When does tiered wholesale pricing create an incentive to reduce retail prices?

Wholesale ‘ladder pricing’ involves setting the wholesale price retailers face as a nonlinear (generally increasing) function of price chosen by retailers. This form of wholesale pricing occurred recently in UK Telecoms, and the issue became extensively debated in the law courts. A major concern in deciding the merits of the case lay with the question of whether or not the introduction of tiered wholesale pricing created incentives for retailers to actually reduce their prices. This paper examines the incentive for the case where the wholesale tariff is a non-linear continuous differentiable function. It is shown that so long as the tariff is strictly increasing, convex, and positive only for retail prices greater than the maximum retailer marginal cost, then there is indeed an incentive to reduce price, whatever the actual gradient of the tariff schedule.     

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。     

Responsive pricing

We study the efficiency property of responsive pricing, a scheme that proposes to increase prices as a function of the level of capacity utilization in environments where traditional allocation schemes (e.g. competitive markets, non-linear pricing) cannot be implemented in practice. We show that although responsive pricing implements allocations that are arbitrarily close to full capacity utilization (no wasted capacity and no excess demand), these allocations are not always efficient. We identify conditions under which efficiency occurs and discuss implications for the use of responsive pricing. We would like to thank seminar participants at the LSE, Venezia, Toulouse, and Copenhagen as well as Piero Gottardi, Karel Mertens, Marco Ottaviani, Markus Poschke, Karl Schlag, and Sanne Zwart for useful comments.     

Collusion and Price Rigidity

We consider an infinitely repeated Bertrand game, in which prices are publicly observed and each firm receives a privately observed, i.i.d. cost shock in each period. We focus on symmetric perfect public equilibria, wherein any "punishments" are borne equally by all firms. We identify a tradeoff that is associated with collusive pricing schemes in which the price to be charged by each firm is strictly increasing in its cost level: such "fully sorting" schemes offer efficiency benefits, as they ensure that the lowest-cost firm makes the current sale, but they also imply an informational cost (distorted pricing and/or equilibrium-path price wars), since a higher-cost firm must be deterred from mimicking a lower-cost firm by charging a lower price. A rigid-pricing scheme, where a firm's collusive price is independent of its current cost position, sacrifices efficiency benefits but also diminishes the informational cost. For a wide range of settings, the optimal symmetric collusive scheme requires (i) the absence of equilibrium-path price wars and (ii) a rigid price. If firms are sufficiently impatient, however, the rigid-pricing scheme cannot be enforced, and the collusive price of lower-cost firms may be distorted downward in order to diminish the incentive to cheat. When the model is modified to include i.i.d. public demand shocks, the downward pricing distortion that accompanies a firm's lower-cost realization may occur only when current demand is high.     

COLLUSION AND PREDATION UNDER THE CONDITION OF STOCHASTIC BANKRUPTCY

In this paper, on the basis of the framework of repeated games, we consider the strategic interaction between firms that may face financial constraints and go into bankruptcy when they earn low profit. We demonstrate that under asymmetric information concerning the financial constraints of the rival firm, firms adopt a pricing pattern wherein they switch to high (or collusive) prices after maintaining low prices for some periods. There are always such predatory pricing strategies sustained as equilibria when firms are sufficiently patient. We also show that the set of feasible and individual rational payoffs becomes narrower than that of the ordinal repeated games.     

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.     

Does Auctioning of Entry Licences Induce Collusion? An Experimental Study

We use experiments to examine whether the auctioning of entry rights affects the behaviour of market entrants. Standard economic arguments suggest that the licence fee paid at the auction will not affect pricing since it constitutes a sunk cost. This argument is not uncontested though, and this paper puts it to an experimental test. Our results indicate that an auction of entry licences has a significant positive effect on average prices in oligopoly but not in monopoly. These results are consistent with the conjecture that entry fees induce players to take more risk in pursuit of higher expected profits. In oligopoly, entry fees increase the probability that the market entrants coordinate on a collusive price path. In monopoly, taking more risk does not make sense since average prices are already close to the profit-maximizing price.     

不同控股比例下的国际转移定价模型

转移价格在跨国企业的国际经营活动中起着重要的作用。本文从企业税负驱动机制的微观层面上,扩展国际转移定价的理论模型,深入分析在不同控股比例和红利分配率情况下转移价格的理性选择;并且运用模拟方法,揭示不同变量条件下的最优转移价格策略。     

The impact of the market transparency unit for fuels on gasoline prices in Germany

Increasing horizontal as well as vertical transparency in oligopolistic markets can be advantageous for consumers, due to reduced search costs. However, market transparency can also affect incentives to deviate from collusive agreements and the punishment by rival firms in the market. Using a panel of 27 European countries, we analyse the impact of increased market transparency via the introduction of a market transparency unit for fuels in Germany. Applying a difference-in-differences approach, we find evidence that both gasoline and diesel prices have increased. While consumers may be better off using a retail price app for fuels, gas stations are also able to compare prices at almost no cost.     

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.     

Are low-price promises collusion guarantees? An experimental test of price matching policies

In a symmetric differentiated experimental duopoly we test the ability of Price Matching Guarantees (PMG) to raise prices above the competitive levels. PMG are introduced both as a market rule (the selling price is always the lowest posted price) and as a business strategy (subjects decide whether or not to offer them). Our results show that PMG lead to a clear collusive outcome as markets quickly and fully converge to the collusive prediction if PMG are imposed as a market rule. Whenever subjects are allowed to decide whether to adopt PMG or not we observe that almost all subjects decide to adopt them and prices get very close to the collusive ones.      

Efficiency versus social optimality: The case of telecommunications pricing

Standard arguments for efficiency-based pricing policies break down once it is admitted that no lump-sum transfers and taxes are available. In this paper, it is argued that the appropriate solution is to equate the marginal welfare cost of redistributing income through pricing policies that deviate from marginal cost with the marginal cost of redistribution through the tax and welfare systems. For telecommunications pricing, this solution may be implemented by charging usage prices for long-distance services in excess of marginal cost and making corresponding reductions in fixed access charges. An illustrative example, based on data for Australia, is presented.     

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.     

What Collusion? Unilateral Market Power as a Catalyst for Countercyclical Markups

This paper presents and tests a simple model of competitive and unilateral market power regimes that yields countercyclical markups. Following a decrease in demand in the short run, capacity-constrained firms may have a strong incentive not to lower their prices to the new competitive price. Demand shocks may introduce market power into a previously competitive market. Experimental posted offer markets support this conjecture with complete information on the market structure. With only private information, there appears to be a hysteresis effect concerning supracompetitive prices, i.e., markets with a history of supracompetitive pricing continue to generate supracompetitive prices following demand shocks. However, competitive markets also remain competitive following demand shocks when firms only have private information on costs and capacities.     

消费者寻求多样化与企业定价竞争

消费者寻求多样化的购买行为会对寡头企业之间的价格竞争和经济效率产生重要影响。文章研究发现,针对消费者寻求多样化的购买行为,企业会对忠诚的消费者给予价格优惠,而对新顾客索取高价;消费者寻求多样化购买行为弱化了企业两期价格竞争,导致"默契合谋";而以两期统一定价为基准的经济效率分析显示,歧视定价机制促进了企业间竞争,导致消费者剩余增加,企业利润减少。     

Water pricing reform analysis: alternative scenarios

This paper compares alternative transition paths to efficient water pricing. The analysis is based on representative agent model, where two sources of water supply exist: exhaustible groundwater stock and a renewable substitute. Two alternative water pricing reforms are considered: gradual tariff increase and multipart pricing with first block sold at the initial pre-reform tariff and additional water sold at higher prices (block pricing reform). Under block pricing reform, the amount of water offered at low price gradually diminishes. The results of comparative analysis prove that under the same reform time horizon block pricing is preferred to the gradual tariff increase.     

异质信念资产定价研究

从随机游走、行为金融到混沌,从现代资产定价理论、行为资产定价理论到异质信念资产定价理论,3种学说和3种定价理论同时存在干当今资本市场的研究中,它们分别从不同方面、不同视角解释了资产价格的波动。本文的研究理清了3种重要定价理论之间的关系：理性与有限理性,线性与非线性,价格波动的外在机制与内在机制,为人们进一步研究资产定价理论提供了清晰的脉络。     

谈中国石油进口定价权缺失及对策建议

随着中国经济的迅速发展,石油进口量不断攀升,而中国在国际石油市场上微乎其微的价格话语权与自身石油大买家的地位极不相称。石油进口不可避免地面临着国际石油市场价格动荡局面下的价格风险以及相对进口价格较高的被动局面。什么原因导致了中国石油进口价格的困境,如何解决这一问题成为中国石油进口面临的一个重要课题。针对国内石油市场现状,从石油进口成本出发,分析了中国石油进口定价权缺失的原因,并探讨了相应对策。     

A Note on the Most‐Favoured‐Customer Pricing Policy

This paper extends the retroactive most-favoured-customer pricing policy examined by Cooper (1986). He showed that the policy enabled both firms in a duopoly to offer higher prices and to enjoy higher profits. This paper introduces a variable into the most-favoured-customer pricing policy. Then, it shows that there is an equilibrium in which the duopolists can further increase their profits.     

Forward trading and collusion in oligopoly

We consider an infinitely repeated oligopoly in which at each period firms not only serve the spot market by either competing in prices or quantities but also have the opportunity to trade forward contracts. Contrary to the pro-competitive results of finite-horizon models, we find that the possibility of forward trading allows firms to sustain collusive profits that otherwise would not be possible to achieve. The result holds both for price and quantity competition and follows because (collusive) contracting of future sales is more effective in deterring deviations from the collusive plan than inducing the previously identified pro-competitive effects.