When does tiered wholesale pricing create an incentive to reduce retail prices?

Wholesale ‘ladder pricing’ involves setting the wholesale price retailers face as a nonlinear (generally increasing) function of price chosen by retailers. This form of wholesale pricing occurred recently in UK Telecoms, and the issue became extensively debated in the law courts. A major concern in deciding the merits of the case lay with the question of whether or not the introduction of tiered wholesale pricing created incentives for retailers to actually reduce their prices. This paper examines the incentive for the case where the wholesale tariff is a non-linear continuous differentiable function. It is shown that so long as the tariff is strictly increasing, convex, and positive only for retail prices greater than the maximum retailer marginal cost, then there is indeed an incentive to reduce price, whatever the actual gradient of the tariff schedule.     

Downstream gas pricing in an era of upstream deregulation

State public service commission regulation of gas utility pricing is examined during the period of wellhead price deregulation. A model which incorporates asymmetry in price setting during a period of changing input costs is estimated. Statistical analyses suggest public service commission regulation slowed the increase in gas utility prices during periods of rising costs. Gas utility pricing was not monitored as closely when purchased gas prices fell, thereby altering the rate structure in favor of industrial customers. Federal Energy Regulatory Commission policies designed to promote competition by restructuring the transmission sector of the gas industry after 1985 appear to have suppressed retail prices in industrial markets.     

Does asymmetry in price transmission exist in the rice market in Sri Lanka?

This study analyses asymmetry in price transmission between wholesale and retail rice markets in Sri Lanka, using the threshold autoregressive model. We found that the wholesale and the retail rice markets in Sri Lanka are integrated, with price changes moving from the wholesale to the retail market. However, the price transmission process is asymmetric. In particular, price increases at the wholesale market transmit immediately to the retail market while price decreases transmit more slowly. Parameter stability test and follow-up analysis indicated that the price transmission process is asymmetric only during periods of price surges, suggesting that the rice market is not efficient during these periods.     

Optimal Time-of-use Access Charges

This paper examines the setting of optimal time-of-use access charges in a deregulated network industry environment. Firms, which may include the incumbent, compete in the final retail market. The regulator sets an access fee for use of the essential facility, allowing the incumbent to recover fixed costs. If the retail market is perfectly competitive the optimal access charge varies with time-of-use according to the Ramsey–Boiteux elasticity rule. However, with downstream market power the regulator needs to correct retail price distortion, as well as recover fixed costs efficiently. As a result, the regulators initial impulse to set higher access charges during peak periods may be reinforced, moderated or even reversed — and optimal access charges diverge from a Ramsey–Boiteux pattern.I would like to thank John Panzar and Julian Wright for helpful comments. The helpful and detailed remarks of an anonymous referee have greatly improved this paper and are gratefully acknowledged.     

碳交易及补贴机制下供应链差别定价研究

研究了碳交易机制、补贴机制以及碳交易及补贴机制下,一个二级供应链中普通产品和低碳产品竞争的差别定价策略,通过求解Stackelberg博弈模型得出单一的补贴政策并不能激励制造商进行节能减排,应与碳交易机制结合使用,其节能减排效果优于单一的碳交易机制。最后通过一个算例分析验证了碳交易及补贴机制的有效性。研究表明：碳交易价格升高到一定程度时,普通产品的零售价批发价均升高,低碳产品的价格均下降,普通产品的销量下降,低碳产品销量上升,碳排放总量下降;随着低碳补贴的增加,普通产品的零售价,低碳产品的批发价、零售价均降低,普通产品的销量下降,低碳产品的销量上升,其中低碳产品的价格和需求量对低碳补贴的反应更加敏感,使碳排放量降低的同时还提高了制造商和零售商的利润。     

An assessment of mortgage interest inflation measurement bias in the UK

This article recognizes the highly differentiated nature of UK mortgages. Applying hedonic pricing models in the generation of interest quality adjusted indices this study would suggest the need for a 0.24 percentage point increase in the retail price index (RPI) (which, at an average RPI of 3%, represents a measurement error of 9%). Moreover, this study finds that lenders tend to restrain increases in observable initial interest rates, but more than recoup this restraint through quality adjustments. These findings question the practice of removing mortgage interest repayments from macroeconomic inflationary target measures. This indicates the need to recognize the indirect inflationary impact of base rate rises on the price of highly differentiated debt based products.     

风险规避对闭环供应链决策的影响

构建了3种不同回收渠道(制造商回收、零售商回收和第三方回收商回收)下的闭环供应链模型,以制造商为Stackelber领导者,分析了分散化决策下的3种最优决策模型,考察了闭环供应链各参与方的风险规避程度对其定价决策和期望利润的影响,并借助数值分析对求解结果进行了验证。研究结果表明:随着风险规避程度的增大,零售商趋向于降低零售价格,回收方趋向于提高回收价格;在其他因素不变的情况下,闭环供应链各参与方的风险规避程度增大往往会导致其期望利润减少。     

Pricing inputs to induce efficient Make-or-Buy decisions

We investigate input pricing regimes that induce efficient Make-or-Buy decisions by entrants when there is constant returns in the production of the input(s) and simultaneous noncooperative price competition in downstream retail markets. Necessary and sufficient conditions for efficient Make-or-Buy decisions are derived. The necessary condition shows that input prices are relevant for Make-or-Buy decisions except under restrictive and often unverifiable assumptions on the demand structure, and that the least informationally-demanding way to ensure efficient Make-or-Buy decisions is to price inputs at marginal cost provided changes in the entrant’s cost have a “normal” effect on the entrant’s profit. The conditions also show that pricing the incumbent’s input at the entrant’s marginal cost always ensures efficient Make- or-Buy decisions. The extent to which input prices can depart from marginal cost while still inducing efficient Make-or-Buy decisions increases with the efficiency differential between the incumbent and entrant and with the demand displacement ratio.      

参考价格影响下的两阶段回报型众筹定价策略研究

在众筹发起过程中,策略型消费者将对比众筹价格与零售价格,选择最优购买时机。基于此背景,构建了参考价格效应影响下的两阶段众筹定价模型,设计了众筹发起人的两阶段动态定价策略。发起人根据消费者的耐心程度和参考价格效应强度,选择是否公布零售价格,以及溢价或降价销售。利用理性预期均衡理论和逆向归纳法,得到了发起人与消费者博弈的均衡价格和最优发起策略。结论表明,发起人的策略选择并非单一的,同时受到消费者耐心程度和参考价格效应强度的影响。为众筹发起人的两阶段价格决策提供了理论参考和管理学建议。     

Rethinking real-time electricity pricing

Most US consumers are charged a near-constant retail price for electricity, despite substantial hourly variation in the wholesale market price. This paper evaluates the first program to expose residential consumers to hourly real-time pricing (RTP). I find that enrolled households are statistically significantly price elastic and that consumers responded by conserving energy during peak hours, but remarkably did not increase average consumption during off-peak times. The program increased consumer surplus by $10 per household per year. While this is only one to two percent of electricity costs, it illustrates a potential additional benefit from investment in retail Smart Grid applications, including the advanced electricity meters required to observe a household’s hourly consumption.     

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.     

Privately-Negotiated Input Prices

We examine settings where input prices are negotiated by industry suppliers, rather than dictated by regulators. We find that the input buyer may agree to pay a high price for an input because the high price serves to reduce the intensity of retail price competition with the input seller. Full exploitation of retail customers can result. However, retail price regulation, competition among buyers, and product heterogeneity all can limit the extraction of consumer surplus. We also identify conditions under which input price negotiations will fail to produce a mutually agreeable input price.We thank Dennis Weisman and two anonymous referees for very helpful commentsJEL classification: L43, L51, L22     

The Determinants of Sticky Prices and Sticky Plans: Evidence from German Business Survey Data

So far, there is no consensus on the price adjustment determinants in the empirical literature. Analyzing a novel firm‐level business survey data set, we provide new insights on the price setting behavior of German retailers during a low inflation period. Relating the probability of both price and pricing plan adjustment to time‐ and state‐dependent variables, we find that state‐dependence is important; the macroeconomic environment as well as the firm‐specific condition significantly determines the timing of both actual price changes and pricing plan adjustments. Moreover, input cost changes are important determinants of price setting. Finally, price increases respond more strongly to cost shocks compared to price decreases.     

DEMAND UNCERTAINTY AND RESALE PRICE MAINTENANCE

When retailers must commit to shipment quantities prior to resolution of demand uncertainty, manufacturer stipulation of a minimum retail price is likely to be profitable for the manufacturer and not damaging to the retailers. The reason is simple: if demand turns out to be low, the unfettered market-clearing price can lie below the price that maximizes total sales revenue. A minimum retail price that is binding in the low-demand state can thus increase total revenue even though it saddles retailers with unsold merchandise. The ubiquity of full reimbursement for returns in Japan, even though it is in theory merely a second-best way of achieving minimum retail price stipulations, reveals important aspects of manufacturer maintenance of retail prices having to do with enforcement problems, the allocation of risk-bearing, and economic incentives. These aspects of resale price maintenance (RPM) are relevant to the normative evaluation of the special exemptions for RPM that Japan's Fair Trade Commission has long maintained but is now phasing out.     

Inverse probability weighting to control for censoring in a post hoc analysis of quality-adjusted survival data from a clinical trial of temsirolimus for renal cell carcinoma

Abstract

Objectives: The Belgian third-party payer wishes to set reimbursement tariffs at a level that reflects the costs of orthotic braces. This article aims to calculate production and distribution costs of a prefabricated hard neck and knee brace and to explore whether Belgian tariffs and actual retail prices correspond with estimated costs of these two braces.

Methods: The cost model considered manufacturing costs, general overheads, research and development costs, warehousing costs, profit and distribution margins. Data were gathered from manufacturers, a production site visit, desk research, a decomposition of finished products and stakeholder interviews. The price year was 2007.

Results: The cost model estimated a retail price of €55–€150 for the neck brace, depending on assumptions. The estimated retail price for the neck brace was lower than the reimbursement tariff of €194 and the actual retail price of €241. The estimated retail price of €331–€694 for the knee brace was lower than the actual retail price of €948.

Conclusions: Actual retail prices and reimbursement tariffs for a neck brace and a knee brace exceeded prices based on estimated costs. Therefore, there appears to be scope for reducing tariffs.     

解析中国农产品价格的非对称性与刚性——基于空间竞争模型和菜单成本理论的微观阐释

2007年以来,我国农产品价格经历了多轮大幅度的上涨和回落,而在此过程中,农产品零售价格却形成了有别于批发价格的独立走势,表现出显著的非对称性和刚性特征,影响了政府价格调控政策的实施效果。本文拟通过创造性地引入空间竞争模型和菜单成本理论,合理解释这一中观和宏观价格现象的微观基础和深层原因,为政府当前的价格调控和未来的价格管理体制改革开拓新的政策视角。     

Analysis of the optimal spatial distribution of natural gas under ‘transition from coal to gas’ in China

China has been attempting to realise green sustainable economic development. Thus, China has proposed and begun to implement the ‘switching from coal to gas’ policy to realise the energy structure transition but neglected to consider seasonal natural gas demand fluctuations, gas supply shortages, the backward gas transportation and storage infrastructure. This paper constructs a model of China’s natural gas distribution system by incorporating these four factors: ① supply factors including domestic natural gas fields, liquid natural gas receiving stations, internationally piped gas sources, ② demand factors including domestic regional demands, ③ real natural gas transportation pipeline systems in the country, and ④ the pricing mechanism of natural gas. Optimal spatial natural gas distribution with maximum social welfare under the three conditions are simulated, respectively: the ① fixed price system, ② market pricing mechanism, and ③ seasonal fluctuations. The simulation results indicate substantial changes would occur in China’s natural gas system during the switch from coal to gas, and the natural gas infrastructure requires further improvement. This paper also provides references for the natural gas storage facility location selection in China.     

Structural breaks,cointegration and the farm-retail price spread for lamb

This paper examines the farm—retail price spread for lamb from monthly UK data for 1979–1993. Using cointegration, it examines seasonal patterns in producer and retail prices and seeks to identify a long-run relationship between them. Results show that a long-run relationship exists, and that the direction of Granger-causality is from retail to producer prices. Lamb prices are therefore set in the retail market. Results also show that there is a structural break in the relationship in January 1990 when the price increases; this coincides exactly with a change in policy.     

Pricing Access to a Monopoly Input

What price should downstream entrants pay a vertically integrated incumbent monopoly for use of its assets? Courts, legislators, and regulators have at times mandated that incumbent monopolies lease assets required for the production of a retail service to entrants in efforts to increase the competitiveness of retail markets. This paper compares two rules for pricing such monopoly inputs: marginal cost pricing (MCP) and generalized efficient component pricing rule (GECPR). The GECPR is not a fixed price, but is a rule that determines the input price to be paid by the entrant from the entrant's retail price. Comparing the retail market equilibrium under MCP and GECPR, the GECPR leads to lower equilibrium retail prices. If the incumbent is less efficient than the entrant, the GECPR also leads to lower production costs than does the MCP rule. If the incumbent is more efficient than the entrant, however, conditions may exist in which MCP leads to lower production costs than does the GECPR. The analysis is carried out assuming either Bertrand competition, quantity competition, or monopolistic competition between the incumbent and entrant in the downstream market.