PRICE DISPERSION IN THE SMALL AND IN THE LARGE: EVIDENCE FROM AN INTERNET PRICE COMPARISON SITE

This paper examines four million daily price observations for more than 1,000 consumer electronics products on the price comparison site http://Shopper.com . We find little support for the notion that prices on the Internet are converging to the 'law of one price.' In addition, observed levels of price dispersion vary systematically with the number of firms listing prices. The difference between the two lowest prices (the 'gap') averages 23 per cent when two firms list prices, and falls to 3.5 per cent in markets where 17 firms list prices. These empirical results are an implication of a general 'clearinghouse' model of equilibrium price dispersion.     

WHEN DO CONSUMERS SEARCH?*

This paper provides empirical evidence relating search to price movements. We measure consumer search directly from traffic statistics for web sites that report gasoline prices. We show empirically that consumers search more as prices rise than they do when prices fall. Asymmetric search patterns have consequences for price behavior. Our findings indicate that retail margins are squeezed by increased search. In addition, we show that there is more price dispersion when prices are falling than when prices are either stable or rising. Our results provide a search‐based explanation for the ‘rockets and feathers’ phenomenon of asymmetric price adjustment.     

The Effects of Charm Listing Prices on House Transaction Prices

As is the case for many different goods and services, it is common practice in many real estate markets for sellers to offer properties for sale at listing prices just below some round number price ( e.g. , $99,900 instead of $100,000). The academic marketing literature refers to this practice as "charm" pricing and suggests that this strategy is an attempt by sellers to take advantage of buyers' cognitive processes in which charm prices affect buyers' perceptions about the seller or the item being offered for sale. Although numerous papers in the housing economics literature have addressed the impact of the magnitude of listing price on observed house transaction prices, no prior published study has considered the impact of the design of listing prices in housing markets. This paper presents an empirical investigation of the effects of charm pricing on house transaction prices using sample data. The results provide some evidence that houses listed at certain charm prices sell for significantly greater transaction prices than those listed at round number prices.     

PRICES,SPATIAL COMPETITION AND HETEROGENEOUS PRODUCERS: AN EMPIRICAL TEST*

Homogeneous‐producer models attribute lower prices in denser markets solely to lower optimal markups. I argue here that when producers have different production costs, competition‐driven selection on costs also reduces prices. This selection mechanism can be distinguished from the homogenous‐producer case because it implies that higher density leads not only to lower average prices, but to declines in upper‐bound prices and price dispersion as well. I find empirical support for this mechanism in the prices of ready‐mixed concrete plants. I also show these findings do not simply reflect lower factor prices in dense markets, but result instead because dense‐market producers are more efficient.     

Competition and Price Discrimination: Evidence from the Parking Garage Industry

We study the relationship between competition and price discrimination through an empirical examination of hourly price schedules in the parking garage industry. We find that the degree of price schedule curvature decreases with competition, implying a greater proportionate drop in low‐end prices than in high‐end prices when competition intensifies. Our findings suggest that competition constrains a firm's capacity to exercise price discrimination, confirming the classic textbook theory. We also offer possible explanations for our findings, including a search cost explanation, for which we find some support in the data.     

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.     

The effects of mergers in markets for differentiated products

Several authors have studied conditions in which price-increasing forces associated with mergers in ahomogenous oligopoly might be offset by price-decreasing forces associated with rationalization of production. Analogously, in the case of mergers between producers ofdifferentiated products, economies of scope are a possible price-decreasing force. The interrelationship of demands can be another one. Edgeworth showed the possible strength of this latter force in demonstrating that the imposition of taxes on substitute products can cause the prices of all of them to fall. That paradoxical result is directly relevant since effects of mergers are shown to be equivalent to those of properly chosen taxes. Nevertheless, it is shown that the Edgeworth phenomenon does not carry over to mergers i.e., demand forces on their own are not sufficient for mergers to lead to reductions in all prices — although some price reductions are possible. The paper also develops conditions for all prices to rise after a merger. General conjectural variation models in both price and quantity are considered. Finally, it is shown that mergers cannot increase welfare in linear models with Bertrand or Cournot competition. The implications of the results for merger policy are briefly discussed.     

Do Low‐Price Guarantees Guarantee Low Prices? Evidence from Competition between Amazon and Big‐Box Stores

It has long been understood in theory that price‐match guarantees can be anticompetitive, but to date, scant empirical evidence is available outside of some narrow markets. This paper broadens the scope of empirical analysis, studying a wide range of products sold on a national online market. Using an algorithm that extracts data from charts, I obtain a novel source of data from online price trackers. I examine prices of goods sold on Amazon before and after two big‐box stores (Target and Best Buy) announced a guarantee to match Amazon's prices. Employing both difference‐in‐difference and regression‐discontinuity approaches, I robustly estimate a positive causal effect of six percentage points. The effect was heterogeneous, with larger price increases for initially lower‐priced items. My results support anticompetitive theories which predict price increases for Amazon, a firm that did not adopt the guarantee, and are consistent with plausible mechanisms for the heterogeneous impact.     

Measuring unilateral effects in partial horizontal acquisitions

Recent years have witnessed an increased interest, by competition agencies, in assessing the competitive effects of partial acquisitions. We propose an empirical structural methodology to examine quantitatively the unilateral impact of partial horizontal acquisitions. The acquisitions may be direct or indirect, and may or may not correspond to control. The proposed methodology simulates the effects on prices, market shares, firm profits and consumer welfare. It can deal with differentiated product industries and nest full mergers as a special case. We provide an empirical application to several acquisitions in the wet shaving industry.     

MARKET POWER AND PRICE MOVEMENTS OVER THE BUSINESS CYCLE*

This paper develops and tests implications of an oligopoly‐pricing model. The model predicts that during a demand expansion, the short run competitive price is a pure strategy Nash equilibrium but in a recession, firms set prices above the competitive price. Thus, price markups over the competitive price are countercyclical. Prices set during a recession are more variable than prices set in expansions because firms employ mixed strategy pricing in recessions. The empirical analysis utilizes Hamilton's time series switching regime filter to test the predictions of the model. Fourteen out of fifteen industries have fluctuations consistent with this oligopoly‐pricing model.     

Common Knowledge Reference Price and Asymmetric Price Adjustments

There is abundant empirical evidence showing that asymmetric price adjustments exist in a wide variety of markets. Prices tend to rise faster when costs rise, relative to the rate at which prices drop when costs fall. This paper argues that a common knowledge reference price—a government suggested retail price—eases the existence of asymmetric price adjustments in a scenario where costs are ever-increasing. Our analysis of the Colombian retail gasoline market suggests that when costs rise by more than the reference price, prices tend to rise more slowly relative to when costs grow by less than the reference price.     

The Measurement and Determinants of Single-Family House Prices

We assess the conceptual and empirical features of a number of house price series for the United States. We then calculate a measure of the net up-grading of the existing stock of houses that took place during the 1950–1989 period and adjust price indexes for this net increase in quality. Judgments about the trend, volatility, and determinants of house prices are shown to depend crucially on which price series is used. The Freddie Mac upgrade-adjusted house price measure rose 5.7% over the past four decades, falling 7.7% from 1950 through 1970 before rising 14.5% from 1970 through 1989. Real house prices declined in the early 1980s due to the increase in real after-tax interest rates and the decline in real materials costs. The recovery of house prices in the late 1980s is attributed to lower unemployment and real after-tax interest rates and particularly to demographic factors associated with the aging of baby boomers.     

Food,energy and environment: Is bioenergy the missing link?

We study price linkages between the food, energy and bioenergy markets. A vertically integrated multi-input, multi-output market model allows us to derive testable hypothesis, which we test by applying time-series analytical mechanisms to nine major traded food commodity prices along with one weighted average world crude oil price. The data consists of 939 weekly observations from January 1993 to December 2010. The empirical findings confirm the theoretical hypothesis that the prices for crude oil and food commodities are interdependent: a USD 1/barrel increase in oil prices and food commodity prices increase by between USD 0.09/tonne and USD 1.65/tonne.     

Hospitals: The Market for Health Care Facilities

Health care facilities include hospitals and nursing homes. Demand for beds and occupancy depends on income, prices and insurer restrictions. The supply of beds is limited by regulatory certificates of need. The implied equilibrium vacancy leads to a trade-off with rate increases. Rate increases establish an asset price for a hospital bed. If prices of health care rise faster than income and nonhealth prices, patients demand less bed availability and occupancy. Rising vacancy and rising prices occur, consistent with the empirical observations for U.S. health care facilities. For 1980–2001, the equilibrium vacancy rate for U.S. hospitals is between 27% and 36% depending on capacity adjustments, bed availability and price expectations. Equilibrium vacancy is near the actual rate after 2000, but that rate is 11 percentage points higher than in the early 1980s when the number of beds was nearly one-third higher. Usually rent regulation leads to excess demand. But in a general equilibrium model with income, relative prices, expectations, supply and capital markets, price regulation can coexist with excess supply.     

Changes in trade and domestic distortions affecting China’s agriculture

This paper assesses the implications of China’s trade and domestic policies for incentives to producers in China. It uses a price comparison methodology (nominal rates of assistance—at the border and the farmgate), with adjustments for exchange rate distortions in the first part of the sample period (1981–1994). On average, distortions to agricultural incentives have been reduced. In the early 1980s, on average, China’s domestic prices were far below international prices. There were substantial variations, however, between imported (which were being protected) and exported goods. During the 1980s and 1990s the gap between domestic and international prices for both imports and exports narrowed initially mainly due to the elimination of domestic policy distortions. Between the mid-1990s and 2004, trade liberalization policy furthered narrowed the gap between world and China farmgate prices. By the mid-2000s, China’s agriculture was operating with only small price distortions.     

Asymmetric price adjustments: A supply side approach

Using a model of dynamic price competition, we provide an explanation from the supply side for the well-established observation that output prices react faster in response to input cost increases than to decreases. When costs decline, the opportunity of profitable storing in anticipation of higher future costs allows competitive firms to coordinate on prices above current marginal costs. The initial price response is only partial and profitable storing relaxes competition. Conversely, when costs rise, storing is not beneficial in anticipation of lower future costs and firms immediately adjust their prices to current marginal costs, which entails the standard Bertrand outcome. Our results shed new light on the empirical evidence about asymmetric pricing and can stimulate further empirical investigation on this puzzle.     

Opportunity Cost Pass‐Through from Fossil Fuel Market Prices to Procurement Costs of the U.S. Power Producers

This paper investigates the transmission of fossil fuel commodity spot market price changes to procurement costs of U.S. power producers. We measure and compare the speed and magnitude with which spot prices predict procurement costs using restricted access fuel price data. Natural gas spot prices are quickly reflected in procurement costs. Coal spot prices offer very little predictive power to coal procurement costs. Although not causal, the empirical results also show differences across regulatory status. These findings may have implications for the electricity market deregulation literature that creates marginal cost curves as a competitive benchmark.     

ENDOGENOUS COSTS AND PRICE‐COST MARGINS: AN APPLICATION TO THE EUROPEAN AIRLINE INDUSTRY*

This paper allows for endogenous costs in the estimation of price cost margins. In particular, we estimate price‐cost margins when firms bargain over wages. We extent the standard two‐equation set‐up (demand and first‐order condition in the product market) to include a third equation, which is derived from bargaining over wages. In this way, price‐cost margins are determined by wages and vice versa. We implement the model using data for eight European airlines from 1976–1994, and show that the treatment of endogenous costs has important implications for the measurement of price‐cost margins and the assessment of market power. Our main result is that observed prices in Europe are virtually identical to monopoly prices, even though observed margins are consistent with Nash behavior. Apparently, costs had been inflated to the point that the European consumers were faced with a de facto monopoly prices.     

House Price Expectations: Unbiasedness and Efficiency of Forecasters

The understanding of house price expectations formation is quite limited in the housing literature. This is the first article to rigorously test the rationality of expectations of house price change using survey data. Using a panel data set of the Wall Street Journal economic forecasting survey from 2007 through 2012, I test for unbiasedness and efficiency by implementing the econometric methodology proposed in Davies and Lahiri (1995) in the setting of a three‐dimensional panel data set. I find that, after controlling for aggregate shocks, nine of the 47 forecasters have statistically significant biases, and their biases are all negative, indicating that they persistently predict too high of a change in house prices. The hypothesis of efficiency cannot be rejected, suggesting lack of evidence for inefficient use of information. When the year 2012 is excluded, the unbiasedness test shows that 25 of the 47 forecasters systematically overpredicted house price changes. Again, the hypothesis of efficiency cannot be rejected.