Fairness in consumer pricing

Two case studies illustrate problems of fairness in consumer pricing. The May D&F case involves charges of deceptive advertising as a result of the retailer's high-low pricing; customers were allegedly deceived by artificially inflated regular prices and discounts promoted from these prices. The GDC case involves charges that 10,000 consumers were deceived into purchasing homes at prices higher than fair market value. Consumer policy and managerial issues are identified and analysis and recommendations provided. These cases are about fairness and trust within market exchange, and the responsibilities of sellers and consumers to provide and use information. Economic assumptions of nonfairness and caveat emptor are shown to be inadequate. The position that a fair price is the market price is questioned and an alternative suggested. Remedies which might be adopted by companies and pursued by policymakers are proposed. By creating more realistic consumer expectations, they would reduce problems of fairness in pricing.

---

Fairneß bei der Festsetzung von Konsumgüterpreisen

Zusammenfassung Gegenstand des Beitrages ist die Frage, ob Fairneß bei der Preisgestaltung eine ökonomisch angemessene Forderung ist, und die Frage, worin diese Fairneß eigentlich besteht. Als empirischer Hintergrund werden zunächst zwei US-amerikanische Fallstudien präsentiert, die die Schwierigkeiten der genaueren Bestimmung von Fairneß bei der Preisbildung in konkreten Fällen illustrieren. Im ersten Fall wurde einem Einzelhandelsunternehmen vorgeworfen, irreführende Werbung insofern betrieben zu haben, als mit Preisabschlägen von künstlich aufgeblähten regulären Preisen geworben wurde. Eine Gerichtsentscheidung fand dieses Verhalten nicht nur täuschend, sondern verlangte von dem Unternehmen auch die Offenlegung seiner Preisfestsetzungs-Methoden. Der Beitrag zeigt, daß diese Forderung nach Offenlegung unter verbraucherpolitischem Blickwinkel eine suboptimale Lösung ist.Im zweiten Fall wurde einer Immobiliengesellschaft vorgeworfen, in Florida 10,000 Konsumenten zu Kaufverträgen für Wohneigentum gebracht zu haben zu Preisen, denen vorgebliche Schätzwerte zugrundelagen, die 20% über dem eigentlichen Marktwert lagen. Die Käufer kamen überwiegend aus anderen amerikanischen Staaten und waren mit dem lokalen Immobilienmarkt nicht vertraut. Der Fall (und seine rechtliche Behandlung) weist deutlich auf ethische und rechtliche Probleme hin, denen Verantwortliche ausgesetzt sind, wenn sie Preise festsetzen.Die weiteren Folgerungen gehen über den Bereich des Einzelhandels und der Immobilienbranche hinaus. Bei beiden Fällen geht es um Fairneß allgemein und um Vertrauensschutz bei Kaufverträgen, sowie um die Verantwortlichkeiten des Verkäufers bei der Versorgung des Käufers mit Information und die des Käufers zur Aufnahme und Nutzung dieser Informationen. In Übereinstimmung mit sozioökonomischen Positionen wird dargelegt, daß Fairneß bei der Preisfestsetzung von beiden Marktparteien ein offenes und ehrliches Verhalten bei der Verständigung über den Preis verlangt, zu dem der Tausch stattfinden soll. Die Analyse stellt die traditionelle ökonomische Annahme in Frage, nach der der Marktpreis, den die Nachfrager freiwillig zahlen, ein fairer Preis sei. Diese Position ist insbesondere bei Vorliegen von Täuschung unbefriedigend. Das Prinzip caveat emptor stellt sich nicht nur in den Fallstudien als unzweckmäßig heraus, sondern allgemein dort, wo es begrenzte Suchaktivitäten und begrenzte Preisvergleiche durch Konsumenten gibt. Als empirisch gestützte Erklärungen für solche Begrenzungen werden genannt: Das Entscheidungsverhalten von Konsumenten ist häufig durch Anspruchsanpassung, Vereinfachung und Bequemlichkeit gekennzeichnet, zweitens sind Preisvergleiche schwierig, wenn die Informationen unzweckmäßig, unvollständig oder irreführend sind, und drittens vertrauen Konsumenten häufig den Aussagen der Verkäufer.Überhöhte Preise sollten nicht kriminalisiert werden — das wäre ökonomisch disfunktional. Konsumenten sind die besten Kenner ihrer Präferenzen und ihrer Nutzenvorstellungen. Jedoch sollten Anbieter bereit sein, freiwillig Principien der fairen Preisgestaltung zu befolgen, und die Verbraucherpolitik sollte sie in dieser Bereitschaft bestärken. Wenn es gelänge, die Verbrauchererwartungen an Produkte realistischer zu gestalten, würde sich das Problem mangelnder Fairneß bei der Preisgestaltung ohnehin reduzieren.

---

---

Patrick J. Kaufmann is an Associate Professor at the College of Business Administration at Georgia State University, Atlanta, GA, USA. Gwen Ortmeyer is an Assistant Professor at the Graduate School of Business Administration, Harvard University, Boston, MA, USA. N. Craig Smith, to whom correspondence should be addressed, is a Visiting Associate Professor at the School of Business Administration at Georgetown University, Washington DC 20057, USA.     

Quote-based competition and trade execution costs in NYSE-listed stocks

This study examines quotations, order routing, and trade execution costs for seven markets that compete for orders in large-capitalization NYSE-listed stocks. The competitiveness of quote updates from each market varies with measures of the profitability of attracting additional order and with volatility and inventory measures. The probability of a trade executing on each market increases when the market posts competitive quotes. Execution costs for non-NYSE trades when the local market posts competitive (non-competitive) quotes are virtually the same (substantially exceed) costs for matched NYSE trades. Collectively, these results imply a significant degree of quote-based competition for order flow and are consistent with off-NYSE liquidity providers using competitive quotations to signal when they are prepared to give better-than-normal trade executions.     

4D cadastres: First analysis of legal,organizational, and technical impact—With a case study on utility networks

The increasing complexity and flexibility of modern land use requires that cadastres need an improved capacity to manage the third dimension. As the world is per definition not static, there also will be needs in relation to the representation of the temporal (fourth) dimension either integrated with the spatial dimensions or as separate attribute(s). In this paper, registration of utility networks in cadastre are considered in this 3D + time (=4D) context. A number of countries in the world have developed methods to register utility networks complying with their legal, organizational, and technical structure. We researched the different approaches of three specific countries: Turkey, The Netherlands and Queensland, Australia. These are analysed to evaluate a solution that matches legal, organizational, and technical cadastral requirements in the most optimal way.     

The relative impact of actual and potential rivalry on firm profitability in the pharmaceutical industry

This paper estimates the effects of actual and potential rivalry on profitability of firms in the U.S. pharmaceutical industry during the 20‐year period 1963–82. The results show that during the 1960s actual rivalry among the sampled firms did not materially affect firm profitability, but that during the 1970s competition among incumbents had an increasingly adverse effect on their profitability. The results also show that potential competition significantly reduced drug firms’ profitability during the entire 20‐year period. Copyright © 1999 John Wiley & Sons, Ltd.     

Interest Rate Risk Rewards in Stock Returns of Financial Corporations: Evidence from Germany

The interest rate sensitivity of stock returns of financial and non-financial corporations is a well-known phenomenon. However, only little is known about the part of total stock returns that is attributable to the compensation an investor receives for being exposed to interest rate risk when investing in equity securities. We pursue here a benchmark portfolio approach, constructing benchmark portfolios having the same interest rate risk exposure as a particular stock. By studying the time series of returns of these asset-specific benchmarks, we find: i) Regardless of the industry considered, the interest rate risk benchmarks of German corporations have mostly earned a significantly positive reward. ii) Returns of interest rate risk benchmarks of financial institutions exceeded significantly those of non-financial corporations. iii) An investor willing to bear nothing but the average interest rate risk of German financial institutions would have earned a mean return of about or even exceeding 70% of the corresponding total stock returns. iv) Returns of the interest rate risk benchmarks of the German insurance sector were significantly higher than those of German banks, which seems to contradict conventional market wisdom that insurances hedge interest rate risks.     

Consumption tax competition among governments: Evidence from the United States

The paper contributes to a small but growing literature that estimates tax reaction functions of governments competing with other governments. We analyze consumption tax competition between US states, employing a panel of state-level data for 1977–2003. More specifically, we study the impact of a state’s spatial characteristics (i.e., its size, geographic position, and border length) on the strategic interaction with its neighbors. For this purpose, we calculate for each state an average effective consumption tax rate, which covers both sales and excise taxes. In addition, we pay attention to dynamics by including lagged dependent variables in the tax reaction function. We find overwhelming evidence for strategic interaction among state governments, but only partial support for the effect of spatial characteristics on tax setting. Tax competition seems to have lessened in the 1990s compared to the early 1980s.     

Management accounting as normal social science

The publication of “Management accounting change: Approaches and perspectives” (Wickramasinghe, D., & Alawattage, C. (2007). Management accounting change: Approaches and perspectives. London, New York: Routledge) provides an occasion for considering the extent to which management accounting has become a normal social science. This review essay argues that management accounting is a social science defined by a pluralism of approaches, and it identifies the generalization of social perspectives on management accounting, and particularly their ability to transcend technical and economic aspects of accounting practice, as crucial components in reproducing this specific form of expertise. Contrary to Kuhnian expectations, this social science hosts a multiplicity of paradigms, and its scientists are not exclusively concerned with the subtlest and most esoteric aspects of the phenomena under study. Instead, as social scientists management accountants are generalists as much as they are specialists.     

Hidden liquidity: An analysis of order exposure strategies in electronic stock markets

Many stock exchanges choose to reduce market transparency by allowing traders to hide some or all of their order size. We study the costs and benefits of order exposure and test hypotheses regarding hidden order usage using a sample of Euronext-Paris stocks, where hidden orders represent 44% of the sample order volume. Our results support the hypothesis that hidden orders are associated with a decreased probability of full execution and increased average time to completion, and fail to support the alternate hypothesis that order exposure causes defensive traders to withdraw from the market. However, exposing rather than hiding order size increases average execution costs. We assess the extent to which non-displayed size is truly hidden and document that the presence and magnitude of hidden orders can be predicted to a significant, but imperfect, degree based on observable order attributes, firm characteristics, and market conditions. Overall, the results indicate that the option to hide order size is valuable, in particular, to patient traders.     

Interest rate risk of German financial institutions: the impact of level,slope, and curvature of the term structure

We investigate here the sensitivity of the equity values of a large sample of German financial institutions to movements in the term structure of interest rates. While similar approaches rely on a single interest rate factor only, we quantify the exposure to changes in level, slope, and curvature, which are the driving factors of term structure changes. Our main findings are: (i) banks and insurances are exposed to level and curvature changes but only marginally to slope movements; (ii) the interest rate risk exposure depends on the banking sector investigated; (iii) level and curvature changes are priced in the cross-section of stock returns.