The impact of brand selection on price competition - a double-edged sword

Brand selection - the number of alternative brands of a particular product - is a double-edged sword in that on the one hand it increases rivalry and so stimulates price competition but on the other hand it causes consumers to be poorly informed and thus vulnerable to exploitation and so dampens price competition. This phenomenon is demonstrated analytically and empirically, with analytical work based on Hotelling's unit market line. Using price dispersion as a measure of the state of price competition, it is shown that a widening in price dispersion, that is, a lessening of price competition, arises from an increase in brand selection. Any increase in the number of alternative brands on offer (brand selection) causes an increase in ‘DIF-ness’ (Distortion in Information Function) which in turn causes an increase in price dispersion (a lessening of price competition). The phenomenon is demonstrated empirically through a small survey of household beverages.     

Purchase of Catastrophe Insurance by Dutch Dairy and Arable Farmers

This article analyzed the impact of risk perception, risk attitude, and other farmer personal and farm characteristics on the actual purchase of catastrophe insurance by Dutch dairy and arable farmers. The specific catastrophe insurance types considered were hail–fire–storm insurance for buildings, disability insurance, crop insurance against hail, storm, and brown rot, and insurance against epidemic animal disease outbreaks. The results suggested that risk perception was a significant variable that influenced purchase of catastrophe insurance by dairy and arable farmers, whereas risk attitude was significant only in arable farming.     

American option valuation: Implied calibration of GARCH pricing models

This study analyzes the issue of American option valuation when the underlying exhibits a GARCH‐type volatility process. We propose the usage of Rubinstein's Edgeworth binomial tree (EBT) in contrast to simulation‐based methods being considered in previous studies. The EBT‐based valuation approach makes an implied calibration of the pricing model feasible. By empirically analyzing the pricing performance of American index and equity options, we illustrate the superiority of the proposed approach. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark     

Budget Determination for Highly Advertised Brands

This paper looks at how managers can utilize basic statistical methods to obtain an estimate of the profitability of additional expenditure in markets where advertising is the major promotional tool. An important distinction is made and estimated between the short- and long-run payoff of advertising. The methodology is illustrated for a major brand of alcoholic drinks.     

Stock Market Capitalism vs. Welfare Capitalism

This is the first in what we hope will be a new series of debates on important themes in political economy. Ronald Dore has long been known for his pioneering work on the Japanese economy and his contribution to the debate on different models and varieties of capitalism. He has recently published a major reappraisal and restatement of his approach, Stock Market Capitalism: Welfare Capitalism‐Japan and Germany vs. the Anglo-Saxons. In this book he focuses in particular on the challenges to the Japanese model in the 1990s, and the pressures for it to change. We invited him to summarise the argument of his book, and then asked three commentators, Gregory Jackson, Yutaka Kosai and Franz Waldenberger, to respond.     

Competitive politics, simplified heuristics, and preferences for public goods

This paper examines the role of simplified heuristics in the formation of preferences for public goods. Political scientists have suggested that voters use simplified heuristics based on the positions of familiar parties to infer how a proposed policy will affect them and to cast a vote in line with their interests and values. Here, we use a two-stage field-survey experiment to investigate how knowledge of party positions affects policy choices. We followed standard procedures in developing an attribute-based choice experiment on alternative land-use policies in Switzerland. In contrast to the usual formulation, however, the hypothetical costs of the proposed policies were formulated as a percentage change in taxes. The benefit of this formulation relative to the usual absolute money amounts is that the credibility of the (hypothetical) costs for respondents does not depend on respondent income. Furthermore, the formulation allowed us to solicit party positions on the proposed policies. Six out of eight contacted parties provided their positions. We then conducted a split-sample mail survey where we included a table of the party positions with a subsample of the questionnaires. We report six main experimental results. (1) The response rate of the survey was unaffected by the party positions. (2) The proportion of no-choice answers was decreased by forty percent relative to the control. (3) The party information significantly affected the choices directly and in interaction with respondents' general attitudes towards public spending for nature and landscape conservation and thus affected the way how individuals mapped from general attitudes to preferences for specific policies. (4) The information interacted with educational level in only eight out of forty choice sets, suggesting that even the more educated relied on simplified heuristics. (5) Respondents who knew the party positions were more sensitive to the tax attribute. (6) For respondents with medium and higher tax bills, the resulting willingness-to-pay estimates were decreased by a factor of two to ten relative to the control. These findings suggest that the party information helped the respondents to articulate more consistent preferences than in the treatment without the party information.     

Geography, skills or both: What explains Fed watchers’ forecast accuracy of US monetary policy?

The paper shows that there is a substantial degree of heterogeneity in the ability of Fed watchers to forecast US monetary policy decisions. Based on a novel database for 268 individual professional forecasters since 1999, the average absolute forecast error of FOMC decisions varies 5–10 basis points between the best and worst-performers across the sample. This heterogeneity is found to be related to both the skills of analysts – such as their educational and employment backgrounds – and to geography. In particular, forecasters located in regions which experience more idiosyncratic economic conditions perform worse in anticipating monetary policy. This evidence is indicative that limited attention and heterogeneous priors are present even for anticipating important events such as monetary policy decisions.     

Intrahousehold Welfare in Rural Ethiopia*

We examine the relationship between bargaining power and intrahousehold welfare in rural Ethiopia. The relative nutrition of spouses is associated with differences in cognitive ability, independent income and asset devolution upon divorce. Female empowerment benefits child nutrition and education. Spouses’ health, leisure and consumption of assignable goods show no association with differences in bargaining power. The relative nutrition and health of spouses varies across villages, but not in ways predicted by anthropological accounts of female empowerment. Bargaining variables may be weakly associated with intrahousehold welfare because surveyed households are poor and have little room for disagreement over consumption.     

Search, mismatch and unemployment

This paper explores the efficiency of the equilibrium allocation in a matching model with heterogeneous workers and jobs. In the basic setup there are two types of workers with different skill levels. Both types can perform the simple tasks of unskilled jobs, while the complex tasks of skilled jobs require a high-ability worker. We demonstrate that the equilibrium outcome with random search and ex-post bargaining is never efficient. Under the Hosios condition, the average wage is correct, but bargaining compresses the wage distribution relative to workers’ shadow values. This feature distorts the relative profits of jobs, making it too attractive for firms to create skilled jobs. Furthermore, due to the low-skill premium, the high-ability workers may accept too many jobs. Finally, in an extension, we show that the introduction of separate markets for the two types of jobs is not sufficient to guarantee efficiency.