A model of repeat advertising

Advertising conveys information not only about product characteristics but also about the number of consumers who know about the product. More advertising may shift expectations towards a larger consumer base, increasing buyers' valuation when there are consumption externalities.     

Industrial leadership in science-based industries: A co-evolution model

In this paper, we seek to analyse the role of national university systems in combination with technological and market factors as sources of industrial leadership and industry growth in science-based industries. We propose a model in which national university systems and their respective national firms and industries are considered as co-evolving. National firms compete on a worldwide level and they rely on the progress of science and the availability of scientists to innovate. As the global industry develops, firms try to mold their national university systems, but they achieve different degrees of success. Apart from highlighting the role of institutional responsiveness as a source of competitive advantage, our model points to the access to essential inputs for production, the technological and strategic characteristics of firms, the international diffusion of knowledge, and the initial distribution of market demand as key sources of leadership and industry growth. The international mobility of scientists seems to foster the emergence of industrial leadership shifts.     

A dynamic model of advertising by the regulated firm

A profit-maximizing firm subject to price regulation typically seeks alternative variables to control if the regulatory constraint is binding. Advertising may be one such variable. By shifting the demand curve inward or outward between rate hearings, the firm may increase its earnings above the allowed level. Here, a simple discrete-time optimal-control model is proposed to examine the dynamic implications of advertising by the regulated firm. Our results indicate that, in the long run, the combined effect of regulation and advertising leads to a steady-state equilibrium that is closer to the minimum point on the firm's long-run average-cost curve than the original output level. Thus, an invisible-hand property is established that pushes the regulated firm to shift its demand curve toward the minimum point on its long-run average-cost curve in the presence of regulation. As a result, the well-known allocative inefficiency created by rate-of-return regulation (PMC), on which so much has been written over the past 100 years, is reduced (and, under certain conditions, eliminated) if the regulated firm is allowed to advertise.     

A Keynesian model of search and labor market disequilibrium

The paper develops Keynesian employment dynamics in a search model with stochastic vacancy-availability playing the major role. A UV curve is derived from the search dynamics, and in effect represents a demand for searchers to maintain employment levels. The supply of searchers is determined from the real wage, the duration of the search necessary to locate a vacancy, and layoff probabilities. Persistent disequilibrium in the labor market is examined, and it is shown how a lowering of the real wage can increase employment and lower unemployment.     

A model of advertising with application to the German automobile industry

This paper develops a dynamic duopolistic model of advertising and price competition. Advertising accumulates a stock of goodwill which enters directly into the demand functions and both the cooperative and predatory effects of advertising are considered. It is shown that firms invest more in advertising the higher the degree of cooperativeness of advertising and some comparative static results are provided. In the second, empirical part of the article, estimations of the demand equations are presented using data from the German automobile industry. The main conclusion drawn is that advertising plays an important role in this market and has a predatory nature.     

A model of advertising format competition: on the use of celebrities in ads

We develop a model that endogenizes both advertising format – ads with or without celebrity endorsements – and the endorsement fee. Marketing studies suggest that celebrities enhance brand recall and perception of product value. In our model, ads featuring celebrities occur when the product market is large – endorsements are likely for products sold nationally – and when products are sufficiently similar that the persuasive character of advertising looms large in demand – running shoes, beauty products, soft drinks, for example. Celebrity endorsement fees are increasing in market size and in the degree of similarity of the products being advertised.     

A note on the competitive search model of Azariadis and Pissarides

In this short note, I reinvestigate a recent paper of Azariadis and Pissarides (Unemployment dynamics with international capital mobility, European Economic Review, 2007(51), 27–48) where wages are determined in a competitive search setting. I show that their equation on the equilibrium wage rate is incorrect. I derive a correct wage equation and perform the numerical analysis. The correction does not change their result and high capital mobility still raises the variability of the unemployment rate.     

A simple search model of money with heterogeneous agents and partial acceptability

Summary. Simple search models have equilibria where some agents accept money and others do not. We argue such equilibria should not be taken seriously. This is unfortunate if one wants a model with partial acceptability. We introduce heterogeneous agents and show partial acceptability arises naturally and robustly. There can be multiple equilibria with different degrees of acceptability. Given the type of heterogeneity we allow, the model is simple: equilibria reduce to fixed points in [0,1]. We show that with other forms of heterogeneity equilibria are fixed points in set space, and there is no method to reduce this to a problem in R¹.Received: 4 September 2002, Revised: 23 September 2002JEL Classification Numbers: C78, E40.A. Shevchenko, R. Wright: We thank seminar participants at the Federal Reserve Bank of Cleveland, Indiana University, Purdue University, University of Toronto, the 2002 Midwest Macroeconomics Conference at Vanderbilt University, and the 2001 Conference on Economic Dynamics at the University of Essex. The National Science Foundation and the Federal Reserve Bank of Cleveland provided financial support. Braz Ministerio de Camargo and Gabriel Camera provided some helpful suggestions. Correspondence to: R. Wright     

Option to wait in a search model

We consider a standard search model with buyers and sellers. Upon meeting the buyers make a take-it-or-leave-it offer, but the sellers have an option not to trade immediately but wait for more agents to appear. If more buyers come, there is excess demand, and the buyers engage in auction to get the good. Analogously, if more sellers come, the sellers engage in a Bertrand-type pricing game to sell the object. The option to wait restricts the price offer of the buyer; in an equilibrium in which trades are consummated without delay there is a unique price offer for the buyer.JEL Classification: C78, D44, D831     

Income distribution and exchange in a dynamic search model

This paper studies the link between income distribution and trade mechanisms in a dynamic search model with two-sided asymmetric information. Buyers and sellers have imperfect information about the income levels of the other group. Furthermore, asymmetry of information about incomes is the source of price dispersion. In such a frictional environment, we capture the effects of a change in inter- and intra-class income distribution on the trade mechanism, which is represented by the expected trade volume and the flux of buyers and sellers in the market.     

Payment networks in a search model of money

In a simple search model of money, we study a special kind of memory which gives rise to an arrangement resembling a payment network. Specifically, we assume that agents can pay a cost to have access to a central data base that keeps track of payments made and received. Incentives must be provided to agents to access the central data base and to produce when they have access to this arrangement. We study policies that can relax these incentive constraints. In particular, we show that a ‘no-surcharge’ rule has good incentive properties. Finally, we compare our model with the model of Cavalcanti and Wallace.     

Price discrimination of buyers with identical preferences and collusion in a model of advertising

A model of advertising and price distributions is investigated whereby each seller can contact different buyers, whose preferences are identical, with different probabilities. The model features a continuum of equilibria parametrized by the ratio of the buyers contacted by one seller—differing across “market segments”—and by the other sellers. In general, the sellers practice price discrimination across segments. More asymmetric equilibria correspond to higher volumes of transactions and higher expected transaction prices. This results in a lower expected utility for the buyers and higher expected profits; thus, identifying areas of influence can help the sellers to support collusion.     

A note on the life-cycle search and matching model with segmented labor markets

Recently, there has been renewed interest in labor search and matching models that incorporate a life-cycle structure by assuming finite horizons. Existing studies provide detailed analyses on the age dynamics of job creation and destruction, assuming that workers of all ages search for jobs in the same market. This paper examines a related environment that has drawn less attention, where the labor market is exogenously segmented by age. The paper finds sufficient conditions for the model to yield unambiguous predictions on the age profiles of key variables, and compares them with the corresponding conditions in models with a single market. The paper further examines the age profiles of these key variables in the efficient allocation. In particular, with no persistence in idiosyncratic match productivity, the efficient allocation is found to exhibit monotonic age profiles for the job finding and separation rates.     

Efficiency in a search and matching model with endogenous participation

We show that in a search/matching model with endogenous participation in which workers are heterogeneous with respect to market productivity, satisfying the Hosios rule leads to excessive vacancy creation.     

Wage and price controls in the equilibrium sequential search model

In this paper, we study the effects of wage and price controls on employment, output, and welfare in a simplified version of the Bénabou (J. Econom. Theory 60 (1993) 140) equilibrium sequential search model with bilateral heterogeneity. We show that a price ceiling increases output but the change in welfare depends on three effects: the reduction in aggregate search costs, the increase in surplus due to increased output, and the transfer of production to the least efficient firm. The model is formally identical to a standard equilibrium search model of the labor market so analogous results hold for the minimum wage.     

Fixed-term employment contracts in an equilibrium search model

We develop a theoretical model of firm dynamics and unemployment and characterize equilibria with tenure dependent separation taxes. The model is a version of the Lucas and Prescott island model with undirected search. Two equivalent decentralizations are considered: one with spot labor markets and one with long-term employment relations. We model “temporary contracts” as the special case of a separation tax that only applies to workers with tenure higher than J. While in principle these contracts require a J-dimensional state space, equilibrium allocations solve a simple dynamic programming problem characterized by two-dimensional inaction set(s).     

Efficiency in a search and matching model with training costs

This paper studies the efficiency of the search and matching model with training costs. I incorporate productivity enhancing firm-specific skill training into the search and matching model of Pissarides (2000). I demonstrate that while the decentralized economy can be efficient if training costs are not sunk at the time of wage determination, the decentralized economy is not efficient due to a hold-up problem if training costs are sunk.     

Self-fulfilling expectations,history, and big push: A search equilibrium model of unemployment

We set up a search equilibrium model with general matching technologies to study the phenomenon of large-scale and persistent unemployment. Our emphasis is on dynamics. We find, in addition to self-fulfilling expectations, history or initial level of employment plays a nonnegligible role for selecting the equilibrium converging to the steady state with large unemployment. We also discuss some policy implications. We propose a method similar to the idea of big push in economic development for the economy trapped in the state of large unemployment to escape from it.     

Relative price and inflation variability in a simple consumer search model

There is a large empirical literature on the effect of aggregate inflation on both price-level dispersion (relative price variability, RPV) and inflation rate dispersion (relative inflation variability, RIV) across goods or locations. Early empirical work of RIV has an explicit theoretical foundation in signal-extraction models. However, recent empirical work on RPV has produced results inconsistent with signal-extraction models. In particular, while RIV is increasing in the absolute value of inflation shocks, RPV is a negative monotonic function of inflation shocks. We show that consumer search theory offers a potential explanation for these apparently contradictory observations.     

The information content of wage and duration data in a search model

Estimates of the parameters of the wage offer density and the offer arrival process of a simple search model are presented in this paper. The optimality constraint from the search model is treated as a restriction and its effect on parameter estimates is analysed. Estimates from wage data alone and estimates from duration data alone can be interpreted as unrestricted estimates while estimates obtained from wage and duration data together can be interpreted as restricted estimates. This interpretation allows a test of the optimality constraint which is rejected by the data used. Estimates reveal a substantial difference in the information contained in wages and the information contained in durations, but benefit elasticities are consistent with findings from previous studies.