Chain-Store Pricing Across Local Markets

Chain‐stores now dominate most areas of retailing. While retailers may operate nationally or even internationally, the markets they compete in are largely local. How should they best operate pricing policy in respect of the different markets served—price uniformly across the local markets or on a local basis according to market conditions? We model this by allowing local market differences, with retail markets differing by their size and the number of players present. We show that practising price discrimination is not always best for a chain‐store. Competitive conditions exist under which uniform pricing can raise profits.     

Apple's disaster: Linking two‐sided markets and strategic delegation

Asymmetric pricing structure and different intergroup network externalities are characteristics of two‐sided markets not captured in the analysis of one‐sided markets. Focusing on Cournot duopoly where membership decision may be delegated to a manager, several equilibrium regimes are sustained depending on the fixed cost of managerial hiring and strength of the network externality exerted by the side whose demand is more price sensitive. The change from null to full delegation sharpens the asymmetric pricing structure and reduces the price level in two‐sided markets. Contrary to one‐sided markets with direct network effects, the prisoner's dilemma holds for sufficiently strong indirect network externalities. Imperfect interside discrimination of managerial incentives ensures profit maximization and efficient consumers' allocation. Private hiring should occur when the two‐sided market exhibits symmetric pricing structure. An explanation for Apple's unprecedented event is provided. The reduction of revenue and managerial bonus in 2016 may be justified by the dissemination of full delegation in the Chinese information technology industry. Apple's upcoming strategy may consist on reducing both access prices, although the side whose demand is more price sensitive should have a greater price reduction. Alternatively, improving the content quality may constitute Apple's corporate strategy, thereby inducing a skimming pricing strategy on Chinese rivals.     

Optimal dynamic pricing for sports games with habitual attendance

This paper provides a theoretical analysis of the optimal pricing decisions of a sports team that maximizes lifetime profits in sports markets where game attendance is habit‐forming for sports fans. The long‐run equilibrium price and attendance level are found to be greater than the counterparts of the static framework, respectively. The infinite horizon model shows that the pricing strategy of the firm brings about an upward‐crossing of two different dynamic price paths where the price path with stronger habit formation initially stays below, catches up, and ultimately rises above the price path with weaker habit formation. It is worth noting that the upward‐crossing phenomenon is not fully understood in a finite‐period model. Copyright © 2008 John Wiley & Sons, Ltd.     

Partially overlapping time series: a new model for volatility dynamics in commodity futures

In commodity futures markets, contracts with various delivery dates trade simultaneously. Applied researchers typically discard the majority of the data and form a single time series by choosing only one price observation per day. This strategy precludes a full understanding of these markets and can induce complicated nonlinear dynamics in the data. In this paper, I introduce the partially overlapping time series (POTS) model to model jointly all traded contracts. The POTS model incorporates time‐to‐delivery, storability, seasonality and GARCH effects. I apply the POTS model to corn futures at the Chicago Board of Trade and the results uncover substantial inefficiency associated with delivery on corn futures. The results also support two theories of commodity pricing: the theory of storage and the Samuelson effect. Copyright © 2005 John Wiley & Sons, Ltd.     

Price discrimination and the emergence of secondary markets

A frequently used explanations for the emergence of secondary markets for live entertainment and the ability of resellers to charge a markup over face‐value prices is that promoters do not price discriminate optimally. We test this hypothesis empirically, using instrumental variables techniques on a sample of 45 popular music concerts and find that secondary market markups are not caused by the level of price discrimination used by promoters on primary markets. The experience and success of the artist drive both primary market pricing and secondary market markups, which are consistent with theories of social influence and pricing of complementary products.     

Pricing strategy in the product and service market

Existing studies have mainly focused on pricing in either primary markets or aftermarkets. However, in practice, prices in primary markets and aftermarkets are closely correlated. This study examines the joint pricing strategy in both primary markets and aftermarkets based on customer utility and establishes a pricing model for profit-maximization firms. Our results show that overpricing in the aftermarket is caused by customer myopia, while the motivation of the firm to avoid customer myopia depends on its pricing strategy. A quantity–price contract in the aftermarket is designed to raise the firm’s profit.     

Pricing goods for retailers: A new approach

In the retail sector, pricing goods is usually based on practitioner's experiences. Most of the time, the selling price is obtained by multiplying the buying price by an exogenous multiplier. However, There is no particular scientific procedure to determine such a multiplier except from the Lerner index, which is applicable only if the price elasticity of demand is inferior to −1. This paper generalizes the Lerner index to both elastic and inelastic goods by proposing an original model to determine the optimal markup for both static and intertemporal markets no matter what the price elasticity is. Finally, the paper considers the case of the social planner.     

Asset pricing for inefficient markets: Evidence from China and India

Over last four decades, evidence of market inefficiencies has been widely documented by several scholars for all major stock markets in the globe. Chinese and Indian markets are not exempt. Inefficiencies in these markets are described by many authors as roots of all mispricing. Mispricing might be the outcome of application of familiar asset pricing models which may mislead an investor into adopting inappropriate policies for his new investments or for reallocating his old investments. In an alternative approach, we propose a transformation on original market returns in the objective of relaxing the strong assumption of market efficiency behind application of an asset pricing model. This modification will widen the scope of rational models on asset pricing ranging from an efficient to an inefficient market.     

Has the November Effect Replaced the January Effect in Stock Markets?

Results of previous studies support the November effect of the 1986 Tax Reform Act (TRA) on certain stock portfolios. The rapid growth of mutual funds driven by the fundamental changes in the retirement benefit system in past decades may expand the seasonality from portfolios to stock markets and lead to a replacement of the January effect with the November effect in stock markets. Results of this study support the January effect in the large‐cap and small‐cap stock markets in the pre‐TRA period, although the January effect may share a large portion of co‐variation with the size effect. However, the November effect is independent of the size effect. Furthermore, a major shifting process of the January effect to the November effect occurs in both the large‐cap and small‐cap stock markets. The significant result of the November effect in the post‐TRA period questions the claim that fund managers are capable in mitigating potential price pressures. Copyright © 2011 John Wiley & Sons, Ltd.     

Old Wine in Private Equity Bottles? The Resurgence of Contract‐for‐Deed Home Sales in US Urban Neighborhoods

This article describes the reemergence, in the wake of the mortgage crisis, of a predatory financial practice in predominantly black neighborhoods in the US: the contract for deed (CFD). The CFD has a notorious urban history; it was a focus of social justice organizing in 1960s Chicago, which helped lay the groundwork for advocacy that culminated in two important laws in the US: the Home Mortgage Disclosure Act of 1975 and the Community Reinvestment Act of 1977. This article places the reemergence of the CFD in the post‐crisis cycle of housing investment and disinvestment, estimates the minimum scale of CFD ownership, and examines the geography of a well‐known CFD seller in the Atlanta area. As policymakers in the US took efforts to restrict predatory lending fueled by private‐label securitization following the subprime crisis, capital markets shifted toward private equity financiers who provided a new supply of lightly regulated capital for urban housing markets. Predominantly black neighborhoods became prey for high‐return schemes meant to extract as much cash flow out of vulnerable residents as possible, offering them the illusion of homeownership. The findings show that the CFD seller focused on black neighborhoods and suggests that its profits from this activity have been quite lucrative.     

A NOTE ON THE ‘GREAT CONTRACTION’

The modern literature on the US banking crisis in 1931 overlooks the key role played by ‘liquidity black holes’ and under‐pricing in the corporate and government bond markets resulting from the banking system's fire sale of assets. This process weakened the bank lending channel in a continuous feedback loop which was eventually checked by ‘money creation’ by the Federal Reserve. This note investigates the work of Evans Clark (1933 ) who highlighted the process of fire sales and mispricing of assets due to non‐fundamental causes.     

Paying Customers to Switch

This paper studies the business practice of offering discounts to new customers in markets with switching costs. In a two-period homogeneous-good duopoly model, it is shown that the equilibrium amount of discounts increases continuously in the expected switching costs of a typical consumer. In equilibrium, firms offer the same prices and discounts in a mature market even if they have different market shares, and the demands faced by these firms in a new market become more elastic. Firms are worse off engaging in the discriminatory pricing, while consumers need not necessarily benefit from it. There is costly equilibrium switching of consumers, which creates a dead-weight loss to the society.     

Fixed margin price undercutting: An adequate entry strategy in a market with switching costs?

Purpose We try to determine the best strategy for entering a market with switching costs that is initially served by a monopolistic incumbent. Findings We show that an offer to undercut the incumbent by a fixed margin (FM) dominates traditional entry with a binding price offer (BO) as this conditional pricing strategy restrains the ability of the incumbent to block entry by limit pricing. Combining FM with a price ceiling (PC) insures customers against future price increases and turns out to be optimal for markets with elastic demand as long as cost uncertainty is not an issue. Conclusion Using a more elaborate entry strategy may facilitate entry in markets with switching costs. However, as these strategies may decrease welfare, they should be closely monitored by antitrust authorities.     

A tax-based motive for the underpricing of initial public offerings

This paper presents a model of entrepreneurial wealth maximization for the pricing of initial public offerings (IPOs). It is an extension of one previously presented in the literature. The model shows that personal tax rates on ordinary income and capital gains may, in part, determine IPO pricing: an increase in the capital gains tax rate should lower the degree of underpricing. An empirical analysis of the effect of the Tax Reform Act of 1986, which raised the capital gains tax rate, shows that the average degree of underpricing did decrease as predicted, and that this occurs after controlling for other possible influences.     

Textual Analysis in Real Estate

This paper incorporates text data from MLS listings into a hedonic pricing model. We show that the comments section of the MLS, which is populated by real estate agents who arguably have the most local market knowledge and know what homebuyers value, provides information that improves the performance of both in‐sample and out‐of‐sample pricing estimates. Text is found to decrease pricing error by more than 25%. Information from text is incorporated into a linear model using a tokenization approach. By doing so, the implicit prices for various words and phrases are estimated. The estimation focuses on simultaneous variable selection and estimation for linear models in the presence of a large number of variables using a penalized regression. The LASSO procedure and variants are shown to outperform least‐squares in out‐of‐sample testing. Copyright © 2016 John Wiley & Sons, Ltd.     

基于分数布朗运动和跳过程的股本权证定价模型

考虑到金融市场中资产价格具有的记忆性和长期相关性,模型假设股本权证标的资产价格服从分数布朗运动过程;并考虑到市场存在不确定因素而引起的价格巨大的波动,在模型中又引入了一个跳过程。首先得出权证定价的一般公式,最后在考虑股本权证行权后产生的稀释效应,得出稀释调整后的股本权证定价公式,并将其延伸到支付红利情况下。     

EMPIRICAL STUDIES OF GASOLINE RETAILING: A GUIDE TO THE LITERATURE

Abstract This paper surveys the empirical literature on gasoline retailing, which has been growing rapidly over the last three decades, possibly in response to antitrust and regulatory concerns and increased availability of pricing data. Studies of both pricing and non‐price decision variables are considered. In general, it is found that crude oil prices are the primary driver of national price movements over time. However, market structure has been identified as playing a role in price dynamics, equilibrium selection and price differentials across markets and stations. The economic literature emphasizes the importance of heterogeneity across stations and coordination problems faced by retailers. Several directions for future work are suggested, including the development of theory and demand estimation using high‐frequency station level data.     

A Modelof Competitive Limit Pricing

This paper offers a new theory of limit pricing. Incumbents from different markets or regions "compete" against one another, with each attempting to price in a manner that deflects entry into the others' markets. An entrant is imperfectly informed as to the incumbents' respective investments in cost reduction and seeks to enter markets in which incumbents have high costs. In a focal equilibrium, the entrant uses a simple "comparison strategy," in which it enters only the highest-priced markets, and incumbents engage in limit-pricing behavior. The influence on pricing of the number of markets and the scope of entry is also reported. Throughout, the central feature of the analysis is that an incumbent's price affects its investment incentives, with lower prices being complementary to greater investment.     

Option pricing with discrete time jump processes

In this paper we propose new option pricing models based on class of models with jumps contained in the Lévy-type based models (NIG-Lévy, Schoutens, 2003, Merton-jump, Merton, 1976 and Duan based model, Duan et al., 2007). By combining these different classes of models with several volatility dynamics of the GARCH type, we aim at taking into account the dynamics of financial returns in a realistic way. The associated risk neutral dynamics of the time series models is obtained through two different specifications for the pricing kernel: we provide a characterization of the change in the probability measure using the Esscher transform and the Minimal Entropy Martingale Measure. We finally assess empirically the performance of this modelling approach, using a dataset of European options based on the S&P 500 and on the CAC 40 indices. Our results show that models involving jumps and a time varying volatility provide realistic pricing and hedging results for options with different kinds of time to maturities and moneyness. These results are supportive of the idea that a realistic time series model can provide realistic option prices making the approach developed here interesting to price options when option markets are illiquid or when such markets simply do not exist.     

Parametric pricing of higher order moments in S&P500 options

A general parametric framework based on the generalized Student t‐distribution is developed for pricing S&P500 options. Higher order moments in stock returns as well as time‐varying volatility are priced. An important computational advantage of the proposed framework over Monte Carlo‐based pricing methods is that options can be priced using one‐dimensional quadrature integration. The empirical application is based on S&P500 options traded on select days in April 1995, a total sample of over 100,000 observations. A range of performance criteria are used to evaluate the proposed model, as well as a number of alternative models. The empirical results show that pricing higher order moments and time‐varying volatility yields improvements in the pricing of options, as well as correcting the volatility skew associated with the Black–Scholes model. Copyright © 2004 John Wiley & Sons, Ltd.