The price of anarchy of serial, average and incremental cost sharing

We compute the price of anarchy (PoA) of three familiar demand games, i.e., the smallest ratio of the equilibrium to efficient surplus, over all convex preferences quasi-linear in money. For any convex cost, the PoA is at least in the average and serial games, where n is the number of users. It is zero in the incremental game for piecewise linear cost functions. With quadratic costs, the PoA of the serial game is , and for the average and incremental games. This generalizes if the marginal cost is convex or concave, and its elasticity is bounded.      

A geometric approach to the price of anarchy in nonatomic congestion games

We present a short, geometric proof for the price-of-anarchy results that have recently been established in a series of papers on selfish routing in multicommodity flow networks and on nonatomic congestion games. This novel proof also facilitates two new types of theoretical results: On the one hand, we give pseudo-approximation results that depend on the class of allowable cost functions. On the other hand, we derive stronger bounds on the inefficiency of equilibria for situations in which the equilibrium costs are within reasonable limits of the fixed costs. These tighter bounds help to explain empirical observations in vehicular traffic networks. Our analysis holds in the more general context of nonatomic congestion games, which provide the framework in which we describe this work.     

Some implications of anarchy for the distribution of property

A model of an anarchistic society is introduced and its implications for the distribution of income are considered. The economy is assumed to allocate one unit of an all-purpose completely divisible good to each individual in society. This initial distribution of income is changed through theft into a final distribution. The notion of equilibrium is introduced and the equilibrium distribution for a two-person example is displayed. Finally, the notion of orderly anarchy is discussed. An orderly anarchistic allocation of income is defined to be a distribution of income in which no effort is spent in stealing property from others. It is shown that every allocation in the core is an orderly anarchistic allocation and that the core is nonempty.     

Irrigation reform in conditions of populist anarchy: An Indian case

It is true that the performance of India's canal-irrigated agriculture could be substantially and cheaply improved by change in canal operating and maintenance procedures. But current procedures allow some farmers and state officials to capture disproportionate benefits for themselves through a well-institutionalised system of corruption. These beneficiaries of the status quo make up powerful interes groups against reform. The paper illustrates just how intensely ‘political’ irrigation reform can be, by tracing what happened when an attempt was made to carry out an apparently simple improvement in water allocation rules under a South Indian canal. The events suggest a wider process of cumulative causation making for low rates of growth of food production and weaker political authority. The process is not inevitable, however, and the paper ends with some suggestions about how, in the irrigation context, public policy might help to offset the decline.     

Energy price shocks and milk price adjustments

Much previous research on energy price transmission sheds light on the relationship between oil prices and aggregate commodity prices, such as for agricultural products, or food price indexes. This letter uses data from 12 U.S. cities between 2001 and 2011 to examine how energy prices are transmitted to fluid milk products at the retail level. Results indicate the existence of an asymmetric energy pass-through (a rise is transmitted faster than a fall in prices) and that private label milk products are more insulated from energy price shocks and adjust at similar rate with national manufacturer brands.     

Strategic price discounting and rationing in uniform price auctions

I modify the uniform-price auction rules in allowing the seller to ration bidders. This allows me to provide a strategic foundation for underpricing when the seller has an interest in ownership dispersion. Moreover, many of the so-called “collusive-seeming” equilibria disappear.     

The price premium of generic to brand-names and pharmaceutical price index

The price premium of generic pharmaceuticals to brand-names is examined under different competitive market situations. The result of this study shows that the number, market share, and the age of both brand-name and generic products have the most explanatory power for explaining the price premium. This study further applies this method to a pharmaceutical price index in order to explain ‘Drug Price Index Perplexities.’     

Between a cap and a higher price: Modelling the price of dairy quotas under price ceiling legislation

This paper considers various policy alternatives to price ceiling legislation in the market for production quotas in the dairy farming sector in Quebec. I develop a model of farmers’ demand for quotas and estimate a structural parameter that is required for the counterfactual experiments. Using my econometric results and the modelled equilibrium price, I estimate the price of dairy quotas over the period 1993–2011. The counterfactual experiments indicate that the price of quotas could be reduced to the ceiling price through a 4.16% expansion of the aggregate supply of quotas, or through moderate trade liberalization of Canadian dairy products.     

Determinants of price adjustment

This paper reports results of an empirical study investigating the adjustment speed of prices to change in costs and demand. Particular emphasis is laid on the impact of concentration on the adjustment speed. In addition, the effects of the business cycle and capital intensity are considered. It shows that concentrated industries tend to adjust prices faster, while capital intensity has a negative impact. Prices are more flexible during an upswing than in times of a recession.     

Heterogeneous beliefs, price dispersion, and welfare-improving price controls

Summary. We consider a search market model where agents have heterogeneous beliefs about the distribution of prices. A suggestive example shows that Jevon's Law of One Price and standard welfare results are not robust to small heterogeneous errors in beliefs. In particular we show that a price ceiling above marginal cost can reduce price dispersion and improve welfare (by lowering aggregate search costs) without decreasing quantity supplied. These results are broadly consistent with the empirical evidence. Received: July 27, 1999; revised version: May 24, 2000     

Out-of-equilibrium price dynamics

A trading-post organization of exchange is shown to determine an out-of-equilibrium price dynamics. The unique equilibrium of quasi-linear economies (defined by log-linear utility functions) is stable for the discrete time version of the dynamics. Equilibria that are stable for the continuous time version include those that satisfy the gross-substitutability property, the no-trade equilibria and, more generally, those for which trade intensity is relatively small. In addition, the set of stable equilibria is path-connected when endowments are allowed to vary without sign restrictions.      

Reserve price signaling

In a general auction model in which bidders’ signals are affiliated, we characterize the unique separating equilibrium in which the seller can use reserve prices to credibly signal her private information. When the buyers’ signals are independent, the optimal reserve price is shown to be increasing in the number of bidders under certain conditions. We also demonstrate that the probability that the item is sold at the reserve price can increase as the number of bidders increases, which indicates a more central role for reserve prices than perceived in the standard auction models.     

Winner-take-all price competition

Summary. We analyze an oligopoly model of homogeneous product price competition that allows for discontinuities in demand and/or costs. Conditions under which only zero profit equilibrium outcomes obtain in such settings are provided. We then illustrate through a series of examples that the conditions provided are “tight” in the sense that their relaxation leads to positive profit outcomes. Received: April 7, 2000; revised version: September 14, 2000     

Competitive price adjustment

A study is made of a competitive trading process in which a price-maker calls prices periodically under the obligation of trading for his own account to satisfy excess demand. Characteristics of the price-maker's optimal behavior are derived. The price-maker system is evaluated with respect to an alternative market clearing system.     

The contribution of food and energy price shocks to relative price variability

Food and energy shocks are shown to be significant sources of variation in relative prices of personal consumption expenditures during 1931–1980. This conclusion follows even after recognizing the impact of other shocks based on exports, government spending, money supply, and numbers of military personnel.     

Testing price equations

How inflation and unemployment are related in both the short run and long run is perhaps the key question in macroeconomics. This paper tests various price equations using quarterly U.S. data from 1952 to the present. Issues treated are the following. (1) Estimating price and wage equations in which wages affect prices and vice versa versus estimating “reduced-form” price equations with no wage explanatory variables. (2) Estimating price equations in (log) level terms, first difference (i.e., inflation) terms, and second difference (i.e., change in inflation) terms. (3) The treatment of expectations. (4) The choice and functional form of the demand variable. (5) The choice of the cost-shock variable. The results suggest that the best specification is a price equation in level terms imbedded in a price-wage model, where the wage equation is also in level terms. The best cost-shock variable is the import price deflator, and the best demand variable is the unemployment rate. There is some evidence of a nonlinear effect of the unemployment rate on the price level at low values of the unemployment rate. Many of the results in this paper are contrary to common views in the literature, but the empirical support for them is strong.     

Endogenous price leadership

We consider a linear price setting duopoly game with differentiated products and determine endogenously which of the players will lead and which one will follow. While the follower role is most attractive for each firm, we show that waiting is more risky for the low cost firm so that, consequently, risk dominance considerations, as in Harsanyi and Selten (A General Theory of Equilibrium Selection in Games, MIT Press, Cambridge, MA, 1988), allow the conclusion that only the high cost firm will choose to wait. Hence, the low cost firm will emerge as the endogenous price leader.