The sunk-cost effect and optimal two-part pricing

This paper examines how the sunk-cost effect on consumers’ purchasing behavior may reset the optimal two-part pricing. It shows that the sunk-cost effect of a membership fee provides the firm an incentive to raise the unit price and/or to increase the market coverage by charging a lower membership fee.     

农民工加入工会的会费问题

采用VNM效用函数对农民工加入工会的会费问题进行了研究,得出农民工意愿的会费水平与侵权概率及被侵权的工资份额正相关的结论,并指出这一会费水平使工会实现了利润最大化却对农民工没有任何助益。工会是一种非盈利的公共组织,其会费水平的确定应遵循公平会费原则。公平会费使工会的期望利润为零,而农民工的福利却得到了最大化的增进。由于不同行业具有不同的公平会费,所以在实行统一的会费水平的情况下,应逐步建立起不同行业工会之间的转移支付制度,同时政府也应对侵权问题严重的行业给予更多关注和资金支持,以利于这些行业顺利组建工会及开展维权工作。     

Carbon pricing and terms of trade effects for China and India: A general equilibrium analysis

Using country-specific dynamic computable general equilibrium (CGE) models, this paper estimates carbon prices in China and India, and compares the effects of carbon pricing policies under terms of trade effects. Estimated carbon prices are higher in China due to differences in emission intensity and in the rate of deployment of new technologies in the models. Differences in carbon prices open up the possibility of carbon trading between the two countries to achieve mitigation objectives. Further, under assumptions about different exchange rate regimes and international fossil fuel prices, the effects of carbon pricing policies on the two economies are mostly similar in terms of direction but, expectedly, different in terms of magnitude. Terms of trade effects could exacerbate carbon pricing effects to a greater degree in China as the country is significantly more dependent than India on external trade and investment. Policymakers should factor in terms of trade effects while designing or evaluating carbon pricing policies in the two countries.     

On equilibrium prices in continuous time

State prices are the fundamental building block for dynamic asset pricing models. We provide here a general continuous-time setup that allows to derive non-trivial structural properties for state-prices from economic fundamentals. To this end, we combine general equilibrium theory and théorie générale of stochastic processes to characterize state prices that lead to continuous price systems on the consumption set. We also show that equilibria with such state prices exist.     

A mark-up pricing model for price simulations

This paper develops an input/output model of pricing using a mark-up pricing formula. The connection between mark-up pricing and competitive pricing is analyzed through the determination of sectoral equilibrium profit mark-up rates as a function of the profit rate and the capital intensity of each sector. The model is used to analyze the effects on relative prices and the aggregate price level of exogenous changes in the nominal wage rate, tax rates, the exchange rate and world prices. Exogenous changes in the prices of domestically produced commodities are modelled via the imposition of ad valorem tax rates, which yield a measure of the net effect of the exogenous changes. Simulations are carried out under passive price adjustment as well as adjustment with price ceilings. In this last instance the model calculates the endogenously determined reduction in profit mark-ups. Lastly, empirical results of various simulations are presented using data from the Mexican economy.     

Pricing rules and Arrow–Debreu ambiguous valuation

This paper considers pricing rules of single-period securities markets with finitely many states. Our main result characterizes those pricing rules C that are super-replication prices of a frictionless and arbitrage-free incomplete asset structure with a bond. This characterization relies on the equivalence between the sets of frictionless securities and securities priced by C. The former captures securities without bid-ask spreads, while the second captures the class of securities where, if some of its delivers is replaced by a higher payoff, then the resulting security is characterized by a higher value priced by C. We also analyze the special case of pricing rules associated with securities markets admitting a structure of basic assets paying one in some event and nothing otherwise. In this case, we show that the pricing rule can be characterized in terms of capacities. This Arrow–Debreu ambiguous state price can be viewed as a generalization for incomplete markets of Arrow–Debreu state price valuation. Also, some interesting cases are given by pricing rules determined by an integral w.r.t. a risk-neutral capacity. For instance, incomplete markets of Arrow securities and a bond are revealed by a Choquet integral w.r.t. a special risk-neutral capacity.     

Efficient price and capacity choices under uncertain demand: An empirical analysis

Traditional economic analyses of the peak-load problem typically assume an unrealistic degree of regularity in demand during well-defined peak and off-peak periods. This issue is addressed through a comprehensive statistical model that separates demand into its systematic and stochastic components. This model is combined with a traditional economic model and applied to local telephone service, leading to substantive conclusions relevant for managerial decisions as well as further research, among them:

? Neglecting the systematicand stochastic structure of demand may lead to inefficient tariffs. Efficient measured service structures typically price individual callsbelow incremental capacity cost.

? Industry wide capacity decision rules that are exclusively driven by blockage probability targets during narrowly defined time periods may be economically inefficient.

? For telephone service, spot pricing, which sets high prices during periods ofactual congestion, has the potential to be considerably more efficient than traditional tariffs that set high prices during periods ofexpected congestion.

     

Measuring efficiency when competitive prices aggregate differences in product quality and risk

In perfectly competitive markets with homogenous goods, prices aggregate inputs and outputs into a money metric that allows production plans and, hence, firms to be ranked by their profitability. Standard techniques of efficiency measurement use this metric to estimate cost and profit frontiers that identify “best-practice” production, conditioned on these exogenous prices. However, when prices vary due to differences among firms in the quality of outputs and inputs and in how asymmetric informational problems are resolved, both quality and the production of information can be decision variables of the firm, and prices will have endogenous components linked to production decisions. For example, in banking, prices of financial inputs and outputs are linked to credit quality and, hence, to risk and, thus, aggregate both inputs and outputs and their risk characteristics as well as reflect how informational asymmetries in credit markets are ameliorated. This paper argues that these cases pose two serious problems for the standard techniques of efficiency measurement: (1) they underestimate inefficiency because, in conditioning on prices, they fail to account for the effects of suboptimal pricing strategies on profitability; and (2) in ignoring how production plans and pricing strategies affect market-priced risk, the standard techniques neglect the effects of different pricing strategies on the discount rate, on expected profit and, hence, on market value. Two alternative techniques that do not condition their frontiers on prices and that account for risk are described to show how they measure the efficiency of different pricing strategies as well as production plans. These two alternative models for measuring efficiency are employed to study how differences in pricing strategies affect the efficiency and market value of highest-level bank holding companies in the United States in 1994.     

Peak-load pricing with continuous and interdependent demand

Issues concerning time-of-use (TOU) pricing with continuous and interdependent demand are examined in a context where increasing marginal costs of production, as opposed to capacity constraints, provide the major incentive for flattening the load curve. The analysis develops the underlying consumer preferences sufficient to insure a continuously varying load curve and generalizes previous considerations of the peak load pricing problem by simultaneously considering continuous and interdependent demand in determining optimal prices and pricing period lengths. A profit incentive for TOU pricing as a form of price discrimination is revealed, which is tempered as substitution across pricing periods allows limited intertemporal arbitrage. The profit incentive leads a price-regulated firm, ceteris paribus, to choose a peak pricing period longer than the social optimum.     

Generic medicine pricing in Europe: current issues and future perspective

Abstract

This editorial discusses a number of trends affecting the pricing of generic medicines in Europe. With respect to pricing, recent evidence has emerged that European generic medicine manufacturers face competition from Indian manufacturers; that the price level of generic medicines varies substantially between European countries; and that generic medicine manufacturers engage in competition by discount rather than price competition in France, The Netherlands and the UK. These trends suggest that there may be scope for further reducing the prices of generic medicines in several countries.

In relation to reference pricing, most European countries have incorporated market incentives within reference pricing systems with a view to promoting price competition. The European experience indicates that the generic medicines industry delivers competitive prices under a reference pricing system if demand-side policies are in place that stimulate physicians, pharmacists and patients to use generic medicines.

Finally, caution needs to be exercised when focusing on the drivers of generic medicine pricing as these drivers not only vary between countries, but may also vary within a country. Manufacturers of originator and generic medicines do not take a single pricing approach following patent expiry, but vary their pricing strategy from molecule to molecule.     

Peak-load pricing in duopoly

In this paper, we consider peak-load pricing by duopolists that maximize profit (not social welfare). We compare price levels and profits across peak-load versus uniform pricing regimes. Our main result is that the introduction of peak-load pricing can plausibly reduce prices by making price competition more severe and thereby reducing profits. This result suggests that competing firms may engage in collusion by not committing to peak-load pricing. Therefore, from the regulator's perspective, it will be desirable to encourage firms to engage in peak-load pricing to intensify competition.     

A dynamic approach to PES pricing and finance for interlinked ecosystem services: Watershed conservation and groundwater management

A theory of payment for ecosystem services (PES) pricing consistent with dynamic efficiency and sustainable income requires optimized shadow prices. Since ecosystem services are generally interdependent, this requires joint optimization across multiple resource stocks. We develop such a theory in the context of watershed conservation and groundwater extraction. The optimal program can be implemented with a decentralized system of ecosystem payments to private watershed landowners, financed by efficiency prices of groundwater set by a public utility. The theory is extended to cases where land is publicly owned, conservation instruments exhibit non-convexities on private land, or the size of a conservation project is exogenous. In these cases, conservation investment can be financed from benefit taxation of groundwater consumers. While volumetric conservation surcharges induce inefficient water use, a dynamic lump-sum tax finances investment without distorting incentives. Since the optimal level of conservation is generated as long as payments are correct at the margin, any surplus can be returned to consumers through appropriate block pricing. The present value gain in consumer surplus generated by the conservation-induced reduction in groundwater scarcity serves as a lower bound to the benefits of conservation without explicit measurement of other benefits such as recreation, biodiversity, and cultural values.     

The Debreu private ownership economy with complementary commodities and prices

Let E_p be a Debreu private ownership economy in which there are some complementary commodities. It means that all commodity bundles are contained in the proper subspace V   of commodity–space [R]l(l∈{1,2,…})${\mathfrak{[R]}}^l\left(l\in \left\{1,2,\dots \right\}\right)$. The production plans maximizing the producers' profits do not have to satisfy the dependency in the qualities of commodities seen in the consumers' plans. It may cause no-existence an equilibrium in economy E_p. The competitive leads, however, to adjustment the production plans to improve the consumers' satisfaction. The procedure of change the production system covering the consumers' requirements is presented. As a result, the model of the private ownership economy with complementary commodities and prices, being the simplification of the initial model, is elaborated. Consequently, the necessary condition for the existence of an equilibrium in the economy E_p is proved.     

Pricing inputs to induce efficient Make-or-Buy decisions

We investigate input pricing regimes that induce efficient Make-or-Buy decisions by entrants when there is constant returns in the production of the input(s) and simultaneous noncooperative price competition in downstream retail markets. Necessary and sufficient conditions for efficient Make-or-Buy decisions are derived. The necessary condition shows that input prices are relevant for Make-or-Buy decisions except under restrictive and often unverifiable assumptions on the demand structure, and that the least informationally-demanding way to ensure efficient Make-or-Buy decisions is to price inputs at marginal cost provided changes in the entrant’s cost have a “normal” effect on the entrant’s profit. The conditions also show that pricing the incumbent’s input at the entrant’s marginal cost always ensures efficient Make- or-Buy decisions. The extent to which input prices can depart from marginal cost while still inducing efficient Make-or-Buy decisions increases with the efficiency differential between the incumbent and entrant and with the demand displacement ratio.      

Why has the Unemployment Rate Been so Low in Japan? An Explanation by Two‐Part Wage Bargaining

The Japanese wage payment system is considered from a perspective of two-part tariff pricing. Using the "amusement park" analogy, Shunto wages can be regarded as an "entrance fee", whereas bonuses are a "variable charge". Empirical investigation showed that a qualitative difference exists between these two types of wage: Shunto sets the coordinated wage rate by focusing on the whole labour market condition, while bonuses respond to idiosyncratic shock. Based on the standard prediction of two-part wage tariff pricing, such a unique combination is the ultimate source of Japan's low unemployment.
JEL Classification Number: J51.     

日本药品价格政策研究及对我国的启示

本文采用文献研究法对日本的药品价格政策进行了分析。研究表明,日本的药品价格政策,尤其在新药价格管理、医疗保险制度、仿制药定价、药价调整及政府定价范围等方面有较为科学的定价流程及依据,非常值得我国借鉴。     

Exchange-rate pass-through in Japanese export pricing

Two recent aggregative studies claim to demonstrate that Japanese exporters absorb a proportion of exchange-rate changes in their profit margins; but the estimates of this proportion are dramatically different. This study accounts for the discrepancy, and shows that neither estimate is credible. These results identify incomplete pass-through, conditional on costs, as a transitory consequence of export pricing in currencies other than yen. The only long-run effect of the exchange rate on yen-dominated export prices operates through imported materials prices.     

Average-cost pricing: Some evidence and implications

We present new survey evidence on pricing behavior for more than 14,000 European firms, and study its macroeconomic implications. Among firms that are price setters, roughly 75% respond that their prices are set as a markup on total costs, a business practice termed “full cost pricing”. Only 25% set prices as markups over variable or marginal costs. Moreover, using industry data for the U.S., we find that the correlation between changes in output prices and changes in variable input prices is significantly lower when fixed costs are likely to be more important.Since our results are similar to the findings in the classic and controversial paper of Hall and Hitch (1939) and subsequent survey evidence, we believe it worth studying the implications of full cost pricing for macroeconomics. We first propose a problem for the firm where full cost pricing can arise as optimizing behavior. We embed this problem, featuring an occasionally binding constraint, into a simple general equilibrium model. We show that when the model is hit by a shock that makes the constraint binding, the response of endogenous variables is amplified significantly more than it would be under the unconstrained regime.     

Transportation capital and its effects on the U.S. economy: A general equilibrium approach

We analyze the effect of the US transportation system on economic activity by building a quantitative dynamic general equilibrium model with a taxpayer-funded transportation capital stock. We highlight stark differences between the positive welfare effects of additional infrastructure spending in the long run, and its potentially negative effects when we account for the large transition (time and delay) costs to build. We also quantify large differences between the effects of additional infrastructure spending and efficient transportation policies, such as congestion pricing and eliminating laws that artificially inflate input prices, concluding that taxpayer-funded transportation improvements that increase GDP significantly may produce smaller welfare gains than efficient policies that increase GDP modestly.