Incentive properties of coincident peak pricing

Coincident peak pricing is used in several electricity markets to recover the embedded cost of infrastructure, such as transmission. In this approach, measured consumption at the time of the peak is used to set charges for that pricing period or a subsequent period. If transmission costs are truly sunk, then such a recovery is unlikely to be efficient. However, in the context of growing peak demand, new additions must be built. We consider the incentive properties of coincident peak pricing when related investments are not considered to be sunk, finding that it can reproduce the incentive properties of an ideal time-varying price. We also consider several variations on this assumption.     

A model of intra-brand competition and related pricing policies for manufacturers

Casual observation suggests that retail price distributions develop for products sold by retail outlets that are not restricted in their pricing by the manufacturer. Manufacturers, however, often restrict retailers so as to promote a uniform retail price — manufacturer's suggested retail prices and minimum resale prices are examples of such policies. This paper examines retail competition under assumptions that imply, in the absence of manufacturer-imposed restrictions, the development of an equilibrium retail price distribution. It is then shown that, depending on the distribution of consumer search costs and on the dispersion of marginal retailing costs, the manufacturer may find certain vertical pricing restrictions (either uniform, minimum, or maximum prices) to be more profitable than simply choosing an optimal wholesale price schedule and allowing retailers to price as they wish.     

Peak load pricing under periodic and stochastic supply

The paper extends to the supply side previous work on peak load pricing embodying periodic and stochastic variations in demand. In a first step it introduces into the problem of periodic demand the additional problem of periodic capacity availability. Then it considers the general case where stochastic fluctuations enter both the demand and capacity availability sides. Welfare-maximising results suggest that off-peak consumers should be charged with capacity costs according to the loss-of-load probability in any period. This probability depends on periodic and random fluctuations in capacity availability. The optimal level of capacity is also affected by such fluctuations.     

A note on monopolistic quantity rationing

It is shown that under incomplete information it may be optimal for a monopolist to ration a single price taker in addition to setting prices, which is in contrast to the case of complete information. As a byproduct it is shown that the star-shaped hull of the offer curve of a price taker exactly consists of the points that can be supported as Drèze-optima.     

Seasonal models of peak electric load demand

Energy consumption in a pilgrim city belonging to a Gulf Cooperation Council (GCC) country exhibits strong seasonal pattern due to higher demand in summer season and additional load during the pilgrimage months. The pilgrimage month's timing is not fixed in the Gregorian calendar. The event varies according to the lunar calendar called the Hegira calendar, which lags behind the former by approximately 14 days in a year. Ten seasonal demand models are developed to model energy estimate for a GCC pilgrimage city. Among the long-range forecast models, three trigonometric models, a multiplicative model, and a multivariate model using categorical variables are considered. Further, a composite nonlinear model whose coefficients are nonlinear is suggested. This model combines the seasonality extracted from a multivariate regression model and a model that represents the peak electric load pattern. Adopting least square fit of a chi-square error function expanded by parabolic expansion, the parameters of the nonlinear model are identified. Moreover, smoothing-based techniques, such as moving average, double exponential smoothing, Winter's, and a multiplicative seasonal model, are suggested. The peak electric load model on lunar and solar calendars is closely related, and the deference in fitting error can be attributed to the magnitude of data. Computational results and statistical tests are presented to analyze the models. It is observed that the multiplicative model performs better to predict the peak electric load demand.     

The evidence of strategic pricing policies of Turkish textile exports

This paper examines the strategic pricing behaviour (Pricing to Market; PTM) policies of textile exports in the 1990s for a hyperinflation country, Turkey, whose currency has been depreciating continually for the last two decades. The findings show that Turkish textile export categories exhibit evidence of strategic pricing behaviour when the Turkish textiles export data is analysed for different frequencies. The results show that evidence of strategic pricing behaviour is observed in response to changes in real exchange rates for textile exports for closer lagging periods and strategic pricing behaviour diminishes with further lagging periods. Also, evidence of strategic pricing behaviour is observed in a more recurrent fashion with higher frequency data, three-month periods, than with relatively lower frequency data, six-month and 12-month periods. Another interesting finding is that Turkish textile exporters prefer to increase their prices as a reaction if they had adjusted their prices in an overshooting fashion in response to real exchange changes in the previous period. The most important finding of the paper is that while Turkish textile exporters prefer to adjust their export pricing without fully absorbing the real exchange depreciation and by increasing their relative markups for some textile categories, they prefer to adjust their export prices by lowering their markups in addition to fully absorbing the real exchange depreciation for some other textile categories in order to increase their market share overseas.     

A revealed preference test of rationing

This paper derives a revealed preference test for utility maximization under rationing and can detect, for which goods rationing is binding without specifying a functional form or imposing rationing constraints prior to estimation. For UK data from 1920–55, we find evidence of utility maximization under rationing with rationing binding for food and other services. Estimated virtual prices exceed observed food prices by 16.5% in 1947 and observed prices of other services by 10.9% in 1952.     

Exotic betting opportunities,pricing policies and the demand for parimutuel horse race wagering

Parimutuel horse race wagering has been declining steadily for the past several decades. This has resulted in lower revenues to state governments, recetracks adn horseman. To retard or reverse this trend, attempts have been made to implement a number of pricing and marketing strategies. Among these has been the introduction of a variety of exotic wagering opportunities. Over the years the number and type of exotic wagers offered has been increased. Furthermore, the prices of both straight and exotic wagers have been increased and, in addition, the price of exotic wagers has generally been set at a higher rate than that for straight wagers. The paper examines the effectiveness of these policies.     

Advertising and pricing policies in the equine breeding industry or sex and the single stallion

A unique aspect of the equine breeding industry is the way in which the current year's demand for stud services depends on the previous year's production levels. In a monopolistically competitive market, product differentiation and product promotion and advertisement are important aspects of industry conduct. A stallion's reputation and therefore demand for his services depend on the stallion owner's ability to differentiate the product.

The price a stallion owner charges depends on the quality of the stud himself, and also on the quality of his offspring. The producer's output (foals) become advertisements for the stallion when they are raced, shown, etc. They also can become substitutes for the stallion, since they are an alternative source of the stallion's genes. Stallion owners are in the special position that they need to prove their stallion's ability to sire quality offspring, while bearing in mind they are producing possible substitutes. Outstanding offspring will generate demand for the parent's services if they are successfully shown, raced, etc. Conversely, progeny who compete unsuccessfully will decrease demand by contributing to a poor reputation for themselves, their breeder and their sire. But, outstanding individuals eventually become breeding stock and therefore offer an alternative source for the ‘winning genes’.

This intergenerational dependence has led to pricing policies and practices in the equine breeding industry which have important implications. Common practices include: incentives to compete, rebates for gelding male offspring, price discrimination in favour or quality mares and limited bookings. These policies illustrate aspects of industry conduct commonly discussed in industrial organization literature such as first-degree price discrimination, non-linear pricing and non-price competition. The use of artificial insemination and other new breeding technologies and thus the potential for a stallion to breed larger numbers of mares, further compounds the extent and results of such practices.

This paper investigates pricing policies in the equine breeding industry, using a case study approach. A model of indsutry pricing policies is developed and tested using data for American Quarter Horses.     

A note on decentralizability in consumer demand models with quantity rationing

It is shown that in a context of quantity rationing, it is not always possible to decentralize the consumer's intertemporal behavior in a sequence of atemporal, static optimization programs. Whether or not decentralizability holds crucially depends on the perceived rationing scheme.     

A macroeconomic rationing model of the belgian economy

This paper presents a small macroeconometric model that allows explicitly for the existence of rationing on the goods and labour markets and clearly distinguishes the three well-known regimes: Keynesian unemployment, classical unemployment and repressed inflation. The basic structure of the model contains two equations that can be estimated by single equation techniques. Estimation on Belgian postwar data establishes both the feasibility and the usefulness of the quantity rationing approach. Empirical results also reveal after 1972 an increasing discrepancy between the amount of labour supplied and the potential employment level determined by existing production capacities.     

Dynamic demand,consumers' expectations and monopolistic resource extraction: An application to OPEC pricing policies

This paper introduces intertemporal decision making of the consumers, including different price expectations (myopic, rational), into the framework of monopolistic resource depletion. This adds another dynamic feature which has been neglected by and large by the literature. In particular a differential game of the von Stackelberg type between consumers and an oil extracting monopoly is considered. Analytical solutions are obtained when demand is linear. This framework is then empirically applied to derive and reconcile rational OPEC strategies and past behaviour.This paper has been presented at the Third Annual Conference of the European Economic Association in Bologna. I like to thank an anonymous referee and Dr. Ohogu for valuable comments.     

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.     

A Note on Tradeable Permits

This note offers a perspective on whether tradeable permits are a passing fad or an enduring trend. It does so in noting how various types of tradeable permit systems relate to conventional environmental permits, what are the unique requirements of tradeable permit systems, and why they might be preferred to alternative instruments. A final observation concerns the analogy between tradeable permits for environmental goods and private property in land. This note first appeared in the CESifo Forum, 4: 3 (Spring 2003), a quarterly publication of the Ifo Institute for Economic Research, Munich, Germany, as an invited article. Permission to republish is gratefully acknowledged. In forming the ideas expressed here, I am indebted to many years of discussion and collaborative research with Paul Joskow, Juan-Pablo Montero, David Harrison, and Richard Schmalensee. All errors of fact and interpretation remain mine.     

A Note on Inflation Targeting

The authors present a pedagogical graphical exposition to illustrate the stabilizing effect of price target zones. Based on a textbook AD-AS apparatus, they find that authorities' commitment to defend a price target zone will affect the public's inflation expectations and, in turn, reduce actual inflation. They also find that, when the economy experiences supply shocks, the announcement that the monetary authorities intend to defend a price target zone will reduce the variability of domestic prices but raise the variability of domestic output relative to a free-price regime. However, when the economy experiences demand shocks, a price target zone tends to lower the variability of both domestic prices and out-put relative to a free-price regime.     

A Note on Progressive Taxation and Cooperation

This paper shows that marginally progressive taxation may help independent agents to sustain cooperation in a repeated prisoners' dilemma setting. It is suggested that political support for progressive taxation schemes may be affected by the desire to promote more cooperation among individuals.     

A Note on Compensation Schemes

In general, an economic reform wins unanimous support only if it incorporates a scheme of compensation.
It is widely believed that
(a) all lump-sum compensations: (i) have impractical information requirements about the technology of firms and the preferences of households, or (ii) are not manipulation-proof.
(b) Non-lumpsum compensations constitute feasible alternatives.
Further to the dissenting views of Kemp and Wan, this note makes two points: The first is that in a realistic model with overlapping generations, there is a lump-sum compensation scheme which is manipulation-proof . The second is that the presence of multiple equilibria may create havoc for a non-lumpsum compensation scheme. In real life, we have no information to rule out multiplicity.