacity costs and the variable balancing energy costs—by selecting the most appropriate hourly energy supply level. Since the selection of the storage capacity generally has far-reaching financial implications, the statistics-based simulation method described in the following is intended to provide the companies concerned with a reliable basis for decision-making.     

厂商市场份额的品牌经济模型及其现实解释

厂商的市场份额决定了其利润率,从而决定了厂商能否在残酷的竞争中生存、增长与发展。而在经济过剩的条件下,消费者的选择决定了厂商的市场份额,货币价格与品牌及品牌信用度决定的选择成本作为消费者选择和购买过程中的局限条件制约和影响着消费者的选择与购买。本文建立起引入品类需求强度系数、价格、选择成本的需求函数,并以此模型解释了厂商市场份额的决定是通过价格机制与品牌机制共同作用而实现的。在理论分析的基础上,对大量的现实进行了解释,在验证该模型的同时,对未来市场竞争及厂商市场份额做出了预测。同时,本文提出了提高厂商市场份额与定价权的＂品类需求强度—品牌信用度＂二维模型,并分别从开发具有较高品类需求强度的品类市场和提高品牌信用度的品牌建设方面给现实中的厂商提供了相应策略。     

Trade subsidies,export bans and price stabilization: Lessons of Bangladesh–India rice trade in the 2000s

During the world food price crisis of 2007–08, rice importing countries suffered through a sharp increase in international rice prices and disruptions in supply as several rice exporters restricted trade to mitigate their domestic price increases. Perhaps no country was more affected by these disruptions than Bangladesh. Our analysis shows that prior to the 2007 crisis, when Bangladesh imported an average of nearly 1 million tons of rice per year from India, domestic wholesale prices of rice in Bangladesh were co-integrated with import parity prices of subsidized Below Poverty Line (BPL) rice. When in mid-2007, India sharply curtailed exports, rice prices surged in Bangladesh.Model simulations show that a relatively small increase in private consumer stocks equivalent to about 2 weeks of normal consumption could account for the large surge in domestic prices in Bangladesh and that an additional 300,000 tons (in addition to approximately 700,000 tons of net rice distribution that actually occurred) would have been sufficient to stabilize prices in the November 2007–April 2008 period. The Bangladesh analysis thus shows that in spite of the uncertainty in international markets, careful planning, timely interventions and openness to trade can substantially reduce requirements for public stockholding.     

Bayesian implementation and rent extraction in a multi-dimensional procurement problem

We consider a multi-dimensional procurement problem in which sellers have private information about their costs and about a possible design flaw. The information about the design flaw is necessarily correlated. We solve for the Bayesian procurement mechanism that implements the efficient allocation at the lowest cost under the constraint that sellers are protected by limited liability. We show that the rents obtained from reporting costs truthfully can be used to reduce the rents sellers must get for reporting the flaw. We compare the efficient Bayesian mechanism to the efficient ex post incentive compatible mechanism studied by Herweg and Schmidt (2019) that is informationally less demanding.     

Ocean Carriers’ Collusion Under Antitrust Immunity: Evidence of Asymmetric Pass-Through

As fuel costs are the largest component of the shipping industry’s operating costs, this study examines whether ocean carriers pass fuel cost increases through to freight rates more quickly than they pass through fuel cost decreases. The focal price collusion theory suggests that such asymmetric pass-through could be a result of collusive behavior because collusion is easier to sustain when costs are falling than when costs are rising. Using a lag-adjustment model as the econometric framework, findings from this study show strong evidence for asymmetric adjustments of the US inbound freight rates in response to fuel cost changes. Such asymmetry persisted after the passage of the Ocean Shipping Reform Act of 1998. Moreover, the findings do not support the consumer search theory as an alternative explanation for the freight rate asymmetry.     

Does Regulation Trade Off Quality against Inequality? The Case of German Architects and Construction Engineers

We exploit an exogenous price increase of 10 per cent for architectural services to answer the question how price regulation affects income inequality and service quality. Using individual‐level data from the German microcensus for the years 2006–2012, we find a significant reform effect of 8 per cent on personal net income for self‐employed architects and construction engineers. This group moved from the second lowest to the highest quintile of the net income distribution. This increase in inequality is associated with a deterioration of service quality. The reform reduced average scores of a peer ranking for architects by 18 per cent.     

Joint pricing and procurement of fashion products in the existence of clearance markets

This paper focuses on the joint pricing and procurement of fashion products in the existence of clearance markets. It is assumed that the expected regular season demand is a linear decreasing function of the price and the end of period excess inventory is sold at a known discounted price in a clearance market where the demand is a random variable that follows a general distribution. It is shown that the expected profit function is unimodal and the optimal procurement quantity and price can be found from the first order conditions. Existence of a clearance market increases the profit, price, and the procurement quantity. In order to prove this, the optimal procurement and pricing policy of a price-setting retailer who does not have a clearance market is provided. As opposed to the literature, it is shown that the expected profit function of this problem is unimodal as well. A numerical study demonstrating the magnitude of the increase in profit, procurement quantity, and price is reported.     

World Bank's assault on the small farmer

The real meaning of the new emphasis of the World Bank on lending to the ‘small farmer’ is an attack on the self-provisioning peasantry aimed at forcing them into closer participation in the market economy. This aim is sometimes achieved forcibly, as in settlement projects, and sometimes through manipulation of price relationships or through a change in tenure systems to create a private market in land. In all cases, credit is the chief instrument used -institutional credit as well as private usury can lead to debt peonage.     

The Price Effects of Using Firewalls as an Antitrust Remedy

Antitrust authorities have imposed firewalls between the previously separate divisions of newly vertically integrated firms in several industries, to address concerns that access to horizontal rivals’ proprietary information may reduce competition. This paper evaluates a specific antitrust concern by modeling the price effect of one seller’s learning its rival’s production costs before bidding in a duopoly procurement contest. The results show that imposing a firewall as a condition for permitting a vertical merger actually can lead to higher prices than if the flow of information were unimpeded, and they provide guidance as to when this unintended outcome occurs.     

The impact of price adjustment costs on price dispersion in e-commerce

We analyze price dispersion using panel data from a large price comparison site. We use past pricing behavior to instrument for potential endogeneity of firms to select into certain product markets. Our main result is that greater price adjustment costs result in greater price dispersion even in e-commerce markets where price adjustment cost are thought to be negligible. Although the impact of price adjustment costs on price dispersion became weaker over time, the causal effect of price adjustment costs on price dispersion is still present at the end of our observation period. Our results are robust to many alternative empirical specifications. We also control for a range of alternative explanations of price dispersion, such as search cost, service differentiation, obfuscation, vertical restraints, and market structure.