Product differentiation, cost‐reducing mergers, and consumer welfare

Abstract.  Cost synergies are an explicitly recognized justification for a two‐firm merger, and empirical techniques are now widely used to assess the impact of cost‐reducing mergers on prices and welfare in the post‐merger market. We show that if the merger occurs in a vertically product differentiated market, then the merger will lead to a reduction in product offerings that limits the usefulness of pre‐merger empirical estimates. Indeed, we further show that in such markets, two‐firm mergers will typically lead to higher prices regardless of the merger's cost savings. JEL classification: L10, L41     

Technology assessment: Impact of high-tech engineering research on energy consumption

A technology assessment (TA) program was launched in Switzerland in 1991. One project in the series of pilot projects was meant to assess the impact of so-called LESIT technologies on energy consumption. (LESIT was a priority research program and a German acronym for power electronics, systems and information technology.) In this paper the institutional environment, applied methods and main results of the TA study are summarised. One of the questions that arose was whether it is reasonable to expect a high-tech engineering research program to serve any societal goals other than the more immediate technical and economic goals the research partners in university and industry are accustomed to follow. It was found that without special efforts this expectation was not realistic. Politically desirable goals are best served when enough emphasis, time, and money are given to the process of bringing together research partners from academia and industry who all have a (self-serving) interest in furthering the politically desirable goal and then support their collaboration.     

Searching for the sunk cost fallacy

We seek to isolate in the laboratory factors that encourage and discourage the sunk cost fallacy. Subjects play a computer game in which they decide whether to keep digging for treasure on an island or to sink a cost (which will turn out to be either high or low) to move to another island. The research hypothesis is that subjects will stay longer on islands that were more costly to find. Eleven treatment variables are considered, e.g. alternative visual displays, whether the treasure value of an island is shown on arrival or discovered by trial and error, and alternative parameters for sunk costs. The data reveal a surprisingly small sunk cost effect that is generally insensitive to the proposed psychological drivers. Electronic Supplementary Material Supplementary material is available in the online version of this article at . Jel Classification C91, D11     

Can intertemporal choice experiments elicit time preferences for consumption?

The paper considers what can be inferred about experimental subjects’ time preferences for consumption from responses to laboratory tasks involving tradeoffs between sums of money at different dates, if subjects can reschedule consumption spending relative to income in external capital markets. It distinguishes three approaches identifiable in the literature: the straightforward view; the separation view; and the censored data view. It shows that none of these is fully satisfactory and discusses the resulting implications for intertemporal decision-making experiments. JEL Classification C90, C91, D90, D91, D11, D12     

The Effect of Respondent Experience/Knowledge in the Elicitation of Contingent Values: An Investigation of Convergent Validity,Procedural Invariance and Reliability

Tests of convergent validity and procedural invariance were used to investigate whether individuals lacking direct experience with a commodity can provide valid responses to contingent-valuation questions eliciting ex post use values. Convergent validity between samples with and without experience was shown to hold for dichotomous-choice responses, but not for open-ended responses.     

Professional design and primary children

An analysis of the way in which primary age children design, particularly when working with a professional designer, suggests that there are several similarities in approach between the two. This observation is supported by evidence from developmental psychology, which has stressed the crucial role which play performs in developing children's inventiveness and ability to solve problems. Subsequent research focusing on children's designing suggests that this play is fundamental to designing activity, and extends naturally into the more formalised activities of drawing and modelling. Through playing and using narrative language to describe their actions, children are learning to interpret their own mental images. To develop these images and make them more concrete children use their hands in drawing and modelling whilst drawing on their accumulated personal knowledge about the activity of designing, in a similar way to that in which professional designers make use of their own, highly sophisticated skills to bring an idea to concrete fruition. By comparison with some of the rigid models of the design process described in schools, designers and children may have more in common than we realise.     

An Investigation of the Informational Role of Short Interest in the Nasdaq Market

This paper examines the relationship between the level of short interest and stock returns in the Nasdaq market from June 1988 through December 1994. We find that heavily shorted firms experience significant negative abnormal returns ranging from −0.76 to −1.13 percent per month after controlling for the market, size, book–to–market, and momentum factors. These negative returns increase with the level of short interest, indicating that a higher level of short interest is a stronger bearish signal. We find that heavily shorted firms are more likely to be delisted compared to their size, book–to–market, and momentum matched control firms.     

The Announcement Effect of an Airport Expansion on Housing Prices

The purpose of this study is to examine the influence of the announcement of a new airport hub on housing prices near the airport. While numerous studies of airport noise have found that high noise levels reduce property values, few have been able to measure the announcement effect on values. The results indicate that after controlling to extraneous influences, housing property prices in a 2.5 mile band from the Greensboro/High Point/Winston Salem metropolitan airport declined approximately 9.2% in the post-announcement period. In the next 1.5-mile band, house prices declined approximately 5.7% in the post-announcement period.