Switching Costs in Two‐Sided Markets

In many markets, there are switching costs and network effects. Yet the literature generally deals with them separately. This paper bridges the gap by analyzing their interaction (or ‘indirect bargain’) in a dynamic two‐sided market. It shows that in the symmetric equilibrium, the classic result that the first‐period price is U‐shaped in switching costs does not emerge, but instead switching costs always intensify the first‐period price competition. Moreover, an increase in switching costs on one side decreases the first‐period price on the other side. Policies that ignore these effects may overestimate the extent to which switching costs can reduce welfare.     

Behavior based price personalization under vertical product differentiation

We study price personalization in a two period duopoly with vertically differentiated products. In the second period, a firm not only knows the purchase history of all customers, as in standard Behavior Based Price Discrimination models, but it also collects detailed information on its old customers, using it to engage in price personalization. The analysis reveals that there exists a natural market for each firm, defined as the set of customers that cannot be poached by the rival in the second period. The equilibrium is unique, except when firms are ex-ante almost identical. In equilibrium, only the firm with the largest natural market poaches customers from the rival. This firm has highest profits but not necessarily the largest market share. Aggregate profits are lower than under uniform pricing. All consumers gain, total welfare is higher herein than under uniform pricing if firms’ natural markets are sufficiently asymmetric. The low quality firm chooses the minimal quality level and a quality differential arises, though the exact choice for the high quality depends upon the cost specification.     

Competitive customer poaching with asymmetric firms

Conditioning the pricing policies on purchase history is proven to generate a cutthroat price competition enhancing consumer surplus. This result typically relies on a framework where competitors are assumed to be symmetric. This paper demonstrates that under significant asymmetries of competing firms, the strong firm trades off current market share for future market share and the weak firm does the opposite. This inter-temporal market sharing agreement generates unidirectional poaching and entails new and distinctive welfare implications. In particular, if consumers are sufficiently myopic, price discrimination softens price competition in relation to uniform pricing, overturning the conclusion of previous studies.     

Pricing process as a capability: a resource‐based perspective

Strategists following the resource‐based view argue that firms can generate rents through value creation. To create value, firms develop and use resources and capabilities that other firms cannot imitate, trade for, or substitute other assets for. Even a firm that has created value, however, may not capture the potential rents associated with that value. To capture rents, a firm must set the right prices for what it sells. Most views of pricing assume that a firm can readily set appropriate prices. In contrast, we argue that pricing is a capability. To develop the ability to set the right prices, a firm must invest in resources and routines. We base our argument on a study of the pricing process of a large Midwestern manufacturing firm. We show that pricing resources, routines, and skills may help or inhibit a firm in setting the right price—and hence in appropriating value created. Our view of pricing as a capability contributes to the resource‐based view because it suggests that strategists should consider the portfolio of value creation and value appropriation capabilities a firm uses to create competitive advantage. Our view also contributes to economics because it suggests that strategic decisions about pricing capabilities have important implications for a fundamental economic action, determining prices. Managers in firms without effective pricing processes may be unable to set prices that reflect the wishes of its customers, so the customers may misuse their resources. As a result, resources may be used ineffectively. Our view of pricing as a capability therefore takes the resource‐based‐view straight to the heart of what is perhaps the central economic question: the best use of resources. Copyright © 2003 John Wiley & Sons, Ltd.     

论垂直价格挤压下的接入定价规制

在自然垄断产业引入竞争的过程中,独占传输网络的纵向一体化垄断厂商可能对下游市场新进入者实施接入价格挤压。接入价格挤压从属于价格歧视。尽管一定条件下的接入价格挤压具有正向的竞争效应,但垄断厂商将具有同等效率或更高效率的独立厂商驱逐出市场则应该受到规制。接入价格规制包括政府直接规制定价和反垄断法间接规制定价。直接规制定价中整体价格上限较为可取,而反垄断法间接规制需要采用基于福利后果分析的合理推定原则,但从短期来看采用直接规制更有效率。最后提出了完善我国自然垄断产业接入定价规制的相关政策建议。     

ASYMMETRIC MARKET SHARES,ADVERTISING AND PRICING: EQUILIBRIUM WITH AN INFORMATION GATEKEEPER*

We analyze how asymmetric market shares impact advertising and pricing decisions by firms that have loyal, non‐shopping customers and can advertise to shoppers through a ‘gatekeeper.’ In equilibrium, the firm with the smaller loyal market advertises more aggressively but prices less competitively than the firm with the larger loyal market. Our results differ significantly from earlier literature which assumes that shoppers observe all prices and finds that the firm with the smaller loyal market adopts a more competitive pricing strategy. The predictions of the model are consistent with advertising and pricing behavior observed on price comparison websites such as http://Shopper.com .     

The Role of Value‐Informed Pricing in Market‐Oriented Product Innovation Management*

Although the positive effect of a market orientation on new product success is widely accepted and the market orientation literature has increased its understanding of how a market orientation leads to performance, the extant literature has overlooked the role of value‐informed pricing in the relationship. Value‐informed pricing is a pricing practice in which the decision makers base the price of the new product on the customers' perceptions of the benefits that the product offers and how these benefits are traded by customers against the price (that has yet to be determined). Considering that pricing mistakes may hit hard on the profitability of product innovations, it is important to firms to have a good understanding of its role. This study develops a framework in which value‐informed pricing is integrated in the relationship between market orientation and new product performance. A distinction is made between customer and competitor orientations, and relative product advantage is also included in the conceptual model. The model is tested on data obtained from managers based on a cross sectional sample of 144 firms. The respondents were involved in a decision‐making process of the pricing of a new product. The model is tested using structural equations modeling. The results show that value‐informed pricing has a strong effect on new product performance. It also reveals that each component of a market orientation fulfills a specific role in a market‐oriented organization. Value‐informed pricing is found to have important mediating effects in the market orientation–new product performance relationship. Results show that firms with a strong customer orientation engage in value‐informed pricing and develop superior benefits to customers in an advantageous product. In turn, both value‐informed pricing and relative product advantage positively affect new product market performance. However, no significant effect of competitor orientation on value‐informed pricing is found. Combined with the finding that competitor orientation negatively affects relative product advantage, this suggests that competitor orientation may hurt new product performance when this orientation is not balanced with a strong customer orientation. The results also portray that value‐informed pricing leads to higher product advantage. Interestingly, this relation is contingent on the degree of interfunctional coordination within the firm. This suggests that the relationship between market orientation and new product performance is strongest if firms integrate value‐informed pricing in the new product development process. In this sense, a market‐oriented firm mirrors the customer value perception that makes a trade‐off between benefits and price.     

PATENT DAMAGES AND SPATIAL COMPETITION*

We analyze price competition between a spatially differentiated product patentee and an imitator anticipating probabilistic future patent damages. We compare the performance of three damage regimes. The ‘reasonable royalty’ regime, which yields symmetric equilibrium pricing, maximizes static welfare and yields the highest innovation incentives when patent enforcement is nearly certain. The ‘lost profits’ regime, which may deter infringement, yields the highest innovation incentives when patent enforcement is less‐than‐certain and products are sufficiently valuable. The ‘unjust enrichment’ regime yields low static efficiency and low innovation incentives. We offer new insights into the ‘hypothetical negotiation’ that courts use to construct reasonable royalties.     

Collusion Under Imperfect Monitoring with Asymmetric Firms

We explore the effects of asymmetries in capacity constraints on collusion where market demand is uncertain and where firms’ sales and prices are private information. We show that all firms can infer when at least one firm's sales are below some firm‐specific ‘trigger level.’ When firms use this public information to monitor the collusive agreement, price wars may occur on the equilibrium path. Symmetry facilitates collusion but, if price wars are sufficiently long, then the optimal collusive prices of symmetric capacity distributions are lower on average than the competitive prices of asymmetric capacity distributions. We draw conclusions for merger policy.     

List pricing and discounting in a Bertrand–Edgeworth duopoly

List, or retail, pricing is a widely used trading institution where firms announce a price that may be discounted at a later stage. Competition authorities view list pricing and discounting as a procompetitive practice. We modify the standard Bertrand–Edgeworth duopoly model to include list pricing and a subsequent discounting stage. Both firms first simultaneously choose a maximum list price and then decide whether to discount, or not, in a subsequent stage. We show that list pricing works as a credible commitment device that induces a pure strategy outcome. This is true for a general class of rationing rules. Further unlike the dominant firm interpretation of a price leader, the low capacity firm may have incentives to commit to a low price and in this sense assume the role of a leader.     

Best Practices for New Product Pricing: Impact on Market Performance and Price Level under Different Conditions

To date, research on new product pricing has predominantly been approached as a choice between market skimming and penetration pricing. Despite calls for research that addresses other complexities in new product pricing, empirical research responding to these calls remains scarce. This paper examines three managerial price‐setting practices for new products, i.e., value‐informed, competition‐informed, and cost‐informed pricing. By engaging in these practices, managers can develop and compare quantifications in order to attain an introduction price for the product. The authors draw on consumer price perception literature, Monroe's pricing discretion model, and numerical cognition literature to develop hypotheses about the impact of price‐setting practices on new product market performance and price level. By studying the effects on market performance and price level, the paper provides insights that may help explain the growth of new products and address the problems of underpricing. The hypotheses are tested in a management survey of 144 production and service companies. The results indicate which pricing practices are superior for the achievement of either higher market performance or higher prices in specific product and market conditions. Whereas value‐informed pricing has an unambiguous positive impact on relative price level and market performance, the results also suggest that in many cases engaging in value‐informed pricing is not enough. The effects of cost‐informed and competition‐informed pricing may differ depending upon the objective (market performance or higher prices), product conditions (product advantage and relative product costs), and market condition (competitive intensity). Engaging in inappropriate pricing practices leads to a decline in new product performance. Moreover, bad pricing practices make the positive effect of product advantage on the outcome variables disappear. The latter finding suggests that companies can jeopardize their efforts and investments in the new product development process if they engage in the wrong price‐setting practices. The findings imply that managers should consider different factors in new product pricing. First, when launching a new product, they should determine their explicit pricing objective, either stressing market performance or a higher price level. To determine the most appropriate pricing practices, however, they should next assess their situation in terms of product advantage, relative product costs, and competitive intensity. Together with the pricing objective, these conditions determine the best pricing practice. On a higher level, the findings imply that companies should invest in knowledge development in order to engage in the appropriate pricing practices for each product launch.     

Strategic and deterrent pricing responses to antitrust investigations

This paper examines the issue of the effects of antitrust on pricing through two empirical studies. The first analyzes time series of prices in five industries involved in antitrust cases to determine whether the various stages of the antitrust process influenced pricing behavior. Some evidence of a ‘deterrent’ effect is found, with real prices lower than their pre-investigation level following the conclusion of the case; a major part of the pricing reaction occurs prior to the filing of formal charges. The second study provides additional evidence of the existence of such a ‘strategic’ reaction to the onset of investigation through an examination of prices in 23 industries investigated but not charged with price fixing.     

Long‐Term Growth in Housing Prices and Stock Returns

A firm's long‐term stock returns are negatively related to past growth in housing prices in the state where the firm is located. The housing price effect is persistent and robust to controlling for the long‐term stock return reversal effect, changes in mortgage interest rates across the states, cyclicality in housing prices and overall local economic conditions. There is no evidence that extant asset pricing models can adequately explain the effect. The study discusses potential explanations for, and the implications of, the cross‐regional housing price effect.     

Endogenous Average Cost Based Access Pricing

We analyze an endogenous average cost based access pricing rule, where both the regulated firm and its rivals realize the interdependence among their outputs and the regulated access price. In contrast, the existing literature on access pricing has always assumed that the access price is exogenously fixed ex-ante. We show that endogenous access pricing neutralizes the artificial cost advantage that is enjoyed by the incumbent firm. Further, endogenous access pricing results in a consumer surplus that is equal to or higher than that under exogenous access pricing. If the entrant is more efficient than the incumbent, then the welfare under endogenous access pricing is higher than that under exogenous access pricing.     

The Effect of Explicit Communication on pricing: Evidence from the Collapse of a Gasoline Cartel

We study the collapse of collusion in Québec's retail gasoline market following a Competition Bureau investigation, and show that it involved two empirical regularities: high margins, and asymmetric price adjustments. Using weekly, station‐level prices we test whether collusion was successful, and whether asymmetric adjustments were part of the cartel's strategy. We do so in the markets targeted by the investigation, and in markets throughout the province with similar pre‐collapse pricing (cyclical markets). Our results suggest that stations in both target and cyclical markets adjusted pricing following the announcement: margins fell (by 30%/15% in target/cyclical markets), and adjustments became more symmetric.     

Exploring the role of relationship pricing in industrial export settings: Empirical evidence from the UK

This paper sets out to shed initial empirical light on the role of relationship pricing in an industrial export context, by a) investigating the extent to which selected contextual variables shape the adoption of relationship pricing, and b) examining manifestations of relationship pricing in the process that industrial exporters use for levying their prices. Analyzing data from a stratified random sample of 243 UK exporters of industrial products, the results demonstrate that the adoption of relationship pricing is a) facilitated by the degree of an exporter's market orientation, export experience, and the level of formality in export price setting and b) hindered by firm age and export intensity. It is also shown that industrial exporting firms adopting relationship pricing tend to follow a more market-based export price decision-making process, as this is manifested in market-based export pricing information, objectives and policies. The practical implications of the findings are discussed and useful future research directions are highlighted.     

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.     

广东、广西天然气价格形成机制改革试点方案剖析

2011年底,国家发展改革委发出通知,决定自2011年12月26日起,在广东省、广西自治区开展天然气价格形成机制改革试点(简称天然气定价试点方案).天然气定价通常包括成本加成法、市场净回值法以及成本加成与市场净回值混合定价三种方法,国家发改委推出的天然气定价试点方案采用的是市场净回值法.天然气定价试点方案在定价方法、价格与市场的关系、价格与供需关系等方面取得突破,同时在省级管网定价、区域价格、LNG销售等方面面临挑战.为了促进我国天然气价格形成机制的不断完善,建议:1)坚定不移地推进我国天然气价格形成机制的市场化进程;2)在定价公式中设置“天花板价”和“地板价”,即形成S型价格曲线;3)未来适时增加一个或者两个市场中心;4)适时考虑将非常规气纳入天然气价格形成机制中;5)2015年前全面实施新的价格机制,2015-2020年进一步完善天然气价格形成机制.     

Platform Pricing at Sports Card Conventions

We study a new data set of U.S. sports card conventions from the perspective of the pricing theory of two‐sided markets. Conventions are two‐sided because organizers must set fees to attract both consumers and dealers. We present several findings: first, consumer pricing decreases with competition, but pricing to dealers is insensitive to competition and in longer distances even increases with competition. Second, when consumer price is zero (and thus constrained), dealer price decreases more strongly with competition. These results are compatible with existing models of two‐sided markets, but are difficult to explain without such models.     

Differential Pricing in Intermediate Good Markets

This paper studies differential pricing by an upstream monopolist whose cost to supply the intermediate good differs across buyers in the downstream. It is shown that, different from demand‐based price discrimination, cost‐based differential pricing shifts production efficiently. If total output (and consumer welfare) is weakly increased under differential pricing as opposed to uniform pricing, as is true for weakly convex final market demand functions, social welfare is strictly improved. The analysis is extended to the case in which both the upstream monopolist's cost to serve the downstream firms and the downstream firms’ cost to produce the final good differ.