Apple's agency model and the role of most‐favored‐nation clauses

The agency model used by Apple and other digital platforms delegates retail‐pricing decisions to upstream content providers subject to a fixed revenue‐sharing rule. Given competition both upstream and downstream, we consider how, under the agency model, retail prices depend on the firms' revenue‐sharing splits and the degrees to which consumers view the platforms and the goods sold on the platforms to be substitutes. We show that the agency model may not be universally adopted even if adoption would mean higher profits for all firms. Use of most‐favored‐nation clauses in these settings can ensure industry‐wide adoption and increase retail prices.     

Oligopolistic markets with sequential search and production cost uncertainty

This article analyzes a sequential search model where firms face identical but stochastic production costs, the realizations of which are unknown to consumers. We characterize a perfect Bayesian equilibrium satisfying a reservation price property and provide a sufficient condition for such an equilibrium to exist. We show that (i) firms set on average higher prices and make larger profits compared to the scenario where consumers observe production costs, (ii) expected prices and consumer welfare can be non‐monotonic in the number of firms, and (iii) the impact of production cost uncertainty vanishes as the number of firms becomes very large.     

A search cost model of obfuscation

This article develops models in which obfuscation is individually rational for oligopolistic firms. Firms sell a homogeneous good to rational consumers who incur search costs to learn prices. Search costs are endogenized by allowing obfuscation—firms have an unobservable action that increases the time needed to learn their price. One model involves search costs convex in shopping time. We show that slight convexity can dramatically alter the equilibrium price distribution. A second model examines an informational linkage between current and future search costs: consumers are uncertain about a component of search costs. Here, a signal‐jamming mechanism can lead to equilibrium obfuscation.     

Price setting in forward-looking customer markets

If consumers form habits in individual goods, firms face a time-inconsistency problem. Low prices in the future help attract customers in the present. Firms, therefore, have an incentive to promise low prices in the future, but price gouge when the future arrives. In this setting, firms benefit from “committing to a sticky price.” If consumers have incomplete information about costs and demand, the firm-preferred equilibrium has the firm price at or below a “price cap.” The model therefore provides an explanation for the simultaneous existence of a rigid regular price and frequent “sales”.     

An empirical model of search with vertically differentiated products

This article provides a framework for studying price dispersion in markets with product differentiation and search frictions. We show under which assumptions we can obtain an equilibrium in which vertically differentiated firms mix prices over different supports. The model can explain the frequently changing prices reported in several empirical studies, but also why some firms have persistently higher prices than others. We show how to estimate the model by maximum likelihood using only prices. Estimates for grocery items in the United Kingdom reveal that most of the observed price variation is explained by supermarket heterogeneity rather than search frictions, whereas the estimated amount of search is low.     

A model of recommended retail prices

Manufacturers frequently post nonbinding public price recommendations, but neither the rationale for this practice nor its impact on prices is well understood. I develop a model in which recommendations signal a manufacturer's production cost to searching consumers, who then form beliefs about retail prices. Increasing search makes consumers reject offers for the manufacturer's and competitors' products more often, and I show that both consumers and the manufacturer prefer more search when the production cost is low and less search when it is high. With incentives thus aligned, manufacturer recommendations inform consumers via cheap talk, and their removal harms both parties.     

Ordered search

I present an ordered‐search model that, in contrast with random‐search models, yields an intuitively appealing equilibrium in which there is price dispersion, prices and profits decline in the order of search and consumers with lower search costs search longer and obtain better deals. These features of the search equilibrium hold regardless of whether consumers are informed of prices prior to searching.     

Long‐run price competition

We generalize the standard repeated‐games model of dynamic oligopolistic competition to allow for consumers who are long‐lived and forward looking. Each period leaves some residual demand to future periods and pricing in one period affects consumers' expectations about future prices. We analyze this setting for an indivisible durable good with price‐setting firms and overlapping cohorts of consumers. The model nests the repeated‐game model and the Coasian durable‐goods model as its two extreme cases. The analysis is mostly focused on constant‐price collusion but conditions for collusive recurrent sales are also identified.     

Forecasting spot prices of agricultural commodities in India: Application of deep-learning models

Food price fluctuations can impact both producers and consumers. Forecasting the prices of the agricultural commodities is of prime concern not only to the government but also to farmers and agribusiness firms. In developing countries like India, management of food security needs competent and efficient forecasting of food prices. With the availability of data, recent innovation in deep-learning models provides a feasible solution to accurately forecast the prices. In this study, we examine the superiority of these models using the daily spot prices of five major commodities traded on the National Commodity and Derivatives Exchange: cotton seed, castor seed, rape mustard seed, soybean seed, and guar seed. The results were obtained from the application of the traditional univariate autoregressive integrated moving average model and deep-learning techniques like the time-delay neural network (TDNN) and long short-term memory (LSTM) network. The empirical results indicate that the LSTM model is indeed suitable for the financial domain and captures the directional movement of the spot price changes with high accuracy compared with the TDNN and other linear models. Accuracy of the performance of these models has been compared using out-of-sample performance measure. The overall objective of this paper is to demonstrate the utility of spot price forecasting for farmers and traders in offering them the best predictions of the price movements. Our results provide a possibility of developing pricing models that can help in fairly regulating agricultural commodity prices.     

Search costs,demand‐side economies,and the incentives to merge under Bertrand competition

We study the incentives to merge and the aggregate implications of mergers in a Bertrand competition model where firms sell differentiated products and consumers search sequentially for satisfactory deals. When search frictions are substantial, firms have an incentive to merge and to retail their products within a single store, which induces consumers to begin their search there. Such a merger lowers the profits of the outsiders and may benefit consumers due to more efficient search. Overall welfare may even increase. If the merged entity limits itself to coordinating the prices of the constituent firms, merging may not be profitable.     

Multiproduct firms and price-setting: Theory and evidence from U.S. producer prices

Using micro-data on U.S. producer prices, we establish three new facts about price setting by multi-product firms. First, firms selling more goods adjust prices more frequently but on average by smaller amounts. Moreover, their fraction of positive price changes is lower and the dispersion of price changes is higher. Second, price changes within firms are substantially synchronized, which plays a dominant role in explaining pricing dynamics. Third, firms selling more goods have greater within-firm synchronization of price changes. A model with trend inflation and firm-specific menu costs where firms are subject to idiosyncratic and aggregate shocks matches the empirical findings.     

Strategic price complexity in retail financial markets

There is mounting empirical evidence to suggest that the law of one price is violated in retail financial markets: there is significant price dispersion even when products are homogeneous. Also, despite the large number of firms in the market, prices remain above marginal cost and may even rise as more firms enter. In a non-cooperative oligopoly pricing model, I show that these anomalies arise when firms add complexity to their price structures. Complexity increases the market power of the firms because it prevents some consumers from becoming knowledgeable about prices in the market. In the model, as competition increases, firms tend to add more complexity to their prices as a best response, rather than make their disclosures more transparent. Because this may substantially decrease consumer surplus in these markets, such practices have important welfare implications.     

Competitive pricing strategies in social networks

We study pricing strategies of competing firms selling heterogeneous products to consumers. Goods are substitutes and there are network externalities between neighboring consumers. In equilibrium, firms price discriminate based on the network positions and charge lower prices to more central consumers. We also show that, under some conditions, firms' equilibrium profits decrease when either the network becomes denser or network effects increase. In contrast, consumers always benefit from being more connected to each other. We determine the optimal network structure and compare uniform pricing and discriminatory pricing from the perspectives of firms and consumers.     

Prices and heterogeneous search costs

We study price formation in a model of consumer search for differentiated products in which consumers have heterogeneous search costs. We provide conditions under which a pure‐strategy symmetric Nash equilibrium exists and is unique. Search costs affect two margins—the intensive search margin (or search intensity) and the extensive search margin (or the decision to search rather than to not search at all). These two margins affect the elasticity of demand in opposite directions and whether lower search costs result in higher or lower prices depends on the properties of the search cost density.     

基于内容提供商视角的传统媒体定价策略研究

随着移动互联网的发展,新媒体平台的出现和传统媒体的经营模式转型正在改变媒体市场结构。考虑传统媒体转型和新媒体内容外包,引入新媒体平台建立三方双边市场结构模型,考察竞争型市场结构中传统媒体平台的定价策略。研究发现：针对消费者和广告商进行差异性定价可以给传统媒体平台带来最佳收益,因此对消费者的低收费和补贴是合理的,并不构成非正当竞争;平台间差异化程度直接影响到其议价能力和利润水平;此外,消费者对广告的容忍程度也会影响媒体平台对广告商的定价,容忍程度越低,广告费用越高。     

Price discrimination in input markets

We analyze the short‐ and long‐run implications of third‐degree price discrimination in input markets. In contrast to the extant literature, which typically assumes that the supplier is an unconstrained monopolist, in our model input prices are constrained by the threat of demand‐side substitution. In our model, the more efficient buyer receives a discount. A ban on price discrimination thus benefits smaller but hurts more efficient, larger firms. It also stifles incentives to invest and innovate. With linear demand, a ban on price discrimination benefits consumers in the short run but reduces consumer surplus in the long run, which is once again the opposite of what is found without the threat of demand‐side substitution.     

Customer anger at price increases, changes in the frequency of price adjustment and monetary policy

While firms claim to be concerned with consumer reactions to price increases, these often do not cause large reductions in purchases. The model developed here fits this by letting consumers react negatively only when they become convinced that prices are unfair. This can explain price rigidity, though its implications are not identical to those of existing models of costly price adjustment. In particular, the frequency of price adjustment can depend on economy-wide variables observed by consumers. This has implications for the effects of monetary policy and can explain why inflation does not fall immediately after a monetary tightening.     

Search,learning, and tracking

In many search markets, some consumers search to learn both the price and their willingness-to-pay whereas others search only to learn prices. When a seller can track indicators of the likelihood that consumers already know their willingness-to-pay, I show that price discrimination reduces profits and welfare relative to uniform pricing if search costs are small, but may increase both if search costs are large. The analysis also applies to sequential search if learning causes the likelihood that consumers know their willingness-to-pay to depend on the search history.     

The effect of satellite entry on cable television prices and product quality

How has the entry of satellite television affected the pricing and product quality of incumbent cable firms' programming packages? I estimate a model in which firms compete over both price and product quality (as determined by what channels are offered). Satellite entry typically causes cable firms to raise quality and lower price. However, in some markets, cable optimally responds by raising both price and quality or by lowering both price and quality. A counterfactual scenario that eliminates quality competition results in, on average, softer price competition and lower aggregate consumer surplus, but greater surplus for consumers with weaker preferences for quality.     

Online advertising and privacy

An online platform auctions an advertising slot. Several advertisers compete in the auction, and consumers differ in their preferences. Prior to the auction, the platform decides whether to allow advertisers to access information about consumers (disclosure) or not (privacy). Disclosure improves the match between advertisers and consumers but increases product prices, even without price‐discrimination. We provide conditions under which disclosure or privacy is privately and/or socially optimal. When advertisers compete on the downstream market, disclosure can lead to an increase or a decrease in product prices depending on the nature of the information.