Price clustering and natural resistance points in the Dutch stock market: A natural experiment

This paper focuses on the tendency of stock prices to cluster at round numbers (like 10, 20, 30, etc. and to a lesser extent 5, 15, 25, etc.) and the related effect of round number price barriers (prices pass round numbers less frequently than other numbers). Two competing hypotheses are tested, using data from the Dutch stock market of the period 1990–2001. After 1 January 1999 stock prices were listed in euros, while guilders were still the currency of daily life until 2002. The aspiration level hypothesis predicts that round number effects in guilders will only slowly disappear. The odd price hypothesis predicts an abrupt change in round number effects after 1 January 1999. Generally, the results are consistent with the odd price hypothesis.     

Price clustering in Australian water markets

The finding of clustering in financial prices on particular digits is common across a broad range of financial markets. This article explores whether price clustering is also present in the case of the weekly market for seasonal water in rural Victoria, Australia. We find a similar degree of clustering in the seasonal water market. This suggests that the trading activities of the market produce characteristics that are similar to more sophisticated and deeper financial markets.     

Price clustering on the Shanghai Stock Exchange

We investigate price clustering of intraday trades and negotiated block trades on the Shanghai Stock Exchange (SSE) from 2003 to 2009. Prices of traded assets tend to cluster on certain final digits, such as 0 and 5. In Chinese culture, 8 is associated with good luck and 4 with death so these numbers may be attractive or avoided. We find that price clustering on the final digit of 0 is significantly higher during the morning call auction and early in the trading day. We find no evidence of price clustering for the digit 8, but there is a significant dearth of prices ending in the inauspicious number 4. Price clustering is significantly higher for negotiated block trades, for which about 28% end with 0. Multivariate analysis shows that price clustering is lower for more liquid firms, but higher for firms with higher return volatility, a higher price level, or when the market is volatile. Our evidence supports the costly negotiation hypothesis. Our results also support the attraction hypothesis in that we document significant price clustering at round numbers and even numbers even after controlling for factors that are associated with price uncertainty.     

Price adjustment in an atomistic market

This paper considers the price adjustment process in a market which retains the characteristics of a perfectly competitive market except that individual firms are price-setters. Buyers, unaware initially of what prices which firms are charging, indulge in search by contacting a sample of firms and buy (according to a demand curve) from the lowest-price firm encountered. Firms set prices to maximise profits over their perceived (or estimated) demand curve, and update their estimated demand curve in accordance with the observed change in demand between successive time periods. It is shown that the price distribution converges to a degenerate distribution centred on the monopoly price.     

Price and quantity adjustments in the Austrian labour market

Austria is among the very few countries in the European Union which have managed to maintain comparatively low unemployment rates and high employment rates. This study looks at the price and quantity adjustment mechanisms in the Austrian labour market which may have contributed to this favourable outcome. After reviewing briefly the basic theoretical reasoning an empirical investigation is began into gross flow dynamics in the labour market and the cyclical volatility of employment and unemployment in Austria. In international comparison Austrian unemployment is very stable over the business cycle. This is due mainly to the high sensitivity of the labour force on cyclical conditions and, partly, also on the relatively weak responsiveness of employment to cyclical fluctuations in output, the latter being possibly attributable to the high degree of real wage flexibility in Austria. The study proceeds to show that the long-run elasticity of wages with respect to unemployment is indeed quite high in Austria. However, evidence was also found for outsider effects in the Austrian wage setting process. Relative wage structures, on the other hand, appear to be rather rigid.     

Price competition in the market for business telecommunications services

We estimate a two-step control-function model that relates incumbent prices for small-business telecommunications services to the number of facilities-based entrants, cost, demand, regulatory conditions, and a correction for endogenous market structure. Results show that the price effects from entry are understated in ordinary least squares regressions. When controlling for endogeneity, prices are negatively related to the number of entrants, indicating that markets without a competitive presence could exhibit market power. These findings should prove helpful to the Federal Communications Commission and other State regulators determining the conditions under which price and other forms of regulation may be relaxed.     

Price leadership in a homogeneous product market

The present paper reexamines the price-setting Stackelberg duopoly with asymmetric and strictly convex cost functions in a homogeneous product market. It demonstrates that in a generic environment, the higher-cost firm is likely to be the price leader. That is, leadership by such a firm is either (a) a unique equilibrium or (b) a payoff- and risk-dominant equilibrium in the observable delay game. Thus, while this paper complements and generalizes the findings of recent studies that indicate the possibility of the higher-cost firm’s leadership in homogeneous product markets, it also contrasts with the traditional literature that predicts the dominant-firm price leadership in various environments.     

Price manipulation in an experimental asset market

We analyze in the laboratory whether an uninformed trader is able to manipulate the price of a financial asset by comparing the results of two experimental treatments. In the benchmark treatment, 12 subjects trade a common value asset that takes either a high or a low value. Only three subjects know the actual value of the asset while the market is open for trading. The manipulation treatment is identical to the benchmark treatment apart from the fact that we introduce a computer program as an additional uninformed trader. This robot buys a fixed number of shares in the beginning of a trading period and sells them again afterwards. Our main result shows that the last contract price is significantly higher in the manipulation treatment if the asset takes a low value and that private information is very well disseminated by both markets if the value of the asset is high. Finally, even though this simple manipulation program loses money on average, it is profitable in some instances.     

Price flexibility and market performance in experimental markets

Summary Posted offer and double auction pricing institutions are examples of fixed and flexible pricing institutions, respectively. In laboratory settings, double auction markets dominate posted offer institutions in terms of the amount of potential surplus which traders are able to extract. These results are invariant with respect to the experience of traders or the perishability of the good traded. Performance differences across institutions may be due to information differences. The introduction of a second price-posting in the posted offer institution results in a pricing institution which is closer to the double auction's flexible pricing environment. Laboratory results suggest that under otherwise comparable conditions, this innovation is sufficient to remove the performance differences which have been demonstrated to exist between the posted offer and double auction institutions.We acknowledge the support of the Social Sciences and Humanities Research Council of Canada and the Arts Research Board of McMaster University. We thank Robert Moir and Susan Sabourin for computational work on this project and the fifteen undergraduates who worked as recorders and recruiters. We also thank Charles Plott and seminar participants at the Economic Science Association, Canadian Economics Association, and Waterloo University for the comments received on recent versions of this work.     

Price Clustering of Chinese IPOs: The Impact of Regulation,Cultural Factors,and Negotiation

During June 2009–May 2012, the China Securities Regulatory Commission (CSRC) suspended window guidance that limits issue prices. Using this regime change as a natural experiment, we test the combined effects of regulation, culture, and negotiation on price clustering of Chinese IPOs. The proportion of IPOs priced on round number 0 increases from 42.58% during sample periods with window guidance to 79.81% during sample period without window guidance, a level similar to that reported in developed markets . Moreover, we document a connection between whole CNY pricing of Chinese IPOs and several uncertainty measures including a unique uncertainty proxy defined as the time gap between the IPO date and the listing date. Second to the round number 0, issuing firms favour number 8 that associates with fortune, particularly during sample periods with window guidance. Our findings that price restrictions limit the power of negotiations but not the influence of cultural factors contributing to the understanding of price formation process.     

Price transmission and local market power: empirical evidence from the Austrian gasoline market

We analyse the impact of local market power on price margins and different dimensions of price adjustment dynamics (speed and asymmetry of price transmission) using data for a large number of individual gasoline stations in Austria. Specific attention is paid to threshold effects in price adjustment. Our results clearly suggest that the speed of price transmission between the Brent crude oil index and retail diesel prices is higher in a more competitive environment. While evidence on the relationship between local market power and asymmetries in the speed of price adjustment is mixed, our findings regarding asymmetries in price thresholds are clear: in regions where competition from neighbouring rivals is weak and/or consumers’ price elasticity of demand is low (stations located on the highway), positive thresholds significantly exceed negative ones, which corresponds to the ‘rockets and feathers phenomenon’. As expected, we observe that prices are lower in more competitive local markets.     

Price behaviour in the US sweetener market: a cointegration approach

The sweetener market in the United States is complicated because of the substitution possibilities between high fructose corn syrup (HFCS) and sugar. This study focuses on the relationship between raw sugar prices and the prices for high fructose corn syrup. Sugar and HFCS are imperfect substitutes for several industrial uses. Sugar can be used for all industrial uses, but HFCS has limited uses. This study uses cointegration analysis to examine the relationship between sugar and HFCS prices as well as the relationship between raw and refined sugar prices over time. The results indicate that sugar and HFCS prices move together for the 1983–1996 period. However, after this time period HFCS prices no longer follow sugar prices.     

Price formation in a matching market with targeted offers

We model a market where the surpluses from seller–buyer matches are heterogeneous but common knowledge. Price setting is synchronous with search: buyers simultaneously make one personalized offer each to the seller of their choice. With impatient players efficient coordination is not possible, and both temporary and permanent mismatches occur. Nonetheless, for patient players efficient matching (with monopsony wages) is an equilibrium. The setting is inspired by a labor market for highly skilled workers, such as the academic job market, but it can be easily adapted to, for example, the housing market or Internet advertising auctions.     

Price effects of independent transmission system operators in the United States electricity market

In 1996, the Federal Energy Regulatory Commission (FERC) sought to “remove impediments to competition in the wholesale bulk power marketplace and to bring more efficient, lower cost power to the Nation’s electricity consumers” through a series of market rules. A product of these rules was the establishment of regional transmission organizations (RTOs) and independent system operators (ISOs) charged with facilitating equal access to the transmission grid for electricity suppliers. Whether these changes in market structure have succeeded in achieving FERC’s goal to provide “lower cost power to the Nation’s electricity consumers” remains an open question. This paper utilizes a panel data set of the 48 contiguous United States and a treatment effects model in first differences to determine whether there have been changes in delivered electric prices as a result of the establishment of ISOs and RTOs. To avoid the confounding effects of electric restructuring, the model is estimated with the full panel data set, and then again without the states that have restructured their electric markets. This estimation shows that electricity prices fall approximately 4.8 % in the first 2 years of an ISO’s operation and that this result is statistically significant. However, this result is dependent on the presence of states that restructured their electricity markets. When these restructured states are removed from the data set the price effects of RTOs become indistinguishable from zero. The paper concludes that rate agreements are the principal source of the observed decrease in prices and that RTOs have not had the desired effect on electricity prices.     

Investigation of the effect of secondary market on the diffusion of innovation

In the high-tech product market, the number of hungry adopters, a new type of early adopters who buy new products and sell them soon in the on- or off-line secondary market to seek for the other new products, has been increasing due to the short product life cycle of high-tech products and the low transaction cost on the Internet. This new phenomenon means that it is inappropriate to consider customers only in the primary market as total adopters in innovation diffusion modeling, since purchasers in the secondary market also have a word-of-mouth effect on the remaining non-adopters. To explain this new phenomenon, we modify the basic Bass diffusion model by incorporating the effect of the secondary market and conduct an empirical analysis. As a result, we conclude that the basic Bass model is likely to overestimate sales volume and tends to forecast lagged peak time when there is an effect from the secondary market. This means that applying a diffusion model to high-tech products without considering the secondary market effect would provide an inaccurate market forecast.     

A note on the pricing of IPOs

This paper studies the pricing of IPOs in a tractable model in which an investment bank faces some investors with superior information. We show how this can lead to underpricing and we make a number of empirical predictions.     

Price and information disclosure in the private art market: A signalling game

In this paper, we model private art market agents’ strategic interactions in presence of two types of asymmetric information, about artwork quality and buyer’s knowledge, assuming the seller does not know how informed is the buyer while the buyer does not know the quality of the artwork before purchase. If the seller can choose either a high or a low price and the buyer can signal his type to the seller, we identify the conditions for both equilibria with pooling buyer signalling strategy and with separating strategy, as well as conditions for equilibria where the seller fixes the price according to the actual quality and where he posts prices trying to take advantage of buyer’s limited information. Finally, we identify the condition for the emergence of a “counter-lemon” result, where low-quality artworks and uninformed collectors exit the market, suggesting that seller uncertainty does not directly benefit the buyers, but it can impact the quality traded in the market.     

Price differentials in a homogenous product market: The case of water

This paper examines the existing price differentials for raw water along the Rio Grande. An extremely active spot market for this good, more than 926 transactions have been made over a five-year time period. Statistical analysis shows a significant difference between the price paid for water by irrigators or municipalities and industry. Even if price differentials did exist at the beginning, convergence would be expected over time for this homogenous good. However, statistical analysis shows no sign of convergence. Investigations have suggested that differentials may continue to exist due not to the lack of information, but to misinformation.     

Price effects of the euro cash changeover: the role of product market competition

The euro cash changeover that took place in 2002 in 12 countries of the European Economic and Monetary Union was associated with abnormal price increases in most member countries. This paper investigates the influence of product market competition on the size of the changeover-related prices hikes, showing that the price hikes were less prevalent in countries with a higher level of competition. For the countries that are to join the euro area in coming years, this means that fostering competition can help contain changeover-related price increases. This aspect is of particular importance for the most recent and next wave of euro adopters, because of their rather heavy product market regulation as measured by the OECD, which are likely to restrain competition. The results indicate that comprehensive reform efforts can be more beneficial in containing changeover-related price hikes than a selective easing of product market regulation in a subset of areas.