INPUT PRICE DISCRIMINATION WHEN BUYERS OPERATE IN MULTIPLE MARKETS*

This paper revisits third‐degree price discrimination when input buyers serve multiple product markets. Such circumstances are prevalent since buyers often use the same input to produce different outputs, and even homogenous outputs are routinely sold through different locations. The typical view is that price discrimination stifles efficiency (and welfare) by resulting in price concessions to less efficient firms. When buyers serve multiple markets, price discrimination leads to price breaks for firms in markets with lower demand. When lower demand markets also have less competition, price discrimination can provide welfare gains by shifting output to less competitive markets.     

On the costs of food price fluctuations in low-income countries

Conventional welfare measures of the costs of food price fluctuations in low-income countries are extended to allow for both economic growth and food security effects. The analysis reveals that growth and food security effects may dominate more conventional welfare costs of food price fluctuations, although estimating the empirical magnitude of the effects is hampered by the lack of consensus on the extent to which food price fluctuations actually reduce economic growth and food security. Even if the welfare costs of food price fluctuations are high there are many challenges to the design and successful implementation of price stabilization schemes.     

A sufficient statistics approach for welfare analysis of oligopolistic third‐degree price discrimination

This paper proposes a sufficient statistics approach to studying the welfare effects of third-degree price discrimination in differentiated oligopoly. Specifically, our sufficient conditions for price discrimination to increase or decrease social welfare simply entail a cross-market comparison of multiplications of such sufficient statistics as pass-through, conduct, and profit margin that are functions of first-order and second-order elasticities of the firm’s demand. Notably, these results are derived under a general class of market demand, and can be readily extended to accommodate heterogeneous firms. These features suggest that our approach has potential for conducting welfare analysis without a full specification of an oligopoly model.     

CUSTOMER POACHING AND ADVERTISING*

This paper is a first look at the dynamic effects of customer poaching in homogeneous product markets, where firms need to invest in advertising to generate awareness. When a firm is able to recognize customers with different purchasing histories, it may send them targeted advertisements with different prices. It is shown that only the firm which advertises the highest price in the first period will engage in price discrimination, a practice that clearly benefits the discriminating firm. This poaching gives rise to ‘the race for discrimination effect,’ through which price discrimination may act actually to soften price competition rather than intensify it. As a result, all firms may become better off, even when only one of them can engage in price discrimination. This paper offers a first attempt to evaluate the effects of price discrimination on the efficiency properties of advertising. In markets with low or no advertising costs, allowing firms to price discriminate leads them to provide too little advertising, which is not good for consumers and overall welfare. Only in markets with high advertising costs, might firms overadvertise. Regarding the welfare effects, price discrimination is generally bad for welfare and consumer surplus, though good for firms.     

INFORMATIVE ADVERTISING: COMPETITION OR COOPERATION?*

In a duopoly version of the Grossman and Shapiro [1984] model of informative advertising, I examine firms' incentives to semicollude on advertising and the welfare implications thereof. I find that, relative to the noncooperative outcome, semicollusion on advertising is more profitable but is detrimental to welfare. I also find that when the advertising cost is ‘low,’ advertising semicollusion is more harmful to welfare than price semicollusion. These findings are important for competition policy since traditionally, cooperative advertising is not treated in the same light as price collusion.     

Romania’s accession to the EU: Short-term welfare effects on food consumers

This paper focuses on estimation of the welfare effects on different Romanian households of assumed food price changes as a result of EU accession. Using the Slutsky compensating variation approach, results suggest that these changes affect welfare differently for various categories of households. Although on average the welfare loss is 2.6%, a higher impact is estimated for low-income groups. However, the relatively high share of home-produced consumption of food diminishes these impacts, in particular for rural households, and somewhat smaller monetary amounts would be required if compensation is paid.     

Tight Average Revenue Regulation Can Be Worse Than No Regulation

Price regulation of a multi-market monopolist, with the cap based on average revenue, can cause welfare to be below the unregulated level. In a model with linear demands and constant but unequal marginal costs, a sufficient condition for this welfare effect is that the cap equals the average revenue that would be earned with marginal cost pricing. Relaxation of the price cap can lower all prices. Welfare with uniform pricing at the level of the price cap can be above or below the average revenue welfare level.     

Pricing strategy and moral hazard: Copay coupons in pharmaceuticals

Branded drug manufacturers issue copay coupons to compete with generics as their brands are coming off patent. To explore the impact of copay coupons on pricing and welfare, I estimate a model of demand and supply using data on sales, advertising, and copayment for cholesterol-lowering drugs and perform a counterfactual analysis to simulate equilibrium pricing with copay coupons used for price discrimination and moral hazard. Copay coupons issued for price discrimination make the drug with coupons affordable for more consumers and increase consumer welfare even when a small fraction of consumers receive a coupon. Coupons used for moral hazard significantly mitigate price competition and improve consumer welfare only when coupon penetration is sufficiently high.     

Regulation of price increases

U.S. federal and state governments rarely regulate healthcare price levels, but do regulate price changes for pharmaceuticals, hospitals, and health insurance. Previous research showed that limiting price increases can raise launch prices and reduce both profit and social welfare, assuming consumers are myopic. We show that with forward-looking consumers, limiting price increases can have the opposite effect, that is, launch prices fall while profit and social welfare rise. Ironically, inflation regulation can cause inflation to rise, but only because firms are reducing launch prices to make the regulation bind and credibly commit to future prices.     

审计市场中的合并、产业专用化投资和价格竞争

本文从产业组织的角度，分析了审计市场的合并、产业专用化和价格竞争等竞争行为，并进一步探讨了这些行为对审计质量和社会福利的影响。本文认为，审计质量的信号传递机制推动了产业中的合并行为，而审计产业的专用化投资行为在于策略性地阻止进入。由于审计产品的异质性、信任品特性以及强大的买方谈判能力使得审计市场存在激烈的价格竞争，而合并和产业专用化投资有助于事务所降低成本。因而，审计市场的竞争提高了社会福利。     

Poverty effects of food price escalation: The importance of substitution effects in Mexican households

Recent food price increases reportedly caused significant numbers of households to fall into poverty, particularly in the developing world. Most research into the welfare effects of these food price changes assumes constant demand or approximates second order substitution effects. Poverty forecasts with these assumptions may overestimate or underestimate the effect of food price increases in a nation where most households consume diverse food baskets. We account for full substitution by calculating a theoretically consistent food demand system, accounting for household responses to food price changes by decreasing some food purchases and increasing other food purchases. We use Mexican data to confirm the mitigation of adverse welfare effects from food price increases after accounting for country-specific dietary preferences in modeling demand. In comparison to previous literature, our welfare measures predict theoretically consistent numbers of Mexican households entering poverty due to recent food price changes.     

Pricing policies of multinational enterprises : Host country regulation and welfare

This paper examines host country price-regulation policies towards a foreign subsidiary. The analysis considers two prices, namely the transfer prices charged to the subsidiary, and the market price of the subsidiary's products. It is shown that host countries should regulate both of these prices. Regulation of the transfer price alone may induce an increase in the subsidiary's market price and cause a loss of host country welfare. Regulation of both prices is more efficient for it enables the host country to attain a higher level of welfare and allows the foreign firm to earn the same level of profits as would regulation of only one of those prices.     

Economic Efficiency and Political Capture in Public Service Contracts

We consider contracts for public transport services between a public authority and a transport operator. We build a structural endogenous switching model where the contract choice results from the combined effects of the incentivization scheme aimed at monitoring the operator's efficiency and the political agenda followed by the regulator to account for the voice of private interests. Our results support theoretical predictions as they suggest that cost‐plus contracts entail a higher cost for society than fixed‐price contracts but allow the public authority to leave a rent to a subset of individuals. Accounting for transfers to interest groups in welfare computations reduces the welfare gap between cost‐plus and fixed‐price regimes.     

Investigating the impacts of time delays on trade

Time delays due to inefficient customs and administrative procedures have become a leading non-tariff barrier (NTB) that restrict international trade and impair social welfare. This paper investigates how time delays affect product quality, product price, trade flow, and social welfare, using data on the days it takes to clear customs in 96 countries. We explore the impacts of time delays on product quality and price with different levels of perishability. We find that longer time delays at the border would significantly decrease highly perishable agricultural products' quality and price. We also find that for highly perishable agricultural products, improved and simplified customs delays would increase trade flows and social welfare of importing countries.     

Estimation of the Effects of New Brands on Incumbents’ Profits and Consumer Welfare: The U.S. Processed Cheese Market Case

I estimate the effects of new brands on market competition and consumer welfare in the U.S. processed cheese market. I find that an observed increase in consumer welfare was attributable mainly to an increase in the number of brands in the sample market, while the price effect, which measures welfare change caused by adding new brands to existing brands, decreased welfare as the prices of the existing brands increased in a large portion of sample markets. The price increase was most pronounced among the introducers existing brands. I also find that the data used in the paper identify a significant enhancement of consumer welfare as a result of the change in product characteristics provided by new brands even if a large portion of welfare gain is explained by the assumption on the error term in the utility function.JEL classification: D40, D60, L13, L66, H20     

我国行政性垄断的危害——市场势力效应和收入分配效应的实证研究

垄断者所具有的市场势力一般而言将导致高价,从而造成整个社会的福利损失;不仅如此,在我国,由于行政性垄断行业较高的工资福利所导致的收入分配效应也是极大的,即它可能拉大社会各行业职工的收入差距。本文通过对1997—2005年我国行政性垄断行业的福利损失的测算,以及这一研究区间行政性垄断行业与其他行业职工收入差异的分析,实证检验了行政性垄断对我国经济社会的危害,进而强调了打破行政性垄断的必要性和紧迫性。     

Spatial Price Discrimination in Input Markets with an Endogenous Market Boundary

This paper examines the welfare effect of third-degree price discrimination in a vertically related market with one upstream monopolist that sells its input to a continuum of downstream markets. Assume that the market boundary of the monopolist is endogenously determined. It is found that social welfare is necessarily lower under discriminatory than uniform pricing, even if the market area of the former is greater than that of the latter. This finding is contrary to that in the extant literature on price discrimination in final goods markets.     

Anti-competitive effects of resale-below-cost laws

We show that resale-below-cost laws enable producers to impose industrywide price-floors to retailers. This mechanism suppresses downstream competition but also dampens upstream competition, leading to higher prices. Price-floor may be more profitable for producers than resale price maintenance contracts and, while resale price maintenance may have ambiguous effect on welfare, price-floors always harm welfare. Retailers' buyer power appears as a key element for a price-floor to work out.     

PRICE DISCRIMINATION IN STACKELBERG COMPETITION*

We examine the effects of price discrimination in the Stackelberg competition model for the linear demand case. We show that the leader does not use any price discrimination at all. Rather, the follower does all price discrimination. The leader directs all of its first mover preemptive advantage to attract the highest value consumers who pay a uniformly high price. We observe that profits and total welfare are larger and consumer surplus is smaller than those of the standard Stackelberg competition model.     

Third-Degree Price Discrimination With Interdependent Demands

This paper analyzes the price, output, and welfare effects of third-degree price discrimination for a monopolist who sells in two interdependent markets. The case where the two goods sold by the monopolist are complements is analyzed as well as the more typical case where the two goods are substitutes. The economic effects of price discrimination are shown to depend on the type and strength of demand interdependence, the curvature of the demands and the slope of marginal cost. The circumstances under which price discrimination causes both market prices to either rise or fall are also analyzed.