Quality and capacity choices in a vertical differentiation model with congestion

We consider a vertically differentiated market in which consumers’ utility is assumed to depend on the price, congestion level and the stand‐alone quality of the good or service. Two firms compete on this market, choosing capacities, stand‐alone qualities and prices. We characterize completely the subgame perfect equilibrium for the homogenous market case (where only one firm is active without congestion). We prove that both firms are active, choosing minimal differentiation along the capacity and quality dimensions. Therefore, the presence of congestion rules out market preemption as a possible outcome in equilibrium and weakens the incentive to differentiate.     

Brand familiarity and product knowledge in customization

I adopt Hotelling's model with two firms. Each consumer has a most preferred variety and possesses a certain level of category‐specific knowledge. When a firm offers customization, consumers must interact with the firm to create their products. Consumers familiar with the brand can do this seamlessly, whereas consumers unfamiliar with the brand have difficulty expressing their individual needs (the difficulty decreases with consumers' knowledge). The firms first simultaneously decide whether to customize, then engage in price competition. Although customization makes the products less differentiated, the frictions caused by consumer co‐design activities relax price competition. Customization by one of the firms occurs in equilibrium.     

Why Do Large Firms' Prices Anticipate Earnings Earlier than Small Firms' Prices?*

This paper presents evidence that the positive association between firm size and price leads of earnings is not solely a function of private search incentives for firm‐specific information. Specifically, we find that small‐firm prices also lag large‐firm prices with respect to industry‐wide information. Our empirical analysis extends Collins, Kothari, and Rayburn 1987 and Freeman 1987, who document that security‐price leads of earnings are positively associated with market capitalization. In particular, we examine the association between firm size and the timing of security returns for two components of annual earnings changes: the average change for a firm's industry and the firm's idiosyncratic change. We find that large firms' prices have a longer lead than small firms' prices with respect to both components. Large firms' early lead on industry‐wide earnings suggests that returns of large firms predict returns of same‐industry small firms. To test this implication, we construct a portfolio of long (short) positions in small firms when the prior month's returns of large firms in their industry are above (below) average for large firms in other industries. This zero investment portfolio earns 4.5 percent over 12 months.     

EXPLOITING AN ADVANTAGE--DECLINING AN ADVANTAGE

Within the context of the study, a firm is said to have an advantageover another if it obtains more customers given they both chargethe same price. Further, consumer switching costs imply thelarger the difference in the prices charged by the two firmsthe greater the proportion of consumers who switch from thehigher-priced firm to the lower-priced one. The Nash equilibriumto the price-posting game is characterized The firm with theadvantage charges a higher price Finally, it is shown that ifone firm can freely choose to have an advantage, it will rejectit. This follows as the greater the advantage, the smaller theequilibrium profits to both firms.     

Relating Product Prices to Long‐Run Marginal Cost: Evidence from Solar Photovoltaic Modules

A basic tenet of microeconomics is that for a competitive industry in equilibrium the market price of a product will be equal to its marginal cost. This paper develops a model framework and a corresponding empirical inference procedure for estimating long‐run marginal cost in industries where production costs decline over time. In the context of the solar photovoltaic (PV) module industry, we rely primarily on firm‐level financial accounting data to estimate the long‐run marginal cost of PV modules for the years 2008–2013. During those years, the industry experienced both unprecedented price declines and significant expansions of manufacturing capacity. We compare the trajectory of average sales prices with the estimated long‐run marginal costs in order to quantify the extent to which actual price declines were attributable to reductions in production costs. The trajectory of estimated product costs is then extrapolated to forecast an equilibrium trend line for future PV module prices.     

Urbanization,inequality and property prices: Equilibrium pricing and transaction in the Chinese housing market

The particularly overheated Chinese housing market, with its soaring property prices, has attracted a large amount of research. We point out three of its striking empirical features, which current literature leaves unexplored: co-existence of steady growth of real transaction price and excess supply, accelerations in price-to-income ratio, and significantly strong positive correlation between real transaction prices and income inequality. A search-equilibrium model is built to explain these facts. Heterogeneous buyers and homogeneous sellers randomly search for partners to trade in a frictional property market. The search equilibrium of the property market is either a high-price-and-low-transaction elitist matching equilibrium, or a low-price-and-high-transaction pooled matching equilibrium. The terms of trade determine which equilibrium arises. Empirical observations argue for the development of China's property market through evolution from a pooled matching equilibrium to an elitist matching equilibrium. We set out to show that the market equilibrium is always inefficient, due to crowding out externalities and market incompleteness. Policy experiments support redistributive tax, as a means to improve social welfare.     

Pricing on the Internet

It is often claimed that e-commerce has created a more competitiveenvironment by encouraging the entry of new online firms andby enabling buyers to search easily for the lowest prices. Thelimited evidence that exists paints a mixed picture. Many onlinemarkets are advertising- and technology-intensive, creatinga tendency towards growing concentration. Price search is imperfectand firms can dampen price competition by increasing productheterogeneity and switching costs. In many sectors, online firmsmay come to acquire some market power. We look at the formsof pricing that are likely to emerge in such markets, includingthe greater use of price discrimination and auction-like tradingarrangements.     

Energy price shocks,monetary policy and China's economic fluctuations

This paper develops a New Keynesian dynamic stochastic general equilibrium model with energy factors to study various channels through which China's economic fluctuations are linked to energy price shocks and to search for the optimal monetary policy to cope with energy price shocks. We conclude that there are channels through which changes in energy prices will have the following cause–effect relationships. First, a rise in energy price as a negative technology shock will raise the costs of providing capital services per unit of capital, thereby reducing output. Second, a rising energy price distorts the intertemporal choices of households and firms, creating downward pressure on the expected future return on capital. Third, an energy price shock places upward pressure on the marginal costs associated with an increase in inflation. Numerical simulation results show that a positive energy price shock has a positive effect on energy technology improvements. In addition, the effects of energy price shocks can be mitigated by nominal rigidities, and interest rate rules will determine the magnitude of those effects. Using the efficient frontier method, we also show that optimal monetary policy in China should help control energy price volatility.     

Consumer Rationing and Cournot Outcomes: Experimental Evidence

We report the results of duopoly market experiments where firms first commit to capacities and then compete in prices. The theoretical literature pertaining to these duopoly models suggests that the way residual demand is rationed is fundamental to the character of equilibrium outcomes when capacity costs are sufficiently low. The experiments test this prediction by varying capacity cost and demand‐rationing schemes. We find that residual demand rationing does not significantly impact the capacity choices of experimental subjects, although it does affect pricing. Regardless of rationing scheme, the Cournot outcome is common with high capacity costs and rare with low capacity costs.     

PRICE‐SETTING BEHAVIOR IN TURKISH INDUSTRIES: EVIDENCE FROM SURVEY DATA

This study investigates the price‐setting behavior of Turkish industries based on the results of a survey that was conducted by the Central Bank of the Republic of Turkey. The results show that, under normal conditions, the majority of the firms follow a time‐dependent pricing rule but when significant events occur a substantial fraction of them alter their behavior to state‐dependent reviewing. The median Turkish firm reviews its prices every month, but changes its prices four times a year. Price reviews and changes are affected by: the market share, price discrimination, customer type, firm size, and the existence of regulated prices.     

Price Discrimination and Efficient Distribution

This paper focuses on third‐degree price discrimination by an upstream firm with some degree of monopoly power. Downstream firms fall into two categories: efficient and inefficient, according to their relative costs of transforming a unit of the upstream good into a unit of final product. Under ordinary static conditions, price discrimination favors the inefficient firms, which have more elastic demands. We consider, however, the possibility that discrimination in the opposite direction can alter the downstream market structure toward greater efficiency. Discriminatory pricing, then, involves charging a higher price to the less efficient firms. Such pricing is shown to be both potentially profitable for the upstream firm and welfare improving as average consumer prices fall.     

Throwing the Books at Them: Amazon's Puzzling Long Run Pricing Strategy

Firms competing for consumers to adopt new platforms have incentives to charge low prices to promote adoption, followed by higher prices later on. This study explores Amazon's dynamic pricing strategy by comparing its contemporary pricing on e‐books, a relatively new product with complementary hardware and switching costs, with its pricing on physical books, a now‐mature product without complementary hardware or switching costs. Using over 150,000 hourly observations on prices and sales ranks for electronic and physical bestseller books between 2012 and 2013, in conjunction with actual quantity data, we estimate the price elasticities of demand for books at Amazon. Despite inherent challenges in data availability and measurement, we find it surprising that both electronic and physical book prices fall substantially short of the static profit maximizing level two decades after Amazon's launch. These findings raise questions for both policymakers and shareholders.     

Waiting for Signaling Quality

When a durable good of uncertain quality is introduced to the market, some consumers strategically delay their buying until the next period, with the hope of learning the unknown quality. I analyze the monopolist's pricing and waiting strategies when consumers have strategic delay incentives. I show when the monopolist offers introductory low prices in pooling equilibria. I also find two types of separating equilibria: one where the high‐type monopolist signals its quality by choosing a different price than the low‐type monopolist in the first period and another where the high‐type monopolist announces the product in the first period and waits to sell only in the second period. Waiting creates a credible cost for signaling; hence, the monopolist uses it as a signaling device.     

Endogenous Price Leadership and the Strategic Acquisition of Information

We model a differentiated Bertrand duopoly in which a firm's earlier knowledge of market demand than its competitor results in endogenous price leadership with the information advantaged firm leading. In such a setting with second‐mover advantage, we then study the firms’ incentives to acquire information and analyze an information acquisition game. Both (i) neither firm acquiring information and (ii) one firm acquiring information can arise as subgame perfect equilibrium, but both firms acquiring information is never an equilibrium outcome, even if information is free. Information may have a negative value if it causes a change in the timing of price competition.     

价格信息发布、消费者偏好差异与价格离中现象

本文运用博弈论方法研究互联网市场信息服务商的收费策略。互联网市场信息服务商的收入，来源于向厂商收取的信息发布费用。和向消费者收取的信息订阅费用。本文解释了，为什么目前大多数提供价格信息的网站只向厂商收取信息发布费用，而对消费者提供完全免费的服务。本文所建立的模型显示，如果互联网市场的规模足够小，消费者的信息订阅策略对信息服务商的收费足够敏感，则完全免费策略是信息服务商的最优策略。     

Regulating the Anticommons: Insights from Public‐Expenditure Theory

This article offers a new interpretation of the traditional Cournot complements problem, or anticommons, by using the theory of public goods to gain a perspective on the problem. Specifically, I examine the pricing strategies and regulation of multiple monopolies that produce products which consumers view as perfect complements. I show that collusion by the firms increases total social welfare and that the collusion problem can be reinterpreted as a problem of provision of public goods from the point of view of the firms. I take this insight further and derive the familiar concepts of the Samuelson marginal condition and the ratio equilibrium for the firms. I compare these outcomes to the first best solution and then apply incentive‐compatible mechanisms to strategically implement the Pareto superior ratio‐equilibrium outcome and the optimal marginal‐cost pricing outcome. Finally, I show how this methodology can be applied to the more familiar Cournot model of oligopoly.     

Costly Buyer Search in a Differentiated Products Model: An Experimental Study

This study examines whether the content of buyer information and the timing of its dissemination affects seller market power. We construct laboratory markets with differentiated goods and costly buyer search in which sellers simultaneously post prices. The experiment varies the information on price or product characteristics that buyers learn under different timing assumptions (pre‐ and postsearch), generating four information treatments. Theory predicts that price information lowers the equilibrium price, but information about product characteristics increases the equilibrium price. That is, contrary to intuition, the presence of informed buyers may impart a negative externality on other uninformed buyers. Data support the model's negative externality result when sellers face a large number of robot buyers that are programmed to search optimally. Observed prices conform to the model's comparative statics and are broadly consistent with predicted levels. With human buyers, however, excessive search instigates increased price competition, and sellers post prices that are significantly lower than predicted.     

Free entry equilibria with positive profits: A unified approach to quantity and price competition games

Free entry equilibria are usually characterized by the zero profit condition. We plead instead for a strict application of the Nash equilibrium concept to a symmetric simultaneous game played by actual and potential entrants, producing under decreasing average cost. Equilibrium is then typically indeterminate, with a number of active firms varying between an upper bound imposed by profitability and a lower bound required by sustainability. We use a canonical model with strategies represented by prices, although covering standard regimes of quantity and price competition, to show that in equilibrium the critical (profit maximizing) price must lie between the break-even and the limit prices.     

Markets under price controls in partial and general equilibrium

When parallel markets arise in the face of price or other controls, two aspects of agents' behavior become crucial in analyzing market outcomes. First, sellers' risk will rise with increases in illegal sales, but may also fall with increases in legal sales. If the latter is true, the parallel market price will induce higher output. Second, if consumers can be given access to the price-controlled good without incurring search, queuing and other transaction costs due to rationing, production of the controlled good will be higher. These effects are demonstrated in both partial and general equilibrium.     

Sticky prices as a coordination success

Recent contributions have articulated ways in which price rigidities signal breakdowns of coordination. These contributions are aimed at unifying New Keynesian economics by linking the issue of nominal price flexibility with that of between-firm coordination. By contrast, this paper demonstrates that sticky prices can signal a coordination success rather than a coordination failure. A model is developed in which N firms face a stochastic industry demand and engage in (infinitely) repeated Bertrand competition. In each period, firms are able to learn the realization of the demand shock but at a positive cost. The existence of two equilibria—one featuring sticky prices and the other featuring flexible prices—is proved. These equilibria are then compared. The equilibrium featuring sticky prices Pareto-dominates that featuring the flexible ones.