An Extension of Ausubel's Auction for Heterogeneous Discrete Goods

Ausubel's dynamic private‐values auction for heterogeneous discrete goods, Ausubel (2006), yields an efficient equilibrium outcome but it is designed for a limited class of environments. If bidders’ values for bundles of goods are not integers, then Ausubel's auction may end without allocating goods if no information on bidders’ values is available. In this paper, I extend Ausubel's auction for heterogeneous discrete goods to real‐valued quasilinear utility functions. The mechanism I propose reaches a Walrasian equilibrium price vector in finite ‘steps’ without any additional information on bidders’ values. In the extension of Ausubel's auction, truthful bidding constitutes an efficient equilibrium.     

On controlling chaos in a discrete‐time Walrasian tâtonnement process

The simple pure exchange model with two individuals and two goods introduced by Day and Pianigiani in 1991, later extensively analyzed by Day and taken up again by Mukherji, is discussed and extended with the purpose of showing that chaos in a discrete tâtonnement process of this kind can be controlled if the auctioneer uses a smooth, non‐linear formulation of the price evolution process such that the price adjustment is a sigmoid‐shaped function of the excess demand, with given lower and upper limits. In particular, we show that, given the price adjustment speed and the excess demand function, the auctioneer can (a) stabilize the dynamics, (b) reduce the complexity of the attractor and (c) increase the economic significance of the adjustment process by simply acting on the lower and/or upper limits that constrain price dynamics.     

Adapting the Knowledge‐capital Model of the Multinational Enterprise to Trade and Investment in Business Services

At some conceptual level, trade in goods and services are not that much different. However, the speed at which trade and foreign investment in services is growing, along with the fact that the barriers to these activities are quite different from those for trade in goods, prompts us to take a more careful look. The paper begins with a general discussion about the various policies and technological constraints that impact foreign trade and the establishment of foreign commercial presence in intermediate business services. We then discuss which characteristics an accurate modelling approach must capture. Following that, we develop a model that allows for different regimes of trade and/or foreign affiliate production in services using Markusen's knowledge‐capital model. Simulations show that the pattern of service firm headquarters and office locations can differ considerably depending on whether it is trade, investment, or both that are either liberalised or become technologically feasible. Our results find that the welfare and factor‐price consequences are quite similar across the different scenarios.     

Exchange Rates and FDI: Goods versus Capital Market Frictions

Changes in exchange rates affect countries through their impact on cross‐border activities such as trade and foreign direct investment (FDI). With increasing activities of multinational firms, the FDI channel is likely to gain in importance. Economic theory provides two main explanations why changes in exchange rates can affect FDI. According to the first explanation, FDI reacts to exchange rate changes if there are information frictions on capital markets and if investment depends on firms’ net worth (capital market friction hypothesis). According to the second explanation, FDI reacts to exchange rate changes if output and factor markets are segmented, and if firm‐specific assets are important (goods market friction hypothesis). We provide a unified theoretical framework of these two explanations. We analyse the implications of the model empirically using a dataset based on detailed German firm‐level data. We find greater support for the goods market than for the capital market friction hypothesis.     

Are Unbundled and Self‐supplied Telecommunications Switching Substitutes? An Empirical Study

The Telecommunications Act of 1996 requires incumbent monopoly phone companies to lease elements of their networks to rivals. An important policy question is whether these unbundled elements are substitutes for entry modes that are more facilities‐based. In this article, we estimate demand curves for unbundled elements with the goal of assessing cross‐price effects between two of the more popular entry modes that differ in the mix of unbundled and self‐supplied inputs. As expected, we find downward sloping demand curves for unbundled elements. We also find own‐price elasticities in the elastic region of demand. What we do not find is evidence of substitution; we are able to reject the hypothesis of effective substitution between the two entry modes.     

WHY ARE GOODS CHEAPER IN RICH EUROPEAN COUNTRIES? BEYOND THE BALASSA–SAMUELSON EFFECT

In wealthy European countries consumer goods tend to be cheaper than consumer services. Usually explained in terms of cost developments and/or foreign‐trade considerations, this trend could also be a reflection of demand‐side regularities. Estimation of a cross‐country demand system indicates that goods are ‘necessities’ whereas services are ‘luxuries’. The relative price of goods responds negatively to the rising supply of goods and positively to the rising supply of services, with the former response being much stronger. If the supplies of both items were to rise at the same speed, the relative price of goods would have to fall.     

Optimal investment,derivative demand,and arbitrage under price impact

This paper studies the optimal investment problem with random endowment in an inventory‐based price impact model with competitive market makers. Our goal is to analyze how price impact affects optimal policies, as well as both pricing rules and demand schedules for contingent claims. For exponential market makers preferences, we establish two effects due to price impact: constrained trading and nonlinear hedging costs. To the former, wealth processes in the impact model are identified with those in a model without impact, but with constrained trading, where the (random) constraint set is generically neither closed nor convex. Regarding hedging, nonlinear hedging costs motivate the study of arbitrage free prices for the claim. We provide three such notions, which coincide in the frictionless case, but which dramatically differ in the presence of price impact. Additionally, we show arbitrage opportunities, should they arise from claim prices, can be exploited only for limited position sizes, and may be ignored if outweighed by hedging considerations. We also show that arbitrage‐inducing prices may arise endogenously in equilibrium, and that equilibrium positions are inversely proportional to the market makers' representative risk aversion. Therefore, large positions endogenously arise in the limit of either market maker risk neutrality, or a large number of market makers.     

Local costs of distribution,international trade costs and micro evidence on the law of one price

This paper connects trade flows to deviations from the law of one price (LOOP) in a structural model of trade and retailing. It accounts for the observed cross-country dispersion in prices of goods, based on retail price survey data, by focusing on two sources of goods market segmentation — (i) international trade costs, and (ii) non-traded input costs of distribution. I find that a multi-sector Ricardian trade model, ala Eaton–Kortum, augmented with a distribution sector, can account for the average price dispersion for a basket of goods fully and generates 70% of the variation in price dispersion across goods within the basket. While tradability of goods is important in explaining the average price dispersion for the basket of goods, distribution costs are important in explaining why, within the basket, some goods show more price dispersion than others.     

Market Structure and Market Access

We explore an issue at the nexus of domestic competition policy and international trade, the interaction between goods trade and market power in domestic trade and distribution sectors. We examine the effect of variations in conditions of domestic competition in services on trade volumes in goods in the cases of both linear and nonlinear import demand, including standard form CES‐based gravity models of bilateral trade flows. Theory suggests a set of linkages between service‐sector pricing and goods trade supported by econometrics involving imports of 22 OECD countries vis‐a‐vis 69 exporters. Competition in distribution services affects the volume of trade in goods. Additionally, because of interaction between tariffs and pricing, the market structure of the domestic service sector becomes increasingly important as tariffs are reduced. Indeed, depending on the degree of competition, market access concessions on tariffs may be effectively undone in some cases by changes in margins. For exporters, we find that service competition in destination markets matters most for exporters from smaller, poorer countries. Our results also suggest that while negotiated agreements leading to cross‐border services liberalisation may boost goods trade as well, they may also lead to a fall in goods trade when such liberalisation involves FDI leading to increased service sector concentration.     

Export Survival in Global Production Chains

In this paper, we examine the survival capacity of trade relationships in cross‐border production chains. Our main contribution is to show that there are differences in the probability of export interruption between intermediate and final stages along the global value chain, finding a lower sensitivity of intermediate goods to the increasing competition from lower‐income countries. In addition, the paper also makes a methodological contribution by using time‐discrete duration models with product‐country random effects to control for unobservable heterogeneity and by including interactions in the model, in order to identify the sources of these differences. Our estimates show that variables such as EU membership, export experience, product and market diversification, initial trade value, destination market size, geographical proximity and economic proximity reduce the likelihood of export failure more for intermediate than for final goods, being the differential impact particularly higher for the two first variables. These results would suggest that factors that reduce uncertainty and search costs and increase trust and reliability among production partners are particularly relevant for intermediate stages, fostering the probability of remaining an active member of global production chains.     

Retailers and Consumers: The Pass‐through of Import Price Changes

In this paper, we estimate pass‐through rates of import price changes to retail prices across retailers and consumers for apparel purchases in Germany for the period of 2000–07. We find that high‐price retailers do not pass through changes in the import price. Pass‐through rates for low‐price retailers are 53 per cent within three months. Consequently, pass‐through rates for low‐income households are 58 per cent, significantly larger than those for high‐income households. We then present one possible explanation for these observations in a theoretical model with endogenous vertical product differentiation due to bundling an ex ante homogeneous import goods with services. Following an import price change, retailers who sell a cheaper unbundled product change prices to a greater extent than retailers who sell a higher‐priced bundle of product and service.     

THE SUCCESSFUL CROSS‐DOCK BASED SUPPLY CHAIN

A supply chain using the cross‐dock approach can speed goods from upstream suppliers to downstream customers quickly and cost‐effectively, with benefits to the entire chain, if the appropriate type of cross‐dock is chosen and then designed, staffed and managed for effective performance. Unlike a warehouse, which offers storage, a cross‐dock is a high performance rapid transit point that does not provide storage. Although cross‐docks have been studied with some thoroughness, what has not been seen clearly is that a cross‐dock does not operate in isolation and therefore can't be optimized independently from the upstream and downstream processes. To be successful, cross‐dock optimization makes demands for high performance on all members of the supply chain in terms of speed, effective planning, high reliability, near error‐proof processes and a high degree of transparency, visibility and information‐sharing; accordingly, the article refers to this integrative perspective as a “cross‐dock based supply chain.” To make clear this interdependency between the cross‐dock and the chain based on it, a new definition that classifies types of cross‐dock based supply chains is offered. To assist scholars analyzing and industry management choosing a cross‐dock approach, cross‐dock based supply chains are classified as falling into three different types. Lastly, based on field work in industry and on literature review, nine critical success factors for cross‐dock based supply chain operations are offered.     

Substitution or Promotion? The Impact of Price Discounts on Cross-Channel Sales of Digital Movies

Technology is transforming the marketing function in many ways, and this transformation is particularly apparent for information goods such as movies where digital technologies provide marketers with new distribution channels, which in turn create new opportunities for cross-channel effects. However, these digital channels also provide researchers with new opportunities to measure micro-level customer behavior to understand the impact of cross-channel effects in real-world settings.In this paper, we study cross-channel effects between movies sold in digital purchase (commonly known as Electronic Sell Through or EST) and digital rental (commonly known as Video-On-Demand or VOD) markets. We do this using a unique sales dataset from a major digital movie retailer provided by a major movie studio. Our analysis takes advantage of a 14-week field experiment that allows us to measure the impact of price discounts on own- and cross-channel sales. We use this experiment to estimate own and cross price elasticities, whether price discounts cannibalize future sales, and most importantly whether price discounts in one channel affect sales for the same product in a presumably competing channel.Our analysis indicates that digital movie consumers are highly sensitive to price promotions. However, we also find that, contrary to expectations, price promotions in a digital sales channel for a movie do not seem to cannibalize digital rentals. Indeed, our results suggest that, if anything, price promotions for digital movie sales can increase digital rentals. We explore a variety of explanations for this counterintuitive result, including the possibility that the ease of information transmission online through third-party websites, blogs, and online discussion areas may create information spillovers such that price discounts in one channel may increase product awareness in other competing sales channels. From a managerial perspective, our results suggest that cross-channel cannibalization can be reduced or even reversed in the presence of information spillovers, and that there are many new opportunities for marketers to directly measure these cross-channel effects using experimental data from online platforms.     

Market mechanics: A study to measure the effect of marketing instruments on the market position of fast-moving consumer goods

The objective of the research was to establish the various effects of the marketing instruments on the market shares of fast-moving consumer goods. The marketing instruments analyzed were price level, price changes, promotion, advertising, and media mix. Within the analysis the integrated effect of the distribution pattern had to be taken into account. The analysis of 186 brands and the data gathered over 7 three-month periods was taken from two models loosely based on Koyck. The results can be used to estimate the effectiveness of the marketing tools under scrutiny and their declining marginal revenue in the German market. A number of different efficiency ratings can be detected between the separate product categories under analysis. For marketing managers there are three particularly interesting points: (1) Brands with a low price index have only relatively small market advantages in comparison with expensive brands; (2) but price changes lead to very strong movements in the market shares; (3) in the case of brands with a small share of the advertising spent, both print and TV advertising have a similar effectiveness. With a larger share of advertising, the TV effectiveness declines because of saturation effects.     

Playing the role of buyer and seller: The mental accounting of trade-ins

This paper examines the role of trade-ins in consumers' purchases of new durable goods. We argue that even if the net price paid by consumers who trade in an old product remains the same, varying the offer on the trade-in substantially affects consumers' satisfaction with the transaction. In particular, because the product is a part of their endowment, consumers' valuation of their used product can be more than the market's valuation. While the endowment effect is a well-documented phenomenon, its implications for trade-ins have yet to be studied. We use the notion of mental accounting and endowment effects to develop a model of trade-ins. We show that even if two deals are financially equivalent, the preferred option for consumers is often the one in which the consumer is overpaid on the trade-in. In addition, we find that consumers who are overpaid (relative to a market price) on their trade-in are willing to pay a higher net price than are consumers who are underpaid on their trade-in.     

Are consumers' perceptions of price–quality relationships well calibrated?

Past research has shown that, to varying degrees, consumers tend to believe price is an indicator of quality, even though there is in fact often very little correlation between objective measures of price and quality (PQ). Moreover, consumers have been observed to be poorly calibrated in their knowledge of precisely which categories exhibit the strongest association between PQ for products. Given the profound changes that have occurred in consumer markets, such as the rise of the Internet and the flood of product quality information now readily available online, the present work seeks to update this line of research. Specifically, it seeks to determine if changes in the marketplace have affected (1) consumers' perceptions of the PQ relationship; and (2) consumers' PQ calibration. Data from two sources were collected and compared: (1) Subjective ratings of the PQ relation for various common products, collected using a questionnaire format in a survey of 313 US consumers; and (2) Objective estimates of the actual PQ association of the same products, gathered from independent third‐party information providers who report both prices and rank‐ordered quality measures for each. Results indicate that consumers today (1) continue to perceive a modest positive relationship between PQ (more so for durables, less for non‐durables); and (2) are modestly calibrated for durable products. But they are much less well calibrated in the realm of non‐durables, where consumers expect a positive link between price and quality in precisely those product categories in which the relationship is actually negative. Relative to past research, the calibration of consumers has apparently ‘flipped’ from non‐durables to durables today. Potential explanations for this result include (1) the rise of the Internet as an information source for quality ratings of durables; (2) a higher level of perceived risk for durable goods purchases; (3) a greater tendency for durables to exhibit a positive correlation between actual quality and price; and (4) the rising quality level of private label brands, which may render prior price–quality perceptions for non‐durables outdated or obsolete.     

Assessing the Benefits to Developing Countries of Liberalisation in Services Trade

This paper discusses the potential impacts of services trade liberalisation on developing countries and reviews existing quantitative studies. Its purpose is to distill themes from current literature rather than to advocate specific policy changes. The picture emerging is one of valiant attempts to quantify in the presence of formidable analytical and data problems yielding only a clouded image of likely impacts on trade, consumption, production and welfare emerging to the point that the policy implications of results are not always clear. A central intuition would seem to be that with genuine two‐sided (OECD/non‐OECD) liberalisation in services that are seemingly considerably labour‐intensive in delivery, the potential should be there for significant developing country gains from global liberalisation allowing full cross‐border delivery. However, this picture is neither fully endorsed by available studies, neither is it explicitly contradicted. This seems to be the case for a number of reasons. One difficulty with the studies is that the conceptual underpinnings of what determines trade in services and how this trade differs analytically from that of trade in goods (if at all) is an issue prior to assessments of impacts of liberalisation of trade in services on developing countries being discussed. Key issues here are the treatment of mobility for service providers (both firms and workers), and the differing analytical structures needed to analyse individual service items (banking, insurance, telecoms, etc.). Some recent analytical work suggests that liber‐alisation in some service items, such as banking, need not always yield gains, and this contrasts with quantitative studies where analytical structures mirror conventional trade in goods treatments. The discussion and measurement of barriers to service trade in both developed and developing countries is also problematic. One is talking of domestic regulation, entry barriers, portability of providers, competition policy regimes more so than only barriers at national borders, as with tariffs. Both representing and quantifying such barriers raise major difficulties, and these are also spelled out in the paper. Which barriers actually restrict trade, and which do not because they are redundant is one issue, for instance. It is also often misleading to represent barriers in simple ad valorem equivalent form. As a result, numerical modelling work on the effects of service trade barriers which is based on ad valorem equivalent modelling is often not fully convincing. In addition, individual country results vary considerably across studies in ways that it is frequently hard for outsiders to understand. Studies do, however, point towards a tentative conclusion that effects are small and positive for developed and most developing countries if FDI flow changes accompanying service trade liberalisation are excluded from the analysis, but much larger and more variable across countries if they are present. This could be taken to suggest that mode 3 GATS liberalisation (roughly captured in some studies) might be important for developing countries; but mode 4 GATS liberalisation could be even more important given large barriers to labour flows across countries. Thus, if service trade liberalisation is thought of primarily as a surrogate for improved functioning of global factor markets in which more capital flows to developing countries and more labour flows from them to developed countries, then developing countries could benefit in a major way from genuine two‐sided (OECD/non‐OECD) liberalisation. Developing countries fear, however, that in global negotiations on services liberalisation where there is an asymmetry of power that largely one‐sided liberalisation may be the outcome, and their gains will be correspondingly limited. The paper concludes by evaluating econometric studies on linkage between services liberalisation and country growth rules, and briefly discusses some key sectoral issues in health services and transportation.     

Complementary Goods: Prices and Consumer Welfare Under Duopoly and Monopoly

We examine prices, profits, and consumer surplus for differentiated complementary goods under duopoly and a multi‐product monopoly. We find that little can be said about the relative magnitudes of prices of the components of a system of complementary goods under the alternative market structures. Although demand complementarity can lead to lower prices for either the primary or the secondary good under monopoly, both prices are not necessarily lower. The results unique to this paper are that, when two complementary goods form a system, the system price is unambiguously lower and consumer surplus and profits are higher under a multi‐product monopoly.     

A Simulation Model Of Multi‐Echelon Retail Inventory With Cross‐Channel Product Returns

This study explores the relationship between a retailer's product returns processing structure and Multi‐Echelon inventory system performance under cross‐channel and same‐channel product returns policies with nonstationary demand. Our research contributes to the growing body of reverse logistics literature, offering insight into how a retailer's logistical returns management strategy can impact inventory effectiveness in cross‐channel retail environments. Adopting a contingency framework, we develop research hypotheses which we test through experimentation on a Multi‐Echelon retail inventory system within a discrete‐event simulation. Model parameters are derived from data collected from a large U.S. retailer of consumer durable and nondurable goods. We find an amplifying effect of a cross‐channel returns policy on the positive relationship between a decentralized returns processing structure and inventory effectiveness. Further, through our analysis of nonstationarity in demand and resulting returns, we uncover strong main and interaction effects that seasonal demand variation can have on inventory outcomes, even under only moderate levels of seasonality. Our results highlight the need for firms to align logistical structures for returns processing with the returns policy and the external environment, while also lending credence to calls within the logistics literature for improved modeling of nonstationary demand in inventory management research.     

基于ELES模型的我国农村居民消费需求价格弹性分析

利用扩展线性支出系统模型(ELES),并借助SPSS13.0统计软件对2009年我国农村居民消费需求价格弹性进行实证分析。结果发现农村居民人均年纯收入与各项消费支出高度相关;农村居民各项消费需求自价格弹性都为负值,位居前三位的分别是交通通讯、居住、文教娱乐用品及服务;农村居民各项消费需求互弹性都小于0,互价格弹性绝对值小于自价格弹性绝对值;各类消费品价格变动对交通通讯需求量影响最大;食品价格变动对其他各类消费品需求量影响最大。最后提出降低交通通讯、居住、文教娱乐用品及服务价格、调整食品价格,使食品价格保持在合理水平、提高农村居民收入等建议。