Consumer poaching,brand switching,and price transparency

This paper addresses price transparency on the consumer side in markets with behavioral price discrimination which feature welfare reducing brand switching. When long-term contracts are not available, an increase in transparency intensifies competition, lowers prices and profits, reduces brand switching and benefits consumers and welfare. With long-term contracts, an increase in transparency reduces the use of long-term contracts, leading to more brand switching and a welfare loss. Otherwise, the results are the same as without long-term contracts.     

Unilateral effects of mergers with general linear demand

We derive the formula for the unilateral price effects of mergers of two products with linear demand in the general asymmetric situation. The formula uses the same information required to calculate upward pricing pressure in the 2010 Horizontal Merger Guidelines.     

Bundled discounts: Strategic substitutes or complements?

Bundled discounts by pairs of otherwise independent firms play an increasingly important role as a strategic tool in several industries. Given that prices of firms competing for the same consumers are strategic complements, one would expect their discounts levels also to be strategic complements. However, in this paper we show that under some circumstances bundled discounts may be strategic substitutes. This occurs under vertically differentiated products where a low quality pair of producers may indeed prefer to lower its discount after an increase in the discount offered by a high quality pair of producers.     

Passive partial ownership,sneaky takeovers,and merger control

We analyze the impact of passive partial ownership (PPO) on horizontal mergers. We show that antitrust authorities ignoring the effects of previous PPO acquisitions invite sneaky takeovers: a PPO is strategically used prior to a full takeover to get a merger approved which is in fact detrimental to consumers.     

Better to give than to receive? Altruistic provision of a global public good

Developed countries may gain more than developing countries from the provision of a global public good: the greater their valuation of the good, the higher the productivity of developing countries’ contributions and the more developed countries derive satisfaction from altruism.     

On the endogeneity of Cournot-Nash and Stackelberg equilibria: games of accumulation

We characterize equilibria of games with two properties: (i) Agents have the opportunity to adjust their strategic variable after their initial choices and before payoffs occur; but (ii) they can only add to their initial amounts. The equilibrium set consists of just the Cournot-Nash outcome, one or both Stackelberg outcomes, or a continuum of points including the Cournot-Nash outcome and one or both Stackelberg outcomes. A simple theorem that uses agents’ standard one-period reaction functions and the one-period Cournot-Nash and Stackelberg equilibria delineates the equilibrium set. Applications include contribution, oligopoly, and rent-seeking games.     

Do Slotting Allowances Harm Retail Competition?*

Slotting allowances are fees paid by manufacturers to get access to retailers' shelf space. Both in the USA and Europe, the use of slotting allowances has attracted attention in the general press as well as among policy makers and economists. One school of thought claims that slotting allowances are efficiency enhancing, while another school of thought maintains that slotting allowances are used in an anti‐competitive manner. In this paper, we argue that this controversy is partially caused by inadequate assumptions of how the retail market is structured and organized. Using a formal model, we show that there are good reasons to expect anti‐competitive effects of slotting allowances. We further point out that competition authorities tend to use an unsatisfactory basis for comparison when analyzing welfare consequences of slotting allowances.     

The demand for information: More heat than light

This paper produces a theory of value for Gaussian information with two states and two actions, tracing the solution of the option pricing formula, but for the process of beliefs. We derive explicit formulas for the value of information. The marginal value is convex and rising, concave and peaking, and finally convex and falling. As the price falls, demand is initially zero, and eventually logarithmic. Its elasticity exceeds one, and falls to zero with the price. Demand is hill-shaped in beliefs, zero at extremes. Our results approximate models where information means the sample size for weak discrete informative signals.     

Real Options Effects on Employment: Does Exchange Rate Uncertainty Matter for Aggregation?

Abstract. In a baseline micro model a band of inaction due to hiring and firing costs is widened by option value effects of exchange rate uncertainty. Based on this micro foundation, an aggregation approach is presented. Under uncertainty, intervals of weak response to exchange rate reversals (called ‘play’ areas) are introduced on the macro level. ‘Spurts’ in new employment or firing may occur after an initially weak response. Since these mechanisms may apply to other ‘investment’ cases where the aggregation of microeconomic real options effects under uncertainty are relevant, they may even be of a more general interest.     

Using PDA consistency checks to increase the precision of profits and sales measurement in panels

Personalized Digital Assistants (PDAs) and other forms of hardware needed to collect survey data electronically have become more affordable and powerful in recent years, leading to their use in a number of surveys in developing countries. Simple use of these devices can offer the prospect of more timely data entry and greater accuracy in guiding respondents through skip patterns. Further benefits are possible through the use of more complex consistency checks. We use PDAs to measure sales and profits for microenterprises, which are notoriously noisy. Consistency checks in the cross-section compare sales and profits, while those in the panel query responses which result in large changes from one period to the next. Cross-sectional checks also served as a second prompt in the case of missing profits. These checks do succeed in reducing the standard deviation and in increasing the correlation of the observations for which corrections are made. However, we find that the vast majority of large changes in enterprise sales and profits are confirmed by firm owners as genuine, highlighting the volatility of income in this sector. As a result, the overall impact of these consistency checks on the full sample is rather limited, suggesting that while such checks are useful if computerized forms of data collection are being used, the consistency checks per se are not a strong reason for using computerized data collection in collecting firm profits and sales.     

Valuing improved hurricane forecasts

The value to households of improved hurricane forecasts is estimated from a pilot survey using discrete choice econometric methods. Each household is willing to pay approximately $13 for improvements in forecast attributes such as landfall time and position, wind speed, and storm surge.