Price discrimination via information provision

We study price discrimination where different prices are offered as a bundle with different levels of information about a product. The seller’s price discrimination induces high valuation buyers to purchase a good without information and low valuation buyers to purchase with information. Our analysis highlights several interesting results about price discrimination: (i) the seller’s choice of information provision is the combination of full information and no information, (ii) products can be cheaper without information provision than with information provision, (iii) as a result of price discrimination, prices can be more dispersed as buyers’ valuations become largely similar, and (iv) the high valuation buyers purchase a damaged good and may earn negative surplus. Furthermore, we investigate under which circumstances price discrimination is more profitable than uniform pricing. We show that a decline in transportation costs which facilitate price discrimination can be welfare reducing.     

A theory of search with deadlines and uncertain recall

We ask how the ability to recall past prices affects the dynamics of search and price formation. In the model, buyers have limited time to purchase a good and face uncertainty regarding the availability of past price quotes in the future. Sellers cannot observe a potential buyer’s remaining time until deadline nor her quote history, and hence post prices that weigh the probability of sale versus the profit once sold. We find that, in contrast to conventional wisdom, reducing the consumer’s recall ability may actually improve his expected utility because it lowers the average expected price in the market and reduces the duration of search.     

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.     

INCENTIVE EFFICIENT PRICE SYSTEMS IN LARGE INSURANCE ECONOMIES WITH ADVERSE SELECTION

We decentralize incentive efficient allocations in large adverse selection economies by introducing a competitive market for mechanisms, that is, for menus of contracts. Facing a budget constraint, informed individuals purchase (lottery) tickets to enter mechanisms, whereas firms sell tickets and supply slots at mechanisms at given prices. Beyond optimization, market clearing, and rational expectations, an equilibrium requires that firms cannot favorably change, or cut, prices. An equilibrium exists and is incentive efficient. An equilibrium can be computed as the solution to a programming problem that selects the incentive efficient outcome preferred by the highest type within an appropriately defined set. For two‐types economies, this is the only equilibrium outcome.     

PRODUCT FUNCTIONALITY,COMPETITION, AND MULTIPURCHASING

The more functionalities a good offers, the greater is its perceived quality. Equilibrium prices in standard spatial competition models depend solely on quality differences. We assume that new functionalities are more appreciated the closer a product is to a consumer's ideal variety. Prices are then increasing in functionality levels. Furthermore, we endogenize whether consumers buy only one of two varieties (single‐purchase) or both (multipurchase). Under multipurchase, there might be a hump‐shaped relationship between equilibrium prices and functionality levels. Therefore, it could be optimal for each supplier to sacrifice sales and set prices so high that multipurchase is eliminated.     

RETAIL PRICE REGULATION AND THE OPTION TO DELAY

ABSTRACT ** :  This paper examines a two-period model of an investment decision in a network industry characterized by demand uncertainty, economies of scale and sunk costs. In the absence of regulation we identify the market conditions under which a monopolist decides to invest early as well as the underlying overall welfare output. In a regulated environment, we consider a monopolist who faces no downstream (final good) competition but is subject to retail price regulation. We identify the welfare-maximizing regulated prices when the unregulated market outcome is set as the benchmark. We show that if the regulator can commit to ex post regulation – that is, regulated prices that are contingent to future demand realization – then regulated prices that allow the firm to recover its total costs of production are welfare-maximizing. Thus, under ex post price regulation there is no need to compensate the regulated firm for the option to delay that it foregoes when investing today. We argue, however, that regulators cannot make this type of commitment and, therefore, price regulation is often ex ante – that is, regulated prices are not contingent to future demand. We show that the optimal ex ante regulation, and the extent to which regulated prices need to incorporate an option to delay, depend on the nature of demand uncertainty.     

PRICE,PRODUCT QUALITY,AND EXPORTER DYNAMICS: EVIDENCE FROM CHINA

This article develops a model of heterogeneous firms that endogenously choose prices and product quality to build demand in export markets. New exporters optimally charge relatively low prices and produce low‐quality goods upon entry. Product quality, prices, and sales increase as demand grows. We structurally estimate model parameters using Chinese customs data. The estimated incentive to build future demand reduces average export prices by 0.7% and increases export sales by 4% upon entry. Endogenous demand accumulation causes estimated export prices, product quality, and sales to grow by 2.2%, 12%, and 79%, respectively, over the following five years.     

Advance-purchase discounts as a price discrimination device

In an intertemporal setting in which individual uncertainty is resolved over time, advance-purchase discounts can serve to price discriminate between consumers with different expected valuations for the product. Consumers with a high expected valuation purchase the product before learning their actual valuation at the offered advance-purchase discount; consumers with a low expected valuation will wait and purchase the good at the regular price only in the event where their realized valuation is high. We characterize the profit-maximizing pricing strategy of the monopolist. Furthermore, adopting a mechanism design perspective, we provide a necessary and sufficient condition under which advance-purchase discounts implement the monopolist's optimal mechanism.     

网购市场鱼龙混杂现象的经济学解释：基于二维不对称信息的视角

网络购物市场存在商品鱼龙混杂的典型现象：高价格的商品不一定高质量，低价格的商品也不一定低质量，表现出明显的信息不对称特征。文章基于网络购物市场所存在的两个维度不对称信息的特征事实，即厂商在产品质量与产品生产成本两个方面拥有私有信息，通过构建二维不对称信息的分析框架，从市场均衡的视角首次解释了上述现象的经济机理。分析表明，由于二维不对称信息的存在，消费者和厂商决策的互动过程使得市场上产品价格与质量不再具有单调递增关系，从而网络购物市场可能出现鱼龙混杂的市场均衡，文章证明了这一均衡在合理的条件下是存在的。文章通过比较静态分析考察了市场环境的变化如何影响商品质量的价格信号显示效率以及消费者购买行为，并考察了网络购物行业商家披露信息、消费者对于商家的反馈评分机制和保证退货等手段对于消除商品鱼龙混杂现象的有效性，为进一步规范发展我国网络购物行业提供了参考。     

THE EXISTENCE OF EQUILIBRIUM IN A DIFFERENTIATED DUOPOLY WITH NETWORK EXTERNALITIES*

The existence of a pure‐strategy subgame‐perfect equilibrium in qualities and prices is investigated in a duopoly model of vertical differentiation where quality improvements require a quadratic variable cost and network externalities operate. We show that there exists a parameter region where the incentive to predate at the quality stage prevents firms from reaching a pure‐strategy non‐cooperative equilibrium with prices above marginal costs. If network externalities are sufficiently large, a Bertrand equilibrium with zero profits may arise, although the amount of product differentiation is strictly positive.     

Pricing dynamics and product quality: the case of antidepressant drugs

The rising prices of pharmaceuticals have generated considerable, and often acrimonious, debate. Yet, there is little conceptual work or empirical evidence on pharmaceutical pricing strategies or on the time paths of these prices. This study provides a conceptual framework describing the interplay between quality and product differentiation in determining the preferred pricing strategy. We hypothesize that higher quality products will engage in price skimming strategies in markets where products are sufficiently differentiated, but will choose a market penetration strategy in markets that are less differentiated. We apply an empirical analysis to brand name antidepressants during the years 1999–2002, a market where differences in quality are modest. A nationally representative data set on drug utilization and expenditures is combined with a physician survey on the quality attributes of drugs to examine the effect of drug quality on pharmaceutical pricing strategies. Results indicate that higher quality antidepressants engage in a market penetration strategy, charging initially lower prices that rise over time. At approximately 6–7 years post-entry, prices of the antidepressant drugs examined converge. Prices of higher quality antidepressants continue to increase thereafter, eventually becoming the highest priced drugs in the therapeutic class. These findings are consistent with a market in which product differentiation is modest and consumers learn which drug works best for them through experience.     

A DYNAMIC ANALYSIS OF COOPERATIVE RESEARCH IN THE SEMICONDUCTOR INDUSTRY*

In this article I construct a dynamic oligopoly model of research joint ventures (RJVs) where firms, investing to improve product quality, fully share the rewards of research success. RJVs benefit firms by eliminating duplicative research efforts, but firms also give up the possibility of becoming a solo innovator. Consumers benefit from lower prices, but may have to wait longer for new products to arrive. I show that RJVs are welfare enhancing by quantitatively evaluating these trade‐offs with data from the semiconductor industry. I also analyze how changes in product market competition affect research cooperation.     

我国上市公司股权激励对公司股价影响的实证研究

本文采集了29家上市公司在首次披露实施股权激励方案的前后各30个交易日股票收盘价,并运用Excel和Eviews5.0进行统计分析。研究发现,上市公司在披露实施股权激励方案后存在股价的超常波动,市场上存在超额收益。     

Ignorance Is Bliss as Trade Policy

Consider domestic consumers that purchase from foreign firms. A presumption would be that consumers prefer being informed when quality is uncertain and exogenous. However, in a multifirm framework based on previous models, consumers can be worse off if they are informed of the quality. Further, in the Salop-circle model, consumers may prefer not learning even though expected high-quality output is greater with learning. Moreover, the possibility that consumers prefer uncertainty increases with the probability that products are of low quality. Essentially, the benefit of screening quality (better matching) can be less than its cost (higher prices from market segmentation).     

THE MORPHOLOGY OF PRICE DISPERSION

This article is a study of the shape and structure of the distribution of prices at which an identical good is sold in a given market and time period. We find that the typical price distribution is symmetric and leptokurtic, with a standard deviation between 19% and 36%. Only 10% of the variance of prices is due to variation in the expensiveness of the stores at which a good is sold, whereas the remaining 90% is due, in approximately equal parts, to differences in the average price of a good across equally expensive stores and to differences in the price of a good across transactions at the same store. We show that the distribution of prices that households pay for the same bundle of goods is approximately Normal, with a standard deviation between 9% and 14%. Half of this dispersion is due to differences in the expensiveness of the stores where households shop, whereas the other half is mostly due to differences in households' choices of which goods to purchase at which stores. We find that households with fewer employed members pay lower prices and do so by visiting a larger number of stores instead of by shopping more frequently.     

LOBBYING CONTESTS WITH ENDOGENOUS POLICY PROPOSALS

Lobbyists choose what to lobby for. If they can precommit to certain policy proposals, their choice will have an influence on the behavior of opposing lobbyists. Hence lobbyists have an incentive to moderate their policy proposals in order to reduce the intensity of the lobbying contest. This logic has been explored in a number of recent papers. I reconsider the topic with a perfectly discriminating contest. With endogenous policy proposals, there is a subgame-perfect equilibrium where the proposals of the lobbyists coincide and maximize joint welfare; moreover, this equilibrium is the only one that survives repeated elimination of dominated strategies. Hence there is no rent dissipation at all. A politician trying to maximize lobbying expenditures would prefer an imperfectly discriminating contest.     

Do market prices aggregate information about macroeconomic uncertainty (or risk)?

This article examines several economic variables that represent either confidence in future economic conditions or the degree of risk/uncertainty about future conditions in order to determine which contain more information about future employment and output. Some of these variables are prices, while others are from surveys. Causality tests, historical decompositions within a VAR and out-of-sample forecasts are among the tools used. This article concludes that monthly stock returns contain much more information about future economic conditions than the other variables. The spread between Moody’s BAA and AAA bonds, the spread between the constant maturity 10-year government bond and the federal funds rate, as well as uncertainty in future economic conditions as measured by the Federal Reserve Bank of Philadelphia’s Business Outlook Survey also provide information about future economic conditions. Notably, this article finds that monthly stock returns contain more information about future economic conditions than does the vix and that variables based on market prices provide more information than survey data. This result provides some support for the notion that market prices aggregate information.     

Confusopoly: competition and obfuscation in markets

This paper examines the effects of competition in experimental posted-offer markets where sellers can confuse buyers. I report two studies. In one, the sellers offering heterogeneous goods can obfuscate buyers by means of spurious product differentiation. In the other study, sellers offer identical goods and make their prices unnecessarily complex by having multi-part tariffs. I vary the level of competition by having treatments with two and three- sellers in both studies, and having an additional treatment with five-sellers in one study. The results show that average complexity created by a seller is not different for the treatments with two, three and five sellers. In addition, market prices are highest and buyer surplus is lowest when there are two sellers in a market.     

Biofuels and Climate Change Mitigation: A CGE Analysis Incorporating Land-Use Change

We examine the impact of a “green network effect” in a market characterized by consumers’ environmental awareness and competition between firms in terms of both environmental quality and product prices. The unique aspect of this model comes from the assumption that an increase in the number of consumers of green (brown) product increases the satisfaction of each green (brown) consumer. We show that, paradoxically, when the network effect of a green product is higher than that of a brown product, this externality reduces product environmental quality and raises consumption of the green product. Conversely, when the network effect of the brown product is higher, the externality improves product environmental quality and raises consumption of the brown product. In both cases, the network effect does not affect the overall pollution level. The externality correction requires the use of three optimal fiscal policies: an ad valorem tax on products, an emission tax, and a subsidy or a tax on the green purchase. A second-best optimum can also be reached through the green taxation.