Markup pricing in petroleum refining:: A multiproduct framework

This paper describes a structural model of markup pricing under joint production with quasi-fixed inputs of capital, labor, and inventories. The price–cost markups are functions of the inverse price elasticity of demand, an industry average conjectural variation elasticity, and the inventory to sales ratio. Our empirical findings suggest significant markups over marginal cost that differ considerably by product. This study also estimates the elasticities of markups with respect to supply and demand shocks.     

Matching Supply and Demand: The Value of a Second Chance in Producing Seed Corn

This paper analyzes the supply chain for hybrid seed corn in which there are two sequential production periods with random yields before demand occurs. We show that the problem of managing the supply chain can be viewed as a multiperiod optimization model that is easily solved. By examining data that represents actual costs, prices, and yields encountered in the seed corn industry, we gain some insight into the value that the second production period provides. Using a representative sample of hybrids from a major seed corn producer, we show that margins could be enhanced considerably by using the model.     

No End to the Racial Wage Hierarchy in South Africa?

The South African apartheid system formally ended with the election of the African National Congress at the first all-race elections held in 1994. As a result, racist policies such as color barring, that particularly hindered the advancement of black workers throughout the apartheid period, are no longer legal. Yet the legacy of apartheid may endure as a result of both the persistence of racial differences in human capital attributes and the possible continuation of discriminatory practices within employment. In this paper the authors examine the evolution of the racial wage hierarchy in the early post-apartheid era against the background of the long-term decline in racial wage disparities observed over the last years of the apartheid regime. They find evidence that the position of black workers between 1995 and 1997 actually deteriorated relative to the overall geometric mean wage, while that of colored, Asian, and white workers improved.     

Trade Reform in Indonesia, 1987–95

This paper quantifies Indonesian trade liberalisation between 1987 and 1995 as measured by changes in real effective rates of protection (RERP), i e effective rates of protection corrected for trade policy-induced changes in wages. The RERP for manufacturing, including oil refining, fell from 27% in 1987 to 11% in 1995, for manufacturing, excluding oil refining, the fall was from 59% to 16%, and for agriculture from 9% to 4% The standard deviation of RERPs for all tradeable sectors fell from 42 percentage points to 26; and for manufacturing, excluding oil refining, from 102 percentage points to 39.     

Selling to the moneyed masses

Over the past decade, the distribution of household incomes has shifted so much that a much larger proportion of consumers now earn significantly higher-than-average incomes--while still falling short of being truly rich. As a result, what used to be a no-man's-land for new product introductions has in many categories become an extremely profitable "new middle ground." How can marketers capitalize on this new territory? The key, say the authors, is to rethink the positioning and design of offerings and the ways they can be brought to market. Take, for instance, how Procter & Gamble redefined the positioning map for tooth-whitening solutions. A decade ago, dental centers were popularizing expensive bleaching techniques that put the price of a professionally brightened smile in the 400 dollars range. At the low end, consumers also had the choice of whitening toothpastes that cost anywhere from 2 dollars to 8 dollars. P&G wisely positioned itself between the two ends, successfully targeting the new mass market with its 35 dollars Whitestrips. In product categories where it's clear the middle ground has already been populated, it's important for companies to design or redesign offerings to compete. An example is the Polo shirt. How do you sell a man yet another one after he's bought every color he wants? Add some features, and call it a golf shirt. Here, marketers have introduced designs based on the concept of "occasional use" in order to stand out. Finally, companies wishing to reach the "almost rich" can change how they go to market. Perhaps no mass retailer has made a stronger bid for the mass affluent than Target Stores, which has pioneered a focus the company itself characterizes as upscale discount. The strategy has made Target an everyday shopping phenomenon among well-heeled urbanites and prosperous professionals.     

Non-binding sequential exchange between discounting agents

When exchange is sequential, and no binding agreements can be written, the agent acting first is exposed to the possibility that even if he honors the agreement his trading partner might not. Repeated interaction of this nature is modeled. Exchange will successfully occur when there are ample gains from trade for the second agent, implying that the first agent may be better off with less bargaining power. Thus, the first agent may want to bargain at less than his full ability in order to ensure that an otherwise unsuccessful transaction will successfully occur. Additionally, if the first agent can facilitate exchange by hiring an escrow service, he will do so when his bargaining advantage is sufficiently large.JEL subject classification C70, D40, L14     

Optimal learning and new technology bubbles

It is widely believed that there is a fundamental linkage between major technological innovations, speculative fever, and wasteful overinvestment. This paper presents an equilibrium model of investment in a new industry, whose return-to-scale is not known in advance. Overinvestment relative to the full-information case is then optimal as the most efficient way to learn about the new technology. Moreover, the initial overinvestment is accompanied by apparently inflated stock prices and apparently negative expected excess returns in the new industry, which are also fully rational. This suggests a new interpretation of what seems to be stock market driven real bubbles.